EN BANC centum of their gross receipts . . .".
It has been held that the liability for
G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
Office of the Solicitor General for petitioner.
V. Jaime and L. E. Petilla for respondent.
PAREDES, J.:
This is a petition to review the decision of the Court of Tax Appeals,
reversing the decision of the Collector of Internal Revenue, assessing against
and demanding from the "Club Filipino, Inc. de Cebu", the sum of
P12,068.84 as fixed and percentage taxes, surcharge and compromise
penalty, allegedly due from it as a keeper of bar and restaurant.
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu,"
(Club, for short), is a civic corporation organized under the laws of the
Philippines with an original authorized capital stock of P22,000.00, which
was subsequently increased to P200,000.00, among others, to it
"proporcionar, operar, y mantener un campo de golf, tenis, gimnesio
(gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda
clase de juegos no prohibidos por leyes generales y ordenanzas generales; y
desarollar y cultivar deportes de toda clase y denominacion cualquiera para
el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2,
Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the
articles or by-laws is there a provision relative to dividends and their
distribution, although it is covenanted that upon its dissolution, the Club's
remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).
The Club owns and operates a club house, a bowling alley, a golf course (on
a lot leased from the government), and a bar-restaurant where it sells wines
and liquors, soft drinks, meals and short orders to its members and their
guests. The bar-restaurant was a necessary incident to the operation of the
club and its golf-course. The club is operated mainly with funds derived
from membership fees and dues. Whatever profits it had, were used to
defray its overhead expenses and to improve its golf-course. In 1951. as a
result of a capital surplus, arising from the re-valuation of its real properties,
the value or price of which increased, the Club declared stock dividends; but
no actual cash dividends were distributed to the stockholders. In 1952, a BIR
agent discovered that the Club has never paid percentage tax on the gross
receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7
licenses. In a letter dated December 22, 1852, the Collector of Internal
Revenue assessed against and demanded from the Club, the following sums:
— the business of operator of bar and restaurant. What is determinative of
As percentage tax on its gross receipts
during the tax years 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the cancellation of the
assessment. The request having been denied, the Club filed the instant
petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of
12,068.84, as fixed and percentage taxes and surcharges prescribed in
sections 182, 183 and 191 of the Tax Code, under which the assessment was
made, in connection with the operation of its bar and restaurant, during the
periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise
penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every
person engaging in a business on which the percentage tax is imposed shall
pay in full a fixed annual tax of ten pesos for each calendar year or fraction
thereof in which such person shall engage in said business." Section 183
provides in general that "the percentage taxes on business shall be payable
at the end of each calendar quarter in the amount lawfully due on the
business transacted during each quarter; etc." And section 191, same Tax
Code, provides "Percentage tax . . . Keepers of restaurants, refreshment
parlors and other eating places shall pay a tax three per centum, and
keepers of bar and cafes where wines or liquors are served five per
fixed and percentage taxes, as provided by these sections, does not ipso
facto attach by mere reason of the operation of a bar and restaurant. For
the liability to attach, the operator thereof must be engaged in the business
as a barkeeper and restaurateur. The plain and ordinary meaning
of business is restricted to activities or affairs where profit is the purpose or
livelihood is the motive, and the term business when used without
qualification, should be construed in its plain and ordinary meaning,
restricted to activities for profit or livelihood (The Coll. of Int. Rev. v. Manila
Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R.
No. L-11176, June 29, 1959, giving full definitions of the word "business";
Coll. of Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No.
L-12178, Aug. 21, 1959, the facts of which are similar to the ones at bar;
Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate
sports of all class and denomination, for the healthful recreation and
entertainment of its stockholders and members; that upon its dissolution,
its remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu; that it is operated mainly with funds derived
from membership fees and dues; that the Club's bar and restaurant catered
only to its members and their guests; that there was in fact no cash dividend
distribution to its stockholders and that whatever was derived on retail from
its bar and restaurant was used to defray its overall overhead expenses and
to improve its golf-course (cost-plus-expenses-basis), it stands to reason
that the Club is not engaged in the business of an operator of bar and
restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-making
enterprise. The bar and restaurant are necessary adjuncts of the Club to
foster its purposes and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating sports for the
healthful recreation and entertainment of the stockholders and members.
That a Club makes some profit, does not make it a profit-making Club. As
has been remarked a club should always strive, whenever possible, to have
surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L-6807,
May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-
9276, Oct. 23, 1956).1äwphï1.ñët
It is claimed that unlike the two cases just cited (supra), which are non-
stock, the appellee Club is a stock corporation. This is unmeritorious. The
facts that the capital stock of the respondent Club is divided into shares,
does not detract from the finding of the trial court that it is not engaged in
whether or not the Club is engaged in such business is its object or purpose,
as stated in its articles and by-laws. It is a familiar rule that the actual
purpose is not controlled by the corporate form or by the commercial
aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation. From the extrinsic
evidence adduced, the Tax Court concluded that the Club is not engaged in
the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied
with, to wit: (1) a capital stock divided into shares and (2) an authority to
distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the
case at bar, nowhere in its articles of incorporation or by-laws could be
found an authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot, therefore, be considered a stock corporation,
within the contemplation of the corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon
fraternal, civic, non-profit, nonstock organizations, unless the intent to the
contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra),
which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the
business as an operator of a bar and restaurant, and therefore, not liable for
fixed and percentage taxes, it follows that it is not liable for any penalty,
much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.
McArthur v. Times Printing Co. case brief
McArthur v. Times Printing Co. case brief summary
51 N.W. 216 (1892)
CASE SYNOPSIS
Defendant appealed a Hennepin County District Court (Minnesota) denial of
its request for a new trial on plaintiff's claims for damages for breach of an
employment contract.
CASE FACTS
Plaintiff alleged that defendant contracted with him for a period of one year
and that defendant discharged him in violation of its contract. Defendant
argued that plaintiff's employment was from week to week and that he was
discharged with good cause. Trial court found for plaintiff, as the evidence
showed that a promoter had made the contract on behalf of defendant
while defendant was contemplating organization of corporation. Evidence
further showed that after organization, defendant's board never took any
formal action with regards to the contract, but that all of its stockholders,
directors, and officers knew of the contract and they retained plaintiff
without implementing any new contracts. The defendant appealed the
decision.
DISCUSSION
The court affirmed judgment, holding that while defendant was not bound
by the contract made by its promoter before its organization, after its
organization, it made the contract on its own by acquiescing in plaintiff's
employment by retaining him without other contracts.
CONCLUSION
Denial of defendant's request for a new trial on plaintiff's claims of breach
of employment contract affirmed. Court held while defendant was not
bound by contracts made by promoters before organization of corporation;
after organization, it made the contract its own by acquiescing in plaintiff's
employment and retaining him without other contracts.
CAGAYAN FISHING DEVELOPMENT CO., INC., vs.TEODORO SANDIKO G.R.
No. 43350 December 23, 1937 Corporation, Incorporation, Promoters of
Corporation OCTOBER 14, 2017
FACTS:
Manuel Tabora is the registered owner of four parcels of land and he
wanted to build a Fishery. He loaned from PNB P8,000 and to guarantee the
payment of the loan, he mortgaged the said parcels of land. Three
subsequent mortgages were executed in favor of the same bank and to
Severina Buzon, whom Tabora is indebted to.
Tabora sold the four parcels of land to the plaintiff company, said to be
under process of incorporation, in consideration of one peso (P1) subject to
the mortgages in favor of PNB and Severina Buzon and, to the condition that
the certificate of title to said lands shall not be transferred to the name of
the plaintiff company until the latter has fully and completely paid Tabora’s
indebtedness to PNB.
The articles of incorporation were filed and the company sold the parcels of
land to Sandiko on the reciprocal obligation that Sandiko will shoulder the
three mortgages. A deed of sale executed before a notary public by the
terms of which the plaintiff sold, ceded and transferred to the defendant all
its rights, titles and interest in and to the four parcels of land.
He executed a promissory note that he shall be 25,300 after a year with
interest and on the promissory notes, the parcels were mortgage as
security.
A promissory note for P25,300 was drawn by the defendant in favor of the
plaintiff, payable after one year from the date thereof. Further, a deed of
mortgage executed before a notary public in accordance with which the
four parcels of land were given as security for the payment of the said
promissory note. All these three instruments were dated February 15, 1932.
Sandiko failed to pay, thus the action for payment. The lower court held
that deed of sale was invalid.
The corporation filed a motion for reconsideration.
ISSUE:
1.Whether Cagayan Fishing Dev’t. has juridical capacity to enter into the
contract.
2. Can promoters of a corporation act as agents of a corporation?
RULING:
1.
The transfer made by Tabora to the Cagayan Fishing Development Co., Inc.,
plaintiff herein, was effected on May 31, 1930 and the actual incorporation
of said company was effected later on October 22, 1930. In other words, the
transfer was made almost five months before the incorporation of the
company.
A duly organized corporation has the power to purchase and hold such real
property as the purposes for which such corporation was formed may
permit and for this purpose may enter into such contracts as may be
necessary. But before a corporation may be said to be lawfully organized,
many things have to be done. Among other things, the law requires the
filing of articles of incorporation. Although there is a presumption that all
the requirements of law have been complied with, in the case before us it
can not be denied that the plaintiff was not yet incorporated when it
entered into the contract of sale.
The contract itself referred to the plaintiff as “una sociedad en vias de
incorporacion.” It was not even a de facto corporation at the time. Not
being in legal existence then, it did not possess juridical capacity to enter
into the contract.
“Corporations are creatures of the law, and can only come into existence in
the manner prescribed by law. As has already been stated, general laws
authorizing the formation of corporations are general offers to any persons
who may bring themselves within their provisions; and if conditions
precedent are prescribed in the statute, or certain acts are required to be
done, they are terms of the offer, and must be complied with substantially
before legal corporate existence can be acquired.”
“That a corporation should have a full and complete organization and
existence as an entity before it can enter into any kind of a contract or
transact any business, would seem to be self evident. . . . A corporation,
until organized, has no being, franchises or faculties. Nor do those engaged
in bringing it into being have any power to bind it by contract, unless so
authorized by the charter. Until organized as authorized by the charter
there is not a corporation, nor does it possess franchises or faculties for it or
others to exercise, until it acquires a complete existence.”
2.
The contract here was entered into not only between Manuel Tabora and a
non-existent corporation but between Manuel Tabora as owner of four
parcels of land on the one hand and the same Manuel Tabora, his wife and
others, as mere promoters of a corporation on the other hand. For reasons
that are self-evident, these promoters could not have acted as agents for a
projected corporation since that which had no legal existence could have no
agent. A corporation, until organized, has no life and therefore no faculties.
It is, as it were, a child in ventre sa mere. This is not saying that under no
circumstances may the acts of promoters of a corporation be ratified by the
corporation if and when subsequently organized. There are, of course,
exceptions , but under the peculiar facts and circumstances of the present
case we decline to extend the doctrine of ratification which would result in
the commission of injustice or fraud to the candid and unwary.
The transfer by Manuel Tabora to the Cagayan Fishing Development
Company, Inc. was null because at the time it was effected the corporation
was non-existent, we deem it unnecessary to discuss this point.
FIRST DIVISION
[G.R. No. L-48627. June 30, 1987.]
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, Petitioner, v. THE
HONORABLE COURT OF APPEALS and ALBERTO V.
ARELLANO, Respondents.
DECISION
CRUZ, J.:
We gave limited due course to this petition on the question of the solidary
liability of the petitioners with their co-defendants in the lower court 1
because of the challenge to the following paragraph in the dispositive
portion of the decision of the respondent court: **
"1. Defendants are hereby ordered to jointly and severally pay the plaintiff
the amount of P50,000.00 for the preparation of the project study and his
technical services that led to the organization of the defendant corporation,
plus P10,000.00 attorney’s fees;" 2
The petitioners claim that this order has no support in fact and law because
they had no contract whatsoever with the private respondent regarding the
above-mentioned services. Their position is that as mere subsequent
investors in the corporation that was later created, they should not be held
solidarily liable with the Filipinas Orient Airways, a separate juridical entity,
and with Barretto and Garcia, their co-defendants in the lower court, ***
who were the ones who requested the said services from the
private Respondent. 3
We are not concerned here with the petitioners’ co-defendants, who have
not appealed the decision of the respondent court and may, for this reason,
be presumed to have accepted the same. For purposes of resolving this case
before us, it is not necessary to determine whether it is the promoters of
the proposed corporation, or the corporation itself after its organization,
that shall be responsible for the expenses incurred in connection with such
organization.
The only question we have to decide now is whether or not the petitioners
themselves are also and personally liable for such expenses and, if so, to
what extent.
The reasons for the said order are given by the respondent court in its
decision in this wise:jgc:chanrobles.com.ph
"As to the 4th assigned error we hold that as to the remuneration due the
plaintiff for the preparation of the project study and the pre-organizational
services in the amount of P50,000.00, not only the defendant corporation
but the other defendants including defendants Caram should he jointly and
severally liable for this amount. As we above related it was upon the
request of defendants Barretto and Garcia that plaintiff handled the
preparation of the project study which project study was presented to
defendant Caram so the latter was convinced to invest in the proposed
airlines. The project study was revised for purposes of presentation to
financiers and the banks. It was on the basis of this study that defendant
corporation was actually organized and rendered operational. Defendants
Garcia and Caram, and Barretto became members of the Board and/or
officers of defendant corporation. Thus, not only the defendant corporation
but all the other defendants who were involved in the preparatory stages of
the incorporation, who caused the preparation and/or benefited from the
project study and the technical services of plaintiff must be liable." 4
It would appear from the above justification that the petitioners were not
really involved in the initial steps that finally led to the incorporation of the
Filipinas Orient Airways. Elsewhere in the decision, Barretto was described
as "the moving spirit." The finding of the respondent court is that the
project study was undertaken by the private respondent at the request of
Barretto and Garcia who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed airline. The study could
have been presented to other prospective investors. At any rate, the airline
was eventually organized on the basis of the project study with the
petitioners as major stockholders and, together with Barretto and Garcia, as
principal officers.
The following portion of the decision in question is also worth
considering:jgc:chanrobles.com.ph
". . .. Since defendant Barretto was the moving spirit in the pre-organization
work of defendant corporation based on his experience and expertise,
hence he was logically compensated in the amount of P200,000.00 shares of
stock not as industrial partner but more for is technical services that
brought to fruition the defendant corporation. By the same token, We find
no reason why the plaintiff should not be similarly compensated not only
for having actively participated in the preparation of the project study for
several months and its subsequent revision but also in his having been
involved in the pre-organization of the defendant corporation, in the
preparation of the franchise, in inviting the interest of the financiers and in
the training and screening of personnel. We agree that for these special
services of the plaintiff the amount of P50,000.00 as compensation is
reasonable." 5
The above finding bolsters the conclusion that the petitioners were not
involved in the initial stages of the organization of the airline, which were
being directed by Barretto as the main promoter. It was he who was putting
all the pieces together, so to speak. The petitioners were merely among the
financiers whose interest was to be invited and who were in fact persuaded,
on the strength of the project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways was a
fictitious corporation and did not have a separate juridical personality, to
justify making the petitioners, as principal stockholders thereof, responsible
for its obligations. As a bona fide corporation, the Filipinas Orient Airways
should alone be liable for its corporate acts as duly authorized by its officers
and directors.
In the light of these circumstances, we hold that the petitioners cannot be
held personally liable for the compensation claimed by the private
respondent for the services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract such services. It was
only the results of such services that Barretto and Garcia presented to them
and which persuaded them to invest in the proposed airline. The most that
can be said is that they benefited from such services, but that surely is no
justification to hold them personally liable therefor. Otherwise, all the other
stockholders of the corporation, including those who came in later, and
regardless of the amount of their shareholdings, would be equally and
personally liable also with the petitioners for the claims of the
private Respondent.
The petition is rather hazy and seems to be flawed by an ambiguous
ambivalence. Our impression is that it is opposed to the imposition of
solidary responsibility upon the Carams but seems to be willing, in a vague,
unexpressed offer of compromise, to accept joint liability. While it is true
that it does here and there disclaim total liability, the thrust of the petition
seems to be against the imposition of solidary liability only rather than
against any liability at all, which is what it should have categorically argued.
Categorically, the Court holds that the petitioners are not liable at all, jointly
or jointly and severally, under the first paragraph of the dispositive portion
of the challenged decision. So holding, we find it unnecessary to examine at
this time the rules on solidary obligations, which the parties — needlessly,
as it turns out — have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are declared not liable
under the challenged decision, which is hereby modified accordingly. It is so
ordered.
SECOND DIVISION
G.R. No. 93073 December 21, 1992
REPUBLIC PLANTERS BANK, petitioner,
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
CAMPOS, JR., J.:
This is an appeal by way of a Petition for Review on Certiorari from the
decision * of the Court of Appeals in CA G.R. CV No. 07302, entitled
"Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing
Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant",
which affirmed the decision ** in Civil Case No. 82-5448 except that it
completely absolved Fermin Canlas from liability under the promissory
notes and reduced the award for damages and attorney's fees. The RTC
decision, rendered on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff Republic Planters Bank, ordering defendant
Pinch Manufacturing Corporation (formerly Worldwide Garment
Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin
Canlas to pay, jointly and severally, the plaintiff bank the following
sums with interest thereon at 16% per annum from the dates
indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00
with interest from January 29, 1981 until fully paid; under
promissory note (Exhibit "B"), the sum of P40,000.00 with interest
from November 27, 1980; under the promissory note (Exhibit "C"),
the sum of P166,466.00 which interest from January 29, 1981;
under the promissory note (Exhibit "E"), the sum of P86,130.31 with
interest from January 29, 1981; under the promissory note (Exhibit
"G"), the sum of P12,703.70 with interest from November 27, 1980;
under the promissory note (Exhibit "H"), the sum of P281,875.91
with interest from January 29, 1981; and under the promissory note
(Exhibit "I"), the sum of P200,000.00 with interest from January 29,
1981.
Under the promissory note (Exhibit "D") defendants Pinch
Manufacturing Corporation (formerly named Worldwide Garment
Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay
jointly and severally, the plaintiff bank the sum of P367,000.00 with
interest of 16% per annum from January 29, 1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation
Pinch (formerly Worldwide) is ordered to pay the plaintiff bank the
sum of P140,000.00 with interest at 16% per annum from
November 27, 1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the
plaintiff the sum of P231,120.81 with interest at 12% per annum
from July 1, 1981, until fully paid and the sum of P331,870.97 with
interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the
plaintiff the sum of P100,000.00 as and for reasonable attorney's
fee and the further sum equivalent to 3% per annum of the
respective principal sums from the dates above stated as penalty
 charge until fully paid, plus one percent (1%) of the principal sums
as service charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the
then Intermediate Court (now the Court Appeals). His contention was that
inasmuch as he signed the promissory notes in his capacity as officer of the
defunct Worldwide Garment Manufacturing, Inc, he should not be held
personally liable for such authorized corporate acts that he performed. It is
now the contention of the petitioner Republic Planters Bank that having
unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi,
jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo
Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi
and private respondent Fermin Canlas were President/Chief Operating
Officer and Treasurer respectively, of Worldwide Garment Manufacturing,
Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant
Shozo Yamaguchi and private respondent Fermin Canlas were authorized to
apply for credit facilities with the petitioner Republic Planters Bank in the
forms of export advances and letters of credit/trust receipts
accommodations. Petitioner bank issued nine promissory notes, marked as
Exhibits A to I inclusive, each of which were uniformly worded in the
following manner:
___________, after date, for value received, I/we,
jointly and severaIly promise to pay to the ORDER of
the REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....)
Philippine Currency...
On the right bottom margin of the promissory notes appeared the
signatures of Shozo Yamaguchi and Fermin Canlas above their printed
names with the phrase "and (in) his personal capacity" typewritten below.
At the bottom of the promissory notes appeared: "Please credit proceeds of
this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG.
CORP.
These entries were separated from the text of the notes with a bold line
which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide
Garment Manufacturing, Inc. was apparently rubber stamped above the
signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to
change its corporate name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of
sums of money covered among others, by the nine promissory notes with
interest thereon, plus attorney's fees and penalty charges. The complainant
was originally brought against Worldwide Garment Manufacturing, Inc. inter
alia, but it was later amended to drop Worldwide Manufacturing, Inc. as
defendant and substitute Pinch Manufacturing Corporation it its place.
Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not
file an Amended Answer and failed to appear at the scheduled pre-trial
conference despite due notice. Only private respondent Fermin Canlas filed
an Amended Answer wherein he, denied having issued the promissory
notes in question since according to him, he was not an officer of Pinch
Manufacturing Corporation, but instead of Worldwide Garment
Manufacturing, Inc., and that when he issued said promissory notes in
behalf of Worldwide Garment Manufacturing, Inc., the same were in blank,
the typewritten entries not appearing therein prior to the time he affixed
his signature.
