[G.R. No. 150976.

October 18, 2004]

CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S.
FLORES, XERXES NAVARRO, MARIA ANTONIA TEMPLO
and MEDICAL CENTER PARAAQUE, INC., petitioners,
vs. ANGELES BALINGHASAY, RENATO BERNABE, ALODIA
DEL
ROSARIO, ROMEO
FUNTILA,
TERESITA
GAYANILO, RUSTICO JIMENEZ, ARACELI** JO, ESMERALDA
MEDINA, CECILIA MONTALBAN, VIRGILIO OBLEPIAS,
CARMENCITA PARRENO, CESAR REYES, REYNALDO SAVET,
SERAPIO
TACCAD,
VICENTE
VALDEZ,
SALVACION
VILLAMORA, and HUMBERTO VILLAREAL, respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the Partial Judgment[1] dated
November 26, 2001 in Civil Case No. 01-0140, of the Regional Trial
Court (RTC) of Paraaque City, Branch 258. The trial court declared
the February 9, 2001, election of the board of directors of the
Medical Center Paraaque, Inc. (MCPI) valid. The Partial Judgment
dismissed petitioners first cause of action, specifically, to annul said
election for depriving petitioners their voting rights and to be voted
on as members of the board.
The facts, as culled from records, are as follows:
Petitioners and the respondents are stockholders of MCPI, with
the former holding Class B shares and the latter owning Class A
shares.
MCPI is a domestic corporation with offices at Dr. A. Santos
Avenue, Sucat, Paraaque City. It was organized sometime in
September 1977. At the time of its incorporation, Act No. 1459, the
old Corporation Law was still in force and effect. Article VII of MCPIs

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FIRST DIVISION

original Articles of Incorporation, as approved by the Securities and

Exchange Commission (SEC) on October 26, 1977, reads as follows:
SEVENTH. That the authorized capital stock of the corporation is
TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, divided
into TWO THOUSAND (2,000) SHARES at a par value of P100 each
share, whereby the ONE THOUSAND SHARES issued to, and
subscribed by, the incorporating stockholders shall be classified as
Class A shares while the other ONE THOUSAND unissued shares
shall be considered as Class B shares. Only holders of Class A
shares can have the right to vote and the right to be
elected as directors or as corporate officers.[2] (Stress
supplied)
On July 31, 1981, Article VII of the Articles of Incorporation of
MCPI was amended, to read thus:
SEVENTH. That the authorized capital stock of the corporation is
FIVE MILLION (P5,000,000.00) PESOS, divided as follows:
CLASS NO. OF SHARES PAR VALUE
A 1,000 P1,000.00
B 4,000 P1,000.00
Only holders of Class A shares have the right to vote and
the right to be elected as directors or as corporate officers.
[3]
(Emphasis supplied)
The foregoing amendment was approved by the SEC on June 7,
1983. While the amendment granted the right to vote and to be
elected as directors or corporate officers only to holders of Class A
shares, holders of Class B stocks were granted the same rights and
privileges as holders of Class A stocks with respect to the payment
of dividends.

SEVENTH: That the authorized capital stock of the corporation is

THIRTY TWO MILLION PESOS (P32,000,000.00) divided as follows:
CLASS NO. OF SHARES PAR VALUE

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Page

On September 9, 1992, Article VII was again amended to

provide as follows:

Paraaque City, Branch 258. Said complaint was founded on two (2)
principal causes of action, namely:
a. Annulment of the declaration of directors of the MCPI made
during the February 9, 2001 Annual Stockholders Meeting, and for
the conduct of an election whereat all stockholders, irrespective of
the classification of the shares they hold, should be afforded their
right to vote and be voted for; and

A 1,000 P1,000.00
B 31,000 1,000.00
Except when otherwise provided by law, only holders of
Class A shares have the right to vote and the right to be
elected as directors or as corporate officers [4] (Stress and
underscoring supplied).
The SEC approved the foregoing amendment on September 22,
1993.
On February 9, 2001, the shareholders of MCPI held their
annual stockholders meeting and election for directors. During the
course of the proceedings, respondent Rustico Jimenez, citing
Article VII, as amended, and notwithstanding MCPIs history,
declared over the objections of herein petitioners, that no Class B
shareholder was qualified to run or be voted upon as a director. In
the past, MCPI had seen holders of Class B shares voted for and
serve as members of the corporate board and some Class B share
owners were in fact nominated for election as board members.
Nonetheless, Jimenez went on to announce that the candidates
holding Class A shares were the winners of all seats in the
corporate board. The petitioners protested, claiming that Article VII
was null and void for depriving them, as Class B shareholders, of
their right to vote and to be voted upon, in violation of the
Corporation Code (Batas Pambansa Blg. 68), as amended.
On March 22, 2001, after their protest was given short shrift,
herein petitioners filed a Complaint for Injunction, Accounting and
Damages, docketed as Civil Case No. CV-01-0140 before the RTC of

b. Stockholders derivative suit challenging the validity of a contract

entered into by the Board of Directors of MCPI for the operation of
the ultrasound unit.[5]
Subsequently, the complaint was amended to implead MCPI as
party-plaintiff for purposes only of the second cause of action.
Before the trial court, the herein petitioners alleged that they
were deprived of their right to vote and to be voted on as directors
at the annual stockholders meeting held on February 9, 2001,
because respondents had erroneously relied on Article VII of the
Articles of Incorporation of MCPI, despite Article VII being contrary
to the Corporation Code, thus null and void. Additionally,
respondents were in estoppel, because in the past, petitioners were
allowed to vote and to be elected as members of the board. They
further claimed that the privilege granted to the Class A
shareholders was more in the nature of a right granted to founders
shares.
In their Answer, the respondents averred that the provisions of
Article VII clearly and categorically state that only holders of Class
A shares have the exclusive right to vote and be elected as
directors and officers of the corporation. They denied that the
exclusivity was intended only as a privilege granted to founders
shares, as no such proviso is found in the Articles of Incorporation.
The respondents further claimed that the exclusivity of the right
granted to Class A holders cannot be defeated or impaired by any
subsequent legislative enactment, e.g.the New Corporation Code,
as the Articles of Incorporation is an intra-corporate contract
between the corporation and its members; between the corporation

3
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and its stockholders; and among the stockholders. They submit

that to allow Class B shareholders to vote and be elected as
directors would constitute a violation of MCPIs franchise or charter
as granted by the State.

Hence, this petition submitting the sole legal issue of whether

or not the Court a quo, in rendering the Partial Judgment dated
November 26, 2001, has decided a question of substance in a way
not in accord with law and jurisprudence considering that:

At the pre-trial, the trial court ruled that a partial judgment

could be rendered on the first cause of action and required the
parties to submit their respective position papers or memoranda.

1. Under the Corporation Code, the exclusive voting right and right
to be voted granted by the Articles of Incorporation of the MCPI to
Class A shareholders is null and void, or already extinguished;

On November 26, 2001, the RTC rendered the Partial Judgment,

the dispositive portion of which reads:

2. Hence, the declaration of directors made during the February 9,

2001 Annual Stockholders Meeting on the basis of the purported
exclusive voting rights is null and void for having been done
without the benefit of an election and in violation of the rights of
plaintiffs and Class B shareholders; and

WHEREFORE, viewed in the light of the foregoing, the election held

on February 9, 2001 is VALID as the holders of CLASS B shares are
not entitled to vote and be voted for and this case based on the
First Cause of Action is DISMISSED.
SO ORDERED.[6]
In finding for the respondents, the trial court ruled that
corporations had the power to classify their shares of stocks, such
as voting and non-voting shares, conformably with Section 6 [7]of the
Corporation Code of the Philippines. It pointed out that Article VII of
both the original and amended Articles of Incorporation clearly
provided that only Class A shareholders could vote and be voted for
to the exclusion of Class B shareholders, the exception being in
instances provided by law, such as those enumerated in Section 6,
paragraph 6 of the Corporation Code. The RTC found merit in the
respondents theory that the Articles of Incorporation, which defines
the rights and limitations of all its shareholders, is a contract
between MCPI and its shareholders. It is thus the law between the
parties and should be strictly enforced as to them. It brushed aside
the petitioners claim that the Class A shareholders were in
estoppel, as the election of Class B shareholders to the corporate
board may be deemed as a mere act of benevolence on the part of
the officers. Finally, the court brushed aside the founders shares
theory of the petitioners for lack of factual basis.

3. Perforce, another election should be conducted to elect the

directors of the MCPI, this time affording the holders of Class B
shares full voting right and the right to be voted. [8]
The issue for our resolution is whether or not holders of Class B
shares of the MCPI may be deprived of the right to vote and be
voted for as directors in MCPI.
Before us, petitioners assert that Article VII of the Articles of
Incorporation of MCPI, which denied them voting rights, is null and
void for being contrary to Section 6 of the Corporation Code. They
point out that Section 6 prohibits the deprivation of voting rights
except as to preferred and redeemable shares only. Hence, under
the present law on corporations, all shareholders, regardless of
classification, other than holders of preferred or redeemable shares,
are entitled to vote and to be elected as corporate directors or
officers. Since the Class B shareholders are not classified as holders
of either preferred or redeemable shares, then it necessarily follows
that they are entitled to vote and to be voted for as directors or
officers.
The respondents, in turn, maintain that the grant of exclusive
voting rights to Class A shares is clearly provided in the Articles of
Incorporation and is in accord with Section 5 [9] of the Corporation

We find merit in the petition.

When Article VII of the Articles of Incorporation of MCPI was
amended in 1992, the phrase except when otherwise provided by
law was inserted in the provision governing the grant of voting
powers to Class A shareholders. This particular amendment is
relevant for it speaks of a law providing for exceptions to the
exclusive grant of voting rights to Class A stockholders. Which law
was the amendment referring to? The determination of which law
to apply is necessary. There are two laws being cited and relied
upon by the parties in this case. In this instance, the law in force at
the time of the 1992 amendment was the Corporation Code (B.P.
Blg. 68), not the Corporation Law (Act No. 1459), which had been
repealed by then.
We find and so hold that the law referred to in the amendment
to Article VII refers to the Corporation Code and no other law. At the
time of the incorporation of MCPI in 1977, the right of a corporation
to classify its shares of stock was sanctioned by Section 5 of Act No.
1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the
same grant of right of classification of stock shares to
corporations, but with a significant change. Under Section 6 of B.P.
Blg. 68, the requirements and restrictions on voting rights were
explicitly provided for, such that no share may be deprived of
voting rights except those classified and issued as preferred or
redeemable shares, unless otherwise provided in this Code and
that there shall always be a class or series of shares which have
complete voting rights. Section 6 of the Corporation Code being
deemed written into Article VII of the Articles of Incorporation of
MCPI, it necessarily follows that unless Class B shares of MCPI
stocks are clearly categorized to be preferred or redeemable
shares, the holders of said Class B shares may not be deprived of

4
Page

Law (Act No. 1459), which was the prevailing law when MCPI was
incorporated in 1977. They likewise submit that as the Articles of
Incorporation of MCPI is in the nature of a contract between the
corporation and its shareholders and Section 6 of the Corporation
Code could not retroactively apply to it without violating the nonimpairment clause[10] of the Constitution.

their voting rights. Note that there is nothing in the Articles of

Incorporation nor an iota of evidence on record to show that Class B
shares were categorized as either preferred or redeemable shares.
The only possible conclusion is that Class B shares fall under
neither category and thus, under the law, are allowed to exercise
voting rights.
One of the rights of a stockholder is the right to participate in
the control and management of the corporation that is exercised
through his vote. The right to vote is a right inherent in and
incidental to the ownership of corporate stock, and as such is a
property right. The stockholder cannot be deprived of the right to
vote his stock nor may the right be essentially impaired, either by
the legislature or by the corporation, without his consent, through
amending the charter, or the by-laws.[11]
Neither do we find merit in respondents position that Section 6
of the Corporation Code cannot apply to MCPI without running afoul
of the non-impairment clause of the Bill of Rights. Section 148 [12] of
the Corporation Code expressly provides that it shall apply to
corporations in existence at the time of the effectivity of the Code.
Hence, the non-impairment clause is inapplicable in this instance.
When Article VII of the Articles of Incorporation of MCPI were
amended in 1992, the board of directors and stockholders must
have been aware of Section 6 of the Corporation Code and intended
that Article VII be construed in harmony with the Code, which was
then already in force and effect. Since Section 6 of the Corporation
Code expressly prohibits the deprivation of voting rights, except as
to preferred and redeemable shares, then Article VII of the Articles
of Incorporation cannot be construed as granting exclusive voting
rights to Class A shareholders, to the prejudice of Class B
shareholders, without running afoul of the letter and spirit of the
Corporation Code.
The respondents then take the tack that the phrase except
when otherwise provided by law found in the amended Articles is
only a handwritten insertion and could have been inserted by
anybody and that no board resolution was ever passed authorizing
or approving said amendment.

WHEREFORE, the petition is GRANTED. The Partial Judgment

dated November 26, 2001 of the Regional Trial Court of Paraaque
City, Branch 258, in Civil Case No. 01-0140 is REVERSED AND SET
ASIDE. No pronouncement as to costs.
SO ORDERED.

5
Page

Said contention is not for this Court to pass upon, involving as

it does a factual question, which is not proper in this petition. In an
appeal via certiorari, only questions of law may be reviewed.
[13]
Besides, respondents did not adduce persuasive evidence, but
only bare allegations, to support their suspicion. The presumption
that in the amendment process, the ordinary course of business
has been followed[14] and that official duty has been regularly
performed[15] on the part of the SEC, applies in this case.

WILSON P. GAMBOA,

6
Page

EN BANC

G.R. No. 176579

CHAIR FE BARIN OF THE

SECURITIES EXCHANGE
COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE
STOCK EXCHANGE,

MENDOZA, and
SERENO, JJ.

Respondents.

Petitioner,

Present:

PABLITO V. SANIDAD and

Promulgated:

ARNO V. SANIDAD,
- versus -

Petitioners-in-Intervention.

June 28, 2011

CORONA, C.J.,
FINANCE SECRETARY MARGARITO
B. TEVES, FINANCE
UNDERSECRETARY JOHN P.
SEVILLA, AND COMMISSIONER
RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT (PCGG) IN
THEIR CAPACITIES AS CHAIR AND
MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF
FIRST PACIFIC CO., LTD. IN HIS
CAPACITY AS DIRECTOR OF METRO
PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN
OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT) IN
HIS CAPACITY AS MANAGING
DIRECTOR OF FIRST PACIFIC CO.,
LTD., PRESIDENT NAPOLEON L.
NAZARENO OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY,

CARPIO,

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,

DECISION

PERALTA,
BERSAMIN,
DEL CASTILLO,

CARPIO, J.:

ABAD,
VILLARAMA, JR.,
PEREZ,

The Case

7
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 InterAgency Privatization Council (IPC) of the Philippine Government

Page

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).

announced that it would sell the 111,415 PTIC shares, or 46.125

percent of the outstanding capital stock of PTIC, through a public
bidding to be conducted on 4 December 2006. Subsequently, the
public bidding was reset to 8 December 2006, and only two
bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid
of P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of

first refusal as a PTIC stockholder and buy the 111,415 PTIC shares
by matching the bid price of Parallax. However, First Pacific failed to
do so by the 1 February 2007 deadline set by IPC and instead,
yielded its right to PTIC itself which was then given by IPC until 2
March 2007 to buy the PTIC shares. On 14 February 2007, First
Pacific, through its subsidiary, MPAH, entered into a Conditional
Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the
Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine
Government of 46.125 percent of PTIC shares is actually an indirect
sale of 12 million shares or about 6.3 percent of the outstanding
common shares of PLDT. With the sale, First Pacifics common
shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the common shareholdings of
foreigners in PLDT to about 81.47 percent. This violates
Section 11, Article XII of the 1987 Philippine Constitution which
limits foreign ownership of the capital of a public utility to not more
than 40 percent.3

On the other hand, public respondents Finance

Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and
PCGG Commissioner Ricardo Abcede allege the following relevant
facts:

The Philippine Government decided to sell the 111,415 PTIC shares,

which represent 6.4 percent of the outstanding common shares of
stock of PLDT, and designated the Inter-Agency Privatization
Council (IPC), composed of the Department of Finance and the
PCGG, as the disposing entity. An invitation to bid was published in
seven different newspapers from 13 to 24 November 2006. On 20
November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8
December 2006. The extension was published in nine different
newspapers.

During the 8 December 2006 bidding, Parallax Capital Management

LP emerged as the highest bidder with a bid of P25,217,556,000.
The government notified First Pacific, the majority owner of PTIC
shares, of the bidding results and gave First Pacific until 1 February
2007 to exercise its right of first refusal in accordance with PTICs
Articles of Incorporation. First Pacific announced its intention to
match Parallaxs bid.

On 31 January 2007, the House of Representatives (HR) Committee

on Good Government conducted a public hearing on the particulars
of the then impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those who attended the
public hearing. The HR Committee Report No. 2270 concluded that:
(a) the auction of the governments 111,415 PTIC shares bore due

8
Page

On 9 November 1967, PTIC was incorporated and had since

engaged in the business of investment holdings. PTIC held
26,034,263 PLDT common shares, or 13.847 percent of the total
PLDT outstanding common shares. PHI, on the other hand, was
incorporated in 1977, and became the owner of 111,415 PTIC
shares or 46.125 percent of the outstanding capital stock of PTIC by
virtue of three Deeds of Assignment executed by
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC
shares held by PHI were sequestered by the PCGG, and
subsequently declared by this Court as part of the ill-gotten wealth
of former President Ferdinand Marcos. The sequestered PTIC shares
were reconveyed to the Republic of the Philippines in accordance
with this Courts decision4 which became final and executory on 8
August 2006.

diligence, transparency and conformity with existing legal

procedures; and (b) First Pacifics intended acquisition of the
governments 111,415 PTIC shares resulting in First Pacifics
100% ownership of PTIC will not violate the 40 percent
constitutional limit on foreign ownership of a public utility
since PTIC holds only 13.847 percent of the total
outstanding common shares of PLDT.5 On 28 February 2007,
First Pacific completed the acquisition of the 111,415 shares of
stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the

IPC conducted a public bidding for the sale of 111,415 PTIC shares
or 46 percent of the outstanding capital stock of PTIC (the
remaining 54 percent of PTIC shares was already owned by First
Pacific and its affiliates); (b) Parallax offered the highest bid
amounting to P25,217,556,000; (c) pursuant to the right of first
refusal in favor of PTIC and its shareholders granted in PTICs
Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its
right of first refusal by matching the highest bid offered for PTIC
shares on 13 February 2007; and (d) on 28 February 2007, the sale
was consummated when MPAH paid IPC P25,217,556,000 and the
government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of
petitioner.

On 28 February 2007, petitioner filed the instant petition for

prohibition, injunction, declaratory relief, and declaration of nullity
of sale of the 111,415 PTIC shares. Petitioner claims, among others,
that the sale of the 111,415 PTIC shares would result in an increase
in First Pacifics common shareholdings in PLDT from 30.7 percent to
37 percent, and this, combined with Japanese
NTT DoCoMos common shareholdings in PLDT, would result to a
total foreign common shareholdings in PLDT of 51.56 percent which
is over the 40 percent constitutional limit.6 Petitioner asserts:

If and when the sale is completed, First Pacifics equity in

PLDT will go up from 30.7 percent to 37.0 percent of its
common or voting- stockholdings, x x x. Hence, the

x x x as the annual disclosure reports, also

referred to as Form 20-K reports x x x which
PLDT submitted to the New York Stock
Exchange for the period 2003-2005, revealed
that First Pacific and several other foreign
entities breached the constitutional limit of 40
percent ownership as early as 2003. x x x7

Petitioner raises the following issues: (1) whether the

consummation of the then impending sale of 111,415 PTIC shares
to First Pacific violates the constitutional limit on foreign ownership
of a public utility; (2) whether public respondents committed grave
abuse of discretion in allowing the sale of the 111,415 PTIC shares
to First Pacific; and (3) whether the sale of common shares to
foreigners in excess of 40 percent of the entire subscribed common
capital stock violates the constitutional limit on foreign ownership
of a public utility.8

9
Page

consummation of the sale will put the two largest foreign

investors in PLDT First Pacific and Japans NTT DoCoMo,
which is the worlds largest wireless telecommunications
firm, owning 51.56 percent of PLDT common equity.
x x x With the completion of the sale, data culled from the
official website of the New York Stock Exchange
(www.nyse.com) showed that those foreign entities, which
own at least five percent of common equity, will collectively
own 81.47 percent of PLDTs common equity. x x x

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 non-voting preferred shares) of
PLDT, a public utility.

The Ruling of the Court

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-in-intervention claim that, as PLDT subscribers, they

The petition is partly meritorious.

Petition for declaratory relief treated as petition for

mandamus

While direct resort to this Court may be justified in a petition for

prohibition,11 the Court shall nevertheless refrain from discussing
the grounds in support of the petition for prohibition since on 28
February 2007, the questioned sale was consummated when MPAH
paid IPC P25,217,556,000 and the government delivered the
certificates for the 111,415 PTIC shares.

However, since the threshold and purely legal issue on the

definition of the term capital in Section 11, Article XII of the
Constitution has far-reaching implications to the
national economy, the Court treats the petition for declaratory
relief as one for mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated

the petition for declaratory relief as one for mandamus considering
the grave injustice that would result in the interpretation of a
banking law. In that case, which involved the crime of rape
committed by a foreign tourist against a Filipino minor and the
execution of the final judgment in the civil case for damages on the
tourists dollar deposit with a local bank, the Court declared Section
113 of Central Bank Circular No. 960, exempting foreign currency
deposits from attachment, garnishment or any other order or
process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that injustice would
result especially to a citizen aggrieved by a foreign guest like
accused x x x that would negate Article 10 of the Civil Code which

10
Page

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.

provides that in case of doubt in the interpretation or application of

laws, it is presumed that the lawmaking body intended right and
justice to prevail. The Court therefore required respondents Central
Bank of the Philippines, the local bank, and the accused to comply
with the writ of execution issued in the civil case for damages and
to release the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court

similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully
excluded petitioners, who were government employees, from the
enjoyment of rights to which they were entitled under the law.
Specifically, the question was: Are the branches, agencies,
subdivisions, and instrumentalities of the Government, including
government owned or controlled corporations included among the
four employers under Presidential Decree No. 851 which are
required to pay their employees x x x a thirteenth (13th) month pay
x x x ? The Constitutional principle involved therein affected all
government employees, clearly justifying a relaxation of the
technical rules of procedure, and certainly requiring the
interpretation of the assailed presidential decree.

In short, it is well-settled that this Court may treat a petition for

declaratory relief as one for mandamus if the issue involved has
far-reaching implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a

petition for declaratory relief. However, exceptions to
this rule have been recognized. Thus, where the
petition has far-reaching implications and raises
questions that should be resolved, it may be treated
as one for mandamus.15 (Emphasis supplied)

The interpretation of the term capital in Section 11, Article XII of

the Constitution has far-reaching implications to the national
economy. In fact, a resolution of this issue will determine whether
Filipinos are masters, or second class citizens, in their own country.
What is at stake here is whether Filipinos or foreigners will
have effective control of the national economy. Indeed, if ever
there is a legal issue that has far-reaching implications to the entire
nation, and to future generations of Filipinos, it is
the threshhold legal issue presented in this case.

The Court first encountered the issue on the definition of the term
capital in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That
case involved the same public utility (PLDT) and substantially the
same private respondents. Despite the importance and novelty of
the constitutional issue raised therein and despite the fact that the
petition involved a purely legal question, the Court declined to
resolve the case on the merits, and instead denied the same for
disregarding the hierarchy of courts.17 There, petitioner Fernandez
assailed on a pure question of law the Regional Trial Courts
Decision of 21 February 2003 via a petition for review under Rule
45. The Courts Resolution, denying the petition, became final on 21
December 2004.
The instant petition therefore presents the Court with another
opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a
fundamental requirement to a faithful adherence to our
Constitution. The Court must forthwith seize such opportunity, not
only for the benefit of the litigants, but more significantly for the
benefit of the entire Filipino people, to ensure, in the words of the
Constitution, a self-reliant and independent national

11
Page

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.

economy effectively controlled by Filipinos.18 Besides, in the light

of vague and confusing positions taken by government agencies on
this purely legal issue, present and future foreign investors in this
country deserve, as a matter of basic fairness, a categorical ruling
from this Court on the extent of their participation in the capital of
public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this

purely legal issue has remained unresolved for over 75 years since
the 1935 Constitution. There is no reason for this Court to evade
this ever recurring fundamental issue and delay again defining the
term capital, which appears not only in Section 11, Article XII of the
Constitution, but also in Section 2, Article XII on co-production and
joint venture agreements for the development of our natural
resources,19 in Section 7, Article XII on ownership of private
lands,20 in Section 10, Article XII on the reservation of certain
investments to Filipino citizens,21 in Section 4(2), Article XIV on the
ownership of educational institutions,22 and in Section 11(2), Article
XVI on the ownership of advertising companies.23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such,

he has the right to question the subject sale, which he claims to
violate the nationality requirement prescribed in Section 11, Article
XII of the Constitution. If the sale indeed violates the Constitution,
then there is a possibility that PLDTs franchise could be revoked, a
dire consequence directly affecting petitioners interest as a
stockholder.

More importantly, there is no question that the instant petition

raises matters of transcendental importance to the public. The
fundamental and threshold legal issue in this case, involving the

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring

a suit on matters of transcendental importance to the public, thus:

In Taada v. Tuvera, the Court asserted that when the issue

concerns a public right and the object of mandamus is to
obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is
sufficient that petitioner is a citizen and as such is
interested in the execution of the laws, he need not show
that he has any legal or special interest in the result of the
action. In the aforesaid case, the petitioners sought to enforce
their right to be informed on matters of public concern, a right then
recognized in Section 6, Article IV of the 1973 Constitution, in
connection with the rule that laws in order to be valid and
enforceable must be published in the Official Gazette or otherwise
effectively promulgated. In ruling for the petitioners legal standing,
the Court declared that the right they sought to be enforced is a
public right recognized by no less than the fundamental law of the
land.
Legaspi v. Civil Service Commission, while reiterating Taada, further
declared that when a mandamus proceeding involves the
assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a
citizen and, therefore, part of the general public which
possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public
funds may not have been involved under the questioned contract
for the development, management and operation of the Manila
International Container Terminal, public interest [was] definitely
involved considering the important role [of the subject
contract] . . . in the economic development of the country
and the magnitude of the financial consideration involved.
We concluded that, as a consequence, the disclosure provision in

12

the Constitution would constitute sufficient authority for upholding

the petitioners standing. (Emphasis supplied)

Page

national economy and the economic welfare of the Filipino people,

far outweighs any perceived impediment in the legal personality of
the petitioner to bring this action.

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

matters of transcendental public importance, the petitioner has the
requisite locus standi.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the

1987 Constitution mandates the Filipinization of public utilities, to
wit:

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

of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines
or to corporations or associations organized under
the laws of the Philippines, at least sixty per centum
of whose capital is owned by such citizens; nor shall
such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under

The above provision substantially reiterates Section 5, Article XIV of

the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form

of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines
or to corporations or associations organized under
the laws of the Philippines at least sixty per centum
of the capital of which is owned by such citizens, nor
shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when the
public interest so requires. The State shall encourage equity
participation in public utilities by the general public. The
participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their
proportionate share in the capital thereof. (Emphasis
supplied)

13

The foregoing provision in the 1973 Constitution reproduced

Section 8, Article XIV of the 1935 Constitution, viz:

Page

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)

Section 8. No franchise, certificate, or any other form

of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines
or to corporations or other entities organized under
the laws of the Philippines sixty per centum of the
capital of which is owned by citizens of the
Philippines, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period
than fifty years. No franchise or right shall be granted to any
individual, firm, or corporation, except under the condition
that it shall be subject to amendment, alteration, or repeal
by the Congress when the public interest so requires.
(Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986

Constitutional Commission, reminds us that
the Filipinization provision in the 1987 Constitution is one of the
products of the spirit of nationalism which gripped the 1935
Constitutional Convention.25 The 1987 Constitution provides for
the Filipinization of public utilities by requiring that any form of
authorization for the operation of public utilities should be granted
only to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens. The provision
is [an express] recognition of the sensitive and vital
position of public utilities both in the national economy and
for national security.26 The evident purpose of the citizenship
requirement is to prevent aliens from assuming control of public
utilities, which may be inimical to the national interest. 27 This
specific provision explicitly reserves to Filipino citizens control of
public utilities, pursuant to an overriding economic goal of the 1987
Constitution: to conserve and develop our patrimony28 and ensure a
self-reliant and independent national
economy effectively controlled by Filipinos.29

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.

14
Page

Any citizen or juridical entity desiring to operate a public utility

must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence, for a
corporation to be granted authority to operate a public utility, at
least 60 percent of its capital must be owned by Filipino citizens.

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. Nazarenostressed mainly that the
petition seeks to divest foreign common shareholders
purportedly exceeding 40% of the total common
shareholdings in PLDT of their ownership over their shares.
Thus, the foreign natural and juridical PLDT shareholders must
be impleaded in this suit so that they can be
heard.34 Essentially, Nazareno invokes denial of due process on
behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term

capital, he states that among the factual assertions that need
to be established to counter petitioners allegations is the
uniform interpretation by government agencies (such as
the SEC), institutions and corporations (such as the
Philippine National Oil Company-Energy Development
Corporation or PNOC-EDC) of including both preferred
shares and common shares in controlling interest in view of
testing compliance with the 40% constitutional limitation
on foreign ownership in public utilities.35

Similarly, respondent Manuel V. Pangilinan does not define the term

capital in Section 11, Article XII of the Constitution. Neither does he
refute petitioners claim of foreigners holding more than 40 percent
of PLDTs common shares. Instead, respondent Pangilinan focuses

Respondent Pangilinan further asserts that Section 11, [Article

XII of the Constitution] imposes no nationality requirement
on the shareholders of the utility company as a condition
for keeping their shares in the utility company. According to
him, Section 11 does not authorize taking one persons property
(the shareholders stock in the utility company) on the basis of
another partys alleged failure to satisfy a requirement that is a
condition only for that other partys retention of another piece of
property (the utility company being at least 60% Filipino-owned to
keep its franchise).36

The OSG, representing public respondents

Secretary Margarito Teves, Undersecretary John P. Sevilla,
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise
silent on the definition of the term capital. In its
Memorandum37 dated 24 September 2007, the OSG also limits its
discussion on the supposed procedural defects of the petition, i.e.
lack of standing, lack of jurisdiction, non-inclusion of interested
parties, and lack of basis for injunction. The OSG does not present
any definition or interpretation of the term capital in Section 11,
Article XII of the Constitution. The OSG contends that the petition
actually partakes of a collateral attack on PLDTs franchise as a
public utility, which in effect requires a full-blown trial where all the
parties in interest are given their day in court.38

15
Page

on the procedural flaws of the petition and the alleged violation of

the due process rights of foreigners.
Respondent Pangilinan emphasizes in his Memorandum (1) the
absence of this Courts jurisdiction over the petition; (2) petitioners
lack of standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights.
Moreover, respondent Pangilinan alleges that the issue should be
whether owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish
their shares in PLDT and in those companies without any law
requiring them to surrender their shares and also without notice
and trial.

