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G.R. No. 125469 October 27, 1997 that the Ternate Development Corporation, which is among the
PHILIPPINE STOCK EXCHANGE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and PUERTO AZUL LAND, INC.,
respondents.
TORRES, JR., J.:
The Securities and Exchange Commission is the government
agency, under the direct general supervision of the Office of the
President, 1 with the immense task of enforcing the Revised
Securities Act, and all other duties assigned to it by pertinent
laws. Among its inumerable functions, and one of the most
important, is the supervision of all corporations, partnerships or
associations, who are grantees of primary franchise and/or a
license or permit issued by the government to operate in the
Philippines. 2 Just how far this regulatory authority extends,
particularly, with regard to the Petitioner Philippine Stock
Exchange, Inc. is the issue in the case at bar.
In this Petition for Review on Certiorari, petitioner assails the
resolution of the respondent Court of Appeals, dated June 27,
1996, which affirmed the decision of the Securities and
Exchange Commission ordering the petitioner Philippine Stock
Exchange, Inc. to allow the private respondent Puerto Azul Land,
Inc. to be listed in its stock market, thus paving the way for the
public offering of PALI's shares.
The facts of the case are undisputed, and are hereby restated in
sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate
corporation, had sought to offer its shares to the public in order
to raise funds allegedly to develop its properties and pay its
loans with several banking institutions. In January, 1995, PALI
was issued a Permit to Sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the
trading of its shares among investors, PALI sought to course the
trading of its shares through the Philippine Stock Exchange, Inc.
(PSE), for which purpose it filed with the said stock exchange an
application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a
perusal of PALI's application, recommended to the PSE's Board
of Governors the approval of PALI's listing application.
On February 14, 1996, before it could act upon PALI's
application, the Board of Governors of the PSE received a letter
from the heirs of Ferdinand E. Marcos, claiming that the late
President Marcos was the legal and beneficial owner of certain
properties forming part of the Puerto Azul Beach Hotel and
Resort Complex which PALI claims to be among its assets and
stockholders of PALI, likewise appears to have been held and
continue to be held in trust by one Rebecco Panlilio for then
President Marcos and now, effectively for his estate, and
requested PALI's application to be deferred. PALI was requested
to comment upon the said letter.
PALI's answer stated that the properties forming part of the
Puerto Azul Beach Hotel and Resort Complex were not claimed
by PALI as its assets. On the contrary, the resort is actually
owned by Fantasia Filipina Resort, Inc. and the Puerto Azul
Country Club, entities distinct from PALI. Furthermore, the
Ternate Development Corporation owns only 1.20% of PALI. The
Marcoses responded that their claim is not confined to the
facilities forming part of the Puerto Azul Hotel and Resort
Complex, thereby implying that they are also asserting legal and
beneficial ownership of other properties titled under the name of
PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol
Gunigundo of the Presidential Commission on Good
Government (PCGG) requesting for comments on the letters of
the PALI and the Marcoses. On March 4, 1996, the PSE was
informed that the Marcoses received a Temporary Restraining
Order on the same date, enjoining the Marcoses from, among
others, "further impeding, obstructing, delaying or interfering in
any manner by or any means with the consideration, processing
and approval by the PSE of the initial public offering of PALI."
The TRO was issued by Judge Martin S. Villarama, Executive
Judge of the RTC of Pasig City in Civil Case No. 65561, pending
in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of
Governors of the PSE reached its decision to reject PALI's
application, citing the existence of serious claims, issues and
circumstances surrounding PALI's ownership over its assets that
adversely affect the suitability of listing PALI's shares in the stock
exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to
the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the
SEC's attention the action taken by the PSE in the application of
PALI for the listing of its shares with the PSE, and requesting
that the SEC, in the exercise of its supervisory and regulatory
powers over stock exchanges under Section 6(j) of P.D. No. 902-
A, review the PSE's action on PALI's listing application and
institute such measures as are just and proper under the
circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the
PSE, attaching thereto the letter of PALI and directing the PSE to
file its comments thereto within five days from its receipt and for
its authorized representative to appear for an "inquiry" on the
matter. On April 22, 1996, the PSE submitted a letter to the SEC
containing its comments to the April 11, 1996 letter of PALI.
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On April 24, 1996, the SEC rendered its Order, reversing the
PSE's decision. The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the
Commissioner's authority and jurisdiction under Section 3 of the
Revised Securities Act, in conjunction with Section 3, 6(j) and
6(m) of Presidential Decree No. 902-A, the decision of the Board
of Governors of the Philippine Stock Exchange denying the
listing of shares of Puerto Azul Land, Inc., is hereby set aside,
and the PSE is hereby ordered to immediately cause the listing
of the PALI shares in the Exchange, without prejudice to its
authority to require PALI to disclose such other material
information it deems necessary for the protection of the
investigating public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April
29, 1996, which was, however denied by the Commission in its
May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no
compelling reason to reconsider its order dated April 24, 1996,
and in the light of recent developments on the adverse claim
against the PALI properties, PSE should require PALI to submit
full disclosure of material facts and information to protect the
investing public. In this regard, PALI is hereby ordered to amend
its registration statements filed with the Commission to
incorporate the full disclosure of these material facts and
information.
Dissatisfied with this ruling, the PSE filed with the Court of
Appeals on May 17, 1996 a Petition for Review (with Application
for Writ of Preliminary Injunction and Temporary Restraining
Order), assailing the above mentioned orders of the SEC,
submitting the following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE
OF DISCRETION IN ISSUING THE ASSAILED ORDERS
WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC
HAS NO POWER TO ORDER THE LISTING AND SALE OF
SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED
AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON
LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE
OF DISCRETION IN FINDING THAT PSE ACTED IN AN
ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING
PALI'S LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID
FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES
IN CUSTODIA LEGIS AND WHICH FORM PART OF
NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT
PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND
APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS
CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for
Review and subsequently, a Comment and Motion to Dismiss.
On June 10, 1996, PSE fled its Reply to Comment and
Opposition to Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its
Resolution dismissing the PSE's Petition for Review. Hence, this
Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction
and authority to look into the decision of the petitioner PSE,
pursuant to Section 3 3 of the Revised Securities Act in relation to
Section 6(j) and 6(m) 4 of P.D. No. 902-A, and Section 38(b) 5 of
the Revised Securities Act, and for the purpose of ensuring fair
administration of the exchange. Both as a corporation and as a
stock exchange, the petitioner is subject to public respondent's
jurisdiction, regulation and control. Accepting the argument that
the public respondent has the authority merely to supervise or
regulate, would amount to serious consequences, considering
that the petitioner is a stock exchange whose business is
impressed with public interest. Abuse is not remote if the public
respondent is left without any system of control. If the securities
act vested the public respondent with jurisdiction and control
over all corporations; the power to authorize the establishment of
stock exchanges; the right to supervise and regulate the same;
and the power to alter and supplement rules of the exchange in
the listing or delisting of securities, then the law certainly granted
to the public respondent the plenary authority over the petitioner;
and the power of review necessarily comes within its authority.
All in all, the court held that PALI complied with all the
requirements for public listing, affirming the SEC's ruling to the
effect that:
. . . the Philippine Stock Exchange has acted in an arbitrary and
abusive manner in disapproving the application of PALI for listing
of its shares in the face of the following considerations:
1. PALI has clearly and admittedly complied with the Listing
Rules and full disclosure requirements of the Exchange;
2. In applying its clear and reasonable standards on the
suitability for listing of shares, PSE has failed to justify why it
acted differently on the application of PALI, as compared to the
IPOs of other companies similarly situated that were allowed
listing in the Exchange;
3. It appears that the claims and issues on the title to PALI's
properties were even less serious than the claims against the
assets of the other companies in that, the assertions of the
Marcoses that they are owners of the disputed properties were
not substantiated enough to overcome the strength of a title to
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properties issued under the Torrens System as evidence of
ownership thereof;
4. No action has been filed in any court of competent jurisdiction
seeking to nullify PALI's ownership over the disputed properties,
neither has the government instituted recovery proceedings
against these properties. Yet the import of PSE's decision in
denying PALI's application is that it would be PALI, not the
Marcoses, that must go to court to prove the legality of its
ownership on these properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the
Military/Naval Reservation does not inspire belief. The point is,
the PALI properties are now titled. A property losses its public
character the moment it is covered by a title. As a matter of fact,
the titles have long been settled by a final judgment; and the final
decree having been registered, they can no longer be re-opened
considering that the one year period has already passed. Lastly,
the determination of what standard to apply in allowing PALI's
application for listing, whether the discretion method or the
system of public disclosure adhered to by the SEC, should be
addressed to the Securities Commission, it being the
government agency that exercises both supervisory and
regulatory authority over all corporations.
On August 15, 19961 the PSE, after it was granted an extension,
filed the instant Petition for Review on Certiorari, taking
exception to the rulings of the SEC and the Court of Appeals.
Respondent PALI filed its Comment to the petition on October
17, 1996. On the same date, the PCGG filed a Motion for Leave
to file a Petition for Intervention. This was followed up by the
PCGG's Petition for Intervention on October 21, 1996. A
supplemental Comment was filed by PALI on October 25, 1997.
The Office of the Solicitor General, representing the SEC and the
Court of Appeals, likewise filed its Comment on December 26,
1996. In answer to the PCGG's motion for leave to file petition
for intervention, PALI filed its Comment thereto on January 17,
1997, whereas the PSE filed its own Comment on January 20,
1997.
On February 25, 1996, the PSE filed its Consolidated Reply to
the comments of respondent PALI (October 17, 1996) and the
Solicitor General (December 26, 1996). On May 16, 1997, PALI
filed its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the
SEC had authority to order the PSE to list the shares of PALI in
the stock exchange. Under presidential decree No. 902-A, the
powers of the SEC over stock exchanges are more limited as
compared to its authority over ordinary corporations. In
connection with this, the powers of the SEC over stock
exchanges under the Revised Securities Act are specifically
enumerated, and these do not include the power to reverse the
decisions of the stock exchange. Authorities are in abundance
even in the United States, from which the country's security
policies are patterned, to the effect of giving the Securities
Commission less control over stock exchanges, which in turn are
given more lee-way in making the decision whether or not to
allow corporations to offer their stock to the public through the
stock exchange. This is in accord with the "business judgment
rule" whereby the SEC and the courts are barred from intruding
into business judgments of corporations, when the same are
made in good faith. the said rule precludes the reversal of the
decision of the PSE to deny PALI's listing application, absent a
showing of bad faith on the part of the PSE. Under the listing
rules of the PSE, to which PALI had previously agreed to comply,
the PSE retains the discretion to accept or reject applications for
listing. Thus, even if an issuer has complied with the PSE listing
rules and requirements, PSE retains the discretion to accept or
reject the issuer's listing application if the PSE determines that
the listing shall not serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over
sequestered corporations, nor with corporations whose
properties are under sequestration. A reading of Republic of the
Philippines vs. Sadiganbayan, G.R. No. 105205, 240 SCRA 376,
would reveal that the properties of PALI, which were derived
from the Ternate Development Corporation (TDC) and the Monte
del Sol Development Corporation (MSDC). are under
sequestration by the PCGG, and subject of forfeiture
proceedings in the Sandiganbayan. This ruling of the Court is the
"law of the case" between the Republic and TDC and MSDC. It
categorically declares that the assets of these corporations were
sequestered by the PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimated that the Court of Appeals' sanction that
PALI's ownership over its properties can no longer be
questioned, since certificates of title have been issued to PALI
and more than one year has since lapsed, is erroneous and
ignores well settled jurisprudence on land titles. That a certificate
of title issued under the Torrens System is a conclusive evidence
of ownership is not an absolute rule and admits certain
exceptions. It is fundamental that forest lands or military
reservations are non-alienable. Thus, when a title covers a forest
reserve or a government reservation, such title is void.
PSE, likewise, assails the SEC's and the Court of Appeals
reliance on the alleged policy of "full disclosure" to uphold the
listing of PALI's shares with the PSE, in the absence of a clear
mandate for the effectivity of such policy. As it is, the case
records reveal the truth that PALI did not comply with the listing
rules and disclosure requirements. In fact, PALI's documents
supporting its application contained misrepresentations and
misleading statements, and concealed material information. The
matter of sequestration of PALI's properties and the fact that the
same form part of military/naval/forest reservations were not
reflected in PALI's application.
It is undeniable that the petitioner PSE is not an ordinary
corporation, in that although it is clothed with the markings of a
corporate entity, it functions as the primary channel through
which the vessels of capital trade ply. The PSE's relevance to the
continued operation and filtration of the securities transactions in
the country gives it a distinct color of importance such that
government intervention in its affairs becomes justified, if not
necessarily. Indeed, as the only operational stock exchange in
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the country today, the PSE enjoys a monopoly of securities
transactions, and as such, it yields an immense influence upon
the country's economy.
Due to this special nature of stock exchanges, the country's
lawmakers has seen it wise to give special treatment to the
administration and regulation of stock exchanges. 6
These provisions, read together with the general grant of
jurisdiction, and right of supervision and control over all
corporations under Sec. 3 of P.D. 902-A, give the SEC the
special mandate to be vigilant in the supervision of the affairs of
stock exchanges so that the interests of the investing public may
be fully safeguard.
Section 3 of Presidential Decree 902-A, standing alone, is
enough authority to uphold the SEC's challenged control
authority over the petitioner PSE even as it provides that "the
Commission shall have absolute jurisdiction, supervision, and
control over all corporations, partnerships or associations, who
are the grantees of primary franchises and/or a license or permit
issued by the government to operate in the Philippines. . ." The
SEC's regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a
corporation's concerns. This authority springs from the fact that a
corporation owes its existence to the concession of its corporate
franchise from the state.
The SEC's power to look into the subject ruling of the PSE,
therefore, may be implied from or be considered as necessary or
incidental to the carrying out of the SEC's express power to
insure fair dealing in securities traded upon a stock exchange or
to ensure the fair administration of such exchange. 7 It is,
likewise, observed that the principal function of the SEC is the
supervision and control over corporations, partnerships and
associations with the end in view that investment in these entities
may be encouraged and protected, and their activities for the
promotion of economic development. 8
Thus, it was in the alleged exercise of this authority that the SEC
reversed the decision of the PSE to deny the application for
listing in the stock exchange of the private respondent PALI. The
SEC's action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to
whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is
in line with the SEC's mission to ensure proper compliance with
the laws, such as the Revised Securities Act and to regulate the
sale and disposition of securities in the country. 9 As the
appellate court explains:
Paramount policy also supports the authority of the public
respondent to review petitioner's denial of the listing. Being a
stock exchange, the petitioner performs a function that is vital to
the national economy, as the business is affected with public
interest. As a matter of fact, it has often been said that the
economy moves on the basis of the rise and fall of stocks being
traded. By its economic power, the petitioner certainly can dictate
which and how many users are allowed to sell securities thru the
facilities of a stock exchange, if allowed to interpret its own rules
liberally as it may please. Petitioner can either allow or deny the
entry to the market of securities. To repeat, the monopoly, unless
accompanied by control, becomes subject to abuse; hence,
considering public interest, then it should be subject to
government regulation.
The role of the SEC in our national economy cannot be
minimized. The legislature, through the Revised Securities Act,
Presidential Decree No. 902-A, and other pertinent laws, has
entrusted to it the serious responsibility of enforcing all laws
affecting corporations and other forms of associations not
otherwise vested in some other government office. 10
This is not to say, however, that the PSE's management
prerogatives are under the absolute control of the SEC. The PSE
is, alter all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the
PSE's main concerns, as such, is still the generation of profit for
its stockholders. Moreover, the PSE has all the rights pertaining
to corporations, including the right to sue and be sued, to hold
property in its own name, to enter (or not to enter) into contracts
with third persons, and to perform all other legal acts within its
allocated express or implied powers.
A corporation is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct
legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and perquisites appropriate
to such a body. 11 As to its corporate and management decisions,
therefore, the state will generally not interfere with the same.
Questions of policy and of management are left to the honest
decision of the officers and directors of a corporation, and the
courts are without authority to substitute their judgment for the
judgment of the board of directors. The board is the business
manager of the corporation, and so long as it acts in good faith,
its orders are not reviewable by the courts. 12
Thus, notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSE's decision in
matters of application for listing in the market, the SEC may
exercise such power only if the PSE's judgment is attended by
bad faith. In Board of Liquidators vs. Kalaw, 13 it was held that
bad faith does not simply connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. It means a breach of a known duty
through some motive or interest of ill will, partaking of the nature
of fraud.
In reaching its decision to deny the application for listing of PALI,
the PSE considered important facts, which, in the general
scheme, brings to serious question the qualification of PALI to
sell its shares to the public through the stock exchange. During
the time for receiving objections to the application, the PSE
heard from the representative of the late President Ferdinand E.
Marcos and his family who claim the properties of the private
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respondent to be part of the Marcos estate. In time, the PCGG
confirmed this claim. In fact, an order of sequestration has been
issued covering the properties of PALI, and suit for
reconveyance to the state has been filed in the Sandiganbayan
Court. How the properties were effectively transferred, despite
the sequestration order, from the TDC and MSDC to Rebecco
Panlilio, and to the private respondent PALI, in only a short span
of time, are not yet explained to the Court, but it is clear that
such circumstances give rise to serious doubt as to the integrity
of PALI as a stock issuer. The petitioner was in the right when it
refused application of PALI, for a contrary ruling was not to the
best interest of the general public. The purpose of the Revised
Securities Act, after all, is to give adequate and effective
protection to the investing public against fraudulent
representations, or false promises, and the imposition of
worthless ventures. 14
It is to be observed that the U.S. Securities Act emphasized its
avowed protection to acts detrimental to legitimate business,
thus:
The Securities Act, often referred to as the "truth in securities"
Act, was designed not only to provide investors with adequate
information upon which to base their decisions to buy and sell
securities, but also to protect legitimate business seeking to
obtain capital through honest presentation against competition
from crooked promoters and to prevent fraud in the sale of
securities. (Tenth Annual Report, U.S. Securities & Exchange
Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1)
prevention of excesses and fraudulent transactions, merely by
requirement of that their details be revealed; (2) placing the
market during the early stages of the offering of a security a body
of information, which operating indirectly through investment
services and expert investors, will tend to produce a more
accurate appraisal of a security, . . . Thus, the Commission may
refuse to permit a registration statement to become effective if it
appears on its face to be incomplete or inaccurate in any
material respect, and empower the Commission to issue a stop
order suspending the effectiveness of any registration statement
which is found to include any untrue statement of a material fact
or to omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(Idem).
Also, as the primary market for securities, the PSE has
established its name and goodwill, and it has the right to protect
such goodwill by maintaining a reasonable standard of propriety
in the entities who choose to transact through its facilities. It was
reasonable for the PSE, therefore, to exercise its judgment in the
manner it deems appropriate for its business identity, as long as
no rights are trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of
government absolutism is a thing of the past, and should remain
so.
The observation that the title of PALI over its properties is
absolute and can no longer be assailed is of no moment. At this
juncture, there is the claim that the properties were owned by
TDC and MSDC and were transferred in violation of
sequestration orders, to Rebecco Panlilio and later on to PALI,
besides the claim of the Marcoses that such properties belong to
the Marcos estate, and were held only in trust by Rebecco
Panlilio. It is also alleged by the petitioner that these properties
belong to naval and forest reserves, and therefore beyond
private dominion. If any of these claims is established to be true,
the certificates of title over the subject properties now held by
PALI map be disregarded, as it is an established rule that a
registration of a certificate of title does not confer ownership over
the properties described therein to the person named as owner.
The inscription in the registry, to be effective, must be made in
good faith. The defense of indefeasibility of a Torrens Title does
not extend to a transferee who takes the certificate of title with
notice of a flaw.
In any case, for the purpose of determining whether PSE acted
correctly in refusing the application of PALI, the true ownership of
the properties of PALI need not be determined as an absolute
fact. What is material is that the uncertainty of the properties'
ownership and alienability exists, and this puts to question the
qualification of PALI's public offering. In sum, the Court finds that
the SEC had acted arbitrarily in arrogating unto itself the
discretion of approving the application for listing in the PSE of
the private respondent PALI, since this is a matter addressed to
the sound discretion of the PSE, a corporation entity, whose
business judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in
approving the registration and sale of securities in the SEC is not
for the Court to determine, but is left to the sound discretion of
the Securities and Exchange Commission. In mandating the
SEC to administer the Revised Securities Act, and in performing
its other functions under pertinent laws, the Revised Securities
Act, under Section 3 thereof, gives the SEC the power to
promulgate such rules and regulations as it may consider
appropriate in the public interest for the enforcement of the said
laws. The second paragraph of Section 4 of the said law, on the
other hand, provides that no security, unless exempt by law, shall
be issued, endorsed, sold, transferred or in any other manner
conveyed to the public, unless registered in accordance with the
rules and regulations that shall be promulgated in the public
interest and for the protection of investors by the Commission.
Presidential Decree No. 902-A, on the other hand, provides that
the SEC, as regulatory agency, has supervision and control over
all corporations and over the securities market as a whole, and
as such, is given ample authority in determining appropriate
policies. Pursuant to this regulatory authority, the SEC has
manifested that it has adopted the policy of "full material
disclosure" where all companies, listed or applying for listing, are
required to divulge truthfully and accurately, all material
information about themselves and the securities they sell, for the
protection of the investing public, and under pain of
administrative, criminal and civil sanctions. In connection with
this, a fact is deemed material if it tends to induce or otherwise
effect the sale or purchase of its securities. 15 While the
 Page 6 of 35 | Corporation Law Week 1 | amgisidro
employment of this policy is recognized and sanctioned by the
laws, nonetheless, the Revised Securities Act sets substantial
and procedural standards which a proposed issuer of securities
must satisfy. 16 Pertinently, Section 9 of the Revised Securities
Act sets forth the possible Grounds for the Rejection of the
registration of a security:
The Commission may reject a registration statement and
refuse to issue a permit to sell the securities included in such
registration statement if it finds that
(1) The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading; or
(2) The issuer or registrant
(i) is not solvent or not in sound financial condition;
(ii) has violated or has not complied with the provisions of this
Act, or the rules promulgated pursuant thereto, or any order of
the Commission;
(iii) has failed to comply with any of the applicable requirements
and conditions that the Commission may, in the public interest
and for the protection of investors, impose before the security
can be registered;
(iv) has been engaged or is engaged or is about to engage in
fraudulent transaction;
(v) is in any way dishonest or is not of good repute; or
(vi) does not conduct its business in accordance with law or is
engaged in a business that is illegal or contrary to government
rules and regulations.
(3) The enterprise or the business of the issuer is not shown to
be sound or to be based on sound business principles;
(4) An officer, member of the board of directors, or principal
stockholder of the issuer is disqualified to be such officer,
director or principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of
the Commission that the sale of its security would not work to
the prejudice of the public interest or as a fraud upon the
purchasers or investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the
lawmakers to make the registration and issuance of securities
dependent, to a certain extent, on the merits of the securities
themselves, and of the issuer, to be determined by the Securities
and Exchange Commission. This measure was meant to protect
the interests of the investing public against fraudulent and
worthless securities, and the SEC is mandated by law to
safeguard these interests, following the policies and rules
therefore provided. The absolute reliance on the full disclosure
method in the registration of securities is, therefore, untenable.
As it is, the Court finds that the private respondent PALI, on at
least two points (nos. 1 and 5) has failed to support the propriety
of the issue of its shares with unfailing clarity, thereby lending
support to the conclusion that the PSE acted correctly in refusing
the listing of PALI in its stock exchange. This does not discount
the effectivity of whatever method the SEC, in the exercise of its
vested authority, chooses in setting the standard for public
offerings of corporations wishing to do so. However, the SEC
must recognize and implement the mandate of the law,
particularly the Revised Securities Act, the provisions of which
cannot be amended or supplanted by mere administrative
issuance.
In resume, the Court finds that the PSE has acted with justified
circumspection, discounting, therefore, any imputation of
arbitrariness and whimsical animation on its part. Its action in
refusing to allow the listing of PALI in the stock exchange is
justified by the law and by the circumstances attendant to this
case.
ACCORDINGLY, in view of the foregoing considerations, the
Court hereby GRANTS the Petition for Review on Certiorari. The
Decisions of the Court of Appeals and the Securities and
Exchange Commission dated July 27, 1996 and April 24, 1996
respectively, are hereby REVERSED and SET ASIDE, and a
new Judgment is hereby ENTERED, affirming the decision of the
Philippine Stock Exchange to deny the application for listing of
the private respondent Puerto Azul Land, Inc.
SO ORDERED.
G.R. No. 90580 April 8, 1991
RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S.
RUSTE AND EVELYN SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO,
Presiding Judge of Branch 43, (Regional Trial Court of
Manila), FREEMAN MANAGEMENT AND DEVELOPMENT
CORPORATION, EQUITABLE BANKING CORPORATION,
FREEMAN INCORPORATED, SAW CHIAO LIAN, THE
REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY
SHERIFF ROSALIO G. SIGUA, respondents.
Benito O. Ching, Jr. for petitioners.
William R. Vetor for Equitable Banking Corp.
Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao.
CRUZ, J.:
A collection suit with preliminary attachment was filed by
Equitable Banking Corporation against Freeman, Inc. and Saw
Chiao Lian, its President and General Manager. The petitioners
moved to intervene, alleging that (1) the loan transactions
between Saw Chiao Lian and Equitable Banking Corp. were not
approved by the stockholders representing at least 2/3 of
corporate capital; (2) Saw Chiao Lian had no authority to
contract such loans; and (3) there was collusion between the
 Page 7 of 35 | Corporation Law Week 1 | amgisidro
officials of Freeman, Inc. and Equitable Banking Corp. in
securing the loans. The motion to intervene was denied, and the
petitioners appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a
compromise agreement which they submitted to and was
approved by the lower court. But because it was not complied
with, Equitable secured a writ of execution, and two lots owned
by Freeman, Inc. were levied upon and sold at public auction to
Freeman Management and Development Corp.
The Court of Appeals1 sustained the denial of the petitioners'
motion for intervention, holding that "the compromise agreement
between Freeman, Inc., through its President, and Equitable
Banking Corp. will not necessarily prejudice petitioners whose
rights to corporate assets are at most inchoate, prior to the
dissolution of Freeman, Inc. . . . And intervention under Sec. 2,
Rule 12 of the Revised Rules of Court is proper only when one's
right is actual, material, direct and immediate and not simply
contingent or expectant."
It also ruled against the petitioners' argument that because they
had already filed a notice of appeal, the trial judge had lost
jurisdiction over the case and could no longer issue the writ of
execution.
The petitioners are now before this Court, contending that:
1. The Honorable Court of Appeals erred in holding that the
petitioners cannot intervene in Civil Case No. 88-44404 because
their rights as stockholders of Freeman are merely inchoate and
not actual, material, direct and immediate prior to the dissolution
of the corporation;
2. The Honorable Court of Appeals erred in holding that the
appeal of the petitioners in said Civil Case No. 88-44404 was
confined only to the order denying their motion to intervene and
did not divest the trial court of its jurisdiction over the whole case.
The petitioners base their right to intervene for the protection of
their interests as stockholders on Everett v. Asia Banking Corp.2
where it was held:
The well-known rule that shareholders cannot ordinarily sue in
equity to redress wrongs done to the corporation, but that the
action must be brought by the Board of Directors, . . . has its
exceptions. (If the corporation [were] under the complete control
of the principal defendants, . . . it is obvious that a demand upon
the Board of Directors to institute action and prosecute the same
effectively would have been useless, and the law does not
require litigants to perform useless acts.
Equitable demurs, contending that the collection suit against
Freeman, Inc, and Saw Chiao Lian is essentially in personam
and, as an action against defendants in their personal capacities,
will not prejudice the petitioners as stockholders of the
corporation. The Everett case is not applicable because it
involved an action filed by the minority stockholders where the
board of directors refused to bring an action in behalf of the
corporation. In the case at bar, it was Freeman, Inc. that was
being sued by the creditor bank.
Equitable also argues that the subject matter of the intervention
falls properly within the original and exclusive jurisdiction of the
Securities and Exchange Commission under P.D. No. 902-A. In
fact, at the time the motion for intervention was filed, there was
pending between Freeman, Inc. and the petitioners SEC Case
No. 03577 entitled "Dissolution, Accounting, Cancellation of
Certificate of Registration with Restraining Order or Preliminary
Injunction and Appointment of Receiver." It also avers in its
Comment that the intervention of the petitioners could have only
caused delay and prejudice to the principal parties.
On the second assignment of error, Equitable maintains that the
petitioners' appeal could only apply to the denial of their motion
for intervention and not to the main case because their
personality as party litigants had not been recognized by the trial
court.
After examining the issues and arguments of the parties, the
Court finds that the respondent court committed no reversible
error in sustaining the denial by the trial court of the petitioners'
motion for intervention.
In the case of Magsaysay-Labrador v. Court of Appeals,3 we
ruled as follows:
Viewed in the light of Section 2, Rule 12 of the Revised Rules of
Court, this Court affirms the respondent court's holding that
petitioners herein have no legal interest in the subject matter in
litigation so as to entitle them to intervene in the proceedings
below. In the case of Batama Farmers' Cooperative Marketing
Association, Inc. v. Rosal, we held: "As clearly stated in Section
2 of Rule 12 of the Rules of Court, to be permitted to intervene in
a pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties or an
interest against both, or he must be so situated as to be
adversely affected by a distribution or other disposition of the
property in the custody of the court or an officer thereof."
To allow intervention, [a] it must be shown that the movant has
legal interest in the matter in litigation, or otherwise qualified; and
[b] consideration must be given as to whether the adjudication of
the rights of the original parties may be delayed or prejudiced, or
whether the intervenor's rights may be protected in a separate
proceeding or not. Both requirements must concur as the first is
not more important than the second.
The interest which entitles a person to intervene in a suit
between other parties must be in the matter in litigation and of
such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the
judgment. Otherwise, if persons not parties of the action could be
allowed to intervene, proceedings will become unnecessarily
complicated, expensive and interminable. And this is not the
policy of the law.
The words "an interest in the subject" mean a direct interest in
the cause of action as pleaded, and which would put the
intervenor in a legal position to litigate a fact alleged in the
complaint, without the establishment of which plaintiff could not
recover.
Here, the interest, if it exists at all, of petitioners-movants is
indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the
properties and assets thereof on dissolution, after payment of
the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot
interest in the property of the corporation, it does not vest the
owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or beneficial
in nature. Shareholders are in no legal sense the owners of
corporate property, which is owned by the corporation as a
distinct legal person.
On the second assignment of error, the respondent court
correctly noted that the notice of appeal was filed by the
petitioners on October 24, 1988, upon the denial of their motion
to intervene, and the writ of execution was issued by the lower
court on January 30, 1989. The petitioners' appeal could not
have concerned the "whole" case (referring to the decision)
 Page 8 of 35 | Corporation Law Week 1 | amgisidro

because the petitioners "did not appeal the decision as indeed
they cannot because they are not parties to the case despite
their being stockholders of respondent Freeman, Inc." They
could only appeal the denial of their motion for intervention as
they were never recognized by the trial court as party litigants in
the main case.
Intervention is "an act or proceeding by which a third person is
permitted to become a party to an action or proceeding between
other persons, and which results merely in the addition of a new
party or parties to an original action, for the purpose of hearing
and determining at the same time all conflicting claims which
may be made to the subject matter in litigation.4
It is not an independent proceeding, but an ancillary and
supplemental one which, in the nature of things, unless
otherwise provided for by the statute or Rules of Court, must be
in subordination to the main proceeding.5 It may be laid down as
a general rule that an intervenor is limited to the field of litigation
open to the original parties.6
In the case at bar, there is no more principal action to be
resolved as a writ of execution had already been issued by the
lower court and the claim of Equitable had already been
satisfied. The decision of the lower court had already become
final and in fact had already been enforced. There is therefore no
more principal proceeding in which the petitioners may
intervene.
As we held in the case of Barangay Matictic v. Elbinias:7
An intervention has been regarded, as merely "collateral or
accessory or ancillary to the principal action and not an
independent proceedings; and interlocutory proceeding
dependent on and subsidiary to, the case between the original
parties." (Fransisco, Rules of Court, Vol. 1, p. 721). With the final
dismissal of the original action, the complaint in intervention can
no longer be acted upon. In the case of Clareza v. Resales, 2
SCRA 455, 457-458, it was stated that:
That right of the intervenor should merely be in aid of the right of
the original party, like the plaintiffs in this case. As this right of the
plaintiffs had ceased to exist, there is nothing to aid or fight for.
So the right of intervention has ceased to exist.
Consequently, it will be illogical and of no useful purpose to grant
or even consider further herein petitioner's prayer for the
issuance of a writ of mandamus to compel the lower court to
allow and admit the petitioner's complaint in intervention. The
dismissal of the expropriation case has no less the inherent
effect of also dismissing the motion for intervention which is but
the unavoidable consequence.
The Court observes that even with the denial of the petitioners'
motion to intervene, nothing is really lost to them.1wphi1 The
denial did not necessarily prejudice them as their rights are
being litigated in the case now before the Securities and
Exchange Commission and may be fully asserted and protected
in that separate proceeding.
WHEREFORE, the petition is DENIED, with costs against the
petitioners. It is so ordered.
G.R. No. 124715 January 24, 2000
RUFINA LUY LIM, petitioner,
vs.
COURT OF APPEALS, AUTO TRUCK TBA CORPORATION,
SPEED DISTRIBUTING, INC., ACTIVE DISTRIBUTORS,
ALLIANCE MARKETING CORPORATION, ACTION
COMPANY, INC. respondents.
BUENA, J.:
May a corporation, in its universality, be the proper subject of
and be included in the inventory of the estate of a deceased
person?
Petitioner disputes before us through the instant petition for
review on certiorari, the decision1 of the Court of Appeals
promulgated on 18 April 1996, in CA-GR SP No. 38617, which
nullified and set aside the orders dated 04 July 19952, 12
September 19953 and 15 September 19954 of the Regional Trial
Court of Quezon City, Branch 93, sitting as a probate court.
Petitioner Rufina Luy Lim is the surviving spouse of late Pastor
Y. Lim whose estate is the subject of probate proceedings in
Special Proceedings Q-95-23334, entitled, "In Re: Intestate
Estate of Pastor Y. Lim Rufina Luy Lim, represented by George
Luy, Petitioner".1wphi1.nt
Private respondents Auto Truck Corporation, Alliance Marketing
Corporation, Speed Distributing, Inc., Active Distributing, Inc. and
Action Company are corporations formed, organized and
existing under Philippine laws and which owned real properties
covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner,
as surviving spouse and duly represented by her nephew
George Luy, fried on 17 March 1995, a joint petition 5 for the
administration of the estate of Pastor Y. Lim before the Regional
Trial Court of Quezon City.
Private respondent corporations, whose properties were included
in the inventory of the estate of Pastor Y. Lim, then filed a
motion6 for the lifting of lis pendens and motion7 for exclusion of
certain properties from the estate of the decedent.
In an order8 dated 08 June 1995, the Regional Trial Court of
Quezon City, Branch 93, sitting as a probate court, granted the
private respondents' twin motions, in this wise:
Wherefore, the Register of Deeds of Quezon City is hereby
ordered to lift, expunge or delete the annotation of lis pendens
on Transfer Certificates of Title Nos. 116716, 116717, 116718,
116719 and 5182 and it is hereby further ordered that the
properties covered by the same titles as well as those properties
by (sic) Transfer Certificate of Title Nos. 613494, 363123,
236236 and 263236 are excluded from these proceedings.
SO ORDERED.
Subsequently, Rufina Luy Lim filed a verified amended petition 9
which contained the following averments:
3. The late Pastor Y. Lim personally owned during his lifetime the
following business entities, to wit:
Business
Address:
Entity
xxx xxx xxx
Alliance Block 3, Lot 6, Dacca BF Homes,
Marketing, Inc. Paraaque, Metro Manila.
xxx xxx xxx
Speed 910 Barrio Niog, Aguinaldo
Distributing Inc. Highway, Bacoor, Cavite.
xxx xxx xxx
Auto Truck TBA 2251 Roosevelt Avenue, Quezon
Corp. City.
 Page 9 of 35 | Corporation Law Week 1 | amgisidro