In the mind of this Court, the only issue material to the resolution of this
appeal is whether private respondent Fermin Canlas is solidarily liable with
the other defendants, namely Pinch Manufacturing Corporation and Shozo
Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of
the promissory notes bearing his signature for the following reasons:
The promissory motes are negotiable instruments and must be governed by
the Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on
the face of promissory notes are makers and are liable as such.3 By signing
the notes, the maker promises to pay to the order of the payee or any
holder 4 according to the tenor thereof.5 Based on the above provisions of
law, there is no denying that private respondent Fermin Canlas is one of the
co-makers of the promissory notes. As such, he cannot escape liability
arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by
two or more persons, they are deemed to be jointly and severally liable
thereon.6 An instrument which begins" with "I" ,We" , or "Either of us"
promise to, pay, when signed by two or more persons, makes them
solidarily liable. 7 The fact that the singular pronoun is used indicates that
the promise is individual as to each other; meaning that each of the co-
signers is deemed to have made an independent singular promise to pay the
notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas
is made clearer and certain, without reason for ambiguity, by the presence
of the phrase "joint and several" as describing the unconditional promise to
pay to the order of Republic Planters Bank. A joint and several note is one in
which the makers bind themselves both jointly and individually to the payee
so that all may be sued together for its enforcement, or the creditor may
select one or more as the object of the suit. 8 A joint and several obligation
in common law corresponds to a civil law solidary obligation; that is, one of
several debtors bound in such wise that each is liable for the entire amount,
and not merely for his proportionate share. 9 By making a joint and several
promise to pay to the order of Republic Planters Bank, private respondent
Fermin Canlas assumed the solidary liability of a debtor and the payee may
choose to enforce the notes against him alone or jointly with Yamaguchi
and Pinch Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal
capacity" below the signatures of the makers in the notes will affect the
liability of the makers, We do not find it necessary to resolve and decide,
because it is immaterial and will not affect to the liability of private
respondent Fermin Canlas as a joint and several debtor of the notes. With
or without the presence of said phrase, private respondent Fermin Canlas is
primarily liable as a co-maker of each of the notes and his liability is that of a
solidary debtor.
Finally, the respondent Court made a grave error in holding that an
amendment in a corporation's Articles of Incorporation effecting a change
of corporate name, in this case from Worldwide Garment manufacturing Inc
to Pinch Manufacturing Corporation extinguished the personality of the
original corporation.
The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same
corporation with a different name, and its character is in no respect
changed.10
A change in the corporate name does not make a new corporation, and
whether effected by special act or under a general law, has no affect on the
identity of the corporation, or on its property, rights, or liabilities. 11
The corporation continues, as before, responsible in its new name for all
debts or other liabilities which it had previously contracted or incurred.12
As a general rule, officers or directors under the old corporate name bear
no personal liability for acts done or contracts entered into by officers of the
corporation, if duly authorized. Inasmuch as such officers acted in their
capacity as agent of the old corporation and the change of name meant only
the continuation of the old juridical entity, the corporation bearing the
same name is still bound by the acts of its agents if authorized by the Board.
Under the Negotiable Instruments Law, the liability of a person signing as an
agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so
forth. Where the instrument contains or a person adds
 to his signature words indicating that he signs for or on
behalf of a principal , or in a representative capacity, he
is not liable on the instrument if he was duly
authorized; but the mere addition of words describing
him as an agent, or as filling a representative character,
without disclosing his principal, does not exempt him
from personal liability.
Where the agent signs his name but nowhere in the instrument has he
disclosed the fact that he is acting in a representative capacity or the name
of the third party for whom he might have acted as agent, the agent is
personally liable to take holder of the instrument and cannot be permitted
to prove that he was merely acting as agent of another and parol or
extrinsic evidence is not admissible to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were
delivered to him in blank for his signature, we rule otherwise. A careful
examination of the notes in question shows that they are the stereotype
printed form of promissory notes generally used by commercial banking
institutions to be signed by their clients in obtaining loans. Such printed
notes are incomplete because there are blank spaces to be filled up on
material particulars such as payee's name, amount of the loan, rate of
interest, date of issue and the maturity date. The terms and conditions of
the loan are printed on the note for the borrower-debtor 's perusal. An
incomplete instrument which has been delivered to the borrower for his
signature is governed by Section 14 of the Negotiable Instruments Law
which provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. — Where the
instrument is wanting in any material particular, the
person in possesion thereof has a prima facie authority
to complete it by filling up the blanks therein. ... In
order, however, that any such instrument when
completed may be enforced against any person who
became a party thereto prior to its completion, it must
be filled up strictly in accordance with the authority
given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving
testimony of private respondent Fermin Canlas, as determined by the trial
court, so that the trial court ''doubts the defendant (Canlas) signed in blank
the promissory notes". We chose to believe the bank's testimony that the
notes were filled up before they were given to private respondent Fermin
Canlas and defendant Shozo Yamaguchi for their signatures as joint and
several promissors. For signing the notes above their typewritten names,
they bound themselves as unconditional makers. We take judicial notice of
the customary procedure of commercial banks of requiring their clientele to
sign promissory notes prepared by the banks in printed form with blank
spaces already filled up as per agreed terms of the loan, leaving the
borrowers-debtors to do nothing but read the terms and conditions therein
printed and to sign as makers or co-makers. When the notes were given to
private respondent Fermin Canlas for his signature, the notes were
complete in the sense that the spaces for the material particular had been
filled up by the bank as per agreement. The notes were not incomplete
instruments; neither were they given to private respondent Fermin Canlas
in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is
not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court
in reducing the interest rate on the promissory notes from 16% to 12% per
annum does not squarely apply to the instant petition. In the abovecited
case, the rate of 12% was applied to forebearances of money, goods or
credit and court judgemets thereon, only in the absence of any stipulation
between the parties.
In the case at bar however , it was found by the trial court that the rate of
interest is 9% per annum, which interest rate the plaintiff may at any time
without notice, raise within the limits allowed law. And so, as of February
16, 1984 , the plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by
Presidential Decree No. 116, are applicable only to interests by way of
compensation for the use or forebearance of money. Article 2209 of the
Civil Code, on the other hand, governs interests by way of damages.15 This
fine distinction was not taken into consideration by the appellate court,
which instead made a general statement that the interest rate be at 12%
per annum.
Inasmuch as this Court had declared that increases in interest rates are not
subject to any ceiling prescribed by the Usury Law, the appellate court erred
in limiting the interest rates at 12% per annum. Central Bank Circular No.
905, Series of 1982 removed the Usury Law ceiling on interest rates. 16
In the 1ight of the foregoing analysis and under the plain language of the
statute and jurisprudence on the matter, the decision of the respondent:
Court of Appeals absolving private respondent Fermin Canlas is REVERSED
and SET ASIDE. Judgement is hereby rendered declaring private respondent
Fermin Canlas jointly and severally liable on all the nine promissory notes
with the following sums and at 16% interest per annum from the dates
indicated, to wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00
with interest from January 29, 1981 until fully paid; under promissory note
marked as Exhibit B, the sum of P40,000.00 with interest from November
27, 1980: under the promissory note denominated as Exhibit C, the amount
of P166,466.00 with interest from January 29, 1981; under the promissory
note denominated as Exhibit D, the amount of P367,000.00 with interest
from January 29, 1981 until fully paid; under the promissory note marked as
Exhibit E, the amount of P86,130.31 with interest from January 29, 1981;
under the promissory note marked as Exhibit F, the sum of P140,000.00
with interest from November 27, 1980 until fully paid; under the promissory
note marked as Exhibit G, the amount of P12,703.70 with interest from
November 27, 1980; the promissory note marked as Exhibit H, the sum of
P281,875.91 with interest from January 29, 1981; and the promissory note
marked as Exhibit I, the sum of P200,000.00 with interest on January 29,
1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly
Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi, for not
having appealed from the decision of the trial court, shall be adjudged in
accordance with the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private
respondent Fermin Canlas is hereby held jointly and solidarity liable with
defendants for the amounts found, by the Court a quo. With costs against
private respondent. SO ORDERED.
THIRD DIVISION
G.R. No. 175278, September 23, 2015
GSIS FAMILY BANK - THRIFT BANK [FORMERLY COMSAVINGS BANK,
INC.], Petitioner, v. BPI FAMILY BANK, Respondent.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari filed by GSIS Family Bank — Thrift
Bank1 assailing the Court of Appeals Decision2 dated March 29, 2006
(Decision) and Resolution3 dated October 23, 2006 which denied
petitioner's petition for review of the Securities and Exchange Commission
Decision dated February 22, 2005 (SEC En Banc Decision). The SEC En
Banc Decision4 prohibited petitioner from using the word "Family" as part of
its corporate name and ordered petitioner to delete the word from its
name.5
Facts
Petitioner was originally organized as Royal Savings Bank and started
operations in 1971. Beginning 1983 and 1984, petitioner encountered
liquidity problems. On July 9, 1984, it was placed under receivership and
later temporarily closed by the Central Bank of the Philippines. Two (2)
months after its closure, petitioner reopened and was renamed Comsavings
Bank, Inc. under the management of the Commercial Bank of Manila.6
In 1987, the Government Service Insurance System (GSIS) acquired
petitioner from the Commercial Bank of Manila. Petitioner's management
and control was thus transferred to GSIS.7 To improve its marketability to
the public, especially to the members of the GSIS, petitioner sought
Securities and Exchange Commission (SEC) approval to change its corporate
name to "GSIS Family Bank, a Thrift Bank."8 Petitioner likewise applied with
the Department of Trade and Industry (DTI) and Bangko Sentral ng Pilpinas
(BSP) for authority to use "GSIS Family Bank, a Thrift Bank" as its business
name. The DTI and the BSP approved the applications.9 Thus, petitioner
operates under the corporate name "GSIS Family Bank - a Thrift Bank,"
pursuant to the DTI Certificate of Registration No. 741375 and the Monetary
Board Circular approval.10
Respondent BPI Family Bank was a product of the merger between the
Family Bank and Trust Company (FBTC) and the Bank of the Philippine
Islands (BPI).11 On June 27, 1969, the Gotianum family registered with the
SEC the corporate name "Family First Savings Bank," which was amended to
"Family Savings Bank," and then later to "Family Bank and Trust
Company."12 Since its incorporation, the bank has been commonly known as
"Family Bank." In 1985, Family Bank merged with BPI, and the latter
acquired all the rights, privileges, properties, and interests of Family Bank,
including the right to use names, such as "Family First Savings Bank,"
"Family Bank," and "Family Bank and Trust Company." BPI Family Savings
Bank was registered with the SEC as a wholly-owned subsidiary of BPI. BPI
Family Savings Bank then registered with the Bureau of Domestic Trade the
trade or business name "BPI Family Bank," and acquired a reputation and
goodwill under the name.13chanroblesvirtuallawlibrary
Proceedings before the SEC
Eventually, it reached respondent's attention that petitioner is using or
attempting to use the name "Family Bank." Thus, on March 8, 2002,
respondent petitioned the SEC Company Registration and Monitoring
Department (SEC CRMD) to disallow or prevent the registration of the name
"GSIS Family Bank" or any other corporate name with the words "Family
Bank" in it. Respondent claimed exclusive ownership to the name "Family
Bank," having acquired the name since its purchase and merger with Family
Bank and Tmst Company way back 1985.14 Respondent also alleged that
through the years, it has been known as "BPI Family Bank" or simply "Family
Bank" both locally and internationally. As such, it has acquired a reputation
and goodwill under the name, not only with clients here and abroad, but
also with correspondent and competitor banks, and the public in general.15
Respondent prayed the SEC CRMD to disallow or prevent the registration of
the name "GSIS Family Bank" or any other corporate name with the words
"Family Bank" should the same be presented for registration. Respondent
likewise prayed the SEC CRMD to issue an order directing petitioner or any
other corporation to change its corporate name if the names have already
been registered with the SEC.16
The SEC CRMD was thus confronted with the issue of whether the names
BPI Family Bank and GSIS Family Bank are confusingly similar as to require
the amendment of the name of the latter corporation.
The SEC CRMD declared that upon the merger of FBTC with the BPI in 1985,
the latter acquired the right to the use of the name of the absorbed
corporation. Thus, BPI Family Bank has a prior right to the use of the name
Family Bank in the banking industry, arising from its long and extensive
nationwide use, coupled with its registration with the Intellectual Property
Office (IPO) of the name "Family Bank" as its trade name. Applying the rule
of "priority in registration" based on the legal maxim first in time, first in
right, the SEC CRMD concluded that BPI has the preferential right to the use
of the name "Family Bank." More, GSIS and Comsavings Bank were then
fully aware of the existence and use of the name "Family Bank" by FBTC
prior to the latter's merger with BPI.17
The SEC CRMD also held that there exists a confusing similarity between the
corporate names BPI Family Bank and GSIS Family Bank. It explained that
although not identical, the corporate names are indisputably similar, as to
cause confusion in the public mind, even with the exercise of reasonable
care and observation, especially so since both corporations are engaged in
the banking business.18
In a decision19 dated May 19, 2003, the SEC CRMD said, cralawlawlibrary
PREMISES CONSIDERED respondent GSIS FAMILY BANK is hereby directed
to refrain from using the word "Family" as part of its name and make good
its commitment to change its name by deleting or dropping the subject
word from its corporate name within [thirty (30) days] from the date of
actual receipt hereof.20chanrobleslaw
Petitioner appealed21 the decision to the SEC En Banc, which denied the
appeal, and upheld the SEC CRMD in the SEC En Banc Decision.22 Petitioner
elevated the SEC En Banc Decision to the Court of Appeals, raising the
following issues:chanRoblesvirtualLawlibrary
1. Whether the use by GSIS Family Bank of the words "Family Bank"
is deceptively and confusingly similar to the name BPI Family
Bank;
2. Whether the use by Comsavings Bank of "GSIS Family Bank" as its
business constitutes unfair competition;
3. Whether BPI Family Bank is guilty of forum shopping;
4. Whether the approval of the DTI and the BSP of petitioner's
application to use the name GSIS Family Bank constitutes its
authority to the lawful and valid use of such trade name or trade
mark;
5. Whether the application of respondent BPI Family Bank for the
exclusive use of the name "Family Bank," a generic name, though
not yet approved by IPO of the Bureau of Patents, has barred the
GSIS Family Bank from using such trade mark or name.23
Court of Appeals Ruling
The Court of Appeals ruled that the approvals by the BSP and by the DTI of
petitioner's application to use the name "GSIS Family Bank" do not
constitute authority for its lawful and valid use. It said that the SEC has
absolute jurisdiction, supervision and control over all corporations.24 The
Court of Appeals held that respondent was entitled to the exclusive use of
the corporate name because of its prior adoption of the name "Family
Bank" since 1969.25 There is confusing similarity in the corporate names
because "[c]onfusion as to the possible association with GSIS might arise if
we were to allow Comsavings Bank to add its parent company's acronym,
'GSIS' to 'Family Bank.' This is true especially considering both companies
belong to the banking industry. Proof of actual confusion need not be
shown. It suffices that confusion is probably or likely to occur."26 The Court
of Appeals also ruled out forum shopping because not all the requirements
of litis pendentia are present.27
The dispositive portion of the decision read,cralawlawlibrary
WHEREFORE, the instant petition for review is hereby DISMISSED for lack of
merit.28chanrobleslaw
After its Motion for Reconsideration was denied,29 petitioner brought the
decision to this Court via a Petition for Review on Certiorari.30
Issues in the Petition
Petitioner raised the following issues in its
petition:chanRoblesvirtualLawlibrary
I. The Court of Appeals gravely erred in affirming the SEC
Resolution finding the word "Family" not generic despite its
unregistered status with the IPO of the Bureau of Patents and the
use by GSIS-Family Bank in its corporate name of the words
"[F]amily [B]ank" as deceptive and [confusingly similar] to the
name BPI Family Bank;31
II. The Court of Appeals gravely erred when it ruled that the
respondent is not guilty of forum shopping despite the filing of
three (3) similar complaints before the DTI and BSP and with
the SEC without the requisite certification of non-forum
shopping attached thereto;32
III. The Court of Appeals gravely erred when it completely
disregarded the opinion of the Banko Sentral ng Pilipinas that the
use by the herein petitioner of the trade name GSIS Family Bank -
Thrift Bank is not similar or does not deceive or likely cause any
deception to the public.33
Court's Ruling
We uphold the decision of the Court of Appeals.
Section 18 of the Corporation Code provides,
Section 18. Corporate name. - No corporate name may be allowed by the
Securities and Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently deceptive, confusing
or contrary to existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of
incorporation under the amended name.chanrobleslaw
In Philips Export B.V. v. Court of Appeals,34 this Court ruled that to fall within
the prohibition of the law on the right to the exclusive use of a corporate
name, two requisites must be proven, namely:chanRoblesvirtualLawlibrary
(1) that the complainant corporation acquired a prior right over the use
of such corporate name; and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any existing
corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.35
These two requisites are present in this case. On the first requisite of a prior
right, Industrial Refractories Corporation of the Philippines v. Court of
Appeals (IRCP case)36 is instructive. In that case, Refractories Corporation of
the Philippines (RCP) filed before the SEC a petition to compel Industrial
Refractories Corporation of the Philippines (IRCP) to change its corporate
name on the ground that its corporate name is confusingly similar with that
of RCP's such that the public may be confused into believing that they are
one and the same corporation. The SEC and the Court of Appeals found for
petitioner, and ordered IRCP to delete or drop from its corporate name the
word "Refractories." Upon appeal of IRCP, this Court upheld the decision of
the CA.
Applying the priority of adoption rule to determine prior right, this Court
said that RCP has acquired the right to use the word "Refractories" as part
of its corporate name, being its prior registrant. In arriving at this
conclusion, the Court considered that RCP was incorporated on October 13,
1976 and since then continuously used the corporate name "Refractories
Corp. of the Philippines." Meanwhile, IRCP only started using its corporate
name "Industrial Refractories Corp. of the Philippines" when it amended its
Articles of Incorporation on August 23, 1985.37
In this case, respondent was incorporated in 1969 as Family Savings Bank
and in 1985 as BPI Family Bank. Petitioner, on the other hand, was
incorporated as GSIS Family - Thrift Bank only in 2002,38 or at least
seventeen (17) years after respondent started using its name. Following the
precedent in the IRCP case, we rule that respondent has the prior right over
use of the corporate name.
The second requisite in the Philips Export case likewise obtains on two
points: the proposed name is (a) identical or (b) deceptive or confusingly
similar to that of any existing corporation or to any other name already
protected by law.
On the first point (a), the words "Family Bank" present in both petitioner
and respondent's corporate name satisfy the requirement that there be
identical names in the existing corporate name and the proposed one.
Respondent cannot justify its claim under Section 3 of the Revised
Guidelines in the Approval of Corporate and Partnership Names,39 to
wit:cralawlawlibrary
3. The name shall not be identical, misleading or confusingly similar to one
already registered by another corporation or partnership with the
Commission or a sole proprietorship registered with the Department of
Trade and Industry.
If the proposed name is similar to the name of a registered firm, the
proposed name must contain at least one distinctive word different from
the name of the company already registered.chanrobleslaw
Section 3 states that if there be identical, misleading or confusingly similar
name to one already registered by another corporation or partnership with
the SEC, the proposed name must contain at least one distinctive word
different from the name of the company already registered. To show
contrast with respondent's corporate name, petitioner used the words
"GSIS" and "thrift." But these are not sufficiently distinct words that
differentiate petitioner's corporate name from respondent's. While "GSIS" is
merely an acronym of the proper name by which petitioner is identified, the
word "thrift" is simply a classification of the type of bank that petitioner is.
Even if the classification of the bank as "thrift" is appended to petitioner's
proposed corporate name, it will not make the said corporate name distinct
from respondent's because the latter is likewise engaged in the banking
business.
This Court used the same analysis in Ang mga Kaanib sa Iglesia ng Dios Kay
Kristo Hesus, H.S.K. sa Bans ang Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo
Jesus, Haligi at Suhay ng Katotohanan40 In that case, Iglesia ng Dios Kay
Cristo Jesus filed a case before the SEC to compel Ang mga Kaanib sa Iglesia
ng Dios Kay Kristo Hesus to change its corporate name, and to prevent it
from using the same or similar name on the ground that the same causes
confusion among their members as well as the public. Ang mga Kaanib sa
Iglesia ng Dios Kay Kristo Hesus claimed that it complied with SEC
Memorandum Circular No. 14-2000 by adding not only two, but eight words
to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang
Pilipinas, Inc.," which effectively distinguished it from Iglesia ng Dios Kay
Cristo Jesus. This Court rejected the argument, thus:cralawlawlibrary
The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in
petitioner's name are, as correctly observed by the SEC, merely descriptive
of and also referring to the members, or kaanib, of respondent who are
likewise residing in the Philippines. These words can hardly serve as an
effective differentiating medium necessary to avoid confusion or difficulty in
distinguishing petitioner from respondent. This is especially so, since both
petitioner and respondent corporations are using the same acronym -
H.S.K.; not to mention the fact that both are espousing religious beliefs and
operating in the same place. xxx41chanrobleslaw
On the second point (b), there is a deceptive and confusing similarity
between petitioner's proposed name and respondent's corporate name, as
found by the SEC.42 In determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such as to mislead a
person using ordinary care and discrimination.43 And even without such
proof of actual confusion between the two corporate names, it suffices that
confusion is probable or likely to occur.44
Petitioner's corporate name is "GSIS Family Bank—A Thrift Bank" and
respondent's corporate name is "BPI Family Bank." The only words that
distinguish the two are "BPI," "GSIS," and "Thrift." The first two words are
merely the acronyms of the proper names by which the two corporations
identify themselves; and the third word simply describes the classification of
the bank. The overriding consideration in determining whether a person,
using ordinary care and discrimination, might be misled is the circumstance
that both petitioner and respondent are engaged in the same business of
banking. "The likelihood of confusion is accentuated in cases where the
goods or business of one corporation are the same or substantially the same
to that of another corporation."45
Respondent alleged that upon seeing a Comsavings Bank branch with the
signage "GSIS Family Bank" displayed at its premises, some of the
respondent's officers and their clients began asking questions. These include
whether GSIS has acquired Family Bank; whether there is a joint
arrangement between GSIS and Family Bank; whether there is a joint
arrangement between BPI and GSIS regarding Family Bank; whether
Comsavings Bank has acquired Family Bank; and whether there is there an
arrangement among Comsavings Bank, GSIS, BPI, and Family Bank
regarding BPI Family Bank and GSIS Family Bank.46 The SEC made a finding
that "[i]t is not a remote possibility that the public may entertain the idea
that a relationship or arrangement indeed exists between BPI and GSIS due
to the use of the term 'Family Bank' in their corporate names."47
Findings of fact of quasi-judicial agencies, like the SEC, are generally
accorded respect and even finality by this Court, if supported by substantial
evidence, in recognition of their expertise on the specific matters under
their consideration, more so if the same has been upheld by the appellate
court, as in this case.48
Petitioner cannot argue that the word "family" is a generic or descriptive
name, which cannot be appropriated exclusively by respondent. "Family," as
used in respondent's corporate name, is not generic. Generic marks are
commonly used as the name or description of a kind of goods, such as "Lite"
for beer or "Chocolate Fudge" for chocolate soda drink. Descriptive marks,
on the other hand, convey the characteristics, function, qualities or
ingredients of a product to one who has never seen it or does not know it
exists, such as "Arthriticare" for arthritis medication.49
Under the facts of this case, the word "family" cannot be separated from
the word "bank."50 In asserting their claims before the SEC up to the Court
of Appeals, both petitioner and respondent refer to the phrase "Family
Bank" in their submissions. This coined phrase, neither being generic nor
descriptive, is merely suggestive and may properly be regarded as arbitrary.
