G.R. No. 101897. March 5, 1993.

LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI,
LYCEUM OF CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC.,
LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF
SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN
PANGASINAN LYCEUM, INC., respondents.

Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.

Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents.

Froilan Siobal for Western Pangasinan Lyceum.

SYLLABUS

1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH

IS IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING CORPORATION,
PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING
OF GEOGRAPHIC NAMES TO THE WORD "LYCEUM". The Articles of Incorporation of a
corporation must, among other things, set out the name of the corporation. Section 18 of the
Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "Section
18. Corporate name. No corporate name may be allowed by the Securities an Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name." The
policy underlying the prohibition in Section 18 against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that of any existing corporation or which is
"patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud
upon the public which would have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision over
corporations. We do not consider that the corporate names of private respondent institutions are
"identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough,
the corporate names of private respondent entities all carry the word "Lyceum" but confusion and
deception are effectively precluded by the appending of geographic names to the word "Lyceum."
Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the
Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the
Lyceum of the Philippines.

2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED
WITH EXCLUSIVITY. It is claimed, however, by petitioner that the word "Lyceum" has acquired a
secondary meaning in relation to petitioner with the result that word, although originally a generic,
has become appropriable by petitioner to the exclusion of other institutions like private respondents
herein. The doctrine of secondary meaning originated in the field of trademark law. Its application
has, however, been extended to corporate names sine the right to use a corporate name to the
exclusion of others is based upon the same principle which underlies the right to use a particular
trademark or tradename. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of
secondary meaning was elaborated in the following terms: " . . . a word or phrase originally
incapable of exclusive appropriation with reference to an article on the market, because
geographically or otherwise descriptive, might nevertheless have been used so long and so
exclusively by one producer with reference to his article that, in that trade and to that branch of the
purchasing public, the word or phrase has come to mean that the article was his product." The
question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate
name has been for such length of time and with such exclusivity as to have become associated or
identified with the petitioner institution in the mind of the general public (or at least that portion of the
general public which has to do with schools). The Court of Appeals recognized this issue and
answered it in the negative: "Under the doctrine of secondary meaning, a word or phrase originally
incapable of exclusive appropriation with reference to an article in the market, because geographical
or otherwise descriptive might nevertheless have been used so long and so exclusively by one
producer with reference to this article that, in that trade and to that group of the purchasing public,
the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro,
74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or
phrase has evolved through the substantial and exclusive use of the same for a considerable period
of time. . . . No evidence was ever presented in the hearing before the Commission which sufficiently
proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If
there was any of this kind, the same tend to prove only that the appellant had been using the
disputed word for a long period of time. . . . In other words, while the appellant may have proved that
it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean
that the said word had acquired secondary meaning in its favor because the appellant failed to prove
that it had been using the same word all by itself to the exclusion of others. More so, there was no
evidence presented to prove that confusion will surely arise if the same word were to be used by
other educational institutions. Consequently, the allegations of the appellant in its first two assigned
errors must necessarily fail." We agree with the Court of Appeals. The number alone of the private
respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not
been attended with the exclusivity essential for applicability of the doctrine of secondary meaning.
Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western
Pangasinan Lyceum and a little later with other private respondent institutions which registered with
the SEC using "Lyceum" as part of their corporation names. There may well be other schools using
Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the
corporate form of organization.

3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE
CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S NAME.
petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum"
in its corporate name and that other institutions may use "Lyceum" as part of their corporate names.
To determine whether a given corporate name is "identical" or "confusingly or deceptively similar"
with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or
"Liceo" in both names. One must evaluate corporate names in their entirety and when the name of
petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as
"identical" or "confusingly or deceptively similar" with each other.
DECISION

FELICIANO, J p:

Petitioner is an educational institution duly registered with the Securities and Exchange Commission
("SEC"). When it first registered with the SEC on 21 September 1950, it used the corporate name
Lyceum of the Philippines, Inc. and has used that name ever since.

On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private
respondents, which are also educational institutions, to delete the word "Lyceum" from their
corporate names and permanently to enjoin them from using "Lyceum" as part of their respective
names.

Some of the private respondents actively participated in the proceedings before the SEC. These are
the following, the dates of their original SEC registration being set out below opposite their
respective names:

Western Pangasinan Lyceum 27 October 1950

Lyceum of Cabagan 31 October 1962

Lyceum of Lallo, Inc. 26 March 1972

Lyceum of Aparri 28 March 1972

Lyceum of Tuao, Inc. 28 March 1972

Lyceum of Camalaniugan 28 March 1972

The following private respondents were declared in default for failure to file an answer despite
service of summons:

Buhi Lyceum;

Central Lyceum of Catanduanes;

Lyceum of Eastern Mindanao, Inc.; and

Lyceum of Southern Philippines

Petitioner's original complaint before the SEC had included three (3) other entities:

1. The Lyceum of Malacanay;

2. The Lyceum of Marbel; and

3. The Lyceum of Araullo

The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum
of Marbel, for failure to serve summons upon these two (2) entities. The case against the Liceum of
Araullo was dismissed when that school motu proprio change its corporate name to "Pamantasan ng
Araullo."

The background of the case at bar needs some recounting. Petitioner had sometime before
commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to
require it to change its corporate name and to adopt another name not "similar [to] or identical" with
that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the
corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical
because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location
of the campus being the only word which distinguished one from the other corporate name. The SEC
also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in
point of time, 1 and ordered the latter to change its name to another name "not similar or identical
[with]" the names of previously registered entities.

The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case
docketed as G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the Court denied
the Petition for Review for lack of merit. Entry of judgment in that case was made on 21 October
1977. 2

Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational
institutions it could find using the word "Lyceum" as part of their corporate name, and advised them
to discontinue such use of "Lyceum." When, with the passage of time, it became clear that this
recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what
petitioner claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a
decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing
officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held
that the word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable
exclusive right to the use of that word.

On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer
was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become
so identified with petitioner as to render use thereof by other institutions as productive of confusion
about the identity of the schools concerned in the mind of the general public. Unlike its hearing
officer, the SEC En Banc held that the attaching of geographical names to the word "Lyceum" served
sufficiently to distinguish the schools from one another, especially in view of the fact that the
campuses of petitioner and those of the private respondents were physically quite remote from each
other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however,
the Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion
for reconsideration, without success.
Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-
46595 did not constitute stare decisis as to apply to this case and in not holding that said Resolution
bound subsequent determinations on the right to exclusive use of the word Lyceum.

2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was
incorporated earlier than petitioner.

3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary
meaning in favor of petitioner.

4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by
the petitioner to the exclusion of others. 5

We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by
noting that the Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res
adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare decisis
pertinent, if only because the SEC En Banc itself has re-examined Associate Commissioner Sulit's
ruling in the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. L-46595 was
not a reasoned adoption of the Sulit ruling.

The Articles of Incorporation of a corporation must, among other things, set out the name of the
corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate
names are concerned:

"SECTION 18. Corporate name. No corporate name may be allowed by the Securities an
Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that
of any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name."
(Emphasis supplied)

The policy underlying the prohibition in Section 18 against the registration of a corporate name which
is "identical or deceptively or confusingly similar" to that of any existing corporation or which is
"patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud
upon the public which would have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision over
corporations. 7

We do not consider that the corporate names of private respondent institutions are "identical with, or
deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate
names of private respondent entities all carry the word "Lyceum" but confusion and deception are
effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not
believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the
Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the
Philippines.

Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a
locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and
adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the
youth for exercise and by the philosopher Aristotle and his followers for teaching." 8 In time, the word
"Lyceum" became associated with schools and other institutions providing public lectures and
concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an
institution of learning. While the Latin word "lyceum" has been incorporated into the English
language, the word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals
noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila,"
"Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact
as generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to
be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently
denotes a secondary school or a college. It may be (though this is a question of fact which we need
not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of
"university," but it is clear that a not inconsiderable number of educational institutions have adopted
"Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or "Liceo" denotes a school or
institution of learning, it is not unnatural to use this word to designate an entity which is organized
and operating as an educational institution.

It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in
relation to petitioner with the result that that word, although originally a generic, has become
appropriable by petitioner to the exclusion of other institutions like private respondents herein.

The doctrine of secondary meaning originated in the field of trademark law. Its application has,
however, been extended to corporate names sine the right to use a corporate name to the exclusion
of others is based upon the same principle which underlies the right to use a particular trademark or
tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary
meaning was elaborated in the following terms:

" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on
the market, because geographically or otherwise descriptive, might nevertheless have been used so
long and so exclusively by one producer with reference to his article that, in that trade and to that
branch of the purchasing public, the word or phrase has come to mean that the article was his
product." 12

The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its
corporate name has been for such length of time and with such exclusivity as to have become
associated or identified with the petitioner institution in the mind of the general public (or at least that
portion of the general public which has to do with schools). The Court of Appeals recognized this
issue and answered it in the negative:

"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long and so exclusively by one producer with
reference to this article that, in that trade and to that group of the purchasing public, the word or
phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56).
This circumstance has been referred to as the distinctiveness into which the name or phrase has
evolved through the substantial and exclusive use of the same for a considerable period of time.
Consequently, the same doctrine or principle cannot be made to apply where the evidence did not
prove that the business (of the plaintiff) has continued for so long a time that it has become of
consequence and acquired a good will of considerable value such that its articles and produce have
acquired a well-known reputation, and confusion will result by the use of the disputed name (by the
defendant) (Ang Si Heng vs. Wellington Department Store, Inc., 92 Phil. 448).

With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned
requisites. No evidence was ever presented in the hearing before the Commission which sufficiently
proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If
there was any of this kind, the same tend to prove only that the appellant had been using the
disputed word for a long period of time. Nevertheless, its (appellant) exclusive use of the word
(Lyceum) was never established or proven as in fact the evidence tend to convey that the cross-
claimant was already using the word 'Lyceum' seventeen (17) years prior to the date the appellant
started using the same word in its corporate name. Furthermore, educational institutions of the
Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de
Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started
using the word 'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so
identified with its educational institution that confusion will surely arise in the minds of the public if
the same word were to be used by other educational institutions.

In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a
long period of time, this fact alone did not amount to mean that the said word had acquired
secondary meaning in its favor because the appellant failed to prove that it had been using the same
word all by itself to the exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational institutions.
Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail."
13 (Underscoring partly in the original and partly supplied)

We agree with the Court of Appeals. The number alone of the private respondents in the case at bar
suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the
exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that
at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term
"Lyceum" seventeen (17) years before the petitioner registered its own corporate name with the SEC
and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right
to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather
than the petitioner institution.

In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to
reconstruct its records before the SEC in accordance with the provisions of R.A. No. 62, which
records had been destroyed during World War II, Western Pangasinan Lyceum should be deemed to
have lost all rights it may have acquired by virtue of its past registration. It might be noted that the
Western Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner had filed its own
registration on 21 September 1950. Whether or not Western Pangasinan Lyceum, Inc. must be
deemed to have lost its rights under its original 1933 registration, appears to us to be quite
secondary in importance; we refer to this earlier registration simply to underscore the fact that
petitioner's use of the word "Lyceum" was neither the first use of that term in the Philippines nor an
exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth
shared with the Western Pangasinan Lyceum and a little later with other private respondent
institutions which registered with the SEC using "Lyceum" as part of their corporation names. There
may well be other schools using Lyceum or Liceo in their names, but not registered with the SEC
because they have not adopted the corporate form of organization.

We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive
right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as
part of their corporate names. To determine whether a given corporate name is "identical" or
"confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain
the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their
entirety and when the name of petitioner is juxtaposed with the names of private respondents, they
are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

WHEREFORE, the petitioner having failed to show any reversible error on the part of the public
respondent Court of Appeals, the Petition for Review is DENIED for lack of merit, and the Decision of
the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

[G.R. No. 137592. December 12, 2001]

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K.

SA BANSANG PILIPINAS, INC. petitioner, vs. IGLESIA NG DIOS
KAY CRISTO JESUS, HALIGI AT SUHAY NG
KATOTOHANAN, respondent.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review assailing the Decision dated October 7, 1997 [1] and the
Resolution dated February 16, 1999[2] of the Court of Appeals in CA-G.R. SP No. 40933, which
affirmed the Decision of the Securities and Exchange and Commission (SEC) in SEC-AC No.
539.[3]

Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of
God in Christ Jesus, the Pillar and Ground of Truth), [4] is a non-stock religious society or
corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members
of respondent corporation disassociated themselves from the latter and succeeded in registering
on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios Kay
Kristo Hesus, Haligi at Saligan ng Katotohanan.

On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia
ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name,
which petition was docketed as SEC Case No. 1774. On May 4, 1988, the SEC rendered
judgment in favor of respondent, ordering the Iglesia ng Dios Kay Kristo Hesus, Haligi at
Saligan ng Katotohanan to change its corporate name to another name that is not similar or
identical to any name already used by a corporation, partnership or association registered with
the Commission.[5] No appeal was taken from said decision.

It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the
registration on April 25, 1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay
Kristo Hesus, H.S.K., sa Bansang Pilipinas. The acronym H.S.K. stands for Haligi at Saligan ng
Katotohanan.[6]

On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC
Case No. 03-94-4704, praying that petitioner be compelled to change its corporate name and be
barred from using the same or similar name on the ground that the same causes confusion among
their members as well as the public.

Petitioner filed a motion to dismiss on the ground of lack of cause of action. The motion to
dismiss was denied. Thereafter, for failure to file an answer, petitioner was declared in default
and respondent was allowed to present its evidence ex parte.

On November 20, 1995, the SEC rendered a decision ordering petitioner to change its
corporate name. The dispositive portion thereof reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner

(respondent herein).

Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa Bansang
Pilipinas (petitioner herein) is hereby MANDATED to change its corporate name to
another not deceptively similar or identical to the same already used by the
Petitioner, any corporation, association, and/or partnership presently registered with
the Commission.
Let a copy of this Decision be furnished the Records Division and the Corporate
and Legal Department [CLD] of this Commission for their records, reference and/or
for whatever requisite action, if any, to be undertaken at their end.

SO ORDERED.[7]

Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-AC No.
539. In a decision dated March 4, 1996, the SEC En Banc affirmed the above decision, upon a
finding that petitioner's corporate name was identical or confusingly or deceptively similar to
that of respondents corporate name.[8]

Petitioner filed a petition for review with the Court of Appeals. On October 7, 1997, the
Court of Appeals rendered the assailed decision affirming the decision of the SEC En
Banc. Petitioners motion for reconsideration was denied by the Court of Appeals on February 16,
1992.

Hence, the instant petition for review, raising the following assignment of errors:

THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT

PETITIONER HAS NOT BEEN DEPRIVED OF ITS RIGHT TO
PROCEDURAL DUE PROCESS, THE HONORABLE COURT OF APPEALS
DISREGARDED THE JURISPRUDENCE APPLICABLE TO THE CASE AT
BAR AND INSTEAD RELIED ON TOTALLY INAPPLICABLE
JURISPRUDENCE.

II

THE HONORABLE COURT OF APPEALS ERRED IN ITS INTEPRETATION

OF THE CIVIL CODE PROVISIONS ON EXTINCTIVE PRESCRIPTION,
THEREBY RESULTING IN ITS FAILURE TO FIND THAT THE
RESPONDENT'S RIGHT OF ACTION TO INSTITUTE THE SEC CASE HAS
SINCE PRESCRIBED PRIOR TO ITS INSTITUTION.

III

THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND

PROPERLY APPLY THE EXCEPTIONS ESTABLISHED BY
 JURISPRUDENCE IN THE APPLICATION OF SECTION 18 OF THE
CORPORATION CODE TO THE INSTANT CASE.

IV

THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY

APPRECIATE THE SCOPE OF THE CONSTITUTIONAL GUARANTEE ON
RELIGIOUS FREEDOM, THEREBY FAILING TO APPLY THE SAME TO
PROTECT PETITIONERS RIGHTS.[9]

Invoking the case of Legarda v. Court of Appeals,[10] petitioner insists that the decision of the
Court of Appeals and the SEC should be set aside because the negligence of its former counsel of
record, Atty. Joaquin Garaygay, in failing to file an answer after its motion to dismiss was denied
by the SEC, deprived them of their day in court.

The contention is without merit. As a general rule, the negligence of counsel binds the
client. This is based on the rule that any act performed by a lawyer within the scope of his
general or implied authority is regarded as an act of his client. [11] An exception to the foregoing is
where the reckless or gross negligence of the counsel deprives the client of due process of law.
[12]
Said exception, however, does not obtain in the present case.

In Legarda v. Court of Appeals, the effort of the counsel in defending his clients cause
consisted in filing a motion for extension of time to file answer before the trial court. When his
client was declared in default, the counsel did nothing and allowed the judgment by default to
become final and executory. Upon the insistence of his client, the counsel filed a petition to annul
the judgment with the Court of Appeals, which denied the petition, and again the counsel
allowed the denial to become final and executory. This Court found the counsel grossly negligent
and consequently declared as null and void the decision adverse to his client.

The factual antecedents of the case at bar are different. Atty. Garaygay filed before the SEC
a motion to dismiss on the ground of lack of cause of action. When his client was declared in
default for failure to file an answer, Atty. Garaygay moved for reconsideration and lifting of the
order of default.[13] After judgment by default was rendered against petitioner corporation, Atty.
Garaygay filed a motion for extension of time to appeal/motion for reconsideration, and
thereafter a motion to set aside the decision.[14]

Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed to file an
answer that led to the rendition of a judgment by default against petitioner, his efforts were
palpably real, albeit bereft of zeal.[15]
 Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the
Court of Appeals, is untenable. Its failure to raise prescription before the SEC can only be
construed as a waiver of that defense.[16] At any rate, the SEC has the authority to de-register at
all times and under all circumstances corporate names which in its estimation are likely to spawn
confusion. It is the duty of the SEC to prevent confusion in the use of corporate names not only
for the protection of the corporations involved but more so for the protection of the public.[17]

Section 18 of the Corporation Code provides:

Corporate Name. --- No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other name already protected by
law or is patently deceptive, confusing or is contrary to existing laws. When a change
in the corporate name is approved, the Commission shall issue an amended certificate
of incorporation under the amended name.

Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:

(d) If the proposed name contains a word similar to a word already used as part of the
firm name or style of a registered company, the proposed name must contain two other
words different from the name of the company already registered;

Parties organizing a corporation must choose a name at their peril; and the use of a name
similar to one adopted by another corporation, whether a business or a nonprofit organization, if
misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may
be prevented by the corporation having a prior right, by a suit for injunction against the new
corporation to prevent the use of the name.[18]

Petitioner claims that it complied with the aforecited SEC guideline by adding not only two
but eight words to their registered name, to wit: Ang Mga Kaanib" and "Sa Bansang Pilipinas,
Inc., which, petitioner argues, effectively distinguished it from respondent corporation.

The additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc. in petitioners name
are, as correctly observed by the SEC, merely descriptive of and also referring to the members,
or kaanib, of respondent who are likewise residing in the Philippines. These words can hardly
serve as an effective differentiating medium necessary to avoid confusion or difficulty in
distinguishing petitioner from respondent. This is especially so, since both petitioner and
respondent corporations are using the same acronym --- H.S.K.;[19] not to mention the fact that
both are espousing religious beliefs and operating in the same place. Parenthetically, it is well to
mention that the acronym H.S.K. used by petitioner stands for Haligi at Saligan ng
Katotohanan.[20]

Then, too, the records reveal that in holding out their corporate name to the public, petitioner
highlights the dominant words IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN
NG KATOTOHANAN, which is strikingly similar to respondent's corporate name, thus making it
even more evident that the additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc., are
merely descriptive of and pertaining to the members of respondent corporation.[21]

Significantly, the only difference between the corporate names of petitioner and respondent
are the words SALIGAN and SUHAY. These words are synonymous --- both mean ground,
foundation or support. Hence, this case is on all fours with Universal Mills Corporation v.
Universal Textile Mills, Inc.,[22] where the Court ruled that the corporate names Universal Mills
Corporation and Universal Textile Mills, Inc., are undisputably so similar that even under the test
of reasonable care and observation confusion may arise.

Furthermore, the wholesale appropriation by petitioner of respondent's corporate name

cannot find justification under the generic word rule. We agree with the Court of Appeals
conclusion that a contrary ruling would encourage other corporations to adopt verbatim and
register an existing and protected corporate name, to the detriment of the public.

The fact that there are other non-stock religious societies or corporations using the names
Church of the Living God, Inc., Church of God Jesus Christ the Son of God the Head, Church of
God in Christ & By the Holy Spirit, and other similar names, is of no consequence. It does not
authorize the use by petitioner of the essential and distinguishing feature of respondent's
registered and protected corporate name.[23]

We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to
change its corporate name is not a violation of its constitutionally guaranteed right to religious
freedom. In so doing, the SEC merely compelled petitioner to abide by one of the SEC
guidelines in the approval of partnership and corporate names, namely its undertaking to
manifest its willingness to change its corporate name in the event another person, firm, or entity
has acquired a prior right to the use of the said firm name or one deceptively or confusingly
similar to it.

WHEREFORE, in view of all the foregoing, the instant petition for review is
DENIED. The appealed decision of the Court of Appeals is AFFIRMED in toto.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Kapunan, and Pardo, JJ., concur.

G.R. No. 104175 June 25, 1993

YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG
ROXAS, respondents.

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

Antonio Nuyles for private respondent.

QUIASON, J.:

Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237,
which reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11,
Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed
by respondent George C. Roxas of the complaint for collection filed by petitioners.

It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by
Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in
Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was
P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of
P4,000,000.00 in four post dated checks of P1,000,000.00 each.

Immediately after the execution of the agreement, Roxas took full control of the four markets of
CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full
payment of the balance of the purchase price.

The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank
but the four other checks representing the balance of P4,000,000.00 were dishonored. In the
meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO
received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).

Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the
sale of the CMDC shares to Nemesio Garcia.

On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11,
Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,00.00 or that full
control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the
forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs
(Rollo, p. 290).
Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed
to do so causing petitioners to file a motion to have him declared in default. Roxas then filed, through
a new counsel, a third motion for extension of time to submit a responsive pleading.

On August 19, 1988, the trial court declared Roxas in default. The order of default was, however,
lifted upon motion of Roxas.

On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:

1. The complaint did not state a cause of action due to non-joinder of indispensable
parties;

2. The claim or demand set forth in the complaint had been waived, abandoned or
otherwise extinguished; and

3. The venue was improperly laid (Rollo, p. 299).

After a hearing, wherein testimonial and documentary evidence were presented by both parties, the
trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said
order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion
for reconsideration, which the trial court denied in its Order dated April 10, 1991 for being pro-
forma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion for
reconsideration did not toll the running of the period to file his answer.

On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
accompanied with the required affidavit or merit. But without waiting for the resolution of the motion,
he filed a petition for certiorari with the Court of Appeals.

The Court of Appeals sustained the findings of the trial court with regard to the first two grounds
raised in the motion to dismiss but ordered the dismissal of the complaint on the ground of improper
venue (Rollo, p. 49).

A subsequent motion for reconsideration by petitioner was to no avail.

Petitioners now come before us, alleging that the Court of Appeals
erred in:

1. holding the venue should be in Pasay City, and not in Cebu City (where both
petitioners/plaintiffs are residents;

2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p.
19).

The petition is meritorious.

In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the
address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708
Dominga Street, Pasay City." This was the same address written in YASCO's letters and several
commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48).

In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three
letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate
court held that Roxas was led by petitioners to believe that their residence is in Pasay City and that
he had relied upon those representations (Decision, p. 12, Rollo, p. 47).

The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.

In the Regional Trial Courts, all personal actions are commenced and tried in the province or city
where the defendant or any of the defendants resides or may be found, or where the plaintiff or any
of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].

There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both
plaintiffs aver in their complaint that they are residents of Cebu City, thus:

1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly
organized and existing under Philippine laws with principal place of business at M. J.
Cuenco Avenue, Cebu City. It also has a branch office at 1708 Dominga Street,
Pasay City, Metro Manila.

Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business
address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . .
(Complaint, p. 1; Rollo, p. 81).

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

THIRD That the place where the principal office of the corporation is to be
established or located is at Cebu City, Philippines (as amended on December 20,
1980 and further amended on December 20, 1984) (Rollo, p. 273).

A corporation has no residence in the same sense in which this term is applied to a natural person.
But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation (Cohen v. Benguet Commercial
Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The
Corporation Code precisely requires each corporation to specify in its articles of incorporation the
"place where the principal office of the corporation is to be located which must be within the
Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a
definite place, instead of allowing it to be ambulatory.

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

If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground
that its principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel
because it misled Roxas to believe that Pasay City was its principal place of business. But this is not
the case before us.

With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its
principal place of business is located, it becomes unnecessary to decide whether Garcia is also a
resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City
as the venue.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is
SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.

SO ORDERED.

G.R. No. 176579 October 9, 2012

HEIRS OF WILSON P. GAMBOA,* Petitioners,

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

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

RESOLUTION

CARPIO, J.:

This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine
Stock Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L.
Nazareno (Nazareno ),3and ( 4) the Securities and Exchange Commission (SEC)4 (collectively,
movants ).

The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe
SEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment
on behalf of the State,6declaring expressly that it agrees with the Court's definition of the term
"capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012,
the OSG reiterated its position consistent with the Court's 28 June 2011 Decision.

We deny the motions for reconsideration.

I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.

As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in
Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In
fact, a resolution of this issue will determine whether Filipinos are masters, or second-class citizens,
in their own country. What is at stake here is whether Filipinos or foreigners will have effective
control of the Philippine national economy. Indeed, if ever there is a legal issue that has far-
reaching implications to the entire nation, and to future generations of Filipinos, it is the threshold
legal issue presented in this case.

Contrary to Pangilinans narrow view, the serious economic consequences resulting in the
interpretation of the term "capital" in Section 11, Article XII of the Constitution undoubtedly demand
an immediate adjudication of this issue. Simply put, the far-reaching implications of this issue
justify the treatment of the petition as one for mandamus.7

In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient to
resolve the case although the petition for declaratory relief could be outrightly dismissed for being
procedurally defective. There, appellant admittedly had already committed a breach of the Public
Service Act in relation to the Anti-Dummy Law since it had been employing non- American aliens
long before the decision in a prior similar case. However, the main issue in Luzon Stevedoring was
of transcendental importance, involving the exercise or enjoyment of rights, franchises, privileges,
properties and businesses which only Filipinos and qualified corporations could exercise or enjoy
under the Constitution and the statutes. Moreover, the same issue could be raised by appellant in an
appropriate action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of
the case for the guidance of all concerned, despite the apparent procedural flaw in the petition.

The circumstances surrounding the present case, such as the supposed procedural defect of the
petition and the pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in
the interest of substantial justice and faithful adherence to the Constitution, we opted to resolve this
case for the guidance of the public and all concerned parties.

II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."

Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been
settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting. In
fact, movants claim that the SEC, which is the administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous opinions. Movants point out that with
the 28 June 2011 Decision, the Court in effect introduced a "new" definition or "midstream
redefinition"9 of the term "capital" in Section 11, Article XII of the Constitution.

This is egregious error.

For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the
term "capital" found in various economic provisions of the 1935, 1973 and 1987 Constitutions. There
has never been a judicial precedent interpreting the term "capital" in the 1935, 1973 and 1987
Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court in
defining the term "capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported
long-standing definition of the term "capital," which supposedly refers to the total outstanding shares
of stock, whether voting or non-voting. To repeat, until the present case there has never been a
Court ruling categorically defining the term "capital" found in the various economic provisions of the
1935, 1973 and 1987 Philippine Constitutions.

The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term
"capital" as referring to both voting and non-voting shares (combined total of common and preferred
shares) are, in the first place, conflicting and inconsistent. There is no basis whatsoever to the claim
that the SEC and the DOJ have consistently and uniformly adopted a definition of the term "capital"
contrary to the definition that this Court adopted in its 28 June 2011 Decision.

In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section
9, Article XIV of the 1973 Constitution was raised, that is, whether the term "capital" includes "both
preferred and common stocks." The issue was raised in relation to a stock-swap transaction
between a Filipino and a Japanese corporation, both stockholders of a domestic corporation that
owned lands in the Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the resulting
ownership structure of the corporation would be unconstitutional because 60% of the voting stock
would be owned by Japanese while Filipinos would own only 40% of the voting stock, although when
the non-voting stock is added, Filipinos would own 60% of the combined voting and non-voting
stock. This ownership structure is remarkably similar to the current ownership structure of
PLDT. Minister Mendoza ruled:

xxxx

Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and
preferred) while the Japanese investors control sixty percent (60%) of the common (voting) shares.

It is your position that x x x since Section 9, Article XIV of the Constitution uses the word
"capital," which is construed "to include both preferred and common shares" and "that
where the law does not distinguish, the courts shall not distinguish."

xxxx

In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in

question may not be constitutionally upheld. While it may be ordinary corporate practice to
classify corporate shares into common voting shares and preferred non-voting shares, any
arrangement which attempts to defeat the constitutional purpose should be eschewed. Thus, the
resultant equity arrangement which would place ownership of 60%11 of the common (voting)
shares in the Japanese group, while retaining 60% of the total percentage of common and
preferred shares in Filipino hands would amount to circumvention of the principle of control
by Philippine stockholders that is implicit in the 60% Philippine nationality requirement in the
Constitution. (Emphasis supplied)

In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9,
Article XIV of the 1973 Constitution includes "both preferred and common stocks" treated as the
same class of shares regardless of differences in voting rights and privileges. Minister Mendoza
stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not
complied with unless the corporation "satisfies the criterion of beneficial ownership" and that in
applying the same "the primordial consideration is situs of control."

On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan
Pantaleon & San Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting
Control Test, that is, using only the voting stock to determine whether a corporation is a Philippine
national. The Opinion states:

Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national
because: (1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a
Philippine national, the Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the
benefit of Philippine nationals. Still pursuant to the Control Test, MLRCs investment in 60% of
BFDCs outstanding capital stock entitled to vote shall be deemed as of Philippine nationality,
thereby qualifying BFDC to own private land.

Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals,
considering that: (1) sixty percent (60%) of their respective outstanding capital stock entitled to
vote is owned by a Philippine national (i.e., by the Trustee, in the case of MLRC; and by MLRC, in
the case of BFDC); and (2) at least 60% of their respective board of directors are Filipino citizens.
(Boldfacing and italicization supplied)

Clearly, these DOJ and SEC opinions are compatible with the Courts interpretation of the 60-40
ownership requirement in favor of Filipino citizens mandated by the Constitution for certain economic
activities. At the same time, these opinions highlight the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the definition of the term "capital" found in the economic
provisions of the Constitution.

The opinions issued by SEC legal officers do not have the force and effect of SEC rules and
regulations because only the SEC en banc can adopt rules and regulations. As expressly provided in
Section 4.6 of the Securities Regulation Code,12 the SEC cannot delegate to any of its individual
Commissioner or staff the power to adopt any rule or regulation. Further, under Section 5.1 of the
same Code, it is the SEC as a collegial body, and not any of its legal officers, that is
empowered to issue opinions and approve rules and regulations. Thus:

4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department
or office of the Commission, an individual Commissioner or staff member of the
Commission except its review or appellate authority and its power to adopt, alter and supplement
any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any
action of any department or office, individual Commissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency
and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:

xxxx

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders;
x x x x (Emphasis supplied)

Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that
have the effect of SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code,
only the SEC en banc can "issue opinions" that have the force and effect of rules or regulations.
Section 4.6 of the Code bars the SEC en banc from delegating to any individual Commissioner or
staff the power to adopt rules or regulations. In short, any opinion of individual Commissioners
or SEC legal officers does not constitute a rule or regulation of the SEC.

The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual
commissioners or legal staff, is empowered to issue opinions which have the same binding effect as
SEC rules and regulations, thus:

JUSTICE CARPIO:

So, under the law, it is the Commission En Banc that can issue an

SEC Opinion, correct?

COMMISSIONER GAITE:13

Thats correct, Your Honor.

JUSTICE CARPIO:

Can the Commission En Banc delegate this function to an SEC officer?

COMMISSIONER GAITE:

Yes, Your Honor, we have delegated it to the General Counsel.

JUSTICE CARPIO:

It can be delegated. What cannot be delegated by the Commission En Banc to a

commissioner or an individual employee of the Commission?

COMMISSIONER GAITE:

Novel opinions that [have] to be decided by the En Banc...

JUSTICE CARPIO:

What cannot be delegated, among others, is the power to adopt or amend rules and
regulations, correct?

COMMISSIONER GAITE:

Thats correct, Your Honor.

JUSTICE CARPIO:
 So, you combine the two (2), the SEC officer, if delegated that power, can issue
an opinion but that opinion does not constitute a rule or regulation, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, all of these opinions that you mentioned they are not rules and regulations,
correct?

COMMISSIONER GAITE:

They are not rules and regulations.

JUSTICE CARPIO:

If they are not rules and regulations, they apply only to that particular situation and
will not constitute a precedent, correct?

COMMISSIONER GAITE:

Yes, Your Honor.14 (Emphasis supplied)

Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and
opinions on behalf of the SEC, has adopted even the Grandfather Rule in determining compliance
with the 60-40 ownership requirement in favor of Filipino citizens mandated by the Constitution for
certain economic activities. This prevailing SEC ruling, which the SEC correctly adopted to thwart
any circumvention of the required Filipino "ownership and control," is laid down in the 25 March
2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to
wit:

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our
natural resources. Necessarily, therefore, the Rule interpreting the constitutional provision
should not diminish that right through the legal fiction of corporate ownership and control.
But the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored
foreigners contrary to the command of the Constitution. Hence, the Grandfather Rule must be
applied to accurately determine the actual participation, both direct and indirect, of
foreigners in a corporation engaged in a nationalized activity or business.

Compliance with the constitutional limitation(s) on engaging in nationalized activities must be

determined by ascertaining if 60% of the investing corporations outstanding capital stock is owned
by "Filipino citizens", or as interpreted, by natural or individual Filipino citizens. If such investing
corporation is in turn owned to some extent by another investing corporation, the same process must
be observed. One must not stop until the citizenships of the individual or natural stockholders of
layer after layer of investing corporations have been established, the very essence of the
Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather
Rule. In one of the discussions on what is now Article XII of the present Constitution, the framers
made the following exchange:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with the question: Where do we base the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law
Center who provided us a draft. The phrase that is contained here which we adopted from the UP
draft is 60 percent of voting stock.

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

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

MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)

This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution to engage in certain economic activities
applies not only to voting control of the corporation, but also to the beneficial ownership of the
corporation. Thus, in our 28 June 2011 Decision we stated:

Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent
of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."
(Emphasis supplied)

Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine
whether a corporation is a "Philippine national."

The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions
which respondents relied upon, is merely preliminary and an opinion only of such officers. To repeat,
any such opinion does not constitute an SEC rule or regulation. In fact, many of these opinions
contain a disclaimer which expressly states: "x x x the foregoing opinion is based solely on facts
disclosed in your query and relevant only to the particular issue raised therein and shall not be
used in the nature of a standing rule binding upon the Commission in other cases whether of
similar or dissimilar circumstances."16 Thus, the opinions clearly make a caveat that they do not
constitute binding precedents on any one, not even on the SEC itself.

Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither
conclusive nor controlling and thus, do not bind the Court. It is hornbook doctrine that any
interpretation of the law that administrative or quasi-judicial agencies make is only preliminary, never
conclusive on the Court. The power to make a final interpretation of the law, in this case the term
"capital" in Section 11, Article XII of the 1987 Constitution, lies with this Court, not with any other
government entity.

In his motion for reconsideration, the PSE President cites the cases of National Telecommunications
Commission v. Court of Appeals17 and Philippine Long Distance Telephone Company v. National
Telecommunications Commission18 in arguing that the Court has already defined the term "capital" in
Section 11, Article XII of the 1987 Constitution.19

The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of
Appeals20 and Philippine Long Distance Telephone Company v. National Telecommunications
Commission,21 the Court did not define the term "capital" as found in Section 11, Article XII of the
1987 Constitution. In fact, these two cases never mentioned, discussed or cited Section 11,
Article XII of the Constitution or any of its economic provisions, and thus cannot serve as
precedent in the interpretation of Section 11, Article XII of the Constitution. These two cases
dealt solely with the determination of the correct regulatory fees under Section 40(e) and (f) of the
Public Service Act, to wit:

(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of
other public services and/or in the regulation or fixing of their rates, twenty centavos for each one
hundred pesos or fraction thereof, of the capital stock subscribed or paid, or if no shares have
been issued, of the capital invested, or of the property and equipment whichever is higher.

(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or
fraction thereof, of the increased capital. (Emphasis supplied)

The Courts interpretation in these two cases of the terms "capital stock subscribed or paid," "capital
stock" and "capital" does not pertain to, and cannot control, the definition of the term "capital" as
used in Section 11, Article XII of the Constitution, or any of the economic provisions of the
Constitution where the term "capital" is found. The definition of the term "capital" found in the
Constitution must not be taken out of context. A careful reading of these two cases reveals that the
terms "capital stock subscribed or paid," "capital stock" and "capital" were defined solely to
determine the basis for computing the supervision and regulation fees under Section 40(e) and (f) of
the Public Service Act.

III.
Filipinization of Public Utilities

The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies
the ideals that the Constitution intends to achieve.22 The Preamble reads:

We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and
humane society, and establish a Government that shall embody our ideals and aspirations, promote
the common good, conserve and develop our patrimony, and secure to ourselves and our
posterity, the blessings of independence and democracy under the rule of law and a regime of truth,
justice, freedom, love, equality, and peace, do ordain and promulgate this Constitution. (Emphasis
supplied)

Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy
the development of a national economy "effectively controlled" by Filipinos:

Section 19. The State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos.

Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when
the national interest dictates, reserve to citizens of the Philippines or to corporations or associations
at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as
Congress may prescribe, certain areas of investments. The Congress shall enact measures that will
encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the
State shall give preference to qualified Filipinos.

The State shall regulate and exercise authority over foreign investments within its national
jurisdiction and in accordance with its national goals and priorities.23

Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the
Philippines or to corporations or associations at least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress may prescribe, certain areas of investments."
Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of
these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises
or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic
Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009
or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.

With respect to public utilities, the 1987 Constitution specifically ordains:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right
be granted except under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied)

This provision, which mandates the Filipinization of public utilities, requires that any form of
authorization for the operation of public utilities shall be granted only to "citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines at least sixty per centum
of whose capital is owned by such citizens." "The provision is [an express] recognition of the
sensitive and vital position of public utilities both in the national economy and for national
security."24

The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1)
Filipino citizens, or (2) corporations or associations at least 60 percent of whose "capital" is owned
by Filipino citizens. Hence, in the case of individuals, only Filipino citizens can validly own and
operate a public utility. In the case of corporations or associations, at least 60 percent of their
"capital" must be owned by Filipino citizens. In other words, under Section 11, Article XII of the
1987 Constitution, to own and operate a public utility a corporations capital must at least be
60 percent owned by Philippine nationals.

IV.
Definition of "Philippine National"

Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress
enacted Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which
defined a "Philippine national" as follows:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws
of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a corporation organized
abroad and registered as doing business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where
the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must
be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of
the Board of Directors of each of both corporations must be citizens of the Philippines, in order that
the corporation, shall be considered a "Philippine national." (Boldfacing, italicization and
underscoring supplied)

Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a
domestic corporation at least "60% of the capital stock outstanding and entitled to vote" is
owned by Philippine citizens.

The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in
its predecessor statute, Executive Order No. 226 or the Omnibus Investments Code of 1987,25 which
was issued by then President Corazon C. Aquino. Article 15 of this Code states:

Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or
association wholly-owned by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty per cent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee
of funds for pension or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to
vote of both corporations must be owned and held by the citizens of the Philippines and at least sixty
per cent (60%) of the members of the Board of Directors of both corporations must be citizens of the
Philippines in order that the corporation shall be considered a Philippine national. (Boldfacing,
italicization and underscoring supplied)

Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a
Philippine national x x x shall do business

x x x in the Philippines x x x without first securing from the Board of Investments a written certificate
to the effect that such business or economic activity x x x would not conflict with the Constitution or
laws of the Philippines."27Thus, a "non-Philippine national" cannot own and operate a reserved
economic activity like a public utility. This means, of course, that only a "Philippine national" can own
and operate a public utility.

In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of
1987 was a reiteration of the meaning of such term as provided in Article 14 of the Omnibus
Investments Code of 1981,28 to wit:

Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws
of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for
pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its non-Filipino stockholders own stock in a registered
enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the Philippines and at least sixty per cent
(60%) of the members of the Board of Directors of both corporations must be citizens of the
Philippines in order that the corporation shall be considered a Philippine national. (Boldfacing,
italicization and underscoring supplied)

Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a
Philippine national x x x shall do business x x x in the Philippines x x x without first securing a
written certificate from the Board of Investments to the effect that such business or economic activity
x x x would not conflict with the Constitution or laws of the Philippines." 29 Thus, a "non-Philippine
national" cannot own and operate a reserved economic activity like a public utility. Again, this means
that only a "Philippine national" can own and operate a public utility.

Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the Investment
Incentives Act, which took effect on 16 September 1967, contained a similar definition of a
"Philippine national," to wit:

(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly
owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty per cent of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine National and at least
sixty per cent of the fund will accrue to the benefit of Philippine Nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per
cent of the capital stock outstanding and entitled to vote of both corporations must be owned and
held by the citizens of the Philippines and at least sixty per cent of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order that the corporation shall
be considered a Philippine National. (Boldfacing, italicization and underscoring supplied)

Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect
on 30 September 1968, if the investment in a domestic enterprise by non-Philippine nationals
exceeds 30% of its outstanding capital stock, such enterprise must obtain prior approval from the
Board of Investments before accepting such investment. Such approval shall not be granted if the
investment "would conflict with existing constitutional provisions and laws regulating the degree of
required ownership by Philippine nationals in the enterprise." 31 A "non-Philippine national" cannot
own and operate a reserved economic activity like a public utility. Again, this means that only a
"Philippine national" can own and operate a public utility.

The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino
citizen, or a domestic corporation "at least sixty percent (60%) of the capital stock
outstanding and entitled to vote" is owned by Filipino citizens. A domestic corporation is a
"Philippine national" only if at least 60% of its voting stock is owned by Filipino citizens. This
definition of a "Philippine national" is crucial in the present case because the FIA reiterates and
clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and operation of
public utilities to Filipino citizens or to corporations or associations at least 60% Filipino-owned.

The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature
of business and area of investment. The FIA spells out the procedures by which non-Philippine
nationals can invest in the Philippines. Among the key features of this law is the concept of a
negative list or the Foreign Investments Negative List.32 Section 8 of the law states:

SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment

Negative List]. - The Foreign Investment Negative List shall have two 2 component lists: A and B:

a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate
of the Constitution and specific laws.

b. List B shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from the
Department of National Defense [DND] to engage in such activity, such as the manufacture, repair,
storage and/or distribution of firearms, ammunition, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non-Philippine national by the Secretary of
National Defense; or

2. which have implications on public health and morals, such as the manufacture and distribution of
dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and
steam bathhouses and massage clinics. (Boldfacing, underscoring and italicization supplied)

Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign
Investment Negative List A consists of "areas of activities reserved to Philippine nationals by
mandate of the Constitution and specific laws," where foreign equity participation in any
enterprise shall be limited to the maximum percentage expressly prescribed by the
Constitution and other specific laws. In short, to own and operate a public utility in the
Philippines one must be a "Philippine national" as defined in the FIA. The FIA is abundant
notice to foreign investors to what extent they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the
ownership and operation of public utilities, which the Constitution expressly reserves to Filipino
citizens and to corporations at least 60% owned by Filipino citizens. In other words, Negative List
A of the FIA reserves the ownership and operation of public utilities only to "Philippine
nationals," defined in Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) a
corporation organized under the laws of the Philippines of which at least sixty percent (60%)
of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or (4) a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or
other employee retirement or separation benefits, where the trustee is a Philippine national and at
least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals."

Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus
Investments Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the
passage of the present Foreign Investments Act of 1991, or for more than four decades, the
statutory definition of the term "Philippine national" has been uniform and consistent: it
means a Filipino citizen, or a domestic corporation at least 60% of the voting stock is owned
by Filipinos. Likewise, these same statutes have uniformly and consistently required that
only "Philippine nationals" could own and operate public utilities in the Philippines. The
following exchange during the Oral Arguments is revealing:

JUSTICE CARPIO:

Counsel, I have some questions. You are aware of the Foreign Investments Act of
1991, x x x? And the FIA of 1991 took effect in 1991, correct? Thats over twenty (20)
years ago, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine
nationals can own and operate public utilities[], correct?

COMMISSIONER GAITE:

Yes, Your Honor.

JUSTICE CARPIO:

And the same Foreign Investments Act of 1991 defines a "Philippine national" either
as a citizen of the Philippines, or if it is a corporation at least sixty percent (60%) of
the voting stock is owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And, you are also aware that under the predecessor law of the Foreign Investments
Act of 1991, the Omnibus Investments Act of 1987, the same provisions apply: x x x
only Philippine nationals can own and operate a public utility and the Philippine
national, if it is a corporation, x x x sixty percent (60%) of the capital stock of that
corporation must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to the Omnibus Investments Act of 1987, under the Omnibus
Investments Act of 1981, the same rules apply: x x x only a Philippine national can
own and operate a public utility and a Philippine national, if it is a corporation, sixty
percent (60%) of its x x x voting stock, must be owned by citizens of the Philippines,
correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to that, under [the]1967 Investments Incentives Act and the Foreign
Company Act of 1968, the same rules applied, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, for the last four (4) decades, x x x, the law has been very consistent only
a Philippine national can own and operate a public utility, and a Philippine
national, if it is a corporation, x x x at least sixty percent (60%) of the voting
stock must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.33 (Emphasis supplied)

Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which
categorically prescribe that certain economic activities, like the ownership and operation of public
utilities, are reserved to corporations "at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines." Foreign
Investment Negative List A refers to "activities reserved to Philippine nationals by mandate of the
Constitution and specific laws." The FIA is the basic statute regulating foreign investments in
the Philippines. Government agencies tasked with regulating or monitoring foreign investments, as
well as counsels of foreign investors, should start with the FIA in determining to what extent a
particular foreign investment is allowed in the Philippines. Foreign investors and their counsels who
ignore the FIA do so at their own peril. Foreign investors and their counsels who rely on opinions of
SEC legal officers that obviously contradict the FIA do so also at their own peril.

Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise
a red flag. There are already numerous opinions of SEC legal officers that cite the definition of a
"Philippine national" in Section 3(a) of the FIA in determining whether a particular corporation is
qualified to own and operate a nationalized or partially nationalized business in the Philippines. This
shows that SEC legal officers are not only aware of, but also rely on and invoke, the provisions of
the FIA in ascertaining the eligibility of a corporation to engage in partially nationalized industries.
The following are some of such opinions:

1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;

2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine

Overseas Employment Administration;

3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S.

Calma;

4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;

5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los
Angeles;

6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and

7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S.
Arbolado.

The SEC legal officers occasional but blatant disregard of the definition of the term "Philippine
national" in the FIA signifies their lack of integrity and competence in resolving issues on the 60-40
ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.

The PSE President argues that the term "Philippine national" defined in the FIA should be limited
and interpreted to refer to corporations seeking to avail of tax and fiscal incentives under investment
incentives laws and cannot be equated with the term "capital" in Section 11, Article XII of the 1987
Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes do not apply to
"companies which have not registered and obtained special incentives under the schemes
established by those laws."

Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any
enterprise. Tax and fiscal incentives to investments are granted separately under the Omnibus
Investments Code of 1987, not under the FIA. In fact, the FIA expressly repealed Articles 44 to 56 of
Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign
investments in nationalized or partially nationalized industries.

The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized
industries. There is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its
predecessor statutes, that states, expressly or impliedly, that the FIA or its predecessor statutes do
not apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and its
predecessor statutes apply to investments in all domestic enterprises, whether or not such
enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of 1987 or its
predecessor statutes. The reason is quite obvious mere non-availment of tax and fiscal
incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the
Constitution regulating foreign investments in public utilities. In fact, the Board of
Investments Primer on Investment Policies in the Philippines,34 which is given out to foreign
investors, provides:

PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES

Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives,
(i.e., the activity is not listed in the IPP, and they are not exporting at least 70% of their production)
may go ahead and make the investments without seeking incentives. They only have to be guided
by the Foreign Investments Negative List (FINL).

The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas
outside of this list are fully open to foreign investors. (Emphasis supplied)

V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.

The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the
Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. To repeat, we held:

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent
of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."
(Emphasis supplied)

This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is
held by "a trustee of funds for pension or other employee retirement or separation benefits," the
trustee is a Philippine national if "at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of the FIA provides that "for
stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights, is essential."

Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to
voting control of the corporation but also to the beneficial ownership of the corporation, it is therefore
imperative that such requirement apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a corporation. Under the
Corporation Code, capital stock35 consists of all classes of shares issued to stockholders, that is,
common shares as well as preferred shares, which may have different rights, privileges or
restrictions as stated in the articles of incorporation. 36

The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific corporate matters. Thus, common shares have the
right to vote in the election of directors, while preferred shares may be denied such right.
Nonetheless, preferred shares, even if denied the right to vote in the election of directors, are
entitled to vote on the following corporate matters: (1) amendment of articles of incorporation; (2)
increase and decrease of capital stock; (3) incurring, creating or increasing bonded indebtedness;
(4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investment of
funds in another business or corporation or for a purpose other than the primary purpose for which
the corporation was organized; (6) adoption, amendment and repeal of by-laws; (7) merger and
consolidation; and (8) dissolution of corporation. 37

Since a specific class of shares may have rights and privileges or restrictions different from the rest
of the shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution must apply not only to shares with voting rights but also to
shares without voting rights. Preferred shares, denied the right to vote in the election of directors, are
anyway still entitled to vote on the eight specific corporate matters mentioned above. Thus, if a
corporation, engaged in a partially nationalized industry, issues a mixture of common and
preferred non-voting shares, at least 60 percent of the common shares and at least 60
percent of the preferred non-voting shares must be owned by Filipinos. Of course, if a
corporation issues only a single class of shares, at least 60 percent of such shares must necessarily
be owned by Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens
must apply separately to each class of shares, whether common, preferred non-voting,
preferred voting or any other class of shares. This uniform application of the 60-40 ownership
requirement in favor of Filipino citizens clearly breathes life to the constitutional command that the
ownership and operation of public utilities shall be reserved exclusively to corporations at least 60
percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership requirement in
favor of Filipino citizens to each class of shares, regardless of differences in voting rights, privileges
and restrictions, guarantees effective Filipino control of public utilities, as mandated by the
Constitution.

Moreover, such uniform application to each class of shares insures that the "controlling interest" in
public utilities always lies in the hands of Filipino citizens. This addresses and extinguishes
Pangilinans worry that foreigners, owning most of the non-voting shares, will exercise greater
control over fundamental corporate matters requiring two-thirds or majority vote of all shareholders.

VI.
Intent of the framers of the Constitution

While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the
Constitutional Commission to support his claim that the term "capital" refers to the total outstanding
shares of stock, whether voting or non-voting, the following excerpts of the deliberations reveal
otherwise. It is clear from the following exchange that the term "capital" refers to controlling
interest of a corporation, thus:

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.39

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock
or controlling interest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
"corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be
owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us
say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the
Filipinos own the nonvoting shares. So we can have a situation where the corporation is
controlled by foreigners despite being the minority because they have the voting capital. That
is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not
have stocks. That is why we say "CAPITAL."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed.40 (Boldfacing and underscoring
supplied)

Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the
corporation.

The use of the term "capital" was intended to replace the word "stock" because associations without
stocks can operate public utilities as long as they meet the 60-40 ownership requirement in favor of
Filipino citizens prescribed in Section 11, Article XII of the Constitution. However, this did not change
the intent of the framers of the Constitution to reserve exclusively to Philippine nationals the
"controlling interest" in public utilities.

During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the
nationalists in the Convention."41 The same battle-cry resulted in the nationalization of the public
utilities.42 This is also the same intent of the framers of the 1987 Constitution who adopted the exact
formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations in partially
nationalized industries.

The OSG, in its own behalf and as counsel for the State,43 agrees fully with the Courts interpretation
of the term "capital." In its Consolidated Comment, the OSG explains that the deletion of the phrase
"controlling interest" and replacement of the word "stock" with the term "capital" were intended
specifically to extend the scope of the entities qualified to operate public utilities to include
associations without stocks. The framers omission of the phrase "controlling interest" did not mean
the inclusion of all shares of stock, whether voting or non-voting. The OSG reiterated essentially the
Courts declaration that the Constitution reserved exclusively to Philippine nationals the ownership
and operation of public utilities consistent with the States policy to "develop a self-reliant and
independent national economy effectively controlled by Filipinos."

As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total
outstanding capital stock, treated as a single class regardless of the actual classification of shares,
grossly contravenes the intent and letter of the Constitution that the "State shall develop a self-reliant
and independent national economy effectively controlled by Filipinos." We illustrated the glaring
anomaly which would result in defining the term "capital" as the total outstanding capital stock of a
corporation, treated as a single class of shares regardless of the actual classification of shares, to
wit:

Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-
voting preferred shares owned by Filipinos, with both classes of share having a par value of one
peso (P 1.00) 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. x x x
Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino
board of directors, this situation does not guarantee Filipino control and does not in any way cure the
violation of the Constitution. The independence of the Filipino board members so elected by such
foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice George
Sutherlands words in Humphreys Executor v. US,44 "x x x it is quite evident that one who holds his
office only during the pleasure of another cannot be depended upon to maintain an attitude of
independence against the latters will." Allowing foreign shareholders to elect a controlling majority of
the board, even if all the directors are Filipinos, grossly circumvents the letter and intent of the
Constitution and defeats the very purpose of our nationalization laws.

VII.
Last sentence of Section 11, Article XII of the Constitution

The last sentence of Section 11, Article XII of the 1987 Constitution reads:

The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.

During the Oral Arguments, the OSG emphasized that there was never a question on the intent of
the framers of the Constitution to limit foreign ownership, and assure majority Filipino ownership and
control of public utilities. The OSG argued, "while the delegates disagreed as to the percentage
threshold to adopt, x x x the records show they clearly understood that Filipino control of the public
utility corporation can only be and is obtained only through the election of a majority of the members
of the board."

Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23
August 1986 was the extent of majority Filipino control of public utilities. This is evident from the
following exchange:

THE PRESIDENT. Commissioner Jamir is recognized.

MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase
"two thirds of whose voting stock or controlling interest," and instead substitute the words "SIXTY
PERCENT OF WHOSE CAPITAL" so that the sentence will read: "No franchise, certificate, or any
other form of authorization for the operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized under the laws of the Philippines at least
SIXTY PERCENT OF WHOSE CAPITAL is owned by such citizens."

xxxx

THE PRESIDENT: Will Commissioner Jamir first explain?

MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous
sections in which we fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is
only in this Section 15 with respect to public utilities that the committee proposal was increased to
two-thirds. I think it would be better to harmonize this provision by providing that even in the case of
public utilities, the minimum equity for Filipino citizens should be 60 percent.

MR. ROMULO. Madam President.

THE PRESIDENT. Commissioner Romulo is recognized.

MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had
with representatives of the Filipino majority owners of the international record carriers, and the
subsequent memoranda they submitted to me. x x x

Their second point is that under the Corporation Code, the management and control of a corporation
is vested in the board of directors, not in the officers but in the board of directors. The officers are
only agents of the board. And they believe that with 60 percent of the equity, the Filipino majority
stockholders undeniably control the board. Only on important corporate acts can the 40-percent
foreign equity exercise a veto, x x x.

x x x x45

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. Commissioner Rosario Braid is recognized.

MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by
the spokesman of the Philippine Chamber of Communications on why they would like to maintain the
present equity, I am referring to the 66 2/3. They would prefer to have a 75-25 ratio but would settle
for 66 2/3. x x x

xxxx

THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-
thirds rather than the 60 percent?

MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino
citizens.

x x x x46

While they had differing views on the percentage of Filipino ownership of capital, it is clear that the
framers of the Constitution intended public utilities to be majority Filipino-owned and controlled. To
ensure that Filipinos control public utilities, the framers of the Constitution approved, as additional
safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution
commanding that "[t]he participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the Philippines." In other
words, the last sentence of Section 11, Article XII of the Constitution mandates that (1) the
participation of foreign investors in the governing body of the corporation or association shall be
limited to their proportionate share in the capital of such entity; and (2) all officers of the corporation
or association must be Filipino citizens.

Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of
the corporation or association to be Filipino citizens specifically to prevent management contracts,
which were designed primarily to circumvent the Filipinization of public utilities, and to assure Filipino
control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a
phrase which states: "THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION
SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me
their position paper.

THE PRESIDENT. The Commissioner may proceed.

MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which
Commissioner Romulo mentioned Philippine Global Communications, Eastern
Telecommunications, Globe Mackay Cable are 40-percent owned by foreign multinational
companies and 60-percent owned by their respective Filipino partners. All three, however, also have
management contracts with these foreign companies Philcom with RCA, ETPI with Cable and
Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of these carriers
are foreigners. While the foreigners in these common carriers are only minority owners, the foreign
multinationals are the ones managing and controlling their operations by virtue of their management
contracts and by virtue of their strength in the governing bodies of these carriers. 47

xxxx

MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an
amendment with respect to the operating management of public utilities, and in this amendment, we
are associated with Fr. Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will
state this amendment now.

Thank you.

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. This is still on Section 15.

MS. ROSARIO BRAID. Yes.

MR. VILLEGAS. Yes, Madam President.

xxxx

MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED
BY CITIZENS OF THE PHILIPPINES."

This will prevent management contracts and assure control by Filipino citizens. Will the
committee assure us that this amendment will insure that past activities such as management
contracts will no longer be possible under this amendment?

xxxx

FR. BERNAS. Madam President.

THE PRESIDENT. Commissioner Bernas is recognized.

FR. BERNAS. Will the committee accept a reformulation of the first part?
MR. BENGZON. Let us hear it.

FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads:
"THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC
UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF AND..."

MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS
AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. BENGZON. Will Commissioner Bernas read the whole thing again?

FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF

ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF..." I do not have the rest of the copy.

MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that
correct?

MR. VILLEGAS. Yes.

MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the
amendment. Is that all right with Commissioner Rosario Braid?

MS. ROSARIO BRAID. Yes.

xxxx

MR. DE LOS REYES. The governing body refers to the board of directors and trustees.

MR. VILLEGAS. That is right.

MR. BENGZON. Yes, the governing body refers to the board of directors.

MR. REGALADO. It is accepted.

MR. RAMA. The body is now ready to vote, Madam President.

VOTING

xxxx

The results show 29 votes in favor and none against; so the proposed amendment is approved.

xxxx

THE PRESIDENT. All right. Can we proceed now to vote on Section 15?

MR. RAMA. Yes, Madam President.

THE PRESIDENT. Will the chairman of the committee please read Section 15?

MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate, or any other
form of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least 60
PERCENT OF WHOSE CAPITAL is owned by such citizens." May I request Commissioner Bengzon
to please continue reading.

MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY

OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE
SHARE IN THE CAPITAL THEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF
SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE

EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS
RENEWABLE FOR NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public."

VOTING

xxxx

The results show 29 votes in favor and 4 against; Section 15, as amended, is approved. 48 (Emphasis
supplied)

The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the
limited participation of foreign investors in the governing body of public utilities, is a reiteration of the
last sentence of Section 5, Article XIV of the 1973 Constitution,49 signifying its importance in
reserving ownership and control of public utilities to Filipino citizens.

VIII.
The undisputed facts

There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of
the common shares of PLDT, which class of shares exercises the sole right to vote in the election of
directors, and thus foreigners control PLDT; (2) Filipinos own only 35.73% of PLDTs common
shares, constituting a minority of the voting stock, and thus Filipinos do not control PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only
1/70 of the dividends that common shares earn;50 (5) preferred shares have twice the par value of
common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT
and common shares only 22.15%.

Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the
question of whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the 1987 Constitution. Such question indisputably calls for a presentation
and determination of evidence through a hearing, which is generally outside the province of the
Courts jurisdiction, but well within the SECs statutory powers. Thus, for obvious reasons, the Court
limited its decision on the purely legal and threshold issue on the definition of the term "capital" in
Section 11, Article XII of the Constitution and directed the SEC to apply such definition in determining
the exact percentage of foreign ownership in PLDT.

IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.

In his petition, Gamboa prays, among others:

xxxx

5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is
the sole basis in determining foreign equity in a public utility and that any other government rulings,
opinions, and regulations inconsistent with this declaratory relief be declared unconstitutional and a
violation of the intent and spirit of the 1987 Constitution;

6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in
excess of 40 percent of the total subscribed common shareholdings; and

7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine
Stock Exchange to require PLDT to make a public disclosure of all of its foreign shareholdings
and their actual and real beneficial owners.

Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)

As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its
statutory duty to investigate whether "the required percentage of ownership of the capital stock to be
owned by citizens of the Philippines has been complied with [by PLDT] as required by x x x the
Constitution."51 Such plea clearly negates SECs argument that it was not impleaded.

Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to
order the SECs compliance with its directive contained in the 28 June 2011 Decision in view of the
far-reaching implications of this case. In Domingo v. Scheer,52 the Court dispensed with the
amendment of the pleadings to implead the Bureau of Customs considering (1) the unique backdrop
of the case; (2) the utmost need to avoid further delays; and (3) the issue of public interest involved.
The Court held:

The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition
should not be dismissed because the second action would only be a repetition of the first.
In Salvador, et al., v. Court of Appeals, et al., we held that this Court has full powers, apart from that
power and authority which is inherent, to amend the processes, pleadings, proceedings and
decisions by substituting as party-plaintiff the real party-in-interest. The Court has the power to
avoid delay in the disposition of this case, to order its amendment as to implead the BOC as
party-respondent. Indeed, it may no longer be necessary to do so taking into account the
unique backdrop in this case, involving as it does an issue of public interest. After all, the
Office of the Solicitor General has represented the petitioner in the instant proceedings, as well as in
the appellate court, and maintained the validity of the deportation order and of the BOCs Omnibus
Resolution. It cannot, thus, be claimed by the State that the BOC was not afforded its day in court,
simply because only the petitioner, the Chairperson of the BOC, was the respondent in the CA, and
the petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings, their forms or contents. Their sole
purpose is to facilitate the application of justice to the rival claims of contending
parties. They were created, not to hinder and delay, but to facilitate and promote, the administration
of justice. They do not constitute the thing itself, which courts are always striving to secure to
litigants. They are designed as the means best adapted to obtain that thing. In other words, they are
a means to an end. When they lose the character of the one and become the other, the
administration of justice is at fault and courts are correspondingly remiss in the performance of their
obvious duty.53(Emphasis supplied)

In any event, the SEC has expressly manifested54 that it will abide by the Courts decision and
defer to the Courts definition of the term "capital" in Section 11, Article XII of the
Constitution. Further, the SEC entered its special appearance in this case and argued during
the Oral Arguments, indicating its submission to the Courts jurisdiction. It is clear, therefore,
that there exists no legal impediment against the proper and immediate implementation of
the Courts directive to the SEC.

PLDT is an indispensable party only insofar as the other issues, particularly the factual questions,
are concerned. In other words, PLDT must be impleaded in order to fully resolve the issues on (1)
whether the sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign
ownership of PLDT; (2) whether the sale of common shares to foreigners exceeded the 40 percent
limit on foreign equity in PLDT; and (3) whether the total percentage of the PLDT common shares
with voting rights complies with the 60-40 ownership requirement in favor of Filipino citizens under
the Constitution for the ownership and operation of PLDT. These issues indisputably call for an
examination of the parties respective evidence, and thus are clearly within the jurisdiction of the
SEC. In short, PLDT must be impleaded, and must necessarily be heard, in the proceedings before
the SEC where the factual issues will be thoroughly threshed out and resolved.

Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the
factual issues raised by Gamboa, except the single and purely legal issue on the definition of the
term "capital" in Section 11, Article XII of the Constitution. The Court confined the resolution of the
instant case to this threshold legal issue in deference to the fact-finding power of the SEC.

Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in
this case even without the participation of PLDT since defining the term "capital" in Section 11,
Article XII of the Constitution does not, in any way, depend on whether PLDT was impleaded. Simply
put, PLDT is not indispensable for a complete resolution of the purely legal question in this case. 55 In
fact, the Court, by treating the petition as one for mandamus,56 merely directed the SEC to apply the
Courts definition of the term "capital" in Section 11, Article XII of the Constitution in determining
whether PLDT committed any violation of the said constitutional provision. The dispositive portion
of the Courts ruling is addressed not to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the Constitution.

Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution, and directed the SEC to investigate any violation by
PLDT of the 60-40 ownership requirement in favor of Filipino citizens under the Constitution, 57 there
is no deprivation of PLDTs property or denial of PLDTs right to due process, contrary to Pangilinan
and Nazarenos misimpression. Due process will be afforded to PLDT when it presents proof to the
SEC that it complies, as it claims here, with Section 11, Article XII of the Constitution.

X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in
a sudden flight of existing foreign investors to "friendlier" countries and simultaneously deterring new
foreign investors to our country. In particular, the PSE claims that the 28 June 2011 Decision may
result in the following: (1) loss of more than P 630 billion in foreign investments in PSE-listed shares;
(2) massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and (4) local
investors not investing in PSE-listed shares.58

Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants
apprehension. Without providing specific details, he pointed out the depressing state of the
Philippine economy compared to our neighboring countries which boast of growing economies.
Further, Dr. Villegas explained that the solution to our economic woes is for the government to "take-
over" strategic industries, such as the public utilities sector, thus:

JUSTICE CARPIO:

I would like also to get from you Dr. Villegas if you have additional information on whether this high
FDI59 countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that we
can compare apples with apples.

