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On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte,
with petitioner Hahn testifying. On June 30, 1993, the trial court issued
an order granting the writ of preliminary injunction upon the filing of a
bond of P100,000.00. On July 13, 1993, following the posting of the
required bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the
trial court did not acquire jurisdiction over it through the service of
summons on the Department of Trade and Industry, because it (BMW)
was a foreign corporation and it was not doing business in the
Philippines. It contended that the execution of the Deed of Assignment
was an isolated transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and products without
the participation of BMW and sold other products; and that Hahn was an
indentor or middleman transacting business in his own name and for his
own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was
doing business in the Philippines through him as its agent, as shown by
the fact that BMW invoices and order forms were used to document his
transactions; that he gave warranties as exclusive BMW dealer; that
BMW officials periodically inspected standards of service rendered by
him; and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading
Company" in the Philippines.
The trial court 6 deferred resolution of the motion to dismiss until after
trial on the merits for the reason that the grounds advanced by BMW in
its motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW
filed a petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE
OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS
LEADING TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE
TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN
DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON
those of BMW. It held that petitioner was a mere indentor or broker and
not an agent through whom private respondent BMW transacted
business in the Philippines. Consequently, the Court of Appeals
dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred
(1) in finding that the trial court gravely abused its discretion in
deferring action on the motion to dismiss and (2) in finding that private
respondent BMW is not doing business in the Philippines and, for this
reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the defendant is
a foreign corporation, or a nonresident joint stock company or
association, doing business in the Philippines, service may be made
on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents
within the Philippines. (Emphasis added).
What acts are considered "doing business in the Philippines" are
enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No.
7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a
period or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines;and
any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
8. From the time the trademark "BMW & DEVICE" was first used
by the Plaintiff in the Philippines up to the present, Plaintiff, through
its firm name "HAHN MANILA" and without any monetary
contributions from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff
invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . . Moreover,
Plaintiff has built buildings and other infrastructures such as service
centers and showrooms to maintain and promote the car and
products of defendant BMW.
As the above quoted allegations of the amended complaint show,
however, there is nothing to support the appellate court's finding that
Hahn solicited orders alone and for his own account and without
"interference from, let alone direction of, BMW." (p. 13) To the contrary,
Hahn claimed he took orders for BMW cars and transmitted them to
BMW. Upon receipt of the orders, BMW fixed the downpayment and
pricing charges, notified Hahn of the scheduled production month for the
orders, and reconfirmed the orders by signing and returning to Hahn the
acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid
for the purchase price of BMW cars sold in the Philippines. Hahn was
credited with a commission equal to 14% of the purchase price upon the
invoicing of a vehicle order by BMW. Upon confirmation in writing that
the vehicles had been registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full purchase price. Hahn
performed after-sale services, including warranty services, for which he
received reimbursement from BMW. All orders were on invoices and
forms of BMW. 8
These allegations were substantially admitted by BMW which, in its
petition for certiorari before the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment
of the purchase prices are made, the vehicles are shipped to the
Philippines. (The payments may be made by the purchasers or thirdpersons or even by Hahn.) The bills of lading are made up in the
name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports,
for purposes of conducting pre-delivery inspections. Thereafter, he
delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited
with a commission of fourteen percent (14%) of the full purchase
price thereof, and as soon as he confirms in writing that the vehicles
have been registered in the Philippines and have been serviced by
him, he will receive an additional three percent (3%) of the full
purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an
agency. An agent receives a commission upon the successful conclusion
of a sale. On the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at
his own expense, Hahn said that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW
standards were maintained. Indeed, it would seem from BMW's letter to
Hahn that it was for Hahn's alleged failure to maintain BMW standards
that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an agent
of BMW. For as already noted, there are facts in the record which
suggest that BMW exercised control over Hahn's activities as a dealer
and made regular inspections of Hahn's premises to enforce compliance
with BMW standards and specifications. 10 For example, in its letter to
Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions
and letters that we have to tackle the Philippine market more
professionally and that we are through your present activities not
adequately prepared to cope with the forthcoming challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967
Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court
of Appeals, 12 in which the foreign corporation entered into a
"Representative Agreement" and a "Licensing Agreement" with a
5
with factual issues and it is not at all clear whether some allegations
correspond to the proof.