Arbitrary marks are "words or phrases used as a mark that appear to be
random in the context of its use. They are generally considered to be easily
remembered because of their arbitrariness. They are original and
unexpected in relation to the products they endorse, thus, becoming
themselves distinctive."51 Suggestive marks, on the other hand, "are marks
which merely suggest some quality or ingredient of goods, xxx The strength
of the suggestive marks lies on how the public perceives the word in
relation to the product or service."52
In Ang v. Teodoro,53 this Court ruled that the words "Ang Tibay" is not al
descriptive term within the meaning of the Trademark Law but rather a
fanciful or coined phrase.54 In so ruling, this Court considered the etymology
and meaning of the Tagalog words, "Ang Tibay" to determine whether they
relate to the quality or description of the merchandise to which respondent
therein applied them as trademark, thus:cralawlawlibrary
We find it necessary to go into the etymology and meaning of the Tagalog
words "Ang Tibay" to determine whether they are a descriptive term, i.e.,
whether they relate to the quality or description of the merchandise to
which respondent has applied them as a trade-mark. The word "ang" is a
definite article meaning "the" in English. It is also used as an adverb, a
contraction of the word "anong" (what or how). For instance, instead of
saying, "Anong ganda!" ("How beautiful!"), we ordinarily say, "Ang
ganda!" Tibay is a root word from which are derived the
verb magpatibay (to strengthen); the nouns pagkamatibay (strength,
durability), katibayan (proof, support, strength), katibaytibayan (superior
strength); and the adjectives matibay (strong, durable, lasting), napakatibay
(very strong), kasintibay or magkasintibay (as strong as, or of equal
strength). The phrase "Ang Tibay" is an exclamation denoting admiration of
strength or durability. For instance, one who tries hard but fails to break an
object exclaims, "Ang tibay!" ("How strong!") It may also be used in a
sentence thus, "Ang tibay ng sapatos mo!" ("How durable your shoes are!")
The phrase "ana tibay" is never used adjectively to define or describe an
object. One does not say, "ang tibay sapatos" or "sapatos ang tibay" to
mean "durable shoes," but "matibay na sapatos" or "sapatos na matibay."
From all of this we deduce that "Ang Tibay" is not a descriptive term within
the meaning of the Trade-Mark Law but rather a fanciful or coined phrase
which may properly and legally be appropriated as a trade-mark or trade-
name, xxx55 (Underscoring supplied).chanrobleslaw
The word "family" is defined as "a group consisting of parents and children
living together in a household" or "a group of people related to one another
by blood or marriage."56Bank, on the other hand, is defined as "a financial
establishment that invests money deposited by customers, pays it out when
requested, makes loans at interest, and exchanges currency."57 By
definition, there can be no expected relation between the word "family"
and the banking business of respondent. Rather, the words suggest that
respondent's bank is where family savings should be deposited. More, as in
the Ang case, the phrase "family bank" cannot be used to define an object.
Petitioner's argument that the opinion of the BSP and the certificate of
registration granted to it by the DTI constitute authority for it to use "GSIS
Family Bank" as corporate name is also untenable.
The enforcement of the protection accorded by Section 18 of the
Corporation Code to corporate names is lodged exclusively in the SEC. The
jurisdiction of the SEC is not merely confined to the adjudicative functions
provided in Section 5 of the SEC Reorganization Act,58 as amended.59 By
express mandate, the SEC has absolute jurisdiction, supervision and control
over all corporations.60 It is the SEC's duty to prevent confusion in the use of
corporate names not only for the protection of the corporations involved,
but more so for the protection of the public. It has authority to de-register
at all times, and under all circumstances corporate names which in its
estimation are likely to generate confusion.61
The SEC62 correctly applied Section 18 of the Corporation Code, and Section
15 of SEC Memorandum Circular No. 14-2000, pertinent portions of which
provide:cralawlawlibrary
In implementing Section 18 of the Corporation Code of the Philippines (BP
69), the following revised guidelines in the approval of corporate and
partnership names are hereby adopted for the information and guidance of
all concerned:chanRoblesvirtualLawlibrary
xxx
15. Registrant corporations or partnership shall submit a letter undertaking
to change their corporate or partnership name in case another person or
firm has acquired a prior right to the use of the said firm name or the same
is deceptively or confusingly similar to one already registered unless this
undertaking is already included as one of the provisions of the articles of
incorporation or partnership of the registrant.
chanrobleslaw
The SEC, after finding merit in respondent's claims, can compel petitioner to
abide by its commitment "to change its corporate name in the event that
another person, firm or entity has acquired a prior right to use of said name
or one similar to it."63
Clearly, the only determination relevant to this case is that one made by the
SEC in the exercise of its express mandate under the law. The BSP opinion
invoked by petitioner even acknowledges that "the issue on whether a
proposed name is identical or deceptively similar to that of any of existing
corporation is matter within the official jurisdiction and competence of the
SEC."64
Judicial notice65 may also be taken of the action of the IPO in approving
respondent's registration of the trademark "BPI Family Bank" and its logo on
October 17, 2008. The certificate of registration of a mark shall be prima
facie evidence of the validity of the registration, the registrant's ownership
of the mark, and of the registrant's exclusive right to use the same in
connection with the goods or services and those that are related thereto
specified in the certificate.66
Finally, we uphold the Court of Appeals' finding that the issue of forum
shopping was belatedly raised by petitioner and, thus, cannot anymore be
considered at the appellate stage of the proceedings. Petitioner raised the
issue of forum shopping for the first time only on appeal.67 Petitioner
argued that the complaints filed by respondent did not contain certifications
against non-forum shopping, in violation of Section 5, Rule 7 of the Rules of
Court.68
In S.C. Megaworld Construction and Development Corporation vs.
Parada,69 this Court said that objections relating to non-compliance with the
verification and certification of non-forum shopping should be raised in the
proceedings below, and not for the first time on appeal. In that case, S.C.
Megaworld argued that the complaint for collection of sum of money
should have been dismissed outright by the trial court on account of an
invalid non-forum shopping certification. It alleged that the Special Power of
Attorney granted to Parada did not specifically include an authority for the
latter to sign the verification and certification of non-forum shopping, thus
rendering the complaint defective for violation of Sections 4 and 5 of Rule 7
of the Rules of Court. On motion for reconsideration of the decision of the
Court of Appeals, petitioner raised for the first time, the issue of forum
shopping. The Court ruled against S.C. Megaworld, thus:cralawlawlibrary
It is well-settled that no question will be entertained on appeal unless it has
been raised in the proceedings below. Points of law, theories, issues and
arguments not brought to the attention of the lower court, administrative
agency or quasi-judicial body, need not be considered by a reviewing court,
as they cannot be raised for the first time at that late stage. Basic
considerations of fairness and due process impel this rule. Any issue raised
for the first time on appeal is barred by estoppel.70chanrobleslaw
In this case, the fact that respondent filed a case before the DTI was made
known to petitioner71 long before the SEC rendered its decision. Yet, despite
its knowledge, petitioner failed to question the alleged forum shopping
before the SEC. The exceptions to the general rule that forum shopping
should be raised in the earliest opportunity, as explained in the cited case
of Young v. Keng Seng,72 do not obtain in this case.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals
dated March 29, 2006 is hereby AFFIRMED. SO
ORDERED.chanroblesvirtuallawlibrary
THIRD DIVISION
G.R. No. 184008, August 03, 2016
INDIAN CHAMBER OF COMMERCE PHILS., INC., Petitioner, v. FILIPINO
INDIAN CHAMBER OF COMMERCE IN THE PHILIPPINES, INC., Respondent.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 assailing the Decision and
Resolution of the Court of Appeals (CA) dated May 15, 20082 and August 4,
2008,3 respectively, in CA-G.R. SP No. 97320. The Decision and Resolution
affirmed the Securities and Exchange Commission En Banc (SEC En Banc)
Decision dated November 30, 20064 directing petitioner Indian Chamber of
Commerce Phils., Inc. to modify its corporate name.
The Facts
Filipino-Indian Chamber of Commerce of the Philippines, Inc. (defunct
FICCPI) was originally registered with the SEC as Indian Chamber of
Commerce of Manila, Inc. on November 24, 1951, with SEC Registration
Number 64655 On October 7, 1959, it amended its corporate name into
Indian Chamber of Commerce of the Philippines, Inc., and further amended
it into Filipino-Indian Chamber of Commerce of the Philippines, Inc. on
March 4, 1977,.6 Pursuant to its Articles of Incorporation, and without
applying for an extension of its corporate term, the defunct FICCPI's term of
existence expired on November 24, 2001.7chanrobleslaw
SEC Case No. 05-008
On January 20, 2005, Mr. Naresh Mansukhani (Mansukhani) reserved
the corporate name "Filipino Indian Chamber of Commerce in the
Philippines, Inc." (FICCPI), for the period from January 20, 2005 to April 20,
2005, with the Company Registration and Monitoring Department (CRMD)
of the SEC.8 In an opposition letter dated April 1, 2005, Ram Sitaldas
(Sitaldas), claiming to be a representative of the defunct FICCPI, alleged that
the corporate name has been used by the defunct FICCPI since 1951, and
that the reservation by another person who is not its member or
representative is illegal.9chanrobleslaw

The CRMD called the parties for a conference and required them to submit
their position papers. Subsequently, on May 27, 2005, the CRMD rendered a
decision granting Mansukhani's reservation, holding that he possesses the
better right over the corporate name.11 The CRMD ruled that the defunct
FICCPI has no legal personality to oppose the reservation of the corporate
name by Mansukhani. After the expiration of the defunct FICCPFs corporate
existence, without any act on its part to extend its term, its right over the
name ended. Thus, the name "Filipino Indian Chamber of Commerce in the
Philippines, Inc." is free for appropriation by any party.12chanrobleslaw
Sitaldas appealed the decision of the CRMD to the SEC En Bane, which
appeal was docketed as SEC Case No. 05-008. On December 7, 2005, the SEC
En Bane denied the appeal,13 thus:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the instant appeal is HEREBY
DISMISSED for lack of merit. Let a copy of this decision be furnished the
Company Registration and Monitoring Department of this Commission for
its appropriate action.14 (Emphasis in the original.)
Sitaldas appealed the SEC En Banc decision to the CA, docketed as CA-G.R.
SP No. 92740. On September 27, 2006, the CA affirmed the decision of the
SEC En Banc15. It ruled that Mansukhani, reserving the name 'Filipino Indian
Chamber of Commerce in the Philippines, Inc.," has the of the better right
over the corporate name. It ruled that with the expiration corporate life of
the defunct FICCPI, without an extension having been filed and granted, it
lost its legal personality as a corporation.16 Thus, the CA affirmed the SEC En
Banc ruling that after the expiration of its term, the defunct FICCPI's rights
over the name also ended.17 The CA also cited SEC Memorandum Circular
No. 14-200018 which gives protection to corporate names for a period of
three years after the approval of the dissolution of the corporation. 19 It
noted that the reservation for the use of the corporate name "Filipino
Indian Chamber of Commerce in the Philippines, Inc.," and the opposition
were filed only in January 2005, way beyond this three-year
period.20chanrobleslaw
On March 14, 2006, pending resolution by the CA, the SEC issued the
Certificate of Incorporation of respondent FICCPI, pursuant to its ruling in
SEC Case No. 05-008.
SEC Case No. 06-014
Meanwhile, on December 8, 2005,22 Mr. Pracash Dayacanl, who allegedly
represented the defunct FICCPI, filed an application with the CRMD for the
reservation of the corporate name "Indian Chamber of Commerce Phils.,
Inc." (ICCPI).23 Upon knowledge, Mansukhani, in a letter dated February 14,
2006,24 formally opposed the application. Mansukhani cited the SEC En
Banc decision in SEC Case No. 05-008 recognizing him as the one possessing
the better right over the corporate name "Filipino Chamber of Commerce in
the Philippines, Inc.25cralawredchanrobleslaw
In a letter dated April 5, 200626 the CRMD denied Mansukhani's opposition.
It stated that the name "Indian Chamber of Commerce Phils., Inc." is not
deceptively or confusingly similar to "Filipino Indian Chamber of Commerce
in the Philippines, Inc." On the same date, the CRMD approved and issued
the Certificate of Incorporation27 of petitioner ICCPI.
Thus, respondent FICCPI, through Mansukhani, appealed the CRMD's
decision to the SEC En Banc.28 The appeal was docketed as SEC Case No. 06-
014. On November 30, 2006, the SEC En Bane granted the appeal filed by
FICCPI,29 and reversed the CRMD's decision. Citing Section 18 of the
Corporation Code,30 the SEC En Bane made a finding that "both from the
standpoint of their [ICCPI and FICCPI] corporate names and the purposes for
which they were established, there exist[s] a similarity that could inevitably
lead to confusion."31 It also ruled that "oppositor [FICCPI] has the prior right
to use its corporate name to the exclusion of the others. It was registered
with the Commission on March 14, 2006 while respondent [ICCPI] was
registered on April 05, 2006. By virtue of oppositor's [FICCPI] prior
appropriation and use of its name, it is entitled to protection against the
use of identical or similar name of another corporation."32
Thus, the SEC En Banc ruled, to wit:
WHEREFORE, the appeal is hereby granted and the assailed Order dated
April 05, 2006 is hereby REVERSED and SET ASIDE and respondent is
directed to change or modify its corporate name within thirty (30) days
from the date of actual receipt hereof.
SO ORDERED.33 (Emphasis in the original.)
ICCPI appealed the SEC En Banc decision in SEC Case No. 06-014 to the
CA.34 The appeal, docketed as CA-G.R. SP No. 97320, raised
the following issues:
A. The Honorable SEC En Banc committed serious error when it held
that petitioner's corporate name (ICCPI) could inevitably lead to
confusion;
B. Respondent's corporate name (FICCPI) did not acquire secondary
meaning; and cralawlawlibrary
C. The Honorable SEC En Bane violated the rule of equal protection
when it denied petitioner (ICCPI) the use of the descriptive
generic words. 35
In a decision dated May 15, 2008,36 the CA affirmed the decision of the
SEC En Banc. It held that by simply looking at the corporate names of ICCPI
and FICCPI, one may readily notice the striking similarity between the two.
Thus, an ordinary person using ordinary care and discrimination may be led
to believe that the corporate names of ICCPI and FICCPI refer to one and the
same corporation.37 The CA further ruled that ICCPI's corporate name did
not comply with the requirements of SEC Memorandum Circular No. 14-
2000. It noted that under the facts of this case, it is the registered corporate
name, FICCPI, which contains the word (Filipino) making it different from
the proposed
corporate name. SEC Memorandum Circular No. 14-2000 requires, however,
that it should be the proposed corporate name which should contain one
distinctive word different from the name of the corporation already
registered, and not the other way around, as In this case.39 Finally, the CA
held that the SEC En Bane did not violate ICCPFs right to equal protection
when it ordered ICCPI to change its corporate name. The SEC En Bane
merely compelled ICCPI to comply with its undertaking to change its
corporate name in case another person or firm has acquired a prior right to
the use of the said name or the same is deceptively or confusingly similar to
one already registered with the SEC.40
The dispositive portion of the CA decision reads:
WHEREFORE, premises considered, the petition filed in this case is
hereby DENIED and the assailed Decision of the Securities and Exchange
Commission en banc in SEC EN BANC Case No. 06-014 is hereby AFFIRMED.
SO ORDERED.41 (Emphasis in the original.)
In its Resolution dated August 4, 2008,42 the CA denied the Motion for
Reconsideration filed by ICCPI.
The Petition43
ICCPI now appeals the CA decision before this Court raisin; following
arguments:
A. The Honorable Court of Appeals committed serious error when it
upheld the findings of the SEC En Banc;
B. The Honorable Court of Appeals committed serious error when it
held that there is similarity between the petitioner and the
respondent (sic) corporate name that would inevitably lead to
confusion; and cralawlawlibrary
C. Respondent's corporate name did not acquire
secondarymeaning.44
The Court's Ruling
We uphold the decision of the CA.
Section 18 of the Coiporation Code expressly prohibits the use of a
corporate name which is identical or deceptively or confusingly similar to
that of any existing corporation:ChanRoblesVirtualawlibrary
No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is approved, the Commission
shall issue an amended certificate of
incorporation under the amended name. (Underscoring supplied.)
In Philips Export B. V. v. Court of Appeals,45 this Court ruled that to fall
within the prohibition, two requisites must be proven, to wit:
1. that the complainant corporation acquired a prior right over the
use of such corporate name; and cralawlawlibrary
2. the proposed name is either:
chanRoblesvirtualLawlibrary(a) identical; or
 (b) deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.46
These two requisites are present in this case.
FICCPI acquired a prior right over
the use of the corporate name
In Industrial Refractories Corporation of the Philippines v. Court of
Appeals,47 the Court applied the priority of adoption rule to determine prior
right, taking into consideration the dates when the parties used their
respective corporate names. It ruled that "Refractories Corporation of the
Philippines" (RCP), as opposed to "Industrial Refractories Corporation of the
Philippines" (IRCP), has acquired the right to use the word "Refractories" as
part of its corporate name, being its prior registrant on October 13, 1976.
The Court noted that IRCP only started using its corporate name when it
amended its Articles of Incorporation on August 23, 1985.48chanrobleslaw
In this case, FICCPI was incorporated on March 14, 2006. On the other hand,
ICCPI was incorporated only on April 5, 2006, or a month after FICCPI
registered its corporate name. Thus, applying the principle in
the Refractories case, we hold that FICCPI, which was incorporated earlier,
acquired a prior right over the use of the corporate name.
ICCPI cannot argue that it first incorporated and held the "Filipino Indian
Chamber of Commerce," in 1977; and that it established the name's
goodwill until it failed to renew its name due to oversight.49 It is settled that
a corporation is ipso facto dissolved as soon as its term of existence
expires.50 SEC Memorandum Circular No. 14-2000 likewise provides for the
use of corporate names of dissolved
corporations:ChanRoblesVirtualawlibrary
14. The name of a dissolved firm shall not be allowed to be used by other
firms within three (3) years after the approval of the dissolution of the
corporation by the Commission, unless allowed by the last stockholders
representing at least majority of the outstanding capital stock of the
dissolved firm.
When the term of existence of the defunct FICCPI expired on November 24,
2001, its corporate name cannot be used by other corporations within three
years from that date, until November 24, 2004. FICCPI reserved the name
"Filipino Indian Chamber of Commerce in the Philippines, Inc." on January
20, 2005, or beyond the three-year period. Thus, the SEC was correct when
it allowed FICCPI to use the reserved corporate name.
ICCPI's name is identical and
deceptively or confusingly similar to
that of FICCPI
The second requisite in the Philips Export case likewise obtains in two
respects: the proposed name is (a) identical or (b) deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law.
On the first point, ICCPI's name is identical to that of FICCPI. ICCPFs and
FICCPFs corporate names both contain the same words "Indian Chamber of
Commerce." ICCPI argues that the word "Filipino" in FICCPFs corporate
name makes it easily distinguishable from ICCPI.51 It adds that confusion and
deception are effectively precluded by appending the word "Filipino" to the
phrase "Indian Chamber of Commerce."52 Further, ICCPI claims that the
corporate name of FICCPI uses the words "in the Philippines" while ICCPI
uses only "Phils, Inc."53chanrobleslaw
ICCPFs arguments are without merit. These words do not effectively
distinguish the corporate names. On the one hand, the word "Filipino" is
merely a description, referring to a Filipino citizen or one living in the
Philippines, to describe the corporation's members. On the other, the words
"in the Philippines" and "Phils., Inc." are simply geographical locations of the
corporations which, even if appended to both the corporate names, will not
make one distinct from the other. Under the facts of this case, these words
cannot be separated from each other such that each word can be
considered to add distinction to the corporate names. Taken together, the
words in the phrase "in the Philippines" and in the phrase "Phils. Inc." are
synonymous—they both mean the location of the corporation.
The same principle was adopted by this Court in Ang mga Kaanib sa Iglesia
ng Dios Kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. v. Iglesia ng Dios
Kay Cristo Jesus, Haligi at Suhay ng Katotohanan: 54
Significantly, the only difference between the corporate names of petitioner
and respondent are the words SALIGAN and SUHAY. These words are
synonymous-both mean ground, foundation or support. Hence, this case is
on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc.,
where the Court ruled that the corporate names Universal Mills Corporation
and Universal Textile Mills, Inc., are undisputably so similar that even under
the test of "reasonable care and observation" confusion may arise.55 (Italics
in the original.)