DR. VILLEGAS:

Correct, but let me just make a comment. When these neighbors of ours find an industry strategic,
their solution is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure
that those industries are in the hands of state enterprises. So, in these countries,
nationalization means the government takes over. And because their governments are
competent and honest enough to the public, that is the solution. x x x 60 (Emphasis supplied)

If government ownership of public utilities is the solution, then foreign investments in our public
utilities serve no purpose. Obviously, there can never be foreign investments in public utilities if, as
Dr. Villegas claims, the "solution is to make sure that those industries are in the hands of state
enterprises." Dr. Villegass argument that foreign investments in telecommunication companies like
PLDT are badly needed to save our ailing economy contradicts his own theory that the solution is for
government to take over these companies. Dr. Villegas is barking up the wrong tree since State
ownership of public utilities and foreign investments in such industries are diametrically opposed
concepts, which cannot possibly be reconciled.

In any event, the experience of our neighboring countries cannot be used as argument to decide the
present case differently for two reasons. First, the governments of our neighboring countries have,
as claimed by Dr. Villegas, taken over ownership and control of their strategic public utilities like the
telecommunications industry. Second, our Constitution has specific provisions limiting foreign
ownership in public utilities which the Court is sworn to uphold regardless of the experience of our
neighboring countries.

In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities
to Filipino citizens, or corporations or associations at least 60 percent of whose capital belongs to
Filipinos. Following Dr. Villegass claim, the Philippines appears to be more liberal in allowing foreign
investors to own 40 percent of public utilities, unlike in other Asian countries whose governments
own and operate such industries.

XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the
application and imposition of appropriate sanctions against PLDT if found violating Section 11, Article
XII of the Constitution.1avvphi1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated
Section 11, Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC has
determined PLDTs violation, if any exists at the time of the commencement of the administrative
case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other
words, once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate
sanctions only if it finds after due hearing that, at the start of the administrative case or investigation,
there is an existing violation of Section 11, Article XII of the Constitution. Under prevailing
jurisprudence, public utilities that fail to comply with the nationality requirement under Section 11,
Article XII and the FIA can cure their deficiencies prior to the start of the administrative case or
investigation.61

XII.
Final Word

The Constitution expressly declares as State policy the development of an economy "effectively
controlled" by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of
whose capital with voting rights belongs to Filipinos. The FIAs implementing rules explain that
"[f]or stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal
title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and
confirms the interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution
refers to shares with voting rights, as well as with full beneficial ownership. This is precisely
because the right to vote in the election of directors, coupled with full beneficial ownership of stocks,
translates to effective control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes
the letter and intent of the Constitution. Any other meaning of the term "capital" openly invites alien
domination of economic activities reserved exclusively to Philippine nationals. Therefore,
respondents interpretation will ultimately result in handing over effective control of our national
economy to foreigners in patent violation of the Constitution, making Filipinos second-class citizens
in their own country.

Filipinos have only to remind themselves of how this country was exploited under the Parity
Amendment, which gave Americans the same rights as Filipinos in the exploitation of natural
resources, and in the ownership and control of public utilities, in the Philippines. To do this the 1935
Constitution, which contained the same 60 percent Filipino ownership and control requirement as the
present 1987 Constitution, had to be amended to give Americans parity rights with Filipinos. There
was bitter opposition to the Parity Amendment62 and many Filipinos eagerly awaited its expiration. In
late 1968, PLDT was one of the American-controlled public utilities that became Filipino-controlled
when the controlling American stockholders divested in anticipation of the expiration of the Parity
Amendment on 3 July 1974.63 No economic suicide happened when control of public utilities and
mining corporations passed to Filipinos hands upon expiration of the Parity Amendment.

Movants interpretation of the term "capital" would bring us back to the same evils spawned by the
Parity Amendment, effectively giving foreigners parity rights with Filipinos, but this time even
without any amendment to the present Constitution. Worse, movants interpretation opens up
our national economy to effective control not only by Americans but also by all foreigners, be they
Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements.
At least the Parity Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-
starved Filipinos theoretical parity the same rights as Americans to exploit natural resources, and
to own and control public utilities, in the United States of America. Here, movants interpretation
would effectively mean a unilateral opening up of our national economy to all foreigners, without
any reciprocal arrangements. That would mean that Indonesians, Malaysians and Chinese
nationals could effectively control our mining companies and public utilities while Filipinos, even if
they have the capital, could not control similar corporations in these countries.

The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control
requirement for public utilities like PLOT. Any deviation from this requirement necessitates an
amendment to the Constitution as exemplified by the Parity Amendment. This Court has no power to
amend the Constitution for its power and duty is only to faithfully apply and interpret the Constitution.

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings
shall be entertained.

SO ORDERED.

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 Decision and the February 15,
1

2011 Resolution of the Court of Appeals (CA).

The Facts

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a

domestic corporation organized and existing under Philippine laws, took interest in mining and
exploring certain areas of the province of Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake
exploration and mining activities where already covered by Mineral Production Sharing Agreement
(MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in
Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes
an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then
transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006, assigned to
petitioner McArthur.2

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and
Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an application for
an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application, the
DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San
Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned
its rights and interests over the MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-
IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and assigned
its rights and interest over the said MPSA application to Tesoro.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
separate petitions for the denial of petitioners applications for MPSA designated as AMA-IVB-153,
AMA-IVB-154 and MPSA IV-1-12.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra
are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving
force behind petitioners filing of the MPSAs over the areas covered by applications since it knows
that it can only participate in mining activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in mining activities through MPSAs, which are
reserved only for Filipino citizens.

In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of
Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in
singular or plural, shall mean:

xxxx

(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the purpose of
engaging in mining, with technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per cent (60%) of the capital of
which is owned by citizens of the Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral processing permit.

Additionally, they stated that their nationality as applicants is immaterial because they also applied
for Financial or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-owned
corporations. Nevertheless, they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by
citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC (which
owns 5,997 shares of Narra), 40% of the shares of MMC (which owns 5,997 shares of
3
McArthur) and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro), the shares
4 5

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 Order denying 7

the Motion for Reconsideration filed by petitioners.

Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of
Appeal and Memorandum of Appeal with the Mines Adjudication Board (MAB) while Narra
8 9

separately filed its Notice of Appeal and Memorandum of Appeal.

10 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-09 on May 2007, while
12

Tesoros MPSA application was converted to AFTA-IVB-08 on May 28, 2007, and Narras FTAA was
13

converted to AFTA-IVB-07 on March 30, 2006.

14

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint with the Securities and Exchange Commission (SEC), seeking the revocation of the
15

certificates for registration of petitioners on the ground that they are foreign-owned or controlled
corporations engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on
September 1, 2008 a Manifestation and Motion to Suspend Proceeding before the MAB praying for
the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.

Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City,
Branch 92 (RTC) a Complaint for injunction with application for issuance of a temporary restraining
16

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 Order granting Redmonts application for a
18

TRO and setting the case for hearing the prayer for the issuance of a writ of preliminary injunction on
September 19, 2008.

Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration of the September
19

10, 2008 Order of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration on 20

September 29, 2008.

Before the MAB could resolve Redmonts Motion for Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a Supplemental Complaint in Civil Case No. 08-
21

63379.

On October 6, 2008, the RTC issued an Order granting the issuance of a writ of preliminary
22

injunction enjoining the MAB from finally disposing of the appeals of petitioners and from resolving
Redmonts Motion for Reconsideration and 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. (emphasis supplied)
24

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." Thus, it concluded that petitioners McArthur, Tesoro and Narra
25

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
Decision on April 6, 2011, wherein it canceled and revoked petitioners FTAAs for violating and
26

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." The OP, in
27

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." The Decision further quoted:
28

The filing of the FTAA application on June 15, 2007, during the pendency of the case only
demonstrate the violations and lack of qualification of the respondent corporations to engage in
mining. The filing of the FTAA application conversion which is allowed foreign corporation of the
earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc.
furnished its stockholders in their head office in Canada suggest that they are conducting operation
only through their local counterparts.29

The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution dated30

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:

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." Thus, the courts "generally decline jurisdiction over the case or dismiss it on the
32

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." Finally, the instant case is capable of repetition yet evading review, since
35

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 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." Standing firm on its Decision, the CA affirmed the ruling that
38
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." On July 6, 2011, the OP
39

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, wherein they
40

asserted that the present petition is moot since, in a remarkable turn of events, MBMI was able to
sell/assign all its shares/interest in the "holding companies" to DMCI Mining Corporation (DMCI), a
Filipino corporation and, in effect, making their respective corporations fully-Filipino owned.

Again, it is quite evident that petitioners have been trying to have this case dismissed for being
"moot." Their final act, wherein MBMI was able to allegedly sell/assign all its shares and interest in
the petitioner "holding companies" to DMCI, only proves that they were in fact not Filipino
corporations from the start. The recent divesting of interest by MBMI will not change the stand of this
Court with respect to the nationality of petitioners prior the suspicious change in their corporate
structures. The new documents filed by petitioners are factual evidence that this Court has no power
to verify.

The only thing clear and proved in this Court is the fact that the OP declared that petitioner
corporations have violated several mining laws and made misrepresentations and falsehood in their
applications for FTAA which lead to the revocation of the said FTAAs, demonstrating that petitioners
are not beyond going against or around the law using shifty actions and strategies. Thus, in this
instance, we can say that their claim of mootness is moot in itself because their defense of
conversion of MPSAs to FTAAs has been discredited by the OP Decision.

Grandfather test

The main issue in this case is centered on the issue of petitioners nationality, whether Filipino or
foreign. In their previous petitions, they had been adamant in insisting that they were Filipino
corporations, until they submitted their Manifestation and Submission dated October 19, 2012 where
they stated the alleged change of corporate ownership to reflect their Filipino ownership. Thus, there
is a need to determine the nationality of petitioner corporations.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting
the 1967 SEC Rules which implemented the requirement of the Constitution and other laws
pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources
owned by Filipino citizens, provides:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000
shares are registered in the name of a corporation or partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned
by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned
by Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the second
part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
grandfather rule.

Prior to this recent change of events, petitioners were constant in advocating the application of the
"control test" under RA 7042, as amended by RA 8179, otherwise known as the Foreign Investments
Act (FIA), rather than using the stricter grandfather rule. The pertinent provision under Sec. 3 of the
FIA provides:

SECTION 3. Definitions. - As used in this Act:

a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by the citizens of the Philippines; a corporation organized under the laws
of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the
fund will accrue to the benefit of Philippine nationals: Provided, That were a corporation and its non-
Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors, in order that the corporation shall be considered a
Philippine national. (emphasis supplied)

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the
definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim
that the grandfather rule "has been abandoned and is no longer the applicable rule." They also
41

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. (emphasis supplied)

42

It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in
cases where corporate layering is present.

Elementary in statutory construction is when there is conflict between the Constitution and a statute,
the Constitution will prevail. In this instance, specifically pertaining to the provisions under Art. XII of
the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. As decreed by the honorable framers of our Constitution, the grandfather rule prevails
and must be applied.

Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:

The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with nationality requirements
(the Investee Corporation). Such manner of computation is necessary since the shares in the
Investee Corporation may be owned both by individual stockholders (Investing Individuals) and by
corporations and partnerships (Investing Corporation). The said rules thus provide for the
determination of nationality depending on the ownership of the Investee Corporation and, in certain
instances, the Investing Corporation.

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the
Investee Corporation. The first case is the liberal rule, later coined by the SEC as the Control Test in
its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules
which states, (s)hares belonging to corporations or partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered as of Philippine nationality. Under the liberal
Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned
is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality." Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation and the Investee Corporation must be
traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership.

Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the
Investing Corporation and added to the shares directly owned in the Investee Corporation x x x.

xxxx

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second
part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e.,
in cases where the joint venture corporation with Filipino and foreign stockholders with less than
60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails
and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is present in
the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporationMBMI, funded them. However, petitioners also claim that
there is "doubt" only when the stockholdings of Filipinos are less than 60%. 43

The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails
to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an
example of an instance where "doubt" as to the ownership of the corporation exists. It would be
ludicrous to limit the application of the said word only to the instances where the stockholdings of
non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The
corporations interested in circumventing our laws would clearly strive to have "60% Filipino
Ownership" at face value. It would be senseless for these applying corporations to state in their
respective articles of incorporation that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to
circumvent the application of the Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders
to circumvent the law, creating a cloud of doubt in the Courts mind. To determine, therefore, the
actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each of petitioners corporate
structure, they have to be "grandfathered."
As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its
application from SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided
into 10,000 common shares at one thousand pesos (PhP 1,000) per share, subscribed to by the
following:44

Name Nationality Number of Amount Amount Paid

Shares Subscribed
Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Corporation
MBMI Resources, Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
Inc.
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
(emphasis supplied)

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure
and composition as McArthur. In fact, it would seem that MBMI is also a major investor and
"controls" MBMI and also, similar nominal shareholders were present, i.e. Fernando B. Esguerra
45

(Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):

Madridejos Mining Corporation

Name Nationality Number of Amount Amount Paid

Shares Subscribed
Olympic Mines Filipino 6,663 PhP 6,663,000.00
& PhP 0

Development

Corp.

MBMI Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

Resources,

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

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

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

Michael T. American 1 PhP 1,000.00 PhP 1,000.00

Mason
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
Cawkell
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with
respect to the number of shares they subscribed to in the corporation, which is quite absurd since
Olympic is the major stockholder in MMC. MBMIs 2006 Annual Report sheds light on why Olympic
failed to pay any amount with respect to the number of shares it subscribed to. It states that Olympic
entered into joint venture agreements with several Philippine companies, wherein it holds directly
and indirectly a 60% effective equity interest in the Olympic Properties. Quoting the said Annual
46

report:

On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic")
entered into a series of agreements including a Property Purchase and Development Agreement
(the Transaction Documents) with respect to three nickel laterite properties in Palawan, Philippines
(the "Olympic Properties"). The Transaction Documents effectively establish a joint venture between
the Company and Olympic for purposes of developing the Olympic Properties. The Company holds
directly and indirectly an initial 60% interest in the joint venture. Under certain circumstances and
upon achieving certain milestones, the Company may earn up to a 100% interest, subject to a 2.5%
net revenue royalty. (emphasis supplied)
47

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company

layering was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more than
60% or more equity interest in McArthur, making the latter a foreign corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos
(PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share, as
demonstrated below:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]
 Name Nationality Number of Amount Amount Paid

Shares Subscribed

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Mining, Inc.

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

Resources, Inc.

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

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

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

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP PhP 2,708,174.60

10,000,000.00
(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as
the corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders
are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same.
Delving deeper, we scrutinize SMMIs corporate structure:

Sara Marie Mining, Inc.

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

 Shares Subscribed

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development

Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

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

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP PhP 2,809,900.00

10,000,000.00
(emphasis supplied)

After subsequently studying SMMIs corporate structure, it is not farfetched for us to spot the glaring
similarity between SMMI and MMCs corporate structure. Again, the presence of identical
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando,
Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which
now reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2,794,000).
Oddly, the total value of the amount paid is two million eight hundred nine thousand nine hundred
pesos (PhP 2,809,900).

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics participation in

SMMIs corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity
interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to
participate in the exploitation, utilization and development of our natural resources.

Narra Nickel Mining and Development Corporation

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDCs MPSA
application, whose corporate structures arrangement is similar to that of the first two petitioners
discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which is divided into ten
thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as follows:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Mining &

Development

Corp.

MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00

Resources, Inc.

Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr.

Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernandez

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Bocalan

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

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

McCurdy

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP PhP 2,800,000.00

10,000,000.00 (emphasis supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present
in this corporate structure.

Patricia Louise Mining & Development Corporation

Using the grandfather method, we further look and examine PLMDCs corporate structure:

Name Nationalit Amount Amount Paid

y Number of Subscribed
Shares

Palawan Alpha South Filipino 6,596 PhP PhP 0

Resources Development 6,596,000.00
Corporation
MBMI Resources, Canadian 3,396 PhP PhP
3,396,000.00 2,796,000.00
Inc.

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

Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP PhP
 10,000,000.00 2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners corporate structures are present. Similarly, the amount of
money paid by the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources and
Development Corp. (PASRDC), is zero.

Studying MBMIs Summary of Significant Accounting Policies dated October 31, 2005 explains the
reason behind the intricate corporate layering that MBMI immersed itself in:

JOINT VENTURES The Companys ownership interests in various mining ventures engaged in the
acquisition, exploration and development of mineral properties in the Philippines is described as
follows:

(a) Olympic Group

The Philippine companies holding the Olympic Property, and the ownership and interests therein,
are as follows:

Olympic- Philippines (the "Olympic Group")

Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%

Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an
effective equity interest in the Olympic Property of 60.0%. Pursuant to a shareholders agreement,
the Company exercises joint control over the companies in the Olympic Group.

(b) Alpha Group

The Philippine companies holding the Alpha Property, and the ownership interests therein, are as
follows:

Alpha- Philippines (the "Alpha Group")

Patricia Louise Mining Development Inc. ("Patricia") 34.0%

Narra Nickel Mining & Development Corporation (Narra) 60.4%

Under a joint venture agreement the Company holds directly and indirectly an effective equity
interest in the Alpha Property of 60.4%. Pursuant to a shareholders agreement, the Company
exercises joint control over the companies in the Alpha Group. (emphasis supplied)
48

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." Thus, petitioners assert that the CA erred in finding that a partnership relationship
49

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. On the
50

other hand, joint ventures have been deemed to be "akin" to partnerships since it is difficult to
distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so similar and
closely akin to a partnership that it is ordinarily held that their rights, duties, and liabilities are to be
tested by rules which are closely analogous to and substantially the same, if not exactly the same,
as those which govern partnership. In fact, it has been said that the trend in the law has been to blur
the distinctions between a partnership and a joint venture, very little law being found applicable to
one that does not apply to the other. 51

Though some claim that partnerships and joint ventures are totally different animals, there are very
few rules that differentiate one from the other; thus, joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements, rules and legal incidents governing partnerships are
applied.52

Accordingly, culled from the incidents and records of this case, it can be assumed that the
relationships entered between and among petitioners and MBMI are no simple "joint venture
agreements." As a rule, corporations are prohibited from entering into partnership agreements;
consequently, corporations enter into joint venture agreements with other corporations or
partnerships for certain transactions in order to form "pseudo partnerships."

Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against corporations entering into partnerships, then the
relationship created should be deemed as "partnerships," and the laws on partnership should be
applied. Thus, a joint venture agreement between and among corporations may be seen as similar
to partnerships since the elements of partnership are present.

Considering that the relationships found between petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur.

Panel of Arbitrators jurisdiction

We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The
POA has jurisdiction to settle disputes over rights to mining areas which definitely involve the
petitions filed by Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by filing its
petition against petitioners, is asserting the right of Filipinos over mining areas in the Philippines
against alleged foreign-owned mining corporations. Such claim constitutes a "dispute" found in Sec.
77 of RA 7942:

Within thirty (30) days, after the submission of the case by the parties for the decision, the panel
shall have exclusive and original jurisdiction to hear and decide the following:

(a) Disputes involving rights to mining areas

(b) Disputes involving mineral agreements or permits

We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53

The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or
opposition to an application for mineral agreement. The POA therefore has the jurisdiction to resolve
any adverse claim, protest, or opposition to a pending application for a mineral agreement filed with
the concerned Regional Office of the MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-
40, which provide:
Sec. 38.

xxxx

Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the
authorized officer(s) of the concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with. Any adverse claim, protest,
opposition shall be filed directly, within thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant to the provisions of this Act and these implementing
rules and regulations. Upon final resolution of any adverse claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a certification to that effect within five (5) working days from the date
of finality of resolution thereof. Where there is no adverse claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a Certification to that effect within five working days therefrom.

xxxx

No Mineral Agreement shall be approved unless the requirements under this Section are fully
complied with and any adverse claim/protest/opposition is finally resolved by the Panel of Arbitrators.

Sec. 41.

xxxx

Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators
as provided in Section 38 hereof, the concerned Regional Director shall initially evaluate the Mineral
Agreement applications in areas outside Mineral reservations. He/She shall thereafter endorse
his/her findings to the Bureau for further evaluation by the Director within fifteen (15) working days
from receipt of forwarded documents. Thereafter, the Director shall endorse the same to the
secretary for consideration/approval within fifteen working days from receipt of such endorsement.

In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15)
working days from receipt of the Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by the Director to the Secretary for
consideration/approval within fifteen days from receipt of such endorsement. (emphasis supplied)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining
areas" under Sec. 77(a) specifically refer only to those disputes relative to the applications for a
mineral agreement or conferment of mining rights.

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application
is further elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of

Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections
may also be filed directly with the Panel of Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.

Sec. 43. Publication/Posting of Mineral Agreement.-

 xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application
on the bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s)
and municipality(ies), copy furnished the barangays where the proposed contract area is located
once a week for two (2) consecutive weeks in a language generally understood in the locality. After
forty-five (45) days from the last date of publication/posting has been made and no adverse claim,
protest or opposition was filed within the said forty-five (45) days, the concerned offices shall issue a
certification that publication/posting has been made and that no adverse claim, protest or opposition
of whatever nature has been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last date of publication/posting,
with the Regional Offices concerned, or through the 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 (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. In the case at bar, the dispute arose or originated
1wphi1
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 Batangas elucidates:
55

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. Petitioners reasoned that they now cannot be
56

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." Petitioners stress
57

that there should no longer be any issue left as regards their qualification to enter into FTAA
contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether the
"grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted
since it would pass both tests.

The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said
fact should be disregarded. The manifestation can no longer be considered by us since it is being
tackled in G.R. No. 202877 pending before this Court. Thus, the question of whether petitioners,
1wphi1

allegedly a Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI, are
allowed to enter into FTAAs with the State is a non-issue in this case.

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is
a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake
the exploration, development and utilization of the natural resources of the Philippines. When in the
mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the
60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals
Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.

SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

WE CONCUR: