HI-YIELD REALTY, G.R. No. 168863 suit was filed against Leonora, Ma.

G.R. No. 168863 suit was filed against Leonora, Ma. Theresa, Glenn and Stephanie, all surnamed
INCORPORATED,
Torres, the Register of Deeds of Marikina and Quezon City, and petitioner Hi-Yield
Petitioner, Present: Realty, Inc. (Hi-Yield). It was docketed as Civil Case No. 03-892 with Branch 148 of
the Regional Trial Court (RTC) of Makati City.

QUISUMBING, J., Chairperson, On September 15, 2003, petitioner moved to dismiss the petition on grounds of
- versus - improper venue and payment of insufficient docket fees. The RTC denied said motion
YNARES-SANTIAGO,* in an Order[4] dated January 22, 2004. The trial court held that the case was, in nature,
a real action in the form of a derivative suit cognizable by a special commercial court
CHICO-NAZARIO,**
pursuant to Administrative Matter No. 00-11-03-SC.[5] Petitioner sought
LEONARDO-DE CASTRO,*** and reconsideration, but its motion was denied in an Order[6] dated April 27, 2004.
HON. COURT OF APPEALS, HON. CESAR O.
UNTALAN, in his capacity as PRESIDING JUDGE BRION, JJ.
Thereafter, petitioner filed a petition for certiorari and prohibition before the Court of
OF RTC-MAKATI, BRANCH 142, HONORIO Appeals. In a Decision dated March 10, 2005, the appellate court agreed with the RTC
TORRES & SONS, INC., and ROBERTO H.
that the case was a derivative suit. It further ruled that the prayer for annulment of
TORRES,
mortgage and foreclosure proceedings was merely incidental to the main action. The
Respondents. Promulgated: dispositive portion of said decision reads:

June 23, 2009 WHEREFORE, premises considered, this Petition is

hereby DISMISSED. However, public respondent is
hereby DIRECTED to instruct his Clerk of Court to compute
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
the proper docket fees and thereafter, to order the private
respondent to pay the same IMMEDIATELY.
DECISION
SO ORDERED.[7]
QUISUMBING, J.:

Petitioners motion for reconsideration[8] was denied in a Resolution dated May 26,
This is a special civil action for certiorari seeking to nullify and set aside the
2005.
Decision[1] dated March 10, 2005 and Resolution[2] dated May 26, 2005 of the Court of
Appeals in CA-G.R. SP. No. 83919. The appellate court had dismissed the petition for
Hence, this petition which raises the following issues:
certiorari and prohibition filed by petitioner and denied its reconsideration.
I.
The antecedent facts of the case are undisputed. WHETHER THE HONORABLE COURT OF APPEALS GRAVELY
ABUSED ITS DISCRETION IN NOT DISMISSING THE CASE
On July 31, 2003, Roberto H. Torres (Roberto), for and on behalf of Honorio Torres & AGAINST HI-YIELD FOR IMPROPER VENUE DESPITE
Sons, Inc. (HTSI), filed a Petition for Annulment of Real Estate Mortgage and FINDINGS BY THE TRIAL COURT THAT THE ACTION IS A
Foreclosure Sale[3] over two parcels of land located in Marikina and Quezon City. The REAL ACTION.
 II. After careful consideration, we are in agreement that the petition must be dismissed.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
NOT DISMISSING THE COMPLAINT AS AGAINST HI-YIELD A petition for certiorari is proper if a tribunal, board or officer exercising judicial or
EVEN IF THE JOINDER OF PARTIES IN THE COMPLAINT quasi-judicial functions acted without or in excess of jurisdiction or with grave abuse
VIOLATED THE RULES ON VENUE. of discretion amounting to lack or excess of jurisdiction and there is no appeal, or any
plain, speedy and adequate remedy in the ordinary course of law.[10]
III.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN Petitioner sought a review of the trial courts Orders dated January 22,
HOLDING THAT THE ANNULMENT OF REAL ESTATE 2004 and April 27, 2004 via a petition for certiorari before the Court of Appeals. In
MORTGAGE AND FORECLOSURE SALE IN THE COMPLAINT rendering the assailed decision and resolution, the Court of Appeals was acting under its
IS MERELY INCIDENTAL [TO] THE DERIVATIVE SUIT. [9] concurrent jurisdiction to entertain petitions for certiorari under paragraph 2,[11] Section
4 of Rule 65 of the Rules of Court. Thus, if erroneous, the decision and resolution of the
appellate court should properly be assailed by means of a petition for review on
The pivotal issues for resolution are as follows: (1) whether venue was properly laid;
certiorari under Rule 45 of the Rules of Court. The distinction is clear: a petition for
(2) whether there was proper joinder of parties; and (3) whether the action to annul
certiorari seeks to correct errors of jurisdiction while a petition for review on certiorari
the real estate mortgage and foreclosure sale is a mere incident of the derivative suit.
seeks to correct errors of judgment committed by the court a quo.[12] Indeed, this Court
has often reminded members of the bench and bar that a special civil action for certiorari
Petitioner imputes grave abuse of discretion on the Court of Appeals for not
under Rule 65 lies only when there is no appeal nor plain, speedy and adequate remedy
dismissing the case against it even as the trial court found the same to be a real
in the ordinary course of law.[13] In the case at hand, petitioner impetuously filed a
action. It explains that the rule on venue under the Rules of Court prevails over the
petition for certiorari before us when a petition for review was available as a speedy and
rule prescribing the venue for intra-corporate controversies; hence, HTSI erred when
adequate remedy. Notably, petitioner filed the present petition 58[14] days after it
it filed its suit only in Makati when the lands subjects of the case are
received a copy of the assailed resolution dated May 26, 2005. To our mind, this belated
in Marikina and Quezon City. Further, petitioner argues that the appellate court erred
action evidences petitioners effort to substitute for a lost appeal this petition for
in ruling that the action is mainly a derivative suit and the annulment of real estate
certiorari.
mortgage and foreclosure sale is merely incidental thereto. It points out that the
caption of the case, substance of the allegations, and relief prayed for revealed that the
For the extraordinary remedy of certiorari to lie by reason of grave abuse of
main thrust of the action is to recover the lands. Lastly, petitioner asserts that it
discretion, the abuse of discretion must be so patent and gross as to amount to an
should be dropped as a party to the case for it has been wrongly impleaded as a non-
evasion of positive duty, or a virtual refusal to perform the duty enjoined or to act in
stockholder defendant in the intra-corporate dispute.
contemplation of law, or where the power is exercised in an arbitrary and despotic
manner by reason of passion and personal hostility. [15] We find no grave abuse of
On the other hand, respondents maintain that the action is primarily a derivative suit
discretion on the part of the appellate court in this case.
to redress the alleged unauthorized acts of its corporate officers and major
stockholders in connection with the lands. They postulate that the nullification of the
Simply, the resolution of the issues posed by petitioner rests on a determination of the
mortgage and foreclosure sale would just be a logical consequence of a decision
nature of the petition filed by respondents in the RTC. Both the RTC and Court of
adverse to said officers and stockholders.
Appeals ruled that the action is in the form of a derivative suit although captioned as a
petition for annulment of real estate mortgage and foreclosure sale.
A derivative action is a suit by a shareholder to enforce a corporate cause of action.[16]Under
the Corporation Code, where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees. But an individual stockholder may be permitted to
institute a derivative suit on behalf of the corporation in order to protect or vindicate
corporate rights whenever the officials of the corporation refuse to sue, or are the ones to be
sued, or hold control of the corporation. In such actions, the corporation is the real party-in-
interest while the suing stockholder, on behalf of the corporation, is only a nominal party.[17]
In the case of Filipinas Port Services, Inc. v. Go,[18] we enumerated the foregoing requisites
before a stockholder can file a derivative suit:
a) the party bringing suit should be a shareholder as of the
time of the act or transaction complained of, the number of his
shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has
made a demand on the board of directors for the appropriate relief
but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation,
the wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the
suit.[19]
Even then, not every suit filed on behalf of the corporation is a derivative suit. For a
derivative suit to prosper, the minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other stockholders similarly situated who
may wish to join him in the suit.[20] The Court finds that Roberto had satisfied this
requirement in paragraph five (5) of his petition which reads:
5. Individual petitioner, being a minority stockholder, is
instituting the instant proceeding by way of a derivative suit to
redress wrongs done to petitioner corporation and vindicate
corporate rights due to the mismanagement and abuses committed
against it by its officers and controlling stockholders, especially by
respondent Leonora H. Torres (Leonora, for brevity) who, without
authority from the Board of Directors, arrogated upon herself the
power to bind petitioner corporation from incurring loan
obligations and later allow company properties to be foreclosed as
hereinafter set forth;[21]
Further, while it is true that the complaining stockholder must satisfactorily show
that he has exhausted all means to redress his grievances within the corporation; such
remedy is no longer necessary where the corporation itself is under the complete
control of the person against whom the suit is being filed. The reason is obvious: a
demand upon the board to institute an action and prosecute the same effectively
would have been useless and an exercise in futility.[22]
Here, Roberto alleged in his petition that earnest efforts were made to reach a
compromise among family members/stockholders before he filed the case. He also
maintained that Leonora Torres held 55% of the outstanding shares while Ma.
Theresa, Glenn and Stephanie excluded him from the affairs of the corporation. Even
more glaring was the fact that from June 10, 1992, when the first mortgage deed was
executed until July 23, 2002, when the properties mortgaged were foreclosed, the
Board of Directors of HTSI did nothing to rectify the alleged unauthorized
transactions of Leonora. Clearly, Roberto could not expect relief from the board.
Derivative suits are governed by a special set of rules under A.M. No. 01-2-04-
SC[23]otherwise known as the Interim Rules of Procedure Governing Intra-Corporate
Controversies under Republic Act No. 8799.[24] Section 1,[25] Rule 1 thereof expressly
lists derivative suits among the cases covered by it.
As regards the venue of derivative suits, Section 5, Rule 1 of A.M. No. 01-2-04-SC
states:
SEC. 5. Venue. - All actions covered by these Rules shall be
commenced and tried in the Regional Trial Court which has
jurisdiction over the principal office of the corporation, partnership,
or association concerned. Where the principal office of the
corporation, partnership or association is registered in the Securities
and Exchange Commission as Metro Manila, the action must be
filed in the city or municipality where the head office is located.
Thus, the Court of Appeals did not commit grave abuse of discretion when it found
that respondents correctly filed the derivative suit before the Makati RTC where
HTSI had its principal office.

There being no showing of any grave abuse of discretion on the part of the Court of
Appeals the other alleged errors will no longer be passed upon as mere errors of
judgment are not proper subjects of a petition for certiorari.

WHEREFORE, the instant petition is hereby DISMISSED. The Decision

dated March 10, 2005 and the Resolution dated May 26, 2005 of the Court of Appeals
in CA-G.R. SP. No. 83919 are AFFIRMED.
G.R. No. 85318 June 3, 1991
COMMART (PHILS.) INC., JESUS, CORAZON, ALBERTO, AND BERNARD all
surnamed MAGLUTAC,petitioners,
vs.
SECURITIES & EXCHANGE COMMISSION and ALICE
MAGLUTAC, respondents.
Monsod, Tamargo & Associates for petitioners.
Panganiban, Benitez, Barinaga & Bautista Law Offices for private respondent.
PARAS, J.:
Petitioners, in the instant petition for review on certiorari, seek the reversal of the en
banc Order of the respondent Securities & Exchange Commission dated September 12,
1988 denying the petition for certiorari (SEC-EB No. 115-117) filed by the petitioners
herein and ordering that the original complaint (SEC Case No. 2673) be remanded to
the Securities Investigation and Clearing Department for further proceeding, for
having been rendered in grave abuse of discretion amounting to lack of or in excess of
jurisdiction and in contravention of existing laws and jurisprudence.
Commart (Phils.), Inc., (Command for short) is a corporation organized by two
brothers, Jesus and Mariano Maglutac, to engage in the brokerage business for the
importation of fertilizers and other products/commodities.
Jesus T. Maglutac (Jesus for short) ran the company as president, chairman of the
board, and chairman of the executive committee, while Mariano T. Maglutac
(Mariano for short) served as executive vice-president and vice-chairman of the
executive committee until April 1984.
Sometime in June 1984, the two brothers agreed to go their separate ways, with
Mariano being persuaded to sell to Jesus his shareholdings in Commart amounting to
25% of the outstanding capital stock. As part of the deal, a "Cooperative Agreement"
was signed, between Commart (represented by Jesus) and Mariano, in which, among
others, Commart ceded to Mariano or to an "acceptable entity" he may create, a
portion of its business, with a pledge of mutual cooperation for a certain period so as
to enable Mariano to get his own corporation off the ground, so to speak.
Mariano's wife, Alice M. Maglutac (private respondent herein) who has been for years
a stockholder and director of Commart, did not dispose of her shareholdings, and thus
continued as such even after the sale of Mariano's equity.
As broker and indentor, Commart's principal income came from commissions paid to
it in U.S. dollars by foreign suppliers of fertilizers and other commodities imported by
Planters Products, Inc. and other local importers.
Shortly after the sale of his equity in Commart to Jesus, Mariano allegedly discovered
that for several years, Jesus and his wife Corazon (who was herself a director) had
been siphoning and diverting to their private bank accounts in the United States and
in Hongkong gargantuan amounts sliced off from commissions due Commart from
some foreign suppliers. Consequently, on August 22, 1989, spouses Mariano and Alice
Maglutac filed a complaint (SEC Case No. 2673) with the Securities & Exchange
Commission (SEC for short) against Jesus T. Maglutac, Victor Cipriano, Clemente
Ramos, Carolina de los Reyes, Corazon Maglutac, Alberto Maglutac and Bernardo
Maglutac (Jesus as Chairman) and the rest as members of the Board of Directors of
Commart).
In their Complaint, Mariano and Alice Maglutac alleged, among others, that "Jesus T.
Maglutac, by means of secret arrangements with foreign suppliers, embodied in and
evidenced by, correspondences and other documents discovered just recently, has
been diverting into his private bank accounts and converting to his own personal
benefit and advantage substantial portions of the commission income of the
corporation, to the prejudice of the corporation, its stockholders and its creditors."
(Petition, Annex B, p. 2; Rollo, p. 20) Thus, complainants prayed, among others, that
judgment be rendered as follows ––
(a) Ordering respondents Jesus T. Maglutac, Corazon Maglutac, and Victor
Cipriano to account for and to turn over or deliver to the Corporation the
sum of US$2,539,918.97, or its equivalent in Philippine currency, with legal
interest thereon from the respective dates of misappropriation or, at the very
least, from date of filing of this suit, together with such other and further
sums as may be proved to have likewise been misappropriated by them;
(b) Ordering all the respondents, as members of the Board of Directors, to
take such remedial steps as would protect the corporation from further
depredation of its funds and property;
(c) Declaring rescinded or annulled the disposition of complainant Mariano
T. Maglutac's shares of stock to respondent Jesus T. Maglutac and ordering
the restoration to the former of all his executive positions with all the rights
and privileges thereunto appertaining; or, in the alternative, ordering that
said complainant be paid the equivalent of one-fourth of the actual market
value of COMMART's present assets including goodwill, taking into
consideration also the total sums misappropriated by respondents Jesus T.
Maglutac, Corazon Maglutac, and Victor Cipriano which rightfully belonged
to COMMART; and
 (d) Ordering respondents to pay complainants attorney's fees equivalent to
twenty (20%) per cent of the total amounts awarded and recovered, plus
such further sums as may be proved to have been incurred as and by way of
litigation expenses. (pp. 24-25, Rollo)
In response to the aforementioned Complaint, two Motions to Dismiss were filed. The
records reveal that:
(a) On October 17, 1984, Albert and Bernard Maglutac moved to dismiss on
the ground that Mariano Maglutac has no capacity to sue and the complaint
states no cause of action against them.
(b) On October 20, 1984, Jesus & Corazon Maglutac likewise moved to
dismiss on the ground that respondent Commission does not have
jurisdiction over the nature of the suit.
These motions were opposed by complainants Alice and Mariano Maglutac. While
said incidents were pending, complainants filed an Amended Complaint hereby
Commart was impleaded as party complainant and praying that Commart be placed
under receivership and the properties of Jesus & Corazon Maglutac and Victor
Cipriano be attached. It is alleged in the Amended Complaint that complainant
Commart is the corporation in whose behalf and for whose benefit this derivative suit
is brought; that complainant Alice M. Maglutac is a minority stockholder in good
standing of Commart while her husband complainant Mariano T. Maglutac was,
likewise, until June 25, 1984 or thereabouts, a stockholder of Commart.
Motions to dismiss said Amended Complaint were also filed by present petitioners
and were also duly opposed by complainants Mariano and his wife.
On May 10, 1985 Commart filed a Manifestation/Notice of Dismissal, manifesting that
"it withdraws and dismisses the action taken in its behalf by complainants Mariano T.
Maglutac and Alice M. Maglutac against all respondents." (Petition, Annex E, p.
3; Rollo, pp. 42-44)
This was opposed by complainants on the ground, among other doctrines, that in a
derivative suit the corporation is not allowed to be an active participant and has no
control over the suit against the real defendants; that the suing shareholder has the
right of control.
On May 27, 1985, the Hearing Panel issued an Order denying all the motions to
dismiss as well as the so called manifestation/notice of dismissal on the finding inter
alia that ––
Respondents maintain that the present action is basically one for
annulment/rescission of sale with alternative prayer for reinstatement of
employment status; that the action is not a derivative suit considering that
the nature of the action is one for annulment and the fact that complainant
Mariano T. Maglutac being a non-stockholder is not qualified to institute a
derivative suit; that the action does not in any way make mention of an
actionable wrong against respondents Albert and Bernard Maglutac,
Clemente Ramos and Carolina de los Reyes.
By way of opposition, complainants alleged that the instant action should be
characterized as a minority stockholders' derivative suit; that complainant
Alice Maglutac is not merely a nominal party but a real party in interest; that
Mariano T. Maglutac's rights as a stockholder have been injured through the
machinations and maneuvering of respondent Jesus Maglutac; that the prayer
for rescission or annulment of contract is merely the logical consequence of
the exercise of jurisdiction by this Commission.
Respondents' contention that the Commission has no jurisdiction over the
subject matter or the nature of the action is devoid of merit. It is a cardinal
principle in legal procedure that what determined the subject matter or the
nature of the action are the facts a complaint as constituting the cause of
action. A perusal of the complaint, as well as, the amended complaint would
show that the action is one for "mismanagement", for the complainants
alleged, inter alia, that ". . . respondent Jesus T. Maglutac, by means of secret
arrangements with foreign suppliers embodied in, and evidenced by,
correspondences and other documents discovered just recently, has been
diverting into his private bank accounts and to his own personal benefit and
advantage substantial portions of the commission income of the corporation,
to the prejudice of the corporation, its stockholders and its creditors and
enumerated immediately thereafter the alleged specific acts of
mismanagement. Viewed therefrom, the Commission has jurisdiction. (pp.
127-128, Rollo)
On June 18, 1985 Commart filed a motion for reconsideration and on August 29, 1985,
Jesus and Corazon Maglutac also filed a similar motion to have the Order of May 27,
1985 reconsidered and set aside. These motions were duly opposed by Mariano and
Alice Maglutac.
Acting on the Motion for Reconsideration, the Hearing Panel issued on November 12,
1985, an Order modifying its previous order "by dismissing this case insofar as Mariano
T. Maglutac is concerned" but affirming the said order "in all other respects." (Annex F
to Petition, pp. 46, 49, Rollo)
Not satisfied with such modification present petitioners as respondents in SEC Case
No. 2673 went to the SEC en banc on a petition for certiorari, prohibition
and mandamus with prayer for preliminary injunction. They contend –– (a) that the
Hearing Panel acted with grave abuse of discretion in not dismissing the case for
failure of Alice Maglutac to exhaust intra-corporate remedies, and (b) that grave
abuse was likewise committed in not dismissing the case on the ground that the
complaint did not show clearly that Alice Maglutac was a stockholder at the time the
questioned transaction occurred.
On September 12, 1988, the Commission en banc issued an Order denying the aforesaid
petition and remanding the case to the Securities Investigation and Clearing
Department for further proceedings. It ruled (a) that exhaustion of intra-corporate
remedy before filing suit "may be dispensed with where it is clear that it is unavailable
or futile" as was the case here. (p. 2, Order of Sept. 12, 1988, Annex A to
Petition) citing Everett v. Asia Banking Corp., 49 Phil. 512, and Republic Bank v.
Cuaderno, 19 SCRA 671, and (b) that the mere allegation in the complaint that
complainant is still a stockholder of Commart "is sufficient to vest jurisdiction to this
Commission" but complainant must prove at the time of reception of evidence that she
was also a stockholder at the time the acts complained of occurred. (Id., p. 3)
Although complainant Alice Maglutac failed to exhaust an intra-corporate
remedy before filing this case, the said condition precedent may be dispensed
with where it is clear that it is unavailable or futile. Thus it was held that:
Where the board of directors in a corporation is under the complete
control of the principal defendants in the case and it is obvious that
a demand upon the board of directors to institute an action and
prosecute the same effectively would be useless, the action may be
brought by one or more of the stockholders without such demand
(Everett v. Asia Banking Corp., 49 Phil. 512; Republic Bank v.
Cuaderno, et al., No. L-22399, March 30, 1967).
A stockholder can file a derivative suit provided there is an allegation in the
complaint that she is such at the time the acts complained of occurred, and at
the time the suit is brought (Hawes v. Oakland, 14 Otto [104 U.S.], 450,456;
S.C. 5972, 13 Fletcher 345, cited in Alvendia, The Law of Private Corporations
in the Philippines, First Ed., p. 361). The requirement that said facts be
pleaded is merely procedural although the necessity of the existence of these
facts in order to give rise to the right of action is substantive (Pascual v. Del
Saz Orozco, 19 Phil. 97). And equity considerations warrant the liberal
interpretation of the rules of procedure to the end that technicalities should
not stand in the way of equitable relief (Vol. I, Francisco, Civil Procedure,
2nd ed., p. 157, 1973 ed.) Mere allegation therefore that complainant is still a
stockholder of Commart is sufficient to vest jurisdiction to this Commission.
Complainant must however prove at the time of reception of evidence that
she was also a stockholder at the time the acts complained of occurred. (pp.
10-11, Memorandum by public respondent)
Hence, this petition.
The petitioners invoke two grounds for reversal of the Order under review thereby
raising these two issues, to wit:
1. Did the Securities and Exchange Commission err and/or commit "grave
abuse of discretion" in denying the petition for certiorari and remanding the
case for further proceedings despite the so-called "notice of dismissal" filed by
Commart?
2. Did the Securities and Exchange Commission err and/or commit "grave
abuse of discretion" in its handling of the "conflict of interest issue?" (Petition,
p. 6; Rollo, p. 81)
We find the petition devoid of merit.
The complaint in SEC Case No. 2673, particularly paragraphs 2 to 9 under First Cause
of Action, readily shows that it avers the diversion of corporate income into the private
bank accounts of petitioner Jesus T. Maglutac and his wife. Likewise, the principal
relief prayed for in the complaint is the recovery of a sum of money in favor of the
corporation. This being the case, the complaint is definitely a derivative suit.
Consequently, the SEC correctly held that the case was a minority stockholder's
derivative suit and correctly sustained the hearing panel's denial — insofar as Alice
Maglutac was concerned — of the motions to dismiss it.
A derivative suit has been the principal defense of the minority shareholder against
abuses by the majority.1âwphi1 It is a remedy designed by equity for those situations
where the management, through fraud, neglect of duty, or other cause, declines to take
the proper and necessary steps to assert the corporation's rights. Indeed, to grant to
Commart the right of withdrawing or dismissing the suit, at the instance of majority
stockholders and directors who themselves are the persons alleged to have committed
breaches of trust against the interest of the corporation, would be to emasculate the
right of minority stockholders to seek redress for the corporation. To consider the
Notice of Dismissal filed by Commart as quashing the complaint filed by Alice
Maglutac in favor of the corporation would be to defeat the very nature and function
of a derivative suit and render the right to institute the action illusory.
In any case, the suit is for the benefit of Commart itself, for a judgment in favor of the
complainants will necessarily mean recovery by the corporation of the US$2.5 million
alleged to have been diverted from its coffers to the private bank accounts of its top
managers and directors. Thus, the prayer in the Amended Complaint is for judgment
ordering respondents Jesus and Corazon Maglutac, as well as Victor Cipriano, "to
account for and to turn over or deliver to the Corporation" the aforesaid sum, with
legal interest, and "ordering all the respondent, as members of the Board of Directors
to take such remedial steps as would protect the corporation from further depredation
of the funds and property." (pars. [a] & [b], Annex 2, Comment)
On the "conflict of interest" issue, petitioners allege that private respondent Alice
Maglutac "is a majority stockholder of M.M. International Sales, a business
rival/competitor of Commart and holds only less than one percent (1%) of the entire
shareholdings of Commart." According to petitioners, this being the case it is easier to
believe that this so called derivative suit was filed because it is to the best interest of
the company where she has a bigger and substantial interest, which in this case is
M.M. International Sales, Inc.

In disposing of this contention respondent SEC ruled that jurisdiction cannot be made
to depend upon the pleas and defenses set up by a defendant in a motion to dismiss or
answer, otherwise jurisdiction should become dependent almost entirely upon the
defendant (citing Cardenas v. Camus, infra.) But it left the door open to a further
consideration of the issue by stating that complainant's ownership of majority stocks
of a rival corporation could not at this stage of the proceedings, defeat complainant's
claims:

Jurisdiction of the court cannot be made to depend upon the pleas or

defenses pleaded by the defendant in his motion to dismiss or answer, for
were we to be governed by such rule, the question of jurisdiction would
depend almost entirely upon the defendant (Cardenas v. Camus, 5 SCRA
639). Respondents' assertion in their motion to dismiss of complainant's
ownership of the majority stocks of a rival corporation, could not at this
stage of the proceedings, defeat complainant's claim. (pp. 83-84, Rollo)

In other words, no real prejudice has been inflicted upon petitioners' right to be heard
on this matter raised by them, since the same can still be looked into during the
hearing of a derivative suit on the merits. There was, therefore, neither error nor grave
abuse of discretion in the decision of the Securities & Exchange Commission not to
dismiss the case but to remand it instead to the Hearing Panel for further proceedings.

WHEREFORE, for lack of merit, this Petition is DISMISSED

[G.R. No. 138343. February 19, 2001]
GILDA C. LIM, WILHELMINA V. JOVEN and DITAS A. LERIOS, petitioners,
vs. PATRICIA LIM-YU, in her capacity as a minority stockholder of
LIMPAN INVESTMENT CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
A suit to enforce preemptive rights in a corporation is not a derivative suit. Thus,
a temporary restraining order enjoining a person from representing the corporation
will not bar such action, because it is instituted on behalf and for the benefit of the
shareholder, not the corporation.
Statement of the Case
Petitioners seek the reversal,[1] under Rule 45 of the Rules of Court, of the July 31,
1998 Decision[2] of the Court of Appeals[3] (CA) in CA-GR SP No. 46292 and of its
March 25, 1999 Resolution[4] denying reconsideration. The decretal portion of the
appealed Decision, which affirmed the Securities and Exchange Commission (SEC),
reads as follows:
WHEREFORE, judgment is hereby rendered DISMISSING the Petition for lack of
merit. The preliminary injunction previously issued is hereby LIFTED. [5]
The Facts
The undisputed facts are summarized by the Court of Appeals as follows:
"At a special meeting on 07 October 1994, the Board of Directors of Limpan
Investment Corporation (LIMPAN) approved a resolution of the following tenor:
RESOLVED that the corporation make a partial payment [for] the legal services of
Gilda C. Lim in the handling of various cases on behalf of, or involving the corporation
in the amount of P1,551,500.00 to be paid in equivalent value in shares of stock of the
corporation totaling 15,515 shares, the same being found to be reasonable, and there
being no available funds to pay the same.
RESOLVED FURTHER, that the Corporate Secretary be authorized, as he is hereby
authorized, to secure and comply with necessary requirements of the law for the
issuance of said shares.
On 18 October 1994, the Corporate Secretary Jaime G. Manzano filed a request before
the Corporate and Legal Affairs Department of the SEC asking for the exemption of
the 15,515 shares from the registration requirements of the Revised Securities Act; the
request was granted in a Resolution dated 14 November 1994. Due to the issuance of
the unsubscribed shares to the petitioner GILDA C. LIM (LIM), all of LIMPANs
authorized capital stock became fully subscribed, with LIM ending up controlling
62.5% of the shares.
In July 1996, the private respondent PATRICIA LIM YU (YU), a sister of the
petitioner, LIM, filed a complaint against the members of the Board of Directors of
LIMPAN who approved the aforesaid resolution (GILDA C. LIM, WILHELMINA V.
JOVEN, DITAS A. LERIOS, AUGUSTO R. BUNDANG, TERESITA C. VELEZ and
JAIME MANZANO). The action was docketed as SEC Case No. 07-95-5114.
BUNDANG, VELEZ, and MANZANO filed an Answer, asserting as affirmative
defenses that the complaint failed to state a cause of action against them; that YU had
no legal capacity to sue; and that the issuance of the shares in LIMs favor was bona
fide and valid pursuant to law and LIMPANs By-Laws. In turn, the herein petitioners
LIM, JOVEN and LERIOS filed a Motion to Dismiss on the following grounds: that
YU had no legal capacity to sue; that the complaint failed to state a cause of action
against JOVEN and LERIOS, and that no earnest efforts were exerted towards a
compromise, YU and LIM being siblings.
In support of their ground that YU ha[d] no legal capacity to sue, the petitioners
pointed out that LIM had previously filed a petition for guardianship before the
Regional Trial Court of Manila, docketed as Special proceeding No. 94-71010, praying
for the issuance of letters of guardianship over YU. On 14 July 1994, the Presiding
Judge of Branch 48, the Hon. Demetrio M. Batario, Jr., issued an Order, the relevant
portion of which enjoined YU from entering into, or signing, contracts or documents
on her behalf or on behalf of others x x x. On 16 August 1994, LIM was appointed [as]
YUs general guardian, and the former took her oath as such on the same day. YU
appealed LIMs appointment to the Supreme Court (Patricia C. Lim-Yu, et al. v. Hon.
Judge Demetrio M. Batario, Jr., et al., G.R. No. 116926). On 27 February 1994, the High
Court issued a Resolution giving due course to YUs petition. It likewise issued a
temporary restraining order, the pertinent portion of which is quoted hereunder:
(b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for, limited however,
to the Writ of Preliminary Injunction dated 22 August 1994 and the order dated 14
July 1994 both issued in SP Proceeding No. 94-71010 which in the opinion of the Court
are all too encompassing and should be limited in scope and subject to the conditions
set forth in the resolution of September 28, 1994 that, (D)uring the effectivity of the
temporary restraining order, petitioner Patricia C. Lim, her attorneys, representatives,
agents and any other persons assisting petitioner Patricia C. Lim will be able to act,
enter into or sign contracts or documents solely for and on behalf of Patricia C.
Lim; said actions, contracts or documents should not in any way bind or affect the
interests of her parents, Isabelo P. Lim and Purificacion C. Lim, her brothers and
sisters and any family owned or controlled corporation in particular, the Limpan
Investment Corporation.
NOW THEREFORE, You (Respondent Hon. Judge Demetrio M. Batario, Jr.), your
agents, representatives, and/or any person or persons, acting upon your orders or in
your place or stead, are hereby RESTRAINED and ENJOINED from enforcing and
carrying out the Writ of Preliminary Injunction dated 22 August 1994 and the Order
dated 14 July 1994 both issued by respondent Judge In SP Proceeding No. 94-
71010. (underscoring supplied)
The petitioners argued that, under the aforesaid order, YU [was] incapacitated from
filing a derivative suit. YU naturally espoused the opposite view.
Acting on the petitioners Motion to Dismiss, the Hearing Officer, Atty. Manuel Perea,
issued an Order dated 05 January 1996, holding in abeyance the resolution of the
motion to dismiss, which reads as follows:
Before this Commission is the motion to dismiss filed by respondents Gilda C. Lim, et
al., as well as the opposition thereto.
In view of the conflicting interpretation of the order issued by the Supreme Court in
Sp. Proc. No. 94-70010 regarding the legal capacity of the plaintiff [--] x x x who is
allegedly under guardianship [-- to file the instant action] either or both parties are
directed to file a motion for clarification of the orders invoked by respondent Gilda C.
Lim, et al. The desired clarification is perceived to settle the issue of plaintiffs capacity
to file the instant action.
Meanwhile, resolution of the pending incident shall be held in abeyance until the
parties shall have secured the desired interpretation/opinion of the Supreme Court on
the matter.
Yu filed a Motion for Reconsideration dated 08 April 1996, which was denied in an
Order dated 25 April 1996, on the ground that it was filed beyond the ten-day period
allowed for seeking reconsideration. Yu filed a Motion for Leave to Admit Second
Motion for Reconsideration dated 02 July 1996 which the Hearing Officer also denied.
From the denial of her second motion for reconsideration, Yu filed a petition for
certiorari before the SEC En Banc seeking to set aside the Order of 05 January 1994.
On 04 February 1994, the SEC En Banc issued the first assailed order granting the
petition for certiorari, and ordering the Securities Investigation & Clearing
Department (SICD) to hear the other grounds of the Motion to Dismiss and to
continue the case until its final determination. A motion for reconsideration filed by
L[im] having been denied, the instant petition for review was instituted before this
Court. x x x.[6]
Ruling of the Court of Appeals
Ruling that the Supreme Courts TRO was clear, the CA agreed with the SEC
that, pending clarification thereof, there was no need for the hearing officer to defer
ruling on the Motion to Dismiss. The appellate court stated that the TRO did not
prohibit herein Respondent Patricia Lim-Yu from acting or entering into contracts on
her own behalf or from protecting her rights. The root of the present controversy --
the Complaint she filed before the SEC -- relates to a denial of her preemptive right as
a shareholder. Thus, her capacity to file the suit must be sustained. Finally, on the
question of the timeliness of respondents Petition for Certiorari before the SEC, the
CA ruled that adherence to strict technical rules should be relaxed to prevent palpable
injustice.
Hence, this recourse.[7]
Issues
In their Memorandum,[8] petitioners raise the following issues:
I
The Honorable Court of Appeals erred in sustaining the respondents legal capacity to
sue the petitioners by relying solely on the first half of this Honorable Courts TRO
and without considering the second half of said TRO.
II
The Honorable Court of Appeals erred in disregarding the sole power/authority of the
Supreme Court to enforce/clarify its own resolutions/orders under the Rules of Court.
III
The Honorable Court of Appeals in effect allowed the Securities and Exchange
Commission (SEC) to maintain two conflicting positions on similar matters before it
(SEC) when it upheld the SECs position that clarification of this Honorable Courts
TRO was not needed in SEC Case No. 07-95-5114.
IV.
The Honorable Court of Appeals failed to consider that herein respondent had been
repeatedly and notoriously guilty of laches.
Simply put, the main issue is whether respondent had the legal capacity to file
her Complaint before the SEC. The others are merely incidental to this main point.
The Courts Ruling
The Petition has no merit.
First Issue: Legal Capacity to Sue
Petitioners point out that both the SEC and the Court of Appeals considered
only the first part of the Supreme Court TRO and completely ignored the second
part. Supposedly, the latter part barred respondent from entering into agreements that
would affect her family and the corporation. Hence, they claim that the TRO, taken as
a whole, proscribed respondents derivative suit, which sought to enjoin herein
[P]etitioner Gilda C. Lim from further voting or exercising any and all rights arising
from the issuance to her of 15,515 shares of stock of the corporation. [9]
We do not agree. The pertinent portion of the TRO issued by this Court reads as
follows:
(b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for, limited however,
to the Writ of Preliminary Injunction dated 22 August 1994 and the Order dated 14
July 1994 both issued in SP Proceeding No. 94-71010 which in the opinion of the Court
are all too encompassing and should be limited in scope and subject to the conditions
set forth in the Resolution of September 28, 1994 that, (D)uring the effectivity of the
Temporary Restraining Order, petitioner Patricia C. Lim, her attorneys,
representatives, agents and any other persons assisting petitioner Patricia C. Lim will
be able to act, enter into or sign contracts or documents solely for and on behalf of
Patricia C. Lim; said actions, contracts or documents should not in any way bind or
affect the interests of her parents, Isabelo P. Lim and Purificacion C. Lim, her brothers
and sisters and any family owned or controlled corporation in particular, the Limpan
Investment Corporation.
Simply put, the TRO allows Respondent Patricia Lim-Yu to act for herself and to
enter into any contract on her own behalf. However, she cannot transact in
representation of or for the benefit of her parents, brothers or sisters, or the Limpan
Investment Corporation. Contrary to what petitioners suggest, all that is prohibited is
any action that will bind them. In short, she can act only on and in her own behalf, not
that of petitioners or the Corporation.
There appears to be a confusion on the nature of the suit initiated before the
SEC. Petitioners describe it as a derivative suit, which has been defined as an action
brought by minority shareholders in the name of the corporation to redress wrongs
committed against it, for which the directors refuse to sue. It is a remedy designed by
equity and has been the principal defense of the minority shareholders against abuses
by the majority.[10] In a derivative action, the real party in interest is the corporation
itself, not the shareholder(s) who actually instituted it.
If the suit filed by respondent was indeed derivative in character, then
respondent may not have the capacity to sue. The reason is that she would be acting in
representation of the corporation, an act which the TRO enjoins her from doing.
We hold, however, that the suit of respondent cannot be
characterized as derivative, because she was complaining only of the violation of her
preemptive right under Section 39 of the Corporation Code. [11] She was merely praying
that she be allowed to subscribe to the additional issuances of stocks in proportion to
her shareholdings to enable her to preserve her percentage of ownership in the
corporation. She was therefore not acting for the benefit of the corporation. Quite the
contrary, she was suing on her own behalf, out of a desire to protect and preserve her
preemptive rights.Unquestionably, the TRO did not prevent her from pursuing that
action.
To repeat, the TRO issued by this Court had two components: (1) it allowed
respondent to enter into agreements on her own behalf; and (2) it clarified that
respondents acts could not bind or affect the interests of her parents, brothers or
sisters, or Limpan. In other words, respondent was, as a rule, allowed to act; but, as an
exception, was prohibited from doing anything that would bind the corporation or
any of the above-named persons.
In this light, the TRO did not prohibit respondent from filing, on and in her own
behalf, a suit for the alleged violation of her preemptive rights to purchase additional
stock subscriptions. In other words, it did not restrain respondent from acting and
enforcing her own rights. It merely barred her from acting in representation of the
corporation.
Petitioners fail to appreciate the distinction between the act itself and its net
result. The act of filing the suit did not in any way bind the corporation. The result of
such act affected it, however.Similarly, respondent can sell her shares to the
corporation or make a will and designate her parents, for example, as beneficiaries. It
would be quite far-fetched to say that these acts are prohibited by the TRO, even if
they will definitely affect the corporation and her parents.
Section 2 of Rule 3 of the Rules of Court[12] defines a real party in interest as one
who is entitled to the avails of any judgment rendered in a suit, or who stands to be
benefited or injured by it. In the present case, it is clear that respondent was suing on
her own behalf in order to enforce her preemptive rights. Nothing, not the TRO,
barred her from filing that suit.
Incidental Issues Laches

Power to Clarify Own Resolutions

Petitioners further contend that the CA failed to appreciate that respondent had
been repeatedly and notoriously guilty of laches. They point out that she filed a
Motion for Reconsideration of the SEC hearing officers Order almost four months
late. They further allege that it took her another two and a half months to file a
Petitioners also assail the ruling of the Court of Appeals that the SEC hearing
Motion for Leave to Admit Second Motion for Reconsideration.[20]
officer was bound to interpret the Supreme Courts order instead of burdening [it]
with the responsibility of clarifying what already appears to be a clear order. Citing We reject this argument. It has been held that it is the better rule that courts,
Section 5 (5) of Article VIII[13] of the Constitution and Section 5 of Rule under the principle of equity, shall not be bound strictly by the doctrine of laches,
135,[14] petitioners contend that the ruling disregarded the Supreme Courts power to when a manifest wrong or injustice would result. [21] To rule that respondent can no
control and to clarify its own orders, as granted by the Constitution. longer question the hearing officer would deprive her of the opportunity to sue in
order to enforce her preemptive rights, an act that is not proscribed by this Courts
The argument must be rejected outright. First, as stated earlier, the TRO was TRO.
very clear. In such instances, it was axiomatic that there was no need for
interpretation, only for application.[15] Hence, there was no reason for the SEC hearing WHEREFORE, the Petition is hereby DENIED and the assailed
officer to rely on the rules of statutory construction or for this Court to clarify its Decision AFFIRMED.
Order. Second, even assuming that there was a need to interpret the TRO, the hearing
officer was duty-bound to do so. Indeed, the mandate to apply and interpret pertinent
laws and rulings is necessarily included in the adjudicative functions [16] of the SEC or
of any other quasi-judicial body for that matter.[17]
Verily, the power of this Court to clarify its own orders does not divest the SEC
of its function to apply those orders to cases before it. If parties disagree with the SEC,
they can file the proper suit in a regular court in accordance with law. In any event,
the seeming obscurity or ambiguity of a TRO is not an excuse for a quasi-judicial
body, or any regular court or judge, to shirk from the responsibility of applying and
interpreting it.[18]

Alleged Conflicting Positions of the SEC

Petitioners further contend that the CA effectively allowed the SEC to maintain
contradictory positions on similar matters. They cite Philippine Commercial International
Bank v. Aquaventures Corporation, docketed as SEC En Banc Case No. 455, in which the
SEC referred a TRO to this Court for clarification. [19]
This argument is untenable. The alleged contradictory SEC ruling in the said
case is irrelevant and unnecessary to the resolution of the present one. Petitioners do
not claim that the factual milieu of the former is similar to that of the latter. Moreover,
the actions of the SEC in the above-mentioned case have not been put at issue by the
proper parties in these proceedings. In any event, they are neither binding nor
conclusive on appeal. They may be the subject of the Courts review in accordance
with the applicable provisions of the Rules of Court.
G.R. No. L-4228 January 23, 1952
SECURITIES AND EXCHANGE COMMISSION, petitioner-appellee,
vs.
MARCOS PIMENTEL, respondent-appellant.
Assistant Solicitor General Francisco Carreon and Solicitor Meliton G. Soliman for appellee.
Avena, Villaflores, and Lopez for appellant.
PARAS, C.J.:
Nieves G. Argonza and Placida G. delos Reyes filed with the Securities and Exchange
Commission certain charges against Marcos Pimentel, and Julia B. Pimentel, president
and treasurer respectively of the International Colleges, Inc. As the Commission was
inclined to believe that the complaint involved a violation of Section 51 of the
Corporation Law, which requires corporations to "keep and carefully preserve a
record of all business transactions," it ordered on December 13, 1948, a trial
examination of the books and records of accounts of the International Colleges, Inc.
Accordingly, the Commission, through its duly authorized representatives, issued on
December 20, 1948, a subpoena duces tecum commanding Marcos Pimentel to deliver to
the office of the Commission on December 21, 1948, in the morning, the books and
records of the International Colleges, Inc., specified in the subpoena and under the
control and possession of Marcos Pimentel. The latter refused and failed to comply
and, on December 23, 1948, he and Julia B. Pimentel filed with the Commission an
opposition to the order of December 13, 1948, directing the trial examination. This
opposition was overruled by the Commission in its order of January 11, 1949, in which
the Commission directed compliance with any lawful; requirement of its chief
examiner designated to conduct the trial examination. On January 18, 1949, the
representative of the Commission went to the office of Marcos Pimentel and
demanded from the latter the production, for examination, of the books and records of
accounts specified in the subpoena issued on December 20, 1948, but Marcos Pimentel
again refused to comply with the requirement.
The present proceeding was thereupon filed with the Court of First Instance of
Manila by the Securities and Exchange Commission which prayed the court to declare
Marcos Pimentel in contempt of the Commission. After hearing, that court rendered a
decision finding respondent Marcos Pimentel guilty of contempt and imposing upon
him a fine of P50,000, with subsidiary imprisonment in case of insolvency, plus the
costs, and ordering said respondent to produce before the Commission or its
representative, at any time and place to be designated by the Commission, the books
and records of accounts specified in the subpoena issued on December 20, 1948. From
this decision respondent Marcos Pimentel has appealed.
There is no question that the charges filed by Nieves G. Argonza and Placida G. de los
Reyes with the Securities and Exchange Commissions tend to show that the
International Colleges, Inc., of which the respondent is the president, committed a
violation of Section 51 of the Corporation Law which requires corporations to keep
and preserve a record of all business transactions. The Securities and Exchange
Commission predicates its power to order the trial examination in question upon
section 1 of the Commonwealth Act No. 287 which provides as follows:
The powers, duties and functions now vested in, or performed and exercised
by, the Bureau of Commerce in connection with the registration of
corporations and all other forms of association are transferred to the
Securities and Exchange Commission. The Securities and Exchange
Commission shall be changed with the enforcement of all laws affecting
corporations and associations, and to this end, may conduct such
investigation as it may consider necessary: Provided, That the power herein
conferred shall in no manner affect the power now exercised by government
bureaus or offices over certain classes of corporations. In the exercise of the
power of investigation, the provisions of section thirty-one of
Commonwealth Act Numbered Eighty-three, creating the Securities and
Exchange Commission, including the penalties therein provided, shall be
applicable.
Respondent-appellant contends that the power conferred upon the Securities and
Exchange Commission by Commonwealth Act No. 287 to enforce all laws affecting
corporations and associations, refers only to matters relating to the registration of
corporations and all others forms of associations; and reliance is placed upon the first
sentenced of the section above quoted, as well as upon section 2 of said
Commonwealth Act No. 287 which provides that "All books, records, documents, and
files of the Bureau of Commerce relating to corporations and associations, and such
personnel of the aforesaid Bureau as is now discharging the function and performing
the duties of the Bureau of Commerce in connection of with the registration of
corporation and association, together with the corresponding appropriations, are
transferred to the securities and Exchange Commission and the Budget Commissioner
shall make immediate provision for such transfer.
Appellants contention is clearly without merit. Under section of Commonwealth Act
No. 287, the Securities and Exchange Commission is (1) entrusted with the powers,
duties and function therefore performed and exercise by the Bureau of Commerce in
connection with the registration of corporations and all other forms of association,
and (2) charged with the enforcement of all laws effection corporation and
associations, with the exception that the power now exercised by other bureaus of
officer over certain classes of corporations shall remain unsatisfied. The second power
is plainly unqualified and district from the powers transferred from the Bureau of
commerce to the Securities and Exchange Commission, and it is not here pretended
that the power to investigate a violation of section 51 of the Corporation law is vested
in or exercise by another bureau or office. The fact that only the records, files and
personnel of the Bureau of Commerce relating to the registration of the corporations
and associations have been transferred to the Securities and exchange Commission,
does not proved that the new power vested in the Commission to enforce all laws
affecting corporations has reference merely to registration, since no claim is made that
the Bureau of Commerce is presently charged with said duty.

Respondent-appellant contends that, under section 51 of the Corporation Law, only

stockholders on officer of the corporation is the right to inspect or examine its books,
and that to permit the examination in question would be an indirect way of
permitting Nieves G. Argonza and Placida G. de los Reyes (who are not stockholders)
to examine the records of the International Colleges, Inc. We can not agree, since the
examination would be carried out by the Securities and Exchange Commission under
the authority confered by law, and it is to be presumed that the Commission will
perform its duty ligitimately.

Respondent-appellant also agues that only the President of the Philippine can order
the investigation of the corporation on which violates section 51 of the Corporation
Law. While the President possesses the visitorial power over any corporation (secs.
54-55, corporation Law), said power is not exclusive and not impair the function of
the Securities and Exchange Commission under Commonwealth Act No. 287 in
relation to the enforcement of all laws effecting corporations and associations.

There is no reason for supposing, as respondent-appellant does, that to interpret

Commonwealth Act no. 287 as conferring upon the Securities and Exchange
Commission the duty of enforcing all laws effecting corporations generally, and not
merely as regards matters of registration, would lead to absurb results, and that there
are diverse laws pertaining to corporations which are enforce actually by other bureau
and instrumentalities of the Government. Possible clashes or overlapping of functions
and powers, which may lead to absurdity, inconvenience or confusion, have been
easily forcetailed by Commonwealth Act No. 287 by providing that the authority
newly confered upon the Securities and Exchange commission "shall in no manner
affect now the power now exercised by government bureaus of offices over certain
classes of corporations." At any rate, it is not even suggested that the function being
exercised by the commission in this case pertains to another bureaus or office.

Wherefore, the appealed decision is affirmed with costs. So ordered.

G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING
AND DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra
Nickel and Mining Development Corp. (Narra), Tesoro Mining and Development, Inc.
(Tesoro), and McArthur Mining Inc. (McArthur), which seeks to reverse the October
1, 2010 Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp.
(Redmont), a domestic corporation organized and existing under Philippine laws,
took interest in mining and exploring certain areas of the province of Palawan. After
inquiring with the Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration and mining activities
where already covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc.
(SMMI), filed an application for an MPSA and Exploration Permit (EP) with the
Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782
hectares in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and
EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao,
Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation (PLMDC)
which previously filed an application for an MPSA with the MGB, Region IV-B,
DENR on January 6, 1992. Through the said application, the DENR issued MPSA-IV-
1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro,
Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as
MPSA-AMA-IVB-154 (formerly EPA-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.
In their Answers, petitioners averred that they were qualified persons under Section
3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 which
provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following
terms, whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract,
or a corporation, partnership, association, or cooperative organized or authorized for
the purpose of engaging in mining, with technical and financial capability to
undertake mineral resources development and duly registered in accordance with law
at least sixty per cent (60%) of the capital of which is owned by citizens of the
Philippines: Provided, That a legally organized foreign-owned corporation shall be
deemed a qualified person for purposes of granting an exploration permit, financial or
technical assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because
they also applied for Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for 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)4 and 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 Redmont’s petition since they are
not enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has no
personality to sue them because it has no pending claim or application over the areas
applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from
gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in
mining activities. On the other hand, [Redmont] having filed its own applications for
an EPA over the areas earlier covered by the MPSA application of respondents may be
considered if and when they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over mining areas is clearly
established thus, there is reason to believe that the cancellation and/or revocation of
permits already issued under the premises is in order and open the areas covered to
other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining
Inc., Tesoro Mining and Development, Inc., and Narra Nickel Mining and
Development Corp. as, DISQUALIFIED for being considered as Foreign Corporations.
Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED
NULL AND VOID.6
The POA considered petitioners as foreign corporations being "effectively controlled"
by MBMI, a 100% Canadian company and declared their MPSAs null and void. In the
same Resolution, it gave due course to Redmont’s 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. McArthur’s FTAA was
denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA application was
converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA was converted to
AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed
a Complaint15 with the Securities and Exchange Commission (SEC), seeking the
revocation of the certificates for registration of petitioners on the ground that they are
foreign-owned or controlled corporations engaged in mining in violation of Philippine
laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation and Motion to
Suspend Proceeding before the MAB praying for the suspension of the proceedings on
the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of
Quezon City, Branch 92 (RTC) a Complaint16 for injunction with application for
issuance of a temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of
the MAB proceedings pending the resolution of the Complaint before the SEC.
But before the RTC can resolve Redmont’s 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 2007-03, and its Order dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by Redmont Consolidated Mines
Corporation on 02 January 2007 is hereby ordered DISMISSED. 17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s
application for a TRO and setting the case for hearing the prayer for the issuance of a
writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of
the September 10, 2008 Order of the MAB. Subsequently, it filed a Supplemental
Motion for Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmont’s 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 finally disposing of the appeals of
petitioners and from resolving Redmont’s Motion for Reconsideration and
Supplement Motion for Reconsideration of the MAB’s September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion
for Reconsideration and Supplemental Motion for Reconsideration and resolving the
appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders
issued by the MAB. On October 1, 2010, the CA rendered a Decision, the dispositive of
which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated
September 10, 2008 and July 1, 2009 of the Mining Adjudication Board are reversed
and set aside. The findings of the Panel of Arbitrators of the Department of
Environment and Natural Resources that respondents McArthur, Tesoro and Narra
are foreign corporations is upheld and, therefore, the rejection of their applications for
Mineral Product Sharing Agreement should be recommended to the Secretary of the
DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for
Financial or Technical Assistance Agreement (FTAA) or conversion of their MPSA
applications to FTAA, the matter for its rejection or approval is left for determination
by the Secretary of the DENR and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for
Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt as to the
nationality of petitioners when it realized that petitioners had a common major
investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first
sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of
2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the exploitation of natural resources, the
CA used the "grandfather rule" to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be recorded as belonging to aliens. 24(emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate
structures and their corresponding common shareholders. Using the grandfather rule,
the CA discovered 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 POA’s
jurisdiction is limited only to the resolution of the dispute and not on the approval or
rejection of the MPSAs. It stipulated that only the Secretary of the DENR is vested
with the power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution
which considered petitioners McArthur, Tesoro and Narra as foreign corporations.
Nevertheless, the CA determined that the POA’s 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 POA’s 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 OP’s Decision and Resolution with the CA, docketed as CA-G.R. SP
No. 120409. In the CA Decision dated February 29, 2012, the CA affirmed the Decision
and Resolution of the OP. Thereafter, petitioners appealed the same CA decision to
this Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA.
Petitioners put forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness
despite the fact that the subject matter of the controversy, the MPSA
Applications, have already been 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
Redmont’s willful forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law, particularly
the express mandate of the Foreign Investments Act of 1991, as amended, and
the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter
alios acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the
MPSA Applications into FTAA Applications were of "suspicious nature" as
the same is based on mere conjectures and surmises without any shred of
evidence to show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is
without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a
justiciable controversy by virtue of supervening events, so that a declaration thereon
would be of no practical use or value."32 Thus, the courts "generally decline jurisdiction
over the case or dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere
raising of an issue of "mootness" will not deter the courts from trying a case when
there is a valid reason to do so. In David v. Macapagal-Arroyo (David), the Court
provided four instances where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public interest
is involved;
3.) When constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of this Court
note that a grave violation of the Constitution, specifically Section 2 of Article XII, is
being committed by a foreign corporation right under our country’s nose through a
myriad of corporate layering under different, allegedly, Filipino corporations. The
intricate corporate layering utilized by the Canadian company, MBMI, is of
exceptional character and involves paramount public interest since it undeniably
affects the exploitation of our Country’s natural resources. The corresponding actions
of petitioners during the lifetime and existence of the instant case raise questions as
what principle is to be applied to cases with similar issues. No definite ruling on such
principle has been pronounced by the Court; hence, the disposition of the issues or
errors in the instant case will serve as a guide "to the bench, the bar and the
public."35 Finally, the instant case is capable of repetition yet evading review, since the
Canadian company, MBMI, can keep on utilizing dummy Filipino corporations
through various schemes of corporate layering and conversion of applications to skirt
the constitutional prohibition against foreign mining in Philippine soil.
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 CA’s 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 CA’s analysis of the actions of petitioners after the case was filed against them by
respondent is on point. The changing of applications by petitioners from one type to
another just because a case was filed against them, in truth, would raise not a few
sceptics’ eyebrows. What is the reason for such conversion? Did the said conversion
not stem from the case challenging their citizenship and to have the case dismissed
against them for being "moot"? It is quite obvious that it is petitioners’ strategy to have
the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every action done
by the court or appropriate government agency: on January 2, 2007, Redmont filed
three separate petitions for denial of the MPSA applications of petitioners before the
POA. On June 15, 2007, petitioners filed a conversion of their MPSA applications to
FTAAs. The POA, in its December 14, 2007 Resolution, observed this suspect change
of applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear
admission that the respondents are not capable of conducting a large scale mining
operation and that they need the financial and technical assistance of a foreign entity
in their operation that is why they sought the participation of MBMI Resources, Inc.
The participation of MBMI in the corporation only proves the fact that it is the
Canadian company that will provide the finances and the resources to operate the
mining areas for the greater benefit and interest of the same and not the Filipino
stockholders who only have a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the
case only demonstrate the violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA application conversion
which is allowed foreign corporation of the earlier MPSA is an admission that indeed
the respondent is not Filipino but rather of foreign nationality who is disqualified
under the laws. Corporate documents of MBMI Resources, Inc. furnished its
stockholders in their head office in Canada suggest that they are conducting operation
only through their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted the petition,
reversing and setting aside the September 10, 2008 and July 1, 2009 Orders of the
MAB. In the said Decision, the CA upheld the findings of the POA of the DENR that
the herein petitioners are in fact foreign corporations thus a recommendation of the
rejection of their MPSA applications were recommended to the Secretary of the
DENR. With respect to the FTAA applications or conversion of the MPSA
applications to FTAAs, the CA deferred the matter for the determination of the
Secretary of the DENR and the President of the Republic of the Philippines. 37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the
dismissal of the petition asserting that on April 5, 2010, then President Gloria
Macapagal-Arroyo signed and issued in their favor FTAA No. 05-2010-IVB, which
rendered the petition moot and academic. However, the CA, in a Resolution dated
February 15, 2011 denied their motion for being a mere "rehash of their claims and
defenses."38 Standing firm on its Decision, the CA affirmed the ruling that petitioners
are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the case to us
via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the
CA. Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this
petition for review was filed, cancelling and revoking the FTAAs, quoting the Order of
the POA and stating that petitioners are foreign corporations since they needed the
financial strength of MBMI, Inc. in order to conduct large scale mining operations.
The OP Decision also based the cancellation on the misrepresentation of facts and the
violation of the "Small Scale Mining Law and Environmental Compliance Certificate
as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584."39 On July 6,
2011, the OP issued a Resolution, denying the Motion for Reconsideration filed by the
petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the
Court the fact of the OP’s Decision and Resolution. In their Reply, petitioners chose to
ignore the OP Decision and continued to reuse their old arguments claiming that they
were granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation
and Submission dated October 19, 2012,40 wherein they asserted that the present
petition is moot since, in a remarkable turn of events, MBMI was able to sell/assign all
its shares/interest in the "holding companies" to DMCI Mining Corporation (DMCI),
a Filipino corporation and, in effect, making their respective corporations fully-
Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed
for being "moot." Their final act, wherein MBMI was able to allegedly sell/assign all its
shares and interest in the petitioner "holding companies" to DMCI, only proves that
they were in fact not Filipino corporations from the start. The recent divesting of
interest by MBMI will not change the stand of this Court with respect to the
nationality of petitioners prior the suspicious change in their corporate structures.
The new documents filed by petitioners are factual evidence that this Court has no
power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that
petitioner corporations have violated several mining laws and made
misrepresentations and falsehood in their applications for FTAA which lead to the
revocation of the said FTAAs, demonstrating that petitioners are not beyond going
against or around the law using shifty actions and strategies. Thus, in this instance,
we can say that their claim of mootness is moot in itself because their defense of
conversion of MPSAs to FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’ nationality, whether
Filipino or foreign. In their previous petitions, they had been adamant in insisting that
they were Filipino corporations, until they submitted their Manifestation and
Submission dated October 19, 2012 where they stated the alleged change of corporate
ownership to reflect their Filipino ownership. Thus, there is a need to determine the
nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No.
020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement
of the Constitution and other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural resources owned by Filipino
citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded
as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to
corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality," pertains to the control test or
the liberal rule. On the other hand, the second part of the DOJ Opinion which
provides, "if the percentage of the Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more
stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the
application of the "control test" under RA 7042, as amended by RA 8179, otherwise
known as the Foreign Investments Act (FIA), rather than using the stricter
grandfather rule. The pertinent provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by the citizens of the Philippines; a
corporation organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and entitled to vote is wholly owned
by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided,
That were a corporation and its non-Filipino stockholders own stocks in a Securities
and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stock outstanding and entitled to vote of each of both corporations must
be owned and held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors, in order that the corporation shall be
considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case
since the definition of a "Philippine National" under Sec. 3 of the FIA does not provide
for it. They further claim that the grandfather rule "has been abandoned and is no
longer the applicable rule."41 They also opined that the last portion of Sec. 3 of the FIA
admits the application of a "corporate layering" scheme of corporations. Petitioners
claim that the clear and unambiguous wordings of the statute preclude the court from
construing it and prevent the court’s use of discretion in applying the law. They said
that the plain, literal meaning of the statute meant the application of the control test
is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has already been abandoned
must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora
and fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such
terms and conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general
terms and conditions provided by law, based on real contributions to the economic
growth and general welfare of the country. In such agreements, the State shall
promote the development and use of local scientific and technical resources.
(emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different
types of agreements for the exploration, development, and utilization of natural
resources with entities who are deemed Filipino due to 60 percent ownership of
capital is pertinent to this case, since the issues are centered on the utilization of our
country’s natural resources or specifically, mining. Thus, there is a need to ascertain
the nationality of petitioners since, as the Constitution so provides, such agreements
are only allowed corporations or associations "at least 60 percent of such capital is
owned by such citizens." The deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an
independent national economy is freedom from undue foreign control? What is the
meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national
sovereignty and the welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why
not simply freedom from foreign control? I think that is the meaning of independence,
because as phrased, it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we
retain the 60/40 possibility in the cultivation of natural resources, 40 percent involves
some control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity
and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in
Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the question: ‘Where do
we base the equity requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock of a corporation’? Will the
Committee please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the team
from the UP Law Center who provided us with a draft. The phrase that is contained
here which we adopted from the UP draft is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a
corporation with 60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the
grandfather rule in cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the
Constitution and a statute, the Constitution will prevail. In this instance, specifically
pertaining to the provisions under Art. XII of the Constitution on National Economy
and Patrimony, Sec. 3 of the FIA will have no place of application. As decreed by the
honorable framers of our Constitution, the grandfather rule prevails and must be
applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino
interest in a corporation for purposes, among others, of determining compliance with
nationality requirements (the ‘Investee Corporation’). Such manner of computation is
necessary since the shares in the Investee Corporation may be owned both by
individual stockholders (‘Investing Individuals’) and by corporations and partnerships
(‘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 when the 60-40 Filipino-foreign equity
ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino
and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests
in other joint venture corporation which is either 60-40% Filipino-alien or the 59%
less Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is
not in doubt, the Grandfather Rule will not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that this case calls
for the application of the grandfather rule since, as ruled by the POA and affirmed by
the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as
found by the CA, doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common investor, the 100%
Canadian corporation––MBMI, funded them. However, petitioners also claim that
there is "doubt" only when the stockholdings of Filipinos are less than 60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings are less
than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted
in their petition, only made an example of an instance where "doubt" as to the
ownership of the corporation exists. It would be ludicrous to limit the application of
the said word only to the instances where the stockholdings of non-Filipino
stockholders are more than 40% of the total stockholdings in a corporation. The
corporations interested in circumventing our laws would clearly strive to have "60%
Filipino Ownership" at face value. It would be senseless for these applying
corporations to state in their respective articles of incorporation that they have less
than 60% Filipino stockholders since the applications will be denied instantly. Thus,
various corporate schemes and layerings are utilized to circumvent the application of
the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To
determine, therefore, the actual participation, direct or indirect, of MBMI, the
grandfather rule must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of
petitioners’ corporate structure, they have to be "grandfathered."
As previously discussed, McArthur acquired its MPSA application from MMC, which
acquired its application from SMMI. McArthur has a capital stock of ten million pesos
(PhP 10,000,000) divided into 10,000 common shares at one thousand pesos (PhP Development
1,000) per share, subscribed to by the following:44
Corp.

Name Nationality Number of Amount Amount Paid MBMI Canadian 3,331 PhP 3,331,000.00 PhP
Shares Subscribed Resources, 2,803,900.00

Madridejos Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Inc.
Mining
Corporation Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
MBMI Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Resources, Inc.
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 Esguerra

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili Hernando
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00 Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Mason
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP PhP Cawkell
10,000,000.00 2,708,174.60
(emphasis Total 10,000 PhP PhP
supplied) 10,000,000.00 2,809,900.00

Interestingly, looking at the corporate structure of MMC, we take note that it has a (emphasis
similar structure and composition as McArthur. In fact, it would seem that MBMI is supplied)
also a major investor and "controls"45 MBMI and also, similar nominal shareholders
were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any
T. Mason (Mason) and Kenneth Cawkell (Cawkell): 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. MBMI’s 2006
Madridejos Mining Corporation 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
Name Nationality Number of Amount Amount Paid
indirectly a 60% effective equity interest in the Olympic Properties. 46 Quoting the said
Shares Subscribed Annual report:
Olympic Mines Filipino 6,663 PhP 6,663,000.00 PhP 0
& 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
Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Company and Olympic for purposes of developing the Olympic Properties. The
Mason
Company holds directly and indirectly an initial 60% interest in the joint venture.
Under certain circumstances and upon achieving certain milestones, the Company
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
may earn up to a 100% interest, subject to a 2.5% net revenue royalty. 47 (emphasis
Cawkell
supplied)
Total 10,000 PhP PhP 2,708,174.60
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," 10,000,000.00
company layering was utilized by MBMI to gain control over McArthur. It is apparent
(emphasis
that MBMI has more than 60% or more equity interest in McArthur, making the latter
supplied)
a foreign corporation.

Tesoro Mining and Development, Inc. 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.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and
million pesos (PhP 10,000,000) divided into ten thousand (10,000) common shares at Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed,"
PhP 1,000 per share, as demonstrated below: and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMI’s
corporate structure:
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/19 Sara Marie Mining, Inc.
5580.pdf]]
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/19
Name Nationality Number Amount Amount Paid 5580.pdf]]
of
Subscribed
Shares Name Nationality Number Amount Amount Paid
of
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00 Subscribed
Shares
Mining, Inc.
Olympic Mines Filipino 6,663 PhP PhP 0
MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60 & 6,663,000.00

Resources, Inc. Development

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 Corp.

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 MBMI Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00
Resources,
Esguerra
Inc.
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 Name Nationality Number Amount Amount Paid
of
Esguerra Subscribed
Shares
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Mining &
Hernando
Development
Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Mason
Corp.
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
MBMI Canadian 3,998 PhP PhP 1,116,000.00
Cawkell
3,996,000.00
Total 10,000 PhP PhP 2,809,900.00 Resources, Inc.
10,000,000.00
(emphasis Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00
supplied)
Mendoza, Jr.

After subsequently studying SMMI’s corporate structure, it is not farfetched for us to Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00
spot the glaring similarity between SMMI and MMC’s corporate structure. Again, the
presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson Fernandez
(Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the
headings "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
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).
Agcaoili
Oddly, the total value of the amount paid is two million eight hundred nine thousand
nine hundred pesos (PhP 2,809,900).
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s

Bocalan
participation in SMMI’s 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
Bayani H. Filipino 1 PhP 1,000.00 PhP 1,000.00
a non-Filipino corporation and, thus, disqualifies it to participate in the exploitation,
Agabin
utilization and development of our natural resources.
Robert L. American 1 PhP 1,000.00 PhP 1,000.00
Narra Nickel Mining and Development Corporation
McCurdy
Moving on to the last petitioner, Narra, which is the transferee and assignee of
PLMDC’s MPSA application, whose corporate structure’s arrangement is similar to Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
that of the first two petitioners discussed. The capital stock of Narra is ten million Cawkell
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: Total 10,000 PhP PhP 2,800,000.00
 Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005
10,000,000.00 (emphasis
explains the reason behind the intricate corporate layering that MBMI immersed itself
supplied)
in:

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and JOINT VENTURES The Company’s ownership interests in various mining ventures
Esguerra, is present in this corporate structure. engaged in the acquisition, exploration and development of mineral properties in the
Philippines is described as follows:
Patricia Louise Mining & Development Corporation
(a) Olympic Group
Using the grandfather method, we further look and examine PLMDC’s corporate
structure: The Philippine companies holding the Olympic Property, and the ownership and
interests therein, are as follows:
Name Nationality Number Amount Amount Paid
of Shares Subscribed Olympic- Philippines (the "Olympic Group")

Palawan Alpha South Filipino 6,596 PhP PhP 0 Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Resources Development 6,596,000.00
Corporation Tesoro Mining & Development, Inc. (Tesoro) 60.0%
MBMI Resources, Canadian 3,396 PhP PhP
3,396,000.00 2,796,000.00 Pursuant to the Olympic joint venture agreement the Company holds directly and
Inc. 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
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00 the Olympic Group.
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
(b) Alpha Group
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 The Philippine companies holding the Alpha Property, and the ownership interests
therein, are as follows:
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Alpha- Philippines (the "Alpha Group")
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00 Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Total 10,000 PhP PhP
10,000,000.00 2,708,174.60 Under a joint venture agreement the Company holds directly and indirectly an
(emphasis effective equity interest in the Alpha Property of 60.4%. Pursuant to a shareholders’
supplied) agreement, the Company exercises joint control over the companies in the Alpha
Group.48 (emphasis supplied)
Yet again, the usual players in petitioners’ corporate structures are present. Similarly,
the amount of money paid by the 2nd tier majority stock holder, in this case, Palawan Concluding from the above-stated facts, it is quite safe to say that petitioners
Alpha South Resources and Development Corp. (PASRDC), is zero. McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived
from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC.
Going further and adding to the picture, MBMI’s Summary of Significant Accounting
Policies statement– –regarding the "joint venture" agreements that it entered into with
the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down to MBMI,
Olympic or corporations under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control over the corporations
mentioned. In effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are NOT Filipino
nationals and must be considered foreign since 60% or more of their capital stocks or
equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the exception of the res inter alios acta or the
"admission by co-partner or agent" rule and "admission by privies" under the Rules of
Court in the instant case, by pointing out that statements made by MBMI should not
be admitted in this case since it is not a party to the case and that it is not a "partner"
of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent
of the party within the scope of his authority and during the existence of the
partnership or agency, may be given in evidence against such party after the
partnership or agency is shown by evidence other than such act or declaration itself.
The same rule applies to the act or declaration of a joint owner, joint debtor, or other
person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the
act, declaration, or omission of the latter, while holding the title, in relation to the
property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the
partnership relation must be shown, and that proof of the fact must be made by
evidence other than the admission itself."49 Thus, petitioners assert that the CA erred
in finding that a partnership relationship exists between them and MBMI because, in
fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by
stating that "by entering into a joint venture, MBMI have a joint interest" with Narra,
Tesoro and McArthur. They challenged the conclusion of the CA which pertains to
the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this
particular partnership can be formed, it should have been formally reduced into
writing since the capital involved is more than three thousand pesos (PhP 3,000).
Being that there is no evidence of written agreement to form a partnership between
petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute
money, property, or industry to a common fund with the intention of dividing the
profits among themselves.50 On the other hand, joint ventures have been deemed to be
"akin" to partnerships since it is difficult to distinguish between joint ventures and
partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are
so similar and closely akin to a partnership that it is ordinarily held that their rights,
duties, and liabilities are to be tested by rules which are closely analogous to and
substantially the same, if not exactly the same, as those which govern partnership. In
fact, it has been said that the trend in the law has been to blur the distinctions
between a partnership and a joint venture, very little law being found applicable to
one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally different animals,
there are very few rules that differentiate one from the other; thus, joint ventures are
deemed "akin" or similar to a partnership. In fact, in joint venture agreements, rules
and legal incidents governing partnerships are applied. 52
Accordingly, culled from the incidents and records of this case, it can be assumed that
the relationships entered between and among petitioners and MBMI are no simple
"joint venture agreements." As a rule, corporations are prohibited from entering into
partnership agreements; consequently, corporations enter into joint venture
agreements with other corporations or partnerships for certain transactions in order
to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners
and MBMI was executed to circumvent the legal prohibition against corporations
entering into partnerships, then the relationship created should be deemed as
"partnerships," and the laws on partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen as similar to partnerships
since the elements of partnership are present.
Considering that the relationships found between petitioners and MBMI are
considered to be partnerships, then the CA is justified in applying Sec. 29, Rule 130 of
the Rules by stating that "by entering into a joint venture, MBMI have a joint interest"
with Narra, Tesoro and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the
instant case. The POA has jurisdiction to settle disputes over rights to mining areas
which definitely involve the petitions filed by Redmont against petitioners Narra,
McArthur and Tesoro. Redmont, by filing its petition against petitioners, is asserting
the right of Filipinos over mining areas in the Philippines against alleged foreign-
owned mining corporations. Such claim constitutes a "dispute" found in Sec. 77 of RA
7942:
Within thirty (30) days, after the submission of the case by the parties for the
decision, the panel shall have exclusive and original jurisdiction to hear and decide the
following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse claim,
protest, or opposition to an application for mineral agreement. The POA therefore has
the jurisdiction to resolve any adverse claim, protest, or opposition to a pending
application for a mineral agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio
announcements, the authorized officer(s) of the concerned office(s) shall issue a
certification(s) that the publication/posting/radio announcement have been complied
with. Any adverse claim, protest, opposition shall be filed directly, within thirty (30)
calendar days from the last date of publication/posting/radio announcement, with the
concerned Regional Office or through any concerned PENRO or CENRO for filing in
the concerned Regional Office for purposes of its resolution by the Panel of
Arbitrators pursuant to the provisions of this Act and these implementing rules and
regulations. Upon final resolution of any adverse claim, protest or opposition, the
Panel of Arbitrators shall likewise issue a certification to that effect within five (5)
working days from the date of finality of resolution thereof. Where there is no adverse
claim, protest or opposition, the Panel of Arbitrators shall likewise issue a
Certification to that effect within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements under this Section
are fully complied with and any adverse claim/protest/opposition is finally resolved by
the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the
Panel of Arbitrators as provided in Section 38 hereof, the concerned Regional Director
shall initially evaluate the Mineral Agreement applications in areas outside Mineral
reservations. He/She shall thereafter endorse his/her findings to the Bureau for further
evaluation by the Director within fifteen (15) working days from receipt of forwarded
documents. Thereafter, the Director shall endorse the same to the secretary for
consideration/approval within fifteen working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within
fifteen (15) working days from receipt of the Certification issued by the Panel of
Arbitrators as provided for in Section 38 hereof, the same shall be evaluated and
endorsed by the Director to the Secretary for consideration/approval within fifteen
days from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes involving
rights to mining areas" under Sec. 77(a) specifically refer only to those disputes
relative to the applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining
right application is further elucidated by Secs. 219 and 43 of DENR AO 95-936, which
read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the
provisions of Sections 28, 43 and 57 above, any adverse claim, protest or opposition
specified in said sections may also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim, protest or opposition as specified
in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of
the application on the bulletin boards of the Bureau, concerned Regional office(s) and
in the concerned province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two (2) consecutive
weeks in a language generally understood in the locality. After forty-five (45) days
from the last date of publication/posting has been made and no adverse claim, protest
or opposition was filed within the said forty-five (45) days, the concerned offices shall
issue a certification that publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the other hand, if there be
any adverse claim, protest or opposition, the same shall be filed within forty-five (45)
days from the last date of publication/posting, with the Regional Offices concerned, or
through the Department’s Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be
filed at the Regional Office for resolution of the Panel of Arbitrators. However
previously published valid and subsisting mining claims are exempted from
posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section
are fully complied with and any opposition/adverse claim is dealt with in writing by
the Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes involving
rights to mining areas" under Sec. 77(a) specifically refer only to those disputes
relative to the applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining
right application is further elucidated by Secs. 219 and 43 of DENRO AO 95-936,
which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the
provisions of Sections 28, 43 and 57 above, any adverse claim, protest or opposition
specified in said sections may also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim, protest or opposition as specified
in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of
the application on the bulletin boards of the Bureau, concerned Regional office(s) and
in the concerned province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two (2) consecutive
weeks in a language generally understood in the locality. After forty-five (45) days
from the last date of publication/posting has been made and no adverse claim, protest
or opposition was filed within the said forty-five (45) days, the concerned offices shall
issue a certification that publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the other hand, if there be
any adverse claim, protest or opposition, the same shall be filed within forty-five (45)
days from the last date of publication/posting, with the Regional offices concerned, or
through the Department’s 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.
POA’s 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,
POA’s 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 Redmont’s petitions. However,
said jurisdiction does not include either the approval or rejection of the MPSA
applications, which is vested only upon the Secretary of the DENR. Thus, the finding
of the POA, with respect to the rejection of petitioners’ MPSA applications being that
they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular
courts, not the POA, that has jurisdiction over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at the
time of the commencement of the action. 54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive
original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of pecuniary
estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of the case by the parties
for the decision, the panel shall have exclusive and original jurisdiction to
hear and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes
involving rights to mining areas. One such dispute is an MPSA application to which
an adverse claim, protest or opposition is filed by another interested
applicant.1âwphi1 In the case at bar, the dispute arose or originated from MPSA
applications where petitioners are asserting their rights to mining areas subject of
their respective MPSA applications. Since respondent filed 3 separate petitions for the
denial of said applications, then a controversy has developed between the parties and
it is POA’s 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 Batangas 55 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 MBMI’s shares to DMCI
As stated before, petitioners’ Manifestation and Submission dated October 19, 2012
would want us to declare the instant petition moot and academic due to the transfer
and conveyance of all the shareholdings and interests of MBMI to DMCI, a
corporation duly organized and existing under Philippine laws and is at least 60%
Philippine-owned.56 Petitioners reasoned that they now cannot be considered as
foreign-owned; the transfer of their shares supposedly cured the "defect" of their
previous nationality. They claimed that their current FTAA contract with the State
should stand since "even wholly-owned foreign corporations can enter into an FTAA
with the State."57Petitioners stress that there should no longer be any issue left as
regards their qualification to enter into FTAA contracts since they are qualified to
engage in mining activities in the Philippines. Thus, whether the "grandfather rule" or
the "control test" is used, the nationalities of petitioners cannot be doubted since it
would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant
case and said fact should be disregarded. The manifestation can no longer be
considered by us since it is being tackled in G.R. No. 202877 pending before this
Court.1âwphi1 Thus, the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to enter
into FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of determining whether or not
a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of
the natural resources of the Philippines. When in the mind of the Court there is
doubt, based on the attendant facts and circumstances of the case, in the 60-40
Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED. The assailed
Court of Appeals Decision dated October 1, 2010 and Resolution dated February 15,
2011 are hereby AFFIRMED.
WILSON P. GAMBOA, G.R. No. 176579

