AS TO NATIONALITY (SEC.

176 OF THE RCC)

EXPLOITATION OF NATURAL RESOURCE

REGISTER OF DEEDS VS. UNG SUI SI TEMPLE, 97 PHIL 58 (1955)

REYES, J.B.L., J.:

The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in
due form on January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in
Caloocan, Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the
unregistered religious organization "Ung Siu Si Temple", operating through three trustees all of Chinese
nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of the
Temple, acting in representation and in behalf of the latter and its trustees.

The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of
Manila. On March 14, 1953, the Court upheld the action of the Rizal Register of Deeds, saying:

The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of donation
of a parcel of land executed in favor of a religious organization whose founder, trustees and administrator are
Chinese citizens should be registered or not.

It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose
deaconess, founder, trustees and administrator are all Chinese citizens, this Court is of the opinion and so hold
that in view of the provisions of the sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting
the acquisition of land in the Philippines to its citizens, or to corporations or associations at least sixty per
centum of the capital stock of which is owned by such citizens adopted after the enactment of said Act No.
271, and the decision of the Supreme Court in the case of Krivenko vs. the Register of Deeds of Manila, the
deed of donation in question should not be admitted for admitted for registration. (Printed Rec. App. pp 17-18).

Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has
appealed to this Court, claiming: (1) that the acquisition of the land in question, for religious purposes, is
authorized and permitted by Act No. 271 of the old Philippine Commission, providing as follows:

SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether
incorporated in the Philippine Islands or in the name of other country, or not incorporated at all, to hold land in
the Philippine Islands upon which to build churches, parsonages, or educational or charitable institutions.

SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees for the
use of such associations; . . .. (Printed Rec. App. p. 5.)

and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art.
III, Sec. 1(7)].

We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5,
Title XIII, of the Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed
repealed since the Constitution was enacted, in so far as incompatible therewith. In providing that, —

Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations or associations qualified to acquire or hold lands of the public domain in the
Philippines,

the Constitution makes no exception in favor of religious associations. Neither is there any such saving found
in sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other natural
resources to "corporations or associations at least sixty per centum of the capital of which is owned by such
citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty
per centum requirement is obviously to ensure that corporations or associations allowed to acquire agricultural
land or to exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands
that in the absence of capital stock, the controlling membership should be composed of Filipino citizens.

To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the
opening wedge to revive alien religious land holdings in this country. We can not ignore the historical fact that
complaints against land holdings of that kind were among the factors that sparked the revolution of 1896.

As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed
by Article III of the Constitution, we are by no means convinced (nor has it been shown) that land tenure is
indispensable to the free exercise and enjoyment of religious profession or worship; or that one may not
worship the Deity according to the dictates of his own conscience unless upon land held in fee simple.

The resolution appealed from is affirmed, with costs against appellant.

PUBLIC UTILITIES – SEC. 11, ART. XVI OF THE CONSTITUTION

PEOPLE VS. QUASHA, 93 PHIL 333 (1953)

REYES, J.:

William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with
the crime of falsification of a public and commercial document in that, having been entrusted with the
preparation and registration of the article of incorporation of the Pacific Airways Corporation, a domestic
corporation organized for the purpose of engaging in business as a common carrier, he caused it to appear in
said article of incorporation that one Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of
60.005 per cent of the subscribed capital stock of the corporation when in reality, as the accused well knew,
such was not the case, the truth being that the owner of the portion of the capital stock subscribed to by Baylon
and the money paid thereon were American citizen whose name did not appear in the article of incorporation,
and that the purpose for making this false statement was to circumvent the constitutional mandate that no
corporation shall be authorize to operate as a public utility in the Philippines unless 60 per cent of its capital
stock is owned by Filipinos.

Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this
Court.

The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its
articles of incorporation with the Securities and Exchanged Commission. The article were prepared and the
registration was effected by the accused, who was in fact the organizer of the corporation. The article stated
that the primary purpose of the corporation was to carry on the business of a common carrier by air, land or
water; that its capital stock was P1,000,000, represented by 9,000 preferred and 100,000 common shares,
each preferred share being of the par value of p100 and entitled to 1/3 vote and each common share, of the
par value of P1 and entitled to one vote; that the amount capital stock actually subscribed was P200,000, and
the names of the subscribers were Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon,
Denzel J. Cavin, and William H. Quasha, the first being a Filipino and the other five all Americans; that
Baylon's subscription was for 1,145 preferred shares, of the total value of P114,500, and for 6,500 common
shares, of the total par value of P6,500, while the aggregate subscriptions of the American subscribers were
for 200 preferred shares, of the total par value of P20,000, and 59,000 common shares, of the total par value
of P59,000; and that Baylon and the American subscribers had already paid 25 per cent of their respective
subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital stock of the
corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting power
between the preferred shares and the common shares. Still, with the capital structure as it was, the article of
incorporation were accepted for registration and a certificate of incorporation was issued by the Securities and
Exchange Commission.

There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the
corporation. But it is admitted that the money paid on his subscription did not belong to him but to the
Americans subscribers to the corporate stock. In explanation, the accused testified, without contradiction, that
in the process of organization Baylon was made a trustee for the American incorporators, and that the reason
for making Baylon such trustee was as follows:

Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a total
value of P1,135. Do you know how that came to be?

A. Yes.

The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified
copy came to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one
evening. There was considerable difficulty to get them all together at one time because they were pilots. They
had difficulty in deciding what their respective share holdings would be. Onstott had invested a certain amount
of money in airplane surplus property and they had obtained a considerable amount of money on those planes
and as I recall they were desirous of getting a corporation formed right away. And they wanted to have their
respective shares holdings resolved at a latter date. They stated that they could get together that they feel that
they had no time to settle their respective share holdings. We discussed the matter and finally it was decided
that the best way to handle the things was not to put the shares in the name of anyone of the interested parties
and to have someone act as trustee for their respective shares holdings. So we looked around for a trustee.
And he said "There are a lot of people whom I trust." He said, "Is there someone around whom we could get
right away?" I said, "There is Arsenio. He was my boy during the liberation and he cared for me when i was
sick and i said i consider him my friend." I said. They all knew Arsenio. He is a very kind man and that was
what was done. That is how it came about.

Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the
Revised Penal Code, which read:

ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. — The penalty of prision
mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary
who, taking advantage of his official position, shall falsify a document by committing any of the following acts:

xxx xxx xxx

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. — The penalty of prision
correccional in its medium and maximum period and a fine of not more than 5,000 pesos shall be imposed
upon:

xxx xxx xxx

1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in
any public or official document or letter of exchange or any other kind of commercial document.

Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new
edition, pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in
the narration of facts must be made with the wrongful intent of injuring a third person; and on the authority of
U.S. vs. Lopez (15 Phil., 515), the same author further maintains that even if such wrongful intent is proven,
still the untruthful statement will not constitute the crime of falsification if there is no legal obligation on the part
of the narrator to disclose the truth. Wrongful intent to injure a third person and obligation on the part of the
narrator to disclose the truth are thus essential to a conviction for a crime of falsification under the above article
of the Revised Penal Code.

Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the
articles of incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of
his American co-incorporators, thus giving the impression that Baylon was the owner of the shares subscribed
to by him which, as above stated, amount to 60.005 per cent of the sub-scribed capital stock. This, in the
opinion of the trial court, is a malicious perversion of the truth made with the wrongful intent circumventing
section 8, Article XIV of the Constitution, which provides that " 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
corporation or other entities organized under the law of the Philippines, sixty per centum of the capital of which
is owned by citizens of the Philippines . . . ." Plausible though it may appear at first glance, this opinion loses
validity once it is noted that it is predicated on the erroneous assumption that the constitutional provision just
quoted was meant to prohibit the mere formation of a public utility corporation without 60 per cent of its capital
being owned by the Filipinos, a mistaken belief which has induced the lower court to that the accused was
under obligation to disclose the whole truth about the nationality of the subscribed capital stock of the
corporation by revealing that Baylon was a mere trustee or dummy of his American co-incorporators, and that
in not making such disclosure defendant's intention was to circumvent the Constitution to the detriment of the
public interests. Contrary to the lower court's assumption, the Constitution does not prohibit the mere formation
of a public utility corporation without the required formation of Filipino capital. What it does prohibit is the
granting of a franchise or other form of authorization for the operation of a public utility to a corporation already
in existence but without the requisite proportion of Filipino capital. This is obvious from the context, for the
constitutional provision in question qualifies the terms " franchise", "certificate", or "any other form of
authorization" with the phrase "for the operation of a public utility," thereby making it clear that the franchise
meant is not the "primary franchise" that invest a body of men with corporate existence but the "secondary
franchise" or the privilege to operate as a public utility after the corporation has already come into being.

If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then
how can the accused be charged with having wrongfully intended to circumvent that fundamental law by not
revealing in the articles of incorporation that Baylon was a mere trustee of his American co-incorporation and
that for that reason the subscribed capital stock of the corporation was wholly American? For the mere
formation of the corporation such revelation was not essential, and the Corporation Law does not require it.
Defendant was, therefore, under no obligation to make it. In the absence of such obligation and of the allege
wrongful intent, defendant cannot be legally convicted of the crime with which he is charged.

It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock
appearing in the name of Baylon was an indispensable preparatory step to the subversion of the constitutional
prohibition and the laws implementing the policy expressed therein. This view is not correct. For a corporation
to be entitled to operate a public utility it is not necessary that it be organized with 60 per cent of its capital
owned by Filipinos from the start. A corporation formed with capital that is entirely alien may subsequently
change the nationality of its capital through transfer of shares to Filipino citizens. conversely, a corporation
originally formed with Filipino capital may subsequently change the national status of said capital through
transfer of shares to foreigners. What need is there then for a corporation that intends to operate a public utility
to have, at the time of its formation, 60 per cent of its capital owned by Filipinos alone? That condition may
anytime be attained thru the necessary transfer of stocks. The moment for determining whether a corporation
is entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form of
authorization for that purpose. And that can be done after the corporation has already come into being and not
while it is still being formed. And at that moment, the corporation must show that it has complied not only with
the requirement of the Constitution as to the nationality of its capital, but also with the requirements of the Civil
Aviation Law if it is a common carrier by air, the Revised Administrative Code if it is a common carrier by water,
and the Public Service Law if it is a common carrier by land or other kind of public service.

Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under
article 59 of the Revised Penal Code. It not being possible to suppose that defendant had intended to commit a
crime for the simple reason that the alleged constitutional prohibition which he is charged for having tried to
circumvent does not exist, conviction under that article is out of the question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the
crime charged. The majority of the court, however, are also of the opinion that, even supposing that the act
imputed to the defendant constituted falsification at the time it was perpetrated, still with the approval of the
Party Amendment to the Constitution in March, 1947, which placed Americans on the same footing as Filipino
citizens with respect to the right to operate public utilities in the Philippines, thus doing away with the
prohibition in section 8, Article XIV of the Constitution in so far as American citizens are concerned, the said
act has ceased to be an offense within the meaning of the law, so that defendant can no longer be held
criminally liable therefor.

In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha
acquitted, with costs de oficio.
WAR-TIME TEST

FILIPINAS COMPANIA VS, CHRISTERN, 89 PHIL 744 (1952)

PARAS, C.J.:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of
corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the
sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo
Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured
merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy.
The salvage goods were sold at public auction and, after deducting their value, the total loss suffered by the
respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in favor
of the respondent had ceased to be in force on the date the United States declared war against Germany, the
respondent Corporation (though organized under and by virtue of the laws of the Philippines) being controlled
by the German subjects and the petitioner being a company under American jurisdiction when said policy was
issued on October 1, 1941. The petitioner, however, in pursuance of the order of the Director of Bureau of
Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650
on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of
recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the
insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has
ceased to be effective because of the outbreak of the war between the United States and Germany on
December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the
Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed
the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court
of First Instance of Manila was affirmed, with costs. The case is now before us on appeal by certiorari from the
decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an
enemy when the United States declared war against Germany, relying on English and American cases which
held that a corporation is a citizen of the country or state by and under the laws of which it was created or
organized. It rejected the theory that nationality of private corporation is determine by the character or
citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation were German subjects.
This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the
war between the United States and Germany. The English and American cases relied upon by the Court of
Appeals have lost their force in view of the latest decision of the Supreme Court of the United States in Clark
vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp.
148-153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper
presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in
August. 1948 the following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been discussion in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations, themselves considered as
enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the
corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after
the First World War.

The United States of America did not adopt the control test during the First World War. Courts refused to
recognized the concept whereby American-registered corporations could be considered as enemies and thus
subject to domestic legislation and administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and other enemy interests were cloaked by
domestic corporation structure. It was not only by legal ownership of shares that a material influence could be
exercised on the management of the corporation but also by long term loans and other factual situations. For
that reason, legislation on enemy property enacted in various countries during World War II adopted by
statutory provisions to the control test and determined, to various degrees, the incidents of control. Court
decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy
character of domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include
as did other legislations the applications of the control test and again, as in World War I, courts refused to
apply this concept whereby the enemy character of an American or neutral-registered corporation is
determined by the enemy nationality of the controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the
treatment of foreign-owned property in the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such
administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8,
1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee
Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court:
"The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property
Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under
those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country
or national so that no innocent appearing device could become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed
decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299,
we already held that China Banking Corporation came within the meaning of the word "enemy" as used in the
Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an
enemy country but because it was controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public
enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.

Effect of war, generally. — All intercourse between citizens of belligerent powers which is inconsistent with a
state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading
with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary
submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and
all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy,
upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one
country cannot be permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to
cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should
destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should
in such manner increase the resources of the enemy, or render it aid, and the commencement of war
determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful.
All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter
exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it
is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of
the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in
its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible,
and since the insured goods were burned after December 10, 1941, and during the war, the respondent was
not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the
absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the
period covered by its policy from December 11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the
policy in question became null and void upon the declaration of war between the United States and Germany
on December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its
conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if
the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on
the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the
appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the
insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to
payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the
Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the
instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings
and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of
which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military
Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of
Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of
crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this
case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of
P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the
petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency,
that should be returned by the petitioner for the unexpired term of the policy in question, beginning December
11, 1941. Without costs. So ordered.
GRANDFATHER RULE

NARRA NICKEL MINING VS. REDMONT CONSOLIDATED, GR. NO. 195580 (2014)

VELASCO, JR., J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining
Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1, 2010 Decision1 and the February 15, 2011 Resolution of the
Court of Appeals (CA).

The Facts

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Philippine laws, took interest in mining and exploring certain areas of
the province of Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration and mining activities where already covered by
Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

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

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

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

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

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate
petitions for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and
MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are
owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned
that since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of
the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities
through corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital
stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.

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

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

xxxx

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

Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial
or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for
Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless, they
claimed that the issue on nationality should not be raised since McArthur, Tesoro and Narra are in fact
Philippine Nationals as 60% of their capital is owned by citizens of the Philippines. They asserted that though
MBMI owns 40% of the shares of PLMC (which owns 5,997 shares of Narra),3 40% of the shares of MMC
(which owns 5,997 shares of McArthur)4 and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of
Tesoro),5 the shares of MBMI will not make it the owner of at least 60% of the capital stock of each of
petitioners. They added that the best tool used in determining the nationality of a corporation is the "control
test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991. They also claimed that the POA
of DENR did not have jurisdiction over the issues in Redmont’s petition since they are not enumerated in Sec.
77 of RA 7942. Finally, they stressed that Redmont has no personality to sue them because it has no pending
claim or application over the areas applied for by petitioners.

On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:

[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the
other hand, [Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over mining areas is clearly established thus, there is
reason to believe that the cancellation and/or revocation of permits already issued under the premises is in
order and open the areas covered to other qualified applicants.

xxxx

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and
Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered
as Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED
NULL AND VOID.6

The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100%
Canadian company and declared their MPSAs null and void. In the same Resolution, it gave due course to
Redmont’s EPAs. Thereafter, on February 7, 2008, the POA issued an Order7 denying the Motion for
Reconsideration filed by petitioners.

Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal8 and
Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of
Appeal10 and Memorandum of Appeal.11

In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also,
through a letter, they informed the MAB that they had their individual MPSA applications converted to FTAAs.
McArthur’s FTAA was denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA application was
converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA was converted to AFTA-IVB-0714 on March
30, 2006.

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint15 with the
Securities and Exchange Commission (SEC), seeking the revocation of the certificates for registration of
petitioners on the ground that they are foreign-owned or controlled corporations engaged in mining in violation
of Philippine laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend
Proceeding before the MAB praying for the suspension of the proceedings on the appeals filed by McArthur,
Tesoro and Narra.

Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch
92 (RTC) a Complaint16 for injunction with application for issuance of a temporary restraining order (TRO)
and/or writ of preliminary injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of
the MAB proceedings pending the resolution of the Complaint before the SEC.

But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs, the MAB issued
an Order on September 10, 2008, finding the appeal meritorious. It held:

WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE
the Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-
DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions
for Reconsideration of the Appellants. The Petition filed by Redmont Consolidated Mines Corporation on 02
January 2007 is hereby ordered DISMISSED.17

Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s application for a TRO and
setting the case for hearing the prayer for the issuance of a writ of preliminary injunction on September 19,
2008.

Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration19 of the September 10, 2008
Order of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration20 on September 29,
2008.

Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a Supplemental Complaint21 in Civil Case No. 08-63379.

On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary injunction
enjoining the MAB from finally disposing of the appeals of petitioners and from resolving Redmont’s Motion for
Reconsideration and Supplement Motion for Reconsideration of the MAB’s September 10, 2008 Resolution.

On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for Reconsideration and
Supplemental Motion for Reconsideration and resolving the appeals filed by petitioners.

Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On
October 1, 2010, the CA rendered a Decision, the dispositive of which reads:

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and
July 1, 2009 of the Mining Adjudication Board are reversed and set aside. The findings of the Panel of
Arbitrators of the Department of Environment and Natural Resources that respondents McArthur, Tesoro and
Narra are foreign corporations is upheld and, therefore, the rejection of their applications for Mineral Product
Sharing Agreement should be recommended to the Secretary of the DENR.

With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical
Assistance Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its rejection or
approval is left for determination by the Secretary of the DENR and the President of the Republic of the
Philippines.

SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.

After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when
it realized that petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians.
Pursuant to the first sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining
to the exploitation of natural resources, the CA used the "grandfather rule" to determine the nationality of
petitioners. It provided:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall
be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of
the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
recorded as belonging to aliens.24 (emphasis supplied)

In determining the nationality of petitioners, the CA looked into their corporate structures and their
corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI in effect
owned majority of the common stocks of the petitioners as well as at least 60% equity interest of other majority
shareholders of petitioners through joint venture agreements. The CA found that through a "web of corporate
layering, it is clear that one common controlling investor in all mining corporations involved x x x is MBMI."25
Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-
interest of, MBMI.

Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications
suspicious in nature and, as a consequence, it recommended the rejection of petitioners’ MPSA applications
by the Secretary of the DENR.

With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has
jurisdiction over them and that it also has the power to determine the of nationality of petitioners as a
prerequisite of the Constitution prior the conferring of rights to "co-production, joint venture or production-
sharing agreements" of the state to mining rights. However, it also stated that the POA’s jurisdiction is limited
only to the resolution of the dispute and not on the approval or rejection of the MPSAs. It stipulated that only
the Secretary of the DENR is vested with the power to approve or reject applications for MPSA.

Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered
petitioners McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the CA determined that the
POA’s declaration that the MPSAs of McArthur, Tesoro and Narra are void is highly improper.

While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated
May 7, 2010 seeking the cancellation of petitioners’ FTAAs. The OP rendered a Decision26 on April 6, 2011,
wherein it canceled and revoked petitioners’ FTAAs for violating and circumventing the "Constitution x x x[,] the
Small Scale Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign
Investment Act and E.O. 584."27 The OP, in affirming the cancellation of the issued FTAAs, agreed with
Redmont stating that petitioners committed violations against the abovementioned laws and failed to submit
evidence to negate them. The Decision further quoted the December 14, 2007 Order of the POA focusing on
the alleged misrepresentation and claims made by petitioners of being domestic or Filipino corporations and
the admitted continued mining operation of PMDC using their locally secured Small Scale Mining Permit inside
the area earlier applied for an MPSA application which was eventually transferred to Narra. It also agreed with
the POA’s estimation that the filing of the FTAA applications by petitioners is a clear admission that they are
"not capable of conducting a large scale mining operation and that they need the financial and technical
assistance of a foreign entity in their operation, that is why they sought the participation of MBMI Resources,
Inc."28 The Decision further quoted:

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

The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution30 dated July 6,
2011. Petitioners then filed a Petition for Review on Certiorari of the OP’s Decision and Resolution with the CA,
docketed as CA-G.R. SP No. 120409. In the CA Decision dated February 29, 2012, the CA affirmed the
Decision and Resolution of the OP. Thereafter, petitioners appealed the same CA decision to this Court which
is now pending with a different division.

Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the
following errors of the CA:

I.

The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject
matter of the controversy, the MPSA Applications, have already been converted into FTAA applications and
that the same have already been granted.

II.

The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel of
Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur.

III.

The Court of Appeals erred when it did not dismiss the case on account of Redmont’s willful forum shopping.
IV.

The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of 1991,
as amended, and the FIA Rules.

V.

The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.

VI.

The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA
Applications were of "suspicious nature" as the same is based on mere conjectures and surmises without any
shred of evidence to show the same.31

We find the petition to be without merit.

This case not moot and academic

The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.

Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by
virtue of supervening events, so that a declaration thereon would be of no practical use or value."32 Thus, the
courts "generally decline jurisdiction over the case or dismiss it on the ground of mootness."33

The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of
"mootness" will not deter the courts from trying a case when there is a valid reason to do so. In David v.
Macapagal-Arroyo (David), the Court provided four instances where courts can decide an otherwise moot
case, thus:

1.) There is a grave violation of the Constitution;

2.) The exceptional character of the situation and paramount public interest is involved;

3.) When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar,
and the public; and

4.) The case is capable of repetition yet evading review.34

All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation
of the Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under
our country’s nose through a myriad of corporate layering under different, allegedly, Filipino corporations. The
intricate corporate layering utilized by the Canadian company, MBMI, is of exceptional character and involves
paramount public interest since it undeniably affects the exploitation of our Country’s natural resources. The
corresponding actions of petitioners during the lifetime and existence of the instant case raise questions as
what principle is to be applied to cases with similar issues. No definite ruling on such principle has been
pronounced by the Court; hence, the disposition of the issues or errors in the instant case will serve as a guide
"to the bench, the bar and the public."35 Finally, the instant case is capable of repetition yet evading review,
since the Canadian company, MBMI, can keep on utilizing dummy Filipino corporations through various
schemes of corporate layering and conversion of applications to skirt the constitutional prohibition against
foreign mining in Philippine soil.

Conversion of MPSA applications to FTAA applications

We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the
conversion of MPSA applications to FTAA applications. Petitioners propound that the CA erred in ruling against
them since the questioned MPSA applications were already converted into FTAA applications; thus, the issue
on the prohibition relating to MPSA applications of foreign mining corporations is academic. Also, petitioners
would want us to correct the CA’s finding which deemed the aforementioned conversions of applications as
suspicious in nature, since it is based on mere conjectures and surmises and not supported with evidence.

We disagree.

The CA’s analysis of the actions of petitioners after the case was filed against them by respondent is on point.
The changing of applications by petitioners from one type to another just because a case was filed against
them, in truth, would raise not a few sceptics’ eyebrows. What is the reason for such conversion? Did the said
conversion not stem from the case challenging their citizenship and to have the case dismissed against them
for being "moot"? It is quite obvious that it is petitioners’ strategy to have the case dismissed against them for
being "moot."

Consider the history of this case and how petitioners responded to every action done by the court or
appropriate government agency: on January 2, 2007, Redmont filed three separate petitions for denial of the
MPSA applications of petitioners before the POA. On June 15, 2007, petitioners filed a conversion of their
MPSA applications to FTAAs. The POA, in its December 14, 2007 Resolution, observed this suspect change of
applications while the case was pending before it and held:

The filing of the Financial or Technical Assistance Agreement application is a clear admission that the
respondents are not capable of conducting a large scale mining operation and that they need the financial and
technical assistance of a foreign entity in their operation that is why they sought the participation of MBMI
Resources, Inc. The participation of MBMI in the corporation only proves the fact that it is the Canadian
company that will provide the finances and the resources to operate the mining areas for the greater benefit
and interest of the same and not the Filipino stockholders who only have a less substantial financial stake in
the corporation.
xxxx

x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate
the violations and lack of qualification of the respondent corporations to engage in mining. The filing of the
FTAA application conversion which is allowed foreign corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of foreign nationality who is disqualified under the laws.
Corporate documents of MBMI Resources, Inc. furnished its stockholders in their head office in Canada
suggest that they are conducting operation only through their local counterparts.36

On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting
aside the September 10, 2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the
findings of the POA of the DENR that the herein petitioners are in fact foreign corporations thus a
recommendation of the rejection of their MPSA applications were recommended to the Secretary of the DENR.
With respect to the FTAA applications or conversion of the MPSA applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of the DENR and the President of the Republic of the
Philippines.37

In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition
asserting that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA
No. 05-2010-IVB, which rendered the petition moot and academic. However, the CA, in a Resolution dated
February 15, 2011 denied their motion for being a mere "rehash of their claims and defenses."38 Standing firm
on its Decision, the CA affirmed the ruling that petitioners are, in fact, foreign corporations. On April 5, 2011,
petitioners elevated the case to us via a Petition for Review on Certiorari under Rule 45, questioning the
Decision of the CA. Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this petition for
review was filed, cancelling and revoking the FTAAs, quoting the Order of the POA and stating that petitioners
are foreign corporations since they needed the financial strength of MBMI, Inc. in order to conduct large scale
mining operations. The OP Decision also based the cancellation on the misrepresentation of facts and the
violation of the "Small Scale Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8
of the Foreign Investment Act and E.O. 584."39 On July 6, 2011, the OP issued a Resolution, denying the
Motion for Reconsideration filed by the petitioners.

Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OP’s
Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse
their old arguments claiming that they were granted FTAAs and, thus, the case was moot. Petitioners filed a
Manifestation and Submission dated October 19, 2012,40 wherein they asserted that the present petition is
moot since, in a remarkable turn of events, MBMI was able to sell/assign all its shares/interest in the "holding
companies" to DMCI Mining Corporation (DMCI), a Filipino corporation and, in effect, making their respective
corporations fully-Filipino owned.

Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their
final act, wherein MBMI was able to allegedly sell/assign all its shares and interest in the petitioner "holding
companies" to DMCI, only proves that they were in fact not Filipino corporations from the start. The recent
divesting of interest by MBMI will not change the stand of this Court with respect to the nationality of petitioners
prior the suspicious change in their corporate structures. The new documents filed by petitioners are factual
evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have
violated several mining laws and made misrepresentations and falsehood in their applications for FTAA which
lead to the revocation of the said FTAAs, demonstrating that petitioners are not beyond going against or
around the law using shifty actions and strategies. Thus, in this instance, we can say that their claim of
mootness is moot in itself because their defense of conversion of MPSAs to FTAAs has been discredited by
the OP Decision.

Grandfather test

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

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

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

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

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

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

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

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a
"Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule
"has been abandoned and is no longer the applicable rule."41 They also opined that the last portion of Sec. 3
of the FIA admits the application of a "corporate layering" scheme of corporations. Petitioners claim that the
clear and unambiguous wordings of the statute preclude the court from construing it and prevent the court’s
use of discretion in applying the law. They said that the plain, literal meaning of the statute meant the
application of the control test is obligatory.

We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the
grandfather rule has already been abandoned must be discredited for lack of basis.

Art. XII, Sec. 2 of the Constitution provides:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full control and supervision of
the State. The State may directly undertake such activities, or it may enter into co-production, joint venture or
production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum
of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five
years, renewable for not more than twenty-five years, and under such terms and conditions as may be
provided by law.

xxxx

The President may enter into agreements with Foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other
mineral oils according to the general terms and conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such agreements, the State shall promote the
development and use of local scientific and technical resources. (emphasis supplied)

The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for
the exploration, development, and utilization of natural resources with entities who are deemed Filipino due to
60 percent ownership of capital is pertinent to this case, since the issues are centered on the utilization of our
country’s natural resources or specifically, mining. Thus, there is a need to ascertain the nationality of
petitioners since, as the Constitution so provides, such agreements are only allowed corporations or
associations "at least 60 percent of such capital is owned by such citizens." The deliberations in the Records of
the 1986 Constitutional Commission shed light on how a citizenship of a corporation will be determined:

Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent national economy is
freedom from undue foreign control? What is the meaning of undue foreign control?

MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare
of the Filipino in the economic sphere.

MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom from
foreign control? I think that is the meaning of independence, because as phrased, it still allows for foreign
control.

MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40 possibility
in the cultivation of natural resources, 40 percent involves some control; not total control, but some control.

MR. BENNAGEN: In any case, I think in due time we will propose some amendments.

MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.

Mr. BENNAGEN: Yes.

Thank you, Mr. Vice-President.

xxxx

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

MR. VILLEGAS: That is right.

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

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

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

MR. VILLEGAS: That is right.

MR. NOLLEDO: Thank you.

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

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

MR. VILLEGAS: Yes.42 (emphasis supplied)

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

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

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

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

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

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

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

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

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

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

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

McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate structure,
they have to be "grandfathered."

As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application
from SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common
shares at one thousand pesos (PhP 1,000) per share, subscribed to by the following:44
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and
composition as McArthur. In fact, it would seem that MBMI is also a major investor and "controls"45 MBMI and
also, similar nominal shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar
(Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):

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

On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into
a series of agreements including a Property Purchase and Development Agreement (the Transaction
Documents) with respect to three nickel laterite properties in Palawan, Philippines (the "Olympic Properties").
The Transaction Documents effectively establish a joint venture between the Company and Olympic for
purposes of developing the Olympic Properties. The Company holds directly and indirectly an initial 60%
interest in the joint venture. Under certain circumstances and upon achieving certain milestones, the Company
may earn up to a 100% interest, subject to a 2.5% net revenue royalty.47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was
utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity
interest in McArthur, making the latter a foreign corporation.

Tesoro Mining and Development, Inc.

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

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the
corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders are the same:
MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under "Nationality," "Number of Shares,"
"Amount Subscribed," and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMI’s
corporate structure:
After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring similarity
between SMMI and MMC’s corporate structure. Again, the presence of identical stockholders, namely:
Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures
under the headings "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly
the same except for the amount paid by MBMI which now reflects the amount of two million seven hundred
ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of the amount paid is two million eight
hundred nine thousand nine hundred pesos (PhP 2,809,900).

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s
corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in
Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to participate in the
exploitation, utilization and development of our natural resources.

Narra Nickel Mining and Development Corporation

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

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this
corporate structure.
Patricia Louise Mining & Development Corporation

Using the grandfather method, we further look and examine PLMDC’s corporate structure:

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

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

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

(a) Olympic Group

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

Olympic- Philippines (the "Olympic Group")

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

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

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

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

Alpha- Philippines (the "Alpha Group")

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

Narra Nickel Mining & Development Corporation (Narra) 60.4%

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

Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are
not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such
conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC.
Going further and adding to the picture, MBMI’s Summary of Significant Accounting Policies statement– –
regarding the "joint venture" agreements that it entered into with the "Olympic" and "Alpha" groups––involves
SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down to
MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture agreements with,
practically exercising majority control over the corporations mentioned. In effect, whether looking at the capital
structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino
nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are
owned by MBMI.

Application of the res inter alios acta rule

Petitioners question the CA’s use of the exception of the res inter alios acta or the "admission by co-partner or
agent" rule and "admission by privies" under the Rules of Court in the instant case, by pointing out that
statements made by MBMI should not be admitted in this case since it is not a party to the case and that it is
not a "partner" of petitioners.

Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:

Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party within the
scope of his authority and during the existence of the partnership or agency, may be given in evidence against
such party after the partnership or agency is shown by evidence other than such act or declaration itself. The
same rule applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with
the party.

Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or
omission of the latter, while holding the title, in relation to the property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation
must be shown, and that proof of the fact must be made by evidence other than the admission itself."49 Thus,
petitioners assert that the CA erred in finding that a partnership relationship exists between them and MBMI
because, in fact, no such partnership exists.

Partnerships vs. joint venture agreements

Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a
joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They challenged the conclusion of
the CA which pertains to the close characteristics of

"partnerships" and "joint venture agreements." Further, they asserted that before this particular partnership can
be formed, it should have been formally reduced into writing since the capital involved is more than three
thousand pesos (PhP 3,000). Being that there is no evidence of written agreement to form a partnership
between petitioners and MBMI, no partnership was created.

We disagree.

A partnership is defined as two or more persons who bind themselves to contribute money, property, or
industry to a common fund with the intention of dividing the profits among themselves.50 On the other hand,
joint ventures have been deemed to be "akin" to partnerships since it is difficult to distinguish between joint
ventures and partnerships. Thus:

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

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

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

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

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

Panel of Arbitrators’ jurisdiction

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

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

(a) Disputes involving rights to mining areas

(b) Disputes involving mineral agreements or permits

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

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

Sec. 38.

xxxx

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

xxxx

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

Sec. 41.

xxxx

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

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

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

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

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43
and 57 above, any adverse claim, protest or opposition specified in said sections may also be filed directly with
the Panel of Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in
said Sections.

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

xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application on the
bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for
two (2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the
last date of publication/posting has been made and no adverse claim, protest or opposition was filed within the
said forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been
made and that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if
there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the
last date of publication/posting, with the Regional Offices concerned, or through the Department’s Community
Environment and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources
Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of Arbitrators. However
previously published valid and subsisting mining claims are exempted from posted/posting required under this
Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with
and any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of
Arbitrators. (Emphasis supplied.)

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

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

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43
and 57 above, any adverse claim, protest or opposition specified in said sections may also be filed directly with
the Panel of Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in
said Sections.

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

xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application on the
bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a week for
two (2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the
last date of publication/posting has been made and no adverse claim, protest or opposition was filed within the
said forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been
made and that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if
there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the
last date of publication/posting, with the Regional offices concerned, or through the Department’s Community
Environment and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources
Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of Arbitrators. However,
previously published valid and subsisting mining claims are exempted from posted/posting required under this
Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with
and any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of
Arbitrators. (Emphasis supplied.)

These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or
protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and
oppositions relating to applications for the grant of mineral rights.

POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has
no authority to approve or reject said applications. Such power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POA’s jurisdiction over "disputes involving rights to mining
areas" has nothing to do with the cancellation of existing mineral agreements. (emphasis ours)

Accordingly, as we enunciated in Celestial, the POA unquestionably
MPSA applications subject of Redmont’s petitions. However, said
approval or rejection of the MPSA applications, which is vested only
the finding of the POA, with respect to the rejection of petitioners’
foreign corporation, is valid.
has jurisdiction to resolve disputes over
jurisdiction does not include either the
upon the Secretary of the DENR. Thus,
MPSA applications being that they are

Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has
jurisdiction over the MPSA applications of petitioners.

This postulation is incorrect.

It is basic that the jurisdiction of the court is determined by the statute in force at the time of the
commencement of the action.54

Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization

Act of 1980" reads:

Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.

On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:

Section 77. Panel of Arbitrators.—

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

(c) Disputes involving rights to mining areas

(d) Disputes involving mineral agreements or permits

It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining
areas. One such dispute is an MPSA application to which an adverse claim, protest or opposition is filed by
another interested applicant.1âwphi1 In the case at bar, the dispute arose or originated from MPSA
applications where petitioners are asserting their rights to mining areas subject of their respective MPSA
applications. Since respondent filed 3 separate petitions for the denial of said applications, then a controversy
has developed between the parties and it is POA’s jurisdiction to resolve said disputes.

Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional
Office or any concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.

Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction.
Euro-med Laboratories v. Province of Batangas55 elucidates:

The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise,
specialized training and knowledge of an administrative body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the matter may well be within their proper jurisdiction.

Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to
this Court as a last recourse.

Selling of MBMI’s shares to DMCI

As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want us to declare
the instant petition moot and academic due to the transfer and conveyance of all the shareholdings and
interests of MBMI to DMCI, a corporation duly organized and existing under Philippine laws and is at least 60%
Philippine-owned.56 Petitioners reasoned that they now cannot be considered as foreign-owned; the transfer
of their shares supposedly cured the "defect" of their previous nationality. They claimed that their current FTAA
contract with the State should stand since "even wholly-owned foreign corporations can enter into an FTAA
with the State."57 Petitioners stress that there should no longer be any issue left as regards their qualification
to enter into FTAA contracts since they are qualified to engage in mining activities in the Philippines. Thus,
whether the "grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted
since it would pass both tests.

The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact
should be disregarded. The manifestation can no longer be considered by us since it is being tackled in G.R.
No. 202877 pending before this Court.1âwphi1 Thus, the question of whether petitioners, allegedly a
Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to enter into
FTAAs with the State is a non-issue in this case.

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

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

SO ORDERED.
NARRA NICKEL MINING VS. REDMONT CONSOLIDATED, GR. NO. 195580 (2015)

VELASCO JR., J.:

Beforethe 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 owns60% of the common
stocks of the petitioners by owning equity interest of petitioners’ other majority corporate shareholders.

In a strongly worded Motion for Reconsideration dated June 5, 2014, petitioners-movants argued, in the main,
that the Court’s Decision was not in accord with law and logic.In its September 2, 2014 Comment, on the other
hand, respondent Redmont Consolidated Mines Corp. (Redmont) countered that petitioners’ motion for
reconsideration is nothing but a rehash of their arguments and should, thus, be denied outright for being pro-
forma. Petitioners have interposed on September 30, 2014 their Reply to the respondent’s Comment.

After considering the parties’ positions, as articulated in their respective submissions, We resolve to deny the
motion for reconsideration.

I. The case has not been rendered moot and academic

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

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

Indeed, as the Court clarified in its Decision, the conversion of the MPSA application to one for FTAAs and the
issuance by the OP of an FTAA in petitioners’ favor are irrelevant. The OP itself has already cancelled and
revoked the FTAA thus issued to petitioners. Petitioners curiously have omitted this critical fact in their motion
for reconsideration. Furthermore, the supposed sale by MBMI of its shares in the petitioner-corporations and in
their holding companies is not only a question of fact that this Court is without authority to verify, it also does
not negate any violation of the Constitutional provisions previously committed before any such sale.
We can assume for the nonce that the controversy had indeed been rendered moot by these two events. As
this Court has time and again declared, the “moot and academic” principle is not a magical formula that
automatically dissuades courts in resolving a case.1 The Court may still take cognizance of an otherwise moot
and academic case, if it finds that (a) there is a grave violation of the Constitution; (b) the situation is of
exceptional character and paramount public interest is involved; (c) the constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public; and (d) the case is capable of
repetition yet evading review.2] The Court’s April 21, 2014 Decision explained in some detail that all four (4) of
the foregoing circumstances are present in the case. If only to stress a point, we will do so again.

First, allowing the issuance of MPSAs to applicants that are owned and controlled by a 100% foreign-owned
corporation, albeit through an intricate web of corporate layering involving alleged Filipino corporations, is
tantamount to permitting a blatant violation of Section 2, Article XII of the Constitution. The Court simply cannot
allow this breach and inhibit itself from resolving the controversy on the facile pretext that the case had already
been rendered academic.

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

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

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

II. The application of the Grandfather Rule is justified by the circumstances of the case to determine the
nationality of petitioners.

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

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

Clearly, petitioners have misread, and failed to appreciate the clear import of, the Court’s April 21, 2014
Decision. Nowhere in that disposition did the Court foreclose the application of the Control Test in determining
which corporations may be considered as Philippine nationals. Instead, to borrow Justice Leonen’s term, the
Court used the Grandfather Rule as a “supplement” to the Control Test so that the intent underlying the
averted Sec.2, Art. XII of the Constitution be given effect. The following excerpts of the April 21, 2014 Decision
cannot be clearer:chanRoblesvirtualLawlibrary
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 1995considers a “corporation
xxx registered in accordance with law at least sixty per cent of the capital of which is owned by citizens of the
Philippines” as a person qualified to undertake a mining operation. Consistent with this objective, the
Grandfather Rule was originally conceived to look into the citizenship of the individuals who ultimately own and
control the shares of stock of a corporation for purposes of determining compliance with the constitutional
requirement of Filipino ownership.It cannot, therefore, be denied that the framers of the Constitution have not
foreclosed the Grandfather Rule as a tool in verifying the nationality of corporations for purposes of
ascertaining their right to participate in nationalized or partly nationalized activities. The following excerpts from
the Record of the 1986 Constitutional Commission suggest as much:chanRoblesvirtualLawlibrary

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.

x xxx

MR. NOLLEDO: Thank you.

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

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

As further defined by Dean Cesar Villanueva, the Grandfather Rule is “the method by which the percentage of
Filipino equity in a corporation engaged in nationalized and/or partly nationalized areas of activities, provided
for under the Constitution and other nationalization laws, is computed, in cases where corporate shareholders
are present, by attributing the nationality of the second or even subsequent tier of ownership to determine the
nationality of the corporate shareholder.”4 Thus, to arrive at the actual Filipino ownership and control in a
corporation, both the direct and indirect shareholdings in the corporation are determined.
This concept of stock attribution inherent in the Grandfather Rule to determine the ultimate ownership in a
corporation is observed by the Bureau of Internal Revenue (BIR) in applying Section 127 (B)5 of the National
Internal Revenue Code on taxes imposed on closely held corporations, in relation to Section 96 of the
Corporation Code6 on close corporations. Thus, in BIR Ruling No. 148-10, Commissioner Kim Henares
held:chanRoblesvirtualLawlibrary

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:chanRoblesvirtualLawlibrary

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:chanRoblesvirtualLawlibrary

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 in a nationalized activity cannot beconsidered
as a citizen for purposes of the Constitutional provision restricting foreign exploitation of natural
resources:chanRoblesvirtualLawlibrary

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

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

Similarly, in the eponymous Redmont Consolidated Mines Corporation v. McArthur Mining Inc., et al.,8 the
SEC en banc applied the Grandfather Rule despite the fact that the subject corporations ostensibly have
satisfied the 60-40 Filipino equity requirement. The SEC en banc held that to attain the Constitutional objective
of reserving to Filipinos the utilization of natural resources, one should not stop where the percentage of the
capital stock is 60%. Thus:chanRoblesvirtualLawlibrary

[D]oubt, we believe, exists in the instant case because the foreign investor, MBMI, provided practically all the
funds of the remaining appellee-corporations. The records disclose that: (1) Olympic Mines and Development
Corporation (“OMDC”), a domestic corporation, and MBMI subscribed to 6,663 and 3,331 shares, respectively,
out of the authorized capital stock of Madridejos; however, OMDC paid nothing for this subscription while
MBMI paid P2,803,900.00 out of its total subscription cost of P3,331,000.00; (2) Palawan Alpha South
Resource Development Corp. (“Palawan Alpha”), also a domestic corporation, and MBMI subscribed to 6,596
and 3,996 shares, respectively, out of the authorized capital stock of Patricia Louise; however, Palawan Alpha
paid nothing for this subscription while MBMI paid P2,796,000.00 out of its total subscription cost of
P3,996,000.00; (3) OMDC and MBMI subscribed to 6,663 and 3,331 shares, respectively, out of the authorized
capital stock of Sara Marie; however, OMDC paid nothing for this subscription while MBMI paid P2,794,000.00
out of its total subscription cost of P3,331,000.00; and (4) Falcon Ridge Resources Management Corp.
(“Falcon Ridge”), another domestic corporation, and MBMI subscribed to 5,997 and 3,998 shares, respectively,
out of the authorized capital stock of San Juanico; however, Falcon Ridge paid nothing for this subscription
while MBMI paid P2,500,000.00 out of its total subscription cost of P3,998,000.00. Thus, pursuant to the afore-
quoted DOJ Opinion, the Grandfather Rule must be used.

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 practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution.
Hence, the Grandfather Rule must be applied to accurately determine the actual participation, both direct and
indirect, of foreigners in a corporation engaged in a nationalized activity or business.
The method employed in the Grandfather Rule of attributing the shareholdings of a given corporate
shareholder to the second or even the subsequent tier of ownership hews with the rule that the “beneficial
ownership” of corporations engaged in nationalized activities must reside in the hands of Filipino citizens.
Thus, even if the 60-40 Filipino equity requirement appears to have been satisfied, the Department of Justice
(DOJ), in its Opinion No. 144, S. of 1977, stated that an agreement that may distort the actual economic or
beneficial ownership of a mining corporation may be struck down as violative of the constitutional requirement,
viz:chanRoblesvirtualLawlibrary

In this connection, you raise the following specific questions:chanRoblesvirtualLawlibrary

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

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 Filipino citizens and possessing x x x. The sixty
percent Philippine equity requirement in mineral resource exploitation x x x is intended to insure, among other
purposes, the conservation of indigenous natural resources, for Filipino posterity x 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 requirement is not satisfied unless Filipinos are the principal
beneficiaries in the exploitation of the country’s natural resources. This criterion of beneficial ownership is
tacitly adopted in Section 44 of P.D. No. 463, above-quoted, which limits the service fee in service contracts to
40% of the proceeds of the operation, thereby implying that the 60-40 benefit-sharing 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 to the 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” to
determine the nationality of a corporation in DOJ Opinion No. 84, S. of 1988, through the Grandfather Rule,
despite the fact that both the investee and investor corporations purportedly satisfy the 60-40 Filipino equity
requirement:9chanroblesvirtuallawlibrary

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

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 non-stock corporation” (Op. No. 178, s. 1974). As stated in the Register of Deeds vs. Ung Sui Si
Temple (97 Phil. 58), obviously to insure that corporations and associations allowed to acquire agricultural land
or to exploit natural resources “shall be controlled by Filipinos.” Accordingly, any arrangement which attempts
to defeat the constitutional purpose should be eschewed (Op. No 130, s. 1985).

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

Applying the “Grandfather Rule” in the instant case, the result is as follows: xxx 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.10In its October 9, 2012 Resolution, the
Court clarified, thus:chanRoblesvirtualLawlibrary

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

In emphasizing the twin requirements of “beneficial ownership” and “control” in determining compliance with
the required Filipino equity in Gamboa, the en banc Court explicitly cited with approval the SEC en banc’s
application in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al. of the Grandfather Rule, to
wit:chanRoblesvirtualLawlibrary
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions
on behalf of SEC, has adopted the Grandfather Rule in determining compliance with the 60-40 ownership
requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. This
prevailing SEC ruling, which the SEC correctly adopted to thwart any circumvention of the required Filipino
“ownership and control,” is laid down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated
Mines, Corp. v. McArthur Mining, Inc., et al. xxx(emphasis supplied)

Applying Gamboa, the Court, in Express Investments III Private Ltd. v. Bayantel Communications, Inc.,11
denied the foreign creditors’ proposal to convert part of Bayantel’s debts to common shares of the company at
a rate of 77.7%. Supposedly, the conversion of the debts to common shares by the foreign creditors would be
done, both directly and indirectly, in order to meet the control test principle under the FIA. Under the proposed
structure, the foreign creditors would own 40% of the outstanding capital stock of the telecommunications
company on a direct basis, while the remaining 40% of shares would be registered to a holding company that
shall retain, on a direct basis, the other 60% equity reserved for Filipino citizens. Nonetheless, the Court found
the proposal non-compliant with the Constitutional requirement of Filipino ownership as the proposed structure
would give more than 60% of the ownership of the common shares of Bayantel to the foreign corporations,
viz:chanRoblesvirtualLawlibrary

In its Rehabilitation Plan, among the material financial commitments made by respondent Bayantel is that its
shareholders shall relinquish the agreed-upon amount of common stock[s] as payment to Unsecured Creditors
as per the Term Sheet. Evidently, the parties intend to convert the unsustainable portion of respondent’s debt
into common stocks, which have voting rights. If we indulge petitioners on their proposal, the Omnibus
Creditors which are foreign corporations, shall have control over 77.7% of Bayantel, a public utility company.
This is precisely the scenario proscribed by the Filipinization provision of the Constitution. Therefore, the Court
of Appeals acted correctly in sustaining the 40% debt-to-equity ceiling on conversion. (emphasis supplied)

As shown by the quoted legislative enactments, administrative rulings, opinions, and this Court’s decisions, the
Grandfather Rule not only finds basis, but more importantly, it implements the Filipino equity requirement, in
the Constitution.

Application of the Grandfather

Rule with the Control Test.

Admittedly, an ongoing quandary obtains as to the role of the Grandfather Rule in determining compliance with
the minimum Filipino equity requirement vis-à-vis the Control Test. This confusion springs from the erroneous
assumption that the use of one method forecloses the use of the other.

As exemplified by the above rulings, opinions, decisions and this Court’s April 21, 2014 Decision, the Control
Test can be, as it has been, applied jointly with the Grandfather Rule to determine the observance of foreign
ownership restriction in nationalized economic activities. The Control Test and the Grandfather Rule are not, as
it were, incompatible ownership-determinant methods that can only be applied alternative to each other.
Rather, these methods can, if appropriate, be used cumulatively in the determination of the ownership and
control of corporations engaged in fully or partly nationalized activities, as the mining operation involved in this
case or the operation of public utilities as in Gamboa or Bayantel.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalized or
partly nationalized activities. Hence, it is only when the Control Test is first complied with that the Grandfather
Rule may be applied. Put in another manner, if the subject corporation’s Filipino equity falls below the
threshold 60%, the corporation is immediately considered foreign-owned, in which case, the need to resort to
the Grandfather Rule disappears.

On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can be
considered a Filipino corporation if there is no doubt as to who has the “beneficial ownership” and “control” of
the corporation. In that instance, there is no need for a dissection or further inquiry on the ownership of the
corporate shareholders in both the investing and investee corporation or the application of the Grandfather
Rule.12As a corollary rule, even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject or
investee corporation, a resort to the Grandfather Rule is necessary if doubt exists as to the locus of the
“beneficial ownership” and “control.” In this case, a further investigation as to the nationality of the personalities
with the beneficial ownership and control of the corporate shareholders in both the investing and investee
corporations is necessary.

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

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

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

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

Thus, In the Matter of the Petition for Revocation of the Certificate of Registration of Linear Works Realty
Development Corporation,13 the SEC held that when foreigners contribute more capital to an enterprise, doubt
exists as to the actual control and ownership of the subject corporation even if the 60% Filipino equity
threshold is met. Hence, the SEC in that one ordered a further investigation, viz:chanRoblesvirtualLawlibrary

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
restrictions on foreign equity.cralawred

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

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

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

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

In a 1977 internal memorandum, the SEC suggested applying the Grandfather Rule on two (2) levels of
corporate relations for publicly-held corporations or where the shares are traded in the stock exchanges, and to
three (3) levels for closely held corporations or the shares of which are not traded in the stock exchanges.14
These limits comply with the requirement in Palting v. San Jose Petroleum , Inc.15that the application of the
Grandfather Rule cannot go beyond the level of what is reasonable.

A doubt exists as to the extent of control and

beneficial ownership of MBMI over the petitioners

and their investing corporate stockholders.

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

We considered the following membership and control structures and like

Tesoro

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

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.

The fact that MBMI had practically provided all the funds in Sara Marie and Tesoro creates serious doubt as to
the true extent of its (MBMI) control and ownership over both Sara Marie and Tesoro since, as observed by the
SEC, “a reasonable investor would expect to have greater control and economic rights than other investors
who invested less capital than him.” The application of the Grandfather Rule is clearly called for, and as shown
below, the Filipinos’ control and economic benefits in petitioner Tesoro (through Sara Marie) fall below the
threshold 60%, viz:chanRoblesvirtualLawlibrary
Filipino participation in petitioner Tesoro: 40.01%

66.67/100 (Filipino equity in Sara Marie) x59.97 (Sara Marie’s share in Tesoro) = 39.98%

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

= 40.01%

Foreign participation in petitioner Tesoro: 59.99%

33.33/100 (Foreign equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 19.99%

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

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.

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.
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%

66.67/100 (Filipino equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 39.98%

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

=40.01%

Foreign participation in petitioner McArthur: 59.99%

33.33/100 (Foreign equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 19.99%

19.99% + 39.98% (MBMI’s direct participation in McArthur) + .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.

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.
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 Narrafalls below the limit prescribed in
both the Constitution and the Philippine Mining Act of 1995.

Filipino participation in petitioner Narra: 39.64%

66.02/100 (Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59%

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

=39.64%

Foreign participation in petitioner Narra: 60.36%

33.98/100 (Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38%

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.”22 It cannot therefore be gainsaid that the foregoing computation hewed with the pronouncements of
Gamboa, as implemented by SEC Memorandum Circular No. 8, Series of 2013, (SEC Memo No. 8)23Section
2 of which states:chanRoblesvirtualLawlibrary

Section 2. All covered corporations shall, at all times, observe the constitutional or statutory requirement. For
purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied
to BOTH (a) the total outstanding shares of stock entitled to vote in the election of directors; AND (b) the total
number of outstanding shares of stock, whether or not entitled to vote in the election of directors.

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

III.

In mining disputes, the POA has jurisdiction to pass upon the nationality

of applications for MPSAs

Petitioners also scoffed at this Court’s decision to uphold the jurisdiction of the Panel of Arbitrators (POA) of
the Department of Environment and Natural Resources (DENR) since the POA’s determination of petitioners’
nationalities is supposedly beyond its limited jurisdiction, as defined in Gonzales v. Climax Mining Ltd.24 and
Philex Mining Corp. v. Zaldivia.25chanroblesvirtuallawlibrary

The April 21, 2014 Decision did not dilute, much less overturn, this Court’s pronouncements in either Gonzales
or Philex Mining that POA’s jurisdiction “is limited only to mining disputes which raise questions of fact,” and
not judicial questions cognizable by regular courts of justice. However, to properly recognize and give effect to
the jurisdiction vested in the POA by Section 77 of the Philippine Mining Act of 1995,26 and in parallel with this
Court’s ruling in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.,27the Court has
recognized in its Decision that in resolving disputes “involving rights to mining areas” and “involving mineral
agreements or permits,” the POA has jurisdiction to make a preliminary finding of the required nationality of the
corporate applicant in order to determine its right to a mining area or a mineral agreement.

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

The present case arose from petitioners’ MPSA applications, in which they asserted their respective rights to
the mining areas each applied for. Since respondent Redmont, itself an applicant for exploration permits over
the same mining areas, filed petitions for the denial of petitioners’ applications, it should be clear that there
exists a controversy between the parties and it is POA’s jurisdiction to resolve the said dispute. POA’s ruling on
Redmont’s assertion that petitioners are foreign corporations not entitled to MPSA is but a necessary incident
of its disposition of the mining dispute presented before it, which is whether the petitioners are entitled to
MPSAs.
Indeed, as the POA has jurisdiction to entertain “disputes involving rights to mining areas,” it necessarily
follows that the POA likewise wields the authority to pass upon the nationality issue involving petitioners, since
the resolution of this issue is essential and indispensable in the resolution of the main issue, i.e., the
determination of the petitioners’ right to the mining areas through MPSAs.

WHEREFORE, We DENY the motion for reconsideration WITH FINALITY. No further pleadings shall be
entertained. Let entry of judgment be made in due course.

SO ORDERED.
AS TO NUMBER OF MEMBERS

CORPORATION SOLE (SECTIONS 107 AND 113 OF THE RCC)

ROMAN CATHOLIC ADMINISTRATOR VS. LAND REGISTRATION COMMISSION (LRC), 102 PHIL 597
(1957)

FELIX, J.:

This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the
reversal of a resolution by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the
case are as follows:

On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of
sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the
Roman Catholic Apostolic Administrator of Davao Inc., s corporation sole organized and existing in accordance
with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. When the deed of
sale was presented to Register of Deeds of Davao for registration, the latter.

having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein the
Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60 per cent of the members of
their corporation were Filipino citizens when they sought to register in favor of their congregation of deed of
donation of a parcel of land—

required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof
were Filipino citizens.

The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit, both not in the
same tenor as that made the Progress of the Carmelite Nuns because the two cases were not similar, for
whereas the congregation of the Carmelite Nuns had five incorporators, the corporation sole has only one; that
according to their articles of incorporation, the organization of the Carmelite Nuns became the owner of
properties donated to it, whereas the case at bar, the totality of the Catholic population of Davao would
become the owner of the property bought to be registered.

As the Register of Deeds entertained some doubts as to the registerability if the document, the matter was
referred to the Land Registration Commissioner en consulta for resolution in accordance with section 4 of
Republic Act No. 1151. Proper hearing on the matter was conducted by the Commissioner and after the
petitioner corporation had filed its memorandum, a resolution was rendered on September 21, 1954, holding
that in view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not
qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per centum of the
capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned
or controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole
was a Canadian citizen. It was also the opinion of the Land Registration Commissioner that section 159 of the
corporation Law relied upon by the vendee was rendered operative by the aforementioned provisions of the
Constitution with respect to real estate, unless the precise condition set therein — that at least 60 per cent of
its capital is owned by Filipino citizens — be present, and, therefore, ordered the Registered Deeds of Davao
to deny registration of the deed of sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this
Court by said corporation sole, alleging that under the Corporation Law as well as the settled jurisprudence on
the matter, the deed of sale executed by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor
of the Catholic Church which is qualified to acquire private agricultural lands for the establishment and
maintenance of places of worship, and prayed that judgment be rendered reserving and setting aside the
resolution of the Land Registration Commissioner in question. In its resolution of November 15, 1954, this
Court gave due course to this petition providing that the procedure prescribed for appeals from the Public
Service Commission of the Securities and Exchange Commissions (Rule 43), be followed.

Section 5 of Article XIII of the Philippine Constitution reads as follows:

SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines.

Section 1 of the same Article also provides the following:

SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or utilization shall be limited to cititzens of the
Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such
citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER CONSTITUTION. Natural resources, with
the exception of public agricultural land, shall not be alienated, and no license, concession, or leases for the
exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding
twenty-five years, renewable for another twenty-five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in which cases other than the
development and limit of the grant.

In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold
agricultural lands in the Philippines? What is the effect of these constitutional prohibition of the right of a
religious corporation recognized by our Corporation Law and registered as a corporation sole, to possess,
acquire and register real estates in its name when the Head, Manager, Administrator or actual incumbent is an
alien?

Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not
prohibited or disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are
explicit in their provisions that a corporation sole or "ordinary" is not the owner of the of the properties that he
may acquire but merely the administrator thereof. The Canon Law also specified that church temporalities are
owned by the Catholic Church as a "moral person" or by the diocess as minor "moral persons" with the
ordinary or bishop as administrator.

And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a
religious society or organization, it is made up of 2 elements or divisions — the clergy or religious members
and the faithful or lay members. The 1948 figures of the Bureau of Census showed that there were 277,551
Catholics in Davao and aliens residing therein numbered 3,465. Ever granting that all these foreigners are
Catholics, petitioner contends that Filipino citizens form more than 80 per cent of the entire Catholics
population of that area. As to its clergy and religious composition, counsel for petitioner presented the Catholic
Directory of the Philippines for 1954 (Annex A) which revealed that as of that year, Filipino clergy and women
novices comprise already 60.5 per cent of the group. It was, therefore, allowed that the constitutional
requirement was fully met and satisfied.

Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the
land purchased, yet he has control over the same, with full power to administer, take possession of, alienate,
transfer, encumber, sell or dispose of any or all lands and their improvements registered in the name of the
corporation sole and can collect, receive, demand or sue for all money or values of any kind that may be kind
that may become due or owing to said corporation, and vested with authority to enter into agreements with any
persons, concerns or entities in connection with said real properties, or in other words, actually exercising all
rights of ownership over the properties. It was their stand that the theory that properties registered in the name
of the corporation sole are held in true for the benefit of the Catholic population of a place, as of Davao in the
case at bar should be sustained because a conglomeration of persons cannot just be pointed out as the cestui
que trust or recipient of the benefits from the property allegedly administered in their behalf. Neither can it be
said that the mass of people referred to as such beneficiary exercise ant right of ownership over the same.
This set-up, respondents argued, falls short of a trust. The respondents instead tried to prove that in reality, the
beneficiary of ecclesiastical properties are not members or faithful of the church but someone else, by quoting
a portion a portion of the ought of fidelity subscribed by a bishop upon his elevation to the episcopacy wherein
he promises to render to the Pontificial Father or his successors an account of his pastoral office and of all
things appertaining to the state of this church.

Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per
cent of Filipino citizenship, the criterion of the properties or assets thereof.

In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a
special form of corporation usually associated with the clergy. Conceived and introduced into the common law
by sheer necessity, this legal creation which was referred to as "that unhappy freak of English law" was
designed to facilitate the exercise of the functions of ownership carried on by the clerics for and on behalf of
the church which was regarded as the property owner (See I Couvier's Law Dictionary, p. 682-683).

A corporation sole consists of one person only, and his successors (who will always be one at a time), in some
particular station, who are incorporated by law in order to give them some legal capacities and advantages,
particularly that of perpetuity, which in their natural persons they could not have had. In this sense, the king is a
sole corporation; so is a bishop, or dens, distinct from their several chapters (Reid vs. Barry, 93 Fla. 849, 112
So. 846).

The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of
petitioner. Section 154 thereof provides:

SEC. 154. — For the administration of the temporalities of any religious denomination, society or church and
the management of the estates and the properties thereof, it shall be lawful for the bishop, chief priest, or
presiding either of any such religious denomination, society or church to become a corporation sole, unless
inconsistent wit the rules, regulations or discipline of his religious denomination, society or church or forbidden
by competent authority thereof.

See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:

SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious
denomination, society or church must file with the Securities and Exchange Commissioner articles of
incorporation setting forth the following facts:

xxx xxx xxx.

(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the
temporalities and the management of the estates and properties of his religious denomination, society, or
church within its territorial jurisdiction, describing it;

xxx xxx xxx.

(As amended by Commonwealth Act No. 287).

SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the said articles of
incorporation, which verified by affidavit or affirmation as aforesaid and accompanied by the copy of the
commission, certificate of election, or letters of appointment of the bishop, chief priest, or presiding elder, duly
certified as prescribed in the section immediately preceding such the bishop, chief priest, or presiding elder, as
the case may be, shall become a corporation sole and all temporalities, estates, and properties the religious
denomination, society, or church therefore administered or managed by him as such bishop, chief priest, or
presiding elder, shall be held in trust by him as a corporation sole, for the use, purpose, behalf, and sole
benefit of his religious denomination, society, or church, including hospitals, schools, colleges, orphan,
asylums, parsonages, and cemeteries thereof. For the filing of such articles of incorporation, the Securities and
Exchange Commissioner shall collect twenty-five pesos. (As amended by Commonwealth Act. No. 287); and.

SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or
society, or by the diocese, synod, or district organization of any religious denomination or church shall, on its
incorporation, pass to the corporation and shall be held in trust for the use, purpose behalf, and benefit of the
religious society, or order so incorporated or of the church of which the diocese, or district organization is an
organized and constituent part.

The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as
administrator of the church properties, as follows:
Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes eclesiasticos
que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccion, salvs las prescriciones legitimas
que le concedan mas aamplios derechos.

Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios
regular todo lo concerniente a la administracion de los bienes eclesciasticos, dando las oportunas instucciones
particularles dentro del narco del derecho comun. (Title XXVIII, Codigo de Derecho Canonico, Lib. III, Canon
1519).1

That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merely administrators of the church properties that come to their possession, in which they hold in trust for the
church. It can also be said that while it is true that church properties could be administered by a natural
persons, problems regarding succession to said properties can not be avoided to rise upon his death. Through
this legal fiction, however, church properties acquired by the incumbent of a corporation sole pass, by
operation of law, upon his death not his personal heirs but to his successor in office. It could be seen,
therefore, that a corporation sole is created not only to administer the temporalities of the church or religious
society where he belongs but also to hold and transmit the same to his successor in said office. If the
ownership or title to the properties do not pass to the administrators, who are the owners of church properties?.

Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:

In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme Pontiff
exercises his office of supreme administrator through the Roman Curia; in matters regarding other church
property, through the administrators of the individual moral persons in the Church according to that norms, laid
down in the Code of Cannon Law. This does not mean, however, that the Roman Pontiff is the owner of all the
church property; but merely that he is the supreme guardian (Bouscaren and Ellis, Cannon Law, A Text and
Commentary, p. 764).

and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs.
Roman Catholic Archbishop of Manila, 63 Phil. 881, that:

The second question to be decided is in whom the ownership of the properties constituting the endowment of
the ecclesiastical or collative chaplaincies is vested.

Canonists entertain different opinions as to the persons in whom the ownership of the ecclesiastical properties
is vested, with respect to which we shall, for our purpose, confine ourselves to stating with Donoso that, while
many doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of the Universal Church, it
is more probable that ownership, strictly speaking, does not reside in the latter, and, consequently,
ecclesiastical properties are owned by the churches, institutions and canonically established private
corporations to which said properties have been donated.

Considering that nowhere can We find any provision conferring ownership of church properties on the Pope
although he appears to be the supreme administrator or guardian of his flock, nor on the corporation sole or
heads of dioceses as they are admittedly mere administrators of said properties, ownership of these
temporalities logically fall and develop upon the church, diocese or congregation acquiring the same. Although
this question of ownership of ecclesiastical properties has off and on been mentioned in several decisions of
the Court yet in no instance was the subject of citizenship of this religious society been passed upon.

We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of
Agustines vs. Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic
Archbishop of Manila is only a branch of a universal church by the Pope, with permanent residence in Rome,
Italy". There is no question that the Roman Catholic Church existing in the Philippines is a tributary and part of
the international religious organization, for the word "Roman" clearly expresses its unity with and recognizes
the authority of the Pope in Rome. However, lest We become hasty in drawing conclusions, We have to
analyze and take note of the nature of the government established in the Vatican City, of which it was said:

GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity alike
as held by the pope who (since the Middle Ages) is elected by the cardinals assembled in conclave, and holds
office until his death or legitimate abdication. . . While the pope is obviously independent of the laws made, and
the officials appointed, by himself or his predecessors, he usually exercises his administrative authority
according to the code of canon law and through the congregations, tribunals and offices of the Curia Romana.
In their respective territories (called generally dioceses) and over their respective subjects, the patriarchs,
metropolitans or archbishops and bishops exercise a jurisdiction which is called ordinary (as attached by law to
an office given to a person. . . (Collier's Encyclopedia, Vol. 17, p. 93).

While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme
head; that in the religious matters, in the exercise of their belief, the Catholic congregation of the faithful
throughout the world seeks the guidance and direction of their Spiritual Father in the Vatican, yet it cannot be
said that there is a merger of personalities resultant therein. Neither can it be said that the political and civil
rights of the faithful, inherent or acquired under the laws of their country, are affected by that relationship with
the Pope. The fact that the Roman Catholic Church in almost every country springs from that society that saw
its beginning in Europe and the fact that the clergy of this faith derive their authorities and receive orders from
the Holy See do not give or bestow the citizenship of the Pope upon these branches. Citizenship is a political
right which cannot be acquired by a sort of "radiation". We have to realize that although there is a fraternity
among all the catholic countries and the dioceses therein all over the globe, the universality that the word
"catholic" implies, merely characterize their faith, a uniformity in the practice and the interpretation of their
dogma and in the exercise of their belief, but certainly they are separate and independent from one another in
jurisdiction, governed by different laws under which they are incorporated, and entirely independent on the
others in the management and ownership of their temporalities. To allow theory that the Roman Catholic
Churches all over the world follow the citizenship of their Supreme Head, the Pontifical Father, would lead to
the absurdity of finding the citizens of a country who embrace the Catholic faith and become members of that
religious society, likewise citizens of the Vatican or of Italy. And this is more so if We consider that the Pope
himself may be an Italian or national of any other country of the world. The same thing be said with regard to
the nationality or citizenship of the corporation sole created under the laws of the Philippines, which is not
altered by the change of citizenship of the incumbent bishops or head of said corporation sole.

We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every
Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in
accordance with the laws of the country where it is located, is considered an entity or person with all the rights
and privileges granted to such artificial being under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter which
are governed by the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far
reaching influence, nor can We overlook the pages of history that arouse indignation and criticisms against
church landholdings. This nurtured feeling that snowbailed into a strong nationalistic sentiment manifested
itself when the provisions on natural to be embodied in the Philippine Constitution were framed, but all that has
been said on this regard referred more particularly to landholdings of religious corporations known as "Friar
Estates" which have already bee acquired by our government, and not to properties held by corporations sole
which, We repeat, are properties held in trust for the benefit of the faithful residing within its territorial
jurisdiction. Though that same feeling probably precipitated and influenced to a large extent the doctrine laid
down in the celebrated Krivenco decision, We have to take this matter in the light of legal provisions and
jurisprudence actually obtaining, irrespective of sentiments.

The question now left for our determination is whether the Universal Roman Catholic Apostolic Church in the
Philippines, or better still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao,
Inc., is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII
of the Constitution.

We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to
acquire hold lands of the public domain in the Philippines may acquire or be assigned and hold private
agricultural lands. Consequently, the decisive factor in the present controversy hinges on the proposition or
whether or not the petitioner in this case can acquire agricultural lands of the public domain.

From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic
Bishop of Zamboanga was incorporated (as a corporation sole) in September, 1912, principally to administer
its temporalities and manage its properties. Probably due to the ravages of the last war, its articles of
incorporation were reconstructed in the Securities and Exchange Commission on April 8, 1948. At first, this
corporation sole administered all the temporalities of the church existing or located in the island of Mindanao.
Later on, however, new dioceses were formed and new corporations sole were created to correspond with the
territorial jurisdiction of the new dioceses, one of them being petitioner herein, the Roman Catholic Apostolic
Administrator of Davao, Inc., which was registered with the Securities and Exchange Commission on
September 12, 1950, and succeeded in the administrative for all the "temporalities" of the Roman Catholic
Church existing in Davao.

According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.

is organized and composed of a single individual, the head of any religious society or church, for the
ADMINISTRATION of the temporalities of such society or church. By "temporalities" is meant estate and
properties not used exclusively for religious worship. The successor in office of such religious head or chief
priest incorporated as a corporation sole shall become the corporation sole on ascension to office, and shall be
permitted to transact business as such on filing with the Securities and Exchange Commission a copy of his
commission, certificate of election or letter of appointment duly certified by any notary public or clerk of court of
record (Guevara's The Philippine Corporation Law, p. 223).

The Corporation Law also contains the following provisions:

SECTION 159. Any corporation sole may purchase and hold real estate and personal; property for its church,
charitable, benevolent, or educational purposes, and may receive bequests or gifts of such purposes. Such
corporation may mortgage or sell real property held by it upon obtaining an order for that purpose from the
Court of First Instance of the province in which the property is situated; but before making the order proof must
be made to the satisfaction of the Court that notice of the application for leave to mortgage or sell has been
given by publication or otherwise in such manner and for such time as said Court or the Judge thereof may
have directed, and that it is to the interest of the corporation that leave to mortgage or sell must be made by
petition, duly verified by the bishop, chief priest, or presiding elder acting as corporation sole, and may be
opposed by any member of the religious denomination, society or church represented by the corporation sole:
Provided, however, That in cases where the rules, regulations, and discipline of the religious denomination,
society or church concerned represented by such corporation sole regulate the methods of acquiring, holding,
selling and mortgaging real estate and personal property, such rules, regulations, and discipline shall control
and the intervention of the Courts shall not be necessary.

It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power
exercised in the case at bar, it is not restricted although the power to sell or mortgage sometimes is, depending
upon the rules, regulations, and discipline of the church concerned represented by said corporation sole. If
corporations sole can purchase and sell real estate for its church, charitable, benevolent, or educational
purposes, can they register said real properties? As provided by law, lands held in trust for specific purposes
me be subject of registration (section 69, Act 496), and the capacity of a corporation sole, like petitioner herein,
to register lands belonging to it is acknowledged, and title thereto may be issued in its name (Bishop of Nueva
Segovia vs. Insular Government, 26 Phil. 300-1913). Indeed it is absurd that while the corporations sole that
might be in need of acquiring lands for the erection of temples where the faithful can pray, or schools and
cemeteries which they are expressly authorized by law to acquire in connection with the propagation of the
Roman Catholic Apostolic faith or in furtherance of their freedom of religion they could not register said
properties in their name. As professor Javier J. Nepomuceno very well says "Man in his search for the
immortal and imponderable, has, even before the dawn of recorded history, erected temples to the Unknown
God, and there is no doubt that he will continue to do so for all time to come, as long as he continues 'imploring
the aid of Divine Providence'" (Nepomuceno's Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41,
September, 1956). Under the circumstances of this case, We might safely state that even before the
establishment of the Philippine Commonwealth and of the Republic of the Philippines every corporation sole
then organized and registered had by express provision of law the necessary power and qualification to
purchase in its name private lands located in the territory in which it exercised its functions or ministry and for
which it was created, independently of the nationality of its incumbent unique and single member and head, the
bishop of the dioceses. It can be also maintained without fear of being gainsaid that the Roman Catholic
Apostolic Church in the Philippines has no nationality and that the framers of the Constitution, as will be
hereunder explained, did not have in mind the religious corporations sole when they provided that 60 per
centum of the capital thereof be owned by Filipino citizens.

There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having
the right of succession and the power, attributes, and properties expressly authorized by law or incident to its
existence (section 1, Corporation Law). In outlining the general powers of a corporation. Public Act. No. 1459
provides among others:

SEC. 13. Every corporation has the power:

(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with such real and
personal property as the purpose for which the corporation was formed may permit, and the transaction of the
lawful business of the corporation may reasonably and necessarily require, unless otherwise prescribed in this
Act: . . .
In implementation of the same and specially made applicable to a form of corporation recognized by the same
law, Section 159 aforequoted expressly allowed the corporation sole to purchase and hold real as well as
personal properties necessary for the promotion of the objects for which said corporation sole is created.
Respondent Land Registration Commissioner, however, maintained that since the Philippine Constitution is a
later enactment than public Act No. 1459, the provisions of Section 159 in amplification of Section 13 thereof,
as regard real properties, should be considered repealed by the former.

There is a reason to believe that when the specific provision of the Constitution invoked by respondent
Commissioner was under consideration, the framers of the same did not have in mind or overlooked this
particular form of corporation. It is undeniable that the naturalization and conservation of our national resources
was one of the dominating objectives of the Convention and in drafting the present Article XII of the
Constitution, the delegates were goaded by the desire (1) to insure their conservation for Filipino posterity; (2)
to serve as an instrument of national defense, helping prevent the extension into the country of foreign control
through peaceful economic penetration; and (3) to prevent making the Philippines a source of international
conflicts with the consequent danger to its internal security and independence (See The Framing of the
Philippine Constitution by Professor Jose M. Aruego, a Delegate to the Constitutional Convention, Vol. II. P.
592-604). In the same book Delegate Aruego, explaining the reason behind the first consideration, wrote:

At the time of the framing of Philippine Constitution, Filipino capital had been to be rather shy. Filipinos
hesitated s a general rule to invest a considerable sum of their capital for the development, exploitation and
utilization of the natural resources of the country. They had not as yet been so used to corporate as the
peoples of the west. This general apathy, the delegates knew, would mean the retardation of the development
of the natural resources, unless foreign capital would be encouraged to come and help in that development.
They knew that the naturalization of the natural resources would certainly not encourage the INVESTMENT OF
FOREIGN CAPITAL into them. But there was a general feeling in the Convention that it was better to have
such a development retarded or even postpone together until such time when the Filipinos would be ready and
willing to undertake it rather than permit the natural resources to be placed under the ownership or control of
foreigners in order that they might be immediately be developed, with the Filipinos of the future serving not as
owners but utmost as tenants or workers under foreign masters. By all means, the delegates believed, the
natural resources should be conserved for Filipino posterity.

It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as barrier
for foreigners or corporations financed by such foreigners to acquire, exploit and develop our natural
resources, saving these undeveloped wealth for our people to clear and enrich when they are already prepared
and capable of doing so. But that is not the case of corporations sole in the Philippines, for, We repeat, they
are mere administrators of the "temporalities" or properties titled in their name and for the benefit of the
members of their respective religion composed of an overwhelming majority of Filipinos. No mention nor
allusion whatsoever is made in the Constitution as to the prohibition against or the liability of the Roman
Catholic Church in the Philippines to acquire and hold agricultural lands. Although there were some
discussions on landholdings, they were mostly confined in the inclusion of the provision allowing the
Government to break big landed estates to put an end to absentee landlordism.

But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article
XIII of the constitution does have bearing on the petitioner's case; even so the clause requiring that at least 60
per centum of the capital of the corporation be owned by Filipinos is subordinated to the petitioner's aforesaid
right already existing at the time of the inauguration of the Commonwealth and the Republic of the Philippines.
In the language of Mr. Justice Jose P. Laurel (a delegate to the Constitutional Convention), in his concurring
opinion of the case of Gold Creek mining Corporation, petitioner vs. Eulogio Rodriguez, Secretary of
Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil. 259:

The saving clause in the section involved of the Constitution was originally embodied in the report submitted by
the Committee on Naturalization and Preservation of Land and Other Natural Resources to the Constitutional
Convention on September 17, 1954. It was later inserted in the first draft of the Constitution as section 13 of
Article XIII thereof, and finally incorporated as we find it now. Slight have been the changes undergone by the
proviso from the time when it comes out of the committee until it was finally adopted. When first submitted and
as inserted to the first draft of the Constitution it reads: 'subject to any right, grant, lease, or concession existing
in respect thereto on the date of the adoption of the Constitution'. As finally adopted, the proviso reads: 'subject
to any existing right, grant, lease, or concession at the time of the inauguration of the Government established
under this Constitution'. This recognition is not mere graciousness but springs form the just character of the
government established. The framers of the Constitution were not obscured by the rhetoric of democracy or
swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our natural
resources did not mean destruction or annihilation of acquired property rights. Withal, they erected a
government neither episodic nor stationary but well-nigh conservative in the protection of property rights. This
notwithstanding nationalistic and socialistic traits discoverable upon even a sudden dip into a variety of the
provisions embodied in the instrument.

The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted
to the consideration of the Court the question that may be termed the "vested right saving clause" contained in
Section 1, Article XII of the Constitution, but some of the members of this Court either did not agree with the
theory of the writer, or were not ready to take a definite stand on the particular point I am now to discuss
deferring our ruling on such debatable question for a better occasion, inasmuch as the determination thereof is
not absolutely necessary for the solution of the problem involved in this case. In his desire to face the issues
squarely, the writer will endeavor, at least as a disgression, to explain and develop his theory, not as a
lucubration of the Court, but of his own, for he deems it better and convenient to go over the cycle of reasons
that are linked to one another and that step by step lead Us to conclude as We do in the dispositive part of this
decision.

It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all
agricultural lands of the public domain and their disposition shall be limited to citizens of the Philippines or to
corporations at least 60 per centum of the capital of which is owned by such citizens, SUBJECT TO ANY
EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER
THIS CONSTITUTION."

As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs.
Rodriguez et al., 66 Phil. 259, "this recognition (in the clause already quoted), is not mere graciousness but
springs from the just character of the government established. The farmers of the Constitution were not
obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of nationalism. They well knew
that conservation of our natural resources did not mean destruction or annihilation of ACQUIRED PROPERTY
RIGHTS".

But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a
corporation which does not fulfill this 60 per cent requisite, refers to purchases of the Constitution and not to
later transactions. This argument would imply that even assuming that petitioner had at the time of the
enactment of the Constitution the right to purchase real property or right could not be exercised after the
effectivity of our Constitution, because said power or right of corporations sole, like the herein petitioner,
conferred in virtue of the aforequoted provisions of the Corporation Law, could no longer be exercised in view
of the requisite therein prescribed that at least 60 per centum of the capital of the corporation had to be
Filipino. It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are
formed by no less than 5 incorporators, is composed of only one persons, usually the head or bishop of the
diocese, a unit which is not subject to expansion for the purpose of determining any percentage whatsoever;
(2) the corporation sole is only the administrator and not the owner of the temporalities located in the territory
comprised by said corporation sole; (3) such temporalities are administered for and on behalf of the faithful
residing in the diocese or territory of the corporation sole; and (4) the latter, as such, has no nationality and the
citizenship of the incumbent Ordinary has nothing to do with the operation, management or administration of
the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or
corporation sole.

In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of
the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the
framers of the same did not have in mind or overlooked this particular form of corporation. If this were so, as
the facts and circumstances already indicated tend to prove it to be so, then the inescapable conclusion would
be that this requirement of at least 60 per cent of Filipino capital was never intended to apply to corporations
sole, and the existence or not a vested right becomes unquestionably immaterial.

But let us assumed that the questioned proviso is material. yet We might say that a reading of said Section 1
will show that it does not refer to any actual acquisition of land up to the right, qualification or power to acquire
and hold private real property. The population of the Philippines, Catholic to a high percentage, is ever
increasing. In the practice of religion of their faithful the corporation sole may be in need of more temples
where to pray, more schools where the children of the congregation could be taught in the principles of their
religion, more hospitals where their sick could be treated, more hallow or consecrated grounds or cemeteries
where Catholics could be buried, many more than those actually existing at the time of the enactment of our
Constitution. This being the case, could it be logically maintained that because the corporation sole which, by
express provision of law, has the power to hold and acquire real estate and personal property of its churches,
charitable benevolent, or educational purposes (section 159, Corporation Law) it has to stop its growth and
restrain its necessities just because the corporation sole is a non-stock corporation composed of only one
person who in his unity does not admit of any percentage, especially when that person is not the owner but
merely an administrator of the temporalities of the corporation sole? The writer leaves the answer to whoever
may read and consider this portion of the decision.

Anyway, as stated before, this question is not a decisive factor in disposing the case, for even if We were to
disregard such saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at the
same time of the inauguration of the Government established under this Constitution, yet We would have,
under the evidence on record, sufficient grounds to uphold petitioner's contention on this matter.

In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated May 21,
1955, wherein this question was considered from a different angle, this Court through Mr. Justice J.B.L. Reyes,
said:

The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty
per centum requirement is obviously to ensure that corporation or associations allowed to acquire agricultural
land or to exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands
that in the absence of capital stock, the controlling membership should be composed of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate,
i.e., an unregistered organization operating through 3 trustees, all of Chinese nationality, and that is why this
Court laid down the doctrine just quoted. With regard to petitioner, which likewise is a non-stock corporation,
the case is different, because it is a registered corporation sole, evidently of no nationality and registered
mainly to administer the temporalities and manage the properties belonging to the faithful of said church
residing in Davao. But even if we were to go over the record to inquire into the composing membership to
determine whether the citizenship requirement is satisfied or not, we would find undeniable proof that the
members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens.
As indicated before, petitioner has presented evidence to establish that the clergy and lay members of this
religion fully covers the percentage of Filipino citizens required by the Constitution. These facts are not
controverted by respondents and our conclusion in this point is sensibly obvious.

Dissenting Opinion—Discussed. — After having developed our theory in the case and arrived at the findings
and conclusions already expressed in this decision. We now deem it proper to analyze and delve into the basic
foundation on which the dissenting opinion stands up. Being aware of the transcendental and far-reaching
effects that Our ruling on the matter might have, this case was thoroughly considered from all points of view,
the Court sparing no effort to solve the delicate problems involved herein.

At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the
reversal of the doctrine We laid down in the celebrated Krivenko case by excluding urban lots and properties
from the group of the term "private agricultural lands" use in this section 5, Article XIII of the Constitution; and
(2) by driving Our reasons to a point that might indirectly cause the appointment of Filipino bishops or Ordinary
to head the corporations sole created to administer the temporalities of the Roman Catholic Church in the
Philippines. With regard to the first way, a great majority of the members of this Court were not yet prepared
nor agreeable to follow that course, for reasons that are obvious. As to the second way, it seems to be
misleading because the nationality of the head of a diocese constituted as a corporation sole has no material
bearing on the functions of the latter, which are limited to the administration of the temporalities of the Roman
Catholic Apostolic Church in the Philippines.

Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author
lingered on the outskirts of the issues, thus throwing the main points in controversy out of focus. Of course We
fully agree, as stated by Professor Aruego, that the framers of our Constitution had at heart to insure the
conservation of the natural resources of Our motherland of Filipino posterity; to serve them as an instrument of
national defense, helping prevent the extension into the country of foreign control through peaceful economic
penetration; and to prevent making the Philippines a source of international conflicts with the consequent
danger to its internal security and independence. But all these precautions adopted by the Delegates to Our
Constitutional Assembly could have not been intended for or directed against cases like the one at bar. The
emphasis and wonderings on the statement that once the capacity of a corporation sole to acquire private
agricultural lands is admitted there will be no limit to the areas that it may hold and that this will pave the way
for the "revival or revitalization of religious landholdings that proved so troublesome in our past", cannot even
furnish the "penumbra" of a threat to the future of the Filipino people. In the first place, the right of Filipino
citizens, including those of foreign extraction, and Philippine corporations, to acquire private lands is not
subject to any restriction or limit as to quantity or area, and We certainly do not see any wrong in that. The right
of Filipino citizens and corporations to acquire public agricultural lands is already limited by law. In the second
place, corporations sole cannot be considered as aliens because they have no nationality at all. Corporations
sole are, under the law, mere administrators of the temporalities of the Roman Catholic Church in the
Philippines. In the third place, every corporation, be it aggregate or sole, is only entitled to purchase, convey,
sell, lease, let, mortgage, encumber and otherwise deal with real properties when it is pursuant to or in
consonance with the purposes for which the corporation was formed, and when the transactions of the lawful
business of the corporation reasonably and necessarily require such dealing — section 13-(5) of the
Corporation Law, Public Act No. 1459 — and considering these provisions in conjunction with Section 159 of
the same law which provides that a corporation sole may only "purchase and hold real estate and personal
properties for its church, charitable, benevolent or educational purposes", the above mentioned fear of
revitalization of religious landholdings in the Philippines is absolutely dispelled. The fact that the law thus
expressly authorizes the corporations sole to receive bequests or gifts of real properties (which were the main
source that the friars had to acquire their big haciendas during the Spanish regime), is a clear indication that
the requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was, in
the opinion of the legislators, considered sufficient and adequate protection against the revitalization of
religious landholdings.

Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional
Convention drafted and approved Article XIII of the Constitution they do not have in mind the corporation sole.
We come to this finding because the Constitutional Assembly, composed as it was by a great number of
eminent lawyers and jurists, was like any other legislative body empowered to enact either the Constitution of
the country or any public statute, presumed to know the conditions existing as to particular subject matter when
it enacted a statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176; N. C. 377).

Immemorial customs are presumed to have been always in the mind of the Legislature in enacting legislation.
(In re Kruger's Estate, 121 A. 109; 277 P. 326).

The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it
legislates. (Clover Valley Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)

The Court in construing a statute, will assume that the legislature acted with full knowledge of the prior
legislation on the subject and its construction by the courts. (Johns vs. Town of Sheridan, 89 N. E. 899, 44 Ind.
App. 620.).

The Legislature is presumed to have been familiar with the subject with which it was dealing . . . . (Landers vs.
Commonwealth, 101 S. E. 778, 781.).

The Legislature is presumed to know principles of statutory construction. (People vs. Lowell, 230 N. W. 202,
250 Mich. 349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).

It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a result
was intended inconsistent with the judgment of men of common sense guided by reason" (Mitchell vs. Lawden,
123 N.E. 566, 288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and may other
authorities that can be cited in support hereof.

Consequently, the Constitutional Assembly must have known:

1. That a corporation sole is organized by and composed of a single individual, the head of any religious
society or church operating within the zone, area or jurisdiction covered by said corporation sole (Article 155,
Public Act No. 1459);

2. That a corporation sole is a non-stock corporation;

3. That the Ordinary ( the corporation sole proper) does not own the temporalities which he merely
administers;

4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on
the nationality of the person desiring to acquire real property in the Philippines by purchase or other lawful
means other than by hereditary succession, who according to the Constitution must be a Filipino (sections 1
and 5, Article XIII).

5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and
hold real estate for its church, charitable, benevolent or educational purposes, and to receive bequests or gifts
for such purposes;

6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom
were Roman Catholics, could not have intended to curtail the propagation of the Roman Catholic faith or the
expansion of the activities of their church, knowing pretty well that with the growth of our population more
places of worship, more schools where our youth could be taught and trained; more hallow grounds where to
bury our dead would be needed in the course of time.

Long before the enactment of our Constitution the law authorized the corporations sole even to receive
bequests or gifts of real estates and this Court could not, without any clear and specific provision of the
Constitution, declare that any real property donated, let as say this year, could no longer be registered in the
name of the corporation sole to which it was conveyed. That would be an absurdity that should not receive our
sanction on the pretext that corporations sole which have no nationality and are non-stock corporations
composed of only one person in the capacity of administrator, have to establish first that at least sixty per
centum of their capital belong to Filipino citizens. The new Civil Code even provides:

ART. 10. — In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body
intended right and justice to prevail.

Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the
name of the latter, private lands without any limitation whatsoever, and that is so because the properties thus
acquired are not for and would not belong to the administrator but to the Filipino whom he represents. But the
dissenting Justice inquires: If the Ordinary is only the administrator, for whom does he administer? And who
can alter or overrule his acts? We will forthwith proceed to answer these questions. The corporations sole by
reason of their peculiar constitution and form of operation have no designed owner of its temporalities,
although by the terms of the law it can be safely implied that the Ordinary holds them in trust for the benefit of
the Roman Catholic faithful to their respective locality or diocese. Borrowing the very words of the law, We may
say that the temporalities of every corporation sole are held in trust for the use, purpose, behalf and benefit of
the religious society, or order so incorporated or of the church to which the diocese, synod, or district
organization is an organized and constituent part (section 163 of the Corporation Law).

In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now
what is the meaning and scope of the word "control". According to the Merriam-Webster's New International
Dictionary, 2nd ed., p. 580, on of the acceptations of the word "control" is:

4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action; to curb;
subject; also, Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.

It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary, to
mortgage or sell real property held by the corporation sole where the rules, regulations and discipline of the
religious denomination, society or church concerned presented by such corporation sole regulates the methods
of acquiring, holding, selling and mortgaging real estate, and that the Roman Catholic faithful residing in the
jurisdiction of the corporation sole has no say either in the manner of acquiring or of selling real property. It
may be also admitted that the faithful of the diocese cannot govern or overrule the acts of the Ordinary, but all
this does not mean that the latter can administer the temporalities of the corporation sole without check or
restraint. We must not forget that when a corporation sole is incorporated under Philippine laws, the head and
only member thereof subjects himself to the jurisdiction of the Philippine courts of justice and these tribunals
can thus entertain grievances arising out of or with respect to the temporalities of the church which came into
the possession of the corporation sole as administrator. It may be alleged that the courts cannot intervene as
to the matters of doctrine or teachings of the Roman Catholic Church. That is correct, but the courts may step
in, at the instance of the faithful for whom the temporalities are being held in trust, to check undue exercise by
the corporation sole of its power as administrator to insure that they are used for the purpose or purposes for
which the corporation sole was created.

American authorities have these to say:

It has been held that the courts have jurisdiction over an action brought by persons claiming to be members of
a church, who allege a wrongful and fraudulent diversion of the church property to uses foreign to the purposes
of the church, since no ecclesiastical question is involved and equity will protect from wrongful diversion of the
property (Hendryx vs. Peoples United Church, 42 Wash. 336, 4 L.R.A. — n.s. — 1154).

The courts of the State have no general jurisdiction and control over the officers of such corporations in respect
to the performance of their official duties; but as in respect to the property which they hold for the corporation,
they stand in position of TRUSTEES and the courts may exercise the same supervision as in other cases of
trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. — n.s. — 665; Hendryx vs.
Peoples United Church, supra.).

Courts of the state do not interfere with the administration of church rules or discipline unless civil rights
become involved and which must be protected (Morris St., Baptist Church vs. Dart, 67 S.C. 338, 45 S.E. 753,
and others). (All cited in Vol. II, Cooley's Constitutional Limitations, p. 960-964.).

If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law
relative to existing conditions as to management and operation of corporations sole in the Philippines, and if,
on the other hand, almost all of the Delegates thereto embraced the Roman Catholic faith, can it be imagined
even for an instant that when Article XIII of the Constitution was approved the framers thereof intended to
prevent or curtail from then on the acquisition sole, either by purchase or donation, of real properties that they
might need for the propagation of the faith and for there religious and Christian activities such as the moral
education of the youth, the care, attention and treatment of the sick and the burial of the dead of the Roman
Catholic faithful residing in the jurisdiction of the respective corporations sole? The mere indulgence in said
thought would impress upon Us a feeling of apprehension and absurdity. And that is precisely the leit motiv
that permeates the whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted with in this appeal, hinges around the
necessity of a proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us
then be guided by the principles of statutory construction laid down by the authorities on the matter:

The most important single factor in determining the intention of the people from whom the constitution
emanated is the language in which it is expressed. The words employed are to be taken in their natural sense,
except that legal or technical terms are to be given their technical meaning. The imperfections of language as a
vehicle for conveying meanings result in ambiguities that must be resolved by result to extraneous aids for
discovering the intent of the framers. Among the more important of these are a consideration of the history of
the times when the provision was adopted and of the purposes aimed at in its adoption. The debates of
constitutional convention, contemporaneous construction, and practical construction by the legislative and
executive departments, especially if long continued, may be resorted to resolve, but not to create, ambiguities.
. . . Consideration of the consequences flowing from alternative constructions of doubtful provisions constitutes
an important interpretative device. . . . The purposes of many of the broadly phrased constitutional limitations
were the promotion of policies that do not lend themselves to definite and specific formulation. The courts have
had to define those policies and have often drawn on natural law and natural rights theories in doing so. The
interpretation of constitutions tends to respond to changing conceptions of political and social values. The
extent to which these extraneous aids affect the judicial construction of constitutions cannot be formulated in
precise rules, but their influence cannot be ignored in describing the essentials of the process (Rottschaeffer
on Constitutional Law, 1939 ed., p. 18-19).

There are times that when even the literal expression of legislation may be inconsistent with the general
objectives of policy behind it, and on the basis of equity or spirit of the statute the courts rationalize a restricted
meaning of the latter. A restricted interpretation is usually applied where the effect of literal interpretation will
make for injustice and absurdity or, in the words of one court, the language must be so unreasonable 'as to
shock general common sense'. (Vol. 3, Sutherland on Statutory Construction, 3rd ed., 150.).

A constitution is not intended to be a limitation on the development of a country nor an obstruction to its
progress and foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New York and Trust Co.,
294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y. 749).

Although the meaning or principles of a constitution remain fixed and unchanged from the time of its adoption,
a constitution must be construed as if intended to stand for a great length of time, and it is progressive and not
static. Accordingly, it should not receive too narrow or literal an interpretation but rather the meaning given it
should be applied in such manner as to meet new or changed conditions as they arise (U.S. vs. Lassic, 313
U.S. 299, 85 L. Ed., 1368).

Effect should be given to the purpose indicated by a fair interpretation of the language used and that
construction which effectuates, rather than that which destroys a plain intent or purpose of a constitutional
provision, is not only favored but will be adopted (State ex rel. Randolph Country vs. Walden, 206 S.W. 2d
979).

It is quite generally held that in arriving at the intent and purpose the construction should be broad or liberal or
equitable, as the better method of ascertaining that intent, rather than technical (Great Southern Life Ins. Co.
vs. City of Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the Constitution had not in mind the corporations
sole, nor intended to apply them the provisions of section 1 and 5 of said Article XIII when they passed and
approved the same. And if it were so as We think it is, herein petitioner, the Roman Catholic Apostolic
Administrator of Davao, Inc., could not be deprived of the right to acquire by purchase or donation real
properties for charitable, benevolent and educational purposes, nor of the right to register the same in its name
with the Register of Deeds of Davao, an indispensable requisite prescribed by the Land Registration Act for
lands covered by the Torrens system.

We leave as the last theme for discussion the much debated question above referred to as "the vested right
saving clause" contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the
personal opinion expressed on the matter by the writer of the decision the most pointed darts of his severe
criticism. We think, however, that this strong dissent should have been spared, because as clearly indicated
before, some members of this Court either did not agree with the theory of the writer or were not ready to take
a definite stand on that particular point, so that there being no majority opinion thereon there was no need of
any dissension therefrom. But as the criticism has been made the writer deems it necessary to say a few
words of explanation.

The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is
not in itself a vested or existing property right that the Constitution protects from impairment. For a property
right to be vested (or acquired) there must be a transition from the potential or contingent to the actual, and the
proprietary interest must have attached to a thing; it must have become 'fixed and established'" (Balboa vs.
Farrales, 51 Phil. 498). But the case at bar has to be considered as an exception to the rule because among
the rights granted by section 159 of the Corporation Law was the right to receive bequests or gifts of real
properties for charitable, benevolent and educational purposes. And this right to receive such bequests or gifts
(which implies donations in futuro), is not a mere potentiality that could be impaired without any specific
provision in the Constitution to that effect, especially when the impairment would disturbingly affect the
propagation of the religious faith of the immense majority of the Filipino people and the curtailment of the
activities of their Church. That is why the writer gave us a basis of his contention what Professor Aruego said in
his book "The Framing of the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose P.
Laurel, another Delegate to the Constitutional Convention, in his concurring opinion in the case of Goldcreek
Mining Co. vs. Eulogio Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did not deem necessary
to pass upon said "vested right saving clause" for the final determination of this case.

JUDGMENT

Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding
that in view of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee
(petitioner) is not qualified to acquire lands in the Philippines in the absence of proof that at least 60 per
centum of the capital, properties or assets of the Roman Catholic Apostolic Administrator of Davao, Inc. is
actually owned or controlled by Filipino citizens, and denying the registration of the deed of sale in the absence
of proof of compliance with such requisite, is hereby reversed. Consequently, the respondent Register of
Deeds of the City of Davao is ordered to register the deed of sale executed by Mateo L. Rodis in favor of the
Roman Catholic Apostolic Administrator of Davao, Inc., which is the subject of the present litigation. No
pronouncement is made as to costs. It is so ordered.

Bautista Angelo and Endencia, JJ., concur.

Paras, C.J., and Bengzon, J., concur in the result.

LABRADOR, J., concurring:

The case at bar squarely present this important legal question: Has the bishop or ordinary of the Roman
Catholic Church who is not a Filipino citizen, as corporation sole, the right to register land, belonging to the
Church over which he presides, in view of the Krivenko decision? Mr. Justice Felix sustains the affirmative view
while Mr. Justice J. B. L. Reyes, the negative. As the undersigned understands it, the reason given for this last
view is that the constitutional provision prohibiting land ownership by foreigners also extends to control
because this lies within the scope and purpose of the prohibition.

To our way of thinking, the question at issue depends for its resolution upon another, namely, who is the owner
of the land or property of the Church sought to be registered? Under the Canon Law the parish and the
diocese have the right to acquire and own property.

SEC. 1. La Iglesia catolica y la Sede Apostolica, libre e independientemente de la potestad civil, tiene derecho
innato de adquirir, retener y administrar bienes temporales para el logro de sus propios fines.

SEC. 2. Tambien las iglesias particulares y demas personas morales erigidas por la autoridad eclesiastica en
persona juridica, tienen derecho, a tenor de los sagrados canones, de adquirir, retener y administrar bienes
temporales. (Canon 1495) (Codigo de Derecho Canonico por Miguelez-Alonzo-Cabreros, 4a ed., p. 562.).

The Canon Law further states that Church property belongs to the non-collegiate moral person called the
parish, or to the diocese.

In canon law the ownership of ecclesiastical goods belongs to each separate juridical person in the Church (C.
1499). The property of St. John's Church does not belong to the Pope, the bishop, the pastor, or even to the
people of the parish. It belongs to the non-collegiate moral person called the parish, which has been lawfully
erected. It is not like a stock company. The civil law does not recognize this canonical principle; it insists on an
act of civil incorporation or some other legal device. (Ready Answers in Canon Law by Rev. P.J. Lydon, DD.,
3rd ed., 1948, p. 576.).

Parish. 3. A portion or subdivision of a diocese committed to the spiritual jurisdiction or care of a priest or
minister, called rector or pastor. In the Protestant Episcopal Church, it is a territorial division usually following
civil bounds, as those of a town. In the Roman Catholic Church, it is usually territorial, but whenever, as in
some parts of the United States there are different rites and languages, the boundaries and jurisdiction are
determined by right or language; as, a Ruthenian or Polish parish. "5. The inhabitants or members of a parish,
collectively.

Diocese. 3. Eccl. The circuit or extent of a bishop's jurisdiction; the district in which a bishop has authority.
(Webster's New International Dictionary).
We are aware of the fact that some writers believe that ownership of ecclesiastical properties resides in the
Roman Catholic Pontiff as Head of the Universal Church, but the better opinion seems to be that they do
belong to the parishes and diocese as above indicated.

Canonists entertain different opinions as to the person in whom the ownership of the ecclesiastical properties
is vested, with respect to which we shall, for our purpose, confine ourselves to stating with Donoso that, while
many doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of the Universal Church, it
is more probable that ownership, strictly speaking, does not reside in the latter and, consequently,
ecclesiastical properties are owned by the churches, institutions and canonically established private
corporations to which said properties have been donated. (3 Campos y Pulido, Legislacion y Jurisprudencia
Canonica, P. 420, cited in Trinidad vs. Roman Catholic Archbishop of Manila, 63 Phil., 881, 888-889.).

The property in question, therefore, appears to belong to the parish or the diocese of Davao. But the Roman
Catholics of Davao are not organized as a juridical person, either under the Canon law or under the Civil Law.
Neither is there any provision in either for their organization as a juridical person. Registration of the property in
the name of the Roman Catholics of Davao is, therefore, impossible.

As under the Civil Law, however, the organization of parishes and dioceses as juridical persons is not
expressly provided for, the corporation law has set up the fiction known as the "corporation sole."

It tolerates the corporation sole wherever and as long as the state law does not permit the legal incorporation
of the parish or diocese. The bishop officially is the legal owner. (Ready Answers in Canon Law, supra, p. 577.)
.

and authorizes it to purchase and hold real estate for the Church.

SEC. 159. Any corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent, or educational purposes, and may receive bequests or gifts for such purposes. Such
corporation may mortgage or sell real property held by it upon obtaining an order for that purpose from the
Court of First Instance of the province in which the property is situated; but before making the order proof must
be made to the satisfaction of the court that notice of the application for leave to mortgage or sell has been
given by publication or otherwise in such manner and for such time as said court or the judge thereof may have
directed, and that it is to the interest of the corporation that leave to mortgage or sell should be granted. The
application for leave to mortgage or sell must be made by petition, duly verified by the bishop, chief priest, or
presiding elder, acting as corporation sole, and may be opposed by any member of the religious denomination,
society, or church represented by the corporation sole: Provided, however, That in cases when the rules,
regulations and discipline of the religious denomination, society or church concerned represented by such
corporation sole regulate the methods of acquiring, holding, selling, and mortgaging real estate and personal
property, such rules, regulations, and discipline shall control and the intervention of the courts shall not be
necessary. (The Corporation Law.)

And in accordance with the above section, temporalities of the Church or of parish or a diocese are allowed to
be registered in the name of the corporation sole for purposes of administration and in trust for the real owners.
The mere fact that the Corporation Law authorizes the corporation sole to acquire and hold real estate or other
property does not make the latter the real owner thereof, as his tenure of Church property is merely for the
purposes of administration. As stated above, the bishop is only the legal (technical) owner or trustee, the
parish or diocese being the beneficial owner, or cestui que trust.

Having arrived at the conclusion that the property in question belongs actually either to the parish or to the
dioceses of Davao, the next question that possess for solution is, In case of said property, whose nationality
must be considered for the purpose of determining the applicability of the constitutional provision limiting
ownership of land to Filipinos, that of the bishop or chief priest who registers as corporation sole, or that of the
constituents of the parish or diocese who are the beneficial owners of the land? We believe that of a latter must
be considered, and not that of the priest clothed with the corporate fiction and denominated as the corporation
sole. The corporation sole is a mere contrivance to enable a church to acquire, own and manage properties
belonging to the church. It is only a means to an end. The constitutional provision could not have been meant
to apply to the means through which and by which property may be owned or acquired, but to the ultimate
owner of the property. Hence, the citizenship of the priest forming the corporation sole should be no
impediment if the parish or diocese which owns the property is qualified to own and possess the property.

We can take judicial notice of the fact that a great majority of the constituents of the parish or diocese of Davao
are Roman Catholics. The affidavit demanded is therefore, a mere formality.

The dissenting opinion sustains the proposition that control, not actual ownership, is the factor that determines
whether the constitutional prohibition against alien ownership of lands should or should not apply. We may
assume the correctness of the proposition that the Holy See exercises control cannot be real and actual but
merely theoretical. In any case, the constitutional prohibition is limited by its terms to ownership and ownership
alone. And should the corporation sole abuse its powers and authority in relation to the administration or
disposal of the property contrary to the wishes of the constituents of the parish or the diocese, the act may
always be questioned as ultra vires.

We agree, therefore, with the reversal of the order.

Montemayor and Reyes, A., JJ., concur.

REYES, J.B.L., dissenting:

I regret not being able to assent to the opinion of Mr. Justice Felix. The decision of the Supreme Court in this
case will be of far reaching results, for once the capacity of corporations sole to acquire public and private
agricultural lands is admitted, there will be no limit to the areas they may hold until the Legislature implements
section 3 of Article XIII of the Constitution, empowering it to set a limit to the size of private agricultural land
that may be held; and even then it can only be done without prejudice to rights acquired prior to the enactment
of such law. In other words, even if a limitative law is adopted, it will not affect the landholdings acquired before
the law become effective, no matter how vast the estate should be.

The Constitutional restrictions to the acquisition of agricultural land are well known:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the
Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such
citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the
Government established under this Constitution. Natural resources, with the exception of public agricultural
land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or
utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable
for another twenty-five years, except as to water rights for irrigation, water supply fisheries, or industrial uses
other than the development of water power, in which cases beneficial use may be the measure and the limit of
the grant. (Article XII, Constitution of the Phil.).

SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines. (Art. XII, Constitution of the Phil.).

In requiring corporations or associations to have sixty per cent (60%) of their capital owned by Filipino citizens,
the constitution manifestly disregarded the corporate fiction, i.e., the juridical personality of such corporations
or associations. It went behind the corporate entity and looked at the natural persons that composed it, and
demanded that a clear majority in interest (60%) should be Filipino. To me this was done to ensure that the
control of its properties (not merely the beneficial ownership thereof) remained in Filipino hands. (Aruego,
Framing of the Constitution, Vol. 2. pp. 604, 606.) .

The nationalization of the natural resources of the country was intended (1) to insure their conservation for
Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension into the
country of foreign control through peaceful economic penetration; and (3) to prevent making the Philippines a
source of international conflicts with the consequent danger to its internal security and independence. . . .

The convention permitted aliens to acquire an interest in the natural resources of the country and in private
agricultural lands as component elements of corporations or associations. The maximum limit of interest that
they could hold in a corporation or association would be only forty per centum of the capital. Accordingly the
control of the corporation or association would remain in Filipino hands.

In its report the committee on nationalization and preservation of lands and other natural resources
recommended that the maximum limit of interest that aliens could hold in a corporation or association should
be only twenty-five per centum of the capital. The purpose of the committee was to enable Filipino-controlled
corporations or associations, if necessary, to interest aliens to join their technical or managerial staff by giving
them a part interest in the same. The sub-committee of seven embodied this recommendation in the first draft
of the Constitution; but in the revised article on General Provisions, it raised the amount to forty per centum.
(emphasis supplied.)

It was in recognition of this basic rule that we held in Register of Deeds vs. Ung Siu Si Temple, 51 Off. Gaz. p.
2866, that if the association had no capital, its controlling membership must be composed of Filipinos. Because
ownership divorced from control is not true ownership.
From these premises it can be deduced that the preliminary question to be decide by the court is the following:
what and who exercises the power of control in the corporation sole known as "The Roman Catholic Apostolic
Administrator of Davao, Inc."?.

Under section 155 of the Corporation Law, the bishop, or other religious head, as corporation sole, is "charged
with the administration of the temporalities of his church." It becomes then pertinent to inquire: if he is only an
administrator, for whom does he administer? And who can alter or overrule his acts?

If his acts as administrator can not be overridden, or altered, except by himself, then obviously the control of
the corporation and its temporalities is in the bishop himself, and he must be a Filipino citizen. If, on the other
hand, the final say as to management, exploitation, encumbrance or disposition of the temporalities resides in
another individual or body of individuals, then the control resides there. To possess constitutional capacity to
acquire agricultural land or other natural resources, that body making the final decision for the corporation must
have at least 60 per cent Filipino membership.

By this test, the body of members professing the Catholic faith in the diocese of Davao does not constitute the
controlling membership. For under the rules of the Roman Catholic Church the faithful can not control the acts
of the Ordinary; they cannot override his decision, just as they do not elect or remove him. Only his hierarchical
superiors can do that; the control is from above, not from below. Hence, the fact that 90 per cent (or even 100
per cent) of the faithful in the diocese should be composed of Filipino citizens is totally devoid of significance
from the standpoint of the constitutional restrictions in question (see Codex, Canons 1518 and 1530,
paragraph 1, No. 3).

Moreover, I do not think that the body of Catholic faithful in the Davao diocese can be taken, for the purpose
here under consideration, as the Church represented by the Ordinary of Davao. That body does not constitute
an entity or unit separate and apart from the rest of the faithful throughout the world that compose the Roman
Catholic Church that has always claimed ecumenical (universal) character. There is nom Catholic Church of
Davao district and independent of the Catholic Church of Manila, Lipa or Rome. All those professing Catholic
faith are members of only one single church or religious group. Thus the Iglesia Filipina Independiente is not
part of the Catholic Church, precisely because of its independence.

If, the, the Catholic Church of Davao is part and parcel of the universal Catholic Church, it can not be
considered separate and apart from it in this case. And if considered with it, obviously the condition of 60 per
cent Filipino membership is not satisfied when all the Catholic faithful in the world are taken into account.

The unity and singleness of the various diocese of the church appears expressly recognized in section 163 of
the Corporation Law, which provides that the corporation (sole) shall hold the temporalities, not for the diocese;
but for the benefit "of the church of which the diocese — is an organized or constituent part."

SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or
society, or by the diocese synod, or district organization of any religious denomination or church shall, on its
incorporation, pass to the corporation and shall be held in trust for the use purpose, behalf, and benefit of the
religious society or order so incorporated or of the church of which the diocese, synod, or district organization
is an organized and constituent part.
So that, even from the standpoint of beneficial ownership, the dioceses of Davao can not be viewed as a group
legally isolated from the Catholic Church as a whole.

Nor does court control over the acts of the corporation sole constitute a guarantee of Filipino control that would
satisfy the purposes of the constitution, for the reason that under section 159 (last proviso) of the Corporation
law, the court intervention is dispensed with where the rules and discipline of the church already regulate the
acquisition and disposition of real estate and personal property.

Provided however, that in cases where the rules, regulations and discipline of the religious denomination,
society, or church concerned represented by such corporation sole regulate the methods of acquiring, holding,
selling, and mortgaging real estate and personal property, such rules, regulations, and discipline shall control
and the intervention of the courts shall not be necessary. (emphasis supplied.)

It is argued that a distinction must be drawn between the lands to be devoted to purely religious purposes and
the lands held in ordinary ownership. But where in the Constitution is such a distinction drawn? Under it,
capacity to acquire agricultural land for the erection of a church is capacity to acquire agricultural lands for any
lawful purpose, whether it be for convents or schools or seminaries or haciendas for their support or land to be
held solely for enjoyment of the revenue. Once the capacity to acquire is granted, the way is paved for the
revitalization of religious landholdings that proved so troublesome in our past. I cannot conceive that the
Constitution intended to revive them.

It is also argued that, before the Constitution was adopted, the corporations sole had, by express statute, the
right to acquire agricultural land; and that the Constitution was not intended to destroy such "acquired property
rights." If followed, the argument destroys the constitutional restrictions. All aliens had a capacity to acquire
agricultural land before the Constitution came into effect, because no prohibition existed previously. Must their
right to acquire and hold agricultural land be conceded in spite of the Constitution?.

That the law should have expressly conferred capacity to acquire land upon corporations sole was not due any
special predilection for them; it was exclusively due to the principle that corporation, as artificial entities, have
no inherent rights, but only those granted by the sovereign. Unless conferred, the corporate right would not
exist.

Furthermore, a capacity to acquire in futuro, is not in itself a vested existing property right that the Constitution
protects from impairment. For a property right to be vested (or acquired) there must be a transition from the
potential, or contingent, to the actual, and the proprietary interest must have attached to a thing, it must have
become "fixed or established "(Balboa vs. Farrales, 51 Phil. 498). If mere potentialities cannot be impaired,
then the law would become unchangeable, for every variation in it will reduce some one's legal ability to do or
not to do. Already in Benguet Consolidated vs. Pineda, 3 52 Off. Gaz. 1961, we have ruled that no one has a
vested right in statutory privileges or exemptions. And in the concurring opinion in Gold Creek Mining Corp. vs.
Rodriguez, 66 Phil. 259 (cited by Justice Felix), Mr. Justice Laurel squarely declared that "contingency or
expectation is neither property right." (cas. cit., p. 269.) Finally, the point is also made that the Ordinary, as
religious corporation sole, has no citizenship, and is not an alien. The answer is that under the Constitution of
the Republic, it is not enough that the acquirer of agricultural land be not an alien; he must be a Filipino or
controlled by Filipinos.
Wherefore, I am constrained to conclude:

(1) That the capacity of religious corporations sole to acquire agricultural land depends upon 60 per cent
Filipino membership of the group or body exercising control of the corporation;

(2) That if control of any such corporation should be vested in a single person, then such person must be a
Filipino citizen;

(3) That in the absence of evidence on these points, the order appealed from, denying registration of the
conveyance, should be affirmed.
REPUBLIC VS. VILLANUEVA, 114 SCRA 875 (1982)

AQUINO, J.:

Like L-49623, Manila Electric Company vs. Judge Castro-Bartolome, this case involves the prohibition in
section 11, Article XIV of the Constitution that "no private corporation or association may hold alienable lands
of the public domain except by lease not to exceed one thousand hectares in area".

Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan, with an area of 313 square meters and an
assessed value of P1,350 were acquired by the Iglesia Ni Cristo on January 9, 1953 from Andres Perez in
exchange for a lot with an area of 247 square meters owned by the said church (Exh. D).

The said lots were already possessed by Perez in 1933. They are not included in any military reservation. They
are inside an area which was certified as alienable or disposable by the Bureau of Forestry in 1927. The lots
are planted to santol and mango trees and banana plants. A chapel exists on the said land. The land had been
declared for realty tax purposes. Realty taxes had been paid therefor (Exh. N).

On September 13, 1977, the Iglesia Ni Cristo, a corporation sole, duly existing under Philippine laws, filed with
the Court of First Instance of Bulacan an application for the registration of the two lots. It alleged that it and its
predecessors-in-interest had possessed the land for more than thirty years. It invoked section 48(b) of the
Public Land Law, which provides:

Chapter VIII.—Judicial confirmation of imperfect or incomplete titles.

xxx xxx xxx

SEC. 48. The following-described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed,
may apply to the Court of First Instance of the province where the land is located for confirmation of their
claims and the issuance of a certificate of title therefore, under the Land Register Act, to wit:

xxx xxx xxx

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona
fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the application
for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed
to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title
under the provisions of this chapter." (As amended by Republic Act No. 1942, approved on June 22, 1957.)
The Republic of the Philippines, through the Direct/r of Lands, opposed the application on the grounds that
applicant, as a private corporation, is disqualified to hold alienable lands of the public domain, that the land
applied for is public land not susceptible of private appropriation and that the applicant and its predecessors-in-
interest have not been in the open, continuous, exclusive and notorious possession of the land since June 12,
1945.

After hearing, the trial court ordered the registration of the two lots, as described in Plan Ap-04-001344 (Exh.
E), in the name of the Iglesia Ni Cristo, a corporation sole, represented by Executive Minister Eraño G. Manalo,
with office at the corner of Central and Don Mariano Marcos Avenues, Quezon City, From that decision, the
Republic of the Philippines appealed to this Court under Republic Act No. 5440. The appeal should be
sustained.

As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or a juridical
person, is disqualified to acquire or hold alienable lands of the public domain, like the two lots in question,
because of the constitutional prohibition already mentioned and because the said church is not entitled to avail
itself of the benefits of section 48(b) which applies only to Filipino citizens or natural persons. A corporation
sole (an "unhappy freak of English law") has no nationality (Roman Catholic Apostolic Adm. of Davao, Inc. vs.
Land Registration Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and
sec. 49 of the Public Land Law).

The contention in the comments of the Iglesia Ni Cristo (its lawyer did not file any brief) that the two lots are
private lands, following the rule laid down in Susi vs. Razon and Director of Lands, 48 Phil. 424, is not correct.
What was considered private land in the Susi case was a parcel of land possessed by a Filipino citizen since
time immemorial, as in Cariño vs. Insular Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil.
132. The lots sought to be registered in this case do not fall within that category. They are still public lands. A
land registration proceeding under section 48(b) "presupposes that the land is public" (Mindanao vs. Director of
Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).

As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not acquired from the Government,
either by purchase or by grant, belong to the public domain. An exception to the rule would be any land that
should have been in the possession of an occupant and of his predecessors-in-interest since time immemorial,
for such possession would justify the presumption that the land had never been part of the public domain or
that it had been a private property even before the Spanish conquest. "

In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public agricultural land to obtain a
confirmation of his title under section 48(b) of the Public Land Law is a "derecho dominical incoativo"and that
before the issuance of the certificate of title the occupant is not in the juridical sense the true owner of the land
since it still pertains to the State.

The lower court's judgment is reversed and set aside. The application for registration of the Iglesia Ni Cristo is
dismissed with costs against said applicant.

SO ORDERED.
AS TO EXISTENCE OF SHARES (SEC. 3 & 5 OF THE RCC)

NON-STOCK (SECTIONS 86 AND 87 OF THE RCC)

COLLECTOR OF INTERNAL REVENUE (CIR) VS. CLUB FILIPINO, 5 SCRA 321 (1962)

PAREDES, J.:

This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of
Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of
P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a
keeper of bar and restaurant.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation
organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de
golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de
juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda
clase y denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas"
(sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws is there a
provision relative to dividends and their distribution, although it is covenanted that upon its dissolution, the
Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu (Art.
27, Estatutos del Club, Exh. A-a.).

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its
members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its
golf-course. The club is operated mainly with funds derived from membership fees and dues. Whatever profits
it had, were used to defray its overhead expenses and to improve its golf-course. In 1951. as a result of a
capital surplus, arising from the re-valuation of its real properties, the value or price of which increased, the
Club declared stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a
BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and
restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated December 22, 1852, the Collector
of Internal Revenue assessed against and demanded from the Club, the following sums: —

As percentage tax on its gross receipts during the tax years 1946 to 1951 P9,599.07

Surcharge therein 2,399.77

As fixed tax for the years 1946 to 1952 70.00

Compromise penalty 500.00

The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been
denied, the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:

1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage
taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment
was made, in connection with the operation of its bar and restaurant, during the periods mentioned above; and

2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.

Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on
which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or
fraction thereof in which such person shall engage in said business." Section 183 provides in general that "the
percentage taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due
on the business transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage
tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax three per centum,
and keepers of bar and cafes where wines or liquors are served five per centum of their gross receipts . . .". It
has been held that the liability for fixed and percentage taxes, as provided by these sections, does not ipso
facto attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the operator
thereof must be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning of
business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term
business when used without qualification, should be construed in its plain and ordinary meaning, restricted to
activities for profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club]
& Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of
Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of
which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).

Having found as a fact that the Club was organized to develop and cultivate sports of all class and
denomination, for the healthful recreation and entertainment of its stockholders and members; that upon its
dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in
Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar and
restaurant catered only to its members and their guests; that there was in fact no cash dividend distribution to
its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its
overall overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that
the Club is not engaged in the business of an operator of bar and restaurant (same authorities, cited above).

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the
Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of
developing and cultivating sports for the healthful recreation and entertainment of the stockholders and
members. That a Club makes some profit, does not make it a profit-making Club. As has been remarked a club
should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev.,
G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23,
1956).1äwphï1.ñët

It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into
shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of
bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object
or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by
the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic
evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax
Court concluded that the Club is not engaged in the business as a barkeeper and restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock
divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of
the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its
articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus
profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the
corporation law.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock
organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et al.,
supra), which is not the case in the present appeal.

Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar
and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any
penalty, much less of a compromise penalty.

WHEREFORE, the decision appealed from is affirmed without costs.

CLOSE CORPORATIONS

NO NECESSITY OF BOARD (SECTION 100 OF THE RCC)

DULAY ENTERPRISES, INC. VS. CA (GR. NO. 91889, 1993)

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision 1of the Court of Appeals affirming
the decision 2of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the
dispositive portion of which reads, as follows:

Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as follows:

In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for
annulment or declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its
Civil Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is
dismissed for lack of merits;

In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title of
Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is dismissed
for lack or merit, and,

In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are ordered to
surrender and deliver possession of the parcel of land, together with all the improvements thereon, described
in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay City, in favor of therein plaintiffs
Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administrator of said Manuel A. Torres,
Jr.; to account for and return to said plaintiffs the rentals from dwelling unit No. 8-A of the apartment building
(Dulay Apartment) from June 1980 up to the present, to indemnify plaintiffs, jointly and severally, expenses of
litigation in the amount of P4,000.00 and attorney's fees in the sum of P6,000.00, for all the three (3) cases.
Co-defendant Nepomuceno Redovan is ordered to pay the current and subsequent rentals on the premises
leased by him to plaintiffs.

The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N. Redovan,
dismissed for lack of merit. With costs against the three (3) aforenamed defendants.

The facts as found by the trial court are as follows:

Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its Board
of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general
manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10
shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as
secretary, owned a property covered by TCT No. 17880 4and known as Dulay Apartment consisting of sixteen
(16) apartment units on a six hundred eighty-nine (689) square meters lot, more or less, located at Seventh
Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its
hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner
Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied
one of the unit apartments of the subject property since property since 1973 while at the same time managing
the Dulay Apartment at his shareholdings in the corporation was subsequently increased by his father.

On December 23, 1976, Manuel Dulay by virtue of Board Resolution

No 18 6of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and
Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale. 7Thereafter, TCT
No. 17880 was cancelled and TCT No. 23225 was issued to private respondent Maria Theresa Veloso. 8
Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the Deed
of Absolute Sale of December 23, 1976 9dated December 9, 1977 giving Manuel Dulay within (2) years or until
December 9, 1979 to repurchase the subject property for P200,000.00 which was, however, not annotated
either in TCT No. 17880 or TCT No. 23225.

On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged
the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which was duly
annotated as Entry No. 68139 in TCT No. 23225.

Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was
sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure sale as
evidenced by the Certificate of Sheriff's Sale 11issued on April 20, 1978.

On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to
Redeem 12in favor of Manuel Dulay assigning her right to repurchase the subject property from private
respondent Torres as a result of the extra sale held on April 25, 1978.

As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject
property within the one year statutory period for redemption, private respondent Torres filed an Affidavit of
Consolidation of Ownership 13with the Registry of Deeds of Pasay City and TCT No. 24799 14was
subsequently issued to private respondent Manuel Torres on April 23, 1979.

On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against
private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner
Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject property, the
trial court ordered private respondent Torres to implead petitioner corporation as an indispensable party but the
latter moved for the dismissal of his petition which was granted in an Order dated April 8, 1980.

On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed
an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment
Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil
Case, No. 8198-P with the then Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres
for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the
then Court of First Instance of Rizal.

On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and
Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for
ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on
April 25, 1985, dispositive portion of which reads, as follows:

Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and against the
defendants:

1. Ordering the defendants and all persons claiming possession under them to vacate the premises.

2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979 until they
shall have vacated the premises with interest at the legal rate;

3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other
expenses of litigation and for them to pay the costs of the suit.

Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding
judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the annulment
of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.

Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private
respondents.

Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on
October 23, 1989, the dispositive portion of which reads, as follows:

PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in full.

On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26,
1990.chanroblesvirtualawlibrarychanrobles virtual law library

Hence, this petition.

During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death
certificate 17and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic will
18dated October 31, 1986.
Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the
doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject
property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner
corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without
the approval of all the members of the board of directors and said Board Resolution was prepared by a person
not designated by the corporation to be its secretary.

We do not agree.

Section 101 of the Corporation Code of the Philippines provides:

Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise,
any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by all the directors,

2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
thereto in writing;

3. The directors are accustomed to take informal action with the express or implied acquiese of all the
stockholders,

4. All the directors have express or implied knowledge of the action in question and none of them makes
prompt objection thereto in writing.

If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is
deemed ratified by a director who failed to attend, unless he promptly files his written objection with the
secretary of the corporation after having knowledge thereof.

In the instant case, petitioner corporation is classified as a close corporation and consequently a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for
the action of its president. At any rate, corporate action taken at a board meeting without proper call or notice
in a close corporation is deemed ratified by the absent director unless the latter promptly files his written
objection with the secretary of the corporation after having knowledge of the meeting which, in his case,
petitioner Virgilio Dulay failed to do.

It is relevant to note that although a corporation is an entity which has a personality distinct and separate from
its individual stockholders or members, 19the veil of corporate fiction may be pierced when it is used to defeat
public convenience justify wrong, protect fraud or defend crime. 20The privilege of being treated as an entity
distinct and separate from its stockholder or members is therefore confined to its legitimate uses and is subject
to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is
used merely as an alter ego or business conduit of a person, the law will regard the corporation as the act of
that person. 21The Supreme Court had repeatedly disregarded the separate personality of the corporation
where the corporate entity was used to annul a valid contract executed by one of its members.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents
spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge
and consent of the other members of the board of directors cannot be sustained. As correctly pointed out by
the respondent Court of Appeals:

Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated nor
was even aware of any meeting or resolution authorizing the mortgage or sale of the subject premises (see
par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. "21") is difficult to believe. On the contrary,
he is very much privy to the transactions involved. To begin with, he is a incorporator and one of the board of
directors designated at the time of the organization of Manuel R. Dulay Enterprise, Inc. In ordinary parlance,
the said entity is loosely referred to as a "family corporation". The nomenclature, if imprecise, however, fairly
reflects the cohesiveness of a group and the parochial instincts of the individual members of such an
aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close
relatives namely, three (3) children and their father whose name identifies their corporation (Articles of
Incorporation of Manuel R. Dulay Enterprises, Inc. Exh. "31-A").

Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23that he was a signatory
witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private
respondent Torres indicates that he was aware of the transaction executed between his father and private
respondents and had, therefore, adequate knowledge about the sale of the subject property to private
respondents.

Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to
private respondents by Manuel Dulay is valid and binding. As stated by the trial court:

. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and
Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R. Dulay.
This is so because Manuel R. Dulay was not only president and treasurer but also the general manager of the
corporation. The corporation was a closed family corporation and the only non-relative in the board of directors
was Atty. Plaridel C. Jose who appeared on paper as the secretary. There is no denying the fact, however, that
Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the fact that the
Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the incorporators and directors belong
to one single family. It cannot be concealed that Manuel R. Dulay as president, treasurer and general manager
almost had absolute control over the business and affairs of the corporation.

Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked
certain facts of substance and value that, if considered, might affect the result of the case, 25which is not
present in the instant case.

Petitioners' contention that private respondent Torres never acquired ownership over the subject property
since the latter was never in actual possession of the subject property nor was the property ever delivered to
him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:

When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of
the thing which is the object of the contract, if from the deed the contrary do not appear or cannot clearly be
inferred.

Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to
the delivery of the property. Likewise, this Court had held that:

It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is
not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the
possession of the said property and can demand it at any time following the consolidation of ownership in his
name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of
the land even during the redemption period except that he has to post a bond in accordance with Section 7 of
Act No. 3133 as amended. No such bond is required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner.

Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale
in deemed equivalent to delivery.

Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for
reconsideration despite the fact that private respondents failed to submit their comment to said motion as
required by the respondent appellate court from resolving petitioners' motion for reconsideration without the
comment of the private respondent which was required merely to aid the court in the disposition of the motion.
The courts are as much interested as the parties in the early disposition of cases before them. To require
otherwise would unnecessarily clog the courts' dockets.

WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.

SO ORDERED.
WITHDRAWAL AND DISSOLUTION (SECTION 104 OF THE RCC)

FINANCING CORP VS. TEODORO, 93 PHIL 678

MONTEMAYOR, J.:

In civil case No. 1924 of the Court of First Instance of Negros Occidental, Asuncion Lopez Vda. de Lizares,
Encarnacion Lizares Vda. de Panlilio and Efigenia Vda. de Paredes, in their own behalf and in behalf of the
other minority stockholders of the Financing Corporation of the Philippines, filed a complaint against the said
corporation and J. Amado Araneta, its president and general manager, claiming among other things alleged
gross mismanagement and fraudulent conduct of the corporate affairs of the defendant corporation by J.
Amado Araneta, and asking that the corporation be dissolved; that J. Amado Araneta be declared personally
accountable for the amounts of the unauthorized and fraudulent disbursements and disposition of assets made
by him, and that he be required to account for said assets, and that pending trial and disposition of the case on
its merits a receiver be appointed to take possession of the books, records and assets of the defendant
corporation preparatory to its dissolution and liquidation and distribution of the assets. Over the strong
objection of the defendants, the trial court presided by respondent Judge Jose Teodoro, granted the petition for
the appointment of a receiver and designated Mr. Alfredo Yulo as such receiver with a bond of P50,000. Failing
to secure a reconsideration of the order appointing a receiver, the defendants in said case, Financing
Corporation of the Philippines and J. Amado Araneta, as petitioners, have filed the present petition for certiorari
with preliminary injunction to revoke and set aside the order. Acting upon that part of the petition asking for a
writ of preliminary injunction, a majority of the court granted the same upon the filing of a bond by the
petitioners in the sum of P50,000.

The main contention of the petitioners in opposing the appointment of a receiver in this case is that said
appointment is merely an auxiliary remedy; that the principal remedy sought by the respondents in the action in
Negros Occidental was the dissolution of the Financing Corporation of the Philippines; that according to the
law a suit for the dissolution of a corporation can be brought and maintained only by the State through its legal
counsel, and that respondents, much less the minority stockholders of said corporation, have no right or
personality to maintain the action for dissolution, and that inasmuch as said action cannot be maintained
legally by the respondents, then the auxiliary remedy for the appointment of a receiver has no basis.

True it is that the general rule is that the minority stockholders of a corporation cannot sue and demand its
dissolution. However, there are cases that hold that even minority stockholders may ask for dissolution, this,
under the theory that such minority members, if unable to obtain redress and protection of their rights within the
corporation, must not and should not be left without redress and remedy. This was what probably prompted
this Court to state in the case of Hall, et al. vs. Judge Piccio,* G.R. No. L-2598 (47 Off. Gaz. No. 12 Supp., p.
200) that even the existence of a de jure corporation may be terminated in a private suit for its dissolution by
the stockholders without the intervention of the State. It was therein further held that although there might be
some room for argument on the right of minority stockholders to ask for dissolution,-that question does not
affect the court's jurisdiction over the case, and that the remedy by the party dissatisfied was to appeal from
the decision of the trial court. We repeat that although as a rule, minority stockholders of a corporation may not
ask for its dissolution in a private suit, and that such action should be brought by the Government through its
legal officer in a quo warranto case, at their instance and request, there might be exceptional cases wherein
the intervention of the State, for one reason or another, cannot be obtained, as when the State is not interested
because the complaint is strictly a matter between the stockholders and does not involve, in the opinion of the
legal officer of the Government, any of the acts or omissions warranting quo warranto proceedings, in which
minority stockholders are entitled to have such dissolution. When such action or private suit is brought by
them, the trial court had jurisdiction and may or may not grant the prayer, depending upon the facts and
circumstances attending it. The trial court's decision is of course subject to review by the appellate tribunal.
Having such jurisdiction, the appointment of a receiver pendente lite is left to the sound discretion of the trial
court. As was said in the case of Angeles vs. Santos (64 Phil., 697), the action having been properly brought
and the trial court having entertained the same, it was within the power of said court upon proper showing to
appoint a receiver pendente lite for the corporation; that although the appointment of a receiver upon
application of the minority stockholders is a power to be exercised with great caution, nevertheless, it should
be exercised necessary in order not to entirely ignore and disregard the rights of said minority stockholders,
especially when said minority stockholders are unable to obtain redress and protection of their rights within the
corporation itself.

In that civil case No. 1924 of Negros Occidental court, allegations of mismanagement and misconduct by its
President and Manager were made, specially in connection with the petition for the appointment of a receiver.
in order to have an idea of the seriousness of said allegations, we reproduce a pertinent portion of the order of
respondent Judge Teodoro dated June 23, 1951, subject of these certiorari proceedings:

Considering plaintiffs' complaint and verified motion for appointment of a receiver together, as they have been
treated jointly in the opposition of the defendants, the grounds of the prayer for receivership may be briefly
stated to be: (1) imminent danger of insolvency; (2) fraud and mismanagement, such as, particularly, (a)
wrongful and unauthorized diversion from corporate purposes and use for personal benefit of defendant
Araneta, for the benefit of the corporations under his control and of which he is majority stockholder and/or for
the benefit of his relatives, personal friends and the political organization to which he is affiliated of
approximately over one and a half million pesos of the funds of the defendant corporation in the form of
uncollected allowances and loans, either without or with uncollected interest, and either unsecured or
insufficiently secured, and sometimes with a securities appearing in favor of defendant Araneta as if the funds
advanced or loaned were his own; (b) unauthorized and profitless pledging of securities owned by defendant
corporation to secure obligations amounting to P588,645.34 of another corporation controlled by defendant
Araneta; (c) unauthorized and profitless using of the name of the defendant corporation in the shipping of
sugar belonging to other corporations controlled by defendant Araneta to the benefit of said corporations in the
amount of at least P104,343.36; (d) refusal by defendant Araneta to endorse to the defendant corporation
shares of stock and other securities belonging to it but which are still in his name; (e) negligent failure to
endorse other shares of stock belonging to defendant corporation but still in the names of the respective
vendors; and (f) illegal and unauthorized transfer and deposit in the United States of America of 6,426,281
shares of the Atok-Big Wedge Mining Company; (3) violations of the corporation law and the by-laws of the
corporation such as (a) refusal to allow minority stockholders to examine the books and records of the
corporation; (b) failure to call and hold stockholders' and directors' meetings; (c) virtual disregard and ignoring
of the board of directors by defendant Araneta who has been and is conducting the affairs of the corporation
under his absolute control and for his personal benefit and for the benefit of the corporations controlled by him,
to the prejudice and in disregard of the rights of the plaintiffs and other minority stockholders; and (d)
irregularity in the keeping and (e) errors and omissions in the books and failure of the same to reflect the real
and actual transactions of the defendant corporations; (4) failure to achieve the fundamental purpose of the
corporation; (5) if administration, possession and control of the affairs, books, etc. of defendant corporation are
left in the hands of the defendant Araneta and the present corporate officials, under his power and influence,
the remaining assets of the corporation are in danger of being further dissipated, wasted or lost and of
becoming ultimately unavailable for distribution among its stockholders; and (6) the best means to protect and
preserve the assets of defendant corporation is the appointment of a receiver.

In conclusion, we hold that the trial court through respondent Judge Teodoro had jurisdiction and properly
entertained the original case; that he also had jurisdiction to appoint a receiver pendente lite, and considering
the allegations made in connection with the petition for the appointment of a receiver, he neither exceeded his
jurisdiction nor abused his discretion in appointing a receiver. The petition for certiorari is hereby denied, with
costs. The writ of preliminary injunction heretofore issued is hereby ordered dissolved.
FORMATION OF CORPORATIONS

ORGANIZING THE CORPORATION

PROMOTERS

CAGAYAN FISHING DEVELOPMENT VS. SANDIKO (65 PHIL 223, 1937)

LAUREL, J.:

This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the
plaintiff's complaint. Manuel Tabora is the registered owner of four parcels of land situated in the barrio of
Linao, town of Aparri, Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land
records of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee the payment of a loan in the
sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National Bank a first
mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in
April of 1930 executed by Tabora over the same lands to guarantee the payment of another-loan amounting to
P7,000. A third mortgage on the same lands was executed on April 16, 1930 in favor of Severina Buzon to
whom Tabora was indebted in the sum of P2,900. These mortgages were registered and annotations thereof
appear at the back of transfer certificate of title.No. 217.

On May 31, 1930, Tabora executed a public document entitled "Escritura de Traspaso de Propiedad Inmueble"
(Exhibit A) by virtue of which the four parcels of land owned, by him were sold to the plaintiff company, said to
be under process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of the
Philippine National Bank and Severina Buzon and, to the condition that the certificate of title to said lands shall
not be transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora's
indebtedness to the Philippine National Bank.

The plaintiff company filetfits articles of incorporation with the Bureau of Commerce and Industry' on October
22, 1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of the said company adopted a
resolution (Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of land in question to
Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of
sale executed before a notary public by the terms of which the plaintiff sold, ceded and transferred to the
defendant all its rights, titles and interest in and to the four parcels of land described in transfer certificate of
title No. 217 for P25,300; and the defendant in turn obligated himself to shoulder the three mortgages
hereinbefore referred to. Exhibit C is a promissory note for P25,300 drawn by the defendant in favor of the
plaintiff, payable after one year from the date thereof. Exhibit D is a deed of mortgage executed before a notary
public in accordance with which the four parcels of land were given as security for the payment of the
promissory note, Exhibit C. All these three instruments were dated February 15, 1932.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934,
brought this action in the Court of First Instance of Manila praying that judgment be rendered against the
defendant for the sum of P25,300, with interest at the legal rate from the date of the filing of the complaint, and
the costs of the suit. After trial, the court below, on December 18, 19C4, rendered judgment absolving the
defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which
motion was denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff
has appealed to this court and makes an assignment of various errors.
In dismissing the complaint against the defendant, the court below reached the conclusion that Exhibit B is
invalid because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have
however voted to affirm the judgment appealed from for reasons which we shall presently state.

The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was effected on
May 31, 1930 (Exhibit A) and the actual incorporation of said company was effected later on October 22, 1930
(Exhibit 2). In other words, the transfer was made almost five months before the incorporation of the company.
Unquestionably, a duly organized corporation has the power to purchase and hold such real property as the
purposes for which such corporation was formed may permit and for this purpose may enter into such
contracts as may be necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). But before a corporation
may be said to be lawfully organized, many things have to be done. Among other things, the law requires the
riling of articles of incorporation (sees. 6 et seq., Act No. 1459). Although there is a presumption that all the
requirements of law have been complied with (sec. 334, par. 31, Code of Civil Procedure), in the case before
us it can not be denied that the plaintiff was not yet incorporated when it entered into/the contract of sale,
Exhibit A. The contract itself referred to the plaintiff as "una sociedad en vias de incrporacion." It was not even
a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to
enter into the contract.

"Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As
has already been stated, general laws authorizing the formation of corporations are general offers to any
persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the
statute, or certain acts are required to be done, they are terms of the offer, and must be complied with
substantially before legal corporate existence can be acquired." (14 C. J., sec. 111, p. 118.)

"That a corporation should have a full and complete organization and existence as an, entity before it can enter
into any kind of a contract or transact any business, would seem to be self evident. * * * A corporation, until
organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power
to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is
not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a
complete existence." (Gent vs. Manufacturers and Merchants' Mutual Insurance Company, 107 I11., 652, 658.)

Boiled down to its naked reality, the contract here (Exhibit A) was entered into not only between Manuel
Tabora and a non-existent corporation but between Manuel Tabora as owner of four parcels of land on the one
hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporation on the other hand.
For reasons that are self-evident, these promoters could neft have acted as agents for a projected corporation
sinceri;hat which had no legal existence could have no agent. A corporation, until organized, has no life and
therefore no faculties. It is, as it were, a child in venire sa mere. This is not saying that under no circumstances
may the acts of promoters of a corporation be ratified by the corporation if and when subsequently organized.
There are, of course, exceptions (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.)
but under the peculiar facts and circumstances of the present case we decline to extend the doctrine of
ratification which would result in the commission of Injustice or fraud to the candid and unwary. (Massachusetts
rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E., 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing
English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co. vs.
U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the
registered owner of the four parcels Of land, which he succeeded in mortgaging to the Philippine National Bank
so that he might have the necessary funds with which to convert and develop them into fishery. He appeared
to have met with financial reverses. He formed a corporation composed of himself, his wife, and a few others.
From the' articles of incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital stock
subscribed, P45,000 was subscribed by Manuel Tabora himself and P500 by his wife, Rufina Q. de Tabora;
and out of the P43,300, amount paid on subscriptions, P42,100 is made to appear as paid by Tabora and P200
by his wife. Both Tabora and his wife were directors and the latter was treasurer as well. In fact, to this day, the
lands remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner of the lands.
He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the
contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of
land, always treated Tabora as the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and
38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of
attachment against the four parcels of land was issued. The Philippine National Bank threatened to foreclose
its mortgages. Tabora • approached the defendant Sandiko and succeeded in making him sign Exhibits B, C,
and D and in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine
National Bank. The promissory note, Exhibit C, was made payable to the plaintiff company so that it may not
be attached by Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of
land.

If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it
did not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.

Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan
Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition
precedent (condition suspensiva), namely, the payment of a mortgage debt of the said Tabora to the Philippine
National Bank, and that this condition not having been complied with by the Cagayan Fishing Development
Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696;
Manresa, vol. 8, p. 141.) However, having arrived at the conclusion that the transfer by Manuel Tabora to the
Cagayan Fishing Development Company, Inc. was null because at the time it was effected the corporation was
non-existent, we deem it unnecessary to discuss this point.

The decision of the lower court is accordingly affirmed, with costs against the appellant. So ordered.
RIZAL LIGHT & ICE CO. VS. MUNICIPALITY, 25 SCRA 285 (1968) CHECK IF THIS IS CORRECT

ZALDIVAR, J.:

These two cases, being interrelated, are decided together.

Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review and set aside the orders of
respondent Public Service Commission, 1 dated August 20, 1962, and February 15, 1963, in PSC Case No.
39716, cancelling and revoking the certificate of public convenience and necessity and forfeiting the franchise
of said petitioner. In the same petition, the petitioner prayed for the issuance of a writ of preliminary injunction
ex parte suspending the effectivity of said orders and/or enjoining respondents Commission and/or Municipality
of Morong, Rizal, from enforcing in any way the cancellation and revocation of petitioner's franchise and
certificate of public convenience during the pendency of this appeal. By resolution of March 12, 1963, this
Court denied the petition for injunction, for lack of merit.

Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set aside the decision
of the Commission dated March 13, 1963 in PSC Case No. 62-5143 granting a certificate of public
convenience and necessity to respondent Morong Electric Co., Inc. 2 to operate an electric light, heat and
power service in the municipality of Morong, Rizal. In the petition Rizal Light & Ice Co., Inc. also prayed for the
issuance of a writ of preliminary injunction ex parte suspending the effectivity of said decision. Per resolution of
this Court, dated May 6, 1963, said petition for injunction was denied.

The facts, as they appear in the records of both cases, are as follows:

Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. On
August 15, 1949, it was granted by the Commission a certificate of public convenience and necessity for the
installation, operation and maintenance of an electric light, heat and power service in the municipality of
Morong, Rizal.

In an order dated December 19, 1956, the Commission required the petitioner to appear before it on February
18, 1957 to show cause why it should not be penalized for violation of the conditions of its certificate of public
convenience and the regulations of the Commission, and for failure to comply with the directives to raise its
service voltage and maintain them within the limits prescribed in the Revised Order No. 1 of the Commission,
and to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular time of the generating
unit. 3

For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered the
cancellation and revocation of petitioner's certificate of public convenience and necessity and the forfeiture of
its franchise. Petitioner moved for reconsideration of said order on the ground that its manager, Juan D.
Francisco, was not aware of said hearing. Respondent municipality opposed the motion alleging that petitioner
has not rendered efficient and satisfactory service and has not complied with the requirements of the
Commission for the improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera,
Chief, Industrial Division of the Commission, was authorized to conduct the hearing for the reception of the
evidence of the parties. 4
Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 — the sole basis of
the revocation of petitioner's certificate — was really due to the illness of its manager, Juan D. Francisco, the
Commission set aside its order of revocation. Respondent municipality moved for reconsideration of this order
of reinstatement of the certificate, but the motion was denied.

In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the
Commission to revoke petitioner's certificate of public convenience and to forfeit its franchise on the ground,
among other things, that it failed to comply with the conditions of said certificate and franchise. Said petition
was set for hearing jointly with the order to show cause. The hearings had been postponed several times.

Meanwhile, inspections had been made of petitioner's electric plant and installations by the engineers of the
Commission, as follows: April 15, 1958 by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960,
and June 21-24, 1961, by Engineer Meliton S. Martinez. The inspection on June 21-24, 1961 was made upon
the request of the petitioner who manifested during the hearing on December 15, 1960 that improvements
have been made on its service since the inspection on July 12-13, 1960, and that, on the basis of the
inspection report to be submitted, it would agree to the submission of the case for decision without further
hearing.

When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent municipality was
then allowed to present its documentary evidence, and thereafter the case was submitted for decision.

On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been furnished
with a copy of the report of the June 21-24, 1961 inspection for it to reply as previously agreed. In an order
dated August 25, 1961, petitioner was granted a period of ten (10) days within which to submit its written reply
to said inspection report, on condition that should it fail to do so within the said period the case would be
considered submitted for decision. Petitioner failed to file the reply. In consonance with the order of August 25,
1961, therefore, the Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was
burned.

In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its
aforenamed engineers, found that the petitioner had failed to comply with the directives contained in its letters
dated May 21, 1954 and September 4, 1954, and had violated the conditions of its certificate of public
convenience as well as the rules and regulations of the Commission. The Commission concluded that the
petitioner "cannot render the efficient, adequate and satisfactory electric service required by its certificate and
that it is against public interest to allow it to continue its operation." Accordingly, it ordered the cancellation and
revocation of petitioner's certificate of public convenience and the forfeiture of its franchise.

On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its electric
plant was burned on July 29, 1962, its service was greatly improved and that it had still existing investment
which the Commission should protect. But eight days before said motion for reconsideration was filed, or on
September 10, 1962, Morong Electric, having been granted a municipal franchise on May 6, 1962 by
respondent municipality to install, operate and maintain an electric heat, light and power service in said
municipality — approved by the Provincial Board of Rizal on August 31, 1962 — filed with the Commission an
application for a certificate of public convenience and necessity for said service. Said application was entitled
"Morong Electric Co., Inc., Applicant", and docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong Electric, alleging among other things, that it is a holder
of a certificate of public convenience to operate an electric light, heat and power service in the same
municipality of Morong, Rizal, and that the approval of said application would not promote public convenience,
but would only cause ruinous and wasteful competition. Although the opposition is dated October 6, 1962, it
was actually received by the Commission on November 8, 1962, or twenty four days after the order of general
default was issued in open court when the application was first called for hearing on October 15, 1962. On
November 12, 1962, however, the petitioner filed a motion to lift said order of default. But before said motion
could be resolved, petitioner filed another motion, dated January 4, 1963, this time asking for the dismissal of
the application upon the ground that applicant Morong Electric had no legal personality when it filed its
application on September 10, 1962, because its certificate of incorporation was issued by the Securities and
Exchange Commission only on October 17, 1962. This motion to dismiss was denied by the Commission in a
formal order issued on January 17, 1963 on the premise that applicant Morong Electric was a de facto
corporation. Consequently, the case was heard on the merits and both parties presented their respective
evidence. On the basis of the evidence adduced, the Commission, in its decision dated March 13, 1963, found
that there was an absence of electric service in the municipality of Morong and that applicant Morong Electric,
a Filipino-owned corporation duly organized and existing under the laws of the Philippines, has the financial
capacity to maintain said service. These circumstances, considered together with the denial of the motion for
reconsideration filed by petitioner in Case No. 39715 on February, 15, 1963, such that as far as the
Commission was concerned the certificate of the petitioner was already declared revoked and cancelled, the
Commission approved the application of Morong Electric and ordered the issuance in its favor of the
corresponding certificate of public convenience and necessity.1awphîl.nèt

On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715 (now G.
R. No. L-20993). Then on April 26, 1963, petitioner also filed a petition to review the decision in Case No. 62-
5143 (now G. R. No. L-21221).

In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that the
Commission acted without or in excess of its jurisdiction when it delegated the hearing of the case and the
reception of evidence to Mr. Pedro S. Talavera who is not allowed by law to hear the same; (2) that the
cancellation of petitioner's certificate of public convenience was unwarranted because no sufficient evidence
was adduced against the petitioner and that petitioner was not able to present evidence in its defense; (3) that
the Commission failed to give protection to petitioner's investment; and (4) that the Commission erred in
imposing the extreme penalty of revocation of the certificate.

In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred in denying
petitioner's motion to dismiss and proceeding with the hearing of the application of the Morong Electric; (2) that
the Commission erred in granting Morong Electric a certificate of public convenience and necessity since it is
not financially capable to render the service; (3) that the Commission erred when it made findings of facts that
are not supported by the evidence adduced by the parties at the trial; and (4) that the Commission erred when
it did not give to petitioner protection to its investment — a reiteration of the third assignment of error in the
other case.1awphîl.nèt

We shall now discuss the appeals in these two cases separately.

G.R. No. L-20993

1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who conducted the
hearings of the case below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth
Act No. 146, as amended, the Commission should not have delegated to him the authority to conduct the
hearings for the reception of evidence of the parties.

We find that, really, Mr. Talavera is not a lawyer. 5 Under the second paragraph of Section 32 of
Commonwealth Act No. 146, as amended, 6 the Commission can only authorize a division chief to hear and
investigate a case filed before it if he is a lawyer. However, the petitioner is raising this question for the first
time in this appeal. The record discloses that petitioner never made any objection to the authority of Mr.
Talavera to hear the case and to receive the evidence of the parties. On the contrary, we find that petitioner
had appeared and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings
relative to the motion for reconsideration of the order of February 18, 1957 cancelling and revoking its
certificate. We also find that, through counsel, petitioner had entered into agreements with Mr. Talavera, as
hearing officer, and the counsel for respondent municipality, regarding procedure in order to abbreviate the
proceedings. 7 It is only after the decision in the case turned out to be adverse to it that petitioner questioned
the proceedings held before Mr. Talavera.

This Court in several cases has ruled that objection to the delegation of authority to hear a case filed before the
Commission and to receive the evidence in connection therewith is a procedural, not a jurisdictional point, and
is waived by failure to interpose timely the objection and the case had been decided by the Commission. 8
Since petitioner has never raised any objection to the authority of Mr. Talavera before the Commission, it
should be deemed to have waived such procedural defect, and consonant with the precedents on the matter,
petitioner's claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera
should be dismissed. 9

2. Anent the second assigned error, the gist of petitioner's contention is that the evidence — consisting of
inspection reports — upon which the Commission based its decision is insufficient and untrustworthy in that (1)
the authors of said reports had not been put to test by way of cross-examination; (2) the reports constitute only
one side of the picture as petitioner was not able to present evidence in its defense; (3) judicial notice was not
taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, in PSC Case No.
625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had improved its service before its
electric power plant was burned on July 29, 1962 — which testimony contradicts the inspection reports; and (4)
the Commission acted both as prosecutor and judge — passing judgment over the very same evidence
presented by it as prosecutor — a situation "not conducive to the arrival at just and equitable decisions."

Settled is the rule that in reviewing the decision of the Public Service Commission this Court is not required to
examine the proof de novo and determine for itself whether or not the preponderance of evidence really
justifies the decision. The only function of this Court is to determine whether or not there is evidence before the
Commission upon which its decision might reasonably be based. This Court will not substitute its discretion for
that of the Commission on questions of fact and will not interfere in the latter's decision unless it clearly
appears that there is no evidence to support it. 10 Inasmuch as the only function of this Court in reviewing the
decision of the Commission is to determine whether there is sufficient evidence before the Commission upon
which its decision can reasonably be based, as it is not required to examine the proof de novo, the evidence
that should be made the basis of this Court's determination should be only those presented in this case before
the Commission. What then was the evidence presented before the Commission and made the basis of its
decision subject of the present appeal? As stated earlier, the Commission based its decision on the inspection
reports submitted by its engineers who conducted the inspection of petitioner's electric service upon orders of
the Commission. 11 Said inspection reports specify in detail the deficiencies incurred, and violations
committed, by the petitioner resulting in the inadequacy of its service. We consider that said reports are
sufficient to serve reasonably as bases of the decision in question. It should be emphasized, in this connection
that said reports, are not mere documentary proofs presented for the consideration of the Commission, but are
the results of the Commission's own observations and investigations which it can rightfully take into
consideration, 12 particularly in this case where the petitioner had not presented any evidence in its defense,
and speaking of petitioner's failure to present evidence, as well as its failure to cross-examine the authors of
the inspection reports, petitioner should not complain because it had waived not only its right to cross-examine
but also its right to present evidence. Quoted hereunder are the pertinent portions of the transcripts of the
proceedings where the petitioner, through counsel, manifested in clear language said waiver and its decision to
abide by the last inspection report of Engineer Martinez:

Proceedings of December 15, 1960

COMMISSION:

It appears at the last hearing of this case on September 23, 1960, that an engineer of this Commission has
been ordered to make an inspection of all electric services in the province of Rizal and on that date the
engineer of this Commission is still undertaking that inspection and it appears that the said engineer had
actually made that inspection on July 12 and 13, 1960. The engineer has submitted his report on November
18, 1960 which is attached to the records of this case.

ATTY. LUQUE (Councel for Petitioner):

... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very thorough, it
was made sometime July of this year and I understand from the respondent that there is some improvement
since this report was made ... we respectfully request that an up-to-date inspection be made ... . An inspector
of this Commission can be sent to the plant and considering that the engineer of this Commission, Engineer
Meliton Martinez, is very acquainted to the points involved we pray that his report will be used by us for the
reason that he is a technical man and he knows well as he has done a good job and I think our proposition
would expedite the matter. We sincerely believe that the inspection report will be the best evidence to decide
this matter.

xxx xxx xxx

ATTY. LUQUE:

... This is a very important matter and to show the good faith of respondent in this case we will not even cross-
examine the engineer when he makes a new report. We will agree to the findings and, your honor please,
considering as we have manifested before that Engineer Martinez is an experienced engineer of this
Commission and the points reported by Engineer Martinez on the situation of the plant now will prevent the
necessity of having a hearing, of us bringing new evidence and complainant bringing new evidence. ... .

xxx xxx xxx

COMMISSION (to Atty. Luque):

Q Does the Commission understand from the counsel for applicant that if the motion is granted he will
submit this order to show cause for decision without any further hearing and the decision will be based on the
report of the engineer of this Commission?

A We respectfully reply in this manner that we be allowed or be given an opportunity just to read the
report and 99%, we will agree that the report will be the basis of that decision. We just want to find out the
contents of the report, however, we request that we be furnished with a copy of the report before the hearing
so that we will just make a manifestation that we will agree.

COMMISSION (to Atty. Luque):

Q In order to prevent the delay of the disposition of this case the Commission will allow counsel for the
applicant to submit his written reply to the report that the engineer of this Commission. Will he submit this case
without further hearing upon the receipt of that written reply?

A Yes, your honor.

Proceedings of August 25, 1961

ATTY. LUQUE (Counsel for petitioner):

In order to avoid any delay in the consideration of this case we are respectfully move (sic) that instead of our
witnesses testifying under oath that we will submit a written reply under oath together with the memorandum
within fifteen (15) days and we will furnish a copy and upon our submission of said written reply under oath and
memorandum we consider this case submitted. This suggestion is to abbreviate the necessity of presenting
witnesses here which may prolong the resolution of this case.

ATTY. OLIVAS (Counsel for respondent municipality):

I object on the ground that there is no resolution by this Commission on the action to reopen the case and
second this case has been closed.

ATTY. LUQUE:
With regard to the testimony on the ground for opposition we respectfully submit to this Commission our motion
to submit a written reply together with a memorandum. Also as stated to expedite the case and to avoid further
hearing we will just submit our written reply. According to our records we are furnished with a copy of the report
of July 17, 1961. We submit your honor.

xxx xxx xxx

COMMISSION:

To give applicant a chance to have a day in court the Commission grants the request of applicant that it be
given 10 days within which to submit a written reply on the report of the engineer of the Commission who
inspected the electric service, in the municipality of Morong, Rizal, and after the submission of the said written
reply within 10 days from today this case will be considered submitted for decision.

The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to the
inspection report of Engineer Martinez as the "best evidence to decide this matter," can serve as an argument
against petitioner's claim that the Commision should have taken into consideration the testimony of Mr.
Bernardino. But the primary reasons why the Commission could not have taken judicial cognizance of said
testimony are: first, it is not a proper subject of judicial notice, as it is not a "known" fact — that is, well
established and authoritatively settled, without qualification and contention; 13 second, it was given in a
subsequent and distinct case after the petitioner's motion for reconsideration was heard by the Commission en
banc and submitted for decision, 14 and third, it was not brought to the attention of the Commission in this
case through an appropriate pleading. 15

Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge, it should
be considered that there are two matters that had to be decided in this case, namely, the order to show cause
dated December 19, 1956, and the petition or complaint by respondent municipality dated June 25, 1958. Both
matters were heard jointly, and the record shows that respondent municipality had been allowed to present its
evidence to substantiate its complaint. It can not be said, therefore, that in this case the Commission had acted
as prosecutor and judge. But even assuming, for the sake of argument, that there was a commingling of the
prosecuting and investigating functions, this exercise of dual function is authorized by Section 17(a) of
Commonwealth Act No. 146, as amended, under which the Commission has power "to investigate, upon its
own initiative or upon complaint in writing, any matter concerning any public service as regards matters under
its jurisdiction; to, require any public service to furnish safe, adequate, and proper service as the public interest
may require and warrant; to enforce compliance with any standard, rule, regulation, order or other requirement
of this Act or of the Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P.
Buan, L-11438, July 31, 1958, this Court held that the power of the Commission to cancel and revoke a
certificate of public convenience and necessity may be exercised by it even without a formal charge filed by
any interested party, with the only limitation that the holder of the certificate should be given his day in court.

It may not be amiss to add that when prosecuting and investigating duties are delegated by statute to an
administrative body, as in the case of the Public Service Commission, said body may take steps it believes
appropriate for the proper exercise of said duties, particularly in the manner of informing itself whether there is
probable violation of the law and/or its rules and regulations. It may initiate an investigation, file a complaint,
and then try the charge as preferred. So long as the respondent is given a day in court, there can be no denial
of due process, and objections to said procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by this Court
in Batangas Transportation Co. vs. Orlanes 16 in this wise:

The Government having taken over the control and supervision of all public utilities, so long as an operator
under a prior license complies with the terms and conditions of his license and reasonable rules and
regulations for its operation and meets the reasonable demands of the public, it is the duty of the Commission
to protect rather than to destroy his investment by the granting of the second license to another person for the
same thing over the same route of travel. The granting of such a license does not serve its convenience or
promote the interests of the public.

The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a franchise or a
certificate of public convenience. 17 Where, as in the present case, it has been shown by ample evidence that
the petitioner, despite ample time and opportunity given to it by the Commission, had failed to render
adequate, sufficient and satisfactory service and had violated the important conditions of its certificate as well
as the directives and the rules and regulations of the Commission, the rule cannot apply. To apply that rule
unqualifiedly is to encourage violation or disregard of the terms and conditions of the certificate and the
Commission's directives and regulations, and would close the door to other applicants who could establish,
operate and provide adequate, efficient and satisfactory service for the benefit and convenience of the
inhabitants. It should be emphasized that the paramount consideration should always be the public interest
and public convenience. The duty of the Commission to protect investment of a public utility operator refers
only to operators of good standing — those who comply with the laws, rules and regulations — and not to
operators who are unconcerned with the public interest and whose investments have failed or deteriorated
because of their own fault. 18

4. The last assignment of error assails the propriety of the penalty imposed by the Commission on the
petitioner — that is, the revocation of the certificate and the forfeiture of the franchise. Petitioner contends that
the imposition of a fine would have been sufficient, as had been done by the Commission in cases of a similar
nature.

It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the
Commission ample power and discretion to order the cancellation and revocation of any certificate of public
convenience issued to an operator who has violated, or has willfully and contumaciously refused to comply
with, any order, rule or regulation of the Commission or any provision of law. What matters is that there is
evidence to support the action of the Commission. In the instant case, as shown by the evidence, the
contumacious refusal of the petitioner since 1954 to comply with the directives, rules and regulations of the
Commission, its violation of the conditions of its certificate and its incapability to comply with its commitment as
shown by its inadequate service, were the circumstances that warranted the action of the Commission in not
merely imposing a fine but in revoking altogether petitioner's certificate. To allow petitioner to continue its
operation would be to sacrifice public interest and convenience in favor of private interest.

A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and
such privilege is forfeited when the grantee fails to comply with his commitments behind which lies the
paramount interest of the public, for public necessity cannot be made to wait, nor sacrificed for private
convenience. (Collector of Internal Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano,
et al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... has the power to specify and define the terms and conditions upon which
the public utility shall be operated, and to make reasonable rules and regulations for its operation and the
compensation which the utility shall receive for its services to the public, and for any failure to comply with such
rules and regulations or the violation of any of the terms and conditions for which the license was granted, the
Commission has ample power to enforce the provisions of the license or even to revoke it, for any failure or
neglect to comply with any of its terms and provisions. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455, 460;
emphasis supplied)

Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended, which provides
that a public utility operator violating or failing to comply with the terms and conditions of any certificate, or any
orders, decisions or regulations of the Commission, shall be subject to a fine and that the Commission is
authorized and empowered to impose such fine, after due notice and hearing. It should be noted, however, that
the last sentence of said section states that the remedy provided therein "shall not be a bar to, or affect any
other remedy provided in this Act but shall be cumulative and additional to such remedy or remedies." In other
words, the imposition of a fine may only be one of the remedies which the Commission may resort to, in its
discretion. But that remedy is not exclusive of, or has preference over, the other remedies. And this Court will
not substitute its discretion for that of the Commission, as long as there is evidence to support the exercise of
that discretion by the Commission.

G. R. No. L-21221

Coming now to the other case, let it be stated at the outset that before any certificate may be granted,
authorizing the operation of a public service, three requisites must be complied with, namely: (1) the applicant
must be a citizen of the Philippines or of the United States, or a corporation or co-partnership, association or
joint-stock company constituted and organized under the laws of the Philippines, sixty per centum at least of
the stock or paid-up capital of which belongs entirely to citizens of the Philippines or of the United States; 19
(2) the applicant must be financially capable of undertaking the proposed service and meeting the
responsibilities incident to its operation; 20 and (3) the applicant must prove that the operation of the public
service proposed and the authorization to do business will promote the public interest in a proper and suitable
manner. 21

As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a corporation
duly organized and existing under the laws of the Philippines, the stockholders of which are Filipino citizens,
that it is financially capable of operating an electric light, heat and power service, and that at the time the
decision was rendered there was absence of electric service in Morong, Rizal. While the petitioner does not
dispute the need of an electric service in Morong, Rizal, 22 it claims, in effect, that Morong Electric should not
have been granted the certificate of public convenience and necessity because (1) it did not have a corporate
personality at the time it was granted a franchise and when it applied for said certificate; (2) it is not financially
capable of undertaking an electric service, and (3) petitioner was rendering efficient service before its electric
plant was burned, and therefore, being a prior operator its investment should be protected and no new party
should be granted a franchise and certificate of public convenience and necessity to operate an electric service
in the same locality.

1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that
since a franchise is a contract, 23 at least two competent parties are necessary to the execution thereof, and
parties are not competent except when they are in being. Hence, it is contended that until a corporation has
come into being, in this jurisdiction, by the issuance of a certificate of incorporation by the Securities and
Exchange Commission (SEC) it cannot enter into any contract as a corporation. The certificate of incorporation
of the Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it
acquire juridical personality and legal existence. Petitioner concludes that the franchise granted to Morong
Electric on May 6, 1962 when it was not yet in esse is null and void and cannot be the subject of the
Commission's consideration. On the other hand, Morong Electric argues, and to which argument the
Commission agrees, that it was a de facto corporation at the time the franchise was granted and, as such, it
was not incapacitated to enter into any contract or to apply for and accept a franchise. Not having been
incapacitated, Morong Electric maintains that the franchise granted to it is valid and the approval or disapproval
thereof can be properly determined by the Commission.

Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a
municipal franchise was granted to it is correct. The juridical personality and legal existence of Morong Electric
began only on October 17, 1962 when its certificate of incorporation was issued by the SEC. 24 Before that
date, or pending the issuance of said certificate of incorporation, the incorporators cannot be considered as de
facto corporation. 25 But the fact that Morong Electric had no corporate existence on the day the franchise was
granted in its name does not render the franchise invalid, because later Morong Electric obtained its certificate
of incorporation and then accepted the franchise in accordance with the terms and conditions thereof. This
view is sustained by eminent American authorities. Thus, McQuiuin says:

The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to
use the streets does not, in most jurisdictions, affect the validity of the grant. But such grant cannot take effect
until the corporation is organized. And in Illinois it has been decided that the ordinance granting the franchise
may be presented before the corporation grantee is fully organized, where the organization is completed
before the passage and acceptance. (McQuillin, Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec.
34.21)

Fletcher says:

While a franchise cannot take effect until the grantee corporation is organized, the franchise may,
nevertheless, be applied for before the company is fully organized.

A grant of a street franchise is valid although the corporation is not created until afterwards. (Fletcher,
Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec. 2881)

And Thompson gives the reason for the rule:

(I)n the matter of the secondary franchise the authorities are numerous in support of the proposition that an
ordinance granting a privilege to a corporation is not void because the beneficiary of the ordinance is not fully
organized at the time of the introduction of the ordinance. It is enough that organization is complete prior to the
passage and acceptance of the ordinance. The reason is that a privilege of this character is a mere license to
the corporation until it accepts the grant and complies with its terms and conditions. (Thompson on
Corporations, Vol. 4, 3rd Ed., Sec. 2929) 26

The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its
action in prosecuting the application filed with the Commission for the approval of said franchise, not only
perfected a contract between the respondent municipality and Morong Electric but also cured the deficiency
pointed out by the petitioner in the application of Morong EIectric. Thus, the Commission did not err in denying
petitioner's motion to dismiss said application and in proceeding to hear the same. The efficacy of the
franchise, however, arose only upon its approval by the Commission on March 13, 1963. The reason is that —

Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant electric
franchises, subject to the approval of the provincial board and the President. However, under Section 16(b) of
Commonwealth Act No. 146, as amended, the Public Service Commission is empowered "to approve, subject
to constitutional limitations any franchise or privilege granted under the provisions of Act No. 667, as amended
by Act No. 1022, by any political subdivision of the Philippines when, in the judgment of the Commission, such
franchise or privilege will properly conserve the public interests and the Commission shall in so approving
impose such conditions as to construction, equipment, maintenance, service, or operation as the public
interests and convenience may reasonably require, and to issue certificates of public convenience and
necessity when such is required or provided by any law or franchise." Thus, the efficacy of a municipal electric
franchise arises, therefore, only after the approval of the Public Service Commission. (Almendras vs. Ramos,
90 Phil. 231) .

The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not
incompatible with the holding of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko 27
upon which the petitioner leans heavily in support of its position. In said case this Court held that a corporation
should have a full and complete organization and existence as an entity before it can enter into any kind of a
contract or transact any business. It should be pointed out, however, that this Court did not say in that case
that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be ratified
or accepted by the corporation if and when subsequently organized. Of course, there are exceptions. It will be
noted that American courts generally hold that a contract made by the promoters of a corporation on its behalf
may be adopted, accepted or ratified by the corporation when organized. 28

2. The validity of the franchise and the corporate personality of Morong Electric to accept the same having
been shown, the next question to be resolved is whether said company has the financial qualification to
operate an electric light, heat and power service. Petitioner challenges the financial capability of Morong
Electric, by pointing out the inconsistencies in the testimony of Mr. Jose P. Ingal, president of said company,
regarding its assets and the amount of its initial investment for the electric plant. In this connection it should be
stated that on the basis of the evidence presented on the matter, the Commission has found the Morong
Electric to be "financially qualified to install, maintain and operate the proposed electric light, heat and power
service." This is essentially a factual determination which, in a number of cases, this Court has said it will not
disturb unless patently unsupported by evidence. An examination of the record of this case readily shows that
the testimony of Mr. Ingal and the documents he presented to establish the financial capability of Morong
Electric provide reasonable grounds for the above finding of the Commission.

It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact made by the Public
Service Commission, after weighing the evidence adduced by the parties in a public service case, will not be
disturbed by the Supreme Court unless those findings and conclusions appear not to be reasonably supported
by evidence. (La Mallorca and Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965)

For purposes of appeal, what is decisive is that said testimonial evidence provides reasonable support for the
Public Service Commission's findings of financial capacity on the part of applicants, rendering such findings
beyond our power to disturb. (Del Pilar Transit vs. Silva, L-21547, July 15, 1966)
It may be worthwhile to mention in this connection that per inspection report dated January 20, 1964 29 of Mr.
Meliton Martinez of the Commission, who inspected the electric service of Morong on January 15-16, 1964,
Morong Electric "is serving electric service to the entire area covered by its approved plan and has constructed
its line in accordance with the plans and specifications approved by the Commission." By reason thereof, it
was recommended that the requests of Morong Electric (1) for the withdrawal of its deposit in the amount of
P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal
Council of Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit mentioned in
its petition, dated September 16, 1963, be granted. This report removes any doubt as to the financial capability
of Morong Electric to operate and maintain an electric light, heat and power service.

3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be resolved is
whether, or not, the findings of fact of the Commission regarding petitioner's service are supported by
evidence. It is the contention of the petitioner that the Commission made some findings of fact prejudicial to its
position but which do not find support from the evidence presented in this case. Specifically, petitioner refers to
the statements or findings that its service had "turned from bad to worse," that it miserably failed to comply with
the oft-repeated promises to bring about the needed improvement, that its equipment is unserviceable, and
that it has no longer any plant site and, therefore, has discredited itself. Petitioner further states that such
statements are not only devoid of evidentiary support but contrary to the testimony of its witness, Mr. Harry
Bernardino, who testified that petitioner was rendering efficient and satisfactory service before its electric plant
was burned on July 29, 1962.

On the face of the decision appealed from, it is obvious that the Commission in describing the kind of service
petitioner was rendering before its certificate was ordered revoked and cancelled, took judicial notice of the
records of the previous case (PSC Case No. 39715) where the quality of petitioner's service had been squarely
put in issue. It will be noted that the findings of the Commission were made notwithstanding the fact that the
aforementioned testimony of Mr. Bernardino had been emphasized and pointed out in petitioner's
Memorandum to the Commission. 30 The implication is simple: that as between the testimony of Mr.
Bernardino and the inspection reports of the engineers of the Commission, which served as the basis of the
revocation order, the Commission gave credence to the latter. Naturally, whatever conclusion or finding of fact
that the Commission arrived at regarding the quality of petitioner's service are not borne out by the evidence
presented in this case but by evidence in the previous case. 31 In this connection, we repeat, the conclusion,
arrived at by the Commission after weighing the conflicting evidence in the two related cases, is a conclusion
of fact which this Court will not disturb.

And it has been held time and again that where the Commission has reached a conclusion of fact after
weighing the conflicting evidence, that conclusion must be respected, and the Supreme Court will not interfere
unless it clearly appears that there is no evidence to support the decision of the Commission. (La Mallorca and
Pampanga Bus Co., Inc. vs. Mercado, L-19120, November 29, 1965 citing Pangasinan Trans. Co., Inc. vs.
Dela Cruz, 96 Phil. 278)

For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in Morong,
Rizal, is not tenable; and its plea for protection of its investment, as in the previous case, cannot be
entertained.

WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as they are
hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered.
CARAM, JR. VS. CA, 151 SCRA 372 (1987)

CRUZ, J.:

We gave limited due course to this petition on the question of the solidary liability of the petitioners with their
co-defendants in the lower court 1 because of the challenge to the following paragraph in the dispositive
portion of the decision of the respondent court: *

1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for
the preparation of the project study and his technical services that led to the organization of the defendant
corporation, plus P10,000.00 attorney's fees; 2

The petitioners claim that this order has no support in fact and law because they had no contract whatsoever
with the private respondent regarding the above-mentioned services. Their position is that as mere subsequent
investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas
Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in the lower court,
** who were the ones who requested the said services from the private respondent. 3

We are not concerned here with the petitioners' co-defendants, who have not appealed the decision of the
respondent court and may, for this reason, be presumed to have accepted the same. For purposes of resolving
this case before us, it is not necessary to determine whether it is the promoters of the proposed corporation, or
the corporation itself after its organization, that shall be responsible for the expenses incurred in connection
with such organization.

The only question we have to decide now is whether or not the petitioners themselves are also and personally
liable for such expenses and, if so, to what extent.

The reasons for the said order are given by the respondent court in its decision in this wise:

As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the preparation of the
project study and the pre-organizational services in the amount of P50,000.00, not only the defendant
corporation but the other defendants including defendants Caram should be jointly and severally liable for this
amount. As we above related it was upon the request of defendants Barretto and Garcia that plaintiff handled
the preparation of the project study which project study was presented to defendant Caram so the latter was
convinced to invest in the proposed airlines. The project study was revised for purposes of presentation to
financiers and the banks. It was on the basis of this study that defendant corporation was actually organized
and rendered operational. Defendants Garcia and Caram, and Barretto became members of the Board and/or
officers of defendant corporation. Thus, not only the defendant corporation but all the other defendants who
were involved in the preparatory stages of the incorporation, who caused the preparation and/or benefited from
the project study and the technical services of plaintiff must be liable. 4

It would appear from the above justification that the petitioners were not really involved in the initial steps that
finally led to the incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was
described as "the moving spirit." The finding of the respondent court is that the project study was undertaken
by the private respondent at the request of Barretto and Garcia who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed airline. The study could have been presented to other
prospective investors. At any rate, the airline was eventually organized on the basis of the project study with
the petitioners as major stockholders and, together with Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth considering:

... Since defendant Barretto was the moving spirit in the pre-organization work of defendant corporation based
on his experience and expertise, hence he was logically compensated in the amount of P200,000.00 shares of
stock not as industrial partner but more for his technical services that brought to fruition the defendant
corporation. By the same token, We find no reason why the plaintiff should not be similarly compensated not
only for having actively participated in the preparation of the project study for several months and its
subsequent revision but also in his having been involved in the pre-organization of the defendant corporation,
in the preparation of the franchise, in inviting the interest of the financiers and in the training and screening of
personnel. We agree that for these special services of the plaintiff the amount of P50,000.00 as compensation
is reasonable. 5

The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the
organization of the airline, which were being directed by Barretto as the main promoter. It was he who was
putting all the pieces together, so to speak. The petitioners were merely among the financiers whose interest
was to be invited and who were in fact persuaded, on the strength of the project study, to invest in the
proposed airline.

Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not
have a separate juridical personality, to justify making the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable
for its corporate acts as duly authorized by its officers and directors.

In the light of these circumstances, we hold that the petitioners cannot be held personally liable for the
compensation claimed by the private respondent for the services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract such services. It was only the results of such services
that Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The
most that can be said is that they benefited from such services, but that surely is no justification to hold them
personally liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in
later, and regardless of the amount of their share holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.

The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is that it is
opposed to the imposition of solidary responsibility upon the Carams but seems to be willing, in a vague,
unexpressed offer of compromise, to accept joint liability. While it is true that it does here and there disclaim
total liability, the thrust of the petition seems to be against the imposition of solidary liability only rather than
against any liability at all, which is what it should have categorically argued.

Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and severally, under the
first paragraph of the dispositive portion of the challenged decision. So holding, we find it unnecessary to
examine at this time the rules on solidary obligations, which the parties-needlessly, as it turns out have
belabored unto death.

WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged decision,
which is hereby modified accordingly. It is so ordered.