Thus, the CA is correct when it ruled, "[a]s correctly found by the SEC en
bane, the word 'Filipino' in the corporate name of the respondent [FICCPI] is
merely descriptive and can hardly serve as an effective differentiating
medium necessary to avoid confusion. The other two words alluded to by
petitioner [ICCPI] that allegedly distinguishes its corporate name from that
of the respondent are the words 'in' and 'the' in the respondent's
corporate name. To our mind, the presence of the words 'in' and 'the' in
respondent's corporate name does not, in any way, make an effective
distinction to that of petitioner."56chanrobleslaw
Petitioner cannot argue that the combination of words in respondent's
corporate name is merely descriptive and generic, and consequently cannot
be appropriated as a corporate name to the exclusion of the others.57 Save
for the words "Filipino," "in the," and "Inc.," the corporate names of
petitioner and respondent are identical in all other respects. This issue was
also discussed in the Iglesia case where this Court held,
Furthermore, the wholesale appropriation by petitioner of respondent's
corporate name cannot find justification under the generic word rule. We
agree with the Court of Appeals' conclusion that a contrary ruling would
encourage other corporations to adopt verbatim and register an
existing and protected corporate name, to the detriment of the
public.58chanrobleslaw
On the second point, ICCPI's corporate name is deceptively or confusingly
similar to that of FICCPI. It is settled that to determire the existence of
confusing similarity in corporate names, the test is whether the similarity is
such as to mislead a person, using ordinary care and discrimination. In so
doing, the court must examine the record as well as the names
themselves.59 Proof of actual confusion need not be shown. It suffices that
confusion is probably or likely to occur.60chanrobleslaw
In this case, the overriding consideration in determining wheiher a person,
using ordinary care and discrimination, might be misled is the circumstance
that both ICCPI and FICCPI have a common primary purpose, that is, the
promotion of Filipino-Indian business in the Philippines.
The primary purposes of ICCPI as provided in its Articles of Incorporation
are:
a. Develop a stronger sense of brotherhood;
b. Enhance the prestige of the Filipino-Indian business community in
the Philippines;
c. Promote cordial business relations with Filipinos and other
business communities in the Philippines, and other overseas
Indian business organizations;
d. Respond fully to the needs of a progressive economy and the
Filipino-Indian Business community;
e. Promote and foster relations between the people and
Governments of the Republics of the Philippines and India in
areas of Industry, Trade, and
Culture.61chanroblesvirtuallawlibrary
Likewise, the primary purpose of FICCPI is "[t]o actively promote and
enhance the Filipino-Indian business relationship especially in view of
[current] local and global business trends."62chanrobleslaw
Considering these corporate purposes, the SEC En Banc made a finding that
"[i]t is apparent that both from the standpoint of their corporate names and
the purposes for which they were established, there exist a I similarity that
could inevitably lead to confusion."63 This finding of the SEC En Bane was
fully concurred with and adopted by the CA.64chanrobleslaw
Findings of fact of quasi-judicial agencies, like the SEC, are generally
accorded respect and even finality by this Court, if supported by substantial
evidence, in recognition of their expertise on the specific matters under
their consideration, and more so if the same has been upheld by the
appellate court,65 as in this case.
Petitioner cannot argue that the CA erred when it upheld the SEC En
Banc's decision to cancel ICCPFs corporate name.66 By express mandate of
law, the SEC has absolute jurisdiction, supervision and control over all
corporations.67 It is the SEC's duty to prevent confusion in the use of
corporate names not only for the protection of the corporation involved,
but more so for the protection of the public. It has the authority to de-
register at all times, and under all circumstances corporate names which in
its estimation are likely to generate confusion.68chanrobleslaw
Pursuant to its mandate, the SEC En Banc correctly applied Section 18 of the
Corporation Code, and Section 15 of SEC Memorandum Circular No. 14-
2000:ChanRoblesVirtualawlibrary
In implementing Section 18 of the Corporation Code of the Philippines (BP
68), the following revised guidelines in the approval of corporate and
partnership names are hereby
adopted for the information and guidelines of all concerned:
chanRoblesvirtualLawlibrary
xxx
15. Registrant corporations or partnership shall submit a letter undertaking
to change their corporate or partnership name in case another person or
firm has acquired a prior right to the use of said firm name or the same is
deceptively or confusingly similar to one already registered unless this
undertaking is already included as one of the provisions of the articles of
incorporation or partnership of the registrant.
Finding merit in respondent's claims, the SEC En Bane merely compelled
petitioner to comply with its undertaking.69chanrobleslaw
WHEREFORE, the petition is DENIED. The Decision of the CA dated May 15,
2008 in CA-G.R. SP No. 97320 is hereby AFFIRMED. SO
ORDERED.chanRoblesvirtualLawlib
CARABEST CASE (NONE)
FIRST DIVISION
G.R. No. 104175 June 25, 1993
YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND
GEORGE CHIONG ROXAS, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioners.
Antonio Nuyles for private respondent.
QUIASON, J.:
Petitioners seek to set aside the decision of respondent Court of Appeals in
CA-G.R. SP No. 25237, which reversed the Order dated February 8, 1991
issued by the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB
6967. The order of the trial court denied the motion to dismiss filed by
respondent George C. Roxas of the complaint for collection filed by
petitioners.
It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc.
(YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and
Vicente Sy, sold all of their shares of stock in Consolidated Marketing &
Development Corporation (CMDC) to Roxas. The purchase price was
P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the
balance of P4,000,000.00 in four post dated checks of P1,000,000.00 each.
Immediately after the execution of the agreement, Roxas took full control of
the four markets of CMDC. However, the vendors held on to the stock
certificates of CMDC as security pending full payment of the balance of the
purchase price.
The first check of P4,000,000.00, representing the down-payment, was
honored by the drawee bank but the four other checks representing the
balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold
one of the markets to a third party. Out of the proceeds of the sale, YASCO
received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title
to the proceeds of the sale of the CMDC shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional
Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to pay
petitioners the sum of P3,400,00.00 or that full control of the three markets
be turned over to YASCO and Garcia. The complaint also prayed for the
forfeiture of the partial payment of P4,600,000.00 and the payment of
attorney's fees and costs (Rollo, p. 290).
Roxas filed two motions for extension of time to submit his answer. But
despite said motion, he failed to do so causing petitioners to file a motion to
have him declared in default. Roxas then filed, through a new counsel, a
third motion for extension of time to submit a responsive pleading.
On August 19, 1988, the trial court declared Roxas in default. The order of
default was, however, lifted upon motion of Roxas.
On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:
1. The complaint did not state a cause of action due to
non-joinder of indispensable parties;
2. The claim or demand set forth in the complaint had
been waived, abandoned or otherwise extinguished;
and
3. The venue was improperly laid (Rollo, p. 299).
After a hearing, wherein testimonial and documentary evidence were
presented by both parties, the trial court in an Order dated February 8,
1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed
another motion for extension of time to submit his answer. He also filed a
motion for reconsideration, which the trial court denied in its Order dated
April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again declared in
default, on the ground that his motion for reconsideration did not toll the
running of the period to file his answer.
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of
Default which was not accompanied with the required affidavit or merit. But
without waiting for the resolution of the motion, he filed a petition
for certiorari with the Court of Appeals.
The Court of Appeals sustained the findings of the trial court with regard to
the first two grounds raised in the motion to dismiss but ordered the
dismissal of the complaint on the ground of improper venue (Rollo, p. 49).
A subsequent motion for reconsideration by petitioner was to no avail.
Petitioners now come before us, alleging that the Court of Appeals
erred in:
1. holding the venue should be in Pasay City, and not in
Cebu City (where both petitioners/plaintiffs are
residents;
2. not finding that Roxas is estopped from questioning
the choice of venue (Rollo, p. 19).
The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the Court of
Appeals relied on the address of YASCO, as appearing in the Deed of Sale
dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City."
This was the same address written in YASCO's letters and several
commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p.
48).
In the case of Garcia, the Court of Appeals said that he gave Pasay City as his
address in three letters which he sent to Roxas' brothers and sisters
(Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was led by
petitioners to believe that their residence is in Pasay City and that he had
relied upon those representations (Decision, p. 12, Rollo, p. 47).
The Court of Appeals erred in holding that the venue was improperly laid in
Cebu City.
In the Regional Trial Courts, all personal actions are commenced and tried in
the province or city where the defendant or any of the defendants resides
or may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].
There are two plaintiffs in the case at bench: a natural person and a
domestic corporation. Both plaintiffs aver in their complaint that they are
residents of Cebu City, thus:
1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a
domestic corporation duly organized and existing
under Philippine laws with principal place of business
at M. J. Cuenco Avenue, Cebu City. It also has a branch
office at 1708 Dominga Street, Pasay City, Metro
Manila.
Plaintiff Nemesio Garcia is of legal age, married,
Filipino citizen and with business address at Young
Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. .
. . (Complaint, p. 1; Rollo, p. 81).
 The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
THIRD That the place where the principal office of the
corporation is to be established or located is at Cebu
City, Philippines (as amended on December 20, 1980
and further amended on December 20, 1984) (Rollo, p.
273).
A corporation has no residence in the same sense in which this term is
applied to a natural person. But for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is
located as stated in the articles of incorporation (Cohen v. Benguet
Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon,
19 SCRA 379 [1967]). The Corporation Code precisely requires each
corporation to specify in its articles of incorporation the "place where the
principal office of the corporation is to be located which must be within the
Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the
residence of a corporation in a definite place, instead of allowing it to be
ambulatory.
In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court
explained why actions cannot be filed against a corporation in any place
where the corporation maintains its branch offices. The Court ruled that to
allow an action to be instituted in any place where the corporation has
branch offices, would create confusion and work untold inconvenience to
said entity. By the same token, a corporation cannot be allowed to file
personal actions in a place other than its principal place of business unless
such a place is also the residence of a co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter questioned the
venue on the ground that its principal place of business was in Cebu City,
Roxas could argue that YASCO was in estoppel because it misled Roxas to
believe that Pasay City was its principal place of business. But this is not the
case before us.
With the finding that the residence of YASCO for purposes of venue is in
Cebu City, where its principal place of business is located, it becomes
unnecessary to decide whether Garcia is also a resident of Cebu City and
whether Roxas was in estoppel from questioning the choice of Cebu City as
the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals
appealed from is SET ASIDE and the Order dated February 8, 1991 of the
Regional Trial Court is REINSTATED. SO ORDERED.
WILSON P. GAMBOA vs. FINANCE SECRETARY TEVES
G.R. No. 176579, promulgated June 28, 2011
X-----------------------------------------------------------------------------X
DECISION
CARPIO, J.:
I. THE FACTS
This is a petition to nullify the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of
the Republic of the Philippines, acting through the Inter-Agency Privatization
Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of
First Pacific Company Limited (First Pacific), a Hong Kong-based investment
management and holding company and a shareholder of the Philippine Long
Distance Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it also
involved an indirect sale of 12 million shares (or about 6.3 percent of the
outstanding common shares) of PLDT owned by PTIC to First Pacific. With the
this sale, First Pacific’s common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the total common shareholdings of
foreigners in PLDT to about 81.47%. This, according to the petitioner, violates
Section 11, Article XII of the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than 40%.
II. THE ISSUE
Does the term “capital” in Section 11, Article XII of the Constitution
refer to the total common shares only, or to the total outstanding capital
stock (combined total of common and non-voting preferred shares) of PLDT,
a public utility?
III. THE RULING
[The Court partly granted the petition and held that the term
“capital” in Section 11, Article XII of the Constitution refers only to shares of
stock entitled to vote in the election of directors of a public utility, or in the
instant case, to the total common shares of PLDT.]
Section 11, Article XII (National Economy and Patrimony) of the
1987 Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines, at least sixty per centum of whose capital
is owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The participation
of foreign investors in the governing body of any public utility enterprise shall
be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied)
The term “capital” in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of directors, and
thus in the present case only to common shares, and not to the total
outstanding capital stock comprising both common and non-voting preferred
shares [of PLDT].
xxx xxx xxx
Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation. This is exercised
through his vote in the election of directors because it is the board of
directors that controls or manages the corporation. In the absence of
provisions in the articles of incorporation denying voting rights to preferred
shares, preferred shares have the same voting rights as common shares.
However, preferred shareholders are often excluded from any control, that
is, deprived of the right to vote in the election of directors and on other
matters, on the theory that the preferred shareholders are merely investors
in the corporation for income in the same manner as bondholders. xxx.
Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which usually have no
voting rights, the term “capital” in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also have the
right to vote in the election of directors, then the term “capital” shall include
such preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to vote in the
election of directors. In short, the term “capital” in Section 11, Article XII of
the Constitution refers only to shares of stock that can vote in the election of
directors.
xxx xxx xxx
Mere legal title is insufficient to meet the 60 percent Filipino-
owned “capital” required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands of Filipino nationals in
accordance with the constitutional mandate. Otherwise, the corporation is
“considered as non-Philippine national[s].”
xxx xxx xxx
To construe broadly the term “capital” as the total outstanding
capital stock, including both common and non-voting preferred shares,
grossly contravenes the intent and letter of the Constitution that the “State
shall develop a self-reliant and independent national economy effectively
controlled by Filipinos.” A broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to control of the
public utility.
We shall illustrate the glaring anomaly in giving a broad definition
to the term “capital.” Let us assume that a corporation has 100 common
shares owned by foreigners and 1,000,000 non-voting preferred shares
owned by Filipinos, with both classes of share having a par value of one peso
(P1.00) per share. Under the broad definition of the term “capital,” such
corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common
shares have voting rights in the election of directors, even if they hold only
100 shares. The foreigners, with a minuscule equity of less than 0.001
percent, exercise control over the public utility. On the other hand, the
Filipinos, holding more than 99.999 percent of the equity, cannot vote in the
election of directors and hence, have no control over the public utility. This
starkly circumvents the intent of the framers of the Constitution, as well as
the clear language of the Constitution, to place the control of public utilities
in the hands of Filipinos. It also renders illusory the State policy of an
independent national economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
xxx xxx xxx
[O]nly holders of common shares can vote in the election of
directors [of PLDT], meaning only common shareholders exercise control
over PLDT. Conversely, holders of preferred shares, who have no voting rights
in the election of directors, do not have any control over PLDT. In fact, under
PLDT’s Articles of Incorporation, holders of common shares have voting rights
for all purposes, while holders of preferred shares have no voting right for
any purpose whatsoever.
It must be stressed, and respondents do not dispute, that
foreigners hold a majority of the common shares of PLDT. In fact, based on
PLDT’s 2010 General Information Sheet (GIS), which is a document required
to be submitted annually to the Securities and Exchange
Commission, foreigners hold 120,046,690 common shares of PLDT whereas
Filipinos hold only 66,750,622 common shares. In other words, foreigners
hold 64.27% of the total number of PLDT’s common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to
control, it is clear that foreigners exercise control over PLDT. Such amount of
control unmistakably exceeds the allowable 40 percent limit on foreign
ownership of public utilities expressly mandated in Section 11, Article XII of
the Constitution.
As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value
of PLDT common shares is P5.00 per share, whereas the par value of
preferred shares is P10.00 per share. In other words, preferred shares have
twice the par value of common shares but cannot elect directors and have
only 1/70 of the dividends of common shares. Moreover, 99.44% of the
preferred shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares. Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%. This undeniably shows that beneficial interest in
PLDT is not with the non-voting preferred shares but with the common
shares, blatantly violating the constitutional requirement of 60 percent
Filipino control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipinos in accordance
with the constitutional mandate. Full beneficial ownership of 60 percent of
the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the State’s grant of authority to operate a public
utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by
Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT
common shares earn, grossly violates the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and
earn less than 60 percent of the dividends, of PLDT. This directly contravenes
the express command in Section 11, Article XII of the Constitution that “[n]o
franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to x x x corporations x x x organized
under the laws of the Philippines, at least sixty per centum of whose capital
is owned by such citizens x x x.”
To repeat, (1) foreigners own 64.27% of the common shares of
PLDT, which class of shares exercises the sole right to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73%
of PLDT’s common shares, constituting a minority of the voting stock, and
thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned
by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the
dividends that common shares earn; (5) preferred shares have twice the par
value of common shares; and (6) preferred shares constitute 77.85% of the
authorized capital stock of PLDT and common shares only 22.15%. This kind
of ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value
of P5.00 have a current stock market value of P2,328.00 per share, while
PLDT preferred shares with a par value of P10.00 per share have a current
stock market value ranging from only P10.92 to P11.06 per share, is a glaring
confirmation by the market that control and beneficial ownership of PLDT
rest with the common shares, not with the preferred shares.
xxx xxx xxx
WHEREFORE, we PARTLY GRANT the petition and rule that the
term “capital” in Section 11, Article XII of the 1987 Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares). Respondent Chairperson
of the Securities and Exchange Commission is DIRECTED to apply this
definition of the term “capital” in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and
if there is a violation of Section 11, Article XII of the Constitution, to impose
the appropriate sanctions under the law
Heirs of Gamboa v. Teves, et al., G.R. No. 176579, 09 October 2012
18APR
[CARPIO, J.]
FACTS
Movants Philippine Stock Exchange’s (PSE) President, Manuel V.
Pangilinan, Napoleon L. Nazareno, and the Securities and Exchange
Commission (SEC) contend that the term “capital” in Section 11, Article XII
of the Constitution has long been settled and defined to refer to the total
outstanding shares of stock, whether voting or non-voting. In fact, movants
claim that the SEC, which is the administrative agency tasked to enforce the
60-40 ownership requirement in favor of Filipino citizens in the Constitution
and various statutes, has consistently adopted this particular definition in its
numerous opinions. Movants point out that with the 28 June 2011 Decision,
the Court in effect introduced a “new” definition or “midstream
redefinition” of the term “capital” in Section 11, Article XII of the
Constitution.
ISSUE
Whether the term “capital” includes both voting and non-voting shares.
RULING
NO.
The Constitution expressly declares as State policy the development of an
economy “effectively controlled” by Filipinos. Consistent with such State
policy, the Constitution explicitly reserves the ownership and operation of
public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations
at least 60 percent of whose capital with voting rights belongs to Filipinos.
The FIA’s implementing rules explain that “[f]or stocks to be deemed owned
and held by Philippine citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full beneficial ownership of the
stocks, coupled with appropriate voting rights is essential.” In effect, the FIA
clarifies, reiterates and confirms the interpretation that the term “capital” in
Section 11, Article XII of the 1987 Constitution refers to shares with voting
rights, as well as with full beneficial ownership. This is precisely because the
right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a corporation.
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and MCARTHUR MINING, INC.,vs.REDMONT
CONSOLIDATED MINES CORP.,
G.R. No. 195580 April 21, 2014
Facts: Sometime in December 2006, respondent Redmont Consolidated
Mines Corp. (Redmont), a domestic corporation organized and existing
under Philippine laws, took interest in mining and exploring certain areas of
the province of Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas where
it wanted to undertake exploration and mining activities where already
covered by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
In the petitions, Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since
MBMI is a considerable stockholder of petitioners, it was the driving force
behind petitioners’ filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities
through corporations which are deemed Filipino citizens. Redmont argued
that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.
On December 14, 2007, the POA issued a Resolution disqualifying
petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to
engage in mining activities. On the other hand, [Redmont] having filed its
own applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when they are
qualified under the law. The violation of the requirements for the issuance
and/or grant of permits over mining areas is clearly established thus, there
is reason to believe that the cancellation and/or revocation of permits
already issued under the premises is in order and open the areas covered to
other qualified applicants.
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur
Mining Inc., Tesoro Mining and Development, Inc., and Narra Nickel Mining
and Development Corp. as, DISQUALIFIED for being considered as Foreign
Corporations. Their Mineral Production Sharing Agreement (MPSA) are
hereby x x x DECLARED NULL AND VOID.6
With respect to the applications of respondents McArthur, Tesoro and
Narra for Financial or Technical Assistance Agreement (FTAA) or conversion
of their MPSA applications to FTAA, the matter for its rejection or approval
is left for determination by the Secretary of the DENR and the President of
the Republic of the Philippines.
After a careful review of the records, the CA found that there was doubt as
to the nationality of petitioners when it realized that petitioners had a
common major investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws
pertaining to the exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of petitioners.
Issues:
I.The Court of Appeals erred when it did not dismiss the case for mootness
despite the fact that the subject matter of the controversy, the MPSA
Applications, have already been converted into FTAA applications and that
the same have already been granted.
Held: We find the petition to be without merit.This case not moot and
academic. We of this Court note that a grave violation of the Constitution,
specifically Section 2 of Article XII, is being committed by a foreign
corporation right under our country’s nose through a myriad of corporate
layering under different, allegedly, Filipino corporations. The intricate
corporate layering utilized by the Canadian company, MBMI, is of
exceptional character and involves paramount public interest since it
undeniably affects the exploitation of our Country’s natural resources. The
corresponding actions of petitioners during the lifetime and existence of the
instant case raise questions as what principle is to be applied to cases with
similar issues. No definite ruling on such principle has been pronounced by
the Court; hence, the disposition of the issues or errors in the instant case
will serve as a guide "to the bench, the bar and the public."35 Finally, the
instant case is capable of repetition yet evading review, since the Canadian
company, MBMI, can keep on utilizing dummy Filipino corporations through
various schemes of corporate layering and conversion of applications to
skirt the constitutional prohibition against foreign mining in Philippine soil.
the Grandfather Rule or the second part of the SEC Rule applies only when
the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where
the joint venture corporation with Filipino and foreign stockholders with
less than 60% Filipino stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59% less Filipino).
