NATIONAL ECONOMY AND PATRIMONY
1. LA BUGAL-B’LAAN V. RAMOS [TRINIDAD]
Facts:
- This petition assails the constitutionality of RA 7942, otherwise
known as the Philippine Mining Act of 1995, along with the IRR AO 96-
40, and the Financial and Technical assistance agreement (FTAA)
entered into by the Philippines and WMC (Philippines) a corporation
organized under Phil laws.
- On 1987, Pres Aquino issued EO 279 authorizing the DENR to
accept and evaluate proposals from foreign owned corps or foreign
investors for contracts or agreements involving either technical or
financial assistance for large scale exploration, development and
utilization of minerals.
- In EO 279: Until Congress determine otherwise, large scale
mining, for purpose of this Section, shall mean those proposals for
contracts for mineral exploration involving a committed capital
investment in a single mining unit project of at least 50 million US
dollars.
- On 1995 RA 7942 was approved. This highlight the modes of
mineral agreements for mining, qualifications of contractors and their
rights.
- The act restricts the conditions for exploration, quarry and other
permits. It regulates the transport, sale and processing of minerals,
and promotes the development of mining communities.
- Shortly before the effectivity of RA 7942 the president entered
into an FTAA with WMCP covering 99k hectars of land in South
Cotabato, sultan kudara, davao del sur and north Cotabato.
- Aug 1995, DENR sec Ramos issued DAO 95-23 otherwise known
as the IRR of 7942. This was later repealed by DAO 94-40 which was
adopted a year later.
- 1997, counsels for the petitioners sent a letter to the DENR Sec
demanding that the DENR stop the implementation of RA 7942 and
DAO 96-40. They did not respond.
- Petitioners then filed this present petition for prohibition and
mandamus.
- They allege that at the time of filing the petition, 100 FTAA
applications had already been filed, covering an area of 8.4 million
hectares, 64 of which applications are by fully foreign owned
corporations and at least one by a fully foreign owned mining
company over offshore areas.
- RA 7942 was unconstitutional because it allowed fully foreign
own corporations to explore, develop and exploit mineral resources
contrary to the constitution.
Issue: Whether or not RA 7942, DAO 96-40 and the FTAA agreement
between Phil and WMCP is constitutional – YES.
Held:WHEREFORE, the petition is GRANTED. The Court hereby declares
unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,
(c) Section 33 to 41,
(d) Section 56,
(e) The second and third paragraphs of Section 81, and

(f) Section 90.
(2) All provisions of Department of Environment and Natural Resources
Administrative Order 96-40, s. 1996 which are not in conformity with
this Decision, and
(3) The Financial and Technical Assistance Agreement between the
Government of the Republic of the Philippines and WMC Philippines,
Inc.
EO 279 Effectivity
Petitioners contend that EO 279 did not take effect because its
supposed date of effectivity came after president Aquino had
already lost her legislative powers under the provisional constitution.
They likewise claim that the WMC FTAA which was entered into
pursuant of EO 279, violates sec 2, Article XII of the constitution
because
(1) It allows foreign-owned companies to extend more than
mere financial or technical assistance to the State in the
exploitation, development, and utilization of minerals,
petroleum, and other mineral oils, and even permits foreign
owned companies to "operate and manage mining
activities."
(2) It allows foreign-owned companies to extend both
technical and financial assistance, instead of "either
technical or financial assistance."
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No.
200, and Tañada v. Tuvera, this Court holds that E.O. No. 279 became
effective immediately upon its publication in the Official Gazette on
August 3, 1987.
That such effectivity took place after the convening of the first
NATIONAL ECONOMY AND PATRIMONY
Congress is irrelevant. At the time President Aquino issued E.O. No. 279
on July 25, 1987, she was still validly exercising legislative powers under
the Provisional Constitution.221 Article XVIII (Transitory Provisions) of the
1987 Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative
powers until the first Congress is convened.
The convening of the first Congress merely precluded the exercise of
legislative powers by President Aquino; it did not prevent the
effectivity of laws she had previously enacted.
There can be no question, therefore, that E.O. No. 279 is an effective,
and a validly enacted, statute.
Respondents counter that the validity of EO 279 was settled in Miners
Association of the Philippines v. Factoran. However, the court holds
this incorrect as the issue was not with the EO but of DAO 57 and 82.
Constitutionality of WMCP FTAA
Petitioners submit that FTAAs should be limited to ‘technical or
financial assistance’ only which is in accordance to Sec 2 of Art 12 of
the constitution. The WMCP FTAA allows WMCP, a fully foreign owned
mining corporation to extend more than mere financial or technical
assistance to the state, it permits them to manage and operate every
aspect of the mining activity.
WMCP nevertheless submits that the word "technical" in the fourth
paragraph of Section 2 of E.O. No. 279 encompasses a "broad
number of possible services," perhaps, "scientific and/or technological
in basis." It thus posits that it may also well include "the area of
management or operations . . . so long as such assistance requires
specialized knowledge or skills, and are related to the exploration,
development and utilization of mineral resources."

This Court is not persuaded. As priorly pointed out, the phrase
"management or other forms of assistance" in the 1973 Constitution
was deleted in the 1987 Constitution, which allows only "technical or
financial assistance." Casus omisus pro omisso habendus est. A person,
object or thing omitted from an enumeration must be held to have
been omitted intentionally. As will be shown later, the management
or operation of mining activities by foreign contractors, which is the
primary feature of service contracts, was precisely the evil that the
drafters of the 1987 Constitution sought to eradicate.
Respondents insist that "agreements involving technical or financial
assistance" is just another term for service contracts. They contend
that the proceedings of the CONCOM indicate "that although the
terminology 'service contract' was avoided [by the Constitution], the
concept it represented was not." They add that "[t]he concept is
embodied in the phrase 'agreements involving financial or technical
assistance.'"And point out how members of the CONCOM referred to
these agreements as "service contracts."
As earlier noted, the phrase "service contracts" has been deleted in
the 1987 Constitution's Article on National Economy and Patrimony. If
the CONCOM intended to retain the concept of service contracts
under the 1973 Constitution, it could have simply adopted the old
terminology ("service contracts") instead of employing new and
unfamiliar terms ("agreements . . . involving either technical or
financial assistance"). Such a difference between the language of a
provision in a revised constitution and that of a similar provision in the
preceding constitution is viewed as indicative of a difference in
purpose. If, as respondents suggest, the concept of "technical or
financial assistance" agreements is identical to that of "service
contracts," the CONCOM would not have bothered to fit the same
dog with a new collar. To uphold respondents' theory would reduce
the first to a mere euphemism for the second and render the change
in phraseology meaningless.
In light of the deliberations of the CONCOM, the text of the
NATIONAL ECONOMY AND PATRIMONY
Constitution, and the adoption of other proposed changes, there is
no doubt that the framers considered and shared the intent of the
U.P. Law proponents in employing the phrase "agreements . . .
involving either technical or financial assistance."
While certain commissioners may have mentioned the term "service
contracts" during the CONCOM deliberations, they may not have
been necessarily referring to the concept of service contracts under
the 1973 Constitution. As noted earlier, "service contracts" is a term
that assumes different meanings to different people. The
commissioners may have been using the term loosely, and not in its
technical and legal sense, to refer, in general, to agreements
concerning natural resources entered into by the Government with
foreign corporations. These loose statements do not necessarily
translate to the adoption of the 1973 Constitution provision allowing
service contracts.
In any case, the constitutional provision allowing the President to
enter into FTAAs with foreign-owned corporations is an exception to
the rule that participation in the nation's natural resources is reserved
exclusively to Filipinos. Accordingly, such provision must be construed
strictly against their enjoyment by non-Filipinos.
Indeed, exceptions should be strictly but reasonably construed; they
extend only so far as their language fairly warrants and all doubts
should be resolved in favor of the general provision rather than the
exception.
With the foregoing discussion in mind, this Court finds that R.A. No.
7942 is invalid insofar as said Act authorizes service contracts.
Although the statute employs the phrase "financial and technical
agreements" in accordance with the 1987 Constitution, it actually
treats these agreements as service contracts that grant beneficial
ownership to foreign contractors contrary to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical

Assistance Agreement) of R.A. No. 7942 states:
SEC. 33. Eligibility.—Any qualified person with technical and
financial capability to undertake large-scale exploration,
development, and utilization of mineral resources in the
Philippines may enter into a financial or technical assistance
agreement directly with the Government through the
Department.
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by
geological, geochemical or geophysical surveys, remote sensing, test
pitting, trending, drilling, shaft sinking, tunneling or any other means for
the purpose of determining the existence, extent, quantity and quality
thereof and the feasibility of mining them for profit.
A legally organized foreign-owned corporation may be granted an
exploration permit, which vests it with the right to conduct exploration
for all minerals in specified areas, i.e., to enter, occupy and explore
the same265 Eventually, the foreign-owned corporation, as such
permittee, may apply for a financial and technical assistance
agreement.
"Development" is the work undertaken to explore and prepare an ore
body or a mineral deposit for mining, including the construction of
necessary infrastructure and related facilities.
"Utilization" "means the extraction or disposition of minerals." A
stipulation that the proponent shall dispose of the minerals and
byproducts produced at the highest price and more advantageous
terms and conditions as provided for under the implementing rules
and regulations is required to be incorporated in every FTAA.
A foreign-owned/-controlled corporation may likewise be granted a
mineral processing permit. "Mineral processing" is the milling,
NATIONAL ECONOMY AND PATRIMONY
beneficiation or upgrading of ores or minerals and rocks or by similar
means to convert the same into marketable products.
An FTAA contractor makes a warranty that the mining operations shall
be conducted in accordance with the provisions of R.A. No. 7942 and
its implementing rules and for work programs and minimum
expenditures and commitments. And it obliges itself to furnish the
Government records of geologic, accounting, and other relevant
data for its mining operation.
"Mining operation," as the law defines it, means mining activities
involving exploration, feasibility, development, utilization, and
processing.
The underlying assumption in all these provisions is that the foreign
contractor manages the mineral resources, just like the foreign
contractor in a service contract.
Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs
the same auxiliary mining rights that it grants contractors in mineral
agreements (MPSA, CA and JV). Parenthetically, Sections 72 to 75 use
the term "contractor," without distinguishing between FTAA and
mineral agreement contractors. And so does "holders of mining rights"
in Section 76. A foreign contractor may even convert its FTAA into a
mineral agreement if the economic viability of the contract area is
found to be inadequate to justify large-scale mining operations,
provided that it reduces its equity in the corporation, partnership,
association or cooperative to forty percent (40%).
Finally, under the Act, an FTAA contractor warrants that it "has or has
access to all the financing, managerial, and technical expertise. . . ."
This suggests that an FTAA contractor is bound to provide some
management assistance – a form of assistance that has been
eliminated and, therefore, proscribed by the present Charter.
By allowing foreign contractors to manage or operate all the aspects

