FIRST DIVISION

[G.R. Nos. 197592 & 202623. November 27, 2013.]

THE PROVINCE OF AKLAN, petitioner, vs. JODY KING CONSTRUCTION

AND DEVELOPMENT CORP., respondent.

DECISION

VILLARAMA, JR., J : p

These consolidated petitions for review on certiorari seek to reverse and set aside the
following: (1) Decision 1 dated October 18, 2010 and Resolution 2 dated July 5, 2011 of the
Court of Appeals (CA) in CA-G.R. SP No. 111754; and (2) Decision 3 dated August 31, 2011
and Resolution 4 dated June 27, 2012 in CA-G.R. SP No. 114073.

The Facts
On January 12, 1998, the Province of Aklan (petitioner) and Jody King Construction and
Development Corp. (respondent) entered into a contract for the design and construction of
the Caticlan Jetty Port and Terminal (Phase I) in Malay, Aklan. The total project cost is
P38,900,000: P18,700,000 for the design and construction of passenger terminal, and
P20,200,000 for the design and construction of the jetty port facility. 5 In the course of
construction, petitioner issued variation/change orders for additional works. The scope of
work under these change orders were agreed upon by petitioner and respondent. 6 cDCEHa

On January 5, 2001, petitioner entered into a negotiated contract with respondent for the
construction of Passenger Terminal Building (Phase II) also at Caticlan Jetty Port in Malay,
Aklan. The contract price for Phase II is P2,475,345.54. 7

On October 22, 2001, respondent made a demand for the total amount of P22,419,112.96
covering the following items which petitioner allegedly failed to settle:

1. Unpaid accomplishments on additional works

 undertaken Php12,396,143.09

2. Refund of taxes levied despite it not being

covered by original contract Php884,098.59

3. Price escalation (Consistent with Section 7.5,

Original Contract) Php1,291,714.98

4. Additional Labor Cost resulting [from]

numerous change orders issued sporadically Php3,303,486.60

5. Additional Overhead Cost resulting [from]

numerous Orders issued sporadically Php1,101,162.60

6. Interest resulting [from] payment delays

consistent with Section 7.3.b of the Original
Contract Php3,442,507.50. 8
On July 13, 2006, respondent sued petitioner in the Regional Trial Court (RTC) of Marikina
City (Civil Case No. 06-1122-MK) to collect the aforesaid amounts. 9 On August 17, 2006,
the trial court issued a writ of preliminary attachment. 10 SHTEaA

Petitioner denied any unpaid balance and interest due to respondent. It asserted that the
sums being claimed by respondent were not indicated in Change Order No. 3 as approved
by the Office of Provincial Governor. Also cited was respondent's June 10, 2003 letter
absolving petitioner from liability for any cost in connection with the Caticlan Passenger
Terminal Project. 11

After trial, the trial court rendered its Decision 12 on August 14, 2009, the dispositive portion
of which reads:

WHEREFORE, foregoing premises considered, judgment is hereby rendered in

favor of plaintiff Jody King Construction and Development Corporation and against
defendant Province of Aklan, as follows:

1. ordering the defendant to pay to the plaintiff the amount of

 Php7,396,143.09 representing the unpaid accomplishment on
additional works undertaken by the plaintiff;

2. ordering the defendant to refund to the plaintiff the amount of

Php884,098.59 representing additional 2% tax levied upon against
the plaintiff;

3. ordering the defendant to pay to the plaintiff price escalation in the

amount of Php1,291,714.98 pursuant to Section 7.5 of the original
contract;

4. ordering the defendant to pay to the plaintiff the amount of

Php3,303,486.60 representing additional labor cost resulting from
change orders issued by the defendant; cSEaDA

5. ordering the defendant to pay to the plaintiff the sum of Php1,101,162.00

overhead cost resulting from change orders issued by the defendant;

6. ordering the defendant to pay the sum of Php3,442,507.50 representing

interest resulting from payment delays up to October 15, 2001
pursuant to Section 7.3.b of the original contract;

7. ordering the defendant to pay interest of 3% per month from unpaid

claims as of October 16, 2001 to date of actual payment pursuant to
Section 7.3.b[;]

8. ordering the [defendant] to pay to the plaintiff the sum of Php500,000.00

as moral damages;

9. ordering the defendant to pay to the plaintiff the sum of Php300,000.00 as

exemplary damages;

10. ordering the defendant to pay the plaintiff the sum of Php200,000.00, as
and for attorney's fees; and

11. ordering the defendant to pay the cost of suit.

SO ORDERED. 13 SATDEI

Petitioner filed its motion for reconsideration 14 on October 9, 2009 stating that it received a
copy of the decision on September 25, 2009. In its Order 15 dated October 27, 2009, the trial
court denied the motion for reconsideration upon verification from the records that as shown
by the return card, copy of the decision was actually received by both Assistant Provincial
Prosecutor Ronaldo B. Ingente and Atty. Lee T. Manares on September 23, 2009. Since
petitioner only had until October 8, 2009 within which to file a motion for reconsideration, its
motion filed on October 9, 2009 was filed one day after the finality of the decision. The trial
court further noted that there was a deliberate attempt on both Atty. Manares and
Prosecutor Ingente to mislead the court and make it appear that their motion for
reconsideration was filed on time.

Petitioner filed a Manifestation 16 reiterating the explanation set forth in its Rejoinder to
respondent's comment/opposition and motion to dismiss that the wrong date of receipt of
the decision stated in the motion for reconsideration was due to pure inadvertence
attributable to the staff of petitioner's counsel. It stressed that there was no intention to
mislead the trial court nor cause undue prejudice to the case, as in fact its counsel
immediately corrected the error upon discovery by explaining the attendant circumstances in
the Rejoinder dated October 29, 2009.

On November 24, 2009, the trial court issued a writ of execution ordering Sheriff IV Antonio
E. Gamboa, Jr. to demand from petitioner the immediate payment of P67,027,378.34 and
tender the same to the respondent. Consequently, Sheriff Gamboa served notices of
garnishment on Land Bank of the Philippines, Philippine National Bank and Development
Bank of the Philippines at their branches in Kalibo, Aklan for the satisfaction of the judgment
debt from the funds deposited under the account of petitioner. Said banks, however, refused
to give due course to the court order, citing the relevant provisions of statutes, circulars and
jurisprudence on the determination of government monetary liabilities, their enforcement and
satisfaction. 17 ITAaCc

Petitioner filed in the CA a petition for certiorari with application for temporary restraining
order (TRO) and preliminary injunction assailing the Writ of Execution dated November 24,
2009, docketed as CA-G.R. SP No. 111754.

On December 7, 2009, the trial court denied petitioner's notice of appeal filed on December
1, 2009. Petitioner's motion for reconsideration of the December 7, 2009 Order was likewise
denied. 18 On May 20, 2010, petitioner filed another petition for certiorari in the CA
questioning the aforesaid orders denying due course to its notice of appeal, docketed
as CA-G.R. SP No. 114073.

By Decision dated October 18, 2010, the CA's First Division dismissed the petition in CA-
G.R. SP No. 111754 as it found no grave abuse of discretion in the lower court's issuance of
the writ of execution. Petitioner filed a motion for reconsideration which was likewise denied
by the CA. The CA stressed that even assuming as true the alleged errors committed by the
trial court, these were insufficient for a ruling that grave abuse of discretion had been
committed. On the matter of execution of the trial court's decision, the appellate court said
that it was rendered moot by respondent's filing of a petition before the Commission on
Audit (COA).

On August 31, 2011, the CA's Sixteenth Division rendered its Decision dismissing the
petition in CA-G.R. SP No. 114073. The CA said that petitioner failed to provide valid
justification for its failure to file a timely motion for reconsideration; counsel's explanation
that he believed in good faith that the August 14, 2009 Decision of the trial court was
received on September 25, 2009 because it was handed to him by his personnel only on
that day is not a justifiable excuse that would warrant the relaxation of the rule on
reglementary period of appeal. The CA also held that petitioner is estopped from invoking
the doctrine of primary jurisdiction as it only raised the issue of COA's primary jurisdiction
after its notice of appeal was denied and a writ of execution was issued against it. aTAEHc

The Cases
In G.R. No. 197592, petitioner submits the following issues:

I.

WHETHER OR NOT THE DECISION DATED 14 AUGUST 2009 RENDERED BY

THE REGIONAL TRIAL COURT, BRANCH 273, MARIKINA CITY AND THE WRIT
OF EXECUTION DATED 24 NOVEMBER 2009 SHOULD BE RENDERED VOID
FOR LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE.
 II.

WHETHER OR NOT THE REGIONAL TRIAL COURT, BRANCH 273, MARIKINA

CITY GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OR IN
EXCESS OF JURISDICTION IN RENDERING THE DECISION DATED 14 AUGUST
2009 AND ISSUING THE WRIT OF EXECUTION DATED 24 NOVEMBER 2009
EVEN IT FAILED TO DISPOSE ALL THE ISSUES OF THE CASE BY NOT
RESOLVING PETITIONER'S "URGENT MOTION TO DISCHARGE EX-
PARTE WRIT OF PRELIMINARY ATTACHMENT" DATED 31 AUGUST 2006. EHTSCD

III.

WHETHER OR NOT THE WRIT OF EXECUTION DATED 24 NOVEMBER 2009

WHICH WAS HASTILY ISSUED IN VIOLATION OF SUPREME COURT
ADMINISTRATIVE CIRCULAR NO. 10-2000 SHOULD BE RENDERED VOID. 19

The petition in G.R. No. 202623 sets forth the following arguments:

Petitioner is not estopped in questioning the jurisdiction of the Regional Trial

Court, Branch 273, Marikina City over the subject matter of the case. 20

The petition for certiorari filed before the CA due to the RTC's denial of
petitioner's Notice of Appeal was in accord with jurisprudence. 21

The Issues
The controversy boils down to the following issues: (1) the applicability of
the doctrine of primaryjurisdiction to this case; and (2) the propriety of the issuance of the
writ of execution.
 Our Ruling
The petitions are meritorious. HSDCTA

COA has primary jurisdiction over

private respondent's money claims
Petitioner is not estopped from
raising the issue of jurisdiction
The doctrine of primary jurisdiction holds that if a case is such that its determination requires
the expertise, specialized training and knowledge of the proper administrative bodies, relief
must first be obtained in an administrative proceeding before a remedy is supplied by the
courts even if the matter may well be within their proper jurisdiction. 22 It applies where a
claim is originally cognizable in the courts, and comes into play whenever enforcement of
the claim requires the resolution of issues which, under a regulatory scheme, have been
placed within the special competence of an administrative agency. In such a case, the court
in which the claim is sought to be enforced may suspend the judicial process pending

referral of such issues to the administrative body for its view or, if the parties would not be
unfairly disadvantaged, dismiss the case without prejudice. 23 cIADaC

The objective of the doctrine of primary jurisdiction is to guide the court in determining
whether it should refrain from exercising its jurisdiction until after an administrative agency
has determined some question or some aspect of some question arising in the proceeding
before the court. 24

As can be gleaned, respondent seeks to enforce a claim for sums of money allegedly owed
by petitioner, a local government unit.

Under Commonwealth Act No. 327, 25 as amended by Section 26 of Presidential Decree No.
1445,26 it is the COA which has primary jurisdiction over money claims against government
agencies and instrumentalities.

Section 26.General jurisdiction. — The authority and powers of the Commission

shall extend to and comprehend all matters relating to auditing procedures,
systems and controls, the keeping of the general accounts of the Government, the
preservation of vouchers pertaining thereto for a period of ten years, the
examination and inspection of the books, records, and papers relating to those
 accounts; and the audit and settlement of the accounts of all persons respecting
funds or property received or held by them in an accountable capacity, as well as
the examination, audit, and settlement of all debts and claims of any sort due
from or owing to the Government or any of its subdivisions, agencies and
instrumentalities. The said jurisdiction extends to all government-owned or
controlled corporations, including their subsidiaries, and other self-governing
boards, commissions, or agencies of the Government, and as herein prescribed,
including non-governmental entities subsidized by the government, those funded
by donations through the government, those required to pay levies or government
share, and those for which the government has put up a counterpart fund or those
partly funded by the government. (Emphasis supplied.) CTDAaE

Pursuant to its rule-making authority conferred by the 1987 Constitution 27 and existing laws,
the COA promulgated the 2009 Revised Rules of Procedure of the Commission on Audit.
Rule II, Section 1 specifically enumerated those matters falling under COA's exclusive
jurisdiction, which include "[m]oney claims due from or owing to any government agency."

Rule VIII, Section 1 further provides:

Section 1.Original Jurisdiction. — The Commission Proper shall have original

jurisdiction over: a) money claim against the Government; b) request for
concurrence in the hiring of legal retainers by government agency; c) write off of
unliquidated cash advances and dormant accounts receivable in amounts
exceeding one million pesos (P1,000,000.00); d) request for relief from
accountability for loses due to acts of man, i.e., theft, robbery, arson, etc., in
amounts in excess of Five Million pesos (P5,000,000.00).

In Euro-Med Laboratories Phil., Inc. v. Province of Batangas, 28 we ruled that it is the COA
and not the RTC which has primary jurisdiction to pass upon petitioner's money claim
against respondent local government unit. Such jurisdiction may not be waived by the
parties' failure to argue the issue nor active participation in the proceedings. Thus: SCIAaT

This case is one over which the doctrine of primary jurisdiction clearly held sway
for although petitioner's collection suit for P487,662.80 was within the jurisdiction
of the RTC, the circumstances surrounding petitioner's claim brought it clearly
within the ambit of the COA's jurisdiction.
First, petitioner was seeking the enforcement of a claim for a certain amount
of money against a local government unit. This brought the case within the
COA's domain to pass upon money claims against the government or any
subdivision thereof under Section 26 of the Government Auditing Code of the
Philippines:

The authority and powers of the Commission [on Audit] shall extend
to and comprehend all matters relating to . . . the examination,
audit, and settlement of all debts and claims of any sort due from or
owing to the Government or any of its subdivisions, agencies, and
instrumentalities. . . . .

The scope of the COA's authority to take cognizance of claims is circumscribed,

however, by an unbroken line of cases holding statutes of similar import to mean
onlyliquidated claims, or those determined or readily determinable from vouchers,
invoices, and such other papers within reach of accounting officers. Petitioner's
claim was for a fixed amount and although respondent took issue with the

accuracy of petitioner's summation of its accountabilities, the amount thereof

was readily determinable from the receipts, invoices and other documents. Thus,
the claim was well within the COA's jurisdiction under the Government Auditing
Code of the Philippines. caCEDA

Second, petitioner's money claim was founded on a series of purchases for the
medical supplies of respondent's public hospitals. Both parties agreed that these
transactions were governed by the Local Government Code provisions on supply
and property management and their implementing rules and regulations
promulgated by the COA pursuant to Section 383 of said Code. Petitioner's claim
therefore involved compliance with applicable auditing laws and rules on
procurement. Such matters are not within the usual area of knowledge, experience
and expertise of most judges but within the special competence of COA auditors
and accountants. Thus, it was but proper, out of fidelity to
the doctrine of primary jurisdiction, for the RTC to dismiss petitioner's complaint.

Petitioner argues, however, that respondent could no longer question the RTC's
jurisdiction over the matter after it had filed its answer and participated in the
subsequent proceedings. To this, we need only state that the court may raise the
 issue of primary jurisdiction sua sponte and its invocation cannot be waived
by the failure of the parties to argue it as the doctrine exists for the proper
distribution of power between judicial and administrative bodies and not for
the convenience of the parties. 29 (Emphasis supplied.)

Respondent's collection suit being directed against a local government unit, such money
claim should have been first brought to the COA. 30 Hence, the RTC should have suspended
the proceedings and refer the filing of the claim before the COA. Moreover, petitioner is not
estopped from raising the issue of jurisdiction even after the denial of its notice of appeal
and before the CA. LLjur

There are established exceptions to the doctrine of primary jurisdiction, such as: (a) where
there is estoppel on the part of the party invoking the doctrine; (b) where the challenged
administrative act is patently illegal, amounting to lack of jurisdiction; (c) where there is
unreasonable delay or official inaction that will irretrievably prejudice the complainant; (d)
where the amount involved is relatively small so as to make the rule impractical and
oppressive; (e) where the question involved is purely legal and will ultimately have to be
decided by the courts of justice; (f) where judicial intervention is urgent; (g) when its
application may cause great and irreparable damage; (h) where the controverted acts violate
due process; (i) when the issue of non-exhaustion of administrative remedies has been
rendered moot; (j) when there is no other plain, speedy and adequate remedy; (k) when
strong public interest is involved; and, (l) in quo warrantoproceedings. 31 However, none of
the foregoing circumstances is applicable in the present case.

The doctrine of primary jurisdiction does not warrant a court to arrogate unto itself authority
to resolve a controversy the jurisdiction over which is initially lodged with an administrative
body of special competence. 32 All the proceedings of the court in violation of the doctrine
and all orders and decisions rendered thereby are null and void. 33

Writ of Execution issued in violation

of COA's primary jurisdiction is void
Since a judgment rendered by a body or tribunal that has no jurisdiction over the subject
matter of the case is no judgment at all, it cannot be the source of any right or the creator of
any obligation. 34 All acts pursuant to it and all claims emanating from it have no legal effect
and the void judgment can never be final and any writ of execution based on it is likewise
void. 35

Clearly, the CA erred in ruling that the RTC committed no grave abuse of discretion when it
ordered the execution of its judgment against petitioner and garnishment of the latter's
funds. ASIDTa

In its Supplement to the Motion for Reconsideration, petitioner argued that it is the COA and
not the RTC which has original jurisdiction over money claim against government agencies
and subdivisions. The CA, in denying petitioner's motion for reconsideration, simply stated
that the issue had become moot by respondent's filing of the proper petition with the COA.
However, respondent's belated compliance with the formal requirements of presenting its
money claim before the COA did not cure the serious errors committed by the RTC in
implementing its void decision. The RTC's orders implementing its judgment rendered
without jurisdiction must be set aside because a void judgment can never be validly
executed.

Finally, the RTC should have exercised utmost caution, prudence and judiciousness in
issuing the writ of execution and notices of garnishment against petitioner. The RTC had no

authority to direct the immediate withdrawal of any portion of the garnished funds from
petitioner's depositary banks. 36 Such act violated the express directives of this Court under
Administrative Circular No. 10-2000, 37 which was issued "precisely in order to prevent the
circumvention ofPresidential Decree No. 1445, as well as of the rules and procedures of the
COA." 38

WHEREFORE, both petitions in G.R. Nos. 197592 and 202623 are GRANTED. The Decision
dated October 18, 2010 and Resolution dated July 5, 2011 of the Court of Appeals in CA-
G.R. SP No. 111754, and Decision dated August 31, 2011 and Resolution dated June 27,
2012 in CA-G.R. SP No. 114073 are hereby REVERSED and SET ASIDE. The Decision
dated August 14, 2009, Writ of Execution and subsequent issuances implementing the said
decision of the Regional Trial Court of Marikina City in Civil Case No. 06-1122-MK are
all SET ASIDE.

No pronouncement as to costs. aDCIHE

SO ORDERED.

Leonardo-de Castro, Peralta, *Bersamin and Reyes, JJ., concur.

Footnotes

1. Rollo (G.R. No. 197592), pp. 289-298. Penned by Presiding Justice Andres B. Reyes, Jr.
with Associate Justices Japar B. Dimaampao and Jane Aurora C. Lantion concurring.

2. Id. at 343-348.

3. Rollo (G.R. No. 202623), pp. 183-200. Penned by Associate Justice Angelita A. Gacutan
with Associate Justices Vicente S.E. Veloso and Francisco P. Acosta concurring.

4. Id. at 217-219.

5. CA rollo, pp. 136-147.

6. Rollo (G.R. No. 197592), p. 58.

7. CA rollo, pp. 126-131.

8. Id. at 361-362.

9. Id. at 217-229.

10. Rollo (G.R. No. 197592), p. 56.

11. Id. at 59-60.

12. Id. at 56-74. Penned by Judge Manuel S. Quimbo.

13. Id. at 73-74.

14. Id. at 75-103.

15. Id. at 114-115.

16. CA rollo, pp. 100-103.

17. Id. at 120-121, 285-292.

18. Rollo (G.R. No. 197592), pp. 137-183, 197-199.

19. Id. at 484-485.

20. Rollo (G.R. No. 202623), p. 16.

21. Id. at 21.

22. Industrial Enterprises, Inc. v. Court of Appeals, 263 Phil. 352, 358 (1990).

23. Id.; Euro-Med Laboratories Phil., Inc. v. Province of Batangas, 527 Phil. 623, 626-627
(2006).

24. Fabia v. Court of Appeals, 437 Phil. 389, 403 (2002).

25. AN ACT FIXING THE TIME WITHIN WHICH THE AUDITOR GENERAL SHALL RENDER
HIS DECISIONS AND PRESCRIBING THE MANNER OF APPEAL THEREFROM.

26. ORDAINING AND INSTITUTING A GOVERNMENT AUDITING CODE OF THE

PHILIPPINES.

27. Sec. 6, Art. IX-A.

28. Supra note 23.

29. Id. at 627-629.

30. See Department of Agriculture v. NLRC, G.R. No. 104269, November 11, 1993, 227
SCRA 693, 700-701.

31. Rep. of the Phils. v. Lacap, 546 Phil. 87, 97-98 (2007), citing Rocamora v. RTC-Cebu (Br.
VIII), 249 Phil. 571, 579 (1988); Hon. Carale v. Hon. Abarintos, 336 Phil. 126, 137 (1997);
and Castro v. Sec. Gloria, 415 Phil. 645, 651-652 (2001).

32. Heirs of Tantoco, Sr. v. Court of Appeals, 523 Phil. 257, 284 (2006), citing First Lepanto
Ceramics, Inc. v. Court of Appeals, G.R. No. 117680, February 9, 1996, 253 SCRA 552,
558;Machete v. Court of Appeals, 320 Phil. 227, 235 (1995); and Vidad v. RTC of Negros
Oriental, Br. 42, G.R. Nos. 98084, 98922 & 100300-03, October 18, 1993, 227 SCRA 271,
276.

33. See Agra v. Commission on Audit, G.R. No. 167807, December 6, 2011, 661 SCRA 563,
582.

34. Ga, Jr. v. Tubungan, G.R. No. 182185, September 18, 2009, 600 SCRA 739, 746.

35. Id.

36. See University of the Philippines v. Hon. Agustin Dizon, G.R. No. 171182, August 23,
 2012, 679 SCRA 54, 80.

37. EXERCISE OF UTMOST CAUTION, PRUDENCE AND JUDICIOUSNESS IN THE

ISSUANCE OF WRITS OF EXECUTION TO SATISFY MONEY JUDGMENTS AGAINST
GOVERNMENT AGENCIES AND LOCAL GOVERNMENT UNITS.

38. University of the Philippines v. Hon. Agustin Dizon, supra note 36, at 81.

* Designated additional member per Raffle dated November 13, 2013 Vice Chief Justice Ma.
Lourdes P. A. Sereno who recused herself from the cases in view of her inhibition in a
related case.

||| (Province of Aklan v. Jody King Construction and Development Corp., G.R. Nos. 197592 &
202623, [November 27, 2013])
 FIRST DIVISION

[G.R. No. 166836. September 4, 2013.]

SAN MIGUEL PROPERTIES, INC., petitioner, vs. SEC. HERNANDO B.

PEREZ, ALBERT C. AGUIRRE, TEODORO B. ARCENAS, JR., MAXY S.
ABAD, JAMES G. BARBERS, STEPHEN N. SARINO, ENRIQUE N.
ZALAMEA, JR., MARIANO M. MARTIN, ORLANDO O. SAMSON,
CATHERINE R. AGUIRRE, and ANTONIO V. AGCAOILI, respondents.

DECISION

BERSAMIN, J : p

The pendency of an administrative case for specific performance brought by the buyer of
residential subdivision lots in the Housing and Land Use Regulatory Board (HLURB) to
compel the seller to deliver the transfer certificates of title (TCTs) of the fully paid lots is
properly considered a ground to suspend a criminal prosecution for violation of Section 25
of Presidential Decree No. 957 1 on the ground of a prejudicial question. The administrative
determination is a logical antecedent of the resolution of the criminal charges based on non-
delivery of the TCTs.
 Antecedents
Petitioner San Miguel Properties, Inc. (San Miguel Properties), a domestic corporation
engaged in the real estate business, purchased in 1992, 1993 and April 1993 from B.F.
Homes, Inc. (BF Homes), then represented by Atty. Florencio B. Orendain (Orendain) as its
duly authorized rehabilitation receiver appointed by the Securities and Exchange
Commission (SEC), 2 130 residential lots situated in its subdivision BF Homes Parañaque,
containing a total area of 44,345 square meters for the aggregate price of P106,248,000.00.
The transactions were embodied in three separate deeds of sale. 3 The TCTs covering the
lots bought under the first and second deeds were fully delivered to San Miguel Properties,

but 20 TCTs covering 20 of the 41 parcels of land with a total area of 15,565 square meters
purchased under the third deed of sale, executed in April 1993 and for which San Miguel
Properties paid the full price of P39,122,627.00, were not delivered to San Miguel
Properties. EHTIDA

On its part, BF Homes claimed that it withheld the delivery of the 20 TCTs for parcels of land
purchased under the third deed of sale because Atty. Orendain had ceased to be its
rehabilitation receiver at the time of the transactions after being meanwhile replaced as
receiver by FBO Network Management, Inc. on May 17, 1989 pursuant to an order from the
SEC. 4

BF Homes refused to deliver the 20 TCTs despite demands. Thus, on August 15, 2000, San
Miguel Properties filed a complaint-affidavit in the Office of the City Prosecutor of Las Piñas
City (OCP Las Piñas) charging respondent directors and officers of BF Homes with non-
delivery of titles in violation of Section 25, in relation to Section 39, both of Presidential
Decree No. 957 (I.S. No. 00-2256). 5

At the same time, San Miguel Properties sued BF Homes for specific performance in the
HLURB (HLURB Case No. REM-082400-11183), 6 praying to compel BF Homes to release
the 20 TCTs in its favor.

In their joint counter-affidavit submitted in I.S. No. 00-2256, 7 respondent directors and
officers of BF Homes refuted San Miguel Properties' assertions by contending that: (a) San
Miguel Properties' claim was not legally demandable because Atty. Orendain did not have
the authority to sell the 130 lots in 1992 and 1993 due to his having been replaced as BF
Homes' rehabilitation receiver by the SEC on May 17, 1989; (b) the deeds of sale conveying
the lots were irregular for being undated and unnotarized; (c) the claim should have been
brought to the SEC because BF Homes was under receivership; (d) in receivership cases, it
was essential to suspend all claims against a distressed corporation in order to enable the
receiver to effectively exercise its powers free from judicial and extra-judicial interference
that could unduly hinder the rescue of the distressed company; and (e) the lots involved
were under custodia legis in view of the pending receivership proceedings, necessarily
stripping the OCP Las Piñas of the jurisdiction to proceed in the action. aHcDEC

On October 10, 2000, San Miguel Properties filed a motion to suspend proceedings in the

OCP Las Piñas, 8 citing the pendency of BF Homes' receivership case in the SEC. In its
comment/opposition, BF Homes opposed the motion to suspend. In the meantime,
however, the SEC terminated BF Homes' receivership on September 12, 2000, prompting
San Miguel Properties to file on October 27, 2000 a reply to BF Homes' comment/opposition
coupled with a motion to withdraw the sought suspension of proceedings due to the
intervening termination of the receivership. 9

On October 23, 2000, the OCP Las Piñas rendered its resolution, 10 dismissing San Miguel
Properties' criminal complaint for violation of Presidential Decree No. 957 on the ground that
no action could be filed by or against a receiver without leave from the SEC that had
appointed him; that the implementation of the provisions of Presidential Decree No.
957 exclusively pertained under the jurisdiction of the HLURB; that there existed a
prejudicial question necessitating the suspension of the criminal action until after the issue
on the liability of the distressed BF Homes was first determined by the SEC en banc or by
the HLURB; and that no prior resort to administrative jurisdiction had been made; that there
appeared to be no probable cause to indict respondents for not being the actual signatories
in the three deeds of sale.

On February 20, 2001, the OCP Las Piñas denied San Miguel Properties' motion for
reconsideration filed on November 28, 2000, holding that BF Homes' directors and officers
could not be held liable for the non-delivery of the TCTs under Presidential Decree No.
957 without a definite ruling on the legality of Atty. Orendain's actions; and that the criminal
liability would attach only after BF Homes did not comply with a directive of the HLURB
directing it to deliver the titles. 11
San Miguel Properties appealed the resolutions of the OCP Las Piñas to the Department of
Justice (DOJ), but the DOJ Secretary denied the appeal on October 15, 2001, holding:

After a careful review of the evidence on record, we find no cogent reason to

disturb the ruling of the City Prosecutor of Las Piñas City. Established
jurisprudence supports the position taken by the City Prosecutor concerned. HTAIcD

There is no dispute that aside from the instant complaint for violation of PD 957,
there is still pending with the Housing and Land Use Resulatory Board (HLURB, for
short) a complaint for specific performance where the HLURB is called upon to
inquire into, and rule on, the validity of the sales transactions involving the lots in

question and entered into by Atty. Orendain for and in behalf of BF Homes.

As early as in the case of Solid Homes, Inc. vs. Payawal, 177 SCRA 72, the
Supreme Court had ruled that the HLURB has exclusive jurisdiction over cases
involving real estate business and practices under PD 957. This is reiterated in the
subsequent cases of Union Bank of the Philippines versus HLURB, G.R. [No.]
953364, June 29, 1992 and C.T. Torres Enterprises vs. Hilionada, 191 SCRA 286. aESTAI

The said ruling simply means that unless and until the HLURB rules on the
validity of the transactions involving the lands in question with specific
reference to the capacity of Atty. Orendain to bind BF Homes in the said
transactions, there is as yet no basis to charge criminally respondents for
non-delivery of the subject land titles. In other words, complainant cannot
invoke the penal provision of PD 957until such time that the HLURB shall have
ruled and decided on the validity of the transactions involving the lots in
question.

WHEREFORE, the appeal is hereby DENIED.

SO ORDERED. 12 (Emphasis supplied)

The DOJ eventually denied San Miguel Properties' motion for reconsideration. 13

Ruling of the CA
Undaunted, San Miguel Properties elevated the DOJ's resolutions to the CA
on certiorari andmandamus (C.A.-G.R. SP No. 73008), contending that respondent DOJ
Secretary had acted with grave abuse in denying their appeal and in refusing to charge the
directors and officers of BF Homes with the violation of Presidential Decree No. 957. San
Miguel Properties submitted the issue of whether or not HLURB Case No. REM-082400-
11183 presented a prejudicial question that called for the suspension of the criminal action
for violation of Presidential Decree No. 957. ATHCac

In its assailed decision promulgated on February 24, 2004 in C.A.-G.R. SP No. 73008, 14 the
CA dismissed San Miguel Properties' petition, holding and ruling as follows:

From the foregoing, the conclusion that may be drawn is that the rule on prejudicial
question generally applies to civil and criminal actions only.

However, an exception to this rule is provided in Quiambao vs. Osorio cited by the
respondents. In this case, an issue in an administrative case was considered a
prejudicial question to the resolution of a civil case which, consequently, warranted
the suspension of the latter until after termination of the administrative
proceedings.

Quiambao vs. Osorio is not the only instance when the Supreme Court relaxed the
application of the rule on prejudicial question.

In Tamin vs. CA involving two (2) civil actions, the Highest Court similarly applied
the rule on prejudicial question when it directed petitioner therein to put up a bond
for just compensation should the demolition of private respondents' building
proved to be illegal as a result of a pending cadastral suit in another tribunal.

City of Pasig vs. COMELEC is yet another exception where a civil action involving
a boundary dispute was considered a prejudicial question which must be resolved
prior to an administrative proceeding for the holding of a plebiscite on the affected
areas. cETDIA

In fact, in Vidad vs. RTC of Negros Oriental, Br. 42, it was ruled that in the interest
of good order, courts can suspend action in one case pending determination of
another case closely interrelated or interliked with it.

It thus appears that public respondent did not act with grave abuse of discretion . .
. when he applied the rule on prejudicial question to the instant proceedings
considering that the issue on the validity of the sale transactions . . . by . . .
 Orendain in behalf of BF Homes, Inc., is closely intertwined with the purported
criminal culpability of private respondents, as officers/directors of BF Homes, Inc.,
arising from their failure to deliver the titles of the parcels of land included in the
questioned conveyance.

All told, to sustain the petitioner's theory that the result of the HLURB
proceedings is not determinative of the criminal liability of private
respondents under PD 957 would be to espouse an absurdity. If we were to
assume that the HLURB finds BFHI under no obligation to delve the subject
titles, it would be highly irregular and contrary to the ends of justice to pursue
a criminal case against private respondents for the non-delivery of certificates

of title which they are not under any legal obligation to turn over in the first
place. (Bold emphasis supplied)

On a final note, absent grave abuse of discretion on the part of the prosecutorial
arm of the government as represented by herein public respondent, courts will not
interfere with the discretion of a public prosecutor in prosecuting or dismissing a
complaint filed before him. A public prosecutor, by the nature of his office, is under
no compulsion to file a criminal information where no clear legal justification has
been shown, and no sufficient evidence of guilt nor prima facie case has been
established by the complaining party.

WHEREFORE, premises considered, the instant Petition

for Certiorari and Mandamus is hereby DENIED. The Resolutions dated 15 October
2001 and 12 July 2002 of the Department of Justice are AFFIRMED. EcIaTA

SO ORDERED. 15

The CA denied San Miguel Properties' motion for reconsideration on January 18, 2005. 16
 Issues
Aggrieved, San Miguel Properties is now on appeal, raising the following for consideration
and resolution, to wit:

THE COURT OF APPEALS COMMITTED GRAVE, SERIOUS AND REVERSIBLE

ERRORS WHEN IT DISMISSED
PETITIONER'S CERTIORARI AND MANDAMUS PETITION TO ORDER AND
DIRECT RESPONDENT SECRETARY TO INDICT RESPONDENTS FOR
VIOLATION OF SECTION 25, P.D. 957 IN THAT: SEHTAC

1. THE OBLIGATION OF PRIVATE RESPONDENTS TO DELIVER TO

PETITIONER THE TITLES TO 20 FULLY-PAID LOTS IS MANDATED BY
SECTION 25, PD 957. IN FACT, THE OFFICE OF THE PRESIDENT HAD
DULY CONFIRMED THE SAME PER ITS DECISION DATED 27 JANUARY
2005 IN O.P. CASE NO. 03-E-203, ENTITLED "SMPI V. BF HOMES, INC.".

2. A FORTIORI, PRIVATE RESPONDENTS' FAILURE AND/OR REFUSAL TO

DELIVER TO PETITIONER THE SUBJECT TITLES CONSTITUTES CRIMINAL
OFFENSE PER SECTIONS 25 AND 39, PD 957 FOR WHICH IT IS THE
MINISTERIAL DUTY OF RESPONDENT SECRETARY TO INDICT PRIVATE
RESPONDENTS THEREFOR.

3. IN ANY EVENT, THE HLURB CASE DOES NOT PRESENT A "PREJUDICIAL

QUESTION" TO THE SUBJECT CRIMINAL CASE SINCE THE FORMER
INVOLVES AN ISSUE SEPARATE AND DISTINCT FROM THE ISSUE
INVOLVED IN THE LATTER. CONSEQUENTLY, THE HLURB CASE HAS NO
CORRELATION, TIE NOR LINKAGE TO THE PRESENT CRIMINAL CASE
WHICH CAN PROCEED INDEPENDENTLY THEREOF.

4. IN FACT, THE CRIMINAL CULPABILITY OF PRIVATE RESPONDENTS

EMANATE FROM THEIR MALA PROHIBITA NON-DELIVERY OF THE TITLES
TO TWENTY (20) FULLY-PAID PARCELS OF LAND TO PETITIONER, AND
NOT FROM THEIR NON-COMPLIANCE WITH THE HLURB'S RULING IN
THE ADMINISTRATIVE CASE. IDCcEa

5. NONETHELESS, BY DECREEING THAT PETITIONER'S CRIMINAL

COMPLAINT IS PREMATURE, BOTH THE COURT OF APPEALS AND
 RESPONDENT SECRETARY HAD IMPLIEDLY ADMITTED THE EXISTENCE
OF SUFFICIENT PROBABLE CAUSE AGAINST PRIVATE RESPONDENTS
FOR THE CRIME CHARGED. 17

It is relevant at this juncture to mention the outcome of the action for specific performance
and damages that San Miguel Properties instituted in the HLURB simultaneously with its
filing of the complaint for violation of Presidential Decree No. 957. On January 25, 2002, the
HLURB Arbiter ruled that the HLURB was inclined to suspend the proceedings until the SEC
resolved the issue of Atty. Orendain's authority to enter into the transactions in BF Homes'
behalf, because the final resolution by the SEC was a logical antecedent to the
determination of the issue involved in the complaint before the HLURB. Upon appeal, the
HLURB Board of Commissioners (HLURB Board), citing the doctrine of primary jurisdiction,
affirmed the HLURB Arbiter's decision, holding that although no prejudicial question could
arise, strictly speaking, if one case was civil and the other administrative, it nonetheless
opted to suspend its action on the cases pending the final outcome of the administrative
proceeding in the interest of good order. 18

Not content with the outcome, San Miguel Properties appealed to the Office of the President

(OP), arguing that the HLURB erred in suspending the proceedings. On January 27, 2004,
the OP reversed the HLURB Board's ruling, holding thusly:

The basic complaint in this case is one for specific performance under Section 25
of the Presidential Decree (PD) 957 — "The Subdivision and Condominium Buyers'
Protective."

As early as August 1987, the Supreme Court already recognized the authority of
the HLURB, as successor agency of the National Housing Authority (NHA), to
regulate, pursuant to PD 957, in relation to PD 1344, the real estate trade, with
exclusive original jurisdiction to hear and decide cases "involving specific
performance of contractual and statutory obligation filed by buyers of subdivision
lots . . . against the owner, developer, dealer, broker or salesman," the HLURB, in
the exercise of its adjudicatory powers and functions, "must interpret and apply
contracts, determine the rights of the parties under these contracts and award[s]
damages whenever appropriate."

Given its clear statutory mandate, the HLURB's decision to await for some forum
 to decide — if ever one is forthcoming — the issue on the authority of Orendain to
dispose of subject lots before it peremptorily resolves the basic complaint is
unwarranted, the issues thereon having been joined and the respective position
papers and the evidence of the parties having been submitted. To us, it behooved
the HLURB to adjudicate, with the usual dispatch, the right and obligation of the
parties in line with its own appreciation of the obtaining facts and applicable law. To
borrow from Mabubha Textile Mills Corporation vs. Ongpin, it does not have to rely
on the finding of others to discharge this adjudicatory functions. 19 CHEDAc

After its motion for reconsideration was denied, BF Homes appealed to the CA (C.A.-G.R.
SP No. 83631), raising as issues: (a) whether or not the HLURB had the jurisdiction to decide
with finality the question of Atty. Orendain's authority to enter into the transaction with San
Miguel Properties in BF Homes' behalf, and rule on the rights and obligations of the parties
to the contract; and (b) whether or not the HLURB properly suspended the proceedings until
the SEC resolved with finality the matter regarding such authority of Atty. Orendain.

The CA promulgated its decision in C.A.-G.R. SP No. 83631, 20 decreeing that the HLURB,
not the SEC, had jurisdiction over San Miguel Properties' complaint. It affirmed the OP's

decision and ordered the remand of the case to the HLURB for further proceedings on the
ground that the case involved matters within the HLURB's competence and expertise
pursuant to the doctrine ofprimary jurisdiction, viz.:

[T]he High Court has consistently ruled that the NHA or the HLURB has jurisdiction
over complaints arising from contracts between the subdivision developer and the
lot buyer or those aimed at compelling the subdivision developer to comply with its
contractual and statutory obligations.

Hence, the HLURB should take jurisdiction over respondent's complaint because it
pertains to matters within the HLURB's competence and expertise. The
proceedings before the HLURB should not be suspended.

While We sustain the Office of the President, the case must be remanded to the
HLURB. This is in recognition of the doctrine of primary jurisdiction. The fairest and
most equitable course to take under the circumstances is to remand the case to
the HLURB for the proper presentation of evidence. 21 HIESTA
Did the Secretary of Justice commit grave abuse of discretion in upholding the dismissal of
San Miguel Properties' criminal complaint for violation of Presidential Decree No. 957 for
lack of probable cause and for reason of a prejudicial question?

The question boils down to whether the HLURB administrative case brought to compel the
delivery of the TCTs could be a reason to suspend the proceedings on the criminal
complaint for the violation of Section 25 of Presidential Decree No. 957 on the ground of a
prejudicial question.

Ruling of the Court

The petition has no merit.

1.
Action for specific performance, even if pending
in the HLURB, an administrative agency,
raises a prejudicial question
BF Homes' posture that the administrative case for specific performance in the HLURB
posed a prejudicial question that must first be determined before the criminal case for
violation of Section 25 of Presidential Decree No. 957 could be resolved is correct.

A prejudicial question is understood in law to be that which arises in a case the resolution of
which is a logical antecedent of the issue involved in the criminal case, and the cognizance
of which pertains to another tribunal. It is determinative of the criminal case, but the
jurisdiction to try and resolve it is lodged in another court or tribunal. It is based on a fact
distinct and separate from the crime but is so intimately connected with the crime that it
determines the guilt or innocence of the accused. 22 The rationale behind the principle of
prejudicial question is to avoid conflicting decisions. 23 The essential elements of a
prejudicial question are provided in Section 7, Rule 111 of the Rules of Court, to wit: (a) the
previously instituted civil action involves an issue similar or intimately related to the issue
raised in the subsequent criminal action, and (b) the resolution of such issue determines
whether or not the criminal action may proceed. AHaDSI

The concept of a prejudicial question involves a civil action and a criminal case. Yet, contrary
to San Miguel Properties' submission that there could be no prejudicial question to speak of
because no civil action where the prejudicial question arose was pending, the action for
specific performance in the HLURB raises a prejudicial question that sufficed to suspend the
proceedings determining the charge for the criminal violation of Section 25 24 of Presidential
Decree No. 957. This is true simply because the action for specific performance was an
action civil in nature but could not be instituted elsewhere except in the HLURB, whose
jurisdiction over the action was exclusive and original. 25

The determination of whether the proceedings ought to be suspended because of a

prejudicial question rested on whether the facts and issues raised in the pleadings in the
specific performance case were so related with the issues raised in the criminal complaint
for the violation of Presidential Decree No. 957, such that the resolution of the issues in the
former would be determinative of the question of guilt in the criminal case. An examination
of the nature of the two cases involved is thus necessary.

An action for specific performance is the remedy to demand the exact performance of a
contract in the specific form in which it was made, or according to the precise terms agreed
upon by a party bound to fulfill it. 26 Evidently, before the remedy of specific performance is
availed of, there must first be a breach of the contract. 27 The remedy has its roots in Article
1191 of the Civil Code, which reads:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible. . . . (Emphasis supplied) SIcCEA

Accordingly, the injured party may choose between specific performance or rescission
with damages. As presently worded, Article 1191 speaks of the remedy of rescission in
reciprocal obligations within the context of Article 1124 of the former Civil Code which
used the termresolution. The remedy of resolution applied only to reciprocal obligations,
such that a party's breach of the contract equated to a tacit resolutory condition that
entitled the injured party to rescission. The present article, as in the former one,
contemplates alternative remedies for the injured party who is granted the option to
pursue, as principal actions, either the rescission or the specific performance of the
obligation, with payment of damages in either case. 28
On the other hand, Presidential Decree No. 957 is a law that regulates the sale of subdivision
lots and condominiums in view of the increasing number of incidents wherein "real estate
subdivision owners, developers, operators, and/or sellers have reneged on their
representations and obligations to provide and maintain properly" the basic requirements
and amenities, as well as of reports of alarming magnitude of swindling and fraudulent
manipulations perpetrated by unscrupulous subdivision and condominium sellers and
operators, 29 such as failure to deliver titles to the buyers or titles free from liens and
encumbrances. Presidential Decree No. 957authorizes the suspension and revocation of the
registration and license of the real estate subdivision owners, developers, operators, and/or
sellers in certain instances, as well as provides the procedure to be observed in such
instances; it prescribes administrative fines and other penalties in case of violation of, or
non-compliance with its provisions.

Conformably with the foregoing, the action for specific performance in the HLURB would
determine whether or not San Miguel Properties was legally entitled to demand the delivery
of the remaining 20 TCTs, while the criminal action would decide whether or not BF Homes'
directors and officers were criminally liable for withholding the 20 TCTs. The resolution of the
former must obviously precede that of the latter, for should the HLURB hold San Miguel
Properties to be not entitled to the delivery of the 20 TCTs because Atty. Orendain did not
have the authority to represent BF Homes in the sale due to his receivership having been
terminated by the SEC, the basis for the criminal liability for the violation of Section 25
of Presidential Decree No. 957 would evaporate, thereby negating the need to proceed with
the criminal case.

Worthy to note at this juncture is that a prejudicial question need not conclusively resolve the
guilt or innocence of the accused. It is enough for the prejudicial question to simply test the
sufficiency of the allegations in the information in order to sustain the further prosecution of
the criminal case. A party who raises a prejudicial question is deemed to have hypothetically
admitted that all the essential elements of the crime have been adequately alleged in the
information, considering that the Prosecution has not yet presented a single piece of
evidence on the indictment or may not have rested its case. A challenge to the allegations in
the information on the ground of prejudicial question is in effect a question on the merits of
the criminal charge through a non-criminal suit. 30 HDaACI

2.
 Doctrine of primary jurisdiction is applicable
That the action for specific performance was an administrative case pending in the HLURB,
instead of in a court of law, was of no consequence at all. As earlier mentioned, the action
for specific performance, although civil in nature, could be brought only in the HLURB. This
situation conforms to the doctrine of primary jurisdiction. There has been of late a
proliferation of administrative agencies, mostly regulatory in function. It is in favor of these
agencies that thedoctrine of primary jurisdiction is frequently invoked, not to defeat the
resort to the judicial adjudication of controversies but to rely on the expertise, specialized
skills, and knowledge of such agencies in their resolution. The Court has observed that one
thrust of the proliferation is that the interpretation of contracts and the determination of
private rights under contracts are no longer a uniquely judicial function exercisable only by
the regular courts. 31

The doctrine of primary jurisdiction has been increasingly called into play on matters
demanding the special competence of administrative agencies even if such matters are at
the same time within the jurisdiction of the courts. A case that requires for its determination
the expertise, specialized skills, and knowledge of some administrative board or commission
because it involves technical matters or intricate questions of fact, relief must first be
obtained in an appropriate administrative proceeding before a remedy will be supplied by the

courts although the matter comes within the jurisdiction of the courts. The application of the
doctrine does not call for the dismissal of the case in the court but only for its suspension
until after the matters within the competence of the administrative body are threshed out and
determined. 32 DaCEIc

To accord with the doctrine of primary jurisdiction, the courts cannot and will not determine a
controversy involving a question within the competence of an administrative tribunal, the
controversy having been so placed within the special competence of the administrative
tribunal under a regulatory scheme. In that instance, the judicial process is suspended
pending referral to the administrative body for its view on the matter in dispute.
Consequently, if the courts cannot resolve a question that is within the legal competence of
an administrative body prior to the resolution of that question by the latter, especially where
the question demands the exercise of sound administrative discretion requiring the special
knowledge, experience, and services of the administrative agency to ascertain technical and
intricate matters of fact, and a uniformity of ruling is essential to comply with the purposes of
the regulatory statute administered, suspension or dismissal of the action is proper. 33

3.
Other submissions of petitioner are unwarranted
It is not tenable for San Miguel Properties to argue that the character of a violation of Section
25 of Presidential Decree No. 957 as malum prohibitum, by which criminal liability attached
to BF Homes' directors and officers by the mere failure to deliver the TCTs, already rendered
the suspension unsustainable. 34 The mere fact that an act or omission was malum
prohibitum did not do away with the initiative inherent in every court to avoid an absurd
result by means of rendering a reasonable interpretation and application of the procedural
law. Indeed, the procedural law must always be given a reasonable construction to preclude
absurdity in its application. 35 Hence, a literal application of the principle governing
prejudicial questions is to be eschewed if such application would produce unjust and absurd
results or unreasonable consequences. ITDHSE

San Miguel Properties further submits that respondents could not validly raise the prejudicial
question as a reason to suspend the criminal proceedings because respondents had not
themselves initiated either the action for specific performance or the criminal action. It
contends that the defense of a prejudicial question arising from the filing of a related case

could only be raised by the party who filed or initiated said related case.

The submission is unfounded. The rule on prejudicial question makes no distinction as to

who is allowed to raise the defense. Ubi lex non distinguit nec nos distinguere debemos.
When the law makes no distinction, we ought not to distinguish. 36

WHEREFORE, the Court AFFIRMS the decision promulgated on February 24, 2004 by the
Court of Appeals in CA-G.R. SP NO. 73008; and ORDERS petitioner to pay the costs of suit.

SO ORDERED.

Sereno, C.J., Villarama, Jr., Reyes and Perlas-Bernabe, * JJ., concur.

Footnotes

1. Entitled Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties
 for Violation Thereof (July 12, 1976).

2. Rollo, p. 442.

3. Id. at 137-172.

4. Id. at 61.

5. Id. at 123.

6. Id. at 420-428.

7. Id. at 178-181.

8. Id. at 215-217.

9. Id. at 253.

10. Id. at 247-250.

11. Id. at 272-273.

12. Id. at 95-96.

13. Id. at 98-99.

14. Id. at 13-21; penned by Associate Justice Rebecca De Guia-Salvador, with the
concurrence of Associate Justice Romeo A. Brawner (later Presiding
Justice/retired/deceased) and Associate Justice Jose C. Reyes, Jr.

15 Id. at 19-20.

16. Id. at 23-25.

17. Id. at 37-38.

18. Id. at 608.

19. Id. at 609-610.

20. Id. at 504-523.

21. Id. at 522.

22. People v. Consing, Jr., G.R. No. 148193, January 16, 2003, 395 SCRA 366, 369.

23. Beltran v. People, G.R. No. 137567, June 20, 2000, 334 SCRA 106, 110.
24. Section 25. Issuance of Title. — The owner or developer shall deliver the title of the lot or
unit to the buyer upon full payment of the lot or unit. No fee, except those required for the
registration of the deed of sale in the Registry of Deeds, shall be collected for the
issuance of such title. In the event a mortgage over the lot or unit is outstanding at the
time of the issuance of the title to the buyer, the owner or developer shall redeem the
mortgage or the corresponding portion thereof within six months from such issuance in
order that the title over any fully paid lot or unit may be secured and delivered to the buyer
in accordance herewith.

25. Under Presidential Decree No. 1344 (entitled Empowering the National Housing Authority
to Issue Writ of Execution in the Enforcement of its Decision under Presidential Decree No.
957), the National Housing Authority, the predecessor of the HLURB, was vested with
original jurisdiction, as follows:

Section 1. In the exercise of its functions to regulate the real estate trade and business and
in addition to its powers provided for in Presidential Decree No. 957, the National Housing
Authority shall have exclusive jurisdiction to hear and decide cases of the following
nature:

(a) Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium

unit buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations

filed by buyers of subdivision lot or condominium unit against the owner, developer,
dealer, broker or salesman. (Emphasis supplied)

26. Black's Law Dictionary.

27. Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No. 163075,
January 23, 2006, 479 SCRA 462, 469.

28. Congregation of the Religious of the Virgin Mary v. Orola, G.R. No. 169790, April 30, 2008,
553 SCRA 578, 585.

29. Co Chien v. Sta. Lucia Realty & Development, Inc., G.R. No. 162090, January 31, 2007,
513 SCRA 570, 577-578.
 30. Marbella-Bobis v. Bobis, G.R. No. 138509, July 31, 2000, 336 SCRA 747, 752.

31. Antipolo Realty Corporation v. National Housing Authority, No. L-50444, August 31, 1987,
153 SCRA 399, 407.

32. Industrial Enterprises, Inc. v. Court of Appeals, G.R. No. 88550, April 18, 1990, 184 SCRA
426, 431-432.

33. Provident Tree Farms, Inc. v. Batario, Jr., G.R. No. 92285, March 28, 1994, 231 SCRA
463, 469-470; Saavedra, Jr. v. Department of Justice, G.R. No. 93173, September 15,
1993, 226 SCRA 438, 442-443; Presidential Commission on Good Government v. Peña,
No. L-77663, April 12, 1988, 159 SCRA 556, 567-568; Pambujan Sur United Mine Workers
v. Samar Mining Co., Inc., 94 Phil. 932, 941 (1954).

34. Rollo, p. 49.

35. Millares v. National Labor Relations Commission, G.R. No. 110524, July 29, 2002, 385
SCRA 306, 316.

36. Yu v. Tatad, G.R. No. 170979, February 9, 2011, 642 SCRA 421, 428.

* Vice Associate Justice Teresita J. Leonardo-de Castro, who is on official trip for the Court to
attend the Southeast Asia Regional Judicial Colloquium on Gender Equality
Jurisprudence and the Role of the Judiciary in Promoting Women's Access to Justice, in
Bangkok, Thailand, per Special Order No. 1529 dated August 29, 2013.

||| (San Miguel Properties, Inc. v. Perez, G.R. No. 166836, [September 4, 2013])
 SECOND DIVISION

[G.R. No. 180064. September 16, 2013.]

JOSE U. PUA and BENJAMIN HANBEN U. PUA, petitioners, vs. CITIBANK,

N.A.,respondent.

DECISION

PERLAS-BERNABE, J : p

Assailed in this petition for review on certiorari 1 are the Decision 2 dated May 21, 2007 and
Resolution 3 dated October 16, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 79297,
which reversed and set aside the Orders dated May 14, 2003 4 and July 16, 2003 5 of the
Regional Trial Court of Cauayan City, Isabela, Branch 19 (RTC), dismissing petitioners Jose
(Jose) and Benjamin Hanben U. Pua's (petitioners) complaint against respondent Citibank,
N.A. (respondent).

The Facts

On December 2, 2002, petitioners filed before the RTC a Complaint 6 for declaration of nullity
of contract and sums of money with damages against respondent, 7 docketed as Civil Case
No. 19-1159. 8 In their complaint, petitioners alleged that they had been depositors of
Citibank Binondo Branch (Citibank Binondo) since 1996. Sometime in 1999, Guada Ang,
Citibank Binondo's Branch Manager, invited Jose to a dinner party at the Manila Hotel where
he was introduced to several officers and employees of Citibank Hongkong Branch (Citibank
Hongkong). 9 A few months after, Chingyee Yau (Yau), Vice-President of Citibank Hongkong,
came to the Philippines to sell securities to Jose. They averred that Yau required Jose to
open an account with Citibank Hongkong as it is one of the conditions for the sale of the
aforementioned securities. 10 After opening such account, Yau offered and sold to petitioners
numerous securities 11 issued by various public limited companies established in Jersey,
Channel Islands. The offer, sale, and signing of the subscription agreements of said
securities were all made and perfected at Citibank Binondo in the presence of its officers
and employees. 12 Later on, petitioners discovered that the securities sold to them were not
registered with the Securities and Exchange Commission (SEC) and that the terms and
conditions covering the subscription were not likewise submitted to the SEC for evaluation,
approval, and registration. 13 Asserting that respondent's actions are in violation of Republic
Act No. 8799, entitled the "Securities Regulation Code" (SRC), they assailed the validity of
the subscription agreements and the terms and conditions thereof for being contrary to law
and/or public policy. 14

For its part, respondent filed a motion to dismiss 15 alleging, inter alia, that petitioners'
complaint should be dismissed outright for violation of the doctrine of primary jurisdiction. It
pointed out that the merits of the case would largely depend on the issue of whether or not
there was a violation of the SRC, in particular, whether or not there was a sale of
unregistered securities. In this regard, respondent contended that the SRC conferred upon
the SEC jurisdiction to investigate compliance with its provisions and thus, petitioners'
complaint should be first filed with the SEC and not directly before the RTC. 16

Petitioners opposed 17 respondent's motion to dismiss, maintaining that the RTC has
jurisdiction over their complaint. They asserted that Section 63 of the SRC expressly
provides that the RTC has exclusive jurisdiction to hear and decide all suits to recover
damages pursuant to Sections 56 to 61 of the same law. 18 IATHaS

The RTC Ruling

In an Order 19 dated May 14, 2003, the RTC denied respondent's motion to dismiss. It noted
that petitioners' complaint is for declaration of nullity of contract and sums of money with
damages and, as such, it has jurisdiction to hear and decide upon the case even if it
involves the alleged sale of securities. It ratiocinated that the legal questions or issues
arising from petitioners' causes of action against respondent are more appropriate for the
judiciary than for an administrative agency to resolve. 20

Respondent filed an omnibus motion 21 praying, among others, for the reconsideration of the
aforesaid ruling, which petitioners, in turn, opposed. 22 In an Order 23 dated July 16, 2003,
the RTC denied respondent's omnibus motion with respect to its prayer for reconsideration.
Dissatisfied, respondent filed a petition for certiorari before the CA. 24
 The CA Ruling

In a Decision 25 dated May 21, 2007, the CA reversed and set aside the RTC's Orders and
dismissed petitioners' complaint for violation of the doctrine of primary jurisdiction. The CA
agreed with respondent's contention that since the case would largely depend on the issue
of whether or not the latter violated the provisions of the SRC, the matter is within the
special competence or knowledge of the SEC. Citing the case of Baviera v.
Paglinawan 26 (Baviera), the CA opined that all complaints involving violations of
the SRC should be first filed before the SEC. 27

Aggrieved, petitioners moved for reconsideration, 28 which was, however, denied by the CA
in a Resolution 29 dated October 16, 2007. Hence, this petition.

The Issue Before the Court

The essential issue in this case is whether or not petitioners' action falls within the primary
jurisdiction of the SEC.

Petitioners reiterate their original position that the SRC itself provides that civil cases for
damages arising from violations of the same law fall within the exclusive jurisdiction of the
regional trial courts. 30

On the contrary, respondent maintains that since petitioners' complaint would necessarily
touch on the issue of whether or not the former violated certain provisions of the SRC, then
the said complaint should have been first filed with the SEC which has the technical
competence to resolve such dispute. 31

The Court's Ruling

The petition is meritorious.

At the outset, the Court observes that respondent erroneously relied on the Baviera ruling to
support its position that all complaints involving purported violations of the SRC should be
first referred to the SEC. A careful reading of the Baviera case would reveal that the same
involves a criminal prosecution of a purported violator of the SRC, and not a civil suit such
as the case at bar. The pertinent portions of the Baviera ruling thus read:

A criminal charge for violation of the Securities Regulation Code is a

specialized dispute. Hence, it must first be referred to an administrative
agency of special competence, i.e., the SEC. Under
 the doctrine of primary jurisdiction, courts will not determine a controversy
involving a question within the jurisdiction of the administrative tribunal, where the
question demands the exercise of sound administrative discretion requiring the
specialized knowledge and expertise of said administrative tribunal to determine
technical and intricate matters of fact. The Securities Regulation Code is a special
law. Its enforcement is particularly vested in the SEC. Hence, all complaints for
any violation of the Code and its implementing rules and regulations should
be filed with the SEC. Where the complaint is criminal in nature, the SEC shall
indorse the complaint to the DOJ for preliminary investigation and prosecution as
provided in Section 53.1 earlier quoted.

We thus agree with the Court of Appeals that petitioner committed a fatal
procedural lapse when he filed his criminal complaint directly with the DOJ.
Verily, no grave abuse of discretion can be ascribed to the DOJ in dismissing
petitioner's complaint. 32 (Emphases and underscoring supplied) cIDHSC

Records show that petitioners' complaint constitutes a civil suit for declaration of nullity of
contract and sums of money with damages, which stemmed from respondent's alleged sale
of unregistered securities, in violation of the various provisions of the SRC and not a criminal
case such as that involved in Baviera.

In this light, when the Court ruled in Baviera that "all complaints for any violation of the [SRC]
. . . should be filed with the SEC," 33 it should be construed as to apply only to criminal and
not to civil suits such as petitioners' complaint.

Moreover, it is a fundamental rule in procedural law that jurisdiction is conferred by law; 34 it

cannot be inferred but must be explicitly stated therein. Thus, when Congress confers
exclusive jurisdiction to a judicial or quasi-judicial entity over certain matters by law, this,
absent any other indication to the contrary, evinces its intent to exclude other bodies from
exercising the same.

It is apparent that the SRC provisions governing criminal suits are separate and distinct from
those which pertain to civil suits. On the one hand, Section 53 of the SRC governs criminal
suits involving violations of the said law, viz.:

SEC. 53.Investigations, Injunctions and Prosecution of Offenses. —

53.1.The Commission may, in its discretion, make such investigations as it deems

 necessary to determine whether any person has violated or is about to violate any
provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency, other self-regulatory
organization, and may require or permit any person to file with it a statement in
writing, under oath or otherwise, as the Commission shall determine, as to all facts
and circumstances concerning the matter to be investigated. The Commission may
publish information concerning any such violations, and to investigate any fact,
condition, practice or matter which it may deem necessary or proper to aid in the
enforcement of the provisions of this Code, in the prescribing of rules and
regulations thereunder, or in securing information to serve as a basis for
recommending further legislation concerning the matters to which this Code
relates: Provided, however, That any person requested or subpoenaed to produce
documents or testify in any investigation shall simultaneously be notified in writing
of the purpose of such investigation: Provided, further, That all criminal complaints
for violations of this Code, and the implementing rules and regulations enforced or
administered by the Commission shall be referred to the Department of Justice for
preliminary investigation and prosecution before the proper court: Provided,
furthermore, That in instances where the law allows independent civil or criminal
proceedings of violations arising from the same act, the Commission shall take
appropriate action to implement the same: Provided, finally, That the investigation,
prosecution, and trial of such cases shall be given priority.

On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC pertain to civil
suits involving violations of the same law. Among these, the applicable provisions to this
case are Sections 57.1 and 63.1 of the SRC which provide:

SEC. 57.Civil Liabilities Arising in Connection with Prospectus, Communications

and Reports. — 57.1. Any person who:

(a)Offers to sell or sells a security in violation of Chapter III; or

(b)Offers to sell or sells a security, whether or not exempted by the provisions of

this Code, by the use of any means or instruments of transportation or
communication, by means of a prospectus or other written or oral communication,
which includes an untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements, in the light of the circumstances
 under which they were made, not misleading (the purchaser not knowing of such
untruth or omission), and who shall fail in the burden of proof that he did not know,
and in the exercise of reasonable care could not have known, of such untruth or
omission, shall be liable to the person purchasing such security from him, who
may sue to recover the consideration paid for such security with interest
thereon, less the amount of any income received thereon, upon the tender of
such security, or for damages if he no longer owns the security.

xxx xxx xxx

SEC. 63.Amount of Damages to be Awarded. — 63.1. All suits to recover

damagespursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought before
the Regional Trial Court which shall have exclusive jurisdiction to hear and
decide such suits. The Court is hereby authorized to award damages in an
amount not exceeding triple the amount of the transaction plus actual damages. AEaSTC

xxx xxx xxx (Emphases and underscoring supplied)

Based on the foregoing, it is clear that cases falling under Section 57 of the SRC, which
pertain to civil liabilities arising from violations of the requirements for offers to sell or the
sale of securities, as well as other civil suits under Sections 56, 58, 59, 60, and 61 of
the SRC shall be exclusively brought before the regional trial courts. It is a well-settled
rule in statutory construction that the term "shall" is a word of command, and one which has
always or which must be given a compulsory meaning, and it is generally imperative or
mandatory. 35 Likewise, it is equally revelatory that no SRC provision of similar import is
found in its sections governing criminal suits; quite the contrary, the SRC states that criminal
cases arising from violations of its provisions should be first referred to the SEC.

Therefore, based on these considerations, it stands to reason that civil suits falling under
the SRCare under the exclusive original jurisdiction of the regional trial courts and hence,
need not be first filed before the SEC, unlike criminal cases wherein the latter body exercises
primary jurisdiction.

All told, petitioners' filing of a civil suit against respondent for purported violations of
the SRCwas properly filed directly before the RTC.

WHEREFORE, the petition is GRANTED. Accordingly, the Court of Appeals' Decision dated
May 21, 2007 and Resolution dated October 16, 2007 in CA-G.R. SP No. 79297 are
hereby REVERSEDand SET ASIDE. Let Civil Case No. 19-1159
be REINSTATED and REMANDED to the Regional Trial Court of Cauayan City, Isabela,
Branch 19 for further proceedings. aDSHCc

SO ORDERED.

Carpio, Brion, Del Castillo and Perez, JJ., concur.

Footnotes

1. Rollo, Vol. 1, pp. 10-34.

2. Id. at 38-56. Penned by Associate Justice Japar B. Dimaampao, with Presiding Justice
Ruben T. Reyes (now retired Associate Justice of the Supreme Court) and Associate
Justice Mario L. Guariña III, concurring.

3. Id. at 64-67. Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate

Justices Rosalinda Asuncion-Vicente and Enrico A. Lanzanas, concurring.

4. Id. at 176-185. Penned by Executive Judge Raul V. Babaran.

5. Id. at 211-214.

6. Id. at 69-81.

7. Id. at 14.

8. The various pleadings filed by petitioners before the RTC were docketed as Civil Case No.
2387.

9. Rollo, pp. 39 and 70.

10. Id.

11. Id. at 39 and 70-71. Namely, AERIS II, CERES II, and PALMYRA, issued by Aeris Finance,
Ltd., Ceres II Finance, Ltd., and Palmyra Funding, Limited, respectively.

12. Id. at 39 and 71.

13. Id. at 72 and 75-77.

14. Id. at 40-41.

15. Id. at 140-163. Dated January 10, 2003.

16. Id. at 152-155.

17. Id. at 164-173. Vigorous Opposition dated January 16, 2003.

18. Id. at 168-169.

19. Id. at 176-185.

20. Id. at 180-181.

21. Id. at 186-200. Dated June 2, 2003.

22. Id. at 202-210. Opposition with Motion to Declare Defendant in Default dated June 5,
2003.

23. Id. at 211-214.

24. Id. at 287-327. Dated September 15, 2003.

25. Id. at 38-56.

26. G.R. Nos. 168380 and 170602, February 8, 2007, 515 SCRA 170.

27. Rollo, pp. 54-55.

28. Id. at 357-371. Motion for Reconsideration dated June 7, 2007.

29. Id. at 64-67.

30. Id. at 26.

31. Rollo, Vol. II, pp. 445-504. Comment dated October 9, 2008.

32. Baviera v. Paglinawan, supra note 26, at 182-183.

33. Id. at 182.

34. Magno v. People, G.R. No. 171542, April 6, 2011, 647 SCRA 362, 371, citing Machado v.
Gatdula, G.R. No. 156287, February 16, 2010, 612 SCRA 546, 559.

35. Enriquez v. Enriquez, G.R. No. 139303, August 25, 2005, 468 SCRA 77, 84, citing Lacson
v. San Jose-Lacson, G.R. Nos. L-23482, L-23767, and L-24259, August 30, 1968, 24
SCRA 837, 848.
||| (Pua v. Citibank, N.A., G.R. No. 180064, [September 16, 2013])
 FIRST DIVISION

[G.R. No. 166330. September 11, 2013.]

SMART COMMUNICATIONS, INC., petitioner, vs. ARSENIO ALDECOA,

JOSE B. TORRE, CONRADO U. PUA, GREGORIA V. MANSANO, JERRY
CORPUZ and ESTELITA ACOSTA, respondents.

DECISION

LEONARDO-DE CASTRO, J : p

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court filed by petitioner Smart Communications, Inc., seeking the reversal of the
Decision 1 dated July 16, 2004 and Resolution 2 dated December 9, 2004 of the Court of
Appeals in CA-G.R. CV No. 71337. The appellate court (1) reversed and set aside the
Order 3 dated January 16, 2001 of the Regional Trial Court (RTC), Branch 23, of Roxas,
Isabela, in Civil Case No. Br. 23-632-2000 dismissing the complaint for abatement of
nuisance and injunction against petitioner, and (2) entered a new judgment declaring
petitioner's cellular base station located in Barangay Vira, Municipality of Roxas, Province of
Isabela, a nuisance and ordering petitioner to cease and desist from operating the said
cellular base station.

The instant Petition arose from the following facts:

Petitioner is a domestic corporation engaged in the telecommunications business. On March

9, 2000, petitioner entered into a contract of lease 4 with Florentino Sebastian in which the
latter agreed to lease to the former a piece of vacant lot, measuring around 300 square
meters, located in Barangay Vira, Roxas, Isabela (leased property). Petitioner, through its
contractor, Allarilla Construction, immediately constructed and installed a cellular base
station on the leased property. Inside the cellular base station is a communications tower,
rising as high as 150 feet, with antennas and transmitters; as well as a power house open on
three sides containing a 25KVA diesel power generator. Around and close to the cellular
base station are houses, hospitals, clinics, and establishments, including the properties of
respondents Arsenio Aldecoa, Jose B. Torre, Conrado U. Pua, Gregorio V. Mansano, Jerry
Corpuz, and Estelita Acosta. CHaDIT

Respondents filed before the RTC on May 23, 2000 a Complaint against petitioner for
abatement of nuisance and injunction with prayer for temporary restraining order and writ of
preliminary injunction, docketed as Civil Case No. Br. 23-632-2000. Respondents alleged in
their Complaint that:

5. [Petitioner's] communications tower is 150 feet in height equivalent to a 15-

storey building. It is a tripod-type tower made of tubular steel sections and the last
section, to which the huge and heavy antenna/transponder array will be attached,
about to be bolted on. Weight of the antenna mast is estimated at one (1) to three
(3) tons, more or less. As designed, the antenna/transponder array are held only by
steel bolts without support of guywires;

6. This SMART tower is no different from the Mobiline tower constructed at Reina
Mercedes, Isabela which collapsed during a typhoon that hit Isabela in October
1998, an incident which is of public knowledge;

7. With its structural design, SMART's tower being constructed at Vira, Roxas,
Isabela, is weak, unstable, and infirm, susceptible to collapse like
the Mobiline tower which fell during a typhoon as earlier alleged, and its structural
integrity being doubtful, and not earthquake proof, this tower poses great danger
to life and limb of persons as well as their property, particularly, the [respondents]
whose houses abut, or are near or within the periphery of the communications
tower;

8. This tower is powered by a standby generator that emits noxious and deleterious
fumes, not to mention the constant noise it produces, hence, a hazard to the
health, not only of the [respondents], but the residents in the area as well; SCaTAc

9. When in operation, the tower would also pose danger to the life and health of
[respondents] and residents of the barangay, especially children, because of the
ultra high frequency (UHF) radio wave emissions it radiates. Only recently, Cable
News Network (CNN) reported that cell phones, with minimal radiated power, are
dangerous to children, so more it is for this communications tower, whose radiated
 power is thousands of times more than that of a cellphone;

10. Worse, and in violation of law, [petitioner] constructed the tower without the
necessary public hearing, permit of the barangay, as well as that of the
municipality, the Environmental Compliance Certificate of the [Department of
Environment and Natural Resources (DENR)], construction permit, and other
requirements of the National Telecommunications Commission (NTC), and in fact
committed fraud in its application by forging an undated certification "that
Barangay Vira does not interpose any objection to the proposed construction of a
150 ft. tower & site development," as this certification was never issued by
[respondent] Jose Torre, the Barangay Captain of Vira, Roxas, Isabela, and without
the official barangay seal, attached as Annex "A" and Certification of the Barangay
Officer of the Day that no public hearing was held, attached as Annex "B"made
integral part hereof;

11. Not being armed with the requisite permits/authority as above mentioned, the
construction of the tower is illegal and should be abated;

12. [Respondents] and [petitioner] should not wait for the occurrence of death,
injuries and damage on account of this structure and judicial intervention is needed
to ensure that such event will not happen[.]5

Respondents thus prayed for the RTC to:

1. Issue a temporary restraining order and after due hearing to issue a writ of
preliminary mandatory injunction;

2. Render judgment: IHDCcT

— Making the writ of preliminary mandatory injunction permanent;

— Declaring the construction of the SMART tower as a nuisance per

se or per accidens;

— Ordering the abatement of this nuisance by ordering the removal and/or

demolition of [petitioner's] communication tower;

— Condemning [petitioner] to pay [respondents] moral damages in the sum

of P150,000.00 and exemplary damages in the sum of P30,000.00;
 — Ordering [petitioner] to pay attorney's fees in the amount of P20,000.00
plus trial honoraria of P1,000.00 for every appearance in Court;

— Ordering [petitioner] to refund to [respondents] litigation expenses in the

amount of not less than P10,000.00;

3. And for such other reliefs as are just and equitable in the premises. 6

In its Answer/Motion to Oppose Temporary Restraining Order with Compulsory

Counterclaim, petitioner raised the following special and affirmative defenses:

13. [Petitioner] through its contractor, Allarilla Construction (hereafter Allarilla),

applied for a Building Permit through the office of Municipal engineer Virgilio A.
Batucal on 13 April 2000 and subsequently received its approval 17 April 2000. (a
copy of the Official receipt and the Building Permit is hereto attached respectively
as Annexes "A" and "B" and made an integral part hereof) ATCaDE

14. [Petitioner], again through Allarilla applied for an Environmental Compliance

Certificate (ECC) the approval of which, at present, remains pending with the
DENR-[Environment Management Bureau (EMB)].

15. [Petitioner] should not in anyway be liable for fraud or bad faith as it had
painstakingly secured the consent of majority of the residents surrounding the
location of the Tower in order to seek their approval therewith. (a copy of the list of
residents who consented thereto is attached herewith as Annex "C" and made an
integral part hereof)

16. Among the residents who signed the consent list secured by [petitioner] include
the [respondent] Jose B. Torre and a certain Linaflor Aldecoa, who is related to
[respondent] Arsenio Aldecoa.

17. [Petitioner] did not forge the Barangay Certification but actually secured the
consent of Barangay Captain Jose Torre through the efforts of Sangguniang Bayan
(SB) Board Member Florentino Sebastian. (a copy of the Barangay Certification is
attached herewith as Annex "D" and made an integral part hereof)

18. [Petitioner] Tower's safety has been pre-cleared and is unlikely to cause harm in
exposing the members of the public to levels exceeding health limits considering
that the antenna height of the Tower is 45.73 meters or equivalent to 150 feet as
 stated in a Radio Frequency Evaluation report by Elizabeth H. Mendoza health
Physicist II, of the Department of Health Radiation Health Service dated 9 May
2000. (a copy is hereto attached as Annex "E" and made an integral part hereof) HDITCS

19. The structural stability and soundness of the Tower has been certified by Engr.
Melanio A. Guillen Jr. of the Engineering Consulting firm Microflect as contained in
their Stress Analysis Report (a copy is hereto attached as Annex "F" and made an
integral part hereof)

20. [Petitioner's] impetus to push through with the construction of the Tower is
spurred by the Telecommunications Act of 1995 or Republic Act 7925 which states
that the "expansion of the telecommunications network shall give priority to
improving and extending basic services to areas not yet served." Article II, Sec. 4
par. B. (a copy of RA 7925 is hereto attached as Annex "G" and made an integral
part hereof) 7

In the end, petitioner sought the dismissal of respondents' Complaint; the denial of
respondents' prayer for the issuance of a temporary restraining order and writ of preliminary
mandatory injunction; the award of moral, nominal, and exemplary damages in the amounts
which the court deem just and reasonable; and the award of attorney's fees in the sum of
P500,000.00 and litigation expenses as may be proven at the trial.

Respondents then contested petitioner's allegations and averred in their Reply and Answer
to Counterclaim that:

— [Petitioner's] cell site relay antenna operates on the ultra high frequency (UHF)
band, or gigabyte band, that is much higher than that of TV and radio
broadcasts which operates only on the Very High Frequency (VHF) band,
hence, [petitioner's] equipment generates dangerously high radiation and
emission that is hazardous to the people exposed to it like [respondents],
whose houses are clustered around [petitioner's] cell site
antenna/communications tower; ASTcEa

— As admitted, [petitioner] has not secured the required Environmental

Compliance Certificate (ECC). It has not even obtained the initial compliance
certificate (ICC). In short, [petitioner] should have waited for these
documents before constructing its tower, hence, it violated the law and such
 construction is illegal and all the more sustains the assertions of
[respondents];

— The alleged building permit issued to [petitioner] is illegal because of the lack of
an ECC and that [petitioner's] application for a building permit covered only
a building and not a cell site antenna tower. Moreover, the [petitioner] failed
to obtain a National Telecommunications Commission (NTC) Clearance to
construct the communications tower. As will be seen in the application and
permit, the documents are dated April, 2000 while the construction begun in
March, 2000;

— The technical data that served as the basis of the Radio Frequency Radiation
Evaluation of [petitioner's] mobile telephone base station was provided
solely by the [petitioner] and in fact misled the DOH Radiation Health
Service. It states an absurdly low transmitted power of twenty (20) watts for
a dual band mobile phone service such as [petitioner] Smart's GSM
900/1800 Dual Band which is the standard service it offers to the public;

— The Stress Analysis Report is self-serving and tested against the

communications tower, the structural integrity is flawed;

— While [respondents] may yield to the mandate of Republic Act No. 7925,
otherwise known as the Telecommunications Act of 1995, extending and
improving or upgrading of basic services to areas not yet served, this should
not be taken as a license to gamble and/or destroy the health and well-being
of the people; HcTEaA

— [Petitioner's] alleged certification (Annex "D", should be Annex "4") is the very
same certification appended to [respondents'] complaint which they have
assailed as a forgery and which [respondent] Jose Torre, the Barangay
Captain of Vira, Roxas, Isabela, emphatically denies having signed and/or
issued the same. Moreover, the certification gives [petitioner] away because
[respondent] Jose Torre has no technical education using the
telecommunications term "SMART GSM & ETACS project," in said falsified
certification;

— [Petitioner's] claim that it is not liable for fraud or bad faith, proudly stating that it
 has painstakingly secured the consent of the majority of the residents
surrounding the tower site, is belied by the alleged Conformity of Host
Community (Residential) — Annex "C" — should be Annex "3" — where only
a handful of residents signed the document prepared by [petitioner] and the
contents of which were misrepresented by [a] Sangguniang Bayan Member
in the person of Nick Sebastian who is an interested party being the owner
of the land where the tower is constructed. It was misrepresented to Linaflor
Aldecoa, wife of [respondent] Arsenio Aldecoa that it was already anyway
approved and signed by Barangay Captain Jose Torre when in truth his
signature was again forged by the [petitioner] and/or its employees or agents
or person working for said company. Also, there are persons who are not
residents of Vira, Roxas, Isabela who signed the document such as Melanio
C. Gapultos of Rizal, Roxas, Isabela, Carlito Castillo of Nuesa, Roxas,
Isabela, and another, Gennie Feliciano from San Antonio, Roxas, Isabela.
Certainly six (6) persons do not constitute the conformity of the majority of
the residents of Vira, Roxas, Isabela, and those immediately affected by the
cellsite tower like [respondents]. This document is likewise flawed and
cannot help [petitioner's] cause. Besides, [respondents] and other residents,
sixty-two (62) of them, communicated their protest against the erection of
the cell tower specifying their reasons therefor and expressing their
sentiments and fears about [petitioner's] communications tower, xerox copy
attached as Annex "A" and made integral part hereof; CAcEaS

— [Respondents] likewise specifically deny the truth of the allegation in paragraph

12 of the answer, the truth being that the lot leased to [petitioner] is owned
by SB Member Nick Sebastian and that Florentino Sebastian is dummying
for the former in avoidance of possible anti-graft charges against his son
concerning this project. It is also further denied for lack of knowledge or
information sufficient to form a belief as to the truth thereof. Moreover, the
lease contract, copy not annexed to [petitioner's] answer, would
automatically be terminated or ended in the event of complaints and/or
protests from the residents[.]8

Civil Case No. Br. 23-632-2000 was set for pre-trial on September 28, 2000. 9
On September 11, 2000, petitioner filed its Pre-Trial Brief in which it identified the following
issues:

4.1. Whether [respondents have] a cause of action against the [petitioner] SMART
for this Honorable Court to issue a Preliminary Mandatory Injunction over the
SMART tower in Roxas, Isabela as it allegedly poses a threat to the lives and safety
of the residents within the area and if [respondents] are entitled to moral and
exemplary damages as well as attorney's fees and expenses of litigation.

4.2. Whether the complaint should be dismissed in that the claim or demand set
forth in the Complaint is fictitious, imaginary, sham and without any real basis.

4.3. What [petitioner] SMART is entitled under its compulsory counterclaim against
[respondents] for moral and exemplary damages, attorney's fees, and other
expenses of litigation. 10

On even date, petitioner filed a Motion for Summary Judgment that reads: HDAECI

[Petitioner] SMART Communications, Inc., thru counsel, respectfully manifests that:

1. There is no need for a full-blown trial as the causes of action and issues
have already been identified in all the pleadings submitted to this
Honorable court by both [respondents] and [petitioner].

2. There is clearly no genuine issue as to any material fact or cause in the

action.

3. There is no extreme urgency to issue a Preliminary Mandatory Injunction

as stated in an affidavit executed by SMART Senior Supervisor
Andres V. Romero in an affidavit hereto attached as Annex "A".

4. [Petitioner] seeks immediate declaratory relief from [respondents']

contrived allegations as set forth in [their] complaint;

Wherefore, it is most respectfully prayed of this Honorable Court that summary

judgment be rendered pursuant to Rule 35 of the Revised Rules of Court. 11

Respondents filed their Pre-Trial Brief on September 21, 2000, proposing to limit the
issues, viz.:

— Whether [petitioner's] communications tower is a nuisance per se/per

 accidens and together with its standby generator maybe abated for posing
danger to the property and life and limb of the residents of Vira, Roxas,
Isabela more particularly the [respondents] and those whose houses are
clustered around or in the periphery of the cell site.

— Damages, attorney's fees, litigation expenses and other claims. 12 HAIDcE

Respondents likewise filed on September 21, 2000 their Opposition to petitioner's Motion
for Summary Judgment, maintaining that there were several genuine issues relating to the
cause of action and material facts of their Complaint. They asserted that there was a need
for a full blown trial to prove the allegations in their Complaint, as well as the defenses put
up by petitioner. 13

In its Order 14 dated September 28, 2000, the RTC indefinitely postponed the pre-trial until it
has resolved petitioner's Motion for Summary Judgment. In the same Order, the RTC
directed the counsels of both parties to submit their memoranda, including supporting
affidavits and other documents within 30 days.

Petitioner submitted its Memorandum 15 on October 26, 2000; while respondents, following
several motions for extension of time, filed their Memorandum 16 on November 22, 2000. In
their Memorandum, respondents additionally alleged that: HSDCTA

[T]he cellsite base station is powered by a roaring 25KVA power generator.

Operated 24 hours since it started more than a month ago, it has
sent "jackhammers into the brains" of all the inhabitants nearby. Everyone is
going crazy. A resident just recently operated for breast cancer is complaining
that the noise emanating from the generator is fast tracking her appointment with
death. She can no longer bear the unceasing and irritating roar of the power
generator.

For this, the residents, led by the [respondents], sought a noise emission test of the
power generator of [petitioner] SMART Communications with the DENR. The test
was conducted on November 14 and 15, 2000 and the result shows that the
[petitioner's] power generator failed the noise emission test, day and night time.
Result of this test was furnished the Municipal Mayor of Roxas, Isabela (See
Communication of DENR Regional Director Lorenzo C. Aguiluz to Mayor Benedicto
 Calderon dated November 16, 2000 and the Inspection Monitoring Report).

With these findings, the power generator is also a nuisance. It must also be
abated. 17

On January 16, 2001, the RTC issued its Order granting petitioner's Motion for Summary
Judgment and dismissing respondents' Complaint. The RTC ruled as follows:

What is of prime importance is the fact that contrary to the [respondents']

speculation, the radio frequency radiation as found out by the Department of
Health is much lower compared to that of TV and radio broadcast. The
[respondents'] counter to this claim is that the Department of Health was misled.
This is a mere conclusion of the [respondents].

The [respondents] in opposing the Smart's construction of their cellsite is anchored

on the supposition that the operation of said cellsite tower would pose a great
hazard to the health of the alleged cluster of residents nearby and the perceived
danger that the said tower might also collapse in case of a strong typhoon that fell
the Mobiline Cellsite tower of Mobiline (sic). The structured built of the Smart's
Cellsite tower is similar to that of the Mobiline. DCcTHa

Now, as to the Court's assessment of the circumstances obtaining, we find the

claim of the [respondents] to be highly speculative, if not an isolated one.
Elsewhere, we find several cellsite towers scaterred (sic) all over, both of the Smart,
Globe, and others, nay even in thickly populated areas like in Metro Manila and
also in key cities nationwide, yet they have not been outlawed or declared nuisance
as the [respondents] now want this Court to heed. To the thinking of the Court, the
[respondents] are harping imagined perils to their health for reason only known to
them perhaps especially were we to consider that the Brgy. Captain of Vira earlier
gave its imprimatur to this project. Noteworthy is the fact that the alleged cluster of
residential houses that abut the cellsite tower in question might be endangered
thereby, the [respondents] are but a few of those residents. If indeed, all those
residents in Vira were adversely affected for the perceived hazards posed by the
tower in question, they should also have been joined in as [respondents] in a class
suit. The sinister motive is perhaps obvious.

All the foregoing reasons impel this Court to grant the [petitioner's] motion for the
 dismissal of the complaint, the perceived dangers being highly speculative without
any bases in fact. Allegations in the complaint being more imaginary than real, do
not constitute factual bases to require further proceeding or a trial. As to the claim
that there is no certification or clearance from the DENR for the [petitioner] to lay in
wait before the construction, suffice it to say that no action as yet has been taken
by said office to stop the ongoing operation of said cellsite now in operation. There
has been no hue and cry from among the greater majority of the people of Roxas,
Isabela, against it. Al contrario, it is most welcome to them as this is another
landmark towards the progress of this town. 18

The dispositive portion of the RTC Order reads:

WHEREFORE, in view of the foregoing considerations, the Court hereby renders

judgment dismissing the complaint as the allegations therein are purely speculative
and hence no basis in fact to warrant further proceedings of this case. ASTIED

The Court finds no compelling grounds to award damages.

Without costs. 19

In another Order 20 dated February 27, 2001, the RTC denied respondents' Motion for
Reconsideration.

Respondents filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 71337.

The Court of Appeals rendered its Decision on July 16, 2004. The appellate court declared
the cellular base station of petitioner a nuisance that endangered the health and safety of the
residents of Barangay Vira, Roxas, Isabela because: (1) the locational clearance granted to
petitioner was a nullity due to the lack of approval by majority of the actual residents of
thebarangay and a barangay resolution endorsing the construction of the cellular base
station; and (2) the sound emission of the generator at the cellular base station exceeded the
Department of Environment and Natural Resources (DENR) standards. Consequently, the
Court of Appeals decreed:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. A

new one is entered declaring the communications tower or base station of
[petitioner] Smart Communications, Inc. located at Brigido Pascual Street in Vira,
Municipality of Roxas, Province of Isabela, a nuisance. [Petitioner] is ordered to
 cease and desist from operating the said tower or station. 21 ESaITA

Petitioner filed its Motion for Reconsideration arguing that: (1) the basis for the judgment of
the appellate court that the cellular base station was a nuisance had been extinguished as
the generator subject of the Complaint was already removed; and (2) there had been
substantial compliance in securing all required permits for the cellular base station. 22

The Court of Appeals, in a Resolution dated December 9, 2004, refused to reconsider its
earlier Decision, reasoning that:

[Petitioner] principally anchors its pleas for reconsideration on the Certification

issued by Roxas, Isabela Municipal Engineer Virgilio Batucal, declaring that upon
actual inspection, no Denyo Generator Set has been found in the company's cell
site in Roxas, Isabela. We hold, however, that the certification dated August 12,
2004, taken on its own, does not prove Smart's allegation that it has abandoned
using diesel-powered generators since January 2002. [Respondents'] current
photographs of the cell site clearly shows (sic) that Smart continues to use a
mobile generator emitting high level of noise and fumes.

We have gone over [petitioner's] other arguments and observed that they are
merely repetitive of previous contentions which we have judiciously ruled
upon. 23 (Citations omitted.)

Petitioner seeks recourse from the Court through the instant Petition, assigning the following
errors on the part of the Court of Appeals:

21.0 The Court of Appeals erred when it encroached upon an executive function of
determining the validity of a locational clearance when it declared, contrary to the
administrative findings of the Housing Land Use and Regulatory Board ("HLURB"),
that the locational clearance of Petitioner was void.

22.0 The Court of Appeals erred when it resolved an issue that was not submitted
to it for resolution and in the process had usurped a purely executive function. CIaDTE

23.0 The Court of Appeals erred in declaring Petitioner's entire base station a
nuisance considering that it was only a small part of the base station, a generator
that initially powered the base station, that was reportedly producing unacceptable
levels of noise.
 24.0 The Court of Appeals erred in not considering that the supervening event of
shut down and pull out of the generator in the base station, the source of the
perceived nuisance, made the complaint for abatement of nuisance academic. 24

The Petition is partly meritorious. While the Court agrees that the Court of Appeals should
not have taken cognizance of the issue of whether the locational clearance for petitioner's
cellular base station is valid, the Court will still not reinstate the RTC Order dated January 16,
2001 granting petitioner's Motion for Summary Judgment and entirely dismissing Civil Case
No. Br. 23-632-2000. The issues of (1) whether petitioner's cellular base station is a
nuisance, and (2) whether the generator at petitioner's cellular base station is, by itself, also
a nuisance, ultimately involve disputed or contested factual matters that call for the
presentation of evidence at a full-blown trial.

On the finding of the Court of

Appeals that petitioner's locational
clearance for its cellular base station
is a nullity
Based on the principle of exhaustion of administrative remedies and its
corollary doctrine ofprimary jurisdiction, it was premature for the Court of Appeals to take
cognizance of and rule upon the issue of the validity or nullity of petitioner's locational
clearance for its cellular base station. DITEAc

The principle of exhaustion of administrative remedies and

the doctrine of primary jurisdictionwere explained at length by the Court in Province of
Zamboanga del Norte v. Court of Appeals, 25as follows:

The Court in a long line of cases has held that before a party is allowed to seek the
intervention of the courts, it is a pre-condition that he avail himself of all
administrative processes afforded him. Hence, if a remedy within the administrative
machinery can be resorted to by giving the administrative officer every opportunity
to decide on a matter that comes within his jurisdiction, then such remedy must be
exhausted first before the court's power of judicial review can be sought. The
premature resort to the court is fatal to one's cause of action. Accordingly, absent
any finding of waiver or estoppel, the case may be dismissed for lack of cause of
action.
 The doctrine of exhaustion of administrative remedies is not without its practical
and legal reasons. Indeed, resort to administrative remedies entails lesser
expenses and provides for speedier disposition of controversies. Our courts of
justice for reason of comity and convenience will shy away from a dispute until the
system of administrative redress has been completed and complied with so as to
give the administrative agency every opportunity to correct its error and to dispose
of the case.

xxx xxx xxx

The doctrine of primary jurisdiction does not warrant a court to arrogate unto itself
the authority to resolve a controversy the jurisdiction over which is initially lodged
with an administrative body of special competence. AcEIHC

We have held that while the administration grapples with the complex and
multifarious problems caused by unbridled exploitation of our resources, the
judiciary will stand clear. A long line of cases establishes the basic rule that the
court will not interfere in matters which are addressed to the sound discretion of
government agencies entrusted with the regulation of activities coming under the
special technical knowledge and training of such agencies.

In fact, a party with an administrative remedy must not merely initiate the
prescribed administrative procedure to obtain relief, but also pursue it to its
appropriate conclusion before seeking judicial intervention. The underlying principle
of the rule on exhaustion of administrative remedies rests on the presumption that
when the administrative body, or grievance machinery, is afforded a chance to pass
upon the matter, it will decide the same correctly. (Citations omitted.)

The Court again discussed the said principle and doctrine in Addition Hills Mandaluyong
Civic & Social Organization, Inc. v. Megaworld Properties & Holdings, Inc., et
al., 26 citing Republic v. Lacap, 27 to wit:

We have consistently declared that the doctrine of exhaustion of administrative

remedies is a cornerstone of our judicial system. The thrust of the rule is that courts
must allow administrative agencies to carry out their functions and discharge their
responsibilities within the specialized areas of their respective competence. The
rationale for this doctrine is obvious. It entails lesser expenses and provides for the
 speedier resolution of controversies. Comity and convenience also impel courts of
justice to shy away from a dispute until the system of administrative redress has
been completed. caHCSD

In the case of Republic v. Lacap, we expounded on the doctrine of exhaustion of

administrative remedies and the related doctrine of primary jurisdiction in this wise:

The general rule is that before a party may seek the intervention of the court,
he should first avail of all the means afforded him by administrative
processes. The issues which administrative agencies are authorized to
decide should not be summarily taken from them and submitted to a court
without first giving such administrative agency the opportunity to dispose of
the same after due deliberation.

Corollary to the doctrine of exhaustion of administrative remedies is

the doctrineof primary jurisdiction; that is, courts cannot or will not
determine a controversy involving a question which is within the jurisdiction
of the administrative tribunal prior to the resolution of that question by the
administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and intricate
matters of fact. (Citations omitted.)

The Housing and Land Use Regulatory Board (HLURB) 28 is the planning, regulatory, and
quasi-judicial instrumentality of government for land use development. 29 In the exercise of
its mandate to ensure rational land use by regulating land development, it issued HLURB
Resolution No. R-626, series of 1998, Approving the Locational Guidelines for Base Stations
of Cellular Mobile Telephone Service, Paging Service, Trunking Service, Wireless Loop
Service and Other Wireless Communication Services (HLURB Guidelines). Said HLURB
Guidelines aim to protect "providers and users, as well as the public in general while
ensuring efficient and responsive communication services." CSIDEc

Indeed, the HLURB Guidelines require the submission of several documents for the issuance
of a locational clearance for a cellular base station, including:

IV. Requirements and Procedures in Securing Locational Clearance

 A. The following documents shall be submitted in duplicate:

xxx xxx xxx

g. Written Consent:

g.1 Subdivisions

xxx xxx xxx

g.1.2 In the absence of an established [Homeowners

Association], consent/affidavit of non-objection from
majority of actual occupants and owners of properties
within a radial distance equivalent to the height of the
proposed base station measured from its base,
including all those whose properties is adjoining the
proposed site of the base station. (Refer to Figure 2)

xxx xxx xxx

h. Barangay Council Resolution endorsing the base station. cHESAD

Correlatively, the HLURB provides administrative remedies for non-compliance with its
requirements.

In 2000, when factual precedents to the instant case began to take place, HLURB
Resolution No. R-586, series of 1996, otherwise known as the 1996 HLURB Rules of
Procedure, as amended, was in effect. The original 1996 HLURB Rules of Procedure was
precisely amended by HLURB Resolution No. R-655, series of 1999, "so as to afford
oppositors with the proper channel and expeditious means to ventilate their objections and
oppositions to applications for permits, clearances and licenses, as well as to protect the
rights of applicants against frivolous oppositions that may cause undue delay to their
projects[.]"

Under the 1996 HLURB Rules of Procedure, as amended, an opposition to an application for
a locational clearance for a cellular base station or a complaint for the revocation of a
locational clearance for a cellular base station already issued, is within the original
jurisdiction of the HLURB Executive Committee. Relevant provisions read:
 RULE III

Commencement of Action, Summons and Answer

xxx xxx xxx

SECTION 2. Composition to Application for Permit/License/Clearance. — When an

opposition is filed to an application for a license, permit or clearance with the
Board or any of its Regional Field Office, the Regional Officer shall make
a preliminary evaluation and determination whether the case is impressed
with significant economic, social, environmental or national policy
implications. If he/she determines that the case is so impressed with significant
economic, social, environmental or national policy implications, such as, but not
limited to: CSHEAI

1) Projects of national significance, for purposes of this rule, a project is of

national significance if it is one or falls under any of those enumerated in Rule III,
Section 3 of these Rules, as amended;

2) Those involving zoning variances and exceptions;

3) Those involving significant public interest or policy issues;

4) Those endorsed by the zoning administrators of local government units.

The Regional Officer shall cause the records of the case to be transmitted to
theExecutive Committee which shall assume original jurisdiction over the case,
otherwise, the Regional Officer shall act on and resolve the Opposition.

SECTION 3. A project is of national significance if it involves any of the following:

a) Power generating plants (e.g., coal-fired thermal plants) and related facilities
(e.g., transmission lines);

b) Airport/seaports; dumping sites/sanitary landfills; reclamation projects;

c) Large-scale piggery and poultry projects;

d) Mining/quarrying projects;

e) National government centers;

f) Golf courses; DcHSEa

g) Fish ponds and aquaculture projects;

h) Cell sites and telecommunication facilities;

i) Economic zones, regional industrial centers, regional agro-industrial centers,

provincial industrial centers;

j) All other industrial activities classified as high-intensity uses (1-3 Projects).

SECTION 4. Any party aggrieved, by reason of the elevation or non-elevation of any

contested application by the Regional Officer, may file a verified petition for review
thereof within thirty (30) days from receipt of the notice of elevation or non-
elevation of the contested application with the Executive Committee which shall
resolve whether it shall assume jurisdiction thereon.

The contested application for clearance, permit or license shall be treated as

a complaint and all other provisions of these rules on complaints not inconsistent
with the preceding section shall, as far as practicable, be made applicable to
oppositions except that the decision of the Board en banc on such contested
applications shall be final and executory as provided in Rule XIX, Section 2 of these
Rules, as amended.

The Rules pertaining to contested applications for license, permit or

clearance shall, by analogy, apply to cases filed primarily for the revocation
thereof. DSATCI
 xxx xxx xxx

RULE XVII

Proceedings Before the Board of Commissioners

xxx xxx xxx

SECTION 15. The Executive Committee. — The Executive Committee shall be

composed of the four regular Commissioners and the Ex-Officio Commissioner
from the Department of Justice.

xxx xxx xxx

The Executive Committee shall act for the Board on policy matters, measures or
proposals concerning the management and substantive administrative operations
of the Board subject to ratification by the Board en banc, and shall assume original

jurisdiction over cases involving opposition to an application for license,

permit or clearance for projects or cases impressed with significant
economic, social, environmental or national policy implications or issues in
accordance with Section 2, Rule II of these Rules, as amended. It shall also
approve the proposed agenda of the meetings of the Board en banc. (Emphases
supplied.)

After the HLURB Executive Committee had rendered its Decision, the aggrieved party could
still avail itself of a system of administrative appeal, also provided in the 1996 HLURB Rules
of Procedure, as amended:

RULE XII

Petition for Review

SECTION 1. Petition for Review. — Any party aggrieved by the Decision of the
Regional Officer, on any legal ground and upon payment of the review fee may file
with the Regional Office a verified Petition for Review of such decision within thirty
(30) calendar days from receipt thereof. In cases decided by the Executive
Committee pursuant to Rule II, Section 2 of these Rules, as amended, the
verified Petition shall be filed with the Executive Committee within thirty (30)
calendar days from receipt of the Committee's Decision. Copy of such petition
shall be furnished the other party and the Board of Commissioners. No motion for
reconsideration or mere notice of petition for review of the decision shall be
entertained. IaHAcT

Within ten (10) calendar days from receipt of the petition, the Regional Officer, or
the Executive Committee, as the case may be, shall elevate the records to the
Board of Commissioner together with the summary of proceedings before the
Regional Office.The Petition for Review of a decision rendered by the Executive
Committee shall be taken cognizance of by the Board en banc.

RULE XVIII

Appeal from Board Decisions

SECTION 1. Motion for Reconsideration. — Within the period for filing an appeal
from a Board decision, order or ruling of the Board of Commissioners, any

aggrieved party may file a motion for reconsideration with the Board only on the
following grounds: (1) serious errors of law which would result in grave injustice if
not corrected; and (2) newly discovered evidence.

Only one (1) motion for reconsideration shall be entertained.

Motions for reconsideration shall be assigned to the division from which the
decision, order or ruling originated.

SECTION 2.Appeal. — Any party may upon notice to the Board and the other party
appeal a decision rendered by the Board of Commissioners en banc or by one of
its divisions to the Office of the President within fifteen (15) calendar days from
receipt thereof, in accordance with P.D. No. 1344 and A.O. No. 18 Series of 1987.

RULE XIX

Entry of Judgment
 xxx xxx xxx

SECTION 2. Rules on Finality. — For purposes of determining when a decision or

order has become final and executory for purposes of entry in the Book of
Judgment, the following shall be observed: ISTDAH

a. Unless otherwise provided in a decision or resolution rendered by the

Regional Officer, the Executive Committee, or the Board of Commissioners,
as the case may be, the orders contained therein shall become final as
regards a party thirty (30) calendar days after the date of receipt thereof and
no petition for review or appeal therefrom has been filed within the said
period[.] (Emphases supplied.)

There is no showing that respondents availed themselves of the afore-mentioned

administrative remedies prior to instituting Civil Case No. Br. 23-632-2000 before the RTC.
While there are accepted exceptions to the principle of exhaustion of administrative
remedies and the doctrineof primary jurisdiction, 30 respondents never asserted nor argued
any of them. Thus, there is no cogent reason for the Court to apply the exceptions instead of
the general rule to this case.

Ordinarily, failure to comply with the principle of exhaustion of administrative remedies and
thedoctrine of primary jurisdiction will result in the dismissal of the case for lack of cause of
action. However, the Court herein will not go to the extent of entirely dismissing Civil Case
No. Br. 23-632-2000. The Court does not lose sight of the fact that respondents' Complaint
in Civil Case No. Br. 23-632-2000 is primarily for abatement of nuisance; and respondents
alleged the lack of HLURB requirements for the cellular base station, not to seek nullification
of petitioner's locational clearance, but to support their chief argument that said cellular
base station is a nuisance which needs to be abated. The issue of whether or not the
locational clearance for said cellular base station is valid is actually separate and distinct
from the issue of whether or not the cellular base station is a nuisance; one is not
necessarily determinative of the other. While the first is within the primary jurisdiction of the
HLURB and, therefore, premature for the courts to rule upon in the present case, the latter is
within the jurisdiction of the courts to determine but only after trial proper. SEcITC

On the declaration of the Court of

Appeals that petitioner's cellular
 base station is a nuisance that must
be abated
Article 694 of the Civil Code defines nuisance as:

ART. 694. A nuisance is any act, omission, establishment, business, condition of

property, or anything else which:

(1) Injures or endangers the health or safety of others; or

(2) Annoys or offends the senses; or

(3) Shocks, defies or disregards decency or morality; or

(4) Obstructs or interferes with the free passage of any public highway or street, or
any body of water; or

(5) Hinders or impairs the use of property.

The term "nuisance" is so comprehensive that it has been applied to almost all ways which
have interfered with the rights of the citizens, either in person, property, the enjoyment of his
property, or his comfort. 31

The Court, in AC Enterprises, Inc. v. Frabelle Properties Corporation, 32 settled that a simple
suit for abatement of nuisance, being incapable of pecuniary estimation, is within the
exclusive jurisdiction of the RTC. Although respondents also prayed for judgment for moral
and exemplary damages, attorney's fees, and litigation expenses, such claims are merely
incidental to or as a consequence of, their principal relief. cCaIET

Nonetheless, while jurisdiction over respondents' Complaint for abatement of nuisance lies
with the courts, the respective judgments of the RTC and the Court of Appeals cannot be
upheld.

At the outset, the RTC erred in granting petitioner's Motion for Summary Judgment and
ordering the dismissal of respondents' Complaint in Civil Case No. Br. 23-632-2000.

Summary judgments are governed by Rule 35 of the Rules of Court, pertinent provisions of
which state:

SEC. 2. Summary judgment for defending party. — A party against whom a claim,
counterclaim, or cross-claim is asserted or a declaratory relief is sought may, at any
time, move with supporting affidavits, depositions or admissions for a summary
 judgment in his favor as to all or any part thereof.

SEC. 3. Motion and proceedings thereon. — The motion shall be served at least
ten (10) days before the time specified for the hearing. The adverse party may
serve opposing affidavits, depositions, or admissions at least three (3) days before
the hearing. After the hearing, the judgment sought shall be rendered forthwith if
the pleadings, supporting affidavits, depositions, and admissions on file, show that,
except as to the amount of damages, there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.
(Emphases supplied.)

In Rivera v. Solidbank Corporation, 33 the Court discussed extensively when a summary

judgment is proper: SEDICa

For a summary judgment to be proper, the movant must establish two requisites:
(a) there must be no genuine issue as to any material fact, except for the amount of
damages; and (b) the party presenting the motion for summary judgment must be
entitled to a judgment as a matter of law. Where, on the basis of the pleadings of a
moving party, including documents appended thereto, no genuine issue as to a
material fact exists, the burden to produce a genuine issue shifts to the opposing
party. If the opposing party fails, the moving party is entitled to a summary
judgment.
A genuine issue is an issue of fact which requires the presentation of
evidence as distinguished from an issue which is a sham, fictitious, contrived
or a false claim. The trial court can determine a genuine issue on the basis of the
pleadings, admissions, documents, affidavits or counteraffidavits submitted by the
parties. When the facts as pleaded appear uncontested or undisputed, then there
is no real or genuine issue or question as to any fact and summary judgment called
for. On the other hand, where the facts pleaded by the parties are disputed or
contested, proceedings for a summary judgment cannot take the place of a
trial. The evidence on record must be viewed in light most favorable to the
party opposing the motion who must be given the benefit of all favorable
inferences as can reasonably be drawn from the evidence. SEIDAC

Courts must be critical of the papers presented by the moving party and not
of the papers/documents in opposition thereto. Conclusory assertions are
 insufficient to raise an issue of material fact. A party cannot create a genuine
dispute of material fact through mere speculations or compilation of differences.
He may not create an issue of fact through bald assertions, unsupported
contentions and conclusory statements. He must do more than rely upon
allegations but must come forward with specific facts in support of a claim. Where
the factual context makes his claim implausible, he must come forward with more
persuasive evidence demonstrating a genuine issue for trial. (Emphases supplied;
citations omitted.)

Judging by the aforequoted standards, summary judgment cannot be rendered in this case
as there are clearly factual issues disputed or contested by the parties. As respondents
correctly argued in their Opposition to petitioner's Motion for Summary Judgment:

1. Contrary to the claim of [petitioner], there are several genuine issues as to the
cause of action and material facts related to the complaint. For one there is an
issue on the structural integrity of the tower, the ultra high frequency (UHF) radio
wave emission radiated by the communications tower affecting the life, health and
well being of the [respondents] and the barangay residents, especially their
children. Also, the noxious/deleterious fumes and the noise produce[d] by the
standby generator and the danger posted by the tower if it collapses in regard to
life and limb as well as the property of the [respondents] particularly those whose

houses abut, or are near/within the periphery of the communications tower. . . . 34

Likewise constituting real or genuine issues for trial, which arose from subsequent events,
are the following: whether the generator subject of respondents' Complaint had been
removed; whether said generator had been replaced by another that produces as much or
even more noise and fumes; and whether the generator is a nuisance that can be abated
separately from the rest of the cellular base station. HSDCTA

Furthermore, the Court demonstrated in AC Enterprises, Inc. the extensive factual

considerations of a court before it can arrive at a judgment in an action for abatement of
nuisance:

Whether or not noise emanating from a blower of the airconditioning units of the
Feliza Building is nuisance is to be resolved only by the court in due course of
proceedings. The plaintiff must prove that the noise is a nuisance and the
consequences thereof. Noise is not a nuisance per se. It may be of such a
character as to constitute a nuisance, even though it arises from the operation of a
lawful business, only if it affects injuriously the health or comfort of ordinary people
in the vicinity to an unreasonable extent. Injury to a particular person in a peculiar
position or of especially sensitive characteristics will not render the noise an
actionable nuisance. In the conditions of present living, noise seems inseparable
from the conduct of many necessary occupations. Its presence is a nuisance in the
popular sense in which that word is used, but in the absence of statute, noise
becomes actionable only when it passes the limits of reasonable adjustment to the
conditions of the locality and of the needs of the maker to the needs of the
listener.What those limits are cannot be fixed by any definite measure of quantity or
quality; they depend upon the circumstances of the particular case. They may be
affected, but are not controlled, by zoning ordinances. The delimitation of
designated areas to use for manufacturing, industry or general business is not a
license to emit every noise profitably attending the conduct of any one of them. cETDIA

The test is whether rights of property, of health or of comfort are so injuriously

affected by the noise in question that the sufferer is subjected to a loss which goes
beyond the reasonable limit imposed upon him by the condition of living, or of
holding property, in a particular locality in fact devoted to uses which involve the
emission of noise although ordinary care is taken to confine it within reasonable
bounds; or in the vicinity of property of another owner who, though creating a
noise, is acting with reasonable regard for the rights of those affected by it.

Commercial and industrial activities which are lawful in themselves may become
nuisances if they are so offensive to the senses that they render the enjoyment of
life and property uncomfortable. The fact that the cause of the complaint must be
substantial has often led to expressions in the opinions that to be a nuisance the
noise must be deafening or loud or excessive and unreasonable. The determining
factor when noise alone is the cause of complaint is not its intensity or volume. It is
that the noise is of such character as to produce actual physical discomfort and
annoyance to a person of ordinary sensibilities, rendering adjacent property less
comfortable and valuable. If the noise does that it can well be said to be substantial
and unreasonable in degree, and reasonableness is a question of fact dependent
upon all the circumstances and conditions. There can be no fixed standard as to
 what kind of noise constitutes anuisance.

The courts have made it clear that in every case the question is one of
reasonableness. What is a reasonable use of one's property and whether a
particular use is an unreasonable invasion of another's use and enjoyment of his
property so as to constitute a nuisance cannot be determined by exact rules, but
must necessarily depend upon the circumstances of each case, such as locality
and the character of the surroundings, the nature, utility and social value of the use,
the extent and nature of the harm involved, the nature, utility and social value of the
use or enjoyment invaded, and the like.

Persons who live or work in thickly populated business districts must necessarily
endure the usual annoyances and of those trades and businesses which are
properly located and carried on in the neighborhood where they live or work. But
these annoyances and discomforts must not be more than those ordinarily to be
expected in the community or district, and which are incident to the lawful conduct
of such trades and businesses. If they exceed what might be reasonably expected
and cause unnecessary harm, then the court will grant relief. cEDaTS

A finding by the LGU that the noise quality standards under the law have not been
complied with is not a prerequisite nor constitutes indispensable evidence to prove
that the defendant is or is not liable for a nuisance and for damages. Such finding

is merely corroborative to the testimonial and/or other evidence to be presented by

the parties. The exercise of due care by the owner of a business in its operation
does not constitute a defense where, notwithstanding the same, the business as
conducted, seriously affects the rights of those in its vicinity. 35 (Citations omitted.)

A reading of the RTC Order dated January 16, 2001 readily shows that the trial court did not
take into account any of the foregoing considerations or tests before summarily dismissing
Civil Case No. Br. 23-632-2000. The reasoning of the RTC that similar cellular base stations
are scattered in heavily populated areas nationwide and are not declared nuisances is
unacceptable. As to whether or not this specific cellular base station of petitioner is a
nuisance to respondents is largely dependent on the particular factual circumstances
involved in the instant case, which is exactly why a trial for threshing out disputed or
contested factual issues is indispensable. Evidently, it was the RTC which engaged in
speculations and unsubstantiated conclusions.
For the same reasons cited above, without presentation by the parties of evidence on the
contested or disputed facts, there was no factual basis for declaring petitioner's cellular
base station a nuisance and ordering petitioner to cease and desist from operating the
same.

Given the equally important interests of the parties in this case, i.e., on one hand,
respondents' health, safety, and property, and on the other, petitioner's business interest and
the public's need for accessible and better cellular mobile telephone services, the wise and
prudent course to take is to remand the case to the RTC for trial and give the parties the
opportunity to prove their respective factual claims.

WHEREFORE, premises considered, the instant Petition is PARTIALLY GRANTED. The

Decision dated July 16, 2004 and Resolution dated December 9, 2004 of the Court of
Appeals in CA-G.R. CV No. 71337 are REVERSED and SET ASIDE. Let the records of the
case be REMANDED to the Regional Trial Court, Branch 23, of Roxas, Isabela, which
is DIRECTED to reinstate Civil Case No. Br. 23-632-2000 to its docket and proceed with the
trial and adjudication thereof with appropriate dispatch in accordance with this Decision. CSIDTc

SO ORDERED.

Sereno, C.J., Bersamin, Villarama, Jr. and Reyes, JJ., concur.

Footnotes

1. Rollo, pp. 44-57; penned by Associate Justice Ruben T. Reyes with Associate Justices
Perlita J. Tria Tirona and Jose C. Reyes, Jr., concurring.

2. Id. at 58-59.

3. Id. at 126-128; penned by Judge Teodulo E. Mirasol.

4. Records, pp. 127-128.

5. Id. at 8-9.

6. Id. at 10.

7. Id. at 20-21.
8. Id. at 45-46.

9. Id. at 57.

10. Id. at 63.

11. Id. at 67.

12. Id. at 79.

13. Id. at 82.

14. Id. at 84.

15. Id. at 88-92.

16. Id. at 101-110.

17. Id. at 107.

18. Rollo, pp. 127-128.

19. Id. at 128.

20. Id. at 136.

21. Id. at 56.

22. CA rollo, pp. 93-96.

23. Rollo, p. 59.

24. Id. at 15-16.

25. 396 Phil. 709, 717-720 (2000).

26. G.R. No. 175039, April 18, 2012, 670 SCRA 83, 89-90.

27. 546 Phil. 87 (2007).

28. Executive Order No. 648, series of 1981, established the Human Settlements Regulatory
Commission (HSRC). Subsequently, Executive Order No. 90, series of 1986, renamed the
HSRC as the HLURB.

29. http://hlurb.gov.ph/laws-issuances-2/?tabgarb=tab1.

30. In Republic v. Lacap (supra note 27 at 97-98), the Court enumerated the exceptions: (a)
 where there is estoppel on the part of the party invoking the doctrine; (b) where the
challenged administrative act is patently illegal, amounting to lack of jurisdiction; (c) where
there is unreasonable delay or official inaction that will irretrievably prejudice the
complainant; (d) where the amount involved is relatively small so as to make the rule
impractical and oppressive; (e) where the question involved is purely legal and will
ultimately have to be decided by the courts of justice; (f) where judicial intervention is
urgent; (g) when its application may cause great and irreparable damage; (h) where the
controverted acts violate due process; (i) when the issue of non-exhaustion of
administrative remedies has been rendered moot; (j) when there is no other plain, speedy
and adequate remedy; (k) when strong public interest is involved; and, (l) in quo
warranto proceedings.

31. AC Enterprises, Inc. v. Frabelle Properties Corporation, 537 Phil. 114, 143 (2006).

32. Id. at 142-143.

33. 521 Phil. 628, 648-649 (2006).

34. Records, p. 82.

35. AC Enterprises, Inc. v. Frabelle Properties Corporation, supra note 31 at 149-151.

||| (Smart Communications, Inc. v. Aldecoa, G.R. No. 166330, [September 11, 2013])
 FIRST DIVISION

[G.R. No. 189570. July 31, 2013.]

HEIRS OF SANTIAGO NISPEROS, TEODORICO NISPEROS, RESTITUTA

LARON, CARMELITA H. NISPEROS, VIRGILIO H. NISPEROS, CONCHITA
H. NISPEROS, PURITA H. NISPEROS, PEPITO H. NISPEROS, REBECCA H.
NISPEROS, ABRAHAM H. NISPEROS, IGNACIO F. NISPEROS, RODOLFO
F. NISPEROS, RAYMUNDO F. NISPEROS, RENATO F. NISPEROS, FE N.
MUNAR, BENITO F. NISPEROS, REYNALDO N. NISPEROS, MELBA N.
JOSE, ELY N. GADIANO, represented by TEODORICO
NISPEROS, petitioners, vs. MARISSA NISPEROS-DUCUSIN,respondent.

DECISION

VILLARAMA, JR., J : p

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the July 13, 2009 Decision 1 and September 14, 2009
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 105898. The appellate court
affirmed the Decision 3 of the Department of Agrarian Reform Adjudication Board (DARAB)
upholding the validity of the Deed of Voluntary Land Transfer and Original Certificate of Title
(OCT) No. CLOA-623 issued in favor of respondent Marissa Nisperos-Ducusin.

The instant case stemmed from a complaint 4 filed by petitioners with the DARAB alleging
the following antecedents:

The 15,837-square-meter parcel of land subject of the instant case is part of the 58,350-
square-meter agricultural land in Pao Sur, San Fernando City, La Union acquired by Santiago
Nisperos, the predecessor of petitioners, during his lifetime. He declared said property for
taxation purposes starting December 1947. 5

When Santiago and his wife Estefania died, they were survived by their nine children:
Tranquilino, Felix, Olling, Maria, Lenardo, Millan, Fausto, Candido and Cipriana. The heirs of
Santiago, petitioners herein, claim that the subject property was occupied, controlled and
tilled by all nine children of Santiago. They paid taxes for it and even hired farm workers
under Maria and Cipriana's supervision for the cultivation of the same. For taxation
purposes, however, it was initially declared only under the name of Maria. 6 Starting 1988, it
was declared under the names of Maria and Cipriana. 7

During the time when Maria and Cipriana were overseeing the property, Maria took
respondent Marissa Nisperos-Ducusin, a daughter of their cousin Purita, as her ward and
raised her like her own child. DASEac

On February 12, 1988, Maria and Cipriana, acting as representatives of their other siblings,
executed a Deed of Donation Mortis Causa 8 in favor of petitioners over the 58,350-square-
meter property and another 46,000-square-meter property.

On April 28, 1992, a Deed of Voluntary Land Transfer 9 (VLT) over the subject property was
executed between Maria and Cipriana as landowners, and respondent, who was then only
17 years old, as farmer-beneficiary. The instrument was signed by the three in the presence
of witnesses Anita, Lucia and Marcelina Gascon and Municipal Agrarian Reform Officer
Susimo Asuncion. The same was notarized by Notary Public Atty. Roberto E. Caoayan.

On June 24, 1992, Certificate of Land Ownership Award (CLOA) No. 0002122453902 10 was
issued to respondent by the Department of Agrarian Reform (DAR) over the subject property.
By virtue of said CLOA, OCT No. CLOA-623 11 was issued to respondent a month later, or
on July 24, 1992.

Alleging fraud on the part of respondent which petitioners claim to have discovered only in
August 2001, petitioners filed a complaint on September 6, 2001 with the Municipal Agrarian
Reform Office (MARO) of San Fernando City, La Union. Unfortunately, no settlement
between petitioners and respondent was reached prompting the MARO to issue a Certificate
to File Action. 12

On January 23, 2002, petitioners filed with the DARAB a complaint for annulment of
documents and damages against respondent. Petitioners contended that the transfer of
ownership over the subject land was made without the consent of the heirs of Santiago and
that respondent took advantage of Maria's senility and made it appear that Maria and
Cipriana sold said property by virtue of the VLT. They further alleged that said document was
falsified by respondent because Maria could not anymore sign but could only affix her
thumbmark as she did in a 1988 Deed of Donation. To support their complaint, they attached
a Joint Affidavit of Denial 13 by Anita and Lucia Gascon the supposed instrumental witnesses
to the VLT. In said affidavit, Anita and Lucia claimed that the signatures appearing therein are
not theirs as they never affixed their signatures on said document. They further stated that
they were never aware of said document. SDHTEC

Petitioners likewise asseverated in their complaint that respondent committed fraud because
she was not a bona fide beneficiary as she was not engaged in farming since she was still a
minor at that time and that she could not validly enter into a contract with Maria and
Cipriana.

On March 6, 2002, respondent filed a Motion to Dismiss 14 petitioners' complaint. She

argued that the action for annulment of the VLT and the OCT/CLOA and the claim for
damages have already prescribed.

In an Order 15 dated April 17, 2002, the DARAB Regional Adjudicator denied respondent's
Motion to Dismiss and ordered her to file her answer to the complaint.

In respondent's Answer with Counterclaim 16 dated July 7, 2002, respondent alleged that
Maria and Cipriana acquired the property from Santiago and possessed the same openly,
continuously, exclusively and publicly; thus, the consent of petitioners is not necessary to
the VLT. She denied the allegations of fraud and falsification, and insisted that she is a bona
fide beneficiary as she has been tilling the land with her parents even before 1992. She
added that her minority does not disqualify her from availing the benefits of agrarian reform.

On October 16, 2002, DARAB Regional Adjudicator Rodolfo A. Caddarao rendered a

Decision 17annulling the VLT and OCT/CLOA in respondent's name. The fallo of the said
decision reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows: ETISAc

1. Declaring Deed of Voluntary [L]and Transfer dated April 28, 1992 executed by
Maria Nisperos in favor of Marissa Nisperos annulled or cancelled and [without]
force and effect for having been executed not in accordance with agrarian laws;

2. Declaring OCT No. 00021224 in the name of Marissa D. Nisperos annulled or

 cancelled on the ground of material misrepresentation of the alleged agrarian
reform beneficiary.

3. Directing the Register of Deeds of La Union to cause the cancellation of the

aforementioned title;

4. Directing the concerned Assessor's Office to reinstate the tax declaration of

said landholding in the name of Maria and Cipriana Nisperos;

5. Directing the parties to refer this problem with the court so that the issue of
ownership of the landholding could be finally resolved; and

6. Dismissing the other ancillary claims and counterclaims for lack of merit and
evidence.

SO ORDERED. 18

The Regional Adjudicator noted that the land supposedly owned by Maria and Cipriana
(which includes the 15,837-square-meter subject property) has a total area of 58,350 square
meters. Considering that there are two owners, he ruled that the individual share of each
would be less than five hectares each and well within the retention limit.

The Regional Adjudicator also held there was reason to believe that Maria and Cipriana's
names were stated in the tax declaration for purposes of taxation only as no evidence was
presented that they lawfully acquired the property from their parents. It was also ruled that
the issuance of the title in respondent's name was not in accordance with agrarian laws
because she cannot be considered as a tenant but more of an heir of the transferors. IcEACH

Respondent contested the Regional Adjudicator's decision before the DARAB alleging that
the Regional Adjudicator committed grave abuse of discretion. Respondent contended that
the complaint should not have been given due course since other parties-in-interest such as
Maria, the Register of Deeds of La Union and duly authorized representatives of the DAR
were not impleaded and prescription had already set in insofar as the contestability of the
CLOA is concerned. She likewise argued that being a farmer or a tenant is not a primordial
requisite to become an agrarian reform beneficiary. She added that the Regional Adjudicator
went beyond the scope of his authority by directing the parties to litigate the issue of
ownership before the court.

On September 16, 2008, the DARAB rendered a Decision 19 reversing the decision of the
Regional Adjudicator and upholding the validity of the VLT and respondent's title. The
decretal portion reads:

WHEREFORE, premises considered, a new judgment is hereby rendered:

1. DECLARING the VLT executed on April 28, 1992, between respondent-

appellant Marissa Nisperos-Ducusin and Maria and Cipriana Nisperos as valid and
regular;

2. DECLARING the validity of the Original Certificate of Title (OCT) CLOA No.
623 issued in the name of respondent-appellant Marissa Nisperos-Ducusin
covering 15,837 square meter portion of the disputed lot; and

3. MAINTAINING respondent-appellant Marissa Nisperos-Ducusin in peaceful

possession and cultivation of the subject lot.

No costs.

SO ORDERED. 20 TaDAIS

The DARAB dismissed petitioners' claim of fraud since the VLT was executed in the
presence of DAR-MARO Susimo Asuncion, signed by three instrumental witnesses and
notarized by Atty. Roberto E. Caoayan of the DAR. It likewise held that the records are bereft
of any indication that fraud was employed in the transfer, and mere conjectures that fraud
might have been exerted just because Maria was already of advanced age while respondent
was her care giver or ward is not evidence. The DARAB also did not give credence to the
Affidavit of Denial by the instrumental witnesses since the statements there are mere
hearsay because the affiants were not cross-examined.

The DARAB likewise ruled that the fact that respondent was a minor at the time of the
execution of the VLT does not void the VLT as this is the reason why there is an active
government involvement in the VLT: so that even if the transferee is a minor, her rights shall
be protected by law. It also held that petitioners cannot assert their rights by virtue of the
Deed of DonationMortis Causa allegedly executed by Maria and Cipriana in their favor since
before the operative condition (the death of the donors) was fulfilled, the donation was
revoked by virtue of the VLT. The DARAB further ruled that when OCT No. CLOA-623 was
issued in respondent's name, she acquired absolute ownership of the landholding. Thus her
right thereto has become fixed and established and is no longer open to doubt or
controversy.

Aggrieved, petitioners elevated the case to the CA via a petition for review 21 where they
raised the following issues: (1) whether the subject property is covered by the
Comprehensive Agrarian Reform Program (CARP); (2) whether the VLT is valid having been
issued through misrepresentation and fraud; and (3) whether the action for annulment had
already prescribed.

On July 13, 2009, the appellate court rendered the assailed decision dismissing the petition
for review and upholding the DARAB decision. It ruled that the Regional Adjudicator acted
with grave abuse of discretion when it held that the subject property was no longer covered
by our agrarian laws because of the retention rights of petitioners. The CA held that retention
rights, exclusion of a property from CARP coverage and the qualification and disqualification
of agrarian reform beneficiaries are issues not cognizable by the Regional Adjudicator and
the DARAB but by the DAR Secretary. The appellate court nevertheless held that petitioners
failed to discharge their burden of proving that fraud attended the execution of the VLT. It
also agreed with the DARAB that considering a certificate of title was already issued in favor
of respondent, the same became indefeasible and incontrovertible by the time petitioners
instituted the case in January 2002, and thus may no longer be judicially reviewed. ICHcaD

Hence this petition before this Court raising the issues of whether the appellate court erred
in:

. . . DECLARING THAT THE PARAB HAS NO JURISDICTION TO RULE THAT THE

SUBJECT PIECE OF LAND WAS NO LONGER COVERED BY AGRARIAN
LAWS. EDCIcH
 II

. . . AFFIRMING THE DECISION OF THE DARAB DESPITE CLEAR AND

CONVINCING EVIDENCE REGARDING THE EXISTENCE OF FRAUD.

III

. . . RULING THAT THE CERTIFICATES OF TITLE ISSUED IN THE NAME OF THE

RESPONDENT IS INDEFEASIBLE. 22

We set aside the assailed Decision and Resolution.

The complaint should have been lodged with the Office of the DAR Secretary and not with
the DARAB.

Section 1, Rule II of the 1994 DARAB Rules of Procedure, the rule in force at the time of the
filing of the complaint by petitioners in 2001, provides:

SECTION 1. Primary and Exclusive Original and Appellate Jurisdiction. — The

Board shall have primary and exclusive jurisdiction, both original and appellate, to
determine and adjudicate all agrarian disputes involving the implementation of the
Comprehensive Agrarian Reform Program (CARP) under Republic Act No. 6657,
Executive Order Nos. 228, 229 and 129-A, Republic Act No. 3844 as amended
by Republic Act No. 6389, Presidential Decree No. 27 and other agrarian laws and
their implementing rules and regulations. Specifically, such jurisdiction shall include
but not be limited to cases involving the following:

xxx xxx xxx

f) Those involving the issuance, correction and cancellation of

Certificates of Land Ownership Award (CLOAs) and Emancipation
Patents (EPs) which are registered with the Land Registration
Authority; EHSADa

xxx xxx xxx

However, it is not enough that the controversy involves the cancellation of a CLOA registered
with the Land Registration Authority for the DARAB to have jurisdiction. What is of primordial
consideration is the existence of an agrarian dispute between the parties. 23
Section 3 (d) of R.A. No. 6657 defines an agrarian dispute as "any controversy relating to
tenurial arrangements, whether leasehold, tenancy, stewardship or otherwise, over lands
devoted to agriculture, including disputes concerning farmworkers' associations or
representation of persons in negotiating, fixing, maintaining, changing, or seeking to arrange
terms or conditions of such tenurial arrangements" and includes "any controversy relating to
compensation of lands acquired under this Act and other terms and conditions of transfer of
ownership from landowners to farmworkers, tenants and other agrarian reform beneficiaries,
whether the disputants stand in the proximate relation of farm operator and beneficiary,

landowner and tenant, or lessor and lessee."

Thus, in Morta, Sr. v. Occidental, 24 this Court held that there must be a tenancy relationship
between the parties for the DARAB to have jurisdiction over a case. It is essential to
establish all of the following indispensable elements, to wit: (1) that the parties are the
landowner and the tenant or agricultural lessee; (2) that the subject matter of the relationship
is an agricultural land; (3) that there is consent between the parties to the relationship; (4)
that the purpose of the relationship is to bring about agricultural production; (5) that there is
personal cultivation on the part of the tenant or agricultural lessee; and (6) that the harvest is
shared between the landowner and the tenant or agricultural lessee. 25

In the instant case, petitioners, as supposed owners of the subject property, did not allege in
their complaint that a tenancy relationship exists between them and respondent. In fact, in
their complaint, they described respondent as a "ward" of one of the co-owners, Maria, who
is "not abona fide beneficiary, she being not engaged in farming because she was still a
minor" at the time the VLT was executed. 26 TCEaDI

It is axiomatic that the jurisdiction of a tribunal, including a quasi-judicial officer or

government agency, over the nature and subject matter of a petition or complaint is
determined by the material allegations therein and the character of the relief prayed for,
irrespective of whether the petitioner or complainant is entitled to any or all such reliefs.
Jurisdiction over the nature and subject matter of an action is conferred by the Constitution
and the law, and not by the consent or waiver of the parties where the court otherwise would
have no jurisdiction over the nature or subject matter of the action. Nor can it be acquired
through, or waived by, any act or omission of the parties. Moreover, estoppel does not apply
to confer jurisdiction to a tribunal that has none over the cause of action. The failure of the
parties to challenge the jurisdiction of the DARAB does not prevent the court from
addressing the issue, especially where the DARAB's lack of jurisdiction is apparent on the
face of the complaint or petition. 27

Considering that the allegations in the complaint negate the existence of an agrarian dispute
among the parties, the DARAB is bereft of jurisdiction to take cognizance of the same as it is
the DAR Secretary who has authority to resolve the dispute raised by petitioners. As held
in Heirs of Julian dela Cruz v. Heirs of Alberto Cruz:

The Court agrees with the petitioners' contention that, under Section 2(f), Rule II of

the DARAB Rules of Procedure, the DARAB has jurisdiction over cases involving
the issuance, correction and cancellation of CLOAs which were registered with the
LRA. However, for the DARAB to have jurisdiction in such cases, they must
relate to an agrarian dispute between landowner and tenants to whom CLOAs
have been issued by the DAR Secretary. The cases involving the issuance,
correction and cancellation of the CLOAs by the DAR in
the administrative implementation of agrarian reform laws, rules and
regulations to parties who are not agricultural tenants or lessees are within
the jurisdiction of the DAR and not of the DARAB. 28 (Emphasis supplied.)

What the PARAD should have done is to refer the complaint to the proper office as
mandated by Section 4 of DAR Administrative Order No. 6, Series of 2000: HCDaAS

SEC. 4. Referral of Cases. — If a case covered by Section 2 herein is filed

before the DARAB, the concerned DARAB official shall refer the case to the proper
DAR office for appropriate action within five (5) days after said case is determined
to be within the jurisdiction of the Secretary. Likewise, if a case covered by Section
3 herein is filed before any office other than the DARAB, the concerned DAR official
shall refer the case to the DARAB for resolution within the same period provided
herein. EScaIT

While it is true that the PARAD and the DARAB (which was upheld by the CA) thoroughly
discussed in their respective decisions the issues pertaining to the validity of the VLT and the
OCT/CLOA issued to respondent, the fact that they are bereft of jurisdiction to resolve the
same prevents this Court from resolving the instant petition on its merits.
The doctrine of primaryjurisdiction does not allow a court to arrogate unto itself authority to
resolve a controversy, the jurisdiction over which is initially lodged with an administrative
body of special competence. 29 To assume the power is to short-circuit the administrative
process, which has yet to run its regular course. The DAR must be given a chance to correct
its administrative and procedural lapses in the issuance of the CLOA. 30 Moreover, it is in a
better position to resolve the particular issue at hand, being the agency possessing the
required expertise on the matter and authority to hear the same.

WHEREFORE, the July 13, 2009 Decision and September 14, 2009 Resolution of the Court
of Appeals in CA-G.R. SP No. 105898 are SET ASIDE. The complaint is REFERRED to the

Office of the Department of Agrarian Reform Secretary for appropriate action.

No pronouncement as to costs.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Bersamin and Perez, *JJ., concur.

Footnotes

1. Rollo, pp. 32-44. Penned by Associate Justice Marlene Gonzales-Sison with Associate
Justices Bienvenido L. Reyes (now a member of this Court) and Isaias P. Dicdican
concurring.

2. Id. at 46-47.

3. Records, pp. 97-106. The records are reversely paginated from page 97 to 128.

4. Id. at 66-70.

5. Id. at 73.

6. Id. at 74-84.

7. Id. at 85-86.

8. Id. at 87.

9. Id. at 88.

10. Id. at 90. Sometimes referred to as CLOA/OCT No. 00021224 in some parts of the
 records.

11. Id.

12. Id. at 91.

13. Id. at 89.

14. Id. at 61-64.

15. Id. at 53.

16. Id. at 34-42.

17. Id. at 8-13.

18. Id. at 13.

19. Supra note 3.

20. Id. at 97-98.

21. CA rollo, pp. 10-26.

22. Rollo, p. 18.

23. Sutton v. Lim, G.R. No. 191660, December 3, 2012, 686 SCRA 745, 753.

24. 367 Phil. 438 (1999).

25. Id. at 446.

26. Records, pp. 67, 68.

27. Heirs of Julian dela Cruz v. Heirs of Alberto Cruz, 512 Phil. 389, 400-401 (2005).

28. Id. at 404.

29. Heirs of Tantoco, Sr. v. Court of Appeals, 523 Phil. 257, 284 (2006).

30. Id.

* Designated additional member per Raffle dated July 8, 2013.

||| (Heirs of Nisperos v. Nisperos-Ducusin, G.R. No. 189570, [July 31, 2013])
 SECOND DIVISION

[G.R. No. 191787. June 22, 2015.]

MACARIO CATIPON, JR., petitioner, vs. JEROME JAPSON, respondent.

DECISION

DEL CASTILLO, J : p

This Petition for Review on Certiorari 1 seeks to set aside the December 11, 2009
Decision 2 of the Court of Appeals (CA) in CA-G.R. SP No. 94426 affirming the July 6,
2005 Decision 3 of the Civil Service Commission-Cordillera Administrative Region (CSC-
CAR) in CAR-05-034DC, as well as its March 17, 2010 Resolution 4 denying petitioner's
Motion for Reconsideration. 5

Factual Antecedents

The facts are as follows:

Petitioner Macario U. Catipon, Jr. is the holder of a Bachelor's Degree in
Commerce from the Baguio Colleges Foundation. When applying for graduation,
he was allowed to join the graduation ceremonies despite a deficiency of 1.5
units in Military Science, pursuant to a school policy allowing students with
deficiencies of not more than 12 units to be included in the list of graduates.
However, a restriction came after, which is, that the deficiency must be cured
before the student can be considered a graduate.

In 1985, petitioner found employment with the Social Security System

(SSS) in Bangued, Abra.

Sometime in September 1993, the personnel head of the SSS in Bangued,

Abra informed petitioner that the Civil Service Commission was conducting a
Career Service Professional Examination (CSPE) in October of the same year.
 Petitioner filed an application to take the examination, believing that the CSC still
allowed CSPE applicants to substitute the length of their government service for
any academic deficiency which they may have. However, the above-mentioned
policy of the CSC had been discontinued since January 1993 pursuant to Civil
Service Commission Memorandum Circular No. 42, Series of 1991 and Office
Memo. No. 63, Series of 1992.

Nevertheless, petitioner took the CSPE tests on October 17, 1993 and
obtained a rating of 80.52%. Eventually, petitioner was promoted to Senior
Analyst and Officer-in-Charge Branch Head of the SSS at Bangued, Abra. In
October 1995, he finally eliminated his deficiency of 1.5 units in Military Science.

On March 10, 2003, respondent Jerome Japson, a former Senior Member

Services Representative of SSS Bangued, filed a letter-complaint with the Civil
Service Commission-CAR Regional Director, alleging that petitioner made
deliberate false entries in his CSPE application, specifically, that he obtained his
college degree in 1993 when actually he graduated in 1995 only, after removing
his deficiency of 1.5 units in Military Education. Also, that petitioner was not
qualified to take the CSPE examination in 1993 since he was not yet then a
graduate of a four-year college course, contrary to the entry in his application
form.

After preliminary investigation, petitioner was charged with Dishonesty,

Falsification of Official documents, Grave Misconduct and Conduct Prejudicial to
the Best Interest of the Service by the CSC-CAR. 6

Respondent's Letter-Complaint 7 against petitioner was docketed as CSC

Disciplinary Administrative Case No. BB-03-006.

In his Answer, 8 petitioner essentially pleaded good faith, lack of malice, and
honest mistake. He maintained that at the time of his application to take the CSPE, he
was of the honest belief that the policy of the CSC — that any deficiency in the
applicant's educational requirement may be substituted by his length of service — was
still subsisting.

On July 6, 2005, the CSC-CAR, through Director IV Atty. Lorenzo S. Danipog,

rendered a Decision 9 containing the following pronouncements:
 Clearly, respondent Catipon is not without any fault under the foregoing
circumstances. The only issue now left is with respect to the particular offense for
which Catipon may be held responsible. Respondent Catipon is charged (with)
four offenses: Dishonesty, Falsification of Official Documents, Grave Misconduct
and Conduct Prejudicial to the Best Interest of the Service. CAIHTE

The key document allegedly falsified in this case is the Application Form . .
. of respondent Catipon for the purpose of taking the CS Professional
Examination scheduled on October 17, 1993. Close and careful perusal of the
said application form reveals that most of the entries filled up by respondent are
typewritten. The only entries handwritten by respondent are those corresponding
to "Year Graduated" and "School Where Graduated" which were answered by
Macario with "1984" and "BCF" respectively. Another handwritten entry is with
respect to "Degree Finished", the handwritten "BSC" entry, however, was just
superimposed on the typewritten "Commerce".

The fact that majority of the entries or data in the application form is
typewritten suggests that the said application form was consciously drafted and
meticulously prepared before its actual submission to the CSC for processing.
They are relevant and material entries or data sought from respondent. It is worth
emphasizing however that the pre-drafted application form, considering the
typewritten entries, shows respondent's confusion on how to make entries
thereat. Respondent answered both the IF YES column and IF NO column
corresponding to the question "Are you a college graduate" in Item 8. . . .

xxx xxx xxx

The manner that Item 8 was filled up by respondent Catipon shows lack of
deliberate intent to defraud the government. He manifested in his application his
uncertainty on how to take the fact that he only lacks 1.5 units Military Science to
be conferred a graduate status, vis-à-vis the CSC policy on educational
requirement. Though the entry "undergrad" was erased, the CSC employee who
processed the application would have doubted the truthfulness and authenticity
of respondent's entries in Item 8 of the Application Form, and thus the
educational status of Macario. . . .
 xxx xxx xxx

Catipon had tried to show the real state of the matter regarding his
educational attainment as can be deduced from the manner he answered Item
No. 8 in the application form. This may be taken as good faith, which will serve to
mitigate any liability incurred by respondent Catipon. The premeditated intent to
deceive or willfully distort the facts in this case is not present. The acts of Catipon
do not even show blatant disregard of an established rule or a clear intent to
violate the law if at all, there was attempt to reveal the truth to the examination
division processing the application.

xxx xxx xxx

With [regard] to the eligibility earned by respondent Macario in view of his

passing the October 17, 1993 Career Service Professional Examination, the same
needs to be revoked being the fruit of a poisonous tree, so to speak. Paragraph 2
of Sec. 6, Rule II, Omnibus Rules Implementing Book V of Executive Order No.
292 states:

Provided that when an applica[nt] for examination is found to have .

. . intentionally made any false statement of any material fact in his
application, . . . the Commission shall invalidate such examination . .
..

With the foregoing, respondent Macario U. Catipon, Jr., Senior Analyst and
OIC Branch Head, Social Security System, Bangued, Abra, is hereby exonerated
of the charges Dishonesty, Falsification of Official Documents and Grave
Misconduct. However, respondent is found guilty of Conduct Prejudicial to the
Best Interest of the Service.

Under the Uniform Rules on Administrative Cases in the Civil Service, the
imposable penalty on the first offense of Conduct Prejudicial to the Best Interest
of the Service is suspension of six months and one day to one year.

Under Section 53 of the same Rules, good faith is enumerated as one

mitigating circumstance. Thus, respondent Macario Catipon, Jr. is hereby meted
a penalty of six months and one day suspension, without pay, which is the
minimum period of the penalty attached to the offense committed. The Career
Service Professional eligibility of respondent is also ordered revoked, without
 prejudice however to retaking of the said examination. Thus, Catipon, after

serving suspension herein provided should not be allowed to go back to his

current position without CS Professional eligibility. Consequently, in case
respondent Catipon fails to retake or pass CSPE, after serving his suspension, he
may be demoted to any available position that fits his subprofessional
eligibility. 10

Petitioner moved for reconsideration, 11 but the CSC-CAR sustained its judgment
in a March 23, 2006 Decision, 12 which contained the following pronouncement:

Catipon also asserted that in view of his exoneration of Dishonesty,

Falsification of Official Documents and Grave Misconduct, there is no longer any
basis to hold respondent guilty of Conduct Prejudicial to the Best Interest of the
Service. This contention is without legal basis. In the case of Philippine
Retirement Authority vs. Rupa 363 SCRA 480, the Honorable Supreme Court held
as follows:

Under the Civil Service laws and rules, there is no description

of what specific acts constitute the grave offense of Conduct
Prejudicial to the Best Interest of the Service.

As alluded to previously in Decision No. CAR-05-034DC, Catipon is not

without fault under the circumstances. To completely exonerate respondent
would be inequitable and iniquitous considering the totality of events surrounding
this case. Though there was no deliberate intent to falsify or to make dishonest
entry in the Application Form as deduced from the manner that the said form was
accomplished, the fact that there was indeed such dishonest or false entry in the
CSPE Application Form is undisputedly established. In view of such an
established fact, the integrity of the Civil Service Examination, particularly the
CSPE has been blemished which is sufficient to constitute Conduct Prejudicial to
the Interest of the Service. 13 DETACa

Ruling of the Court of Appeals

In a Petition for Review docketed with the CA as CA-G.R. SP No. 94426, petitioner
prayed for injunctive relief and the reversal of the above CSC-CAR decision. He argued
that the CSC-CAR incorrectly found him guilty of conduct prejudicial to the best interest
of the service when he has been declared innocent of the charges of dishonesty,

falsification of official documents, and grave misconduct; that while the Supreme Court
has held that making false entries in public documents may be considered as conduct
prejudicial to the best interest of the service, such act must be accompanied by
deliberate intent or a willful desire to defy or disregard established rules or norms in the
service; 14 and that with the finding that he merely committed an innocent mistake in
filling up the application form for the CSPE, he may not be found guilty of conduct
prejudicial to the best interest of the service.
On December 11, 2009, the CA rendered the assailed Decision denying the
petition, decreeing thus:
WHEREFORE, in view of the foregoing, the instant petition is DENIED for
lack of merit. The Decision [sic] of the Civil Service Commission-Cordillera
Administrative Region dated July 6, 2005 and March 23, 2006 is [sic] AFFIRMED.

SO ORDERED. 15

The CA held that instead of filing a petition for review directly with it, petitioner
should have interposed an appeal with the Civil Service Commission (CSC), pursuant to
Sections 5 (A) (1), 43 and 49 of the CSC Uniform Rules on Administrative Cases; 16 that
by filing a petition directly with it, petitioner violated the doctrine of exhaustion of
administrative remedies; that petitioner's case is not exceptional as would exempt it from
the application of the doctrine; that per the ruling in Bayaca v. Judge Ramos, 17 the
absence of deliberate intent or willful desire to defy or disregard established rules or
norms in the service does not preclude a finding of guilt for conduct prejudicial to the
best interest of the service; and that petitioner did not act with prudence and care, but
instead was negligent, in the filling up of his CSPE application form and in failing to verify
beforehand the requirements for the examination.
Petitioner moved for reconsideration, but the CA stood its ground. Hence, the
instant recourse.
 Issues
Petitioner raises the following issues for resolution:
(A)

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION

WHEN IT FAILED TO REALIZE THAT GIVEN THE IMMEDIATE EFFECT OF THE

SUSPENSION IMPOSED BY THE CIVIL SERVICE COMMISSION-CORDILLERA
ADMINISTRATIVE REGION AGAINST THE PETITIONER, HE WAS JUSTIFIED IN
SEEKING JUDICIAL RECOURSE BEFORE (THE COURT OF APPEALS);

(B)

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION

WHEN IT MISAPPLIED IN THE ABOVE-ENTITLED CASE THE RULE ON PRIOR
EXHAUSTION OF ADMINISTRATIVE REMEDIES;

(C)

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION

WHEN IT FAILED TO CONSIDER THAT THE PETITIONER ACTED IN GOOD
FAITH AND THIS NEGATES GUILT FOR CONDUCT PREJUDICIAL TO THE BEST
INTEREST OF THE SERVICE.18

Petitioner's Arguments

In his Petition and Reply 19 seeking a reversal of the assailed CA dispositions and,
consequently, exoneration from the charge of conduct prejudicial to the best interest of
the service, petitioner argues that he was constrained to file the petition for review with
the CA as his decreed six-month suspension was imminent as a consequence of the
executory nature of the CSC-CAR decision; that immediate judicial intervention was
necessary to "prevent serious injury and damage" to him, which is why his CA petition
included a prayer for injunctive relief; that the doctrine of exhaustion of administrative
remedies should not have been applied strictly in his case, given the special
circumstance that his suspension would mean loss of his only source of income; 20 that
he should be completely exonerated from the charges against him, since conduct
prejudicial to the best interest of the service must be accompanied by deliberate intent or
a willful desire to defy or disregard established rules or norms in the service — which is
absent in his case; and that his career service professional eligibility should not be
revoked in the interest of justice and in the spirit of the policy which promotes and
preserves civil service eligibility.
Respondent's Arguments

In his Comment 21 seeking denial of the petition, respondent counters that

completion of all the academic requirements — and not merely attendance at graduation
rites — confers the necessary degree which qualifies a student to take the CSPE; that
petitioner's claim that he is a graduate as of 1984 is belied by his Transcript of
Records 22 and other pieces of evidence submitted, which reflect the date of his
graduation as October 1995 — or after completion of his 1.5-unit deficiency in Military
Science; that petitioner cannot claim to suffer irreparable injury or damage as a result of
the CSC-CAR's Decision, which is valid and binding; that the revocation of petitioner's
eligibility is only proper, since he was then not qualified when he took the CSPE; that the
CSC-CAR was correct in finding that petitioner's act compromised the image and
integrity of the civil service, which justified the imposition of a corresponding penalty; that
this Court in the Rupa case made it clear that the act of making false entries in public
documents constitutes conduct prejudicial to the best interest of the service, a grave
offense punishable by suspension for six months and one day to one year for the first
offense, and dismissal for the second offense; and that indeed, petitioner violated the
doctrines of primary jurisdiction and exhaustion of administrative remedies when he
proceeded directly to the CA, instead of filing an appeal with the CSC.
 Our Ruling
The Court denies the Petition.

Our fundamental law, particularly Sections 2 (1) and 3 of Article IX-B, state that —
Section 2. (1) The civil service embraces all branches, subdivisions,
instrumentalities and agencies of the Government, including government-owned
or controlled corporations with original charters.

Section 3. The Civil Service Commission, as the central personnel

agency of the Government, shall establish a career service and adopt measures
to promote morale, efficiency, integrity, responsiveness, progressiveness, and
courtesy in the civil service. It shall strengthen the merit and rewards system,
integrate all human resources development programs for all levels and ranks, and
institutionalize a management climate conducive to public accountability. It shall
submit to the President and the Congress an annual report on its personnel
programs.

Thus, "the CSC, as the central personnel agency of the Government, has
jurisdiction over disputes involving the removal and separation of all employees of
government branches, subdivisions, instrumentalities and agencies, including
government-owned or controlled corporations with original charters. Simply put, it is the
sole arbiter of controversies relating to the civil service." 23

In line with the above provisions of the Constitution and its mandate as the central
personnel agency of government and sole arbiter of controversies relating to the civil
service, the CSC adopted Memorandum Circular No. 19, series of 1999 (MC 19), or the
Revised Uniform Rules on Administrative Cases in the Civil Service, which the CA cited
as the basis for its pronouncement. Section 4 thereof provides:
Section 4. Jurisdiction of the Civil Service Commission. — The Civil
Service Commission shall hear and decide administrative cases instituted by, or
brought before it, directly or on appeal, including contested appointments, and
shall review decisions and actions of its offices and of the agencies attached to it.

Except as otherwise provided by the Constitution or by law, the Civil

Service Commission shall have the final authority to pass upon the removal,
 separation and suspension of all officers and employees in the civil service and
upon all matters relating to the conduct, discipline and efficiency of such officers
and employees.

As pointed out by the CA, pursuant to Section 5 (A) (1) of MC 19, the Civil Service
Commission Proper, or Commission Proper, shall have jurisdiction over decisions of Civil
Service Regional Offices brought before it on petition for review. And under Section 43,
"decisions of heads of departments, agencies, provinces, cities, municipalities and other
instrumentalities imposing a penalty exceeding thirty days suspension or fine in an
amount exceeding thirty days salary, may be appealed to the Commission Proper within
a period of fifteen days from receipt thereof." 24 "Commission Proper" refers to the Civil
Service Commission-Central Office. 25

It is only the decision of the Commission Proper that may be brought to the CA on
petition for review, under Section 50 of MC 19, which provides thus:

Section 50. Petition for Review with the Court of Appeals. — A party
may elevate a decision of the Commission before the Court of Appeals by way of

a petition for review under Rule 43 of the 1997 Revised Rules of Court. 26 ETHIDa

Thus, we agree with the CA's conclusion that in filing his petition for review directly
with it from the CSC-CAR Regional Director, petitioner failed to observe the principle of
exhaustion of administrative remedies. As correctly stated by the appellate court, non-
exhaustion of administrative remedies renders petitioner's CA petition premature and
thus dismissible.

The doctrine of exhaustion of administrative remedies requires that "before a party

is allowed to seek the intervention of the court, he or she should have availed himself or
herself of all the means of administrative processes afforded him or her. Hence, if resort
to a remedy within the administrative machinery can still be made by giving the
administrative officer concerned every opportunity to decide on a matter that comes
within his or her jurisdiction, then such remedy should be exhausted first before the
court's judicial power can be sought. The premature invocation of the intervention of the
court is fatal to one's cause of action. The doctrine of exhaustion of administrative
remedies is based on practical and legal reasons. The availment of administrative remedy
entails lesser expenses and provides for a speedier disposition of controversies.
Furthermore, the courts of justice, for reasons of comity and convenience, will shy away
from a dispute until the system of administrative redress has been completed and
complied with, so as to give the administrative agency concerned every opportunity to
correct its error and dispose of the case." 27 Indeed, the administrative agency concerned
— in this case the Commission Proper — is in the "best position to correct any previous
error committed in its forum." 28

The CA is further justified in refusing to take cognizance of the petition for review,
as "[t]he doctrine of primary jurisdiction does not warrant a court to arrogate unto itself
the authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence." 29 When petitioner's recourse lies in an
appeal to the Commission Proper in accordance with the procedure prescribed in MC 19,
the CA may not be faulted for refusing to acknowledge petitioner before it.
We likewise affirm the CA's pronouncement that petitioner was negligent in filling
up his CSPE application form and in failing to verify beforehand the specific requirements
for the CSPE examination. Petitioner's claim of good faith and absence of deliberate
intent or willful desire to defy or disregard the rules relative to the CSPE is not a defense
as to exonerate him from the charge of conduct prejudicial to the best interest of the
service; under our legal system, ignorance of the law excuses no one from compliance
therewith. 30 Moreover, petitioner — as mere applicant for acceptance into the
professional service through the CSPE — cannot expect to be served on a silver platter;
the obligation to know what is required for the examination falls on him, and not the CSC
or his colleagues in office. As aptly ruled by the appellate court:

In Bacaya 31 v. Ramos, the Supreme Court found respondent judge guilty

of both negligence and conduct prejudicial to the best interest of the service
when he issued an arrest warrant despite the deletion of the penalty of
imprisonment imposed on an accused in a particular criminal case. Respondent
judge in the said case claimed that the issuance of the warrant was a mistake,
done in good faith and that it has been a practice in his office for the Clerk of
Court to study motions and that he would simply sign the prepared order. The
Supreme Court rejected his defense and stated that negligence is the failure to
observe such care as a reasonably prudent and careful person would use under
ordinary circumstances. An act of the will is necessary for deliberate intent to
 exist; such is not necessary in an act of negligence.

Here, petitioner failed to verify the requirements before filing his application
to take the CSPE exam. He simply relied on his prior knowledge of the rules,
particularly, that he could substitute his deficiency in Military Science with the
length of his government service. He cannot lay blame on the personnel head of
the SSS-Bangued, Abra, who allegedly did not inform him of the pertinent rules
contained in Civil Service Memorandum Circular No. 42, Series of 1991. For, [if]
he were truly a reasonably prudent and careful person, petitioner himself should
have verified from the CSC the requirements imposed on prospective examinees.
In so doing, he would certainly have been informed of the new CSC policy
disallowing substitution of one's length of government service for academic
deficiencies. Neither should petitioner have relied on an unnamed Civil Service
employee's advice since it was not shown that the latter was authorized to give
information regarding the examination nor that said employee was competent
and capable of giving correct information. His failure to verify the actual CSPE
requirements which a reasonably prudent and careful person would have done
constitutes negligence. Though his failure was not a deliberate act of the will,
such is not necessary in an act of negligence and, as in Bacaya, negligence is not
inconsistent with a finding of guilt for conduct prejudicial to the best interest of
the service. 32

The corresponding penalty for conduct prejudicial to the best interest of the service
may be imposed upon an erring public officer as long as the questioned act or conduct
taints the image and integrity of the office; and the act need not be related to or
connected with the public officer's official functions. Under our civil service laws, there is
no concrete description of what specific acts constitute conduct prejudicial to the best
interest of the service, but the following acts or omissions have been treated as such:
misappropriation of public funds; abandonment of office; failure to report back to work
without prior notice; failure to safekeep public records and property; making false entries
in public documents; falsification of court orders; a judge's act of brandishing a gun, and
threatening the complainants during a traffic altercation; a court interpreter's participation
in the execution of a document conveying complainant's property which resulted in a
quarrel in the latter's family; selling fake Unified Vehicular Volume Program exemption
cards to his officemates during office hours; a CA employee's forging of receipts to avoid
her private contractual obligations; a Government Service Insurance System (GSIS)
employee's act of repeatedly changing his IP address, which caused network problems
within his office and allowed him to gain access to the entire GSIS network, thus putting
the system in a vulnerable state of security; 33 a public prosecutor's act of signing a
motion to dismiss that was not prepared by him, but by a judge; 34 and a teacher's act of
directly selling a book to her students in violation of the Code of Ethics for Professional
Teachers. 35 In petitioner's case, his act of making false entries in his CSPE application
undoubtedly constitutes conduct prejudicial to the best interest of the service; the
absence of a willful or deliberate intent to falsify or make dishonest entries in his
application is immaterial, for conduct grossly prejudicial to the best interest of the service
"may or may not be characterized by corruption or a willful intent to violate the law or to
disregard established rules." 36 cSEDTC

Finally, the Court cannot consider petitioner's plea that "in the interest of justice
and in the spirit of the policy which promotes and preserves civil service eligibility," his
career service professional eligibility should not be revoked. The act of using a fake or
spurious civil service eligibility for one's benefit not only amounts to violation of the civil

service examinations or CSPE; it also results in prejudice to the government and the
public in general. It is a transgression of the law which has no place in the public
service. 37 "Assumption of public office is impressed with the paramount public interest
that requires the highest standards of ethical conduct. A person aspiring for public office
must observe honesty, candor, and faithful compliance with the law. Nothing less is
expected." 38

WHEREFORE, the Petition is DENIED. The December 11, 2009 Decision and
March 17, 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 94426
are AFFIRMED.

SO ORDERED.

Carpio, Perez, * Mendoza and Jardeleza, ** JJ., concur.

Footnotes

* Per Special Order No. 2067 dated June 22, 2015.

** Per Special Order No. 2056 dated June 10, 2015.

1. Rollo, pp. 9-30.

2. Id. at 35-47; penned by Associate Justice Antonio L. Villamor and concurred in by

Associate Justices Bienvenido L. Reyes (now a member of this Court) and Japar B.
Dimaampao.

3. Id. at 19-28.

4. Id. at 32-33.

5. Id. at 48-56.

6. Id. at 36-37.

7. CA rollo, pp. 50-52.

8. Id. at 68-71.

9. Id. at 19-28.

10. Id. at 25-28.

11. Id. at 29-37.

12. Id. at 39-44.

13. Id. at 43.

14. Citing Philippine Retirement Authority v. Rupa, 415 Phil. 713 (2001).

15. Rollo, p. 46.

16. Section 5. Jurisdiction of the Civil Service Commission Proper. — The Civil Service
Commission Proper shall have jurisdiction over the following cases:

A. Disciplinary

1. Decisions of Civil Service Regional Offices brought before it on petition for review;
 xxx xxx xxx

Section 43. Filing of Appeals. — Decisions of heads of departments, agencies, provinces,

cities, municipalities and other instrumentalities imposing a penalty exceeding thirty
(30) days suspension or fine in an amount exceeding thirty days salary, may be
appealed to the Commission Proper within a period of fifteen (15) days from receipt
thereof.

In case the decision rendered by a bureau or office head is appealable to the

Commission, the same may be initially appealed to the department head and finally to
the Commission Proper. Pending appeal, the same shall be executory except where
the penalty is removal, in which case the same shall be executory only after
confirmation by the Secretary concerned.

A notice of appeal including the appeal memorandum shall be filed with the appellate
authority, copy furnished the disciplining office. The latter shall submit the records of
the case, which shall be systematically and chronologically arranged, paged and
securely bound to prevent loss, with its comment, within fifteen (15) days, to the
appellate authority.

Section 49. Petition for Review. — A complainant may elevate the decision of the Civil
Service Regional Office dismissing a complaint for lack of a prima facie case before
the Commission Proper through a Petition for Review within fifteen (15) days from the
receipt of said decision.

17. 597 Phil. 86 (2009).

18. Rollo, p. 22.

19. Id. at 242-249.

20. Citing Pagara v. Court of Appeals, 325 Phil. 66 (1996).

21. Rollo, pp. 98-115.

22. CA rollo, pp. 79-81.

23. Cabungcal v. Mayor Lorenzo, 623 Phil. 329, 338-339 (2009).

24. It will be observed that the enumeration in Section 43 failed to include "Regional
Offices". Under Section 49, "a complainant may elevate the decision of the Civil
 Service Regional Office dismissing a complaint for lack of a prima facie case before
the Commission Proper through a Petition for Review within fifteen (15) days from the
receipt of said decision." Such section mentions only "complainant". Going by these
two sections, it would appear that a respondent in a decision rendered by a Regional
Office would have no recourse, because MC 19 has not given him one. It is, however,
absurd to assume that decisions of Regional Offices may not be appealed at all, for
then they would be superior to the Commission Proper, or the courts for that matter.
Thus, it must be said that Section 43 should necessarily include the decisions of
Regional Offices as appealable to the Commission Proper and, in turn, ultimately
subject to judicial review.

25. MC 19, Section 2 (c), on Coverage and Definition of Terms.

26. Should be "1997 Rules of Civil Procedure".

27. Maglalang v. Philippine Amusement and Gaming Corporation (PAGCOR), G.R. No.
190566, December 11, 2013, 712 SCRA 472, 482-483.

28. PO2 Montoya v. Police Director Varilla, 595 Phil. 507, 528 (2008).

29. Vidad v. Regional Trial Court of Negros Oriental, Branch 42, G.R. No. 98084, October
18, 1993, 227 SCRA 271, 276.

30. CIVIL CODE, Article 3.

31. Should be Bayaca.

32. Rollo, pp. 44-46.

33. See Government Service Insurance System (GSIS) v. Mayordomo, G.R. No. 191218,
May 31, 2011, 649 SCRA 667.

34. Espiña v. Cerujano, 573 Phil. 254 (2008).

35. Pia v. Gervacio, Jr., G.R. No. 172334, June 5, 2013, 697 SCRA 220.

36. Espiña v. Cerujano, supra note 32 at 263.

37. See Re: Complaint of the Civil Service Commission, Cordillera Administrative Region,
Baguio City Against Chulyao, MCTC-Barlig, Mountain Province, 646 Phil. 34, 44 (2010).

38. Id.
||| (Catipon, Jr. v. Japson, G.R. No. 191787, [June 22, 2015])
 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 BarangayMalatagao, 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 inBarangays 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 10and 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." 25Thus, 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 theConstitution 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 theres 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." 35Finally, 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 Certiorariunder 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 theConstitution 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, theGrandfather 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 theConstitution.
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
Shares Subscribed

Madridejos Mining Filipino 5,997 PhP5,997,000.00 PhP8

Corporation
MBMI Resources, Canadian 3,998 PhP3,998,000.00 PhP1,8
Inc.
Lauro L. Salazar Filipino 1 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00
Esguerra
Manuel A. Agcaoili Filipino 1 PhP1,000.00
Michael T. Mason American 1 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00
––––––– ––––––––––––– ––––––
Total 10,000 PhP10,000,000.00 PhP2,7
====== ============
(emphasi

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
Shares Subscribed

Olympic Mines & Filipino 6,663 PhP6,663,000.00

Development Corp.
MBMI Resources, Canadian 3,331 PhP3,331,000.00 PhP2,8
Inc.
Amanti Limson Filipino 1 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00
Esguerra
Lauro Salazar Filipino 1 PhP1,000.00
Emmanuel G. Filipino 1 PhP1,000.00
Hernando
Michael T. Mason American 1 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00
––––––– –––––––––––––––– ––––––––
Total 10,000 PhP10,000,000.00 PhP2,8

====== ============== =====

(emphasis

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 Amo
Shares Subscribed

Sara Marie Filipino 5,997 PhP5,997,000.00

Mining, Inc.
MBMI Canadian 3,998 PhP3,998,000.00
Resources, Inc.
Lauro L. Salazar Filipino 1 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00
Esguerra
Manuel A. Filipino 1 PhP1,000.00
Agcaoili
Michael T. Mason American 1 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00
–––––– –––––––––––––––– ––––
Total 10,000 PhP10,000,000.00
===== ==============
(emph

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 Amou
Shares Subscribed

Olympic Mines & Filipino 6,663 PhP6,663,000.00

Development Corp.
MBMI Resources, Canadian 3,331 PhP3,331,000.00 PhP
Inc.
Amanti Limson Filipino 1 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00
Esguerra
Lauro Salazar Filipino 1 PhP1,000.00
Emmanuel G. Filipino 1 PhP1,000.00
Hernando
Michael T. Mason American 1 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00
–––––– ––––––––––––– ––––
Total 10,000 PhP10,000,000.00 PhP
====== =============
(empha

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 Pa

Shares Subscribed

Patricia Louise Filipino 5,997 PhP5,997,000.00 PhP1,677,

Mining &
Development
Corp.
MBMI Canadian 3,998 PhP3,996,000.00 PhP1,116,
Resources, Inc.
Higinio C. Filipino 1 PhP1,000.00 PhP1,
Mendoza, Jr.

Henry E. Filipino 1 PhP1,000.00 PhP1,

Fernandez
Manuel A. Filipino 1 PhP1,000.00 PhP1,
Agcaoili
Ma. Elena A. Filipino 1 PhP1,000.00 PhP1,
Bocalan
Bayani H. Agabin Filipino 1 PhP1,000.00 PhP1,
Robert L. American 1 PhP1,000.00 PhP1,
McCurdy
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,
––––––– ––––––––––––– –––––––––
Total 10,000 PhP10,000,000.00 PhP2,800,
====== ============= =======

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 P
Shares Subscribed

Palawan Alpha Filipino 6,596 PhP6,596,000.00

South Resources
Development
Corporation
MBMI Resources, Canadian 3,396 PhP3,396,000.00 PhP2,79
Inc.
Higinio C. Filipino 1 PhP1,000.00 PhP
Mendoza, Jr.
Fernando B. Filipino 1 PhP1,000.00 PhP
Esguerra
Henry E. Filipino 1 PhP1,000.00 PhP
Fernandez
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP
Manuel A. Agcaoili Filipino 1 PhP1,000.00 PhP
Bayani H. Agabin Filipino 1 PhP1,000.00 PhP
Michael T. Mason American 1 PhP1,000.00 PhP
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP
––––––– ––––––––––––– –––––––
Total 10,000 PhP10,000,000.00 PhP2,70
====== ============= ====
(emphasis s

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 applicationsfor 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 applicationsfor 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 thedoctrine of primary jurisdiction. Euro-med Laboratories v.
Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is

such that its determination requires the expertise,

specialized training and knowledge of an administrative
body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the
matter may well be within their proper jurisdiction.

Whatever may be the decision of the POA will eventually reach the
court system via a resort to the CA and to this Court as a last recourse.
 Selling of 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 1and 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 3is 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 certiorariwhich 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, 38the 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
asRepublic 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., 53ruled 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 theConstitution?
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, 55which 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 andextent 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, 63with 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 tocorporations 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 allowedto acquire
agricultural land or to exploit natural resources shall be
 controlled by Filipinos; and the spirit of
the Constitutiondemands 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 ourConstitution 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 1987Constitution, of "a self-reliant and
independent national economy effectively controlled by Filipinos"
and the collective aspiration articulated in the 1987Constitution'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 acorporation 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'", 98the SEC "has
consistently applied the control test". 99 This is a matter expressly
acknowledged by Justice Presbitero J. Velasco in his dissent
inGamboa 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
theControl Test and the Grandfather Rule.
This court's 1952 ruling in Davis Winship v. Philippine Trust
Co. 116cited 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 inRedmont 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 ponenciastates 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 Constitutionwas 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 Constitutionwhen 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 theconstitution 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 Act149 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' minimumqualification 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." 156The 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, theSecurities 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 inGamboa — 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 Amoun

Shares Subscribed

Patricia Louise Filipino 5,997 P5,997,000.00 P1,66

Mining and
Mining and
Development Corp.

MBMI Resources, Inc. Canadian 3,996 P3,996,000.00 P1,11

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

Henry E. Fernandez Filipino 1 P1,000.00
Ma. Elena A. Bocalan Filipino 1 P1,000.00
Michael T. Mason American 1 P1,000.00
Robert L. McCurdy Canadian 1 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00
Bayani H. Agabin Filipino 1 P1,000.00
–––––– ––––––––––––– ––––––
Total 10,000 P10,000,000.00 P2,80
====== ============ =====

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 Amoun
Shares Subscribed

Palawan Alpha South Filipino 6,596 P6,596,000.00

Resource
Development Corp.
MBMI Resources, Inc. Canadian 3,396 P3,396,000.00 P2,79
Higinio C. Mendoza, Jr. Filipino 1 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00
Henry E. Fernandez Filipino 1 P1,000.00
Lauro L. Salazar Filipino 1 P1,000.00
Michael T. Mason American 1 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00
Bayani H. Agabin Filipino 1 P1,000.00
––––––– –––––––––––––– ––––––
Total 10,000 P10,000,000.00 P2,80
====== ============= =====

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 Amou
Shares Subscribed

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

MBMI Resources, Inc. Canadian 3,998 P3,998,000.00 P1,
Lauro L. Salazar Filipino 1 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00
Michael T. Mason American 1 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00
–––––– –––––––––––––– ––––
Total 10,000 P10,000,000.00 P2,7
====== ============= ====

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 Amou
Shares Subscribed

Olympic Mines and Filipino 6,663 P6,663,000.00

Development Corp.

MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,7

Amanti Limson Filipino 1 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00
Lauro Salazar Filipino 1 P1,000.00
Emmanuel G. Filipino 1 P1,000.00
Hernando
Michael T. Mason American 1 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00
––––––– –––––––––––––– –––––
Total 10,000 P10,000,000.00 P2,8
====== ============= ====

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 thusostensibly 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 Amou
Shares Subscribed

Madridejos Mining Filipino 5,997 P5,997,000.00

Corp.
MBMI Resources, Inc. Canadian 3,998 P3,998,000.00 P1,8
Lauro L. Salazar Filipino 1 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00
Michael T. Mason American 1 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00
–––––– –––––––––––––– –––––
Total 10,000 P10,000,000.00 P2,7
====== ============= ====

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 Amou
Shares Subscribed

Olympic Mines and Filipino 6,663 P6,663,000.00

Development Corp.
MBMI Resources, Inc. Canadian 3,331 P3,331,000.00
Amanti Limson Filipino 1 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00
Lauro Salazar Filipino 1 P1,000.00
Emmanuel G. Filipino 1 P1,000.00
Hernando
Michael T. Mason American 1 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00
–––––– ––––––––––––– ––––
Total 10,000 P10,000,000.00
====== ============ ====

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 orrelated causes or to grant the
same or substantially the samereliefs, 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 orsubstantially 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." 187Redmont'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 certiorarisubject 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.

Footnotes

1. Penned by Associate Justice Ruben C. Ayson and concurred in by

Associate Justices Amelita G. Tolentino and Normandie B.
Pizzaro.
2. Rollo, p. 573.
3. Id. at 86.
4. Id. at 82.
5. Id. at 84.
6. Id. at 139-140.
7. Id. at 379.
8. Id. at 378.
9. Id. at 390.
10. Id. at 411.

11. Id. at 414.

12. Id. at 353.
13. Id. at 367, see application on p. 368.
14. Id. at 334-337.
15. Id. at 438.
16. Id. at 460.
17. Id. at 202.
18. Id. at 473.
19. Id. at 486.
20. Id. at 522.
21. Id. at 623.
22. Id. at 629.
23. Id. at 95-96.
24. Department of Justice Opinion No. 020, Series of 2005, adopting
the 1967 SEC Rules.
25. Rollo, p. 89.
26. Id. at 573-590, O.P. Case No. 10-E-229, penned by Executive
Secretary Paquito N. Ochoa, Jr.
27. Id. at 587.
28. Id.
29. Id. at 588.
30. Id. at 591-594.
31. Id. at 20-21.
32. David v. Macapagal-Arroyo, G.R. No. 171396, etc., May 3, 2006,
 489 SCRA 160.
33. Id.
34. Id.
35. Id.
36. Rollo, pp. 138-139.
37. Id. at 95-96.
38. Id. at 101.
39. Id. at 587.
40. Id. at 679-689.
41. Id. at 33.
42. "Proposed Resolution No. 533 — Resolution to Incorporate in the
Article on National Economy and Patrimony a Provision on
Ancestral Lands," III Record, CONSTITUTIONAL COMMISSION,
R.C.C. No. 55 (August 13, 1986).
43. Rollo, p. 44, quoting DOJ Opinion No. 20.
44. Id. at 82.
45. Id.
46. Id. at 83.
47. Id.
48. Id. at 87-88.
49. Id. at 48.
50. CIVIL CODE, Art. 1767.
51. §4, 46 Am Jur 2d, pp. 24-25.
52. §30, 46 Am Jur 2d — "law relating to dissolution and termination
of partnerships is applicable to joint ventures"; §17, 46 Am Jur 2d
— "In other words, an agreement to combine money, effort, skill,
and knowledge, and to purchase land for the purpose of reselling
or dealing with it at a profit, is a partnership agreement, or a joint
venture having in general the legal incidents of a partnership"; §50,
46 Am Jur 2d — "The relationship between joint venturers, like that
existing between partners, is fiduciary in character and imposes
upon all the participants the obligation of loyalty to the joint
 concern and of the utmost good faith, fairness, and honesty in their
dealings with each other with respect to matters pertaining to the
enterprise"; §57 — "It has already been pointed out that the rights,
duties, and liabilities of joint venturers are governed, in general, by
rules which are similar or analogous to those which govern the
corresponding rights, duties, and liabilities of partners, except as
they are limited by the fact that the scope of a joint venture is
narrower than that of the ordinary partnership. As in the case of
partners, joint venturers may be jointly and severally liable to third
parties for the debts of the venture"; §58, 46 Am Jur 2d — "It has
also been held that the liability for torts of parties to a joint venture
agreement is governed by the law applicable to partnerships."
53. G.R. Nos. 169080, 172936, 176226 & 176319, December 19,
2007, 541 SCRA 166.
54. Lee, et al. v. Presiding Judge, et al., G.R. No. 68789, November
10, 1986;People v. Paderna, No. L-28518, January 29, 1968.
55. G.R. No. 148106, July 17, 2006.
56. Rollo, p. 684.
57. Id. at 687.
LEONEN, J., dissenting:
1. Section 3 (a) of Republic Act No. 7042, as amended by Republic
Act No. 8179, the Foreign Investments Act; Section 3 (aq) and
(t) of Republic Act No. 7942, the Philippine Mining Act.
2. Gonzales v. Climax Mining Ltd., 492 Phil. 682 (2005) [Per J.
Tinga, Second Division]; Philex Mining Corp. v. Zaldivia, 150
Phil. 547 (1972) [Per J. Reyes, J.B.L., En Banc]; Gamboa v.
Teves, G.R. No. 176579, June 28, 2011, 652 SCRA 690 [Per J.
Carpio, En Banc]; and Heirs of Gamboa v. Teves, G.R. No.
176579, October 9, 2012, 682 SCRA 397 [Per J. Carpio, En
Banc].
3. Seventh Division, Ayson, J., ponente with Tolentino and Pizarro
JJ., concurring.
4. Rollo, p. 67.
5. Id. at 68.
6. Id.
7. Id. at 67-68.
8. Id. at 68-69.
9. Id. at 69-71.
10. Id. at 131-140.
11. Id. at 139-140.
12. Id. at 191-202.
13. Id. at 199-200.
14. Id. at 191-202.
15. Id. at 199.
16. Id. at 200-201.
17. Id. at 66-96.
18. Id. at 5-6.
19. Id. at 80.
20. Id. at 81.
21. Id. at 91.
22. 565 Phil. 466 (2007) [Per J. Velasco, Second Division].
23. Rollo, p. 94.
24. Id. at 97-113.
25. Id. at 299-314.
26. Id. at 72-73.
27. SEC En Banc Case No. 09-09-177. Available at
<http://www.sec.gov.ph/enbanc/decision/2010/mar2010/case%20no.%2009-
09-177.pdf>
28. Id.
29. Id. at 13.
30. Id. at 8.
31. Id.
32. Rollo of G.R. No. 205513, p. 54.
33. Id. at 55.
34. Id. at 55-56.
35. Id. at 58-60.
36. Rollo, p. 73.
37. Id. at 76.
38. Id. at 573-590.
39. Id. at 591-594.
40. Ponencia, p. 8.

41. Rollo, pp. 20-21.

42. 1987 CONST., art. XII, sec. 5, et al.
43. 1987 CONST., art. II, sec. 16 as well as art. XII, sec. 6 (use of
property as a social function).
44. "[M]ining activities which rely heavily on manual labor using
simple implements and methods and do not use explosives or
heavy mining equipment." Rep. Act No. 7076, sec. 3 (b).
45. G.R. No. 176579, October 9, 2012, 682 SCRA 397 [Per J.
Carpio, En Banc].
46. Id. at 435.
47. Commonwealth Act No. 108, as amended, Sec. 1.
48. Id.
49. CONST., art. XII, sec. 16.
50. 565 Phil. 466 (2007) [Per J. Velasco, Jr., Second Division].
51. Id. at 499.
52. Ponencia, p. 28.
53. 492 Phil. 682 (2005) [Per J. Tinga, Second Division].
54. Id. at 692-693, citation omitted.
55. 150 Phil. 547 (1972) [Per J. Reyes, J.B.L, En Banc].
56. Id. at 553-554.
57. Celestial Nickel Mining Exploration Corporation v. Macroasia
Corp., 565 Phil. 466, 499 (2007) [Per J. Velasco, Jr., Second
Division].
58. Id. at 501-502.
59. Ponencia, p. 12.
60. Rollo, p. 80.
61. Id. at 199.
62. Rep. Act 7942, sec. 77 (a).
63. Rep. Act No. 7942, sec. 77 (b).
64. Rep. Act No. 7942, sec. 77 (c).

65. Rep. Act No. 7942, sec. 77 (d).

66. CONST., art. XII, sec. 2.
67. CONST., art. II, sec. 19.
68. Sec. 17, DAO No. 2005-15.
69. Rep. Act No. 7942, sec. 26 (a).
70. Rep. Act No. 7942, sec. 26 (b).
71. Rep. Act No. 7942, sec. 26 (c).
72. Rep. Act No. 7942, sec. 55.
73. Rep. Act No. 7942, sec. 3 (aq).
74. 97 Phil. 58 (1955) [Per J. Reyes, J.B.L., En Banc].
75. Id. at 61.
76. 150-B Phil. 140 (1972) [Per J. Reyes, J.B.L., En Banc].
77. Id. at 170.
78. The case involving the FTAA but related to the current
controversy was not consolidated with this case or with G.R.
No. 205513.
79. Rollo, pp. 29-43.
80. As quoted in DOJ Opinion No. 18, series of 1989.
81. DOJ Opinion No. 20, series of 2005, p. 4.
82. DOJ Opinion No. 20, series of 2005, p. 5.
83. DOJ Opinion No. 20, series of 2005, p. 5.
84. DOJ Opinion No. 20, series of 2005, p. 5.
85. Referring to paragraph 7 of the 1967 SEC Rules.
86. DOJ Opinion No. 18, series of 1989, p. 2.
87. DOJ Opinion No. 18, series of 1989, p. 1.
88. DOJ Opinion No. 84, series of 1988, p. 3.
89. DOJ Opinion No. 84, series of 1988, p. 3.
90. SEC Opinion, May 4, 1987 addressed to Atty. Justiniano
Ascano.
91. DOJ Opinion No. 84, series of 1988, pp. 3-4.
92. DOJ Opinion No. 84, series of 1988, p. 3.
93. DOJ Opinion No. 18, series of 1989.
94. DOJ Opinion No. 20, series of 2005.
95. SEC Opinion, May 30, 1990 Opinion addressed to Mr. Johnny
M. Araneta.
96. SEC Opinion, May 30, 1990 Opinion addressed to Mr. Johnny
M. Araneta.
97. SEC Opinion, May 30, 1990 Opinion addressed to Mr. Johnny
M. Araneta.
98. SEC Opinion, May 30, 1990 Opinion addressed to Mr. Johnny
M. Araneta.
99. Gamboa v. Teves, G.R. No. 176579, June 28, 2011, 652 SCRA
690, 774 [Per J. Carpio, En Banc], J. Velasco, Jr., dissenting
opinion.
100. Id., citing SEC Opinion dated November 6, 1989 addressed to
Attys. Barbara Anne C. Migollos and Peter Dunnely A. Barot;
SEC Opinion dated December 14, 1989 addressed to Atty.
Maurice C. Nubla; SEC Opinion dated January 2, 1990
addressed to Atty. Eduardo F. Hernandez; SEC Opinion dated
May 30, 1990 addressed to Gold Fields Philippines
Corporation; SEC Opinion dated September 21, 1990
addressed to Carag, Caballes, Jamora, Rodriguez & Somera
Law Offices; SEC Opinion dated March 23, 1993 addressed to
Mr. Francis F. How; SEC Opinion dated April 14, 1993
addressed to Director Angeles T. Wong of the Philippine
Overseas Employment Administration; SEC Opinion dated
November 23, 1993 addressed to Mssrs. Dominador Almeda
and Renato S. Calma; SEC Opinion dated December 7, 1993
 addressed to Roco Bunag Kapunan Migallos & Jardaleza; SEC
Opinion No. 49-04 dated December 22, 2004 addressed to
Atty. Priscilla B. Valer; SEC Opinion No. 17-07 dated
September 27, 2007 addressed to Mr. Reynaldo G. David; SEC
Opinion No. 18-07 dated November 28, 2007 addressed to Mr.
Rafael C. Bueno, Jr.; SEC-OGC Opinion No. 20-07 dated
November 28, 2007 addressed to Atty. Amado M. Santiago, Jr.,
SEC-OGC Opinion No. 21-07 dated November 28, 2007
addressed to Atty. Navato, Jr.; SEC-OGC Opinion No. 03-08
dated January 15, 2008 addressed to Attys. Ruby Rose J. Yusi
and Rudyard S. Arbolado; SEC-OGC Opinion No. 09-09 dated
April 28, 2009 addressed to Villaraza Cruz Marcelo Angangco;
SEC-OGC Opinion No. 08-10 dated February 8, 2010
addressed to Mr. Teodoro B. Quijano; SEC-OGC Opinion No.
23-10 dated August 18, 2010 addressed to Attys. Teodulo G.
San Juan, Jr. and Erdelyn C. Go.
101. Id. at 774-777, citations omitted.
102. DOJ Opinion No. 20, series of 2005, p. 5.
103. SEC En Banc case No. 09-09-177.
104. SEC En Banc case No. 09-09-177, p. 10.
105. SEC-OGC Opinion No. 10-31, p. 8.
106. SEC-OGC Opinion No. 10-31, p. 9.
107. SEC-OGC Opinion No. 10-31, pp. 3-4.
108. SEC-OGC Opinion No. 10-31, p. 5.
109. 125 Phil. 5 (1966) [Per J. Barrera, En Banc].
110. SEC-OGC Opinion No. 10-31, p. 7.
111. SEC-OGC Opinion No. 10-31, p. 7.
112. SEC-OGC Opinion No. 10-31, p. 7.
113. SEC-OGC Opinion No. 10-31, p. 7, citing J. BERNAS, THE
INTENT OF THE 1986 CONSTITUTION WRITERS 813 (1995).
114. SEC-OGC Opinion No. 10-31, p. 9.
115. SEC-OGC Opinion No. 10-31, p. 9.
116. 90 Phil. 744 (1952) [Per J. Paras, En Banc].
117. 89 Phil. 54 (1951) [Per C.J. Paras, En Banc].
118. Davis Winship v. Philippine Trust Co., 90 Phil. 744, 747 (1952)
[Per J. Paras, En Banc].
119. Clark v. Uebersee Finanz Korporation, December 8, 1947, 92
Law. Ed. Advance Opinions, No. 4, pp. 148-153.
120. Filipinas Compania de Seguros v. Christern, Huenefeld and
Co., Inc., 89 Phil. 54, 56 (1951) [Per C.J. Paras, En Banc].
121. Rep. Act No. 5186, sec. 2.

122. Sec. 3. Definition of Terms. — For purposes of this Act:

xxx xxx xxx
(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.
123. Art. 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.
124. Art 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 registered 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.
125. This court's October 9, 2012 resolution in Gamboa v.
Teves (G.R. No. 176579, October 9, 2012, 682 SCRA 397 [Per
J. Carpio, En Banc]) spoke of Executive Order No. 226,
the Omnibus Investments Code of 1987 as the FIA's
"predecessor statute" (Id. at 430-431).
126. 603 Phil. 410 (2009) [Per J. Quisumbing, Second Division].
127. Id. at 431-432.
128. G.R. No. 176579, June 28, 2011, 652 SCRA 690 [Per J.
Carpio, En Banc].
129. "[T]he 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." Id. at
705. "The crux of the controversy is the definition of the term
 "capital." Does the term "capital" in Section 11, Article XII of
theConstitution refer to common shares or to total outstanding
capital stock (combined total of common and non-voting
shares)?" Id. at 717.
130. Id. at 723 and 726.
131. G.R. No. 176579, October 9, 2012, 682 SCRA 397 [Per J.
Carpio, En Banc].
132. Id. at 423.
133. Gamboa v. Teves, G.R. No. 176579, October 9, 2012, 682
SCRA 397, 425 [Per J. Carpio, En Banc].
134. Ponencia, p. 14.
135. The SEC En Banc decision in Redmont also cites this
exchange to assert that "it was the intent of the framers of the
1987 Constitution to adopt the Grandfather Rule." Redmont v.
McArthur, SEC En Banc Case No. 09-09-177, p. 12. Available
at
<http://www.sec.gov.ph/enbanc/decision/2010/mar2010/case%20no.%2009-
09-177.pdf>.
136. Record of the Constitutional Commission of 1986,
Proceedings and Debates, Vol. 3, pp. 255-256.
137. G.R. No. 83896, February 22, 1991, 194 SCRA 317 [Per C.J.
Fernando, En Banc, JJ. Narvasa, Melencio-Herrera, Gutierrez,
Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin, Medialdea,
Regalado, and Davide, Jr., concurring; J. Paras . . . concur
because cabinet members like the members of the Supreme
Court are not supermen; JJ. Sarmiento and Grino-Aquino, No
part].
138. Id. at 325.
139. Id. at 337-338.
140. Id.
141. See discussion in J. Leonen's dissenting opinion, Imbong v.
Ochoa, G.R. No. 204819, April 8, 2014, p. 35, citations omitted.
142. The fiftieth member, Commissioner Lino Brocka, resigned.
143. Rep. Act No. 5186, the Investment Incentives Act; and Pres.
Decree No. 1789, the Omnibus Investments Code of 1981
 (also Exec. Order No. 226, the Omnibus Investments Code of
1987). See Gamboa v. Teves (G.R. No. 176579, October 9,
2012, 682 SCRA 397, 430-431 [Per J. Carpio, En Banc]).
144. SEC-OGC Opinion No. 10-31, p. 5; Palting v. San Jose
Petroleum, G.R. No. L-14441, December 17, 1966, 18 SCRA
924 [Per J. Barrerra, En Banc]; SEC-OGC Opinion No. 10-31,
p. 7.
145. J.M. Tuason and Co., Inc. v. Land Tenure Administration, G.R.
No. L-21064, February 18, 1970, 31 SCRA 413 [Per J.
Fernando, En Banc].

146. C. P. CURTIS, LIONS UNDER THE THRONE 2, Houghton

Mifflin (1947).
147. See J. Mendoza, separate dissenting opinion, in Ang Bagong
Bayani-OFW Labor Party v. Commission on Elections, 412 Phil.
308, 363 (2001) [Per J. Panganiban, En Banc].
148. Gamboa v. Teves, G.R. No. 176579, October 9, 2012, 682
SCRA 397, 435 [Per J. Carpio, En Banc].
149. Sec. 8. List of Investment Areas Reserved to Philippine
Nationals (Foreign Investment Negative List). — The Foreign
Investment Negative List shall have two (2) components 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:
1) which are defense-related activities, requiring prior clearance and
authorization from 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, beerhouses, dance halls; sauna
 and steam bathhouses and massage clinics.
"Small and medium-sized domestic market enterprises, with paid-in
equity capital less than the equivalent two hundred thousand
US dollars (US$200,000) are reserved to Philippine nationals,
Provided that if: (1) they involve advanced technology as
determined by the Department of Science and Technology or
(2) they employ at least fifty (50) direct employees, then a
minimum paid-in capital of one hundred thousand US dollars
(US$100,000.00) shall be allowed to non-Philippine nationals.
Amendments to List B may be made upon recommendation of the
Secretary of National Defense, or the Secretary of Health, or
the Secretary of Education, Culture and Sports, endorsed by
the NEDA, approved by the President, and promulgated by a
Presidential Proclamation.
Transitory Foreign Investment Negative List" established in Sec. 15
hereof shall be replaced at the end of the transitory period by
the first Regular Negative List to be formulated and
recommended by NEDA, following the process and criteria
provided in Sections 8 of this Act. The first Regular Negative
List shall be published not later than sixty (60) days before the
end of the transitory period provided in said section, and shall
become immediately effective at the end of the transitory
period. Subsequent Foreign Investment Negative Lists shall
become effective fifteen (15) days after publication in a
newspaper of general circulation in the Philippines: Provided,
however, That each Foreign Investment Negative List shall be
prospective in operation and shall in no way affect foreign
investment existing on the date of its publication.
Amendments to List B after promulgation and publication of the first
Regular Foreign Investment Negative List at the end of the
transitory period shall not be made more often than once every
two (2) years." (As amended by Rep. Act No. 8179)
150. Ponencia, p. 17.
151. DOJ Opinion No. 20, series of 2005, p. 5.
152. Ponencia, p. 17.
153. <http://www.merriam-webster.com/dictionary/id%20est>
154. <http://www.oxforddictionaries.com/us/definition/american_english/i.e.>
155. <http://www.merriam-webster.com/dictionary/e.g.>
156. CONST., art. II, sec. 19.
157. I.e., "([o]f a relation) such that, if it applies between successive
members of a sequence, it must also apply between any two
members taken in order. For instance, if A is larger than B, and
B is larger than C, then A is larger than C."
<http://www.oxforddictionaries.com/us/definition/american_english/transitive>
158. Gamboa v. Teves, G.R. No. 176579, June 28, 2011, 652
SCRA 690, 723 and 726 [Per J. Carpio, En Banc].
159. Id. at 725.

160. Register of Deeds of Rizal v. Ung Siu Si Temple, 97 Phil. 58

(1955) [Per J. Reyes, J.B.L., En Banc].
161. Gamboa v. Teves, G.R. No. 176579, June 28, 2011, 652 SCRA
690 [Per J. Carpio, En Banc].
162. Id. at 730.
163. Palting v. San Jose Petroleum, 125 Phil. 5, 19 (1966) [Per J.
Barrera, En Banc].
164. "[T]he term "Philippine National" shall mean . . . a corporation .
. . 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."
165. Gamboa v. Teves, G.R. No. 176579, June 28, 2011, 652 SCRA
690, 730 [Per J. Carpio, En Banc].
166. DOJ Opinion No. 165, series of 1984, p. 5.
167. G.R. No. 176579, June 28, 2011, 652 SCRA 690 [Per J.
Carpio, En Banc].
168. Id. at 723 and 726.
169. Rollo, pp. 66-96.
170. Id. at 86.
171. Id. at 86-87.
172. Id. at 84.
173. Id. at 84-85.
174. Id. at 82.
 175. Id. at 82-83.
176. Id. at 83.
177. Id.
178. 457 Phil. 740 (2003) [Per J. Bellosillo, Second Division].
179. Id. at 747-748, citing Santos v. Commission on Elections, 447
Phil. 760 (2003) [Per J. Ynares-Santiago, En Banc]; Young v.
Keng Seng, 446 Phil. 823 (2003) [Per J. Panganiban, Third
Division]; Executive Secretary v. Gordon, 359 Phil. 266 (1998)
[Per J. Mendoza, En Banc];Joy Mart Consolidated Corp. v.
Court of Appeals, Seventh Division, G.R. No. 88705, June 11,
1992, 209 SCRA 738 [Per J. Griño-Aquino, First Division];
and Villanueva v. Adre, 254 Phil. 882 (1989) [Per J. Sarmiento,
Second Division].
180. G.R. No. 186730, June 13, 2012, 672 SCRA 419 [Per J.
Reyes, Second Division], citing Young v. John Keng Seng, 446
Phil. 823, 833 (2003) [Per J. Panganiban, Third Division].
181. Id. at 428.
182. Id.
183. Id. at 429, citing Villarica Pawnshop, Inc. v. Gernale, G.R. No.
163344, March 20, 2009, 582 SCRA 67, 78-79 [Per J. Austria-
Martinez, Third Division].
184. Luzon Development Bank v. Conquilla, 507 Phil. 509, 523
(2005) [Per J. Panganiban, Third Division], citing Allied Banking
Corporation v. CA, G.R. No. 108089, January 10, 1994, 229
SCRA 252, 258 [Per J. Davide, Jr., First Division].
186. Arising from Redmont's petition with the Office of the President.
187. RULES OF COURT, Rule 7, Sec. 5.

||| (Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Corp., G.R. No.
195580, [April 21, 2014])