Stated differently, where the 60-40 Filipino- foreign equity ownership is not
in doubt, the Grandfather Rule will not apply. (emphasis supplied)
the Court finds that this case calls for the application of the grandfather
rule since, as ruled by the POA and affirmed by the OP, doubt prevails and
persists in the corporate ownership of petitioners. Also, as found by the CA,
doubt is present in the 60-40 Filipino equity ownership of petitioners Narra,
McArthur and Tesoro, since their common investor, the 100% Canadian
corporation––MBMI, funded them. However, petitioners also claim that
there is "doubt" only when the stockholdings of Filipinos are less than
60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings
are less than 60% fails to convince this Court. DOJ Opinion No. 20, which
petitioners quoted in their petition, only made an example of an instance
where "doubt" as to the ownership of the corporation exists. It would be
ludicrous to limit the application of the said word only to the instances
where the stockholdings of non-Filipino stockholders are more than 40% of
the total stockholdings in a corporation. The corporations interested in
circumventing our laws would clearly strive to have "60% Filipino
Ownership" at face value. It would be senseless for these applying
corporations to state in their respective articles of incorporation that they
have less than 60% Filipino stockholders since the applications will be
denied instantly. Thus, various corporate schemes and layerings are utilized
to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme
employed by stockholders to circumvent the law, creating a cloud of doubt
in the Court’s mind. To determine, therefore, the actual participation, direct
or indirect, of MBMI, the grandfather rule must be used.
II.The Court of Appeals erred when it did not dismiss the case for lack of
jurisdiction considering that the Panel of Arbitrators has no jurisdiction to
determine the nationality of Narra, Tesoro and McArthur.
We affirm the ruling of the CA in declaring that the POA has jurisdiction over
the instant case. The POA has jurisdiction to settle disputes over rights to
mining areas which definitely involve the petitions filed by Redmont against
petitioners Narra, McArthur and Tesoro. It is clear that POA has exclusive
and original jurisdiction over any and all disputes involving rights to mining
areas. One such dispute is an MPSA application to which an adverse claim,
protest or opposition is filed by another interested applicantn the case at
bar, the dispute arose or originated from MPSA applications where
petitioners are asserting their rights to mining areas subject of their
respective MPSA applications. Since respondent filed 3 separate petitions
for the denial of said applications, then a controversy has developed
between the parties and it is POA’s jurisdiction to resolve said disputes.
Furthermore, the POA has jurisdiction over the MPSA applications under the
doctrine of primary jurisdiction. Euro-med Laboratories v. Province of
Batangas elucidates:The doctrine of primary jurisdiction holds that if a case
is such that its determination requires the expertise, specialized training
and knowledge of an administrative body, relief must first be obtained in
an administrative proceeding before resort to the courts is had even if the
matter may well be within their proper jurisdiction.
IV.The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law, particularly
the express mandate of the Foreign Investments Act of 1991, as amended,
and the FIA Rules.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it
is used to circumvent the Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that the grandfather rule
has already been abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of
natural resources shall be under the full control and supervision of the
State. The State may directly undertake such activities, or it may enter into
co-production, joint venture or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five
years, and under such terms and conditions as may be provided by law.
The President may enter into agreements with Foreign-owned corporations
involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on
real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and
use of local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into
different types of agreements for the exploration, development, and
utilization of natural resources with entities who are deemed Filipino due to
60 percent ownership of capital is pertinent to this case, since the issues are
centered on the utilization of our country’s natural resources or specifically,
mining. Thus, there is a need to ascertain the nationality of petitioners
since, as the Constitution so provides, such agreements are only allowed
corporations or associations "at least 60 percent of such capital is owned by
such citizens."
Under the above-quoted SEC Rules, there are two cases in determining the
nationality of the Investee Corporation. The first case is the ‘liberal rule’,
later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, ‘(s)hares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality.’ Under the liberal Control Test, there is no need to
further trace the ownership of the 60% (or more) Filipino stockholdings of
the Investing Corporation since a corporation which is at least 60% Filipino-
owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, "but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine nationality." Under the
Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced
to the level of the Investing Corporation and added to the shares directly
owned in the Investee Corporation x x x.
Concluding from the above-stated facts, it is quite safe to say that
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests. Such
conclusion is derived from grandfathering petitioners’ corporate owners,
namely: MMI, SMMI and PLMDC. Going further and adding to the picture,
MBMI’s Summary of Significant Accounting Policies statement– –regarding
the "joint venture" agreements that it entered into with the "Olympic" and
"Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the
ownership of the "layered" corporations boils down to MBMI, Olympic or
corporations under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure
or the underlying relationships between and among the corporations,
petitioners are NOT Filipino nationals and must be considered foreign since
60% or more of their capital stocks or equity interests are owned by MBMI.
VI.The Court of Appeals erred when it concluded that the conversion of the
MPSA Applications into FTAA Applications were of "suspicious nature" as
the same is based on mere conjectures and surmises without any shred of
evidence to show the same.
We disagree.
x x x The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The filing
of the FTAA application conversion which is allowed foreign corporation of
the earlier MPSA is an admission that indeed the respondent is not Filipino
but rather of foreign nationality who is disqualified under the laws.
Corporate documents of MBMI Resources, Inc. furnished its stockholders in
their head office in Canada suggest that they are conducting operation only
through their local counterparts.36
Respondent Redmont, in its Comment dated October 10, 2011, made
known to the Court the fact of the OP’s Decision and Resolution. In their
Reply, petitioners chose to ignore the OP Decision and continued to reuse
their old arguments claiming that they were granted FTAAs and, thus, the
case was moot. Petitioners filed a Manifestation and Submission dated
October 19, 2012,40 wherein they asserted that the present petition is
moot since, in a remarkable turn of events, MBMI was able to sell/assign all
its shares/interest in the "holding companies" to DMCI Mining Corporation
(DMCI), a Filipino corporation and, in effect, making their respective
corporations fully-Filipino owned.
The only thing clear and proved in this Court is the fact that the OP declared
that petitioner corporations have violated several mining laws and made
misrepresentations and falsehood in their applications for FTAA which lead
to the revocation of the said FTAAs, demonstrating that petitioners are not
beyond going against or around the law using shifty actions and strategies.
Thus, in this instance, we can say that their claim of mootness is moot in
itself because their defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.
Selling of MBMI’s shares to DMCI -As stated before, petitioners’
Manifestation and Submission dated October 19, 2012 would want us to
declare the instant petition moot and academic due to the transfer and
conveyance of all the shareholdings and interests of MBMI to DMCI, a
corporation duly organized and existing under Philippine laws and is at least
60% Philippine-owned.56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares supposedly cured
the "defect" of their previous nationality. They claimed that their current
FTAA contract with the State should stand since "even wholly-owned
foreign corporations can enter into an FTAA with the State."57 Petitioners
stress that there should no longer be any issue left as regards their
qualification to enter into FTAA contracts since they are qualified to engage
in mining activities in the Philippines. Thus, whether the "grandfather rule"
or the "control test" is used, the nationalities of petitioners cannot be
doubted since it would pass both tests.The sale of the MBMI shareholdings
to DMCI does not have any bearing in the instant case and said fact should
be disregarded. The manifestation can no longer be considered by us since
it is being tackled in G.R. No. 202877 pending before this Court.1âwphi1
Thus, the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are allowed
to enter into FTAAs with the State is a non-issue in this case.In ending, the
"control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the
1987 Constitution, entitled to undertake the exploration, development and
utilization of the natural resources of the Philippines. When in the mind of
the Court there is doubt, based on the attendant facts and circumstances of
the case, in the 60-40 Filipino-equity ownership in the corporation, then it
may apply the "grandfather rule."WHEREFORE, premises considered, the
instant petition is DENIED. The assailed Court of Appeals Decision dated
October 1, 2010 and Resolution dated February 15, 2011 are hereby
AFFIRMED.
Taxwise or Otherwise
By Elinor E. de Gracia, 2 July 2015
Certain provisions of the Philippine Constitution were crafted to protect the
rights of Filipino citizens to utilize our natural resources and to engage in
nationalized activities. However, this should not deter foreign economic
investments that would allow the country to efficiently explore these
natural resources and effectively operate public utilities or reserved
activities.
In determining compliance with the minimum Filipino equity requirement,
there are two acknowledged tests. One is the control test or the liberal rule.
The other is the Grandfather Rule, which is known to be the stricter and
more stringent test. In applying these tests, there had been confusion as to
whether one method excludes the use of the other.
The control test provides that shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered of Philippine nationality. This test is straightforward and
does not scrutinize further the ownership of the Filipino shareholdings.
On the other hand, the Grandfather Rule determines the actual Filipino
ownership and control in a corporation by tracing both the direct and
indirect shareholdings in the corporation.
According to the January 2015 Resolution of the Supreme Court in the case
of Narra Nickel Mining and Development Corp. vs. Redmont Consolidated
Mines Corp. (G.R. No. 195580), “the Grandfather test was originally
intended to look into the citizenship of the individuals who ultimately own
and control the shares of stock of a corporation for purposes of determining
compliance with the constitutional requirement of Filipino ownership”.
The shareholdings should ideally be traced (i.e. grandfathered) to the point
where natural persons hold the shares. However, this may be impractical
and a limit must be set when tracing through the corporate layers to
attribute nationality. Citing a memorandum from the Securities and
Exchange Commission (SEC), the Supreme Court noted the suggestion of the
SEC to apply the Grandfather Rule on two levels of corporate relations for
publicly-held corporations or where shares are traded in the stock
exchange, and to three levels for closely held ones or those which are not
traded in any stock exchange. Clearly, the limits should not go beyond the
level of what is reasonable.
The Supreme Court clarified the role of these tests in determining
compliance with the required Filipino equity threshold. The Court explained
that the use of the Grandfather Rule is a supplement to the Control Test in
implementing the wisdom of the “Filipinization” provisions of the
Constitution.
The Supreme Court recognized the intention of the framers of the
Constitution to apply the Grandfather Rule in cases where there is
corporate layering. It likewise noted that corporate layering, while
admittedly allowed by the Foreign Investment Act, becomes illegal if used to
circumvent the Constitution and other applicable laws.
The Court further discussed that the Grandfather Rule applies only when
the 60-40 Filipino-foreign ownership is in doubt or where there is reason to
believe that there is non-compliance with the provisions of the Constitution
on the nationality restriction.
How then we do we determine the existence of doubt? In its Resolution, the
high court clarified that “doubt” does not automatically mean the mere
failure of the Filipino ownership to meet the 60% threshold of the
corporation’s equity. “Doubt” refers to various indicia that the “beneficial
ownership” and “control” of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders.
To demonstrate these signs of doubt, the Court referred to the indicators of
a dummy status as identified in a Department of Justice Opinion on the
Anti-Dummy Law. These would be where the foreign investors provide
practically all the funds and technological support for a joint venture
undertaken with their Filipino partners, and where such foreign investors
get to manage the company even while being minority stockholders.
In the Narra Nickel Mining case, the Supreme Court found that while the
petitioning corporations complied with the Control Test, factual
circumstances nonetheless raise doubt as to their true nationality and
therefore requires the application of the Grandfather Rule. Some of the
indicators of “doubt” found by the Court in the said case are the following:
(1) the three mining corporations had the same 100% Canadian owned
foreign investor, (2) the similar corporate structure and shareholder
composition of the three corporations, (3) a major Filipino shareholder
within the corporate layering did not pay any amount with respect to its
subscription, and (4) the dubious act of the foreign investor in conveying its
interests in the mining corporations to another domestic corporation,
among others. These instances demonstrate that corporate layering was
utilized to allow a foreign corporation to gain control of these mining
corporations in the Philippines.
After applying the Grandfather Rule, the Supreme Court was able to trace
and conclude that the Filipino shareholders did not actually have the
required amount of control and beneficial ownership in the mining
companies, and consequently failed to comply with the nationality
requirement under the Constitution.
In a fitting ending, the Supreme Court enunciated its original April 2014
decision that “the Control Test is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation”. It is only in case of
doubt, based on the attendant facts and circumstances of the case, that the
Grandfather Rule is applied.
NARRA NICKEL MINING AND DEVELOPMENT CORP., et al. v. REDMONT
CONSOLIDATED MINES CORP., G.R. No. 195580, April 21, 2014
Remedial law; When is a case deemed moot and academic. A case is said to
be moot and/or academic when it “ceases to present a justiciable
controversy by virtue of supervening events, so that a declaration thereon
would be of no practical use or value.” Thus, the courts “generally decline
jurisdiction over the case or dismiss it on the ground of mootness.”
Exceptions to assuming jurisdiction despite the case becoming moot. The
“mootness” principle, however, does accept certain exceptions and the
mere raising of an issue of “mootness” will not deter the courts from trying
a case when there is a valid reason to do so. In David v. Macapagal-Arroyo,
the Court provided four instances where courts can decide an otherwise
moot case, thus: (1) There is a grave violation of the Constitution; (2) The
exceptional character of the situation and paramount public interest is
involved; (3) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the public; and (4)
The case is capable of repetition yet evading review.
Commercial law; Tests to determine the nationality of a corporation. There
are two acknowledged tests in determining the nationality of a corporation:
the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No.
020, Series of 2005, adopts the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the controlling
interests in enterprises engaged in the exploitation of natural resources
owned by Filipino citizens. The first part of paragraph 7, DOJ Opinion No.
020, stating “shares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality,” pertains to the control test or the liberal rule. On the
other hand, the second part of the DOJ Opinion which provides, “if the
percentage of the Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to such percentage
shall be counted as Philippine nationality,” pertains to the stricter, more
stringent grandfather rule.
Application of the Grandfather Rule. Based on the said SEC Rule and DOJ
Opinion, the Grandfather Rule or the second part of the SEC Rule applies
only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests in
other joint venture corporation which is either 60-40% Filipino-alien or the
59% less Filipino). Stated differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the Grandfather Rule will not apply.
Existence of doubt. The assertion of petitioners that “doubt” only exists
when the stockholdings are less than 60% fails to convince this Court. DOJ
Opinion No. 20, which petitioners quoted in their petition, only made an
example of an instance where “doubt” as to the ownership of the
corporation exists. It would be ludicrous to limit the application of the said
word only to the instances where the stockholdings of non-Filipino
stockholders are more than 40% of the total stockholdings in a corporation.
The corporations interested in circumventing our laws would clearly strive
to have “60% Filipino Ownership” at face value. It would be senseless for
these applying corporations to state in their respective articles of
incorporation that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate schemes and
layerings are utilized to circumvent the application of the Constitution.
January 28, 2015 digest none
SPECIAL THIRD DIVISION
G.R. No. 195580 January 28, 2015
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and McARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DISSENTING OPINION
LEONEN, J.:
I dissent from the majority's Resolution denying with finality the Motion for
Reconsideration filed by petitioners. I maintain the positions I articulated in
my Dissent to the April 21, 2014 Decision. I welcome the majority's
statements clarifying the relative applicability of the Grandfather Rule in
relation to the Control Test. I particularly welcome the clarification that "it is
only when the Control Test is first complied with that the Grandfather Rule
may be applied."1 This is in line with the position I articulated in my Dissent
to the April 21, 2014 Decision that the Control Test should find priority in
application, with the Grandfather Rule being applicable only as a
"supplement."2
However, I maintain that the Panel of Arbitrators of the Department of
Environment and Natural Resources (DENR Panel of Arbitrators) never had
jurisdiction to rule on the nationalities of petitioners Narra Nickel Mining
and Development Corp. (Narra), Tesoro Mining and Development, Inc.
(Tesoro), and McArthur Mining, Inc. (McArthur) and on the question of
whether they should be qualified to hold Mineral Production Sharing
Agreements (MPSA). It is error for the majority to rule that petitioners are
foreign corporations proceeding from the actions of a body which never had
jurisdiction and competence to rule on the judicial question of nationality.
Likewise, I maintain that respondent Redmont Consolidated Mines Corp.
(Redmont) engaged in blatant forum shopping. This, the lack of jurisdiction
and competence of the DENR Panel of Arbitrators, and the error of
proceeding from the acts of an incompetent body are sufficient grounds for
granting the Petition and should suffice as bases for granting the present
Motion for Reconsideration.
I
The DENR Panel of Arbitrators had no competence to rule on the Petitions
filed by Redmont
The jurisdiction of the DENR Panel of Arbitrators is spelled out in Section 77
of Republic Act No. 7942, otherwise known as the Philippine Mining Act of
1995 (the "Mining Act"):
Section 77. Panel of Arbitrators – . . . . Within thirty (30) working days, after
the submission of the caseby the parties for decision, the panel shall have
exclusive and original jurisdiction to hear and decide on the following:
(a) Disputes involving rights to mining areas;
(b) Disputes involving mineral agreements or permit;
(c) Disputes involving surface owners, occupants and
claimholders/concessionaires; and
(d) Disputes pending before the Bureau and the Department at
the date of the effectivity of this Act.
The April 21, 2014 Decision sustained the jurisdiction of the DENR Panel of
Arbitrators, relying on pronouncements made in Celestial Nickel Mining
Exploration Corporation v. Macroasia Corp.3 which construed the phrase
"disputes involving rights to mining areas" as referring "to any adverse
claim, protest, or opposition to an application for mineral agreement."4
However, the Decision interpreted Section 77 of the Mining Act in a manner
that runs afoul of this court’s pronouncements in its Decision penned by
Associate Justice Dante Tinga in Gonzales v. Climax Mining Ltd.5 and in its
Decision penned by Associate Justice J.B.L. Reyes in Philex Mining Corp. v.
Zaldivia.6
As pointed out in my Dissent to the April 21, 2014 Decision, "Gonzales v.
Climax Mining Ltd.,7 ruled on the jurisdiction of the Panel of Arbitrators as
follows:"
We now come to the meat of the case which revolves mainly around the
question of jurisdiction by the Panel of Arbitrators: Does the Panel of
Arbitrators have jurisdiction over the complaint for declaration of nullity
and/or termination of the subject contracts on the ground of fraud,
oppression and violation of the Constitution? This issue may be distilled into
the more basic question of whether the Complaint raises a mining dispute
or a judicial question.
A judicial question is a question that is proper for determination by the
courts, as opposed to a moot question or one properly decided by the
executive or legislative branch. A judicial question is raised when the
determination of the question involves the exercise of a judicial function;
that is, the question involves the determination of what the law is and what
the legal rights of the parties are with respect to the matter in controversy.
On the other hand, a mining dispute is a dispute involving (a) rights to
mining areas, (b) mineral agreements, FTAAs, or permits, and (c) surface
owners, occupants and claimholders/concessionaires. Under Republic Act
No. 7942 (otherwise known as the Philippine Mining Act of 1995), the Panel
of Arbitrators has exclusive and original jurisdiction to hear and decide
these mining disputes. The Court of Appeals, in its questioned decision,
correctly stated that the Panel’s jurisdiction is limited only to those mining
disputes which raise questions of fact or matters requiring the application of
technological knowledge and experience.8 (Emphasis supplied, citation
omitted)
Philex Mining Corp. v. Zaldivia9 settled what "questions of fact" are
appropriate for resolution in a mining dispute:
We see nothing in [S]ections 61 and 73 of the Mining Law that indicates a
legislative intent to confer real judicial power upon the Director of Mines.
The very terms of [S]ection 73 of the Mining Law, as amended by Republic
Act No. 4388, in requiring that the adverse claim must "statein full detail the
nature, boundaries and extent of the adverse claim" show that the conflicts
to be decided by reason of such adverse claim refer primarily to questions
of fact. This is made even clearer by the explanatory note to House Bill No.
2522, later to become Republic Act 4388, that "[S]ections 61 and 73 that
refer to the overlapping of claims are amended to expedite resolutions of
mining conflicts * * *." The controversies to be submitted and resolved by
the Director of Mines under the sections refer ther[e]fore only to the
overlapping of claims and administrative matters incidental
thereto.10 (Emphasis supplied)
The DENR Panel of Arbitrators, as its name denotes, is an arbitral body. It is
not a court of law.1âwphi1 Its competence rests in its capacity to resolve
factual issues arising between parties with competing mining claims and
requiring the application of technical expertise.
In this case, Redmont has not even shown that it has a competing mining
claim. It has asked only that petitioners be declared as not qualified to enter
into MPSAs.
By sustaining the jurisdiction of the DENR Panel of Arbitrators, the majority
effectively diminishes (if not totally abandons) the distinction made in
Gonzales and Philex between "mining disputes" and "judicial questions." Per
Gonzales and Philex, judicial questions are cognizable only by courts of
justice, not by the DENR Panel of Arbitrators.
The majority’s reference to Celestial takes out of context the
pronouncements made therein. To reiterate what I have stated in my
Dissent to the April 21, 2014 Decision, "[t]he pronouncements in
Celestialcited by the ponencia were made to address the assertions of
Celestial Nickel and Mining Corporation (Celestial Nickel) and Blue Ridge
Mineral Corporation (Blue Ridge) that the Panel of Arbitrators had the
power to cancel existing mineral agreements pursuant to Section 77 of the
Mining Act. . . . These pronouncements did not undo or abandon the
distinction, clarified in Gonzales, between judicial questions and mining
disputes."11
The crux of this case relates to a matter that is beyond the competence of
the DENR Panel of Arbitrators. It does not pertain to the intricacies and
specifications of mining operations. Rather, it pertains to the legal status of
petitioners and the rights or inhibitions accruing to them on account of their
status. It pertains to a judicial question.
II
On the applicability of the Grandfather Rule
I maintain the position I elucidated in my Dissent to the April 21, 2014
Decision. The Control Test, ratherthan the Grandfather Rule, finds priority
application in reckoning the nationalities of corporations engaged in
nationalized economic activities.
The Grandfather Rule finds no basis in the text of the 1987 Constitution. It is
true that the records of the Constitutional Commission "indicate an
affirmative reference to the Grandfather Rule."12 However, whatever
references these records make to the Grandfather Rule is not indicative of a
consensus among all members of the Constitutional Commission. At most,
these references are advisory and not binding on this court.13 Ultimately,
what is controlling is the text of the Constitution itself. This text is silent on
the precise means of reckoning foreign ownership.
