Professional Documents
Culture Documents
Facts:
In March 1960, Idonah Perkins died in New York. She left behind properties here
and abroad. One property she left behind were two stock certificates covering 33,002
shares of stocks of the Benguet Consolidated, Inc (BCI). Said stock certificates were in
the possession of the Country Trust Company of New York (CTC-NY). CTC-NY was the
domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in
1963, Renato Tayag was appointed as the ancillary administrator (of the properties of
Perkins she left behind in the Philippines).
A dispute arose between CTC-NY and Tayag as to who between them is entitled
to possess the stock certificates. A case ensued and eventually, the trial court ordered
CTC-NY to turn over the stock certificates to Tayag. CTC-NY refused. Tayag then filed
with the court a petition to have said stock certificates be declared lost and to compel
BCI to issue new stock certificates in replacement thereof. The trial court granted
Tayags petition.
BCI assailed said order as it averred that it cannot possibly issue new stock
certificates because the two stock certificates declared lost are not actually lost; that the
trial court as well Tayag acknowledged that the stock certificates exists and that they are
with CTC-NY; that according to BCIs by laws, it can only issue new stock certificates, in
lieu of lost, stolen, or destroyed certificates of stocks, only after court of law has issued
a final and executory order as to who really owns a certificate of stock.
ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.
HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine
laws. It has been given rights and privileges under the law. Corollary, it also has
obligations under the law and one of those is to follow valid legal court orders. It is not
immune from judicial control because it is domiciled here in the Philippines. BCI is a
Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of
local courts. Its shares of stock cannot therefore be considered in any wise as immune
from lawful court orders. Further, to allow BCIs opposition is to render the court order
against CTC-NY a mere scrap of paper. It will leave Tayag without any remedy simply
because CTC-NY, a foreign entity refuses to comply with a valid court order. The final
recourse then is for our local courts to create a legal fiction such that the stock
certificates in issue be declared lost even though in reality they exist in the hands of
CTC-NY. This is valid. As held time and again, fictions which the law may rely upon in
the pursuit of legitimate ends have played an important part in its development.
Further still, the argument invoked by BCI that it can only issue new stock
certificates in accordance with its bylaws is misplaced. It is worth noting that CTC-NY
did not appeal the order of the court it simply refused to turn over the stock certificates
hence ownership can be said to have been settled in favor of estate of Perkins here.
Also, assuming that there really is a conflict between BCIs bylaws and the court order,
what should prevail is the lawful court order. It would be highly irregular if court orders
would yield to the bylaws of a corporation. Again, a corporation is not immune from
judicial orders.
A share of stock only typifies an aliquot part of the corporation's property, or the right to
share in its proceeds to that extent when distributed according to law and equity but its
holder is NOT the owner of any part of the capital of the corporation nor entitled to
possession .
The stockholder is not a co-owner or tenant in common of the corporate property
Pioneer
Insurance
&
Surety
Corporation
vs
Court
of
Appeals
Facts: Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965,
Lim convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and
Border Machinery and Heavy Equipment Company (BORMAHECO) to contribute funds
and to buy two aircrafts which would form part a corporation which will be the
expansion of Southern Air Lines. Maglana et al then contributed and delivered money to
Lim.
But instead of using the money given to him to pay in full the aircrafts, Lim,
without the knowledge of Maglana et al, made an agreement with Pioneer Insurance for
the latter to insure the two aircrafts which were brought in installment from Japan
Domestic Airlines (JDA) using said aircrafts as security. So when Lim defaulted from
paying JDA, the two aircrafts were foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed between Lim and
Maglana et al.
ISSUE: Whether or not Maglana et al must share in the loss as general partners.
HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to
do business through a corporation but failed to incorporate, a de facto partnership would
have been formed, and as such, all must share in the losses and/or gains of the venture
in proportion to their contribution. But in this case, it was shown that Lim did not have
the intent to form a corporation with Maglana et al. This can be inferred from acts of
unilaterally taking out a surety from Pioneer Insurance and not using the funds he got
from Maglana et al. The record shows that Lim was acting on his own and not in behalf
of his other would-be incorporators in transacting the sale of the airplanes and spare
parts.
(brother of Lim Tong Lim). They again borrowed money and they agreed to purchase
fishing nets and other fishing equipments. Now, Yao and Chua represented themselves
as acting in behalf of Ocean Quest Fishing Corporation (OQFC) they contracted with
Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to
more than P500k.
They were however unable to pay PFGI and so they were sued in their own
names because apparently OQFC is a non-existent corporation. Chua admitted liability
and asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued
that hes not liable because he was not aware that Chua and Yao represented
themselves as a corporation; that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and
Lim had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds
of the sale of the boats, and to divide equally among them the excess or loss. These
boats, the purchase and the repair of which were financed with borrowed money, fell
under the term common fund under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only
be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of
the nets found in his boats, the boat which has earlier been proven to be an asset of the
partnership. Lim, Chua and Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not preclude the liabilities of
the three as contracting parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to
be without valid existence, are held liable as general partners.
Dante Liban, et al. v. Richard Gordon, G.R. No. 175352, January 18, 2011
FACTS
Petitioners Liban, et al., who were officers of the Board of Directors of the
Quezon City Red Cross Chapter, filed with the Supreme Court what they styled
as Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the
Senate against respondent Gordon, who was elected Chairman of the Philippine
National Red Cross (PNRC) Board of Governors during his incumbency as Senator.
Petitioners alleged that by accepting the chairmanship of the PNRC Board of
Governors, respondent Gordon ceased to be a member of the Senate pursuant to Sec.
13, Article VI of the Constitution, which provides that [n]o Senator . . . may hold any
Was it correct for the Court to have passed upon and decided on the issue of the
constitutionality of the PNRC charter? Corollarily: What is the nature of the PNRC?
RULING
[The Court GRANTED reconsideration and MODIFIED the dispositive portion of
the Decision by deleting the second sentence thereof.]
NO, it was not correct for the Court to have decided on the constitutional issue
because it was not the very lis mota of the case. The PNRC is sui generis in nature; it is
neither strictly a GOCC nor a private corporation.
The issue of constitutionality of R.A. No. 95 was not raised by the parties, and
was not among the issues defined in the body of the Decision; thus, it was not the
very lis mota of the case. We have reiterated the rule as to when the Court will consider
the issue of constitutionality in Alvarez v. PICOP Resources, Inc., thus:
This Court will not touch the issue of unconstitutionality unless it is the very lis
mota. It is a well-established rule that a court should not pass upon a constitutional
question and decide a law to be unconstitutional or invalid, unless such question is
raised by the parties and that when it is raised, if the record also presents some other
ground upon which the court may [rest] its judgment, that course will be adopted and
the constitutional question will be left for consideration until such question will be
unavoidable.
[T]his Court should not have declared void certain sections of . . . the PNRC
Charter. Instead, the Court should have exercised judicial restraint on this matter,
especially since there was some other ground upon which the Court could have based
its judgment. Furthermore, the PNRC, the entity most adversely affected by this
declaration of unconstitutionality, which was not even originally a party to this case, was
being compelled, as a consequence of the Decision, to suddenly reorganize and
incorporate under the Corporation Code, after more than sixty (60) years of existence in
this country.
Since its enactment, the PNRC Charter was amended several times, particularly
on June 11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue
of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The
passage of several laws relating to the PNRCs corporate existence notwithstanding the
effectivity of the constitutional proscription on the creation of private corporations by law
is a recognition that the PNRC is not strictly in the nature of a private corporation
contemplated by the aforesaid constitutional ban.
A closer look at the nature of the PNRC would show that there is none like it[,]
not just in terms of structure, but also in terms of history, public service and official
status accorded to it by the State and the international community. There is merit in
PNRCs contention that its structure is sui generis. It is in recognition of this sui
generis character of the PNRC that R.A. No. 95 has remained valid and effective from
the time of its enactment in March 22, 1947 under the 1935 Constitution and during the
effectivity of the 1973 Constitution and the 1987 Constitution. The PNRC Charter and its
amendatory laws have not been questioned or challenged on constitutional grounds, not
even in this case before the Court now.
[T]his Court [must] recognize the countrys adherence to the Geneva Convention
and respect the unique status of the PNRC in consonance with its treaty
obligations. The Geneva Convention has the force and effect of law. Under the
Constitution, the Philippines adopts the generally accepted principles of international
law as part of the law of the land. This constitutional provision must be reconciled and
harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to
negate the former. By requiring the PNRC to organize under the Corporation Code just
like any other private corporation, the Decision of July 15, 2009 lost sight of the PNRCs
special status under international humanitarian law and as an auxiliary of the State,
designated to assist it in discharging its obligations under the Geneva Conventions.
The PNRC, as a National Society of the International Red Cross and Red
Crescent Movement, can neither be classified as an instrumentality of the State, so as
not to lose its character of neutrality as well as its independence, nor strictly as a
private corporation since it is regulated by international humanitarian law and is treated
as an auxiliary of the State.
Although [the PNRC] is neither a subdivision, agency, or instrumentality of the
government, nor a GOCC or a subsidiary thereof . . . so much so that respondent, under
the Decision, was correctly allowed to hold his position as Chairman thereof
concurrently while he served as a Senator, such a conclusion does not ipso facto imply
that the PNRC is a private corporation within the contemplation of the provision of the
Constitution, that must be organized under the Corporation Code. [T]he sui
generis character of PNRC requires us to approach controversies involving the PNRC
on a case-to-case basis.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of
the government in the humanitarian field in accordance with its commitments under
international law. This Court cannot all of a sudden refuse to recognize its existence,
especially since the issue of the constitutionality of the PNRC Charter was never raised
by the parties. It bears emphasizing that the PNRC has responded to almost all
national disasters since 1947, and is widely known to provide a substantial portion of
the countrys blood requirements. Its humanitarian work is unparalleled. The Court
should not shake its existence to the core in an untimely and drastic manner that would
not only have negative consequences to those who depend on it in times of disaster
and armed hostilities but also have adverse effects on the image of the Philippines in
the international community. The sections of the PNRC Charter that were declared void
must therefore stay.
[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court
MODIFIED the dispositive portion of the Decision by deleting the second sentence, to
now read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine
National Red Cross is not a government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987
Constitution.]
A corporation can act only through its officers and agents and where the
business itself involves a violation of the law, the correct rule is that all who participate in
it = liable
P71,023.60 under a trust receipt agreement. Said sheets were consigned to the
Continental Bank, under the express obligation on the part of Sia of holding the sheets
in trust and selling them and turning over the proceeds to the bank. Sia, however,
allegedly failed and refused to return the sheets or account for the proceeds thereof if
sold, converting it to his own personal use and benefit. Continental Bank filed a
complaint for estafa against Sia. The trial court and CA ruled against Sia.
Issue: Whether or not Sia, acting as President of MMCP, may be held liable for estafa
Held: Sia was acquitted. CA decision is reversed.
An officer of a corporation can be held criminally liable for acts or omissions done
in behalf of the corporation only where the law directly requires the corporation to do an
act in a given manner. In he absence of a law making a corporate officer liable for
a criminal offense committed by the corporation, the existence of the criminal liability of
he former may not be said to be beyond doubt. Hence in the absence of
an express provision of law making Sia liable for the offense done by MMCP of which
he is President, as in fact there is no such provision under the Revised Penal Code, Sia
cannot be said to be liable for estafa.
When the trust receipts matured, Ching failed to return the goods to RCBC, or to
return their value amounting toP6,940,280.66 despite demands.
RCBC filed a criminal complaint for estafa against petitioner in the Office of the
City Prosecutor of Manila.
December 8, 1995: no probable cause to charge petitioner with violating P.D. No.
115, as petitioners liability was only civil, not criminal, having signed the trust receipts
as surety
RCBC appealed the resolution to the Department of Justice (DOJ) via petition for
review
On July 13, 1999: reversed the assailed resolution of the City Prosecutor
Execution of said receipts is enough to indict the Ching as the official responsible
for violation of P.D. No. 115
April 22, 2004: CA dismissed the petition for lack of merit and on procedural
grounds
Ching filed a petition for certiorari, prohibition and mandamus with the CA
ISSUE: W/N Ching should be held criminally liable.
HELD: YES. DENIED for lack of merit
There is no dispute that it was the Ching executed the 13 trust receipts. L aw points to
him as the official responsible for the offense. Since a corporation CANNOT be
proceeded against criminally because it CANNOT commit crime in which personal
violence or malicious intent is required, criminal action is limited to the corporate agents
guilty of an act amounting to a crime and never against the corporation itself. Execution
by Ching of receipts is enough to indict him as the official responsible for violation of PD
115
RCBC is estopped to still contend that PD 115 covers only goods which are
ultimately destined for sale and not goods, like those imported by PBM, for use in
manufacture.
Moreover, PD 115 explicitly allows the prosecution of corporate officers without
prejudice to the civil liabilities arising from the criminal offense thus, the civil liability
imposed on respondent in RCBC vs. Court of Appeals case is clearly separate and
distinct from his criminal liability under PD 115
Chings being a Senior Vice-President of the Philippine Blooming Mills does not
exculpate him from any liability
The crime defined in P.D. No. 115 is malum prohibitum but is classified
as estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with
The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that x x
x savings x x x deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan. There is a debtor-creditor relationship between
the bank and its depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand.
The savings deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. The bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit agreement
between a bank and its depositor. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a family. Article 1172
of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good
father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from
banks that banks must observe high standards of integrity and performance in
servicing their depositors.
However, the fiduciary nature of a bank-depositor relationship does not convert
the contract between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust. The law simply imposes on the
bank a higher standard of integrity and performance in complying with its obligations
under the contract of simple loan, beyond those required of non-bank debtors under a
similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to earn
money for themselves.
Solidbanks
Breach
of
its
Contractual
Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the
performance of every kind of obligation is demandable. For breach of the savings
deposit agreement due to negligence, or culpa contractual, the bank is liable to its
depositor.