Respondent Francisco Ed Lim, impleaded as President and Chief

Executive Officer of the Philippine Stock Exchange (PSE), does not
also define the term capital and seeks the dismissal of the petition
on the following grounds: (1) failure to state a cause of action
against Lim; (2) the PSE allegedly implemented its rules and
required all listed companies, including PLDT, to make proper and
timely disclosures; and (3) the reliefs prayed for in the petition
would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez

who claimed to be a stockholder of record of PLDT, contended that
the term capital in the 1987 Constitution refers to shares entitled to
vote or the common shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public

utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares,
considering that it is through voting that control is being
exercised. x x x

Obviously, the intent of the framers of the Constitution in

imposing limitations and restrictions on fully nationalized
and partially nationalized activities is for Filipino nationals to
be always in control of the corporation undertaking said
activities. Otherwise, if the Trial Courts ruling upholding
respondents arguments were to be given credence, it would
be possible for the ownership structure of a public utility
corporation to be divided into one percent (1%) common
stocks and ninety-nine percent (99%) preferred stocks.
Following the Trial Courts ruling adopting respondents
arguments, the common shares can be owned entirely by
foreigners thus creating an absurd situation wherein
foreigners, who are supposed to be minority shareholders,
control the public utility corporation.

Thus, the 40% foreign ownership limitation should be

interpreted to apply to both the beneficial ownership and
the controlling interest.

16

prevail over the clear intent of the framers of the

Constitution.

Page

xxxx

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

xxxx

Clearly, therefore, the forty percent (40%) foreign equity

limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e.,
common shares. Furthermore, ownership of record of shares
will not suffice but it must be shown that the legal and
beneficial ownership rests in the hands of Filipino citizens.
Consequently, in the case of petitioner PLDT, since it is
already admitted that the voting interests of foreigners
which would gain entry to petitioner PLDT by the acquisition
of SMART shares through the Questioned Transactions is
equivalent to 82.99%, and the nominee arrangements
between the foreign principals and the Filipino owners is
likewise admitted, there is, therefore, a violation of Section
11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and
April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word capital as used in
Section 11, Article XII of the Constitution allegedly refers to
the sum total of the shares subscribed and paid-in by the
shareholder and it allegedly is immaterial how the stock is
classified, whether as common or preferred, cannot stand in
the face of a clear legislative policy as stated in the FIA
which took effect in 1991 or way after said opinions were
rendered, and as clarified by the above-quoted
Amendments. In this regard, suffice it to state that as
between the law and an opinion rendered by an
administrative agency, the law indubitably prevails.
Moreover, said Opinions are merely advisory and cannot

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.

xxxx

17. But even assuming that resort to the proceedings of the

Constitutional Commission is necessary, there is nothing in
the Record of the Constitutional Commission (Vol. III) which
petitioner misleadingly cited in the Petition x x x which
supports petitioners view that only common shares should
form the basis for computing a public utilitys foreign equity.
xxxx

18. In addition, the SEC the government agency primarily

responsible for implementing the Corporation Code, and
which also has the responsibility of ensuring compliance
with the Constitutions foreign equity restrictions as regards
nationalized activities x x x has categorically ruled that both
common and preferred shares are properly considered in
determining outstanding capital stock and the nationality
composition thereof.40

We agree with petitioner and petitioners-in-intervention. The term

capital in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus
in the present case only to common shares,41 and not to the total

17
Page

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.

outstanding capital stock comprising both common and non-voting

preferred shares.
The Corporation Code of the Philippines42 classifies shares as
common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock

corporations may be divided into classes or series of shares,
or both, any of which classes or series of shares may have
such rights, privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share may be
deprived of voting rights except those classified and
issued as preferred or redeemable shares, unless
otherwise provided in this Code: Provided, further, That
there shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or series of
shares may have a par value or have no par value as may
be provided for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance
companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value
shares of stock.
Preferred shares of stock issued by any corporation may be
given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the
articles of incorporation which are not violative of the
provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The Board
of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof: Provided, 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

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

18

provided in this Code shall be deemed to refer only to stocks

with voting rights.

Page

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.

Indisputably, one of the rights of a stockholder is the right to

participate in the control or management of the corporation. 43 This
is exercised through his vote in the election of directors because it
is the board of directors that controls or manages the
corporation.44 In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares. However,
preferred shareholders are often excluded from any control, that is,
deprived of the right to vote in the election of directors and on
other matters, on the theory that the preferred shareholders are
merely investors in the corporation for income in the same manner
as bondholders.45 In fact, under the Corporation Code only
preferred or redeemable shares can be deprived of the right to
vote.46 Common shares cannot be deprived of the right to vote in
any corporate meeting, and any provision in the articles of
incorporation restricting the right of common shareholders to vote
is invalid.47

Considering that common shares have voting rights which translate

to control, as opposed to preferred shares which usually have no
voting rights, the term capital in Section 11, Article XII of the
Constitution refers only to common shares. However, if the
preferred shares also have the right to vote in the election of
directors, then the term capital shall include such preferred shares
because the right to participate in the control or management of
the corporation is exercised through the right to vote in the election
of directors. In short, the term capital in Section 11, Article
XII of the Constitution refers only to shares of stock that
can vote in the election of directors.

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph,
the vote necessary to approve a particular corporate act as

This interpretation is consistent with the intent of the framers of the

Constitution to place in the hands of Filipino citizens the control and

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee

stated local or Filipino equity and foreign equity; namely, 6040 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with

this question: Where do we base the equity requirement, is
it on the authorized capital stock, on the subscribed capital
stock, or on the paid-up capital stock of a corporation? Will
the Committee please enlighten me on this?

19
Page

management of public utilities. As revealed in the deliberations of

the Constitutional Commission, capital refers to the voting stock
or controlling interest of a corporation, to wit:

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another

corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the
grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the

Committee.

MR. NOLLEDO. Therefore, we need additional Filipino

capital?

MR. VILLEGAS. Yes.48

MR. VILLEGAS. We have just had a long discussion with the
members of the team from the UP Law Center who provided
us a draft. The phrase that is contained here which we
adopted from the UP draft is 60 percent of voting
stock.

MR. NOLLEDO. That must be based on the subscribed capital

stock, because unless declared delinquent, unpaid capital
stock shall be entitled to vote.

xxxx
MR. AZCUNA. May I be clarified as to that portion that was
accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is

the deletion of the phrase voting stock or controlling
interest.

MR. VILLEGAS. That is right.

MR. AZCUNA. Hence, without the Davide amendment, the
committee report would read: corporations or associations

20

MR. BENGZON. In the case of stock corporations, it is

assumed.49 (Emphasis supplied)

Page

at least sixty percent of whose CAPITAL is owned by such

citizens.

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are

stuck with 60 percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the

foreigners even if they are the minority. Let us say 40
percent of the capital is owned by them, but it is the
voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where
the corporation is controlled by foreigners despite
being the minority because they have the voting
capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the

word stock as stated in the 1973 and 1935
Constitutions is that according to Commissioner
Rodrigo, there are associations that do not have
stocks. That is why we say CAPITAL.

MR. AZCUNA. We should not eliminate the phrase

controlling interest.

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 nonFilipino 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)

b. Philippine national shall mean a citizen of the Philippines

or a domestic partnership or association wholly owned by
the citizens of the Philippines; or a corporation organized
under the laws of the Philippines of which at least
sixty percent [60%] of the capital stock outstanding
and entitled to vote is owned and held by citizens of
the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent
[60%] of the fund will accrue to the benefit of the Philippine
nationals; Provided,that where a corporation its non-Filipino
stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty
percent [60%] of the capital stock outstanding and entitled
to vote of both corporations must be owned and held by
citizens of the Philippines and at least sixty percent [60%] of
the members of the Board of Directors of each of both
corporation must be citizens of the Philippines, in order that
the corporation shall be considered a Philippine national.
The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a

corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not,
but only such stocks which are generally entitled to
vote are considered.

For stocks to be deemed owned and held by

Philippine citizens or Philippine nationals, mere legal
title is not enough to meet the required Filipino
equity. Full beneficial ownership of the stocks,

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In explaining the definition of a Philippine national, the

Implementing Rules and Regulations of the Foreign Investments Act
of 1991 provide:

coupled with appropriate voting rights is essential.

Thus, stocks, the voting rights of which have been
assigned or transferred to aliens cannot be
considered held by Philippine citizens or Philippine
nationals.

Individuals or juridical entities not meeting the

aforementioned qualifications are considered as nonPhilippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned

capital required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is required. The legal and beneficial ownership of
60 percent of the outstanding capital stock must rest in the hands
of Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is considered as non-Philippine
national[s].

Under Section 10, Article XII of the Constitution, Congress may

reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress
may prescribe, certain areas of investments. Thus, in numerous
laws Congress has reserved certain areas of investments to Filipino
citizens or to corporations at least sixty percent of the capital of
which is owned by Filipino citizens. Some of these laws are: (1)
Regulation of Award of Government Contracts or R.A. No. 5183; (2)
Philippine Inventors Incentives Act or R.A. No. 3850; (3)
Magna Carta for Micro, Small and Medium Enterprises or R.A. No.
6977; (4) Philippine Overseas Shipping Development Act or R.A. No.
7471; (5) Domestic Shipping Development Act of 2004 or R.A. No.
9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No.
10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the
term capital in Section 11, Article XII of the Constitution is also
used in the same context in numerous lawsreserving certain
areas of investments to Filipino citizens.

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.

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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.

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 2010 General Information Sheet (GIS),54which is a
document required to be submitted annually to the Securities and
Exchange Commission,55 foreigners hold 120,046,690 common
shares of PLDT whereas Filipinos hold only 66,750,622 common
shares.56 In other words, foreigners hold 64.27% of the total
number of PLDTs common shares, while Filipinos hold only 35.73%.
Since holding a majority of the common shares equates to control,
it is clear that foreigners exercise control over PLDT. Such amount
of control unmistakably exceeds the allowable 40 percent limit on
foreign ownership of public utilities expressly mandated in Section
11, Article XII of the Constitution.

As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par

value of PLDT common shares is P5.00 per share, whereas the par
value of preferred shares is P10.00 per share. In other words,
preferred shares have twice the par value of common shares but
cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are
owned by Filipinos while foreigners own only a minuscule 0.56% of
the preferred shares.61 Worse, preferred shares constitute 77.85%
of the authorized capital stock of PLDT while common shares
constitute only 22.15%.62 This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with
the common shares, blatantly violating the constitutional
requirement of 60 percent Filipino control and Filipino beneficial
ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding

capital stock must rest in the hands of Filipinos in accordance with
the constitutional mandate. Full beneficial ownership of 60 percent
of the outstanding capital stock, coupled with 60 percent of the
voting rights, is constitutionally required for the States grant of
authority to operate a public utility. The undisputed fact that the
PLDT preferred shares, 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

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Moreover, the Dividend Declarations of PLDT for 2009,57 as

submitted to the SEC, shows that per share the SIP58 preferred
shares earn a pittance in dividends compared to the common
shares. PLDT declared dividends for the common shares at P70.00
per share, while the declared dividends for the preferred shares
amounted to a measly P1.00 per share.59 So the preferred shares
not only cannot vote in the election of directors, they also have
very little and obviously negligible dividend earning capacity
compared to common shares.