Anyway, private respondent need not apprehend that by responding to
the summons it would be waiving its objection to the trial court's
jurisdiction. It is now settled that, for purposes of having summons
served on a foreign corporation in accordance with Rule 14, 14, it is
sufficient that it be alleged in the complaint that the foreign corporation
is doing business in the Philippines. The court need not go beyond the
allegations of the complaint in order to determine whether it has
Jurisdiction. 18 A determination that the foreign corporation is doing
business is only tentative and is made only for the purpose of enabling
the local court to acquire jurisdiction over the foreign corporation
through service of summons pursuant to Rule 14, 14. Such
determination does not foreclose a contrary finding should evidence later
show that it is not transacting business in the country. As this Court has
explained:
This is not to say, however, that the petitioner's right to question the
jurisdiction of the court over its person is now to be deemed a
foreclosed matter. If it is true, as Signetics claims, that its only
involvement in the Philippines was through a passive investment in
Sigfil, which it even later disposed of, and that TEAM Pacific is not
its agent, then it cannot really be said to be doing business in the
Philippines. It is a defense, however, that requires the contravention
of the allegations of the complaint, as well as a full ventilation, in
effect, of the main merits of the case, which should not thus be
within the province of a mere motion to dismiss. So, also, the issue
posed by the petitioner as to whether a foreign corporation which has
done business in the country, but which has ceased to do business at
the time of the filing of a complaint, can still be made to answer for a
cause of action which accrued while it was doing business, is another
matter that would yet have to await the reception and admission of
evidence. Since these points have seasonably been raised by the
petitioner, there should be no real cause for what may
understandably be its apprehension,i.e., that by its participation
during the trial on the merits, it may, absent an invocation of separate
or independent reliefs of its own, be considered to have voluntarily
submitted itself to the court's jurisdiction. 19
6
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief
and declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government
of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of
Philippine Long Distance Telephone Company (PLDT), are as
follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436
which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major
PLDT stockholder, sold 26 percent of the outstanding common shares of
PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by
several persons, including Roland Gapud and Jose Campos, Jr.
Subsequently, PHI became the owner of 111,415 shares of stock of PTIC
by virtue of three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of
stock of PTIC held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of
PTIC, were later declared by this Court to be owned by the Republic of
the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54 percent of the outstanding
capital stock of PTIC. On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine Government announced
that it would sell the 111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, through a public bidding to be
conducted on 4 December 2006. Subsequently, the public bidding was
reset to 8 December 2006, and only two bidders, Parallax Venture Fund
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allowing the sale of the 111,415 PTIC shares to First Pacific; and (3)
whether the sale of common shares to foreigners in excess of 40 percent
of the entire subscribed common capital stock violates the constitutional
limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a
Motion for Leave to Intervene and Admit Attached Petition-inIntervention. In the Resolution of 28 August 2007, the Court granted the
motion and noted the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in
seeking, among others, to enjoin and/or nullify the sale by respondents
of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-inintervention claim that, as PLDT subscribers, they have a "stake in the
outcome of the controversy x x x where the Philippine Government is
completing the sale of government owned assets in [PLDT],
unquestionably a public utility, in violation of the nationality restrictions
of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised
by petitioner,9 which indisputably demand a thorough examination of
the evidence of the parties, are generally beyond this Courts
jurisdiction. Adhering to this well-settled principle, the Court shall
confine the resolution of the instant controversy solely on the threshold
and purely legal issue of whether the term "capital" in Section 11, Article
XII of the Constitution refers to the total common shares only or to the
total outstanding capital stock (combined total of common and nonvoting preferred shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the
remedies petitioner seeks, only the petition for prohibition is within the
original jurisdiction of this court, which however is not exclusive but is
concurrent with the Regional Trial Court and the Court of Appeals. The
actions for declaratory relief,10 injunction, and annulment of sale are
not embraced within the original jurisdiction of the Supreme Court. On
this ground alone, the petition could have been dismissed outright.