Calapre left the passbook with Solidbank because the transaction took time and
he had to go to Allied Bank for another transaction. The passbook was still in the hands
of the employees of Solidbank for the processing of the deposit when Calapre left
Solidbank. When the passbook is in the possession of Solidbanks tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.
Solidbanks tellers must exercise a high degree of diligence in insuring that they
return the passbook only to the depositor or his authorized representative. For failing to
return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank
and Teller No. 6 presumptively failed to observe such high degree of diligence in
safeguarding the passbook, and in insuring its return to the party authorized to receive
the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana
the plaintiff has the burden of proving that the defendant was negligent. In the present
case, L.C. Diaz has established that Solidbank breached its contractual obligation to
return the passbook only to the authorized representative of L.C. Diaz. There is thus a
presumption that Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that there was no
negligence on its part or its employees. But Solidbank failed to discharge its burden.
Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left
the passbook and who was supposed to return the passbook to him. Solidbank also
failed to adduce in evidence its standard procedure in verifying the identity of the person
retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented
this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of
respondeat superior or command responsibility. The defense of exercising the required
diligence in the selection and supervision of employees is not a complete defense in
culpa contractual, unlike in culpa aquiliana. The bank must not only exercise high
standards of integrity and performance, it must also insure that its employees do
likewise because this is the only way to insure that the bank will comply with its fiduciary
duty
Proximate Cause of the Unauthorized Withdrawal
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and without which the
result would not have occurred. Proximate cause is determined by the facts of each
case upon mixed considerations of logic, common sense, policy and precedent.
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor.
Solidbank was in possession of the passbook while it was processing the deposit. After
completion of the transaction, Solidbank had the contractual obligation to return the
passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed
to fulfill its contractual obligation because it gave the passbook to another person.
Had the passbook not fallen into the hands of the impostor, the loss of P300,000
would not have happened. Thus, the proximate cause of the unauthorized withdrawal
was Solidbanks negligence in not returning the passbook to Calapre.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but
the negligent act of one is appreciably later than that of the other, or where it is
impossible to determine whose fault or negligence caused the loss, the one who had
the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss. The antecedent negligence of the plaintiff does not preclude him from recovering
damages caused by the supervening negligence of the defendant, who had the last fair
chance to prevent the impending harm by the exercise of due diligence.
We do not apply the doctrine of last clear chance to the present case. This is a
case of culpa contractual, where neither the contributory negligence of the plaintiff nor
his last clear chance to avoid the loss, would exonerate the defendant from liability.
Such contributory negligence or last clear chance by the plaintiff merely serves to
reduce the recovery of damages by the plaintiff but does not exculpate the defendant
from his breach of contract
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts,
according to the circumstances. This means that if the defendant exercised the proper
diligence in the selection and supervision of its employee, or if the plaintiff was guilty of
contributory negligence, then the courts may reduce the award of damages. In this
case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed
by its authorized signatories to fall into the hands of an impostor. Thus, the liability of
Solidbank should be reduced.
In PBC v. CA where the Court held the depositor guilty of contributory
negligence, we allocated the damages between the depositor and the bank on a 40-60
ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40%
of the actual damages awarded by the appellate court. Solidbank must pay the other
60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION
Wilson Gamboa vs Secretary Margarito Teves
February 15, 2014
Facts:
In 1928, the Philippine Long Distance Telephone Company (PLDT) was granted
a franchise to engage in the business of telecommunications. Telecommunications is a
nationalized area of activity where a corporation engaged therein must have 60% of its
capital be owned by Filipinos as provided for by Section 11, Article XII (National
Economy and Patrimony) of the 1987 Constitution, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least sixty
per centum of whose capital is owned by such citizens; xxx
In 1999, First Pacific, a foreign corporation, acquired 37% of PLDT common
shares. Wilson Gamboa opposed said acquisition because at that time, 44.47% of
PLDT common shares already belong to various other foreign corporations. Hence, if
First Pacifics share is added, foreign shares will amount to 81.47% or more than the
40% threshold prescribed by the Constitution.
Margarito Teves, as Secretary of Finance, and the other respondents argued that
this is okay because in totality, most of the capital stocks of PLDT is Filipino owned. It
was explained that all PLDT subscribers, pursuant to a law passed by Marcos, are
considered shareholders (they hold serial preferred shares). Broken down, preferred
shares consist of 77.85% while common shares consist of 22.15%.
Gamboa argued that the term capital should only pertain to the common shares
because that is the share which is entitled to vote and thus have effective control over
the corporation.
ISSUE: What does the term capital pertain to? Does the term capital in Section 11,
Article XII of the Constitution refer to common shares or to the total outstanding capital
stock (combined total of common and non-voting preferred shares)?
HELD: Gamboa is correct. Capital only pertains to common shares. It will be absurd for
capital to pertain as inclusive of non-voting shares. This is because a corporation
consisting of 1,000,000 capital stocks, 100 of which are common shares which are
foreign owned and the rest (999,900 shares) are preferred shares which are non-voting
shares and are Filipino owned, would seem compliant to the constitutional requirement
here 99.999% is Filipino owned. But if scrutinized, the controlling stock the voting
stock or that miniscule .001% is foreign owned. That is absurd.
In this case, it is true that at least 77.85% of the capital is owned by Filipinos (the
PLDT subscribers). But these subscribers, who hold non-voting preferred shares, have
no control over the corporation. Hence, capital should only pertain to common shares.
Thus, to be compliant with the constitution, 60% of the common shares of PLDT
should be Filipino owned. That is not so in this case as it appears that 81.47% of the
common shares are already foreign owned (split between First Pacific (37%) and a
Japanese corporation).
Detailed Digest of Gamboa vs. Finance Secretary, G.R. No. 176579, June 28, 2011
FACTS
This is a petition to nullify the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of the Republic
of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First
Pacific), a Hong Kong-based investment management and holding company and a
shareholder of the Philippine Long Distance Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it also involved an indirect
sale of 12 million shares (or about 6.3 percent of the outstanding common shares) of
PLDT owned by PTIC to First Pacific. With the this sale, First Pacifics common
shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing
the total common shareholdings of foreigners in PLDT to about 81.47%. This, according
to the petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which
limits foreign ownership of the capital of a public utility to not more than 40%.
ISSUE
Does the term capital in Section 11, Article XII of the Constitution refer to the
total common shares only, or to the total outstanding capital stock (combined total of
common and non-voting preferred shares) of PLDT, a public utility?
RULING
[The Court partly granted the petition and held that the term capital in Section
11, Article XII of the Constitution refers only to shares of stock entitled to vote in the
election of directors of a public utility, or in the instant case, to the total common shares
of PLDT.]
Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least sixty
per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association
must be citizens of the Philippines. (Emphasis supplied)
The term capital in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares, and not to the total outstanding capital stock comprising both
common and non-voting preferred shares [of PLDT].
xxx
xxx
xxx
xxx
xxx
xxx
xxx
To construe broadly the term capital as the total outstanding capital stock,
including both common and non-voting preferred shares, grossly contravenes the intent
and letter of the Constitution that the State shall develop a self-reliant and independent
national economy effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to
control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term
capital. Let us assume that a corporation has 100 common shares owned by
foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both
classes of share having a par value of one peso (P1.00) per share. Under the broad
definition of the term capital, such corporation would be considered compliant with the
40 percent constitutional limit on foreign equity of public utilities since the overwhelming
majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino
owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting
rights in the election of directors, even if they hold only 100 shares. The foreigners, with
a minuscule equity of less than 0.001 percent, exercise control over the public utility. On
the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot
vote in the election of directors and hence, have no control over the public utility. This
starkly circumvents the intent of the framers of the Constitution, as well as the clear
language of the Constitution, to place the control of public utilities in the hands of
Filipinos. It also renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in
fact exists in the present case.
xxx
xxx
xxx
[O]nly holders of common shares can vote in the election of directors [of PLDT],
meaning only common shareholders exercise control over PLDT. Conversely, holders of
preferred shares, who have no voting rights in the election of directors, do not have any
control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of preferred shares have no
voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a
majority of the common shares of PLDT. In fact, based on PLDTs 2010 General
Information Sheet (GIS), which is a document required to be submitted annually to the
Securities and Exchange Commission, foreigners hold 120,046,690 common shares of
PLDT whereas Filipinos hold only 66,750,622 common shares. In other words,
foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to control, it
is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the Constitution.
As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT
common shares is P5.00 per share, whereas the par value of preferred shares
is P10.00 per share. In other words, preferred shares have twice the par value of
common shares but cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while
foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not
with the non-voting preferred shares but with the common shares, blatantly violating the
constitutional requirement of 60 percent Filipino control and Filipino beneficial
ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock
must rest in the hands of Filipinos in accordance with the constitutional mandate. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is constitutionally required for the States grant of authority
to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44%
owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT
common shares earn, grossly violates the constitutional requirement of 60 percent
Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less
than 60 percent of the dividends, of PLDT. This directly contravenes the express
command in Section 11, Article XII of the Constitution that [n]o franchise, certificate, or
any other form of authorization for the operation of a public utility shall be granted
except to x x x corporations x x x organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which
class of shares exercises the sole right to vote in the election of directors, and thus
exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus do not exercise control over PLDT;
(3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred
shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares
have twice the par value of common shares; and (6) preferred shares constitute 77.85%
of the authorized capital stock of PLDT and common shares only 22.15%. This kind of
ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a
current stock market value of P2,328.00 per share, while PLDT preferred shares with a
par value of P10.00 per share have a current stock market value ranging from
only P10.92 to P11.06 per share, is a glaring confirmation by the market that control and
beneficial ownership of PLDT rest with the common shares, not with the preferred
shares.
xxx
xxx
xxx
WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in
Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus in the present case only to common shares,
and not to the total outstanding capital stock (common and non-voting preferred
shares). Respondent Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term capital in determining the extent of
allowable foreign ownership in respondent Philippine Long Distance Telephone
Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.
REGISTER OF DEEDS vs. UNG SIU SI TEMPLEG.R. No. L-6776May 21, 1955
FACTS: Jesus Dy, a Filipino citizen, donated a parcel of residential land in Caloocan 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 Register of Deeds refused to record such
donation.
ISSUE: Whether or not the act of the Register of Deeds in refusing to register the
donation of a parcel of land executed in favor of a religious organization whose founder,
trustees and administrator are Chinese citizens is proper.
HELD: The act of the Register of Deeds is proper .The Constitution makes no exception
in favor of religious associations. Neither is there any such saving found in sections
1and 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.
Roman Catholic Apostolic Administrator Of Davao V. LRC (1957)
FACTS:
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 in favor of the Roman Catholic
Apostolic Administrator of Davao Inc.(Roman), a corporation sole organized and
existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian
citizen, as actual incumbent.
The Register of Deeds of Davao for registration, having in mind a previous
resolution of the CFI in Carmelite Nuns of Davao were made to prepare an affidavit to
the effect that 60% of the members of their corp. were Filipino citizens when they
sought to register in favor of their congregation of deed of donation of a parcel of
land, required it to submit a similar affidavit declaring the same.
June 28, 1954: Roman in the letter expressed willingness to submit an affidavit
but not in the same tenor as the Carmelite Nuns because it had five incorporators while
as a corporation sole it has only one and it was ownership through donation and this
was purchased
As the Register of the Land Registration Commissioner (LRC) : Deeds has some
doubts as to the registerability, the matter was referred to the Land Registration
Commissioner en consulta for resolution (section 4 of Republic Act No. 1151)
LRC:
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 ordered the Registered Deeds of Davao to
deny registration of the deed of sale in the absence of proof of compliance with such
condition action for mandamus was instituted by Roman alleging the land is held in true
for the benefit of the Catholic population of a place
ISSUE: W/N Roman is qualified to acquire private agricultural lands in the Philippines
pursuant to the provisions of Article XIII of the Constitution
HELD: YES. Register of Deeds of the City of Davao is ordered to register the deed of
sale
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.
Corporation sole.
1. 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. Only the administrator and not the owner of the temporalities located in
the territory comprised by said corporation sole and such temporalities are
administered for and on behalf of the faithful residing in the diocese or
territory of the corporation sole
3. Has no nationality and the citizenship of the incumbent and 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.
Constitution demands that in the absence of capital stock, the controlling
membership should be composed of Filipino citizens. (Register of Deeds of Rizal vs.
Ung Sui Si Temple)
Undeniable proof that the members of the Roman Catholic Apostolic faith within
the territory of Davao are predominantly Filipino citizens
Presented evidence to establish that the clergy and lay members of this religion
fully covers the percentage of Filipino citizens required by the Constitution
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.
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
People V. Quasha (1953)
FACTS:
William H. Quasha, a member of the Philippine bar, committed a crime of
falsification of a public and commercial document for causing it to appear that Arsenio
Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 % of the
subscribed capital stock of Pacific Airways Corp. (Pacific) when in reality the money
paid belongs to an American citizen whose name did not appear in the article of
incorporation, to circumvent the constitutional mandate that no corp. shall be authorize
to operate as a public utility in the Philippines unless 60% of its capital stock is owned
by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine
Quasha appealed to this Court
Primary purpose: to carry on the business of a common carrier by air, land or
water
Baylon did not have the controlling vote because of the difference in voting power
between the preferred shares and the common shares
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:
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:
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.
Corporation Law does not require it. The accused was, therefore, under no
obligation to make it. In the absence of such obligation and of the alleged
wrongful intent on the part of the accused, he cannot legally be convicted of the
crime of falsification for having allegedly perverted the truth in a narration of
facts.
3.Falsification; False Narration for not revealing a Certain Fact, not Punishable if
There is no Legal Obligation to Disclose the Truth.It is essential to the
commission of this crime that the perversion of truth in a narration of facts must
be made with the wrongful intent of injuring a third person and even if such
wrongful intent is proven, still the untruthful statement will not constitute criminal
falsification if there is no legal obligation on the part of the narrator to disclose the
truth. (U. S. vs. Reyes, 1 Phil., 341; U. S. vs. Lopez, 15 Phil., 515.) Wrongful
intent to injure a third person and obligation on the part of the narrator to disclose
the truth are thus essential to , conviction for the crime of falsification under
articles 171 (4) and 172 (1) of the Revised Penal Code. [People vs. Quasha, 93
Phil., 333(1953)]
Francisco Tatad, John Osmea and Rodolfo Biazon v. Jesus Garcia, Jr. (DOTC
FACTS:
DOTC planned to construct a light railway transit line along EDSA, a major
thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon,
Mandaluyong and Makati
RA No. 6957 entitled An Act Authorizing the Financing, Construction, Operation
and Maintenance of Infrastructure Projects by the Private Sector, and For Other
Purposes or BOT Law provided for two schemes for the financing, construction
and operation of government projects through private initiative and investment:
Build-Operate-Transfer (BOT) or Build-Transfer (BT)
Prequalification Bids and Awards Committee (PBAC) and the Technical
Committee were created by the DOTC in relation to EDSA Light Rail Transit III project
Only the EDSA LRT Consortium (later called EDSA LRT Corporation, Ltd.) met
the requirements of PBAC
DOTC requested presidential approval of the contract but then Exe. Sec. Drilon
conveyed that the Pres. could not sign the same. So DOTC and private respondents renegotiated the agreement.
The agreement provided inter alia that upon full or partial completion and viability
thereof, private respondent shall deliver the use and possession of the completed
portion to DOTC which shall operate the same.
RA No. 7718 amended RA No. 6957; it expressly provides for BLT scheme and allows
direct negotiation of BLT contracts
ISSUE: WON EDSA LRT Corp., Ltd., a foreign corporation can own EDSA LRT III, a
public utility
HELD: Yes.
What private respondent owns are the rail tracks, rolling stocks like the coaches,
rail stations, terminals and the power plant, not a public utility. While a franchise is
needed to operate these facilities to serve the public, they do not by themselves
constitute a public utility. What constitutes a public utility is not their ownership but their
use to serve the public.
Sec. 11, Art. XII of the Const.: No franchise, certificate or any other form of
authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens, nor
shall such franchise, certificate or authorization be exclusive character or for a longer
period than fifty years.
There is a distinction between the operation of a public utility and the ownership
of the facilities and equipment used to serve the public.
Ownership - a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence
with the rights of another.
Operation of a rail system as a public utility includes the transportation of
passengers from one point to another point, their loading and unloading at designated
places and the movement of the trains at pre-scheduled times.
Right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One can own said facilities without operating them as
a public utility, or conversely, one may operate a public utility without owning the
facilities used to serve the public.
EDSA LRT Corp. Ltd. merely the owner of the facilities necessary to operate
the EDSA LRT III.
On completion date of the LRT project, EDSA LRT Corp. Ltd. will immediately
deliver possession of the LRT system by way of lease for 25 years, during which period
DOTC shall operate the same as a common carrier and private respondent shall
provide technical maintenance and repair services to DOTC; technical maintenance
consists of providing 1) repair and maintenance facilities for the depot and rail lines,
services for routine clearing and security; and 2) producing and distributing
maintenance manuals and drawings for the entire system.
EDSA LRT Corp. Ltd. shall also train DOTC personnel for familiarization with the
operation, use, maintenance and repair of the rolling stock, power plant, substations,
electrical, signaling, communications and all other equipment as supplied in the
agreement.
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations
and liabilities of a common carrier.
BOT scheme - contractor undertakes the construction and financing in
infrastructure facility, and operates and maintains the same; contractor operates the
facility for a fixed period during which it may recover its expenses and investment in the
project plus a reasonable rate of return thereon; after the expiration of the agreed term,
the contractor transfers the ownership and operation of the project to the government.
BT scheme - contractor undertakes the construction and financing of the facility,
but after completion, the ownership and operation thereof are turned over to the
government. The government, in turn, shall pay the contractor its total investment on the
project in addition to a reasonable rate of return. If payment is to be effected through
amortization payments by the government infrastructure agency or local government
unit concerned, this shall be made in accordance with a scheme proposed in the bid
and incorporated in the contract.
BLT scheme which is challenged by petitioners is but a variation of the BT
scheme.
Lease contract where one of the parties binds himself to give to another the
enjoyment or use of a thing for a certain price and for a period which may be definite or
indefinite but not longer than 99 years; no transfer of ownership at the end of the lease
period.
Lease-purchase agreement - parties stipulate that title to the leased premises
shall be transferred to the lessee at the end of the lease period upon the payment of an
agreed sum.
The claim that the BLT scheme and direct negotiation of contracts are not
contemplated by the BOT Law has now been rendered moot and academic by RA No.
7718.
Section 3 thereof authorizes all government infrastructure agencies, governmentowned and controlled corporations and local government units to enter into contract with
any duly prequalified proponent for the financing, construction, operation and
maintenance of any financially viable infrastructure or development facility through a
BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-operate), DOT
(Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate).
JOSE OIL, violates the Constitution of the Philippines, the Corporation Law and the
Petroleum Act of 1949.
Issue:
Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM,
and SAN JOSE OIL COMPANY, INC., is violative of the Constitution, the Laurel-Langley
Agreement, the Petroleum Act of 1949
Held:
Yes. In the 1946 Ordinance Appended to the Constitution, this right was extended
to citizens of the United States; states that to all forms of business enterprises owned or
controlled, directly or indirectly, by citizens of the United States in the same manner as
to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines, would
have the privilege of disposition, exploitation, development, and utilization of all
Philippine natural resources. However, respondent is owned, controlled, directly and
indirectly by Panamanian Corporation.
The Laurel-Langley Agreement also states that with respect to natural resources
in the public domain in the Philippines, only through the medium of a corporation
organized under the laws of the Philippines and at least 60% of the capital stock of
which is owned or controlled by citizens of the United States.
Although it was claimed that the corporation has stockholders residing in United
States, there was no indication if they are all citizens of America, how much percentage
do they occupy as stockholders, and if they have the same rules that apply to the
conditions mentioned. In the circumstances, the court ruled that the respondent SAN
JOSE PETROLEUM, as presently constituted, is not a business enterprise that is
authorized to exercise the parity privileges under the Parity Ordinance, the LaurelLangley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is,
consequently, illegal.
The parity rights agreement is not applicable to SJP. The parity rights are only
granted to American business enterprises or enterprises directly or indirectly controlled
by US citizens. SJP is a Panamanian corporate citizen. The other owners of SJO are
Venezuelan corporations, not Americans. SJP was not able to show contrary evidence.
Further, the Supreme Court emphasized that the stocks of these corporations are being
traded in stocks exchanges abroad which renders their foreign ownership subject to
change from time to time. This fact renders a practical impossibility to meet the
requirements under the parity rights. Hence, the tie up between SJP and SJO is illegal,
SJP not being a domestic corporation or an American business enterprise contemplated
under the Laurel-Langley Agreement.
shares of Narra), 40% of the shares of MMC (which owns 5,997 shares of McArthur)
and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro).
Aside from the MPSA, the three corporations also applied for FTAA with the
Office of the President. In their answer, they countered that (1) the liberal Control Test
must be used in determining the nationality of a corporation as based on Sec 3 of the
Foreign Investment Act which as they claimed admits of corporate layering schemes,
and that (2) the nationality question is no longer material because of their subsequent
application for FTAA.
Issue 1: W/N the Grandfather Rule must be applied in this case
Ruling: Yes. It is the intention of the framers of the Constitution to apply the
Grandfather Rule in cases where corporate layering is present.
First, as a rule in statutory construction, 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. Corporate layering is
admittedly allowed by the FIA, but if it is used to circumvent the Constitution and other
pertinent laws, then it becomes illegal.
Second, under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule must be
applied when the 60-40 Filipino-foreign equity ownership is in doubt. Doubt is present
in the Filipino equity ownership of Narra, Tesoro, and MacArthur since their common
investor, the 100% Canadian-owned corporation MBMI, funded them.
Under the Grandfather Rule, it is not enough that the corporation does have the
required 60% Filipino stockholdings at face value. To determine the percentage of the
ultimate Filipino ownership, it must first be traced to the level of the investing
corporation and added to the shares directly owned in the investee corporation.
Applying this rule, it turns out that the Canadian corporation owns more than 60% of the
equity interests of Narra, Tesoro and MacArthur. Hence, the latter are disqualified to
participate in the exploration, development and utilization of the Philippines natural
resources.
1
DOJ
Opinion
No.
2 SEC Opinion May 13, 1990
020
Series
of
2005
(paragraph
7)
Issue 2: W/N the case has become moot as a result of the MPSA conversion to FTAA
Ruling: No. There are certain exceptions to mootness principle 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.
The SC noted that a grave violation of the Constitution is being committed by a
foreign corporation through a myriad of corporate layering under different, allegedly,
Filipino corporations. The intricate corporate layering utilized by the Canadian company,
Held:
No. The control test can be 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 incompatible ownershipdeterminant 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.
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 corporations 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.
In this case, using the control test, Narra, Tesoro and MacArthur appear to have
satisfied the 60-40 equity requirement. But the nationality of these corporations and the
foreign-owned common investor that funds them was in doubt, hence, the need to apply
the Grandfather Rule. ##