of the mining operation, the above-cited provisions of R.A. No. 7942
have in effect conveyed beneficial ownership over the nation's
mineral resources to these contractors, leaving the State with nothing
but bare title thereto.
Moreover, the same provisions, whether by design or inadvertence,
permit a circumvention of the constitutionally ordained 60%-40%
capitalization requirement for corporations or associations engaged
in the exploitation, development and utilization of Philippine natural
resources.
In sum, the Court finds the following provisions of R.A. No. 7942 to be
violative of Section 2, Article XII of the Constitution:
(1) The proviso in Section 3 (aq), which defines "qualified
person," to wit:
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.
(2) Section 23, which specifies the rights and obligations of an
exploration permittee, insofar as said section applies to a
financial or technical assistance agreement,
(3) Section 33, which prescribes the eligibility of a contractor
in a financial or technical assistance agreement;
(4) Section 35, which enumerates the terms and conditions for
every financial or technical assistance agreement;
(5) Section 39, which allows the contractor in a financial and
technical assistance agreement to convert the same into a
mineral production-sharing agreement;
(6) Section 56, which authorizes the issuance of a mineral
NATIONAL ECONOMY AND PATRIMONY
processing permit to a contractor in a financial and technical
assistance agreement;
The following provisions of the same Act are likewise void as they are
dependent on the foregoing provisions and cannot stand on their
own:
(1) Section 3 (g), which defines the term "contractor," insofar
as it applies to a financial or technical assistance agreement.
Section 34, which prescribes the maximum contract area in a
financial or technical assistance agreements;
Section 36, which allows negotiations for financial or
technical assistance agreements;
Section 37, which prescribes the procedure for filing and
evaluation of financial or technical assistance agreement
proposals;
Section 38, which limits the term of financial or technical
assistance agreements;
Section 40, which allows the assignment or transfer of
financial or technical assistance agreements;
Section 41, which allows the withdrawal of the contractor in
an FTAA;
The second and third paragraphs of Section 81, which
provide for the Government's share in a financial and
technical assistance agreement; and
Section 90, which provides for incentives to contractors in
FTAAs insofar as it applies to said contractors;
When the parts of the statute are so mutually dependent and

connected as conditions, considerations, inducements, or
compensations for each other, as to warrant a belief that the
legislature intended them as a whole, and that if all could not be
carried into effect, the legislature would not pass the residue
independently, then, if some parts are unconstitutional, all the
provisions which are thus dependent, conditional, or connected, must
fall with them.
There can be little doubt that the WMCP FTAA itself is a service
contract.
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all]
financing, technology, management and personnel necessary for the
Mining Operations." The mining company binds itself to "perform all
Mining Operations . . . providing all necessary services, technology
and financing in connection therewith," and to "furnish all materials,
labour, equipment and other installations that may be required for
carrying on all Mining Operations." > WMCP may make expansions,
improvements and replacements of the mining facilities and may add
such new facilities as it considers necessary for the mining operations.
These contractual stipulations, taken together, grant WMCP beneficial
ownership over natural resources that properly belong to the State
and are intended for the benefit of its citizens. These stipulations are
abhorrent to the 1987 Constitution. They are precisely the vices that
the fundamental law seeks to avoid, the evils that it aims to suppress.
Consequently, the contract from which they spring must be struck
down.
In arguing against the annulment of the FTAA, WMCP invokes the
Agreement on the Promotion and Protection of Investments between
the Philippine and Australian Governments, which was signed in
Manila on January 25, 1995 and which entered into force on
December 8, 1995.
This becomes more significant in the light of the fact that [WMCP's]
NATIONAL ECONOMY AND PATRIMONY
FTAA was executed not by a mere Filipino citizen, but by the
Philippine Government itself, through its President no less, which, in
entering into said treaty is assumed to be aware of the existing
Philippine laws on service contracts over the exploration,
development and utilization of natural resources. The execution of the
FTAA by the Philippine Government assures the Australian
Government that the FTAA is in accordance with existing Philippine
laws.
The invalidation of the subject FTAA, it is argued, would constitute a
breach of said treaty which, in turn, would amount to a violation of
Section 3, Article II of the Constitution adopting the generally
accepted principles of international law as part of the law of the
land. One of these generally accepted principles is pacta sunt
servanda, which requires the performance in good faith of treaty
obligations.
Even assuming arguendo that WMCP is correct in its interpretation of
the treaty and its assertion that "the Philippines could not . . . deprive
an Australian investor (like [WMCP]) of fair and equitable treatment by
invalidating [WMCP's] FTAA without likewise nullifying the service
contracts entered into before the enactment of RA 7942 . . .," the
annulment of the FTAA would not constitute a breach of the treaty
invoked. For this decision herein invalidating the subject FTAA forms
part of the legal system of the Philippines. The equal protection
guarantees that such decision shall apply to all contracts belonging
to the same class, hence, upholding rather than violating, the "fair
and equitable treatment" stipulation in said treaty.

December 2004
Facts:
1. 24 January 2007: the Court en banc declared
unconstitutional: (a) certain provisions of RA No. 7942 (Mining
Law), (b) its Implementing Rules and Regulations DAO No. 96-
40, and (c) the Financial and Technical Assistance
Agreement (FTAA) dated March 30, 1995, executed by the
government with Western Mining Corporation (Philippines),
Inc. (WMCP), mainly on the finding that FTAAs are service
contracts prohibited by the 1987 Constitution
2. Respondents filed separate Motions for Reconsideration
Issue:
1. W/N case has been rendered moot by the sale of WMC
shares in WMCP to Sagittarius Mines, Inc. (a Filipino
corporation) and by the subsequent transfer and registration
of the FTAA from WMCP to Sagittarius.
2. W/N it is still proper to resolve constitutionality of the
assailed provisions, assuming that the case has been
rendered moot.
3. the proper interpretation of the phrase: Agreements
Involving Either Technical or Financial Assistance, contained
in paragraph 4 of Section 2 of Article XII of the Constitution.
4. thus, W/N provisions are unconstitutional.
Held:
1. Because of the validity of sale and the transfer, and that
NATIONAL ECONOMY AND PATRIMONY
the FTAA is not void per se, the case has become moot.
However, there is a need to resolve the unconstitutionality of
the assailed provisions.
2. The phrase ―agreements involving either technical and
financial assistance,‖ as used interchangeably with the term
―service contracts‖ by the drafters of the Constitution and as
interpreted by the court, is not exclusionary and limiting.
3. The assailed provisions are not unconstitutional.
Ratio:
Nowhere in the provision is there any express limitation or restriction
insofar as arrangements other than the three mentioned contractual
schemes are concerned. There is no reason to believe that the
framers of the Constitution, a majority of whom where obviously
concerned with furthering the development and utilization of the
country‘s natural resources, could have wanted to restrict Filipino
participation in that area.
This provision does not necessarily imply that the WMCP FTAA cannot
be transferred to and assumed by a Filipino corporation like
Sagittarius, in which event the said provision should simply be
disregarded as a superfluity.
Section 40 expressly applies to the assignment or transfer of the FTAA,
not to the sale and transfer of shares of stock in WMCP. When the
transfer of the FTAA happens to be a Filipino corporation, the need for
such safeguard is not critical.
Petitioners have assumed as fact that which has yet to be
established. The Decision of the Court declaring the FTAA void has not
yet become final. The FTAA is not per se defective or unconstitutional.
It was questioned only because it had been issued to an allegedly
non-qualified, foreign-owned corporation.

a. The court concedes that there exists the distinct possibility that one
or more of the future FTAAs will be the subject of yet another suit
grounded on constitutional issues. [as of June 2002, some 43 FTAAs
had been filed]
The Court must recognize the exceptional character of the situation
and the paramount public interest involved, as well as the necessity
for a ruling to put an end to the uncertainties plaguing the mining
industry and the affected communities as a result of doubts cast upon
the constitutionality and validity of the Mining Act, the subject FTAA
and future FTAAs, and the need to avert a multiplicity of suits.
The real issue in this case is whether paragraph 4 of Section 2 of Article
XII of the Constitution is contravened by RA 7942 and DAO 96-40. By
the mere enactment of the questioned law or the approval of the
challenged action, the dispute is said to have ripened into a judicial
controversy even without any other overt act.
The use of the word ―involving‖ signifies the possibility of the inclusion
of other forms of assistance or activities having to do with, otherwise
related to or compatible with financial or technical assistance. These
agreements with foreign corporations are not limited to mere
financial or technical assistance. Otherwise, the language of the
drafters would have certainly been so unmistakably restrictive and
stringent as to leave no doubt in anyone‘s mind about their true
intent. There was a conscious and deliberate decision to avoid the
use of restrictive wording that bespeaks an intent not to use the
expression ―agreements x x x involving either technical or financial
assistance‖ in an exclusionary and limiting manner.
Such intent cannot be definitively and conclusively established from
the mere failure to carry the same expression or term over to the new
Constitution, absent amore specific, explicit and unequivocal
statement to that effect. Pertinent portions of the deliberations of the
members of the ConCom conclusively show that they discussed
agreements involving either technical or financial assistance in the
NATIONAL ECONOMY AND PATRIMONY
same breadth as service contracts and used the terms
interchangeably.
The gamut of requirements, regulations, restrictions and limitations
imposed upon the FTAA contractor by the statute and regulations
easily overturns petitioners‘ contention. The FTAA contractor is not free
to do whatever it pleases and get away with it; on the contrary, it will
have to follow the government line if it wants to stay in the enterprise.
Ineluctably then, RA 7942 and DAO 96-40 vest in the government
more than a sufficient degree of control and supervision over the
conduct of mining operations.
The exploration permit serves a practical and legitimate purpose in
that it protects the interests and preserves the rights of the exploration
permit grantee (the would-be contractor)—foreign or local—during
the period of time that it is spending heavily on exploration works,
without yet being able to earn revenues to recoup any of its
investments and expenditures.
The evaluation and analysis of the FTAA provisions sufficiently overturn
petitioners‘ litany of objections to and criticisms of the State‘s alleged
lack of control. The provisions vest the State with control and
supervision over practically all aspects of the operations of the FTAA
contractor, including the charging of pre-operating and operating
expenses, and the disposition of mineral products.
The Court does not share the view that in FTAAs with foreign
contractors under RA 7942, the government‘s share is limited to taxes,
fees and duties. The inclusion of the phrase ―among other things ‖ in
the second paragraph of Section 81 clearly and unmistakable reveals
the legislative intent to have the State collect more than just the usual
taxes, duties and fees.
BUT, the WMCP FTAA has invalid provisions:
Section 7.9 of the WMCP FTAA clearly renders illusory the State‘s 60
 NATIONAL ECONOMY AND PATRIMONY