9
Presidential Decree No. 851 which are required to pay their employees x
x x a thirteenth (13th) month pay x x x ?" The Constitutional principle
involved therein affected all government employees, clearly justifying a
relaxation of the technical rules of procedure, and certainly requiring the
interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has farreaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for
declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching implications and
raises questions that should be resolved, it may be treated as one for
mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the
term "capital" in Section 11, Article XII of the Constitution. He prays
that this Court declare that the term "capital" refers to common shares
only, and that such shares constitute "the sole basis in determining
foreign equity in a public utility." Petitioner further asks this Court to
declare any ruling inconsistent with such interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In
fact, a resolution of this issue will determine whether Filipinos are
masters, or second class citizens, in their own country. What is at stake
here is whether Filipinos or foreigners will have effective control of the
national economy. Indeed, if ever there is a legal issue that has farreaching implications to the entire nation, and to future generations of
Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case
involved the same public utility (PLDT) and substantially the same
private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the case
on the merits, and instead denied the same for disregarding the hierarchy
of courts.17 There, petitioner Fernandez assailed on a pure question of
10
The crux of the controversy is the definition of the term "capital." Does
the term "capital" in Section 11, Article XII of the Constitution refer to
common shares or to the total outstanding capital stock (combined total
of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in
domestic public utilities refers only to common shares because such
shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term "capital" in
Section 11, Article XII of the Constitution refers to "the ownership of
common capital stock subscribed and outstanding, which class of shares
alone, under the corporate set-up of PLDT, can vote and elect members
of the board of directors." It is undisputed that PLDTs non-voting
preferred shares are held mostly by Filipino citizens.30 This arose from
Presidential Decree No. 217,31 issued on 16 June 1973 by then
President Ferdinand Marcos, requiring every applicant of a PLDT
telephone line to subscribe to non-voting preferred shares to pay for the
investment cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioners arguments and
adopt petitioners definition of the term "capital."33 Petitioners-inintervention allege that "the approximate foreign ownership of common
capital stock of PLDT x x x already amounts to at least 63.54% of the
total outstanding common stock," which means that foreigners exercise
significant control over PLDT, patently violating the 40 percent foreign
equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term
"capital" in Section 11, Article XII of the Constitution. More
importantly, private respondents Nazareno and Pangilinan of PLDT do
not dispute that more than 40 percent of the common shares of PLDT are
held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73
pages, harps mainly on the procedural infirmities of the petition and the
supposed violation of the due process rights of the "affected foreign
common shareholders." Respondent Nazareno does not deny petitioners
allegation of foreigners dominating the common shareholdings of
PLDT. Nazareno stressed mainly that the petition "seeks to divest
foreign common shareholders purportedly exceeding 40% of the total
In the same vein, the SECs construction of Section 11, Article XII of the
Constitution is at best merely advisory for it is the courts that finally
determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel
V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B. Elma,
Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa,
Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
argued that the term "capital" in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not
distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the
corporations "capital," without distinction as to classes of shares. x x x
In this connection, the Corporation Code which was already in force at
the time the present (1987) Constitution was drafted defined
outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term "outstanding
capital stock", as used in this Code, means the total shares of stock
issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury
shares.
Section 137 of the Corporation Code also does not distinguish between
common and preferred shares, nor exclude either class of shares, in
determining the outstanding capital stock (the "capital") of a
corporation. Consequently, petitioners suggestion to reckon PLDTs
foreign equity only on the basis of PLDTs outstanding common shares
is without legal basis. The language of the Constitution should be
understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the
Constitutional Commission is necessary, there is nothing in the Record
of the Constitutional Commission (Vol. III) which petitioner
misleadingly cited in the Petition x x x which supports petitioners
view that only common shares should form the basis for computing a
public utilitys foreign equity.
xxxx
That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully
paid and non-assessable and the holder of such shares shall not be liable
to the corporation or to its creditors in respect thereto: Provided; That
shares without par value may not be issued for a consideration less than
the value of five (P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its no-par value
shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated
in the certificate of stock, each share shall be equal in all respects to
every other share.
Where the articles of incorporation provide for non-voting shares in the
cases allowed by this Code, the holders of such shares shall nevertheless
be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or business
in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this Code
shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate
in the control or management of the corporation.43 This is exercised
foreigners despite being the minority because they have the voting
capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as
stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have stocks.
That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling
interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation. Reinforcing this interpretation
of the term "capital," as referring to controlling interest or shares entitled
to vote, is the definition of a "Philippine national" in the Foreign
Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines;
or a domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines
of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for pension or
other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities
and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent (60%) of the members of the Board
of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a
"Philippine national." (Emphasis supplied)
17
percent of the outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate. Otherwise, the
corporation is "considered as non-Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may
"reserve to citizens of the Philippines or to corporations or associations
at least sixty per centum of whose capital is owned by such citizens, or
such higher percentage as Congress may prescribe, certain areas of
investments." Thus, in numerous laws Congress has reserved certain
areas of investments to Filipino citizens or to corporations at least sixty
percent of the "capital" of which is owned by Filipino citizens. Some of
these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No.
3850; (3) Magna Carta for Micro, Small and Medium Enterprises or
R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or
R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or
R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A.
No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the
term "capital" in Section 11, Article XII of the Constitution is also
used in the same context in numerous laws reserving certain areas of
investments to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital
stock, including both common and non-voting preferred shares, grossly
contravenes the intent and letter of the Constitution that the "State shall
develop a self-reliant and independent national economy effectively
controlled by Filipinos." A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control
of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the
term "capital." Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares owned
by Filipinos, with both classes of share having a par value of one peso
(P1.00) per share. Under the broad definition of the term "capital," such
corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
18
In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only 100
shares. The foreigners, with a minuscule equity of less than 0.001
percent, exercise control over the public utility. On the other hand, the
Filipinos, holding more than 99.999 percent of the equity, cannot vote in
the election of directors and hence, have no control over the public
utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to place
the control of public utilities in the hands of Filipinos. It also renders
illusory the State policy of an independent national economy effectively
controlled by Filipinos.
The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to
vote in the election of directors. PLDTs Articles of Incorporation
expressly state that "the holders of Serial Preferred Stock shall not be
entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise participate in any action
taken by the corporation or its stockholders, or to receive notice of any
meeting of stockholders."51
On the other hand, holders of common shares are granted the exclusive
right to vote in the election of directors. PLDTs Articles of
Incorporation52 state that "each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on all
matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of
directors and for all other purposes."53
In short, only holders of common shares can vote in the election of
directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting
rights in the election of directors, do not have any control over PLDT. In
fact, under PLDTs Articles of Incorporation, holders of common shares
have voting rights for all purposes, while holders of preferred shares
have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold
a majority of the common shares of PLDT. In fact, based on PLDTs
19
99.44% owned by Filipinos, are non-voting and earn only 1/70 of the
dividends that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn
less than 60 percent of the dividends, of PLDT. This directly contravenes
the express command in Section 11, Article XII of the Constitution that
"[n]o franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to x x x corporations
x x x organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the soleright to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDTs common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4) preferred shares
earn only 1/70 of the dividends that common shares earn;63 (5)
preferred shares have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the authorized capital stock of
PLDT and common shares only 22.15%. This kind of ownership and
control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value
of P5.00 have a current stock market value ofP2,328.00 per
share,64 while PLDT preferred shares with a par value of P10.00 per
share have a current stock market value ranging from only P10.92
to P11.06 per share,65 is a glaring confirmation by the market that
control and beneficial ownership of PLDT rest with the common shares,
not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of
the Constitution to include both voting and non-voting shares will result
in the abject surrender of our telecommunications industry to foreigners,
amounting to a clear abdication of the States constitutional duty to limit
control of public utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision reserving certain
areas of investment to Filipino citizens, such as the exploitation of
enforcement. The reason is not difficult to discern. For if they are not
treated as self-executing, the mandate of the fundamental law ratified by
the sovereign people can be easily ignored and nullified by Congress.
Suffused with wisdom of the ages is the unyielding rule that legislative
actions may give breath to constitutional rights but congressional
inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of
Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege
against self-incrimination. It is recognized that legislation is unnecessary
to enable courts to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of property. The
same treatment is accorded to constitutional provisions forbidding the
taking or damaging of property for public use without just
compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of
implementing legislation, applied directly the provisions of the 1935,
1973 and 1987 Constitutions limiting land ownership to Filipinos.
In Soriano v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a
sale by a citizen of his land to an alien, and as both the citizen and the
alien have violated the law, none of them should have a recourse against
the other, and it should only be the State that should be allowed to
intervene and determine what is to be done with the property subject of
the violation. We have said that what the State should do or could do in
such matters is a matter of public policy, entirely beyond the scope of
judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No.
L-5996, June 27, 1956.) While the legislature has not definitely decided
what policy should be followed in cases of violations against the
constitutional prohibition, courts of justice cannot go beyond by
declaring the disposition to be null and void as violative of the
Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing
would mean that since the 1935 Constitution, or over the last 75 years,
not one of the constitutional provisions expressly reserving specific
areas of investments to corporations, at least 60 percent of the "capital"
xxxx
In light of the foregoing jurisprudence, it is my opinion that the
stock-swap transaction in question may not be constitutionally
upheld. While it may be ordinary corporate practice to classify
corporate shares into common voting shares and preferred
non-voting shares, any arrangement which attempts to defeat
the constitutional purpose should be eschewed. Thus, the
resultant equity arrangement which would place ownership of
60%11 of the common (voting) shares in the Japanese group,
while retaining 60% of the total percentage of common and
preferred shares in Filipino hands would amount to
circumvention of the principle of control by Philippine
stockholders that is implicit in the 60% Philippine nationality
requirement in the Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory
that the term "capital" in Section 9, Article XIV of the 1973
Constitution includes "both preferred and common stocks"
treated as the same class of shares regardless of differences in
voting rights and privileges. Minister Mendoza stressed that
the 60-40 ownership requirement in favor of Filipino citizens in
the Constitution is not complied with unless the corporation
"satisfies the criterion of beneficial ownership" and that in
applying the same "the primordial consideration is situs of
control."
On the other hand, in Opinion No. 23-10 dated 18 August
2010, addressed to Castillo Laman Tan Pantaleon & San Jose,
then SEC General Counsel Vernette G. Umali-Paco applied
the Voting Control Test, that is, using only the voting stock to
determine whether a corporation is a Philippine national. The
Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is
deemed as a Philippine national because: (1) sixty percent
(60%) of its outstanding capital stock entitled to vote is owned
by a Philippine national, the Trustee; and (2) at least sixty
percent (60%) of the ERF will accrue to the benefit of Philippine
nationals. Still pursuant to the Control Test, MLRCs investment
in 60% of BFDCs outstanding capital stock entitled to
vote shall be deemed as of Philippine nationality, thereby
qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC
are both Philippine nationals, considering that: (1) sixty
percent (60%) of their respective outstanding capital
stock entitled to vote is owned by a Philippine national (i.e., by
the Trustee, in the case of MLRC; and by MLRC, in the case of
BFDC); and (2) at least 60% of their respective board of
directors are Filipino citizens. (Boldfacing and italicization
supplied)
Clearly, these DOJ and SEC opinions are compatible with the
Courts interpretation of the 60-40 ownership requirement in
favor of Filipino citizens mandated by the Constitution for
certain economic activities. At the same time, these opinions
highlight the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the definition of the
term "capital" found in the economic provisions of the
Constitution.
The opinions issued by SEC legal officers do not have the force
and effect of SEC rules and regulations because only the
SEC en banc can adopt rules and regulations. As expressly
provided in Section 4.6 of the Securities Regulation
Code,12 the SEC cannot delegate to any of its individual
Commissioner or staff the power to adopt any rule or
regulation. Further, under Section 5.1 of the same Code, it
is the SEC as a collegial body, and not any of its legal officers,
that is empowered to issue opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate
any of its functions to any department or office of the
Commission, an individual Commissioner or staff member of
the Commission exceptits review or appellate authority and its
power to adopt, alter and supplement any rule or regulation.
The Commission may review upon its own initiative or upon
the petition of any interested party any action of any
department or office, individual Commissioner, or staff
member of the Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The
Commission shall act with transparency and shall have the
powers and functions provided by this Code, Presidential
Decree No. 902-A, the Corporation Code, the Investment
24
32
I would like also to get from you Dr. Villegas if you have
additional information on whether this high FDI59 countries in
East Asia have allowed foreigners x x x control [of] their public
utilities, so that we can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these
neighbors of ours find an industry strategic, their solution is
not to "Filipinize" or "Vietnamize" or "Singaporize." Their
solution is to make sure that those industries are in the hands
of state enterprises. So, in these countries, nationalization
means the government takes over. And because their
governments are competent and honest enough to the public,
that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then
foreign investments in our public utilities serve no purpose.
Obviously, there can never be foreign investments in public
utilities if, as Dr. Villegas claims, the "solution is to make sure
that those industries are in the hands of state enterprises." Dr.
Villegass argument that foreign investments in
telecommunication companies like PLDT are badly needed to
save our ailing economy contradicts his own theory that the
solution is for government to take over these companies. Dr.
Villegas is barking up the wrong tree since State ownership of
public utilities and foreign investments in such industries are
diametrically opposed concepts, which cannot possibly be
reconciled.
In any event, the experience of our neighboring countries
cannot be used as argument to decide the present case
differently for two reasons. First, the governments of our
neighboring countries have, as claimed by Dr. Villegas, taken
over ownership and control of their strategic public utilities like
the telecommunications industry. Second, our Constitution has
specific provisions limiting foreign ownership in public utilities
which the Court is sworn to uphold regardless of the
experience of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the
ownership and operation of public utilities to Filipino citizens,
or corporations or associations at least 60 percent of whose
capital belongs to Filipinos. Following Dr. Villegass claim, the
not deter the courts from trying a case when there is a valid
reason to do so. In David v. Macapagal-Arroyo (David), the
Court provided four instances where courts can decide an
otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and
paramount public interest is involved;
3.) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the
public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant
case. We of this Court note that a grave violation of the
Constitution, specifically Section 2 of Article XII, is being
committed by a foreign corporation right under our countrys
nose through a myriad of corporate layering under different,
allegedly, Filipino corporations. The intricate corporate layering
utilized by the Canadian company, MBMI, is of exceptional
character and involves paramount public interest since it
undeniably affects the exploitation of our Countrys natural
resources. The corresponding actions of petitioners during the
lifetime and existence of the instant case raise questions as
what principle is to be applied to cases with similar issues. No
definite ruling on such principle has been pronounced by the
Court; hence, the disposition of the issues or errors in the
instant case will serve as a guide "to the bench, the bar and
the public."35 Finally, the instant case is capable of repetition
yet evading review, since the Canadian company, MBMI, can
keep on utilizing dummy Filipino corporations through various
schemes of corporate layering and conversion of applications
to skirt the constitutional prohibition against foreign mining in
Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth
error presented by petitioners since both involve the
conversion of MPSA applications to FTAA applications.
Petitioners propound that the CA erred in ruling against them
since the questioned MPSA applications were already
converted into FTAA applications; thus, the issue on the
48
Olympic
Mines &
Developme
nt
Corp.
Filipino
6,663
PhP
6,663,000.00
PhP 0
MBMI
Resources,
Inc.
Canadi
an
3,331
PhP
PhP
3,331,000.00 2,803,900.00
Nationa Number of
lity
Shares
Amount
Subscribed
Amount Paid
Madridejos
Mining
Corporation
Filipino
5,997
PhP
5,997,000.0
0
PhP
825,000.00
MBMI
Resources,
Inc.
Canadi
an
3,998
PhP
3,998,000.0
PhP
1,878,174.60
Amanti
Limson
Filipino
Lauro L.
Salazar
Filipino
PhP
1,000.00
PhP 1,000.00
Fernando B. Filipino
Esguerra
Filipino
Fernando B.
Esguerra
Filipino
PhP
1,000.00
PhP 1,000.00
Lauro
Salazar
Filipino
Manuel A.
Agcaoili
Filipino
PhP
1,000.00
PhP 1,000.00
Emmanuel
G.
Hernando
Michael T.
Mason
Americ
an
PhP
1,000.00
PhP 1,000.00
Michael T.
Mason
Americ
an
Kenneth
Cawkell
Canadi
an
PhP
1,000.00
PhP 1,000.00
Kenneth
Cawkell
Canadi
an
Total
10,000
PhP
10,000,000.
00
PhP
2,708,174.60
(emphasis
supplied)
Total
10,000
PhP
PhP
10,000,000.0 2,809,900.00
0
(emphasis
supplied)
1
1
Nationa Number of
lity
Shares
Amount
Subscribed
Amount Paid
54
Nationali Number
ty
of
Shares
Amount
Subscribed
Manuel A.
Agcaoili
Filipino
PhP
1,000.00
PhP 1,000.00
Michael T.
Mason
America
n
PhP
1,000.00
PhP 1,000.00
Kenneth
Cawkell
Canadia
n
PhP
1,000.00
PhP 1,000.00
Total
10,000
PhP
10,000,000.
00
PhP
2,708,174.60
(emphasis
supplied)
Except for the name "Sara Marie Mining, Inc.," the table above
shows exactly the same figures as the corporate structure of
petitioner McArthur, down to the last centavo. All the other
shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili,
Mason and Cawkell. The figures under "Nationality," "Number
of Shares," "Amount Subscribed," and "Amount Paid" are
exactly the same. Delving deeper, we scrutinize SMMIs
corporate structure:
Sara Marie Mining, Inc.
Name
Amount Paid
National Number
ity
of
Shares
Amount
Subscribed
Amount Paid
PhP 0
Olympic
Mines &
Development
Corp.
Filipino
6,663
PhP
6,663,000.0
0
PhP
PhP
3,331,000.0 2,794,000.00
0
Sara Marie
Mining, Inc.
Filipino
5,997
PhP
5,997,000.0
0
PhP
825,000.00
MBMI
Resources,
Inc.
Canadia
n
3,998
PhP
3,998,000.0
0
PhP
1,878,174.60
MBMI
Resources,
Inc.
Canadia
n
3,331
Lauro L.
Salazar
Filipino
PhP
1,000.00
PhP 1,000.00
Amanti
Limson
Filipino
PhP
1,000.00
PhP 1,000.00
Fernando B.
Esguerra
Filipino
PhP
1,000.00
PhP 1,000.00
Fernando B.
Esguerra
Filipino
PhP
1,000.00
PhP 1,000.00
55
Lauro
Salazar
Filipino
PhP
1,000.00
PhP 1,000.00
Emmanuel
G.
Hernando
Filipino
PhP
1,000.00
PhP 1,000.00
Michael T.
Mason
America
n
PhP
1,000.00
PhP 1,000.00
Kenneth
Cawkell
Canadia
n
PhP
1,000.00
PhP 1,000.00
Total
10,000
Patricia
Louise
Mining &
Developmen
t
Corp.
PhP
PhP
10,000,000. 2,809,900.00
00
(emphasis
supplied)
56
Amount
Subscribed
Amount Paid
Filipino
5,997
PhP
PhP
5,997,000.0 1,677,000.00
0
Canadia
n
3,998
PhP
PhP
3,996,000.0 1,116,000.00
0
Higinio C.
Mendoza, Jr.
Filipino
PhP
1,000.00
PhP 1,000.00
Henry E.
Fernandez
Filipino
PhP
1,000.00
PhP 1,000.00
Manuel A.
Agcaoili
Filipino
PhP
1,000.00
PhP 1,000.00
Ma. Elena A.
Bocalan
Filipino
PhP
1,000.00
PhP 1,000.00
Bayani H.
Agabin
Filipino
PhP
1,000.00
PhP 1,000.00
Robert L.
McCurdy
America
n
PhP
1,000.00
PhP 1,000.00
Kenneth
Cawkell
Canadia
n
PhP
1,000.00
PhP 1,000.00
Total
10,000
MBMI
Resources,
Inc.
Nationali Number
ty
of
Shares
PhP
PhP
10,000,000. 2,800,000.00
00
(emphasis
Total
supplied)
Again, MBMI, along with other nominal stockholders, i.e.,
Mason, Agcaoili and Esguerra, is present in this corporate
structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine
PLMDCs corporate structure:
Name
Nationa Number
Amount
lity
of
Subscribed
Shares
6,596
PhP
6,596,000.
00
MBMI Resources,
Inc.
Canadi
an
3,396
PhP
PhP
3,396,000. 2,796,000
00
.00
Higinio C. Mendoza,
Jr.
Filipino
PhP
1,000.00
PhP
1,000.00
Fernando B.
Esguerra
Filipino
PhP
1,000.00
PhP
1,000.00
Henry E. Fernandez
Filipino
PhP
1,000.00
PhP
1,000.00
Lauro L. Salazar
Filipino
PhP
1,000.00
PhP
1,000.00
Manuel A. Agcaoili
Filipino
PhP
1,000.00
PhP
1,000.00
Bayani H. Agabin
Filipino
PhP
1,000.00
PhP
1,000.00
Michael T. Mason
Americ
an
PhP
1,000.00
PhP
1,000.00
Kenneth Cawkell
Canadi
an
PhP
1,000.00
PhP
1,000.00
PhP
PhP
10,000,000 2,708,174
.00
.60
(emphasis
supplied)
Amount
Paid
10,000
PhP 0
57
Within thirty (30) days, after the submission of the case by the
parties for the decision, the panel shall have exclusive and
original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v.
Macroasia Corp.:53
The phrase "disputes involving rights to mining areas" refers to
any adverse claim, protest, or opposition to an application for
mineral agreement. The POA therefore has the jurisdiction to
resolve any adverse claim, protest, or opposition to a pending
application for a mineral agreement filed with the concerned
Regional Office of the MGB. This is clear from Secs. 38 and 41
of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized
officer(s) of the concerned office(s) shall issue a certification(s)
that the publication/posting/radio announcement have been
complied with. Any adverse claim, protest, opposition shall be
filed directly, within thirty (30) calendar days from the last
date of publication/posting/radio announcement, with the
concerned Regional Office or through any concerned PENRO or
CENRO for filing in the concerned Regional Office for purposes
of its resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules and
regulations. Upon final resolution of any adverse claim, protest
or opposition, the Panel of Arbitrators shall likewise issue a
certification to that effect within five (5) working days from the
date of finality of resolution thereof. Where there is no adverse
claim, protest or opposition, the Panel of Arbitrators shall
likewise issue a Certification to that effect within five working
days therefrom.
xxxx
No Mineral Agreement shall be approved unless the
requirements under this Section are fully complied with and
59
62