EN BANC

[G.R. No. L-12719. May 31, 1962.]

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. THE CLUB FILIPINO, INC. DE CEBU, respondent.

Solicitor General for petitioner.

V .Jaime & L. E. Petilla for respondent.

SYLLABUS

1. TAXATION; PERCENTAGE TAX; BAR AND RESTAURANT; WHEN OPERATOR NOT ENGAGED IN BUSINESS. — The liability for fixed and percentage taxes
as provided by Section 182, 183 and 191 of the Tax Code does not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof
must be engaged in the business as a barkeeper and restauranteur.

2. ID.; WORDS AND PHRASES; "BUSINESS" MEANING OF. — The plain and ordinary meaning of a business is restricted to activities or affairs where profit is the
purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or
livelihood.

3. ID.; CLUB FILIPINO INC. DE CEBU; NOT ENGAGED IN BAR AND RESTAURANT. — The Club Filipino Inc. de Cebu was organized to develop and cultivate
sports of all class and denomination, for the healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining assets after paying debts shall
be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar and restaurant catered only to
its members and their guests; that there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray
its overall overhead expenses and to improve its golf course (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and
restaurant.

DECISION

PAREDES, J p:

This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of Internal
Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu," the sum of P12,068.84 as fixed and percentage
taxes, surcharge and compromise penalty, allegedly due from it as a keeper of bar and restaurant.
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation
organized under the laws of the Philippines, with an original authorized capital stock of P22,000.00, which was subsequently
increased to P200,000.00, among others, to "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums),
juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas
generales; y desarollar y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de
sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws
is there a provision relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's
remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club,
Exh. A-a).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and
a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-
restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds
derived from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its
golf-course. In 1951, as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of which
increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR
agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant, although it secured B-
4, B-9 (a) and B-7 licenses. In a letter dated December 22, 1952, the Collector of Internal Revenue assessed against and
demanded from the Club, the following sums:—
As percentage tax on its gross receipts during the  
taxyears 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the Club filed
the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of P12,068.84, as fixed and percentage taxes
and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was
made, in connection with the operation of its bar and restaurant, during the periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states "Unless otherwise provided, every person engaging in a business on which the
percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in which such
person shall engage in said business." Section 183 provides in general that "the percentage taxes on business shall be payable at
the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; etc." And section 191,
same Tax Code, provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax
three per centum, and keepers of bars and cafes where wines or liquors are served, five per centum of their gross receipts . . ." It
has been held that the liability for fixed and percentage taxes, as provided by these sections, does not ipso facto attach by mere
reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the business as a
barkeeper and restauranteur. The plain and ordinary meaning of business is restricted to activities or affairs where profit is the
purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and
ordinary meaning, restricted to activities for profit or livelihood (The Coll. of Int. Rev. vs. Manila Lodge No. 761 of the BPOE
[Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business";
Coll. of Int. Rev. vs. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are
similar to ones at bar; Manila Polo Club v. B.L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination, for the
healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying
debts, shall be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered only to its members and their guests; that there was in fact no
cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to
defray its overall overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that the Club is
not engaged in the business of an operator of bar and restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily
convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts' of the Club to foster its purposes and the
profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful
recreation and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-making
club. As has been remarked, a club should always strive, whenever possible, to have a surplus (Jesus Sacred Heart College vs.
Collector of Int. Revenue, G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276,
Oct. 23 1956).
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock corporation.
This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the
finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether
or not the Club is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the
actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown
by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court
concluded that the Club is not engaged in the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into
shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of
the shares held (sec. 3, Act No. 1459). In the case at bar, while the respondent Club's, capital stock is divided into shares, nowhere
in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law.
"A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, non-stock
organizations, unless the intent to the contrary is manifest and patent" (Collector vs. BPOE Elks Club, et al.,  supra), which is not
the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and
restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less of a
compromise penalty.
WHEREFORE, the decision appealed from, is affirmed, without costs.
 SECOND DIVISION

[G.R. No. 43350. December 23, 1937.]

CAGAYAN FISHING DEVELOPMENT CO., Inc., plaintiff-appellant, vs. TEODORO SANDIKO, defendant-appellee.

Arsenio P. Dizon for appellant.

 Sumulong, Lavides & Sumulong for appellee.

SYLLABUS

1. CORPORATIONS; TRANSFER MADE TO A NON-EXISTENT CORPORATION; JURIDICAL CAPACITY TO ENTER INTO A CONTRACT. — The transfer made
by T to the C. F. D. Co., Inc., was, effected on May 31, 1930 and the actual incorporation of said company was effected later on (October 22, 1930. In other words, the transfer was made
almost five months before the incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase and hold such real property as the purposes for
which such corporation was formed may permit and for this purpose may enter into such contracts as may be necessary. But before a corporation may be said to be lawfully organized,
many things have to be done. Among other things, the law requires the filing of articles of incorporation. Although there is a presumption that all the requirements of law have been
complied with in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into take contract of sale The contract itself referred to the plaintiff as
"una sociodad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the
contract.
2. ID.; ID.; ID. — Corporation are creatures of the law, and can only, come into existence in the manner prescribed by law. General laws authorizing the formation of
corporations are general offers to any persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to
be done, they are terms of the offer, and must be complied wish substantially before legal corporate existence can be acquired. That a corporation should have a full and complete
organization and existence as an entity before it can enter Into any kind of a contract or transact any business, would seem to be self-evident.
3. ID.; ID.; ID. — A corporation, until organized, has no life and, therefore, no faculties. It is, as it were, a child in  venture sa mere. This is not saying, that under no
circumstances may the acts of promoters of a corporation he ratified by the corporation if and when subsequently organized. There are, of course, exceptions, but under the peculiar facts
and circumstances of the present case the doctrine of ratification should not be extended because to do so would result in injustice or fraud to the candid and unwary.

DECISION

LAUREL, J p:

This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's
complaint.
Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of
Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as
Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the
Philippine National Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same
bank was in April of 1930 executed by Tabora over the same lands to guarantee the payment of another loan amounting to
P7,000. A third mortgage on the same lands was executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was
indebted in the sum of P2,900. These mortgages were registered and annotations thereof appear at the back of transfer certificate
of title No. 217.
On May 31, 1930, Tabora executed a public document entitled "Escritura de Traspaso de Propiedad Inmueble" (Exhibit
A) by virtue of which the four parcels of land owned by him were sold to the plaintiff company, said to be under process of
incorporation, in consideration of one peso (P1) subject to the mortgages in favor of the Philippine National Bank and Severina
Buzon and, to the condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff company
until the latter has fully and completely paid Tabora's indebtedness to the Philippine National Bank.
The plaintiff company filed its articles of incorporation with the Bureau of Commerce and Industry on October 22, 1930
(Exhibit 2). A year later, on October 28, 1931, the board of directors of the said company adopted a resolution (Exhibit G)
authorizing its president, Jose Ventura, to sell the four parcels of land in question to Teodoro Sandiko for P42,000. Exhibits B, C
and D were thereafter made and executed. Exhibit B is a deed of sale executed before a notary public by the terms of which the
plaintiff sold, ceded and transferred to the defendant all its rights, titles and interest in and to the four parcels of land described in
transfer certificate of title No. 217 for P25,300; and the defendant in turn obligated himself to shoulder the three mortgages
hereinbefore referred to. Exhibit C is a promissory note for P25,300 drawn by the defendant in favor of the plaintiff, payable after
one year from the date thereof. Exhibit D is a deed of mortgage executed before a notary public in accordance with which the four
parcels of land were given as security for the payment of the promissory note, Exhibit C. All these three instruments were dated
February 15, 1932.
The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this
action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300,
with interest at the legal rate from the date of the filing of the complaint, and the costs of the suit. After trial, the court below, on
December 18, 1934, rendered judgment absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for
new trial on January 14, 1935, which motion was denied by the trial court on January 19 of the same year. After due exception
and notice, plaintiff has appealed to this court and makes an assignment of various errors.
In dismissing the complaint against the defendant, the court below reached the conclusion that Exhibit B is invalid
because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm
the judgment appealed from for reasons which we shall presently state.
 The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was effected on May 31,
1930 (Exhibit A) and the actual incorporation of said company was effected later on October 22, 1930 (Exhibit 2). In other words,
the transfer was made almost five months before the incorporation of the company. Unquestionably, a duly organized corporation
has the power to purchase and hold such real property as the purposes for which such corporation was formed may permit and for
this purpose may enter into such contracts as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). But before a
corporation may be said to be lawfully organized, many things have to be done. Among other things, the law requires the filing of
articles of incorporation (secs. 6 et seq., Act No. 1459). Although there is a presumption that all the requirements of law have
been complied with (sec. 334, par. 31, Code of Civil Procedure), in the case before us it can not be denied that the plaintiff was
not yet incorporated when it entered into the contract of sale, Exhibit A. The contract itself referred to the plaintiff as "una
sociedad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in legal existence then, it did not
possess juridical capacity to enter into the contract.
"Corporations are creatures of the law, and can only come into existence in the manner prescribed by
law. As has already been stated, general laws authorizing the formation of corporations are general offers to any
persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the
statute, or certain acts are required to be done, they are terms of the offer, and must be complied with substantially
before legal corporate existence can be acquired." (14 C. J., sec. 111, p. 118.)
"That a corporation should have a full and complete organization and existence as an entity before it can
enter into any kind of a contract or transact any business, would seem to be self evident. . . . A corporation, until
organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to
bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a
corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete
existence." (Gent vs. Manufacturers and Merchants' Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit A) was entered into not only between Manuel Tabora and a
non-existent corporation but between Manuel Tabora as owner of four parcels of land on the one hand and the same Manuel
Tabora, his wife and others, as mere promoters of a corporation on the other hand. For reasons that are self-evident, these
promoters could not have acted as agents for a projected corporation since that which had no legal existence could have no agent.
A corporation, until organized, has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying
that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if and when subsequently
organized. There are, of course, exceptions (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), but under
the peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification which would result in the
commission of injustice or fraud to the candid and unwary. (Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E.,
907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N.
E., 128; Holyoke Envelope Co. vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora
was the registered owner of the four parcels of land, which he succeeded in mortgaging to the Philippine National Bank so that he
might have the necessary funds with which to convert and develop them into fishery. He appeared to have met with financial
reverses. He formed a corporation composed of himself, his wife, and a few others. From the articles of incorporation, Exhibit 2,
it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and
P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscriptions, P42,100 is made to appear as paid
by Tabora and P200 by his wife. Both Tabora and his wife were directors and the latter was treasurer as well. In fact, to this day,
the lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner of the lands. He dealt with
Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the contract, Exhibit B, in behalf of
the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the
same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against Tabora in the Court of First Instance of
Manila and in both cases a writ of attachment against the four parcels of land was issued. The Philippine National Bank
threatened to foreclose its mortgages. Tabora approached the defendant Sandiko and succeeded in making him sign Exhibits B, C,
and D and in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The
promissory note, Exhibit C, was made payable to the plaintiff company so that it may not be attached by Tabora's creditors, two
of whom had obtained writs of attachment against the four parcels of land.
 
If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not
possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.
Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing
Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion
suspensiva), namely, the payment of a mortgage debt of the said Tabora to the Philippine National Bank, and that this condition
not having been complied with by the Cagayan Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114,
Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that
the transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null because at the time it was effected
the corporation was non-existent, we deem it unnecessary to discuss this point.
The decision of the lower court is accordingly affirmed, with costs against the appellant. So ordered.
 FIRST DIVISION

[G.R. No. L-48627. June 30, 1987.]

FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioner, vs. THE HONORABLE COURT OF APPEALS and ALBERTO V.

ARELLANO, respondents.

DECISION

CRUZ, J p:

We gave limited due course to this petition on the question of the solidary liability of the petitioners with their co-
defendants in the lower court 1 because of the challenge to the following paragraph in the dispositive portion of the
decision of the respondent court: *
"1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for
the preparation of the project study and his technical services that led to the organization of the defendant
corporation, plus P10,000.00 attorney's fees;" 2
The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with the
private respondent regarding the above-mentioned services. Their position is that as mere subsequent investors in the corporation
that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and
with Barretto and Garcia, their co-defendants in the lower court, ** who were the ones who requested the said services from the
private respondent. 3
We are not concerned here with the petitioners' co-defendants, who have not appealed the decision  of the
respondent court and may, for this reason, be presumed to have accepted the same. For purposes of resolving this case before us,
it is not necessary to determine whether it is the promoters of the proposed corporation, or the corporation itself after its
organization, that shall be responsible for the expenses incurred in connection with such organization.
The only question we have to decide now is whether or not the petitioners themselves are also and personally liable for
such expenses and, if so, to what extent.
The reasons for the said order are given by the respondent court in its decision in this wise:
"As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the
preparation of the project study and the pre-organizational services in the amount of P50,000.00, not only the
defendant corporation but the other defendants including defendants Caram should he jointly and severally liable
for this amount. As we above related it was upon the request of defendants Barretto and Garcia that plaintiff
handled the preparation of the project study which project study was presented to defendant Caram so the latter
was convinced to invest in the proposed airlines. The project study was revised for purposes of presentation to
financiers and the banks. It was on the basis of this study that defendant corporation was actually organized and
rendered operational. Defendants Garcia and Caram, and Barretto became members of the Board and/or
officers of defendant corporation. Thus, not only the defendant corporation but all the other defendants who were
involved in the preparatory stages of the incorporation, who caused the preparation and/or benefited from the
project study and the technical services of plaintiff must be liable." 4
It would appear from the above justification that the petitioners were not really involved in the initial steps that finally
led to the incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit."
The finding of the respondent court is that the project study was undertaken by the private respondent at the request of Barretto
and Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the proposed airline. The study
could have been presented to other prospective investors. At any rate, the airline was eventually organized on the basis of the
project study with the petitioners as major stockholders and, together with Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth considering:
". . .. Since defendant Barretto was the moving spirit in the pre-organization work of defendant
corporation based on his experience and expertise, hence he was logically compensated in the
amount of P200,000.00 shares of stock not as industrial partner but more for is technical services that brought to
fruition the defendant corporation. By the same token, We find no reason why the plaintiff should not be similarly
compensated not only for having actively participated in the preparation of the project study for several months
and its subsequent revision but also in his having been involved in the pre-organization of the defendant
corporation, in the preparation of the franchise, in inviting the interest of the financiers and in the training and
screening of personnel. We agree that for these special services of the plaintiff the amount of P50,000.00 as
compensation is reasonable." 5
The above finding bolsters the conclusion that the petitioners were not involved in the initial stages  of the
organization of the airline, which were being directed by Barretto as the main promoter. It was he who was putting all the pieces
together, so to speak. The petitioners were merely among the financiers whose interest was to be invited and who were in fact
persuaded, on the strength of the project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a
separate juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible for its obligations.
As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate acts as duly authorized by its
officers and directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally liable for the compensation
claimed by the private respondent for the services performed by him in the organization  of the corporation. To repeat, the
petitioners did not contract such services. It was only the results of such services that Barretto and Garcia presented to them and
which persuaded them to invest in the proposed airline. The most that can be said is that they benefited from such services, but
that surely is no justification to hold them personally liable therefor. Otherwise, all the other stockholders of the corporation,
including those who came in later, and regardless of the amount of their shareholdings, would be equally and personally liable
also with the petitioners for the claims of the private respondent.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is that it is opposed to
the imposition of solidary responsibility upon the Carams but seems to be willing, in a vague, unexpressed offer  of compromise,
to accept joint liability. While it is true that it does here and there disclaim total liability, the thrust of the petition seems to be
against the imposition of solidary liability only rather than against any liability at all, which is what it should have categorically
argued.
 Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and severally, under the first
paragraph of the dispositive portion of the challenged decision. So holding, we find it unnecessary to examine at this time the
rules on solidary obligations, which the parties — needlessly, as it turns out — have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged decision, which is
hereby modified accordingly. It is so ordered.
||| (Caram, Jr. v. Court of Appeals, G.R. No. L-48627, [June 30, 1987], 235 PHIL 369-374)

SECOND DIVISION

[G.R. No. 93073. December 21, 1992.]

REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents.

SYLLABUS

1. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; PROMISSORY NOTES; CO-MAKER; CANNOT ESCAPE LIABILITY ARISING THEREFROM;
CASE AT BAR. — Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. By signing the notes, the
maker promises to pay to the order of the payee or any holder according to the tenor thereof. Based on the above provisions of law, there is no denying that private respondent Fermin
Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom.

2. ID.; ID.; ID.; LIABILITY THERETO IS SOLIDARY WHERE SINGULAR PRONOUN ARE USED IN THE INSTRUMENT. — Where an instrument containing the
words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. An instrument which begins with "I", "We", or "Either of us"
promise to pay, when signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is used indicates that the promise is individual as to each other;
meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full.

3. ID.; ID.; ID.; JOINT AND SEVERAL OBLIGATION, CONSTRUED; CASE AT BAR. — In the case at bar, the solidary liability of private respondent Fermin Canlas is
made clearer and certain, without reason for ambiguity, by the presence of the phrase "Joint and several" as describing the unconditional promise to pay to the order of Republic Planters
Bank. A joint and several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor
may select one or more as the object of the suit. A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such
wise that each is liable for the entire amount, and not merely for his proportionate share. By making a joint and several promise to pay to the order of Republic Planters Bank, private
respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing
Corporation as solidary debtors.

4. ID.; ID.; ID.; LIABILITY THERETO NOT AFFECTED BY CHANGE OF CORPORATE NAME; REASON. — Finally, the respondent Court made a grave error in
holding that an amendment in a corporation's Articles of Incorporation effecting a change of corporate name, in this case from Worldwide Garment Manufacturing, Inc. to Pinch
Manufacturing Corporation, extinguished the personality of the original corporation. The corporation, upon such change in its name, is in no sense a new corporation, nor the successor
of the original corporation. It is the same corporation with a different name, and its character is in no respect changed. A change in the corporate name does not make a new corporation,
and whether effected by special act or under a general law, has no effect on the identity of the corporation, or on its property, rights, or liabilities. The corporation continues, as before,
responsible in its new name for all debts or other liabilities which it had previously contracted or incurred.

5. ID.; ID.; LIABILITY OF AN AGENT TO AN INSTRUMENT IS PERSONAL WHEN THERE IS FAILURE TO DISCLOSE PRINCIPAL. — As a general rule,
officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such
officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is
still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for in Section
20 thereof. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable on
the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not
exempt him from personal liability.

6. ID.; ID.; PROMISSORY NOTES; RULE IN THE CASE OF REFORMINA VS. TOMOL (139 SCRA 260 [1985]), NOT APPLICABLE TO INSTRUMENTS WITH
STIPULATED INTEREST; CASE AT BAR. — This Court takes note that the respondent Court, relying on  Reformina vs. Tomol, lowered the interest rate on the promissory notes from
16% to 12%. The ruling in the case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the promissory notes from 16% to 12% per annum does not
squarely apply to the instant petition. In the abovecited case, the rate of 12% was applied to forebearances of money, goods or credit and court judgments thereon, only in the absence of
any stipulation between the parties. In the case at bar however, it was found by the trial court that the rate of interest is 9% per annum, which interest rate the plaintiff may at any time
without notice, raise within the limits allowed by law. And so, as of February 16, 1984, the plaintiff had fixed the interest at 16% per annum.

7. ID.; USURY LAW; RATE, APPLICABLE ONLY TO INTEREST FOR USE OR FORBEARANCE OF MONEY; INCREASE IN RATE, NOT SUBJECT TO ANY
CEILING. — This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to interests by way of compensation for the use or
forebearance of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. This fine distinction was not taken into consideration by the appellate
court, which instead made a general statement that the interest rate be at 12% per annum. Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling
prescribed by the Usury Law, the appellate court erred in limiting the interest rate at 12% per annum. Central Bank Circular No. 905, Series of 1982 removed  the Usury Law ceiling on
interest rates.

DECISION

CAMPOS, JR., J p:

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R.
CV No. 07302, entitled "Republic Planters Bank, Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants and
Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except that it completely
absolved Fermin Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. The
RTC decision, rendered on June 20, 1985, is quoted hereunder:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters
Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.)
and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following
sums with interest thereon at 16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until fully
paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980; under
the promissory note (Exhibit "C"), the sum of P166,466.00 with interest from January 29, 1981; under the
promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29, 1981; under the promissory
note (Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980; under the promissory note
(Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981; and under the promissory note
(Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named
Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi are ordered to pay, jointly and severally, the
plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1981 until fully paid. llcd
Under the promissory note (Exhibit "F"), defendant corporation Pinch (formerly Worldwide) is ordered to pay the
plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formerly Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with interest
at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from March 28,
1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and for
reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from
the dates above stated as penalty charge until fully paid, plus one percent (1%) of the principal sums as service
charge.
With costs against the defendants.
SO ORDERED." 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Appellate Court (now the
Court of Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct
Worldwide Garment Manufacturing, Inc., he should not be held personally liable for such authorized corporate acts that he
performed. It is now the contention of the petitioner Republic Planters Bank that having unconditionally signed the nine (9)
promissory notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarily liable with Shozo
Yamaguchi on each of the nine notes.
We find merit in this appeal.
 From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were
President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc. By virtue of Board
Resolution No. 1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to
apply for credit facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust
receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of which were
uniformly worded in the following manner:
"_____________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the
REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of __________ PESOS ( ),
Philippine Currency . . . ."
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas
above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory
notes appeared: "Please credit proceeds of this note to:
_____ Savings Account ___ XX Current Account No. 1372-00257-6 of WORLDWIDE GARMENT MFG.
CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was
apparently rubber stamped above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. voted to change its corporate name to Pinch
Manufacturing Corporation. cdll
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the
nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The complaint was originally brought
against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as
defendant and substitute Pinch Manufacturing Corporation in its place. Defendants Pinch Manufacturing Corporation and Shozo
Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only
private respondent Fermin Canlas filed an Amended Answer wherein he denied having issued the promissory notes in question
since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment
Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the
same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent Fermin
Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine
promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature
for the following reasons:
The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2
Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers and
are liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee or any holder 5 Based on the above
provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As
such, he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be
jointly and severally liable thereon. 6 An instrument which begins with "I", "We", or "Either of us" promise to pay, when signed
by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is
individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay
the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason
for ambiguity, by the presence of the phrase "Joint and several" as describing the unconditional promise to pay to the order of
Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and individually to the
payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit.  8 A
joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in
such wise that each is liable for the entire amount, and not merely for his proportionate share.  9 By making a joint and several
promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary liability of a debtor
and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing
Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the
notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and will not
affect the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. With or without the presence of
said phrase, private respondent Fermin Canlas is primarily liable as a co maker of each of the notes and his liability is that of a
solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of
Incorporation effecting a change of corporate name, in this case from Worldwide Garment Manufacturing, Inc. to Pinch
Manufacturing Corporation, extinguished the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original
corporation. It is the same corporation with a different name, and its character is in no respect changed. 10
A change in the corporate name does not make a new corporation, and whether effected by special act or under a general
law, has no effect on the identity of the corporation, or on its property, rights, or liabilities. 11
The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously
contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts
entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old
corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name
is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person
signing as an agent is specifically provided for as follows: LibLex
SECTION 20. Liability of a person signing as agent and so forth. — Where the instrument contains or a person
adds to his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity,
he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an
agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal
liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a
representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to the
holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic
evidence is not admissible to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule
otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes
generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are
incomplete because there are blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of
interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the borrower-debtor's
perusal. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the
Negotiable Instruments Law which provides, in so far as relevant to this case, thus:
SECTION 14. Blanks; when may be filled. — Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. . . . In
order, however, that any such instrument when completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within
a reasonable time. . . .
Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as
determined by the trial court, so that the trial court "doubts that the defendant (Canlas) signed in blank the promissory notes". We
chose to believe the bank's testimony that the notes were filled up before they were given to private respondent Fermin Canlas and
defendant Shozo Yamaguchi for their signatures as joint and several promissors. For signing the notes above their typewritten
names, they bound themselves as unconditional makers. We take judicial notice of the customary procedure of commercial banks
of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as
per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to
sign as makers or co-makers. When the notes were given to private respondent Fermin Canlas for his signature, the notes were
complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were
not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14
of the Negotiable Instruments Law is not applicable.
This Court takes note that the respondent Court, relying on Reformina vs. Tomol, 14 lowered the interest rate on the
promissory notes from 16% to 12%.
The ruling in the case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the
promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the rate of
12% was applied to forebearances of money, goods or credit and court judgments thereon, only in the absence of any stipulation
between the parties.
 In the case at bar however, it was found by the trial court that the rate of interest is 9% per annum, which interest rate the
plaintiff may at any time without notice, raise within the limits allowed by law. And so, as of February 16, 1984, the plaintiff had
fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only
to interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand,
governs interests by way of damages. 15 This fine distinction was not taken into consideration by the appellate court, which
instead made a general statement that the interest rate be at 12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by  the Usury
Law, the appellate court erred in limiting the interest rate at 12% per annum. Central Bank Circular No. 905, Series of 1982
removed the Usury Law ceiling on interest rates. 16
In the light of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the
decision of the respondent Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE.
Judgment is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the nine promissory
notes with the following sums and at 16% interest per annum from the dates indicated, to wit:
Under the promissory note marked as Exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully
paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980; under the
promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the promissory
note denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the
promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the promissory note
marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid; under the promissory note
marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H,
the sum of P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of
P200,000.00 with interest from January 29, 1981. LLpr
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and
Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment
rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held
jointly and solidarily liable with defendants for the amounts found by the Court a quo. With costs against private respondent.
 THIRD DIVISION

[G.R. No. 175278. September 23, 2015.]

GSIS FAMILY BANK — THRIFT BANK [Formerly Comsavings Bank, Inc.], petitioner, vs. BPI FAMILY BANK, respondent.

DECISION

JARDELEZA, J p:

This is a Petition for Review on Certiorari filed by GSIS Family Bank — Thrift Bank 1 assailing the Court of Appeals
Decision 2 dated March 29, 2006 (Decision) and Resolution 3 dated October 23, 2006 which denied petitioner's petition for
review of the Securities and Exchange Commission Decision dated February 22, 2005 (SEC En Banc Decision). The SEC En
Banc Decision 4 prohibited petitioner from using the word "Family" as part of its corporate name and ordered petitioner to delete
the word from its name. 5
Facts
Petitioner was originally organized as Royal Savings Bank and started operations in 1971. Beginning 1983 and 1984,
petitioner encountered liquidity problems. On July 9, 1984, it was placed under receivership and later temporarily closed by the
Central Bank of the Philippines. Two (2) months after its closure, petitioner reopened and was renamed Comsavings Bank, Inc.
under the management of the Commercial Bank of Manila. 6
In 1987, the Government Service Insurance System (GSIS) acquired petitioner from the Commercial Bank of Manila.
Petitioner's management and control was thus transferred to GSIS. 7 To improve its marketability to the public, especially to the
members of the GSIS, petitioner sought Securities and Exchange Commission (SEC) approval to change its corporate name to
"GSIS Family Bank, a Thrift Bank." 8 Petitioner likewise applied with the Department of Trade and Industry (DTI) and Bangko
Sentral ng Pilipinas (BSP) for authority to use "GSIS Family Bank, a Thrift Bank" as its business name. The DTI and the BSP
approved the applications. 9 Thus, petitioner operates under the corporate name "GSIS Family Bank — a Thrift Bank," pursuant
to the DTI Certificate of Registration No. 741375 and the Monetary Board Circular approval. 10
Respondent BPI Family Bank was a product of the merger between the Family Bank and Trust Company (FBTC) and
the Bank of the Philippine Islands (BPI). 11 On June 27, 1969, the Gotianum family registered with the SEC the corporate name
"Family First Savings Bank," which was amended to "Family Savings Bank," and then later to "Family Bank and Trust
Company." 12 Since its incorporation, the bank has been commonly known as "Family Bank." In 1985, Family Bank merged
with BPI, and the latter acquired all the rights, privileges, properties, and interests of  Family Bank, including the right to use
names, such as "Family First Savings Bank," "Family Bank," and "Family Bank and Trust
Company." BPI Family Savings Bank was registered with the SEC as a wholly-owned subsidiary
of BPI. BPI Family Savings Bank then registered with the Bureau of Domestic Trade the trade or business name
"BPI Family Bank," and acquired a reputation and goodwill under the name. 13
Proceedings before the SEC
Eventually, it reached respondent's attention that petitioner is using or attempting to use the name "Family  Bank." Thus,
on March 8, 2002, respondent petitioned the SEC Company Registration and Monitoring Department (SEC CRMD) to disallow
or prevent the registration of the name "GSIS Family Bank" or any other corporate name with the words "Family Bank" in it.
Respondent claimed exclusive ownership to the name "Family Bank," having acquired the name since its purchase and merger
with Family Bank and Trust Company way back 1985. 14 Respondent also alleged that through the years, it has been known as
"BPI Family Bank" or simply "Family Bank" both locally and internationally. As such, it has acquired a reputation and goodwill
under the name, not only with clients here and abroad, but also with correspondent and competitor banks, and the public in
general. 15
Respondent prayed the SEC CRMD to disallow or prevent the registration of the name "GSIS Family Bank" or any other
corporate name with the words "Family Bank" should the same be presented for registration. Respondent likewise prayed the SEC
CRMD to issue an order directing petitioner or any other corporation to change its corporate name if the names have already been
registered with the SEC. 16
The SEC CRMD was thus confronted with the issue of whether the names BPI Family Bank and GSIS Family Bank are
confusingly similar as to require the amendment of the name of the latter corporation. IAETDc
The SEC CRMD declared that upon the merger of FBTC with the BPI in 1985, the latter acquired the right to the use of
the name of the absorbed corporation. Thus, BPI Family Bank has a prior right to the use of the name Family Bank in the banking
industry, arising from its long and extensive nationwide use, coupled with its registration with the Intellectual Property Office
(IPO) of the name "Family Bank" as its trade name. Applying the rule of "priority in registration" based on the legal maxim first
in time, first in right, the SEC CRMD concluded that BPI has the preferential right to the use of the name "Family Bank."
More, GSIS and Comsavings Bank were then fully aware of the existence and use of the name "Family Bank" by FBTC prior to
the latter's merger with BPI. 17
The SEC CRMD also held that there exists a confusing similarity between the corporate
names BPI Family Bank and GSIS Family Bank. It explained that although not identical, the corporate names are indisputably
similar, as to cause confusion in the public mind, even with the exercise of reasonable care and observation, especially so since
both corporations are engaged in the banking business. 18
In a decision 19 dated May 19, 2003, the SEC CRMD said,
PREMISES CONSIDERED respondent GSIS FAMILY BANK is hereby directed to refrain from
using the word "Family" as part of its name and make good its commitment to change its name by deleting or
dropping the subject word from its corporate name within [thirty (30) days] from the date of actual receipt
hereof. 20
Petitioner appealed 21 the decision to the SEC En Banc, which denied the appeal, and upheld the SEC CRMD in the
SEC En Banc Decision. 22 Petitioner elevated the SEC En Banc Decision to the Court of Appeals, raising the following issues:
1. Whether the use by GSIS Family Bank of the words "Family Bank" is deceptively and confusingly similar to the
name BPI Family Bank;
2. Whether the use by Comsavings Bank of "GSIS Family Bank" as its business constitutes unfair competition;
3. Whether BPI Family Bank is guilty of forum shopping;
4. Whether the approval of the DTI and the BSP of petitioner's application to use the
name GSIS Family Bank constitutes its authority to the lawful and valid use of such trade name or trade mark;
5. Whether the application of respondent BPI Family Bank for the exclusive use of the name "Family Bank," a generic
name, though not yet approved by IPO of the Bureau of Patents, has barred the GSIS Family Bank from using
such trade mark or name. 23 CTIEac
Court of Appeals Ruling
The Court of Appeals ruled that the approvals by the BSP and by the DTI of petitioner's application to use the name
"GSIS Family Bank" do not constitute authority for its lawful and valid use. It said that the SEC has absolute jurisdiction,
supervision and control over all corporations. 24 The Court of Appeals held that respondent was entitled to the exclusive use of
the corporate name because of its prior adoption of the name "Family Bank" since 1969. 25 There is confusing similarity in the
corporate names because "[c]onfusion as to the possible association with GSIS might arise if we were to allow
Comsavings Bank to add its parent company's acronym, 'GSIS' to 'Family Bank.' This is true especially considering both
companies belong to the banking industry. Proof of actual confusion need not be shown. It suffices that confusion is probably or
likely to occur." 26 The Court of Appeals also ruled out forum shopping because not all the requirements of litis pendentia are
present. 27
The dispositive portion of the decision read,
WHEREFORE, the instant petition for review is hereby DISMISSED for lack of merit. 28
After its Motion for Reconsideration was denied, 29 petitioner brought the decision to this Court via a Petition for
Review on Certiorari. 30
Issues in the Petition
Petitioner raised the following issues in its petition:
I. The Court of Appeals gravely erred in affirming the SEC Resolution finding the word "Family" not generic despite its
unregistered status with the IPO of the Bureau of Patents and the use by GSIS-Family Bank in its corporate
name of the words "[F]amily [B]ank" as deceptive and [confusingly similar] to the name BPI Family Bank; 31
 II. The Court of Appeals gravely erred when it ruled that the respondent is not guilty of forum shopping despite the filing
of three (3) similar complaints before the DTI and BSP and with the SEC without the requisite certification of
non-forum shopping attached thereto; 32
III. The Court of Appeals gravely erred when it completely disregarded the opinion of the Banko Sentral ng Pilipinas
that the use by the herein petitioner of the trade name GSIS Family Bank — Thrift Bank is not similar or does
not deceive or likely cause any deception to the public. 33
Court's Ruling
We uphold the decision of the Court of Appeals.
Section 18 of the Corporation Code provides,
Section 18. Corporate name. — No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the Commission shall issue an amended
certificate of incorporation under the amended name.
In Philips Export B.V. v. Court of Appeals, 34 this Court ruled that to fall within the prohibition of the law on the right
to the exclusive use of a corporate name, two requisites must be proven, namely: DcHSEa
 
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any existing corporation or to any other name already protected
by law; or
(c) patently deceptive, confusing or contrary to existing law. 35
These two requisites are present in this case. On the first requisite of a prior right, Industrial Refractories Corporation of
the Philippines v. Court of Appeals (IRCP case) 36 is instructive. In that case, Refractories Corporation of the Philippines (RCP)
filed before the SEC a petition to compel Industrial Refractories Corporation of the Philippines (IRCP) to change its corporate
name on the ground that its corporate name is confusingly similar with that of RCP's such that the public may be confused into
believing that they are one and the same corporation. The SEC and the Court of Appeals found for petitioner, and ordered IRCP
to delete or drop from its corporate name the word "Refractories." Upon appeal of IRCP, this Court upheld the decision of the
CA.
Applying the priority of adoption rule to determine prior right, this Court said that RCP has acquired the right to use the
word "Refractories" as part of its corporate name, being its prior registrant. In arriving at this conclusion, the Court considered
that RCP was incorporated on October 13, 1976 and since then continuously used the corporate name "Refractories Corp. of the
Philippines." Meanwhile, IRCP only started using its corporate name "Industrial Refractories Corp. of the Philippines" when it
amended its Articles of Incorporation on August 23, 1985. 37
In this case, respondent was incorporated in 1969 as Family Savings Bank and in 1985 as BPI Family Bank. Petitioner,
on the other hand, was incorporated as GSIS Family — Thrift Bank only in 2002, 38 or at least seventeen (17) years after
respondent started using its name. Following the precedent in the IRCP case, we rule that respondent has the prior right over the
use of the corporate name.
The second requisite in the Philips Export case likewise obtains on two points: the proposed name is (a) identical or (b)
deceptive or confusingly similar to that of any existing corporation or to any other name already protected by law.
On the first point (a), the words "Family Bank" present in both petitioner and respondent's corporate name satisfy the
requirement that there be identical names in the existing corporate name and the proposed one. Respondent cannot justify its
claim under Section 3 of the Revised Guidelines in the Approval of Corporate and Partnership Names, 39 to wit:
3. The name shall not be identical, misleading or confusingly similar to one already registered by another
corporation or partnership with the Commission or a sole proprietorship registered with the Department of
Trade and Industry.
If the proposed name is similar to the name of a registered firm, the proposed name must contain at least one
distinctive word different from the name of the company already registered.
Section 3 states that if there be identical, misleading or confusingly similar name to one already registered by another
corporation or partnership with the SEC, the proposed name must contain at least one distinctive word different from the name of
the company already registered. To show contrast with respondent's corporate name, petitioner used the words "GSIS" and
"thrift." But these are not sufficiently distinct words that differentiate petitioner's corporate name from respondent's. While
"GSIS" is merely an acronym of the proper name by which petitioner is identified, the word "thrift" is simply a classification of
the type of bank that petitioner is. Even if the classification of the bank as "thrift" is appended to petitioner's proposed corporate
name, it will not make the said corporate name distinct from respondent's because the latter is likewise engaged in the banking
business.
This Court used the same analysis in Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bansang
Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan. 40 In that case, Iglesia ng Dios Kay Cristo
Jesus filed a case before the SEC to compel Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus to change its corporate name,
and to prevent it from using the same or similar name on the ground that the same causes confusion among their members as well
as the public. Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus claimed that it complied with SEC Memorandum Circular
No. 14-2000 by adding not only two, but eight words to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang
Pilipinas, Inc.," which effectively distinguished it from Iglesia ng Dios Kay Cristo Jesus. This Court rejected the argument, thus:
The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as
correctly observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of
respondent who are likewise residing in the Philippines. These words can hardly serve as an effective
differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from respondent.
This is especially so, since both petitioner and respondent corporations are using the same acronym — H.S.K.;
not to mention the fact that both are espousing religious beliefs and operating in the same place. . . . 41
On the second point (b), there is a deceptive and confusing similarity between petitioner's proposed name and
respondent's corporate name, as found by the SEC. 42 In determining the existence of confusing similarity in corporate names,
the test is whether the similarity is such as to mislead a person using ordinary care and discrimination. 43 And even without such
proof of actual confusion between the two corporate names, it suffices that confusion is probable or likely to occur. 44
Petitioner's corporate name is "GSIS Family Bank — A Thrift Bank" and respondent's corporate name is
"BPI Family Bank." The only words that distinguish the two are "BPI," "GSIS," and "Thrift." The first two words are merely the
acronyms of the proper names by which the two corporations identify themselves; and the third word simply describes the
classification of the bank. The overriding consideration in determining whether a person, using ordinary care and discrimination,
might be misled is the circumstance that both petitioner and respondent are engaged in the same business of banking. "The
likelihood of confusion is accentuated in cases where the goods or business of one corporation are the same or substantially the
same to that of another corporation." 45 SCaITA
Respondent alleged that upon seeing a Comsavings Bank branch with the signage "GSIS Family Bank" displayed at its
premises, some of the respondent's officers and their clients began asking questions. These include whether GSIS has
acquired Family Bank; whether there is a joint arrangement between GSIS and Family Bank; whether there is a joint arrangement
between BPI and GSIS regarding Family Bank; whether Comsavings Bank has acquired Family Bank; and whether there is there
an arrangement among Comsavings Bank, GSIS, BPI,
and Family Bank regarding BPI Family Bank and GSIS Family Bank. 46 The SEC made a finding that "[i]t is not a remote
possibility that the public may entertain the idea that a relationship or arrangement indeed exists between  BPI and GSIS due to the
use of the term 'Family Bank' in their corporate names." 47
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by this Court, if
supported by substantial evidence, in recognition of their expertise on the specific matters under their consideration, more so if the
same has been upheld by the appellate court, as in this case. 48
Petitioner cannot argue that the word "family" is a generic or descriptive name, which cannot be appropriated exclusively
by respondent. "Family," as used in respondent's corporate name, is not generic. Generic marks are commonly used as the name
or description of a kind of goods, such as "Lite" for beer or "Chocolate Fudge" for chocolate soda drink. Descriptive marks, on
the other hand, convey the characteristics, function, qualities or ingredients of a product to one who has never seen it or does not
know it exists, such as "Arthriticare" for arthritis medication. 49
Under the facts of this case, the word "family" cannot be separated from the word "bank." 50 In asserting their claims
before the SEC up to the Court of Appeals, both petitioner and respondent refer to the phrase "Family Bank" in their submissions.
This coined phrase, neither being generic nor descriptive, is merely suggestive and may properly be regarded as arbitrary.
Arbitrary marks are "words or phrases used as a mark that appear to be random in the context of its use. They are generally
considered to be easily remembered because of their arbitrariness. They are original and unexpected in relation to the products
they endorse, thus, becoming themselves distinctive." 51 Suggestive marks, on the other hand, "are marks which merely suggest
some quality or ingredient of goods. . . . The strength of the suggestive marks lies on how the public perceives the word in
relation to the product or service." 52
In Ang v. Teodoro, 53 this Court ruled that the words "Ang Tibay" is not a descriptive term within the meaning of the
Trademark Law but rather a fanciful or coined phrase. 54 In so ruling, this Court considered the etymology and meaning of the
 Tagalog words, "Ang Tibay" to determine whether they relate to the quality or description of the merchandise to which
respondent therein applied them as trademark, thus:
We find it necessary to go into the etymology and meaning of the Tagalog words "Ang Tibay" to
determine whether they are a descriptive term, i.e., whether they relate to the quality or description of the
merchandise to which respondent has applied them as a trade-mark. The word "ang" is a definite article
meaning "the" in English. It is also used as an adverb, a contraction of the word "anong" (what or how). For
instance, instead of saying, "Anong ganda!" ("How beautiful!"), we ordinarily say, "Ang ganda!" Tibay is a root
word from which are derived the verb magpatibay (to strengthen); the nouns pagkamatibay (strength,
durability), katibayan (proof, support, strength), katibaytibayan (superior strength); and the
adjectives matibay (strong, durable, lasting), napakatibay (very strong), kasintibay or magkasintibay (as strong
as, or of equal strength). The phrase "Ang Tibay" is an exclamation denoting admiration of strength or
durability. For instance, one who tries hard but fails to break an object exclaims, "Ang tibay!" ("How strong!")
It may also be used in a sentence thus, "Ang tibay ng sapatos mo!" ("How durable your shoes are!") The phrase
"ang tibay" is never used adjectively to define or describe an object. One does not say, "ang tibay sapatos" or
"sapatos ang tibay" to mean "durable shoes," but "matibay na sapatos" or "sapatos na matibay."
 
From all of this we deduce that "Ang Tibay" is not a descriptive term within the meaning of the Trade-
Mark Law but rather a fanciful or coined phrase which may properly and legally be appropriated as a trade-
mark or trade-name. . . . 55 (Underscoring supplied).
The word "family" is defined as "a group consisting of parents and children living together in a household" or "a group
of people related to one another by blood or marriage." 56 Bank, on the other hand, is defined as "a financial establishment that
invests money deposited by customers, pays it out when requested, makes loans at interest, and exchanges currency."  57 By
definition, there can be no expected relation between the word "family" and the banking business of respondent. Rather, the words
suggest that respondent's bank is where family savings should be deposited. More, as in the Ang case, the phrase "family bank"
cannot be used to define an object.
Petitioner's argument that the opinion of the BSP and the certificate of registration granted to it by the DTI constitute
authority for it to use "GSIS Family Bank" as corporate name is also untenable.
The enforcement of the protection accorded by Section 18 of the Corporation Code to corporate names is lodged
exclusively in the SEC. The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in Section 5 of
the SEC Reorganization Act, 58 as amended. 59 By express mandate, the SEC has absolute jurisdiction, supervision and control
over all corporations. 60 It is the SEC's duty to prevent confusion in the use of corporate names not only for the protection of the
corporations involved, but more so for the protection of the public. It has authority to de-register at all times, and under all
circumstances corporate names which in its estimation are likely to generate confusion. 61
The SEC 62 correctly applied Section 18 of the Corporation Code, and Section 15 of SEC Memorandum Circular No.
14-2000, pertinent portions of which provide:
In implementing Section 18 of the Corporation Code of the Philippines (BP 69), the following revised
guidelines in the approval of corporate and partnership names are hereby adopted for the information and
guidance of all concerned:
xxx xxx xxx
15. Registrant corporations or partnership shall submit a letter undertaking to change their corporate or
partnership name in case another person or firm has acquired a prior right to the use of the said firm name or the
same is deceptively or confusingly similar to one already registered unless this undertaking is already included
as one of the provisions of the articles of incorporation or partnership of the registrant. cAaDHT
The SEC, after finding merit in respondent's claims, can compel petitioner to abide by its commitment "to change its
corporate name in the event that another person, firm or entity has acquired a prior right to use of said name or one similar to
it." 63
Clearly, the only determination relevant to this case is that one made by the SEC in the exercise of its express mandate
under the law. The BSP opinion invoked by petitioner even acknowledges that "the issue on whether a proposed name is identical
or deceptively similar to that of any of existing corporation is matter within the official jurisdiction and competence of the
SEC." 64
Judicial notice 65 may also be taken of the action of the IPO in approving respondent's registration of the trademark
"BPI Family Bank" and its logo on October 17, 2008. The certificate of registration of a mark shall be prima facie evidence of the
validity of the registration, the registrant's ownership of the mark, and of the registrant's exclusive right to use the same in
connection with the goods or services and those that are related thereto specified in the certificate. 66
 Finally, we uphold the Court of Appeals' finding that the issue of forum shopping was belatedly raised by petitioner and,
thus, cannot anymore be considered at the appellate stage of the proceedings. Petitioner raised the issue of forum shopping for the
first time only on appeal. 67 Petitioner argued that the complaints filed by respondent did not contain certifications against non-
forum shopping, in violation of Section 5, Rule 7 of the Rules of Court. 68
In S.C. Megaworld Construction and Development Corporation vs. Parada, 69 this Court said that objections relating to
non-compliance with the verification and certification of non-forum shopping should be raised in the proceedings below, and not
for the first time on appeal. In that case, S.C. Megaworld argued that the complaint for collection of sum of money should have
been dismissed outright by the trial court on account of an invalid non-forum shopping certification. It alleged that the Special
Power of Attorney granted to Parada did not specifically include an authority for the latter to sign the verification and certification
of non-forum shopping, thus rendering the complaint defective for violation of Sections 4 and 5 of Rule 7 of the Rules of Court.
On motion for reconsideration of the decision of the Court of Appeals, petitioner raised for the first time, the issue of forum
shopping. The Court ruled against S.C. Megaworld, thus:
It is well-settled that no question will be entertained on appeal unless it has been raised in the
proceedings below. Points of law, theories, issues and arguments not brought to the attention of the lower
court, administrative agency or quasi-judicial body, need not be considered by a reviewing court, as they
cannot be raised for the first time at that late stage. Basic considerations of fairness and due process impel this
rule. Any issue raised for the first time on appeal is barred by estoppel. 70
In this case, the fact that respondent filed a case before the DTI was made known to petitioner 71 long before the SEC
rendered its decision. Yet, despite its knowledge, petitioner failed to question the alleged forum shopping before the SEC. The
exceptions to the general rule that forum shopping should be raised in the earliest opportunity, as explained in the cited case
of Young v. Keng Seng, 72 do not obtain in this case.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals dated March 29, 2006 is
hereby AFFIRMED.
SO ORDERED. HCaDIS
||| (GSIS Family Bank — Thrift Bank v. BPI Family Bank, G.R. No. 175278, [September 23, 2015], 770 PHIL 158-179)

THIRD DIVISION

[G.R. No. 184008. August 3, 2016.]

INDIAN CHAMBER OF COMMERCE PHILS., INC., petitioner, vs. FILIPINO INDIAN CHAMBER OF COMMERCE IN THE PHILIPPINES,
INC., respondent.