percent share of WMCP‘s revenues in

providing that: should WMCP‘s foreign stockholders sell 60 percent or

more of their equity to a Filipino citizen or corporation, the State loses
its right to receive its share in net mining revenues under Section 7.7,
with any offsetting compensation to the State.

Section 7.8 is likewise invalid, since by allowing the sums spent by

government for the benefit of the contractor to be deductible from
the State‘s share in net mining revenues, it results in benefiting the
contractor twice over. This constitute unjust enrichment on the part of
the contractor, at the expense of the government

2. GAMBOA V. TEVES [ARBOLADO]
G.R. No. 176579 | 28 June 2011 & 9 Oct. 2012
DOCTRINE: The term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both
common and nonvoting preferred shares.
[2011 Case]
FACTS:
1. In 1928, Act No. 3436 granted PLDT a franchise and the right to
engage in telecommunications business. In 1969, an
American company and a major PLDT stockholder, GTE sold
26% of the outstanding common shares of PLDT to PTIC.
2. Subsequently, PHI became the owner of 111,415 shares of stock
of PTIC by virtue of three Deed of Assignments. These shares
which represent about 46.125% of the outstanding capital
stock (OCS) of PTIC were sequestered by the PCGG and
were declared to be owned by the Republic.
3. In 1999, First Pacific, a Bermuda-registered, acquired the
remaining 54% OCS of PTIC. A public bidding was held for the
sale of the 46.125% OCS where Parallax won as the highest
bidder.
4. In 2007, First Pacific through its subsidiary, MPAH, bought the
46.125% OCS of PTIC with the Philippine Government. Since
PTIC is a stockholder of PLDT, the sale by the government is
actually an indirect sale of 12 million shares of about 6.3% of
the outstanding common shares of PLDT.
5. With the sale, First Pacifics common shareholdings in PLDT
increased from 30.7% to 37%, thereby increasing the common
shareholdings of foreigners in PLDT to about 81.47%.
● This violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the
NATIONAL ECONOMY AND PATRIMONY
capital of a public utility to not more than 40%.
6. Petitioner filed the instant petition for prohibition and the
declaration of nullity of sale of the 111,415 PTIC shares. The
Sanidads intervened joining petitioner Gamboa in seeking,
among others, to enjoin and/or nullify the sale by respondents
of the 111,415 PTIC shares to First Pacific or assignee.
ISSUE: W/N the term “capital” in Section 11, Article XII of the
Constitution refers to the total common shares only or to the total
outstanding capital stock (combined total of common and non-
voting preferred shares) of PLDT, a public utility - ONLY TO COMMON
SHARES
HELD:
1. Section 11, Article XII of the 1987 Constitution provides that
“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.”
2. The term capital refers only to shares of stock entitled to vote
in the election of directors, and thus in the present case only
to common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred
shares.
3. Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation.
This is exercised through his vote in the election of directors
because it is the board of directors that controls or manages
the corporation. In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares,
preferred shares have the same voting rights as common
shares. However, preferred shareholders are often excluded
from any control, that is, deprived of the right to vote in the

election of directors and on other matters, on the theory that
the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders.
In fact, under the Corporation Code only preferred or
redeemable shares can be deprived of the right to vote.
Common shares cannot be deprived of the right to vote in
any corporate meeting, and any provision in the articles of
incorporation restricting the right of common shareholders to
vote is invalid.
4. Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which
usually have no voting rights, the term capital in Section 11,
Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote in
the election of directors, then the term capital shall include
such preferred shares because the right to participate in the
control or management of the corporation is exercised
through the right to vote in the election of directors. In short,
the term capital in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of
directors.
5. In this case, 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.
6. To repeat, (a) 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; (b) Filipinos own only 35.73% of PLDT’s common shares,
constituting a minority of the voting stock, and thus do not
exercise control over PLDT; (c) preferred shares, 99.44%
owned by Filipinos, have no voting rights; (d) preferred shares
NATIONAL ECONOMY AND PATRIMONY
earn only 1/70 of the dividends that common shares earn; (e)
preferred shares have twice the par value of common shares;
and (f) 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.
7. 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
State’s constitutional duty to limit control of public utilities to
Filipino citizens.
Petition partially granted.
[2012 Case]
FACTS:
1. Movants PSE, MVP, Nazareno and SEC contend that “capital”
in Section 11, Article XII of the Constitution has long been
settled and defined to refer to the total outstanding shares of
stock, whether voting or non-voting. In fact, movants claim
that the SEC, which is the administrative agency tasked to
enforce the 60-40 ownership requirement in favor of Filipino
citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous
opinions.
2. Movants point out that with the 2011 Decision, the Court in
effect introduced a “new” definition or “midstream
redefinition” of the term “capital” in Section 11, Article XII of
the Constitution.
ISSUE: W/N the Court introduced a new definition of the term
“capital” - NO.
HELD
For more than 75 years since the 1935 Constitution, the Court has not
interpreted or defined the term “capital” in various economic

provisions of the 1935, 1973 and 1987 Constitutions. There has never
been a judicial precedent interpreting the term “capital” in previous
constitutions, until now.
The 2010 SEC En Banc ruling in Redmont Consolidated v. McArthur
Mining conforms to the June 2011 Decision that the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution to engage in
certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation.
Both the Voting Control Test and the Beneficial Ownership Test must
be applied to determine whether a corporation is a “Philippine
national.”
Filipinization of Public Utilities
Section 11, Article XII of the Constitution which mandates the
Filipinization of public utilities, requires that any form of authorization
for the operation of public utilities shall 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.”
The 1987 Constitution reserves the ownership and operation of public
utilities exclusively to (1) Filipino citizens, or (2) corporations or
associations at least 60 percent of whose “capital” is owned by
Filipino citizens. Hence, in the case of individuals, only Filipino citizens
can validly own and operate a public utility. In the case of
corporations or associations, at least 60 percent of their “capital” must
be owned by Filipino citizens. In other words, under Section 11, Article
XII of the 1987 Constitution, to own and operate a public utility a
corporation’s capital must at least be 60 percent owned by Philippine
nationals.
Definition of “Philippine National”
The Foreign Investment Act, like all its predecessor statutes, clearly
NATIONAL ECONOMY AND PATRIMONY
defines a “Philippine national” as a Filipino citizen, or a domestic
corporation “at least sixty percent (60%) of the capital stock
outstanding and entitled to vote” is owned by Filipino citizens. A
domestic corporation is a “Philippine national” only if at least 60% of its
voting stock is owned by Filipino citizens. This definition of a “Philippine
national” is crucial in the present case because the FIA reiterates and
clarifies Section 11, Article XII of the 1987 Constitution, which limits the
ownership and operation of public utilities to Filipino citizens or to
corporations or associations at least 60% Filipino-owned.
Right to elect directors, coupled with beneficial ownership, translates
to effective control
Since the constitutional requirement of at least 60 percent Filipino
ownership applies not only to voting control of the corporation but
also to the beneficial ownership of the corporation, it is therefore
imperative that such requirement apply uniformly and across the
board to all classes of shares, regardless of nomenclature and
category, comprising the capital of a corporation. Under the
Corporation Code, capital stock consists of all classes of shares issued
to stockholders, that is, common shares as well as preferred shares,
which may have different rights, privileges or restrictions as stated in
the AOI.
Since a specific class of shares may have rights and privileges or
restrictions different from the rest of the shares in a corporation, the
60-40 ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution must apply not only to shares with voting
rights but also to shares without voting rights. Preferred shares, denied
the right to vote in the election of directors, are anyway still entitled to
vote on the eight specific corporate matters mentioned above. Thus,
if a corporation, engaged in a partially nationalized industry, issues a
mixture of common and preferred non-voting shares, at least 60
percent of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by Filipinos. Of course, if a
corporation issues only a single class of shares, at least 60 percent of
such shares must necessarily be owned by Filipinos. In short, the 60-40