Petitioner,

- versus - CARPIO, J.:

FINANCE SECRETARY MARGARITO B. TEVES,

FINANCE UNDERSECRETARY JOHN P. SEVILLA,
AND COMMISSIONER RICARDO ABCEDE OF THE The Case
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL,
This is an original petition for prohibition, injunction, declaratory relief and
declaration of nullity of the sale of shares of stock of Philippine Telecommunications
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC Investment Corporation (PTIC) by the government of the Republic of the Philippines
CO., LTD. IN HIS CAPACITY AS DIRECTOR OF to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
METRO PACIFIC ASSET HOLDINGS INC., Limited (First Pacific).
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 The Antecedents
DISTANCE TELEPHONE COMPANY, CHAIR FE
BARIN OF THE SECURITIES EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF
THE PHILIPPINE STOCK EXCHANGE, The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long
Distance Telephone Company (PLDT), are as follows: 1
Respondents.
PABLITO V. SANIDAD and Promulgated:

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted
ARNO V. SANIDAD,
PLDT a franchise and the right to engage in telecommunications business. In 1969,
General Telephone and Electronics Corporation (GTE), an American company and a
Petitioners-in-Intervention. June 28, 2011 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,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x 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
DECISION

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm,
acquired the remaining 54 percent of the outstanding capital stock of PTIC. On 20
November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine
Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of
the outstanding capital stock of PTIC, through a public bidding to be conducted on 4
December 2006. Subsequently, the public bidding was reset to 8 December 2006, and
only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio
Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510
million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a
PTIC stockholder and buy the 111,415 PTIC shares by matching the bid price of
Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by
IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2
March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its
subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with
the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The
sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125
percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3
percent of the outstanding common shares of PLDT. With the sale, First Pacifics
common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in PLDT to about
81.47 percent.This violates Section 11, Article XII of the 1987 Philippine Constitution
which limits foreign ownership of the capital of a public utility to not more than 40
percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves,
Undersecretary John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the
following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of
investment holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of
the total PLDT outstanding common shares. PHI, on the other hand, was incorporated
in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the
outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI
were sequestered by the PCGG, and subsequently declared by this Court as part of
the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC
shares were reconveyed to the Republic of the Philippines in accordance with this
Courts decision4which became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent
6.4 percent of the outstanding common shares of stock of PLDT, and designated the
Inter-Agency Privatization Council (IPC), composed of the Department of Finance
and the PCGG, as the disposing entity. An invitation to bid was published in seven
different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid
conference was held, and the original deadline for bidding scheduled on 4 December
2006 was reset to 8 December 2006. The extension was published in nine different
newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as
the highest bidder with a bid of P25,217,556,000. The government notified First
Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific
until 1 February 2007 to exercise its right of first refusal in accordance with PTICs
Articles of Incorporation. First Pacific announced its intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good
Government conducted a public hearing on the particulars of the then impending sale
of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who
attended the public hearing. The HR Committee Report No. 2270 concluded that: (a)
the auction of the governments 111,415 PTIC shares bore due diligence, transparency
and conformity with existing legal procedures; and (b) First Pacifics intended
acquisition of the governments 111,415 PTIC shares resulting in First Pacifics
100% ownership of PTIC will not violate the 40 percent constitutional limit on
foreign ownership of a public utility since PTIC holds only 13.847 percent of the
total outstanding common shares of PLDT. 5 On 28 February 2007, First Pacific
completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a
public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding
capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by
First Pacific and its affiliates); (b) Parallax offered the highest bid amounting and (3) whether the sale of common shares to foreigners in excess of 40 percent of the
to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its entire subscribed common capital stock violates the constitutional limit on foreign
shareholders granted in PTICs Articles of Incorporation, MPAH, a First Pacific ownership of a public utility. 8
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
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to
facts of petitioner.
Intervene and Admit Attached Petition-in-Intervention. In the Resolution of 28
August 2007, the Court granted the motion and noted the Petition-in-Intervention.

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.
Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among
Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result
others, to enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to
in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37
First Pacific or assignee. Petitioners-in-intervention claim that, as PLDT subscribers,
percent, and this, combined with Japanese NTT DoCoMos common shareholdings in
they have a stake in the outcome of the controversy x x x where the Philippine
PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent
Government is completing the sale of government owned assets in [PLDT],
which is over the 40 percent constitutional limit.6 Petitioner asserts:
unquestionably a public utility, in violation of the nationality restrictions of the
Philippine Constitution.

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 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 The Issue
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
This Court is not a trier of facts. Factual questions such as those raised by
x x x as the annual disclosure reports, also referred to as petitioner,9which indisputably demand a thorough examination of the evidence of the
Form 20-K reports x x x which PLDT submitted to the parties, are generally beyond this Courts jurisdiction. Adhering to this well-settled
New York Stock Exchange for the period 2003-2005, principle, the Court shall confine the resolution of the instant controversy solely on
revealed that First Pacific and several other foreign entities the threshold and purely legal issue of whether the term capital in Section 11, Article
breached the constitutional limit of 40 percent ownership XII of the Constitution refers to the total common shares only or to the total
as early as 2003. x xx7 outstanding capital stock (combined total of common and non-voting preferred
shares) of PLDT, a public utility.

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 The Ruling of the Court
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;
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies
petitioner seeks, only the petition for prohibition is within the original jurisdiction of
this court, which however is not exclusive but is concurrent with the Regional Trial
Court and the Court of Appeals. The actions for declaratory relief,10 injunction, and
annulment of sale are not embraced within the original jurisdiction of the Supreme
Court. On this ground alone, the petition could have been dismissed outright.
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 xx that would negate Article 10 of the Civil Code which provides that in
case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail. The Court therefore required
respondents Central Bank of the Philippines, the local bank, and the accused to
comply with the writ of execution issued in the civil case for damages and to release
the dollar deposit of the accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside
the procedural infirmity of the petition for declaratory relief and treated the same as
one for mandamus. In Alliance, the issue was whether the government unlawfully
excluded petitioners, who were government employees, from the enjoyment of rights
to which they were entitled under the law. Specifically, the question was: Are the
branches, agencies, subdivisions, and instrumentalities of the Government, including
government owned or controlled corporations included among the four employers
under Presidential Decree No. 851 which are required to pay their employees x x x a
thirteenth (13th) month pay x x x ? The Constitutional principle involved therein
affected all government employees, clearly justifying a relaxation of the technical rules
of procedure, and certainly requiring the interpretation of the assailed presidential
decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as
one for mandamus if the issue involved has 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)
In the present case, petitioner seeks primarily the interpretation of the term capital in
Section 11, Article XII of the Constitution. He prays that this Court declare that the
term capital refers to common shares only, and that such shares constitute the sole
basis in determining foreign equity in a public utility. Petitioner further asks this
Court to declare any ruling inconsistent with such interpretation unconstitutional.
The interpretation of the term capital in Section 11, Article XII of the Constitution has
far-reaching implications to the national economy. In fact, a resolution of this issue
will determine whether Filipinos are masters, or second class citizens, in their own
country. What is at stake here is whether Filipinos or foreigners will have effective
control of the national economy. Indeed, if ever there is a legal issue that has far- Petitioner has locus standi
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
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,22and in Section 11(2), Article XVI on the ownership of
advertising companies.23
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right
to question the subject sale, which he claims to violate the nationality requirement
prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the
Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire
consequence directly affecting petitioners interest as a stockholder.
More importantly, there is no question that the instant petition raises matters of
transcendental importance to the public. The fundamental and threshold legal issue in
this case, involving the national economy and the economic welfare of the Filipino
people, far outweighs any perceived impediment in the legal personality of the
petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of
transcendental importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and
the object of mandamus is to obtain the enforcement of a public duty, the people
are regarded as the real parties in interest; and because it is sufficient that
petitioner is a citizen and as such is interested in the execution of the laws, he
need not show that he has any legal or special interest in the result of the action.
In the aforesaid case, the petitioners sought to enforce their right to be informed on
matters of public concern, a right then recognized in Section 6, Article IV of the 1973
Constitution, in connection with the rule that laws in order to be valid and
enforceable must be published in the Official Gazette or otherwise effectively
promulgated. In ruling for the petitioners legal standing, the Court declared that the
right they sought to be enforced is a public right recognized by no less than the
fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a
mandamus proceeding involves the assertion of a public right, the requirement of
personal interest is satisfied by the mere fact that petitioner is a citizen and,
therefore, part of the general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, management and
operation of the Manila International Container Terminal, public interest [was]
definitely involved considering the important role [of the subject contract] . . . in
the economic development of the country and the magnitude of the financial
consideration involved. We concluded that, as a consequence, the disclosure
provision in the Constitution would constitute sufficient authority for upholding the
petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of
transcendental public importance, the petitioner has the requisite locus standi.
Definition of the Term Capital in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution
mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws
of the Philippines, at least sixty per centum of whose capital is owned by
such citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in
the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the Philippines.
(Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973
Constitution, thus:
Section 5. No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws
of the Philippines at least sixty per centum of the capital of which is
owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the
National Assembly when the public interest so requires. The State shall
encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in the capital thereof.
(Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of
the 1935 Constitution, viz:
Section 8. No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or other entities organized under the laws
of the Philippines sixty per centum of the capital of which is owned by
citizens of the Philippines, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years.
No franchise or right shall be granted to any individual, firm, or corporation,
 except under the condition that it shall be subject to amendment, alteration,
or repeal by the Congress when the public interest so requires. (Emphasis
supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional
Commission, reminds us that the Filipinization provision in the 1987 Constitution is
one of the products of the spirit of nationalism which gripped the 1935 Constitutional
Convention.25 The 1987 Constitution provides for the Filipinization of public utilities
by requiring that any form of authorization for the operation of public utilities should
be granted only to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens. The provision is [an express] recognition of the sensitive
and vital position of public utilities both in the national economy and for national
security.26The 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 effectivelycontrolled by Filipinos.29
Any citizen or juridical entity desiring to operate a public utility must therefore meet
the minimum nationality requirement prescribed in Section 11, Article XII of the
Constitution. Hence, for a corporation to be granted authority to operate a public
utility, at least 60 percent of its capital must be owned by Filipino citizens.
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-in-intervention allege that the
approximate foreign ownership of common capital stock of PLDT x x x already
amounts to at least 63.54% of the total outstanding common stock, which means that
foreigners exercise significant control over PLDT, patently violating the 40 percent
foreign equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term capital in
Section 11, Article XII of the Constitution. More importantly, private
respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40
percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps
mainly on the procedural infirmities of the petition and the supposed violation of the
due process rights of the affected foreign common shareholders.
Respondent Nazareno does not deny petitioners allegation of foreigners dominating
the common shareholdings of PLDT. Nazareno stressed mainly that the petition seeks
to divest foreign common shareholders purportedly exceeding 40% of the total
common shareholdings in PLDT of their ownership over their shares. Thus, the
foreign natural and juridical PLDT shareholders must be impleaded in this suit so that
they can be heard.34Essentially, 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 Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of
in public utilities.35 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.
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 Pangilinanfocuses on the procedural flaws of the petition and the alleged
violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a
his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2) stockholder of record of PLDT, contended that the term capital in the 1987
petitioners lack of standing; (3) mootness of the petition; (4) non-availability of Constitution refers to shares entitled to vote or the common shares. Fernandez
declaratory relief; and (5) the denial of due process rights. Moreover, explained thus:
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.
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
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
Obviously, the intent of the framers of the Constitution in imposing
property (the shareholders stock in the utility company) on the basis of another
limitations and restrictions on fully nationalized and partially nationalized
partys alleged failure to satisfy a requirement that is a condition only for that other
activities is for Filipino nationals to be always in control of the corporation
partys retention of another piece of property (the utility company being at least 60%
undertaking said activities. Otherwise, if the Trial Courts ruling upholding
Filipino-owned to keep its franchise).36
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 OSG, representing public respondents Secretary Margarito Teves, Undersecretary the common shares can be owned entirely by foreigners thus creating an
John P. Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise absurd situation wherein foreigners, who are supposed to be minority
silent on the definition of the term capital. In its Memorandum 37 dated 24 September shareholders, control the public utility corporation.
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
xxxx
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