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 xcorporations 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 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 of P2,328.00 per
share,64 while PLDT preferred shares with a par value of P10.00 per
share have a current stock market value ranging from only P10.92
to P11.06 per share,65 is a glaring confirmation by the market that
control and beneficial ownership of PLDT rest with the common
shares, not with the preferred shares.

Indisputably, construing the term capital in Section 11, Article XII of

the Constitution to include both voting and non-voting shares will
result in the abject surrender of our telecommunications industry to
foreigners, amounting to a clear abdication of the States
constitutional duty to limit control of public utilities to Filipino
citizens. Such an interpretation certainly runs counter to the
constitutional provision reserving certain areas of investment to
Filipino citizens, such as the exploitation of natural resources as
well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to foreign

Section 11, Article XII of the Constitution, like other provisions of

the Constitution expressly reserving to Filipinos specific areas of
investment, such as the development of natural resources and
ownership of land, educational institutions and advertising
business, is self-executing. There is no need for legislation to
implement these self-executing provisions of the Constitution. The
rationale why these constitutional provisions are self-executing was
explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative
act is necessary to enforce a constitutional mandate, the
presumption now is that all provisions of the constitution are
self-executing. If the constitutional provisions are treated as
requiring legislation instead of self-executing, the legislature
would have the power to ignore and practically nullify the
mandate of the fundamental law. This can be cataclysmic.
That is why the prevailing view is, as it has always been,
that

. . . in case of doubt, the Constitution should be considered

self-executing rather than non-self-executing. . . . Unless
the contrary is clearly intended, the provisions of the
Constitution should be considered self-executing, as
a contrary rule would give the legislature discretion
to determine when, or whether, they shall be
effective. These provisions would be subordinated to the
will of the lawmaking body, which could make them entirely
meaningless by simply refusing to pass the needed
implementing statute. (Emphasis supplied)

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Page

control what the Constitution has expressly reserved to Filipinos for

that would be a betrayal of the Constitution and of the national
interest. The Court must perform its solemn duty to defend and
uphold the intent and letter of the Constitution to ensure, in the
words of the Constitution, a self-reliant and independent national
economy effectively controlled by Filipinos.

In Manila Prince Hotel, even the Dissenting Opinion of then

Associate Justice Reynato S. Puno, later Chief Justice, agreed that
constitutional provisions are presumed to be self-executing. Justice
Puno stated:

Courts as a rule consider the provisions of the Constitution

as self-executing, rather than as requiring future legislation
for their enforcement. The reason is not difficult to
discern. For if they are not treated as self-executing,
the mandate of the fundamental law ratified by the
sovereign people can be easily ignored and nullified
by Congress. Suffused with wisdom of the ages is the
unyielding rule that legislative actions may give
breath to constitutional rights but congressional
inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in
the Bill of Rights on arrests, searches and seizures, the
rights of a person under custodial investigation, the rights of
an accused, and the privilege against self-incrimination. It is
recognized that legislation is unnecessary to enable courts
to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of
property. The same treatment is accorded to constitutional
provisions forbidding the taking or damaging of property for
public use without just compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of
implementing legislation, applied directly the provisions of the
1935, 1973 and 1987 Constitutions limiting land ownership to
Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:

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

To treat Section 11, Article XII of the Constitution as not selfexecuting would mean that since the 1935 Constitution, or over the
last 75 years, not one of the constitutional provisions expressly
reserving specific areas of investments to corporations, at least 60
percent of the capital of which is owned by Filipinos, was
enforceable. In short, the framers of the 1935, 1973 and 1987
Constitutions miserably failed to effectively reserve to Filipinos
specific areas of investment, like the operation by corporations of
public utilities, the exploitation by corporations of mineral
resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that
convened since 1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that determine who
will effectively control the national economy, Filipinos or foreigners.
This Court cannot allow such an absurd interpretation of the
Constitution.

This Court has held that the SEC has both regulatory and
adjudicative functions.69 Under its regulatory functions, the SEC can
be compelled by mandamus to perform its statutory duty when it
unlawfully neglects to perform the same. Under its adjudicative or
quasi-judicial functions, the SEC can be also be compelled by
mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate
such violation.

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Page

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)

Under Section 17(4)70 of the Corporation Code, the SEC has the
regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where the required percentage
of ownership of the capital stock to be owned by citizens of
the Philippines has not been complied with as required by
existing laws or the Constitution. Thus, the SEC is the
government agency tasked with the statutory duty to enforce the
nationality requirement prescribed in Section 11, Article XII of the
Constitution on the ownership of public utilities. This Court, in a
petition for declaratory relief that is treated as a petition for
mandamus as in the present case, can direct the SEC to perform its
statutory duty under the law, a duty that the SEC has apparently
unlawfully neglected to do based on the 2010 GIS that respondent
PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is
vested with the power and function to suspend or revoke, after
proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations,
upon any of the grounds provided by law. The SEC is
mandated under Section 5(d) of the same Code with the power and
function to investigate x x x the activities of persons to
ensure compliance with the laws and regulations that SEC
administers or enforces. The GIS that all corporations are required
to submit to SEC annually should put the SEC on guard against
violations of the nationality requirement prescribed in the
Constitution and existing laws. This Court can compel the SEC, in a
petition for declaratory relief that is treated as a petition for
mandamus as in the present case, to hear and decide a possible
violation of Section 11, Article XII of the Constitution in view of the
ownership structure of PLDTs voting shares, as admitted by
respondents and as stated in PLDTs 2010 GIS that PLDT submitted
to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the

term capital in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the
total outstanding capital stock (common and non-voting preferred
shares). Respondent Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition of the term
capital in determining the extent of allowable foreign ownership in

SO ORDERED.

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Page

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.

THIRD DIVISION
G.R. No. 195580

April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO

MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45
filed by Narra Nickel and Mining Development Corp. (Narra), Tesoro
Mining and Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1, 2010
Decision1 and the February 15, 2011 Resolution of the Court of
Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated
Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring
certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration
and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro
and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie
Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and
Natural Resources (DENR).

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Page

Republic of the Philippines

SUPREME COURT
Baguio City

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an

area of over 1,782 hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44 which includes an
area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan.
The MPSA and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned to
petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued
MPSA-IV-1-12 covering an area of 3.277 hectares in barangays
Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or assigned its
rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region
IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over
3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and interest over the
said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators
(POA) of the DENR three (3) separate petitions for the denial of
petitioners applications for MPSA designated as AMA-IVB-153,
AMA-IVB-154 and MPSA IV-1-12.
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.

Sec. 3 Definition of Terms. As used in and for purposes of this Act,

the following terms, whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with
capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in
mining, with technical and financial capability to undertake mineral
resources development and duly registered in accordance with law
at least sixty per cent (60%) of the capital of which is owned by
citizens of the Philippines: Provided, That a legally organized
foreign-owned corporation shall be deemed a qualified person for
purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
are granted to foreign-owned corporations. Nevertheless, they
claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60%
of their capital is owned by citizens of the Philippines. They
asserted that though MBMI owns 40% of the shares of PLMC (which
owns 5,997 shares of Narra),3 40% of the shares of MMC (which
owns 5,997 shares of McArthur)4and 40% of the shares of SLMC
(which, in turn, owns 5,997 shares of Tesoro),5 the shares of MBMI
will not make it the owner of at least 60% of the capital stock of
each of petitioners. They added that the best tool used in
determining the nationality of a corporation is the "control test,"
embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of
1991. They also claimed that the POA of DENR did not have
jurisdiction over the issues in Redmonts petition since they are not
enumerated in Sec. 77 of RA 7942. Finally, they stressed that
Redmont has no personality to sue them because it has no pending
claim or application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying
petitioners from gaining MPSAs. It held:

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In their Answers, petitioners averred that they were qualified

persons under Section 3(aq) of Republic Act No. (RA) 7942 or the
Philippine Mining Act of 1995 which provided:

[I]t is clearly established that respondents are not qualified

applicants to engage in mining activities. On the other hand,
[Redmont] having filed its own applications for an EPA over the
areas earlier covered by the MPSA application of respondents may
be considered if and when they are qualified under the law. The
violation of the requirements for the issuance and/or grant of
permits over mining areas is clearly established thus, there is
reason to believe that the cancellation and/or revocation of permits
already issued under the premises is in order and open the areas
covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents,
McArthur Mining Inc., Tesoro Mining and Development, Inc., and
Narra Nickel Mining and Development Corp. as, DISQUALIFIED for
being considered as Foreign Corporations. Their Mineral Production
Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND
VOID.6
The POA considered petitioners as foreign corporations being
"effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same Resolution, it gave
due course to Redmonts EPAs. Thereafter, on February 7, 2008, the
POA issued an Order7 denying the Motion for Reconsideration filed
by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and
Tesoro filed a joint Notice of Appeal8 and Memorandum of
Appeal9 with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they
are qualified persons under the law. Also, through a letter, they
informed the MAB that they had their individual MPSA applications
converted to FTAAs. McArthurs FTAA was denominated as AFTAIVB-0912 on May 2007, while Tesoros MPSA application was
converted to AFTA-IVB-0813 on May 28, 2007, and Narras FTAA was
converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the
MAB, Redmont filed a Complaint15 with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for
registration of petitioners on the ground that they are foreign-

Subsequently, on September 8, 2008, Redmont filed before the

Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint16 for injunction with application for issuance of a
temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont prayed
for the deferral of the MAB proceedings pending the resolution of
the Complaint before the SEC.
But before the RTC can resolve Redmonts Complaint and
applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board
hereby REVERSES and SETS ASIDE the Resolution dated 14
December 2007 of the Panel of Arbitrators of Region IV-B
(MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 200703, and its Order dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by Redmont
Consolidated Mines Corporation on 02 January 2007 is hereby
ordered DISMISSED.17

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owned or controlled corporations engaged in mining in violation of

Philippine laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before the MAB
praying for the suspension of the proceedings on the appeals filed
by McArthur, Tesoro and Narra.

finally disposing of the appeals of petitioners and from resolving

Redmonts Motion for Reconsideration and Supplement Motion for
Reconsideration of the MABs September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying
Redmonts Motion for Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA,
assailing the Orders issued by the MAB. On October 1, 2010, the CA
rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed
Orders, dated September 10, 2008 and July 1, 2009 of the Mining
Adjudication Board are reversed and set aside. The findings of the
Panel of Arbitrators of the Department of Environment and Natural
Resources that respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection of their
applications for Mineral Product Sharing Agreement should be
recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro
and Narra for Financial or Technical Assistance Agreement (FTAA) or
conversion of their MPSA applications to FTAA, the matter for its
rejection or approval is left for determination by the Secretary of
the DENR and the President of the Republic of the Philippines.

Belatedly, on September 16, 2008, the RTC issued an

Order18 granting Redmonts application for a TRO and setting the
case for hearing the prayer for the issuance of a writ of preliminary
injunction on September 19, 2008.

SO ORDERED.23

Meanwhile, on September 22, 2008, Redmont filed a Motion for

Reconsideration19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.

After a careful review of the records, the CA found that there was
doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation
composed of 100% Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series
of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the "grandfather
rule" to determine the nationality of petitioners. It provided:

Before the MAB could resolve Redmonts Motion for Reconsideration

and Supplemental Motion for Reconsideration, Redmont filed before
the RTC a Supplemental Complaint21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order 22 granting the
issuance of a writ of preliminary injunction enjoining the MAB from

In a Resolution dated February 15, 2011, the CA denied the Motion

for Reconsideration filed by petitioners.

In determining the nationality of petitioners, the CA looked into

their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that
MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other majority
shareholders of petitioners through joint venture agreements. The
CA found that through a "web of corporate layering, it is clear that
one common controlling investor in all mining corporations involved
x x x is MBMI."25 Thus, it concluded that petitioners McArthur,
Tesoro and Narra are also in partnership with, or privies-in-interest
of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA
applications of petitioners into FTAA applications suspicious in
nature and, as a consequence, it recommended the rejection of
petitioners MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining
areas, the CA pointed out that the POA has jurisdiction over them
and that it also has the power to determine the of nationality of
petitioners as a prerequisite of the Constitution prior the conferring
of rights to "co-production, joint venture or production-sharing
agreements" of the state to mining rights. However, it also stated
that the POAs jurisdiction is limited only to the resolution of the
dispute and not on the approval or rejection of the MPSAs. It
stipulated that only the Secretary of the DENR is vested with the
power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14,
2007 Resolution which considered petitioners McArthur, Tesoro and

30
Page

Shares belonging to corporations or partnerships at least 60% of

the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be
counted as of Philippine nationality. Thus, if 100,000 shares are
registered in the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be recorded as belonging
to aliens.24 (emphasis supplied)

Narra as foreign corporations. Nevertheless, the CA determined

that the POAs declaration that the MPSAs of McArthur, Tesoro and
Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with the
Office of the President (OP) a petition dated May 7, 2010 seeking
the cancellation of petitioners FTAAs. The OP rendered a
Decision26 on April 6, 2011, wherein it canceled and revoked
petitioners FTAAs for violating and circumventing the "Constitution
x x x[,] the Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."27 The OP, in affirming the cancellation of the
issued FTAAs, agreed with Redmont stating that petitioners
committed violations against the abovementioned laws and failed
to submit evidence to negate them. The Decision further quoted
the December 14, 2007 Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of being
domestic or Filipino corporations and the admitted continued
mining operation of PMDC using their locally secured Small Scale
Mining Permit inside the area earlier applied for an MPSA
application which was eventually transferred to Narra. It also
agreed with the POAs estimation that the filing of the FTAA
applications by petitioners is a clear admission that they are "not
capable of conducting a large scale mining operation and that they
need the financial and technical assistance of a foreign entity in
their operation, that is why they sought the participation of MBMI
Resources, Inc."28 The Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining.
The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that indeed
the respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through
their local counterparts.29
The Motion for Reconsideration of the Decision was further denied
by the OP in a Resolution30 dated July 6, 2011. Petitioners then filed
a Petition for Review on Certiorari of the OPs Decision and
Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the
CA Decision dated February 29, 2012, the CA affirmed the Decision

Thus, the instant petition for review against the October 1, 2010
Decision of the CA. Petitioners put forth the following errors of the
CA:
I.
The Court of Appeals erred when it did not dismiss the case
for mootness despite the fact that the subject matter of the
controversy, the MPSA Applications, have already been
converted into FTAA applications and that the same have
already been granted.
II.
The Court of Appeals erred when it did not dismiss the case
for lack of jurisdiction considering that the Panel of
Arbitrators has no jurisdiction to determine the nationality of
Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case
on account of Redmonts willful forum shopping.

31
Page

and Resolution of the OP. Thereafter, petitioners appealed the same

CA decision to this Court which is now pending with a different
division.

VI.
The Court of Appeals erred when it concluded that the
conversion of the MPSA Applications into FTAA Applications
were of "suspicious nature" as the same is based on mere
conjectures and surmises without any shred of evidence to
show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the
instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when it
"ceases to present a justiciable controversy by virtue of
supervening events, so that a declaration thereon would be of no
practical use or value."32 Thus, the courts "generally decline
jurisdiction over the case or dismiss it on the ground of
mootness."33
The "mootness" principle, however, does accept certain exceptions
and the mere raising of an issue of "mootness" will not deter the
courts from trying a case when there is a valid reason to do so. In
David v. Macapagal-Arroyo (David), the Court provided four
instances where courts can decide an otherwise moot case, thus:

IV.

1.) There is a grave violation of the Constitution;

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.

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

V.
The Court of Appeals erred when it applied the exceptions to
the res inter alios acta rule.

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

Conversion of MPSA applications to FTAA applications

We shall discuss the first error in conjunction with the sixth error
presented by petitioners since both involve the conversion of MPSA
applications to FTAA applications. Petitioners propound that the CA
erred in ruling against them since the questioned MPSA
applications were already converted into FTAA applications; thus,
the issue on the prohibition relating to MPSA applications of foreign
mining corporations is academic. Also, petitioners would want us to
correct the CAs finding which deemed the aforementioned
conversions of applications as suspicious in nature, since it is based
on mere conjectures and surmises and not supported with
evidence.
We disagree.
The CAs analysis of the actions of petitioners after the case was
filed against them by respondent is on point. The changing of
applications by petitioners from one type to another just because a
case was filed against them, in truth, would raise not a few
sceptics eyebrows. What is the reason for such conversion? Did the
said conversion not stem from the case challenging their
citizenship and to have the case dismissed against them for being
"moot"? It is quite obvious that it is petitioners strategy to have
the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to
every action done by the court or appropriate government agency:

32
Page

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.

on January 2, 2007, Redmont filed three separate petitions for

denial of the MPSA applications of petitioners before the POA. On
June 15, 2007, petitioners filed a conversion of their MPSA
applications to FTAAs. The POA, in its December 14, 2007
Resolution, observed this suspect change of applications while the
case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement
application is a clear admission that the respondents are not
capable of conducting a large scale mining operation and that they
need the financial and technical assistance of a foreign entity in
their operation that is why they sought the participation of MBMI
Resources, Inc. The participation of MBMI in the corporation only
proves the fact that it is the Canadian company that will provide
the finances and the resources to operate the mining areas for the
greater benefit and interest of the same and not the Filipino
stockholders who only have a less substantial financial stake in the
corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining.
The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that indeed
the respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through
their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially
granted the petition, reversing and setting aside the September 10,
2008 and July 1, 2009 Orders of the MAB. In the said Decision, the
CA upheld the findings of the POA of the DENR that the herein
petitioners are in fact foreign corporations thus a recommendation
of the rejection of their MPSA applications were recommended to
the Secretary of the DENR. With respect to the FTAA applications or
conversion of the MPSA applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of the DENR and the
President of the Republic of the Philippines.37

Respondent Redmont, in its Comment dated October 10, 2011,

made known to the Court the fact of the OPs Decision and
Resolution. In their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old arguments claiming that
they were granted FTAAs and, thus, the case was moot. Petitioners
filed a Manifestation and Submission dated October 19,
2012,40 wherein they asserted that the present petition is moot
since, in a remarkable turn of events, MBMI was able to sell/assign
all its shares/interest in the "holding companies" to DMCI Mining
Corporation (DMCI), a Filipino corporation and, in effect, making
their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have
this case dismissed for being "moot." Their final act, wherein MBMI
was able to allegedly sell/assign all its shares and interest in the
petitioner "holding companies" to DMCI, only proves that they were
in fact not Filipino corporations from the start. The recent divesting
of interest by MBMI will not change the stand of this Court with
respect to the nationality of petitioners prior the suspicious change
in their corporate structures. The new documents filed by
petitioners are factual evidence that this Court has no power to
verify.

33
Page

In their Motion for Reconsideration dated October 26, 2010,

petitioners prayed for the dismissal of the petition asserting that on
April 5, 2010, then President Gloria Macapagal-Arroyo signed and
issued in their favor FTAA No. 05-2010-IVB, which rendered the
petition moot and academic. However, the CA, in a Resolution
dated February 15, 2011 denied their motion for being a mere
"rehash of their claims and defenses."38 Standing firm on its
Decision, the CA affirmed the ruling that petitioners are, in fact,
foreign corporations. On April 5, 2011, petitioners elevated the case
to us via a Petition for Review on Certiorari under Rule 45,
questioning the Decision of the CA. Interestingly, the OP rendered a
Decision dated April 6, 2011, a day after this petition for review was
filed, cancelling and revoking the FTAAs, quoting the Order of the
POA and stating that petitioners are foreign corporations since they
needed the financial strength of MBMI, Inc. in order to conduct
large scale mining operations. The OP Decision also based the
cancellation on the misrepresentation of facts and the violation of
the "Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."39 On July 6, 2011, the OP issued a Resolution,
denying the Motion for Reconsideration filed by the petitioners.

The only thing clear and proved in this Court is the fact that the OP
declared that petitioner corporations have violated several mining
laws and made misrepresentations and falsehood in their
applications for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond going against
or around the law using shifty actions and strategies. Thus, in this
instance, we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners
nationality, whether Filipino or foreign. In their previous petitions,
they had been adamant in insisting that they were Filipino
corporations, until they submitted their Manifestation and
Submission dated October 19, 2012 where they stated the alleged
change of corporate ownership to reflect their Filipino ownership.
Thus, there is a need to determine the nationality of petitioner
corporations.
Basically, there are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather
rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting
the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural resources owned
by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be
counted as of Philippine nationality. Thus, if 100,000 shares are
registered in the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to
aliens.

Prior to this recent change of events, petitioners were constant in

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

34
Page

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.

wordings of the statute preclude the court from construing it and

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

Mr. BENNAGEN: Did I hear right that the Chairmans interpretation

of an independent national economy is freedom from undue foreign
control? What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which
sacrifices national sovereignty and the welfare of the Filipino in the
economic sphere.

35
Page

utilization of our countrys natural resources or specifically, mining.

Thus, there is a need to ascertain the nationality of petitioners
since, as the Constitution so provides, such agreements are only
allowed corporations or associations "at least 60 percent of such
capital is owned by such citizens." The deliberations in the Records
of the 1986 Constitutional Commission shed light on how a
citizenship of a corporation will be determined:

MR. NOLLEDO: In teaching law, we are always faced with the

question: Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation? Will the Committee please
enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the
members of the team from the UP Law Center who provided us with
a draft. The phrase that is contained here which we adopted from
the UP draft is 60 percent of the voting stock.
MR. NOLLEDO: That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS: That is right.

MR. BENNAGEN: Why does it have to be qualified still with the word
"undue"? Why not simply freedom from foreign control? I think that
is the meaning of independence, because as phrased, it still allows
for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if,
for example, we retain the 60/40 possibility in the cultivation of
natural resources, 40 percent involves some control; not total
control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose
some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the
phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local
or Filipino equity and foreign equity; namely, 60-40 in Section 3, 6040 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.

MR. NOLLEDO: Thank you.

With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the
Constitution to apply the grandfather rule in cases where corporate
layering is present.
Elementary in statutory construction is when there is conflict
between the Constitution and a statute, the Constitution will
prevail. In this instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National Economy and
Patrimony, Sec. 3 of the FIA will have no place of application. As
decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.

The above-quoted SEC Rules provide for the manner of calculating

the Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the
Investee Corporation). Such manner of computation is necessary
since the shares in the Investee Corporation may be owned both by
individual stockholders (Investing Individuals) and by corporations
and partnerships (Investing Corporation). The said rules thus
provide for the determination of nationality depending on the
ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in
determining the nationality of the Investee Corporation. The first
case is the liberal rule, later coined by the SEC as the Control Test
in its 30 May 1990 Opinion, and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, (s)hares
belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality. Under the liberal Control Test, there is no
need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper
and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, "but if the percentage of Filipino ownership in
the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of
Philippine nationality." Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation and the
Investee Corporation must be traced (i.e., "grandfathered") to
determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first
be traced to the level of the Investing Corporation and added to the
shares directly owned in the Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only

36
Page

Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005

provides:

when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in

cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%]
invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds
that this case calls for the application of the grandfather rule since,
as ruled by the POA and affirmed by the OP, doubt prevails and
persists in the corporate ownership of petitioners. Also, as found by
the CA, doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporationMBMI, funded them.
However, petitioners also claim that there is "doubt" only when the
stockholdings of Filipinos are less than 60%.43
The assertion of petitioners that "doubt" only exists when the
stockholdings are less than 60% fails to convince this Court. DOJ
Opinion No. 20, which petitioners quoted in their petition, only
made an example of an instance where "doubt" as to the ownership
of the corporation exists. It would be ludicrous to limit the
application of the said word only to the instances where the
stockholdings of non-Filipino stockholders are more than 40% of the
total stockholdings in a corporation. The corporations interested in
circumventing our laws would clearly strive to have "60% Filipino
Ownership" at face value. It would be senseless for these applying
corporations to state in their respective articles of incorporation
that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate
schemes and layerings are utilized to circumvent the application of
the Constitution.
Obviously, the instant case presents a situation which exhibits a
scheme employed by stockholders to circumvent the law, creating
a cloud of doubt in the Courts mind. To determine, therefore, the
actual participation, direct or indirect, of MBMI, the grandfather rule
must be used.
McArthur Mining, Inc.

As previously discussed, McArthur acquired its MPSA application

from MMC, which acquired its application from SMMI. McArthur has
a capital stock of ten million pesos (PhP 10,000,000) divided into
10,000 common shares at one thousand pesos (PhP 1,000) per
share, subscribed to by the following:44
Name

Nationa Number
lity
of Shares

Amount
Subscribe
d

Amount Paid

37

present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar

(Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):

Page

To establish the actual ownership, interest or participation of MBMI

in each of petitioners corporate structure, they have to be
"grandfathered."

Madridejos Mining Corporation

Madridejos
Mining
Corporation

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

PhP
1,878,174.60

Lauro L.
Salazar

Filipino

PhP
1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP
1,000.00

PhP 1,000.00

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)

Name
Olympic
Mines &

Nationa Number of
Amount
Amount Paid
lity
Shares
Subscribed
Filipino

6,663

PhP
6,663,000.0
0

PhP 0

Developm
ent
Corp.
MBMI
Resources
,

Canadia
n

3,331

PhP
3,331,000.0
0

PhP
2,803,900.00

Amanti
Limson

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando
B.

Filipino

PhP 1,000.00

PhP 1,000.00

Filipino

PhP 1,000.00

PhP 1,000.00

Inc.

Esguerra
Interestingly, looking at the corporate structure of MMC, we take
note that it has a similar structure and composition as McArthur. In
fact, it would seem that MBMI is also a major investor and
"controls"45 MBMI and also, similar nominal shareholders were

Lauro
Salazar

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
2,809,900.00

38

Filipino

Page

Emmanuel
G.
Hernando

(emphasis
supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic)

did not pay any amount with respect to the number of shares they
subscribed to in the corporation, which is quite absurd since
Olympic is the major stockholder in MMC. MBMIs 2006 Annual
Report sheds light on why Olympic failed to pay any amount with
respect to the number of shares it subscribed to. It states that
Olympic entered into joint venture agreements with several
Philippine companies, wherein it holds directly and indirectly a 60%
effective equity interest in the Olympic Properties.46 Quoting the
said Annual report:
On September 9, 2004, the Company and Olympic Mines &
Development Corporation ("Olympic") entered into a series of
agreements including a Property Purchase and Development
Agreement (the Transaction Documents) with respect to three
nickel laterite properties in Palawan, Philippines (the "Olympic
Properties"). The Transaction Documents effectively establish a
joint venture between the Company and Olympic for purposes of
developing the Olympic Properties. The Company holds directly and
indirectly an initial 60% interest in the joint venture. Under certain
circumstances and upon achieving certain milestones, the
Company may earn up to a 100% interest, subject to a 2.5% net
revenue royalty.47 (emphasis supplied)

Thus, as demonstrated in this first corporation, McArthur, when it is

"grandfathered," company layering was utilized by MBMI to gain
control over McArthur. It is apparent that MBMI has more than 60%
or more equity interest in McArthur, making the latter a foreign
corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a
capital stock of ten million pesos (PhP 10,000,000) divided into ten
thousand (10,000) common shares at PhP 1,000 per share, as
demonstrated below:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]

Name

Nationa
lity

Numbe
r of
Shares

Sara Marie

Amount
Paid

Subscribed

Filipino

5,997

PhP
5,997,000.0
0

PhP
825,000.00

Canadia
n

3,998

PhP
3,998,000.0
0

PhP
1,878,174.60

Mining, Inc.
MBMI

Amount

Lauro L.
Salazar
Fernando B.

39
Page

Resources,
Inc.
Filipino
Filipino

1
1

PhP
1,000.00
PhP
1,000.00

PhP 1,000.00

Name

PhP
1,000.00

Numbe
r of

Amount

Amount
Paid

Shares

PhP 1,000.00
Olympic
Mines &

Filipino

Nationa
lity

Subscribed

Esguerra
Manuel A.

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]

PhP 1,000.00

Agcaoili

Filipino

6,663

PhP
6,663,000.0
0

PhP 0

Canadia
n

3,331

PhP
3,331,000.0
0

PhP
2,794,000.00

Amanti
Limson

Filipino

PhP
1,000.00

PhP 1,000.00

Fernando B.

Filipino

PhP
1,000.00

PhP 1,000.00

Lauro
Salazar

Filipino

PhP
1,000.00

PhP 1,000.00

Emmanuel G.

Filipino

PhP
1,000.00

PhP 1,000.00

America

PhP

PhP 1,000.00

Developme
nt
Corp.

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

MBMI
Resources,
Inc.

(emphasis
supplied)

Esguerra
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:

Hernando

Sara Marie Mining, Inc.

Michael T.

1,000.00

Canadia
n

PhP
1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.
00

PhP
2,809,900.00
(emphasis
supplied)

40

Kenneth
Cawkell

Page

Mason

Name

Nationa
lity

Numbe
r of
Shares

After subsequently studying SMMIs corporate structure, it is not

farfetched for us to spot the glaring similarity between SMMI and
MMCs corporate structure. Again, the presence of identical
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under
the headings "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same except for
the amount paid by MBMI which now reflects the amount of two
million seven hundred ninety four thousand pesos (PhP 2,794,000).
Oddly, the total value of the amount paid is two million eight
hundred nine thousand nine hundred pesos (PhP 2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and factoring
in Olympics participation in SMMIs corporate structure, it is clear
that MBMI is in control of Tesoro and owns 60% or more equity
interest in Tesoro. This makes petitioner Tesoro a non-Filipino
corporation and, thus, disqualifies it to participate in the
exploitation, utilization and development of our natural resources.

Patricia
Louise

Amount
Paid

Subscribed

Filipino

5,997

PhP
5,997,000.0
0

PhP
1,677,000.00

Canadia
n

3,998

PhP
3,996,000.0
0

PhP
1,116,000.00

Filipino

PhP
1,000.00

PhP 1,000.00

Filipino

PhP
1,000.00

PhP 1,000.00

Filipino

PhP

PhP 1,000.00

Mining &
Developmen
t
Corp.
MBMI
Resources,
Inc.

Narra Nickel Mining and Development Corporation

Higinio C.

Moving on to the last petitioner, Narra, which is the transferee and

assignee of PLMDCs MPSA application, whose corporate structures
arrangement is similar to that of the first two petitioners discussed.
The capital stock of Narra is ten million pesos (PhP 10,000,000),
which is divided into ten thousand common shares (10,000) at one
thousand pesos (PhP 1,000) per share, shown as follows:

Mendoza, Jr.

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]

Amount

Henry E.
Fernandez
Manuel A.

41

Agcaoili
Ma. Elena A.

Filipino

PhP
1,000.00

PhP 1,000.00

Page

1,000.00

Development
Corporation
MBMI Resources,

00
Canadia
n

3,396

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

Inc.

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

Bocalan
Bayani H.
Agabin

Filipino

PhP
1,000.00

PhP 1,000.00

Robert L.

America
n

PhP
1,000.00

PhP 1,000.00

McCurdy
Kenneth
Cawkell

Canadia
n

PhP
1,000.00

PhP 1,000.00

Manuel A. Agcaoili

Filipino

PhP
1,000.00

PhP
1,000.00

Total

10,000

PhP
10,000,000.
00

PhP
2,800,000.00
(emphasis
supplied)

Bayani H. Agabin

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

10,00
0

PhP
10,000,00
0.00

PhP
2,708,174
.60
(emphasis
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

Palawan Alpha South

Resources

Nationa
Amount
lity
Subscribe
Numb
d
er of
Share
s
Filipino

6,596

PhP
6,596,000.

Amount
Paid

PhP 0

Yet again, the usual players in petitioners corporate structures are

present. Similarly, the amount of money paid by the 2nd tier
majority stock holder, in this case, Palawan Alpha South Resources
and Development Corp. (PASRDC), is zero.
Studying MBMIs Summary of Significant Accounting Policies dated
October 31, 2005 explains the reason behind the intricate
corporate layering that MBMI immersed itself in:

Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Application of the res inter alios acta rule

Pursuant to the Olympic joint venture agreement the Company

holds directly and indirectly an effective equity interest in the
Olympic Property of 60.0%. Pursuant to a shareholders agreement,
the Company exercises joint control over the companies in the
Olympic Group.

Petitioners question the CAs use of the exception of the res inter
alios acta or the "admission by co-partner or agent" rule and
"admission by privies" under the Rules of Court in the instant case,
by pointing out that statements made by MBMI should not be
admitted in this case since it is not a party to the case and that it is
not a "partner" of petitioners.

(a) Olympic Group

The Philippine companies holding the Olympic Property, and the
ownership and interests therein, are as follows:
Olympic- Philippines (the "Olympic Group")

42

Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%

interests. Such conclusion is derived from grandfathering

petitioners corporate owners, namely: MMI, SMMI and PLMDC.
Going further and adding to the picture, MBMIs Summary of
Significant Accounting Policies statement regarding the "joint
venture" agreements that it entered into with the "Olympic" and
"Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down
to MBMI, Olympic or corporations under the "Alpha" group wherein
MBMI has joint venture agreements with, practically exercising
majority control over the corporations mentioned. In effect,
whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are
NOT Filipino nationals and must be considered foreign since 60% or
more of their capital stocks or equity interests are owned by MBMI.

Page

JOINT VENTURES The Companys ownership interests in various

mining ventures engaged in the acquisition, exploration and
development of mineral properties in the Philippines is described as
follows:

(b) Alpha Group

Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
The Philippine companies holding the Alpha Property, and the
ownership interests therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%

Sec. 29. Admission by co-partner or agent.- The act or declaration

of a partner or agent of the party within the scope of his authority
and during the existence of the partnership or agency, may be
given in evidence against such party after the partnership or
agency is shown by evidence other than such act or declaration
itself. The same rule applies to the act or declaration of a joint
owner, joint debtor, or other person jointly interested with the
party.

Under a joint venture agreement the Company holds directly and

indirectly an effective equity interest in the Alpha Property of
60.4%. Pursuant to a shareholders agreement, the Company
exercises joint control over the companies in the Alpha
Group.48 (emphasis supplied)

Sec. 31. Admission by privies.- Where one derives title to property

from another, the act, declaration, or omission of the latter, while
holding the title, in relation to the property, is evidence against the
former.

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

Petitioners claim that before the above-mentioned Rule can be

applied to a case, "the partnership relation must be shown, and
that proof of the fact must be made by evidence other than the
admission itself."49 Thus, petitioners assert that the CA erred in

Partnerships vs. joint venture agreements

Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of
the Rules by stating that "by entering into a joint venture, MBMI
have a joint interest" with Narra, Tesoro and McArthur. They
challenged the conclusion of the CA which pertains to the close
characteristics of
"partnerships" and "joint venture agreements." Further, they
asserted that before this particular partnership can be formed, it
should have been formally reduced into writing since the capital
involved is more than three thousand pesos (PhP 3,000). Being that
there is no evidence of written agreement to form a partnership
between petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind
themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been deemed
to be "akin" to partnerships since it is difficult to distinguish
between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of
their association are so similar and closely akin to a partnership
that it is ordinarily held that their rights, duties, and liabilities are to
be tested by rules which are closely analogous to and substantially
the same, if not exactly the same, as those which govern
partnership. In fact, it has been said that the trend in the law has
been to blur the distinctions between a partnership and a joint
venture, very little law being found applicable to one that does not
apply to the other.51
Though some claim that partnerships and joint ventures are totally
different animals, there are very few rules that differentiate one
from the other; thus, joint ventures are deemed "akin" or similar to
a partnership. In fact, in joint venture agreements, rules and legal
incidents governing partnerships are applied. 52

43
Page

finding that a partnership relationship exists between them and

MBMI because, in fact, no such partnership exists.

Accordingly, culled from the incidents and records of this case, it

can be assumed that the relationships entered between and among
petitioners and MBMI are no simple "joint venture agreements." As
a rule, corporations are prohibited from entering into partnership
agreements; consequently, corporations enter into joint venture
agreements with other corporations or partnerships for certain
transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and
among petitioners and MBMI was executed to circumvent the legal
prohibition against corporations entering into partnerships, then
the relationship created should be deemed as "partnerships," and
the laws on partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen as
similar to partnerships since the elements of partnership are
present.
Considering that the relationships found between petitioners and
MBMI are considered to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by stating that "by entering
into a joint venture, MBMI have a joint interest" with Narra, Tesoro
and McArthur.
Panel of Arbitrators jurisdiction
We affirm the ruling of the CA in declaring that the POA has
jurisdiction over the instant case. The POA has jurisdiction to settle
disputes over rights to mining areas which definitely involve the
petitions filed by Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against petitioners, is
asserting the right of Filipinos over mining areas in the Philippines
against alleged foreign-owned mining corporations. Such claim
constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the
parties for the decision, the panel shall have exclusive and original
jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits

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 any adverse
claim/protest/opposition is finally resolved by the Panel of
Arbitrators.
Sec. 41.
xxxx

44
Page

We held in Celestial Nickel Mining Exploration Corporation v.

Macroasia Corp.:53

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

No mineral agreement shall be approved unless the requirements

under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the applications
for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated by
Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.Notwithstanding the provisions of Sections 28, 43 and 57 above,
any adverse claim, protest or opposition specified in said sections
may also be filed directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest or opposition as
specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of the

45
Page

locality. After forty-five (45) days from the last date of

publication/posting has been made and no adverse claim, protest
or opposition was filed within the said forty-five (45) days, the
concerned offices shall issue a certification that publication/posting
has been made and that no adverse claim, protest or opposition of
whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within
forty-five (45) days from the last date of publication/posting, with
the Regional Offices concerned, or through the Departments
Community Environment and Natural Resources Officers (CENRO)
or Provincial Environment and Natural Resources Officers (PENRO),
to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and subsisting
mining claims are exempted from posted/posting required under
this Section.

Bureau, concerned Regional office(s) and in the concerned

province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two
(2) consecutive weeks in a language generally understood in the
locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest
or opposition was filed within the said forty-five (45) days, the
concerned offices shall issue a certification that publication/posting
has been made and that no adverse claim, protest or opposition of
whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within
forty-five (45) days from the last date of publication/posting, with
the Regional offices concerned, or through the Departments
Community Environment and Natural Resources Officers (CENRO)
or Provincial Environment and Natural Resources Officers (PENRO),
to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and subsisting
mining claims are exempted from posted/posting required under
this Section.
No mineral agreement shall be approved unless the requirements
under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to
resolve any adverse claim, opposition, or protest relative to mining
rights under Sec. 77(a) of RA 7942 is confined only to adverse
claims, conflicts and oppositions relating to applications for the
grant of mineral rights.
POAs jurisdiction is confined only to resolutions of such adverse
claims, conflicts and oppositions and it has no authority to approve
or reject said applications. Such power is vested in the DENR
Secretary upon recommendation of the MGB Director. Clearly,
POAs jurisdiction over "disputes involving rights to mining areas"
has nothing to do with the cancellation of existing mineral
agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably
has jurisdiction to resolve disputes over MPSA applications subject
of Redmonts petitions. However, said jurisdiction does not include
either the approval or rejection of the MPSA applications, which is
vested only upon the Secretary of the DENR. Thus, the finding of

Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it

is the regular courts, not the POA, that has jurisdiction over the
MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the
statute in force at the time of the commencement of the action. 54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall
exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is
incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec.
77 of RA 7942:
Section 77. Panel of Arbitrators.
x x x Within thirty (30) days, after the submission of the
case by the parties for the decision, the panel shall have
exclusive and original jurisdiction to hear and decide the
following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any
and all disputes involving rights to mining areas. One such dispute
is an MPSA application to which an adverse claim, protest or
opposition is filed by another interested applicant.1wphi1 In the
case at bar, the dispute arose or originated from MPSA applications
where petitioners are asserting their rights to mining areas subject

46
Page

the POA, with respect to the rejection of petitioners MPSA

applications being that they are foreign corporation, is valid.

of their respective MPSA applications. Since respondent filed 3

separate petitions for the denial of said applications, then a
controversy has developed between the parties and it is POAs
jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while
what petitioners filed with the DENR Regional Office or any
concerned DENRE or CENRO are MPSA applications. Thus POA has
jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications
under the doctrine of primary jurisdiction. Euro-med Laboratories v.
Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that
its determination requires the expertise, specialized training and
knowledge of an administrative body, relief must first be obtained
in an administrative proceeding before resort to the courts is had
even if the matter may well be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the
court system via a resort to the CA and to this Court as a last
recourse.
Selling of MBMIs shares to DMCI
As stated before, petitioners Manifestation and Submission dated
October 19, 2012 would want us to declare the instant petition
moot and academic due to the transfer and conveyance of all the
shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60%
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."57Petitioners stress that there should no
longer be any issue left as regards their qualification to enter into
FTAA contracts since they are qualified to engage in mining
activities in the Philippines. Thus, whether the "grandfather rule" or
the "control test" is used, the nationalities of petitioners cannot be
doubted since it would pass both tests.

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

47
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The sale of the MBMI shareholdings to DMCI does not have any
bearing in the instant case and said fact should be disregarded. The
manifestation can no longer be considered by us since it is being
tackled in G.R. No. 202877 pending before this Court.1wphi1 Thus,
the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are
allowed to enter into FTAAs with the State is a non-issue in this
case.

to undertake the exploration, development and utilization of the

natural resources of the Philippines. When in the mind of the Court
there is doubt, based on the attendant facts and circumstances of
the case, in the 60-40 Filipino-equity ownership in the corporation,
then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED.
The assailed Court of Appeals Decision dated October 1, 2010 and
Resolution dated February 15, 2011 are hereby AFFIRMED. SO
ORDERED.