DECISION

JARDELEZA, J p:

This is a Petition for Review on Certiorari 1 assailing the Decision and Resolution of the Court of Appeals (CA)
dated May 15, 2008 2 and August 4, 2008, 3 respectively, in CA-G.R. SP No. 97320. The Decision and Resolution affirmed the
Securities and Exchange Commission En Banc (SEC En Banc) Decision dated November 30, 2006 4 directing petitioner Indian
Chamber of Commerce Phils., Inc. to modify its corporate name.
 The Facts
Filipino-Indian Chamber of Commerce of the Philippines, Inc. (defunct FICCPI) was originally registered with the SEC
as Indian Chamber of Commerce of Manila, Inc. on November 24, 1951, with SEC Registration Number 6465. 5 On October 7,
1959, it amended its corporate name into Indian Chamber of Commerce of the Philippines, Inc., and further amended it into
Filipino-Indian Chamber of Commerce of the Philippines, Inc. on March 4, 1977. 6 Pursuant to its Articles of Incorporation, and
without applying for an extension of its corporate term, the defunct FICCPI's term of existence expired on November 24, 2001. 7
SEC Case No. 05-008
On January 20, 2005, Mr. Naresh Mansukhani (Mansukhani) reserved the corporate name "Filipino Indian Chamber of
Commerce in the Philippines, Inc." (FICCPI), for the period from January 20, 2005 to April 20, 2005, with the Company
Registration and Monitoring Department (CRMD) of the SEC. 8 In an opposition letter dated April 1, 2005, Ram Sitaldas
(Sitaldas), claiming to be a representative of the defunct FICCPI, alleged that the corporate name has been used by the defunct
FICCPI since 1951, and that the reservation by another person who is not its member or representative is illegal. 9
The CRMD called the parties for a conference and required them to submit their position papers. Subsequently, on May
27, 2005, the CRMD rendered a decision granting Mansukhani's reservation, 10 holding that he possesses the better right over the
corporate name. 11 The CRMD ruled that the defunct FICCPI has no legal personality to oppose the reservation of the corporate
name by Mansukhani. After the expiration of the defunct FICCPI's corporate existence, without any act on its part to extend its
term, its right over the name ended. Thus, the name "Filipino Indian Chamber of Commerce in the Philippines, Inc." is free for
appropriation by any party. 12
Sitaldas appealed the decision of the CRMD to the SEC En Banc, which appeal was docketed as SEC Case No. 05-008.
On December 7, 2005, the SEC En Banc denied the appeal, 13 thus:
WHEREFORE, premises considered, the instant appeal is HEREBY DISMISSED for lack of
merit. Let a copy of this decision be furnished the Company Registration and Monitoring Department of this
Commission for its appropriate action. 14 (Emphasis in the original.)
Sitaldas appealed the SEC En Banc decision to the CA, docketed as CA-G.R. SP No. 92740. On September 27, 2006,
the CA affirmed the decision of the SEC En Banc. 15 It ruled that Mansukhani, reserving the name "Filipino Indian Chamber of
Commerce in the Philippines, Inc.," has the better right over the corporate name. It ruled that with the expiration of the corporate
life of the defunct FICCPI, without an extension having been filed and granted, it lost its legal personality as a
corporation. 16 Thus, the CA affirmed the SEC En Banc ruling that after the expiration of its term, the defunct FICCPI's rights
over the name also ended. 17 The CA also cited SEC Memorandum Circular No. 14-2000 18 which gives protection to corporate
names for a period of three years after the approval of the dissolution of the corporation. 19 It noted that the reservation for the
use of the corporate name "Filipino Indian Chamber of Commerce in the Philippines, Inc.," and the opposition were filed only in
January 2005, way beyond this three-year period. 20 DHITCc
On March 14, 2006, pending resolution by the CA, the SEC issued the Certificate of Incorporation 21 of respondent
FICCPI, pursuant to its ruling in SEC Case No. 05-008.
SEC Case No. 06-014
Meanwhile, on December 8, 2005, 22 Mr. Pracash Dayacan, who allegedly represented the defunct FICCPI, filed an
application with the CRMD for the reservation of the corporate name "Indian Chamber of Commerce Phils., Inc."
(ICCPI). 23 Upon knowledge, Mansukhani, in a letter dated February 14, 2006, 24 formally opposed the application. Mansukhani
cited the SEC En Banc decision in SEC Case No. 05-008 recognizing him as the one possessing the better right over the corporate
name "Filipino Indian Chamber of Commerce in the Philippines, Inc." 25
In a letter dated April 5, 2006, 26 the CRMD denied Mansukhani's opposition. It stated that the name "Indian Chamber
of Commerce Phils., Inc." is not deceptively or confusingly similar to "Filipino Indian Chamber of Commerce in the Philippines,
Inc." On the same date, the CRMD approved and issued the Certificate of Incorporation 27 of petitioner ICCPI.
Thus, respondent FICCPI, through Mansukhani, appealed the CRMD's decision to the SEC En Banc. 28 The appeal was
docketed as SEC Case No. 06-014. On November 30, 2006, the SEC En Banc granted the appeal filed by FICCPI, 29 and
reversed the CRMD's decision. Citing Section 18 of the Corporation Code, 30 the SEC En Banc made a finding that "both from
the standpoint of their [ICCPI and FICCPI] corporate names and the purposes for which they were established, there exist[s] a
similarity that could inevitably lead to confusion." 31 It also ruled that "oppositor [FICCPI] has the prior right to use its corporate
name to the exclusion of the others. It was registered with the Commission on March 14, 2006 while respondent [ICCPI] was
registered on April 05, 2006. By virtue of oppositor's [FICCPI] prior appropriation and use of its name, it is entitled to protection
against the use of identical or similar name of another corporation." 32
Thus, the SEC En Banc ruled, to wit:
 WHEREFORE, the appeal is hereby granted and the assailed Order dated April 05, 2006 is hereby
REVERSED and SET ASIDE and respondent is directed to change or modify its corporate name within thirty
(30) days from the date of actual receipt hereof.
SO ORDERED. 33 (Emphasis in the original.)
ICCPI appealed the SEC En Banc decision in SEC Case No. 06-014 to the CA. 34 The appeal, docketed as CA-G.R. SP
No. 97320, raised the following issues:
A. The Honorable SEC En Banc committed serious error when it held that petitioner's corporate name (ICCPI)
could inevitably lead to confusion;
B. Respondent's corporate name (FICCPI) did not acquire secondary meaning; and
C. The Honorable SEC En Banc violated the rule of equal protection when it denied petitioner (ICCPI) the use of
the descriptive generic words. 35
In a decision dated May 15, 2008, 36 the CA affirmed the decision of the SEC En Banc. It held that by simply looking at
the corporate names of ICCPI and FICCPI, one may readily notice the striking similarity between the two. Thus, an ordinary
person using ordinary care and discrimination may be led to believe that the corporate names of ICCPI and FICCPI refer to one
and the same corporation. 37 The CA further ruled that ICCPI's corporate name did not comply with the requirements of SEC
Memorandum Circular No. 14-2000. It noted that under the facts of this case, it is the registered corporate name, FICCPI, which
contains the word (Filipino) making it different from the proposed corporate name. SEC Memorandum Circular No. 14-
2000 requires, however, that it should be the proposed corporate name which should contain one distinctive word different from
the name of the corporation already registered, and not the other way around, as in this case.  39 Finally, the CA held that the
SEC En Banc did not violate ICCPI's right to equal protection when it ordered ICCPI to change its corporate name. The SEC  En
Banc merely compelled ICCPI to comply with its undertaking to change its corporate name in case another person or firm has
acquired a prior right to the use of the said name or the same is deceptively or confusingly similar to one already registered with
the SEC. 40
The dispositive portion of the CA decision reads:
WHEREFORE, premises considered, the petition filed in this case is hereby DENIED and the
assailed Decision of the Securities and Exchange Commission en banc in SEC EN BANC Case No. 06-014 is
hereby AFFIRMED.
SO ORDERED. 41 (Emphasis in the original.)
In its Resolution dated August 4, 2008, 42 the CA denied the Motion for Reconsideration filed by ICCPI.
The Petition 43
ICCPI now appeals the CA decision before this Court raising the following arguments:
A. The Honorable Court of Appeals committed serious error when it upheld the findings of the SEC En Banc;
B. The Honorable Court of Appeals committed serious error when it held that there is similarity between the
petitioner and the respondent (sic) corporate name that would inevitably lead to confusion; and
C. Respondent's corporate name did not acquire secondary meaning. 44
The Court's Ruling
We uphold the decision of the CA.
Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is identical or deceptively or
confusingly similar to that of any existing corporation: cEaSHC
No corporate name may be allowed by the Securities and Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing laws . When a change in the
corporate name is approved, the Commission shall issue an amended certificate of incorporation under the
amended name. (Underscoring supplied.)
In Philips Export B.V. v. Court of Appeals, 45 this Court ruled that to fall within the prohibition, two requisites must be
proven, to wit:
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either:
(a) identical; or
 (b) deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law; or
(c) patently deceptive, confusing or contrary to existing law. 46
These two requisites are present in this case.
FICCPI acquired a prior right over
the use of the corporate name
In Industrial Refractories Corporation of the Philippines v. Court of Appeals, 47 the Court applied the priority of
adoption rule to determine prior right, taking into consideration the dates when the parties used their respective corporate names.
It ruled that "Refractories Corporation of the Philippines" (RCP), as opposed to "Industrial Refractories Corporation of the
Philippines" (IRCP), has acquired the right to use the word "Refractories" as part of its corporate name, being its prior registrant
on October 13, 1976. The Court noted that IRCP only started using its corporate name when it amended its Articles of
Incorporation on August 23, 1985. 48
In this case, FICCPI was incorporated on March 14, 2006. On the other hand, ICCPI was incorporated only on April 5,
2006, or a month after FICCPI registered its corporate name. Thus, applying the principle in the Refractories case, we hold that
FICCPI, which was incorporated earlier, acquired a prior right over the use of the corporate name.
ICCPI cannot argue that it first incorporated and held the name "Filipino Indian Chamber of Commerce," in 1977; and
that it established the name's goodwill until it failed to renew its name due to oversight.  49 It is settled that a corporation is ipso
facto dissolved as soon as its term of existence expires. 50 SEC Memorandum Circular No. 14-2000 likewise provides for the use
of corporate names of dissolved corporations:
14. The name of a dissolved firm shall not be allowed to be used by other firms within three (3) years
after the approval of the dissolution of the corporation by the Commission, unless allowed by the last
stockholders representing at least majority of the outstanding capital stock of the dissolved firm.
When the term of existence of the defunct FICCPI expired on November 24, 2001, its corporate name cannot be used by
other corporations within three years from that date, until November 24, 2004. FICCPI reserved the name "Filipino Indian
Chamber of Commerce in the Philippines, Inc." on January 20, 2005, or beyond the three-year period. Thus, the SEC was correct
when it allowed FICCPI to use the reserved corporate name.
ICCPI's name is identical and
deceptively or confusingly similar to
that of FICCPI
The second requisite in the Philips Export case likewise obtains in two respects: the proposed name is (a) identical or (b)
deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law.
On the first point, ICCPI's name is identical to that of FICCPI. ICCPI's and FICCPI's corporate names both contain the
same words "Indian Chamber of Commerce." ICCPI argues that the word "Filipino" in FICCPI's corporate name makes it easily
distinguishable from ICCPI. 51 It adds that confusion and deception are effectively precluded by appending the word "Filipino"
to the phrase "Indian Chamber of Commerce." 52 Further, ICCPI claims that the corporate name of FICCPI uses the words "in
the Philippines" while ICCPI uses only "Phils., Inc." 53
ICCPI's arguments are without merit. These words do not effectively distinguish the corporate names. On the one hand,
the word "Filipino" is merely a description, referring to a Filipino citizen or one living in the Philippines, to describe the
corporation's members. On the other, the words "in the Philippines" and "Phils., Inc." are simply geographical locations of the
corporations which, even if appended to both the corporate names, will not make one distinct from the other. Under the facts of
this case, these words cannot be separated from each other such that each word can be considered to add distinction to the
corporate names. Taken together, the words in the phrase "in the Philippines" and in the phrase "Phils., Inc." are synonymous —
they both mean the location of the corporation.
The same principle was adopted by this Court in Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa
Bansang Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan: 54
Significantly, the only difference between the corporate names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation or support.
Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the
Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are
undisputably so similar that even under the test of "reasonable care and observation" confusion may
arise. 55 (Italics in the original.) CTIEac
Thus, the CA is correct when it ruled, "[a]s correctly found by the SEC en banc, the word 'Filipino' in the corporate
name of the respondent [FICCPI] is merely descriptive and can hardly serve as an effective differentiating medium necessary to
avoid confusion. The other two words alluded to by petitioner [ICCPI] that allegedly distinguishes its corporate name from that of
the respondent are the words 'in' and 'the' in the respondent's corporate name. To our mind, the presence of the words 'in' and 'the'
in respondent's corporate name does not, in any way, make an effective distinction to that of petitioner." 56
Petitioner cannot argue that the combination of words in respondent's corporate name is merely descriptive and generic,
and consequently cannot be appropriated as a corporate name to the exclusion of the others.  57 Save for the words "Filipino," "in
the," and "Inc.," the corporate names of petitioner and respondent are identical in all other respects. This issue was also discussed
in the Iglesia case where this Court held,
Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find
justification under the generic word rule. We agree with the Court of Appeals' conclusion that a contrary ruling
would encourage other corporations to adopt verbatim and register an existing and protected corporate name, to
the detriment of the public. 58
On the second point, ICCPI's corporate name is deceptively or confusingly similar to that of FICCPI. It is settled that to
determine the existence of confusing similarity in corporate names, the test is whether the similarity is such as to mislead a
person, using ordinary care and discrimination. In so doing, the court must examine the record as well as the names
themselves. 59 Proof of actual confusion need not be shown. It suffices that confusion is probably or likely to occur. 60
In this case, the overriding consideration in determining whether a person, using ordinary care and discrimination, might
be misled is the circumstance that both ICCPI and FICCPI have a common primary purpose, that is, the promotion of Filipino-
Indian business in the Philippines.
The primary purposes of ICCPI as provided in its Articles of Incorporation are:
a) Develop a stronger sense of brotherhood;
b) Enhance the prestige of the Filipino-Indian business community in the Philippines;
c) Promote cordial business relations with Filipinos and other business communities in the Philippines, and other
overseas Indian business organizations;
d) Respond fully to the needs of a progressive economy and the Filipino-Indian Business community;
e) Promote and foster relations between the people and Governments of the Republics of the Philippines and India
in areas of Industry, Trade, and Culture. 61
Likewise, the primary purpose of FICCPI is "[t]o actively promote and enhance the Filipino-Indian business relationship
especially in view of [current] local and global business trends." 62
Considering these corporate purposes, the SEC En Banc made a finding that "[i]t is apparent that both from the
standpoint of their corporate names and the purposes for which they were established, there exist a similarity that could inevitably
lead to confusion." 63 This finding of the SEC En Banc was fully concurred with and adopted by the CA. 64
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by this Court, if
supported by substantial evidence, in recognition of their expertise on the specific matters under their consideration, and more so
if the same has been upheld by the appellate court, 65 as in this case.
Petitioner cannot argue that the CA erred when it upheld the SEC En Banc's decision to cancel ICCPI's corporate
name. 66 By express mandate of law, the SEC has absolute jurisdiction, supervision and control over all corporations.  67 It is the
SEC's duty to prevent confusion in the use of corporate names not only for the protection of the corporation involved, but more so
for the protection of the public. It has the authority to de-register at all times, and under all circumstances corporate names which
in its estimation are likely to generate confusion. 68
Pursuant to its mandate, the SEC En Banc correctly applied Section 18 of the Corporation Code, and Section 15 of SEC
Memorandum Circular No. 14-2000:
In implementing Section 18 of the Corporation Code of the Philippines  (BP 68), the following revised
guidelines in the approval of corporate and partnership names are hereby adopted for the information and
guidelines of all concerned: SaCIDT
xxx xxx xxx
15. Registrant corporations or partnership shall submit a letter undertaking to change their
corporate or partnership name in case another person or firm has acquired a prior right to the
use of said firm name or the same is deceptively or confusingly similar to one already
registered unless this undertaking is already included as one of the provisions of the articles of
incorporation or partnership of the registrant.
Finding merit in respondent's claims, the SEC En Banc merely compelled petitioner to comply with its undertaking. 69
WHEREFORE, the petition is DENIED. The Decision of the CA dated May 15, 2008 in CA-G.R. SP No. 97320 is
hereby AFFIRMED.
 SO ORDERED.
||| (Indian Chamber of Commerce Phils., Inc. v. Filipino Indian Chamber of Commerce in the Philippines, Inc., G.R. No. 184008,
[August 3, 2016], 792 PHIL 277-294)
 FIRST DIVISION

[G.R. No. 215510. March 16, 2015.]

CARE BEST INTERNATIONAL, INC., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION AND ITS COMPLIANCE AND
ENFORCEMENT DIVISION, respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution dated March 16, 2015 which reads as follows:
"G.R. No. 215510 (Care Best International, Inc. v. Securities and Exchange Commission and its Compliance and
Enforcement Division). — The petitioner's motion for an extension of thirty (30) days within which to file a petition for review
on certiorari is GRANTED, counted from the expiration of the reglementary period.
After a judicious review of the records, the Court resolves to DENY the instant petition and AFFIRM the September 13,
2013 Decision 1 and November 17, 2014 Resolution 2 of the Court of Appeals (CA) in CA-G.R. SP No. 104364 for failure of Care
Best International, Inc. (petitioner) to show that the CA committed any reversible error in upholding the ruling of the Securities and
Exchange Commission revoking its Certificate of Registration on the ground of fraud.
As correctly pointed out by the CA, incorporation is a mere grant of privilege from the State and, in order to be entitled to
such privilege, 3 the requirements and procedures for the grant thereof must be complied with. Under Section 14 (5) of the
Corporation Code, the articles of incorporation must state the names of the incorporators and this must necessarily refer to their legal
names, not fictitious names or aliases which they have no authority to use, as in this case. The fact that petitioner had for its clients
various government agencies is irrelevant as all corporations must comply with the provisions of the Corporation Code. 4 SECHIA
SO ORDERED." SERENO, C.J., on official travel. BRION, J., designated acting member per S.O. No. 1947 dated March
12, 2015.
||| (Care Best International, Inc. v. Securities and Exchange Commission, G.R. No. 215510 (Notice), [March 16, 2015])
 FIRST DIVISION

[G.R. No. 104175. June 25, 1993.]

YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners, vs. THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND
GEORGE CHIONG ROXAS, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioners.

Antonio Nuyles for private respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; VENUE; PERSONAL ACTION. — In the Regional Trial Courts, all personal actions are commenced and tried in the
province or city where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule
4, Revised Rules of Court]. There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of
Cebu City.

2. ID.; ID.; ID.; ID.; IN CASE OF CORPORATION. — In Clavecilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed
against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has
branch offices, would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its
principal place of business unless such a place is also the residence of a co-plaintiff or a defendant.

3. COMMERCIAL LAW; CORPORATION CODE; CORPORATION; RESIDENCE. — A corporation has no residence in the same sense in which this term is applied to a
natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation
(Cohen v. Benquet Commercial Co., Ltd., 34 Phil. 526 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires each corporation to
specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines" (Sec. 14 [3]). The purpose of this
requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory.

DECISION

QUIASON, J p:

Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which reversed the
Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB 6967. The order
of the trial court denied the motion to dismiss filed by respondent George C. Roxas of the complaint for collection filed by
petitioners.
It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia,
its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development
Corporation (CMDC) to Roxas. The purchase price was P8,000,000.00 payable as follows: a down payment of P4,000,000.00 and
the balance of P4,000,000.00 in four postdated checks of P1,000,000.00 each. prcd
Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the
vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price. cdll
The first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but the four other
checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third
party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC
shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying
that Roxas be ordered to pay petitioners the sum of P3,400,000.00 or that full control of the three markets be turned over to
YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of
attorney's fees and costs (Rollo, p. 290). cdll
Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed to do so causing
petitioners to file a motion to have him declared in default. Roxas then filed, through a new counsel, a third motion for extension
of time to submit a responsive pleading.
On August 19, 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of
Roxas.
On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:
"1. The complaint did not state a cause of action due to non-joinder of indispensable parties;
2. The claim or demand set forth in the complaint had been waived, abandoned or otherwise extinguished; and
3. The venue was improperly laid" (Rollo, p. 299).
After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court in an Order
dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of
time to submit his answer. He also filed a motion for reconsideration, which the trial court denied in its Order dated April 10,
1991 for being pro-forma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion for reconsideration
did not toll the running of the period to file his answer.
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the
required affidavit of merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of
Appeals.
The Court of Appeals sustained the findings of the trial court with regard to the first two grounds raised in the motion to
dismiss but ordered the dismissal of the complaint on the ground of improper venue (Rollo, p. 49).
A subsequent motion for reconsideration by petitioner was to no avail.
Petitioners now come before us, alleging that the Court of Appeals erred in:
"1. holding that venue should be in Pasay City, and not in Cebu City (where both petitioners/plaintiffs are
residents;
2. not finding that Roxas is estopped from questioning the choice of venue" (Rollo, p. 19).
The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the address of YASCO, as
appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City." This was the same
address written on YASCO's letters and several commercial documents in the possession of Roxas (Decision, p. 12;  Rollo, p.
48). Cdpr
In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three letters which he sent to
Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was led by petitioners to believe
that their residence is in Pasay City and that he had relied upon those representations (Decision, p. 12; Rollo, p. 47). Cdpr
The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.
In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the defendant or
any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff
[Sec. 2(b) Rule 4, Revised Rules of Court].
 There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their
complaint that they are residents of Cebu City, thus: cdll
"1.1 Plaintiff Young Auto Supply Co., Inc. ("YASCO") is a domestic corporation duly organized and existing
under Philippine laws with principal place of business at M.J. Cuenco Avenue, Cebu City. It also has a branch
office at 1708 Dominga Street, Pasay City, Metro Manila.
"Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at Young Auto
Supply Co., Inc., M.J. Cuenco Avenue, Cebu City. . . ." (Complaint, p. 1; Rollo, p. 81).
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
"THIRD. That the place where the principal office of the corporation is to be established or located is at Cebu
City, Philippines (as amended on December 20, 1980 and further amended on December 20, 1984)" (Rollo, p.
273).
A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical
purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the
articles of incorporation (Cohen v. Benquet Commercial Co., Ltd., 34 Phil. 526 [1916] Clavecilla Radio System v. Antillon, 19
SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place
where the principal office of the corporation is to be located which must be within the Philippines" (Sec. 14 [3]). The purpose of
this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory. LibLex
In Clavecilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed against
a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be
instituted in any place where the corporation has branch offices, would create confusion and work untold inconvenience to said
entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of
business unless such a place is also the residence of a co-plaintiff or a defendant. Cdpr
If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its principal place
of business was in Cebu City, Roxas could argue that YASCO was in estoppel because it misled Roxas to believe that Pasay City
was its principal place of business. But this is not the case before us. prLL
 
With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of
business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in
estoppel from questioning the choice of Cebu City as the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE and the
Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.
SO ORDERED.
||| (Young Auto Supply Co. v. Court of Appeals, G.R. No. 104175, [June 25, 1993], 295 PHIL 738-743)
 EN BANC

[G.R. No. 176579. June 28, 2011.]

WILSON P. GAMBOA, petitioner, vs. FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN
HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, respondents.

PABLITO V. SANIDAD and ARNO V. SANIDAD, petitioners-in-intervention.

DECISION

CARPIO, J p:

The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock
of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific
Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT),
are as follows: 1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to
engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a
major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was
incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares
of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In
1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG).
The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this
Court to be owned by the Republic of the Philippines. 2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the
outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government
announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public
bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders,
Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or
US$510 million. TAESDH
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415
PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and
instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007,
First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an
indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT.  With the sale, First Pacific's
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of
foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits
foreign ownership of the capital of a public utility to not more than 40 percent. 3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG
Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held
26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was
incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue
of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI
were sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand
Marcos. The sequestered PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Court's
decision 4 which became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common
shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance and the
PCGG, as the disposing entity. An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20
November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8
December 2006. The extension was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of
P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific
until 1 February 2007 to exercise its right of first refusal in accordance with PTIC's Articles of Incorporation. First Pacific announced its
intention to match Parallax's bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the
particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who attended the
public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the government's 111,415 PTIC shares bore due
diligence, transparency and conformity with existing legal procedures; and (b) First Pacific's intended acquisition of the
government's 111,415 PTIC shares resulting in First Pacific's 100% ownership of PTIC will not violate the 40 percent
constitutional limit on foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding
common shares of PLDT. 5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415
PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First
Pacific and its affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first refusal in
favor of PTIC and its shareholders granted in PTIC's Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first
refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was
consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner. HcaDIA
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of
nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an
increase in First Pacific's common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT
DoCoMo's common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent which is
over the 40 percent constitutional limit. 6 Petitioner asserts:
If and when the sale is completed, First Pacific's equity in PLDT will go up from 30.7 percent to 37.0 percent
of its common — or voting-stockholdings, . . . . Hence, the consummation of the sale will put the two largest foreign
investors in PLDT — First Pacific and Japan's NTT DoCoMo, which is the world's largest wireless telecommunications
firm, owning 51.56 percent of PLDT common equity. . . . With the completion of the sale, data culled from the official
website of the New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five
percent of common equity, will collectively own 81.47 percent of PLDT's common equity. . . .
. . . as the annual disclosure reports, also referred to as Form 20-K reports . . . which PLDT submitted to the
New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities
breached the constitutional limit of 40 percent ownership as early as 2003. . . ." 7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to
First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave
abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to
foreigners in excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign ownership of
a public utility. 8  
 On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached
Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-
Intervention. caIACE
Petitioners-in-intervention "join petitioner Wilson 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." Petitioners-in-intervention claim that, as PLDT subscribers, they
have a "stake in the outcome of the controversy . . . where the Philippine Government is completing the sale of government owned assets
in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand a thorough
examination of the evidence of the parties, are generally beyond this Court's jurisdiction. Adhering to this well-settled principle, the
Court shall confine the resolution of the instant controversy solely on the threshold and purely legal issue of whether the term "capital"
in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined
total of common and non-voting preferred shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for
prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial
Court and the Court of Appeals. The actions for declaratory relief, 10 injunction, and annulment of sale are not embraced within the
original jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition,  11 the Court shall nevertheless refrain from
discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when
MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, Article XII of
the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one
for mandamus. 12
In Salvacion v. Central Bank of the Philippines, 13 the Court treated the petition for declaratory relief as one
for mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case, which involved the
crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final judgment in the civil case for
damages on the tourist's dollar deposit with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting
foreign currency deposits from attachment, garnishment or any other order or process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that "injustice would result especially to a citizen aggrieved by a foreign guest like
accused . . . " that would "negate Article 10 of the Civil Code which provides that 'in case of doubt in the interpretation or application of
laws, it is presumed that the lawmaking body intended right and justice to prevail.'" The Court therefore required respondents Central
Bank of the Philippines, the local bank, and the accused to comply with the writ of execution issued in the civil case for damages and to
release the dollar deposit of the accused to satisfy the judgment. ICHcTD
In Alliance of Government Workers v. Minister of Labor, 14 the Court similarly brushed aside the procedural infirmity of the
petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the government unlawfully
excluded petitioners, who were government employees, from the enjoyment of rights to which they were entitled under the law.
Specifically, the question was: "Are the branches, agencies, subdivisions, and instrumentalities of the Government, including
government owned or controlled corporations included among the four 'employers' under Presidential Decree No. 851 which are
required to pay their employees . . . a thirteenth (13th) month pay . . .?" The Constitutional principle involved therein affected all
government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the
assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved
has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However,
exceptions to this rule have been recognized. Thus, where the petition has far-reaching implications and raises
questions that should be resolved, it may be treated as one for mandamus. 15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII of
the Constitution. He prays that this Court declare that the term "capital" refers to common shares only, and that such shares constitute
"the sole basis in determining foreign equity in a public utility." Petitioner further asks this Court to declare any ruling inconsistent with
such interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to the
national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class citizens, in their own
country. What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there
is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal
issue presented in this case. CAIHTE
The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of the Constitution in the
case of Fernandez v. Cojuangco, docketed as G.R. No. 157360. 16 That case involved the same public utility (PLDT) and substantially
the same private respondents. Despite the importance and novelty of the constitutional issue raised therein and despite the fact that the
petition involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the same for
disregarding the hierarchy of courts. 17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Court's
Decision of 21 February 2003 via a petition for review under Rule 45. The Court's Resolution, denying the petition, became final on 21
December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution. The Court
must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the entire Filipino
people, to ensure, in the words of the Constitution, "a self-reliant and independent national economy effectively controlled by
Filipinos." 18 Besides, in the light of vague and confusing positions taken by government agencies on this purely legal issue, present and
future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their
participation in the capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years
since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again defining the
term "capital," which appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production
and joint venture agreements for the development of our natural resources, 19 in Section 7, Article XII on ownership of private
lands, 20 in Section 10, Article XII on the reservation of certain investments to Filipino citizens, 21 in Section 4 (2), Article XIV on the
ownership of educational institutions, 22 and in Section 11 (2), Article XVI on the ownership of advertising companies. 23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he
claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates
the Constitution, then there is a possibility that PLDT's franchise could be revoked, a dire consequence directly affecting petitioner's
interest as a stockholder. DCIEac
More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The
fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino people, far
outweighs any perceived impediment in the legal personality of the petitioner to bring this action.
In Chavez v. PCGG, 24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the
public, thus:
In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of
mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest;
and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he
need not show that he has any legal or special interest in the result of the action . In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section
6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be
published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners' legal standing, the
Court declared that the right they sought to be enforced 'is a public right recognized by no less than the fundamental law
of the land.' 
Legaspi v. Civil Service Commission, while reiterating Tañada, further declared that 'when a mandamus
proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere
fact that petitioner is a citizen and, therefore, part of the general 'public' which possesses the right.'
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under
the questioned contract for the development, management and operation of the Manila International Container Terminal,
'public interest [was] definitely involved considering the important role [of the subject contract] . . . in the
economic development of the country and the magnitude of the financial consideration involved .' We concluded
that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding
the petitioner's standing. (Emphasis supplied) DIHETS
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has
the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public
utilities, to wit:
 Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens , nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal
by the National Assembly when the public interest so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied) THAICD
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz.:
Section 8. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under
the laws of the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor
shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No
franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization
provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935 Constitutional
Convention. 25 The 1987 Constitution "provides for the Filipinization of public utilities by requiring that any form of authorization for
the operation of public utilities should be granted only to 'citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens.'  The provision is [an express]
recognition of the sensitive and vital position of public utilities both in the national economy and for national security. " 26 The
evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the
national interest. 27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to "conserve and develop our patrimony" 28 and ensure "a self-reliant and independent national
economy effectively controlled by Filipinos." 29
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at
least 60 percent of its "capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, Article XII of
the Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-voting preferred
shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares
because such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term
"capital" in Section 11, Article XII of the Constitution refers to "the ownership of common capital stock subscribed and outstanding,
which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is undisputed
that PLDT's non-voting preferred shares are held mostly by Filipino citizens. 30 This arose from Presidential Decree No. 217, 31 issued
on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting
preferred shares to pay for the investment cost of installing the telephone line. 32
Petitioners-in-intervention basically reiterate petitioner's arguments and adopt petitioner's definition of the term
"capital." 33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of PLDT . . . already
amounts to at least 63.54% of the total outstanding common stock," which means that foreigners exercise significant control over PLDT,
patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII of the  Constitution.
More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common
shares of PLDT are held by foreigners.
In particular, respondent Nazareno's Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the
petition and the supposed violation of the due process rights of the "affected foreign common shareholders." Respondent Nazareno does
not deny petitioner's allegation of foreigners' dominating the common shareholdings of PLDT. Nazareno stressed mainly that the petition
"seeks to divest foreign common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their
ownership over their shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they
can be heard." 34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.
While Nazareno does not introduce any definition of the term "capital," he states that "among the factual assertions that need
to be established to counter petitioner's allegations is the uniform interpretation by government agencies (such as the SEC),
institutions and corporations (such as the Philippine National Oil Company-Energy Development Corporation or PNOC-EDC)
of including both preferred shares and common shares in "controlling interest" in view of testing compliance with the 40%
constitutional limitation on foreign ownership in public utilities." 35
Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of the Constitution.
Neither does he refute petitioner's claim of foreigners holding more than 40 percent of PLDT's common shares. Instead, respondent
Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent
Pangilinan emphasizes in his Memorandum (1) the absence of this Court's jurisdiction over the petition; (2) petitioner's lack of standing;
(3) mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent
Pangilinan alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares in companies holding shares
in PLDT may be required to relinquish their shares in PLDT and in those companies without any law requiring them to surrender their
shares and also without notice and trial." 
Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes no nationality
requirement on the shareholders of the utility company as a condition for keeping their shares in the utility company. " According
to him, "Section 11 does not authorize taking one person's property (the shareholder's stock in the utility company) on the basis of
another party's alleged failure to satisfy a requirement that is a condition only for that other party's retention of another piece of property
(the utility company being at least 60% Filipino-owned to keep its franchise)." 36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo
Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term "capital." In its Memorandum 37 dated 24 September
2007, the OSG also limits its discussion on the supposed procedural defects of the petition,  i.e., lack of standing, lack of jurisdiction,
non-inclusion of interested parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the term
"capital" in Section 11, Article XII of the Constitution. The OSG contends that "the petition actually partakes of a collateral attack on
PLDT's franchise as a public utility," which in effect requires a "full-blown trial where all the parties in interest are given their day in
court." 38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE),
does not also define the term "capital" and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of
action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies, including PLDT, to make proper and
timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT,
contended that the term "capital" in the 1987 Constitution refers to shares entitled to vote or the common shares. Fernandez explained
thus: DHATcE
The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is
being exercised. . . .
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully
nationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporation
undertaking said activities. Otherwise, if the Trial Court's ruling upholding respondents' arguments were to be given
credence, it would be possible for the ownership structure of a public utility corporation to be divided into one percent
(1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Court's ruling adopting
respondents' arguments, the common shares can be owned entirely by foreigners thus creating an absurd situation
wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation.
xxx xxx xxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and
the controlling interest.
xxx xxx xxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by
the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of
record of shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of
Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of
foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino
owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution. EIDATc
 Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support
the proposition that the meaning of the word "capital" as used in Section 11, Article XII of the  Constitution allegedly
refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the
stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in
the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted
Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an administrative
agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear
intent of the framers of the Constitution.
In the same vein, the SEC's construction of Section 11, Article XII of the Constitution is at best merely
advisory for it is the courts that finally determine what a law means. 39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee,
Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario,
and Orlando B. Vea, argued that the term "capital" in Section 11, Article XII of the Constitution includes preferred shares since
the Constitution does not distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporation's "capital," without distinction
as to classes of shares. . . .
In this connection, the Corporation Code — which was already in force at the time the present
(1987) Constitution was drafted — defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. — The term "outstanding capital stock", as used in
this Code, means the total shares of stock issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor
exclude either class of shares, in determining the outstanding capital stock (the "capital") of a corporation.
Consequently, petitioner's suggestion to reckon PLDT's foreign equity only on the basis of PLDT's outstanding common
shares is without legal basis. The language of the Constitution should be understood in the sense it has in common use.
xxx xxx xxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is
nothing in the Record of the Constitutional Commission (Vol. III) — which petitioner misleadingly cited in the
Petition . . . — which supports petitioner's view that only common shares should form the basis for computing a public
utility's foreign equity. AaITCS
xxx xxx xxx
18. In addition, the SEC — the government agency primarily responsible for implementing the Corporation
Code, and which also has the responsibility of ensuring compliance with the Constitution's foreign equity restrictions as
regards nationalized activities . . . — has categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the nationality composition thereof. 40
We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of the Constitution refers
only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares,  41 and not to the
total outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines 42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. — The shares of stock of stock corporations may be divided into classes or
series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may
be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided,
further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares
or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of
the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in
the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The Board of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such
terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.
 Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder
of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without
par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further,
That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall
not be available for distribution as dividends. TcCEDS 
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional
or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share
shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code;
and caIETS
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation. 43 This is exercised through his vote in the election of directors because it is the board of directors that controls or manages
the corporation. 44 In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares
have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of
the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. 45 In fact, under the Corporation Code only preferred or redeemable shares
can be deprived of the right to vote. 46 Common shares cannot be deprived of the right to vote in any corporate meeting, and any
provision in the articles of incorporation restricting the right of common shareholders to vote is invalid. 47
Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually
have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common shares. However, if the
preferred shares also have the right to vote in the election of directors, then the term "capital" shall include such preferred shares because
the right to participate in the control or management of the corporation is exercised through the right to vote in the election of
directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in
the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the
control and management of public utilities. As revealed in the deliberations of the Constitutional Commission, "capital" refers to the
voting stock or controlling interest of a corporation, to wit:
MR. NOLLEDO.
In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
In teaching law, we are always faced with this question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will
the Committee please enlighten me on this? ITESAc
MR. VILLEGAS.
 We have just had a long discussion with the members of the team from the UP Law Center who provided us a
draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of voting
stock."
MR. NOLLEDO.
That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS.
Yes, that is the understanding of the Committee.
MR. NOLLEDO.
Therefore, we need additional Filipino capital?
MR. VILLEGAS.
Yes. 48
xxx xxx xxx
MR. AZCUNA.
May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS.
The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling
interest." ESTAIH
MR. AZCUNA.
Hence, without the Davide amendment, the committee report would read: "corporations or associations at least
sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS.
Yes.
MR. AZCUNA.
So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.
MR. VILLEGAS.
That is right.
MR. AZCUNA.
But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the
capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So
we can have a situation where the corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that would result here.
MR. BENGZON.
No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions is that
according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say
"CAPITAL."
MR. AZCUNA.
 We should not eliminate the phrase "controlling interest."
MR. BENGZON.
In the case of stock corporations, it is assumed. 49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation. Reinforcing this
interpretation of the term "capital," as referring to controlling interest or shares entitled to vote, is the definition of a "Philippine
national" in the Foreign Investments Act of 1991, 50 to wit:
SEC. 3. Definitions. — As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock outstanding  and entitled to vote is owned
and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit
of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities
and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines,
in order that the corporation, shall be considered a "Philippine national." (Emphasis supplied) TDcHCa
In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the Foreign Investments Act
of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly
owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of the Philippine
nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to
vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the
members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the
corporation shall be considered a Philippine national. The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are
considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred
to aliens cannot be considered held by Philippine citizens or Philippine nationals. ITaESD
Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-
Philippine nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and
beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." 
Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe,
certain areas of investments." Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of
Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471;
(5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055;
and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII of the Constitution is also used in
the same context in numerous laws reserving certain areas of investments to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital stock, including both common and non-voting preferred
shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos." A broad definition unjustifiably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility.
 We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that a corporation has
100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share
having a par value of one peso (P1.00) per share. Under the broad definition of the term "capital," such corporation would be considered
compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than
99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if
they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On
the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no
control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of
the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an
independent national economy effectively controlled by Filipinos. HCEaDI
The example given is not theoretical but can be found in the real world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT's Articles of
Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the
stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or
its stockholders, or to receive notice of any meeting of stockholders." 51
On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDT's
Articles of Incorporation 52 state that "each holder of Common Capital Stock shall have one vote in respect of each share of such stock
held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right
to vote for the election of directors and for all other purposes." 53
In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise
control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any
control over PLDT. In fact, under PLDT's Articles of Incorporation, holders of common shares have voting rights for all purposes, while
holders of preferred shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact,
based on PLDT's 2010 General Information Sheet (GIS), 54 which is a document required to be submitted annually to the Securities and
Exchange Commission, 55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common
shares. 56 In other words, foreigners hold 64.27% of the total number of PLDT's common shares, while Filipinos hold only 35.73%.
Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of
control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11,
Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009, 57 as submitted to the SEC, shows that per share the SIP 58 preferred
shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00 per
share, while the declared dividends for the preferred shares amounted to a measly P1.00 per share. 59 So the preferred shares not only
cannot vote in the election of directors, they also have very little and obviously negligible dividend earning capacity compared to
common shares.
As shown in PLDT's 2010 GIS, 60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas
the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but
cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by
Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. 61 Worse, preferred shares constitute 77.85% of the
authorized capital stock of PLDT while common shares constitute only 22.15%. 62 This undeniably shows that beneficial interest in
PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in
accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is constitutionally required for the State's grant of authority to operate a public utility. The undisputed fact
that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common
shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public
utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that "[n]o franchise, certificate, or
any other form of authorization for the operation of a public utility shall be granted except to . . . corporations . . . organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens . . . ." IaCHTS
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the  sole right to vote in
the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT's common shares, constituting a
minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; 63 (5) preferred shares have twice the par
value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.
 Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per
share, 64 while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92
to P11.06 per share, 65 is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common
shares, not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include both voting and non-voting
shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the State's
constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the
constitutional provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as well as
the ownership of land, educational institutions and advertising businesses. The Court should never open to foreign control what
the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The
Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of
the Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos."  
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land, educational institutions and
advertising business, is self-executing. There is no need for legislation to implement these self-executing provisions of the Constitution.
The rationale why these constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS, 66 thus:
. . . Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate,
the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are
treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and practically
nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always
been, that —
. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-
executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the legislature discretion to determine when, or
whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking body,
which could make them entirely meaningless by simply refusing to pass the needed implementing statute.
(Emphasis supplied) TAaEIc
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that
constitutional provisions are presumed to be self-executing. Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future
legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-executing,
the mandate of the fundamental law ratified by the sovereign people can be easily ignored and nullified by
Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may give breath to
constitutional rights but congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures,
the rights of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination.
It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional
provisions forbidding the taking or damaging of property for public use without just compensation. (Emphasis supplied)
Thus, in numerous cases, 67 this Court, even in the absence of implementing legislation, applied directly the provisions of
the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo, 68 this Court ruled:
. . . As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien,
and as both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it
should only be the State that should be allowed to intervene and determine what is to be done with the property subject
of the violation. We have said that what the State should do or could do in such matters is a matter of public policy,
entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G.R. No. L-5996, June 27,
1956.) While the legislature has not definitely decided what policy should be followed in cases of violations
against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null
and void as violative of the Constitution. . . . (Emphasis supplied) IScaAE
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over
the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60
percent of the "capital" of which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions
miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, the
exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the ownership of educational
institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital
constitutional provisions that determine who will effectively control the national economy, Filipinos or foreigners. This Court cannot
allow such an absurd interpretation of the Constitution.
This Court has held that the SEC "has both regulatory and adjudicative functions." 69 Under its regulatory functions, the SEC
can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or
 quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate such violation.
Under Section 17 (4) 70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where "the required percentage of ownership of the capital stock to be owned by citizens of the
Philippines has not been complied with as required by existing laws or the Constitution." Thus, the SEC is the government agency
tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11, Article XII of the  Constitution on the
ownership of public utilities. This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present
case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based
on the 2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5 (m) of the Securities Regulation Code, 71 the SEC is vested with the "power and function" to "suspend or
revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations,
upon any of the grounds provided by law." The SEC is mandated under Section 5 (d) of the same Code with the "power and function"
to "investigate . . . the activities of persons to ensure compliance" with the laws and regulations that SEC administers or enforces. The
GIS that all corporations are required to submit to SEC annually should put the SEC on guard against violations of the nationality
requirement prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is
treated as a petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of
the Constitution in view of the ownership structure of PLDT's voting shares, as admitted by respondents and as stated in PLDT's 2010
GIS that PLDT submitted to SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the
Securities and Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable
foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of
the Constitution, to impose the appropriate sanctions under the law. aDSTIC
SO ORDERED.
||| (Gamboa v. Teves, G.R. No. 176579, [June 28, 2011], 668 PHIL 1-118)

EN BANC
 [G.R. No. 176579. October 9, 2012.]

HEIRS OF WILSON P. GAMBOA, * petitioners, vs. FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P.
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR
CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST
PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS, INC., CHAIRMAN MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES
AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, respondents.

PABLITO V. SANIDAD and ARNO V. SANIDAD, petitioners-in-Intervention.

RESOLUTION

CARPIO, J p:

This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine Stock Exchange's (PSE)
President, 1 (2) Manuel V. Pangilinan (Pangilinan), 2 (3) Napoleon L. Nazareno (Nazareno), 3 and (4) the Securities and Exchange
Commission (SEC) 4 (collectively, movants).
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalf of the SEC,  5 assailing the 28
June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf of the State, 6 declaring expressly that it agrees
with the Court's definition of the term "capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June
2012, the OSG reiterated its position consistent with the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are
masters, or second-class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have  effective
control of the Philippine national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation,
and to future generations of Filipinos, it is the threshold legal issue presented in this case. TcDAHS
Contrary to Pangilinan's narrow view, the serious economic consequences resulting in the interpretation of the term "capital" in
Section 11, Article XII of the Constitution undoubtedly demand an immediate adjudication of this issue. Simply put, the far-reaching
implications of this issue justify the treatment of the petition as one for mandamus. 7
In Luzon Stevedoring Corp. v. Anti-Dummy Board, 8 the Court deemed it wise and expedient to resolve the case although the
petition for declaratory relief could be outrightly dismissed for being procedurally defective. There, appellant admittedly had already
committed a breach of the Public Service Act in relation to the Anti-Dummy Law since it had been employing non-American aliens long
before the decision in a prior similar case. However, the main issue in Luzon Stevedoring was of transcendental importance, involving
the exercise or enjoyment of rights, franchises, privileges, properties and businesses which only Filipinos and qualified corporations
could exercise or enjoy under the Constitution and the statutes. Moreover, the same issue could be raised by appellant in an appropriate
action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for the guidance of all concerned, despite
the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the supposed procedural defect of the petition and the pivotal legal
issue involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substantial justice and faithful adherence to the
Constitution, we opted to resolve this case for the guidance of the public and all concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled and defined to refer
to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC, which is the administrative
agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous opinions. Movants point out that with the 28 June 2011 Decision, the
Court in effect introduced a "new" definition or "midstream redefinition" 9 of the term "capital" in Section 11, Article XII of the
Constitution. HCaIDS
This is egregious error.
 For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term "capital" found in various
economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial precedent interpreting the term "capital"
in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court in defining
the term "capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported long-standing definition of the term
"capital," which supposedly refers to the total outstanding shares of stock, whether voting or non-voting. To repeat, until the present case
there has never been a Court ruling categorically defining the term "capital" found in the various economic provisions of the 1935, 1973
and 1987 Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" as referring to
both voting and non-voting shares (combined total of common and preferred shares) are, in the first place, conflicting and inconsistent.
There is no basis whatsoever to the claim that the SEC and the DOJ have consistently and uniformly adopted a definition of the term
"capital" contrary to the definition that this Court adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985, 10 dated 7 October 1985, the scope of the term "capital" in Section 9, Article XIV of the
1973 Constitution was raised, that is, whether the term "capital" includes "both preferred and common stocks." The issue was raised in
relation to a stock-swap transaction between a Filipino and a Japanese corporation, both stockholders of a domestic corporation that
owned lands in the Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the resulting ownership structure of the
corporation would be unconstitutional because 60% of the voting stock would be owned by Japanese while Filipinos would own only
40% of the voting stock, although when the non-voting stock is added, Filipinos would own 60% of the combined voting and non-voting
stock. This ownership structure is remarkably similar to the current ownership structure of PLDT. Minister Mendoza ruled:
xxx xxx xxx
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and preferred) while
the Japanese investors control sixty percent (60%) of the common (voting) shares.
It is your position that . . . since Section 9, Article XIV of the Constitution uses the word "capital,"
which is construed "to include both preferred and common shares" and "that where the law does not
distinguish, the courts shall not distinguish."
xxx xxx xxx
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may
not be constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares into common
voting shares and preferred non-voting shares, any arrangement which attempts to defeat the constitutional purpose
should be eschewed. Thus, the resultant equity arrangement which would place ownership of 60% 11 of the
common (voting) shares in the Japanese group, while retaining 60% of the total percentage of common and
preferred shares in Filipino hands would amount to circumvention of the principle of control by Philippine
stockholders that is implicit in the 60% Philippine nationality requirement in the Constitution. (Emphasis
supplied)
In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV of the 1973
Constitution includes "both preferred and common stocks" treated as the same class of shares regardless of differences in voting rights
and privileges. Minister Mendoza stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not
complied with unless the corporation "satisfies the criterion of beneficial ownership" and that in applying the same "the primordial
consideration is situs of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon & San Jose, then
SEC General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, using only the voting stock to determine
whether a corporation is a Philippine national. The Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because:
(1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a Philippine national, the Trustee;
and (2) at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the
Control Test, MLRC's investment in 60% of BFDC's outstanding capital stock entitled to vote shall be deemed as
of Philippine nationality, thereby qualifying BFDC to own private land. EcICSA
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals, considering that:
(1) sixty percent (60%) of their respective outstanding capital stock entitled to vote is owned by a Philippine national
(i.e., by the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their respective
board of directors are Filipino citizens. (Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the Court's interpretation of the 60-40 ownership requirement in
favor of Filipino citizens mandated by the Constitution for certain economic activities. At the same time, these opinions highlight the
conflicting, contradictory, and inconsistent positions taken by the DOJ and the SEC on the definition of the term "capital" found in the
economic provisions of the Constitution.
The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulations because only the
SEC en banc can adopt rules and regulations. As expressly provided in Section 4.6 of the Securities Regulation Code,  12 the SEC cannot
delegate to any of its individual Commissioner or staff the power to adopt any rule or regulation. Further,  under Section 5.1 of the same
Code, it is the SEC as a collegial body, and not any of its legal officers, that is empowered to issue opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the
Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority
and its power to adopt, alter and supplement any rule or regulation.
The Commission may review upon its own initiative or upon the petition of any interested party any action of any
department or office, individual Commissioner, or staff member of the Commission.
SEC. 5. Powers and Functions of the Commission. — 5.1. The Commission shall act with transparency and shall have
the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall
have, among others, the following powers and functions: DcTAIH
xxx xxx xxx
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance
on and supervise compliance with such rules, regulations and orders;
xxx xxx xxx (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effect of SEC rules
or regulations is ultra vires. Under Sections 4.6 and 5.1 (g) of the Code, only the SEC en banc can "issue opinions" that have the force
and effect of rules or regulations. Section 4.6 of the Code bars the SEC en banc from delegating to any individual Commissioner or staff
the power to adopt rules or regulations. In short, any opinion of individual Commissioners or SEC legal officers does not constitute
a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual commissioners or legal
staff, is empowered to issue opinions which have the same binding effect as SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an SEC Opinion, correct?
COMMISSIONER GAITE: 13
That's correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate this function to an SEC officer? SECIcT
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
It can be delegated. What cannot be delegated by the Commission En Banc to a commissioner or an individual
employee of the Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the En Banc . . .
JUSTICE CARPIO:
What cannot be delegated, among others, is the power to adopt or amend rules and regulations, correct?
COMMISSIONER GAITE:
That's correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinion but that
opinion does not constitute a rule or regulation, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
 So, all of these opinions that you mentioned they are not rules and regulations, correct? cDAISC
COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:
If they are not rules and regulations, they apply only to that particular situation and will not constitute a
precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor. 14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on behalf of the
SEC, has adopted even the Grandfather Rule in determining compliance with the 60-40 ownership requirement in favor of Filipino
citizens mandated by the Constitution for certain economic activities. This prevailing SEC ruling, which the SEC correctly adopted to
thwart any circumvention of the required Filipino "ownership and control," is laid down in the 25 March 2010 SEC en banc ruling
in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al., 15 to wit:
The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural
resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish that right
through the legal fiction of corporate ownership and control. But the constitutional provision, as interpreted and
practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution.  Hence, the
Grandfather Rule must be applied to accurately determine the actual participation, both direct and indirect, of
foreigners in a corporation engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by
ascertaining if 60% of the investing corporation's outstanding capital stock is owned by "Filipino citizens", or as
interpreted, by natural or individual Filipino citizens. If such investing corporation is in turn owned to some extent by
another investing corporation, the same process must be observed. One must not stop until the citizenships of the
individual or natural stockholders of layer after layer of investing corporations have been established, the very essence
of the Grandfather Rule. EScHDA
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one of
the discussions on what is now Article XII of the present Constitution, the framers made the following exchange:
MR. NOLLEDO.
In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-
40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
In teaching law, we are always faced with the question: 'Where do we base the equity requirement, is
it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a
corporation'? Will the Committee please enlighten me on this?
MR. VILLEGAS.
We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is '60
percent of voting stock.'
MR. NOLLEDO.
That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be entitled to vote.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
Thank you. With respect to an investment by one corporation in another corporation, say, a
corporation with 60-40 percent equity invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather rule?
 MR. VILLEGAS.
Yes, that is the understanding of the Committee.
MR. NOLLEDO.
Therefore, we need additional Filipino capital?
MR. VILLEGAS.
Yes. (Boldfacing and underscoring supplied; italicization in the original)
This SEC en banc ruling conforms to our 28 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. Thus, in our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must
rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is
"considered as non-Philippine national[s]." (Emphasis supplied) ADEaHT
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a
"Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which respondents relied
upon, is merely preliminary and an opinion only of such officers. To repeat, any such opinion does not constitute an SEC rule or
regulation. In fact, many of these opinions contain a disclaimer which expressly states: ". . . the foregoing opinion is based solely on
facts disclosed in your query and relevant only to the particular issue raised therein and shall not be used in the nature of a standing
rule binding upon the Commission in other cases whether of similar or dissimilar circumstances." 16 Thus, the opinions clearly
make a caveat that they do not constitute binding precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither conclusive nor controlling
and thus, do not bind the Court. It is hornbook doctrine that any interpretation of the law that administrative or quasi-judicial agencies
make is only preliminary, never conclusive on the Court. The power to make a final interpretation of the law, in this case the term
"capital" in Section 11, Article XII of the 1987 Constitution, lies with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases of National Telecommunications Commission v. Court of
Appeals 17 and Philippine Long Distance Telephone Company v. National Telecommunications Commission 18 in arguing that the
Court has already defined the term "capital" in Section 11, Article XII of the 1987 Constitution. 19
The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of Appeals 20 and Philippine
Long Distance Telephone Company v. National Telecommunications Commission, 21 the Court did not define the term "capital" as
found in Section 11, Article XII of the 1987 Constitution. In fact, these two cases never mentioned, discussed or cited Section 11,
Article XII of the Constitution or any of its economic provisions, and thus cannot serve as precedent in the interpretation of
Section 11, Article XII of the Constitution. These two cases dealt solely with the determination of the correct regulatory fees under
Section 40 (e) and (f) of the Public Service Act, to wit: SEIDAC
(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other public services
and/or in the regulation or fixing of their rates, twenty centavos for each one hundred pesos or fraction thereof, of
the capital stock subscribed or paid, or if no shares have been issued, of the capital invested, or of the property and
equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction thereof, of the
increased capital. (Emphasis supplied)
The Court's interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and "capital" does
not pertain to, and cannot control, the definition of the term "capital" as used in Section 11, Article XII of the Constitution, or any of the
economic provisions of the Constitution where the term "capital" is found. The definition of the term "capital" found in the Constitution
must not be taken out of context. A careful reading of these two cases reveals that the terms "capital stock subscribed or paid," "capital
stock" and "capital" were defined solely to determine the basis for computing the supervision and regulation fees under Section 40 (e)
and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals that the
Constitution intends to achieve. 22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane
society, and establish a Government that shall embody our ideals and aspirations, promote the common good, conserve
and develop our patrimony, and secure to ourselves and our posterity, the blessings of independence and democracy
 under the rule of law and a regime of truth, justice, freedom, love, equality, and peace, do ordain and promulgate this
Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the development of a
national economy "effectively controlled" by Filipinos: DHIcET
Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:
Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national
interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty  per centum of
whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of
investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose
capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall
give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in
accordance with its national goals and priorities. 23
Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the Philippines or to corporations
or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may
prescribe, certain areas of investments." Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens
or to corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of
Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055;
and (7) Ship Mortgage Decree or P.D. No. 1521. ATCaDE
With respect to public utilities, the 1987 Constitution specifically ordains:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of
such corporation or association must be citizens of the Philippines. (Emphasis supplied)
This provision, 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." 24
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. IcDCaT
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted Republic Act No. 7042
or the Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine national" as follows:
SEC. 3. Definitions. — As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit
of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities
 and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines,
in order that the corporation, shall be considered a "Philippine national." (Boldfacing, italicization and underscoring
supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic corporation at
least "60% of the capital stock outstanding and entitled to vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its predecessor statute,
Executive Order No. 226 or the Omnibus Investments Code of 1987, 25 which was issued by then President Corazon C. Aquino. Article
15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or association
wholly-owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered
enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must
be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a
Philippine national. (Boldfacing, italicization and underscoring supplied) aDCIHE
Under Article 48 (3) 26 of the Omnibus Investments Code of 1987, "no corporation . . . which is not a 'Philippine national' . . .
shall do business . . . in the Philippines . . . without first securing from the Board of Investments a written certificate to the effect that
such business or economic activity . . . would not conflict with the Constitution or laws of the Philippines." 27 Thus, a "non-Philippine
national" cannot own and operate a reserved economic activity like a public utility. This means, of course, that only a "Philippine
national" can own and operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of 1987 was a reiteration of
the meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981, 28 to wit:
Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit
of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered
enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be
owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a
Philippine national. (Boldfacing, italicization and underscoring supplied)
Under Article 69 (3) of the Omnibus Investments Code of 1981, "no corporation . . . which is not a 'Philippine national' . . .
shall do business . . . in the Philippines . . . without first securing a written certificate from the Board of Investments to the effect that
such business or economic activity . . . would not conflict with the Constitution or laws of the Philippines." 29 Thus, a "non-Philippine
national" cannot own and operate a reserved economic activity like a public utility. Again, this means that only a "Philippine national"
can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 5186 30 or the Investment Incentives Act, which took effect
on 16 September 1967, contained a similar definition of a "Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty
per cent of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or
a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
National and at least sixty per cent of the fund will accrue to the benefit of Philippine Nationals: Provided, That where
a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent of the
capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the
Philippines and at least sixty per cent of the members of the Board of Directors of both corporations must be citizens
of the Philippines in order that the corporation shall be considered a Philippine National. (Boldfacing, italicization
and underscoring supplied) IEHDAT
Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on 30 September 1968,
if the investment in a domestic enterprise by non-Philippine nationals exceeds 30% of its outstanding capital stock, such enterprise must
obtain prior approval from the Board of Investments before accepting such investment. Such approval shall  not be granted if the
investment "would conflict with existing constitutional provisions and laws regulating the degree of required ownership by Philippine
nationals in the enterprise." 31 A "non-Philippine national" cannot own and operate a reserved economic activity like a public utility.
Again, this means that only a "Philippine national" can own and operate a public utility.
The FIA, like all its predecessor statutes, clearly 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.
The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of business and area of
investment. The FIA spells out the procedures by which non-Philippine nationals can invest in the Philippines. Among the key features
of this law is the concept of a negative list or the Foreign Investments Negative List. 32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative List]. — The
Foreign Investment Negative List shall have two [2] component lists: A and B:
a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the
Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law: SEcADa
1. which are defense-related activities, requiring prior clearance and authorization from the Department of National
Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms,
ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials; unless such
manufacturing or repair activity is specifically authorized, with a substantial export component, to a non-Philippine
national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs;
all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics.
(Boldfacing, underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign Investment Negative List A
consists of "areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws," where foreign
equity participation in any enterprise shall be limited to the maximum percentage expressly prescribed by the Constitution and
other specific laws. In short, to own and operate a public utility in the Philippines one must be a "Philippine national" as defined
in the FIA. The FIA is abundant notice to foreign investors to what extent they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownership and operation of
public utilities, which the Constitution expressly reserves to Filipino citizens and to corporations at least 60% owned by Filipino
citizens. In other words, Negative List A of the FIA reserves the ownership and operation of public utilities only to "Philippine
nationals," defined in Section 3 (a) of the FIA as "(1) a citizen of the Philippines; . . . or (3) a corporation organized under the laws
of the Philippines of which at least sixty percent (60%) of the capital stock outstanding  and entitled to vote is owned and held by
citizens of the Philippines; or (4) a corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national
and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals." ASDCaI
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus Investments Code of
1981, to the enactment of the Omnibus Investments Code of 1987, and to the passage of the present Foreign Investments Act of 1991,
or for more than four decades, the statutory definition of the term "Philippine national" has been uniform and consistent: it
means a Filipino citizen, or a domestic corporation at least 60% of the voting stock is owned by Filipinos. Likewise, these same
statutes have uniformly and consistently required that only "Philippine nationals" could own and operate public utilities in the
Philippines. The following exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign Investments Act of 1991, . . .? And the FIA of
1991 took effect in 1991, correct? That's over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine nationals can own and
operate public utilities[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
 JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a "Philippine national" either as a citizen of the
Philippines, or if it is a corporation at least sixty percent (60%) of the voting stock is owned by citizens of the
Philippines, correct? aIcTCS
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the Foreign Investments Act of 1991, the Omnibus
Investments Act of 1987, the same provisions apply: . . . only Philippine nationals can own and operate a
public utility and the Philippine national, if it is a corporation, . . . sixty percent (60%) of the capital stock of
that corporation must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act of 1981, the
same rules apply: . . . only a Philippine national can own and operate a public utility and a Philippine national,
if it is a corporation, sixty percent (60%) of its . . . voting stock, must be owned by citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the] 1967 Investments Incentives Act and the Foreign Company Act of 1968,
the same rules applied, correct? ITCHSa
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, . . ., the law has been very consistent — only a Philippine national can
own and operate a public utility, and a Philippine national, if it is a corporation, . . . at least sixty
percent (60%) of the voting stock must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor. 33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore Sections 3 (a) and 8 of the FIA which categorically prescribe that
certain economic activities, like the ownership and operation of public utilities, are reserved to corporations "at least sixty percent (60%)
of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines." Foreign Investment Negative List
A refers to "activities reserved to Philippine nationals by mandate of the Constitution and specific laws."  The FIA is the basic statute
regulating foreign investments in the Philippines. Government agencies tasked with regulating or monitoring foreign investments, as
well as counsels of foreign investors, should start with the FIA in determining to what extent a particular foreign investment is allowed
in the Philippines. Foreign investors and their counsels who ignore the FIA do so at their own peril. Foreign investors and their counsels
who rely on opinions of SEC legal officers that obviously contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag. There are
already numerous opinions of SEC legal officers that cite the definition of a "Philippine national" in Section 3 (a) of the FIA in
determining whether a particular corporation is qualified to own and operate a nationalized or partially nationalized business in the
Philippines. This shows that SEC legal officers are not only aware of, but also rely on and invoke, the provisions of the FIA in
ascertaining the eligibility of a corporation to engage in partially nationalized industries. The following are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas Employment
Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S. Calma; acADIT
 4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado.
The SEC legal officers' occasional but blatant disregard of the definition of the term "Philippine national" in the FIA signifies
their lack of integrity and competence in resolving issues on the 60-40 ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the FIA should be limited and interpreted to refer to
corporations seeking to avail of tax and fiscal incentives under investment incentives laws and cannot be equated with the term "capital"
in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes do not apply
to "companies which have not registered and obtained special incentives under the schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any enterprise. Tax and fiscal
incentives to investments are granted separately under the Omnibus Investments Code of 1987, not under the FIA. In fact, the FIA
expressly repealed Articles 44 to 56 of Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign
investments in nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized industries. There is
nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its predecessor statutes, that states, expressly or impliedly, that
the FIA or its predecessor statutes do not apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and its
predecessor statutes apply to investments in all domestic enterprises, whether or not such enterprises enjoy tax and fiscal incentives
under the Omnibus Investments Code of 1987 or its predecessor statutes. The reason is quite obvious — mere non-availment of tax
and fiscal incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the Constitution regulating
foreign investments in public utilities. In fact, the Board of Investments' Primer on Investment Policies in the Philippines, 34 which
is given out to foreign investors, provides: SDIACc
PART III.FOREIGN INVESTMENTS WITHOUT INCENTIVES. —
Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e., the activity is
not listed in the IPP, and they are not exporting at least 70% of their production) may go ahead and make the
investments without seeking incentives. They only have to be guided by the Foreign Investments Negative List
(FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of this
list are fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by 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. To
repeat, we held:
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must
rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is
"considered as non-Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a trustee of funds
for pension or other employee retirement or separation benefits," the trustee is a Philippine national if "at least sixty percent (60%) of the
fund will accrue to the benefit of Philippine nationals." Likewise, Section 1 (b) of the Implementing Rules of the FIA provides that "for
stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights, is essential."
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 35 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 articles of incorporation. 36
The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial of the right to
vote in specific corporate matters. Thus, common shares have the right to vote in the election of directors, while preferred shares may be
denied such right. Nonetheless, preferred shares, even if denied the right to vote in the election of directors, are entitled to vote on the
following corporate matters: (1) amendment of articles of incorporation; (2) increase and decrease of capital stock; (3) incurring,
creating or increasing bonded indebtedness; (4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5)
investment of funds in another business or corporation or for a purpose other than the primary purpose for which the corporation was
organized; (6) adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of corporation. 37 HESAIT
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. This uniform application of the 60-40 ownership requirement in favor of Filipino
citizens clearly breathes life to the constitutional command that the ownership and operation of public utilities shall be reserved
exclusively to corporations at least 60 percent of whose capital is Filipino-owned. 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.
Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilities always lies
in the hands of Filipino citizens. This addresses and extinguishes Pangilinan's worry that foreigners, owning most of the non-voting
shares, will exercise greater control over fundamental corporate matters requiring two-thirds or majority vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion 38 a portion of the deliberations of the Constitutional Commission to
support his claim that the term "capital" refers to the total outstanding shares of stock, whether voting or non-voting, the following
excerpts of the deliberations reveal otherwise. It is clear from the following exchange that the term "capital" refers to controlling
interest of a corporation, thus: TcIAHS
MR. NOLLEDO.
In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
In teaching law, we are always faced with this question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will
the Committee please enlighten me on this?
MR. VILLEGAS.
We have just had a long discussion with the members of the team from the UP Law Center who provided us a
draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of voting
stock."
MR. NOLLEDO.
That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS.
Yes, that is the understanding of the Committee.
 MR. NOLLEDO.
Therefore, we need additional Filipino capital? cDTCIA
MR. VILLEGAS.
Yes. 39
xxx xxx xxx
MR. AZCUNA.
May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS.
The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest."
MR. AZCUNA.
Hence, without the Davide amendment, the committee report would read: "corporations or associations at least
sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS.
Yes.
MR. AZCUNA.
So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.
MR. VILLEGAS.
That is right.
MR. AZCUNA.
But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the
capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So
we can have a situation where the corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that would result here. TAHcCI
MR. BENGZON.
No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions is that
according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say
"CAPITAL."
MR. AZCUNA.
We should not eliminate the phrase "controlling interest."
MR. BENGZON.
In the case of stock corporations, it is assumed. 40 (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corporation.
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.
During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the nationalists in the
Convention." 41 The same battle-cry resulted in the nationalization of the public utilities. 42 This is also the same intent of the framers
of the 1987 Constitution who adopted the exact formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations
in partially nationalized industries.
The OSG, in its own behalf and as counsel for the State, 43 agrees fully with the Court's interpretation of the term "capital." In
its Consolidated Comment, the OSG explains that the deletion of the phrase "controlling interest" and replacement of the word "stock"
with the term "capital" were intended specifically to extend the scope of the entities qualified to operate public utilities to include
associations without stocks. The framers' omission of the phrase "controlling interest" did not mean the inclusion of all shares of stock,
whether voting or non-voting. The OSG reiterated 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." cDTIAC
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital stock, treated as
a single class regardless of the actual classification of shares, grossly contravenes the intent and letter of the Constitution that the "State
shall develop a self-reliant and independent national economy effectively controlled by Filipinos." We illustrated the glaring anomaly
which would result in defining the term "capital" as the total outstanding capital stock of a corporation, treated as a single class of shares
regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting
preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under
the broad definition of the term "capital," such corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent,
of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of
directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise
control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot
vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of
the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in
the hands of Filipinos. . . .
Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board of directors, this
situation does not guarantee Filipino control and does not in any way cure the violation of the Constitution. The independence of the
Filipino board members so elected by such foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice George
Sutherland's words in Humphrey's Executor v. US, 44 ". . . it is quite evident that one who holds his office only during the pleasure of
another cannot be depended upon to maintain an attitude of independence against the latter's will." Allowing foreign shareholders to
elect a controlling majority of the board, even if all the directors are Filipinos, grossly circumvents the letter and intent of the
Constitution and defeats the very purpose of our nationalization laws. TICAcD
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or association must
be citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers of the
Constitution to limit foreign ownership, and assure majority Filipino ownership and control of public utilities. The OSG argued, "while
the delegates disagreed as to the percentage threshold to adopt, . . . the records show they clearly understood that Filipino control of the
public utility corporation can only be and is obtained only through the election of a majority of the members of the board."
Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23 August 1986 was the
extent of majority Filipino control of public utilities. This is evident from the following exchange:
THE PRESIDENT.
Commissioner Jamir is recognized.
MR. JAMIR.
Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase "two thirds of whose
voting stock or controlling interest," and instead substitute the words "SIXTY PERCENT OF WHOSE
CAPITAL" so that the sentence will read: "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 PERCENT OF WHOSE CAPITAL is
owned by such citizens." SEcTHA
xxx xxx xxx
THE PRESIDENT:
Will Commissioner Jamir first explain?
MR. JAMIR.
Yes, in this Article on National Economy and Patrimony, there were two previous sections in which we fixed
the Filipino equity to 60 percent as against 40 percent for foreigners. It is only in this Section 15 with respect
to public utilities that the committee proposal was increased to two-thirds. I think it would be better to
 harmonize this provision by providing that even in the case of public utilities, the minimum equity for Filipino
citizens should be 60 percent.
MR. ROMULO.
Madam President.
THE PRESIDENT.
Commissioner Romulo is recognized.
MR. ROMULO.
My reason for supporting the amendment is based on the discussions I have had with representatives of the
Filipino majority owners of the international record carriers, and the subsequent memoranda they submitted to
me. . . .
Their second point is that under the Corporation Code, the management and control of a corporation is vested
in the board of directors, not in the officers but in the board of directors. The officers are only agents of the
board. And they believe that with 60 percent of the equity, the Filipino majority stockholders undeniably
control the board. Only on important corporate acts can the 40-percent foreign equity exercise a
veto, . . . . DcHSEa
xxx xxx xxx 45
MS. ROSARIO BRAID.
Madam President.
THE PRESIDENT.
Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID.
Yes, in the interest of equal time, may I also read from a memorandum by the spokesman of the Philippine
Chamber of Communications on why they would like to maintain the present equity, I am referring to the 66
2/3. They would prefer to have a 75-25 ratio but would settle for 66 2/3. . . .
xxx xxx xxx
THE PRESIDENT.
Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds rather than the 60
percent?
MS. ROSARIO BRAID.
I have added a clause that will put management in the hands of Filipino citizens.
xxx xxx xxx 46
While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of the Constitution
intended public utilities to be majority Filipino-owned and controlled. To ensure that Filipinos control public utilities, the framers of the
Constitution approved, as additional safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution
commanding that "[t]he participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the
Philippines." In other words, the last sentence of Section 11, Article XII of the Constitution 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.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of the corporation or
association to be Filipino citizens specifically to prevent management contracts, which were designed primarily to circumvent the
Filipinization of public utilities, and to assure Filipino control of public utilities, thus:
MS. ROSARIO BRAID.
. . . They also like to suggest that we amend this provision by adding a phrase which states: "THE
MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me their position paper.
THE PRESIDENT.
The Commissioner may proceed. TDcHCa
MS. ROSARIO BRAID.
The three major international record carriers in the Philippines, which Commissioner Romulo mentioned —
Philippine Global Communications, Eastern Telecommunications, Globe Mackay Cable — are 40-percent
owned by foreign multinational companies and 60-percent owned by their respective Filipino partners. All
three, however, also have management contracts with these foreign companies — Philcom with RCA, ETPI
with Cable and Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of these
carriers are foreigners. While the foreigners in these common carriers are only minority owners, the foreign
multinationals are the ones managing and controlling their operations by virtue of their management contracts
and by virtue of their strength in the governing bodies of these carriers. 47
xxx xxx xxx
MR. OPLE.
I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendment with respect
to the operating management of public utilities, and in this amendment, we are associated with Fr. Bernas,
Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state this amendment now.
Thank you.
MS. ROSARIO BRAID.
Madam President. ADCSEa
THE PRESIDENT.
This is still on Section 15.
MS. ROSARIO BRAID.
Yes.
MR. VILLEGAS.
Yes, Madam President.
xxx xxx xxx
MS. ROSARIO BRAID.
Madam President, I propose a new section to read: 'THE MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE
PHILIPPINES."
This will prevent management contracts and assure control by Filipino citizens. Will the committee
assure us that this amendment will insure that past activities such as management contracts will no longer be
possible under this amendment?
xxx xxx xxx
FR. BERNAS.
Madam President.
THE PRESIDENT.
Commissioner Bernas is recognized.
FR. BERNAS.
Will the committee accept a reformulation of the first part?
MR. BENGZON.
Let us hear it.
FR. BERNAS.
The reformulation will be essentially the formula of the 1973 Constitution which reads: "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 AND . . ."
MR. VILLEGAS.
"ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND
ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON.
Will Commissioner Bernas read the whole thing again?
FR. BERNAS.
"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 . . ." I do not have the rest of the copy. CDaSAE
MR. BENGZON.
"AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR
ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS.
Yes.
MR. BENGZON.
Madam President, I think that was said in a more elegant language. We accept the amendment. Is that all right
with Commissioner Rosario Braid?
MS. ROSARIO BRAID.
Yes.
xxx xxx xxx
MR. DE LOS REYES.
The governing body refers to the board of directors and trustees.
MR. VILLEGAS.
That is right.
MR. BENGZON.
Yes, the governing body refers to the board of directors.
MR. REGALADO.
It is accepted.
MR. RAMA.
The body is now ready to vote, Madam President.
VOTING
xxx xxx xxx
The results show 29 votes in favor and none against; so the proposed amendment is approved.
xxx xxx xxx
THE PRESIDENT.
All right. Can we proceed now to vote on Section 15?
MR. RAMA.
Yes, Madam President.
THE PRESIDENT.
Will the chairman of the committee please read Section 15?
MR. VILLEGAS.
 The entire Section 15, as amended, reads: "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 60 PERCENT OF WHOSE CAPITAL is
owned by such citizens." May I request Commissioner Bengzon to please continue reading. SCHcaT
MR. BENGZON.
"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 AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR
ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS.
"NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE IN
CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT
MORE THAN TWENTY-FIVE 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 Congress when the common good so
requires. The State shall encourage equity participation in public utilities by the general public."
VOTING
xxx xxx xxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is approved. 48 (Emphasis supplied)
The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the limited participation of
foreign investors in the governing body of public utilities, is a reiteration of the last sentence of Section 5, Article XIV of the 1973
Constitution, 49 signifying its importance in reserving ownership and control of public utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the sole right to vote in the election of directors, and thus foreigners control PLDT; (2) Filipinos own
only 35.73% of PLDT's common shares, constituting a minority of the voting stock, and thus Filipinos do not control PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common
shares earn; 50 (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the
authorized capital stock of PLDT and common shares only 22.15%. cSTCDA
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of whether PLDT
violated the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the 1987 Constitution. Such question
indisputably calls for a presentation and determination of evidence through a hearing, which is generally outside the province of the
Court's jurisdiction, but well within the SEC's statutory powers. Thus, for obvious reasons, the Court limited its decision on the purely
legal and threshold issue on the definition of the term "capital" in Section 11, Article XII of the Constitution and directed the SEC to
apply such definition in determining the exact percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxx xxx xxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the sole
basis in determining foreign equity in a public utility and that any other government rulings, opinions, and regulations
inconsistent with this declaratory relief be declared unconstitutional and a violation of the intent and spirit of the 1987
Constitution;
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40
percent of the total subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock
Exchange to require PLDT to make a public disclosure of all of its foreign shareholdings and their actual and real
beneficial owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
 As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutory duty to
investigate whether "the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has been
complied with [by PLDT] as required by . . . the Constitution." 51 Such plea clearly negates SEC's argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the SEC's compliance
with its directive contained in the 28 June 2011 Decision in view of the far-reaching implications of this case. In Domingo v.
Scheer, 52 the Court dispensed with the amendment of the pleadings to implead the Bureau of Customs considering (1) the unique
backdrop of the case; (2) the utmost need to avoid further delays; and (3) the issue of public interest involved. The Court held: aIcDCH
The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition should not
be dismissed because the second action would only be a repetition of the first. In Salvador, et al. v. Court of Appeals, et
al., we held that this Court has full powers, apart from that power and authority which is inherent, to amend the
processes, pleadings, proceedings and decisions by substituting as party-plaintiff the real party-in-interest. The Court
has the power to avoid delay in the disposition of this case, to order its amendment as to implead the BOC as
party-respondent. Indeed, it may no longer be necessary to do so taking into account the unique backdrop in this
case, involving as it does an issue of public interest. After all, the Office of the Solicitor General has represented the
petitioner in the instant proceedings, as well as in the appellate court, and maintained the validity of the deportation
order and of the BOC's Omnibus Resolution. It cannot, thus, be claimed by the State that the BOC was not afforded its
day in court, simply because only the petitioner, the Chairperson of the BOC, was the respondent in the CA, and the
petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings, their forms or contents. Their sole
purpose is to facilitate the application of justice to the rival claims of contending parties . They were
created, not to hinder and delay, but to facilitate and promote, the administration of justice. They do not
constitute the thing itself, which courts are always striving to secure to litigants. They are designed as the
means best adapted to obtain that thing. In other words, they are a means to an end. When they lose the
character of the one and become the other, the administration of justice is at fault and courts are
correspondingly remiss in the performance of their obvious duty. 53 (Emphasis supplied)
In any event, the SEC has expressly manifested 54 that it will abide by the Court's decision and defer to the Court's
definition of the term "capital" in Section 11, Article XII of the Constitution. Further, the SEC entered its special appearance in
this case and argued during the Oral Arguments, indicating its submission to the Court's jurisdiction. It is clear, therefore, that
there exists no legal impediment against the proper and immediate implementation of the Court's directive to the SEC. DEcTIS
PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are concerned. In other
words, PLDT must be impleaded in order to fully resolve the issues on (1) whether the sale of 111,415 PTIC shares to First Pacific
violates the constitutional limit on foreign ownership of PLDT; (2) whether the sale of common shares to foreigners exceeded the 40
percent limit on foreign equity in PLDT; and (3) whether the total percentage of the PLDT common shares with voting rights complies
with the 60-40 ownership requirement in favor of Filipino citizens under the Constitution for the ownership and operation of PLDT.
These issues indisputably call for an examination of the parties' respective evidence, and thus are clearly within the jurisdiction of the
SEC. In short, PLDT must be impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual issues will
be thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court. 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.
Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this case even without the
participation of PLDT since defining the term "capital" in Section 11, Article XII of the Constitution does not, in any way, depend on
whether PLDT was impleaded. Simply put, PLDT is not indispensable for a complete resolution of the purely legal question in this
case. 55 In fact, the Court, by treating the petition as one for mandamus, 56 merely directed the SEC to apply the Court's definition of
the term "capital" in Section 11, Article XII of the Constitution in determining whether PLDT committed any violation of the said
constitutional provision. The dispositive portion of the Court's ruling is addressed not to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII
of the Constitution.
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, 57 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. AHaDSI
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden flight of existing
foreign investors to "friendlier" countries and simultaneously deterring new foreign investors to our country. In particular, the PSE
claims that the 28 June 2011 Decision may result in the following: (1) loss of more than P630 billion in foreign investments in PSE-
listed shares; (2) massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and (4) local investors not investing
in PSE-listed shares. 58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants' apprehension. Without providing
specific details, he pointed out the depressing state of the Philippine economy compared to our neighboring countries which boast of
growing economies. Further, Dr. Villegas explained that the solution to our economic woes is for the government to "take-over" strategic
industries, such as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional information on whether this high
FDI 59 countries in East Asia have allowed foreigners . . . control [of] their public utilities, so that we can
compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their
solution is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure that those
industries are in the hands of state enterprises. So, in these countries, nationalization means the
government takes over. And because their governments are competent and honest enough to the public,
that is the solution. . . . 60 (Emphasis supplied) cEAaIS
If government ownership of public utilities is the solution, then foreign investments in our public utilities serve no purpose.
Obviously, there can never be foreign investments in public utilities if, as Dr. Villegas claims, the "solution is to make sure that those
industries are in the hands of state enterprises." Dr. Villegas's argument that foreign investments in telecommunication companies like
PLDT are badly needed to save our ailing economy contradicts his own theory that the solution is for government to take over these
companies. Dr. Villegas is barking up the wrong tree since State ownership of public utilities and foreign investments in such industries
are diametrically opposed concepts, which cannot possibly be reconciled.
In any event, the experience of our neighboring countries cannot be used as argument to decide the present case differently for
two reasons. First, the governments of our neighboring countries have, as claimed by Dr. Villegas, taken over ownership and control of
their strategic public utilities like the telecommunications industry. Second, our Constitution has specific provisions limiting foreign
ownership in public utilities which the Court is sworn to uphold regardless of the experience of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to Filipino citizens, or
corporations or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr. Villegas's claim, the Philippines
appears to be more liberal in allowing foreign investors to own 40 percent of public utilities, unlike in other Asian countries whose
governments own and operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application and imposition of
appropriate sanctions against PLDT if found violating Section 11, Article XII of the Constitution.
As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated Section 11, Article XII of
the Constitution. Thus, there is no dispute that it is only after the SEC has determined PLDT's violation, if any exists at the time of the
commencement of the administrative case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other
words, once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds after due hearing
that, at the start of the administrative case or investigation, there is an existing violation of Section 11, Article XII of the Constitution.
Under prevailing jurisprudence, public utilities that fail to comply with the nationality requirement under Section 11, Article XII and the
FIA can cure their deficiencies prior to the start of the administrative case or investigation. 61 CTAIHc
XII.
Final Word
The Constitution expressly declares as State policy the development of an economy "effectively controlled" by Filipinos.
Consistent with such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine
nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent
of whose capital with voting rights belongs to Filipinos. The FIA's implementing rules explain that "[f]or stocks to be deemed owned
and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as
with full beneficial ownership. This is precisely because the right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a corporation.
Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and intent of
the Constitution. Any other meaning of the term "capital" openly invites alien domination of economic activities reserved exclusively to
Philippine nationals. Therefore, respondents' interpretation will ultimately result in handing over effective control of our national
economy to foreigners in patent violation of the Constitution, making Filipinos second-class citizens in their own country.
 Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, which gave
Americans the same rights as Filipinos in the exploitation of natural resources, and in the ownership and control of public utilities, in the
Philippines. To do this the 1935 Constitution, which contained the same 60 percent Filipino ownership and control requirement as the
present 1987 Constitution, had to be amended to give Americans parity rights with Filipinos. There was bitter opposition to the Parity
Amendment 62 and many Filipinos eagerly awaited its expiration. In late 1968, PLDT was one of the American-controlled public
utilities that became Filipino-controlled when the controlling American stockholders divested in anticipation of the expiration of the
Parity Amendment on 3 July 1974. 63 No economic suicide happened when control of public utilities and mining corporations passed to
Filipinos' hands upon expiration of the Parity Amendment. AHSEaD
Movants' interpretation of the term "capital" would bring us back to the same evils spawned by the Parity
Amendment, effectively giving foreigners parity rights with Filipinos, but this time even without any amendment to the present
Constitution. Worse, movants' interpretation opens up our national economy to effective control not only by Americans but also by all
foreigners, be they Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements . At least the Parity
Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity — the same rights
as Americans to exploit natural resources, and to own and control public utilities, in the United States of America. Here, movants'
interpretation would effectively mean a unilateral opening up of our national economy to all foreigners, without any reciprocal
arrangements. That would mean that Indonesians, Malaysians and Chinese nationals could effectively control our mining companies
and public utilities while Filipinos, even if they have the capital, could not control similar corporations in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control requirement for public
utilities like PLDT. Any deviation from this requirement necessitates an amendment to the Constitution as exemplified by the Parity
Amendment. This Court has no power to amend the Constitution for its power and duty is only to faithfully apply and interpret the
Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be entertained.
SO ORDERED.
 EN BANC

[G.R. No. 207246. November 22, 2016.]

JOSE M. ROY III, petitioner, vs. CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, and PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY, respondents.

WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P. GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y.
MAMON III, and GERARDO C. EREBAREN, petitioners-in-intervention,

PHILIPPINE STOCK EXCHANGE, INC., respondent-in-intervention,

SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC., respondent-in-intervention.

DECISION

CAGUIOA, J p:

The petitions 1 before the Court are special civil actions for certiorari under Rule 65 of the Rules of Court seeking to
annul Memorandum Circular No. 8, Series of 2013 ("SEC-MC No. 8") issued by the Securities and Exchange Commission
("SEC") for allegedly being in violation of the Court's Decision 2 ("Gamboa Decision") and Resolution 3 ("Gamboa Resolution")
in Gamboa v. Finance Secretary Teves, G.R. No. 176579, respectively promulgated on June 28, 2011, and October 9, 2012,
which jurisprudentially established the proper interpretation of Section 11, Article XII of the Constitution.
The Antecedents
On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of which reads:
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the total outstanding capital stock (common and
non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section
11, Article XII of the Constitution, to impose the appropriate sanctions under the law.
SO ORDERED. 4
Several motions for reconsideration were filed assailing the Gamboa Decision. They were denied in
the Gamboa Resolution issued by the Court on October 9, 2012, viz.:
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings
shall be entertained.
SO ORDERED. 5
 The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was thereafter issued on December
11, 2012. 6
On November 6, 2012, the SEC posted a Notice in its website inviting the public to attend a public dialogue and to
submit comments on the draft memorandum circular (attached thereto) on the guidelines to be followed in determining
compliance with the Filipino ownership requirement in public utilities under Section 11, Article XII of the Constitution pursuant
to the Court's directive in the Gamboa Decision. 7
On November 9, 2012, the SEC held the scheduled dialogue and more than 100 representatives from various
organizations, government agencies, the academe and the private sector attended. 8
On January 8, 2013, the SEC received a copy of the Entry of Judgment 9 from the Court certifying that on October 18,
2012, the Gamboa Decision had become final and executory. 10
On March 25, 2013, the SEC posted another Notice in its website soliciting from the public comments and suggestions
on the draft guidelines. 11
On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy") submitted his written comments on the draft
guidelines. 12 CAIHTE
On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No.
8 entitled "Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or
Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities." It was published in the Philippine
Daily Inquirer and the Business Mirror on May 22, 2013. 13 Section 2 of SEC-MC No. 8 provides:
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.
Corporations covered by special laws which provide specific citizenship requirements shall comply
with the provisions of said law. 14
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. Petitioner Roy seeks to apply the 60-40 Filipino ownership requirement separately to each class of
shares of a public utility corporation, whether common, preferred non-voting, preferred voting or any other class of shares.
Petitioner Roy also questions the ruling of the SEC that respondent Philippine Long Distance Telephone Company ("PLDT") is
compliant with the constitutional rule on foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional and
direct the SEC to issue new guidelines regarding the determination of compliance with Section 11, Article XII of
the Constitution in accordance with Gamboa.
Wilson C. Gamboa, Jr., 16 Daniel V. Cartagena, John Warren P. Gabinete, Antonio V. Pesina, Jr., Modesto Martin Y.
Mamon III, and Gerardo C. Erebaren ("intervenors Gamboa, et al.") filed a Motion for Leave to File Petition-in-
Intervention 17 on July 30, 2013, which the Court granted. The Petition-in-Intervention 18 filed by intervenors Gamboa, et
al. mirrored the issues, arguments and prayer of petitioner Roy.
On September 5, 2013, respondent PLDT filed its Comment (on the Petition dated 10 June 2013). 19 PLDT posited that
the Petition should be dismissed because it violates the doctrine of hierarchy of courts as there are no compelling reasons to
invoke the Court's original jurisdiction; it is prematurely filed because petitioner Roy failed to exhaust administrative remedies
before the SEC; the principal actions/remedies of mandamus and declaratory relief are not within the exclusive and/or original
jurisdiction of the Court; the petition for certiorari is an inappropriate remedy since the SEC issued SEC-MC No. 8 in the
exercise of its quasi-legislative power; it deprives the necessary and indispensable parties of their constitutional right to due
process; and the SEC merely implemented the dispositive portion of the Gamboa Decision.
On September 20, 2013, respondents Chairperson Teresita Herbosa and SEC filed their Consolidated Comment. 20 They
sought the dismissal of the petitions on the following grounds: (1) the petitioners do not possess locus standi to assail the
constitutionality of SEC-MC No. 8; (2) a petition for certiorari under Rule 65 is not the appropriate and proper remedy to assail
the validity and constitutionality of the SEC-MC No. 8; (3) the direct resort to the Court violates the doctrine of hierarchy of
courts; (4) the SEC did not abuse its discretion; (5) on PLDT's compliance with the capital requirement as stated in
the Gamboa ruling, the petitioners' challenge is premature considering that the SEC has not yet issued a definitive ruling thereon.
On October 22, 2013, PLDT filed its Comment (on the Petition-in-Intervention dated 16 July 2013).  21 PLDT adopted
the position that intervenors Gamboa, et al. have no standing and are not the proper party to question the constitutionality of SEC-
MC No. 8; they are in no position to assail SEC-MC No. 8 considering that they did not participate in the public consultations or
give comments thereon; and their Petition-in-Intervention is a disguised motion for reconsideration of the Gamboa Decision and
Resolution.
 On May 7, 2014, Petitioner Roy and intervenors Gamboa, et al. 22 filed their Joint Consolidated Reply with Motion for
Issuance of Temporary Restraining Order. 23
On May 22, 2014, PLDT filed its Rejoinder [To Petitioner and Petitioners-in-Intervention's Joint Consolidated Reply
dated 7 May 2014] and Opposition [To Petitioner and Petitioners-in-Intervention's Motion for Issuance of a Temporary
Restraining Order dated 7 May 2014]. 24
On June 18, 2014, the Philippine Stock Exchange, Inc. ("PSE") filed its Motion to Intervene with Leave of Court 25 and
its Comment-in-Intervention. 26 The PSE alleged that it has standing to intervene as the primary regulator of the stock exchange
and will sustain direct injury should the petitions be granted. The PSE argued that in the Gamboa ruling, "capital" refers only to
shares entitled to vote in the election of directors, and excludes those not so entitled; and the dispositive portion of the decision is
the controlling factor that determines and settles the questions presented in the case. The PSE further argued that adopting a new
interpretation of Section 11, Article XII of the Constitution violates the policy of conclusiveness of judgment, stare decisis, and
the State's obligation to maintain a stable and predictable legal framework for foreign investors under international treaties; and
adopting a new definition of "capital" will prove disastrous for the Philippine stock market. The Court granted the Motion to
Intervene filed by PSE. 27
PLDT filed its Consolidated Memorandum 28 on February 10, 2015. DETACa
On June 1, 2016, Shareholders' Association of the Philippines, Inc. 29 ("SHAREPHIL") filed an Omnibus Motion [1]
For Leave to Intervene; and [2] To Admit Attached Comment-in-Intervention. 30 The Court granted the Omnibus Motion of
SHAREPHIL. 31
On June 30, 2016, petitioner Roy filed his Opposition and Reply to Interventions of Philippine Stock Exchange and
Sharephil. 32 Intervenors Gamboa, et al. then filed on September 14, 2016, their Reply (to Interventions by Philippine Stock
Exchange and Sharephil). 33
The Issues
The twin issues of the Petition and the Petition-in-Intervention are: (1) whether the SEC gravely abused its discretion in
issuing SEC-MC No. 8 in light of the Gamboa Decision and Gamboa Resolution, and (2) whether the SEC gravely abused its
discretion in ruling that PLDT is compliant with the constitutional limitation on foreign ownership.
The Court's Ruling
At the outset, the Court disposes of the second issue for being without merit. In its Consolidated Comment dated
September 13, 2013, 34 the SEC already clarified that it "has not yet issued a definitive ruling anent PLDT's compliance with the
limitation on foreign ownership imposed under the Constitution and relevant laws [and i]n fact, a careful perusal of . . . SEC-MC
No. 8 readily reveals that all existing covered corporations which are non-compliant with Section 2 thereof were given a period of
one (1) year from the effectivity of the same within which to comply with said ownership requirement. . . . ."  35 Thus, in the
absence of a definitive ruling by the SEC on PLDT's compliance with the capital requirement pursuant to the Gamboa Decision
and Resolution, any question relative to the inexistent ruling is premature.
Also, considering that the Court is not a trier of facts and is in no position to make a factual determination of PLDT's
compliance with the constitutional provision under review, the Court can only resolve the first issue, which is a pure question of
law. However, before the Court tackles the first issue, it has to rule on certain procedural challenges that have been raised.
The Procedural Issues
The Court may exercise its power of judicial review and take cognizance of a case when the following specific requisites
are met: (1) there is an actual case or controversy calling for the exercise of judicial power; (2) the petitioner has standing to
question the validity of the subject act or issuance, i.e., he has a personal and substantial interest in the case that he has sustained,
or will sustain, direct injury as a result of the enforcement of the act or issuance; (3) the question of constitutionality is raised at
the earliest opportunity; and (4) the constitutional question is the very lis mota of the case. 36
The first two requisites of judicial
review are not met.
Petitioners' failure to sufficiently allege, much less establish, the existence of the first two requisites for the exercise of
judicial review warrants the perfunctory dismissal of the petitions.
a. No actual controversy.
Regarding the first requisite, the Court in Belgica v. Ochoa 37 stressed anew that an actual case or controversy is one
which involves a conflict of legal rights, an assertion of opposite legal claims, susceptible of judicial resolution as distinguished
from a hypothetical or abstract difference or dispute since the courts will decline to pass upon constitutional issues through
advisory opinions, bereft as they are of authority to resolve hypothetical or moot questions. Related to the requirement of an
actual case or controversy is the requirement of "ripeness," and a question is ripe for adjudication when the act being challenged
has a direct adverse effect on the individual challenging it.
 Petitioners have failed to show that there is an actual case or controversy which is ripe for adjudication.
The Petition and the Petition-in-Intervention identically allege:
3. The standing interpretation of the SEC found in MC8 practically encourages circumvention of the
60-40 ownership rule by impliedly allowing the creation of several classes of voting shares with different
degrees of beneficial ownership over the same, but at the same time, not imposing a 40% limit on foreign
ownership of the higher yielding stocks. 38
4. For instance, a situation may arise where a corporation may issue several classes of shares of stock,
one of which are common shares with rights to elect directors, another are preferred shares with rights to elect
directors but with much lesser entitlement to dividends, and still another class of preferred shares with no rights
to elect the directors and even less dividends. In this situation, the corporation may issue common shares to
foreigners amounting to forty percent (40%) of the outstanding capital stock and issue preferred shares entitled
to vote the directors of the corporation to Filipinos consisting of 60% 39 percent (sic) of the outstanding capital
stock entitled to vote. Although it may appear that the 60-40 rule has been complied with, the beneficial
ownership of the corporation remains with the foreign stockholder since the Filipino owners of the preferred
shares have only a miniscule share in the dividends and profit of the corporation. Plainly, this situation runs
contrary to the Constitution and the ruling of this . . . Court. 40 aDSIHc
Petitioners' hypothetical illustration as to how SEC-MC No. 8 "practically encourages circumvention of the 60-40
ownership rule" is evidently speculative and fraught with conjectures and assumptions. There is clearly wanting specific facts
against which the veracity of the conclusions purportedly following from the speculations and assumptions can be validated. The
lack of a specific factual milieu from which the petitions originated renders any pronouncement from the Court as a purely
advisory opinion and not a decision binding on identified and definite parties and on a known set of facts.
Firstly, unlike in Gamboa, the identity of the public utility corporation, the capital of which is at issue, is unknown. Its
outstanding capital stock and the actual composition thereof in terms of numbers, classes, preferences and features are all
theoretical. The description "preferred shares with rights to elect directors but with much lesser entitlement to dividends, and still
another class of preferred shares with no rights to elect the directors and even less dividends" is ambiguous. What are the specific
dividend policies or entitlements of the purported preferred shares? How are the preferred shares' dividend policies different from
those of the common shares? Why and how did the fictional public utility corporation issue those preferred shares intended to be
owned by Filipinos? What are the actual features of the foreign-owned common shares which make them superior over those
owned by Filipinos? How did it come to be that Filipino holders of preferred shares ended up with "only a miniscule share in the
dividends and profit of the [hypothetical] corporation"? Any answer to any of these questions will, at best, be contingent,
conjectural, indefinite or anticipatory.
Secondly, preferred shares usually have preference over the common shares in the payment of dividends. If most of the
"preferred shares with rights to elect directors but with much lesser entitlement to dividends" and the other "class of preferred
shares with no rights to elect the directors and even less dividends" are owned by Filipinos, they stand to receive their dividend
entitlement ahead of the foreigners, who are common shareholders. For the common shareholders to have "bigger dividends" as
compared to the dividends paid to the preferred shareholders, which are supposedly predominantly owned by Filipinos, there must
still be unrestricted retained earnings of the fictional corporation left after payment of the dividends declared in favor of the
preferred shareholders. The fictional illustration does not even intimate how this situation can be possible. No permutation of
unrestricted retained earnings of the hypothetical corporation is shown that makes the present conclusion of the petitioners
achievable. Also, no concrete meaning to the petitioners' claim of the Filipinos' "miniscule share in the dividends and profit of the
[fictional] corporation" is demonstrated.
Thirdly, petitioners fail to allege or show how their hypothetical illustration will directly and adversely affect them. That
is impossible since their relationship to the fictional corporation is a matter of guesswork.
From the foregoing, it is evident that the Court can only surmise or speculate on the situation or controversy that the
petitioners contemplate to present for judicial determination. Petitioners are likewise conspicuously silent on the direct adverse
impact to them of the implementation of SEC-MC No. 8. Thus, the petitions must fail because the Court is barred from rendering
a decision based on assumptions, speculations, conjectures and hypothetical or fictional illustrations, more so in the present case
which is not even ripe for decision.
b. No locus standi.
The personal and substantial interest that enables a party to have legal standing is one that is both  material, an interest in
issue and to be affected by the government action, as distinguished from mere interest in the issue involved, or a mere incidental
interest, and real, which means a present substantial interest, as distinguished from a mere expectancy or a future, contingent,
subordinate, or consequential interest. 41
As to injury, the party must show that (1) he will personally suffer some actual or threatened injury because of the
allegedly illegal conduct of the government; (2) the injury is fairly traceable to the challenged action; and (3) the injury is likely to
be redressed by a favorable action. 42 If the asserted injury is more imagined than real, or is merely superficial and insubstantial,
an excursion into constitutional adjudication by the courts is not warranted. 43
Petitioners have no legal standing to question the constitutionality of SEC-MC No. 8.
To establish his standing, petitioner Roy merely claimed that he has standing to question SEC-MC No. 8 "as a concerned
citizen, an officer of the Court and as a taxpayer" as well as "the senior law partner of his own law firm[, which] . . . is a
subscriber of PLDT." 44 On the other hand, intervenors Gamboa, et al. allege, as basis of their locus standi, their "[b]eing
lawyers and officers of the Court" and "citizens . . . and taxpayers." 45
The Court has previously emphasized that the locus standi requisite is not met by the expedient invocation of one's
citizenship or membership in the bar who has an interest in ensuring that laws and orders of the Philippine government are legally
and validly issued as these supposed interests are too general, which are shared by other groups and by the whole citizenry. 46 Per
their allegations, the personal interest invoked by petitioners as citizens and members of the bar in the validity or invalidity
of SEC-MC No. 8 is at best equivocal, and totally insufficient.
Petitioners' status as taxpayers is also of no moment. As often reiterated by the Court, a taxpayer's suit is allowed only
when the petitioner has demonstrated the direct correlation of the act complained of and the disbursement of public funds in
contravention of law or the Constitution, or has shown that the case involves the exercise of the spending or taxing power of
Congress. 47 SEC-MC No. 8 does not involve an additional expenditure of public funds and the taxing or spending power of
Congress. ETHIDa
The allegation that petitioner Roy's law firm is a "subscriber of PLDT" is ambiguous. It is unclear whether his law firm is
a "subscriber" of PLDT's shares of stock or of its various telecommunication services. Petitioner Roy has not identified the
specific direct and substantial injury he or his law firm stands to suffer as "subscriber of PLDT" as a result of the issuance
of SEC-MC No. 8 and its enforcement.
As correctly observed by respondent PLDT, "[w]hether or not the constitutionality of SEC MC No. 8 is upheld, the
rights and privileges of all PLDT subscribers, as with all the rest of subscribers of other corporations, are necessarily and equally
preserved and protected. Nothing is added [to] or removed from a PLDT subscriber in terms of the extent of his or her
participation, relative to what he or she had originally enjoyed from the beginning. In the most practical sense, a PLDT subscriber
loses or gains nothing in the event that SEC MC No. 8 is either sustained or struck down by [the Court]." 48
More importantly, the issue regarding PLDT's compliance with Section 11, Article XII of the Constitution has been
earlier ruled as premature and beyond the Court's jurisdiction. Thus, petitioner Roy's allegation that his law firm is a "subscriber
of PLDT" is insufficient to clothe him with locus standi.
Petitioners' cursory incantation of "transcendental importance . . . of the rules on foreign ownership of corporations or
entities vested with public interest" 49 does not automatically justify the brushing aside of the strict observance of the requisites
for the Court's exercise of judicial review. An indiscriminate disregard of the requisites every time "transcendental or paramount
importance or significance" is invoked would result in an unacceptable corruption of the settled doctrine of  locus standi, as every
worthy cause is an interest shared by the general public. 50
In the present case, the general and equivocal allegations of petitioners on their legal standing do not justify the
relaxation of the locus standi rule. While the Court has taken an increasingly liberal approach to the rule of locus standi, evolving
from the stringent requirements of personal injury to the broader transcendental importance doctrine, such liberality is not to be
abused. 51
The Rule on the Hierarchy of Courts
has been violated.
The Court in Bañez, Jr. v. Concepcion 52 stressed that:
The Court must enjoin the observance of the policy on the hierarchy of courts, and now affirms that the
policy is not to be ignored without serious consequences. The strictness of the policy is designed to shield the
Court from having to deal with causes that are also well within the competence of the lower courts, and thus
leave time to the Court to deal with the more fundamental and more essential tasks that the  Constitution has
assigned to it. The Court may act on petitions for the extraordinary writs of certiorari, prohibition
and mandamus only when absolutely necessary or when serious and important reasons exist to justify an
exception to the policy. . . .
. . . Where the issuance of an extraordinary writ is also within the competence of the Court of
Appeals or a Regional Trial Court, it is in either of these courts that the specific action for the
writ's procurement must be presented. This is and should continue to be the policy in this
regard, a policy that courts and lawyers must strictly observe. . . . 53
Petitioners' invocation of "transcendental importance" is hollow and does not merit the relaxation of the rule on hierarchy
of courts. There being no special, important or compelling reason that justified the direct filing of the petitions in the Court in
violation of the policy on hierarchy of courts, their outright dismissal on this ground is further warranted. 54
The petitioners failed to implead
indispensable parties.
The cogent submissions of the PSE in its Comment-in-Intervention dated June 16, 2014 55 and SHAREPHIL in its
Omnibus Motion [1] For Leave to Intervene; and [2] To Admit Attached Comment-in-Intervention dated May 30,
2016 56 demonstrate how petitioners should have impleaded not only PLDT but all other corporations in nationalized and partly-
nationalized industries — because the propriety of the SEC's enforcement of the Court's interpretation of "capital" through  SEC-
MC No. 8 affects them as well.
Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a party-in-interest without whom there can be no
final determination of an action. Indispensable parties are those with such a material and direct interest in the controversy that a
final decree would necessarily affect their rights, so that the court cannot proceed without their presence. 57 The interests of such
indispensable parties in the subject matter of the suit and the relief are so bound with those of the other parties that their legal
presence as parties to the proceeding is an absolute necessity and a complete and efficient determination of the equities and rights
of the parties is not possible if they are not joined. 58
Other than PLDT, the petitions failed to join or implead other public utility corporations subject to the same restriction
imposed by Section 11, Article XII of the Constitution. These corporations are in danger of losing their franchise and property if
they are found not compliant with the restrictive interpretation of the constitutional provision under review which is being
espoused by petitioners. They should be afforded due notice and opportunity to be heard, lest they be deprived of their property
without due process.
Not only are public utility corporations other than PLDT directly and materially affected by the outcome of the petitions,
their shareholders also stand to suffer in case they will be forced to divest their shareholdings to ensure compliance with the said
restrictive interpretation of the term "capital." As explained by SHAREPHIL, in five corporations alone, more than Php158
Billion worth of shares must be divested by foreign shareholders and absorbed by Filipino investors if petitioners' position is
upheld. 59
Petitioners' disregard of the rights of these other corporations and numerous shareholders constitutes another fatal
procedural flaw, justifying the dismissal of their petitions. Without giving all of them their day in court, they will definitely be
deprived of their property without due process of law.
During the deliberations, Justice Velasco stressed on the foregoing procedural objections to the granting of the petitions;
and Justice Bersamin added that the special civil action for certiorari and prohibition is not the proper remedy to assail SEC-MC
No. 8 because it was not issued under the adjudicatory or quasi-judicial functions of the SEC.
The Substantive Issue
The only substantive issue that the petitions assert is whether the SEC's issuance of SEC-MC No. 8 is tainted with grave
abuse of discretion.
The Court holds that, even if the resolution of the procedural issues were conceded in favor of petitioners, the petitions,
being anchored on Rule 65, must nonetheless fail because the SEC did not commit grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in
fealty to the Gamboa Decision and Resolution.
The ratio in the Gamboa Decision
and Gamboa Resolution.
To determine what the Court directed the SEC to do — and therefore resolve whether what the SEC did amounted to
grave abuse of discretion — the Court resorts to the decretal portion of the Gamboa Decision, as this is the portion of the
decision that a party relies upon to determine his or her rights and duties, 60 viz.:
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the total outstanding capital stock (common and
non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section
11, Article XII of the Constitution, to impose the appropriate sanctions under the law. 61
In turn, the Gamboa Resolution stated:
In any event, the SEC has expressly manifested 62 that it will abide by the Court's decision and defer
to the Court's definition of the term "capital" in Section 11, Article XII of the Constitution. Further, the SEC
entered its special appearance in this case and argued during the Oral Arguments, indicating its submission to
the Court's jurisdiction. It is clear, therefore, that there exists no legal impediment against the proper and
immediate implementation of the Court's directive to the SEC.
 xxx xxx xxx
. . . The dispositive portion of the Court's ruling is addressed not to PLDT but solely to the SEC,
which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the Constitution. 63
To recall, the sole issue in the Gamboa case was: "whether the term 'capital' in Section 11, Article XII of
the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility." 64 AIDSTE
The Court directly answered the issue and consistently defined the term "capital" as follows:
. . . The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the
total outstanding capital stock comprising both common and non-voting preferred shares.
xxx xxx xxx
Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term "capital" in Section 11, Article XII of
the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in
the election of directors, then the term "capital" shall include such preferred shares because the right to
participate in the control or management of the corporation is exercised through the right to vote in the election
of directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares
of stock that can vote in the election of directors. 65
The decretal portion of the Gamboa Decision follows the definition of the term "capital" in the body of the decision, to wit: ". . .
we . . . rule that the term 'capital' in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote
in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares)." 66
The Court adopted the foregoing definition of the term "capital" in Section 11, Article XII of  the 1987 Constitution in
furtherance of "the intent and letter of the Constitution that the 'State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos' [because a] broad definition unjustifiably disregards who owns the all-important
voting stock, which necessarily equates to control of the public utility." 67 The Court, recognizing that the provision is an express
recognition of the sensitive and vital position of public utilities both in the national economy and for national security, also
pronounced that the evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities,
which may be inimical to the national interest. 68 Further, the Court noted that the foregoing interpretation is consistent with the
intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities;
and, as revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling
interest of a corporation. 69
In this regard, it would be apropos to state that since Filipinos own at least 60% of the outstanding shares of stock
entitled to vote directors, which is what the Constitution precisely requires, then the Filipino stockholders control the
corporation, i.e., they dictate corporate actions and decisions, and they have all the rights of ownership including, but not limited
to, offering certain preferred shares that may have greater economic interest to foreign investors — as the need for capital for
corporate pursuits (such as expansion), may be good for the corporation that they own. Surely, these "true owners" will not allow
any dilution of their ownership and control if such move will not be beneficial to them.
As owners of the corporation, the economic benefits will necessarily accrue to them. There is thus no logical reason why
Filipino shareholders will allow foreigners to have greater economic benefits than them. It is illogical to speculate that they will
create shares which have features that will give greater economic interests or benefits than they are holding and not benefit from
such offering, or that they will allow foreigners to profit more than them from their own corporation — unless they are dummies.
But, Commonwealth Act No. 108, the Anti-Dummy Law, is NOT in issue in these petitions. Notably, even if the shares of a
particular public utility were owned 100% Filipino, that does not discount the possibility of a dummy situation from arising.
Hence, even if the 60-40 ownership in favor of Filipinos rule is applied separately to each class of shares of a public utility
corporation, as the petitioners insist, the rule can easily be side-stepped by a dummy relationship. In other words, even applying
the 60-40 Filipino-foreign ownership rule to each class of shares will not assure the lofty purpose enunciated by petitioners.
The Court observed further in the Gamboa Decision that reinforcing this interpretation of the term "capital," as referring
to interests or shares entitled to vote, is the definition of a Philippine national in the Foreign Investments Act of 1991 ("FIA"),
which is explained in the Implementing Rules and Regulations of the FIA ("FIA-IRR"). The FIA-IRR provides:
Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are
considered.
 For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title
is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred
to aliens cannot be considered held by Philippine citizens or Philippine nationals. 70
Echoing the FIA-IRR, the Court stated in the Gamboa Decision that:
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in
the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine national[s]." AaCTcI
xxx xxx xxx
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands
of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State's
grant of authority to operate a public utility. . . . 71
Was the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution declared for the first time by
the Court in the Gamboa Decision modified in the Gamboa Resolution?
The Court is convinced that it was not. The Gamboa Resolution consists of 51 pages (excluding the dissenting opinions
of Associate Justices Velasco and Abad). For the most part of the Gamboa Resolution, the Court, after reviewing SEC and
DOJ 72 Opinions as well as the provisions of the FIA and its predecessor statutes, 73 reiterated that both the Voting Control Test
and the Beneficial Ownership Test must be applied to determine whether a corporation is a "Philippine national"  74 and that a
"Philippine national," as defined in the FIA and all its predecessor statutes, is "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." 75 The Court also
reiterated that, from the deliberations of the Constitutional Commission, it is evident that the term "capital" refers to  controlling
interest of a corporation, 76 and the framers of the Constitution intended public utilities to be majority Filipino-owned and
controlled.
The "Final Word" of the Gamboa Resolution put to rest the Court's interpretation of the term "capital," and this is
quoted verbatim, to wit:
XII.
Final Word
The Constitution expressly declares as State policy the development of an economy "effectively
controlled" by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the ownership
and operation of public utilities to Philippine nationals, who are defined in the Foreign Investments Act of
1991 as Filipino citizens, or corporations or associations at least 60 percent of whose capital with voting
rights belongs to Filipinos. The FIA's implementing rules explain that "[f]or stocks to be deemed owned and
held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino
equity. Full beneficial ownership of stocks, coupled with appropriate voting rights is essential." In effect,
the FIA clarifies, reiterates and confirms the interpretation that the term "capital" in Section 11, Article XII
of the 1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership. This is
precisely because the right to vote in the election of directors, coupled with full beneficial ownership of stocks,
translates to effective control of a corporation. 77
Everything told, the Court, in both the Gamboa Decision and Gamboa Resolution, finally settled with the FIA's
definition of "Philippine national" as expounded in the FIA-IRR in construing the term "capital" in Section 11, Article XII of the
1987 Constitution.
The assailed SEC-MC No. 8.
The relevant provision in the assailed SEC-MC No. 8 is Section 2, which provides:
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. 78 EcTCAD
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement. In fact,
Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires the
60-40 percentage ownership in the total number of outstanding shares of stock, whether voting or not. The SEC
formulated SEC-MC No. 8 to adhere to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of
the outstanding capital stock, coupled with 60 percent of the voting rights is required."  79 Clearly, SEC-MC No. 8 cannot be said
to have been issued with grave abuse of discretion.
A simple illustration involving Company X with three kinds of shares of stock, easily shows how compliance with the
requirements of SEC-MC No. 8 will necessarily result to full and faithful compliance with the Gamboa Decision as well as
the Gamboa Resolution.
The following is the composition of the outstanding capital stock of Company X:
100 common shares
100 Class A preferred shares (with right to elect directors)
100 Class B preferred shares (without right to elect directors)

  SEC-MC No. 8 GAMBOA DECISION

     

(1) 60% (required percentage of shares of stock entitled to vote

  Filipino) applied to the total in the election of directors 80

  number of outstanding (60% of the voting rights)

  shares of stock entitled to  

  vote in the election of  

  directors  

 
If at least a total of 120 of common shares and Class A preferred shares (in any combination) are owned and controlled
by Filipinos, Company X is compliant with the 60% of the voting rights in favor of Filipinos requirement of both  SEC-MC No.
8 and the Gamboa Decision.

  SEC-MC No. 8 GAMBOA DECISION/

    RESOLUTION

     

(2) 60% (required percentage of Full beneficial ownership of 60

  Filipino) applied to BOTH percent of the outstanding capital

  (a) the total number of stock, coupled with 60 percent of

  outstanding shares of stock, the voting rights 81 or Full

  entitled to vote in the beneficial ownership of the

  election of directors; AND stocks, coupled with appropriate

  (b) the total number of voting rights . . . shares with

  outstanding shares of stock, voting rights, as well as with full

  whether or not entitled to beneficial ownership" 82 

  vote in the election of  

  directors.  

 
If at least a total of 180 shares of all the outstanding capital stock of Company X are owned and controlled by Filipinos,
provided that among those 180 shares a total of 120 of the common shares and Class A preferred shares (in any combination) are
owned and controlled by Filipinos, then Company X is compliant with both requirements of voting rights and beneficial
ownership under SEC-MC No. 8 and the Gamboa Decision and Resolution.
From the foregoing illustration, SEC-MC No. 8 simply implemented, and is fully in accordance with,
the Gamboa Decision and Resolution.
While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial ownership of stocks
requirement in the FIA, this will not, as it does not, render it invalid — meaning, it does not follow that the SEC will not apply
this test in determining whether the shares claimed to be owned by Philippine nationals are Filipino, i.e., are held by them by
mere title or in full beneficial ownership. To be sure, the SEC takes its guiding lights also from the  FIA and its implementing
rules, the Securities Regulation Code (Republic Act No. 8799; "SRC") and its implementing rules. 83
The full beneficial ownership test.
The minority justifies the application of the 60-40 Filipino-foreign ownership rule separately to each class of shares of a
public utility corporation in this fashion:
. . . The words "own and control," used to qualify the minimum Filipino participation in Section 11,
Article XII of the Constitution, reflects the importance of Filipinos having both the ability to influence the
corporation through voting rights and economic benefits. In other words, full ownership up to 60% of a public
utility encompasses both control and economic rights, both of which must stay in Filipino hands. Filipinos,
who own 60% of the controlling interest, must also own 60% of the economic interest in a public
utility. HSAcaE
. . . In mixed class or dual structured corporations, however, there is variance in the proportion of
stockholders' controlling interest vis-à-vis their economic ownership rights. This resulting variation is
recognized by the Implementing Rules and Regulations (IRR) of the Securities Regulation Code, which defined
beneficial ownership as that may exist either through voting power and/or through investment returns. By using
and/or in defining beneficial ownership, the IRR, in effect, recognizes a possible situation where voting power
is not commensurate to investment power.
The definition of "beneficial owner" or "beneficial ownership" in the Implementing Rules and Regulations of the
Securities Regulation Code ("SRC-IRR") is consistent with the concept of "full beneficial ownership" in the FIA-IRR.
As defined in the SRC-IRR, "[b]eneficial owner or beneficial ownership means any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the
power to vote or direct the voting of such security) and/or investment returns or power (which includes the power to dispose of, or
direct the disposition of such security) . . . ." 84
While it is correct to state that beneficial ownership is that which may exist either through voting power and/or
investment returns, it does not follow, as espoused by the minority opinion, that the  SRC-IRR, in effect, recognizes a possible
situation where voting power is not commensurate to investment power. That is a wrong syllogism. The fallacy arises from a
misunderstanding on what the definition is for. The "beneficial ownership" referred to in the definition, while it may ultimately
and indirectly refer to the overall ownership of the corporation, more pertinently refers to the ownership of the share subject of the
question: is it Filipino-owned or not?
As noted earlier, the FIA-IRR states:
Compliance with the required Filipino ownership of a corporation shall be determined on the basis
of outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote
are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal
title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred
to aliens cannot be considered held by Philippine citizens or Philippine nationals. 85
The emphasized portions in the foregoing provision is the equivalent of the so-called "beneficial ownership test." That is all.
The term "full beneficial ownership" found in the FIA-IRR is to be understood in the context of the entire paragraph
defining the term "Philippine national." Mere legal title is not enough to meet the required Filipino equity, which means that it is
not sufficient that a share is registered in the name of a Filipino citizen or national, i.e., he should also have full beneficial
ownership of the share. If the voting right of a share held in the name of a Filipino citizen or national is assigned or transferred to
an alien, that share is not to be counted in the determination of the required Filipino equity. In the same vein, if the dividends and
other fruits and accessions of the share do not accrue to a Filipino citizen or national, then that share is also to be excluded or not
counted.
In this regard, it is worth reiterating the Court's pronouncement in the Gamboa Decision, which is consistent with
the FIA-IRR, viz.:
 Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in
the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required. . . .
xxx xxx xxx
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands
of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the
State's grant of authority to operate a public utility. . . . . 86 HESIcT
And the "Final Word" of the Gamboa Resolution is in full accord with the foregoing pronouncement of the Court, to wit:
XII.
Final Word
. . . The FIA's implementing rules explain that "[f]or stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino
equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential." 87
Given that beneficial ownership of the outstanding capital stock of the public utility corporation has to be determined for
purposes of compliance with the 60% Filipino ownership requirement, the definition in the SRC-IRR can now be applied to
resolve only the question of who is the beneficial owner or who has beneficial ownership of each "specific stock" of the said
corporation. Thus, if a "specific stock" is owned by a Filipino in the books of the corporation, but the stock's voting power or
disposing power belongs to a foreigner, then that "specific stock" will not be deemed as "beneficially owned" by a Filipino.
Stated inversely, if the Filipino has the "specific stock's" voting power (he can vote the stock or direct another to vote for
him), or the Filipino has the investment power over the "specific stock" (he can dispose of the stock or direct another to dispose it
for him), or he has both (he can vote and dispose of the "specific stock" or direct another to vote or dispose it for him), then such
Filipino is the "beneficial owner" of that "specific stock" — and that "specific stock" is considered (or counted) as part of the 60%
Filipino ownership of the corporation. In the end, all those "specific stocks" that are determined to be Filipino (per definition of
"beneficial owner" or "beneficial ownership") will be added together and their sum must be equivalent to at least 60% of the total
outstanding shares of stock entitled to vote in the election of directors and at least 60% of the total number of outstanding shares
of stock, whether or not entitled to vote in the election of directors.
To reiterate, the "beneficial owner or beneficial ownership" definition in the SRC-IRR is understood only in determining
the respective nationalities of the outstanding capital stock of a public utility corporation in order to determine its compliance
with the percentage of Filipino ownership required by the Constitution.
The restrictive re-interpretation of
"capital" as insisted by the
petitioners is unwarranted.
Petitioners' insistence that the 60% Filipino equity requirement must be applied to each class of shares is simply beyond
the literal text and contemplation of Section 11, Article XII of the 1987 Constitution, viz.:
Sec. 11. No franchise, certificate, or any other foam 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 or whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be citizens of the Philippines.
As worded, effective control by Filipino citizens of a public utility is already assured in the provision. With respect to a
stock corporation engaged in the business of a public utility, the constitutional provision mandates three safeguards: (1) 60% of its
capital must be owned by Filipino citizens; (2) participation of foreign investors in its board of directors is limited to their
proportionate share in its capital; and (3) all its executive and managing officers must be citizens of the Philippines.
In the exhaustive review made by the Court in the Gamboa Resolution of the deliberations of the Constitutional
Commission, the opinions of the framers of the 1987 Constitution, the opinions of the SEC and the DOJ as well as the provisions
of the FIA, its implementing rules and its predecessor statutes, the intention to apply the voting control test and the beneficial
ownership test was not mentioned in reference to "each class of shares." Even the Gamboa Decision was silent on this
point. caITAC
 To be sure, the application of the 60-40 Filipino-foreign ownership requirement separately to each class of shares,
whether common, preferred non-voting, preferred voting or any other class of shares fails to understand and appreciate the nature
and features of stocks as financial instruments. 88
There are basically only two types of shares or stocks, i.e., common stock and preferred stock. However, the classes and
variety of shares that a corporation may issue are dictated by the confluence of the corporation's financial position and needs,
business opportunities, short-term and long-term targets, risks involved, to name a few; and they can be classified and re-
classified from time to time. With respect to preferred shares, there are cumulative preferred shares, non-cumulative preferred
shares, convertible preferred shares, participating preferred shares.
Because of the different features of preferred shares, it is required that the presentation and disclosure of these financial
instruments in financial statements should be in accordance with the substance of the contractual arrangement and the definitions
of a financial liability, a financial asset and an equity instrument. 89
Under IAS 90 32.16, a financial instrument is an equity instrument only if (a) the instrument includes no contractual
obligation to deliver cash or another financial asset to another entity, and (b) if the instrument will or may be settled in the issuer's
own equity instruments, it is either: (i) a non-derivative that includes no contractual obligation for the issuer to deliver a variable
number of its own equity instruments; or (ii) a derivative that will be settled only by the issuer exchanging a fixed amount of cash
or another financial asset for a fixed number of its own equity instruments. 91
The following are illustrations of how preferred shares should be presented and disclosed:
Illustration — preference shares
If an entity issues preference (preferred) shares that pay a fixed rate of dividend and that have a mandatory
redemption feature at a future date, the substance is that they are a contractual obligation to deliver cash and,
therefore, should be recognized as a liability. [IAS 32.18(a)] In contrast, preference shares that do not have a
fixed maturity, and where the issuer does not have a contractual obligation to make any payment are equity. In
this example even though both instruments are legally termed preference shares they have different contractual
terms and one is a financial liability while the other is equity.
Illustration — issuance of fixed monetary amount of equity instruments
A contractual right or obligation to receive or deliver a number of its own shares or other equity instruments
that varies so that the fair value of the entity's own equity instruments to be received or delivered equals the
fixed monetary amount of the contractual right or obligation is a financial liability. [IAS 32.20]
Illustration — one party has a choice over how an instrument is settled
When a derivative financial instrument gives one party a choice over how it is settled (for instance, the issuer or
the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a
financial liability unless all of the settlement alternatives would result in it being an equity instrument. [IAS
32.26] 92 ICHDca
The fact that from an accounting standpoint, the substance or essence of the financial instrument is the key determinant
whether it should be categorized as a financial liability or an equity instrument, there is no compelling reason why the same
treatment may not be recognized from a legal perspective. Thus, to require Filipino shareholders to acquire preferred shares that
are substantially debts, in order to meet the "restrictive" Filipino ownership requirement that petitioners espouse, may not bode
well for the Philippine corporation and its Filipino shareholders.
Parenthetically, given the innumerable permutations that the types and classes of stocks may take, requiring the SEC and
other government agencies to keep track of the ever-changing capital classes of corporations will be impracticable, if not
downright impossible. And the law does not require the impossible. (Lex non cogit ad impossibilia.) 93
That stock corporations are allowed to create shares of different classes with varying features is a flexibility that is
granted, among others, for the corporation to attract and generate capital (funds) from both local and foreign capital markets. This
access to capital — which a stock corporation may need for expansion, debt relief/repayment, working capital requirement and
other corporate pursuits — will be greatly eroded with further unwarranted limitations that are not articulated in the Constitution.
The intricacies and delicate balance between debt instruments (liabilities) and equity (capital) that stock corporations need to
calibrate to fund their business requirements and achieve their financial targets are better left to the judgment of their boards and
officers, whose bounden duty is to steer their companies to financial stability and profitability and who are ultimately answerable
to their shareholders.
Going back to the illustration above, the restrictive meaning of the term "capital" espoused by petitioners will definitely
be complied with if 60% of each of the three classes of shares of Company X, consisting of 100 common shares, 100 Class A
preferred shares (with right to elect directors) and 100 Class B preferred shares (without right to elect directors), is owned by
Filipinos. However, what if the 60% Filipino ownership in each class of preferred shares, i.e., 60 Class A preferred shares and 60
Class B preferred shares, is not fully subscribed or achieved because there are not enough Filipino takers? Company X will be
deprived of capital that would otherwise be accessible to it were it not for this unwarranted "restrictive" meaning of "capital."
 The fact that all shares have the right to vote in 8 specific corporate actions as provided in Section 6 of the  Corporation
Code does not per se justify the favorable adoption of the restrictive re-interpretation of "capital" as the petitioners espouse. As
observed in the Gamboa Decision, viz.:
The Corporation Code of the Philippines classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. — The shares of stock of stock corporations may be divided
into classes or series of shares, or both, any of which classes or series of shares may have such
rights, privileges or restrictions as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except those classified and
issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of shares which have complete
voting rights. Any or all of the shares or series of shares may have a par value or have no par
value as may be provided for in the articles of incorporation: Provided, however, That banks,
trust companies, insurance companies, public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the articles of incorporation which
are not violative of the provisions of this Code: Provided, That preferred shares of stock may
be issued only with a stated par value. The Board of Directors, where authorized in the
articles of incorporation, may fix the terms and conditions of preferred shares of stock or any
series thereof: Provided, That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission. TCAScE
xxx xxx xxx
A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the
certificate of stock, each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to
approve a particular corporate act as provided in this Code shall be deemed to refer only to
stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management
of the corporation. 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.
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.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands
of Filipino citizens the control and management of public utilities. As revealed in the deliberations of the
Constitutional Commission, "capital" refers to the voting stock or controlling interest of a
corporation . . . . 94 cTDaEH
The Gamboa Decision held that preferred shares are to be factored in only if they are entitled to vote in the election of
directors. If preferred shares have no voting rights, then they cannot elect members of the board of directors, which wields control
of the corporation. As to the right of non-voting preferred shares to vote in the 8 instances enumerated in Section 6 of
the Corporation Code, the Gamboa Decision considered them but, in the end, did not find them significant in resolving the issue
of the proper interpretation of the word "capital" in Section 11, Article XII of the Constitution.
Therefore, to now insist in the present case that preferred shares be regarded differently from their unambiguous
treatment in the Gamboa Decision is enough proof that the Gamboa Decision, which had attained finality more than 4 years ago,
is being drastically changed or expanded.
In this regard, it should be noted that the 8 corporate matters enumerated in Section 6 of the Corporation Code require, at
the outset, a favorable recommendation by the management to the board. As mandated by Section 11, Article XII of
the Constitution, all the executive and managing officers of a public utility company must be Filipinos. Thus, the all-Filipino
management team must first be convinced that any of the 8 corporate actions in Section 6 will be to the best interest of the
company. Then, when the all-Filipino management team recommends this to the board, a majority of the board has to approve the
recommendation — and, as required by the Constitution, foreign participation in the board cannot exceed 40% of the total number
of board seats. Since the Filipino directors comprise the majority, they, if united, do not even need the vote of the foreign
directors to approve the intended corporate act. After approval by the board, all the shareholders (with and without voting rights)
will vote on the corporate action. The required vote in the shareholders' meeting is 2/3 of the outstanding capital stock. 95 Given
the super majority vote requirement, foreign shareholders cannot dictate upon their Filipino counterpart. However, foreigners (if
owning at least a third of the outstanding capital stock) must agree with Filipino shareholders for the corporate action to be
approved. The 2/3 voting requirement applies to all corporations, given the significance of the 8 corporate actions contemplated in
Section 6 of the Corporation Code.
In short, if the Filipino officers, directors and shareholders will not approve of the corporate act, the foreigners are
helpless.
Allowing stockholders holding preferred shares without voting rights to vote in the 8 corporate matters enumerated in
Section 6 is an acknowledgment of their right of ownership. If the owners of preferred shares without right to vote/elect directors
are not allowed to vote in any of those 8 corporate actions, then they will not be entitled to the appraisal right provided under
Section 81 96 of the Corporation Code in the event that they dissent in the corporate act. As required in Section 82, the appraisal
right can only be exercised by any stockholder who voted against the proposed action. Thus, without recognizing the right of
every stockholder to vote in the 8 instances enumerated in Section 6, the stockholder cannot exercise his appraisal right in case he
votes against the corporate action. In simple terms, the right to vote in the 8 instances enumerated in Section 6 is more in
furtherance of the stockholder's right of ownership rather than as a mode of control.
As to financial interest, giving short-lived preferred or superior terms to certain classes or series of shares may be a
welcome option to expand capital, without the Filipino shareholders putting up additional substantial capital and/or losing
ownership and control of the company. For shareholders who are not keen on the creation of those shares, they may opt to avail
themselves of their appraisal right. As acknowledged in the Gamboa Decision, preferred shareholders are merely investors in the
company for income in the same manner as bondholders. Without a lucrative package, including an attractive return of
investment, preferred shares will not be subscribed and the much-needed additional capital will be elusive. A too restrictive
definition of "capital," one which was never contemplated in the Gamboa Decision, will surely have a dampening effect on the
business milieu by eroding the flexibility inherent in the issuance of preferred shares with varying terms and conditions.
Consequently, the rights and prerogatives of the owners of the corporation will be unwarrantedly stymied. cSaATC
Moreover, the restrictive interpretation of the term "capital" would have a tremendous impact on the country as a whole
— and to all Filipinos.
The PSE's Comment-in-Intervention dated June 16, 2014 97 warns that:
 80. [R]edefining "capital" as used in Section 11, Article XII of the 1987 Constitution and adopting the
supposed "Effective Control Test" will lead to disastrous consequences to the Philippine stock market.
81. Current data of the PSE show that, if the "Effective Control Test" were applied, the total value of
shares that would be deemed in excess of the foreign-ownership limits based on stock prices as of 30 April 2014
is One Hundred Fifty Nine Billion Six Hundred Thirty Eight Million Eight Hundred Forty Five
Thousand Two Hundred Six Pesos and Eighty Nine Cents (Php159,638,845,206.89).
82. The aforementioned value of investments would have to be discharged by foreign holders, and
consequently must be absorbed by Filipino investors. Needless to state, the lack of investments may lead to
shutdown of the affected enterprises and to immeasurable consequences to the Philippine economy. 98
In its Omnibus Motion [1] For Leave to Intervene; and [2] To Admit Attached Comment-in-Intervention dated May 30,
2016, 99 SHAREPHIL further warns that "[t]he restrictive re-interpretation of the term "capital" will result in massive forced
divestment of foreign stockholdings in Philippine corporations." 100 SHAREPHIL explains:
4.51. On 16 October 2012, Deutsche Bank released a Market Research Study, which analyzed the
implications of the ruling in Gamboa. The Market Research Study stated that:
"If this thinking is applied and becomes established precedent, it would significantly
expand on the rules for determining nationality in partially nationalized industries. If that
were to happen, not only will PLDT's move to issue the 150m voting prefs be inadequate to
address the issue, a large number of listed companies with similar capital structures could also
be affected."
4.52. In five (5) companies alone, One Hundred Fifty Eight Billion Pesos (PhP158,000,000,000.00)
worth of shares will have to be sold by foreign shareholders in a forced divestment, if
the obiter in Gamboa were to be implemented. Foreign shareholders of PLDT will have to divest One Hundred
Three Billion Eight Hundred Sixty Million Pesos (PhP103,860,000,000.00) worth of shares.
a. Foreign shareholders of Globe Telecom will have to divest Thirty Eight Billion Two Hundred Fifty
Million Pesos (PhP38,250,000,000.00) worth of shares.
b. Foreign shareholders of Ayala Land will have to divest Seventeen Billion Five Hundred Fifty Million
Pesos (PhP17,550,000,000.00) worth of shares.
c. Foreign shareholders of ICTSI will have to divest Six Billion Four Hundred Ninety Million Pesos
(PhP6,490,000,000.00) worth of shares.
d. Foreign shareholders of MWC will have to divest Seven Billion Seven Hundred Fourteen Million
Pesos (PhP7,714,000,000.00) worth of shares.
4.53. Clearly, the local stock market which has an average value turn-over of Seven Billion Pesos
cannot adequately absorb the influx of shares caused by the forced divestment. As a result, foreign stockholders
will have to sell these shares at bargain prices just to comply with the Obiter.
4.54. These shares being part of the Philippine index, their forced divestment vis-à-vis the inability of
the local stock market to absorb these shares will necessarily bring immense downward pressure on the index. A
domino-effect implosion of the Philippine stock market and the Philippine economy, in general is not remote. . .
. . 101
Petitioners have failed to counter or refute these submissions of the PSE and SHAREPHIL. These unrefuted observations
indicate to the Court that a restrictive interpretation — or rather, re-interpretation, of "capital", as already defined with finality in
the Gamboa Decision and Resolution — directly affects the well-being of the country and cannot be labelled as "irrelevant and
impertinent concerns . . . add[ing] burden [to] the Court." 102 These observations by the PSE 103 and SHAREPHIL, 104 unless
refuted, must be considered by the Court to be valid and sound. cHDAIS
The Court in Abacus Securities Corp. v. Ampil 105 observed that: "[s]tock market transactions affect the general public
and the national economy. The rise and fall of stock market indices reflect to a considerable degree the state of the economy.
Trends in stock prices tend to herald changes in business conditions. Consequently, securities transactions are impressed with
public interest . . . ." 106 The importance of the stock market in the economy cannot simply be glossed over.
In view of the foregoing, the pronouncement of the Court in the Gamboa Resolution — the constitutional requirement to
"apply uniformly and across the board to all classes of shares, regardless of nomenclature and category, comprising the capital of
a corporation 107 — is clearly an obiter dictum that cannot override the Court's unequivocal definition of the term "capital" in
both the Gamboa Decision and Resolution.
Nowhere in the discussion of the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in
the Gamboa Decision did the Court mention the 60% Filipino equity requirement to be applied to each class of shares. The
definition of "Philippine national" in the FIA and expounded in its IRR, which the Court adopted in its interpretation of the term
"capital," does not support such application. In fact, even the Final Word of the Gamboa Resolution does not even intimate or
suggest the need for a clarification or re-interpretation.
To revisit or even clarify the unequivocal definition of the term "capital" as referring "only to shares of stock entitled to
vote in the election of directors" and apply the 60% Filipino ownership requirement to each class of share is effectively and
unwarrantedly amending or changing the Gamboa Decision and Resolution. The Gamboa Decision and Resolution Doctrine did
NOT make any definitive ruling that the 60% Filipino ownership requirement was intended to apply to each class of share.
In Malayang Manggagawa ng Stayfast Phils., Inc. v. NLRC, 108 the Court stated:
Where a petition for certiorari under Rule 65 of the Rules of Court alleges grave abuse of discretion,
the petitioner should establish that the respondent court or tribunal acted in a capricious, whimsical,
arbitrary or despotic manner in the exercise of its jurisdiction as to be equivalent to lack of jurisdiction .
This is so because "grave abuse of discretion" is well-defined and not an amorphous concept that may easily be
manipulated to suit one's purpose. In this connection, Yu v. Judge Reyes-Carpio, is instructive:
The term "grave abuse of discretion" has a specific meaning. An act of a court or
tribunal can only be considered as with grave abuse of discretion when such act is done in a
"capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction." The
abuse of discretion must be so patent and gross as to amount to an "evasion of a positive duty
or to a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of
law, as where the power is exercised in an arbitrary and despotic manner by reason of passion
and hostility." Furthermore, the use of a petition for certiorari is restricted only to "truly
extraordinary cases wherein the act of the lower court or quasi-judicial body is wholly void."
From the foregoing definition, it is clear that the special civil action of certiorari under Rule
65 can only strike an act down for having been done with grave abuse of discretion if
the petitioner could manifestly show that such act was patent and gross. . . . .
The onus rests on petitioners to clearly and sufficiently establish that the SEC, in issuing SEC-MC No. 8, acted in a
capricious, whimsical, arbitrary or despotic manner in the exercise of its jurisdiction as to be equivalent to lack of jurisdiction or
that the SEC's abuse of discretion is so patent and gross as to amount to an evasion of a positive duty or to a virtual refusal to
perform a duty enjoined by law, or to act at all in contemplation of law and the  Gamboa Decision and Resolution. Petitioners
miserably failed in this respect. ISHCcT
The clear and unequivocal definition
of "capital" in Gamboa has attained
finality.
It is an elementary principle in procedure that the resolution of the court in a given issue as embodied in the dispositive
portion or fallo of a decision controls the settlement of rights of the parties and the questions, notwithstanding statement in the
body of the decision which may be somewhat confusing, inasmuch as the dispositive part of a final decision is definite, clear and
unequivocal and can be wholly given effect without need of interpretation or construction. 109
As explained above, 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 — capitalized upon by petitioners to espouse a restrictive re-interpretation of "capital" — 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."
The final judgment as rendered is the judgment of the court irrespective of all seemingly contrary statements in the
decision because at the root of the doctrine that the premises must yield to the conclusion is, side by side with the need of
writing finis to litigations, the recognition of the truth that "the trained intuition of the judge continually leads him to right results
for which he is puzzled to give unimpeachable legal reasons." 110
Petitioners cannot, after Gamboa has attained finality, seek a belated correction or reconsideration of the Court's
unequivocal definition of the term "capital." At the core of the doctrine of finality of judgments is that public policy and sound
practice demand that, at the risk of occasional errors, judgments of courts should become final at some definite date fixed by law
and the very objects for which courts were instituted was to put an end to controversies.  111 Indeed, the definition of the term
"capital" in the fallo of the Gamboa Decision has acquired finality.
Because the SEC acted pursuant to the Court's pronouncements in both the Gamboa Decision and Gamboa Resolution,
then it could not have gravely abused its discretion. That portion found in the body of the Gamboa Resolution which the
petitioners rely upon is nothing more than an obiter dictum and the SEC could not be expected to apply it as it was not — is
not — a binding pronouncement of the Court. 112
Furthermore, as opined by Justice Bersamin during the deliberations, the doctrine of immutability of judgment precludes
the Court from re-examining the definition of "capital" under Section 11, Article XII of the Constitution. Under the doctrine of
finality and immutability of judgment, a decision that has acquired finality becomes immutable and unalterable, and may no
longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law, and even if
the modification is made by the court that rendered it or by the Highest Court of the land. Any act that violates the principle must
be immediately stricken down. 113 The petitions have not succeeded in pointing to any exceptions to the doctrine of finality of
judgments, under which the present case falls, to wit: (1) the correction of clerical errors; (2) the so-called  nunc pro tunc entries
which cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire after the finality of the
decision rendering its execution unjust and inequitable. 114
With the foregoing disquisition, the Court rules that SEC-MC No. 8 is not contrary to the Court's definition and
interpretation of the term "capital." Accordingly, the petitions must be denied for failing to show grave abuse of discretion in the
issuance of SEC-MC No. 8.
The petitions are second motions for
Reconsideration, which are
proscribed.
As Justice Bersamin further noted during the deliberations, the petitions are in reality second motions for reconsideration
prohibited by the Internal Rules of the Supreme Court. 115 The parties, particularly intervenors Gamboa, et al., could have filed a
motion for clarification in Gamboa in order to fill in the perceived shortcoming occasioned by the non-inclusion in the dispositive
portion of the Gamboa Resolution of what was discussed in the body. 116 The statement in the fallo of the Gamboa Resolution
to the effect that "[n]o further pleadings shall be entertained" could not be a hindrance to a motion for clarification that sought an
unadulterated inquiry arising upon an ambiguity in the decision. 117 CAacTH
Closing
Ultimately, the key to nationalism is in the individual. Particularly for a public utility corporation or association, whether
stock or non-stock, it starts with the Filipino shareholder or member who, together with other Filipino shareholders or members
wielding 60% voting power, elects the Filipino director who, in turn, together with other Filipino directors comprising a majority
of the board of directors or trustees, appoints and employs the all Filipino management team. This is what is envisioned by
the Constitution to assure effective control by Filipinos. If the safeguards, which are already stringent, fail, i.e., a public utility
corporation whose voting stocks are beneficially owned by Filipinos, the majority of its directors are Filipinos, and all its
managing officers are Filipinos, is pro-alien (or worse, dummies), then that is not the fault or failure of the  Constitution. It is the
breakdown of nationalism in each of the Filipino shareholders, Filipino directors and Filipino officers of that corporation. No
Constitution, no decision of the Court, no legislation, no matter how ultra-nationalistic they are, can guarantee nationalism.
WHEREFORE, premises considered, the Court DENIES the Petition and Petition-in-Intervention.
SO ORDERED.

EN BANC

[G.R. No. 207246. April 18, 2017.]

JOSE M. ROY III, petitioner, vs. CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, and PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY, respondents.

WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P. GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y.
MAMON III, and GERARDO C. EREBAREN, petitioners-in-intervention,

PHILIPPINE STOCK EXCHANGE, INC., respondent-in-intervention,

SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC., respondent-in-intervention.

 RESOLUTION

CAGUIOA, J p:

Before the Court is the Motion for Reconsideration dated January 19, 2017 1 (the Motion) filed by petitioner Jose
M. Roy III (movant) seeking the reversal and setting aside of the Decision dated November 22, 2016 2 (the Decision) which
denied the movant's petition, and declared that the Securities and Exchange Commission (SEC) did not commit grave abuse of
discretion in issuing Memorandum Circular No. 8, Series of 2013 (SEC-MC No. 8) as the same was in compliance with, and in
fealty to, the decision of the Court in Gamboa v. Finance Secretary Teves, 3 (Gamboa Decision) and the resolution 4 denying the
Motion for Reconsideration therein (Gamboa Resolution).
The Motion presents no compelling and new arguments to justify the reconsideration of the Decision.
The grounds raised by movant are: (1) He has the requisite standing because this case is one of transcendental
importance; (2) The Court has the constitutional duty to exercise judicial review over any grave abuse of discretion by any
instrumentality of government; (3) He did not rely on an obiter dictum; and (4) The Court should have treated the petition as the
appropriate device to explain the Gamboa Decision.
The Decision has already exhaustively discussed and directly passed upon these grounds. Movant's petition was
dismissed based on both procedural and substantive grounds.
Regarding the procedural grounds, the Court ruled that petitioners (movant and petitioners-in-intervention) failed to
sufficiently allege and establish the existence of a case or controversy and locus standi on their part to warrant the Court's exercise
of judicial review; the rule on the hierarchy of courts was violated; and petitioners failed to implead indispensable parties such as
the Philippine Stock Exchange, Inc. and Shareholders' Association of the Philippines, Inc. 5
In connection with the failure to implead indispensable parties, the Court's Decision held:
Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a party-in-interest without
whom there can be no final determination of an action. Indispensable parties are those with such a material and
direct interest in the controversy that a final decree would necessarily affect their rights, so that the court cannot
proceed without their presence. The interests of such indispensable parties in the subject matter of the suit and
the relief are so bound with those of the other parties that their legal presence as parties to the proceeding is an
absolute necessity and a complete and efficient determination of the equities and rights of the parties is not
possible if they are not joined.
Other than PLDT, the petitions failed to join or implead other public utility corporations subject to the
same restriction imposed by Section 11, Article XII of the Constitution. These corporations are in danger of
losing their franchise and property if they are found not compliant with the restrictive interpretation of the
constitutional provision under review which is being espoused by petitioners. They should be afforded due
notice and opportunity to be heard, lest they be deprived of their property without due process.
Not only are public utility corporations other than PLDT directly and materially affected by the
outcome of the petitions, their shareholders also stand to suffer in case they will be forced to divest their
shareholdings to ensure compliance with the said restrictive interpretation of the term "capital". As explained by
SHAREPHIL, in five corporations alone, more than Php158 Billion worth of shares must be divested by foreign
shareholders and absorbed by Filipino investors if petitioners' position is upheld.
Petitioners' disregard of the rights of these other corporations and numerous shareholders constitutes
another fatal procedural flaw, justifying the dismissal of their petitions. Without giving all of them their day
in court, they will definitely be deprived of their property without due process of law. 6
This is highlighted to clear any misimpression that the Gamboa Decision and Gamboa Resolution made a categorical
ruling on the meaning of the word "capital" under Section 11, Article XII of the  Constitution only in respect of, or only confined
to, respondent Philippine Long Distance Telephone Company (PLDT). Nothing is further from the truth. Indeed, a fair reading of
the Gamboa Decision and Gamboa Resolution shows that the Court's pronouncements therein would affect all public utilities, and
not just respondent PLDT.
On the substantive grounds, the Court disposed of the issue on whether the SEC gravely abused its discretion in ruling
that respondent PLDT is compliant with the limitation on foreign ownership under the Constitution and other relevant laws as
without merit. The Court reasoned that "in the absence of a definitive ruling by the SEC on PLDT's compliance with the capital
requirement pursuant to the Gamboa Decision and Resolution, any question relative to the inexistent ruling is premature." 7
In resolving the other substantive issue raised by petitioners, the Court held that:
[E]ven if the resolution of the procedural issues were conceded in favor of petitioners, the petitions, being
anchored on Rule 65, must nonetheless fail because the SEC did not commit grave abuse of discretion
 amounting to lack or excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court
finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and Resolution. 8
To belabor the point, movant's petition is not a continuation of the Gamboa case as the Gamboa Decision attained
finality on October 18, 2012, and thereafter Entry of Judgment was issued on December 11, 2012. 9
As regards movant's repeated invocation of the transcendental importance of the Gamboa case, this does not ipso
facto accord locus standi to movant. Being a new petition, movant had the burden to justify his locus standi in his own petition.
The Court, however, was not persuaded by his justification.
Pursuant to the Court's constitutional duty to exercise judicial review, the Court has conclusively found no grave abuse
of discretion on the part of SEC in issuing SEC-MC No. 8.
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 the capital of a corporation." 9-a The Court stated that:
[T]he 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 x x x 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." 10
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, 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 x x x."
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[f]ull [and legal]
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights x x x must rest in
the hands of Filipino nationals x x x." 11 And, precisely that is what  SEC-MC No. 8 provides, viz.: "x x x For purposes of
determining compliance [with the constitutional or statutory ownership], 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 x x x." 12
In construing "full beneficial ownership," the Implementing Rules and Regulations of the Foreign Investments Act of
1991 (FIA-IRR) provides:
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title
is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred
to aliens cannot be considered held by Philippine citizens or Philippine nationals. 13
In turn, "beneficial owner" or "beneficial ownership" is defined in the Implementing Rules and Regulations of the
Securities Regulation Code (SRC-IRR) as:
[A]ny person who, directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power (which includes the power to vote or direct the voting of such security)
and/or investment returns or power (which includes the power to dispose of, or direct the disposition of such
security) x x x. 14
Thus, the definition of "beneficial owner or beneficial ownership" in the SRC-IRR, which is in consonance with the
concept of "full beneficial ownership" in the FIA-IRR, is, as stressed in the Decision, relevant in resolving only the question of
who is the beneficial owner or has beneficial ownership of each "specific stock" of the public utility company whose stocks are
under review. If the Filipino has the voting power of the "specific stock", i.e., he can vote the stock or direct another to vote for
him, or the Filipino has the investment power over the "specific stock", i.e., he can dispose of the stock or direct another to
dispose of it for him, or both, i.e., he can vote and dispose of that "specific stock" or direct another to vote or dispose it for
him, then such Filipino is the "beneficial owner" of that "specific stock." Being considered Filipino, that "specific stock" is then
to be counted as part of the 60% Filipino ownership requirement under the Constitution. The right to the dividends, jus fruendi —
a right emanating from ownership of that "specific stock" necessarily accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that the dividends accruing to any particular stock are
determinative of that stock's "beneficial ownership." Dividend declaration is dictated by the corporation's unrestricted retained
earnings. On the other hand, the corporation's need of capital for expansion programs and special reserve for probable
contingencies may limit retained earnings available for dividend declaration. 15 It bears repeating here that the Court in
the Gamboa Decision adopted the foregoing definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in
express recognition of the sensitive and vital position of public utilities both in the national economy and for national security, so
that the evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be
inimical to the national interest. 16 This purpose prescinds from the "benefits"/dividends that are derived from or accorded to the
particular stocks held by Filipinos vis-à-vis the stocks held by aliens. So long as Filipinos have controlling interest of a public
utility corporation, their decision to declare more dividends for a particular stock over other kinds of stock is their sole prerogative
— an act of ownership that would presumably be for the benefit of the public utility corporation itself. Thus, as explained in the
Decision:
In this regard, it would be apropos to state that since Filipinos own at least 60% of the outstanding
shares of stock entitled to vote directors, which is what the Constitution precisely requires, then the Filipino
stockholders control the corporation, i.e., they dictate corporate actions and decisions, and they have all the
rights of ownership including, but not limited to, offering certain preferred shares that may have greater
economic interest to foreign investors — as the need for capital for corporate pursuits (such as expansion), may
be good for the corporation that they own. Surely, these "true owners" will not allow any dilution of their
ownership and control if such move will not be beneficial to them. 17
Finally, as to how the SEC will classify or treat certain stocks with voting rights held by a trust fund that is created by the
public entity whose compliance with the limitation on foreign ownership under the Constitution is under scrutiny, and how the
SEC will determine if such public utility does, in fact, control how the said stocks will be voted, and whether, resultantly, the trust
fund would be considered as Philippine national or not — lengthily discussed in the dissenting opinion of Justice Carpio — is
speculative at this juncture. The Court cannot engage in guesswork. Thus, there is need of an actual case or controversy before the
Court may exercise its power of judicial review. The movant's petition is not that actual case or controversy.
Thus, the discussion of Justice Carpio's dissenting opinion as to the voting preferred shares created by respondent PLDT,
their acquisition by BTF Holdings, Inc., which appears to be a wholly-owned company of the PLDT Beneficial Trust Fund (BTF),
and whether or not it is respondent PLDT's management that controls BTF and BTF Holdings, Inc. — all these are factual matters
that are outside the ambit of this Court's review which, as stated in the beginning, is confined to determining whether or not the
SEC committed grave abuse of discretion in issuing SEC-MC No. 8; that is, whether or not SEC-MC No. 8 violated the ruling of
the Court in Gamboa v. Finance Secretary Teves, 18 and the resolution in Heirs of Wilson P. Gamboa v. Finance Sec.
Teves 19 denying the Motion for Reconsideration therein as to the proper understanding of "capital".
To be sure, it would be more prudent and advisable for the Court to await the SEC's prior determination of the
citizenship of specific shares of stock held in trust — based on proven facts — before the Court proceeds to pass upon the
legality of such determination.
As to whether respondent PLDT is currently in compliance with the Constitutional provision regarding public utility
entities, the Court must likewise await the SEC's determination thereof applying SEC-MC No. 8. After all, as stated in the
Decision, it is the SEC which is the government agency with the competent expertise and the mandate of law to make such
determination.
In conclusion, the basic issues raised in the Motion having 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.
WHEREFORE, the subject Motion for Reconsideration is hereby DENIED WITH FINALITY. No further pleadings
or motions shall be entertained in this case. Let entry of final judgment be issued immediately.
 THIRD DIVISION

[G.R. No. 195580. April 21, 2014.]

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,

INC., petitioners, vs. REDMONT CONSOLIDATED MINES CORP., respondent.

DECISION

VELASCO, JR., J p:

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development Corp.
(Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining, Inc. (McArthur), which seeks to reverse the October 1, 2010
Decision 1 and the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration
and mining activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and
McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of Environment and
Natural Resources (DENR). Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay
Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares
in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR on January 6,
1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in  barangays Calategas and San
Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests over the MPSA
application in favor of Narra.
 Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-
IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the denial of
petitioners' applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. CSHEAI
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by
MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners' filing of the MPSAs over the areas covered by applications since it knows that it can
only participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given that petitioners'
capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are
reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under Section 3 (aq) of  Republic Act No. (RA) 7942 or
the Philippine Mining Act of 1995 which provided:
Sec. 3  Definition of Terms. — As used in and for purposes of this Act, the following terms, whether in
singular or plural, shall mean:
xxx xxx xxx
(aq)  "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the purpose of engaging in  mining, with technical and
financial capability to undertake mineral resources development and duly registered in accordance with law at least
sixty per cent (60%) of the capital of which is owned by citizens of the Philippines: Provided, That a legally
organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration
permit, financial or technical assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra,
which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the Philippines . They
asserted that though MBMI owns 40% of the shares of PLMC (which owns 5,997 shares of Narra), 3 40% of the shares of MMC (which
owns 5,997 shares of McArthur) 4 and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro),  5 the shares of MBMI will
not make it the owner of at least 60% of the capital stock of each of petitioners.  They added that the best tool used in determining the
nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991. They also
claimed that the POA of DENR did not have jurisdiction over the issues in Redmont's petition since they are not enumerated in Sec. 77 of RA
7942. Finally, they stressed that Redmont has no personality to sue them because it has no pending claim or application over the areas applied
for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the
other hand, [Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over mining areas is clearly established thus, there is reason to
believe that the cancellation and/or revocation of permits already issued under the premises is in order and open the
areas covered to other qualified applicants.
xxx xxx xxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining, Inc., Tesoro Mining and
Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as
Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby . . . DECLARED NULL AND
VOID. 6
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same Resolution, it gave due course to Redmont's EPAs. Thereafter, on February 7, 2008, the
POA issued an Order 7 denying the Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal  8 and Memorandum of
Appeal 9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of Appeal 10 and Memorandum of Appeal. 11
In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also, through a letter, they
informed the MAB that they had their individual MPSA applications converted to FTAAs. McArthur's FTAA was denominated as AFTA-
IVB-09 12 on May 2007, while Tesoro's MPSA application was converted to AFTA-IVB-08 13 on May 28, 2007, and Narra's FTAA was
converted to AFTA-IVB-07 14 on March 30, 2006. DHESca
 Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint 15 with the Securities and
Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground that they are foreign-
owned or controlled corporations engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before the MAB praying for the suspension of the proceedings on the appeals filed by
McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint 16 for injunction with application for issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings pending the resolution of the Complaint
before the SEC.
But before the RTC can resolve Redmont's Complaint and applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS
ASIDE the Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-
DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by Redmont Consolidated Mines Corporation on 02 January 2007
is hereby ordered DISMISSED. 17
Belatedly, on September 16, 2008, the RTC issued an Order 18 granting Redmont's application for a TRO and setting the case for
hearing the prayer for the issuance of a writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for Reconsideration 20 on September 29, 2008.
Before the MAB could resolve Redmont's Motion for Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a Supplemental Complaint 21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order 22 granting the issuance of a writ of preliminary injunction enjoining the MAB from
finally disposing of the appeals of petitioners and from resolving Redmont's Motion for Reconsideration and Supplement Motion for
Reconsideration of the MAB's September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmont's Motion for Reconsideration and Supplemental
Motion for Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On October 1, 2010, the
CA rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and
July 1, 2009 of the Mining Adjudication Board are reversed and set aside. The findings of the Panel of Arbitrators of the
Department of Environment and Natural Resources that respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection of their applications for Mineral Product Sharing Agreement should
be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical
Assistance Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its rejection or
approval is left for determination by the Secretary of the DENR and the President of the Republic of the Philippines.
SO ORDERED. 23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7
of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of
the Constitution and other laws pertaining to the exploitation of natural resources, the CA used the "grandfather rule" to determine the
nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall
be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging
to aliens. 24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the petitioners as
well as at least 60% equity interest of other majority shareholders of petitioners through joint venture agreements. The CA found that through
a "web of corporate layering, it is clear that one common controlling investor in all mining corporations involved . . . is MBMI." 25 Thus, it
concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications suspicious in nature
and, as a consequence, it recommended the rejection of petitioners' MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has jurisdiction over them
and that it also has the power to determine the of nationality of petitioners as a prerequisite of the Constitution prior the conferring of rights to
"co-production, joint venture or production-sharing agreements" of the state to mining rights. However, it also stated that the POA's
jurisdiction is limited only to the resolution of the dispute and not on the approval or rejection of the MPSAs. It stipulated that only the
Secretary of the DENR is vested with the power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered petitioners McArthur,
Tesoro and Narra as foreign corporations. Nevertheless, the CA determined that the POA's declaration that the MPSAs of McArthur, Tesoro
and Narra are void is highly improper. cCaEDA
While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated May 7, 2010
seeking the cancellation of petitioners' FTAAs. The OP rendered a Decision 26 on April 6, 2011, wherein it canceled and revoked petitioners'
FTAAs for violating and circumventing the "Constitution . . .[,] the Small Scale Mining Law and Environmental Compliance Certificate as
well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 27 The OP, in affirming the cancellation of the issued FTAAs, agreed
with Redmont stating that petitioners committed violations against the abovementioned laws and failed to submit evidence to negate them.
The Decision further quoted the December 14, 2007 Order of the POA focusing on the alleged misrepresentation and claims made by
petitioners of being domestic or Filipino corporations and the admitted continued mining operation of PMDC using their locally secured
Small Scale Mining Permit inside the area earlier applied for an MPSA application which was eventually transferred to  Narra. It also agreed
with the POA's estimation that the filing of the FTAA applications by petitioners is a clear admission that they are "not capable of conducting
a large scale mining operation and that they need the financial and technical assistance of a foreign entity in their operation, that is why they
sought the participation of MBMI Resources, Inc." 28 The Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting
operation only through their local counterparts. 29
The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution 30 dated July 6, 2011. Petitioners
then filed a Petition for Review on Certiorari of the OP's Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the
CA Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of the OP. Thereafter, petitioners appealed the same CA
decision to this Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the following errors of the
CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject matter of
the controversy, the MPSA Applications, have already been converted into FTAA applications and that the same have
already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel of
Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of Redmont's willful forum shopping.
IV.
The Court of Appeals' ruling that Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather
Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as amended, and
the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.
VI.
 The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA Applications
were of "suspicious nature" as the same is based on mere conjectures and surmises without any shred of evidence to
show the same. 31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by virtue of supervening
events, so that a declaration thereon would be of no practical use or value." 32 Thus, the courts "generally decline jurisdiction over the case or
dismiss it on the ground of mootness." 33
The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of "mootness" will not deter the
courts from trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo (David), the Court provided four instances
where courts can decide an otherwise moot case, thus:
1.)  There is a grave violation of the Constitution;
2.)  The exceptional character of the situation and paramount public interest is involved;
3.)  When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and the
public; and caTIDE
4.)  The case is capable of repetition yet evading review. 34
All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation of the  Constitution,
specifically Section 2 of Article XII, is being committed by a foreign corporation right under our country's nose through a myriad of
corporate layering under different, allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian company,
MBMI, is of exceptional character and involves paramount public interest since it undeniably affects the exploitation of our Country's natural
resources. The corresponding actions of petitioners during the lifetime and existence of the instant case raise questions as what principle is to
be applied to cases with similar issues. No definite ruling on such principle has been pronounced by the Court; hence, the disposition of the
issues or errors in the instant case will serve as a guide "to the bench, the bar and the public."  35 Finally, the instant case is capable of
repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy Filipino corporations through various
schemes of corporate layering and conversion of applications to skirt the constitutional prohibition against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the conversion of
MPSA applications to FTAA applications. Petitioners propound that the CA erred in ruling against them since the questioned MPSA
applications were already converted into FTAA applications; thus, the issue on the prohibition relating to MPSA applications of
foreign mining corporations is academic. Also, petitioners would want us to correct the CA's finding which deemed the aforementioned
conversions of applications as suspicious in nature, since it is based on mere conjectures and surmises and not supported with evidence.
We disagree.
The CA's analysis of the actions of petitioners after the case was filed against them by respondent is on point. The changing of
applications by petitioners from one type to another just because a case was filed against them, in truth, would raise not a few sceptics'
eyebrows. What is the reason for such conversion? Did the said conversion not stem from the case challenging their citizenship and to have
the case dismissed against them for being "moot"? It is quite obvious that it is petitioners' strategy to have the case dismissed against them for
being "moot."
Consider the history of this case and how petitioners responded to every action done by the court or appropriate government agency:
on January 2, 2007, Redmont filed three separate petitions for denial of the MPSA applications of petitioners before the POA. On June 15,
2007, petitioners filed a conversion of their MPSA applications to FTAAs. The POA, in its December 14, 2007 Resolution, observed this
suspect change of applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission that the
respondents are not capable of conducting a large scale mining operation and that they need the financial and technical
assistance of a foreign entity in their operation that is why they sought the participation of MBMI Resources, Inc. The
participation of MBMI in the corporation only proves the fact that it is the Canadian company that will provide the
finances and the resources to operate the mining areas for the greater benefit and interest of the same and not the
Filipino stockholders who only have a less substantial financial stake in the corporation.
xxx xxx xxx
. . . The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate
the violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is disqualified under the laws . Corporate
 documents of MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are
conducting operation only through their local counterparts. 36
On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting aside the September 10,
2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the findings of the POA of the DENR that the herein
petitioners are in fact foreign corporations thus a recommendation of the rejection of their MPSA applications were recommended to the
Secretary of the DENR. With respect to the FTAA applications or conversion of the MPSA applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of the DENR and the President of the Republic of the Philippines. 37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition asserting that
on April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA No. 05-2010-IVB, which rendered the
petition moot and academic. However, the CA, in a Resolution dated February 15, 2011 denied their motion for being a mere "rehash of their
claims and defenses." 38 Standing firm on its Decision, the CA affirmed the ruling that petitioners are, in fact, foreign corporations. On April
5, 2011, petitioners elevated the case to us via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the CA.
Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this petition for review was filed, cancelling and revoking the
FTAAs, quoting the Order of the POA and stating that petitioners are foreign corporations since they needed the financial strength of MBMI,
Inc. in order to conduct large scale mining operations. The OP Decision also based the cancellation on the misrepresentation of facts and the
violation of the "Small Scale Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584." 39 On July 6, 2011, the OP issued a Resolution, denying the Motion for Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OP's Decision and
Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse their old arguments claiming that they were
granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation and Submission dated October 19, 2012, 40 wherein they
asserted that the present petition is moot since, in a remarkable turn of events, MBMI was able to sell/assign  all its shares/interest in the
"holding companies" to DMCI Mining Corporation (DMCI), a Filipino corporation and, in effect, making their respective corporations fully-
Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their final act, wherein
MBMI was able to allegedly sell/assign all its shares and interest in the petitioner "holding companies" to DMCI, only proves that they were
in fact not Filipino corporations from the start. The recent divesting of interest by MBMI will not change the stand of this Court with respect
to the nationality of petitioners prior the suspicious change in their corporate structures. The new documents filed by petitioners are factual
evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have violated
several mining laws and made misrepresentations and falsehood in their applications for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond going against or around the law using shifty actions and strategies. Thus, in this
instance, we can say that their claim of mootness is moot in itself because their defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners' nationality, whether Filipino or foreign. In their previous petitions,
they had been adamant in insisting that they were Filipino corporations, until they submitted their Manifestation and Submission dated
October 19, 2012 where they stated the alleged change of corporate ownership to reflect their Filipino ownership. Thus, there is a need to
determine the nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of
the Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources owned by
Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of
the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership,
respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other
50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control test or the liberal rule.
On the other hand, the second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine nationality," pertains
to the stricter, more stringent grandfather rule. TaEIcS
Prior to this recent change of events, petitioners were constant in advocating the application of the "control test" under  RA 7042, as
amended by RA 8179, otherwise known as the Foreign Investments Act (FIA), rather than using the stricter grandfather rule. The pertinent
provision under Sec. 3 of the FIA provides:
 SECTION 3.    Definitions. — As used in this Act:
a.)  The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by the citizens of the Philippines; a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided,  That
were a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC)
registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the
members of the Board of Directors, in order that the corporation shall be considered a Philippine national.
(emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a "Philippine National"
under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule "has been abandoned and is no longer the
applicable rule." 41 They also opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate layering" scheme of
corporations. Petitioners claim that the clear and unambiguous wordings of the statute preclude the court from construing it and prevent the
court's use of discretion in applying the law. They said that the plain, literal meaning of the statute meant the application of the control test is
obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent
laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must be
discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2.  All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and supervision of the State.  The State
may directly undertake such activities, or it may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may be provided by law.
xxx xxx xxx
The President may enter into agreements with Foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral
oils according to the general terms and conditions provided by law, based on real contributions to the economic growth
and general welfare of the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the exploration,
development, and utilization of natural resources with entities who are deemed Filipino due to 60 percent ownership of capital is pertinent to
this case, since the issues are centered on the utilization of our country's natural resources or specifically, mining. Thus, there is a need to
ascertain the nationality of petitioners since, as the Constitution so provides, such agreements are only allowed corporations or associations
"at least 60 percent of such capital is owned by such citizens." The deliberations in the Records of the 1986 Constitutional Commission shed
light on how a citizenship of a corporation will be determined:
Mr. BENNAGEN:
 Did I hear right that the Chairman's interpretation of an independent national economy is freedom from undue foreign
control? What is the meaning of undue foreign control?
MR. VILLEGAS:
 Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of the Filipino in the
economic sphere.
MR. BENNAGEN:
 Why does it have to be qualified still with the word "undue"? Why not simply freedom from foreign control? I think
that is the meaning of independence, because as phrased, it still allows for foreign control.
MR. VILLEGAS:
 It will now depend on the interpretation because if, for example, we retain the 60/40 possibility in the cultivation of
natural resources, 40 percent involves some control; not total control, but some control.
MR. BENNAGEN:
  In any case, I think in due time we will propose some amendments.
MR. VILLEGAS:
 Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN:
 Yes.
 Thank you, Mr. Vice-President.
xxx xxx xxx
MR. NOLLEDO:
 In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS:
 That is right.
MR. NOLLEDO:
 In teaching law, we are always faced with the question: 'Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation'? Will
the Committee please enlighten me on this?
MR. VILLEGAS:
 We have just had a long discussion with the members of the team from the UP Law Center who provided us with a
draft. The phrase that is contained here which we adopted from the UP draft is '60 percent of the voting stock.'
MR. NOLLEDO:
 That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS:
 That is right.
MR. NOLLEDO:
 Thank you.
 With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee
adopt the grandfather rule?
MR. VILLEGAS:
 Yes, that is the understanding of the Committee.
MR. NOLLEDO:
 Therefore, we need additional Filipino capital?
MR. VILLEGAS:
 Yes. 42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where corporate layering
is present. Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution will prevail.
In this instance, specifically pertaining to the provisions under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of
the FIA will have no place of application. As decreed by the honorable framers of our Constitution, the grandfather rule prevails and must be
applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for
purposes, among others, of determining compliance with nationality requirements (the 'Investee Corporation'). Such
manner of computation is necessary since the shares in the Investee Corporation may be owned both by individual
stockholders ('Investing Individuals') and by corporations and partnerships ('Investing Corporation'). The said rules thus
 provide for the determination of nationality depending on the ownership of the Investee Corporation and, in certain
instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee
Corporation. The first case is the 'liberal rule', later coined by the SEC as the Control Test in its 30 May 1990 Opinion,
and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, '(s)hares belonging to corporations
or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality.' Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as
Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph
7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the
Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing
Corporation and added to the shares directly owned in the Investee Corporation . . . .
xxx xxx xxx
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of
the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the
joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%]
invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated
differently, where the 60-40 Filipino-foreign equity ownership is not in doubt, the Grandfather Rule will not
apply. (emphasis supplied) CTacSE
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather rule since,
as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by the CA,
doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100%
Canadian corporation — MBMI, funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos
are less than 60%. 43
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court. DOJ
Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where "doubt" as to the ownership of the
corporation exists. It would be ludicrous to limit the application of the said word only to the instances where the stockholdings of non-
Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in circumventing our laws
would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for these applying corporations to state in their
respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be denied instantly. Thus,
various corporate schemes and layerings are utilized to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a
cloud of doubt in the Court's mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be
used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of petitioners' corporate structure, they have to be
"grandfathered."
As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from SMMI.
McArthur has a capital stock of ten million pesos (PhP10,000,000) divided into 10,000 common shares at one thousand pesos (PhP1,000) per
share, subscribed to by the following: 44
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Madridejos Mining Filipino 5,997 PhP5,997,000.00 PhP825,000.00
Corporation        
MBMI Resources, Canadian 3,998 PhP3,998,000.00 PhP1,878,174.60
Inc.        
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Manuel A. Agcaoili Filipino 1 PhP1,000.00 PhP1,000.00
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
     ––––––– ––––––––––––– ––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,708,174.60
    ====== ============ ============
        (emphasis supplied)
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as
McArthur. In fact, it would seem that MBMI is also a major investor and "controls" 45 MBMI and also, similar nominal shareholders
were present, i.e., Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell
(Cawkell):
Madridejos Mining Corporation
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Olympic Mines & Filipino 6,663 PhP6,663,000.00 PhP0
Development Corp.        
MBMI Resources, Canadian 3,331 PhP3,331,000.00 PhP2,803,900.00
Inc.        
Amanti Limson Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Lauro Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Emmanuel G. Filipino 1 PhP1,000.00 PhP1,000.00
Hernando        
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    ––––––– –––––––––––––––– ––––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,809,900.00
    ====== ============== ==============
        (emphasis supplied)
Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of shares
they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC. MBMI's 2006 Annual Report
sheds light on why Olympic failed to pay any amount with respect to the number of shares it subscribed to. It states that Olympic entered into
joint venture agreements with several Philippine companies, wherein it holds directly and indirectly a 60% effective equity interest in the
Olympic Properties. 46 Quoting the said Annual report:
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a
series of agreements including a Property Purchase and Development Agreement (the Transaction Documents) with
respect to three nickel laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction
Documents effectively establish a joint venture between the Company and Olympic for purposes of developing
the Olympic Properties. The Company holds directly and indirectly an initial 60% interest in the joint venture.
Under certain circumstances and upon achieving certain milestones, the Company may earn up to a 100%
interest, subject to a 2.5% net revenue royalty. 47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by MBMI to
gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the latter a foreign
corporation.
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP10,000,000) divided into ten
thousand (10,000) common shares at PhP1,000 per share, as demonstrated below:
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Sara Marie Filipino 5,997 PhP5,997,000.00 PhP825,000.00
Mining, Inc.        
MBMI Canadian 3,998 PhP3,998,000.00 PhP1,878,174.60
Resources, Inc.        
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Manuel A. Filipino 1 PhP1,000.00 PhP1,000.00
Agcaoili        
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    –––––– –––––––––––––––– –––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,708,174.60
    ===== ============== =============
        (emphasis supplied)
Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure of
petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and
Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same. Delving
deeper, we scrutinize SMMI's corporate structure:
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Olympic Mines & Filipino 6,663 PhP6,663,000.00 PhP0
Development Corp.        
MBMI Resources, Canadian 3,331 PhP3,331,000.00 PhP2,794,000.00
Inc.        
Amanti Limson Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Lauro Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Emmanuel G. Filipino 1 PhP1,000.00 PhP1,000.00
Hernando        
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    –––––– ––––––––––––– ––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,809,900.00
    ====== ============= ============
        (emphasis supplied)
After subsequently studying SMMI's corporate structure, it is not farfetched for us to spot the glaring similarity between SMMI and
MMC's corporate structure. Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra,
Salazar, Hernando, Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount Subscribed," and
"Amount Paid" are exactly the same except for the amount paid by MBMI which now reflects the amount of two million seven hundred
ninety four thousand pesos (PhP2,794,000). Oddly, the total value of the amount paid is two million eight hundred nine thousand nine
hundred pesos (PhP2,809,900).
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 Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC's MPSA application, whose corporate
structure's arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is ten million pesos
(PhP10,000,000), which is divided into ten thousand common shares (10,000) at one thousand pesos (PhP1,000) per share, shown as
follows: ACHEaI
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Patricia Louise Filipino 5,997 PhP5,997,000.00 PhP1,677,000.00
Mining &        
Development        
Corp.        
MBMI Canadian 3,998 PhP3,996,000.00 PhP1,116,000.00
Resources, Inc.        
Higinio C. Filipino 1 PhP1,000.00 PhP1,000.00
Mendoza, Jr.        
Henry E. Filipino 1 PhP1,000.00 PhP1,000.00
Fernandez        
Manuel A. Filipino 1 PhP1,000.00 PhP1,000.00
Agcaoili        
Ma. Elena A. Filipino 1 PhP1,000.00 PhP1,000.00
Bocalan        
Bayani H. Agabin Filipino 1 PhP1,000.00 PhP1,000.00
Robert L. American 1 PhP1,000.00 PhP1,000.00
McCurdy        
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    ––––––– ––––––––––––– ––––––––––––––
   Total 10,000 PhP10,000,000.00 PhP2,800,000.00
    ====== ============= =============
Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDC's corporate structure:
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Palawan Alpha Filipino 6,596 PhP6,596,000.00 PhP0
South Resources        
Development        
Corporation        
MBMI Resources, Canadian 3,396 PhP3,396,000.00 PhP2,796,000.00
Inc.        
Higinio C. Filipino 1 PhP1,000.00 PhP1,000.00
Mendoza, Jr.        
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Henry E. Filipino 1 PhP1,000.00 PhP1,000.00
Fernandez        
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Manuel A. Agcaoili Filipino 1 PhP1,000.00 PhP1,000.00
Bayani H. Agabin Filipino 1 PhP1,000.00 PhP1,000.00
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    ––––––– ––––––––––––– ––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,708,174.60
    ====== ============= ============
        (emphasis supplied)
Yet again, the usual players in petitioners' corporate structures are present. Similarly, the amount of money paid by the 2nd tier
majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.
Studying MBMI's Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind the intricate
corporate layering that MBMI immersed itself in:
JOINT VENTURES  The Company's ownership interests in various mining ventures engaged in the
acquisition, exploration and development of mineral properties in the
Philippines is described as follows:
(a)  Olympic Group
The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:
Olympic-Philippines (the "Olympic Group"
Sara Marie Mining Properties Ltd. ("Sara Marie") — 33.3%
Tesoro Mining & Development, Inc. (Tesoro) — 60.0%
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity
interest in the Olympic Property of 60.0%. Pursuant to a shareholders' agreement, the Company exercises joint
control over the companies in the Olympic Group.
(b)  Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:
Alpha-Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") — 34.0%
Narra Nickel Mining & Development Corporation (Narra) — 60.4%
Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the
Alpha Property of 60.4%. Pursuant to a shareholders' agreement, the Company exercises joint control over
the companies in the Alpha Group. 48 (emphasis supplied)
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and  Narra are not Filipino since
MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners' corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMI's  Summary of Significant
Accounting Policies statement — regarding the "joint venture" agreements that it entered into with the "Olympic" and "Alpha" groups —
involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or
corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships between and among the
corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity
interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA's use of the exception of the res inter alios acta or the "admission by co-partner or agent" rule and
"admission by privies" under the Rules of Court in the instant case, by pointing out that statements made by MBMI should not be admitted in
this case since it is not a party to the case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29.  Admission by co-partner or agent. — The act or declaration of a partner or agent of the party within
the scope of his authority and during the existence of the partnership or agency, may be given in evidence against such
party after the partnership or agency is shown by evidence other than such act or declaration itself. The same rule
applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with the party.
Sec. 31.  Admission by privies. — Where one derives title to property from another, the act, declaration, or
omission of the latter, while holding the title, in relation to the property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation must be shown, and that
proof of the fact must be made by evidence other than the admission itself." 49 Thus, petitioners assert that the CA erred in finding that a
partnership relationship exists between them and MBMI because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the  Rules by stating that "by entering into a joint venture,
MBMI have a joint interest" with Narra, Tesoro and McArthur. They challenged the conclusion of the CA which pertains to the close
characteristics of "partnerships" and "joint venture agreements." Further, they asserted that before this particular partnership can be formed, it
should have been formally reduced into writing since the capital involved is more than three thousand pesos (PhP3,000). Being that there is
no evidence of written agreement to form a partnership between petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a common fund
with the intention of dividing the profits among themselves. 50 On the other hand, joint ventures have been deemed to be "akin" to
partnerships since it is difficult to distinguish between joint ventures and partnerships. Thus: IEDHAT
[T]he relations of the parties to a joint venture and the nature of their association are so similar and closely
akin to a partnership that it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which are
closely analogous to and substantially the same, if not exactly the same, as those which govern partnership. In fact, it
has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very
little law being found applicable to one that does not apply to the other. 51
Though some claim that partnerships and joint ventures are totally different animals, there are very few rules that differentiate one
from the other; thus, joint ventures are deemed "akin" or similar to a partnership. In fact, in joint venture agreements, rules and legal incidents
governing partnerships are applied. 52
Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered between and among
petitioners and MBMI are no simple "joint venture agreements." As a rule, corporations are prohibited from entering into partnership
agreements; consequently, corporations enter into joint venture agreements with other corporations or partnerships for certain transactions in
order to form "pseudo partnerships." Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against corporations entering into partnerships, then the relationship created should be deemed
as "partnerships," and the laws on partnership should be applied. Thus, a joint venture agreement between and among corporations may be
seen as similar to partnerships since the elements of partnership are present.
Considering that the relationships found between petitioners and MBMI are considered to be partnerships, then the CA is justified
in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro
and McArthur.
Panel of Arbitrators' jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has jurisdiction to settle
disputes over rights to mining areas which definitely involve the petitions filed by Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against petitioners, is asserting the right of Filipinos over mining areas in the Philippines against
alleged foreign-owned mining corporations. Such claim constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have
exclusive and original jurisdiction to hear and decide the following:
 (a)  Disputes involving rights to mining areas
(b)  Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or opposition to an
application for mineral agreement. The POA therefore has the jurisdiction to resolve any adverse claim, protest, or
opposition to a pending application for a mineral agreement filed with the concerned Regional Office of the MGB. This
is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxx xxx xxx
Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the
authorized officer(s) of the concerned office(s) shall issue a certification(s) that the publication/posting/radio
announcement have been complied with. Any adverse claim, protest, opposition shall be filed directly,
within thirty (30) calendar days from the last date of publication/posting/radio announcement, with the
concerned Regional Office or through any concerned PENRO or CENRO for filing in the concerned
Regional Office for purposes of its resolution by the Panel of Arbitrators pursuant to the provisions of
this Act and these implementing rules and regulations. Upon final resolution of any adverse claim,
protest or opposition, the Panel of Arbitrators shall likewise issue a certification to that effect within five
(5) working days from the date of finality of resolution thereof. Where there is no adverse claim, protest
or opposition, the Panel of Arbitrators shall likewise issue a Certification to that effect within five
working days therefrom.
xxx xxx xxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully
complied with and any adverse claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
xxx xxx xxx
Within fifteen (15) working days from the receipt of the Certification issued by the Panel of
Arbitrators as provided in Section 38 hereof, the concerned Regional Director shall initially evaluate the
Mineral Agreement applications in areas outside Mineral reservations. He/She shall thereafter endorse
his/her findings to the Bureau for further evaluation by the Director within fifteen (15) working days
from receipt of forwarded documents. Thereafter, the Director shall endorse the same to the secretary
for consideration/approval within fifteen working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15)
working days from receipt of the Certification issued by the Panel of Arbitrators as provided for in Section 38
hereof, the same shall be evaluated and endorsed by the Director to the Secretary for consideration/approval
within fifteen days from receipt of such endorsement. (emphasis supplied) ACcDEa
It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under
Sec. 77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or conferment
of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219.  Filing of Adverse Claims/Conflicts/Oppositions. — Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections may also
be filed directly with the Panel of Arbitrators within the concerned periods for filing such claim, protest or
opposition as specified in said Sections.
Sec. 43.  Publication/Posting of Mineral Agreement. —
xxx xxx xxx
The Regional Director or concerned Regional Director shall also cause the posting of the application
on the bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for
two (2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from
the last date of publication/posting has been made and no adverse claim, protest or opposition was filed within
the said forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been
made and that no adverse claim, protest or opposition of whatever nature has been filed.  On the other hand, if
 there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from
the last date of publication/posting, with the Regional Offices concerned, or through the Department's
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment and
Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and subsisting mining claims are exempted from
posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and resolved by
the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under
Sec. 77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or conferment
of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219.  Filing of Adverse Claims/Conflicts/Oppositions. — Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections may also be
filed directly with the Panel of Arbitrators within the concerned periods for filing such claim, protest or
opposition as specified in said Sections.
Sec. 43.  Publication/Posting of Mineral Agreement Application. —
xxx xxx xxx
The Regional Director or concerned Regional Director shall also cause the posting of the application
on the bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for
two (2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from
the last date of publication/posting has been made and no adverse claim, protest or opposition was filed within
the said forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been
made and that no adverse claim, protest or opposition of whatever nature has been filed.  On the other hand, if
there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from
the last date of publication/posting, with the Regional offices concerned, or through the Department's
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment and
Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and subsisting mining claims are exempted from
posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and resolved by
the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or
protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and
oppositions relating to applications for the grant of mineral rights. POA's jurisdiction is confined only to resolutions
of such adverse claims, conflicts and oppositions and it has no authority to approve or reject said applications.
Such power is vested in the DENR Secretary upon recommendation of the MGB Director. Clearly, POA's
jurisdiction over "disputes involving rights to mining areas" has nothing to do with the cancellation of existing
mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes over MPSA applications
subject of Redmont's petitions. However, said jurisdiction does not include either the approval or rejection of the MPSA applications, which
is vested only upon the Secretary of the DENR. Thus, the finding of the POA, with respect to the rejection of petitioners' MPSA applications
being that they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has jurisdiction over the
MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at the time of the commencement of the action. 54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization Act of 1980" reads:
Sec. 19.  Jurisdiction in Civil Cases. — Regional Trial Courts shall exercise exclusive original jurisdiction:
1.  In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.
 On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77.  Panel of Arbitrators. —
. . . Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have
exclusive and original jurisdiction to hear and decide the following:
(c)  Disputes involving rights to mining areas SEIcHa
(d)  Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to  mining areas. One such
dispute is an MPSA application to which an adverse claim, protest or opposition is filed by another interested applicant. In the case at bar, the
dispute arose or originated from MPSA applications where petitioners are asserting their rights to mining areas subject of their respective
MPSA applications. Since respondent filed 3 separate petitions for the denial of said applications, then a controversy has developed between
the parties and it is POA's jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional Office or any
concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-med
Laboratories v. Province of Batangas 55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise,
specialized training and knowledge of an administrative body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the matter may well be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this Court as a last
recourse.
Selling of MBMI's shares to DMCI
As stated before, petitioners' Manifestation and Submission dated October 19, 2012 would want us to declare the instant petition
moot and academic due to the transfer and conveyance of all the shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60% Philippine-owned. 56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares supposedly cured the "defect" of their previous nationality. They claimed that their
current FTAA contract with the State should stand since "even wholly-owned foreign corporations can enter into an FTAA with the
State." 57 Petitioners stress that there should no longer be any issue left as regards their qualification to enter into FTAA contracts since they
are qualified to engage in mining activities in the Philippines. Thus, whether the "grandfather rule" or the "control test" is used, the
nationalities of petitioners cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be disregarded.
The manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877 pending before this Court. Thus, the
question of whether petitioners, allegedly a Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to
enter into FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within
the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources
of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40
Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated October 1,
2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.
Peralta, Abad and Mendoza, JJ., concur.
Leonen, J., I dissent. See separate opinion.

Separate Opinions

LEONEN, J., dissenting:

Investments into our economy are deterred by interpretations of law that are not based on solid ground and sound rationale.
Predictability in policy is a very strong factor in determining investor confidence.
The so-called "Grandfather Rule" has no statutory basis. It is the Control Test that governs in determining Filipino equity in
corporations. It is this test that is provided in statute and by our most recent jurisprudence.
 Furthermore, the Panel of Arbitrators created by the Philippine Mining Act is not a court of law. It cannot decide judicial
questions with finality. This includes the determination of whether the capital of a corporation is owned or controlled by Filipino
citizens. The Panel of Arbitrators renders arbitral awards. There is no dispute and, therefore, no competence for arbitration, if one of the
parties does not have a mining claim but simply wishes to ask for a declaration that a corporation is not qualified to hold
a mining agreement. Respondent here did not claim a better right to a mining agreement. By forum shopping through multiple actions, it
sought to disqualify petitioners. The decision of the majority rewards such actions.
In this case, the majority's holding glosses over statutory provisions 1 and settled jurisprudence. 2
Thus, I disagree with the ponencia in relying on the Grandfather Rule. I disagree with the finding that
petitioners Narra Nickel Mining and Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and
McArthur Mining, Inc. (McArthur) are not Filipino corporations. Whether they should be qualified to hold Mineral Production Sharing
Agreements (MPSA) should be the subject of proper proceedings in accordance with this opinion. I disagree that the Panel of Arbitrators
(POA) of the Department of Environment and Natural Resources (DENR) has jurisdiction to disqualify an applicant for mining activities
on the ground that it does not have the requisite Filipino ownership.
Furthermore, respondent Redmont Consolidated Mines Corp. (Redmont) has engaged in blatant forum shopping. The Court of
Appeals 3 is in error for sustaining the POA. Thus, its findings that Narra, Tesoro, and McArthur are not qualified corporations must be
rejected.
To recapitulate, Redmont took interest in undertaking mining activities in the Province of Palawan. Upon inquiry with the
Department of Environment and Natural Resources, it discovered that Narra, Tesoro, and McArthur had standing MPSA applications for
its interested areas. 4
Narra, Tesoro, and McArthur are successors-in-interest of other corporations that have earlier pursued MPSA applications:
1. Narra intended to succeed Alpha Resources and Development Corporation and Patricia Louise Mining and Development
Corporation (PLMDC), which held the application MPSA-IV-1-12 covering an area of 3,277 hectares in Barangay
Calategas and Barangay San Isidro, Narra, Palawan; 5
2. Tesoro intended to succeed Sara Marie Mining, Inc. (SMMI), which held the application MPSA-AMA-IVB-154 covering an
area of 3,402 hectares in Barangay Malinao and Barangay Princess Urduja, Narra, Palawan; 6
3. McArthur intended to succeed Madridejos Mining Corporation (MMC), which held the application MPSA-AMA-IVB-153
covering an area of more than 1,782 hectares in Barangay Sumbiling, Bataraza, Palawan and EPA-IVB-44 which
includes a 3,720-hectare area in Barangay Malatagao, Bataraza, Palawan from SMMI. 7
Contending that Narra, Tesoro, and McArthur are corporations whose foreign equity disqualifies them from entering into
MPSAs, Redmont filed with the DENR Panel of Arbitrators (POA) for Region IV-B three (3) separate petitions for the denial of the
MPSA applications of Narra, Tesoro, and McArthur. In these petitions, Redmont asserted that at least sixty percent (60%) of the capital
stock of Narra, Tesoro, and McArthur are owned and controlled by MBMI Resources, Inc. (MBMI), a corporation wholly owned by
Canadians. 8
Narra, Tesoro, and McArthur countered that the POA did not have jurisdiction to rule on Redmont's petitions per Section 77
of Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995 (Mining Act). They also argued that Redmont did not
have personality to sue as it had no pending application of its own over the areas in which they had pending applications. They
contended that whether they were Filipino corporations has become immaterial as they were already pursuing applications for Financial
or Technical Assistance Agreements (FTAA), which, unlike MPSAs, may be entered into by foreign corporations. They added that, in
any case, they were qualified to enter into MPSAs as 60% of their capital is owned by Filipinos. 9
In a December 14, 2007 resolution, 10 the POA held that Narra, Tesoro, and McArthur are foreign corporations disqualified
from entering into MPSAs. The dispositive portion of this resolution reads:
WHEREFORE, the Panel of Arbitrators finds the Respondents McArthur Mining, Inc., Tesoro Mining and
Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as
Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby as [sic], they are
DECLARED NULL AND VOID.
Accordingly, the Exploration Permit Applications of Petitioner Redmont Consolidated Mines Corporation
shall be GIVEN DUE COURSE, subject to compliance with the provisions of the Mining Law and its implementing
rules and regulations. 11
Narra, Tesoro, and McArthur then filed appeals before the Mines Adjudication Board (MAB). In a September 10, 2008
order, 12 the MAB pointed out that "no MPSA has so far been issued in favor of any of the parties";  13 thus, it faulted the POA for still
ruling that "[t]heir Mineral Production Sharing Agreement (MPSA) are hereby as [sic], they are DECLARED NULL AND VOID." 14
The MAB sustained the contention of Narra, Tesoro, and McArthur that "the Panel does not have jurisdiction over the instant
case, and that it should have dismissed the Petition fortwith [sic]." 15 It emphasized that:
[W]hether or not an applicant for an MPSA meets the qualifications imposed by law, more particularly the nationality
requirement, is a matter that is addressed to the sound discretion of the competent body or agency, in this case the
[Securities and Exchange Commission]. In the interest of orderly procedure and administrative efficiency, it is
 imperative that the DENR, including the Panel, accord full faith and confidence to the contents of Appellants' Articles
of Incorporation, which have undergone thorough evaluation and scrutiny by the SEC. Unless the SEC or the courts
promulgate a ruling to the effect that the Appellant corporations are not Filipino corporations, the Board cannot
conclude otherwise. This proposition is borne out by the legal presumptions that official duty has been regularly
performed, and that the law has been obeyed in the preparation and approval of said documents. 16
Redmont then filed with the Court of Appeals a petition for review under Rule 43 of the  1997 Rules on Civil Procedure. This
petition was docketed as CA-G.R. SP No. 109703.
In a decision dated October 1, 2010, 17 the Court of Appeals, through its Seventh Division, reversed the MAB and sustained
the findings of the POA. 18
The Court of Appeals noted that the "pivotal issue before the Court is whether or not respondents McArthur, Tesoro
and Narra are Philippine nationals under Philippine laws, rules and regulations." 19 Noting that doubt existed as to their foreign equity
ownerships, the Court of Appeals, Seventh Division, asserted that such equity ownerships must be reckoned via the Grandfather
Rule. 20 Ultimately, it ruled that Narra, Tesoro, and McArthur "are not Philippine nationals, hence, their MPSA applications should be
recommended for rejection by the Secretary of the DENR." 21
On the matter of the Panel of Arbitrators' jurisdiction, the Court of Appeals, Seventh Division, referred to this court's
declarations in Celestial Nickel Mining Exploration Corp. v. Macroasia Corp. 22 and considered these pronouncements as "clearly
support[ing the conclusion] that the POA has jurisdiction to resolve the Petitions filed by . . . Redmont." 23
The motion for reconsideration of Narra, Tesoro, and McArthur was denied by the Court of Appeals through a resolution dated
February 15, 2011. 24
Hence, this present petition was filed and docketed as G.R. No. 195580.
Apart from these proceedings before the POA, the MAB and the Court of Appeals, Redmont also filed three (3) separate
actions before the Securities and Exchange Commission, the Regional Trial Court of Quezon City, and the Office of the President:
First action: On August 14, 2008, Redmont filed a complaint for revocation of the certificates of
registration of Narra, Tesoro, and McArthur with the Securities and Exchange Commission (SEC). 25 This complaint
became the subject of another case (G.R. No. 205513), which was consolidated but later de-consolidated with the
present petition, G.R. No. 195580.
In view of this complaint, Redmont filed on September 1, 2008 a manifestation and motion to suspend
proceeding[s] before the MAB. 26
In a letter-resolution dated September 3, 2009, the SEC's Compliance and Enforcement Department (CED)
ruled in favor of Narra, Tesoro, and McArthur. It applied the Control Test per Section 3 of Republic Act No. 7042, as
amended by Republic Act No. 8179, the Foreign Investments Act (FIA), and held that Narra, Tesoro, and McArthur
as well as their co-respondents in that case satisfied the requisite Filipino equity ownership. 27 Redmont then filed an
appeal with the SEC En Banc.
In a decision dated March 25, 2010, 28 the SEC En Banc set aside the SEC-CED's letter-resolution with
respect to Narra, Tesoro, and McArthur as the appeal from the MAB's September 10, 2008 order was then pending
with the Court of Appeals, Seventh Division. 29 The SEC En Banc considered the assertion that Redmont has been
engaging in forum shopping:
It is evident from the foregoing that aside from identity of the parties . . ., the issue(s)
raised in the CA Case and the factual foundations thereof . . . are substantially the same as those
obtaining the case at bar. Yet, Redmont did not include this CA Case in the Certification against
Forum Shopping attached to the instant Appeal. 30
However, with respect to the other respondent-appellees in that case (Sara Marie Mining, Inc., Patricia
Louise Mining and Development Corp., Madridejos Mining Corp., Bethlehem Nickel Corp., San
Juanico Nickel Corp., and MBMI Resources, Inc.), the complaint was remanded to the SEC-CED for further
proceedings with the reminder for it to "consider every piece already on record and, if necessary, to conduct further
investigation in order to ascertain, consistent with the Grandfather Rule, the true, actual Filipino and foreign
participation in each of these five (5) corporations." 31
Asserting that the SEC En Banc had already made a definite finding that Redmont has been engaging in
forum shopping, Sara Marie Mining, Inc., Patricia Louise Mining and Development Corp., and
Madridejos Mining Corp. filed with the Court of Appeals a petition for review under Rule 43 of the  1997 Rules of
Civil Procedure. This petition was docketed as CA-G.R. SP No. 113523.
In a decision dated May 23, 2012, the Court of Appeals, Former Tenth Division, found that "there was a
deliberate attempt not to disclose the pendency of CA-GR SP No. 109703." 32 It concluded that "the partial dismissal
of the case before the SEC is unwarranted. It should have been dismissed in its entirety and with prejudice to the
complainant." 33 The dispositive portion of the decision reads:
 WHEREFORE, the Petition is GRANTED. The Decision dated March 25, 2010 of the
Securities and Exchange Commission En Banc is REVERSED and SET ASIDE. Accordingly, the
complaint for revocation filed by Redmont Consolidated Mines is DISMISSED with
prejudice. 34 (Emphasis supplied)
On January 22, 2013, the Court of Appeals, Former Tenth Division, issued a
resolution 35 denying Redmont's motion for reconsideration.
Aggrieved, Redmont filed the petition for review on certiorari which became the subject of G.R. No.
205513, initially lodged with this court's First Division. Through a November 27, 2013 resolution, G.R. No. 205513
was consolidated with G.R. No. 195580. Subsequently however, this court's Third Division de-consolidated the two
(2) cases.
Second Action: On September 8, 2008, Redmont filed a complaint for injunction (of the MAB proceedings
pending the resolution of the complaint before the SEC) with application for issuance of a temporary restraining order
(TRO) and/or writ of preliminary injunction with the Regional Trial Court, Branch 92, Quezon City. 36 The Regional
Trial Court issued a TRO on September 16, 2008. By then, however, the MAB had already ruled in favor of Narra,
Tesoro, and McArthur. 37
Third Action: On May 7, 2010, Redmont filed with the Office of the President a petition seeking the
cancellation of the financial or technical assistance agreement (FTAA) applications of Narra, Tesoro, and McArthur.
In a decision dated April 6, 2011, 38 the Office of the President ruled in favor of Redmont. In a resolution dated July
6, 2011, 39 the Office of the President denied the motion for reconsideration of Narra, Tesoro, and McArthur. As
noted by the ponencia, Narra, Tesoro, and McArthur then filed an appeal with the Court of Appeals. As this appeal
has been denied, they filed another appeal with this court, which appeal is pending in another division. 40
The petition for review on certiorari subject of G.R. No. 195580 is an appeal from the Court of Appeals' October 1, 2010
decision in CA-G.R. SP No. 109703 reversing the MAB and sustaining the POA's findings that Narra, Tesoro, and McArthur are foreign
corporations disqualified from entering into MPSAs. The petition also questions the February 15, 2011 resolution of the Court of
Appeals denying the motion for reconsideration of Narra, Tesoro, and McArthur.
To reiterate, G.R. No. 195580 was consolidated with another petition — G.R. No. 205513 — through a resolution of this court
dated November 27, 2013. G.R. No. 205513 is an appeal from the Court of Appeals, Former Tenth Division's May 23, 2012 decision and
January 22, 2013 resolution in CA-G.R. SP No. 113523. Subsequently however, G.R. No. 195580 and G.R. No. 205513 were de-
consolidated.
Apart from G.R. Nos. 195580 and 205513, a third petition has been filed with this court. This third petition is an offshoot of the
petitions filed by Redmont with the Office of the President seeking the cancellation of the FTAA applications of  Narra, Tesoro, and
McArthur.
The main issue in this case relates to the ownership of capital in Narra, Tesoro, and McArthur, i.e., whether they have satisfied
the required Filipino equity ownership so as to be qualified to enter into MPSAs.
In addition to this, Narra, Tesoro, and McArthur raise procedural issues: (1) the POA's jurisdiction over the subject matter
of Redmont's petitions; (2) the supposed mootness of Redmont's petitions before the POA considering that Narra, Tesoro, and McArthur
have pursued applications for FTAAs; and (3) Redmont's supposed engagement in forum shopping. 41
Governing laws
Mining is an environmentally sensitive activity that entails the exploration, development, and utilization of inalienable natural
resources. It falls within the broad ambit of Article XII, Section 2 as well as other sections of the  1987 Constitution which refers to
ancestral domains 42 and the environment. 43
More specifically, Republic Act No. 7942 or the Philippine Mining Act, its implementing rules and regulations, other
administrative issuances as well as jurisprudence govern the application for mining rights among others. Small-scale mining 44 is
governed by Republic Act No. 7076, the People's Small-scale Mining Act of 1991. Apart from these, other statutes such as Republic Act
No. 8371, the Indigenous Peoples Rights Act of 1997 (IPRA), and Republic Act No. 7160, the Local Government Code (LGC) contain
provisions which delimit the conduct of mining activities.
Republic Act No. 7042, as amended by Republic Act No. 8179, the Foreign Investments Act (FIA) is significant with respect
to the participation of foreign investors in nationalized economic activities such as mining. In the 2012 resolution ruling on the motion
for reconsideration in Gamboa v. Teves, 45 this court stated that "The FIA is the basic law governing foreign investments in the
Philippines, irrespective of the nature of business and area of investment." 46
Commonwealth Act No. 108, as amended, otherwise known as the Anti-Dummy Law, penalizes those who "allow [their] name
or citizenship to be used for the purpose of evading" 47 "constitutional or legal provisions requir[ing] Philippine or any other specific
citizenship as a requisite for the exercise or enjoyment of a right, franchise or privilege". 48
Batas Pambansa Blg. 68, the Corporation Code, is the general law that "provide[s] for the formation, organization, [and]
regulation of private corporations." 49 The conduct of activities relating to securities, such as shares of stock, is regulated by Republic
Act No. 8799, the Securities Regulation Code (SRC).
DENR's Panel of Arbitrators
has no competence over the
petitions filed by Redmont
The DENR Panel of Arbitrators does not have the competence to rule on the issue of whether the ownership of the capital of
the corporations Narra, Tesoro, and McArthur meet the constitutional and statutory requirements. This alone is ample basis for granting
the petition.
Section 77 of the Mining Act provides for the matters falling under the exclusive original jurisdiction of the DENR Panel of
Arbitrators, as follows:
Section 77. Panel of Arbitrators. — . . . Within thirty (30) working days, after the submission of the case by
the parties for decision, the panel shall have exclusive and original jurisdiction to hear and decide on the following:
(a) Disputes involving rights to mining areas;
(b) Disputes involving mineral agreements or permit;
(c) Disputes involving surface owners, occupants and claimholders/concessionaires; and
(d) Disputes pending before the Bureau and the Department at the date of the effectivity of this Act.
In 2007, this court's decision in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp. 50 construed the phrase
"disputes involving rights to mining areas" as referring "to any adverse claim, protest, or opposition to an application for mineral
agreement." 51
Proceeding from this court's statements in Celestial, the ponencia states:
Accordingly, as We enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes
over MPSA applications subject of Redmont's petitions. However, said jurisdiction does not include either the
approval or rejection of the MPSA applications which is vested only upon the Secretary of the DENR. Thus, the
finding of the POA, with respect to the rejection of the petitioners' MPSA applications being that they are foreign
corporation [sic], is valid. 52
An earlier decision of this court, Gonzales v. Climax Mining Ltd., 53 ruled on the jurisdiction of the Panel of Arbitrators as
follows:
We now come to the meat of the case which revolves mainly around the question of jurisdiction by the Panel
of Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint for declaration of nullity and/or
termination of the subject contracts on the ground of fraud, oppression and violation of the Constitution? This issue
may be distilled into the more basic question of whether the Complaint raises a mining dispute or a judicial question.
A judicial question is a question that is proper for determination by the courts, as opposed to a moot
question or one properly decided by the executive or legislative branch. A judicial question is raised when the
determination of the question involves the exercise of a judicial function; that is, the question involves the
determination of what the law is and what the legal rights of the parties are with respect to the matter in controversy.
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral agreements,
FTAAs, or permits, and (c) surface owners, occupants and claimholders/concessionaires. Under Republic Act No.
7942 (otherwise known as the Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original
jurisdiction to hear and decide these mining disputes. The Court of Appeals, in its questioned decision, correctly
stated that the Panel's jurisdiction is limited only to those   mining  disputes which raise questions of fact or matters
requiring the application of technological knowledge and experience. 54 (Emphasis supplied)
Moreover, this court's decision in Philex Mining Corp. v. Zaldivia, 55 which was also referred to in Gonzales, explained what
"questions of fact" are appropriate for resolution in a mining dispute:
We see nothing in sections 61 and 73 of the Mining Law that indicates a legislative intent to confer real
judicial power upon the Director of Mines. The very terms of section 73 of the Mining Law, as amended by Republic
Act No. 4388, in requiring that the adverse claim must "state in full detail the nature, boundaries and extent of the
adverse claim" show that the conflicts to be decided by reason of such adverse claim refer primarily to questions of
fact. This is made even clearer by the explanatory note to House Bill No. 2522, later to become Republic Act 4388,
that "sections 61 and 73 that refer to the overlapping of claims are amended to expedite resolutions
of mining conflicts * * *." The controversies to be submitted and resolved by the Director of Mines under the
sections refer therfore [sic] only to the overlapping of claims and administrative matters incidental
thereto. 56 (Emphasis supplied)
The pronouncements in Celestial cited by the ponencia were made to address the assertions
of Celestial Nickel and Mining Corporation (Celestial Nickel) and Blue Ridge Mineral Corporation (Blue Ridge) that the Panel of
Arbitrators had the power to cancel existing mineral agreements pursuant to Section 77 of the Mining Act. 57 Thus:
Clearly, POA's jurisdiction over "disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. 58
 These pronouncements did not undo or abandon the distinction, clarified in Gonzales, between judicial questions
and mining disputes. The former are cognizable by regular courts of justice, while the latter are cognizable by the DENR Panel of
Arbitrators.
As has been repeatedly acknowledged by the ponencia, 59 the Court of Appeals, 60 and the Mines Adjudication Board, 61 the
present case, and the petitions filed by Redmont before the DENR Panel of Arbitrators boil down to the "pivotal issue . . . [of] whether or
not [Narra, Tesoro, and McArthur] are Philippine nationals."
This is a matter that entails a consideration of the law. It is a question that relates to the status of  Narra, Tesoro, and McArthur
and the legal rights (or inhibitions) accruing to them on account of their status. This does not entail a consideration of the specifications
of mining arrangements and operations. Thus, the petitions filed by Redmont before the DENR Panel of Arbitrators relate to judicial
questions and not to mining disputes. They relate to matters which are beyond the jurisdiction of the Panel of Arbitrators.
Furthermore nowhere in Section 77 of the Republic Act No. 7942 is there a grant of jurisdiction to the Panel of Arbitrators over
the determination of the qualification of applicants. The Philippine Mining Act clearly requires the existence of a "dispute" over
a mining area, 62 a mining agreement, 63 with a surface owner, 64 or those pending with the Bureau or the Department 65 upon the
law's promulgation. The existence of a "dispute" presupposes that the party bringing the suit has a colorable or putative claim more
superior than that of the respondent in the arbitration proceedings. After all, the Panel of Arbitrators is supposed to provide binding
arbitration which should result in a binding award either in favor of the petitioner or the respondent. Thus, the Panel of Arbitrators is a
qualified quasi-judicial agency. It does not perform all judicial functions in lieu of courts of law.
The petition brought by respondent before the Panel of Arbitrators a quo could not have resulted in any kind of award in its
favor. It was asking for a judicial declaration at first instance of the qualification of the petitioners to hold  mining agreements in
accordance with the law. This clearly was beyond the jurisdiction of the Panel of Arbitrators and eventually also of the Mines
Adjudication Board (MAB).
The remedy of Redmont should have been either to cause the cancellation of the registration of any of the petitioners with the
Securities and Exchange Commission or to request for a determination of their qualifications with the Secretary of the Department of
Environment and Natural Resources. Should either the Securities and Exchange Commission (SEC) or the Secretary of Environment and
Natural Resources rule against its request, Redmont could have gone by certiorari to a Regional Trial Court.
Having brought their petitions to an entity without jurisdiction, the petition in this case should be granted.
Mining as a nationalized
economic activity
The determination of who may engage in mining activities is grounded in the 1987 Constitution and the Mining Act.
Article XII, Section 2 of the 1987 Constitution reads:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned
by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full control and supervision of the
State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In
cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of
waterpower, beneficial use may be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as
cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral
oils according to the general terms and conditions provided by law, based on real contributions to the economic
growth and general welfare of the country. In such agreements, the State shall promote the development and use of
local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this provision,
within thirty days from its execution. (Emphasis supplied)
The requirement for nationalization should always be read in relation to Article II, Section 19 of the Constitution which reads:
Section 19. The State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos. (Emphasis supplied)
 Congress takes part in giving substantive meaning to the phrases "Filipino . . . corporations or associations at least 60 per
centum of whose capital is owned by such citizens" 66 as well as the phrase "effectively controlled by Filipinos". 67 Like all
constitutional text, the meanings of these phrases become more salient in context.
Thus, Section 3 (aq) of the Mining Act defines a "qualified person" as follows:
Section 3. Definition of Terms. — As used in and for purposes of this Act, the following terms, whether in
singular or plural, shall mean:
xxx xxx xxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or authorized for the purpose of engaging in mining, with technical
and financial capability to undertake mineral resources development and duly registered in accordance with
law at least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines : Provided,
That a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance agreement or mineral processing permit. (Emphasis supplied)
In addition, Section 3 (t) defines a "foreign-owned corporation" as follows:
(t) "Foreign-owned corporation" means any corporation, partnerships, association, or cooperative duly registered in
accordance with law in which less than fifty per centum (50%) of the capital is owned by Filipino citizens.
Under the Mining Act, nationality requirements are relevant for the following categories of mining contracts and permits: first,
exploration permits (EP); second, mineral agreements (MA); third, financial or technical assistance agreements (FTAA); and fourth,
mineral processing permits (MPP).
In Section 20 of the Mining Act, "[a]n exploration permit grants the right to conduct exploration for all minerals in specified
areas." Section 3 (q) defines exploration as the "searching or prospecting for mineral resources by geological, geochemical or
geophysical surveys, remote sensing, test pitting, trenching, 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." DENR Administrative
Order No. 2005-15 characterizes an exploration permit as the "initial mode of entry in mineral exploration." 68
In Section 26 of the Mining Act, "[a] mineral agreement shall grant to the contractor the exclusive right to
conduct mining operations and to extract all mineral resources found in the contract area."
There are three (3) forms of mineral agreements:
1. Mineral production sharing agreement (MPSA) "where the Government grants to the contractor the exclusive right to
conduct mining operations within a contract area and shares in the gross output [with the] contractor . . . provid[ing]
the financing, technology, management and personnel necessary for the implementation of [the MPSA]". 69
2. Co-production agreement (CA) "wherein the Government shall provide inputs to the mining operations other than the
mineral resource"; 70 and
3. Joint-venture agreement (JVA) "where a joint-venture company is organized by the Government and the contractor with
both parties having equity shares. Aside from earnings in equity, the Government shall be entitled to a share in the
gross output". 71
The second paragraph of Section 26 of the Mining Act allows a contractor "to convert his agreement into any of the modes of
mineral agreements or financial or technical assistance agreement . . . ."
Section 33 of the Mining Act allows "[a]ny qualified person with technical and financial capability to undertake large-scale
exploration, development, and utilization of mineral resources in the Philippines" through a financial or technical assistance agreement.
In addition to Exploration Permits, Mineral Agreements, and FTAAs, the Mining Act allows for the grant of mineral
processing permits (MPP) in order to "engage in the processing of minerals." 72 Section 3 (y) of the Mining Act defines mineral
processing as "milling, beneficiation or upgrading of ores or minerals and rocks or by similar means to convert the same into marketable
products."
Applying the definition of a "qualified person" in Section 3 (aq) of the Mining Act, a corporation which intends to enter into
a Mining Agreement must have (1) "technical and financial capability to undertake mineral resources development" and (2) "duly
registered in accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens of the
Philippines". 73 Clearly, the Department of Environment and Natural Resources, as an administrative body, determines technical and
financial capability. The DENR, not the Panel of Arbitrators, is also mandated to determine whether the corporation is (a) duly registered
in accordance with law and (b) at least "sixty percent of the capital" is "owned by citizens of the Philippines."
Limitations on foreign participation in certain economic activities are not new. Similar, though not identical, limitations are
contained in the 1935 and 1973 Constitutions with respect to the exploration, development, and utilization of natural resources.
Article XII, Section 1 of the 1935 Constitution provides:
Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces or potential energy, and other natural resources of the Philippines belong
 to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the
Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such
citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government
established under this Constitution. Natural resources, with the exception of public agricultural land, shall not be
alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five years, except as to water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be
the measure and the limit of the grant. (Emphasis supplied)
Likewise, Article XIV, Section 9 of the 1973 Constitution states:
Section 9. The disposition, exploration, development, of exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens of the Philippines, or to  corporations or association at least
sixty per centum of the capital of which is owned by such citizens . The Batasang Pambansa, in the national
interest, may allow such citizens, corporations, or associations to enter into service contracts for financial, technical,
management, or other forms of assistance with any foreign person or entity for the exploitation, development,
exploitation, or utilization of any of the natural resources. Existing valid and binding service contracts for financial,
the technical, management, or other forms of assistance are hereby recognized as such. (Emphasis supplied)
The rationale for nationalizing the exploration, development, and utilization of natural resources was explained by this court
in Register of Deeds of Rizal v. Ung Siu Si Temple 74 as follows:
The purpose of the sixty per centum requirement is obviously to ensure that corporations or
associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by Filipinos;
and the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be
composed of Filipino citizens. 75 (Emphasis supplied)
On point are Dean Vicente Sinco's words, cited with approval by this court in Republic v. Quasha: 76
It should be emphatically stated that the provisions of our Constitution which limit to Filipinos the rights to
develop the natural resources and to operate the public utilities of the Philippines is one of the bulwarks of our
national integrity. The Filipino people decided to include it in our Constitution in order that it may have the stability
and permanency that its importance requires. It is written in our Constitution so that it may neither be the subject of
barter nor be impaired in the give and take of politics. With our natural resources, our sources of power and
energy, our public lands, and our public utilities, the material basis of the nation's existence, in the hands of
aliens over whom the Philippine Government does not have complete control, the Filipinos may soon find
themselves deprived of their patrimony and living as it were, in a house that no longer belongs to
them. 77 (Emphasis supplied)
Article XII, Section 2 of the 1987 Constitution ensures the effectivity of the broad economic policy, spelled out in Article II,
Section 19 of the 1987 Constitution, of "a self-reliant and independent national economy effectively controlled by Filipinos" and the
collective aspiration articulated in the 1987 Constitution's Preamble of "conserv[ing] and develop[ing] our patrimony."
In this case, Narra, Tesoro, and McArthur are corporations of which a portion of their equity is owned by corporations and
individuals acknowledged to be foreign nationals. Moreover, they have each sought to enter into a Mineral Production Sharing
Agreement (MPSA). This arrangement requires that foreigners own, at most, only 40% of the capital.
Notwithstanding that they have moved to obtain FTAAs — which are permitted for wholly owned foreign corporations
— Redmont still asserts that Narra, Tesoro, and McArthur are in violation of the nationality requirements of the 1987 Constitution and
of the Mining Act. 78
Narra, Tesoro, and McArthur argue that the Grandfather Rule should not be applied as there is no legal basis for it. They assert
that Section 3 (a) of the Foreign Investments Act (FIA) provides exclusively for the Control Test as the means for reckoning foreign
equity in a corporation and, ultimately, the nationality of a corporation engaged in or seeking to engage in an activity with nationality
restrictions. They fault the Court of Appeals for relying on DOJ Opinion No. 20, series of 2005, a mere administrative issuance, as
opposed to the Foreign Investments Act, a statute, for applying the Grandfather Rule. 79
Standards for reckoning
foreign equity participation in
nationalized economic
activities
The broad and long-standing nationalization of certain sectors and industries notwithstanding, an apparent confusion has
persisted as to how foreign equity holdings in a corporation engaged in a nationalized economic activity shall be reckoned. As have been
proffered by the myriad cast of parties and adjudicative bodies involved in this case, there have been two means: the Control Test and
the Grandfather Rule.
Paragraph 7 of the 1967 Rules of the Securities and Exchange Commission, dated February 28, 1967, states:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation
or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
 Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60%
of the capital stock or capital respectively, of which belong to a Filipino citizens, all of the said shares shall be
recorded as owned by Filipinos. But if less than 60%, or, say, only 50% of the capital stock or capital of the
corporation or partnership, respectively belongs to Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shares shall be recorded as belonging to aliens. 80
Department of Justice (DOJ) Opinion No. 20, series of 2005, explains that the 1967 SEC Rules provide for the Control Test
and the Grandfather Rule as the means for reckoning foreign and Filipino equity ownership in an "investee" corporation:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for
purposes, among others of determining compliance with nationality requirements (the "Investee Corporation"). Such
manner of computation is necessary since the shares of the Investee Corporation may be owned both by individual
stockholders ("Investing Individuals") and by corporations and partnerships ("Investing Corporation"). The
determination of nationality depending on the ownership of the Investee Corporation and in certain instances, the
Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee
Corporation. The first case is the 'liberal rule', later coined by the SEC as the Control Test in its 30 May 1990
Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, '(s)hares belonging to
corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality.' Under the liberal Control Test, there is no need to further trace the ownership of the 60%
(or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-
owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, 'but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality.' Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e., 'grandfathered') to determine the total percentage of
Filipino ownership. 81
DOJ Opinion No. 20, series of 2005, then concluded as follows:
[T]he Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-
foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests in another joint venture corporation which is
either 60-40% Filipino-alien or 59% less Filipino. Stated differently, where the 60-40 Filipino-foreign equity
ownership is not in doubt, the Grandfather Rule will not apply. 82 (Emphasis supplied)
The conclusion that the Grandfather Rule "applies only when the 60-40 Filipino-foreign equity ownership is in doubt" 83 is
borne by that opinion's consideration of an earlier DOJ opinion (i.e., DOJ Opinion No. 18, series of 1989). DOJ Opinion No. 20, series
of 2005's quotation of DOJ Opinion No. 18, series of 1989, reads:
. . . . It is quite clear . . . that the "Grandfather Rule", which was evolved and applied by the SEC in several
cases, will not apply in cases where the 60-40 Filipino-alien equity ownership in a particular natural resource
corporation is not in doubt. 84
A full quotation of the same portion of DOJ Opinion No. 18, series of 1989, reveals that the statement quoted above was made
in a very specific context (i.e., a prior DOJ opinion) that necessitated a clarification:
Opinion No. 84, s. 1988 cited in your query is not meant to overrule the aforesaid SEC rule. 85 There is
nothing in said Opinion that precludes the application of the said SEC rule in appropriate cases. It is quite clear from
said SEC rule that the 'Grandfather Rule', which was evolved and applied by the SEC in several cases, will not apply
in cases where the 60-40 Filipino-alien equity ownership in a particular natural resource corporation is not in
doubt. 86
DOJ Opinion No. 18, series of 1989, addressed the query made by the Chairman of the Securities and Exchange Commission
(SEC) "on whether or not it may give due course to the application for incorporation of Far Southeast Gold Resources, Inc., (FSEGRI) to
engage in mining activities in the Philippines in the light of [DOJ] Opinion No. 84, s. 1988 applying the so-called 'Grandfather
Rule' . . . ." 87
DOJ Opinion No. 84, series of 1988, applied the Grandfather Rule. In doing so, it noted that the DOJ has been "informed that
in the registration of corporations with the [SEC], compliance with the sixty per centum requirement is being monitored with the
'Grandfather Rule'" 88 and added that the Grandfather Rule is "applied specifically in cases where the corporation has corporate
stockholders with alien stockholdings." 89
Prior to applying the Grandfather Rule to the specific facts subject of the inquiry it addressed, DOJ Opinion No. 84, series of
1988, first cited the SEC's application of the Grandfather Rule in a May 30, 1987 opinion rendered by its Chair, Julio A. Sulit, Jr. 90
This SEC opinion resolved the nationality of the investee corporation, Silahis International Hotel (Silahis). 31% of Silahis'
capital stock was owned by Filipino stockholders, while 69% was owned by Hotel Properties, Inc. (HPI). HPI, in turn, was 47%
Filipino-owned and 53% alien-owned. Per the Grandfather Rule, the 47% indirect Filipino stockholding in Silahis through HPI
combined with the 31% direct Filipino stockholding in Silahis translated to an aggregate 63.43% Filipino stockholding in Silahis, in
excess of the requisite 60% Filipino stockholding required so as to be able to engage in a partly nationalized business. 91
In noting that compliance with the 60% requirement has (thus far) been monitored by SEC through the Grandfather Rule and
that the Grandfather Rule has been applied whenever a "corporation has corporate stockholders with alien stockholdings,"  92 DOJ
Opinion No. 84, series of 1988, gave the impression that the Grandfather Rule is all-encompassing. Hence, the clarification in DOJ
Opinion No. 18, series of 1989, that the Grandfather Rule "will not apply in cases where the 60-40 Filipino-alien equity ownership . . . is
not in doubt." 93 This clarification was affirmed in DOJ Opinion No. 20, series of 2005, albeit rephrased positively as against DOJ
Opinion No. 19, series of 1989's negative syntax (i.e., "not in doubt"). Thus, DOJ Opinion No. 20, series of 2005, declared, that the
Grandfather Rule "applies only when the 60-40 Filipino-foreign equity ownership is in doubt." 94
Following DOJ Opinion No. 18, series of 1989, the SEC in its May 30, 1990 opinion addressed to Mr. Johnny M. Araneta
stated:
[T]he Commission En Banc, on the basis of the Opinion of the Department of Justice No. 18, S. 1989 dated
January 19, 1989 voted and decided to do away with the strict application/computation of the so-called
"Grandfather Rule" Re: Far Southeast Gold Resources, Inc. (FSEGRI), and instead applied the so-called
"Control Test" method of determining corporate nationality. 95 (Emphasis supplied)
The SEC's May 30, 1990 opinion related to the ownership of shares in Jericho Mining Corporation (Jericho) which was then
wholly owned by Filipinos. Two (2) corporations wanted to purchase a total of 60% of Jericho's authorized capital stock: 40% was to be
purchased by Gold Field Asia Limited (GFAL), an Australian corporation, while 20% was to be purchased by Gold Field Philippines
Corporation (GFPC). GFPC was itself partly foreign-owned. It was 60% Filipino-owned, while 40% of its equity was owned by Circular
Quay Holdings, an Australian corporation. 96
Applying the Control Test, the SEC's May 30, 1990 opinion concluded that:
GFPC, which is 60% Filipino owned, is considered a Filipino company. Consequently, its investment in
Jericho is considered that of a Filipino. The 60% Filipino equity requirement therefore would still be met by Jericho.
Considering that under the proposed set-up Jericho's capital stock will be owned by 60% Filipino, it is still
qualified to hold mining claims or rights or enter into mineral production sharing agreements with the
Government. 97
Some two years after DOJ Opinion No. 18, series of 2009, Republic Act No. 7042, otherwise known as the Foreign
Investments Act (FIA), was enacted. Section 3 (a) of the Foreign Investments Act defines a "Philippine National" as follows:
SEC. 3. Definitions. — As used in this Act:
a) the term "Philippine National" shall mean a citizen of the Philippines or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines or a corporation organized abroad and registered as doing business in the
Philippine under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of
the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-
Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise,
at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors of each of both corporations must be citizens of the Philippines,
in order that the corporation shall be considered a Philippine national; (as amended by R.A. 8179).
(Emphasis supplied)
Thus, under the Foreign Investments Act, a "Philippine national" is any of the following:
1. a citizen of the Philippines;
2. a domestic partnership or association wholly owned by citizens of the Philippines;
3. a corporation organized under the laws of the Philippines, of which at least 60% of the capital stock outstanding and entitled
to vote is owned and held by citizens of the Philippines;
4. a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code, of which
100% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos; or
5. a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national
and at least 60% of the fund will accrue to the benefit of Philippine nationals.
The National Economic and Development Authority (NEDA) formulated the implementing rules and regulations (IRR) of
the Foreign Investments Act. Rule I, Section 1 (b) of these IRR reads:
RULE I
 DEFINITIONS
SECTION 1. DEFINITION OF TERMS. — For the purposes of these Rules and Regulations:
xxx xxx xxx
b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association wholly
owned by the citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a corporation organized abroad and
registered as doing business in the Philippines under the Corporation Code of which 100% of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos; or a trustee of funds for
pension or other employee retirement or separation benefits, where the trustee is a Philippine national
and at least sixty percent (60%) of the fund will accrue to the benefits of the Philippine nationals;
Provided, that where a corporation and its non-Filipino stockholders own stocks in Securities and
Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens of
the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of
both corporation must be citizens of the Philippines, in order that the corporation shall be considered
a Philippine national. The Control Test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be
determined on the basis of outstanding capital stock whether fully paid or not, but only
such stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting rights is essential.
Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot
be considered held by Philippine citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned qualifications
are considered as non-Philippine nationals. (Emphasis supplied)
The Foreign Investments Act's implementing rules and regulations are clear and unequivocal in declaring that the Control
Test shall be applied to determine the nationality of a corporation in which another corporation owns stocks.
From around the time of the issuance of the SEC's May 30, 1990 opinion addressed to Mr. Johnny M. Araneta where the SEC
stated that it "decided to do away with the strict application/computation of the so-called 'Grandfather Rule' . . ., and instead appl[y] the
so-called 'Control Test'", 98 the SEC "has consistently applied the control test". 99 This is a matter expressly acknowledged by Justice
Presbitero J. Velasco in his dissent in Gamboa v. Teves: 100
It is settled that when the activity or business of a corporation falls within any of the partly
nationalized provisions of the Constitution or a special law, the "control test" must also be applied to determine
the nationality of a corporation on the basis of the nationality of the stockholders who control its equity.
The control test was laid down by the Department of Justice (DOJ) in its Opinion No. 18 dated January 19,
1989. It determines the nationality of a corporation with alien equity based on the percentage of capital owned by
Filipino citizens. It reads:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as Philippine nationality, but if the percentage of
Filipino ownership in the corporation or partnership is less than 60% only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality.
In a catena of opinions, the SEC, "the government agency tasked with the statutory duty to enforce the
nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities,"
has consistently applied the control test.
The FIA likewise adheres to the control test. This intent is evident in the May 21, 1991 deliberations of
the Bicameral Conference Committee (Committees on Economic Affairs of the Senate and House of
Representatives), to wit:
CHAIRMAN TEVES. . . . . On definition of terms, Ronnie, would you like anything to
say here on the definition of terms of Philippine national?
HON. RONALDO B. ZAMORA. I think we've — we have already agreed that we are
adopting here the control test. Wasn't that the result of the —
CHAIRMAN PATERNO. No. I thought that at the last meeting, I have made it clear that
the Senate was not able to make a decision for or against the grandfather rule and the control test,
because we had gone into caucus and we had voted but later on the agreement was rebutted and so
 we had to go back to adopting the wording in the present law which is not clearly, by its language,
a control test formulation.
HON. ANGARA. Well, I don't know. Maybe I was absent, Ting, when that happened but
my recollection is that we went into caucus, we debated [the] pros and cons of the
control versus the grandfather rule and by actual vote the control test bloc won. I don't know when
subsequent rejection took place, but anyway even if the — we are adopting the present language of
the law I think by interpretation, administrative interpretation, while there may be some differences
at the beginning, the current interpretation of this is the control test. It amounts to the control test.
CHAIRMAN TEVES. That's what I understood, that we could manifest our decision on
the control test formula even if we adopt the wordings here by the Senate version.
xxx xxx xxx
CHAIRMAN PATERNO. The most we can do is to say that we have explained — is to
say that although the House Panel wanted to adopt language which would make clear that the
control test is the guiding philosophy in the definition of [a] Philippine national, we explained to
them the situation in the Senate and said that we would be — was asked them to adopt the present
wording of the law cognizant of the fact that the present administrative interpretation is the control
test interpretation. But, you know, we cannot go beyond that.
MR. AZCUNA. May I be clarified as to that portion that was accepted by the
Committee. [sic]
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase
"voting stock or controlling interest."
This intent is even more apparent in the Implementing Rules and Regulations (IRR) of the FIA. In defining
a "Philippine national," Section 1(b) of the IRR of the FIA categorically states that for the purposes of
determining the nationality of a corporation the control test should be applied.
The cardinal rule in the interpretation of laws is to ascertain and give effect to the intention of the legislator.
Therefore, the legislative intent to apply the control test in the determination of nationality must be given
effect. 101 (Emphasis supplied)
The Foreign Investments Act and its implementing rules notwithstanding, the Department of Justice, in DOJ Opinion No. 20,
series of 2005, still posited that the Grandfather Rule is still applicable, albeit "only when the 60-40 Filipino-foreign equity ownership is
in doubt." 102
Anchoring itself on DOJ Opinion No. 20, series of 2005, the SEC En Banc found the Grandfather Rule applicable in its March
25, 2010 decision in Redmont Consolidated Mines Corp. v. McArthur Mining Corp. (subject of the petition in G.R. No. 205513). 103 It
asserted that there was "doubt" in the compliance with the requisite 60-40 Filipino-foreign equity ownership:
Such doubt, we believe, exists in the instant case because the foreign investor, MBMI, provided practically
all the funds of the remaining appellee-corporations. 104
On December 9, 2010, the SEC Office of the General Counsel (OGC) rendered an opinion (SEC-OGC Opinion No. 10-31)
effectively abandoning the Control Test in favor of the Grandfather Rule:
We are aware of the Commission's prevailing policy of applying the so-called "Control Test" in determining
the extent of foreign equity in a corporation. Since the 1990s, the Commission En Banc, on the basis of DOJ Opinion
No. 18, series of 1989 dated January 19, 1989, voted and decided to do away with the strict application/computation
of the "Grandfather Rule," and instead applied the "Control Test" method of determining corporate
nationality. . . . 105
However, we now opine that the Control Test must not be applied in determining if a corporation satisfies
the Constitution's citizenship requirements in certain areas of activities. . . . . 106
Central to the SEC-OGC's reasoning is a supposed distinction between Philippine "citizens" and Philippine "nationals". It
emphasized that Article XII, Section 2 of the 1987 Constitution used the term "citizen" (i.e., "corporations or associations at least 60 per
centum of whose capital is owned by such citizens") and that this terminology was reiterated in Section 3 (aq) of the Mining Act (i.e., "at
least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines"). 107
It added that the enumeration of who the citizens of the Philippines are in Article III, Section 1 of the 1987 Constitution is
exclusive and that "only natural persons are susceptible of citizenship". 108
Finding support in this court's ruling in the 1966 case of Palting v. San Jose Petroleum, 109 the SEC-OGC asserted that it was
necessary to look into the "citizenship of the individual stockholders, i.e., natural persons of [an] investor-corporation in order to
determine if the [c]onstitutional and statutory restrictions are complied with." 110 Thus, "if there are layers of intervening
corporations . . . we must delve into the citizenship of the individual stockholders of each corporation."  111 As the SEC-OGC
emphasized, "[t]his is the strict application of the Grandfather Rule." 112
 Between the Grandfather Rule and the Control Test, the SEC-OGC opined that the framers of the 1987 Constitution intended to
apply the Grandfather Rule and that the Control Test ran counter to their intentions:
Indeed, the framers of the Constitution intended for the "Grandfather Rule" to apply in case a 60%-40%
Filipino-Foreign equity corporation invests in another corporation engaging in an activity where
the Constitution restricts foreign participation. 113
xxx xxx xxx
The Control Test creates a legal fiction where if 60% of the shares of an investing corporation are owned by
Philippine citizens then all of the shares or 100% of that corporation's shares are considered Filipino owned for
purposes of determining the extent of foreign equity in an investee corporation engaging in an activity restricted to
Philippine citizens. 114
The SEC-OGC reasoned that the invalidity of the Control Test rested on the matter of citizenship:
In other words, Philippine citizenship is being unduly attributed to foreign individuals who own the rest
of the shares in a 60% Filipino equity corporation investing in another corporation. Thus, applying the Control Test
effectively circumvents the Constitutional mandate that corporations engaging in certain activities must be 60%
owned by Filipino citizens. The words of the Constitution clearly provide that we must look at the citizenship of the
individual/natural person who ultimately owns and controls the shares of stocks of the corporation engaging in the
nationalized/partly-nationalized activity. This is what the framers of the constitution intended. In fact,
the Mining Act strictly adheres to the text of the Constitution and does not provide for the application of the Control
Test. Indeed, the application of the Control Test has no constitutional or statutory basis. Its application is only by
mere administrative fiat. 115 (Emphasis supplied)
This court must now put to rest the seeming tension between the Control Test and the Grandfather Rule.
This court's 1952 ruling in Davis Winship v. Philippine Trust Co. 116 cited its 1951 ruling in Filipinas Compania de
Seguros v. Christern, Huenefeld and Co., Inc. 117 and stated that "the nationality of a private corporation is determined by the character
or citizenship of its controlling stockholders." 118
Filipinas Compania de Seguros, for its part, specifically used the term "Control Test" (citing a United States Supreme Court
decision) 119 in ruling that the respondent in that case, Christern, Huenefeld and Co., Inc. — the majority of the stockholders of which
were German subjects — "became an enemy corporation upon the outbreak of the war." 120
Their pronouncements and clear reference to the Control Test notwithstanding, Davis Winship and Filipinas Compania de
Seguros do not pertain to nationalized economic activities but rather to corporations deemed to be of a belligerent nationality during a
time of war.
In and of itself, this court's 1966 decision in Palting had nothing to do with the Control Test and the Grandfather Rule. Palting,
which was relied upon by SEC-OGC in Opinion No. 10-31, was promulgated in 1966, months before the 1967 SEC Rules and its
bifurcated paragraph 7 were adopted.
Likewise, Palting was promulgated before Republic Act No. 5186, the Investments Incentive Act, was adopted in 1967. The
Investments Incentive Act was adopted with the declared policy of "accelerat[ing] the sound development of the national economy in
consonance with the principles and objectives of economic nationalism," 121 thereby effecting the (1935) Constitution's nationalization
objectives.
It was through the Investments Incentive Act that a definition of a "Philippine national" was established.  122 This definition
has been practically reiterated in Presidential Decree No. 1789, the Omnibus Investments Code of 1981; 123 Executive Order No. 226,
the Omnibus Investments Code of 1987; 124 and the present Foreign Investments Act. 125
This court's 2009 decision in Unchuan v. Lozada 126 referred to Section 3 (a) of the Foreign Investments Act defining
"Philippine national". In so doing, this court may be characterized to have applied the Control Test:
In this case, we find nothing to show that the sale between the sisters Lozada and their nephew Antonio
violated the public policy prohibiting aliens from owning lands in the Philippines. Even as Dr. Lozada advanced the
money for the payment of Antonio's share, at no point were the lots registered in Dr. Lozada's name. Nor was it
contemplated that the lots be under his control for they are actually to be included as capital of Damasa Corporation.
According to their agreement, Antonio and Dr. Lozada are to hold 60% and 40% of the shares in said corporation,
respectively. Under Republic Act No. 7042, particularly Section 3, a corporation organized under the laws of
the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines, is considered a Philippine National. As such, the corporation may acquire disposable
lands in the Philippines. Neither did petitioner present proof to belie Antonio's capacity to pay for the lots subjects of
this case. 127 (Emphasis supplied)
This court's 2011 decision in Gamboa v. Teves 128 also pertained to the reckoning of foreign equity ownership in a
nationalized economic activity (i.e., public utilities). However, it centered on the definition of the term "capital" 129 which was deemed
as referring "only to shares of stock entitled to vote in the election of directors." 130
 This court's 2012 resolution ruling on the motion for reconsideration in Gamboa 131 referred to the SEC En Banc's March 25,
2010 decision in Redmont Consolidated Mines Corp. v. McArthur Mining Corp. (subject of G.R. No. 205513), which applied the
Grandfather Rule:
This SEC en banc ruling conforms to our 28 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. 132
However, a reading of the original 2011 decision will reveal that the matter of beneficial ownership was considered after
quoting the implementing rules and regulations of the Foreign Investments Act. The third paragraph of Rule I, Section 1 (b) of these
rules states that "[f]ull beneficial ownership of the stocks, coupled with appropriate voting rights is essential." It is this same provision of
the implementing rules which, in the first paragraph, declares that "the Control Test shall be applied . . . ."
In any case, the 2012 resolution's reference to the SEC En Banc's March 25, 2010 decision in Redmont can hardly be
considered as authoritative. It is, at most, obiter dictum. In the first place, Redmont was evidently not the subject of Gamboa. It is the
subject of G.R. No. 205513, which was consolidated, then de-consolidated, with the present petition. Likewise, the crux of Gamboa was
the consideration of the kind/s of shares to which the term "capital" referred, not the applicability of the Control Test and/or the
Grandfather Rule. Moreover, the 2012 resolution acknowledges that:
[T]he opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither conclusive nor
controlling and thus, do not bind the Court. It is hornbook doctrine that any interpretation of the law that
administrative or quasi-judicial agencies make is only preliminary, never conclusive on the Court. The power to make
a final interpretation of the law, in this case the term "capital" in Section 11, Article XII of the  1987 Constitution, lies
with this Court, not with any other government entity. 133
The Grandfather Rule is not
enshrined in the Constitution
In ruling that the Grandfather Rule must apply, the ponencia relies on the deliberations of the 1986 Constitutional Commission.
The ponencia states that these discussions "shed light on how a citizenship of a corporation will be determined." 134
The ponencia cites an exchange between Commissioners Bernardo F. Villegas and Jose N. Nolledo: 135
MR. NOLLEDO:
 In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS:
 That is right.
MR. NOLLEDO:
 In teaching law, we are always faced with this question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will
the Committee please enlighten me on this?
MR. VILLEGAS:
 We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft.
The phrase that is contained here which we adopted from the UP draft is "60 percent of voting stock."
MR. NOLLEDO:
 That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS:
 That is right.
MR. NOLLEDO:
 Thank you.
 With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
Grandfather Rule?
MR. VILLEGAS:
 Yes, that is the understanding of the Committee.
MR. NOLLEDO:
 Therefore, we need additional Filipino capital?
 MR. VILLEGAS:
 Yes. 136 (Emphasis supplied)
This court has long settled the interpretative value of the deliberations of the Constitutional Commission. In Civil Liberties
Union v. Executive Secretary, 137 this court noted:
A foolproof yardstick in constitutional construction is the intention underlying the provision under
consideration. Thus, it has been held that the Court in construing a Constitution should bear in mind the object sought
to be accomplished by its adoption, and the evils, if any, sought to be prevented or remedied. A doubtful provision
will be examined in the light of the history of the times, and the condition and circumstances under which
the Constitution was framed. The object is to ascertain the reason which induced the framers of the Constitution to
enact the particular provision and the purpose sought to be accomplished thereby, in order to construe the whole as to
make the words consonant to that reason and calculated to effect that purpose. 138
However, in the same case, this court also said: 139
While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional
convention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto may be had only
when other guides fail as said proceedings are powerless to vary the terms of the Constitution when the meaning is
clear. Debates in the constitutional convention "are of value as showing the views of the individual members,
and as indicating the reasons for their votes, but they give us no light as to the views of the large majority who
did not talk, much less of the mass of our fellow citizens whose votes at the polls gave that instrument the force
of fundamental law. We think it safer to construe the constitution from what appears upon its face." The
proper interpretation therefore depends more on how it was understood by the people adopting it than in the
framers's understanding thereof. 140 (Emphasis supplied)
As has been stated:
The meaning of constitutional provisions should be determined from a contemporary reading of the text in
relation to the other provisions of the entire document. We must assume that the authors intended the words to be read
by generations who will have to live with the consequences of the provisions. The authors were not only the members
of the Constitutional Commission but all those who participated in its ratification. Definitely, the ideas and opinions
exchanged by a few of its commissioners should not be presumed to be the opinions of all of them. The result of the
deliberations of the Commission resulted in a specific text, and it is that specific text — and only that text — which
we must read and construe.
The preamble establishes that the "sovereign Filipino people" continue to "ordain and promulgate"
the Constitution. The principle that "sovereignty resides in the people and all government authority emanates from
them" is not hollow. Sovereign authority cannot be undermined by the ideas of a few Constitutional Commissioners
participating in a forum in 1986 as against the realities that our people have to face in the present.
There is another, more fundamental, reason why reliance on the discussion of the Constitutional
Commissioners should not be accepted as basis for determining the spirit behind constitutional provisions. The
Constitutional Commissioners were not infallible. Their statements of fact or status or their inferences from such
beliefs may be wrong . . . . . 141
It is true that the records of the Constitutional Commission indicate an affirmative reference to the Grandfather Rule. However,
the quoted exchange fails to indicate a consensus or the general sentiment of the forty-nine (49) members 142 of the Constitutional
Commission. What it indicates is, at most, an understanding between Commissioners Nolledo and Villegas, albeit with the latter
claiming that the same understanding is shared by the Constitutional Commission's Committee on National Economy and Patrimony.
(Though even then, it is not established if this understanding is shared by the committee members unanimously, or by a majority of
them, or is advanced by its leadership under the assumption that it may speak for the Committee.)
The 1987 Constitution is silent on the precise means through which foreign equity in a corporation shall be determined for the
purpose of complying with nationalization requirements in each industry. If at all, it militates against the supposed preference for the
Grandfather Rule that, its mention in the Constitutional Commission's deliberations notwithstanding, the 1987 Constitution was,
ultimately, inarticulate on adopting a specific test or means.
The 1987 Constitution is categorical in its omission. Its meaning is clear. That is to say, by its silence, it chose to not manifest a
preference. Had there been any such preference, the Constitution could very well have said it.
In 1986, when the Constitution was being drafted, the Grandfather Rule and the Control Test were not novel concepts. Both
tests have been articulated since as far back as 1967. The Foreign Investments Act, while adopted in 1991, has "predecessor
statute[s]" 143 dating to before 1986. As earlier mentioned, these predecessors also define the term "Philippine national" and in
substantially the same manner that Section 3 (a) of the Foreign Investments Act does. 144 It is the same definition: This is the same basis
for applying the Control Test.
It is elementary that the Constitution is not primarily a lawyer's document. 145 As the convoluted history of the Control Test
and Grandfather Rule shows, even those learned in the law have been in conflict, if not in outright confusion, as to their application. It is
not proper to insist upon the Grandfather Rule as enshrined in the Constitution — and as manifesting the sovereign people's will —
when the Constitution makes absolutely no mention of it.
 In the final analysis, the records of the Constitutional Commission do not bind this court. As Charles P. Curtis, Jr. said on the
role of history in constitutional exegesis: 146
The intention of the framers of the Constitution, even assuming we could discover what it was, when it is
not adequately expressed in the Constitution, that is to say, what they meant when they did not say it, surely that has
no binding force upon us. If we look behind or beyond what they set down in the document, prying into what
else they wrote and what they said, anything we may find is only advisory. They may sit in at our councils. There
is no reason why we should eavesdrop on theirs. 147 (Emphasis provided)
The Control Test is
established by congressional
dictum
The Foreign Investments Act addresses the gap. As this court has acknowledged, "[t]he FIA is the basic law governing foreign
investments in the Philippines, irrespective of the nature of business and area of investment." 148
The Foreign Investments Act applies to nationalized economic activities under the Constitution. Section 8 of the Foreign
Investments Act 149 provides that there shall be two (2) component lists, A and B, with List A pertaining to "the areas of activities
reserved to Philippine nationals by mandate of the Constitution and specific laws."
To reiterate, Section 3 (a) of the Foreign Investments Act defines a "Philippine national" as including "a corporation organized
under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines." This is a definition that is consistent with the first part of paragraph 7 of the 1967 SEC Rules, which,
as proffered by DOJ Opinion No. 20, series of 2005, articulates the Control Test: "[s]hares belonging to corporations or partnerships at
least 60 per cent of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality."
Moreover, the Foreign Investments Act admits of situations where a corporation invests in another corporation by owning
shares of the latter. Thus, the proviso in Section 3 (a) of the Foreign Investments Act reads:
Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation shall be considered a Philippine national[.]
Supplementing this is the last sentence of the first paragraph of Rule I, Section 1 (b) of the implementing rules and regulations
of the Foreign Investments Act: "The Control Test shall be applied for this purpose."
As such, by congressional dictum, which is properly interpreted by administrative rule making, the Control Test must govern in
reckoning foreign equity ownership in corporations engaged in nationalized economic activities. It is through the Control Test that these
corporations' minimum qualification to engage in nationalized economic activities adjudged.
DOJ Opinion No. 20, series of
2005, provides a qualifier, not
a mere example
The ponencia states that "this case calls for the application of the grandfather rule since, . . ., doubt prevails and persists in the
corporate ownership of herein petitioners." 150 This position is borne by the ponencia's consideration of DOJ Opinion No. 20, series of
2005, which states:
[T]he Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign
equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests in another joint venture corporation
which is either 60-40% Filipino-alien or 59% less Filipino. Stated differently, where the 60-40 Filipino-foreign
equity ownership is not in doubt, the Grandfather Rule will not apply. 151 (Emphasis supplied)
As is clear from the quoted portion of DOJ Opinion No. 20, series of 2005, the phrase "in doubt" is followed by a qualifying
clause: "i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in another joint venture corporation which is either 60-40% Filipino-alien or 59% less Filipino."
The ponencia states that this clause "only made an example of an instance where 'doubt' as to the ownership of a corporation
exists" 152 and is, thus, not controlling.
This construction is erroneous. The abbreviation "i.e." is an acronym for the Latin "id est", which translates to "that is". 153 It
is used not to cite an example but "to add explanatory information or to state something in different words."  154 Whatever follows "i.e."
is a paraphrasing or an alternative way of stating the word/s that preceded it. The words succeeding "i.e.", therefore, refer to the very
conception of the words preceding "i.e.".
Had DOJ Opinion No. 20, series of 2005, intended to cite an example or to make an illustration, it should have instead used
"e.g." This stands for the Latin "exempli gratia", which translates to "for example." 155
Thus, all that DOJ Opinion No. 20, series of 2005, meant was that "doubt" as to Filipino-foreign equity ownership exists when
Filipino stockholdings is less than sixty percent (60%). Indeed, there is no doubt where Filipino stockholdings amount to at least sixty
percent (60%). Pursuant to Section 3 (a) of the Foreign Investments Act, a corporation is then already deemed to be of Philippine
nationality.
The Control Test serves the
rationale for nationalizing the
exploration, development,
and utilization of natural
resources
The application of the Control Test is by no means antithetical to the avowed policy of a "national economy effectively
controlled by Filipinos." 156 The Control Test promotes this policy.
It is a matter of transitivity 157 that if Filipino stockholders control a corporation which, in turn, controls another corporation,
then the Filipino stockholders control the latter corporation, albeit indirectly or through the former corporation.
An illustration is apt.
Suppose that a corporation, "C", is engaged in a nationalized activity requiring that 60% of its capital be owned by Filipinos
and that this 60% is owned by another corporation, "B", while the remaining 40% is owned by stockholders, collectively referred to as
"Y". Y is composed entirely of foreign nationals. As for B, 60% of its capital is owned by stockholders collectively referred to as "A",
while the remaining 40% is owned by stockholders collectively referred to as "X". The collective A, is composed entirely of Philippine
nationals, while the collective X is composed entirely of foreign nationals. (N.b., in this illustration, capital is understood to mean
"shares of stock entitled to vote in the election of directors," per the definition in Gamboa). 158 Thus:

 
By owning 60% of B's capital, A controls B. Likewise, by owning 60% of C's capital, B controls C. From this, it follows, as a
matter of transitivity, that A controls C; albeit indirectly, that is, through B.
This "control" holds true regardless of the aggregate foreign capital in B and C. As explained in  Gamboa, control by
stockholders is a matter resting on the ability to vote in the election of directors:
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation. This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. 159
B will not be outvoted by Y in matters relating to C, while A will not be outvoted by X in matters relating to B. Since all
actions taken by B must necessarily be in conformity with the will of A, anything that B does in relation to C is, in effect, in conformity
with the will of A. No amount of aggregating the foreign capital in B and C will enable X to outvote A, nor Y to outvote B.
In effect, A controls C, through B. Stated otherwise, the collective Filipinos in A, effectively control C, through their control of
B.
To reiterate, "[t]he purpose of the sixty per centum requirement is . . . to ensure that corporations . . . allowed to . . . exploit
natural resources shall be controlled by Filipinos." 160 The decisive consideration is therefore control rather than plain ownership of
capital.
The Grandfather Rule does
not guarantee control and can
undermine the rationale for
nationalization
As against each other, it is the Control Test, rather than the Grandfather Rule, which better serves to ensure that Philippine
nationals control a corporation.
As is illustrated by the SEC's September 21, 1990 opinion addressed to Carag, Caballes, Jamora, Rodriguez and Somera Law
Offices, the application of the Grandfather Rule does not guarantee control by Filipino stockholders. In certain instances, the
application of the Grandfather Rule actually undermines the rationale (i.e., control) for the nationalization of certain economic activities.
The SEC's September 21, 1990 opinion related to the nationality of a proposed corporation. Another corporation, Indo Phil
Textile Mills, Inc. (Indo Phil), intended to subscribe to 70% of the proposed corporation's capital stock upon incorporation. The
remainder (i.e., 30%) of the proposed corporation's capital stock would have been subscribed to by Filipinos. For its part, Indo Phil was
owned by foreign stockholders to the extent of 56%. Thus, it was only 44% Filipino-owned.
Applying the Grandfather Rule, the aggregate Filipino stockholdings in the proposed corporation was computed to amount to
60.8%. As such, the proposed corporation was deemed to be of Filipino nationality.
A consideration of the same case, with emphasis on the matter of "control" (and therefore in a manner more in keeping with the
rationale for nationalization), should yield a different conclusion.
 Considering that there is no indication in the SEC opinion that any of the shares in Indo Phil do not have voting rights, it must
be assumed that all such shares have voting rights. As the foreign stockholdings in Indo Phil amount to 56%, control of Indo Phil is held
by foreign nationals; that is, this 56% can outvote the 44% stockholding of Indo Phil's Filipino stockholders. Since control of the
proposed corporation will rest on Indo Phil (which is to hold 70% of its capital), this control would ultimately rest on those who control
Indo Phil; that is, its 56% foreign stockholding.
Had the Control Test been applied, Indo Phil would have, at the onset, been deemed to have failed to satisfy the requisite
Filipino equity ownership, and its 70% stockholding in the proposed corporation would have been deemed not held by Philippine
nationals. The Control Test would thus have averted an aberrant result where a corporation ultimately controlled by foreign nationals
was deemed to have satisfied the requisite Filipino equity ownership.
The Control Test satisfies the
beneficial ownership
requirement
Apart from control (through voting rights), also significant is "beneficial ownership". In the 2011 decision in Gamboa, 161 this
court stated:
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution.
Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights,
is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." 162
The concept of "beneficial ownership" is not novel. The implementing rules and regulations (amended 2004) of Republic Act
No. 8799, the Securities Regulation Code (SRC), defines "beneficial owner or beneficial ownership" as follows:
SRC Rule 3 — Definition of Terms Used in the Rules and Regulations
1. As used in the rules and regulations adopted by the Commission under the Code, unless the context
otherwise requires:
A. Beneficial owner or beneficial ownership means any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which
includes the power to vote, or to direct the voting of such security; and/or investment returns or
power, which includes the power to dispose of, or to direct the disposition of such
security; provided, however, that a person shall be deemed to have an indirect beneficial
ownership interest in any security which is:
i. held by members of his immediate family sharing the same household;
ii. held by a partnership in which he is a general partner;
iii. held by a corporation of which he is a controlling shareholder; or
iv. subject to any contract, arrangement or understanding which gives him voting power or investment power
with respect to such securities; provided however, that the following persons or institutions shall not
be deemed to be beneficial owners of securities held by them for the benefit of third parties or in
customer or fiduciary accounts in the ordinary course of business, so long as such shares were
acquired by such persons or institutions without the purpose or effect of changing or influencing
control of the issuer:
a. a broker dealer;
b. an investment house registered under the Investment Houses Law;
c. a bank authorized to operate as such by the Bangko Sentral ng Pilipinas;
d. an insurance company subject to the supervision of the Office of the Insurance Commission;
e. an investment company registered under the Investment Company Act;
f. a pension plan subject to regulation and supervision by the Bureau of Internal Revenue and/or the
Office of the Insurance Commission or relevant authority; and
g. a group in which all of the members are persons specified above.
 All securities of the same class beneficially owned by a person, regardless of the form such beneficial
ownership takes, shall be aggregated in calculating the number of shares beneficially owned by such
person.
 A person shall be deemed to be the beneficial owner of a security if that person has the right to acquire
beneficial ownership, within thirty (30) days, including, but not limited to, any right to acquire,
through the exercise of any option, warrant or right; through the conversion of any security; pursuant
to the power to revoke a trust, discretionary account or similar arrangement; or pursuant to automatic
termination of a trust, discretionary account or similar arrangement. (Emphasis supplied)
 Thus, there are two (2) ways through which one may be a beneficial owner of securities, such as shares of stock: first, by
having or sharing voting power; and second, by having or sharing investment returns or power. By the implementing rules' use of
"and/or", either of the two suffices. They are alternative means which may or may not concur.
Voting power, as discussed previously, ultimately rests on the controlling stockholders of the controlling investor corporation.
To go back to the previous illustration, voting power ultimately rests on A, it having the voting power in B which, in turn, has the voting
power in C.
As to investment returns or power, it is ultimately A which enjoys investment power. It controls B's investment decisions —
including the disposition of securities held by B — and (again, through B) controls C's investment decisions.
Similarly, it is ultimately A which benefits from investment returns generated through C. Any income generated by C redounds
to B's benefit, that is, through income obtained from C, B gains funds or assets which it can use either to finance itself in respect of
capital and/or operations. This is a direct benefit to B, itself a Philippine national. This is also an indirect benefit to A, a collectivity of
Philippine nationals, as then, its business — B — not only becomes more viable as a going concern but also becomes equipped to funnel
income to A.
Moreover, beneficial ownership need not be direct. A controlling shareholder is deemed the indirect beneficial owner of
securities (e.g., shares) held by a corporation of which he or she is a controlling shareholder. Thus, in the previous illustration, A, the
controlling shareholder of B, is the indirect beneficial owner of the shares in C to the extent that they are held by B.
Practical difficulties with the
Grandfather Rule
Per SEC-OGC Opinion No. 10-31, the Grandfather Rule calls for the aggregation of stockholdings on the basis of the
individual stockholders (i.e., natural persons) of every investor corporation. This construction presents practical problems which, in
many circumstances, render the reckoning of foreign equity a futile exercise.
It is a given that a corporation may hold shares in another corporation. Having to reckon equity to that point when natural
persons hold rights to stocks makes it conceivable that stockholdings will have to be traced  ad infinitum. The Grandfather Rule, as
conceived in SEC-OGC Opinion No. 10-31, will never be satisfied for as long as there is a corporation holding the shares of another
corporation.
This proposition is rendered even more difficult (and absurd) by how certain corporations are listed and traded in stock
exchanges. In these cases, the ownership of stocks and the fractional composition of a corporation can change on a daily basis.
Even Palting, which SEC-OGC Opinion No. 10-31 relied upon to justify resort to the Grandfather Rule, acknowledged these
impracticalities and absurdities:
[T]o what extent must the word "indirectly" be carried? Must we trace the ownership or control of these various
corporations ad infinitum for the purpose of determining whether the American ownership-control-requirement is
satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are
allegedly owned or controlled directly by citizens of the United States, are traded in the stock exchange in New York,
and you have a situation where it becomes a practical impossibility to determine at any given time, the citizenship of
the controlling stock required by the law. 163
The Control Test is sustained
by the Mining Act
The Foreign Investments Act's reckoning of a Philippine national on the basis of control and the requisite application of the
Control Test are reinforced by the Mining Act.
Section 3 (aq) of the Mining Act deems as a qualified person (for purposes of a mineral agreement) a "corporation, . . . at least
sixty per centum (60%) of the capital of which is owned by citizens of the Philippines." Insofar as the controlling equity requirement is
concerned, this is practically a restatement of Section 3 (a) of the Foreign Investments Act. 164
Moreover, Section 3 (t), by defining a "foreign-owned corporation" as a "corporation, . . . in which less than
fifty per centum (50%) of the capital is owned by Filipino citizens" is merely stating Section 3 (aq)'s inverse. Section
3 (t) remains consistent with the Control Test, for after all, a corporation in which less than half of the capital is
owned by Filipino could not possibly be controlled by Filipinos.
Sixty percent Filipino equity
ownership is indispensable to
be deemed a Philippine
national
But what of corporations in which Filipino equity is greater than 50% but less than 60%?
The Foreign Investments Act is clear. The threshold to qualify as a Philippine national, whether as a stand-alone corporation or
one involving investments from or by other corporation/s, is 60% Filipino equity ownership. Failing this, a corporation must be deemed
to be of foreign nationality.
 The necessary implication of Section 3 (a) of the FIA is that anything that fails to breach this 60% threshold is not a Philippine
national. There is no "doubt", as DOJ Opinion No. 20, series of 2005, posits. Any declaration, in the Mining Act or elsewhere, that a
corporation in which Filipino equity ownership is less than 50% is deemed foreign-owned is merely to articulate — so as to eliminate
uncertainty — the natural consequence of Filipinos' minority shareholding in a corporation. Ultimately, the positive determination of
what makes a Philippine national, per Section 3 (a) of the Foreign Investments Act, is that which controls.
The Grandfather Rule may
be applied as a supplement to
the Control Test
This standard under the Foreign Investments Act is the Control Test. Its application can be nuanced if there is a clear showing
that the context of a case requires it. The Foreign Investments Act's standard should be applied with the end of achieving the rationale
for nationalization. Thus, sixty percent equity ownership is but a minimum.
This court's conception of what constitutes control — as articulated in Gamboa — must be deemed integrated into the Foreign
Investment Act's standard. Bare ownership of 60% of a corporation's shares would not suffice. What is necessary is such ownership as
will ensure control of a corporation.
In Gamboa, "[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights, is required." 165 With this in mind, the Grandfather Rule may be used as a supplement to the Control Test, that is, as
a further check to ensure that control and beneficial ownership of a corporation is in fact lodged in Filipinos.
For instance, Department of Justice Opinion No. 165, series of 1984, identified the following "significant indicators" or badges
of "dummy status":
1. That the foreign investor provides practically all the funds for the joint investment undertaken by Filipino
businessmen and their foreign partner.
2. That the foreign investors undertake to provide practically all the technological support for the joint venture.
3. That the foreign investors, while being minority stockholders, manage the company and prepare all economic
viability studies. 166
In instances where methods are employed to disable Filipinos from exercising control and reaping the economic benefits of an
enterprise, the ostensible control vested by ownership of 60% of a corporation's capital may be pierced. Then, the Grandfather Rule
allows for a further, more exacting examination of who actually controls and benefits from holding such capital.
Narra, Tesoro, and McArthur
ostensibly satisfy the
minimum requirement of
60% Filipino equity holding
Turning now to Narra, Tesoro, and McArthur, a determination of their qualification to enter into MPSAs requires an
examination of the structures of their respective stockholdings and controlling interests. This examination must remain consistent with
the previously discussed requirements of effective control and beneficial ownership.
Consistent with Gamboa, 167 this examination of equity structures must likewise focus on "capital" understood as "shares of
stock entitled to vote in the election of directors." 168
Proceeding from the findings of the Court of Appeals in its October 1, 2010 decision in CA-G.R. SP No. 109703, 169 it
appears that at least 60% of equities in Narra, Tesoro, and McArthur is owned by Philippine nationals. Per this initial analysis, Narra,
Tesoro, and McArthur ostensibly satisfy the requirements of the Control Test in order that they may be deemed Filipino corporations.
Attention must be drawn to how these findings fail to indicate which (fractional) portion of these equities consist of "shares of
stock entitled to vote in the election of directors" or, if there is even any such portion of shares which are not entitled to vote. These
findings fail to indicate any distinction between common shares and preferred shares (not entitled to vote). Absent a basis for reckoning
non-voting shares, there is, thus, no basis for diminishing the 60% Filipino equity holding in Narra, Tesoro, and McArthur and
undermining their having ostensibly satisfied the requirements of the Control Test in order to be deemed Filipino corporations qualified
to enter into MPSAs.
1. Narra Nickel Mining and Development Corporation
Petitioner Narra Nickel Mining and Development Corporation has P10 Million in capital stock, divided into 10,000 shares at
P1,000.00 per share, subscribed to as follows: 170
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Patricia Louise Filipino 5,997 P5,997,000.00 P1,667,000.00
Mining and        
Development Corp.        
         
MBMI Resources, Inc. Canadian 3,996 P3,996,000.00 P1,116,000.00
 Higinio C. Mendoza, Jr. Filipino 1 P1,000.00 P1,000.00
Henry E. Fernandez Filipino 1 P1,000.00 P1,000.00
Ma. Elena A. Bocalan Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Robert L. McCurdy Canadian 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Bayani H. Agabin Filipino 1 P1,000.00 P1,000.00
    –––––– ––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,800,000.00
    ====== ============ ============
Patricia Louise Mining and Development Corporation (PLMDC) also has P10 Million in capital stock, divided into 10,000
shares at P1,000.00 per share, subscribed to as follows: 171
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Palawan Alpha South Filipino 6,596 P6,596,000.00 P0
Resource        
Development Corp.        
MBMI Resources, Inc. Canadian 3,396 P3,396,000.00 P2,796,000.00
Higinio C. Mendoza, Jr. Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Henry E. Fernandez Filipino 1 P1,000.00 P1,000.00
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Bayani H. Agabin Filipino 1 P1,000.00 P1,000.00
    ––––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,804,000.00
    ====== ============= ============
Palawan Alpha South Resource and Development Corporation, a Filipino corporation, along with Higinio C. Mendoza, Jr.,
Fernando B. Esguerra, Henry E. Fernandez, Lauro L. Salazar, Manuel A. Agcaoili, and Bayani H. Agabin, who are all Filipinos,
collectively own 6,002 shares in or 60.02% of the capital stock of PLMDC. PLMDC is thus  ostensibly a Filipino corporation (i.e., it is
controlled by Philippine nationals who own more than 60% of its capital as required by Section 3 (a) of the Foreign Investments Act).
PLMDC, along with Higinio C. Mendoza, Jr., Henry E. Fernandez, Ma. Elena A. Bocalan, Manuel A. Agcaoili and Bayani H.
Agabin, who are all Filipinos, collectively own 6,002 shares in or 60.02% of the capital stock of  Narra. As Narra has satisfied the
minimum Filipino equity ownership (i.e., 60%) required by Section 3 (a) of the Foreign Investments Act, it is ostensibly a Filipino
corporation. Moreover, as it has satisfied the minimum Filipino equity ownership (i.e., 60%) required by Section 3 (aq) of
the Mining Act to be deemed a qualified person for purposes of mineral agreements, Narra is ostensibly qualified to enter into an MPSA.
2. Tesoro Mining and Development, Inc.
Petitioner Tesoro Mining and Development, Inc. has P10 Million in capital stock, divided into 10,000 shares at P1,000.00 per
share, subscribed to as follows: 172
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Sara Marie Mining, Inc. Filipino 5,997 P5,997,000.00 P825,000.00
MBMI Resources, Inc. Canadian 3,998 P3,998,000.00 P1,878,174.60
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    –––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,708,174.60 
    ====== ============= ============
Sara Marie Mining, Inc. (SMMI) also has P10 Million in capital stock, divided into 10,000 shares at P1,000.00 per share,
subscribed to as follows: 173
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Olympic Mines and Filipino 6,663 P6,663,000.00 P0
Development Corp.        
MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,794,000.00
Amanti Limson Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Lauro Salazar Filipino 1 P1,000.00 P1,000.00
Emmanuel G. Filipino 1 P1,000.00 P1,000.00
Hernando        
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    ––––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,809,900.00
    ====== ============= ============
Olympic Mines and Development Corporation (OMDC), a Filipino corporation, along with Amanti Limson, Fernando B.
Esguerra, Lauro Salazar, and Emmanuel G. Hernando, who are all Filipinos, collectively own 6,667 shares in or 66.67% of the capital
stock of SMMI. SMMI is thus ostensibly a Filipino corporation (i.e., it is controlled by Philippine nationals who own more than 60% of
its capital as required by Section 3 (a) of the Foreign Investments Act).
SMMI, along with Lauro L. Salazar, Fernando B. Esguerra, and Manuel A. Agcaoili, who are all Filipinos, collectively own
6,000 shares in or 60% of the capital stock of Tesoro. As Tesoro has satisfied the minimum Filipino equity ownership (i.e., 60%)
required by Section 3 (a) of the Foreign Investments Act, it is ostensibly a Filipino corporation. Moreover, as it has satisfied the
minimum Filipino equity ownership (i.e., 60%)required by Section 3 (aq) of the Mining Act to be deemed a qualified person for
purposes of mineral agreements, Tesoro is ostensibly qualified to enter into an MPSA.
3. McArthur Mining Corporation
Petitioner McArthur Mining Corporation has P10 Million in capital stock, divided into 10,000 shares at P1,000.00 per share,
subscribed to as follows: 174
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Madridejos Mining Filipino 5,997 P5,997,000.00 P825,000.00
Corp.        
MBMI Resources, Inc. Canadian 3,998 P3,998,000.00 P1,878,174.60
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    –––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,708,174.60
    ====== ============= ============
Madridejos Mining Corporation (Madridejos) also has P10 Million in capital stock, divided into 10,000 shares at P1,000.00 per
shares, subscribed to as follows: 175
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Olympic Mines and Filipino 6,663 P6,663,000.00 P0
Development Corp.         
MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,803,900.00
Amanti Limson Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Lauro Salazar Filipino 1 P1,000.00 P1,000.00
Emmanuel G. Filipino 1 P1,000.00 P1,000.00
Hernando        
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    –––––– ––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,809,900.00
    ====== ============ ============
OMDC, a Filipino corporation, combined with Amanti Limson, Fernando B. Esguerra, Lauro Salazar, and Emmanuel G.
Hernando, who are all Filipino, collectively own 6,667 shares in or 66.67% of the capital stock of Madridejos. Madridejos is
thus ostensibly a Filipino corporation (i.e., it is controlled by Philippine nationals who own more than 60% of its capital as required by
Section 3 (a) of the Foreign Investments Act).
 Madridejos combined with Lauro L. Salazar, Fernando B. Esguerra, and Manuel A. Agcaoili, who are all Filipinos, collectively
own 6,000 shares in or 60% of the capital stock of McArthur. As McArthur has satisfied the minimum Filipino equity ownership (i.e.,
60%) required by Section 3 (a) of the Foreign Investments Act, it is ostensibly a Filipino corporation. Moreover, as it has satisfied the
minimum Filipino equity ownership (i.e., 60%) required by Section 3 (aq) of the Mining Act to be deemed a qualified person for
purposes of mineral agreements, McArthur is ostensibly qualified to enter into an MPSA.
In its October 1, 2010 decision, the Court of Appeals, Seventh Division, made much of a joint venture entered into by the
Canadian Corporation, MBMI Resources, Inc. with OMDC. 176 This joint venture was denominated "Olympic Properties". Per MBMI's
2006 Annual report, MBMI was noted to hold "directly and indirectly an initial 60% interest in [Olympic Properties]."  177 This joint
venture, however, does not factor into the respective stockholders' genealogies of Tesoro and McArthur. It is an independent venture
entered into by OMDC with MBMI. It is OMDC, and not Olympic Properties, which owns shares in Tesoro and McArthur. It is,
therefore, of no consequence that MBMI holds a 60% interest in Olympic Properties.
Having made these observations, it should not be discounted that a more thorough consideration — as has been intimated in the
earlier disquisition regarding how 60% Filipino equity ownership is but a minimum and how the Grandfather Rule may be applied to
further examine actual Filipino ownership — could yield an entirely different conclusion. In fact, Redmont has asserted that such a
situation avails.
However, the contingencies of this case must restrain the court's consideration of Redmont's claims. Redmont sought relief
from a body without jurisdiction — the Panel of Arbitrators — and has engaged in blatant forum shopping. It has taken liberties
with and ran amok of rules that define fair play. It is, therefore, bound by its lapses and indiscretions and must bear the
consequences of its imprudence.
Redmont has been engaged in
blatant forum shopping
The concept of and rationale against forum shopping was explained by this court in Top Rate Construction and General
Services, Inc. v. Paxton Development Corporation: 178
Forum shopping is committed by a party who institutes two or more suits in different courts, either
simultaneously or successively, in order to ask the courts to rule on the same or related causes or to grant the same
or substantially the same reliefs, on the supposition that one or the other court would make a favorable disposition or
increase a party's chances of obtaining a favorable decision or action. It is an act of malpractice for it trifles with the
courts, abuses their processes, degrades the administration of justice and adds to the already congested court
dockets. What is critical is the vexation brought upon the courts and the litigants by a party who asks different
courts to rule on the same or related causes and grant the same or substantially the same reliefs and in the
process creates the possibility of conflicting decisions being rendered by the different for a upon the same
issues, regardless of whether the court in which one of the suits was brought has no jurisdiction over the
action. 179 (Emphasis supplied)
Equally settled is the test for determining forum shopping. As this court explained in Yap v. Court of Appeals: 180
To determine whether a party violated the rule against forum shopping, the most important factor to ask is
whether the elements of litis pendentia are present, or whether a final judgment in one case will amount to res
judicata in another; otherwise stated, the test for determining forum shopping is whether in the two (or more) cases
pending, there is identity of parties, rights or causes of action, and reliefs sought. 181
Litis pendentia "refers to that situation wherein another action is pending between the same parties for the same cause of action,
such that the second action becomes unnecessary and vexatious." 182 It requires the concurrence of three (3) requisites: (1) the identity
of parties, or at least such as representing the same interests in both actions; (2) the identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (3) the identity of the two cases such that judgment in one, regardless of which party is
successful, would amount to res judicata in the other. 183
In turn, prior judgment or res judicata bars a subsequent case when the following requisites concur: (1) the former judgment is
final; (2) it is rendered by a court having jurisdiction over the subject matter and the parties; (3) it is a judgment or an order on the
merits; (4) there is — between the first and the second actions — identity of parties, of subject matter, and of causes of action. 184
Redmont has taken at least four (4) distinct routes all seeking substantially the same remedy. Stripped of their verbosity and
legalese, Redmont's petitions before the DENR Panel of Arbitrators, complaint before the Regional Trial Court, complaint before the
Securities and Exchange Commission, and petition before the Office of the President all seek to prevent Narra, Tesoro, and McArthur as
well as their co-respondents and/or co-defendants from engaging in mining operations. Moreover, these are all grounded on the same
cause (i.e., that they are disqualified from doing so because they fail to satisfy the requisite Filipino equity ownership) and premised on
the same facts or circumstances.
Redmont has created a situation where multiple tribunals must rule on the extent to which the parties adverse to  Redmont have
met the requisite Filipino equity ownership. It is certainly possible that conflicting decisions will be issued by the various tribunals over
which Redmont's various applications for relief have been lodged. It is, thus, glaring that the very evil sought to be prevented by the rule
against forum shopping is being foisted by Redmont.
The consequences of willful forum shopping are clear. Rule 7, Section 5 of the 1997 Rules of Civil Procedure provides:
 Section 5. Certification against forum shopping. — The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto
and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving
the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action
or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present
status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is
pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or
initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint
or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise
provided, upon motion and after hearing. The submission of a false certification or non-compliance with any of the
undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative
and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum
shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt,
as well as a cause for administrative sanctions. (n)
It strains credulity to accept that Redmont's actions have not been willful. By filing petitions with the DENR Panel of
Arbitrators, Redmont started the entire series of events that have culminated in: first, the present petition; second, the de-consolidated
G.R. No. 205513; and third, at least one (1) more petition filed with this court. 186
Following the adverse decision of the Panel of Arbitrators, Narra, Tesoro, and McArthur pursued appeals before the Mines
Adjudication Board. This is all but a logical consequence of the POA's adverse decision. While the appeal before the MAB was
pending, Redmont filed a complaint with the SEC and then filed a complaint with the Regional Trial Court to enjoin the MAB from
proceeding. Redmont seems to have conveniently forgotten that it was its own actions that gave rise to the proceedings before the MAB
in the first place. Moreover, even as all these were pending and in various stages of appeal and/or review, Redmont still filed a petition
before the Office of the President.
Consistent with Rule 7, Section 5 of the 1997 Rules of Civil Procedure, the actions subject of these consolidated petitions must
be dismissed with prejudice.
It should also not escape this court's attention that the vexatious actions of Redmont would not have been possible were it not
for the permissiveness of Redmont's counsels. To reiterate, willful forum shopping leads not only to an action's dismissal with prejudice
but "shall [also] constitute direct contempt, [and is] a cause for administrative sanctions."  187 Redmont's counsels should be reminded
that the parameters established by judicial (and even administrative) proceedings, such as the rule against forum shopping, are not to be
trifled with.
ACCORDINGLY, I vote to GRANT the petition for review on certiorari subject of G.R. No. 195580. The assailed decision
dated October 1, 2010 and the assailed resolution dated February 15, 2011 of the Court of Appeals, Seventh Division, in CA-G.R. SP
No. 109703, which reversed and set aside the September 10, 2008 and July 1, 2009 orders of the Mines Adjudication Board (MAB)
should be SET ASIDE AND DECLARED NULL AND VOID. The September 10, 2008 order of the Mines Adjudication Board
dismissing the petitions filed by Redmont Consolidated Mines with the DENR Panel of Arbitrators must be REINSTATED.
||| (Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, [April 21, 2014], 733 PHIL 365-
490)
 SPECIAL THIRD DIVISION

[G.R. No. 195580. January 28, 2015.]

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and McARTHUR MINING,

INC., petitioners, vs. REDMONT CONSOLIDATED MINES CORP., respondent.

RESOLUTION

VELASCO, JR., J p:

Before the Court is the Motion for Reconsideration of its April 21, 2014 Decision, which denied the Petition for Review
on Certiorari under Rule 45 jointly interposed by petitioners Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining, Inc. (McArthur), and affirmed the October 1, 2010 Decision and February 15, 2011
Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 109703.
Very simply, the challenged Decision sustained the appellate court's ruling that petitioners, being foreign corporations, are not
entitled to Mineral Production Sharing Agreements (MPSAs). In reaching its conclusion, this Court upheld with approval the appellate court's
finding that there was doubt as to petitioners' nationality since a 100% Canadian-owned firm, MBMI Resources, Inc. (MBMI), effectively
owns 60% of the common stocks of the petitioners by owning equity interest of petitioners' other majority corporate shareholders.
In a strongly worded Motion for Reconsideration dated June 5, 2014, petitioners-movants argued, in the main, that the Court's
Decision was not in accord with law and logic. In its September 2, 2014 Comment, on the other hand, respondent  Redmont Consolidated
Mines Corp. (Redmont) countered that petitioners' motion for reconsideration is nothing but a rehash of their arguments and should, thus, be
denied outright for being pro-forma. Petitioners have interposed on September 30, 2014 their Reply to the respondent's Comment.
After considering the parties' positions, as articulated in their respective submissions, We resolve to deny the motion for
reconsideration.
I.
The case has not been rendered moot and academic
Petitioners have first off criticized the Court for resolving in its Decision a substantive issue, which, as argued, has supposedly been
rendered moot by the fact that petitioners' applications for MPSAs had already been converted to an application for a Financial Technical
Assistance Agreement (FTAA), as petitioners have in fact been granted an FTAA. Further, the nationality issue, so petitioners presently
claim, had been rendered moribund by the fact that MBMI had already divested itself and sold all its shareholdings in the petitioners, as well
as in their corporate stockholders, to a Filipino corporation — DMCI Mining Corporation (DMCI).
As a counterpoint, respondent Redmont avers that the present case has not been rendered moot by the supposed issuance of an
FTAA in petitioners' favor as this FTAA was subsequently revoked by the Office of the President (OP) and is currently a subject of a petition
pending in the Court's First Division. Redmont likewise contends that the supposed sale of MBMI's interest in the petitioners and in their
"holding companies" is a question of fact that is outside the Court's province to verify in a Rule 45 certiorari proceedings. In any case,
assuming that the controversy has been rendered moot, Redmont claims that its resolution on the merits is still justified by the fact that
petitioners have violated a constitutional provision, the violation is capable of repetition yet evading review, and the present case involves a
matter of public concern.
 Indeed, as the Court clarified in its Decision, the conversion of the MPSA application to one for FTAAs and the issuance by the OP
of an FTAA in petitioners' favor are irrelevant. The OP itself has already cancelled and revoked the FTAA thus issued to petitioners.
Petitioners curiously have omitted this critical fact in their motion for reconsideration. Furthermore, the supposed sale by MBMI of its shares
in the petitioner-corporations and in their holding companies is not only a question of fact that this Court is without authority to verify, it also
does not negate any violation of the Constitutional provisions previously committed before any such sale.
We can assume for the nonce that the controversy had indeed been rendered moot by these two events. As this Court has time and
again declared, the "moot and academic" principle is not a magical formula that automatically dissuades courts in resolving a case. 1 The
Court may still take cognizance of an otherwise moot and academic case, if it finds that (a) there is a grave violation of the Constitution; (b)
the situation is of exceptional character and paramount public interest is involved; (c) the constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the public; and (d) the case is capable of repetition yet evading review.  2 The Court's
April 21, 2014 Decision explained in some detail that all four (4) of the foregoing circumstances are present in the case. If only to stress a
point, we will do so again.
First, allowing the issuance of MPSAs to applicants that are owned and controlled by a 100% foreign-owned corporation, albeit
through an intricate web of corporate layering involving alleged Filipino corporations, is tantamount to permitting a blatant violation of
Section 2, Article XII of the Constitution. The Court simply cannot allow this breach and inhibit itself from resolving the controversy on the
facile pretext that the case had already been rendered academic.
Second, the elaborate corporate layering resorted to by petitioners so as to make it appear that there is compliance with the
minimum Filipino ownership in the Constitution is deftly exceptional in character. More importantly, the case is of paramount public interest,
as the corporate layering employed by petitioners was evidently designed to circumvent the constitutional caveat allowing only Filipino
citizens and corporations 60%-owned by Filipino citizens to explore, develop, and use the country's natural resources.
Third, the facts of the case, involving as they do a web of corporate layering intended to go around the Filipino ownership
requirement in the Constitution and pertinent laws, require the establishment of a definite principle that will ensure that the Constitutional
provision reserving to Filipino citizens or "corporations at least sixty per centum of whose capital is owned by such citizens" be effectively
enforced and complied with. The case, therefore, is an opportunity to establish a controlling principle that will "guide the bench, the bar, and
the public."
Lastly, the petitioners' actions during the lifetime and existence of the instant case that gave rise to the present controversy are
capable of repetition yet evading review because, as shown by petitioners' actions, foreign corporations can easily utilize dummy Filipino
corporations through various schemes and stratagems to skirt the constitutional prohibition against foreign mining in Philippine soil.
II.
The application of the Grandfather Rule is justified by the circumstances of the case to determine the nationality of petitioners.
To petitioners, the Court's application of the Grandfather Rule to determine their nationality is erroneous and allegedly without basis
in the Constitution, the Foreign Investments Act of 1991 (FIA), the Philippine Mining Act of 1995, 3 and the Rules issued by the Securities
and Exchange Commission (SEC). These laws and rules supposedly espouse the application of the Control Test in verifying the Philippine
nationality of corporate entities for purposes of determining compliance with Sec. 2, Art. XII of the Constitution that only "corporations or
associations at least sixty per centum of whose capital is owned by such [Filipino] citizens" may enjoy certain rights and privileges, like the
exploration and development of natural resources.
The application of the Grandfather Rule in the
present case does not eschew the Control Test.
Clearly, petitioners have misread, and failed to appreciate the clear import of, the Court's April 21, 2014 Decision. Nowhere in that
disposition did the Court foreclose the application of the Control Test in determining which corporations may be considered as Philippine
nationals. Instead, to borrow Justice Leonen's term, the Court used the Grandfather Rule as a "supplement" to the Control Test so that the
intent underlying the averted Sec. 2, Art. XII of the Constitution be given effect. The following excerpts of the April 21, 2014 Decision
cannot be clearer:
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. XII 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." (emphasis supplied)
With that, the use of the Grandfather Rule as a "supplement" to the Control Test is not proscribed by the  Constitution or
the Philippine Mining Act of 1995.
The Grandfather Rule implements the intent of
the Filipinization provisions of the Constitution.
To reiterate, 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 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 following excerpts from the Record of
the 1986 Constitutional Commission suggest as much:
MR. NOLLEDO:
 In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS:
 That is right.
xxx xxx xxx
MR. NOLLEDO:
 Thank you.
 With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?
MR. VILLEGAS:
 Yes, that is the understanding of the Committee.
As further defined by Dean Cesar Villanueva, the Grandfather Rule is "the method by which the percentage of Filipino equity in
a corporation engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution and other
nationalization laws, is computed, in cases where corporate shareholders are present, by attributing the nationality of the second or
even subsequent tier of ownership to determine the nationality of the corporate shareholder." 4 Thus, to arrive at the actual Filipino
ownership and control in a corporation, both the direct and indirect shareholdings in the corporation are determined.
This concept of stock attribution inherent in the Grandfather Rule to determine the ultimate ownership in a corporation is observed
by the Bureau of Internal Revenue (BIR) in applying Section 127 (B) 5 of the National Internal Revenue Code on taxes imposed on closely
held corporations, in relation to Section 96 of the Corporation Code 6 on close corporations. Thus, in BIR Ruling No. 148-10, Commissioner
Kim Henares held:
In the case of a multi-tiered corporation, the stock attribution rule must be allowed to run continuously
along the chain of ownership until it finally reaches the individual stockholders.  This is in consonance with the
"grandfather rule" adopted in the Philippines under Section 96 of the  Corporation Code (Batas Pambansa Blg.
68) which provides that notwithstanding the fact that all the issued stock of a corporation are held by not more than
twenty persons, among others, a corporation is nonetheless not to be deemed a close corporation when at least two thirds
of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. 7
In SEC-OGC Opinion No. 10-31 dated December 9, 2010 (SEC Opinion 10-31), the SEC applied the Grandfather Rule even if the
corporation engaged in mining operation passes the 60-40 requirement of the Control Test, viz.:
You allege that the structure of MML's ownership in PHILSAGA is as follows: (1) MML owns 40% equity in
MEDC, while the 60% is ostensibly owned by Philippine individual citizens who are actually MML's controlled
nominees; (2) MEDC, in turn, owns 60% equity in MOHC, while MML owns the remaining 40%; (3) Lastly, MOHC
owns 60% of PHILSAGA, while MML owns the remaining 40%. You provide the following figure to illustrate this
structure:
xxx xxx xxx
We note that the Constitution and the statute use the concept "Philippine citizens." Article III, Section 1 of
the Constitution provides who are Philippine citizens: . . . This enumeration is exhaustive. In other words, there can be
no other Philippine citizens other than those falling within the enumeration provided by the  Constitution. Obviously,
only natural persons are susceptible of citizenship. Thus, for purposes of the Constitutional and statutory restrictions on
foreign participation in the exploitation of mineral resources, a corporation investing in a mining joint venture can never
be considered as a Philippine citizen.
The Supreme Court En Banc confirms this [in] . . . Pedro R. Palting, vs. San Jose Petroleum, [Inc.]. The
Court held that a corporation investing in another corporation engaged in a nationalized activity cannot be considered as
a citizen for purposes of the Constitutional provision restricting foreign exploitation of natural resources:
xxx xxx xxx
Accordingly, we opine that we must look into the citizenship of the individual stockholders, i.e., natural
persons, of that investor-corporation in order to determine if the Constitutional and statutory restrictions are complied
 with. If the shares of stock of the immediate investor corporation is in turn held and controlled by another corporation,
then we must look into the citizenship of the individual stockholders of the latter corporation. In other words, if there
are layers of intervening corporations investing in a mining joint venture, we must delve into the citizenship of
the individual stockholders of each corporation. This is the strict application of the grandfather rule, which the
Commission has been consistently applying prior to the 1990s.
Indeed, the framers of the Constitution intended for the "grandfather rule" to apply in case a 60%-40%
Filipino-Foreign equity corporation invests in another corporation engaging in an activity where the  Constitution
restricts foreign participation.
xxx xxx xxx
Accordingly, under the structure you represented, the joint mining venture is 87.04% foreign owned, while it is
only 12.96% owned by Philippine citizens. Thus, the constitutional requirement of 60% ownership by Philippine
citizens is violated. (emphasis supplied)
Similarly, in the eponymous Redmont Consolidated Mines Corporation v. McArthur Mining, Inc., et al., 8 the SEC en
banc applied the Grandfather Rule despite the fact that the subject corporations ostensibly have satisfied the 60-40 Filipino equity
requirement. The SEC en banc held that to attain the Constitutional objective of reserving to Filipinos the utilization of natural
resources, one should not stop where the percentage of the capital stock is 60%. Thus:
[D]oubt, we believe, exists in the instant case because the foreign investor, MBMI, provided practically
all the funds of the remaining appellee-corporations. The records disclose that: (1) Olympic Mines and Development
Corporation ("OMDC"), a domestic corporation, and MBMI subscribed to 6,663 and 3,331 shares, respectively, out of
the authorized capital stock of Madridejos; however, OMDC paid nothing for this subscription while MBMI paid
P2,803,900.00 out of its total subscription cost of P3,331,000.00; (2) Palawan Alpha South Resource Development
Corp. ("Palawan Alpha"), also a domestic corporation, and MBMI subscribed to 6,596 and 3,996 shares, respectively,
out of the authorized capital stock of Patricia Louise; however, Palawan Alpha paid nothing for this subscription while
MBMI paid P2,796,000.00 out of its total subscription cost of P3,996,000.00; (3) OMDC and MBMI subscribed to
6,663 and 3,331 shares, respectively, out of the authorized capital stock of Sara Marie; however, OMDC paid nothing
for this subscription while MBMI paid P2,794,000.00 out of its total subscription cost of P3,331,000.00; and (4) Falcon
Ridge Resources Management Corp. ("Falcon Ridge"), another domestic corporation, and MBMI subscribed to 5,997
and 3,998 shares, respectively, out of the authorized capital stock of San Juanico; however, Falcon Ridge paid nothing
for this subscription while MBMI paid P2,500,000.00 out of its total subscription cost of P3,998,000.00. Thus, pursuant
to the afore-quoted DOJ Opinion, the Grandfather Rule must be used.
xxx xxx xxx
The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our
natural resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish
that right through the legal fiction of corporate ownership and control. But the constitutional provision, as
interpreted and practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution.
Hence, the Grandfather Rule must be applied to accurately determine the actual participation, both direct and
indirect, of foreigners in a corporation engaged in a nationalized activity or business.
The method employed in the Grandfather Rule of attributing the shareholdings of a given corporate shareholder to the second or
even the subsequent tier of ownership hews with the rule that the "beneficial ownership" of corporations engaged in nationalized activities
must reside in the hands of Filipino citizens. Thus, even if the 60-40 Filipino equity requirement appears to have been satisfied, the
Department of Justice (DOJ), in its Opinion No. 144, S. of 1977, stated that an agreement that may distort the actual economic or
beneficial ownership of a mining corporation may be struck down as violative of the constitutional requirement, viz.:
In this connection, you raise the following specific questions:
1. Can a Philippine corporation with 30% equity owned by foreigners enter into a mining service contract with
a foreign company granting the latter a share of not more than 40% from the proceeds of the operations?
xxx xxx xxx
By law, a mining lease may be granted only to a Filipino citizen, or to a corporation or partnership
registered with the [SEC] at least 60% of the capital of which is owned by Filipino citizens and
possessing . . . . The sixty percent Philippine equity requirement in mineral resource exploitation . . . is intended
to insure, among other purposes, the conservation of indigenous natural resources, for Filipino posterity  . . . . I
think it is implicit in this provision, even if it refers merely to ownership of stock in the corporation holding
the mining concession, that beneficial ownership of the right to dispose, exploit, utilize, and develop natural
resources shall pertain to Filipino citizens, and that the nationality requirement is not satisfied unless Filipinos,
are the principal beneficiaries in the exploitation of the country's natural resources. This criterion of beneficial
ownership is tacitly adopted in Section 44 of P.D. No. 463, above-quoted, which limits the service fee in service
contracts to 40% of the proceeds of the operation, thereby implying that the 60-40 benefit-sharing ratio is derived from
the 60-40 equity requirement in the Constitution.
 xxx xxx xxx
It is obvious that while payments to a service contractor may be justified as a service fee, and therefore,
properly deductible from gross proceeds, the service contract could be employed as a means of going about or
circumventing the constitutional limit on foreign equity participation and the obvious constitutional policy to
insure that Filipinos retain beneficial ownership of our mineral resources. Thus, every service contract scheme has
to be evaluated in its entirety, on a case to case basis, to determine reasonableness of the total "service fee" . . . like the
options available to the contractor to become equity participant in the Philippine entity holding the concession, or to
acquire rights in the processing and marketing stages. . . . (emphasis supplied)
The "beneficial ownership" requirement was subsequently used in tandem with the "situs of control" to determine the nationality of
a corporation in DOJ Opinion No. 84, S. of 1988, through the Grandfather Rule, despite the fact that both the investee and investor
corporations purportedly satisfy the 60-40 Filipino equity requirement: 9
This refers to your request for opinion on whether or not there may be an investment in real estate by a
domestic corporation (the investing corporation) seventy percent (70%) of the capital stock of which is owned by
another domestic corporation with at least 60%-40% Filipino-Foreign Equity, while the remaining thirty percent (30%)
of the capital stock is owned by a foreign corporation.
xxx xxx xxx
This Department has had the occasion to rule in several opinions that it is implicit in the constitutional
provisions, even if it refers merely to ownership of stock in the corporation holding the land or natural resource
concession, that the nationality requirement is not satisfied unless it meets the criterion of beneficial ownership,
i.e., Filipinos are the principal beneficiaries in the exploration of natural resources  (Op. No. 144, s. 1977; Op. No.
130, s. 1985), and that in applying the same "the primordial consideration is situs of control, whether in a stock
or non-stock corporation" (Op. No. 178, s. 1974). As stated in the Register of Deeds vs. Ung Sui Si Temple (97 Phil.
58), obviously to insure that corporations and associations allowed to acquire agricultural land or to exploit natural
resources "shall be controlled by Filipinos." Accordingly, any arrangement which attempts to defeat the
constitutional purpose should be eschewed (Op. No. 130, s. 1985).
We are informed that in the registration of corporations with the [SEC], compliance with the sixty per centum
requirement is being monitored by SEC under the "Grandfather Rule" a method by which the percentage of Filipino
equity in corporations engaged in nationalized and/or partly nationalized areas of activities provided for under
the Constitution and other national laws is accurately computed, and the diminution if said equity prevented (SEC
Memo, S. 1976). The "Grandfather Rule" is applied specifically in cases where the corporation has corporate
stockholders with alien stockholdings, otherwise, if the rule is not applied, the presence of such corporate
stockholders could diminish the effective control of Filipinos.
Applying the "Grandfather Rule" in the instant case, the result is as follows: . . . the total foreign equity in the
investing corporation is 58% while the Filipino equity is only 42%, in the investing corporation, subject of your query,
is disqualified from investing in real estate, which is a nationalized activity, as it does not meet the 60%-40% Filipino-
Foreign equity requirement under the Constitution.
This pairing of the concepts "beneficial ownership" and the "situs of control" in determining what constitutes "capital" has been
adopted by this Court in Heirs of Gamboa v. Teves. 10 In its October 9, 2012 Resolution, the Court clarified, thus:
This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a
trustee of funds for pension or other employee retirement or separation benefits," the trustee is a Philippine national if
"at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of
the stocks, coupled with appropriate voting rights, is essential." (emphasis supplied)
In emphasizing the twin requirements of "beneficial ownership" and "control" in determining compliance with the required Filipino
equity in Gamboa, the en banc Court explicitly cited with approval the SEC en banc's application in Redmont Consolidated Mines, Corp. v.
McArthur Mining, Inc., et al. of the Grandfather Rule, to wit:
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions
on behalf of SEC, has adopted the Grandfather Rule in determining compliance with the 60-40 ownership
requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. This prevailing
SEC ruling, which the SEC correctly adopted to thwart any circumvention of the required Filipino "ownership
and control," is laid down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v.
McArthur Mining, Inc., et al. . . . (emphasis supplied)
Applying Gamboa, the Court, in Express Investments III Private Ltd. v. Bayantel Communications, Inc., 11 denied the foreign
creditors' proposal to convert part of Bayantel's debts to common shares of the company at a rate of 77.7%.  Supposedly, the conversion of
the debts to common shares by the foreign creditors would be done, both directly and indirectly, in order to meet the control test principle
under the  FIA. Under the proposed structure, the foreign creditors would own 40% of the outstanding capital stock of the
telecommunications company on a direct basis, while the remaining 40% of shares would be registered to a holding company that shall
retain, on a direct basis, the other 60% equity reserved for Filipino citizens. Nonetheless, the Court found the proposal non-
compliant with the Constitutional requirement of Filipino ownership as the proposed structure would give more than 60% of the
ownership of the common shares of Bayantel to the foreign corporations, viz.:
In its Rehabilitation Plan, among the material financial commitments made by respondent Bayantel is that its
shareholders shall relinquish the agreed-upon amount of common stock[s] as payment to Unsecured Creditors as per the
Term Sheet. Evidently, the parties intend to convert the unsustainable portion of respondent's debt into common
stocks, which have voting rights. If we indulge petitioners on their proposal, the Omnibus Creditors which are
foreign corporations, shall have control over 77.7% of Bayantel, a public utility company. This is precisely the
scenario proscribed by the Filipinization provision of the  Constitution. Therefore, the Court of Appeals acted
correctly in sustaining the 40% debt-to-equity ceiling on conversion. (emphasis supplied)
As shown by the quoted legislative enactments, administrative rulings, opinions, and this Court's decisions, the Grandfather Rule
not only finds basis, but more importantly, it implements the Filipino equity requirement, in the Constitution.
Application of the Grandfather
Rule with the Control Test.
Admittedly, an ongoing quandary obtains as to the role of the Grandfather Rule in determining compliance with the minimum
Filipino equity requirement vis-à-vis the Control Test. This confusion springs from the erroneous assumption that the use of one method
forecloses the use of the other.
As exemplified by the above rulings, opinions, decisions and this Court's April 21, 2014 Decision, the Control Test can be, as it has
been, applied jointly with the Grandfather Rule to determine the observance of foreign ownership restriction in nationalized economic
activities. The Control Test and the Grandfather Rule are not, as it were, incompatible ownership-determinant methods that can only be
applied alternative to each other. Rather, these methods can, if appropriate, be used cumulatively in the determination of the ownership
and control of corporations engaged in fully or partly nationalized activities, as the mining operation involved in this case or the
operation of public utilities as in Gamboa or Bayantel.
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 the Control Test is first complied with that the Grandfather Rule may be applied.  Put in another manner, if the subject
corporation's Filipino equity falls below the threshold 60%, the corporation is immediately considered foreign-owned, in which case, the need
to resort to the Grandfather Rule disappears.
On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can be considered a
Filipino corporation if there is no doubt as to who has the "beneficial ownership" and "control" of the corporation. In that instance,
there is no need for a dissection or further inquiry on the ownership of the corporate shareholders in both the investing and investee
corporation or the application of the Grandfather Rule. 12 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.
As explained in the April 21, 2012 Decision, the "doubt" that demands the application of the Grandfather Rule in addition to or in
tandem with the Control Test is not confined to, or more bluntly, does not refer to the fact that the apparent Filipino ownership of the
corporation's equity falls below the 60% threshold. Rather, "doubt" refers to various indicia that the "beneficial ownership" and
"control" of the corporation do not in fact reside in Filipino shareholders but in foreign stakeholders.  As provided in DOJ Opinion No.
165, Series of 1984, which applied the pertinent provisions of the Anti-Dummy Law in relation to the minimum Filipino equity requirement
in the Constitution, "significant indicators of the dummy status" have been recognized in view of reports "that some Filipino investors or
businessmen are being utilized or [are] allowing themselves to be used as dummies by foreign investors" specifically in joint ventures for
national resource exploitation. These indicators are:
1. That the foreign investors provide practically all the funds for the joint investment undertaken by these
Filipino businessmen and their foreign partner;
2. That the foreign investors undertake to provide practically all the technological support for the joint venture;
3. That the foreign investors, while being minority stockholders, manage the company and prepare all
economic viability studies.
Thus, In the Matter of the Petition for Revocation of the Certificate of Registration of Linear Works Realty Development
Corporation, 13 the SEC held that when foreigners contribute more capital to an enterprise, doubt exists as to the actual control and
ownership of the subject corporation even if the 60% Filipino equity threshold is met. Hence, the SEC in that one ordered a further
investigation, viz.:
. . . The [SEC Enforcement and Prosecution Department (EPD)] maintained that the basis for determining the
level of foreign participation is the number of shares subscribed, regardless of the par value. Applying such an
interpretation, the EPD rules that the foreign equity participation in Linearworks Realty Development Corporation
amounts to 26.41% of the corporation's capital stock since the amount of shares subscribed by foreign nationals is 1,795
 only out of the 6,795 shares. Thus, the subject corporation is compliant with the 40% limit on foreign equity
participation. Accordingly, the EPD dismissed the complaint, and did not pursue any investigation against the subject
corporation.
xxx xxx xxx
. . . [I]n this respect we find no error in the assailed order made by the EPD. The EPD did not err when it did
not take into account the par value of shares in determining compliance with the constitutional and statutory restrictions
on foreign equity.
However, we are aware that some unscrupulous individuals employ schemes to circumvent the
constitutional and statutory restrictions on foreign equity. In the present case, the fact that the shares of the
Japanese nationals have a greater par value but only have similar rights to those held by Philippine citizens
having much lower par value, is highly suspicious. This is because a reasonable investor would expect to have
greater control and economic rights than other investors who invested less capital than him.  Thus, it is reasonable
to suspect that there may be secret arrangements between the corporation and the stockholders wherein the Japanese
nationals who subscribed to the shares with greater par value actually have greater control and economic
rights contrary to the equality of shares based on the articles of incorporation.
With this in mind, we find it proper for the EPD to investigate the subject corporation. The EPD is advised to
avail of the Commission's subpoena powers in order to gather sufficient evidence, and file the necessary complaint.
As will be discussed, even if at first glance the petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt exists in
the present case that gives rise to a reasonable suspicion that the Filipino shareholders do not actually have the requisite number of control
and beneficial ownership in petitioners Narra, Tesoro, and McArthur. Hence, a further investigation and dissection of the extent of the
ownership of the corporate shareholders through the Grandfather Rule is justified.
Parenthetically, it is advanced that the application of the Grandfather Rule is impractical as tracing the shareholdings to the point
when natural persons hold rights to the stocks may very well lead to an investigation ad infinitum. Suffice it to say in this regard that, while
the Grandfather Rule was originally intended to trace the shareholdings to the point where natural persons hold the shares, the SEC had
already set up a limit as to the number of corporate layers the attribution of the nationality of the corporate shareholders may be applied.
In a 1977 internal memorandum, the SEC suggested applying the Grandfather Rule on two (2) levels of corporate relations for
publicly-held corporations or where the shares are traded in the stock exchanges, and to three (3) levels for closely held corporations or the
shares of which are not traded in the stock exchanges. 14 These limits comply with the requirement in Palting v. San Jose Petroleum,
Inc. 15 that the application of the Grandfather Rule cannot go beyond the level of what is reasonable.
A doubt exists as to the extent of control and
beneficial ownership of MBMI over the petitioners
and their investing corporate stockholders.
In the Decision subject of this recourse, the Court applied the Grandfather Rule to determine the matter of true ownership and
control over the petitioners as doubt exists as to the actual extent of the participation of MBMI in the equity of the petitioners and their
investing corporations.
We considered the following membership and control structures and like nuances:
Tesoro
Supposedly 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.

Name Nationality Number Amount Amount Paid

    of Shares Subscribed  

         

Sara Marie Mining, Inc. Filipino 5,997 P5,997,000.00 P825,000.00

MBMI Resources, Inc. 16  Canadian 3,998 P3,998,000.00 P1,878,174.60

Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00

Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00

Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00

Michael T. Mason American 1 P1,000.00 P1,000.00

 Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00

    –––––––– ––––––––––––– –––––––––––––

  Total 10,000 P10,000,000.00 P2,708,174.60

    ======= ============ ============

In turn, 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.
 

Name Nationality Number Amount Amount Paid

    of Shares Subscribed  

         

Olympic Mines & Filipino 6,663 P6,663,000.00 P0.00

Development Corp. 17         

MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,794,000.00

Amanti Limson Filipino 1 P1,000.00 P1,000.00

Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00

Lauro Salazar Filipino 1 P1,000.00 P1,000.00

Emmanuel G. Hernando Filipino 1 P1,000.00 P1,000.00

Michael T. Mason American 1 P1,000.00 P1,000.00

Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00

    –––––––– ––––––––––––– –––––––––––––

  Total 10,000 P10,000,000.00 P2,800,000.00

    ======= ============ ============

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 since, as observed by the SEC, "a reasonable investor
would expect to have greater control and economic rights than other investors who invested less capital than him." The application of the
Grandfather Rule is clearly called for, and as shown below, the Filipinos' control and economic benefits in petitioner Tesoro (through Sara
Marie) fall below the threshold 60%, viz.:
Filipino participation in petitioner Tesoro: 40.01%
66.67      
––––– (Filipino equity in Sara Marie) x 59.97 (Sara Marie's share in Tesoro)  =  39.98%
100      
       
39.98% + .03% (shares of individual Filipino shareholders [SHs] in Tesoro) = 40.01%
      ========
Foreign participation in petitioner Tesoro: 59.99%
     
(Foreign equity in Sara Marie) x 59.97 (Sara Marie's share in Tesoro)  = 
   
   
% (MBMI's direct participation in Tesoro) + .02% (shares of foreign individual SHs in 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
 Petitioner 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.

Name Nationality Number Amount Amount Paid

    of Shares Subscribed  

         

Madridejos Mining Filipino 5,997 P5,997,000.00 P825,000.00

Corporation        

MBMI Resources, Inc. 18  Canadian 3,998 P3,998,000.00 P1,878,174.60

Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00

Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00

Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00

Michael T. Mason American 1 P1,000.00 P1,000.00

Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00

    –––––––– ––––––––––––– –––––––––––––

  Total 10,000 P10,000,000.00 P2,708,174.60

    ======= ============ ============

In turn, 66.63% of Madridejos' shares were held by Olympic while 33.31% of its shares belonged to MBMI. Yet again, Olympic did
not contribute to the paid-up capital of Madridejos and it was MBMI that provided 99.79% of the paid-up capital of Madridejos.

Name Nationality Number Amount Amount Paid

    of Shares Subscribed  

         

Olympic Mines & Filipino 6,663 P6,663,000.00 P0.00

Development Corp. 19         

MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,803,900.00

Amanti Limson Filipino 1 P1,000.00 P1,000.00

Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00

Lauro Salazar Filipino 1 P1,000.00 P1,000.00

Emmanuel G. Hernando Filipino 1 P1,000.00 P1,000.00

Michael T. Mason American 1 P1,000.00 P1,000.00

Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00

    –––––––– ––––––––––––– –––––––––––––

  Total 10,000 P10,000,000.00 P2,809,900.00

    ======= ============ ============

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.  The application of the Grandfather Rule is
clearly called for, and as will be shown below, MBMI, along with the other foreign shareholders, breached the maximum limit of 40%
ownership in petitioner McArthur, rendering the petitioner disqualified to an MPSA:
Filipino participation in petitioner McArthur: 40.01%
66.67      
 ––––– (Filipino equity in Madridejos) x 59.97 (Madridejos' share in McArthur) =  39.98%
100      
       
39.98% + .03% (shares of individual Filipino SHs in McArthur) = 40.01%
      ============
Foreign participation in petitioner McArthur: 59.99%
     
(Foreign equity in Madridejos) x 59.97 (Madridejos' share in McArthur) = 
   
   
(MBMI's direct participation in McArthur) + .02% (shares of foreign individual SHs in 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 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
As for petitioner Narra, 59.97% of its shares belonged to Patricia Louise Mining & Development Corporation (PLMDC), while
Canadian MBMI held 39.98% of its shares.

Name Nationality Number Amount Amount Paid

    of Shares Subscribed  

         

Patricia Lousie Mining Filipino 5,997 P5,997,000.00 P1,677,000.00

and Development Corp.        

MBMI Resources, Inc. 20  Canadian 3,996 P3,996,000.00 P1,116,000.00

Higinio C. Mendoza, Jr. Filipino 1 P1,000.00 P1,000.00

Henry E. Fernandez Filipino 1 P1,000.00 P1,000.00

Ma. Elena A. Bocalan Filipino 1 P1,000.00 P1,000.00

Michael T. Mason American 1 P1,000.00 P1,000.00

Robert L. McCurdy Canadian 1 P1,000.00 P1,000.00

Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00

Bayani H. Agabin Filipino 1 P1,000.00 P1,000.00

    –––––––– ––––––––––––– –––––––––––––

  Total 10,000 P10,000,000.00 P2,800,000.00

    ======= ============ ============

Yet again, 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." Thus, the application of the Grandfather Rule is justified. And as will be shown, it is clear that the Filipino ownership in
petitioner Narra falls below the limit prescribed in both the Constitution and the Philippine Mining Act of 1995.
Filipino participation in petitioner Narra: 39.64%
66.02      
––––– (Filipino equity in PLMDC) x 59.97 (PLMDC's share in Narra)  = 39.59%
100      
       
39.59% + .05% (shares of individual Filipino SHs in McArthur) = 39.64%
      =========
Foreign participation in petitioner Narra: 60.36%
      
(Foreign equity in PLMDC) x 59.97 (PLMDC's share in Narra)  = 
   
   
9.96% (MBMI's direct participation in Narra) + .02% (shares of foreign individual SHs in McArthur) =
   
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. Hence,
the appellate court did not err in holding that petitioner McArthur is a foreign corporation not entitled to an MPSA.
It must be noted that the foregoing determination and computation of petitioners' Filipino equity composition was based on
their common shareholdings, not preferred or redeemable shares. Section 6 of the Corporation Code of the Philippines explicitly provides
that "no share may be deprived of voting rights except those classified as 'preferred' or 'redeemable' shares." Further, as Justice Leonen puts
it, there is "no indication that any of the shares . . . do not have voting rights, [thus] it must be assumed that all such shares have voting
rights." 22 It cannot therefore be gainsaid that the foregoing computation hewed with the pronouncements of  Gamboa, as implemented
by SEC Memorandum Circular No. 8, Series of 2013, (SEC Memo No. 8) 23 Section 2 of which states:
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory requirement. For
purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH
(a) the total 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.
In fact, there is no indication that herein petitioners issued any other class of shares besides the 10,000 common shares. Neither is it
suggested that the common shares were further divided into voting or non-voting common shares. Hence, for purposes of this case, items a)
and b) in SEC Memo No. 8 both refer to the 10,000 common shares of each of the petitioners, and there is no need to separately apply the 60-
40 ratio to any segment or part of the said common shares.
III.
In mining disputes, the POA has jurisdiction to pass upon the nationality of applications for MPSAs
Petitioners also scoffed at this Court's decision to uphold the jurisdiction of the Panel of Arbitrators (POA) of the Department of
Environment and Natural Resources (DENR) since the POA's determination of petitioners' nationalities is supposedly beyond its limited
jurisdiction, as defined in Gonzales v. Climax Mining Ltd. 24 and Philex Mining Corp. v. Zaldivia. 25
The April 21, 2014 Decision did not dilute, much less overturn, this Court's pronouncements in
either Gonzales or Philex Mining that POA's jurisdiction "is limited only to mining disputes which raise questions of fact," and not judicial
questions cognizable by regular courts of justice. However, to properly recognize and give effect to the jurisdiction vested in the POA by
Section 77 of the Philippine Mining Act of 1995, 26 and in parallel with this Court's ruling in Celestial Nickel Mining Exploration
Corporation v. Macroasia Corp., 27 the Court has recognized in its Decision that in resolving disputes "involving rights to mining areas" and
"involving mineral agreements or permits," the POA has jurisdiction to make a preliminary finding of the required nationality of the
corporate applicant in order to determine its right to a mining area or a mineral agreement.
There is certainly nothing novel or aberrant in this approach. In ejectment and unlawful detainer cases, where the subject of inquiry
is possession de facto, the jurisdiction of the municipal trial courts to make a preliminary adjudication regarding ownership of the real
property involved is allowed, but only for purposes of ruling on the determinative issue of material possession.
The present case arose from petitioners' MPSA applications, in which they asserted their respective rights to the mining areas each
applied for. Since respondent Redmont, itself an applicant for exploration permits over the same mining areas, filed petitions for the denial of
petitioners' applications, it should be clear that there exists a controversy between the parties and it is POA's jurisdiction to resolve the said
dispute. POA's ruling on Redmont's assertion that petitioners are foreign corporations not entitled to MPSA is but a necessary incident of its
disposition of the mining dispute presented before it, which is whether the petitioners are entitled to MPSAs.
Indeed, as the POA has jurisdiction to entertain "disputes involving rights to mining areas," it necessarily follows that the POA
likewise wields the authority to pass upon the nationality issue involving petitioners, since the resolution of this issue is essential and
indispensable in the resolution of the main issue, i.e., the determination of the petitioners' right to the mining areas through MPSAs.
WHEREFORE, We DENY the motion for reconsideration WITH FINALITY. No further pleadings shall be entertained. Let
entry of judgment be made in due course.
SO ORDERED.
Peralta, Mendoza and Jardeleza, JJ., concur.
Leonen, J., I dissent. See separate opinion.

Separate Opinions
LEONEN, J., dissenting opinion:

I dissent from the majority's Resolution denying with finality the Motion for Reconsideration filed by petitioners. I maintain the
positions I articulated in my Dissent to the April 21, 2014 Decision.
I welcome the majority's statements clarifying the relative applicability of the Grandfather Rule in relation to the Control Test. I
particularly welcome the clarification that "it is only when the Control Test is first complied with that the Grandfather Rule may be
applied." 1 This is in line with the position I articulated in my Dissent to the April 21, 2014 Decision that the Control Test should find
priority in application, with the Grandfather Rule being applicable only as a "supplement." 2
However, I maintain that the Panel of Arbitrators of the Department of Environment and Natural Resources (DENR Panel of
Arbitrators) never had jurisdiction to rule on the nationalities of petitioners Narra Nickel Mining and Development Corp. (Narra),
Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining, Inc. (McArthur) and on the question of whether they should be
qualified to hold Mineral Production Sharing Agreements (MPSA). It is error for the majority to rule that petitioners are foreign corporations
proceeding from the actions of a body which never had jurisdiction and competence to rule on the judicial question of nationality.
Likewise, I maintain that respondent Redmont Consolidated Mines Corp. (Redmont) engaged in blatant forum shopping. This, the
lack of jurisdiction and competence of the DENR Panel of Arbitrators, and the error of proceeding from the acts of an incompetent body are
sufficient grounds for granting the Petition and should suffice as bases for granting the present Motion for Reconsideration.
I
The DENR Panel of Arbitrators had no competence to rule on the Petitions filed by Redmont
The jurisdiction of the DENR Panel of Arbitrators is spelled out in Section 77 of Republic  Act No. 7942, otherwise known as the
Philippine Mining Act of 1995 (the "Mining Act"):
Section 77. Panel of Arbitrators. — . . . . Within thirty (30) working days, after the submission of the case by
the parties for decision, the panel shall have exclusive and original jurisdiction to hear and decide on the following:
(a) Disputes involving rights to mining areas;
(b) Disputes involving mineral agreements or permit;
(c) Disputes involving surface owners, occupants and claimholders/concessionaires; and
(d) Disputes pending before the Bureau and the Department at the date of the effectivity of this Act.
The April 21, 2014 Decision sustained the jurisdiction of the DENR Panel of Arbitrators, relying on pronouncements made
in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp. 3 which construed the phrase "disputes involving rights
to mining areas" as referring "to any adverse claim, protest, or opposition to an application for mineral agreement." 4
However, the Decision interpreted Section 77 of the Mining Act in a manner that runs afoul of this court's pronouncements in its
Decision penned by Associate Justice Dante Tinga in Gonzales v. Climax Mining Ltd. 5 and in its Decision penned by Associate Justice
J.B.L. Reyes in Philex Mining Corp. v. Zaldivia. 6
As pointed out in my Dissent to the April 21, 2014 Decision, "Gonzales v. Climax Mining Ltd., 7 ruled on the jurisdiction of the
Panel of Arbitrators as follows:"
We now come to the meat of the case which revolves mainly around the question of jurisdiction by the Panel
of Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint for declaration of nullity and/or
termination of the subject contracts on the ground of fraud, oppression and violation of the Constitution? This issue
may be distilled into the more basic question of whether the Complaint raises a mining dispute or a judicial question.
A judicial question is a question that is proper for determination by the courts, as opposed to a moot
question or one properly decided by the executive or legislative branch. A judicial question is raised when the
determination of the question involves the exercise of a judicial function; that is, the question involves the determination
of what the law is and what the legal rights of the parties are with respect to the matter in controversy.
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral agreements,
FTAAs, or permits, and (c) surface owners, occupants and claimholders/concessionaires. Under Republic  Act No. 7942
(otherwise known as the Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original jurisdiction
to hear and decide these mining disputes. The Court of Appeals, in its questioned decision, correctly stated that the
Panel's jurisdiction is limited only to those  mining  disputes which raise questions of fact or matters requiring the
application of technological knowledge and experience. 8 (Emphasis supplied, citation omitted)
Philex Mining Corp. v. Zaldivia 9 settled what "questions of fact" are appropriate for resolution in a mining dispute:
We see nothing in [S]ections 61 and 73 of the Mining Law that indicates a legislative intent to confer real
judicial power upon the Director of Mines. The very terms of [S]ection 73 of the  Mining Law, as amended by Republic
Act No. 4388, in requiring that the adverse claim must "state in full detail the nature, boundaries and extent of the
adverse claim" show that the conflicts to be decided by reason of such adverse claim refer primarily to questions of fact.
 This is made even clearer by the explanatory note to House Bill No. 2522, later to become Republic Act 4388, that
"[S]ections 61 and 73 that refer to the overlapping of claims are amended to expedite resolutions
of mining conflicts . . . ." The controversies to be submitted and resolved by the Director of Mines under the
sections refer ther[e]fore only to the overlapping of claims and administrative matters incidental
thereto. 10 (Emphasis supplied)
The DENR Panel of Arbitrators, as its name denotes, is an arbitral body. It is not a court of law. Its competence rests in its capacity
to resolve factual issues arising between parties with competing mining claims and requiring the application of technical expertise.
In this case, Redmont has not even shown that it has a competing mining claim. It has asked only that petitioners be declared as not
qualified to enter into MPSAs.
By sustaining the jurisdiction of the DENR Panel of Arbitrators, the majority effectively diminishes (if not totally abandons) the
distinction made in Gonzales and Philex between "mining disputes" and "judicial questions." Per Gonzales and Philex, judicial questions are
cognizable only by courts of justice, not by the DENR Panel of Arbitrators.
The majority's reference to Celestial takes out of context the pronouncements made therein. To reiterate what I have stated in my
Dissent to the April 21, 2014 Decision, "[t]he pronouncements in Celestial cited by the ponencia were made to address the assertions of
Celestial Nickel and Mining Corporation (Celestial Nickel) and Blue Ridge Mineral Corporation (Blue Ridge) that the Panel of Arbitrators
had the power to cancel existing mineral agreements pursuant to Section 77 of the Mining Act. . . . These pronouncements did not undo or
abandon the distinction, clarified in Gonzales, between judicial questions and mining disputes." 11
The crux of this case relates to a matter that is beyond the competence of the DENR Panel of Arbitrators. It does not pertain to the
intricacies and specifications of mining operations. Rather, it pertains to the legal status of petitioners and the rights or inhibitions accruing to
them on account of their status. It pertains to a judicial question.
II
On the applicability of the Grandfather Rule
I maintain the position I elucidated in my Dissent to the April 21, 2014 Decision. The Control Test, rather than the Grandfather
Rule, finds priority application in reckoning the nationalities of corporations engaged in nationalized economic activities.
The Grandfather Rule finds no basis in the text of the 1987 Constitution. It is true that the records of the Constitutional Commission
"indicate an affirmative reference to the Grandfather Rule." 12 However, whatever references these records make to the Grandfather Rule is
not indicative of a consensus among all members of the Constitutional Commission. At most, these references are advisory and not binding
on this court. 13 Ultimately, what is controlling is the text of the Constitution itself. This text is silent on the precise means of reckoning
foreign ownership.
In contrast, the Control Test is firmly enshrined by congressional dictum in a statute, specifically, Republic Act No. 8179, otherwise
known as the Foreign Investments Act (FIA). As this court has pointed out, "[t]he FIA is the basic law governing foreign investments in the
Philippines, irrespective of the nature of business and area of investment." 14
Section 3 (a) of the Foreign Investments Act defines a "Philippine national" as including "a corporation organized under the laws of
the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines." In my Dissent to the April 21, 2014 Decision:
This is a definition that is consistent with the first part of paragraph 7 of the 1967 SEC Rules, which [originally
articulated] the Control Test: "[s]hares belonging to corporations or partnerships at least 60 per cent of the capital of
which is owned by Filipino citizens shall be considered as of Philippine nationality." 15
The Control Test serves the rationale for nationalization of economic activities. It ensures effective control by Filipinos and satisfies
the requirement of beneficial ownership.
On the matter of control, my Dissent to the April 21, 2014 Decision explained that:
It is a matter of transitivity 16 that if Filipino stockholders control a corporation which, in turn, controls
another corporation, then the Filipino stockholders control the latter corporation, albeit indirectly or through the former
corporation.
An illustration is apt.
Suppose that a corporation, "C", is engaged in a nationalized activity requiring that 60% of its capital be
owned by Filipinos and that this 60% is owned by another corporation, "B", while the remaining 40% is owned by
stockholders, collectively referred to as "Y". Y is composed entirely of foreign nationals. As for B, 60% of its capital is
owned by stockholders collectively referred to as "A", while the remaining 40% is owned by stockholders collectively
referred to as "X". The collective A, is composed entirely of Philippine nationals, while the collective X is composed
entirely of foreign nationals. (N.b., in this illustration, capital is understood to mean "shares of stock entitled to vote in
the election of directors," per the definition in Gamboa). 17 Thus:
 By owning 60% of B's capital, A controls B. Likewise, by owning 60% of C's capital, B controls C. From this,
it follows, as a matter of transitivity, that A controls C; albeit indirectly, that is, through B.
This "control" holds true regardless of the aggregate foreign capital in B and C. As explained in Gamboa,
control by stockholders is a matter resting on the ability to vote in the election of directors:
Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation. This is exercised through his vote in the election of directors because it is the
board of directors that controls or manages the corporation. 18
B will not be outvoted by Y in matters relating to C, while A will not be outvoted by X in matters relating to
B. Since all actions taken by B must necessarily be in conformity with the will of A, anything that B does in relation to
C is, in effect, in conformity with the will of A. No amount of aggregating the foreign capital in B and C will enable X
to outvote A, nor Y to outvote B.
In effect, A controls C, through B. Stated otherwise, the collective Filipinos in A, effectively control C, through
their control of B. 19
From the definition of "beneficial owner or beneficial ownership" provided by the Implementing Rules and Regulations (amended
2004) of Republic Act No. 8799, otherwise known as the Securities Regulation Code, "there are two (2) ways through which one may be a
beneficial owner of securities, such as shares of stock: first, by having or sharing voting power; and second, by having or sharing investment
returns or power." 20 The Implementing Rules use "and/or"; thus, these are alternative means which may or may not concur.
On the first — voting power — my Dissent to the April 21, 2014 Decision pointed out that:
Voting power, as discussed previously, ultimately rests on the controlling stockholders of the controlling
investor corporation. To go back to the previous illustration, voting power ultimately rests on A, it having the voting
power in B which, in turn, has the voting power in C. 21
On the second — investment returns or power — the same Dissent pointed out that:
As to investment returns or power, it is ultimately A which enjoys investment power. It controls B's
investment decisions — including the disposition of securities held by B — and (again, through B) controls C's
investment decisions.
Similarly, it is ultimately A which benefits from investment returns generated through C. Any income
generated by C redounds to B's benefit, that is, through income obtained from C, B gains funds or assets which it can
use either to finance itself in respect of capital and/or operations. This is a direct benefit to B, itself a Philippine
national. This is also an indirect benefit to A, a collectivity of Philippine nationals, as then, its business — B — not only
becomes more viable as a going concern but also becomes equipped to funnel income to A.
Moreover, beneficial ownership need not be direct. A controlling shareholder is deemed the indirect beneficial
owner of securities (e.g., shares) held by a corporation of which he or she is a controlling shareholder. Thus, in the
previous illustration, A, the controlling shareholder of B, is the indirect beneficial owner of the shares in C to the extent
that they are held by B. 22
However, 60 percent equity ownership is but a minimum. It is in this regard that the Dissent to the April 21, 2014 Decision
recognized that the Grandfather Rule properly finds application as a "supplement" to the Control Test:
Bare ownership of 60% of a corporation's shares would not suffice. What is necessary is such
ownership as will ensure control of a corporation.
In Gamboa, "[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent
of the voting rights, is required." 23 With this in mind, the Grandfather Rule may be used as a supplement to the
Control Test, that is, as a further check to ensure that control and beneficial ownership of a corporation is in fact
lodged in Filipinos.
For instance, Department of Justice Opinion No. 165, series of 1984, identified the following "significant
indicators" or badges of "dummy status":
1. That the foreign investor provides practically all the funds for the joint investment undertaken by Filipino
businessmen and their foreign partner[;]
2. That the foreign investors undertake to provide practically all the technological support for the joint
venture[; and]
3. That the foreign investors, while being minority stockholders, manage the company and prepare all
economic viability studies. 24
 In instances where methods are employed to disable Filipinos from exercising control and reaping the
economic benefits of an enterprise, the ostensible control vested by ownership of 60% of a corporation's capital may be
pierced. Then, the Grandfather Rule allows for a further, more exacting examination of who actually controls and
benefits from holding such capital. 25
The majority's Resolution denying the present Motion for Reconsideration recognizes that the Grandfather Rule alone does not
suffice for reckoning Filipino and foreign equity ownership in corporations engaged in nationalized economic activities. The majority echoes
the characterization of the applicability of the Grandfather Rule as only supplementary 26 and explains:
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result to an otherwise foreign corporation rendered qualified to perform nationalized or partly
nationalized activities. Hence, it is only when the Control Test is first complied with that the Grandfather Rule
may be applied. Put in another manner, if the subject corporation's Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the need to resort to the Grandfather Rule
disappears.
On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can
be considered a Filipino corporation if there is no doubt as to who has the "beneficial ownership" and "control"
of the corporation. In that instance, there is no need for a dissection or further inquiry on the ownership of the
corporate shareholders in both the investing and investee corporation or the application of the Grandfather Rule. As
a corollary rule, even if the 60-40 Filipino to foreign equity is apparently met by the subject or investee corporation,  a
resort to the Grandfather Rule is necessary if doubt exists as to the locus of the "beneficial ownership" and
"control." 27
III
Proceeding from the actions of the DENR Panel of Arbitrators is improper
Following the above-quoted portion in its discussion, the majority states that "[i]n this case, a further investigation as to the
nationality of the personalities with the beneficial ownership and control of the corporate shareholders in both the investing and investee
corporations is necessary." 28
The majority then proceeds to an analysis of the equity structures of petitioners. The analysis notes that 59.97% of  Narra's 10,000
shares 29 is held by Patricia Louise Mining and Development Corporation (Patricia Louise), 65.96% of whose shares is, in turn, held by
Palawan Alpha South Resources Development Corporation (PASRDC). It adds that 59.97% of Tesoro's 10,000 common shares is held by
Sara Marie Mining, Inc. (Sara Marie), a Filipino corporation, 66.63% of whose shares is, in turn, held by Olympic Mines and Development
Corporation (Olympic), another Filipino corporation. Finally, 59.97% of McArthur's 10,000 common shares is held by
Madridejos Mining Corporation (Madridejos), a Filipino corporation, 66.63% of whose shares is, in turn, held by Olympic.
The majority also notes that 39.98% of Narra's shares is held by Canadian corporation MBMI Resources, Inc. (MBMI), while
39.98% of Tesoro's and McArthur's common shares is held by MBMI. 30 It adds that in the case of the majority shareholder of Narra (i.e.,
Patricia Louise), 33.96% of its shares is owned by MBMI, while in the cases of the respective majority shareholders of Tesoro and McArthur
(i.e., Sara Marie, and Madridejos, respectively), 33.31% of their shares is held by MBMI.
The respective Filipino majority shareholders of Patricia Louise, Sara Marie, and Madridejos (i.e., PASRDC in the case of Patricia
Louise, and Olympic in the cases of Sara Marie and Madridejos) did not pay for shares. Instead, MBMI paid for their respective paid-up
capital. The majority concludes, applying the Grandfather Rule, that a foreign corporation — MBMI — breached the permissible maximum
of 40% foreign equity participation in the three (3) petitioner corporations and that petitioners are foreign corporations not entitled to mineral
production sharing agreements.
My Dissent to the April 21, 2014 Decision noted the inadequacy of relying merely on the denomination of shares as common or
preferred:
Proceeding from the findings of the Court of Appeals in its October 1, 2010 decision in CA-G.R. SP No.
109703, it appears that at least 60% of equities in Narra, Tesoro, and McArthur is owned by Philippine nationals. Per
this initial analysis, Narra, Tesoro, and McArthur ostensibly satisfy the requirements of the Control Test in order that
they may be deemed Filipino corporations.
Attention must be drawn to how these findings fail to indicate which (fractional) portion of these equities
consist of "shares of stock entitled to vote in the election of directors" or, if there is even any such portion of shares
which are not entitled to vote. These findings fail to indicate any distinction between common shares and preferred
shares (not entitled to vote). Absent a basis for reckoning non-voting shares, there is, thus, no basis for diminishing the
60% Filipino equity holding in Narra, Tesoro, and McArthur and undermining their having ostensibly satisfied the
requirements of the Control Test in order to be deemed Filipino corporations qualified to enter into MPSAs. 31
It is the majority's position that the mere reckoning of how shares are denominated — whether common or preferred — suffices. I,
however, proffer an analysis that requires looking into the actual voting rights vested on each class of shares. While it is true that preferred
shares are generally viewed as non-voting shares, a conclusion that the preferred shares involved in this case are totally bereft of voting rights
is not warranted by a cursory consideration of how they are denominated.
 The same Dissent conceded that a "more thorough consideration . . . could yield an entirely different conclusion." 32 This is what
the majority endeavors to embark on. However, it is improper to proceed, as the majority does, from the action of a body without competence
and jurisdiction as well as the imprudent acts of forum shopping of Redmont, and, in the process, lend legitimacy to the DENR Panel of
Arbitrators' and Redmont's illicit actions:
Having made these observations, it should not be discounted that a more thorough consideration — as has
been intimated in the earlier disquisition regarding how 60% Filipino equity ownership is but a minimum and how the
Grandfather Rule may be applied to further examine actual Filipino ownership — could yield an entirely different
conclusion. In fact, Redmont has asserted that such a situation avails.
However, the contingencies of this case must restrain the court's consideration of Redmont's
claims. Redmont sought relief from a body without jurisdiction — the Panel of Arbitrators — and has engaged in
blatant forum shopping. It has taken liberties with and ran amok of rules that define fair play. It is, therefore, bound
by its lapses and indiscretions and must bear the consequences of its imprudence. 33
IV
Redmont engaged in blatant forum shopping
It would be remiss of this court to overlook Redmont's acts of forum shopping. To do so would enable Redmont to profit from its
own imprudence and for this court to countenance a manifest disrespect for courts and quasi-judicial bodies. As extensively discussed in my
Dissent to the April 21, 2014 Decision:
Redmont has taken at least four (4) distinct routes all seeking substantially the same remedy. Stripped of their
verbosity and legalese, Redmont's petitions before the DENR Panel of Arbitrators, complaint before the Regional Trial
Court, complaint before the Securities and Exchange Commission, and petition before the Office of the President all
seek to prevent Narra, Tesoro, and McArthur as well as their co-respondents and/or co-defendants from engaging
in mining operations. Moreover, these are all grounded on the same cause (i.e., that they are disqualified from doing so
because they fail to satisfy the requisite Filipino equity ownership) and premised on the same facts or circumstances.
Redmont has created a situation where multiple tribunals must rule on the extent to which the parties adverse
to Redmont have met the requisite Filipino equity ownership. It is certainly possible that conflicting decisions will be
issued by the various tribunals over which Redmont's various applications for relief have been lodged. It is, thus, glaring
that the very evil sought to be prevented by the rule against forum shopping is being foisted by Redmont.
xxx xxx xxx
It strains credulity to accept that Redmont's actions have not been willful. By filing petitions with the DENR
Panel of Arbitrators, Redmont started the entire series of events that have culminated in: first, the present petition;
second, the de-consolidated G.R. No. 205513; and third, at least one (1) more petition filed with this court. 34
Following the adverse decision of the Panel of Arbitrators, Narra, Tesoro, and McArthur pursued appeals
before the Mines Adjudication Board. This is all but a logical consequence of the POA's adverse decision. While the
appeal before the MAB was pending, Redmont filed a complaint with the SEC and then filed a complaint with the
Regional Trial Court to enjoin the MAB from proceeding. Redmont seems to have conveniently forgotten that it was its
own actions that gave rise to the proceedings before the MAB in the first place. Moreover, even as all these were
pending and in various stages of appeal and/or review, Redmont still filed a petition before the Office of the President.
Consistent with Rule 7, Section 5 of the 1997 Rules of Civil Procedure, the actions subject of these
consolidated petitions must be dismissed with prejudice. 35
Apart from the Petition subject of the present Motion for Reconsideration, two (2) other cases involving the same parties are now
pending with this court. The first, G.R. No. 205513, relates to a Complaint for Revocation of the certificates of registration of Narra, Tesoro,
and McArthur filed by Redmont with the Securities and Exchange Commission. G.R. No. 205513 was consolidated but later de-consolidated
with this case. The second is a case pending with this court's First Division. This relates to the Petition filed by Redmont with the Office of
the President in which it sought the cancellation of the financial or technical assistance agreement (FTAA) applications of  Narra, Tesoro, and
McArthur.
That there are now three (3) simultaneously pending Petitions with this court is the result of Redmont's contemporaneously having
sought remedies from:
1. The DENR Panel of Arbitrators;
2. The Securities and Exchange Commission;
3. The Regional Trial Court, Quezon City; and
4. The Office of the President.
While this and the two other cases pending with this court diverge as to the procedural routes they have taken, they all boil down to
the central issue of the nationalities of Narra, Tesoro and McArthur. It is manifest that Redmont engaged in blatant forum shopping. The
April 21, 2014 Decision effectively rewarded Redmont's abuse of court processes. Worse, maintaining the status quo of having a multiplicity
of cases reinforces the stance of leaving Redmont to reap the benefits of its unconscionable scheme.
ACCORDINGLY, I vote to grant the Motion for Reconsideration. I reiterate my vote to GRANT the Petition for Review
on Certiorari subject of G.R. No. 195580. The assailed Decision dated October 1, 2010 and the assailed Resolution dated February 15, 2011
of the Court of Appeals Seventh Division in CA-G.R. SP No. 109703, which reversed and set aside the September 10, 2008 and July l, 2009
Orders of the Mines Adjudication Board, should be SET ASIDE and DECLARED NULL AND VOID. The September 10, 2008 Order of
the Mines Adjudication Board dismissing the Petitions filed by Redmont Consolidated Mines with the DENR Panel of Arbitrators must
be REINSTATED.
||| (Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580 (Resolution), [January 28, 2015],
752 PHIL 255-304)

SECOND DIVISION

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

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner, vs. THE LAND REGISTRATION COMMISSION and
THE REGISTER OF DEEDS OF DAVAO CITY, respondents.

Teodoro Padilla for petitioner.

Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Solicitor Troadio T. Quianzon, Jr. for respondents.

SYLLABUS
 1. CORPORATIONS SOLE; COMPONENTS AND PURPOSE OF; POWER TO HOLD AND TRANSMIT CHURCH PROPERTIES TO HIS SUCCESSOR IN OFFICE.
— A corporation sole is a special form of corporation usually associated with clergy . . . designed to facilitate the exercise of the functions of ownership of the church which was
regarded as the property owner (I Bouvier's Law Dictionary, p. 682-683). It consists of one person only, and his successors (who will always be one at a time), in some particular, who
are incorporated by law in order to give them some legal advantages particularly that of perpetuity which in their natural persons they could not have . . . (Reid  vs. Barry, 93 Fla. 849 112
So. 846). Through this legal fiction, church properties acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not to his personal heirs but to his
successor in office. A corporation sole, therefore, is created not only to administer the temporalities of the church or religious society where he belongs, but also to hold and transmit the
same to his successor in said office.
2. ID.; PERSONALITY OF SEPARATE AND DISTINCT FROM THAT OF ROMAN PONTIFF. — Although a branch of the Universal Roman Catholic Apostolic
Church, every Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with laws of the country where it is located, is
considered an entity or person with all the rights and privileges granted to such artificial being under laws of that country, separate and distinct from the personality of the Roman Pontiff
or the Holy See, without prejudice to its religious relations with the latter which are governed by the Common Law or their rules and regulations.
3. ID.; ID.; POWER AND QUALIFICATION TO PURCHASE IN ITS NAME PRIVATE LANDS; 60 PER CENTUM REQUIREMENT NOT INTENDED TO
CORPORATION SOLE. — Under the circumstances of the present case, it is safe to state that even before the establishment of the Philippine Commonwealth and of the Republic of the
Philippines every corporation sole then organized and registered had by express provision of law (Corporation Law, Public Act. 1459) the necessary power and qualification to purchase
in its name private lands located in the territory in which it exercised its functions or ministry and for which it was created, independently of the nationality of its incumbent unique and
single number and head, the bishop of the diocese. It can be also maintained without fear of being gainsaid that the Roman Catholic Apostolic Church in the Philippines has no
nationality and that the frames of the Constitution did not have in mind the religious corporation sole when they provided that 60 per centum of the capital thereof be owned by Filipino
citizens. Thus, if this constitutional provision were not intended for corporation sole, it is obvious that this could not be regulated or restricted by said provision.
4. ID.; ID.; ID.; ID.; CONSTITUTIONAL REQUIREMENT LIMITED TO OWNERSHIP NOT TO CONTROL. — But  the Corporation Law and the Canon Law are
explicit in their provisions that a corporation sole or "ordinary" is not the owner of the properties that he may acquire but merely the administrator thereof and holds the same in trust for
the church to which the corporation is an organized and constituents part. Being mere administrator of the temporalities or properties titled in his name, the constitutional provision
requiring 60 per centum Filipino ownership is not applicable. The said constitutional provision is limited by it terms to  ownership alone and does not extend to control unless the control
over the property affected has been devised to circumvent the real purpose of the constitution.
5. ID.; CORPORATION SOLE WITHOUT NATIONALITY; NATIONALITY OF CONSTITUENTS DETERMINES WHETHER CONSTITUTIONAL
REQUIREMENTS IS APPLICABLE. — The corporation sole by reason of their peculiar constitution and form of operation have no designed owner of its temporalities, although by the
terms of the law it can be safely implied that they ordinarily hold them  in trust for the benefit of the Roman Catholic faithful of their respective locality or diocese. They can not be
considered as aliens because they have no nationality at all. In determining, therefore, whether the constitutional provision requiring 60 per centum Filipino capital is applicable to
corporations sole, the nationality of the constituents of the diocese, and not the nationality of the actual incumbent of the parish, must be taken into consideration. In the present case,
even if the question of nationality be considered, the aforesaid constitutional requirement is fully met and satisfied, considering that the corporation sole in question is composed of an
overwhelming majority of Filipinos.

DECISION

FELIX, J p:

This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the reversal of a
resolution issued by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a parcel of
land located in the same city covered by Transfer Certificate of Title No. 2263, in favor of the Roman Catholic Administrator of Davao,
Inc., a corporation sole organized and existing in accordance with Philippine laws, with Msgr. Clovis Thibault, a Canadian citizen, as
actual incumbent. When the deed of sale was presented to the Register of Deeds of Davao for registration, the latter
having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein the
Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60 per cent of the members of their
corporation were Filipino citizens when they sought to register in favor of their congregation a deed of donation of a
parcel of land —
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were Filipino citizens.
The vendee in a letter dated June 28, 1954, expressed willingness to submit an affidavit, but not in the same tenor as that made
by the Prioress of the Carmelite Nuns because the two cases were not similar, for whereas the congregation of the Carmelite Nuns had
five incorporators, the corporation sole has only one; that according to their articles of incorporation, the organization of the Carmelite
Nuns became the owner of properties donated to it, whereas the case at bar, the totality of the Catholic population of Davao would
become the owner of the property sought to be registered.
As the Register of Deeds entertained some doubts as to the registerability of the document, the matter was referred to the Land
Registration Commissioner en consulta for resolution in accordance with section 4 of Republic Act No. 1151. Proper hearing on the
matter was conducted by the Commissioner and after the petitioner corporation had filed its memorandum, a resolution was rendered on
September 21, 1954, holding that in view of the provisions of Sections 1 and 5 of Article XIII of the Philippine Constitution, the vendee
was not qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per centum of the capital, property, or
assets of the Roman Catholic Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no
question that the present incumbent of the corporation sole was a Canadian citizen. It was also the opinion of the Land Registration
Commissioner that section 159 of the Corporation Law relied upon by the vendee was rendered inoperative by the aforementioned
provisions of the Constitution with respect to real estate, unless the precise condition set therein — that at least 60 per cent of its capital
is owned by Filipino citizens — be present, and, therefore, ordered the Register of Deeds of Davao to deny registration of the deed of
sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court by said
corporation sole, alleging that under the Corporation Law, the Canon Law as well as the settled jurisprudence on the matter, the deed of
sale executed by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church which is qualified to
acquire private agricultural lands for the establishment and maintenance of places of worship, and prayed that judgment be rendered
reserving and setting aside the resolution of the Land Registration Commissioner in question. In its resolution of November 15, 1954,
this Court gave due course to this petition providing that the procedure prescribed for appeals from the Public Service Commission or
the Securities and Exchange Commission (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines,  or
to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, SUBJECT TO
ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE INAUGURATION OF THE
GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or
utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for
another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than
the development of water power, in which cases beneficial use may be the measure and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold agricultural lands in
the Philippines? What is the effect of these constitutional prohibition on the right of a religious corporation recognized by
our Corporation Law and registered as a corporation sole, to possess, acquire and register real estates in its name when the Head,
Manager, Administrator or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or
disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are explicit in their provisions that a
corporation sole or "ordinary" is not the owner of the properties that he may acquire but merely the administrator thereof. The Canon
Law also specified that church temporalities are owned by the Catholic Church as a "moral person" or by the dioceses as minor "moral
persons" with the ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a religious society or
organization, it is made up of 2 elements or divisions — the clergy or religious members and the faithful or lay members. The 1948
figures of the Bureau of Census and Statistics showed that there were 277,551 Catholics in Davao and aliens residing therein numbered
3,465. Even granting that all these foreigners are Catholics, petitioner contends that Filipino citizens form more than 80 per cent of the
entire Catholics population of that area. As to its clergy and religious composition, counsel for petitioner presented the Catholic
Directory of the Philippines for 1954 (Annex A) which revealed that as of that year, Filipino clergy and women novices comprise
already 60.5 per cent of the group. It was, therefore, alleged that the constitutional requirement was fully met and satisfied.
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land purchased, yet
he has control over the same, with full power to administer, take possession of, alienate, transfer, encumber, sell or dispose of any or all
lands and their improvements registered in the name of the corporation sole and can collect, receive, demand or sue for all money or
values of any kind that may become due or owing to said corporation, and vested with authority to enter into agreements with any
persons, concerns or entities in connection with said real properties, or in other words, actually exercising all rights of ownership over
the properties. It was their stand that the theory that properties registered in the name of the corporation sole are held in trust for the
benefit of the Catholic population of a place, as of Davao in the case at bar, should not be sustained because a conglomeration of persons
cannot just be pointed out as the cestui que trust or recipient of the benefits from the property allegedly administered in their behalf.
Neither can it be said that the mass of people referred to as such beneficiary exercise any right of ownership over the same. This set-up,
respondents argued, falls short of a trust. Respondents instead tried to prove that in reality, the beneficiary of ecclesiastical properties are
not the members or faithful of the church but someone else, by quoting a portion of the oath of fidelity subscribed by a bishop upon his
elevation to the episcopacy wherein he promises to render to the Pontifical Father or his successors an account of his pastoral office and
of all things appertaining to the state of this church.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent Filipino
citizenship, the criterion is not membership in the society but ownership of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a special form of
corporation usually associated with the clergy. Conceived and introduced into the common law by sheer necessity, this legal creation
which was referred to as "that unhappy freak of English law" was designed to facilitate the exercise of the functions of ownership carried
on by the clerics for and on behalf of the church which was regarded as the property owner (See I Bouvier's Law Dictionary, p. 682-
683).
A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular
station, who are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in
their natural persons they could not have had. In this sense, the king is a sole corporation; so is a bishop, or deans, distinct from their
several chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
 The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of petitioner. Section
154 thereof provides:
SEC 154. — For the administration of the temporalities of any religious denomination, society or church and
the management of the estates and properties thereof, it shall be lawful for the bishop, chief priest, or presiding elder of
any such religious denomination, society or church to become a corporation sole, unless inconsistent with the rules,
regulations or discipline of his religious denomination, society, or church or forbidden by competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious
denomination, society, or church must file with the Securities and Exchange Commissioner articles of incorporation
setting forth the following facts:
xxx xxx xxx
(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the
temporalities and the management of the estates, and properties of his religious denomination, society, or church within
its territorial jurisdiction, describing it;
xxx xxx xxx
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities & Exchange Commissioner of the said articles of
incorporation, verified by affidavit or affirmation as aforesaid and accompanied by the copy of the commission,
certificate of election, or letters of appointment of the bishop, chief priest, or presiding elder, duly certified as prescribed
in the section immediately preceding such bishop, chief priest, or presiding elder, as the case may be, shall become a
corporation sole, and all temporalities, estates, and properties of the religious denomination, society, or church
therefore administered or managed by him as such bishop, chief priest, or presiding elder shall be held in trust by him
as a corporation sole, for the use, purpose, behoof, and sole benefit of his religious denomination, society, or church,
including hospitals, schools, colleges, orphan asylums; parsonages, and cemeteries thereof. For the filing of such articles
of incorporation, the Securities & Exchange Commissioner shall collect twenty-five pesos. (As amended by
Commonwealth Act No. 287); and
SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or
society, or by the diocese, synod, or district organization of any religious denomination or church shall, on its
incorporation, pass to the corporation and shall be held in trust for the use, purpose, behoof, and benefit of the religious
society, or order so incorporated or of the church of which the diocese, synod, or district organization is an organized
and constituent part.
The Canon Law contains similar provisions regarding the duties of the corporation sole or ordinary as administrator of the
church properties, as follows:
"Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes eclesiasticos
que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccio n, salvas las prescripciones legitimas que le
concedan mas amplios dsrechos.
"Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios
regular todo lo concerniente a la administracion de los bienes eclesiasticos, dando las oportunas instrucciones
particulares dentro del marco del derecho comun". (Title XXVIII, Codigo da Derecho Canonico, Lib. III, Canon
1519). *
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merely administrators of the church properties that come to their possession, and which they hold in trust for the church. It can also be
said that while it is true that church properties could be administered by a natural person, problems regarding succession to said
properties can not be avoided to rise upon his death. Through this legal fiction, however, church properties acquired by the incumbent of
a corporation sole pass, by operation of law, upon his death not to his personal heirs but to his successor in office. It could be seen,
therefore, that a corporation sole is created not only to administer the temporalities of the church or religious society where he belongs
but also to hold and transmit the same to his successor in said office. If the ownership or title to the properties do not pass to the
administrators, who are the owners of church properties?
Bouscaren and Elis, S. J., authorities on canon law, on their treatise comment:
"In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme
Pontiff exercises his office of supreme administrator through the Roman Curia; in matters regarding other church
property, through the administrators of the individual moral persons in the Church according to that norms, laid down in
the Code of Canon Law. This does not mean, however, that the Roman Pontiff is the owner of all church property; but
merely that he is the supreme guardian" (Bouscaren and Ellis, Canon Law, A Text and Commentary, p. 764).
 
And this Court, citing Campos y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs. Roman Catholic
Archbishop of Manila, 63 Phil. 881, that:
 "The second question to be decided is in whom the ownership of the properties constituting the endowment of
the ecclesiastical or collative chaplaincies is vested.
'Canonists entertain different opinions as to the person in whom the ownership of the ecclesiastical properties
is vested, with respect to which we shall, for our purpose, confine ourselves to stating with Donoso that, while many
doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of the Universal Church, it is more
probable that ownership, strictly speaking, does not reside in the latter, and, consequently, ecclesiastical properties are
owned by churches, institutions and canonically established private corporations to which said properties have been
donated'."
Considering that nowhere can We find any provision conferring ownership of church properties on the Pope although he
appears to be the supreme administrator or guardian of his flock, nor on the corporations sole or heads of dioceses as they are admittedly
mere administrators of said properties, ownership of these temporalities logically fall and devolve upon the church, diocese or
congregation acquiring the same. Although this question of ownership of ecclesiastical properties has off and on been mentioned in
several decisions of this Court yet in no instance was the subject of citizenship of this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of Agustines vs. Court of
First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila is only a branch of a universal
church by the Pope, with permanent residence in Rome, Italy". There is no question that the Roman Catholic Church existing in the
Philippines is a tributary and part of that international religious organization, for the word "Roman" clearly expresses its unity with and
recognizes the authority of the Pope in Rome. However, lest We become hasty in drawing conclusions, We have to analyze and take
note of the nature of the government established in the Vatican City, of which it was said:
"GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity
alike is held by the pope who (since the Middle Ages) is elected by the cardinals assembled in conclave, and holds
office until his death or legitimate abdication. . . . While the pope is obviously independent of the laws made, and the
officials appointed, by himself or his predecessors, he usually exercises his administrative authority according to the
code of canon law and through the congregations, tribunals and offices of the Curia Romana. In their respective
territories (called generally dioceses) and over their respective subjects, the patriarchs, metropolitans or archbishops and
bishops exercise a jurisdiction which is called ordinary (as attached by law to an office and so distinguished from
delegated jurisdiction which is given to a person. . . . ." (Collier's Encyclopedia, Vol. 17, p. 93.)
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme head; that in
religious matters, in the exercise of their belief, the Catholic congregation of the faithful throughout world seeks the guidance and
direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger of personalities resultant therein. Neither can
it be said that the political and civil rights of the faithful, inherent or acquired under the laws of their country, are affected by that
relationship with the Pope. The fact that the Roman Catholic Church in almost every country springs from that society that saw its
beginning in Europe and the fact that the clergy of this faith derive their authorities and receive orders from the Holy See do not give or
bestow the citizenship of the Pope upon these branches. Citizenship is a political right which cannot be acquired by a sort of "radiation".
We have to realize that although there is a fraternity among all the catholic countries and the dioceses therein all over the globe, this
universality that the word "catholic" implies, merely characterize their faith, a uniformity in the practice and interpretation of their
dogma and in the exercise of their belief, but certainly they are separate and independent from one another in jurisdiction, governed by
different laws under which they are incorporated, and entirely independent of the others in the management and ownership of their
temporalities. To allow theory that the Roman Catholic Churches all over the world follow the citizenship of their Supreme Head, the
Pontifical Father, would lead to the absurdity of finding the citizens of a country who embrace the Catholic faith and become members
of that religious society, likewise citizens of the Vatican or of Italy. And this is more so if We consider that the Pope himself may be an
Italian or national of any other country of the world. The same thing may be said with regard to the nationality or citizenship of the
corporation sole created under the laws of the Philippines, which is not altered by the change of citizenship of the incumbent bishops or
heads of said corporations sole.
We must, therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman Catholic
Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the laws of the country where it
is located, is considered an entity or person with all the rights and privileges granted to such artificial being under the laws of that
country, separate and distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with
the latter which are governed by the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far reaching influence,
nor can We overlook the pages of history that arouse indignation and criticisms against church landholdings. This nurtured feeling that
showballed into a strong nationalistic sentiment manifested itself when the provisions on natural resources to be embodied in the
Philippines Constitution were framed, but all that has been said on this regard referred more particularly to landholdings of religious
corporations known as "Friar Estates" which have already been acquired by our Government, and not to properties held corporations sole
which, We repeat, are properties held in trust for the benefit of the faithful residing within its territorial jurisdiction. Though that same
feeling probably precipitated and influenced to a large extent the doctrine laid down in the celebrated Krivenko decision, We have to
take this matter in the light of legal provisions and jurisprudence actually obtaining, irrespective of sentiments.
The question now left for our determination is whether the Roman Catholic Apostolic Church in the Philippines, or better still,
the corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private agricultural lands
in the Philippines pursuant to the provisions of Article XIII of the Constitution.
 We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire or hold lands
of the public domain in the Philippines may acquire or be assigned and hold private agricultural lands. Consequently, the decisive factor
in the present controversy hinges on the proposition of whether or not the petitioner in this case can acquire agricultural lands of the
public domain.
From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop of Zamboanga
was incorporated as a corporation sole) in September, 1912, principally to administer its temporalities and manage its
properties. Probably due to the ravages of the last war, its articles of incorporation were reconstructed in the Securities and Exchange
Commission on April 8, 1948. At first, this corporation sole administered all the temporalities of the church existing or located in the
island of Mindanao. Later on, however, new dioceses were formed and new corporations sole were created to correspond with the
territorial jurisdiction of the new dioceses, one of them being petitioner herein, the Roman Catholic Apostolic Administrator of Davao,
Inc., which was registered with the Securities and Exchange Commission on September 12, 1950, and succeeded in the administration of
all the "temporalities" of the Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1459, approved April 1, 1906, a corporation sole
is organized and composed of a single individual, the head of any religious society or church, for
the ADMINISTRATION of the temporalities of such society of church. By "temporalities" is meant estates and
properties not used exclusively for religious worship. The successors in office of such religious head or chief priest
incorporated as a corporation sole shall become the corporation sole on ascension to office, and shall be permitted to
transact business as such on filing with the Securities and Exchange Commission a copy of his commission, certificate
of election or letter of appointment duly certified by any notary public or clerk of court of record (Guevara's The
Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent, or educational purposes, and may receive bequests or gifts for such purposes. Such corporation
may mortgage or sell real property held by it upon obtaining an order for that purpose from the Court of First Instance
of the province in which the property is situated; but before making the order proof must be made to the satisfaction of
the Court that notice of the application for leave to mortgage or sell has been given by publication or otherwise in such
manner and for such time as said Court or the Judge thereof may have directed, and that it is to the interest of the
corporation that leave to mortgage or sell should be granted. The application for leave to mortgage or sell must be made
by petition, duly verified by the bishop, chief priest, or presiding elder, acting as corporation sole, and may be opposed
by any member of the religious denomination, society or church represented by the corporation sole:  Provided,
however, That in cases where the rules, regulations, and discipline of the religious denomination, society or church
concerned represented by such corporation sole regulate the methods of acquiring, holding, selling and mortgaging
real estate and personal property, such rules, regulations, and discipline shall control and the intervention of the
Courts shall not be necessary.
It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power exercised in the case
at bar, is not restricted although the power to sell or mortgage sometimes is, depending upon the rules, regulations, and discipline of the
church concerned represented by said corporation sole. If corporations sole can purchase and sell real estate for its church, charitable,
benevolent, or educational purposes, can they register said real properties? As provided by law, lands held in trust for specific purposes
may be subject of registration (section 69, Act 496), and the capacity of a corporation sole, like petitioner herein, to register lands
belonging to it is acknowledged, and title thereto may be issued in its name (Bishop of Nueva Segovia vs. Insular Government, 26 Phil.
300-1913). Indeed it is absurd to conceive that while the corporations sole that might be in need of acquiring lands for the erection of
temples where the faithful can pray, or schools and cemeteries which they are expressly authorized by law to acquire in connection with
the propagation of the Roman Catholic Apostolic faith or in furtherance of their freedom of religion, they could not register said
properties in their name. As professor Javier J. Nepomuceno very well says "Man in his search for the immortal and imponderable, has,
even before the dawn of recorded history, erected temples to the Unknown God, and there is no doubt that he will continue to do so for
all time to come, as long as he continues 'imploring the aid of Divine Providence'" (Nepomuceno's Corporation Sole, VI Ateneo Law
Journal, No. 1, p. 41, September, 1956). Under the circumstances of this case, We might safely state that even before the establishment
of the Philippine Commonwealth and of the Republic of the Philippines every corporation sole then organized and registered had by
express provision of law the necessary power and qualification to purchase in its name private lands located in the territory in which it
exercised its functions or ministry and for which it was created, independently of the nationality of its incumbent unique and single
member and head, the bishop of the diocese. It can be also maintained without fear of being gainsaid that the Roman Catholic Apostolic
Church in the Philippines has no nationality and that the framers of the Constitution, as will be hereunder explained, did not have in
mind the religious corporations sole when they provided that 60 per centum of the capital thereof be owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having the right of
succession and the power, attributes, and properties expressly authorized by law or incident to its existence (section 1, Corporation Law).
In outlining the general powers of a corporation, Public Act No. 1459 provides among others:
SEC. 13. Every corporation has the power:
xxx xxx xxx
(5) To purchase, hold, convey, sell, lease, let, mortgage, encumber, and otherwise deal with such real and
personal property as the purposes for which the corporation was formed may permit, and the transaction of the lawful
business of the corporation may reasonably and necessarily require, unless otherwise prescribed in this Act: . . . .
 In implementation of the same and specifically made applicable to a form of corporation recognized by the same law, Section
159 aforequoted expressly allowed the corporation sole to purchase and hold real as well as personal properties necessary for the
promotion of the objects for which said corporation sole is created. Respondent Land Registration Commissioner, however, maintained
that since the Philippine Constitution is a later enactment than Public Act No. 1459, the provisions of Section 159 in amplification of
Section 13 thereof, as regard real properties, should be considered repealed by the former.
There is reason to believe that when the specific provision of the Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or overlooked this particular form of corporation. It is undeniable that the
nationalization and conservation of our natural resources was one of the dominating objectives of the Convention and in drafting the
present Article XIII of the Constitution, the delegates were goaded by the desire (1) to insure their conservation for Filipino posterity; (2)
to serve as an instrument of national defense, helping prevent the extension into the country of foreign control through peaceful
economic penetration; and (3) to prevent making the Philippines a source of international conflicts with the consequent danger to its
internal security and independence (See The Framing of the Philippine Constitution by Professor Jose M. Aruego, a Delegate to the
Constitutional Convention, Vol. II. P. 592-604). In the same book Delegate Aruego, explaining the reason behind the first consideration,
wrote:
"At the time of the framing of the Philippine Constitution. Filipino capital had been known to be rather shy.
Filipinos hesitated as a general rule to invest a considerable sum of their capital for the development, exploitation and
utilization of the natural resources of the country. They had not as yet been so used to corporate enterprises as the
peoples of the west. This general apathy, the delegates knew, would mean the retardation of the development of the
natural resources, unless foreign capital would be encouraged to come and help in that development.  They knew that the
nationalization of the natural resources would certainly not encourage the INVESTMENT OF FOREIGN CAPITAL,
into them. But there was a general feeling in the Convention that it was better to have such a development retarded or
even postponed together until such time when the Filipinos would be ready and willing to undertake it rather than permit
the natural resources to be placed under the ownership or control of foreigners in order that they might be immediately
developed, with the Filipinos of the future serving not as owners but utmosts as tenants or workers under foreign
masters. By all means, the delegates believed, the natural resources should be conserved for Filipino posterity".
It could be distilled from the foregoing that the framers of the Constitution intended said provisions as barrier for foreigners or
corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving these undeveloped wealth for our
people to clear and enrich when they are already prepared and capable of doing so. But that is not the case of corporations sole in the
Philippines, for, We repeat, they are mere administrators of the "temporalities" or properties titled in their name and for the benefit of the
members of their respective religion composed of an overwhelming majority of Filipinos. No mention nor allusion whatsoever is made
in the Constitution as to the prohibition against or the ability of the Roman Catholic Church in the Philippines to acquire and hold
agricultural lands. Although there were some discussions on landholdings, they were mostly confined in the inclusion of the provision
allowing the Government to break big landed estates to put an end to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article XIII of the
Constitution does have bearing on the petitioner's case; even so the clause requiring that at least 60 per centum of the capital of the
corporation be owned by Filipinos is subordinated to the petitioner's aforesaid right already existing at the time of the inauguration of the
Commonwealth and the Republic of the Philippines. In the language of Mr. Justice Jose P. Laurel (a Delegate to the Constitutional
Convention), in his concurring opinion in the case of Gold Creek Mining Corporation petitioner vs. Eulogio Rodriguez, Secretary of
Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil. 259:
"The saving clause in the section involved of the Constitution was originally embodied in the report submitted
by the Committee on Nationalization and Preservation of Lands and Other Natural Resources to the Constitutional
Convention on September 17, 1934. It was later inserted in the first draft of the Constitution as section 13 of Article XIII
thereof, and finally incorporated as we find it now. Slight have been the changes undergone by the proviso from the
time when it came out of the committee until it was finally adopted. When first submitted and as inserted in the first
draft of the Constitution it reads: 'subject to any right, grant, lease or concession existing in respect thereto as the date of
the adoption of the Constitution'. As finally adopted, the proviso reads: 'subject to any existing right, grant, lease or
concession at the time of the inauguration of the Government established under this Constitution'. This recognition is
not mere graciousness but springs from the just character of the government established. The framers of the Constitution
were not obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of nationalism. They well
knew that conservation of our natural resources did not mean destruction or annihilation of acquired property rights.
Withal, they erected a government neither episodic nor stationary but well-nigh conservative in the protection of
property rights. This notwithstanding nationalistic and socialistic traits discoverable upon even a sudden dip into a
variety of the provisions embodied in the instrument."
The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to the
consideration of the Court the question that may be termed the "vested right saving clause" contained in Section 1, Article XIII of the
Constitution, but some of the members of this Court either did not agree with the theory of the writer, or were not ready to take a definite
stand on the particular point I am now to discuss deferring our ruling on such debatable question for a better occasion, inasmuch as the
determination thereof is not absolutely necessary for the solution of the problem involved in this case. In his desire to face the issues
squarely, the writer will endeavour, at least as a digression, to explain and develop his theory, not as a lucubration of the Court, but of his
own, for he deems it better and convenient to go over the cycle of reasons that are linked to one another and that step by step lead Us to
conclude as We do in the dispositive part of this decision.
 It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all agricultural lands of
the public domain and their disposition shall be limited to citizens of Philippines or to corporations at least 60 per centum of the capital
of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE
GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs. Rodriguez et al., 66 Phil.
259, "this recognition (in the clause already quoted), is not mere graciousness but springs from the just character of the government
established. The framers of the Constitution were not obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of
nationalism. They well knew that conservation of our natural resources did not mean destruction or annihilation of ACQUIRED
PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a corporation which
does not fulfill this 60 per cent requisite, refers to purchases or acquisitions made prior to the effectivity of the Constitution and not
to later transactions. This argument would imply that even assuming that petitioner had at the time of the enactment of the Constitution
the right to purchase real property, that power or right could not be exercised after the effectivity of our Constitution, because said power
or right of corporations sole, like the herein petitioner, conferred in virtue of the aforequoted provisions of the Corporation Law, could
no longer be exercised in view of the requisite therein prescribed that at least 60 per centum of the capital of the corporation had to be
Filipino. It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5
incorporators, is composed of only one person, usually the head or bishop of the diocese, a unit which is not subject to expansion for the
purpose of determining any percentage whatsoever; (2) the corporation sole is only the administrator and not the owner of the
temporalities located in the territory comprised by said corporation sole; (3) such temporalities are administered for and on behalf of the
faithful residing in the diocese or territory of the corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the
incumbent Ordinary has nothing to do with the operation, management or administration of the corporation sole, nor affects the
citizenship of the faithful connected with their respective diocese or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the Constitution
invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be so,
then the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital was never intended to apply to
corporations sole, and the existence or not of a vested right becomes unquestionably immaterial.
But let us assume that the questioned proviso is material, yet We might say that a reading of said Section 1 will show that it
does not refer to any actual acquisition of land but to the right, qualification or power to acquire and hold private real property. The
population of the Philippines, Catholic to a high percentage, is ever increasing. In the practice of religion of their faithful the corporation
sole may be in need of more temples where to pray, more schools where the children of the congregation could be taught in the
principles of their religion, more hospitals where their sick could be treated, more hallow or consecrated grounds or cemeteries where
Catholics could be buried, many more than those actually existing at the time of the enactment of our Constitution. This being the case,
could it be logically maintained that because the corporation sole which, by express provision of law, has the power to hold and acquire
real estate and personal property for its churches, charitable benevolent, or educational purposes (section 159, Corporation Law) it has to
stop its growth and restrain its necessities just because the corporation sole is a non-stock corporation composed of only one person who
in his unity does not admit of any percentage, especially when that person is not the owner but merely an administrator of the
temporalities of the corporation sole? The writer leaves the answer to whoever may read and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing this case, for even if We were to disregard such
saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at the time of the inauguration of the
Government established under this Constitution, yet We would have, under the evidence on record, sufficient grounds to uphold
petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, * G. R. No. L-6776, promulgated May 21, 1955, wherein
this question was considered from a different angle, this Court, through Mr. Justice J. B. L. Reyes, said:
"The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty per
centum requirement is obviously to ensure that corporation or associations allowed to acquired agricultural land or to
exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in the absence
of capital stock, the controlling membership should be composed of Filipino citizens."
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e., an
unregistered organization operating through 3 trustees, all of Chinese nationality, and that is why this Court laid down the doctrine just
quoted. With regard to petitioner, the Roman Catholic Administrator of Davao, Inc., which likewise is a non-stock corporation, the case
is different, because it is a registered corporation sole, evidently of no nationality and registered mainly to administer the temporalities
and manage the properties belonging to the faithful of said church residing in Davao. But even if we were to go over the record to
inquire into the composing membership to determine whether the citizenship requirement is satisfied or not, we would find undeniable
proof that the members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens. As
indicated before, petitioner has presented evidence to establish that the clergy and lay members of this religion fully covers the
percentage of Filipino citizens required by the Constitution. These facts are not controverted by respondents and our conclusion in this
point is sensibly obvious.
Dissenting Opinion — Discussed. — After having developed our theory in this case and arrived at the findings and conclusions
already expressed in this decision. We now deem it proper to analyze and delve into the basic foundation on which the dissenting
opinion stands up. Being aware of the transcendental and far-reaching effects that Our ruling on the matter might have, this case was
thoroughly considered from all points of view, the Court sparing no effort to solve the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal of the doctrine
We laid down in the celebrated Krivenko case by excluding urban lots and properties from the grasp of the term "private agricultural
lands" used in section 5, Article XIII of the Constitution; and (2) by driving Our reasons to a point that might indirectly cause the
appointment of Filipino bishops or Ordinary to head the corporations sole created to administer the temporalities of the Roman Catholic
Church in the Philippines. With regard to the first way, a great majority of the members of this Court were not yet prepared nor
agreeable to follow that course, for reasons that are obvious. As to the second way, it seems to be misleading because the nationality of
the head of a diocese constituted as a corporation sole has no material bearing on the functions of the latter, which are limited to the
administration of the temporalities of the Roman Catholic Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered on the
outskirts of the issues, thus throwing the main points in controversy out of focus. Of course We fully agree, as stated by Professor
Aruego, that the framers of our Constitution had at heart to insure the conservation of the natural resources of Our motherland for
Filipino posterity; to serve them as an instrument of national defense, helping prevent the extension into the country of foreign
control through peaceful economic penetration; and to prevent making the Philippines a source of international conflicts with the
consequent danger to its internal security and independence. But all these precautions adopted by the Delegates to Our Constitutional
Assembly could not have been intended for or directed against cases like the one at bar. The emphasis and wanderings on the statement
that once the capacity of a corporation sole to acquire private agricultural lands is admitted there will be no limit to the areas that it may
hold and that this will pave the way for the "revival or revitalization of religious landholdings that proved so troublesome in our past",
cannot even furnish the "penumbra" of a threat to the future of the Filipino people. In the first place, the right of Filipino citizens,
including those of foreign extraction, and Philippine corporations, to acquire private lands is not subject to any restriction or limit as to
quantity or area, and We certainly do not see any wrong in that. The right of Filipino citizens and corporations to
acquire public agricultural lands is already limited by law. In the second place, corporations sole cannot be considered as aliens because
they have no nationality at all. Corporations sole are, under the law, mere administrators of the temporalities of the Roman Catholic
Church in the Philippines. In the third place, every corporation, be it aggregate or sole, is only entitled to purchase, convey, sell, lease,
let, mortgage, encumber and otherwise deal with real properties when it is pursuant to or in consonance with the purposes for which the
corporation was formed, and when the transactions of the lawful business of the corporation reasonably and necessarily require such
dealing — section 13-(5) of the Corporation Law, Public Act No. 1459 — and considering these provisions in conjunction with Section
159 of the same law which provides that a corporation sole may only "purchase and hold real estate and personal properties for its
church, charitable, benevolent or educational purposes", the above mentioned fear of revitalization of religious landholdings in the
Philippines is absolutely dispelled. The fact that the law thus expressly authorizes the corporations sole to receive bequests or gifts of
real properties (which were the main source that the friars had to acquire their big haciendas during the Spanish regime), is a clear
indication that the requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was, in the opinion
of the legislators, considered sufficient and adequate protection against the revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional Convention drafted
and approved Article XIII of the Constitution, they did not have in mind the corporation sole. We come to this finding because the
Constitutional Assembly, composed as it was by a great number of eminent lawyers and jurists, was like any other legislative body
empowered to enact either the Constitution of the country or any public statute, presumed to know the conditions existing as to particular
subject matter when it enacted a statute (Board of Com'rs of Orange County vs. Bain, 92 S. E. 176; 173 N. C. 377).
"Immemorial customs are presumed to have been always in the mind of the Legislature in enacting
legislation." (In re Kruger's Estate, 121 A. 109; 277 Pa. 326).
"The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it
legislates." (Clover Valley Land & Stock Co. vs. Lamb et al., 187, p. 723, 726.)
"The Court in construing a statute, will assume that the legislators acted with full knowledge of the prior
legislation on the subject and its construction by the courts." (Johns vs. Town of Sheridan, 89 N. E. 899, 44 Ind. App.
620.)
"The Legislature is presumed to have been familiar with the subject with which it was dealing . . . ."
(Landers vs. Commonwealth, 101 S. E. 778, 781.)
"The Legislature is presumed to know principles of statutory construction " (People vs. Lowell, 230 N. W.
202, 250 Mich. 349, followed in P. vs. Woodworth, 230 N. W. 211, 250 Mich. 436.)
"It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a
result was intended inconsistent with the judgment of men of common sense guided by reason." (Mitchell vs. Lawden,
123 N. E. 566, 288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and many other authorities
that can be cited in support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the head of any religious
society or church operating within the zone, area or jurisdiction covered by said corporation sole (Article 155,
Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
 3. That the Ordinary (the corporation sole proper) does not own the temporalities which he merely administers;
4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on the
nationality of the person desiring to acquire real property in the Philippines by purchase or other lawful means other
than by hereditary succession, who, according to the Constitution must be a Filipino (sections 1 and 5, Article XIII);
5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and hold real
estate for its church, charitable, benevolent or educational purposes, and to receive bequests or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom
were Roman Catholics, could not have intended to curtail all the propagation of the Roman Catholic faith or the
expansion of the activities of their church, knowing pretty well that with the growth of our population more places of
worship, more schools where our youth could be taught and trained; more hallow grounds where to bury our dead would
be needed in the course of time.
Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests or gifts of real
estates send this Court could not, without any clear and specific provision of the Constitution, declare that any real property donated, let
us say this year, could no longer be registered in the name of the corporation sole to which it was conveyed. That would be an absurdity
that should not receive our sanction on the pretext that corporations sole which have no nationality and are non-stock corporations
composed of only one person in the capacity of administrator, have to establish first that at least sixty per centum of their capital belong
to Filipino citizens. The new Civil Code even provides:
"ART. 10. — In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking
body intended right and justice to prevail."
Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the name of the
latter, private lands without any limitation whatsoever, and that is so because the properties thus acquired are not for and would not
belong to the administrator but to the Filipino whom he represents. But the dissenting Justice inquires: If the Ordinary is only the
administrator, for whom does he administer? And who can alter or overrule his acts? We will forthwith proceed to answer these
questions. The corporations sole by reason of their peculiar constitution and form of operation have no designed owner of its
temporalities, although by the terms of the law it can be safely implied that the Ordinary holds them in trust for the benefit of the Roman
Catholic faithful of their respective locality or diocese. Borrowing the very words of the law, We may say that the temporalities of every
corporation sole are held in trust for the use, purpose, behoof and benefit of the religious society, or order so incorporated or of the
church to which the diocese, synod, or district organization is an organized and constituent part (section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what is the
meaning and scope of the word "control". According to the Merriam-Webster's New International Dictionary, 2nd ed., p. 580, one of the
acceptations of the word "control" is:
"4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action; to
curb; subject, also, Obs. — to overpower.
"SYN: restrain, rule, govern, guide, direct; check, subdue."
It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary, to mortgage or sell real property
held by the corporation sole where the rules, regulations and discipline of the religious denomination, society or church concerned
represented by such corporation sole regulate the methods of acquiring, holding, selling and mortgaging real estate, and that the Roman
Catholic faithful residing in the jurisdiction of the corporation sole has no say either in the manner of acquiring or of selling real
property. It may be also admitted that the faithful of the diocese cannot govern or overrule the acts of the Ordinary, but all this does not
mean that the latter can administer the temporalities of the corporation sole without check or restraint. We must not forget that when a
corporation sole is incorporated under Philippine laws, the head and only member thereof subjects himself to the jurisdiction of the
Philippine courts of justice and these tribunals can thus entertain grievances arising out of or with respect to the temporalities of the
church which came into the possession of the corporation sole as administrator. It may be alleged that the courts cannot intervene as to
the matters of doctrine or teachings of the Roman Catholic Church. That is correct, but the courts may step in, at the instance of the
faithful for whom the temporalities are being held in trust, to check undue exercise by the corporation sole of its powers as administrator
to insure that they are used for the purpose or purposes for which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons claiming to be members of
a church, who allege a wrongful and fraudulent diversion of the church property to uses foreign to the purposes of the
church, since no ecclesiastical question is involved and equity will protect from wrongful diversion of the
property (Hendryx vs. Peoples United Church, 42 Wash. 336, 4 L.R.A. — n.s.-1154).
The courts of the State have no general jurisdiction and control over the officers of such corporations in
respect to the performance of their official duties; but as in respect to the property which they hold for the corporation,
they stand in position of TRUSTEES and the courts may exercise the same supervision as in other cases of
trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N. E. 344, 92 N. E. 164, 30 L.R.A. — n.s.-665; Hendryx vs. Peoples United
Church, supra.)
Courts of the state do not interfere with the administration of church rules or discipline unless civil rights
become involved and which must be protected (Morris St., Baptist Church vs. Dart, 67 S. C. 338, 45 S. E. 753, and
others). (All cited in Vol. II, Cooley's Constitutional Limitations, p. 960-964.)
 If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative to existing
conditions as to management and operation of corporations sole in the Philippines, and if, on the other hand, almost all of the Delegates
thereto embraced the Roman Catholic faith, can it be imagined even for an instant that when Article XIII of the Constitution was
approved the framers thereof intended to prevent or curtail from then on the acquisition by corporations sole, either by purchase or
donation, of real properties that they might need for the propagation of the faith and for other religious and Christian activities such as
the moral education of the youth, the care, attention and treatment of the sick and the burial of the dead of the Roman Catholic faithful
residing in the jurisdiction of the respective corporations sole? The mere indulgence in said thought would impress upon Us a feeling of
apprehension and absurdity. And that is precisely the leit motiv that permeates the whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted With in this appeal, hinges around the necessity of a
proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us then be guided by the principles of
statutory construction laid down by the authorities on the matter:
"The most important single factor in determining the intention of the people from whom the constitution
emanated is the language in which it is expressed. The words employed are to be taken in their natural sense, except that
legal or technical terms are to be given their technical meaning. The imperfections of language as a vehicle for
conveying meanings result in ambiguities that must be resolved by resort to extraneous aids for discovering the intent of
the framers. Among the more important of these are a consideration of the history of the times when the provision was
adopted and of the purposes aimed at in its adoption. The debates of constitutional conventions, contemporaneous
construction, and practical construction by the legislative and executive departments, especially if long continued, may
be resorted to to resolve, but not to create, ambiguities. . . . . Consideration of the consequences flowing from alternative
constructions of doubtful provisions constitutes an important interpretative device. . . . The purposes of many of the
broadly phrased constitutional limitations were the promotion of policies that do not lend themselves to definite and
specific formulation. The courts have had to define those policies and have often drawn on natural law and natural rights
theories in doing so. The interpretation of constitutions tends to respond to changing conceptions of political and social
values. The extent to which these extraneous aids affect the judicial construction of constitutions cannot be formulated
in precise rules, but their influence cannot be ignored in describing the essentials of the process" (Rottschaeffer on
Constitutional Law, 1939 ed., p. 18-19).
"There are times when even the literal expression of legislation may be inconsistent with the general objectives
of policy behind it, and on the basis of the equity or spirit of the statute the courts rationalize a restricted meaning of the
latter. A restricted interpretation is usually applied where the effect of a literal interpretation will make for injustice and
absurdity or, in the words of one court, the language must be so unreasonable 'as to shock general common sense'".
(Vol. 3, Sutherland on Statutory Construction, 3rd ed., 150.)
"A constitution is not intended to be a limitation on the development of a country nor an obstruction to its
progress and foreign relations" (Moscow Fire Inc. Co. of Moscow, Russia vs. Bank of New York & Trust Co., 294 N.
Y. S. 648; 56 N. E. 2d 745, 293 N. Y. 749).
"Although the meaning or principles of a constitution remain fixed and unchanged from the time of its
adoption, a constitution must be construed as if intended to stand for a great length of time, and it is progressive and not
static. Accordingly, it should not receive too narrow or literal an interpretation but rather the meaning given it should be
applied in such manner as to meet new or changed conditions as they arise" (U.S. vs. Classic, 313 U.S. 299, 85 L. Ed.,
1368).
"Effect should be given to the purpose indicated by a fair interpretation of the language used and that
construction which effectuates, rather than that which destroys a plain intent or purpose of a constitutional provision, is
not only favored but will be adopted" (State ex rel. Randolph Country vs. Walden, 206 S. W. 2d 979).
"It is quite generally held that in arriving at the intent and purpose the Construction should be broad or liberal
or equitable, as the better method of ascertaining that intent, rather than technical" (Great Southern Life Ins. Co. vs. City
of Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the constitution had not in mind the corporations sole, nor
intended to apply them the provisions of sections 1 and 5 of said Article XIII when they passed and approved the same. And if it were so
as We think it is, herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc., could not be deprived of the right to
acquire by purchase or donation real properties for charitable, benevolent and educational purposes, nor of the right to register the same
in its name with the Register of Deeds of Davao, an indispensable requisite prescribed by the Land Registration Act for lands covered by
the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as "the vested right saving clause"
contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal opinion expressed on the matter
by the writer of the decision the most pointed darts of his severe criticism. We think, however, that this strong dissent should have been
spared, because as clearly indicated before, some members of this Court either did not agree with the theory of the writer or were not
ready to take a definite stand on that particular point, so that there being no majority opinion thereon there was no need of any dissension
therefrom. But as the criticism has been made the writer deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is not in itself a
vested or existing property right that the Constitution protects from impairment. For a property right to be vested (or acquired) there
must be a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have
become 'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar has to be considered as an exception to the rule
 because among the rights granted by section 159 of the Corporation Law was the right to receive bequests or gifts of real properties for
charitable, benevolent and educational purposes. And this right to receive such bequests or gifts (which implies donations in futuro), is
not a mere potentiality that could be impaired without any specific provision in the Constitution to that effect, especially when the
impairment would disturbingly affect the propagation of the religious faith of the immense majority of the Filipino people and the
curtailment of the activities of their Church. That is why the writer gave as a basis of his contention what Professor Aruego said in his
book "The Framing of the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate to the
Constitutional Convention, in his concurring opinion in the case of Goldcreek Mining Company vs. Eulogio Rodriguez et al., 66 Phil.
269. Anyway the majority of the Court did not deem necessary to pass upon said "vested right saving clause" for the final determination
of this case.
JUDGMENT
Wherefore, the Resolution of the respondent Land Registration Commission of September 21, 1954, holding that in view of the
provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is not qualified to acquire lands in the
Philippines in the absence of proof that at least 60 per centum of the capital, properties or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc., is actually owned or controlled by Filipino citizens, and denying the registration of the deed of sale in the
absence of proof of compliance with such requisite, is hereby reversed. Consequently, the respondent Register of Deeds of the City of
Davao is ordered to register the deed of sale executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic Administrator of
Davao, Inc., which is the subject of the present litigation. No pronouncement is made as to costs. It is so ordered.
||| (Roman Catholic Apostolic Administrator of Davao, Inc. v. Land Registration Commission, G.R. No. L-8451, [December 20, 1957], 102
PHIL 596-641)