ownership requirement in favor of Filipino citizens must apply
separately to each class of shares, whether common, preferred non-
voting, preferred voting or any other class of shares. Applying
uniformly the 60-40 ownership requirement in favor of Filipino citizens
to each class of shares, regardless of differences in voting rights,
privileges and restrictions, guarantees effective Filipino control of
public utilities, as mandated by the Constitution.
Intent of the framers of the Constitution
The use of the term “capital” was intended to replace the word
“stock” because associations without stocks can operate public
utilities as long as they meet the 60-40 ownership requirement in favor
of Filipino citizens prescribed in Section 11, Article XII of the
Constitution. However, this did not change the intent of the framers of
the Constitution to reserve exclusively to Philippine nationals the
“controlling interest” in public utilities.
The OSG eiterated essentially the Court’s declaration that the
Constitution reserved exclusively to Philippine nationals the ownership
and operation of public utilities consistent with the State’s policy to
“develop a self-reliant and independent national economy
effectively controlled by Filipinos.”
Last sentence of Sec. 11, Art. XII
3. ROY III V. HERBOSA [BAUTISTA]
● On June 28, 2011, the Court issued the Gamboa Decision,...
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).
○ The Gamboa Decision attained finality on October
NATIONAL ECONOMY AND PATRIMONY
It mandates that (1) the participation of foreign investors in the
governing body of the corporation or association shall be limited to
their proportionate share in the capital of such entity; and (2) all
officers of the corporation or association must be Filipino citizens. This
sentence is a reiteration of the last sentence of Section 5, Article XIV
of the 1973 Constitution, signifying its importance in reserving
ownership and control of public utilities to Filipino citizens.
Undisputed Facts (See last par. in 2011 ruling – “To repeat xx)
The Court did not rule on the factual issues raised by Gamboa, except
the single and purely legal issue on the definition of the term “capital”
in Section 11, Article XII of the Constitution. The Court confined the
resolution of the instant case to this threshold legal issue in deference
to the fact-finding power of the SEC.
Since the Court limited its resolution on the purely legal issue on the
definition of the term “capital” in Section 11, Article XII of the 1987
Constitution, and directed the SEC to investigate any violation by
PLDT of the 60-40 ownership requirement in favor of Filipino citizens
under the Constitution, there is no deprivation of PLDT’s property or
denial of PLDT’s right to due process, contrary to Pangilinan and
Nazareno’s misimpression. Due process will be afforded to PLDT when
it presents proof to the SEC that it complies, as it claims here, with
Section 11, Article XII of the Constitution
FACTS
18, 2012, and Entry of Judgment was thereafter
issued on December 11, 2012
● On May 20, 2013, the SEC, through respondent Chairperson
Teresita J. Herbosa, issued SEC-MC No. 8
Section 2. All covered corporations shall, at all times, observe the
constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of

Filipino ownership shall be applied to BOTH (a) the total number of
outstanding shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors.
● On June 10, 2013, petitioner Roy, as a lawyer and taxpayer,
filed the Petition,[15] assailing the validity of SEC-MC No. 8 for
not conforming to the letter and spirit of the Gamboa
Decision and Resolution and for having been issued by the
SEC with grave abuse of discretion.
Issues: whether the SEC gravely abused its discretion in issuing SEC-MC
No. 8 in light of the Gamboa Decision and Gamboa Resolution
HELD: No, it did not.
● Gamboa Decision
○ "capital" in Section II, Article XII of
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).
● the Gamboa Resolution
○ Foreign Investments Act of 1991 ("FIA")
○ Gamboa Resolution put to rest the
interpretation of the term "capital"
● The Decision has painstakingly explained why it considered as
obiter dictum that pronouncement in the Gamboa Resolution
that the constitutional requirement on Filipino ownership
should "apply uniformly and across the board to all classes of
shares, regardless of nomenclature and category, comprising
NATIONAL ECONOMY AND PATRIMONY
the capital of a corporation." The Court stated that:
○ The fallo or decretal/dispositive portions of both the
Gamboa Decision and Resolution are definite, clear
and unequivocal. While there is a passage in the
body of the Gamboa Resolution that might have
appeared contrary to the fallo of the Gamboa
Decision, the definiteness and clarity of the fallo of
the Gamboa Decision must control over the obiter
dictum in the Gamboa Resolution regarding the
application of the 60-40 Filipino-foreign ownership
requirement to "each class of shares, regardless of
differences in voting rights, privileges and restrictions."
● To the Court's mind and, as exhaustively demonstrated in the
Decision, the dispositive portion of the Gamboa Decision was
in no way modified by the Gamboa Resolution.
● The heart of the controversy is the interpretation of Section 11,
the I987 Article XII of the Constitution, which provides: "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."
○ The Gamboa Decision already held, in no uncertain
terms, that what the Constitution requires is full and
Court's legal beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent
of the voting rights must rest in the hands of Filipino
nationals. And, precisely that is what SEC-MC No. 8
provides; For purposes of determining compliance
with the constitutional or statutory ownership, the
required percentage of Filipino ownership shall be

applied to both the total number of outstanding
shares of stock entitled to vote in the election of
directors; and (b) the total number of outstanding
shares of stock, whether or not entitled to vote.
● In conclusion, the basic issues raised in the Motion having
Respondent PSALM is a government-owned and controlled
corporation created by virtue of “Electric Power Industry Reform Act
of 2001” (EPIRA). The EPIRA provided a framework for the restructuring
of the electric power industry, including the privatization of the assets
of the National Power Corporation (NPC), the transition to the desired
competitive structure, and the definition of the responsibilities of the
various government agencies and private entities. Said law
mandated PSALM to manage the orderly sale, disposition, and
privatization of NPC generation assets, real estate and other
disposable assets, and Independent Power Producer (IPP) contracts
with the objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner, PSALM commenced
the privatization of the 246-megawatt (MW) AHEPP AHEPP’s main units
built in 1967 and 1968, and 5 auxiliary units, form part of the Angat
Complex which includes the Angat Dam. A portion of the AHEPP is
owned by respondent Metropolitan Waterworks and Sewer-age
System (MWSS).
Because of its multi-functional design, the operation of the
Angat Complex involves various government agencies, namely: (1)
NPC; (2) National Water Resources Board (NWRB); (3) MWSS; (4)
respondent National Irrigation Administration (NIA); and (5) Philippine
Atmospheric, Geophysical and Astronomical Services Administration
NATIONAL ECONOMY AND PATRIMONY
been duly considered and passed upon by the Court in the
Decision and no substantial argument having been adduced
to warrant the reconsideration sought, the Court resolves to
deny the Motion with finality.
4. INITIATIVES FOR DIALOGUE V. PSALM [CLEMENTE]
(PAG-ASA). PSALM’s Board of Directors approved the Bidding
Procedures for the privatization of the AHEPP. An Invitation to Bid was
published in a newspaper of general circulation.
The following terms and conditions for the purchase of AHEPP
were set forth in the Bidding Package:
1. The Asset shall be sold on an “AS IS, WHERE IS” basis.
2. The priority of water usage under Philippine Law would have
to be observed by the Buyer/Operator.
3. The Winning Bidder/Buyer shall be requested to enter into an
operations and maintenance agreement with PSALM for the
Non-Power Components in accordance with the terms and
conditions of the O & M Agreement to be issued as part of
the Final Transaction Documents. The Buyer, as Operator, shall
be required to operate and maintain the Non-Power
Components at its own cost and expense.
4. PSALM is currently negotiating a water protocol agreement
with various parties which are currently the MWSS, NIA, the
National Water Resources Board and NPC. If required by
PSALM, the Buyer will be required to enter into the said water
protocol agreement as a condition to the award of the Asset.
All participating bidders were required to comply with the
following: (a) submission of a Letter of Interest; (b) execution of

Confidentiality Agreement and Undertaking; and (c) payment of a
non-refundable fee of US$ 2,500 as Participation Fee. After holding
pre-bid conferences and forum discussions with various stakeholders,
PSALM’s Board of Directors approved and confirmed the issuance of
a Notice of Award to the highest bidder, K-Water, a Korean owned
group.
ARGUMENT OF PETITIONER
As to the participation in the bidding of and award of
contract to K-Water which is a foreign corporation, petitioners
contend that PSALM clearly violated the constitutional provisions on
the appropriation and utilization of water as a natural resource, as
implemented by the Water Code of the Philippines limiting water
rights to Filipino citizens and corporations which are at least 60%
Filipino-owned. Further considering the importance of the Angat Dam
which is the source of 97% of Metro Manila’s water supply, as well as
irrigation for farmlands in 20 municipalities and towns in Pampanga
and Bulacan, petitioners assert that PSALM should prioritize such
domestic and community use of water over that of power
generation. They maintain that the Philippine Government, along with
its agencies and subdivisions, have an obligation under international
law, to recognize and protect the legally enforceable human right to
water of petitioners and the public in general.
ARGUMENT OF RESPONDENT
On the alleged violation of petitioners’ and the people’s right
to water, PSALM contends that such is baseless and proceeds from
the mistaken assumption that the Angat Dam was sold and as a result
thereof, the continuity and availability of domestic water supply will
be interrupted. PSALM stresses that only the hydroelectric facility is
being sold and not the Angat Dam which remains to be owned by
NATIONAL ECONOMY AND PATRIMONY
PSALM, and that the NWRB still governs the water allocation therein
while the NPC-FFWSDO still retains exclusive control over the opening
of spillway gates during rainy season. The foregoing evinces the
continued collective control by government agencies over the Angat
Dam, which in the meantime, is in dire need of repairs, the cost of
which cannot be borne by the Government.
PSALM further debunks the nationality issue raised by
petitioners, citing previous opinions rendered by the Department of
Justice (DOJ) consistently holding that the utilization of water by a
hydroelectric power plant does not constitute appropriation of water
from its natural source considering that the source of water (dam)
that enters the intake gate of the power plant is an artificial structure.
Moreover, PSALM is mindful of the State’s duty to protect the public’s
right to water when it sold the AHEPP. In fact, such concern as taken
into consideration by PSALM in devising a privatization scheme for the
AHEPP whereby the water allocation is continuously regulated by the
NWRB and the dam and its spillway gates remain under the ownership
and control of NPC.
ISSUE: W/N the sale of a government-owned AHEPP to a foreign
corporation is prohibited.
→ NO. However, only Filipino citizens and corporations 60% of whose
capital is owned by Filipinos may be granted water rights
HELD:
Sec. 2, Art. XII of the 1987 Constitution provides in part: xxxThe
exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State.xxx