Thus, the 40% foreign ownership limitation should be interpreted to apply to

both the beneficial ownership and the controlling interest.
 the Constitution includes preferred shares since the Constitution does not distinguish
among classes of stock, thus:
xxxx

16. The Constitution applies its foreign ownership limitation on the corporations
Clearly, therefore, the forty percent (40%) foreign equity limitation in public capital, without distinction as to classes of shares. x x x
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 In this connection, the Corporation Code which was already in force at the
petitioner PLDT, since it is already admitted that the voting interests of time the present (1987) Constitution was drafted defined outstanding capital
foreigners which would gain entry to petitioner PLDT by the acquisition of stock as follows:
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.
Section 137. Outstanding capital stock defined. The term outstanding capital
stock, as used in this Code, means the total shares of stock issued under
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited
binding subscription agreements to subscribers or stockholders, whether or
by the Trial Court to support the proposition that the meaning of the word
not fully or partially paid, except treasury shares.
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 Section 137 of the Corporation Code also does not distinguish between
as clarified by the above-quoted Amendments. In this regard, suffice it to common and preferred shares, nor exclude either class of shares, in
state that as between the law and an opinion rendered by an administrative determining the outstanding capital stock (the capital) of a corporation.
agency, the law indubitably prevails. Moreover, said Opinions are merely Consequently, petitioners suggestion to reckon PLDTs foreign equity only on
advisory and cannot prevail over the clear intent of the framers of the the basis of PLDTs outstanding common shares is without legal basis. The
Constitution. language of the Constitution should be understood in the sense it has in
common use.

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
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.
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan,
Carlos A. Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, xxxx
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
 18. In addition, the SEC the government agency primarily responsible for
implementing the Corporation Code, and which also has the responsibility of
ensuring compliance with the Constitutions foreign equity restrictions as
regards nationalized activities x x x has categorically ruled that both
common and preferred shares are properly considered in determining
outstanding capital stock and the nationality composition thereof. 40
We agree with petitioner and petitioners-in-intervention. The term capital in Section
11, Article XII of the Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, 41 and not to
the total outstanding capital stock comprising both common and non-voting
preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred,
thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may
be divided into classes or series of shares, or both, any of which classes or
series of shares may have such rights, privileges or restrictions as may be
stated in the articles of incorporation: Provided, That no share may be
deprived of voting rights except those classified and issued as preferred
or redeemable shares, unless otherwise provided in this Code: Provided,
further, That there shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or series of shares may have a
par value or have no par value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations shall not be
permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference
in the distribution of the assets of the corporation in case of liquidation and
in the distribution of dividends, or such other preferences as may be stated in
the articles of incorporation which are not violative of the provisions of this
Code: Provided, That preferred shares of stock may be issued only with a
stated par value. The Board of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares of stock
or any series thereof: Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid
and non-assessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration less than the value of
five (P5.00) pesos per share: Provided, further, That the entire consideration
received by the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in
the certificate of stock, each share shall be equal in all respects to every other
share.
Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be entitled
to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or business
in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this Code shall
be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the MR. NOLLEDO. In teaching law, we are always faced with this question:
control or management of the corporation.43 This is exercised through his vote in the Where do we base the equity requirement, is it on the authorized capital
election of directors because it is the board of directors that controls or manages the stock, on the subscribed capital stock, or on the paid-up capital stock of a
corporation.44In the absence of provisions in the articles of incorporation denying corporation? Will the Committee please enlighten me on this?
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
MR. VILLEGAS. We have just had a long discussion with the members of the
for income in the same manner as bondholders.45 In fact, under the Corporation Code
team from the UP Law Center who provided us a draft. The phrase that is
only preferred or redeemable shares can be deprived of the right to vote. 46 Common
contained here which we adopted from the UP draft is 60 percent of
shares cannot be deprived of the right to vote in any corporate meeting, and any
voting stock.
provision in the articles of incorporation restricting the right of common shareholders
to vote is invalid.47

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

because unless declared delinquent, unpaid capital stock shall be entitled to
Considering that common shares have voting rights which translate to control, as
vote.
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 MR. VILLEGAS. That is right.
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.
MR. NOLLEDO. Thank you.

This interpretation is consistent with the intent of the framers of the Constitution to
place in the hands of Filipino citizens the control and management of public utilities.
As revealed in the deliberations of the Constitutional Commission, capital refers to
the voting stock or controlling interest of a corporation, to wit:
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. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or

Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in MR. VILLEGAS. Yes, that is the understanding of the Committee.
Section 9 and 2/3-1/3 in Section 15.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. That is right.
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by
the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of
the phrase voting stock or controlling interest.
MR. AZCUNA. Hence, without the Davide amendment, the committee
report would read: corporations or associations at least sixty percent of
whose CAPITAL is owned by such citizens.
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60
percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they
are the minority. Let us say 40 percent of the capital is owned by them,
but it is the voting capital, whereas, the Filipinos own the nonvoting
shares. So we can have a situation where the corporation is controlled by
foreigners despite being the minority because they have the voting
capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word stock as stated
in the 1973 and 1935 Constitutions is that according to Commissioner
Rodrigo, there are associations that do not have stocks. That is why we
say CAPITAL.
MR. AZCUNA. We should not eliminate the phrase controlling interest.
MR. BENGZON. In the case of stock corporations, it is
assumed.49 (Emphasis supplied)
Thus, 60 percent of the capital assumes, or should result in, controlling interest in
the corporation. Reinforcing this interpretation of the term capital, as referring to
controlling interest or shares entitled to vote, is the definition of a Philippine national
in the Foreign Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term Philippine national shall mean a citizen of the Philippines; or a
domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines
of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to vote
is wholly owned by Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and Exchange
 Commission (SEC) registered enterprise, at least sixty percent (60%) of the
capital stock outstanding and entitled to vote of each of both corporations
must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of each of both
corporations must be citizens of the Philippines, in order that the
corporation, shall be considered a Philippine national. (Emphasis supplied)
In explaining the definition of a Philippine national, the Implementing Rules and
Regulations of the Foreign Investments Act of 1991 provide:
b. Philippine national shall mean a citizen of the Philippines or a domestic
partnership or association wholly owned by the citizens of the Philippines;
or a corporation organized under the laws of the Philippines of which at
least sixty percent [60%] of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a trustee of funds
for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent [60%] of the fund
will accrue to the benefit of the Philippine nationals; Provided, that where a
corporation its non-Filipino stockholders own stocks in a Securities and
Exchange Commission [SEC] registered enterprise, at least sixty percent
[60%] of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at
least sixty percent [60%] of the members of the Board of Directors of each of
both corporation must be citizens of the Philippines, in order that the
corporation shall be considered a Philippine national. The control test shall
be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall
be determined on the basis of outstanding capital stock whether fully
paid or not, but only such stocks which are generally entitled to vote are
considered.
For stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of
which have been assigned or transferred to aliens cannot be considered
held by Philippine citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine nationals. (Emphasis
supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required
in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required. The legal and
beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipino nationals in accordance with the constitutional mandate. Otherwise,
the corporation is considered as non-Philippine national[s].
Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of
the Philippines or to corporations or associations at least sixty per centum of whose
capital is owned by such citizens, or such higher percentage as Congress
may prescribe, certain areas of investments. Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to corporations at least
sixty percent of the capital of which is owned by Filipino citizens. Some of these laws
are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development
Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No.
9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship
Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of
the Constitution is also used in the same context in numerous laws reserving certain
areas of investments to Filipino citizens.
To construe broadly the term capital as the total outstanding capital stock, including
both common and non-voting preferred shares, grossly contravenes the intent and letter
of the Constitution that the State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to
control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term capital.
Let us assume that a corporation has 100 common shares owned by foreigners and
1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share
having a par value of one peso (P1.00) per share. Under the broad definition of the
term capital, such corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the overwhelming
majority, or more than 99.999 percent, of the total outstanding capital stock is
Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting
rights in the election of directors, even if they hold only 100 shares. The foreigners,
with a minuscule equity of less than 0.001 percent, exercise control over the public
utility. On the other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the election of directors and hence, have no control over the
public utility. This starkly circumvents the intent of the framers of the Constitution,
as well as the clear language of the Constitution, to place the control of public utilities
in the hands of Filipinos. It also renders illusory the State policy of an independent
national economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact
exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the
election of directors. PLDTs Articles of Incorporation expressly state that the holders
of Serial Preferred Stock shall not be entitled to vote at any meeting of the
stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive
notice of any meeting of stockholders. 51
On the other hand, holders of common shares are granted the exclusive right to vote in
the election of directors. PLDTs Articles of Incorporation 52 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),54 which is a document required to be submitted annually to the
Securities and Exchange Commission, 55 foreigners hold 120,046,690 common shares of
PLDT whereas Filipinos hold only 66,750,622 common shares. 56 In other words,
foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to control, it
is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009, 57 as submitted to the SEC,
shows that per share the SIP58 preferred shares earn a pittance in dividends compared
to the common shares. PLDT declared dividends for the common shares at P70.00 per
share, while the declared dividends for the preferred shares amounted to a
measly P1.00 per share.59 So the preferred shares not only cannot vote in the election of
directors, they also have very little and obviously negligible dividend earning capacity
compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT
common shares is P5.00 per share, whereas the par value of preferred shares is P10.00
per share. In other words, preferred shares have twice the par value of common shares
but cannot elect directors and have only 1/70 of the dividends of common shares.
Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own
only a minuscule 0.56% of the preferred shares.61 Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT while common shares constitute only
22.15%.62This 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 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 control what the Constitution has
expressly reserved to Filipinos for that would be a betrayal of the Constitution and of
the national interest. The Court must perform its solemn duty to defend and uphold
the intent and letter of the Constitution to ensure, in the words of the Constitution, a
self-reliant and independent national economy effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the Constitution
expressly reserving to 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)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice ReynatoS.
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
public policy, entirely beyond the scope of judicial authority. (Dinglasan, et
al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the
legislature has not definitely decided what policy should be followed in
cases of violations against the constitutional prohibition, courts of justice
cannot go beyond by declaring the disposition to be null and void
as violative of the Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing would mean
that since the 1935 Constitution, or over the last 75 years, not one of the constitutional
provisions expressly reserving specific areas of investments to corporations, at least 60
percent of the capital of which is owned by Filipinos, was enforceable. In short, the
framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve
to Filipinos specific areas of investment, like the operation by corporations of public
utilities, the exploitation by corporations of mineral resources, the ownership by
corporations of real estate, and the ownership of educational institutions. All the
legislatures that convened since 1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that determine who will effectively
control the national economy, Filipinos or foreigners. This Court cannot allow such an
absurd interpretation of the Constitution.
This Court has held that the SEC has both regulatory and adjudicative
functions.69 Under its regulatory functions, the SEC can be compelled by mandamus
to perform its statutory duty when it unlawfully neglects to perform the same. Under
its adjudicative or quasi-judicial functions, the SEC can be also be compelled by
mandamus to hear and decide a possible violation of any law it administers or enforces
when it is mandated by law to investigate such violation.
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 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.