xxx xxx xxx Further more (sic), said properties covered by TCT Nos. 613494,
365123, 236256 and 236237 by virtue of the petitioner are
included in the instant petition.
Active
Block 3, Lot 6, Dacca BF Homes,
SO ORDERED.
Distributors,
Paraaque, Metro Manila.
Inc. On 04 September 1995, the probate court appointed Rufina Lim
as special administrator11 and Miguel Lim and Lawyer Donald
xxx xxx xxx Lee, as co-special administrators of the estate of Pastor Y. Lim,
after which letters of administration were accordingly issued.
Action 100 20th Avenue Murphy, Quezon
In an order12 dated 12 September 1995, the probate court denied
Company City or 92-D Mc-Arthur Highway
anew private respondents' motion for exclusion, in this wise:
Valenzuela Bulacan.
The issue precisely raised by the petitioner in her petition is
3.1 Although the above business entities dealt and engaged in whether the corporations are the mere alter egos or
business with the public as corporations, all their capital, assets instrumentalities of Pastor Lim, Otherwise (sic) stated, the issue
and equity were however, personally owned by the late Pastor Y involves the piercing of the corporate veil, a matter that is clearly
Lim. Hence the alleged stockholders and officers appearing in within the jurisdiction of this Honorable Court and not the
the respective articles of incorporation of the above business Securities and Exchange Commission. Thus, in the case of
entities were mere dummies of Pastor Y. Lim, and they were Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue
listed therein only for purposes of registration with the Securities decided by the regular court was whether the corporation
and Exchange Commission. involved therein was the mere extension of the decedent. After
4. Pastor Lim, likewise, had Time, Savings and Current Deposits finding in the affirmative, the Court ruled that the assets of the
with the following banks: (a) Metrobank, Grace Park, Caloocan corporation are also assets of the estate.
City and Quezon Avenue, Quezon City Branches and (b) First A reading of P.D. 902, the law relied upon by oppositors, shows
Intestate Bank (formerly Producers Bank), Rizal Commercial that the SEC's exclusive (sic) applies only to intra-corporate
Banking Corporation and in other banks whose identities are yet controversy. It is simply a suit to settle the intestate estate of a
to be determined. deceased person who, during his lifetime, acquired several
5. That the following real properties, although registered in the properties and put up corporations as his instrumentalities.
name of the above entities, were actually acquired by Pastor Y. SO ORDERED.
Lim during his marriage with petitioner, to wit:
On 15 September 1995, the probate court acting on an ex parte
Corporation Title Location motion filed by petitioner, issued an order 13 the dispositive
portion of which reads:
xxx xxx xxx Wherefore, the parties and the following banks concerned herein
under enumerated are hereby ordered to comply strictly with this
k. Auto Truck TCT No. Sto. Domingo orderTBAand to produce and submit to the special administrators,
617726 Corporation through this Honorable Court within (5) five days from receipt of
Cainta,
Rizal this order their respective records of the savings/current
accounts/time deposits and other deposits in the names of
TCT No. Pastor Lim and/or corporations above-mentioned, showing all
q. Alliance Marketing Prance, Metro
theManila
transactions made or done concerning savings/current
27896
accounts from January 1994 up to their receipt of this court
Copies of the above-mentioned Transfer Certificate of Title order.
and/or Tax Declarations are hereto attached as Annexes "C" to xxx xxx xxx
"W".
SO ORDERED.
xxx xxx xxx
Private respondent filed a special civil action for certiorari14, with
7. The aforementioned properties and/or real interests left by the an urgent prayer for a restraining order or writ of preliminary
late Pastor Y. Lim, are all conjugal in nature, having been injunction, before the Court of Appeals questioning the orders of
acquired by him during the existence of his marriage with the Regional Trial Court, sitting as a probate court.
petitioner.
On 18 April 1996, the Court of Appeals, finding in favor of herein
8. There are other real and personal properties owned by Pastor private respondents, rendered the assailed decision15, the
Y. Lim which petitioner could not as yet identify. Petitioner, decretal portion of which declares:
however will submit to this Honorable Court the identities thereof
and the necessary documents covering the same as soon as Wherefore, premises considered, the instant special civil action
possible. for certiorari is hereby granted, The impugned orders issued by
respondent court on July 4, 1995 and September 12, 1995 are
On 04 July 1995, the Regional Trial Court acting on petitioner's hereby nullified and set aside. The impugned order issued by
motion issued an order10, thus: respondent on September 15, 1995 is nullified insofar as
Wherefore, the order dated 08 June 1995 is hereby set aside petitioner corporations" bank accounts and records are
and the Registry of Deeds of Quezon City is hereby directed to concerned.
reinstate the annotation of lis pendens in case said annotation SO ORDERED.
had already been deleted and/or cancelled said TCT Nos.
116716, 116717, 116718, 116719 and 51282. Through the expediency of Rule 45 of the Rules of Court, herein
petitioner Rufina Luy Lim now comes before us with a lone
 Page 10 of 35 | Corporation Law Week 1 | amgisidro
assignment of
error16:
The respondent Court of Appeals erred in reversing the orders of
the lower court which merely allowed the preliminary or
provisional inclusion of the private respondents as part of the
estate of the late deceased (sic) Pastor Y. Lim with the
respondent Court of Appeals arrogating unto itself the power to
repeal, to disobey or to ignore the clear and explicit provisions of
Rules 81,83,84 and 87 of the Rules of Court and thereby
preventing the petitioner, from performing her duty as special
administrator of the estate as expressly provided in the said
Rules.
Petitioner's contentions tread on perilous grounds.
In the instant petition for review, petitioner prays that we affirm
the orders issued by the probate court which were subsequently
set aside by the Court of Appeals.
Yet, before we delve into the merits of the case, a review of the
rules on jurisdiction over probate proceedings is indeed in order.
The provisions of Republic Act 769117, which introduced
amendments to Batas Pambansa Blg. 129, are pertinent:
Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise
known as the "Judiciary Reorganization Act of 1980", is hereby
amended to read as follows:
Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall
exercise exclusive jurisdiction:
xxx xxx xxx
(4) In all matters of probate, both testate and intestate, where the
gross value of the estate exceeds One Hundred Thousand
Pesos (P100,000) or, in probate matters in Metro Manila, where
such gross value exceeds Two Hundred Thousand Pesos
(P200,000);
xxx xxx xxx
Sec. 3. Section 33 of the same law is hereby amended to read
as follows:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts in Civil Cases.
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts shall exercise:
1. Exclusive original jurisdiction over civil actions and probate
proceedings, testate and intestate, including the grant of
provisional remedies in proper cases, where the value of the
personal property, estate or amount of the demand does not
exceed One Hundred Thousand Pesos (P100,000) or, in Metro
Manila where such personal property, estate or amount of the
demand does not exceed Two Hundred Thousand Pesos
(P200,000), exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses and costs, the amount of
which must be specifically alleged, Provided, that interest,
damages of whatever kind, attorney's, litigation expenses and
costs shall be included in the determination of the filing fees,
Provided further, that where there are several claims or causes
of actions between the same or different parties, embodied in the
same complaint, the amount of the demand shall be the totality
of the claims in all the causes of action, irrespective of whether
the causes of action arose out of the same or different
transactions;
xxx xxx xxx
Simply put, the determination of which court exercises
jurisdiction over matters of probate depends upon the gross
value of the estate of the decedent.
As to the power and authority of the probate court, petitioner
relies heavily on the principle that a probate court may pass
upon title to certain properties, albeit provisionally, for the
purpose of determining whether a certain property should or
should not be included in the inventory.
In a litany of cases, We defined the parameters by which the
court may extend its probing arms in the determination of the
question of title in probate proceedings.
This Court, in PASTOR, JR. vs. COURT OF APPEALS,18 held:
. . . As a rule, the question of ownership is an extraneous matter
which the probate court cannot resolve with finality. Thus, for the
purpose of determining whether a certain property should or
should not be included in the inventory of estate properties, the
Probate Court may pass upon the title thereto, but such
determination is provisional, not conclusive, and is subject to the
final decision in a separate action to resolve title.
We reiterated the rule in PEREIRA vs. COURT OF APPEALS19:
. . . The function of resolving whether or not a certain property
should be included in the inventory or list of properties to be
administered by the administrator is one clearly within the
competence of the probate court. However, the court's
determination is only provisional in character, not conclusive,
and is subject to the final decision in a separate action which
may be instituted by the parties.
Further, in MORALES vs. CFI OF CAVITE20 citing CUIZON vs.
RAMOLETE21, We made an exposition on the probate court's
limited jurisdiction:
It is a well-settled rule that a probate court or one in charge of
proceedings whether testate or intestate cannot adjudicate or
determine title to properties claimed to be a part of the estate
and which are equally claimed to belong to outside parties. All
that the said court could do as regards said properties is to
determine whether they should or should not be included in the
inventory or list of properties to be administered by the
administrator. If there is no dispute, well and good; but if there is,
then the parties, the administrator and the opposing parties have
to resort to an ordinary action for a final determination of the
conflicting claims of title because the probate court cannot do so.
Again, in VALERA vs. INSERTO22, We had occasion to elucidate,
through Mr. Justice Andres Narvasa23:
Settled is the rule that a Court of First Instance (now Regional
Trial Court), acting as a probate court, exercises but limited
jurisdiction, and thus has no power to take cognizance of and
determine the issue of title to property claimed by a third person
adversely to the decedent, unless the claimant and all other
parties having legal interest in the property consent, expressly or
impliedly, to the submission of the question to the probate court
for adjudgment, or the interests of third persons are not thereby
prejudiced, the reason for the exception being that the question
of whether or not a particular matter should be resolved by the
court in the exercise of its general jurisdiction or of its limited
jurisdiction as a special court (e.g. probate, land registration,
etc.), is in reality not a jurisdictional but in essence of procedural
one, involving a mode of practice which may be waived. . . .
. . . . These considerations assume greater cogency where, as
here, the Torrens title is not in the decedent's name but in others,
a situation on which this Court has already had occasion to rule .
. . . (emphasis Ours)
Petitioner, in the present case, argues that the parcels of land
covered under the Torrens system and registered in the name of
private respondent corporations should be included in the
inventory of the estate of the decedent Pastor Y. Lim, alleging
 Page 11 of 35 | Corporation Law Week 1 | amgisidro
that after all the determination by the probate court of whether
these properties should be included or not is merely provisional
in nature, thus, not conclusive and subject to a final
determination in a separate action brought for the purpose of
adjudging once and for all the issue of title.
Yet, under the peculiar circumstances, where the parcels of land
are registered in the name of private respondent corporations,
the jurisprudence pronounced in BOLISAY vs., ALCID 24 is of
great essence and finds applicability, thus:
It does not matter that respondent-administratrix has evidence
purporting to support her claim of ownership, for, on the other
hand, petitioners have a Torrens title in their favor, which under
the law is endowed with incontestability until after it has been set
aside in the manner indicated in the law itself, which of course,
does not include, bringing up the matter as a mere incident in
special proceedings for the settlement of the estate of deceased
persons. . . .
. . . . In regard to such incident of inclusion or exclusion, We hold
that if a property covered by Torrens title is involved, the
presumptive conclusiveness of such title should be given due
weight, and in the absence of strong compelling evidence to the
contrary, the holder thereof should be considered as the owner
of the property in controversy until his title is nullified or modified
in an appropriate ordinary action, particularly, when as in the
case at bar, possession of the property itself is in the persons
named in the title. . . .
A perusal of the records would reveal that no strong compelling
evidence was ever presented by petitioner to bolster her bare
assertions as to the title of the deceased Pastor Y. Lim over the
properties. Even so, P.D. 1529, otherwise known as, "The
Property Registration Decree", proscribes collateral attack on
Torrens Title, hence:
xxx xxx xxx
Sec. 48. Certificate not subject to collateral attack. A
certificate of title shall not be subject to collateral attack. It cannot
be altered, modified or cancelled except in a direct proceeding in
accordance with law.
In CUIZON vs. RAMOLETE, where similarly as in the case at
bar, the property subject of the controversy was duly registered
under the Torrens system, We categorically stated:
. . . Having been apprised of the fact that the property in question
was in the possession of third parties and more important,
covered by a transfer certificate of title issued in the name of
such third parties, the respondent court should have denied the
motion of the respondent administrator and excluded the
property in question from the inventory of the property of the
estate. It had no authority to deprive such third persons of their
possession and ownership of the property. . . .
Inasmuch as the real properties included in the inventory of the
estate of the Late Pastor Y. Lim are in the possession of and are
registered in the name of private respondent corporations, which
under the law possess a personality separate and distinct from
their stockholders, and in the absence of any cogency to shred
the veil of corporate fiction, the presumption of conclusiveness of
said titles in favor of private respondents should stand
undisturbed.
Accordingly, the probate court was remiss in denying private
respondents' motion for exclusion. While it may be true that the
Regional Trial Court, acting in a restricted capacity and
exercising limited jurisdiction as a probate court, is competent to
issue orders involving inclusion or exclusion of certain properties
in the inventory of the estate of the decedent, and to adjudge,
albeit, provisionally the question of title over properties, it is no
less true that such authority conferred upon by law and
reinforced by jurisprudence, should be exercised judiciously, with
due regard and caution to the peculiar circumstances of each
individual case.
Notwithstanding that the real properties were duly registered
under the Torrens system in the name of private respondents,
and as such were to be afforded the presumptive conclusiveness
of title, the probate court obviously opted to shut its eyes to this
gleamy fact and still proceeded to issue the impugned orders.
By its denial of the motion for exclusion, the probate court in
effect acted in utter disregard of the presumption of
conclusiveness of title in favor of private respondents. Certainly,
the probate court through such brazen act transgressed the clear
provisions of law and infringed settled jurisprudence on this
matter.
Moreover, petitioner urges that not only the properties of private
respondent corporations are properly part of the decedent's
estate but also the private respondent corporations themselves.
To rivet such flimsy contention, petitioner cited that the late
Pastor Y. Lim during his lifetime, organized and wholly-owned
the five corporations, which are the private respondents in the
instant case.25 Petitioner thus attached as Annexes "F" 26 and
"G"27 of the petition for review affidavits executed by Teresa Lim
and Lani Wenceslao which among others, contained averments
that the incorporators of Uniwide Distributing, Inc. included on
the list had no actual and participation in the organization and
incorporation of the said corporation. The affiants added that the
persons whose names appeared on the articles of incorporation
of Uniwide Distributing, Inc., as incorporators thereof, are mere
dummies since they have not actually contributed any amount to
the capital stock of the corporation and have been merely asked
by the late Pastor Y. Lim to affix their respective signatures
thereon.
It is settled that a corporation is clothed with personality separate
and distinct from that of the persons composing it. It may not
generally be held liable for that of the persons composing it. It
may not be held liable for the personal indebtedness of its
stockholders or those of the entities connected with it.28
Rudimentary is the rule that a corporation is invested by law with
a personality distinct and separate from its stockholders or
members. In the same vein, a corporation by legal fiction and
convenience is an entity shielded by a protective mantle and
imbued by law with a character alien to the persons comprising
it.
Nonetheless, the shield is not at all times invincible. Thus, in
FIRST PHILIPPINE INTERNATIONAL BANK vs. COURT OF
APPEALS29, We enunciated:
. . . When the fiction is urged as a means of perpetrating a fraud
or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery
or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it
will be lifted to allow for its consideration merely as an
aggregation of individuals. . . .
Piercing the veil of corporate entity requires the court to see
through the protective shroud which exempts its stockholders
from liabilities that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly separate one,
were it not for the existing corporate fiction.30
The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person
or of another corporation. Where badges of fraud exist, where
 Page 12 of 35 | Corporation Law Week 1 | amgisidro
public convenience is defeated; where a wrong is sought to be
justified thereby, the corporate fiction or the notion of legal entity
should come to naught.31
Further, the test in determining the applicability of the doctrine of
piercing the veil of corporate fiction is as follows: 1) Control, not
mere majority or complete stock control, but complete
domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no
separate mind, will or existence of its own; (2) Such control must
have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiffs legal
right; and (3) The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of. The
absence of any of these elements prevent "piercing the
corporate veil".32
Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation
is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities.33
Moreover, to disregard the separate juridical personality of a
corporation, the wrong-doing must be clearly and convincingly
established. It cannot be presumed.34
Granting arguendo that the Regional Trial Court in this case was
not merely acting in a limited capacity as a probate court,
petitioner nonetheless failed to adduce competent evidence that
would have justified the court to impale the veil of corporate
fiction. Truly, the reliance reposed by petitioner on the affidavits
executed by Teresa Lim and Lani Wenceslao is unavailing
considering that the aforementioned documents possess no
weighty probative value pursuant to the hearsay rule. Besides it
is imperative for us to stress that such affidavits are inadmissible
in evidence inasmuch as the affiants were not at all presented
during the course of the proceedings in the lower court. To put it
differently, for this Court to uphold the admissibility of said
documents would be to relegate from Our duty to apply such
basic rule of evidence in a manner consistent with the law and
jurisprudence.
Our pronouncement in PEOPLE BANK AND TRUST COMPANY
vs. LEONIDAS35 finds pertinence:
Affidavits are classified as hearsay evidence since they are not
generally prepared by the affiant but by another who uses his
own language in writing the affiant's statements, which may thus
be either omitted or misunderstood by the one writing them.
Moreover, the adverse party is deprived of the opportunity to
cross-examine the affiants. For this reason, affidavits are
generally rejected for being hearsay, unless the affiant
themselves are placed on the witness stand to testify thereon.
As to the order36 of the lower court, dated 15 September 1995,
the Court of Appeals correctly observed that the Regional Trial
Court, Branch 93 acted without jurisdiction in issuing said order;
The probate court had no authority to demand the production of
bank accounts in the name of the private respondent
corporations.
WHEREFORE, in view of the foregoing disquisitions, the instant
petition is hereby DISMISSED for lack of merit and the decision
of the Court of Appeals which nullified and set aside the orders
issued by the Regional Trial Court, Branch 93, acting as a
probate court, dated 04 July 1995 and 12 September 1995 is
AFFIRMED.1wphi1.nt
SO ORDERED.
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP.,
TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under
Rule 45 filed by Narra Nickel and Mining Development Corp.
(Narra), Tesoro Mining and Development, Inc. (Tesoro), and
McArthur Mining Inc. (McArthur), which seeks to reverse the
October 1, 2010 Decision1 and the February 15, 2011
Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of Palawan.
After inquiring with the Department of Environment and Natural
Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already
covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara
Marie Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences
Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering
an area of over 1,782 hectares in Barangay Sumbiling,
Municipality of Bataraza, Province of Palawan and EPA-IVB-44
which includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP were then
transferred to Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued
MPSA-IV-1-12 covering an area of 3.277 hectares in barangays
Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or assigned its
rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR
Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-
47) over 3,402 hectares in Barangays Malinao and Princesa
Urduja, Municipality of Narra, Province of Palawan. SMMI
subsequently conveyed, transferred and assigned its rights and
interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions for
the denial of petitioners applications for MPSA designated as
AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital
stock of McArthur, Tesoro and Narra are owned and controlled
by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind
petitioners filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino
 Page 13 of 35 | Corporation Law Week 1 | amgisidro
citizens. Redmont argued that given that petitioners capital
stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs,
which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified
persons under Section 3(aq) of Republic Act No. (RA) 7942 or
the Philippine Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this
Act, the following terms, whether in singular or plural, shall
mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with
capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging
in mining, with technical and financial capability to undertake
mineral resources development and duly registered in
accordance with law at least sixty per cent (60%) of the capital of
which is owned by citizens of the Philippines: Provided, That a
legally organized foreign-owned corporation shall be deemed a
qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral
processing permit.
Additionally, they stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09
for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for
Narra, which are granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on nationality should
not be raised since McArthur, Tesoro and Narra are in fact
Philippine Nationals as 60% of their capital is owned by citizens
of the Philippines. They asserted that though MBMI owns 40% of
the shares of PLMC (which owns 5,997 shares of Narra),3 40%
of the shares of MMC (which owns 5,997 shares of McArthur)4
and 40% of the shares of SLMC (which, in turn, owns 5,997
shares of Tesoro),5 the shares of MBMI will not make it the
owner of at least 60% of the capital stock of each of petitioners.
They added that the best tool used in determining the nationality
of a corporation is the "control test," embodied in Sec. 3 of RA
7042 or the Foreign Investments Act of 1991. They also claimed
that the POA of DENR did not have jurisdiction over the issues in
Redmonts petition since they are not enumerated in Sec. 77 of
RA 7942. Finally, they stressed that Redmont has no personality
to sue them because it has no pending claim or application over
the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified
applicants to engage in mining activities. On the other hand,
[Redmont] having filed its own applications for an EPA over the
areas earlier covered by the MPSA application of respondents
may be considered if and when they are qualified under the law.
The violation of the requirements for the issuance and/or grant of
permits over mining areas is clearly established thus, there is
reason to believe that the cancellation and/or revocation of
permits already issued under the premises is in order and open
the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents,
McArthur Mining Inc., Tesoro Mining and Development, Inc., and
Narra Nickel Mining and Development Corp. as, DISQUALIFIED
for being considered as Foreign Corporations. Their Mineral
Production Sharing Agreement (MPSA) are hereby x x x
DECLARED NULL AND VOID.6
The POA considered petitioners as foreign corporations being
"effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same Resolution, it
gave due course to Redmonts EPAs. Thereafter, on February 7,
2008, the POA issued an Order7 denying the Motion for
Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur
and Tesoro filed a joint Notice of Appeal8 and Memorandum of
Appeal9 with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10 and Memorandum of
Appeal.11
In their respective memorandum, petitioners emphasized that
they are qualified persons under the law. Also, through a letter,
they informed the MAB that they had their individual MPSA
applications converted to FTAAs. McArthurs FTAA was
denominated as AFTA-IVB-0912 on May 2007, while Tesoros
MPSA application was converted to AFTA-IVB-0813 on May 28,
2007, and Narras FTAA was converted to AFTA-IVB-0714 on
March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the
MAB, Redmont filed a Complaint15 with the Securities and
Exchange Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground that they
are foreign-owned or controlled corporations engaged in mining
in violation of Philippine laws. Thereafter, Redmont filed on
September 1, 2008 a Manifestation and Motion to Suspend
Proceeding before the MAB praying for the suspension of the
proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the
Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint16 for injunction with application for issuance of a
temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont
prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.
But before the RTC can resolve Redmonts Complaint and
applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication
Board hereby REVERSES and SETS ASIDE the Resolution
dated 14 December 2007 of the Panel of Arbitrators of Region
IV-B (MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02
and 2007-03, and its Order dated 07 February 2008 denying the
Motions for Reconsideration of the Appellants. The Petition filed
by Redmont Consolidated Mines Corporation on 02 January
2007 is hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18
granting Redmonts application for a TRO and setting the case
for hearing the prayer for the issuance of a writ of preliminary
injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmonts Motion for
Reconsideration and Supplemental Motion for Reconsideration,
Redmont filed before the RTC a Supplemental Complaint21 in
Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the
issuance of a writ of preliminary injunction enjoining the MAB
from finally disposing of the appeals of petitioners and from
resolving Redmonts Motion for Reconsideration and
 Page 14 of 35 | Corporation Law Week 1 | amgisidro
Supplement Motion for Reconsideration of the MABs September
10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order
denying Redmonts Motion for Reconsideration and
Supplemental Motion for Reconsideration and resolving the
appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA,
assailing the Orders issued by the MAB. On October 1, 2010, the
CA rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The
assailed Orders, dated September 10, 2008 and July 1, 2009 of
the Mining Adjudication Board are reversed and set aside. The
findings of the Panel of Arbitrators of the Department of
Environment and Natural Resources that respondents McArthur,
Tesoro and Narra are foreign corporations is upheld and,
therefore, the rejection of their applications for Mineral Product
Sharing Agreement should be recommended to the Secretary of
the DENR.
With respect to the applications of respondents McArthur, Tesoro
and Narra for Financial or Technical Assistance Agreement
(FTAA) or conversion of their MPSA applications to FTAA, the
matter for its rejection or approval is left for determination by the
Secretary of the DENR and the President of the Republic of the
Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the
Motion for Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was
doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation
composed of 100% Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws
pertaining to the exploitation of natural resources, the CA used
the "grandfather rule" to determine the nationality of petitioners.
It provided:
Shares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of
Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality. Thus, if
100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares
shall be recorded as owned by Filipinos. But if less than 60%, or
say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be recorded as belonging to aliens.24 (emphasis
supplied)
In determining the nationality of petitioners, the CA looked into
their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that
MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other
majority shareholders of petitioners through joint venture
agreements. The CA found that through a "web of corporate
layering, it is clear that one common controlling investor in all
mining corporations involved x x x is MBMI."25 Thus, it
concluded that petitioners McArthur, Tesoro and Narra are also
in partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA
applications of petitioners into FTAA applications suspicious in
nature and, as a consequence, it recommended the rejection of
petitioners MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining
areas, the CA pointed out that the POA has jurisdiction over
them and that it also has the power to determine the of
nationality of petitioners as a prerequisite of the Constitution prior
the conferring of rights to "co-production, joint venture or
production-sharing agreements" of the state to mining rights.
However, it also stated that the POAs jurisdiction is limited only
to the resolution of the dispute and not on the approval or
rejection of the MPSAs. It stipulated that only the Secretary of
the DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its December
14, 2007 Resolution which considered petitioners McArthur,
Tesoro and Narra as foreign corporations. Nevertheless, the CA
determined that the POAs declaration that the MPSAs of
McArthur, Tesoro and Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with
the Office of the President (OP) a petition dated May 7, 2010
seeking the cancellation of petitioners FTAAs. The OP rendered
a Decision26 on April 6, 2011, wherein it canceled and revoked
petitioners FTAAs for violating and circumventing the
"Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and
8 of the Foreign Investment Act and E.O. 584."27 The OP, in
affirming the cancellation of the issued FTAAs, agreed with
Redmont stating that petitioners committed violations against the
abovementioned laws and failed to submit evidence to negate
them. The Decision further quoted the December 14, 2007 Order
of the POA focusing on the alleged misrepresentation and claims
made by petitioners of being domestic or Filipino corporations
and the admitted continued mining operation of PMDC using
their locally secured Small Scale Mining Permit inside the area
earlier applied for an MPSA application which was eventually
transferred to Narra. It also agreed with the POAs estimation
that the filing of the FTAA applications by petitioners is a clear
admission that they are "not capable of conducting a large scale
mining operation and that they need the financial and technical
assistance of a foreign entity in their operation, that is why they
sought the participation of MBMI Resources, Inc."28 The
Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining.
The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in
their head office in Canada suggest that they are conducting
operation only through their local counterparts.29
The Motion for Reconsideration of the Decision was further
denied by the OP in a Resolution30 dated July 6, 2011.
Petitioners then filed a Petition for Review on Certiorari of the
OPs Decision and Resolution with the CA, docketed as CA-G.R.
SP No. 120409. In the CA Decision dated February 29, 2012, the
CA affirmed the Decision 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:
 Page 15 of 35 | Corporation Law Week 1 | amgisidro
I.
The Court of Appeals erred when it did not dismiss the case for
mootness despite the fact that the subject matter of the
controversy, the MPSA Applications, have already been
converted into FTAA applications and that the same have
already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for
lack of jurisdiction considering that the Panel of Arbitrators has
no jurisdiction to determine the nationality of Narra, Tesoro and
McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on
account of Redmonts willful forum shopping.
IV.
The Court of Appeals ruling that Narra, Tesoro and McArthur are
foreign corporations based on the "Grandfather Rule" is contrary
to law, particularly the express mandate of the Foreign
Investments Act of 1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the
res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the
conversion of the MPSA Applications into FTAA Applications
were of "suspicious nature" as the same is based on mere
conjectures and surmises without any shred of evidence to show
the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the
instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when it
"ceases to present a justiciable controversy by virtue of
supervening events, so that a declaration thereon would be of no
practical use or value."32 Thus, the courts "generally decline
jurisdiction over the case or dismiss it on the ground of
mootness."33
The "mootness" principle, however, does accept certain
exceptions and the mere raising of an issue of "mootness" will
not deter the courts from trying a case when there is a valid
reason to do so. In David v. Macapagal-Arroyo (David), the Court
provided four instances where courts can decide an otherwise
moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount
public interest is involved;
3.) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the public;
and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant
case. We of this Court note that a grave violation of the
Constitution, specifically Section 2 of Article XII, is being
committed by a foreign corporation right under our countrys
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 Countrys natural
resources. The corresponding actions of petitioners during the
lifetime and existence of the instant case raise questions as what
principle is to be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the Court;
hence, the disposition of the issues or errors in the instant case
will serve as a guide "to the bench, the bar and the public."35
Finally, the instant case is capable of repetition yet evading
review, since the Canadian company, MBMI, can keep on
utilizing dummy Filipino corporations through various schemes of
corporate layering and conversion of applications to skirt the
constitutional prohibition against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error
presented by petitioners since both involve the conversion of
MPSA applications to FTAA applications. Petitioners propound
that the CA erred in ruling against them since the questioned
MPSA applications were already converted into FTAA
applications; thus, the issue on the prohibition relating to MPSA
applications of foreign mining corporations is academic. Also,
petitioners would want us to correct the CAs finding which
deemed the aforementioned conversions of applications as
suspicious in nature, since it is based on mere conjectures and
surmises and not supported with evidence.
We disagree.
The CAs analysis of the actions of petitioners after the case was
filed against them by respondent is on point. The changing of
applications by petitioners from one type to another just because
a case was filed against them, in truth, would raise not a few
sceptics eyebrows. What is the reason for such conversion? Did
the said conversion not stem from the case challenging their
citizenship and to have the case dismissed against them for
being "moot"? It is quite obvious that it is petitioners strategy to
have the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded
to every action done by the court or appropriate government
agency: on January 2, 2007, Redmont filed three separate
petitions for denial of the MPSA applications of petitioners before
the POA. On June 15, 2007, petitioners filed a conversion of
their MPSA applications to FTAAs. The POA, in its December 14,
2007 Resolution, observed this suspect change of applications
while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement
application is a clear admission that the respondents are not
capable of conducting a large scale mining operation and that
they need the financial and technical assistance of a foreign
entity in their operation that is why they sought the participation
of MBMI Resources, Inc. The participation of MBMI in the
corporation only proves the fact that it is the Canadian company
that will provide the finances and the resources to operate the
mining areas for the greater benefit and interest of the same and
not the Filipino stockholders who only have a less substantial
financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during
the pendency of the case only demonstrate the violations and
lack of qualification of the respondent corporations to engage in
mining. The filing of the FTAA application conversion which is
allowed foreign corporation of the earlier MPSA is an admission
that indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in
 Page 16 of 35 | Corporation Law Week 1 | amgisidro
their head office in Canada suggest that they are conducting
operation only through their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially
granted the petition, reversing and setting aside the September
10, 2008 and July 1, 2009 Orders of the MAB. In the said
Decision, the CA upheld the findings of the POA of the DENR
that the herein petitioners are in fact foreign corporations thus a
recommendation of the rejection of their MPSA applications were
recommended to the Secretary of the DENR. With respect to the
FTAA applications or conversion of the MPSA applications to
FTAAs, the CA deferred the matter for the determination of the
Secretary of the DENR and the President of the Republic of the
Philippines.37
In their Motion for Reconsideration dated October 26, 2010,
petitioners prayed for the dismissal of the petition asserting that
on April 5, 2010, then President Gloria Macapagal-Arroyo signed
and issued in their favor FTAA No. 05-2010-IVB, which rendered
the petition moot and academic. However, the CA, in a
Resolution dated February 15, 2011 denied their motion for
being a mere "rehash of their claims and defenses."38 Standing
firm on its Decision, the CA affirmed the ruling that petitioners
are, in fact, foreign corporations. On April 5, 2011, petitioners
elevated the case to us via a Petition for Review on Certiorari
under Rule 45, questioning the Decision of the CA. Interestingly,
the OP rendered a Decision dated April 6, 2011, a day after this
petition for review was filed, cancelling and revoking the FTAAs,
quoting the Order of the POA and stating that petitioners are
foreign corporations since they needed the financial strength of
MBMI, Inc. in order to conduct large scale mining operations.
The OP Decision also based the cancellation on the
misrepresentation of facts and the violation of the "Small Scale
Mining Law and Environmental Compliance Certificate as well as
Sections 3 and 8 of the Foreign Investment Act and E.O. 584."39
On July 6, 2011, the OP issued a Resolution, denying the Motion
for Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011,
made known to the Court the fact of the OPs Decision and
Resolution. In their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old arguments claiming
that they were granted FTAAs and, thus, the case was moot.
Petitioners filed a Manifestation and Submission dated October
19, 2012,40 wherein they asserted that the present petition is
moot since, in a remarkable turn of events, MBMI was able to
sell/assign all its shares/interest in the "holding companies" to
DMCI Mining Corporation (DMCI), a Filipino corporation and, in
effect, making their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have
this case dismissed for being "moot." Their final act, wherein
MBMI was able to allegedly sell/assign all its shares and interest
in the petitioner "holding companies" to DMCI, only proves that
they were in fact not Filipino corporations from the start. The
recent divesting of interest by MBMI will not change the stand of
this Court with respect to the nationality of petitioners prior the
suspicious change in their corporate structures. The new
documents filed by petitioners are factual evidence that this
Court has no power to verify.
The only thing clear and proved in this Court is the fact that the
OP declared that petitioner corporations have violated several
mining laws and made misrepresentations and falsehood in their
applications for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond going
against or around the law using shifty actions and strategies.
Thus, in this instance, we can say that their claim of mootness is
moot in itself because their defense of conversion of MPSAs to
FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of
petitioners nationality, whether Filipino or foreign. In their
previous petitions, they had been adamant in insisting that they
were Filipino corporations, until they submitted their
Manifestation and Submission dated October 19, 2012 where
they stated the alleged change of corporate ownership to reflect
their Filipino ownership. Thus, there is a need to determine the
nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather
rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the
controlling interests in enterprises engaged in the exploitation of
natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of
Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality. Thus, if
100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares
shall be recorded as owned by Filipinos. But if less than 60%, or
say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be counted as owned by Filipinos and the other
50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating
"shares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality," pertains to the control
test or the liberal rule. On the other hand, the second part of the
DOJ Opinion which provides, "if the percentage of the Filipino
ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage
shall be counted as Philippine nationality," pertains to the stricter,
more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in
advocating the application of the "control test" under RA 7042, as
amended by RA 8179, otherwise known as the Foreign
Investments Act (FIA), rather than using the stricter grandfather
rule. The pertinent provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the
Philippines; or a domestic partnership or association wholly
owned by the citizens of the Philippines; a corporation organized
under the laws of the Philippines of which at least sixty percent
(60%) of the capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for pension or
other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent (60%) of
the fund will accrue to the benefit of Philippine nationals:
Provided, That were a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of
the Philippines and at least sixty percent (60%) of the members
of the Board of Directors, in order that the corporation shall be
considered a Philippine national. (emphasis supplied)
 Page 17 of 35 | Corporation Law Week 1 | amgisidro
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 courts use of discretion in
applying the law. They said that the plain, literal meaning of the
statute meant the application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the
FIA; but if it is used to circumvent the Constitution and pertinent
laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been
abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of
natural resources shall be under the full control and supervision
of the State. The State may directly undertake such activities, or
it may enter into co-production, joint venture or production-
sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned
by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may
be provided by law.
xxxx
The President may enter into agreements with Foreign-owned
corporations involving either technical or financial assistance for
large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to
the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of
local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State
entering into different types of agreements for the exploration,
development, and utilization of natural resources with entities
who are deemed Filipino due to 60 percent ownership of capital
is pertinent to this case, since the issues are centered on the
utilization of our countrys natural resources or specifically,
mining. Thus, there is a need to ascertain the nationality of
petitioners since, as the Constitution so provides, such
agreements are only allowed corporations or associations "at
least 60 percent of such capital is owned by such citizens." The
deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a corporation will
be determined:
Mr. BENNAGEN: Did I hear right that the Chairmans
interpretation of an independent national economy is freedom
from undue foreign control? What is the meaning of undue
foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which
sacrifices national sovereignty and the welfare of the Filipino in
the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the
word "undue"? Why not simply freedom from foreign control? I
think that is the meaning of independence, because as phrased,
it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because
if, for example, we retain the 60/40 possibility in the cultivation of
natural resources, 40 percent involves some control; not total
control, but some control.
MR. BENNAGEN: In any case, I think in due time we will
propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the
phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated
local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the
question: Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on
the paid-up capital stock of a corporation? Will the Committee
please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the
members of the team from the UP Law Center who provided us
with a draft. The phrase that is contained here which we adopted
from the UP draft is 60 percent of the voting stock.
MR. NOLLEDO: That must be based on the subscribed capital
stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests
in another corporation which is permitted by the Corporation
Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the
Constitution to apply the grandfather rule in cases where
corporate layering is present.
Elementary in statutory construction is when there is conflict
between the Constitution and a statute, the Constitution will
prevail. In this instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National Economy and
Patrimony, Sec. 3 of the FIA will have no place of application. As
decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005
provides:
The above-quoted SEC Rules provide for the manner of
calculating the Filipino interest in a corporation for purposes,
among others, of determining compliance with nationality
requirements (the Investee Corporation). Such manner of
computation is necessary since the shares in the Investee
Corporation may be owned both by individual stockholders
(Investing Individuals) and by corporations and partnerships
 Page 18 of 35 | Corporation Law Week 1 | amgisidro

(Investing Corporation). The said rules thus provide for the corporate schemes and layerings are utilized to circumvent the
determination of nationality depending on the ownership of the application of the Constitution.
Investee Corporation and, in certain instances, the Investing
Obviously, the instant case presents a situation which exhibits a
Corporation.
scheme employed by stockholders to circumvent the law,
Under the above-quoted SEC Rules, there are two cases in creating a cloud of doubt in the Courts mind. To determine,
determining the nationality of the Investee Corporation. The first therefore, the actual participation, direct or indirect, of MBMI, the
case is the liberal rule, later coined by the SEC as the Control grandfather rule must be used.
Test in its 30 May 1990 Opinion, and pertains to the portion in
McArthur Mining, Inc.
said Paragraph 7 of the 1967 SEC Rules which states, (s)hares
belonging to corporations or partnerships at least 60% of the To establish the actual ownership, interest or participation of
capital of which is owned by Filipino citizens shall be considered MBMI in each of petitioners corporate structure, they have to be
as of Philippine nationality. Under the liberal Control Test, there "grandfathered."
is no need to further trace the ownership of the 60% (or more)
As previously discussed, McArthur acquired its MPSA application
Filipino stockholdings of the Investing Corporation since a
from MMC, which acquired its application from SMMI. McArthur
corporation which is at least 60% Filipino-owned is considered
has a capital stock of ten million pesos (PhP 10,000,000) divided
as Filipino.
into 10,000 common shares at one thousand pesos (PhP 1,000)
The second case is the Strict Rule or the Grandfather Rule per share, subscribed to by the following:44
Proper and pertains to the portion in said Paragraph 7 of the
1967 SEC Rules which states, "but if the percentage of Filipino Nationality Number of Shares Amount Subscribed Amount Pa
ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to Madridejos
such percentageMining Filipino 5,997 PhP 5,997,000.00 PhP 825,00
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 Inc.
MBMI Resources, Canadian 3,998 PhP 3,998,000.0 PhP 1,878,1
traced (i.e., "grandfathered") to determine the total percentage of
Filipino ownership. Filipino 1 PhP 1,000.00 PhP 1,000.0
Moreover, the ultimate Filipino ownership of the shares must first
be traced to the level of the Investing Corporation and added
Fernando to
B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.0
the shares directly owned in the Investee Corporation x x x.
xxxx Filipino 1 PhP 1,000.00 PhP 1,000.0
In other words, based on the said SEC Rule and DOJ Opinion,
the Grandfather Rule or the second part of the SEC Rule applies American 1 PhP 1,000.00 PhP 1,000.0
only when the 60-40 Filipino-foreign equity ownership is in doubt
(i.e., in cases where the joint venture corporation with Filipino Canadian 1 PhP 1,000.00 PhP 1,000.0
and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture corporation Total 10,000 PhP 10,000,000.00 PhP
which is either 60-40% Filipino-alien or the 59% less Filipino). (emphasis s
Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply. Interestingly, looking at the corporate structure of MMC, we take
(emphasis supplied) note that it has a similar structure and composition as McArthur.
In fact, it would seem that MBMI is also a major investor and
After a scrutiny of the evidence extant on record, the Court finds "controls"45 MBMI and also, similar nominal shareholders were
that this case calls for the application of the grandfather rule present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar
since, as ruled by the POA and affirmed by the OP, doubt (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell
prevails and persists in the corporate ownership of petitioners. (Cawkell):
Also, as found by the CA, doubt is present in the 60-40 Filipino
equity ownership of petitioners Narra, McArthur and Tesoro, Madridejos Mining Corporation
since their common investor, the 100% Canadian corporation
MBMI, funded them. However, petitioners also claim that there is Nationality Number of Shares Amount Subscribed Amount Pa
"doubt" only when the stockholdings of Filipinos are less than
60%.43 Filipino 6,663 PhP 6,663,000.00 PhP 0
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 Canadian 3,331 PhP 3,331,000.00 PhP 2,803,9
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 Filipino 1 PhP 1,000.00 PhP 1,000.0
interested in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be senseless for
Filipino 1 PhP 1,000.00 PhP 1,000.0
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
Filipino 1 PhP 1,000.00 PhP 1,000.0
 Page 19 of 35 | Corporation Law Week 1 | amgisidro

Esguerra

Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Filipino 1 PhP 1,000.00
Agcaoili

ason American 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00
wkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
(emphasis supplied) Total 10,000 PhP 10,000,00

Noticeably, Olympic Mines & Development Corporation

(Olympic) did not pay any amount with respect to the number of Except for the name "Sara Marie Mining, Inc.," the table above
shares they subscribed to in the corporation, which is quite shows exactly the same figures as the corporate structure of
absurd since Olympic is the major stockholder in MMC. MBMIs petitioner McArthur, down to the last centavo. All the other
2006 Annual Report sheds light on why Olympic failed to pay any shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili,
amount with respect to the number of shares it subscribed to. It Mason and Cawkell. The figures under "Nationality," "Number of
states that Olympic entered into joint venture agreements with Shares," "Amount Subscribed," and "Amount Paid" are exactly
several Philippine companies, wherein it holds directly and the same. Delving deeper, we scrutinize SMMIs corporate
indirectly a 60% effective equity interest in the Olympic structure:
Properties.46 Quoting the said Annual report:
Sara Marie Mining, Inc.
On September 9, 2004, the Company and Olympic Mines &
Development Corporation ("Olympic") entered into a series of [[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
agreements including a Property Purchase and Development file=/jurisprudence/2014/april2014/195580.pdf]]
Agreement (the Transaction Documents) with respect to three
nickel laterite properties in Palawan, Philippines (the "Olympic Name Nationality Number of Amount
Properties"). The Transaction Documents effectively establish a Shares Subscribed
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 Olympic Mines & Filipino 6,663 PhP 6,663,000
certain circumstances and upon achieving certain milestones, Development
the Company may earn up to a 100% interest, subject to a 2.5%
net revenue royalty.47 (emphasis supplied) Corp.

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

is "grandfathered," company layering was utilized by MBMI to MBMI Resources, Canadian 3,331 PhP 3,331,000
gain control over McArthur. It is apparent that MBMI has more Inc.
than 60% or more equity interest in McArthur, making the latter a
foreign corporation.
Amanti Limson Filipino 1 PhP 1,000.00
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a Fernando B. Filipino 1 PhP 1,000.00
capital stock of ten million pesos (PhP 10,000,000) divided into
ten thousand (10,000) common shares at PhP 1,000 per share, Esguerra
as demonstrated below:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html? Lauro Salazar Filipino 1 PhP 1,000.00
file=/jurisprudence/2014/april2014/195580.pdf]]
Emmanuel G. Filipino 1 PhP 1,000.00
Name Nationality Number of Amount
Hernando
Shares Subscribed
Michael T. Mason American 1 PhP 1,000.00
Sara Marie Filipino 5,997 PhP 5,997,000.00
Mining, Inc. Kenneth Cawkell Canadian 1 PhP 1,000.00

MBMI Canadian 3,998 PhP 3,998,000.00 Total 10,000 PhP 10,000,00

Resources, Inc.

Lauro L. Salazar Filipino 1 After subsequently studying SMMIs corporate structure, it is not
PhP 1,000.00
farfetched for us to spot the glaring similarity between SMMI and
MMCs corporate structure. Again, the presence of identical
Fernando B. Filipino 1 PhP 1,000.00
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
 Page 20 of 35 | Corporation Law Week 1 | amgisidro

Esguerra, Salazar, Hernando, Mason and Cawkell. The figures

Total 10,000 PhP 10,000,00
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
Again, MBMI, along with other nominal stockholders, i.e., Mason,
million seven hundred ninety four thousand pesos (PhP
Agcaoili and Esguerra, is present in this corporate structure.
2,794,000). Oddly, the total value of the amount paid is two
million eight hundred nine thousand nine hundred pesos (PhP Patricia Louise Mining & Development Corporation
2,809,900).
Using the grandfather method, we further look and examine
Accordingly, after "grandfathering" petitioner Tesoro and PLMDCs corporate structure:
factoring in Olympics participation in SMMIs corporate structure,
it is clear that MBMI is in control of Tesoro and owns 60% or Nationality Number of Amount Am
more equity interest in Tesoro. This makes petitioner Tesoro a Shares Subscribed
non-Filipino corporation and, thus, disqualifies it to participate in
the exploitation, utilization and developmentPalawan of our natural
Alpha South Resources Filipino 6,596 PhP 6,596,000.00 PhP
resources. Development Corporation
Narra Nickel Mining and Development Corporation
Canadian 3,396 PhP 3,396,000.00 PhP
Moving on to the last petitioner, Narra, which is the transferee 2,79
and assignee of PLMDCs MPSA application, whose corporate
structures arrangement is similar to that of the first two
Higinio
petitioners discussed. The capital stock of Narra C. Mendoza,
is ten million Jr. Filipino 1 PhP 1,000.00 PhP
pesos (PhP 10,000,000), which is divided into ten thousand
common shares (10,000) at one thousand pesos (PhP B.
Fernando 1,000)
Esguerra Filipino 1 PhP 1,000.00 PhP
per share, shown as follows:
[[reference = Henry E. Fernandez
http://sc.judiciary.gov.ph/pdf/web/viewer.html? Filipino 1 PhP 1,000.00 PhP
file=/jurisprudence/2014/april2014/195580.pdf]]
Filipino 1 PhP 1,000.00 PhP
Name Nationality Number of Amount
Shares Subscribed Filipino 1 PhP 1,000.00 PhP

Filipino 1 PhP 1,000.00 PhP

Patricia Louise Filipino 5,997 PhP 5,997,000.00
Mining & American 1 PhP 1,000.00 PhP
Development
Canadian 1 PhP 1,000.00 PhP
Corp.
Total 10,000 PhP PhP
MBMI Canadian 3,998 PhP 3,996,000.00 10,000,000.00 2,70
Resources, Inc. (em
sup

Higinio C. Filipino 1 PhP 1,000.00

Yet again, the usual players in petitioners corporate structures
Mendoza, Jr. 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.
Henry E. Filipino 1 PhP 1,000.00
Studying MBMIs Summary of Significant Accounting Policies
Fernandez dated October 31, 2005 explains the reason behind the intricate
corporate layering that MBMI immersed itself in:
Manuel A. Filipino 1 PhP 1,000.00
JOINT VENTURES The Companys ownership interests in
Agcaoili various mining ventures engaged in the acquisition, exploration
and development of mineral properties in the Philippines is
described as follows:
Ma. Elena A. Filipino 1 PhP 1,000.00
(a) Olympic Group
Bocalan
The Philippine companies holding the Olympic Property, and the
ownership and interests therein, are as follows:
Bayani H. Agabin Filipino 1 PhP 1,000.00
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Robert L. American 1 PhP 1,000.00
McCurdy 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
Kenneth Cawkell Canadian 1 PhP 1,000.00
Olympic Property of 60.0%. Pursuant to a shareholders
 Page 21 of 35 | Corporation Law Week 1 | amgisidro
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, MBMIs Summary of
Significant Accounting Policies statement regarding the "joint
venture" agreements that it entered into with the "Olympic" and
"Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils
down to MBMI, Olympic or corporations under the "Alpha" group
wherein MBMI has joint venture agreements with, practically
exercising majority control over the corporations mentioned. In
effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners
are NOT Filipino nationals and must be considered foreign since
60% or more of their capital stocks or equity interests are owned
by MBMI.
Application of the res inter alios acta rule
Petitioners question the CAs use of the exception of the res inter
alios acta or the "admission by co-partner or agent" rule and
"admission by privies" under the Rules of Court in the instant
case, by pointing out that statements made by MBMI should not
be admitted in this case since it is not a party to the case and
that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court
provide:
Sec. 29. Admission by co-partner or agent.- The act or
declaration of a partner or agent of the party within the scope of
his authority and during the existence of the partnership or
agency, may be given in evidence against such party after the
partnership or agency is shown by evidence other than such act
or declaration itself. The same rule applies to the act or
declaration of a joint owner, joint debtor, or other person jointly
interested with the party.
Sec. 31. Admission by privies.- Where one derives title to
property from another, the act, declaration, or omission of the
latter, while holding the title, in relation to the property, is
evidence against the former.
Petitioners claim that before the above-mentioned Rule can be
applied to a case, "the partnership relation must be shown, and
that proof of the fact must be made by evidence other than the
admission itself."49 Thus, petitioners assert that the CA erred in
finding that a partnership relationship exists between them and
MBMI because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130
of the Rules by stating that "by entering into a joint venture,
MBMI have a joint interest" with Narra, Tesoro and McArthur.
They challenged the conclusion of the CA which pertains to the
close characteristics of
"partnerships" and "joint venture agreements." Further, they
asserted that before this particular partnership can be formed, it
should have been formally reduced into writing since the capital
involved is more than three thousand pesos (PhP 3,000). Being
that there is no evidence of written agreement to form a
partnership between petitioners and MBMI, no partnership was
created.
We disagree.
A partnership is defined as two or more persons who bind
themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been
deemed to be "akin" to partnerships since it is difficult to
distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of
their association are so similar and closely akin to a partnership
that it is ordinarily held that their rights, duties, and liabilities are
to be tested by rules which are closely analogous to and
substantially the same, if not exactly the same, as those which
govern partnership. In fact, it has been said that the trend in the
law has been to blur the distinctions between a partnership and a
joint venture, very little law being found applicable to one that
does not apply to the other.51
Though some claim that partnerships and joint ventures are
totally different animals, there are very few rules that differentiate
one from the other; thus, joint ventures are deemed "akin" or
similar to a partnership. In fact, in joint venture agreements, rules
and legal incidents governing partnerships are applied.52
Accordingly, culled from the incidents and records of this case, it
can be assumed that the relationships entered between and
among petitioners and MBMI are no simple "joint venture
agreements." As a rule, corporations are prohibited from entering
into partnership agreements; consequently, corporations enter
into joint venture agreements with other corporations or
partnerships for certain transactions in order to form "pseudo
partnerships."
Obviously, as the intricate web of "ventures" entered into by and
among petitioners and MBMI was executed to circumvent the
legal prohibition against corporations entering into partnerships,
then the relationship created should be deemed as
"partnerships," and the laws on partnership should be applied.
Thus, a joint venture agreement between and among
corporations may be seen as similar to partnerships since the
elements of partnership are present.
Considering that the relationships found between petitioners and
MBMI are considered to be partnerships, then the CA is justified
in applying Sec. 29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint interest" with
Narra, Tesoro and McArthur.
Panel of Arbitrators jurisdiction
We affirm the ruling of the CA in declaring that the POA has
jurisdiction over the instant case. The POA has jurisdiction to
settle disputes over rights to mining areas which definitely
involve the petitions filed by Redmont against petitioners Narra,
McArthur and Tesoro. Redmont, by filing its petition against
petitioners, is asserting the right of Filipinos over mining areas in
the Philippines against alleged foreign-owned mining
 Page 22 of 35 | Corporation Law Week 1 | amgisidro
corporations. Such claim constitutes a "dispute" found in Sec. 77
of RA 7942:
Within thirty (30) days, after the submission of the case by the
parties for the decision, the panel shall have exclusive and
original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v.
Macroasia Corp.:53
The phrase "disputes involving rights to mining areas" refers to
any adverse claim, protest, or opposition to an application for
mineral agreement. The POA therefore has the jurisdiction to
resolve any adverse claim, protest, or opposition to a pending
application for a mineral agreement filed with the concerned
Regional Office of the MGB. This is clear from Secs. 38 and 41
of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized
officer(s) of the concerned office(s) shall issue a certification(s)
that the publication/posting/radio announcement have been
complied with. Any adverse claim, protest, opposition shall be
filed directly, within thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned
Regional Office or through any concerned PENRO or CENRO
for filing in the concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant to the provisions
of this Act and these implementing rules and regulations. Upon
final resolution of any adverse claim, protest or opposition, the
Panel of Arbitrators shall likewise issue a certification to that
effect within five (5) working days from the date of finality of
resolution thereof. Where there is no adverse claim, protest or
opposition, the Panel of Arbitrators shall likewise issue a
Certification to that effect within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the
requirements under this Section are fully complied with and any
adverse claim/protest/opposition is finally resolved by the Panel
of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the
Certification issued by the Panel of Arbitrators as provided in
Section 38 hereof, the concerned Regional Director shall initially
evaluate the Mineral Agreement applications in areas outside
Mineral reservations. He/She shall thereafter endorse his/her
findings to the Bureau for further evaluation by the Director within
fifteen (15) working days from receipt of forwarded documents.
Thereafter, the Director shall endorse the same to the secretary
for consideration/approval within fifteen working days from
receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral
Reservations, within fifteen (15) working days from receipt of the
Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by
the Director to the Secretary for consideration/approval within
fifteen days from receipt of such endorsement. (emphasis
supplied)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining
rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated by
Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above,
any adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim, protest or
opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two
(2) consecutive weeks in a language generally understood in the
locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim,
protest or opposition was filed within the said forty-five (45) days,
the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the
other hand, if there be any adverse claim, protest or opposition,
the same shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional Offices concerned,
or through the Departments Community Environment and
Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the
Regional Office for resolution of the Panel of Arbitrators.
However previously published valid and subsisting mining claims
are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director
and resolved by the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining
rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated by
Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above,
any adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim, protest or
opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two
 Page 23 of 35 | Corporation Law Week 1 | amgisidro
(2) consecutive weeks in a language generally understood in the
locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim,
protest or opposition was filed within the said forty-five (45) days,
the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the
other hand, if there be any adverse claim, protest or opposition,
the same shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional offices concerned,
or through the Departments Community Environment and
Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the
Regional Office for resolution of the Panel of Arbitrators.
However, previously published valid and subsisting mining
claims are exempted from posted/posting required under this
Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director
and resolved by the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA
to resolve any adverse claim, opposition, or protest relative to
mining rights under Sec. 77(a) of RA 7942 is confined only to
adverse claims, conflicts and oppositions relating to applications
for the grant of mineral rights.
POAs jurisdiction is confined only to resolutions of such adverse
claims, conflicts and oppositions and it has no authority to
approve or reject said applications. Such power is vested in the
DENR Secretary upon recommendation of the MGB Director.
Clearly, POAs jurisdiction over "disputes involving rights to
mining areas" has nothing to do with the cancellation of existing
mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA
unquestionably has jurisdiction to resolve disputes over MPSA
applications subject of Redmonts petitions. However, said
jurisdiction does not include either the approval or rejection of
the MPSA applications, which is vested only upon the Secretary
of the DENR. Thus, the finding of the POA, with respect to the
rejection of petitioners MPSA applications being that they are
foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts
that it is the regular courts, not the POA, that has jurisdiction
over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the
statute in force at the time of the commencement of the
action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary
Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall
exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is
incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from
Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.
x x x Within thirty (30) days, after the submission of the case by
the parties for the decision, the panel shall have exclusive and
original jurisdiction to hear and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over
any and all disputes involving rights to mining areas. One such
dispute is an MPSA application to which an adverse claim,
protest or opposition is filed by another interested
applicant.1wphi1 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 POAs jurisdiction to
resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while
what petitioners filed with the DENR Regional Office or any
concerned DENRE or CENRO are MPSA applications. Thus
POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA
applications under the doctrine of primary jurisdiction. Euro-med
Laboratories v. Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such
that its determination requires the expertise, specialized training
and knowledge of an administrative body, relief must first be
obtained in an administrative proceeding before resort to the
courts is had even if the matter may well be within their proper
jurisdiction.
Whatever may be the decision of the POA will eventually reach
the court system via a resort to the CA and to this Court as a last
recourse.
Selling of MBMIs shares to DMCI
As stated before, petitioners Manifestation and Submission
dated October 19, 2012 would want us to declare the instant
petition moot and academic due to the transfer and conveyance
of all the shareholdings and interests of MBMI to DMCI, a
corporation duly organized and existing under Philippine laws
and is at least 60% Philippine-owned.56 Petitioners reasoned
that they now cannot be considered as foreign-owned; the
transfer of their shares supposedly cured the "defect" of their
previous nationality. They claimed that their current FTAA
contract with the State should stand since "even wholly-owned
foreign corporations can enter into an FTAA with the State."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.1wphi1 Thus, the question of whether petitioners,
allegedly a Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to enter into FTAAs
with the State is a non-issue in this case.
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
 Page 24 of 35 | Corporation Law Week 1 | amgisidro
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.
G.R. No. 176579 June 28, 2011
WILSON P. GAMBOA, Petitioner,
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE
UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN
HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET
HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
(PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF
FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.
NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, CHAIR FE BARIN OF THE SECURITIES
EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM
OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-
Intervention.
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory
relief and declaration of nullity of the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC)
by the government of the Republic of the Philippines to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific
Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a
stockholder of Philippine Long Distance Telephone Company
(PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act
No. 3436 which granted PLDT a franchise and the right to
engage in telecommunications business. In 1969, General
Telephone and Electronics Corporation (GTE), an American
company and a major PLDT stockholder, sold 26 percent of the
outstanding common shares of PLDT to PTIC. In 1977, Prime
Holdings, Inc. (PHI) was incorporated by several persons,
including Roland Gapud and Jose Campos, Jr. Subsequently,
PHI became the owner of 111,415 shares of stock of PTIC by
virtue of three Deeds of Assignment executed by PTIC
stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986,
the 111,415 shares of stock of PTIC held by PHI were
sequestered by the Presidential Commission on Good
Government (PCGG). The 111,415 PTIC shares, which
represent about 46.125 percent of the outstanding capital stock
of PTIC, were later declared by this Court to be owned by the
Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54 percent of the
outstanding capital stock of PTIC. On 20 November 2006, the
Inter-Agency Privatization Council (IPC) of the Philippine
Government announced that it would sell the 111,415 PTIC
shares, or 46.125 percent of the outstanding capital stock of
PTIC, through a public bidding to be conducted on 4 December
2006. Subsequently, the public bidding was reset to 8 December
2006, and only two bidders, Parallax Venture Fund XXVII
(Parallax) and Pan-Asia Presidio Capital, submitted their bids.
Parallax won with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right
of first refusal as a PTIC stockholder and buy the 111,415 PTIC
shares by matching the bid price of Parallax. However, First
Pacific failed to do so by the 1 February 2007 deadline set by
IPC and instead, yielded its right to PTIC itself which was then
given by IPC until 2 March 2007 to buy the PTIC shares. On 14
February 2007, First Pacific, through its subsidiary, MPAH,
entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, with the Philippine Government for the
price of P25,217,556,000 or US$510,580,189. The sale was
completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine
Government of 46.125 percent of PTIC shares is actually an
indirect sale of 12 million shares or about 6.3 percent of the
outstanding common shares of PLDT. With the sale, First
Pacifics common shareholdings in PLDT increased from
30.7 percent to 37 percent, thereby increasing the common
shareholdings of foreigners in PLDT to about 81.47 percent.
This violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the capital of a
public utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary
Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG
Commissioner Ricardo Abcede allege the following relevant
facts:
On 9 November 1967, PTIC was incorporated and had since
engaged in the business of investment holdings. PTIC held
26,034,263 PLDT common shares, or 13.847 percent of the total
PLDT outstanding common shares. PHI, on the other hand, was
incorporated in 1977, and became the owner of 111,415 PTIC
shares or 46.125 percent of the outstanding capital stock of PTIC
 Page 25 of 35 | Corporation Law Week 1 | amgisidro
by virtue of three Deeds of Assignment executed by Ramon
Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC
shares held by PHI were sequestered by the PCGG, and
subsequently declared by this Court as part of the ill-gotten
wealth of former President Ferdinand Marcos. The sequestered
PTIC shares were reconveyed to the Republic of the Philippines
in accordance with this Courts decision4 which became final and
executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC
shares, which represent 6.4 percent of the outstanding common
shares of stock of PLDT, and designated the Inter-Agency
Privatization Council (IPC), composed of the Department of
Finance and the PCGG, as the disposing entity. An invitation to
bid was published in seven different newspapers from 13 to 24
November 2006. On 20 November 2006, a pre-bid conference
was held, and the original deadline for bidding scheduled on 4
December 2006 was reset to 8 December 2006. The extension
was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital
Management LP emerged as the highest bidder with a bid of
P25,217,556,000. The government notified First Pacific, the
majority owner of PTIC shares, of the bidding results and gave
First Pacific until 1 February 2007 to exercise its right of first
refusal in accordance with PTICs Articles of Incorporation. First
Pacific announced its intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR)
Committee on Good Government conducted a public hearing on
the particulars of the then impending sale of the 111,415 PTIC
shares. Respondents Teves and Sevilla were among those who
attended the public hearing. The HR Committee Report No. 2270
concluded that: (a) the auction of the governments 111,415
PTIC shares bore due diligence, transparency and conformity
with existing legal procedures; and (b) First Pacifics intended
acquisition of the governments 111,415 PTIC shares
resulting in First Pacifics 100% ownership of PTIC will not
violate the 40 percent constitutional limit on foreign
ownership of a public utility since PTIC holds only 13.847
percent of the total outstanding common shares of PLDT.5
On 28 February 2007, First Pacific completed the acquisition of
the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a)
the IPC conducted a public bidding for the sale of 111,415 PTIC
shares or 46 percent of the outstanding capital stock of PTIC
(the remaining 54 percent of PTIC shares was already owned by
First Pacific and its affiliates); (b) Parallax offered the highest bid
amounting to P25,217,556,000; (c) pursuant to the right of first
refusal in favor of PTIC and its shareholders granted in PTICs
Articles of Incorporation, MPAH, a First Pacific affiliate, exercised
its right of first refusal by matching the highest bid offered for
PTIC shares on 13 February 2007; and (d) on 28 February 2007,
the sale was consummated when MPAH paid IPC
P25,217,556,000 and the government delivered the certificates
for the 111,415 PTIC shares. Respondent Pangilinan denies the
other allegations of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for
prohibition, injunction, declaratory relief, and declaration of nullity
of sale of the 111,415 PTIC shares. Petitioner claims, among
others, that the sale of the 111,415 PTIC shares would result in
an increase in First Pacifics common shareholdings in PLDT
from 30.7 percent to 37 percent, and this, combined with
Japanese NTT DoCoMos common shareholdings in PLDT,
would result to a total foreign common shareholdings in PLDT of
51.56 percent which is over the 40 percent constitutional limit. 6
Petitioner asserts:
If and when the sale is completed, First Pacifics equity in PLDT
will go up from 30.7 percent to 37.0 percent of its common or
voting- stockholdings, x x x. Hence, the consummation of the
sale will put the two largest foreign investors in PLDT First
Pacific and Japans NTT DoCoMo, which is the worlds largest
wireless telecommunications firm, owning 51.56 percent of PLDT
common equity. x x x With the completion of the sale, data culled
from the official website of the New York Stock Exchange
(www.nyse.com) showed that those foreign entities, which own
at least five percent of common equity, will collectively own 81.47
percent of PLDTs common equity. x x x
x x x as the annual disclosure reports, also referred to as Form
20-K reports x x x which PLDT submitted to the New York Stock
Exchange for the period 2003-2005, revealed that First Pacific
and several other foreign entities breached the constitutional
limit of 40 percent ownership as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the
consummation of the then impending sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign
ownership of a public utility; (2) whether public respondents
committed grave abuse of discretion in allowing the sale of the
111,415 PTIC shares to First Pacific; and (3) whether the sale of
common shares to foreigners in excess of 40 percent of the
entire subscribed common capital stock violates the
constitutional limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed
a Motion for Leave to Intervene and Admit Attached Petition-in-
Intervention. In the Resolution of 28 August 2007, the Court
granted the motion and noted the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in
seeking, among others, to enjoin and/or nullify the sale by
respondents of the 111,415 PTIC shares to First Pacific or
assignee." Petitioners-in-intervention claim that, as PLDT
subscribers, they have a "stake in the outcome of the
controversy x x x where the Philippine Government is completing
the sale of government owned assets in [PLDT], unquestionably
a public utility, in violation of the nationality restrictions of the
Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those
raised by petitioner,9 which indisputably demand a thorough
 Page 26 of 35 | Corporation Law Week 1 | amgisidro
examination of the evidence of the parties, are generally beyond
this Courts jurisdiction. Adhering to this well-settled principle, the
Court shall confine the resolution of the instant controversy
solely on the threshold and purely legal issue of whether the
term "capital" in Section 11, Article XII of the Constitution refers
to the total common shares only or to the total outstanding
capital stock (combined total of common and non-voting
preferred shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for
mandamus
At the outset, petitioner is faced with a procedural barrier. Among
the remedies petitioner seeks, only the petition for prohibition is
within the original jurisdiction of this court, which however is not
exclusive but is concurrent with the Regional Trial Court and the
Court of Appeals. The actions for declaratory relief, 10 injunction,
and annulment of sale are not embraced within the original
jurisdiction of the Supreme Court. On this ground alone, the
petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for
prohibition,11 the Court shall nevertheless refrain from discussing
the grounds in support of the petition for prohibition since on 28
February 2007, the questioned sale was consummated when
MPAH paid IPC P25,217,556,000 and the government delivered
the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the
definition of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national
economy, the Court treats the petition for declaratory relief as
one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court
treated the petition for declaratory relief as one for mandamus
considering the grave injustice that would result in the
interpretation of a banking law. In that case, which involved the
crime of rape committed by a foreign tourist against a Filipino
minor and the execution of the final judgment in the civil case for
damages on the tourists dollar deposit with a local bank, the
Court declared Section 113 of Central Bank Circular No. 960,
exempting foreign currency deposits from attachment,
garnishment or any other order or process of any court,
inapplicable due to the peculiar circumstances of the case. The
Court held that "injustice would result especially to a citizen
aggrieved by a foreign guest like accused x x x" that would
"negate Article 10 of the Civil Code which provides that in case
of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to
prevail." The Court therefore required respondents Central Bank
of the Philippines, the local bank, and the accused to comply
with the writ of execution issued in the civil case for damages
and to release the dollar deposit of the accused to satisfy the
judgment.
In Alliance of Government Workers v. Minister of Labor,14 the
Court similarly brushed aside the procedural infirmity of the
petition for declaratory relief and treated the same as one for
mandamus. In Alliance, the issue was whether the government
unlawfully excluded petitioners, who were government
employees, from the enjoyment of rights to which they were
entitled under the law. Specifically, the question was: "Are the
branches, agencies, subdivisions, and instrumentalities of the
Government, including government owned or controlled
corporations included among the four employers under
Presidential Decree No. 851 which are required to pay their
employees x x x a thirteenth (13th) month pay x x x ?" The
Constitutional principle involved therein affected all government
employees, clearly justifying a relaxation of the technical rules of
procedure, and certainly requiring the interpretation of the
assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has
far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a
petition for declaratory relief. However, exceptions to this rule
have been recognized. Thus, where the petition has far-
reaching implications and raises questions that should be
resolved, it may be treated as one for mandamus.15
(Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation
of the term "capital" in Section 11, Article XII of the Constitution.
He prays that this Court declare that the term "capital" refers to
common shares only, and that such shares constitute "the sole
basis in determining foreign equity in a public utility." Petitioner
further asks this Court to declare any ruling inconsistent with
such interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of
the Constitution has far-reaching implications to the national
economy. In fact, a resolution of this issue will determine whether
Filipinos are masters, or second class citizens, in their own
country. What is at stake here is whether Filipinos or foreigners
will have effective control of the national economy. Indeed, if
ever there is a legal issue that has far-reaching implications to
the entire nation, and to future generations of Filipinos, it is the
threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the
term "capital" in Section 11, Article XII of the Constitution in the
case of Fernandez v. Cojuangco, docketed as G.R. No.
157360.16 That case involved the same public utility (PLDT) and
substantially the same private respondents. Despite the
importance and novelty of the constitutional issue raised therein
and despite the fact that the petition involved a purely legal
question, the Court declined to resolve the case on the merits,
and instead denied the same for disregarding the hierarchy of
 Page 27 of 35 | Corporation Law Week 1 | amgisidro
courts.17 There, petitioner Fernandez assailed on a pure question
of law the Regional Trial Courts Decision of 21 February 2003
via a petition for review under Rule 45. The Courts Resolution,
denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another
opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a
fundamental requirement to a faithful adherence to our
Constitution. The Court must forthwith seize such opportunity,
not only for the benefit of the litigants, but more significantly for
the benefit of the entire Filipino people, to ensure, in the words of
the Constitution, "a self-reliant and independent national
economy effectively controlled by Filipinos."18 Besides, in the
light of vague and confusing positions taken by government
agencies on this purely legal issue, present and future foreign
investors in this country deserve, as a matter of basic fairness, a
categorical ruling from this Court on the extent of their
participation in the capital of public utilities and other nationalized
businesses.
Despite its far-reaching implications to the national economy, this
purely legal issue has remained unresolved for over 75 years
since the 1935 Constitution. There is no reason for this Court to
evade this ever recurring fundamental issue and delay again
defining the term "capital," which appears not only in Section 11,
Article XII of the Constitution, but also in Section 2, Article XII on
co-production and joint venture agreements for the development
of our natural resources,19 in Section 7, Article XII on ownership
of private lands,20 in Section 10, Article XII on the reservation of
certain investments to Filipino citizens, 21 in Section 4(2), Article
XIV on the ownership of educational institutions,22 and in Section
11(2), Article XVI on the ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As
such, he has the right to question the subject sale, which he
claims to violate the nationality requirement prescribed in
Section 11, Article XII of the Constitution. If the sale indeed
violates the Constitution, then there is a possibility that PLDTs
franchise could be revoked, a dire consequence directly affecting
petitioners interest as a stockholder.
More importantly, there is no question that the instant petition
raises matters of transcendental importance to the public. The
fundamental and threshold legal issue in this case, involving the
national economy and the economic welfare of the Filipino
people, far outweighs any perceived impediment in the legal
personality of the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to
bring a suit on matters of transcendental importance to the
public, thus:
In Taada v. Tuvera, the Court asserted that when the issue
concerns a public right and the object of mandamus is to
obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is
sufficient that petitioner is a citizen and as such is
interested in the execution of the laws, he need not show
that he has any legal or special interest in the result of the
action. In the aforesaid case, the petitioners sought to enforce
their right to be informed on matters of public concern, a right
then recognized in Section 6, Article IV of the 1973 Constitution,
in connection with the rule that laws in order to be valid and
enforceable must be published in the Official Gazette or
otherwise effectively promulgated. In ruling for the petitioners
legal standing, the Court declared that the right they sought to be
enforced is a public right recognized by no less than the
fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada,
further declared that when a mandamus proceeding involves
the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a
citizen and, therefore, part of the general public which
possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of
public funds may not have been involved under the questioned
contract for the development, management and operation of the
Manila International Container Terminal, public interest [was]
definitely involved considering the important role [of the
subject contract] . . . in the economic development of the
country and the magnitude of the financial consideration
involved. We concluded that, as a consequence, the disclosure
provision in the Constitution would constitute sufficient authority
for upholding the petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves
matters of transcendental public importance, the petitioner has
the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the
1987 Constitution mandates the Filipinization of public utilities, to
wit:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is
owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than
fifty years. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in its capital, and all
the executive and managing officers of such corporation or
 Page 28 of 35 | Corporation Law Week 1 | amgisidro
association must be citizens of the Philippines. (Emphasis
supplied)
The above provision substantially reiterates Section 5, Article
XIV of the 1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines at least sixty per centum of the capital of
which is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character or for a
longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the National
Assembly when the public interest so requires. The State shall
encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced
Section 8, Article XIV of the 1935 Constitution, viz:
Section 8. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or other entities organized under the laws of
the Philippines sixty per centum of the capital of which is
owned by citizens of the Philippines, nor shall such franchise,
certificate, or authorization be exclusive in character or for a
longer period than fifty years. No franchise or right shall be
granted to any individual, firm, or corporation, except under the
condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the public interest so requires.
(Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986
Constitutional Commission, reminds us that the Filipinization
provision in the 1987 Constitution is one of the products of the
spirit of nationalism which gripped the 1935 Constitutional
Convention.25 The 1987 Constitution "provides for the
Filipinization of public utilities by requiring that any form of
authorization for the operation of public utilities should be
granted only to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens.
The provision is [an express] recognition of the sensitive
and vital position of public utilities both in the national
economy and for national security." 26 The evident purpose of
the citizenship requirement is to prevent aliens from assuming
control of public utilities, which may be inimical to the national
interest.27 This specific provision explicitly reserves to Filipino
citizens control of public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to "conserve and
develop our patrimony"28 and ensure "a self-reliant and
independent national economy effectively controlled by
Filipinos."29
Any citizen or juridical entity desiring to operate a public utility
must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence,
for a corporation to be granted authority to operate a public
utility, at least 60 percent of its "capital" must be owned by
Filipino citizens.
The crux of the controversy is the definition of the term "capital."
Does the term "capital" in Section 11, Article XII of the
Constitution refer to common shares or to the total outstanding
capital stock (combined total of common and non-voting
preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in
domestic public utilities refers only to common shares because
such shares are entitled to vote and it is through voting that
control over a corporation is exercised. Petitioner posits that the
term "capital" in Section 11, Article XII of the Constitution refers
to "the ownership of common capital stock subscribed and
outstanding, which class of shares alone, under the corporate
set-up of PLDT, can vote and elect members of the board of
directors." It is undisputed that PLDTs non-voting preferred
shares are held mostly by Filipino citizens.30 This arose from
Presidential Decree No. 217,31 issued on 16 June 1973 by then
President Ferdinand Marcos, requiring every applicant of a PLDT
telephone line to subscribe to non-voting preferred shares to pay
for the investment cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioners
arguments and adopt petitioners definition of the term "capital." 33
Petitioners-in-intervention allege that "the approximate foreign
ownership of common capital stock of PLDT x x x already
amounts to at least 63.54% of the total outstanding common
stock," which means that foreigners exercise significant control
over PLDT, patently violating the 40 percent foreign equity
limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of
the term "capital" in Section 11, Article XII of the Constitution.
More importantly, private respondents Nazareno and Pangilinan
of PLDT do not dispute that more than 40 percent of the
common shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of
73 pages, harps mainly on the procedural infirmities of the
petition and the supposed violation of the due process rights of
the "affected foreign common shareholders." Respondent
Nazareno does not deny petitioners allegation of foreigners
dominating the common shareholdings of PLDT. Nazareno
stressed mainly that the petition "seeks to divest foreign
common shareholders purportedly exceeding 40% of the
total common shareholdings in PLDT of their ownership
over their shares." Thus, "the foreign natural and juridical PLDT
shareholders must be impleaded in this suit so that they can be
 Page 29 of 35 | Corporation Law Week 1 | amgisidro
heard."34 Essentially, Nazareno invokes denial of due process on
behalf of the foreign common shareholders.
While Nazareno does not introduce any definition of the term
"capital," he states that "among the factual assertions that
need to be established to counter petitioners allegations is
the uniform interpretation by government agencies (such as
the SEC), institutions and corporations (such as the
Philippine National Oil Company-Energy Development
Corporation or PNOC-EDC) of including both preferred
shares and common shares in "controlling interest" in view
of testing compliance with the 40% constitutional limitation
on foreign ownership in public utilities."35
Similarly, respondent Manuel V. Pangilinan does not define the
term "capital" in Section 11, Article XII of the Constitution. Neither
does he refute petitioners claim of foreigners holding more than
40 percent of PLDTs common shares. Instead, respondent
Pangilinan focuses on the procedural flaws of the petition and
the alleged violation of the due process rights of foreigners.
Respondent Pangilinan emphasizes in his Memorandum (1) the
absence of this Courts jurisdiction over the petition; (2)
petitioners lack of standing; (3) mootness of the petition; (4)
non-availability of declaratory relief; and (5) the denial of due
process rights. Moreover, respondent Pangilinan alleges that the
issue should be whether "owners of shares in PLDT as well as
owners of shares in companies holding shares in PLDT may be
required to relinquish their shares in PLDT and in those
companies without any law requiring them to surrender their
shares and also without notice and trial."
Respondent Pangilinan further asserts that "Section 11, [Article
XII of the Constitution] imposes no nationality requirement
on the shareholders of the utility company as a condition for
keeping their shares in the utility company." According to him,
"Section 11 does not authorize taking one persons property (the
shareholders stock in the utility company) on the basis of
another partys alleged failure to satisfy a requirement that is a
condition only for that other partys retention of another piece of
property (the utility company being at least 60% Filipino-owned
to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito
Teves, Undersecretary John P. Sevilla, Commissioner Ricardo
Abcede, and Chairman Fe Barin, is likewise silent on the
definition of the term "capital." In its Memorandum 37 dated 24
September 2007, the OSG also limits its discussion on the
supposed procedural defects of the petition, i.e. lack of standing,
lack of jurisdiction, non-inclusion of interested parties, and lack of
basis for injunction. The OSG does not present any definition or
interpretation of the term "capital" in Section 11, Article XII of the
Constitution. The OSG contends that "the petition actually
partakes of a collateral attack on PLDTs franchise as a public
utility," which in effect requires a "full-blown trial where all the
parties in interest are given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and
Chief Executive Officer of the Philippine Stock Exchange (PSE),
does not also define the term "capital" and seeks the dismissal of
the petition on the following grounds: (1) failure to state a cause
of action against Lim; (2) the PSE allegedly implemented its
rules and required all listed companies, including PLDT, to make
proper and timely disclosures; and (3) the reliefs prayed for in
the petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner
Fernandez who claimed to be a stockholder of record of PLDT,
contended that the term "capital" in the 1987 Constitution refers
to shares entitled to vote or the common shares. Fernandez
explained thus:
The forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of
stock entitled to vote, i.e., common shares, considering that it is
through voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in
imposing limitations and restrictions on fully nationalized and
partially nationalized activities is for Filipino nationals to be
always in control of the corporation undertaking said activities.
Otherwise, if the Trial Courts ruling upholding respondents
arguments were to be given credence, it would be possible for
the ownership structure of a public utility corporation to be
divided into one percent (1%) common stocks and ninety-nine
percent (99%) preferred stocks. Following the Trial Courts ruling
adopting respondents arguments, the common shares can be
owned entirely by foreigners thus creating an absurd situation
wherein foreigners, who are supposed to be minority
shareholders, control the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted
to apply to both the beneficial ownership and the controlling
interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity
limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common
shares. Furthermore, ownership of record of shares will not
suffice but it must be shown that the legal and beneficial
ownership rests in the hands of Filipino citizens. Consequently,
in the case of petitioner PLDT, since it is already admitted that
the voting interests of foreigners which would gain entry to
petitioner PLDT by the acquisition of SMART shares through the
Questioned Transactions is equivalent to 82.99%, and the
nominee arrangements between the foreign principals and the
Filipino owners is likewise admitted, there is, therefore, a
violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April
14, 1987 cited by the Trial Court to support the proposition that
the meaning of the word "capital" as used in Section 11, Article
 Page 30 of 35 | Corporation Law Week 1 | amgisidro
XII of the Constitution allegedly refers to the sum total of the
shares subscribed and paid-in by the shareholder and it
allegedly is immaterial how the stock is classified, whether as
common or preferred, cannot stand in the face of a clear
legislative policy as stated in the FIA which took effect in 1991 or
way after said opinions were rendered, and as clarified by the
above-quoted Amendments. In this regard, suffice it to state that
as between the law and an opinion rendered by an
administrative agency, the law indubitably prevails. Moreover,
said Opinions are merely advisory and cannot prevail over the
clear intent of the framers of the Constitution.
In the same vein, the SECs construction of Section 11, Article
XII of the Constitution is at best merely advisory for it is the
courts that finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco,
Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee,
Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F.
Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del
Rosario, and Orlando B. Vea, argued that the term "capital" in
Section 11, Article XII of the Constitution includes preferred
shares since the Constitution does not distinguish among
classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on
the corporations "capital," without distinction as to classes of
shares. x x x
In this connection, the Corporation Code which was already in
force at the time the present (1987) Constitution was drafted
defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term
"outstanding capital stock", as used in this Code, means the total
shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid,
except treasury shares.
Section 137 of the Corporation Code also does not distinguish
between common and preferred shares, nor exclude either class
of shares, in determining the outstanding capital stock (the
"capital") of a corporation. Consequently, petitioners suggestion
to reckon PLDTs foreign equity only on the basis of PLDTs
outstanding common shares is without legal basis. The language
of the Constitution should be understood in the sense it has in
common use.
xxxx
17. But even assuming that resort to the proceedings of the
Constitutional Commission is necessary, there is nothing in the
Record of the Constitutional Commission (Vol. III) which
petitioner misleadingly cited in the Petition x x x which supports
petitioners view that only common shares should form the basis
for computing a public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily
responsible for implementing the Corporation Code, and which
also has the responsibility of ensuring compliance with the
Constitutions foreign equity restrictions as regards nationalized
activities x x x has categorically ruled that both common and
preferred shares are properly considered in determining
outstanding capital stock and the nationality composition
thereof.40
We agree with petitioner and petitioners-in-intervention. The term
"capital" in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and
thus in the present case only to common shares, 41 and not to the
total outstanding capital stock comprising both common and
non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as
common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or
both, any of which classes or series of shares may have such
rights, privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as
"preferred" or "redeemable" shares, unless otherwise
provided in this Code: Provided, further, That there shall
always be a class or series of shares which have complete
voting rights. Any or all of the shares or series of shares may
have a par value or have no par value as may be provided for in
the articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building
and loan associations shall not be permitted to issue no-par
value shares of stock.
Preferred shares of stock issued by any corporation may be
given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the
articles of incorporation which are not violative of the provisions
of this Code: Provided, That preferred shares of stock may be
issued only with a stated par value. The Board of Directors,
where authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with the Securities
and Exchange Commission.
Shares of capital stock issued without par value shall be deemed
fully paid and non-assessable and the holder of such shares
shall not be liable to the corporation or to its creditors in respect
thereto: Provided; That shares without par value may not be
issued for a consideration less than the value of five (P5.00)
pesos per share: Provided, further, That the entire consideration
received by the corporation for its no-par value shares shall be
 Page 31 of 35 | Corporation Law Week 1 | amgisidro
treated as capital and shall not be available for distribution as
dividends.
A corporation may, furthermore, classify its shares for the
purpose of insuring compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles of incorporation and
stated in the certificate of stock, each share shall be equal in all
respects to every other share.
Where the articles of incorporation provide for non-voting shares
in the cases allowed by this Code, the holders of such shares
shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition
of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the
vote necessary to approve a particular corporate act as provided
in this Code shall be deemed to refer only to stocks with voting
rights.
Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation.43
This is exercised through his vote in the election of directors
because it is the board of directors that controls or manages the
corporation.44 In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares.
However, preferred shareholders are often excluded from any
control, that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the preferred
shareholders are merely investors in the corporation for income
in the same manner as bondholders. 45 In fact, under the
Corporation Code only preferred or redeemable shares can be
deprived of the right to vote.46 Common shares cannot be
deprived of the right to vote in any corporate meeting, and any
provision in the articles of incorporation restricting the right of
common shareholders to vote is invalid.47
Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which
usually have no voting rights, the term "capital" in Section 11,
Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote in the
election of directors, then the term "capital" shall include such
preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to
vote in the election of directors. In short, the term "capital" in
Section 11, Article XII of the Constitution refers only to
shares of stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of
the Constitution to place in the hands of Filipino citizens the
control and management of public utilities. As revealed in the
deliberations of the Constitutional Commission, "capital" refers to
the voting stock or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated
local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this
question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on
the paid-up capital stock of a corporation"? Will the Committee
please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the
members of the team from the UP Law Center who provided us
a draft. The phrase that is contained here which we adopted
from the UP draft is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital
stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests
in another corporation which is permitted by the Corporation
Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
 Page 32 of 35 | Corporation Law Week 1 | amgisidro
MR. AZCUNA. May I be clarified as to that portion that was
accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the
deletion of the phrase "voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the
committee report would read: "corporations or associations at
least sixty percent of whose CAPITAL is owned by such
citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck
with 60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners
even if they are the minority. Let us say 40 percent of the
capital is owned by them, but it is the voting capital,
whereas, the Filipinos own the nonvoting shares. So we can
have a situation where the corporation is controlled by
foreigners despite being the minority because they have the
voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word
"stock" as stated in the 1973 and 1935 Constitutions is that
according to Commissioner Rodrigo, there are associations
that do not have stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase
"controlling interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation. Reinforcing this
interpretation of the term "capital," as referring to controlling
interest or shares entitled to vote, is the definition of a "Philippine
national" in the Foreign Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least
sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered
as doing business in the Philippines under the Corporation Code
of which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national
and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations
must be owned and held by citizens of the Philippines and at
least sixty percent (60%) of the members of the Board of
Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a
"Philippine national." (Emphasis supplied)
In explaining the definition of a "Philippine national," the
Implementing Rules and Regulations of the Foreign Investments
Act of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or
a domestic partnership or association wholly owned by the
citizens of the Philippines; or a corporation organized under
the laws of the Philippines of which at least sixty percent
[60%] of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines; or a trustee of
funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least
sixty percent [60%] of the fund will accrue to the benefit of the
Philippine nationals; Provided, that where a corporation its non-
Filipino stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty percent
[60%] of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by citizens of the
Philippines and at least sixty percent [60%] of the members of
the Board of Directors of each of both corporation must be
citizens of the Philippines, in order that the corporation shall be
considered a Philippine national. The control test shall be applied
for this purpose.
Compliance with the required Filipino ownership of a
corporation shall be determined on the basis of outstanding
capital stock whether fully paid or not, but only such stocks
which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate voting
rights is essential. Thus, stocks, the voting rights of which
have been assigned or transferred to aliens cannot be
considered held by Philippine citizens or Philippine
nationals.
Individuals or juridical entities not meeting the
aforementioned qualifications are considered as non-
Philippine nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-
owned "capital" required in the Constitution. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required. The legal and
 Page 33 of 35 | Corporation Law Week 1 | amgisidro
beneficial ownership of 60 percent of the outstanding capital
stock must rest in the hands of Filipino nationals in accordance
with the constitutional mandate. Otherwise, the corporation is
"considered as non-Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may
"reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned
by such citizens, or such higher percentage as Congress may
prescribe, certain areas of investments." Thus, in numerous laws
Congress has reserved certain areas of investments to Filipino
citizens or to corporations at least sixty percent of the "capital"
of which is owned by Filipino citizens. Some of these laws are:
(1) Regulation of Award of Government Contracts or R.A. No.
5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850;
(3) Magna Carta for Micro, Small and Medium Enterprises or
R.A. No. 6977; (4) Philippine Overseas Shipping Development
Act or R.A. No. 7471; (5) Domestic Shipping Development Act of
2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of
2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D.
No. 1521. Hence, the term "capital" in Section 11, Article XII of
the Constitution is also used in the same context in numerous
laws reserving certain areas of investments to Filipino citizens.
To construe broadly the term "capital" as the total outstanding
capital stock, including both common and non-voting preferred
shares, grossly contravenes the intent and letter of the
Constitution that the "State shall develop a self-reliant and
independent national economy effectively controlled by
Filipinos." A broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to
control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition
to the term "capital." Let us assume that a corporation has 100
common shares owned by foreigners and 1,000,000 non-voting
preferred shares owned by Filipinos, with both classes of share
having a par value of one peso (P1.00) per share. Under the
broad definition of the term "capital," such corporation would be
considered compliant with the 40 percent constitutional limit on
foreign equity of public utilities since the overwhelming majority,
or more than 99.999 percent, of the total outstanding capital
stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common
shares have voting rights in the election of directors, even if they
hold only 100 shares. The foreigners, with a minuscule equity of
less than 0.001 percent, exercise control over the public utility.
On the other hand, the Filipinos, holding more than 99.999
percent of the equity, cannot vote in the election of directors and
hence, have no control over the public utility. This starkly
circumvents the intent of the framers of the Constitution, as well
as the clear language of the Constitution, to place the control of
public utilities in the hands of Filipinos. It also renders illusory the
State policy of an independent national economy effectively
controlled by Filipinos.
The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the
right to vote in the election of directors. PLDTs Articles of
Incorporation expressly state that "the holders of Serial
Preferred Stock shall not be entitled to vote at any meeting
of the stockholders for the election of directors or for any
other purpose or otherwise participate in any action taken by
the corporation or its stockholders, or to receive notice of any
meeting of stockholders."51
On the other hand, holders of common shares are granted the
exclusive right to vote in the election of directors. PLDTs Articles
of Incorporation52 state that "each holder of Common Capital
Stock shall have one vote in respect of each share of such stock
held by him on all matters voted upon by the stockholders, and
the holders of Common Capital Stock shall have the
exclusive right to vote for the election of directors and for
all other purposes."53
In short, only holders of common shares can vote in the election
of directors, meaning only common shareholders exercise
control over PLDT. Conversely, holders of preferred shares, who
have no voting rights in the election of directors, do not have any
control over PLDT. In fact, under PLDTs Articles of
Incorporation, holders of common shares have voting rights for
all purposes, while holders of preferred shares have no voting
right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that
foreigners hold a majority of the common shares of PLDT. In fact,
based on PLDTs 2010 General Information Sheet (GIS), 54 which
is a document required to be submitted annually to the Securities
and Exchange Commission,55 foreigners hold 120,046,690
common shares of PLDT whereas Filipinos hold only 66,750,622
common shares.56 In other words, foreigners hold 64.27% of the
total number of PLDTs common shares, while Filipinos hold only
35.73%. Since holding a majority of the common shares equates
to control, it is clear that foreigners exercise control over PLDT.
Such amount of control unmistakably exceeds the allowable 40
percent limit on foreign ownership of public utilities expressly
mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009, 57 as
submitted to the SEC, shows that per share the SIP 58 preferred
shares earn a pittance in dividends compared to the common
shares. PLDT declared dividends for the common shares at
P70.00 per share, while the declared dividends for the preferred
shares amounted to a measly P1.00 per share.59 So the
preferred shares not only cannot vote in the election of directors,
they also have very little and obviously negligible dividend
earning capacity compared to common shares.
As shown in PLDTs 2010 GIS, 60 as submitted to the SEC, the
par value of PLDT common shares is P5.00 per share, whereas
the par value of preferred shares is P10.00 per share. In other
words, preferred shares have twice the par value of common
 Page 34 of 35 | Corporation Law Week 1 | amgisidro
shares but cannot elect directors and have only 1/70 of the
dividends of common shares. Moreover, 99.44% of the preferred
shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares.61 Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT
while common shares constitute only 22.15%. 62 This undeniably
shows that beneficial interest in PLDT is not with the non-voting
preferred shares but with the common shares, blatantly violating
the constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipinos in
accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is constitutionally required for
the States grant of authority to operate a public utility. The
undisputed fact that the PLDT preferred shares, 99.44% owned
by Filipinos, are non-voting and earn only 1/70 of the dividends
that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting
stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in
Section 11, Article XII of the Constitution that "[n]o franchise,
certificate, or any other form of authorization for the operation of
a public utility shall be granted except to x x x corporations x x x
organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of
PLDT, which class of shares exercises the sole right to vote in
the election of directors, and thus exercise control over PLDT; (2)
Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus do not
exercise control over PLDT; (3) preferred shares, 99.44% owned
by Filipinos, have no voting rights; (4) preferred shares earn only
1/70 of the dividends that common shares earn; 63 (5) preferred
shares have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the authorized capital
stock of PLDT and common shares only 22.15%. This kind of
ownership and control of a public utility is a mockery of the
Constitution.
Incidentally, the fact that PLDT common shares with a par value
of P5.00 have a current stock market value of P2,328.00 per
share,64 while PLDT preferred shares with a par value of P10.00
per share have a current stock market value ranging from only
P10.92 to P11.06 per share,65 is a glaring confirmation by the
market that control and beneficial ownership of PLDT rest with
the common shares, not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article
XII of the Constitution to include both voting and non-voting
shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a clear
abdication of the States constitutional duty to limit control of
public utilities to Filipino citizens. Such an interpretation certainly
runs counter to the constitutional provision reserving certain
areas of investment to Filipino citizens, such as the exploitation
of natural resources as well as the ownership of land,
educational institutions and advertising businesses. The Court
should never open to foreign control what the Constitution has
expressly reserved to Filipinos for that would be a betrayal of the
Constitution and of the national interest. The Court must perform
its solemn duty to defend and uphold the intent and letter of the
Constitution to ensure, in the words of the Constitution, "a self-
reliant and independent national economy effectively controlled
by Filipinos."
Section 11, Article XII of the Constitution, like other provisions of
the Constitution expressly reserving to Filipinos specific areas of
investment, such as the development of natural resources and
ownership of land, educational institutions and advertising
business, is self-executing. There is no need for legislation to
implement these self-executing provisions of the Constitution.
The rationale why these constitutional provisions are self-
executing was explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act
is necessary to enforce a constitutional mandate, the
presumption now is that all provisions of the constitution are self-
executing. If the constitutional provisions are treated as requiring
legislation instead of self-executing, the legislature would have
the power to ignore and practically nullify the mandate of the
fundamental law. This can be cataclysmic. That is why the
prevailing view is, as it has always been, that
. . . in case of doubt, the Constitution should be considered self-
executing rather than non-self-executing. . . . Unless the
contrary is clearly intended, the provisions of the
Constitution should be considered self-executing, as a
contrary rule would give the legislature discretion to
determine when, or whether, they shall be effective. These
provisions would be subordinated to the will of the lawmaking
body, which could make them entirely meaningless by simply
refusing to pass the needed implementing statute. (Emphasis
supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then
Associate Justice Reynato S. Puno, later Chief Justice, agreed
that constitutional provisions are presumed to be self-executing.
Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as
self-executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they
are not treated as self-executing, the mandate of the
fundamental law ratified by the sovereign people can be
easily ignored and nullified by Congress. Suffused with
wisdom of the ages is the unyielding rule that legislative
actions may give breath to constitutional rights but
congressional inaction should not suffocate them.
 Page 35 of 35 | Corporation Law Week 1 | amgisidro
Thus, we have treated as self-executing the provisions in the Bill
of Rights on arrests, searches and seizures, the rights of a
person under custodial investigation, the rights of an accused,
and the privilege against self-incrimination. It is recognized that
legislation is unnecessary to enable courts to effectuate
constitutional provisions guaranteeing the fundamental rights of
life, liberty and the protection of property. The same treatment is
accorded to constitutional provisions forbidding the taking or
damaging of property for public use without just compensation.
(Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of
implementing legislation, applied directly the provisions of the
1935, 1973 and 1987 Constitutions limiting land ownership to
Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or
consequences of a sale by a citizen of his land to an alien, and
as both the citizen and the alien have violated the law, none of
them should have a recourse against the other, and it should
only be the State that should be allowed to intervene and
determine what is to be done with the property subject of the
violation. We have said that what the State should do or could do
in such matters is a matter of public policy, entirely beyond the
scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et
al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature
has not definitely decided what policy should be followed in
cases of violations against the constitutional prohibition,
courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the
Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-
executing would mean that since the 1935 Constitution, or over
the last 75 years, not one of the constitutional provisions
expressly reserving specific areas of investments to
corporations, at least 60 percent of the "capital" of which is
owned by Filipinos, was enforceable. In short, the framers of the
1935, 1973 and 1987 Constitutions miserably failed to effectively
reserve to Filipinos specific areas of investment, like the
operation by corporations of public utilities, the exploitation by
corporations of mineral resources, the ownership by corporations
of real estate, and the ownership of educational institutions. All
the legislatures that convened since 1935 also miserably failed
to enact legislations to implement these vital constitutional
provisions that determine who will effectively control the national
economy, Filipinos or foreigners. This Court cannot allow such
an absurd interpretation of the Constitution.
This Court has held that the SEC "has both regulatory and
adjudicative functions."69 Under its regulatory functions, the SEC
can be compelled by mandamus to perform its statutory duty
when it unlawfully neglects to perform the same. Under its
adjudicative or quasi-judicial functions, the SEC can be also be
compelled by mandamus to hear and decide a possible violation
of any law it administers or enforces when it is mandated by law
to investigate such violation.1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the
regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where "the required
percentage of ownership of the capital stock to be owned by
citizens of the Philippines has not been complied with as
required by existing laws or the Constitution." Thus, the SEC
is the government agency tasked with the statutory duty to
enforce the nationality requirement prescribed in Section 11,
Article XII of the Constitution on the ownership of public utilities.
This Court, in a petition for declaratory relief that is treated as a
petition for mandamus as in the present case, can direct the
SEC to perform its statutory duty under the law, a duty that the
SEC has apparently unlawfully neglected to do based on the
2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code, 71 the SEC
is vested with the "power and function" to "suspend or revoke,
after proper notice and hearing, the franchise or certificate
of registration of corporations, partnerships or
associations, upon any of the grounds provided by law." The
SEC is mandated under Section 5(d) of the same Code with the
"power and function" to "investigate x x x the activities of
persons to ensure compliance" with the laws and regulations
that SEC administers or enforces. The GIS that all corporations
are required to submit to SEC annually should put the SEC on
guard against violations of the nationality requirement prescribed
in the Constitution and existing laws. This Court can compel the
SEC, in a petition for declaratory relief that is treated as a
petition for mandamus as in the present case, to hear and
decide a possible violation of Section 11, Article XII of the
Constitution in view of the ownership structure of PLDTs voting
shares, as admitted by respondents and as stated in PLDTs
2010 GIS that PLDT submitted to SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that
the term "capital" in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is
DIRECTED to apply this definition of the term "capital" in
determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company, and if
there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.
SO ORDERED.