The State’s policy on the management of water resources is
implemented through the regulation of water rights. Presidential
Decree No. 1067, otherwise known as “The Water Code of the
Philippines” is the basic law governing the ownership, appropriation
utilization, exploitation, development, conservation and protection of
water resources and rights to land related thereto.
According to the provisions of the Water Code, it only limits
the grant of water rights to Filipino citizens and juridical entities duly
qualified by law to exploit and develop water resources, including
private corporations with sixty percent of their capital owned by
Filipinos.
Under the EPIRA, on the other hand, the generation of
electric power, a business affected with public interest, was opened
to private sector and any new generation company is required to
secure a certificate of compliance from the Energy Regulatory
Commission (ERC), as well as health, safety and environmental
clearances from the concerned government agencies. Power
generation shall not be considered a public utility operation, and
hence no franchise is necessary.
Foreign investors are likewise allowed entry into the electric
power industry. However, there is no mention of water rights in the
privatization of multi-purpose hydropower facilities. Section 47 (e)
addressed the issue of water security, as
follows:
(e) In cases of transfer of possession, control, operation or privatization
of multi-purpose hydro facilities, safeguards shall be prescribed to
ensure that the national government may direct water usage in cases
of shortage to protect potable water, irrigation, and all other
NATIONAL ECONOMY AND PATRIMONY
requirements imbued with public interest;
This provision is consistent with the priority accorded to
domestic and municipal uses of water under the Water Code, thus:
Art. 22. Between two or more appropriators of water from the
same sources of supply, priority in time of appropriation shall give the
better right, except that in times of emergency the use of water for
domestic and municipal purposes shall have a better right over all
other uses; Provided, That, where water shortage is recurrent and the
appropriator for municipal use has a lower priority in time of
appropriation, then it shall be his duty to find an alternative source of
supply in accordance with conditions prescribed by the [Board].
It is the position of PSALM that as the new owner only of the
hydroelectric power plant, K-Water will be a mere operator of the
Angat Dam. In the power generation activity, K-Water will have to
utilize the waters already extracted from the river and impounded on
the dam. This process of generating electric power from the dam
water entering the power plant thus does not constitute appropriation
within the meaning of natural resource utilization in the Constitution
and the Water Code.
Foreign ownership of a hydropower facility is not prohibited
under existing laws. The construction, rehabilitation and development
of hydropower plants are among those infrastructure projects which
even wholly owned foreign corporations are allowed to undertake
under the Amended Build-Operate-Transfer (Amended BOT) Law (R.A.
No. 7718) Beginning 1987, the policy has been openness to foreign
investments as evident in the fiscal incentives provided for the
restructuring and privatization of the power industry in the Philippines,

under the Power Sector Restructuring Program (PSRP) of the Asian
Development Bank.
The establishment of institutional and legal framework for the
entry of private sector in the power aimed to “minimize the burden of
infrastructure projects on the national government budget, minimize
external borrowing for infrastructure projects, and use the efficiency of
the private sector in delivering a public good.”
With respect to foreign investors, the nationality issue had
been framed in terms of the character or nature of the power
generation process itself, i.e., whether the activity amounts to
utilization of natural resources within the meaning of Sec. 2, Art. XII of
the Constitution. If so, then foreign companies cannot engage in
hydropower generation business; but if not, then government may
legally allow even foreign-owned companies to operate hydropower
facilities.
Moreover, the DOJ has consistently regarded hydropower generation
by foreign entities as not constitutionally proscribed based on the
definition of water appropriation under the Water Code: Once
removed therefrom, they cease to be a part of the natural resources
of the country and are the subject of ordinary commerce and may
be acquired by foreigners. The water so removed from the natural
source may be appropriated/used by the foreign corporation leasing
the property.
Lease or transfer of water rights is allowed under the Water
Code, subject to the approval of NWRB after due notice and hearing.
However, lessees or transferees of such water rights must comply with
the citizenship requirement imposed by the Water Code and its IRR.
But regardless of such qualification of water permit
NATIONAL ECONOMY AND PATRIMONY
holders/transferees, it is to be noted that there is no provision in the
EPIRA itself authorizing the NPC to assign or transfer its water rights in
case of transfer of operation and possession of multi-purpose
hydropower facilities. Since only the power plant is to be sold and
privatized, the operation of the non-power components such as the
dam and reservoir, including the maintenance of the surrounding
watershed, should remain under the jurisdiction and control of NPC
which continue to be a government corporation. There is therefore no
necessity for NPC to transfer its permit over the water rights to K-Water.
Pursuant to its purchase and operation/management contracts with K
Water, NPC may authorize the latter to use water in the dam to
generate electricity.
To reiterate, there is nothing in the EPIRA which declares that
it is mandatory for PSALM or NPC to transfer or assign NPC’s water
rights to buyers of its multi-purpose hydropower facilities as part of the
privatization process. While PSALM
was mandated to transfer the ownership of all hydropower plants
except those mentioned in Sec. 47 (f), any transfer of possession,
operation and control of the multi-purpose hydropower facilities, the
intent to preserve water resources under the full supervision and
control of the State is evident when PSALM was obligated to prescribe
safeguards to enable the national government to direct water usage
to domestic and other requirements “imbued with public interest.”
There is no express requirement for the transfer of water rights in all
cases where the operation of hydropower facilities in a multi purpose
dam complex is turned over to the private sector.
As the new owner of the AHEPP, K-Water will have to utilize
the waters in the Angat Dam for hydropower generation. Consistent
with the goals of the EPIRA, private entities are allowed to undertake

power generation activities and acquire NPC’s generation assets. But
since only the hydroelectric power plants and appurtenances are
being sold, the privatization scheme should enable the buyer of a
hydroelectric power plant in NPC’s multi-purpose dam complex to
have beneficial use of the waters diverted or collected in the Angat
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING
AND DEVELOPMENT, INC., and MCARTHUR MINING, INC.,vs. REDMONT
CONSOLIDATED MINES CORP.,
G.R. No. 195580 April 21, 2014
DOCTRINE: (Based on UST notes) Circumstances that compelled the
application of Grandfather Rule in this case: 1) The three mining
corporations had the same 100% Canadian owned foreign investor; 2)
The similar corporate structure and shareholder composition of the
three corporations; 3) A major Filipino shareholder within the
corporate layering did not pay any amount with respect to its
subscription; and 4) The dubious act of the foreign investor in
conveying its interests in the mining corporations to another domestic
corporation
Corporate layering is valid insofar as it does not intend to circumvent
the Filipino ownership requirement of the Constiution
Facts:
· In Dec 2006, Redmont, a domestic corporation organized
NATIONAL ECONOMY AND PATRIMONY
Dam for its hydropower generation activities, and at the same time
ensure that the NPC retains full supervision and control over the
extraction and diversion of waters from the Angat River.
5. NARRA NICKEL V. REDMONT [CRUZ, J.]
and existing under Philippine laws, took interest in mining and
exploring certain areas of the province of Palawan. After
inquiring with the 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.
· Sara Marie Mining, Inc. (SMMI), filed an application for an
MPSA and Exploration Permit (EP) with the Mines and Geo-
Sciences Bureau (MGB) which then DENR issued MPSA. MPSA
and EP were transferred to Madridejos Mining Corporation
(MMC) then assigned to McArthur.
· Alpha Resources and Development Corporation and
Patricia Louise Mining & Development Corporation (PLMDC)
filed an application for an MPSA with the MGB then DENR
issued MPSA. PLMDC conveyed/and/or transferred its rights to
Narra.
· SMMI filed for MPSA then it subsequently conveyed,
transferred and assigned its rights and interest to Tesoro.
 NATIONAL ECONOMY AND PATRIMONY

· Redmont filed before Panel of Arbitrators (POA) of DENR 3 and Environmental Compliance Certificate and Sections 3
petitions for denial of petitoners’ MPSA. and 8 of the Foreign Investment Act and E.O. 584

· Redmont alleged that at least 60% of the capital stock of · MR denied.

McArthur, Tesoro and Narra are owned and controlled by
· MBMI sold/assigned all its share/interest in the “holding
MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
companies” to DMCI (Filipino corp)
Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind · CA affirmed
petitioners’ filing of the MPSAs over the areas covered by
ISSUE:
applications since it knows that it can only participate in
1. WON the case is moot- no
mining activities through corporations which are deemed
Filipino citizens. 2. WON Narra, Tesoro and McArhur violated Section 2 of Article XII-
YES
· McArthur, Tesoro, Narra argued that they applied for
Financial Technical Assistance Agreements( FTAA) which are
HELD:
granted to foreign-owned corporations and the best tool to
determine nationality of corporation is control test.
1. Court note that a grave violation of the Constitution, specifically
· POA disqualified petitioners from gaining MPSAs holding
Section 2 of Article XII, is being committed by a foreign corporation
them as foreign corporations being effectively owned by
MBMI, a 100 % Canadian company. right under our country's nose through a myriad of corporate layering
under different, allegedly, Filipino corporations. The intricate
· Mines Adjudication Board (MAB) reversed and denied
corporate layering utilized by the Canadian company, MBMI, is of
MR.
exceptional character and involves paramount public interest since it
· CA held that McArthur, Tesoro and Narra are foreign
undeniably affects the exploitation of our Country's natural resources.
corporation following the grandfather rule, it discovered that
The corresponding actions of petitioners during the lifetime and
MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other existence of the instant case raise questions as what principle is to be
majority shareholders of petitioners through joint venture applied to cases with similar issues. No definite ruling on such principle
agreements. The CA found that through a web of corporate has been pronounced by the Court; hence, the disposition of the
layering, it is clear that one common controlling investor in all issues or errors in the instant case will serve as a guide "to the bench,
mining corporations involved is MBM. It held that the the bar and the public." Finally, the instant case is capable of
conversion of MPSA to FTAA, the Sec of DENR and the Office
repetition yet evading review, since the Canadian company, MBMI,
of President (OP) have jurisdiction.
can keep on utilizing dummy Filipino corporations through various
· MR denied schemes of corporate layering and conversion of applications to skirt
· OP cancelled the FTAA of petitioners for violating and the constitutional prohibition against foreign mining in Philippine soil.
circumventing the "Constitution,the Small Scale Mining Law

2. 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.
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.
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. 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.
McArthur acquired its MPSA application from MMC, which acquired
its application from SMMI. MCC has a similar structure and
composition as McArthur. In fact, it would seem that MBMI is also a
major investor and "controls" MBMI and also, similar nominal
shareholders were present such as Esguerra, Salazar, Mason and
Cawkell. Olympic Mines & Development Corporation (Olympic) did
NATIONAL ECONOMY AND PATRIMONY
not pay any amount with respect to the number of shares they
subscribed to in the corporation, which is quite absurd since Olympic
is the major stockholder in MMC. McArthur, when it is "grandfathered,"
company layering was utilized by MBMI to gain control over McArthur.
It is apparent that MBMI has more than 60% or more equity interest in
McArthur, making the latter a foreign corporation.
Tesoro acquired its MPSA application from SMMI. Except for the name
"Sara Marie Mining, Inc.," it shows exactly the same figures as the
corporate structure of petitioner McArthur, down to the last centavo.
Accordingly, after "grandfathering" petitioner Tesoro and factoring in
Olympic's 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 a non-Filipino corporation and,
thus, disqualifies it to participate in the exploitation, utilization and
development of our natural resources.
Narra is the transferee and assignee of PLMDC's MPSA application.
Again, MBMI, along with other nominal stockholders, i.e., Mason,
Agcaoili and Esguerra, is present in this corporate structure. In PLMDC,
the usual players in petitioners' corporate structures are present.
Similarly, the amount of money paid by the 2nd tier majority
stockholder, in this case, Palawan Alpha South Resources and
Development Corp. (PASRDC), is zero.
Concluding from the above-stated facts, it is quite safe to say that
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a
100% Canadian corporation, owns 60% or more of their equity
interests. Such conclusion is derived from grandfathering petitioners'
corporate owners, namely: MMI, SMMI and PLMDC. Going further and
iiadding to the picture, MBMI's Summary of Sign icant 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.
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.
NOTE: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
RESOLUTION (2015) Motion for Reconsideration
Sec. 2, Art. XII of the Constitution reserves the exploration,
development, and utilization of natural resources to Filipino citizens
and "corporations or associations at least sixty per centum of whose
capital is owned by such citizens." Similarly, Section 3 (aq) of the
Philippine Mining Act of 1995 considers a "corporation . . . registered in
accordance with law at least sixty per cent of the capital of which is
owned by citizens of the Philippines" as a person qualified to
undertake a mining operation. Consistent with this objective, the
Grandfather Rule was originally conceived to look into the citizenship
of the individuals who ultimately own and control the shares of stock
of a corporation for purposes of determining compliance with the
NATIONAL ECONOMY AND PATRIMONY
constitutional requirement of Filipino ownership. It cannot, therefore,
be denied that the framers of the Constitution have not foreclosed
the Grandfather Rule as a tool in verifying the nationality of
corporations for purposes of ascertaining their right to participate in
nationalized or partly nationalized activities.
The Grandfather Rule, standing alone, should not be used to
determine the Filipino ownership and control in a corporation, as it
could result in an otherwise foreign corporation rendered qualified to
perform nationalized or partly nationalized activities. Hence, it is only
when theControl Test is first complied with that the Grandfather Rule
may be applied.Put in another manner, if the subject corporation's
Filipino equity falls below the threshold 60%, the corporation is
immediately considered foreign-owned, in which case, the need to
resort to the Grandfather Rule disappears. On the other hand, a
corporation that complies with the 60-40 Filipino to foreign equity
requirement can be considered a Filipino corporation if there is no
doubt as to who has the "beneficial ownership" and "control" of the
corporation. In that instance, there is no need for a dissection or
further inquiry on the ownership of the corporate shareholders in both
the investing and investee corporation or the application of the
Grandfather Rule. As a corollary rule, even if the 60-40 Filipino to
foreign equity ratio is apparently met by the subject or investee
corporation, a resort to the Grandfather Rule is necessary if doubt
exists as to the locus of the "beneficial ownership" and "control." In this
case, a further investigation as to the nationality of the personalities
with the beneficial ownership and control of the corporate
shareholders in both the investing and investee corporations is
necessary.
Tesoro- Filipino corporation Sara Marie Mining, Inc. (Sara Marie) holds
59.97% of the 10,000 common shares of petitioner Tesoro while the
Canadian-owned company, MBMI, holds 39.98% of its shares. The
Filipino corporation Olympic Mines & Development Corp. (Olympic)
holds 66.63% of Sara Marie's shares while the same Canadian
company MBMI holds 33.31% of Sara Marie's shares. Nonetheless, it is
admitted that Olympic did not pay a single peso for its shares. On the

contrary, MBMI paid for 99% of the paid-up capital of Sara Marie. The
fact that MBMI had practically provided all the funds in Sara Marie
and Tesoro creates serious doubt as to the true extent of its (MBMI)
control and ownership over both Sara Marie and Tesoro. With only
40.01% Filipino ownership in petitioner Tesoro, as compared to 59.99%
foreign ownership of its shares, it is clear that petitioner Tesoro does
not comply with the minimum Filipino equity requirement imposed in
Sec. 2, Art. XII of the Constitution. Hence, the appellate court's
observation that Tesoro is a foreign corporation not entitled to an
MPSA is apt.
McArthur- McArthur follows the corporate layering structure of Tesoro,
as 59.97% of its 10,000 common shares is owned by supposedly Filipino
Madridejos Mining Corporation (Madridejos), while 39.98% belonged
to the Canadian MBMI. In turn, 66.63% of Madridejos’ shares were
held by Olympic while 33.31% of its share belonged to MBMI but
Olympic did not contribute to paid up capital of Madridejos and its
wa MBMI provided 99.79% of paid-up capital. Again, the fact that
MBMI had practically provided all the funds in Madridejos and
McArthur creates serious doubt as to the true extent of its control and
ownership of MBMI over both Madridejos and McArthur. As with
petitioner Tesoro, with only 40.01% Filipino ownership in petitioner
McArthur, as compared to 59.99% foreign ownership of its shares, it is
NATIONAL ECONOMY AND PATRIMONY
clear that petitioner McArthur does not comply with the minimum
Filipino equity requirement imposed in Sec. 2, Art. XII of the
Constitution. Thus, the appellate court did not err in holding that
petitioner McArthur is a foreign corporation not entitled to an MPSA.
Narra- 59.97% of its shares belonged to Patricia Louise Mining &
Development Corporation (PLMDC), while Canadian MBMI held
39.98% of its shares. PASRDC did not pay for any of its subscribed
shares, while MBMI contributed 99.75% of PLMDC's paid-up capital.
This fact creates serious doubt as to the true extent of MBMI's control
and ownership over both PLMDC and Narra since "a reasonable
investor would expect to have greater control and economic rights
than other investors who invested less capital than him." With 60.36%
foreign ownership in petitioner Narra, as compared to only 39.64%
Filipino ownership of its shares, it is clear that petitioner Narra does not
comply with the minimum Filipino equity requirement imposed in
Section 2, Article XII of the Constitution.
WHEREFORE, We DENY the motion for reconsideration WITH FINALITY.
No further pleadings shall be entertained. Let entry of judgment be
made in due course.
 NATIONAL ECONOMY AND PATRIMONY

6. RESIDENT MARINE MAMMALS V. REYES [CRUZ, L]

 NATIONAL ECONOMY AND PATRIMONY

MCWD V. ADALA [DE VERA]

FACTS: § The proposed waterworks would interfere

with petitioner's water supply; and,
· October 24, 2002: Adala filed an application for a
Certificate of Public Convenience to operate and maintain § Residents of Brgy. Bulacao were already
waterworks in Barangay Bulacao, Cebu City. being well served by MWCD.

· December 16, 2002: At the initial hearing, Adala · September 22, 2003: NWRB dismissed MWCD’s
submitted proof of compliance with jurisdictional Opposition "for lack of merit and/or failure to state the cause
requirements of notice and publication; Petitioner MWCD of action" and ruled in favour of Adala, finding her legally
opposed the application. and financially qualified to operate and maintain the subject
waterworks system.
o On the day of the hearing, MWCD’s formal
opposition had yet to be received by the NWRB. · Hence, the instant petition.

o MWCD prayed for the denial of Adala’s because: ISSUE:

§ The MWCD Board had not consented to · W/N “franchise” as used in PD 198 means a franchise granted
the issuance of the franchise applied for, as by Congress through legislation only, or does it also include in its
required by its charter (P.D. 198) meaning a CPC issued by the NWRB?

HELD
· Sec. 47 of MWCD’s charter (PD 198) prohibits the issuance of
“franchises” without the consent of its Board. The question then is
what is a franchise?
o Petitioner contends that "franchise" should be
broadly interpreted, such that the prohibition against
its grant to other entities without the consent of the
district's board of directors extends to the issuance of
CPCs.
o Respondent, on the other hand, claims that the
same prohibition only applies to franchises in the strict
sense " those granted by Congress by means of
statute " and does not extend to CPCs[1] granted by
agencies such as the NWRB
· That the legislative authority intended to delegate its power to
issue franchises in the case of water districts is clear from the fact that,
under PD 198, Congress no longer plays a direct role in authorizing the
formation and maintenance of water districts.
o It should be noted, however, that P.D. 198 itself
gives the name "franchise" even to authorizations
that does not proceed directly from the legislature.
o Thus, CPCs should be included in the term
“franchise.”
· However, Sec. 47 of PD 198 must be deemed void ab initio for
being irreconcilable with Article XIV Section 5 of the 1973 Constitution.
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
NATIONAL ECONOMY AND PATRIMONY
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 Batasang Pambansa 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 and underscoring supplied)
· This provision has been substantially reproduced in Article XII
Section 11 of the 1987 Constitution, including the prohibition against
exclusive franchises.
· Since Section 47 of P.D. 198 vests an "exclusive franchise" which
is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, it
is unconstitutional and may not, therefore, be relied upon by
petitioner in support of its opposition against Adala’s application for
CPC.
WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is
thus, in light of the foregoing discussions, DISMISSED
 NATIONAL ECONOMY AND PATRIMONY

[1] A CPC is formal written authority issued by quasi-judicial bodies for

the operation and maintenance of a public utility for which a
franchise is not required by law and a CPC issued by this Board is an
authority to operate and maintain a waterworks system or water
supply service. On the other hand, a franchise is privilege or authority
to operate appropriate private property for public use vested by
Congress through legislation. Clearly, therefore, a CPC is different
from a franchise and Section 47 of Presidential Decree 198 refers only
to franchise. Accordingly, the possession of franchise by a water
7. MIAA V. CA [FLORES]
district does not bar the issuance of a CPC for an area covered by
the water district.
FACTS:

MIAA received Final Notices of Real Estate Tax Delinquency to restrain the City of Parañaque from imposing real estate
from the City of Parañaque for the taxable years 1992 to tax on, levying against, and auctioning for public sale the
2001. MIAA’s real estate tax delinquency was estimated at Airport Lands and Buildings.
P624 million.
Paranaque’s Contention: Section 193 of the Local
The City of Parañaque, through its City Treasurer, issued Government Code expressly withdrew the tax exemption
notices of levy and warrants of levy on the Airport Lands and privileges of “government-owned and-controlled
Buildings. The Mayor of the City of Parañaque threatened to corporations” upon the effectivity of the Local Government
sell at public auction the Airport Lands and Buildings should Code. Respondents also argue that a basic rule of statutory
MIAA fail to pay the real estate tax delinquency. construction is that the express mention of one person, thing,
or act excludes all others. An international airport is not
MIAA filed with the Court of Appeals an original petition for among the exceptions mentioned in Section 193 of the Local
prohibition and injunction, with prayer for preliminary Government Code. Thus, respondents assert that MIAA
injunction or temporary restraining order. The petition sought cannot claim that the Airport Lands and Buildings are exempt
 NATIONAL ECONOMY AND PATRIMONY

from real estate tax. (13) Government-owned or controlled corporation

MIAA’s contention: Airport Lands and Buildings are owned by
the Republic. The government cannot tax itself. The reason for
tax exemption of public property is that its taxation would not
inure to any public advantage, since in such a case the tax
debtor is also the tax creditor.
ISSUE:
refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to
public needs whether governmental or proprietary in
nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its
capital stock: x x x. (Emphasis supplied)

Whether Airport Lands and Buildings of MIAA are exempt from A government-owned or controlled corporation must be
real estate tax under existing laws? "organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a
RULING: stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares.
Yes. Ergo, the real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such MIAA is a government instrumentality vested with corporate
assessments, are void. powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only
1. MIAA is Not a Government-Owned or Controlled difference is that MIAA is vested with corporate powers.
Corporation
MIAA is also not a non-stock corporation because it has no
There is no dispute that a government-owned or controlled members. Section 87 of the Corporation Code defines a non-
corporation is not exempt from real estate tax. However, stock corporation as "one where no part of its income is
MIAA is not a government-owned or controlled corporation. distributable as dividends to its members, trustees or officers."
Section 2(13) of the Introductory Provisions of the A non-stock corporation must have members. Even if we
Administrative Code of 1987 defines a government-owned or assume that the Government is considered as the sole
controlled corporation as follows: member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any
SEC. 2. General Terms Defined. – x x x x part of their income to their members.

MIAA is a government instrumentality vested with corporate
powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only
difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of
Administrative Code defines a government "instrumentality"
as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the
National Government, not integrated within the
department framework, vested with special functions
or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and
enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality
corporate powers, the instrumentality does not
become a corporation. Unless the government
instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality
exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental
powers of eminent domain, police authority and the
levying of fees and charges. At the same time, MIAA
exercises “all the powers of a corporation under the
Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive
Order.”
NATIONAL ECONOMY AND PATRIMONY
A government instrumentality like MIAA falls under Section
133(o) of the Local Government Code, which states:
the SEC. 133. Common Limitations on the Taxing Powers
of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities and
local government units.(Emphasis and underscoring
supplied)
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power
to tax. While the 1987 Constitution now includes taxation as
one of the powers of local governments, local governments
may only exercise such power "subject to such guidelines and
limitations as the Congress may provide."
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never
presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or
activity is taxable is resolved against taxation. This rule applies

with greater force when local governments seek to tax
national government instrumentalities.
2. Airport Lands and Buildings of MIAA are Owned by the
Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic
of the Philippines.
No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like “roads, canals,
rivers, torrents, ports and bridges constructed by the State,”
are owned by the State. The term “ports” includes seaports
and airports. The MIAA Airport Lands and Buildings constitute
a “port” constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or
the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use
because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does
not remove the character of the Airport Lands and Buildings
as properties for public use.
The charging of fees to the public does not determine the
character of the property whether it is of public dominion or
NATIONAL ECONOMY AND PATRIMONY
not. Article 420 of the Civil Code defines property of public
dominion as one “intended for public use.” The terminal fees
MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that
maintains the operations of MIAA. The collection of such fees
does not change the character of MIAA as an airport for
public use. Such fees are often termed user’s tax. This means
taxing those among the public who actually use a public
facility instead of taxing all the public including those who
never use the particular public facility.
b. Airport Lands and Buildings are Outside the Commerce of
Man
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the subject
of an auction sale.
Properties of public dominion, being for public use, are not
subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if
properties of public dominion are subject to encumbrances,
foreclosures and auction sale. This will happen if the City of
Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real
estate tax.
c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings
in trust for the Republic. Section 48, Chapter 12, Book I of the
Administrative Code allows instrumentalities like MIAA to hold
title to real properties owned by the Republic. n MIAA’s case,
its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the
deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance.
d. Transfer to MIAA was Meant to Implement a Reorganization
The transfer of the Airport Lands and Buildings from the
Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely to reorganize a
division in the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned
solely by the Republic. No party claims any ownership rights
over MIAA’s assets adverse to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Sec 234 of the LGC provides that real property owned by the
Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person following
are exempted from payment of the real property tax.
However, portions of the Airport Lands and Buildings that
MIAA leases to private entities are not exempt from real
NATIONAL ECONOMY AND PATRIMONY
estate tax. For example, the land area occupied by hangars
that MIAA leases to private corporations is subject to real
estate tax.
Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of
the Administrative Code, which governs the legal relation
and status of government units, agencies and offices within
the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled
corporation. Under Section 133(o) of the Local Government
Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of
any kind" by local governments. The only exception is when
MIAA leases its real property to a "taxable person" as
provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport
Lands and Buildings leased to taxable persons like private
parties are subject to real estate tax by the City of
Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are properties
of public dominion and thus owned by the State or the
Republic of the Philippines. Article 420 specifically mentions
"ports x x x constructed by the State," which includes public
airports and seaports, as properties of public dominion and
owned by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever that
 NATIONAL ECONOMY AND PATRIMONY

the Airport Lands and Buildings are expressly exempt from real
estate tax under Section 234(a) of the Local Government
Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure
sale.

8. LIBAN V. GORDON [MARAVILLA]

DOCTRINE: The office of the PNRC Chairman is not a government

office or an office in a government-owned or controlled corporation
for purposes of the prohibition in Section 13, Article VI of the 1987
Constitution. However, since the PNRC Charter is void insofar as it
creates the PNRC as a private corporation, the PNRC should
incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private
corporation.

Facts:
1. 1n 1947, President Roxas signed R.A. 95, known as the
 NATIONAL ECONOMY AND PATRIMONY

Philippine National Red Cross (PNRC) Charter. The – they do not claim to be entitled to the Senate
Republic of the Philippines. Adhering to the Geneva office of Gordon.
Conventions, established the PNRC as a voluntary b. Sec. 11, Rule 66, Rules of Civil Procedure: action
organization for the purpose contemplated in the should be commenced within 1 year after the
Geneva Red Cross Convention. cause of public officer’s forfeiture of office –
2. Dante Liban, Reynaldo Bernardo and Salvador Viari, Gordon has been working as a Red Cross
officers of the Board of Directors of the Quezon City Red volunteer for 40 years.
Cross Chapter, filed a petition to declare Richard Gordon c. Liban et al. cannot raise a constitutional question
as having forfeited his seat in the Senate. as taxpayers – no claim that they suffered some
3. Richard Gordon is the chairman of the Philippine National actual damage/threatened injury or illegal
Red Cross (PNRC) Board of Governors. disbursement of public funds.
4. Liban et al. alleged that by accepting the chairmanship d. If oetition is for declaratory relief, SC has no
of the PNRC Board of Governors, Gordon has ceased to jurisdiction – original jurisdiction in RTC.
be a member of the Senate under Sec. 13, Art 6 of the e. PNRC is not a government owned/controlled
187 Constitution stating “No Senator or Member of the corporation.
House of Representatives may hold any other f. Sec. 13 Art. 6 of the Constitution does not apply
office/employment in the Government, or any because volunteer service to PNRC is not an
subdivision, agency, or instrumentality thereof, including office/employment.
government-owned or controlled corporations or their 7. Liban et al.’s petition is a taxpayer’s suit questioning
subsidiaries, during his term without forfeiting his seat. unlawful disbursement of funds considering that
Neither shall he be appointed to any office which may respondent has been drawing his salaries and other
have been created or the emoluments thereof increased compensation as a Senator even if he is no longer
during the term for which he was elected.” entitled to his office. Court has jurisdiction because it
5. Liban et. al cited Camporedondo V. NLRC which held involves a legal/constitutional issue of transcendental
that PNRC is a government-owned or controlled importance.
corportation. Flores V. Drilon held that incumbent
national legislators lose their elective posts upon their ISSUE: WON the office of the PNRC Chairman is a government office
appointment to another government office. or an office in a government-owned or controlled corporation for
6. Gordon contends the following: purposes of the prohibition in Section 13, Article VI of the Constitution.
a. Liban et al. have no standing to file petition
which appears to be an action for quo warranto RULING:
 NATIONAL ECONOMY AND PATRIMONY

PNRC is a Private Organization Performing Public Functions ideals of the Movement

· President Manuel A. Roxas signed Republic Act No. 95, · to be recognized as a National Society, the PNRC has to
otherwise known as the PNRC Charter be autonomous and must operate in conformity with the
· PNRC is a non-profit, donor-funded, voluntary, Fundamental Principles of the Movement
humanitarian organization, whose mission is to bring · PNRC must not only be, but must also be seen to be,
timely, effective, and compassionate humanitarian autonomous, neutral and independent in order to
assistance for the most vulnerable without consideration conduct its activities in accordance with the
of nationality, race, religion, gender, social status, or Fundamental Principles
political affiliation · The Constitution authorizes Congress to vest the power to
· The Republic of the Philippines, adhering to the Geneva appoint lower-ranked officers specifically in the "heads"
Conventions, established the PNRC as a voluntary of the specified offices, and in no other person. The word
organization "heads" refers to the chairpersons of the commissions or
· PNRC is a member National Society of the International boards and not to their members, for several reasons.
Red Cross and Red Crescent Movement (Movement), · The President does not appoint the Chairman of the
which is composed of the International Committee of the PNRC. Neither does the head of any department,
Red Cross (ICRC), the International Federation of Red agency, commission or board appoint the PNRC
Cross and Red Crescent Societies (International Chairman à the PNRC Chairman is not an official or
Federation), and the National Red Cross and Red employee of the Executive branch since his appointment
Crescent Societies (National Societies) does not fall under Section 16, Article VII of the
· Fundamental Principles: Constitution
o Humanity · PNRC Chairman is not an official or employee of the
o Impartiality Judiciary or Legislature
o Neutrality · the PNRC Chairman is not an official or employee of the
o Independence Philippine Government
o Voluntary Service
o Unity The PNRC is not government-owned but privately owned
o Universality · The vast majority of the thousands of PNRC members are
· The Fundamental Principles provide a universal standard private individuals, including students
of reference for all members of the Movement. The · the PNRC is a privately owned, privately funded, and
PNRC, as a member National Society of the Movement, privately run charitable organization. The PNRC is not a
has the duty to uphold the Fundamental Principles and government-owned or controlled corporation.

In sum, we hold that the office of the PNRC Chairman is not a
government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of
the 1987 Constitution. However, since the PNRC Charter is void insofar
as it creates the PNRC as a private corporation, the PNRC should
incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private
corporation.
A closer look at the nature of the PNRC would show that there is none
like it not just in terms of structure, but also in terms of history, public
service and official status accorded to it by the State and the
international community. There is merit in PNRC's contention that its
structure is sui generis.
The PNRC succeeded the chapter of the American Red Cross which
was in existence in the Philippines since 1917. It was created by an
Act of Congress after the Republic of the Philippines became an
independent nation on July 6, 1946 and proclaimed on February 14,
1947 its adherence to the Convention of Geneva of July 29, 1929 for
the Amelioration of the Condition of the Wounded and Sick of Armies
in the Field (the "Geneva Red Cross Convention"). By that action the
Philippines indicated its desire to participate with the nations of the
world in mitigating the suffering caused by war and to establish in the
Philippines a voluntary organization for that purpose and like other
volunteer organizations established in other countries which have
ratified the Geneva Conventions, to promote the health and welfare
of the people in peace and in war.
The PNRC is one of the National Red Cross and Red Crescent
NATIONAL ECONOMY AND PATRIMONY
Societies, which, together with the International Committee of the
Red Cross (ICRC) and the IFRC and RCS, make up the International
Red Cross and Red Crescent Movement (the Movement)
A National Society partakes of a sui generis character. It is a
protected component of the Red Cross movement under Articles 24
and 26 of the First Geneva Convention, especially in times of armed
conflict. These provisions require that the staff of a National Society
shall be respected and protected in all circumstances. Such
protection is not ordinarily afforded by an international treaty to
ordinary private entities or even non-governmental organisations
(NGOs). This sui generis character is also emphasized by the Fourth
Geneva Convention which holds that an Occupying Power cannot
require any change in the personnel or structure of a National Society.
National societies are therefore organizations that are directly
regulated by international humanitarian law, in contrast to other
ordinary private entities, including NGOs
It is in recognition of this sui generis character of the PNRC that R.A.
No. 95 has remained valid and effective from the time of its
enactment in March 22, 1947 under the 1935 Constitution and during
the effectivity of the 1973 Constitution and the 1987 Constitution.
The PNRC, as a National Society of the International Red Cross and
Red Crescent Movement, can neither "be classified as an
instrumentality of the State, so as not to lose its character of neutrality"
as well as its independence, nor strictly as a private corporation since
it is regulated by international humanitarian law and is treated as an
auxiliary of the State. PNRC enjoys a special status as an important ally
and auxiliary of the government in the humanitarian field in
accordance with its commitments under international law. This Court

cannot all of a sudden refuse to recognize its existence, especially
since the issue of the constitutionality of the PNRC Charter was never
raised by the parties.
FALLO: WHEREFORE, we declare that the office of the Chairman of
the Philippine National Red Cross is not a government office or an
office in a government-owned or controlled corporation for purposes
of the prohibition in Section 13, Article VI of the 1987 Constitution. We
also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of
the Charter of the Philippine National Red Cross, or Republic Act No.
95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID
because they create the PNRC as a private corporation or grant it
corporate powers. SO ORDERED.
9. BOY SCOUTS V. COA [MURJANI]
FACTS: (BSP IS BOY SCOUTS OF THE PHILIPPINES)
COA issued Resolution No. 99-011 where the COA stated: (1) that the
BSP was created as a public corporation under Commonwealth Act
No. 111, as amended by Presidential Decree No. 460 and Republic
Act No. 7278; (2) that in BSP v. NLRC, the SC ruled that the BSP was a
“government-controlled corporation within the meaning of Article
IX(B)(2)(1) of the Constitution”; and that “the BSP is appropriately
regarded as a government instrumentality under the 1987
Administrative Code. The BSP sought reconsideration of the COA
Resolution in a letter signed by the BSP National President Jejomar C.
Binay.
The BSP argued that it is not a government-owned or controlled
NATIONAL ECONOMY AND PATRIMONY
corporation; neither is it an instrumentality, agency, or subdivision of
the government. In particular: (1) BSP v. NLRC is inapplicable for
purposes of determining the audit jurisdiction of the COA as the issue
therein was the jurisdiction of the NLRC over a case for illegal dismissal
and unfair labor practice; (2) that while the functions do relate to
those that the government might otherwise completely assume on its
own, this alone was not determinative of the COA’s audit jurisdiction
over it; (3) that the designation by the Court of the BSP as a
government agency or instrumentality is mere obiter dictum; and (4)
that RA. 7278 suggest that “governance of BSP has come to be
overwhelmingly a private affair or nature.
COA argued the following: (1) that BSP is a public corporation
created under Commonwealth Act No. 111 and whose functions
relate to the fostering of public virtues of citizenship and patriotism
and the general improvement of the moral spirit and fiber of the
youth; and (2) that RA 7278 did not change the character of the BSP
as a government-owned or controlled corporation and government
instrumentality.
ISSUE: WON BSP IS WITHIN THE JURISDICTION OF THE COA.
YES, BSP is a public entity.
HELD:
BSP is subject to COA’s Jurisdiction
Regarding COA’s jurisdiction over the BSP, Section 8 of its amended
charter allows the BSP to receive contributions or donations from the
government. Historically, the BSP had been subjected to government
audit in so far as public funds had been infused thereto.
Since the BSP, under its amended charter, continues to be a public
corporation or a government instrumentality, the Court concluded
that it is subject to the exercise by the COA of its audit jurisdiction in
the manner consistent with the provisions of the BSP Charter.

ISSUE: ON PATRIMONY Art. XII, Sec. 16 of the Constitution refers to
private corporations created by the government for proprietary or
economic/business purposes.
The BSP is an Attached Agency Under the
Administrative Code of 1987
As an attached agency, the BSP enjoys operational autonomy, as
long as policy and program coordination is achieved by having at
least one representative of government in its governing board, which
in the case of the BSP is the DECS Secretary.
In this sense, the BSP is not under government control or „supervision
and control. Still this characteristic does not make the attached
chartered agency a private As an attached agency, the BSP enjoys
operational autonomy, as long as policy and program coordination is
achieved by having at least one representative of government in its
governing board, which in the case of the BSP is the DECS Secretary.
In this sense, the BSP is not under government control or „supervision
and control. Still this characteristic does not make the attached
chartered agency a private
The BSP is a Public Corporation Not Subject to the Test of Government
Ownership or Control and Economic Viability
The BSP is a public corporation or a government agency or
instrumentality with juridical personality, which does not fall within the
constitutional prohibition in Article XII, Section 16, notwithstanding the
amendments to its charter. Not all corporations, which are not
government owned or controlled, are ipso facto to be considered
private corporations as there exists another distinct class of
corporations or chartered institutions which are otherwise known as
„public corporations.‰ These corporations are treated by law as
agencies or instrumentalities of the government which are not subject
to the tests of ownership
NATIONAL ECONOMY AND PATRIMONY
Section 16, Article XII deals with the formation, organization, or
regulation of private corporations which should be done through a
general law enacted by Congress, provides for an exception, that is: if
the corporation is government owned or controlled; its creation is in
the interest of the common good; and it meets the test of economic
viability. The rationale behind Article XII, Section 16 of the 1987
Constitution was explained in Feliciano v. Commission on Audit,53 in
the following manner:
The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens. The
purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other
citizens.
It may be gleaned from the above discussion that Article XII, Section
16 bans the creation of private corporations by special law. The said
constitutional provision should not be construed so as to prohibit the
creation of public corporations or a corporate agency or
instrumentality of the government intended to serve a public interest
or purpose, which should not be measured on the basis of economic
viability, but according to the public interest or purpose it serves as
envisioned by paragraph (2)of Article 44 of the Civil Code and the
pertinent provisions of the Administrative Code of 1987
NATIONAL ECONOMY AND PATRIMONY