In contrast, the Control Test is firmly enshrined by congressional dictum in a
statute, specifically, Republic Act No. 8179, otherwise known as the Foreign
Investments Act (FIA). As this court has pointed out, "[t]he FIA is the basic
law governing foreign investments in the Philippines, irrespective of the
nature of business and area of investment."14
Section 3 (a) of the Foreign Investments Act defines a "Philippine national"
as including "a corporation organized under the laws of the Philippines of
which at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines." In my
Dissent to the April 21, 2014 Decision:
This is a definition that is consistent with the first part of paragraph 7 of the
1967 SEC Rules, which [originally articulated] the Control Test: "[s]hares
belonging to corporations or partnerships at least 60 per cent of the capital
of which is owned by Filipino citizens shall be considered as of Philippine
nationality."15
The Control Test serves the rationale for nationalization of economic
activities. It ensures effective control by Filipinos and satisfies the
requirement of beneficial ownership.
On the matter of control, my Dissent to the April 21, 2014 Decision
explained that:
It is a matter of transitivity16 that if Filipino stockholders control a
corporation which, in turn, controls another corporation, then the Filipino
stockholders control the latter corporation, albeit indirectly or through the
former corporation.
An illustration is apt.
Suppose that a corporation, "C", is engaged in a nationalized activity
requiring that 60% of its capital be owned by Filipinos and that this 60% is
owned by another corporation, "B", while the remaining 40% is owned by
stockholders, collectively referred to as "Y". Y is composed entirely of
foreign nationals. As for B, 60% of its capital is owned by stockholders
collectively referred to as"A", while the remaining 40% is owned by
stockholders collectively referred to as "X". The collective A, is composed
entirely of Philippine nationals, while the collective X is composed entirely
of foreign nationals.(N.b., in this illustration, capital is understood to mean
"shares of stock entitled to vote in the election of directors," per the
definition in Gamboa17). Thus:
By owning 60% of B’s capital, A controls B. Likewise, by owning 60% of C’s
capital, B controls C. From this, it follows, as a matter of transitivity, that A
controls C; albeit indirectly, thatis, through B.
This "control" holds true regardless of the aggregate foreign capital in B and
C. As explained in Gamboa, control by stockholders is a matter resting on
the ability to votein the election of directors:
Indisputably, one of the rights of a stockholder is the right to participate in
the control or management of the corporation. This is exercised through his
vote in the election of directors because it is the board of directors that
controls or manages the corporation.18
B will not be outvoted by Y in matters relating to C, while A will not be
outvoted by X in matters relating to B. Since all actions taken by B must
necessarily be in conformity with the will of A, anything that B does in
relation to C is, in effect, in conformity with the will of A. No amount of
aggregating the foreign capital in B and C will enable X to outvote A, nor Y to
outvote B.
In effect, A controls C, through B. Stated otherwise, the collective Filipinos in
A, effectively control C, through their control of B.19
From the definition of "beneficial owner or beneficial ownership" provided
by the Implementing Rules and Regulations (amended 2004) of Republic Act
No. 8799, otherwise known as the Securities Regulation Code, "there are
two (2) ways through which one may be a beneficial owner of securities,
such as shares of stock: first, by having or sharing voting power; and second,
by having or sharing investment returns or power."20 The Implementing
Rules use "and/or"; thus, these are alternative means which may or may not
concur.
On the first — voting power — my Dissent to the April 21, 2014 Decision
pointed out that:
Voting power, as discussed previously, ultimately rests on the controlling
stockholders of the controlling investor corporation. To go back to the
previous illustration, voting power ultimately rests on A, it having the voting
power in B which, in turn, has the voting power in C.21
On the second — investment returns or power — the same Dissent pointed
out that:
As to investment returns or power, it is ultimately A which enjoys
investment power. It controls B’s investment decisions – including the
disposition of securities held by B – and (again, through B) controls C’s
investment decisions.
Similarly, it is ultimately A which benefits from investment returns
generated through C. Any income generated by C redounds to B’s benefit,
that is, through income obtained from C, B gains funds or assets which it can
use either to finance itself in respect of capital and/or operations. This is a
direct benefit to B, itself a Philippine national. This is also an indirect benefit
to A, a collectivity of Philippine nationals, as then, its business – B – not only
becomes more viable asa going concern but also becomes equipped to
funnel income to A.
Moreover, beneficial ownership need not be direct. A controlling
shareholder is deemed the indirect beneficial owner of securities (e.g.,
shares) held by a corporation of which he or she is a controlling
shareholder. Thus, in the previous illustration, A, the controlling shareholder
of B, is the indirect beneficial owner of the shares in C to the extent that
they are held by B.22
However, 60 percent equity ownership isbut a minimum. It is in this regard
that the Dissent to the April 21, 2014 Decision recognized that the
Grandfather Rule properly finds application as a "supplement" to the
Control Test:
Bare ownership of 60% of a corporation’s shares would not suffice. What is
necessary is such ownership as will ensure control of a corporation.
In Gamboa, "[f]ull beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights, is
required."23 With this in mind, the Grandfather Rule may be used as a
supplement to the Control Test, that is, as a further check to ensure that
control and beneficial ownership of a corporation is in fact lodged in
Filipinos.
For instance, Department of Justice Opinion No. 165, series of 1984,
identified the following "significant indicators" or badges of "dummy
status":
1. That the foreign investor provides practically all the funds for
the joint investment undertaken by Filipino businessmen and
their foreign partner[;]
2. That the foreign investors undertake to provide practically all
the technological support for the joint venture[; and]
3. That the foreign investors, while being minority stockholders,
manage the company and prepare all economic viability studies.24
In instances where methods are employed to disable Filipinos from
exercising control and reaping the economic benefits of an enterprise, the
ostensible control vested by ownership of 60% of a corporation’s capital
may be pierced. Then, the Grandfather Rule allows for a further, more
exacting examination of who actually controls and benefits from holding
such capital.25
The majority’s Resolution denying the present Motion for Reconsideration
recognizes that the Grandfather Rule alone does not suffice for reckoning
Filipino and foreign equity ownership in corporations engaged in
nationalized economic activities. The majority echoes the characterization
of the applicability of the Grandfather Rule as only supplementary26 and
explains:
The Grandfather Rule, standing alone, should not be used to determine the
Filipino ownership and control in a corporation, as it could result to an
otherwise foreign corporation rendered qualified to perform nationalized or
partly nationalized activities. Hence, it is only when the Control Test is first
complied with that the Grandfather Rule may be applied. Put in another
manner, if the subject corporation’s Filipino equity falls below the threshold
60%, the corporation is immediately considered foreign-owned, in which
case, the need to resort to the Grandfather Rule disappears.
On the other hand, a corporation that complies with the 60-40 Filipino to
foreign equity requirement can be considered a Filipino corporation if there
is no doubt as to who has the "beneficial ownership" and "control" of the
corporation. In that instance, there is no need for a dissection or further
inquiry on the ownership of the corporate shareholders in both the
investing and investee corporation or the application of the Grandfather
Rule. As a corollary rule, even if the 60-40 Filipino to foreign equity is
apparently met by the subject or investee corporation, a resort to the
Grandfather Rule is necessary if doubt exists as to the locusof the
"beneficial ownership" and "control."27
III
Proceeding from the actions of the DENR Panel of Arbitrators is improper
Following the above-quoted portion inits discussion, the majority states that
"[i]n this case, a further investigation as to the nationality of the
personalities with the beneficial ownership and control of the corporate
shareholders in both the investing and investee corporations is necessary."28
The majority then proceeds to an analysis of the equity structures of
petitioners. The analysis notes that 59.97% of Narra’s 10,000 shares29 is held
by Patricia LouiseMining and Development Corporation (Patricia Louise),
65.96% of whose shares is, in turn, held by Palawan Alpha South Resources
Development Corporation (PASRDC). It adds that 59.97% of Tesoro’s 10,000
common shares is heldby Sara Marie Mining, Inc. (Sara Marie), a Filipino
corporation, 66.63% ofwhose shares is, in turn, held by Olympic Mines and
Development Corporation (Olympic), another Filipino corporation. Finally,
59.97% of McArthur’s 10,000 common shares is held by Madridejos Mining
Corporation (Madridejos), a Filipino corporation, 66.63% of whose shares is,
in turn, held by Olympic.
The majority also notes that 39.98%of Narra’s shares is held by Canadian
corporation MBMI Resources, Inc. (MBMI), while 39.98% of Tesoro’s and
McArthur’s common shares is held by MBMI.30 It adds that in the case of the
majority shareholder of Narra (i.e., Patricia Louise), 33.96% of its shares is
owned by MBMI, while in the cases of the respective majority shareholders
of Tesoro and McArthur (i.e., Sara Marie, and Madridejos, respectively),
33.31% of their shares is held by MBMI.
The respective Filipino majority shareholders of Patricia Louise, Sara Marie,
and Madridejos (i.e., PASRDC inthe case of Patricia Louise, and Olympic in
the cases of Sara Marie and Madridejos) did not pay for shares. Instead,
MBMI paid for their respective paid-up capital. The majority concludes,
applying the Grandfather Rule, that a foreign corporation — MBMI —
breached the permissible maximum of 40% foreign equity participation in
the three (3) petitioner corporations and that petitioners are foreign
corporations not entitled to mineral production sharing agreements.
My Dissent to the April 21, 2014 Decision noted the inadequacy of relying
merely on the denomination of shares as common or preferred:
Proceeding from the findings of the Court of Appeals in its October 1, 2010
decision in CA-G.R. SP No. 109703, it appears that at least 60% of equities in
Narra, Tesoro, and McArthur is owned by Philippine nationals. Per this initial
analysis, Narra, Tesoro, and McArthur ostensibly satisfy the requirements of
the Control Test in order that they may be deemed Filipino corporations.
Attention must be drawn to how these findings fail to indicate which
(fractional) portion of these equities consist of "shares of stock entitled to
vote in the election of directors" or, if there is even any such portion of
shares which are not entitled to vote. These findings fail to indicate any
distinction between common shares and preferred shares (not entitled to
vote). Absent a basis for reckoning non-voting shares, there is, thus, no basis
for diminishing the 60% Filipino equity holding in Narra, Tesoro, and
McArthur and undermining their having ostensibly satisfied the
requirements of the Control Test in order to be deemed Filipino
corporations qualified to enter into MPSAs.31
It is the majority’s position that the mere reckoning of how shares are
denominated — whether common or preferred — suffices. I, however,
proffer an analysis that requires looking into the actual voting rights vested
on each class of shares. While it is true that preferred shares are generally
viewed as non-voting shares, a conclusion that the preferred shares
involved in this case are totally bereft of voting rights is not warranted by a
cursory consideration of how they are denominated.
The same Dissent conceded that a "more thorough consideration . . . could
yield an entirely different conclusion."32 This is what the majority endeavors
to embark on. However, it is improper to proceed, as the majority does,
from the action of a body without competence and jurisdiction as well as
the imprudent acts of forum shopping of Redmont, and, in the process, lend
legitimacy to the DENR Panel of Arbitrators’ and Redmont’s illicit actions:
Having made these observations, it should not be discounted that a more
thorough consideration – as has been intimated in the earlier disquisition
regarding how 60% Filipino equity ownership is but a minimum and how the
Grandfather Rule may be applied to further examine actual Filipino
ownership – could yield an entirely different conclusion. In fact, Redmont
has asserted that such a situation avails.
However, the contingencies of this case must restrain the court’s
consideration of Redmont’s claims. Redmont sought relief from a body
without jurisdiction – the Panel of Arbitrators – and has engaged in blatant
forum shopping. It has taken liberties with and ran amok of rules that define
fair play. It is, therefore, bound by its lapses and indiscretions and must bear
the consequences of its imprudence.33
IV
Redmont engaged in blatant forum shopping It would be remiss of this court
to overlook Redmont’s acts of forum shopping. To do so would
enableRedmont to profit from its own imprudence and for this court to
countenance a manifest disrespect for courts and quasi-judicial bodies. As
extensively discussed in my Dissent to the April 21, 2014 Decision:
Redmont has taken at least four (4) distinct routes all seeking substantially
the same remedy. Stripped of their verbosity and legalese, Redmont’s
petitions before the DENR Panel of Arbitrators, complaint before the
Regional Trial Court, complaint before the Securities and Exchange
Commission, and petition before the Office of the President all seek to
prevent Narra, Tesoro, and McArthur as well as their co-respondents and/or
co-defendants from engaging in mining operations. Moreover, these are all
grounded on the same cause (i.e., that they are disqualified from doing so
because they fail to satisfy the requisite Filipino equity ownership) and
premised on the same facts or circumstances.
Redmont has created a situation where multiple tribunals must rule on the
extent to which the parties adverse to Redmont have met the requisite
Filipino equity ownership. It is certainly possible that conflicting decisions
will be issued by the various tribunals over which Redmont’s various
applications for relief have been lodged. It is, thus, glaring that the very evil
sought to be prevented by the rule against forum shopping is being foisted
by Redmont.
....
It strains credulity to accept that Redmont’s actions have not been willful.
By filing petitions with the DENR Panel of Arbitrators, Redmont started the
entire series of events that have culminated in: first, the present petition;
second, the de-consolidated G.R. No. 205513; and third, at least one (1)
more petition filed with this court.34
Following the adverse decision of the Panel of Arbitrators, Narra, Tesoro,
and McArthur pursued appeals before the Mines Adjudication Board. This is
all but a logical consequence of the POA’s adverse decision. While the
appeal before the MAB was pending, Redmont filed a complaint with the
SEC and then filed a complaint with the Regional Trial Court to enjoin the
MAB from proceeding. Redmont seems to have conveniently forgotten that
it was its own actions that gave rise to the proceedings before the MAB in
the first place. Moreover, even as all these were pending and in various
stages of appeal and/or review, Redmont still filed a petition before the
Office of the President.
Consistent with Rule 7, Section 5 of the 1997 Rules of Civil Procedure, the
actions subject of these consolidated petitions must be dismissed with
prejudice.35
Apart from the Petition subject of the present Motion for Reconsideration,
two (2) other cases involving the same parties are now pending with this
court. The first, G.R. No. 205513, relates to a Complaint for Revocation of
the certificates of registration of Narra, Tesoro, and McArthur filed by
Redmont with the Securities and Exchange Commission. G.R. No. 205513
was consolidated but later de-consolidated with this case. The second is a
case pending with this court’s First Division. This relates to the Petition filed
by Redmont with the Office of the President in which it sought the
cancellation of the financial or technical assistance agreement (FTAA)
applications of Narra, Tesoro, and McArthur.
That there are now three (3) simultaneously pending Petitions with this
court is the result of Redmont's contemporaneously having sought remedies
from:
1. The DENR Panel of Arbitrators;
2. The Securities and Exchange Commission;
3. The Regional Trial Court, Quezon City; and
4. The Office of the President.
While this and the two other cases pending with this court diverge as to the
procedural routes they have taken, they all boil down to the central issue of
the nationalities of Narra, Tesoro and McArthur. It is manifest that Redmont
engaged in blatant forum shopping. The April 21, 2014 Decision effectively
rewarded Redmont's abuse of court processes. Worse, maintaining the
status quo of having a multiplicity of cases reinforces the stance of leaving
Redmont to reap the benefits of its unconscionable scheme.
ACCORDINGLY, I vote to grant the Motion for Reconsideration. I reiterate
my vote to GRANT the Petition for Review on Certiorari subject of G.R. No.
195580. The assailed Decision dated October 1, 2010 and the assailed
Resolution dated February 15, 2011 of the Court of Appeals Seventh
Division in CA-G.R. SP No. 109703, which reversed and set aside the
September 10, 2008 and July 1, 2009 Orders of the Mines Adjudication
Board, should be SET ASIDE and DECLARED NULL AND VOID. The September
10, 2008 Order of the Mines Adjudication Board dismissing the Petitions
filed by Redmont Consolidated Mines with the DENR Panel of Arbitrators
must be REINSTATED.
MARVIC M.V.F. LEONEN
Associate Justice
EN BANC
G.R. No. L-8451 December 20, 1957
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO,
INC., petitioner,
vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF
DAVAO CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General
Jose G. Bautista and Troadio T. Quianzon, Jr., for respondents.
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic
Administrator of Davao seeking the reversal of a resolution by the Land
Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case
are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the
City of Davao, executed a deed of sale of a parcel of land located in the
same city covered by Transfer Certificate No. 2263, in favor of the Roman
Catholic Apostolic Administrator of Davao Inc., s corporation sole organized
and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault,
a Canadian citizen, as actual incumbent. When the deed of sale was
presented to Register of Deeds of Davao for registration, the latter.
having in mind a previous resolution of the Fourth Branch of the
Court of First Instance of Manila wherein the Carmelite Nuns of
Davao were made to prepare an affidavit to the effect that 60 per
cent of the members of their corporation were Filipino citizens
when they sought to register in favor of their congregation of
deed of donation of a parcel of land—
required said corporation sole to submit a similar affidavit declaring that 60
per cent of the members thereof were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to
submit an affidavit, both not in the same tenor as that made the Progress of
the Carmelite Nuns because the two cases were not similar, for whereas the
congregation of the Carmelite Nuns had five incorporators, the corporation
sole has only one; that according to their articles of incorporation, the
organization of the Carmelite Nuns became the owner of properties
donated to it, whereas the case at bar, the totality of the Catholic
population of Davao would become the owner of the property bought to be
registered.
As the Register of Deeds entertained some doubts as to the registerability if
the document, the matter was referred to the Land Registration
Commissioner en consulta for resolution in accordance with section 4 of
Republic Act No. 1151. Proper hearing on the matter was conducted by the
Commissioner and after the petitioner corporation had filed its
memorandum, a resolution was rendered on September 21, 1954, holding
that in view of the provisions of Section 1 and 5 of Article XIII of the
Philippine Constitution, the vendee was not qualified to acquire private
lands in the Philippines in the absence of proof that at least 60 per centum
of the capital, property, or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc., was actually owned or controlled by Filipino
citizens, there being no question that the present incumbent of the
corporation sole was a Canadian citizen. It was also the opinion of the Land
Registration Commissioner that section 159 of the corporation Law relied
upon by the vendee was rendered operative by the aforementioned
provisions of the Constitution with respect to real estate, unless the precise
condition set therein — that at least 60 per cent of its capital is owned by
Filipino citizens — be present, and, therefore, ordered the Registered Deeds
of Davao to deny registration of the deed of sale in the absence of proof of
compliance with such condition.
After the motion to reconsider said resolution was denied, an action
for mandamus was instituted with this Court by said corporation sole,
alleging that under the Corporation Law as well as the settled jurisprudence
on the matter, the deed of sale executed by Mateo L. Rodis in favor of
petitioner is actually a deed of sale in favor of the Catholic Church which is
qualified to acquire private agricultural lands for the establishment and
maintenance of places of worship, and prayed that judgment be rendered
reserving and setting aside the resolution of the Land Registration
Commissioner in question. In its resolution of November 15, 1954, this
Court gave due course to this petition providing that the procedure
prescribed for appeals from the Public Service Commission of the Securities
and Exchange Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or
hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain,
water, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or utilization
shall be limited to cititzens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is owned by
such citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession
AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER CONSTITUTION. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or
leases for the exploitation, development, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five years,
renewable for another twenty-five years, except as to water rights for
irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases other than the development
and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered
"qualified" to acquire and hold agricultural lands in the Philippines? What is
the effect of these constitutional prohibition of the right of a religious
corporation recognized by our Corporation Law and registered as
a corporation sole, to possess, acquire and register real estates in its name
when the Head, Manager, Administrator or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of
the citizenship of its incumbent, is not prohibited or disqualified to acquire
and hold real properties. The Corporation Law and the Canon Law are
explicit in their provisions that a corporation sole or "ordinary" is not the
owner of the of the properties that he may acquire but merely the
administrator thereof. The Canon Law also specified that church
temporalities are owned by the Catholic Church as a "moral person" or by
the diocess as minor "moral persons" with the ordinary or bishop as
administrator.
And elaborating on the composition of the Catholic Church in the
Philippines, petitioner explained that as a religious society or organization, it
is made up of 2 elements or divisions — the clergy or religious members and
the faithful or lay members. The 1948 figures of the Bureau of Census
showed that there were 277,551 Catholics in Davao and aliens residing
therein numbered 3,465. Ever granting that all these foreigners are
Catholics, petitioner contends that Filipino citizens form more than 80 per
cent of the entire Catholics population of that area. As to its clergy and
religious composition, counsel for petitioner presented the Catholic
Directory of the Philippines for 1954 (Annex A) which revealed that as of
that year, Filipino clergy and women novices comprise already 60.5 per cent
of the group. It was, therefore, allowed that the constitutional requirement
was fully met and satisfied.
Respondents, on the other hand, averred that although it might be true that
petitioner is not the owner of the land purchased, yet he has control over
the same, with full power to administer, take possession of, alienate,
transfer, encumber, sell or dispose of any or all lands and their
improvements registered in the name of the corporation sole and can
collect, receive, demand or sue for all money or values of any kind that may
be kind that may become due or owing to said corporation, and vested with
authority to enter into agreements with any persons, concerns or entities in
connection with said real properties, or in other words, actually exercising
all rights of ownership over the properties. It was their stand that the theory
that properties registered in the name of the corporation sole are held in
true for the benefit of the Catholic population of a place, as of Davao in the
case at bar should be sustained because a conglomeration of persons
cannot just be pointed out as the cestui que trust or recipient of the
benefits from the property allegedly administered in their behalf. Neither
can it be said that the mass of people referred to as such beneficiary
exercise ant right of ownership over the same. This set-up, respondents
argued, falls short of a trust. The respondents instead tried to prove that in
reality, the beneficiary of ecclesiastical properties are not members or
faithful of the church but someone else, by quoting a portion a portion of
the ought of fidelity subscribed by a bishop upon his elevation to the
episcopacy wherein he promises to render to the Pontificial Father or his
successors an account of his pastoral office and of all things appertaining to
the state of this church.
Respondents likewise advanced the opinion that in construing the
constitutional provision calling for 60 per cent of Filipino citizenship, the
criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the
following: A corporation sole is a special form of corporation usually
associated with the clergy. Conceived and introduced into the common law
by sheer necessity, this legal creation which was referred to as "that
unhappy freak of English law" was designed to facilitate the exercise of the
functions of ownership carried on by the clerics for and on behalf of the
church which was regarded as the property owner (See I Couvier's Law
Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will
always be one at a time), in some particular station, who are incorporated
by law in order to give them some legal capacities and advantages,
particularly that of perpetuity, which in their natural persons they could not
have had. In this sense, the king is a sole corporation; so is a bishop, or dens,
distinct from their several chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are
illuminating and sustain the stand of petitioner. Section 154 thereof
provides:
SEC. 154. — For the administration of the temporalities of any
religious denomination, society or church and the management
of the estates and the properties thereof, it shall be lawful for the
bishop, chief priest, or presiding either of any such religious
denomination, society or church to become a corporation sole,
unless inconsistent wit the rules, regulations or discipline of his
religious denomination, society or church or forbidden by
competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same
Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief
priest, or presiding elder of any religious denomination, society or
church must file with the Securities and Exchange Commissioner
articles of incorporation setting forth the following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he
is charged with the administration of the temporalities and the
management of the estates and properties of his religious
denomination, society, or church within its territorial jurisdiction,
describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and
Exchange Commissioner of the said articles of incorporation,
which verified by affidavit or affirmation as aforesaid and
accompanied by the copy of the commission, certificate of
election, or letters of appointment of the bishop, chief priest, or
presiding elder, duly certified as prescribed in the section
immediately preceding such the bishop, chief priest, or presiding
elder, as the case may be, shall become a corporation sole and all
temporalities, estates, and properties the religious denomination,
society, or church therefore administered or managed by him as
such bishop, chief priest, or presiding elder, shall be held in trust
by him as a corporation sole, for the use, purpose, behalf, and sole
benefit of his religious denomination, society, or church, including
hospitals, schools, colleges, orphan, asylums, parsonages, and
cemeteries thereof. For the filing of such articles of incorporation,
the Securities and Exchange Commissioner shall collect twenty-
five pesos. (As amended by Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all property
held or owned by a religious order or society, or by the diocese,
synod, or district organization of any religious denomination or
church shall, on its incorporation, pass to the corporation and
shall be held in trust for the use, purpose behalf, and benefit of
the religious society, or order so incorporated or of the church of
which the diocese, or district organization is an organized and
constituent part.
The Cannon Law contains similar provisions regarding the duties of the
corporation sole or ordinary as administrator of the church properties, as
follows:
Al Ordinario local pertenence vigilar diligentemente sobre
la administracion de todos los bienes eclesiasticos que se hallan
en su territorio y no estuvieren sustraidos de su jurisdiccion, salvs
las prescriciones legitimas que le concedan mas aamplios
derechos.
Teniendo en cuenta los derechos y las legitimas costumbres y
circunstancias, procuraran los Ordinarios regular todo lo
concerniente a la administracion de los bienes eclesciasticos,
dando las oportunas instucciones particularles dentro del narco
del derecho comun. (Title XXVIII, Codigo de Derecho Canonico,
Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the case
may be, as corporation's sole are merely administrators of the church
properties that come to their possession, in which they hold in trust for the
church. It can also be said that while it is true that church properties could
be administered by a natural persons, problems regarding succession to said
properties can not be avoided to rise upon his death. Through this legal
fiction, however, church properties acquired by the incumbent of a
corporation sole pass, by operation of law, upon his death not his personal
heirs but to his successor in office. It could be seen, therefore, that a
corporation sole is created not only to administer the temporalities of the
church or religious society where he belongs but also to hold and transmit
the same to his successor in said office. If the ownership or title to the
properties do not pass to the administrators, who are the owners of church
properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise
comment:
In matters regarding property belonging to the Universal Church
and to the Apostolic See, the Supreme Pontiff exercises his office
of supreme administrator through the Roman Curia; in matters
regarding other church property, through the administrators of
the individual moral persons in the Church according to that
norms, laid down in the Code of Cannon Law. This does not mean,
however, that the Roman Pontiff is the owner of all the church
property; but merely that he is the supreme guardian (Bouscaren
and Ellis, Cannon Law, A Text and Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia
Canonica, ruled in the case of Trinidad vs. Roman Catholic Archbishop of
Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of
the properties constituting the endowment of the ecclesiastical
or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in whom
the ownership of the ecclesiastical properties is vested, with
respect to which we shall, for our purpose, confine ourselves to
stating with Donoso that, while many doctors cited by Fagnano
believe that it resides in the Roman Pontiff as Head of the
Universal Church, it is more probable that ownership, strictly
speaking, does not reside in the latter, and, consequently,
ecclesiastical properties are owned by the churches, institutions
 and canonically established private corporations to which said
properties have been donated.
Considering that nowhere can We find any provision conferring ownership
of church properties on the Pope although he appears to be the supreme
administrator or guardian of his flock, nor on the corporation sole or heads
of dioceses as they are admittedly mere administrators of said properties,
ownership of these temporalities logically fall and develop upon the church,
diocese or congregation acquiring the same. Although this question of
ownership of ecclesiastical properties has off and on been mentioned in
several decisions of the Court yet in no instance was the subject of
citizenship of this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in
his dissent in the case of Agustines vs. Court of First Instance of Bulacan, 80
Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila is
only a branch of a universal church by the Pope, with permanent residence
in Rome, Italy". There is no question that the Roman Catholic Church
existing in the Philippines is a tributary and part of the international
religious organization, for the word "Roman" clearly expresses its unity with
and recognizes the authority of the Pope in Rome. However, lest We
become hasty in drawing conclusions, We have to analyze and take note of
the nature of the government established in the Vatican City, of which it
was said:
GOVERNMENT. In the Roman Catholic Church supreme authority
and jurisdiction over clergy and laity alike as held by the pope
who (since the Middle Ages) is elected by the cardinals assembled
in conclave, and holds office until his death or legitimate
abdication. . . While the pope is obviously independent of the
laws made, and the officials appointed, by himself or his
predecessors, he usually exercises his administrative authority
according to the code of canon law and through the
congregations, tribunals and offices of the Curia Romana. In their
respective territories (called generally dioceses) and over their
respective subjects, the patriarchs, metropolitans or archbishops
and bishops exercise a jurisdiction which is called ordinary (as
attached by law to an office given to a person. . . (Collier's
Encyclopedia, Vol. 17, p. 93).
While it is true and We have to concede that in the profession of their faith,
the Roman Pontiff is the supreme head; that in the religious matters, in the
exercise of their belief, the Catholic congregation of the faithful throughout
the world seeks the guidance and direction of their Spiritual Father in the
Vatican, yet it cannot be said that there is a merger of personalities
resultant therein. Neither can it be said that the political and civil rights of
the faithful, inherent or acquired under the laws of their country, are
affected by that relationship with the Pope. The fact that the Roman
Catholic Church in almost every country springs from that society that saw
its beginning in Europe and the fact that the clergy of this faith derive their
authorities and receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches. Citizenship is a political right
which cannot be acquired by a sort of "radiation". We have to realize that
although there is a fraternity among all the catholic countries and the
dioceses therein all over the globe, the universality that the word "catholic"
implies, merely characterize their faith, a uniformity in the practice and the
interpretation of their dogma and in the exercise of their belief, but
certainly they are separate and independent from one another in
jurisdiction, governed by different laws under which they are incorporated,
and entirely independent on the others in the management and ownership
of their temporalities. To allow theory that the Roman Catholic Churches all
over the world follow the citizenship of their Supreme Head, the Pontifical
Father, would lead to the absurdity of finding the citizens of a country who
embrace the Catholic faith and become members of that religious society,
likewise citizens of the Vatican or of Italy. And this is more so if We consider
that the Pope himself may be an Italian or national of any other country of
the world. The same thing be said with regard to the nationality or
citizenship of the corporation sole created under the laws of the Philippines,
which is not altered by the change of citizenship of the incumbent bishops
or head of said corporation sole.
We must therefore, declare that although a branch of the Universal Roman
Catholic Apostolic Church, every Roman Catholic Church in different
countries, if it exercises its mission and is lawfully incorporated in
accordance with the laws of the country where it is located, is considered an
entity or person with all the rights and privileges granted to such artificial
being under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without prejudice to its
religious relations with the latter which are governed by the Canon Law or
their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may
draw on this matter will have a far reaching influence, nor can We overlook
the pages of history that arouse indignation and criticisms against church
landholdings. This nurtured feeling that snowbailed into a strong
nationalistic sentiment manifested itself when the provisions on natural to
be embodied in the Philippine Constitution were framed, but all that has
been said on this regard referred more particularly to landholdings of
religious corporations known as "Friar Estates" which have already bee
acquired by our government, and not to properties held by corporations
sole which, We repeat, are properties held in trust for the benefit of the
faithful residing within its territorial jurisdiction. Though that same feeling
probably precipitated and influenced to a large extent the doctrine laid
down in the celebrated Krivenco decision, We have to take this matter in
the light of legal provisions and jurisprudence actually obtaining,
irrespective of sentiments.
The question now left for our determination is whether the Universal
Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of
Davao, Inc., is qualified to acquire private agricultural lands in the
Philippines pursuant to the provisions of Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only
persons or corporations qualified to acquire hold lands of the public domain
in the Philippines may acquire or be assigned and hold private agricultural
lands. Consequently, the decisive factor in the present controversy hinges
on the proposition or whether or not the petitioner in this case can acquire
agricultural lands of the public domain.
From the data secured from the Securities and Exchange Commission, We
find that the Roman Catholic Bishop of Zamboanga was incorporated (as a
corporation sole) in September, 1912, principally to administer its
temporalities and manage its properties. Probably due to the ravages of the
last war, its articles of incorporation were reconstructed in the Securities
and Exchange Commission on April 8, 1948. At first, this corporation sole
administered all the temporalities of the church existing or located in the
island of Mindanao. Later on, however, new dioceses were formed and new
corporations sole were created to correspond with the territorial
jurisdiction of the new dioceses, one of them being petitioner herein, the
Roman Catholic Apostolic Administrator of Davao, Inc., which was
registered with the Securities and Exchange Commission on September 12,
1950, and succeeded in the administrative for all the "temporalities" of the
Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1,
1906, a corporation sole.
is organized and composed of a single individual, the head of any
religious society or church, for the ADMINISTRATION of the
temporalities of such society or church. By "temporalities" is
meant estate and properties not used exclusively for religious
worship. The successor in office of such religious head or chief
priest incorporated as a corporation sole shall become the
corporation sole on ascension to office, and shall be permitted to
transact business as such on filing with the Securities and
Exchange Commission a copy of his commission, certificate of
election or letter of appointment duly certified by any notary
public or clerk of court of record (Guevara's The Philippine
Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real
estate and personal; property for its church, charitable,
benevolent, or educational purposes, and may receive bequests
or gifts of such purposes. Such corporation may mortgage or sell
real property held by it upon obtaining an order for that purpose
from the Court of First Instance of the province in which the
property is situated; but before making the order proof must be
made to the satisfaction of the Court that notice of the
application for leave to mortgage or sell has been given by
publication or otherwise in such manner and for such time as said
Court or the Judge thereof may have directed, and that it is to the
interest of the corporation that leave to mortgage or sell must be
made by petition, duly verified by the bishop, chief priest, or
presiding elder acting as corporation sole, and may be opposed
by any member of the religious denomination, society or church
represented by the corporation sole: Provided, however, That in
cases where the rules, regulations, and discipline of the religious
denomination, society or church concerned represented by such
corporation sole regulate the methods of acquiring, holding,
 selling and mortgaging real estate and personal property, such
rules, regulations, and discipline shall control and the
intervention of the Courts shall not be necessary.
It can, therefore, be noticed that the power of a corporation sole to
purchase real property, like the power exercised in the case at bar, it is not
restricted although the power to sell or mortgage sometimes is, depending
upon the rules, regulations, and discipline of the church concerned
represented by said corporation sole. If corporations sole can purchase and
sell real estate for its church, charitable, benevolent, or educational
purposes, can they register said real properties? As provided by law, lands
held in trust for specific purposes me be subject of registration (section 69,
Act 496), and the capacity of a corporation sole, like petitioner herein, to
register lands belonging to it is acknowledged, and title thereto may be
issued in its name (Bishop of Nueva Segovia vs. Insular Government, 26 Phil.
300-1913). Indeed it is absurd that while the corporations sole that might be
in need of acquiring lands for the erection of temples where the faithful can
pray, or schools and cemeteries which they are expressly authorized by law
to acquire in connection with the propagation of the Roman Catholic
Apostolic faith or in furtherance of their freedom of religion they could not
register said properties in their name. As professor Javier J. Nepomuceno
very well says "Man in his search for the immortal and imponderable, has,
even before the dawn of recorded history, erected temples to the Unknown
God, and there is no doubt that he will continue to do so for all time to
come, as long as he continues 'imploring the aid of Divine Providence'"
(Nepomuceno's Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41,
September, 1956). Under the circumstances of this case, We might safely
state that even before the establishment of the Philippine Commonwealth
and of the Republic of the Philippines every corporation sole then organized
and registered had by express provision of law the necessary power and
qualification to purchase in its name private lands located in the territory in
which it exercised its functions or ministry and for which it was created,
independently of the nationality of its incumbent unique and single member
and head, the bishop of the dioceses. It can be also maintained without fear
of being gainsaid that the Roman Catholic Apostolic Church in the
Philippines has no nationality and that the framers of the Constitution, as
will be hereunder explained, did not have in mind the religious corporations
sole when they provided that 60 per centum of the capital thereof be
owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered
corporation sole is an artificial being having the right of succession and the
power, attributes, and properties expressly authorized by law or incident to
its existence (section 1, Corporation Law). In outlining the general powers of
a corporation. Public Act. No. 1459 provides among others:
SEC. 13. Every corporation has the power:
(5) To purchase, hold, convey, sell, lease, lot, mortgage,
encumber, and otherwise deal with such real and personal
property as the purpose for which the corporation was formed
may permit, and the transaction of the lawful business of the
corporation may reasonably and necessarily require, unless
otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a form of
corporation recognized by the same law, Section 159 aforequoted expressly
allowed the corporation sole to purchase and hold real as well as personal
properties necessary for the promotion of the objects for which said
corporation sole is created. Respondent Land Registration Commissioner,
however, maintained that since the Philippine Constitution is a later
enactment than public Act No. 1459, the provisions of Section 159 in
amplification of Section 13 thereof, as regard real properties, should be
considered repealed by the former.
There is a reason to believe that when the specific provision of the
Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or overlooked
this particular form of corporation. It is undeniable that the naturalization
and conservation of our national resources was one of the dominating
objectives of the Convention and in drafting the present Article XII of the
Constitution, the delegates were goaded by the desire (1) to insure their
conservation for Filipino posterity; (2) to serve as an instrument of national
defense, helping prevent the extension into the country of foreign control
through peaceful economic penetration; and (3) to prevent making the
Philippines a source of international conflicts with the consequent danger to
its internal security and independence (See The Framing of the Philippine
Constitution by Professor Jose M. Aruego, a Delegate to the Constitutional
Convention, Vol. II. P. 592-604). In the same book Delegate Aruego,
explaining the reason behind the first consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino
capital had been to be rather shy. Filipinos hesitated s a general
rule to invest a considerable sum of their capital for the
development, exploitation and utilization of the natural resources
of the country. They had not as yet been so used to corporate as
the peoples of the west. This general apathy, the delegates knew,
would mean the retardation of the development of the natural
resources, unless foreign capital would be encouraged to come
and help in that development. They knew that the naturalization
of the natural resources would certainly not encourage
the INVESTMENT OF FOREIGN CAPITAL into them. But there was a
general feeling in the Convention that it was better to have such a
development retarded or even postpone together until such time
when the Filipinos would be ready and willing to undertake it
rather than permit the natural resources to be placed under the
ownership or control of foreigners in order that they might be
immediately be developed, with the Filipinos of the future serving
not as owners but utmost as tenants or workers under foreign
masters. By all means, the delegates believed, the natural
resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the Constitution
intended said provisions as barrier for foreigners or corporations financed
by such foreigners to acquire, exploit and develop our natural resources,
saving these undeveloped wealth for our people to clear and enrich when
they are already prepared and capable of doing so. But that is not the case
of corporations sole in the Philippines, for, We repeat, they are mere
administrators of the "temporalities" or properties titled in their name and
for the benefit of the members of their respective religion composed of an
overwhelming majority of Filipinos. No mention nor allusion whatsoever is
made in the Constitution as to the prohibition against or the liability of the
Roman Catholic Church in the Philippines to acquire and hold agricultural
lands. Although there were some discussions on landholdings, they were
mostly confined in the inclusion of the provision allowing the Government
to break big landed estates to put an end to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to
inhibitory clause of Section 1 of Article XIII of the constitution does have
bearing on the petitioner's case; even so the clause requiring that at least 60
per centum of the capital of the corporation be owned by Filipinos is
subordinated to the petitioner's aforesaid right already existing at the time
of the inauguration of the Commonwealth and the Republic of the
Philippines. In the language of Mr. Justice Jose P. Laurel (a delegate to the
Constitutional Convention), in his concurring opinion of the case of Gold
Creek mining Corporation, petitioner vs. Eulogio Rodriguez, Secretary of
Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of
Mines, respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution was
originally embodied in the report submitted by the Committee on
Naturalization and Preservation of Land and Other Natural
Resources to the Constitutional Convention on September 17,
1954. It was later inserted in the first draft of the Constitution as
section 13 of Article XIII thereof, and finally incorporated as we
find it now. Slight have been the changes undergone by the
proviso from the time when it comes out of the committee until it
was finally adopted. When first submitted and as inserted to the
first draft of the Constitution it reads: 'subject to any right, grant,
lease, or concession existing in respect thereto on the date of the
adoption of the Constitution'. As finally adopted, the proviso
reads: 'subject to any existing right, grant, lease, or concession at
the time of the inauguration of the Government established
under this Constitution'. This recognition is not mere graciousness
but springs form the just character of the government
established. The framers of the Constitution were not obscured
by the rhetoric of democracy or swayed to hostility by an intense
spirit of nationalism. They well knew that conservation of our
natural resources did not mean destruction or annihilation of
acquired property rights. Withal, they erected a government
neither episodic nor stationary but well-nigh conservative in the
protection of property rights. This notwithstanding nationalistic
and socialistic traits discoverable upon even a sudden dip into a
variety of the provisions embodied in the instrument.
The writer of this decision wishes to state at this juncture that during the
deliberation of this case he submitted to the consideration of the Court the
question that may be termed the "vested right saving clause" contained in
Section 1, Article XII of the Constitution, but some of the members of this
Court either did not agree with the theory of the writer, or were not ready
to take a definite stand on the particular point I am now to discuss deferring
our ruling on such debatable question for a better occasion, inasmuch as
the determination thereof is not absolutely necessary for the solution of the
problem involved in this case. In his desire to face the issues squarely, the
writer will endeavor, at least as a disgression, to explain and develop his
theory, not as a lucubration of the Court, but of his own, for he deems it
better and convenient to go over the cycle of reasons that are linked to one
another and that step by step lead Us to conclude as We do in the
dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides,
among other things, that "all agricultural lands of the public domain and
their disposition shall be limited to citizens of the Philippines or
to corporations at least 60 per centum of the capital of which is owned by
such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER THIS
CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold
Creek Mining Corporation vs. Rodriguez et al., 66 Phil. 259, "this recognition
(in the clause already quoted), is not mere graciousness but springs from the
just character of the government established. The farmers of the
Constitution were not obscured by the rhetoric of democracy or swayed to
hostility by an intense spirit of nationalism. They well knew that
conservation of our natural resources did not mean destruction or
annihilation of ACQUIRED PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition
of public or private lands by a corporation which does not fulfill this 60 per
cent requisite, refers to purchases of the Constitution and not to later
transactions. This argument would imply that even assuming that petitioner
had at the time of the enactment of the Constitution the right to purchase
real property or right could not be exercised after the effectivity of our
Constitution, because said power or right of corporations sole, like the
herein petitioner, conferred in virtue of the aforequoted provisions of the
Corporation Law, could no longer be exercised in view of the requisite
therein prescribed that at least 60 per centum of the capital of the
corporation had to be Filipino. It has been shown before that: (1) the
corporation sole, unlike the ordinary corporations which are formed by no
less than 5 incorporators, is composed of only one persons, usually the head
or bishop of the diocese, a unit which is not subject to expansion for the
purpose of determining any percentage whatsoever; (2) the corporation
sole is only the administrator and not the owner of the temporalities
located in the territory comprised by said corporation sole; (3) such
temporalities are administered for and on behalf of the faithful residing in
the diocese or territory of the corporation sole; and (4) the latter, as such,
has no nationality and the citizenship of the incumbent Ordinary has
nothing to do with the operation, management or administration of the
corporation sole, nor effects the citizenship of the faithful connected with
their respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious
that when the specific provision of the Constitution invoked by respondent
Commissioner (section 1, Art. XIII), was under consideration, the framers of
the same did not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances already indicated
tend to prove it to be so, then the inescapable conclusion would be that this
requirement of at least 60 per cent of Filipino capital was never intended to
apply to corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We might
say that a reading of said Section 1 will show that it does not refer to any
actual acquisition of land up to the right, qualification or power to
acquire and hold private real property. The population of the Philippines,
Catholic to a high percentage, is ever increasing. In the practice of religion of
their faithful the corporation sole may be in need of more temples where to
pray, more schools where the children of the congregation could be taught
in the principles of their religion, more hospitals where their sick could be
treated, more hallow or consecrated grounds or cemeteries where Catholics
could be buried, many more than those actually existing at the time of the
enactment of our Constitution. This being the case, could it be logically
maintained that because the corporation sole which, by express provision of
law, has the power to hold and acquire real estate and personal property of
its churches, charitable benevolent, or educational purposes (section 159,
Corporation Law) it has to stop its growth and restrain its necessities just
because the corporation sole is a non-stock corporation composed of only
one person who in his unity does not admit of any percentage, especially
when that person is not the owner but merely an administrator of the
temporalities of the corporation sole? The writer leaves the answer to
whoever may read and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing
the case, for even if We were to disregard such saving clause of the
Constitution, which reads: subject to any existing right, grant, etc., at the
same time of the inauguration of the Government established under this
Constitution, yet We would have, under the evidence on record, sufficient
grounds to uphold petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No.
L-6776, promulgated May 21, 1955, wherein this question was considered
from a different angle, this Court through Mr. Justice J.B.L. Reyes, said:
The fact that the appellant religious organization has no capital
stock does not suffice to escape the Constitutional inhibition,
since it is admitted that its members are of foreign nationality.
The purpose of the sixty per centum requirement is obviously to
ensure that corporation or associations allowed to acquire
agricultural land or to exploit natural resources shall be controlled
by Filipinos; and the spirit of the Constitution demands that in the
absence of capital stock, the controlling membership should be
composed of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation
sole but a corporation aggregate, i.e., an unregistered organization
operating through 3 trustees, all of Chinese nationality, and that is why this
Court laid down the doctrine just quoted. With regard to petitioner, which
likewise is a non-stock corporation, the case is different, because it is a
registered corporation sole, evidently of no nationality and registered
mainly to administer the temporalities and manage the properties
belonging to the faithful of said church residing in Davao. But even if we
were to go over the record to inquire into the composing membership to
determine whether the citizenship requirement is satisfied or not, we would
find undeniable proof that the members of the Roman Catholic Apostolic
faith within the territory of Davao are predominantly Filipino citizens. As
indicated before, petitioner has presented evidence to establish that the
clergy and lay members of this religion fully covers the percentage of
Filipino citizens required by the Constitution. These facts are not
controverted by respondents and our conclusion in this point is sensibly
obvious.
Dissenting Opinion—Discussed. — After having developed our theory in the
case and arrived at the findings and conclusions already expressed in this
decision. We now deem it proper to analyze and delve into the basic
foundation on which the dissenting opinion stands up. Being aware of the
transcendental and far-reaching effects that Our ruling on the matter might
have, this case was thoroughly considered from all points of view, the Court
sparing no effort to solve the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt
dispatch of the case: (1) the reversal of the doctrine We laid down in the
celebrated Krivenko case by excluding urban lots and properties from the
group of the term "private agricultural lands" use in this section 5, Article
XIII of the Constitution; and (2) by driving Our reasons to a point that might
indirectly cause the appointment of Filipino bishops or Ordinary to head the
corporations sole created to administer the temporalities of the Roman
Catholic Church in the Philippines. With regard to the first way, a great
majority of the members of this Court were not yet prepared nor agreeable
to follow that course, for reasons that are obvious. As to the second way, it
seems to be misleading because the nationality of the head of a diocese
constituted as a corporation sole has no material bearing on the functions
of the latter, which are limited to the administration of the temporalities of
the Roman Catholic Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it
may be noticed that its author lingered on the outskirts of the issues, thus
throwing the main points in controversy out of focus. Of course We fully
agree, as stated by Professor Aruego, that the framers of our Constitution
had at heart to insure the conservation of the natural resources of Our
motherland of Filipino posterity; to serve them as an instrument of national
defense, helping prevent the extension into the country of foreign
control through peaceful economic penetration; and to prevent making the
Philippines a source of international conflicts with the consequent danger to
its internal security and independence. But all these precautions adopted by
the Delegates to Our Constitutional Assembly could have not been intended
for or directed against cases like the one at bar. The emphasis and
wonderings on the statement that once the capacity of a corporation sole to
acquire private agricultural lands is admitted there will be no limit to the
areas that it may hold and that this will pave the way for the "revival or
revitalization of religious landholdings that proved so troublesome in our
past", cannot even furnish the "penumbra" of a threat to the future of the
Filipino people. In the first place, the right of Filipino citizens, including
those of foreign extraction, and Philippine corporations, to acquire private
lands is not subject to any restriction or limit as to quantity or area, and We
certainly do not see any wrong in that. The right of Filipino citizens and
corporations to acquire public agricultural lands is already limited by law. In
the second place, corporations sole cannot be considered as aliens because
they have no nationality at all. Corporations sole are, under the law, mere
administrators of the temporalities of the Roman Catholic Church in the
Philippines. In the third place, every corporation, be it aggregate or sole, is
only entitled to purchase, convey, sell, lease, let, mortgage, encumber and
otherwise deal with real properties when it is pursuant to or in consonance
with the purposes for which the corporation was formed, and when the
transactions of the lawful business of the corporation reasonably and
necessarily require such dealing — section 13-(5) of the Corporation Law,
Public Act No. 1459 — and considering these provisions in conjunction with
Section 159 of the same law which provides that a corporation sole may
only "purchase and hold real estate and personal properties for its church,
charitable, benevolent or educational purposes", the above mentioned fear
of revitalization of religious landholdings in the Philippines is absolutely
dispelled. The fact that the law thus expressly authorizes the corporations
sole to receive bequests or gifts of real properties (which were the main
source that the friars had to acquire their big haciendas during the Spanish
regime), is a clear indication that the requisite that bequests or gifts of real
estate be for charitable, benevolent, or educational purposes, was, in the
opinion of the legislators, considered sufficient and adequate protection
against the revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the
Delegates to the Constitutional Convention drafted and approved Article XIII
of the Constitution they do not have in mind the corporation sole. We come
to this finding because the Constitutional Assembly, composed as it was by
a great number of eminent lawyers and jurists, was like any other legislative
body empowered to enact either the Constitution of the country or any
public statute, presumed to know the conditions existing as to particular
subject matter when it enacted a statute (Board of Commerce of Orange
Country vs. Bain, 92 S.E. 176; N. C. 377).
Immemorial customs are presumed to have been always in the
mind of the Legislature in enacting legislation. (In re Kruger's
Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of
the law on the subjects upon which it legislates. (Clover Valley
Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)
The Court in construing a statute, will assume that the legislature
acted with full knowledge of the prior legislation on the subject
and its construction by the courts. (Johns vs. Town of Sheridan,
89 N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the
subject with which it was dealing . . . . (Landers vs.
Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory
construction. (People vs. Lowell, 230 N. W. 202, 250 Mich. 349,
followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a
constitution or statute without reason, or that a result was
intended inconsistent with the judgment of men of common
sense guided by reason" (Mitchell vs. Lawden, 123 N.E. 566, 288
Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill.
591, and may other authorities that can be cited in support
hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of
a single individual, the head of any religious society or church
operating within the zone, area or jurisdiction covered by said
corporation sole (Article 155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not own
the temporalities which he merely administers;
4. That under the law the nationality of said Ordinary or of any
administrator has absolutely no bearing on the nationality of the
person desiring to acquire real property in the Philippines by
purchase or other lawful means other than by hereditary
succession, who according to the Constitution must be a Filipino
(sections 1 and 5, Article XIII).
5. That section 159 of the Corporation Law expressly authorized
the corporation sole to purchase and hold real estate for its
church, charitable, benevolent or educational purposes, and
to receive bequests or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the
Constitutional Convention, almost all of whom were Roman
Catholics, could not have intended to curtail the propagation of
the Roman Catholic faith or the expansion of the activities of their
church, knowing pretty well that with the growth of our
population more places of worship, more schools where our
youth could be taught and trained; more hallow grounds where
to bury our dead would be needed in the course of time.
Long before the enactment of our Constitution the law authorized the
corporations sole even to receive bequests or gifts of real estates and this
Court could not, without any clear and specific provision of the Constitution,
declare that any real property donated, let as say this year, could no longer
be registered in the name of the corporation sole to which it was conveyed.
That would be an absurdity that should not receive our sanction on the
pretext that corporations sole which have no nationality and are non-stock
corporations composed of only one person in the capacity of administrator,
have to establish first that at least sixty per centum of their capital belong to
Filipino citizens. The new Civil Code even provides:
ART. 10. — In case of doubt in the interpretation or application of
laws, it is presumed that the lawmaking body intended right and
justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the
properties of a Filipino can acquire, in the name of the latter, private lands
without any limitation whatsoever, and that is so because the properties
thus acquired are not for and would not belong to the administrator but to
the Filipino whom he represents. But the dissenting Justice inquires: If the
Ordinary is only the administrator, for whom does he administer? And who
can alter or overrule his acts? We will forthwith proceed to answer these
questions. The corporations sole by reason of their peculiar constitution and
form of operation have no designed owner of its temporalities, although by
the terms of the law it can be safely implied that the Ordinary holds them in
trust for the benefit of the Roman Catholic faithful to their respective
locality or diocese. Borrowing the very words of the law, We may say that
the temporalities of every corporation sole are held in trust for the use,
purpose, behalf and benefit of the religious society, or order so
incorporated or of the church to which the diocese, synod, or district
organization is an organized and constituent part (section 163 of the
Corporation Law).
In connection with the powers of the Ordinary over the temporalities of the
corporation sole, let us see now what is the meaning and scope of the word
"control". According to the Merriam-Webster's New International
Dictionary, 2nd ed., p. 580, on of the acceptations of the word "control" is:
4. To exercise restraining or directing influence over; to
dominate; regulate; hence, to hold from action; to curb; subject;
also, Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the intervention of
the courts is not necessary, to mortgage or sell real property held by the
corporation sole where the rules, regulations and discipline of the religious
denomination, society or church concerned presented by such corporation
sole regulates the methods of acquiring, holding, selling and mortgaging real
estate, and that the Roman Catholic faithful residing in the jurisdiction of
the corporation sole has no say either in the manner of acquiring or of
selling real property. It may be also admitted that the faithful of the diocese
cannot govern or overrule the acts of the Ordinary, but all this does not
mean that the latter can administer the temporalities of the corporation
sole without check or restraint. We must not forget that when a corporation
sole is incorporated under Philippine laws, the head and only member
thereof subjects himself to the jurisdiction of the Philippine courts of justice
and these tribunals can thus entertain grievances arising out of or with
respect to the temporalities of the church which came into the possession
of the corporation sole as administrator. It may be alleged that the courts
cannot intervene as to the matters of doctrine or teachings of the Roman
Catholic Church. That is correct, but the courts may step in, at the instance
of the faithful for whom the temporalities are being held in trust, to check
undue exercise by the corporation sole of its power as administrator to
insure that they are used for the purpose or purposes for which the
corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action
brought by persons claiming to be members of a church, who
allege a wrongful and fraudulent diversion of the church property
to uses foreign to the purposes of the church, since no
ecclesiastical question is involved and equity will protect from
wrongful diversion of the property (Hendryx vs. Peoples United
Church, 42 Wash. 336, 4 L.R.A. — n.s. — 1154).
The courts of the State have no general jurisdiction and control
over the officers of such corporations in respect to the
performance of their official duties; but as in respect to the
property which they hold for the corporation, they stand in
position of TRUSTEES and the courts may exercise the same
supervision as in other cases of trust (Ramsey vs. Hicks, 174 Ind.
428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. — n.s. — 665; Hendryx vs.
Peoples United Church, supra.).
Courts of the state do not interfere with the administration of
church rules or discipline unless civil rights become involved and
which must be protected (Morris St., Baptist Church vs. Dart, 67
S.C. 338, 45 S.E. 753, and others). (All cited in Vol. II, Cooley's
Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above enumerated
and of the provisions of law relative to existing conditions as to
management and operation of corporations sole in the Philippines, and if,
on the other hand, almost all of the Delegates thereto embraced the Roman
Catholic faith, can it be imagined even for an instant that when Article XIII of
the Constitution was approved the framers thereof intended to prevent or
curtail from then on the acquisition sole, either by purchase or donation, of
real properties that they might need for the propagation of the faith and for
there religious and Christian activities such as the moral education of the
youth, the care, attention and treatment of the sick and the burial of the
dead of the Roman Catholic faithful residing in the jurisdiction of the
respective corporations sole? The mere indulgence in said thought would
impress upon Us a feeling of apprehension and absurdity. And that is
precisely the leit motiv that permeates the whole fabric of the dissenting
opinion.
It seems from the foregoing that the main problem We are confronted with
in this appeal, hinges around the necessity of a proper and adequate
interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us
then be guided by the principles of statutory construction laid down by the
authorities on the matter:
The most important single factor in determining the intention of
the people from whom the constitution emanated is the language
in which it is expressed. The words employed are to be taken in
their natural sense, except that legal or technical terms are to be
given their technical meaning. The imperfections of language as a
vehicle for conveying meanings result in ambiguities that must be
resolved by result to extraneous aids for discovering the intent of
the framers. Among the more important of these are a
consideration of the history of the times when the provision was
adopted and of the purposes aimed at in its adoption. The
debates of constitutional convention, contemporaneous
construction, and practical construction by the legislative and
executive departments, especially if long continued, may be
resorted to resolve, but not to create, ambiguities. . .
. Consideration of the consequences flowing from alternative
constructions of doubtful provisions constitutes an important
interpretative device. . . . The purposes of many of the broadly
phrased constitutional limitations were the promotion of policies
that do not lend themselves to definite and specific formulation.
The courts have had to define those policies and have often
drawn on natural law and natural rights theories in doing so. The
interpretation of constitutions tends to respond to changing
conceptions of political and social values. The extent to which
these extraneous aids affect the judicial construction of
constitutions cannot be formulated in precise rules, but their
influence cannot be ignored in describing the essentials of the
process (Rottschaeffer on Constitutional Law, 1939 ed., p. 18-19).
There are times that when even the literal expression of
legislation may be inconsistent with the general objectives of
policy behind it, and on the basis of equity or spirit of the statute
the courts rationalize a restricted meaning of the latter. A
restricted interpretation is usually applied where the effect of
literal interpretation will make for injustice and absurdity or, in
the words of one court, the language must be so unreasonable 'as
to shock general common sense'. (Vol. 3, Sutherland on Statutory
Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the
development of a country nor an obstruction to its progress and
foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs.
Bank of New York and Trust Co., 294 N. Y. S.648; 56 N.E. 2d. 745,
293 N.Y. 749).
Although the meaning or principles of a constitution remain fixed
and unchanged from the time of its adoption, a constitution must
be construed as if intended to stand for a great length of time,
and it is progressive and not static. Accordingly, it should not
receive too narrow or literal an interpretation but rather the
meaning given it should be applied in such manner as to meet
new or changed conditions as they arise (U.S. vs. Lassic, 313 U.S.
299, 85 L. Ed., 1368).
Effect should be given to the purpose indicated by a fair
interpretation of the language used and that construction which
effectuates, rather than that which destroys a plain intent or
purpose of a constitutional provision, is not only favored but will
be adopted (State ex rel. Randolph Country vs. Walden, 206 S.W.
2d 979).
It is quite generally held that in arriving at the intent and purpose
the construction should be broad or liberal or equitable, as the
better method of ascertaining that intent, rather than technical
(Great Southern Life Ins. Co. vs. City of Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the
Constitution had not in mind the corporations sole, nor intended to apply
them the provisions of section 1 and 5 of said Article XIII when they passed
and approved the same. And if it were so as We think it is, herein petitioner,
the Roman Catholic Apostolic Administrator of Davao, Inc., could not be
deprived of the right to acquire by purchase or donation real properties for
charitable, benevolent and educational purposes, nor of the right to register
the same in its name with the Register of Deeds of Davao, an indispensable
requisite prescribed by the Land Registration Act for lands covered by the
Torrens system.
We leave as the last theme for discussion the much debated question above
referred to as "the vested right saving clause" contained in section 1, Article
XIII of the Constitution. The dissenting Justice hurls upon the personal
opinion expressed on the matter by the writer of the decision the most
pointed darts of his severe criticism. We think, however, that this strong
dissent should have been spared, because as clearly indicated before, some
members of this Court either did not agree with the theory of the writer or
were not ready to take a definite stand on that particular point, so that
there being no majority opinion thereon there was no need of any
dissension therefrom. But as the criticism has been made the writer deems
it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity
to acquire (property) in futuro, is not in itself a vested or existing property
right that the Constitution protects from impairment. For a property right to
be vested (or acquired) there must be a transition from the potential or
contingent to the actual, and the proprietary interest must have attached to
a thing; it must have become 'fixed and established'" (Balboa vs. Farrales, 51
Phil. 498). But the case at bar has to be considered as an exception to the
rule because among the rights granted by section 159 of the Corporation
Law was the right to receive bequests or gifts of real properties for
charitable, benevolent and educational purposes. And this right to receive
such bequests or gifts (which implies donations in futuro), is not a mere
potentiality that could be impaired without any specific provision in the
Constitution to that effect, especially when the impairment would
disturbingly affect the propagation of the religious faith of the immense
majority of the Filipino people and the curtailment of the activities of their
Church. That is why the writer gave us a basis of his contention what
Professor Aruego said in his book "The Framing of the Philippine
Constitution" and the enlightening opinion of Mr. Justice Jose P. Laurel,
another Delegate to the Constitutional Convention, in his concurring
opinion in the case of Goldcreek Mining Co. vs. Eulogio Rodriguez et al., 66
Phil. 259. Anyway the majority of the Court did not deem necessary to pass
upon said "vested right saving clause" for the final determination of this
case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission
of September 21, 1954, holding that in view of the provisions of sections 1
and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is
not qualified to acquire lands in the Philippines in the absence of proof that
at least 60 per centum of the capital, properties or assets of the Roman
Catholic Apostolic Administrator of Davao, Inc. is actually owned or
controlled by Filipino citizens, and denying the registration of the deed of
sale in the absence of proof of compliance with such requisite, is hereby
reversed. Consequently, the respondent Register of Deeds of the City of
Davao is ordered to register the deed of sale executed by Mateo L. Rodis in
favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is
the subject of the present litigation. No pronouncement is made as to costs.
It is so ordered
 Constitution demands that in the absence of capital stock, the
controlling membership should be composed of Filipino citizens.
(Register of Deeds of Rizal vs. Ung Sui Si Temple)
 undeniable proof that the members of the Roman Catholic Apostolic
faith within the territory of Davao are predominantly Filipino citizens
 presented evidence to establish that the clergy and lay members of
this religion fully covers the percentage of Filipino citizens required by
the Constitution
 fact that the law thus expressly authorizes the corporations sole
to receive bequests or gifts of real properties (which were the main
source that the friars had to acquire their big haciendas during the
Spanish regime), is a clear indication that the requisite that bequests
or gifts of real estate be for charitable, benevolent, or educational
purposes, was, in the opinion of the legislators, considered sufficient
and adequate protection against the revitalization of religious
landholdings.
 as in respect to the property which they hold for the corporation, they
stand in position of TRUSTEES and the courts may exercise the same
supervision as in other cases of trust

G.R. No. L-8451 December 20, 1957

Lesson Applicable: Exploitation of Natural Resources (Corporate Law)

FACTS:
 October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the
City of Davao, executed a deed of sale of a parcel of land in favor of
the Roman Catholic Apostolic Administrator of Davao Inc.(Roman), a
corporation sole organized and existing in accordance with Philippine
Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual
incumbent.
 The Register of Deeds of Davao for registration, having in mind a
previous resolution of the CFI in Carmelite Nuns of Davao were made
to prepare an affidavit to the effect that 60% of the members of their
corp. were Filipino citizens when they sought to register in favor of
their congregation of deed of donation of a parcel of land, required it
to submit a similar affidavit declaring the same.
 June 28, 1954: Roman in the letter expressed willingness to submit an
affidavit but not in the same tenor as the Carmelite Nuns because it
had five incorporators while as a corporation sole it has only one and it
was ownership through donation and this was purchased
 As the Register of the Land Registration Commissioner (LRC) : Deeds
has some doubts as to the registerability, the matter was referred to
the Land Registration Commissioner en consulta for resolution (section
4 of Republic Act No. 1151)
 LRC:
 In view of the provisions of Section 1 and 5 of Article XIII of the
Philippine Constitution, the vendee was not qualified to acquire
private lands in the Philippines in the absence of proof that at least 60
per centum of the capital, property, or assets of the Roman Catholic
Apostolic Administrator of Davao, Inc., was actually owned or
controlled by Filipino citizens, there being no question that the present
incumbent of the corporation sole was a Canadian citizen
 ordered the Registered Deeds of Davao to deny registration of the
deed of sale in the absence of proof of compliance with such condition
 action for mandamus was instituted by Roman alleging the land is held
in true for the benefit of the Catholic population of a place
ISSUE: W/N Roman is qualified to acquire private agricultural lands in the
Philippines pursuant to the provisions of Article XIII of the Constitution

HELD: YES. Register of Deeds of the City of Davao is ordered to register the
deed of sale
 A corporation sole consists of one person only, and his successors
(who will always be one at a time), in some particular station, who are
incorporated by law in order to give them some legal capacities and
advantages, particularly that of perpetuity, which in their natural
persons they could not have had.
 In this sense, the king is a sole corporation; so is a bishop, or dens,
distinct from their several chapters
 corporation sole
1. composed of only one persons, usually the head or bishop of the
diocese, a unit which is not subject to expansion for the purpose of
determining any percentage whatsoever
2. only the administrator and not the owner of the temporalities
located in the territory comprised by said corporation sole and such
temporalities are administered for and on behalf of the faithful
residing in the diocese or territory of the corporation sole
3. has no nationality and the citizenship of the incumbent and ordinary
has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of
the faithful connected with their respective dioceses or corporation
sole.