1

EN BANC

WILSON P. GAMBOA, G.R. No. 176579

Petitioner,
Present:
- versus -

CORONA, C.J.,

FINANCE SECRETARY MARGARITO B. TEVES, CARPIO,

FINANCE UNDERSECRETARY JOHN P. SEVILLA,
AND COMMISSIONER RICARDO ABCEDE OF THE VELASCO, JR.,
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE LEONARDO-DE CASTRO,
PRIVATIZATION COUNCIL,
BRION,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC
CO., LTD. IN HIS CAPACITY AS DIRECTOR OF PERALTA,
METRO PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN OF BERSAMIN,
PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., DEL CASTILLO,
LTD., PRESIDENT NAPOLEON L. NAZARENO OF
PHILIPPINE LONG DISTANCE TELEPHONE ABAD,
COMPANY, CHAIR FE BARIN OF THE
SECURITIES EXCHANGE COMMISSION, and
VILLARAMA, JR.,
PRESIDENT FRANCIS LIM OF THE PHILIPPINE
STOCK EXCHANGE,
PEREZ,
Respondents.
MENDOZA, and

SERENO, JJ.

PABLITO V. SANIDAD and Promulgated:

ARNO V. SANIDAD,

Petitioners-in-Intervention. June 28, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO, J.

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).
 2

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are
as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage
in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a
major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc.
(PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner
of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the
Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines. 2

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the
outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine
Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC,
through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006,
and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won
with a bid of P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415
PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by
IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14
February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price
of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an
indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings
of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which
limits foreign ownership of the capital of a public utility to not more than 40 percent. 3

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG
Commissioner Ricardo Abcede allege the following relevant facts:

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held
26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was
incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC
by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares
held by PHI were sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former
President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic of the Philippines in accordance with
this Courts decision4 which became final and executory on 8 August 2006.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common
shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance
and the PCGG, as the disposing entity. An invitation to bid was published in seven different newspapers from 13 to 24 November
2006. On 20 November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December
2006 was reset to 8 December 2006. The extension was published in nine different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid
of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave
First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of Incorporation. First
Pacific announced its intention to match Parallaxs bid.
 3

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the
particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who
attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415
PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and (b) First Pacifics intended
acquisition of the governments 111,415 PTIC shares resulting in First Pacifics 100% ownership of PTIC will not violate
the 40 percent constitutional limit on foreign ownership of a public utility since PTIC holds only 13.847 percent of the
total outstanding common shares of PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415
shares of stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC
shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by
First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first
refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised
its right of first refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007,
the sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415
PTIC shares. Respondent Pangilinan denies the other allegations of facts of petitioner.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity
of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an
increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese
NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56
percent which is over the 40 percent constitutional limit. 6 Petitioner asserts:

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its
common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign investors
in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless telecommunications firm, owning
51.56 percent of PLDT common equity. x x x With the completion of the sale, data culled from the official website of
the New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of
common equity, will collectively own 81.47 percent of PLDTs common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT
submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific
and several other foreign entities breached the constitutional limit of 40 percent ownership as early
as 2003. x x x7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First
Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave
abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to
foreigners in excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign
ownership of a public utility.8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-
in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-Intervention.

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by
respondents of the 111,415 PTIC shares to First Pacific or assignee. Petitioners-in-intervention claim that, as PLDT subscribers,
they have a stake in the outcome of the controversy x x x where the Philippine Government is completing the sale of government
owned assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution.

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand a thorough
examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this well-settled principle,
the Court shall confine the resolution of the instant controversy solely on the threshold and purely legal issue of whether the
term capital in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital
stock (combined total of common and non-voting preferred shares) of PLDT, a public utility.
 4

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition
is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial Court and
the Court of Appeals. The actions for declaratory relief, 10 injunction, and annulment of sale are not embraced within the original
jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed outright.

While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain from
discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated
when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.

However, since the threshold and purely legal issue on the definition of the term capital in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for
mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for mandamus
considering the grave injustice that would result in the interpretation of a banking law. In that case, which involved the crime of
rape committed by a foreign tourist against a Filipino minor and the execution of the final judgment in the civil case for damages
on the tourists dollar deposit with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting
foreign currency deposits from attachment, garnishment or any other order or process of any court, inapplicable due to the
peculiar circumstances of the case. The Court held that injustice would result especially to a citizen aggrieved by a foreign guest
like accused x x x that would negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or
application of laws, it is presumed that the lawmaking body intended right and justice to prevail. The Court therefore required
respondents Central Bank of the Philippines, the local bank, and the accused to comply with the writ of execution issued in the
civil case for damages and to release the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the
petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the government
unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to which they were entitled
under the law. Specifically, the question was: Are the branches, agencies, subdivisions, and instrumentalities of the Government,
including government owned or controlled corporations included among the four employers under Presidential Decree No. 851
which are required to pay their employees x x x a thirteenth (13th) month pay x x x ? The Constitutional principle involved
therein affected all government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly
requiring the interpretation of the assailed presidential decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has
far-reaching implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this
rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that
should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)

In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII of the Constitution.
He prays that this Court declare that the term capital refers to common shares only, and that such shares constitute the sole basis
in determining foreign equity in a public utility. Petitioner further asks this Court to declare any ruling inconsistent with such
interpretation unconstitutional.
 5

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

The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT) and substantially
the same private respondents. Despite the importance and novelty of the constitutional issue raised therein and despite the fact
that the petition involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the
same for disregarding the hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial
Courts Decision of 21 February 2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition,
became final on 21 December 2004.

The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution.
The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly for the benefit of
the entire Filipino people, to ensure, in the words of the Constitution, a self-reliant and independent national economy effectively
controlled by Filipinos.18 Besides, in the light of vague and confusing positions taken by government agencies on this purely
legal issue, present and future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this
Court on the extent of their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years
since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again
defining the term capital, which appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII
on co-production and joint venture agreements for the development of our natural resources, 19 in Section 7, Article XII on
ownership of private lands,20 in Section 10, Article XII on the reservation of certain investments to Filipino citizens, 21 in Section
4(2), Article XIV on the ownership of educational institutions, 22 and in Section 11(2), Article XVI on the ownership of
advertising companies.23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he
claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates
the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire consequence directly affecting
petitioners interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The
fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino
people, far outweighs any perceived impediment in the legal personality of the petitioner to bring this action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public,
thus:

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain
the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that
petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has any legal or
special interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on
matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule
that laws in order to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In
ruling for the petitioners legal standing, the Court declared that the right they sought to be enforced is a public right recognized
by no less than the fundamental law of the land.

Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding involves the
assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and,
therefore, part of the general public which possesses the right.
 6

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned
contract for the development, management and operation of the Manila International Container Terminal, public interest [was]
definitely involved considering the important role [of the subject contract] . . . in the economic development of the country
and the magnitude of the financial consideration involved. We concluded that, as a consequence, the disclosure provision in
the Constitution would constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied)

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has
the requisite locus standi.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public
utilities, to wit:

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

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by
the National Assembly when the public interest so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of
the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No franchise or
right shall be granted to any individual, firm, or corporation, except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied)
 7

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that
the Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935
Constitutional Convention.25 The 1987 Constitution provides for the Filipinization of public utilities by requiring that any form of
authorization for the operation of public utilities should be granted only to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens. The
provision is [an express] recognition of the sensitive and vital position of public utilities both in the national economy and
for national security.26 The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public
utilities, which may be inimical to the national interest. 27 This specific provision explicitly reserves to Filipino citizens control of
public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to conserve and develop our patrimony 28 and
ensure a self-reliant and independent national economy effectively controlled by Filipinos.29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public
utility, at least 60 percent of its capital must be owned by Filipino citizens.

The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article XII of the
Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-voting
preferred shares)?

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because
such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term
capital in Section 11, Article XII of the Constitution refers to the ownership of common capital stock subscribed and outstanding,
which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors. It is
undisputed that PLDTs non-voting preferred shares are held mostly by Filipino citizens. 30 This arose from Presidential Decree
No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to
subscribe to non-voting preferred shares to pay for the investment cost of installing the telephone line. 32

Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term
capital.33 Petitioners-in-intervention allege that the approximate foreign ownership of common capital stock of PLDT
x x x already amounts to at least 63.54% of the total outstanding common stock, which means that foreigners exercise significant
control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.

Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of the Constitution. More
importantly, private respondents Nazarenoand Pangilinan of PLDT do not dispute that more than 40 percent of the common
shares of PLDT are held by foreigners.

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the
petition and the supposed violation of the due process rights of the affected foreign common shareholders.
Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common shareholdings of
PLDT. Nazareno stressed mainly that the petition seeks to divest foreign common shareholders purportedly exceeding 40%
of the total common shareholdings in PLDT of their ownership over their shares. Thus, the foreign natural and juridical
PLDT shareholders must be impleaded in this suit so that they can be heard.34Essentially, Nazareno invokes denial of due process
on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions that need to
be established to counter petitioners allegations is the uniform interpretation by government agencies (such as the SEC),
institutions and corporations (such as the Philippine National Oil Company-Energy Development Corporation or PNOC-
EDC) of including both preferred shares and common shares in controlling interest in view of testing compliance with the
40% constitutional limitation on foreign ownership in public utilities.35

Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the Constitution. Neither
does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common shares. Instead,
respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the due process rights of
foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the petition;
(2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due
process rights. Moreover, respondent Pangilinan alleges that the issue should be whether owners of shares in PLDT as well as
owners of shares in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those
companies without any law requiring them to surrender their shares and also without notice and trial.
 8

Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes no nationality requirement
on the shareholders of the utility company as a condition for keeping their shares in the utility company. According to him,
Section 11 does not authorize taking one persons property (the shareholders stock in the utility company) on the basis of another
partys alleged failure to satisfy a requirement that is a condition only for that other partys retention of another piece of property
(the utility company being at least 60% Filipino-owned to keep its franchise). 36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner
Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term capital. In its Memorandum 37 dated 24
September 2007, the OSG also limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack
of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not present any definition or
interpretation of the term capital in Section 11, Article XII of the Constitution. The OSG contends that the petition actually
partakes of a collateral attack on PLDTs franchise as a public utility, which in effect requires a full-blown trial where all the
parties in interest are given their day in court. 38

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does
not also define the term capital and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of
action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies, including PLDT, to make
proper and timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record
of PLDT, contended that the term capital in the 1987 Constitution refers to shares entitled to vote or the common shares.
Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership
of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is being
exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized
and partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said
activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be given credence, it would be
possible for the ownership structure of a public utility corporation to be divided into one percent (1%) common stocks
and ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling adopting respondents arguments, the
common shares can be owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are
supposed to be minority shareholders, control the public utility corporation.

xxxx

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the
controlling interest.

xxxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares
will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens.
Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which
would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is
equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino owners is likewise
admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word capital as used in Section 11, Article XII of the Constitution allegedly refers to
the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is
classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in the FIA
which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted Amendments.
In this regard, suffice it to state that as between the law and an opinion rendered by an administrative agency, the law
indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the
framers of the Constitution.
 9

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is
the courts that finally determine what a law means. 39

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y.
Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F.
Del Rosario, and Orlando B. Vea, argued that the term capital in Section 11, Article XII of the Constitution includes preferred
shares since the Constitution does not distinguish among classes of stock, thus:

16. The Constitution applies its foreign ownership limitation on the corporations capital, without distinction as to classes of
shares. x x x

In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was
drafted defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this Code, means the
total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully
or partially paid, except treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude
either class of shares, in determining the outstanding capital stock (the capital) of a corporation. Consequently,
petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding common shares is
without legal basis. The language of the Constitution should be understood in the sense it has in common use.

xxxx

17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the
Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which
supports petitioners view that only common shares should form the basis for computing a public utilitys foreign equity.

xxxx

18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and which
also has the responsibility of ensuring compliance with the Constitutions foreign equity restrictions as regards
nationalized activities x x x has categorically ruled that both common and preferred shares are properly considered in
determining outstanding capital stock and the nationality composition thereof. 40

We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the Constitution refers only
to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, 41 and not to the
total outstanding capital stock comprising both common and non-voting preferred shares.

The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated
in the articles of incorporation: Provided, That no share may be deprived of voting rights except those classified
and issued as preferred or redeemable shares, unless otherwise provided in this Code: Provided, further, That
there shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of
shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall
not be permitted to issue no-par value shares of stock.
 10

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the
articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of stock
may be issued only with a stated par value. The Board of Directors, where authorized in the articles of incorporation,
may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such
shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value
may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be
available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal
requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be
equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as
provided in this Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. 43 This is
exercised through his vote in the election of directors because it is the board of directors that controls or manages the
corporation.44 In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control,
that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders
are merely investors in the corporation for income in the same manner as bondholders. 45 In fact, under the Corporation Code only
preferred or redeemable shares can be deprived of the right to vote. 46 Common shares cannot be deprived of the right to vote in
any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is
invalid.47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have
no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the
preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares
because the right to participate in the control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock
that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the
control and management of public utilities. As revealed in the deliberations of the Constitutional Commission, capital refers to
the voting stock or controlling interest of a corporation, to wit:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-
40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
 11

MR. VILLEGAS. That is right.

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

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

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

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

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

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

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

MR. VILLEGAS. Yes.48

xxxx

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.
 12

MR. VILLEGAS. That is right.

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

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

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

MR. BENGZON. In the case of stock corporations, it is assumed. 49 (Emphasis supplied)

Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation. Reinforcing this
interpretation of the term capital, as referring to controlling interest or shares entitled to vote, is the definition of a Philippine
national in the Foreign Investments Act of 1991,50 to wit:

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

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

In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign Investments Act of
1991 provide:

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

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are
considered.
 13

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens
cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine
nationals. (Emphasis supplied)

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

Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress
may prescribe, certain areas of investments. Thus, in numerous laws Congress has reserved certain areas of investments to
Filipino citizens or to corporations at least sixty percent of the capital of which is owned by Filipino citizens. Some of these laws
are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No.
3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping
Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine
Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in
Section 11, Article XII of the Constitution is also used in the same context in numerous laws reserving certain areas of
investments to Filipino citizens.

To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred
shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self-reliant and independent
national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important
voting stock, which necessarily equates to control of the public utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a corporation has 100
common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share
having a par value of one peso (P1.00) per share. Under the broad definition of the term capital, such corporation would be
considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming
majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they
hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility.
On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and
hence, have no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the
clear language of the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State
policy of an independent national economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of
Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the
 14

stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the
corporation or its stockholders, or to receive notice of any meeting of stockholders. 51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles
of Incorporation52 state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held
by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive
right to vote for the election of directors and for all other purposes. 53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise
control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have
any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for all
purposes, while holders of preferred shares have no voting right for any purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact,
based on PLDTs 2010 General Information Sheet (GIS),54 which is a document required to be submitted annually to the Securities
and Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622
common shares.56 In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold
only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over
PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities
expressly mandated in Section 11, Article XII of the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP58 preferred
shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00
per share, while the declared dividends for the preferred shares amounted to a measly P1.00 per share.59 So the preferred shares
not only cannot vote in the election of directors, they also have very little and obviously negligible dividend earning capacity
compared to common shares.

As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the
par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but
cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are
owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. 61 Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%. 62 This undeniably shows that
beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the
constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance
with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent
of the voting rights, is constitutionally required for the States grant of authority to operate a public utility. The undisputed fact
that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT
common shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial
ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise,
certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations
x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the
election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting
a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos,
have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; 63 (5) preferred shares have
twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per
share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from
only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control and beneficial ownership of PLDT rest
with the common shares, not with the preferred shares.
 15

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and non-voting
shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the
States constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the
constitutional provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as
well as the ownership of land, educational institutions and advertising businesses. The Court should never open to foreign control
what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national
interest. The Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the
words of the Constitution, a self-reliant and independent national economy effectively controlled by Filipinos.

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specific areas
of investment, such as the development of natural resources and ownership of land, educational institutions and advertising
business, is self-executing. There is no need for legislation to implement these self-executing provisions of the Constitution. The
rationale why these constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the
presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are treated
as requiring legislation instead of self-executing, the legislature would have the power to ignore and practically nullify
the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been,
that

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless
the contrary is clearly intended, the provisions of the Constitution should be considered self-executing, as a
contrary rule would give the legislature discretion to determine when, or whether, they shall be effective. These
provisions would be subordinated to the will of the lawmaking body, which could make them entirely meaningless by
simply refusing to pass the needed implementing statute. (Emphasis supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that
constitutional provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation
for their enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the
mandate of the fundamental law ratified by the sovereign people can be easily ignored and nullified by
Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may give breath to
constitutional rights but congressional inaction should not suffocate them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights
of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is
recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional
provisions forbidding the taking or damaging of property for public use without just compensation. (Emphasis
supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions of the
1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as
both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it should
only be the State that should be allowed to intervene and determine what is to be done with the property subject of the
violation. We have said that what the State should do or could do in such matters is a matter of public policy, entirely
beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27,
 16

1956.) While the legislature has not definitely decided what policy should be followed in cases of violations
against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null
and void as violative of the Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the
last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60
percent of the capital of which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987
Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by corporations
of public utilities, the exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that determine who will effectively control the national economy, Filipinos or
foreigners. This Court cannot allow such an absurd interpretation of the Constitution.

This Court has held that the SEC has both regulatory and adjudicative functions. 69 Under its regulatory functions, the SEC can be
compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or
quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate such violation.

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where the required percentage of ownership of the capital stock to be owned by citizens of
the Philippines has not been complied with as required by existing laws or the Constitution. Thus, the SEC is the
government agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11, Article XII of
the Constitution on the ownership of public utilities. This Court, in a petition for declaratory relief that is treated as a petition for
mandamus as in the present case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC has
apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code, 71 the SEC is vested with the power and function to suspend or revoke,
after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations,
upon any of the grounds provided by law. The SEC is mandated under Section 5(d) of the same Code with the power and
function to investigate x x x the activities of persons to ensure compliance with the laws and regulations that SEC administers
or enforces. The GIS that all corporations are required to submit to SEC annually should put the SEC on guard against violations
of the nationality requirement prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for
declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a possible violation of
Section 11, Article XII of the Constitution in view of the ownership structure of PLDTs voting shares, as admitted by respondents
and as stated in PLDTs 2010 GIS that PLDT submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the
Securities and Exchange Commission is DIRECTED to apply this definition of the term capital in determining the extent of
allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section
11, Article XII of the Constitution, to impose the appropriate sanctions under the law.

SO ORDERED.

G.R. No. 176579 October 9, 2012 HEIRS OF WILSON P. GAMBOA*, Petitioners, vs. FINANCE SECRETARY
MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER RICARDO
ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF
FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS, INC.,
CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN
HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO
OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND
EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE,
Respondents. PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention. R E S O L U T I O N
CARPIO, J.: This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the
 17

Philippine Stock Exchange‟s (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L.
Nazareno (Nazareno ),3 and ( 4) the Securities and Exchange Commission (SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalf of the SEC,5
assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf
of the State,6 declaring expressly that it agrees with the Court‟s definition of the term “capital” in
Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the OSG
reiterated its position consistent with the Court‟s 28 June 2011 Decision. We deny the motions for
reconsideration. I. Far-reaching implications of the legal issue justify treatment of petition for declaratory
relief as one for mandamus. As we emphatically stated in the 28 June 2011 Decision, the interpretation
of the term “capital” in Section 11, Article XII of the Constitution has far-reaching implications to the
national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or
second-class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will
have effective control of the Philippine national economy. Indeed, if ever there is a legal issue that has
far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshold
legal issue presented in this case. Contrary to Pangilinan‟s narrow view, the serious economic
consequences resulting in the interpretation of the term “capital” in Section 11, Article XII of the
Constitution undoubtedly demand an immediate adjudication of this issue. Simply put, the far-reaching
implications of this issue justify the treatment of the petition as one for mandamus.7 In Luzon
Stevedoring Corp. v. Anti-Dummy Board, 8 the Court deemed it wise and expedient to resolve the case
although the petition for declaratory relief could be outrightly dismissed for being procedurally
defective. There, appellant admittedly had already committed a breach of the Public Service Act in
relation to the Anti-Dummy Law since it had been employing nonAmerican 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 nonvoting. 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
 18

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: x x x x 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.” x x x x In
light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may not
be constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares into
common voting shares and preferred non-voting shares, any arrangement which attempts to defeat the
constitutional purpose should be eschewed. Thus, the resultant equity arrangement which would place
ownership of 60%11 of the common (voting) shares in the Japanese group, while retaining 60% of the
total percentage of common and preferred shares in Filipino hands would amount to circumvention of
the principle of control by Philippine stockholders that is implicit in the 60% Philippine nationality
requirement in the Constitution. (Emphasis supplied) In short, Minister Mendoza categorically rejected
the theory that the term “capital” in Section 9, Article XIV of the 1973 Constitution includes “both
preferred and common stocks” treated as the same class of shares regardless of differences in voting
rights and privileges. Minister Mendoza stressed that the 60-40 ownership requirement in favor of
Filipino citizens in the Constitution is not complied with unless the corporation “satisfies the criterion of
beneficial ownership” and that in applying the same “the primordial consideration is situs of control.” On
the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon
& San Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is,
using only the voting stock to determine whether a corporation is a Philippine national. The Opinion
states: Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national
because: (1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a Philippine
national, the Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the benefit of
Philippine nationals. Still pursuant to the Control Test, MLRC’s investment in 60% of BFDC’s outstanding
capital stock entitled to vote shall be deemed as of Philippine nationality, thereby qualifying BFDC to
own private land. Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine
nationals, considering that: (1) sixty percent (60%) of their respective outstanding capital stock entitled
to vote is owned by a Philippine national (i.e., by the Trustee, in the case of MLRC; and by MLRC, in the
case of BFDC); and (2) at least 60% of their respective board of directors are Filipino citizens. (Boldfacing
and italicization supplied) Clearly, these DOJ and SEC opinions are compatible with the Court‟s
interpretation of the 60-40 ownership requirement in favor of Filipino citizens mandated by the
Constitution for certain economic activities. At the same time, these opinions highlight the conflicting,
contradictory, and inconsistent positions taken by the DOJ and the SEC on the definition of the term
“capital” found in the economic provisions of the Constitution. The opinions issued by SEC legal officers
do not have the force and effect of SEC rules and regulations because only the SEC en banc can adopt
rules and regulations. As expressly provided in Section 4.6 of the Securities Regulation Code,12 the SEC
cannot delegate to any of its individual Commissioner or staff the power to adopt any rule or regulation.
Further, under Section 5.1 of the same Code, it is the SEC as a collegial body, and not any of its legal
officers, that is empowered to issue opinions and approve rules and regulations. Thus: 4.6. The
Commission may, for purposes of efficiency, delegate any of its functions to any department or office of
the Commission, an individual Commissioner or staff member of the Commission exceptits 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: x x x x (g) Prepare, approve,
amend or repeal rules, regulations and orders, and issue opinionsand 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
 19

or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can “issue
opinions” that have the force and effect of rules or regulations. Section 4.6 of the Code bars the SEC en
banc from delegating to any individual Commissioner or staff the power to adopt rules or regulations. In
short, any opinion of individual Commissioners or SEC legal officers does not constitute a rule or
regulation of the SEC. The SEC admits during the Oral Arguments that only the SEC en banc, and not any
of its individual commissioners or legal staff, is empowered to issue opinions which have the same
binding effect as SEC rules and regulations, thus: JUSTICE CARPIO: So, under the law, it is the Commission
En Banc that can issue an SEC Opinion, correct? COMMISSIONER GAITE:13 That‟s correct, Your Honor.
JUSTICE CARPIO: Can the Commission En Banc delegate this function to an SEC officer? COMMISSIONER
GAITE: Yes, Your Honor, we have delegated it to the General Counsel. JUSTICE CARPIO: It can be
delegated. What cannot be delegated by the Commission En Banc to a commissioner or an individual
employee of the Commission? COMMISSIONER GAITE: Novel opinions that [have] to be decided by the
En Banc… JUSTICE CARPIO: What cannot be delegated, among others, is the power to adopt or amend
rules and regulations, correct? COMMISSIONER GAITE: That‟s correct, Your Honor. JUSTICE CARPIO: So,
you combine the two (2), the SEC officer, if delegated that power, can issue an opinion but that opinion
does not constitute a rule or regulation, correct? COMMISSIONER GAITE: Correct, Your Honor. JUSTICE
CARPIO: So, all of these opinions that you mentioned they are not rules and regulations, correct?
COMMISSIONER GAITE: They are not rules and regulations. JUSTICE CARPIO: If they are not rules and
regulations, they apply only to that particular situation and will not constitute a precedent, correct?
COMMISSIONER GAITE: Yes, Your Honor.14 (Emphasis supplied) Significantly, the SEC en banc, which is
the collegial body statutorily empowered to issue rules and opinions on behalf of the SEC, has adopted
even the Grandfather Rule in determining compliance with the 60-40 ownership requirement in favor of
Filipino citizens mandated by the Constitution for certain economic activities. This prevailing SEC ruling,
which the SEC correctly adopted to thwart any circumvention of the required Filipino “ownership and
control,” is laid down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v.
McArthur Mining, Inc., et al., 15 to wit: The avowed purpose of the Constitution is to place in the hands
of Filipinos the exploitation of our natural resources. Necessarily, therefore, the Rule interpreting the
constitutional provision should not diminish that right through the legal fiction of corporate ownership
and control. But the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has
favored foreigners contrary to the command of the Constitution. Hence, the Grandfather Rule must be
applied to accurately determine the actual participation, both direct and indirect, of foreigners in a
corporation engaged in a nationalized activity or business. Compliance with the constitutional
limitation(s) on engaging in nationalized activities must be determined by ascertaining if 60% of the
investing corporation‟s outstanding capital stock is owned by “Filipino citizens”, or as interpreted, by
natural or individual Filipino citizens. If such investing corporation is in turn owned to some extent by
another investing corporation, the same process must be observed. One must not stop until the
citizenships of the individual or natural stockholders of layer after layer of investing corporations have
been established, the very essence of the Grandfather Rule. 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
 20

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 nonPhilippine 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 andPhilippine
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 Court‟s
interpretation in these two cases of the terms “capital stock subscribed or paid,” “capital stock” and
“capital” does not pertain to, and cannot control, the definition of the term “capital” as used in Section
11, Article XII of the Constitution, or any of the economic provisions of the Constitution where the term
“capital” is found. The definition of the term “capital” found in the Constitution must not be taken out of
context. A careful reading of these two cases reveals that the terms “capital stock subscribed or paid,”
“capital stock” and “capital” were defined solely to determine the basis for computing the supervision
and regulation fees under Section 40(e) and (f) of the Public Service Act. III. Filipinization of Public
Utilities The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land,
embodies the ideals that the Constitution intends to achieve.22 The Preamble reads: We, the sovereign
Filipino people, imploring the aid of Almighty God, in order to build a just and humane society, and
establish a Government that shall embody our ideals and aspirations, promote the common good,
conserve and develop our patrimony, and secure to ourselves and our posterity, the blessings of
independence and democracy under the rule of law and a 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
 21

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 corporation’s 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
 22

of which at least sixty per cent (60%) of the capital stock outstandingand 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 “nonPhilippine 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 adomestic 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
 23

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 nonPhilippine 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? That‟s over twenty (20) years ago, correct? COMMISSIONER GAITE: Correct, Your Honor.
JUSTICE CARPIO: And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine
nationals can own and operate public utilities[], correct? COMMISSIONER GAITE: Yes, Your Honor.
JUSTICE CARPIO: And the same Foreign Investments Act of 1991 defines a “Philippine national” either as
a citizen of the Philippines, or if it is a corporation at least sixty percent (60%) of the voting stock is
owned by citizens of the Philippines, correct? 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
 24

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
 25

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
nonPhilippine 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 Pangilinan‟s worry that foreigners, owning most of the non-voting shares, will exercise
greater control over fundamental corporate matters requiring two-thirds or majority vote of all
shareholders. VI. Intent of the framers of the Constitution While Justice Velasco quoted in his Dissenting
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
 26

“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 x x x x 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 Court‟s interpretation of the term “capital.”
In its Consolidated Comment, the OSG explains that the deletion of the phrase “controlling interest” and
replacement of the word “stock” with the term “capital” were intended specifically to extend the scope
of the entities qualified to operate public utilities to include associations without stocks. The framers‟
omission of the phrase “controlling interest” did not mean the inclusion of all shares of stock, whether
voting or non-voting. The OSG reiterated essentially the Court‟s declaration that the Constitution
reserved exclusively to Philippine nationals the ownership and operation of public utilities consistent
with the State‟s policy to “develop a self-reliant and independent national economy effectively
controlled by Filipinos.” 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 economyeffectively 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
 27

G.R. No. 195580 January 28, 2015

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND

DEVELOPMENT, INC., and McARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.

RESOLUTION

VELASCO, JR., J.:

Before the Court is the Motion for Reconsideration of its April 21, 2014 Decision, which
denied the Petition for Review on Certiorari under Rule 45 jointly interposed by
petitioners Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), and affirmed the
October 1, 2010 Decision and February 15, 2011 Resolution of the Court of Appeals
(CA) in CA-G.R. SP No. 109703.

Very simply, the challenged Decision sustained the appellate court's ruling that
petitioners, being foreign corporations, are not entitled to Mineral Production Sharing
Agreements (MPSAs). In reaching its conclusion, this Court upheld with approval the
appellate court's finding that there was doubt as to petitioners' nationality since a 100%
Canadian-owned firm, MBMI Resources, Inc. (MBMI), effectively owns 60% of the
common stocks of the petitioners by owning equity interest of petitioners' other majority
corporate shareholders.

In a strongly worded Motion for Reconsideration dated June 5, 2014, petitioners-

movants argued, in the main, that the Court's Decision was not in accord with law and
logic. In its September 2, 2014 Comment, on the other hand, respondent Redmont
Consolidated Mines Corp. (Redmont) countered that petitioners’ motion for
reconsideration is nothing but a rehash of their arguments and should, thus, be denied
outright for being pro-forma. Petitioners have interposed on September 30, 2014 their
Reply to the respondent’s Comment.

After considering the parties’ positions, as articulated in their respective submissions,

We resolve to deny the motion for reconsideration.

I.

The case has not been rendered moot and academic

Petitioners have first off criticized the Court for resolving in its Decision a substantive
issue, which,as argued, has supposedly been rendered moot by the fact that petitioners’
applications for MPSAs had already been converted to an application for a Financial
Technical Assistance Agreement (FTAA), as petitioners have in fact been granted an
FTAA. Further, the nationality issue, so petitioners presently claim, had been rendered
moribund by the fact that MBMI had already divested itself and sold all its shareholdings
in the petitioners, as well as in their corporate stockholders, to a Filipino corporation—
DMCI Mining Corporation (DMCI).

As a counterpoint, respondent Redmontavers that the present case has not been
rendered moot by the supposed issuance of an FTAA in petitioners’ favor as this FTAA
was subsequently revoked by the Office of the President (OP) and is currently a subject
of a petition pending in the Court’s First Division. Redmont likewise contends that the
supposed sale of MBMI’s interest in the petitioners and in their "holding companies" is a
question of fact that is outside the Court’s province to verify in a Rule 45 certiorari
proceedings. In any case, assuming that the controversy has been rendered moot,
Redmont claims that its resolution on the merits is still justified by the fact that
petitioners have violated a constitutional provision, the violation is capable of repetition
yet evading review, and the present case involves a matter of public concern.
 28

Indeed, as the Court clarified in its Decision, the conversion of the MPSA application to
one for FTAAs and the issuance by the OP of an FTAA in petitioners’ favor are
irrelevant. The OP itself has already cancelled and revoked the FTAA thusissued to
petitioners. Petitioners curiously have omitted this critical factin their motion for
reconsideration. Furthermore, the supposed sale by MBMI of its shares in the petition
ercorporations and in their holding companies is not only a question of fact that this
Court is without authority toverify, it also does not negate any violation of the
Constitutional provisions previously committed before any such sale.

We can assume for the nonce that the controversy had indeed been rendered moot by
these two events. Asthis Court has time and again declared, the "moot and academic"
principle is not a magical formula that automatically dissuades courts in resolving a
case. The Court may still take cognizance of an otherwise moot and academic case, if
1

it finds that (a) there is a grave violation of the Constitution;(b) the situation is of
exceptional character and paramount public interest is involved; (c) the constitutional
issue raised requires formulation of controlling principles to guide the bench, the bar,
and the public; and (d) the case is capable of repetition yet evading review. The Court’s
2

April 21, 2014 Decision explained in some detail that all four (4) of the foregoing
circumstances are present in the case. If only to stress a point, we will do so again.
First, allowing the issuance of MPSAs to applicants that are owned and controlled by a
100% foreign-owned corporation, albeit through an intricate web of corporate layering
involving alleged Filipino corporations, is tantamount to permitting a blatant violation of
Section 2, Article XII of the Constitution. The Court simply cannot allow this breach and
inhibit itself from resolving the controversy on the facile pretext that the case had
already been rendered academic.

Second, the elaborate corporate layering resorted to by petitioners so as to make it

appear that there is compliance with the minimum Filipino ownership in the Constitution
is deftly exceptional in character. More importantly, the case is of paramount public
interest, as the corporate layering employed by petitioners was evidently designed to
circumvent the constitutional caveat allowing only Filipino citizens and corporations
60%-owned by Filipino citizens to explore, develop, and use the country’s natural
resources.

Third, the facts of the case, involving as they do a web of corporate layering intended to
go around the Filipino ownership requirement in the Constitution and pertinent laws,
requirethe establishment of a definite principle that will ensure that the Constitutional
provision reserving to Filipino citizens or "corporations at least sixty per centum of
whose capital is owned by such citizens" be effectively enforced and complied with. The
case, therefore, is an opportunity to establish a controlling principle that will "guide the
bench, the bar, and the public."

Lastly, the petitioners’ actions during the lifetime and existence of the instant case that
gave rise to the present controversy are capable of repetition yet evading review
because, as shown by petitioners’ actions, foreign corporations can easily utilize dummy
Filipino corporations through various schemes and stratagems to skirt the constitutional
prohibition against foreign mining in Philippine soil.

II.

The application of the Grandfather Ruleis justified by the circumstances of the case to
determine the nationality of petitioners.

To petitioners, the Court’s application of the Grandfather Rule to determine their

nationality is erroneous and allegedly without basis in the Constitution, the Foreign
Investments Act of 1991 (FIA), the Philippine Mining Act of 1995,3 and the Rules issued
by the Securities and Exchange Commission (SEC). These laws and rules supposedly
espouse the application of the Control Test in verifying the Philippine nationality of
corporate entities for purposes of determining compliance withSec. 2, Art. XII of the
Constitution that only "corporations or associations at least sixty per centum of whose
capital is owned by such [Filipino] citizens" may enjoy certain rights and privileges, like
the exploration and development of natural resources.
 29

The application of the Grandfather Rule in the present case does not eschew the
Control Test.

Clearly, petitioners have misread, and failed to appreciate the clear import of, the
Court’s April 21, 2014 Decision. Nowhere in that disposition did the Court foreclose the
application of the Control Test in determining which corporations may be considered as
Philippine nationals. Instead, to borrow Justice Leonen’s term, the Court used the
Grandfather Rule as a "supplement" to the Control Test so that the intent underlying the
averted Sec. 2, Art. XII of the Constitution be given effect. The following excerpts of the
April 21, 2014 Decision cannot be clearer:

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

With that, the use of the Grandfather Rule as a "supplement" to the Control Test is not
proscribed by the Constitution or the Philippine Mining Act of 1995.

The Grandfather Rule implements the intent of the Filipinization provisions of the
Constitution.

To reiterate, Sec. 2, Art. XII of the Constitution reserves the exploration, development,
and utilization of natural resources to Filipino citizens and "corporations or associations
at least sixty per centum of whose capital is owned by such citizens." Similarly, Section
3(aq) of the Philippine Mining Act of 1995 considers a "corporation x x x registered in
accordance with law at least sixty per cent of the capital of which is owned by citizens of
the Philippines" as a person qualified to undertake a mining operation. Consistent with
this objective, the Grandfather Rulewas originally conceived to look into the
citizenshipof the individuals who ultimately own and control the shares of stock of a
corporation for purposes of determining compliance with the constitutional requirement
of Filipino ownership. It cannot, therefore, be denied that the framers of the Constitution
have not foreclosed the Grandfather Rule as a tool in verifying the nationality of
corporations for purposes of ascertaining their right to participate in nationalized or
partly nationalized activities. The following excerpts from the Record of the 1986
Constitutional Commission suggest as much:

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

MR. VILLEGAS: That is right.

xxxx

MR. NOLLEDO: Thank you.

With respect to an investment by one corporation in another corporation, say, a

corporation with 60-40 percent equity invests in another corporation which is permitted
by the Corporation Code, does the Committee adopt the grandfather rule?

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

As further defined by Dean Cesar Villanueva, the Grandfather Rule is "the method by
which the percentage of Filipino equity in a corporation engaged in nationalized and/or
partly nationalized areas of activities, provided for under the Constitution and other
nationalization laws, is computed, in cases where corporate shareholders are present,
by attributing the nationality of the second or even subsequent tier of ownership to
determine the nationality of the corporate shareholder." Thus, to arrive at the actual
4
 30

Filipino ownership and control in a corporation, both the direct and indirect
shareholdings in the corporation are determined.

This concept of stock attribution inherent in the Grandfather Rule to determine the
ultimate ownership in a corporation is observed by the Bureau of Internal Revenue
(BIR) in applying Section 127 (B) of the National Internal Revenue Code on taxes
5

imposed on closely held corporations, in relation to Section 96 of the Corporation

Code on close corporations. Thus, in BIR Ruling No. 148-10, Commissioner Kim
6

Henares held:

In the case of a multi-tiered corporation, the stock attribution rule must be allowed to run
continuously along the chain of ownership until it finally reaches the individual
stockholders. This is in consonance with the "grandfather rule" adopted in the
Philippines under Section 96 of the Corporation Code(Batas Pambansa Blg. 68) which
provides that notwithstanding the fact that all the issued stock of a corporation are held
by not more than twenty persons, among others, a corporation is nonetheless not to be
deemed a close corporation when at least two thirds of its voting stock or voting rights is
owned or controlled by another corporation which is not a close corporation. 7

In SEC-OGC Opinion No. 10-31 dated December 9, 2010 (SEC Opinion 10-31), the
SEC applied the Grandfather Rule even if the corporation engaged in mining operation
passes the 60-40 requirement of the Control Test, viz:

You allege that the structure of MML’s ownership in PHILSAGA is as follows: (1) MML
owns 40% equity in MEDC, while the 60% is ostensibly owned by Philippine individual
citizens who are actually MML’s controlled nominees; (2) MEDC, in turn, owns 60%
equity in MOHC, while MML owns the remaining 40%; (3) Lastly, MOHC owns 60% of
PHILSAGA, while MML owns the remaining 40%. You provide the following figure to
illustrate this structure:

xxxx

We note that the Constitution and the statute use the concept "Philippine citizens."
Article III, Section 1 of the Constitution provides who are Philippine citizens: x x x This
enumeration is exhaustive. In other words, there can be no other Philippine citizens
other than those falling within the enumeration provided by the Constitution. Obviously,
only natural persons are susceptible of citizenship. Thus, for purposes of the
Constitutional and statutory restrictions on foreign participation in the exploitation of
mineral resources, a corporation investing in a mining joint venture can never be
considered as a Philippine citizen.

The Supreme Court En Banc confirms this [in]… Pedro R. Palting, vs. San Jose
Petroleum [Inc.]. The Court held that a corporation investing in another corporation
engaged ina nationalized activity cannot be considered as a citizen for purposes of the
Constitutional provision restricting foreign exploitation of natural resources:

xxxx

Accordingly, we opine that we must look into the citizenship of the individual
stockholders, i.e. natural persons, of that investor-corporation in order to determine if
the Constitutional and statutory restrictions are complied with. If the shares of stock of
the immediate investor corporation is in turn held and controlled by another corporation,
then we must look into the citizenship of the individual stockholders of the latter
corporation. In other words, if there are layers of intervening corporations investing in a
mining joint venture, we must delve into the citizenship of the individual stockholders of
each corporation. This is the strict application of the grandfather rule, which the
Commission has been consistently applying prior to the 1990s. Indeed, the framers of
the Constitution intended for the "grandfather rule" to apply in case a 60%-40% Filipino-
Foreign equity corporation invests in another corporation engaging in an activity where
the Constitution restricts foreign participation.

xxxx
 31

Accordingly, under the structure you represented, the joint mining venture is 87.04 %
foreign owned, while it is only 12.96% owned by Philippine citizens. Thus, the
constitutional requirement of 60% ownership by Philippine citizens isviolated. (emphasis
supplied)

Similarly, in the eponymous Redmont Consolidated Mines Corporation v. McArthur

Mining Inc., et al., the SEC en bancapplied the Grandfather Rule despite the fact that
8

the subject corporations ostensibly have satisfied the 60-40 Filipino equity requirement.
The SEC en bancheld that to attain the Constitutional objective of reserving to Filipinos
the utilization of natural resources, one should not stop where the percentage of the
capital stock is 60%.Thus:

[D]oubt, we believe, exists in the instant case because the foreign investor, MBMI,
provided practically all the funds of the remaining appellee-corporations. The records
disclose that: (1) Olympic Mines and Development Corporation ("OMDC"), a domestic
corporation, and MBMI subscribed to 6,663 and 3,331 shares, respectively, out of the
authorized capital stock of Madridejos; however, OMDC paid nothing for this
subscription while MBMI paid ₱2,803,900.00 out of its total subscription cost of
₱3,331,000.00; (2) Palawan Alpha South Resource Development Corp. ("Palawan
Alpha"), also a domestic corporation, and MBMI subscribed to 6,596 and 3,996 shares,
respectively, out of the authorized capital stock of PatriciaLouise; however, Palawan
Alpha paid nothing for this subscription while MBMI paid ₱2,796,000.00 out of its total
subscription cost of ₱3,996,000.00; (3) OMDC and MBMI subscribed to 6,663 and
3,331 shares, respectively, out of the authorized capital stock of Sara Marie; however,
OMDC paid nothing for this subscription while MBMI paid ₱2,794,000.00 out of its total
subscription cost of ₱3,331,000.00; and (4) Falcon Ridge Resources Management
Corp. ("Falcon Ridge"), another domestic corporation, and MBMI subscribed to 5,997
and 3,998 shares, respectively, out of the authorized capital stock of San Juanico;
however, Falcon Ridge paid nothing for this subscription while MBMI paid
₱2,500,000.00 out of its total subscription cost of ₱3,998,000.00. Thus, pursuant to the
afore-quoted DOJ Opinion, the Grandfather Rule must be used.

xxxx

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
practicedvia the 1967 SEC Rules, has favored foreigners contrary to the command of
the Constitution. Hence, the Grandfather Rule must be applied to accurately determine
the actual participation, both direct and indirect, of foreigners in a corporation engaged
in a nationalized activity or business.

The method employed in the Grandfather Rule of attributing the shareholdings of a

given corporate shareholder to the second or even the subsequent tier of ownership
hews with the rule that the "beneficial ownership" of corporations engaged in
nationalized activities must reside in the hands of Filipino citizens. Thus, even if the 60-
40 Filipino equity requirement appears to have been satisfied, the Department of Justice
(DOJ), in its Opinion No. 144, S. of 1977, stated that an agreement that may distort the
actual economic or beneficial ownership of a mining corporation may be struck down as
violative of the constitutional requirement, viz:

In this connection, you raise the following specific questions:

1. Can a Philippine corporation with 30% equity owned by foreigners enter into a mining
service contract with a foreign company granting the latter a share of not morethan 40%
from the proceeds of the operations?

xxxx

By law, a mining lease may be granted only to a Filipino citizen, or to a corporation or

partnership registered with the [SEC] at least 60% of the capital of which is owned by
 32

Filipino citizens and possessing x x x.The sixty percent Philippine equity requirement in
mineral resource exploitation x x xis intended to insure, among other purposes, the
conservation of indigenous natural resources, for Filipino posterityx x x. I think it is
implicit in this provision, even if it refers merely to ownership of stock in the corporation
holding the mining concession, that beneficial ownership of the right to dispose, exploit,
utilize, and develop natural resources shall pertain to Filipino citizens, and that the
nationality requirementis not satisfied unless Filipinos are the principal beneficiaries in
the exploitation of the country’s natural resources. This criterion of beneficial ownership
is tacitly adopted in Section 44 of P.D. No. 463, above-quoted, which limits the service
fee in service contracts to 40% of the proceeds of the operation, thereby implying that
the 60-40 benefit-sharing ration is derived from the 60-40 equity requirement in the
Constitution.

xxxx

It is obvious that while payments to a service contractor may be justified as a service

fee, and therefore, properly deductible from gross proceeds, the service contract could
be employed as a means of going about or circumventing the constitutional limit on
foreign equity participation and the obvious constitutional policy to insure that Filipinos
retain beneficial ownership of our mineral resources. Thus, every service contract
scheme has to be evaluated in its entirety, on a case to case basis, to determine
reasonableness of the total "service fee" x x x like the options available tothe contractor
to become equity participant in the Philippine entity holding the concession, or to
acquire rights in the processing and marketing stages. x x x (emphasis supplied)

The "beneficial ownership" requirement was subsequently used in tandem with the
"situs of control" todetermine the nationality of a corporation in DOJ Opinion No. 84,
S.of 1988, through the Grandfather Rule, despite the fact that both the investee and
investor corporations purportedly satisfy the 60-40 Filipino equity requirement: 9

This refers to your request for opinion on whether or not there may be an investment in
real estate by a domestic corporation (the investing corporation) seventy percent (70%)
of the capital stock of which is owned by another domestic corporation withat least 60%-
40% Filipino-Foreign Equity, while the remaining thirty percent (30%) of the capital stock
is owned by a foreign corporation.

xxxx

This Department has had the occasion to rule in several opinions that it is implicit in the
constitutional provisions, even if it refers merely to ownership of stock in the corporation
holding the land or natural resource concession, that the nationality requirement is not
satisfied unless it meets the criterion of beneficial ownership, i.e. Filipinos are the
principal beneficiaries in the exploration of natural resources(Op. No. 144, s. 1977; Op.
No. 130, s. 1985), and that in applying the same "the primordial consideration is situs of
control, whether in a stock or nonstock corporation"(Op. No. 178, s. 1974). As stated in
the Register of Deeds vs. Ung Sui Si Temple (97 Phil. 58), obviously toinsure that
corporations and associations allowed to acquire agricultural land or to exploit natural
resources "shall be controlled by Filipinos." Accordingly, any arrangement which
attempts to defeat the constitutional purpose should be eschewed (Op. No 130, s.
1985).

We are informed that in the registration of corporations with the [SEC], compliance with
the sixty per centum requirement is being monitored by SEC under the "Grandfather
Rule" a method by which the percentage of Filipino equity in corporations engaged in
nationalized and/or partly nationalized areas of activities provided for under the
Constitution and other national laws is accurately computed, and the diminution if said
equity prevented (SEC Memo, S. 1976). The "Grandfather Rule" is applied specifically
in cases where the corporation has corporate stockholders with alien stockholdings,
otherwise, if the rule is not applied, the presence of such corporate stockholders could
diminish the effective control of Filipinos.
 33

Applying the "Grandfather Rule" in the instant case, the result is as follows: x x x the
total foreign equity in the investing corporation is 58% while the Filipino equity is only
42%, in the investing corporation, subject of your query, is disqualified from investing in
real estate, which is a nationalized activity, as it does not meet the 60%-40% Filipino-
Foreign equity requirement under the Constitution.

This pairing of the concepts "beneficial ownership" and the "situs of control" in
determining what constitutes"capital" has been adopted by this Court in Heirs of
Gamboa v. Teves. In its October 9, 2012 Resolution, the Court clarified, thus:
10

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

In emphasizing the twin requirements of "beneficial ownership" and "control" in

determining compliance with the required Filipino equity in Gamboa, the en bancCourt
explicitly cited with approval the SEC en banc’s application in Redmont Consolidated
Mines, Corp. v. McArthur Mining, Inc., et al. of the Grandfather Rule, to wit:

Significantly, the SEC en banc, which is the collegial body statutorily empowered to
issue rules and opinions on behalf of SEC, has adopted the Grandfather Rulein
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. x x x
(emphasis supplied)

Applying Gamboa, the Court, in Express Investments III Private Ltd. v. Bayantel
Communications, Inc., denied the foreign creditors’ proposal to convert part of
11

Bayantel’s debts to common shares of the company at a rate of 77.7%. Supposedly, the
conversion of the debts to common shares by the foreign creditors would be done, both
directly and indirectly, in order to meet the control test principle under the FIA.Under the
proposed structure, the foreign creditors would own 40% of the outstanding capital
stock of the telecommunications company on a direct basis, while the remaining 40% of
shares would be registered to a holding company that shall retain, on a direct basis, the
other 60% equity reserved for Filipino citizens. Nonetheless, the Court found the
proposal non-compliant with the Constitutional requirement of Filipino ownership as the
proposed structure would give more than 60% of the ownership of the common shares
of Bayantel to the foreign corporations, viz:

In its Rehabilitation Plan, among the material financial commitments made by

respondent Bayantelis that its shareholders shall relinquish the agreed-upon amount of
common stock[s] as payment to Unsecured Creditors as per the Term Sheet. Evidently,
the parties intend to convert the unsustainable portion of respondent’s debt into
common stocks, which have voting rights. If we indulge petitioners on their proposal, the
Omnibus Creditors which are foreign corporations, shall have control over 77.7% of
Bayantel, a public utility company. This is precisely the scenario proscribed by the
Filipinization provision of the Constitution.Therefore, the Court of Appeals acted
correctly in sustaining the 40% debt-to-equity ceiling on conversion. (emphasis
supplied) As shown by the quoted legislative enactments, administrative rulings,
opinions, and this Court’s decisions, the Grandfather Rule not only finds basis, but more
importantly, it implements the Filipino equity requirement, in the Constitution.

Application of the Grandfather

Rule with the Control Test.

 34

Admittedly, an ongoing quandary obtains as to the role of the Grandfather Rule in

determining compliance with the minimum Filipino equity requirement vis-à-vis the
Control Test. This confusion springs from the erroneous assumption that the use of one
method forecloses the use of the other.

As exemplified by the above rulings, opinions, decisions and this Court’s April 21, 2014
Decision, the Control Test can be, as it has been, applied jointly withthe Grandfather
Rule to determine the observance of foreign ownership restriction in nationalized
economic activities. The Control Test and the Grandfather Rule are not, as it were,
incompatible ownership-determinant methods that canonly be applied alternative to
each other. Rather, these methodscan, if appropriate, be used cumulatively in the
determination of the ownership and control of corporations engaged in fully or partly
nationalized activities, as the mining operation involved in this case or the operation of
public utilities as in Gamboa or Bayantel.

The Grandfather Rule, standing alone, should not be used to determine the Filipino
ownership and control in a corporation, as it could result in an otherwise foreign
corporation rendered qualified to perform nationalized or partly nationalized activities.
Hence, it is only when the Control Test is first complied with that the Grandfather Rule
may be applied. Put in another manner, if the subject corporation’s Filipino equity falls
below the threshold 60%, the corporation is immediately considered foreign-owned, in
which case, the needto resort to the Grandfather Rule disappears.

On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity
requirement can be considered a Filipino corporation if there is no doubtas to who has
the "beneficial ownership" and "control" of the corporation. In that instance, there is no
need fora dissection or further inquiry on the ownership of the corporate shareholders in
both the investing and investee corporation or the application of the Grandfather
Rule. As a corollary rule, even if the 60-40 Filipino to foreign equity ratio is apparently
12

met by the subject or investee corporation, a resort to the Grandfather Rule is

necessary if doubt existsas to the locusof the "beneficial ownership" and "control." In
this case, a further investigation as to the nationality of the personalities with the
beneficial ownership and control of the corporate shareholders in both the investing and
investee corporations is necessary.

As explained in the April 21,2012 Decision, the "doubt" that demands the application of
the Grandfather Rule in addition to or in tandem with the Control Test is not confined to,
or more bluntly, does not refer to the fact that the apparent Filipino ownership of the
corporation’s equity falls below the 60% threshold. Rather, "doubt" refers to various
indicia that the "beneficial ownership" and "control" of the corporation do not in fact
reside in Filipino shareholders but in foreign stakeholders. As provided in DOJ Opinion
No. 165, Series of 1984, which applied the pertinent provisions of the Anti-DummyLaw
in relation to the minimum Filipino equity requirement in the Constitution, "significant
indicators of the dummy status" have been recognized in view of reports "that some
Filipino investors or businessmen are being utilized or [are] allowing themselves to be
used as dummies by foreign investors" specifically in joint ventures for national resource
exploitation. These indicators are:

1. That the foreign investors provide practically all the funds for the joint
investment undertaken by these Filipino businessmen and their foreign partner;

2. That the foreign investors undertake to provide practically all the technological
support for the joint venture;

3. That the foreign investors, while being minority stockholders, manage the
company and prepare all economic viability studies.

Thus, In the Matter of the Petition for Revocation of the Certificate of Registration of
Linear Works Realty Development Corporation, the SEC held that when foreigners
13

contribute more capital to an enterprise, doubt exists as to the actual control and
ownership of the subject corporation even if the 60% Filipino equity threshold is met.
Hence, the SEC in that one ordered a further investigation, viz:
 35

x x x The [SEC Enforcement and Prosecution Department (EPD)] maintained that the
basis for determining the level of foreign participation is the number of shares
subscribed, regardless of the par value. Applying such an interpretation, the EPD rules
that the foreign equity participation in Linear works Realty Development Corporation
amounts to 26.41% of the corporation’s capital stock since the amount of shares
subscribed by foreign nationals is 1,795 only out of the 6,795 shares. Thus, the subject
corporation is compliant with the 40% limit on foreign equity participation. Accordingly,
the EPD dismissed the complaint, and did not pursue any investigation against the
subject corporation.

xxxx

x x x [I]n this respect we find no error in the assailed order made by the EPD. The EPD
did not err when it did not take into account the par value of shares in determining
compliance with the constitutional and statutory restrictionson foreign equity.

However, we are aware that some unscrupulous individuals employ schemes to

circumvent the constitutional and statutory restrictions on foreign equity. In the present
case, the fact that the shares of the Japanese nationals have a greater par value but
only have similar rights to those held by Philippine citizens having much lower par
value, is highly suspicious. This is because a reasonable investor would expect to have
greater control and economic rights than other investors who invested less capital than
him. Thus, it is reasonable to suspectthat there may be secret arrangements between
the corporation and the stockholders wherein the Japanese nationals who subscribed to
the shares with greater par value actually have greater control and economic rights
contrary to the equality of shares based on the articles of incorporation.

With this in mind, we find it proper for the EPD to investigate the subject corporation.
The EPD is advised to avail of the Commission’s subpoena powers in order to gather
sufficient evidence, and file the necessary complaint.

As will be discussed, even if atfirst glance the petitioners comply with the 60-40 Filipino
to foreign equity ratio, doubt exists in the present case that gives rise to a reasonable
suspicion that the Filipino shareholders do not actually have the requisite number of
control and beneficial ownership in petitioners Narra, Tesoro, and McArthur. Hence, a
further investigation and dissection of the extent of the ownership of the corporate
shareholders through the Grandfather Rule is justified.

Parenthetically, it is advanced that the application of the Grandfather Rule is impractical

as tracing the shareholdings to the point when natural persons hold rights to the stocks
may very well lead to an investigation ad infinitum. Suffice it to say in this regard that,
while the Grandfather Rule was originally intended to trace the shareholdings to the
point where natural persons hold the shares, the SEC had already set up a limit as to
the number of corporate layers the attribution of the nationality of the corporate
shareholders may be applied.

In a 1977 internal memorandum, the SEC suggested applying the Grandfather Rule on
two (2) levels of corporate relations for publicly-held corporations or where the shares
are traded in the stock exchanges, and to three (3) levels for closely held corporations
or the shares of which are not traded in the stock exchanges. These limits comply with
14

the requirement in Palting v. San Jose Petroleum, Inc. that the application of the
15

Grandfather Rule cannot go beyond the level of what is reasonable.

A doubt exists as to the extent of control and beneficial ownership of MBMI over the
petitioners and their investing corporate stockholders.

In the Decision subject of this recourse, the Court applied the Grandfather Rule to
determine the matter of true ownership and control over the petitioners as doubt exists
as to the actual extent of the participation of MBMI in the equity of the petitioners and
their investing corporations.

We considered the following membership and control structures and like nuances:
 36

Tesoro

Supposedly Filipino corporation Sara Marie Mining, Inc. (Sara Marie) holds 59.97% of
the 10,000 commonshares of petitioner Tesoro while the Canadian-owned company,
MBMI, holds 39.98% of its shares.

Name Nationality Number Amount Amount Paid

of Subscribed
Shares

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

Mining,
Inc.

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

Resources,
Inc.
16

Lauro L. Filipino 1 ₱1,000.00 ₱1,000.00

Salazar

Fernando Filipino 1 ₱1,000.00 ₱1,000.00

B.
Esguerra

Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00

Agcaoili

Michael T. American 1 ₱1,000.00 ₱1,000.00

Mason

Kenneth Canadian 1 ₱1,000.00 ₱1,000.00

Cawkel

Total 10,000 ₱10,000,000.00 ₱2,708,174.60

In turn, the Filipino corporation Olympic Mines & Development Corp. (Olympic) holds
66.63% of Sara Marie’s shares while the same Canadian company MBMI holds 33.31%
of Sara Marie’s shares. Nonetheless, it is admitted that Olympic did not pay a single
peso for its shares. On the contrary, MBMI paid for 99% of the paid-up capital of Sara
Marie.

Name Nationality Number Amount Amount Paid

of Subscribed
Shares

Olympic Filipino 6,663 ₱6,663,000.00 P0.00

Mines &
Development
Corp.17

MBMI Canadian 3,331 ₱3,331,000.00 ₱2,794,000.00

Resources,
Inc.

Amanti Filipino 1 ₱1,000.00 ₱1,000.00

Limson
 37

Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00

Esguerra

Lauro Filipino 1 ₱1,000.00 ₱1,000.00

Salazar

Emmanuel Filipino 1 ₱1,000.00 ₱1,000.00

G.

Hernando
Michael T. American 1 ₱1,000.00 ₱1,000.00
Mason

Kenneth Canadian 1 ₱1,000.00 ₱1,000.00

Cawkel

Total 10,000 ₱10,000,000.00 ₱2,800,000.00

The fact that MBMI had practically provided all the funds in Sara Marie and Tesoro
creates serious doubt as to the true extent of its (MBMI) control and ownership
over both Sara Marie and Tesoro since, as observed by the SEC, "a reasonable
investor would expect to have greater control and economic rights than other investors
who invested less capital than him." The application of the Grandfather Rule is clearly
called for, and as shown below, the Filipinos’ control and economic benefits in petitioner
Tesoro (through Sara Marie) fallbelow the threshold 60%, viz:

Filipino participation in petitioner Tesoro: 40.01%

66.67

(Filipino equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 39.98%

100

39.98% + .03% (shares of individual Filipino shareholders [SHs] in Tesoro)

=40.01%

Foreign participation in petitioner Tesoro: 59.99%

33.33

(Foreign equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 19.99%

100

19.99% + 39.98% (MBMI’s direct participation in Tesoro) + .02% (shares of foreign

individual SHs in Tesoro)
= 59.99%

With only 40.01% Filipino ownership in petitioner Tesoro, as compared to 59.99%

foreign ownership of its shares, it is clear that petitioner Tesoro does not comply with the
minimum Filipino equity requirement imposed in Sec. 2, Art. XII of the Constitution.
Hence, the appellate court’s observation that Tesoro is a foreign corporation not entitled
to an MPSA is apt.

McArthur
 38

Petitioner McArthur follows the corporate layering structure of Tesoro, as 59.97% of its
10, 000 common shares is owned by supposedly Filipino Madridejos Mining Corporation
(Madridejos), while 39.98% belonged to the Canadian MBMI.

Name Nationality Number Amount Amount Paid

of Subscribed
Shares

Madridejos Filipino 5,997 ₱5,997,000.00 ₱825,000.00

Mining
Corporation

MBMI Canadian 3,998 ₱3,998,000.0 ₱1,878,174.60

Resources,
Inc.
18

Lauro L. Filipino 1 ₱1,000.00 ₱1,000.00

Salazar

Fernando Filipino 1 ₱1,000.00 ₱1,000.00

B.

Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00

Agcaoili

Michael T. American 1 ₱1,000.00 ₱1,000.00

Mason

Kenneth Canadian 1 ₱1,000.00 ₱1,000.00

Cawkel

Total 10,000 ₱10,000,000.00 ₱2,708,174.60

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

Name Nationality Number Amount Amount Paid

of Subscribed
Shares

Olympic Filipino 6,663 ₱6,663,000.00 P0.00

Mines &
Development
Corp. 19

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

Resources,
Inc.

Amanti Filipino 1 ₱1,000.00 ₱1,000.00

Limson

Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00

Esguerra

Lauro Filipino 1 ₱1,000.00 ₱1,000.00

Salazar

Emmanuel Filipino 1 ₱1,000.00 ₱1,000.00

 39

G. Hernando

Michael T. American 1 ₱1,000.00 ₱1,000.00

Mason

Kenneth Canadian 1 ₱1,000.00 ₱1,000.00

Cawkel

Total 10,000 ₱10,000,000.00 ₱2,809,900.00

Again, the fact that MBMI had practically provided all the funds in Madridejos and
McArthur creates serious doubt as to the true extent of its control and ownership of
MBMI over both Madridejos and McArthur. The application of the Grandfather Rule is
clearly called for, and as will be shown below, MBMI, along with the other foreign
shareholders, breached the maximum limit of 40% ownership in petitioner McArthur,
rendering the petitioner disqualified to an MPSA:

Filipino participation in petitioner McArthur: 40.01%

66.67

(Filipino equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 39.98%

100

39.98% + .03% (shares of individual Filipino SHs in McArthur)

=40.01%

Foreign participation in petitioner McArthur: 59.99%

33.33
(Foreign equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 19.99%

19.99% + 39.98% (MBMI’s direct participation inMcArthur) + .02% (shares of foreign

individual SHs in McArthur)
= 59.99%

As with petitioner Tesoro, with only 40.01% Filipino ownership in petitioner McArthur, as
compared to 59.99% foreign ownership of its shares, it is clear that petitioner McArthur
does not comply with the minimum Filipino equity requirement imposed in Sec. 2, Art.
XII of the Constitution. Thus, the appellate court did not err in holding that petitioner
McArthur is a foreign corporation not entitled to an MPSA.

Narra

As for petitioner Narra, 59.97% of its shares belonged to Patricia Louise Mining &
Development Corporation (PLMDC), while Canadian MBMI held 39.98% of its shares.

Name Nationality Number Amount Amount Paid

of Subscribed
Shares

Patricia Filipino 5,997 ₱5,997,000.00 ₱1,677,000.00

Lousie
Mining and
Development
Corp.
 40

MBMI Canadian 3,996 ₱3,996,000.00 ₱1,116,000.00

Resources,
Inc.
20

Higinio C. Filipino 1 ₱1,000.00 ₱1,000.00

Mendoza,

Henry E. Filipino 1 ₱1,000.00 ₱1,000.00

Fernandez

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

Bocalan

Michael T. American 1 ₱1,000.00 ₱1,000.00

Mason

Robert L. Canadian 1 ₱1,000.00 ₱1,000.00

McCurdy

Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00

Agcaoili

Bayani H. Filipino 1 ₱1,000.00 ₱1,000.00

Agabin

Total 10,000 ₱10,000,000.00 ₱2,800,000.00

PLMDC’s shares, in turn, were held by Palawan Alpha South Resources Development
Corporation (PASRDC), which subscribed to 65.96% of PLMDC’s shares, and the
Canadian MBMI, which subscribed to 33.96% of PLMDC’s shares.

Name Nationality Number Amount Amount Paid

of Subscribed
Shares

Palawan Filipino 6,596 ₱6,596,000.00 P0

Alpha South
Resource
Development
Corp.

MBMI Canadian 3,396 ₱3,396,000.00 ₱2,796,000.00

Resources,
Inc.
21

Higinio C. Filipino 1 ₱1,000.00 ₱1,000.00

Mendoza, Jr.

Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00

Esguerra

Henry E. Filipino 1 ₱1,000.00 ₱1,000.00

Fernandez

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

Bocalan

Michael T. American 1 ₱1,000.00 ₱1,000.00

Mason
 41

Robert L. Canadian 1 ₱1,000.00 ₱1,000.00

McCurdy

Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00

Agcaoili

Bayani H, Filipino 1 ₱1,000.00 ₱1,000.00

Agabin

Total 10,000 ₱10,000,000.00 ₱2,804,000.00

Yet again, PASRDC did not pay for any of its subscribed shares, while MBMI
contributed 99.75% of PLMDC’s paid-up capital. This fact creates serious doubt as to
the true extent of MBMI’s control and ownership over both PLMDC and Narra since "a
reasonable investor would expect to have greater control and economic rights than
other investors who invested less capital than him." Thus, the application of the
Grandfather Rule is justified. And as will be shown, it is clear that the Filipino ownership
in petitioner Narra falls below the limit prescribed in both the Constitution and the
Philippine Mining Act of 1995.

Filipino participation in petitioner Narra: 39.64%

66.02

(Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59%

100

39.59% + .05% (shares of individual Filipino SHs in McArthur)

=39.64%

Foreign participation in petitioner Narra: 60.36%

33.98

(Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38%

100

20.38% + 39.96% (MBMI’s direct participation in Narra) + .02% (shares of foreign

individual SHs in McArthur)
= 60.36%

With 60.36% foreign ownership in petitioner Narra, as compared to only 39.64% Filipino
ownership of its shares, it is clear that petitioner Narra does not comply with the
minimum Filipino equity requirement imposed in Section 2, Article XII of the
Constitution. Hence, the appellate court did not err in holding that petitioner McArthur is
a foreign corporation not entitled to an MPSA.

It must be noted that the foregoing determination and computation of petitioners’ Filipino
equity composition was based on their common shareholdings, not preferred or
redeemable shares. Section 6 of the Corporation Code of the Philippines explicitly
provides that "no share may be deprived of voting rights except those classified as
‘preferred’ or ‘redeemable’ shares." Further, as Justice Leonen puts it, there is "no
indication that any of the shares x x x do not have voting rights, [thus] it must be
assumed that all such shares have voting rights." It cannot therefore be gain said that
22

the foregoing computation hewed with the pronouncements of Gamboa, as

implemented by SEC Memorandum Circular No. 8, Series of 2013, (SEC Memo No.
8) Section 2 of which states:
23
 42

Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory requirement. For purposes of determining compliance therewith, the required
1âwphi1

percentage of Filipino ownership shall be applied to BOTH (a) the total outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in the election of directors.

In fact, there is no indication that herein petitioners issued any other class of shares
besides the 10,000 common shares. Neither is it suggested that the common shares
were further divided into voting or non-voting common shares. Hence, for purposes of
this case, items a) and b) in SEC Memo No. 8 both refer to the 10,000 common shares
of each of the petitioners, and there is no need to separately apply the 60-40 ratio to
any segment or part of the said common shares.

III.

In mining disputes, the POA has jurisdiction to pass upon the nationality of applications
for MPSAs

Petitioners also scoffed at this Court’s decision to uphold the jurisdiction of the Panel of
Arbitrators (POA) of the Department of Environment and Natural Resources (DENR)
since the POA’s determination of petitioners’ nationalities is supposedly beyond its
limited jurisdiction, as defined in Gonzales v. Climax Mining Ltd. and Philex Mining
24

Corp. v. Zaldivia.
25

The April 21, 2014 Decision did not dilute, much less overturn, this Court’s
pronouncements in either Gonzales or Philex Mining that POA’s jurisdiction "is limited
only to mining disputes which raise questions of fact," and not judicial questions
cognizable by regular courts of justice. However, to properly recognize and give effect to
the jurisdiction vested in the POA by Section 77 of the Philippine Mining Act of
1995, and in parallel with this Court’s ruling in Celestial Nickel Mining Exploration
26

Corporation v. Macroasia Corp., the Court has recognized in its Decision that in
27

resolving disputes "involving rights to mining areas" and "involving mineral agreements
or permits," the POA has jurisdiction to make a preliminary finding of the required
nationality of the corporate applicant in order to determine its right to a mining area or a
mineral agreement.

There is certainly nothing novel or aberrant in this approach. In ejectment and unlawful
detainer cases, where the subject of inquiry is possession de facto, the jurisdiction of
the municipal trial courts to make a preliminary adjudication regarding ownership of the
real property involved is allowed, but only for purposes of ruling on the determinative
issue of material possession.

The present case arose from petitioners' MPSA applications, in which they asserted
their respective rights to the mining areas each applied for. Since respondent Redmont,
itself an applicant for exploration permits over the same mining areas, filed petitions for
the denial of petitioners' applications, it should be clear that there exists a controversy
between the parties and it is POA's jurisdiction to resolve the said dispute. POA's ruling
on Redmont's assertion that petitioners are foreign corporations not entitled to MPSA is
but a necessary incident of its disposition of the mining dispute presented before it,
which is whether the petitioners are entitled to MPSAs.

Indeed, as the POA has jurisdiction to entertain "disputes involving rights to mining
areas," it necessarily follows that the POA likewise wields the authority to pass upon the
nationality issue involving petitioners, since the resolution of this issue is essential and
indispensable in the resolution of the main issue, i.e., the determination of the
petitioners' right to the mining areas through MPSAs.

WHEREFORE, We DENY the motion for reconsideration WITH FINALITY. No further

pleadings shall be entertained. Let entry of judgment be made in due course.

SO ORDERED.
 43

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR: