1.

) Place of Incorporation Test

SEC Opinion No. 07-:-17
Control Test Rule

This refers to your letter dated 19 September 2007 requesting confirmation that in determining the nationality
of the proposed corporate bidder or buyer of PNOC –EDC shares, the "control test" is applicable.

It is alleged that Philippine National Oil Company ("PNOC") and PNOC EDC Retirement Fund ("PNOC-EDC RF")
own 46.67% (consisting of 6,000,000,000 common shares and 4,500,000,000 preferred shares) and 13.33% (consisting of
3,000,000,000 preferred shares), respectively, of PNOC -Energy Development Corporation (PNOCEDC).

The total combined shareholdings of PNOC and PNOC- EDC RF represent 60% of the entire outstanding capital
stock of PNOC-EDC. The remaining 40% shares is held by the public of which 37.8% is foreign owned while 2.2% thereof
is owned by Philippine nationals. PNOC-EDC's common shares are listed in the Philippine Stock Exchange ("PSE") while
the preferred shares are not listed. Both common shares and preferred shares are voting.

It is further alleged that PNOC-EDC, a corporation duly organized under Philippine laws, owns land and is
engaged in the business of exploring, developing and operating geothermal energy projects.

PNOC and PNOC-EDC RF intend to divest their shareholdings in PNOC-EDC through public bidding. In its bidding
rules and regulations, the corporation proposes to incorporate as one of the qualifications for the potential bidder the
hereunder quoted proviso: /

IJ x x x bidder must be a Filipino citizen, or a partnership with at least sixty percent (60%) of its total capital contribution
and controlling interest held by Philippine Nationals, or a corporation or association at least sixty percent (60%)of whose
issued and outstanding shares of stock is owned legally and beneficially by Philippine Nationals.' xxx xxx xxx

'Philippine National' is defined as ' a citizen of the Philippines; or domestic partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which a least sixty percent
(60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or
corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which
one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos; or a
tmstee 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 accme to the benefit of Philippine nationals: Provided, That
where a corporation and its non-Filipino stockholders own stocks in a SECregistered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by
citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both
corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine National."

In reply, please be informed that while the 1987 Constitution of the Philippines 1
imposes a mandatory restriction that 60% of the outstanding capital stock of PNOC-EDC must be held by Philippine
nationals since it owns real estate in this jmisdictionand is engaged in a partly nationalized activity, nonetheless, the law
squarely applicablein the presented factual scenalio is RA. 7042, otherwise known as the Foreign Investment Act (PIA)as
amended by RA. 8179, and its Amended Implementing Rules and Regulations.

Section 3 of RA. 7042, as amended, reads thus:

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

In the same vein, Section 1(b) of the Amendments to the Implementing Rules and Regulations of R.A. 7042
(Foreign Investments Act of 1991) as amended by R.A. 8179 provides:

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

The foregoing adopts the well-entrenched ruling in the Far Southeast Gold Resources case which laid down the
"control test" rule stating:

It further appears that on February 28, 1967, the SEC promulgated rules and regulations on the implementation of the
constitutional and statutory requirements that the controlling interests of enterprises engaged in the exploitation of the
natural resources should be held by citizens of the Philippines or by corporations or by associations at least 60% of the
capital of which is owned by such citizens, and which provide for the following the rule in the determination of
citizenship of corporations with alien equity/ to wit:

'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 the corporation or partnership at least 60% of the capital stock. or
capital respectively, of which belong to
Filipino citizens, all of the said shares shall be recorded as owned by Filipinos. But if less than 60%, or, say, only 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 shares shall be recorded as belonging to aliens.

Said rule was substantially reiterated on September 7, 1972 and approved by the SecretalY of Commerce and
Industry on September 12, 1972; and this rule has been followed up to the time as basis for determining the nationality
of corporate stockholders.

With due respect, it is believed that the said query should be resolved by that Office by applying its aforecited
rule.

Opinion No. 84, s. 1988 cited in your query is not meant to overrule the aforesaid SEC rule. There is nothing in
said Opinion that precludes the application of the said SEC rule in appropriate cases. It is quite clear from said SEC rule
that the Grandfather Rule, (which evolved and applied by the SEC in several cases, will not apply in cases where the
60-:40 Filipino alien equity ownership in a particular natural resource corporation is not in doubt.
 Verily, the PNOC-EDC proposed equity structure reflects that the 60-40% rule shall be adhered to by the
adoption of the suggested provision in the Bidding Rules and Regulations. In the process, the "control test" rule as
enunciated in the Far Southeast Gold case and not the" grandfather rule" shall be applicable.

Under the control test lUle mandated by the aforequoted Amendments to the lRR of PIA dissection or fmiher
inquiry on the ownership of the shareholders both in the investing and investee corporation shall be dispensed with
once it is clearly established that the participating corporations are 60% owned by Filipino citizens. In the absence of any
doubt that the bidding corporation is 60% Filipino owned, the entity shall be deemed as "Philippine national" and may
thus be allowed to bid or invest in legally permissible areas of investment as in the instant case.
It should be emphasized, however, the PNOC-EDC should always maintain its 60% Filipino equity ownership or
holdings at all times in order not to contravene the mandatory restriction of the fundamental law.

2.) Control Test

For: Nationality requirement of public utility concessionaire

SANTIAGO & SANTIAGO LAW OFFICES

Ground Floor, Ortigas Building
Ortigas Avenue comer Meralco Avenue
1605 Pasig City

Gentlemen:

Attention Atty. Amado M. Santiago, Jr.

This refers to your letter dated 20 November 2007 requesting opinion whether the proposed structure and the equity
investment of the members of theConsortium for the Concessionaire qualifies insofar as the ownership requirement
forgrantees of public utility franchise as provided in Article XII, Section 11 of the Constitution is concerned.

In particular, you are requesting formal confirmation of the following:

1. Pilipinas First is a Philippine national because not less than 60% of its capital stock is owned by a Filipino citizen, Mr. Pangilinan,
and a Philippine national, ManCo, which is 100% owned by Filipino citizens;

2. Since Pilipinas First, a Philippine national, will own at least 60% of the outstanding capital stock of Two Rivers, the latter is also a
Philippine national;
3. Since Two Rivers will own 60% of the outstanding capital stock of Holdco, Holdco will be a Philippine national;

4. Since Holdco, a Philippine national, will own 100% of the outstanding capital stock of the Concessionaire, the Concessionaire will
also be a Philippine national; and

5. The proposed ownership structure and equity investment of Two Rivers, Pilipinas First and Terna in the Two Rivers-
Tema Consortium for its Concessionaire complies with the ownership requirements for grantees of
a public utility franchise.

It is the policy of the state to develop a self-reliant and independent national economy effectively controlled by
Filipinos. I At the same time, the government takes a liberal stance on allowing foreign investors' participation in certain
areas of investment. To strike a balance between the two, there are economic sectors where foreign investment or foreign
equity shall only be allowed up to a certain extent. One of these is in the operation of public utilities where the permissible
maximum foreign equity under the Constitution is forty percent (40%). The nationality requirement for the operation of
public utilities is provided for in Article XII of the Constitution, the pertinent provision of which is quoted hereunder:

"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 xxx xxx 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."

Under Section 3(a) of the Foreign Investments Act (R.A. No. 7042, as amended), a Philippine national is defined as:
" ... a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote
is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty (60%) of the fund will accrue to the benefit of the Philippine nationals:
Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC)
registered enterprise, at least sixty percent (60%) of the capital stocks outstanding and entitled to vote of both corporations must be
owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of both
corporations must be citizens of the Philippines, in order that the corporations shall be considered a Philippine national

Section l(b) of the Amended Implementing Rules and Regulations of R.A. No.
7042, as amended expressly states that the "control test" shall be applied to determine whether the foreign equity threshold
has been complied with. In order to determine the nationality of a corporation with foreign equity, the Commission
employs the "control test," the method which provides as follows:

"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 belongs to
Filipino citizens, all of said shares shall be recorded as owned by Filipinos. But if less than 60%, or say only 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 shares shall be recorded as belonging to aliens." (Emphasis supplied, Justice Opinion, dated January 19,
1989

Based on the foregoing and on the facts disclosed, this Office is of the opinion that the proposed structure of Two Rivers
Pacific Holdings Corporation ("Two Rivers") would seem to satisfy the nationality requirement as called for in the
Constitution. Sixty Percent (60%) of Two Rivers will be owned by Pilipinas First Transmission Holdings Corporation
("Pilipinas First"), a corporation registered under Philippine laws whose equity is distributed as follows: Manuel V.
Pangilinan-29.4% Preferred Participating shares; Philippine Pacific First Transmission Management Corporation; 30.6%
and First Pacific International Limited-40% (a foreign corporation). It is of no moment that the shares issued to the
Filipino shareholders are preferred shares since the Constitution does not distinguish between common and preferred
shares.2 Having that in mind, preferred shares shall be included in the computation of the foreign equity cap for domestic
corporations.3 Moreover, Pilipinas First can be said to be a Filipino owned corporation since 60% of its outstanding capital
stock is held by a Philipine national, Manny Pangilinan, who is entitled to elect a majority vote of the Board of Directors.

Considering that Pilipinas First is 60% Filipino owned, then it may be deemed Filipino owned. The same can be said of
Two Rivers, whose outstanding capital capital stock is Filipino owned. Since Two Rivers will own 60% of the
outstanding capital of the Holding Company to be set up by Two Rivers and Terna-Rete Elettrica
Nazionale S.p.A (a foreign company), it necessarily follows that the Two Rivers- Terna Holding Company may likewise
be deemed a Filipino corporation. Thus, the Two Rivers-Terna Rete Elettrica Nazionale S.p.A consortium may be deemed
as a Filipino corporation, which is allowed to own 100% of the outstanding capital stock of the Concessionaire.

It would not be amiss, however, to state at this point that the purpose of the sixty percentum (60%) requirement is
to insure that corporations and associations allowed to operate a public utility shall be controlled by Filipinos. It does not
suffice to simply say that a corporation is Filipino owned if it is 60% owned by another corporation, which in turn is 60%
Filipino owned. It is imperative that beneficial ownership must ultimately be in the hands of Filipinos. Any attempt to
defeat the same shall be meted out the sanctions imposed under applicable laws and rules and regulations.
It shall be understood that the foregoing opinion is rendered based solely on the facts and circumstances disclosed
and relevant solely to the particular issues raised therein and shall not be used in the nature of a standing rule binding
upon the Commission in other cases whether of similar or dissimilar circumstances. If, upon investigation, it will be
disclosed that the facts relied upon are different, this opinion shall be rendered null and void.
 3.) Grandfather Rule

G.R. No. 195580               January 28, 2015

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
McARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.

RESOLUTION

VELASCO, JR., J.:

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

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

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

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

I.

The case has not been rendered moot and academic

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

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

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

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

is a grave violation of the Constitution;(b) the situation is of exceptional character and paramount public interest is
involved; (c) the constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and
the public; and (d) the case is capable of repetition yet evading review.  The Court’s April 21, 2014 Decision explained in
2

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

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

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

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

II.

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

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

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

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

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. XII of the 1987 Constitution, entitled to undertake the exploration, development and
utilization of the natural resources of the Philippines. When in the mind of the Court, there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino equity ownership in the corporation, then it may apply
the "grandfather rule." (emphasis supplied)
With that, the use of the Grandfather Rule as a "supplement" to the Control Test is not proscribed by the Constitution or
the Philippine Mining Act of 1995.

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

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

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

MR. VILLEGAS: That is right.

xxxx

MR. NOLLEDO: Thank you.

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

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

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

shareholdings in the corporation are determined.

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

taxes imposed on closely held corporations, in relation to Section 96 of the Corporation Code  on close corporations.
6

Thus, in BIR Ruling No. 148-10, Commissioner Kim Henares held:

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

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

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

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

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

xxxx

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

xxxx

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

Similarly, in the eponymous Redmont Consolidated Mines Corporation v. McArthur Mining Inc., et al.,  the SEC en
8

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

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

xxxx

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

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

In this connection, you raise the following specific questions:

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

xxxx

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

xxxx

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

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

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

xxxx

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

We are informed that in the registration of corporations with the [SEC], compliance with the sixty per centum requirement
is being monitored by SEC under the "Grandfather Rule" a method by which the percentage of Filipino equity in
corporations engaged in nationalized and/or partly nationalized areas of activities provided for under the Constitution and
other national laws is accurately computed, and the diminution if said equity prevented (SEC Memo, S. 1976). The
"Grandfather Rule" is applied specifically in cases where the corporation has corporate stockholders with alien
stockholdings, otherwise, if the rule is not applied, the presence of such corporate stockholders could diminish the
effective control of Filipinos.
Applying the "Grandfather Rule" in the instant case, the result is as follows: x x x the total foreign equity in the investing
corporation is 58% while the Filipino equity is only 42%, in the investing corporation, subject of your query, is disqualified
from investing in real estate, which is a nationalized activity, as it does not meet the 60%-40% Filipino-Foreign equity
requirement under the Constitution.

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

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

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

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

Applying Gamboa, the Court, in Express Investments III Private Ltd. v. Bayantel Communications, Inc.,  denied the
11

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:

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

Application of the Grandfather

Rule with the Control Test.

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

As exemplified by the above rulings, opinions, decisions and this Court’s April 21, 2014 Decision, the Control Test can be,
as it has been, applied jointly withthe Grandfather Rule to determine the observance of foreign ownership restriction in
nationalized economic activities. The Control Test and the Grandfather Rule are not, as it were, incompatible ownership-
determinant methods that 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 needto resort to the Grandfather Rule disappears.

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

Filipino to foreign equity ratio is apparently met by the subject or investee corporation, a resort to the Grandfather Rule is
necessary if doubt existsas to the locusof the "beneficial ownership" and "control." In this case, a further investigation as
to the nationality of the personalities with the beneficial ownership and control of the corporate shareholders in both the
investing and investee corporations is necessary.

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

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

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

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

Thus, In the Matter of the Petition for Revocation of the Certificate of Registration of Linear Works Realty Development
Corporation,  the SEC held that when foreigners contribute more capital to an enterprise, doubt exists as to the actual
13

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:

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

xxxx

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

However, we are aware that some unscrupulous individuals employ schemes to circumvent the constitutional and
statutory restrictions on foreign equity. In the present case, the fact that the shares of the Japanese nationals have a
greater par value but only have similar rights to those held by Philippine citizens having much lower par value, is highly
suspicious. This is because a reasonable investor would expect to have greater control and economic rights than other
investors who invested less capital than him. Thus, it is reasonable to suspectthat there may be secret arrangements
between the corporation and the stockholders wherein the Japanese nationals who subscribed to the shares with greater
par value actually have greater control and economic rights contrary to the equality of shares based on the articles of
incorporation.
With this in mind, we find it proper for the EPD to investigate the subject corporation. The EPD is advised to avail of the
Commission’s subpoena powers in order to gather sufficient evidence, and file the necessary complaint.

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

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

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

requirement in Palting v. San Jose Petroleum, Inc.  that the application of the Grandfather Rule cannot go beyond the
15

level of what is reasonable.

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

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

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

Tesoro

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

Name Nationality Number of Shares Amount Amount Paid

Subscribed
Sara Marie Filipino 5,997 ₱5,997,000.00 ₱825,000.00
Mining, Inc.
MBMI Resources, Canadian 3,998 ₱3,998,000.00 ₱1,878,174.60
Inc.16

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

Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00
Esguerra
Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00
Agcaoili
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,708,174.60

In turn, the Filipino corporation Olympic Mines & Development Corp. (Olympic) holds 66.63% of Sara Marie’s shares while
the same Canadian company MBMI holds 33.31% of Sara Marie’s shares. Nonetheless, it is admitted that Olympic did not
pay a single peso for its shares. On the contrary, MBMI paid for 99% of the paid-up capital of Sara Marie.
 Name Nationality Number of Shares Amount Amount Paid
Subscribed
Olympic Mines & Filipino 6,663 ₱6,663,000.00 P0.00
Development
Corp. 17

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

Inc.
Amanti Limson Filipino 1 ₱1,000.00 ₱1,000.00
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00
Esguerra
Lauro Salazar Filipino 1 ₱1,000.00 ₱1,000.00
Emmanuel G. Filipino 1 ₱1,000.00 ₱1,000.00

Hernando
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,800,000.00

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

Filipino participation in petitioner Tesoro: 40.01%

66.67
(Filipino equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 39.98%
100
39.98% + .03% (shares of individual Filipino shareholders [SHs] in Tesoro)
=40.01%

Foreign participation in petitioner Tesoro: 59.99%

33.33
(Foreign equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 19.99%
100
19.99% + 39.98% (MBMI’s direct participation in Tesoro) + .02% (shares of foreign individual SHs in Tesoro)
= 59.99%

With only 40.01% Filipino ownership in petitioner Tesoro, as compared to 59.99% foreign ownership of its shares, it is
clear that petitioner Tesoro does not comply with the minimum Filipino equity requirement imposed in Sec. 2, Art. XII of
the Constitution. Hence, the appellate court’s observation that Tesoro is a foreign corporation not entitled to an MPSA is
apt.

McArthur

Petitioner McArthur follows the corporate layering structure of Tesoro, as 59.97% of its 10, 000 common shares is owned
by supposedly Filipino Madridejos Mining Corporation (Madridejos), while 39.98% belonged to the Canadian MBMI.
 Name Nationality Number of Shares Amount Amount Paid
Subscribed
Madridejos Mining Filipino 5,997 ₱5,997,000.00 ₱825,000.00
Corporation
MBMI Resources, Canadian 3,998 ₱3,998,000.0 ₱1,878,174.60
Inc. 18

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

Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00
Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00
Agcaoili
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,708,174.60

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

Name Nationality Number of Shares Amount Amount Paid

Subscribed
Olympic Mines & Filipino 6,663 ₱6,663,000.00 P0.00
Development
Corp. 19

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

Inc.
Amanti Limson Filipino 1 ₱1,000.00 ₱1,000.00
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00
Esguerra
Lauro Salazar Filipino 1 ₱1,000.00 ₱1,000.00
Emmanuel G. Filipino 1 ₱1,000.00 ₱1,000.00
Hernando
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,809,900.00

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

Filipino participation in petitioner McArthur: 40.01%

66.67
(Filipino equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 39.98%
100
39.98% + .03% (shares of individual Filipino SHs in McArthur)
=40.01%
 Foreign participation in petitioner McArthur: 59.99%

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

19.99% + 39.98% (MBMI’s direct participation inMcArthur) + .02% (shares of foreign individual SHs in McArthur)
= 59.99%

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

Narra

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

Name Nationality Number of Shares Amount Amount Paid

Subscribed
Patricia Lousie Filipino 5,997 ₱5,997,000.00 ₱1,677,000.00
Mining and
Development
Corp.
MBMI Resources, Canadian 3,996 ₱3,996,000.00 ₱1,116,000.00
Inc. 20

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

Mendoza,
Henry E. Filipino 1 ₱1,000.00 ₱1,000.00
Fernandez
Ma. Elena A. Filipino 1 ₱1,000.00 ₱1,000.00
Bocalan
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Robert L. Canadian 1 ₱1,000.00 ₱1,000.00
McCurdy
Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00
Agcaoili
Bayani H. Agabin Filipino 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,800,000.00

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

Name Nationality Number of Shares Amount Amount Paid

Subscribed
Palawan Alpha Filipino 6,596 ₱6,596,000.00 P0
South Resource
Development
Corp.
MBMI Resources, Canadian 3,396 ₱3,396,000.00 ₱2,796,000.00
Inc. 21
 Higinio C. Filipino 1 ₱1,000.00 ₱1,000.00
Mendoza, Jr.
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00
Esguerra
Henry E. Filipino 1 ₱1,000.00 ₱1,000.00
Fernandez
Ma. Elena A. Filipino 1 ₱1,000.00 ₱1,000.00
Bocalan
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Robert L. Canadian 1 ₱1,000.00 ₱1,000.00
McCurdy
Manuel A. Filipino 1 ₱1,000.00 ₱1,000.00
Agcaoili
Bayani H, Agabin Filipino 1 ₱1,000.00 ₱1,000.00
  Total 10,000 ₱10,000,000.00 ₱2,804,000.00

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

Filipino participation in petitioner Narra: 39.64%

66.02
(Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59%
100
39.59% + .05% (shares of individual Filipino SHs in McArthur)
=39.64%

Foreign participation in petitioner Narra: 60.36%

33.98
(Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38%
100
20.38% + 39.96% (MBMI’s direct participation in Narra) + .02% (shares of foreign individual SHs in McArthur)
= 60.36%

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

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

computation hewed with the pronouncements of Gamboa, as implemented by SEC Memorandum Circular No. 8, Series of
2013, (SEC Memo No. 8)  Section 2 of which states:
23
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory requirement.  For purposes of
1âwphi1

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.  and Philex Mining Corp. v.
24

Zaldivia.
25

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

Exploration Corporation v. Macroasia Corp.,  the Court has recognized in its Decision that in resolving disputes "involving
27

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.
 4.) Domiciliary Test
Nationalized Activities Reserved for Filipinos under the Constitution and Special Laws

Updates on the 11th Version of the Negative List

The 11th version added sectors where up to 100% foreign participation will be allowed: 

 Internet businesses (a new category previously included in the category of mass media, which remains
completely restricted to foreign participation and ownership);
 Teaching at higher education levels (provided the subject being taught is not a professional subject or included
in a government board or bar examination);
 Training centers engaged in short-term high-level skills development that do not form part of the formal
education system;
 Insurance adjustment companies, lending companies, and investment houses; and
 Wellness centers.
It also increased participation of up to 40% on two sectors:

 Contracts for construction and repair of locally-funded public works (except those that are foreign-funded or
assisted and required to undergo international competitive auction), which used to have 25% foreign equity cap;
and
 Private radio communication networks (previously only up to 20% equity). 
However, the new Negative List removed the following sectors from the list (where up to 40% foreign equity was
previously allowed):

 Facility operator of an infrastructure or a development facility requiring a public utility franchise; and
 Adjustment companies. 

The 11th Foreign Investment Negative List (under EO

65)
List A
No Foreign Equity
 Mass media, except recording and internet business
 Practice of professions, including radiologic and x-ray technology, law, criminology, and marine deck officers and
marine engine officers
o Subject to the Annex on Professions indicating professions where foreigners are allowed to practice in
the Philippines subject to reciprocity and where corporate practice is allowed; and 
o Foreigners may teach at higher education levels if subject being taught is not a professional subject
(included in a government board or bar examination).
 Retail trade enterprises with paid-up capital of less than US$2.5 million
 Cooperatives
 Organization and operation of private detective, watchmen or security guards agencies
 Small-scale mining
 Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic zone as well as
small-scale utilization of natural resources in rivers, lakes, bays, and lagoons
 Ownership, operation, and management of cockpits
 Manufacture, repair, stockpiling, and/or distribution of nuclear weapons
 Manufacture, repair, stockpiling, and/or distribution of biological, chemical, and radiological weapons and anti-
personnel mines
  Manufacture of firecrackers and other pyrotechnic devices

Up to 25% Foreign Equity

 Private recruitment, whether for local or overseas employment
 Contracts for the construction of defense-related structures

Up to 30% Foreign Equity

 Advertising

Up to 40% Foreign Equity

 Contracts for the construction and repair of locally-funded public works, except:
o Infrastructure/development projects covered in Republic Act (RA) No. 7718; and
o Projects which are foreign-funded or assisted and required to undergo international competitive bidding.
 Exploration, development, and utilization of natural resources
 Ownership of private lands
 Operation of public utilities, except power generation and the supply of electricity to the contestable market and
similar businesses or services not covered by the definition of public utilities
 Educational institutions other than those established by religious groups and mission boards, for foreign
diplomatic personnel and their dependents and other foreign temporary residents, or for short-term high-level
skills development that do not form part of the formal education system as defined in Section 20 of Batas
Pambansa (BP) No. 232 (1982)
 Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase
or otherwise, rice and corn and the by-products thereof
 Contracts for the supply of materials, goods, and commodities to Government-Owned and Controlled Corporation
(GOCC), company, agency or municipal corporation 
 Operation of deep-sea commercial fishing vessels
 Ownership of condominium units
 Private radio communications network

List B
Up to 40% Foreign Equity
 Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National
Police (PNP) clearance:
o Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements
used or intended to be used in the manufacture of firearms; 
o Gunpowder;
o Dynamite;
o Blasting supplies;
o Ingredients used in making explosives:
 Chlorates of potassium and sodium;
 Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium, and cuprite;
 Nitric acid;
  Nitrocellulose;
 Perchlorates of ammonium, potassium, and sodium;
 Dinitrocellulose;
 Glycerol;
 Amorphous phosphorus;
 Hydrogen peroxide;
 Strontium nitrate powder;
 Toluene; and
o Telescopic sights, sniper scope, and other similar devices.

However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine
nationals; provided that a substantial percentage of output, as determined by the said agency, is exported.
Provided further that the extent of foreign equity ownership allowed shall be specified in the said
authority/clearance (RA No. 7042 as amended by RA No. 8179). 

 Manufacture, repair, storage, and/or distribution of products requiring Department of National Defense (DND)
clearance:
o Guns and ammunition for warfare;
o Military ordinance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles);
o Gunnery, bombing, and fire control systems and components;
o Tactical aircraft (fixed and rotary-winged), parts, and components thereof;
o Space vehicles and component systems;
o Combat vessels (air, land, and naval) and auxiliaries;
o Weapons repair and maintenance equipment;
o Military communications equipment;
o Night vision equipment;
o Stimulated coherent radiation devices, components, and accessories;
o Armament training devices; and
o Others as may be determined by the Secretary of the DND. 

However, the manufacture or repair of these items may be authorized by the Secretary of National Defense to
non-Philippine nationals; provided that a substantial percentage of output, as determined by the said agency, is
exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said
authority/clearance (RA No. 7042 as amended by RA No. 8179).

 Manufacture and distribution of dangerous drugs (RA No. 7042 as amended by RA No. 8179)
 Sauna and steam bathhouses, massage clinics, and other like activities regulated by law because of risks posed
to public health and morals, except wellness centers
 All forms of gambling, except those covered by investment agreements with Philippine Amusement and Gaming
Corporation (PAGCOR)
 Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
 Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees
with paid-in equity capital of less than the equivalent of US$100,000
Corporate Law Notes: Separate Juridical Personality
And Doctrine Of Piercing (04/19)
A. Main Doctrine: A Corporation has a personality Separate and Distinct from its Stockholders or Members (Jardine
Davies, Inv. v. JRB Realty, Inc. (2005))

1. Sources: Sec. 2; Article 44 Civil Codea

Art. 44. The following are juridical persons:

xxx(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality
begins as soon as they have been constituted according to law;

2. Importance of Main Doctrine

 A corp., upon coming into existence, is invested by law w/ a personality separate and distinct from those
persons composing it as well as from any other legal entity to which it may be related.  This separate and distinct
personality is, however, merely a fiction created by law for conveyance and to promote the ends of justice  (Siain
Enterprises, Inc. v. Cupertino Realty Corp. (2009))
 The first doctrine of legal entity of the separate personality of the corp. may not be made to answer for acts and
liabilities of its stockholders or those of legal entities to which it may be connected or vice versa. (Shrimp Specialists
Inc. v. Fuji-Triumph Agri-industrial Corp. (2009))

3. Applications
 Cases:
National Power Corp. v. CA
-No allegation, finding or conclusion regarding particular acts committed by said officers and members of the
BOD that showed them to have individually guilty of unmistakable malice, bad faith or ill-motive in their
personal dealings with third parties - CANNOT be held personally liable for judgment rendered against the corp.

Development Bank of Philippines v. NLRC

-ownership of  majority of capital stock and the fact that a majority of directors of a corp. are directors of
another corp. created no employer-employee relationship, nor did it make the controlling stockholder liable for
employees' claim of the subject corp. 

Suldao v. Cimech
-A corp.'s authority to act and its liability for its actions are separate and apart from the individuals who owns it
-ff. have been held and logical and legal consequence of the application of separate juridical personality
1. such corp. may NOT be held liable for the obligations of the persons composing it or that its officers
2. Neither can its stockholders be held liable for the obligations of such corp. 
3. Officers of a corp. are NOT personally liable for their acts as such officers, unless it is shown that they have
exceeded their authority
4. The property of the corp. is NOT the property of its stockholders or members
5. Nor can the property of event the controlling stockholders or the officers be treated as part of the corp. estate
6. A suit against a corp. CANNOT be considered as a suit against its stockholders and vice-versa
7. A mother or holding corp. has NO proprietary interest in the property, rights and interest of the subsidiary or
affiliate corp.
8. But since the separate and distinct personality of a corp. is a fiction created by law for convenience and to
prevent injustice, it may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a
vehicle forr the evasion of an existing obligation, the circumvention of statues, or to confuse legitimate issues
9. However, the following facts by themselves or in combination, would NOT warrant a disregard of the veil of
corp. fiction, absence fraud or other public policy consideration
  mere ownership by a single stockholder or by another corp. of all or nearly all of the capital stock of a corp.
 having the same address
 presence of interlocking incorporators
 presence of interlocking directors 

Majority equity ownership and interlocking directorship

-creates no employer-employee relationship with the other corporation's employees (DBP v. NLRC (1990))
-what are NOT of itself sufficient ground for disregarding the separate corporate personality 
 mere ownership by a single stockholder or by another corporation of all or nearly of the capital stock of
a corporation(EDSA Shangri-La Hotel and Resorts, Inc. v. BF Corp. (2008))
 A corporate defendant against whom a writ of possession has been issued, CANNOT use the fact
that it has obtained controlling equities in the corporate plaintiffs to suspend enforcement of
the writ (Silverio Jr. v. Filipino Business Consultants, Inc. (2005))
 Mere substantial identity of incorporators of 2 corporations does NOT necessarily imply fraud,
nor warrant the piercing of the veil of the corporate fiction. (Laguio v. NLRC (1996))
 Having interlocking directors, corporate officers and shareholders (Velarde v. Lopez (2004))

Being Corporate Officer

 what are NOT of itself sufficient ground for disregarding the separate corporate personality
 Being an officer or stockholder of a corporation(Prisma Construction & Dev. Corp v. Menchavez (2010))
 President of the corp.(Booc v. Bantuas (2001))
 a corporate officer and his spouse where he entered into and signed the contract clearly in his official capacity
(Interstate Estate of Alexander T. Ty v. CA (2001))
 The President of the corp. which becomes liable for the accident caused by its truck driver CANNOT be held
solidarily liable for the judgment obligation arising from quasi-delict, since the fact alone of being President is
NOT sufficient to hold him solidarily liable for the liabilities adjudged against the corp. and its employee. (Secosa
v. Heirs of Erwin (2004))
 When the compulsory counterclaim filed against corp. officers for their alleged fraudulent act indicate that such
corp. officers are indispensable parties in the litigation, the orig. inclusion of the corp. in the suit does NOT
thereby allow the denial of a specific counter-claim being filed to make the corp. officers personally liable.
(Lafarge Cement Phils. v. Continental Cement Corp. (2004))

Dealings with Corp. and Stockholders

 what are NOT of itself sufficient ground for disregarding the separate corporate personality
 The fact that majority stockholders had used his own money to pay part of the loan of the corp. 
 "It is understandable that a shareholder would want to help his corp. and in the process, assure
that his takes in the corp. are secured (LBP v. CA (2001))

 Use of a controlling stockholder's initials in the corporate name

 A corp. may assume any name provided it is lawful, and there is nothing illegal in a corporation
acquiring the name or as in this case, the initials of 1 of its shareholders (LBP v. CA (2001))

 The mere fact that a stockholder sells his shares of stock in the corp. during the pendency of a
collection case against the corp., 
 Case:
 Remo Jr. v. IAC (1989)
  since the disposing stockholder has NO personal obligation to the to the creditor, and it is the
inherent right of the stockholder  to dispose of his shares of stock anytime he so desires. 

 PNB v. Ritratto Group, Inc. (2001)

 GR: stock ownership alone by one corporation of the stock of another does not thereby render
the dominant corporation liable for the torts of the subsidiary
 EX: the separate corporate existence of the subsidiary is a mere sham, or unless the control of
the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation
 Just because 2 foreign companies came from the same country and closely worked together on
certain projects 
 G.R. No. 182770       September 17, 2014
WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, Petitioners,
vs.
FE CORAZON LABAYEN, Respondent.

DECISION

BRION, J.:

We review in this petition for review on certiorari1 the decision2 dated September 28, 2007 and the
resolution3 dated April 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 68289 that affirmed with
modification the decision4 of the Regional Trial Court (RTC), Branch 77, Quezon City.

The Factual Background

The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a management and
consultant firm. The petitioner, WPM International Trading, Inc. (WPM), is a domestic corporation engaged in
the restaurant business, while Warlito P. Manlapaz (Manlapaz) is its president.

Sometime in 1990, WPM entered into a management agreement with the respondent, by virtue of which the
respondent was authorized to operate, manage and rehabilitate Quickbite, a restaurant owned and operated
by WPM. As part of her tasks, the respondent looked for a contractor who would renovate the two existing
Quickbite outlets in Divisoria, Manila and Lepanto St., University Belt, Manila. Pursuant to the agreement, the
respondent engaged the services of CLN Engineering Services (CLN) to renovate Quickbite-Divisoria at the
cost of ₱432,876.02.

On June 13, 1990, Quickbite-Divisoria’s renovation was finally completed, and its possession was delivered to
the respondent. However, out of the ₱432,876.02 renovation cost, only the amount of ₱320,000.00 was paid to
CLN, leaving a balance of ₱112,876.02.

Complaint for Sum of Money (Civil Case No. Q-90-7013)

On October 19, 1990, CLN filed a complaint for sum of money and damages before the RTC against the
respondent and Manlapaz, which was docketed as Civil Case No. Q-90-7013. CLN later amended the
complaint to exclude Manlapaz as defendant. The respondent was declared in default for her failure to file a
responsive pleading.

The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN actual damages inthe
amount of ₱112,876.02 with 12% interest per annum from June 18,1990 (the date of first demand) and 20% of
the amount recoverable as attorney’s fees.

Complaint for Damages (Civil Case No. Q-92-13446)

Thereafter, the respondent instituted a complaint for damages against the petitioners, WPM and Manlapaz.
The respondent alleged that in Civil Case No. Q-90-7013, she was adjudged liable for a contract that she
entered into for and in behalf of the petitioners, to which she should be entitled to reimbursement; that her
participation in the management agreement was limited only to introducing Manlapaz to Engineer Carmelo Neri
(Neri), CLN’s general manager; that it was actually Manlapaz and Neri who agreed on the terms and conditions
of the agreement; that when the complaint for damages was filed against her, she was abroad; and that she
did not know of the case until she returned to the Philippines and received a copy of the decision of the RTC.
In her prayer, the respondent sought indemnification in the amount of ₱112,876.60 plus interest at 12%per
annum from June 18, 1990 until fully paid; and 20% of the award as attorney’s fees. She likewise prayed that
an award of ₱100,000.00 as moral damages and ₱20,000.00 as attorney’s fees be paid to her.

In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar Alcansajewho was in-charge
with the daily operations of the Quickbite outlets; that when Alcansaje left WPM, the remaining directors were
compelled to hire the respondent as manager; that the respondent had entered intothe renovation agreement
with CLN in her own personal capacity; that when he found the amount quoted by CLN too high, he instructed
the respondent to either renegotiate for a lower price or to look for another contractor; that since the
respondent had exceeded her authority as agent of WPM, the renovation agreement should only bind her; and
that since WPM has a separate and distinct personality, Manlapaz cannot be made liable for the respondent’s
claim.

Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and by way of counterclaim, for
the award of ₱350,000.00 as moral and exemplary damages and ₱50,000.00 attorney’s fees.

The RTC, through an order dated March 2, 1993 declared WPM in default for its failure to file a responsive
pleading.

The Decision of the RTC

In its decision, the RTC held that the respondent is entitled to indemnity from Manlapaz. The RTC found that
based on the records, there is a clear indication that WPM is a mere instrumentality or business conduit of
Manlapaz and as such, WPM and Manlapaz are considered one and the same. The RTC also found that
Manlapaz had complete control over WPM considering that he is its chairman, president and treasurer at the
same time. The RTC thus concluded that Manlapaz is liable in his personal capacity to reimburse the
respondent the amount she paid to CLN inconnection with the renovation agreement.

The petitioners appealed the RTC decision with the CA. There, they argued that in view of the respondent’s act
of entering into a renovation agreement with CLN in excess of her authority as WPM’s agent, she is not entitled
to indemnity for the amount she paid. Manlapaz also contended that by virtue ofWPM’s separate and distinct
personality, he cannot be madesolidarily liable with WPM.

The Ruling of the Court of Appeals

On September 28, 2007, the CA affirmed, with modification on the award of attorney’s fees, the decision of the
RTC.The CA held that the petitioners are barred from raising as a defense the respondent’s alleged lack of
authority to enter into the renovation agreement in view of their tacit ratification of the contract.

The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the same based on the
following: (1) Manlapaz is the principal stockholder of WPM; (2) Manlapaz had complete control over WPM
because he concurrently held the positions of president, chairman of the board and treasurer, in violation of the
Corporation Code; (3) two of the four other stockholders of WPM are employed by Manlapaz either directly or
indirectly; (4) Manlapaz’s residence is the registered principal office of WPM; and (5) the acronym "WPM" was
derived from Manlapaz’s initials. The CA applied the principle of piercing the veil of corporate fiction and
agreed with the RTC that Manlapaz cannot evade his liability by simply invoking WPM’s separate and distinct
personality.

After the CA's denial of their motion for reconsideration, the petitioners filed the present petition for review on
certiorari under Rule 45 of the Rules of Court.

The Petition

The petitioners submit that the CA gravely erred in sustaining the RTC’s application of the principle of piercing
the veil of corporate fiction. They argue that the legal fiction of corporate personality could only be discarded
upon clear and convincing proof that the corporation is being used as a shield to avoid liability or to commit a
fraud. Since the respondent failed to establish that any of the circumstances that would warrant the piercing is
present, Manlapaz claims that he cannot be made solidarily liable with WPM to answerfor damages allegedly
incurred by the respondent.

The petitioners further argue that, assuming they may be held liable to reimburse to the respondentthe amount
she paid in Civil Case No. Q-90-7013, such liability is only limited to the amount of ₱112,876.02, representing
the balance of the obligation to CLN, and should not include the twelve 12% percent interest, damages and
attorney’s fees.

The Issues

The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and business conduit of Manlapaz;
and (2) whether Manlapaz is jointly and severally liable with WPM to the respondent for reimbursement,
damages and interest.

Our Ruling

We find merit in the petition.

We note, at the outset, that the question of whether a corporation is a mere instrumentality or alter-ego of
another is purely one of fact.5 This is also true with respect to the question of whether the totality of the
evidence adduced by the respondentwarrants the application of the piercing the veil of corporate fiction
doctrine.6

Generally, factual findings of the lower courts are accorded the highest degree of respect, if not finality. When
adopted and confirmed by the CA, these findings are final and conclusive and may not be reviewed on
appeal,7 save in some recognized exceptions8 among others, when the judgment is based on misapprehension
of facts.

We have reviewed the records and found that the application of the principle of piercing the veil of corporate
fiction is unwarranted in the present case.

On the Application ofthe Principle of Piercing the Veil of Corporate Fiction

The rule is settled that a corporation has a personality separate and distinct from the persons acting for and in
its behalf and, in general, from the people comprising it.9 Following this principle, the obligations incurred by
the corporate officers, orother persons acting as corporate agents, are the direct accountabilities ofthe
corporation they represent, and not theirs. Thus, a director, officer or employee of a corporation is generally not
held personally liable for obligations incurred by the corporation;10 it is only in exceptional circumstances that
solidary liability will attach to them.

Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a)
when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction
is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is
used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a
corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs so conducted as to make it merely aninstrumentality,
agency, conduit or adjunct of another corporation.11

Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked so that the corporate entity as
to this transaction had at the time no separate mind, will or existence of its own;
 (2) Such control must have beenused by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of.

The absence of any ofthese elements prevents piercing the corporate veil.12

In the present case, the attendantcircumstances do not establish that WPM is a mere alter ego of Manlapaz.

Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not show that WPM was
organized and controlled, and its affairs conducted in a manner that made it merely an instrumentality, agency,
conduit or adjunct ofManlapaz. As held in Martinez v. Court of Appeals,13 the mere ownership by a
singlestockholder of even all or nearly all of the capital stocks ofa corporation is not by itself a sufficient ground
to disregard the separate corporate personality. To disregard the separate juridical personality of a corporation,
the wrongdoing must be clearly and convincingly established.14

Likewise, the records of the case do not support the lower courts’ finding that Manlapaz had control or
domination over WPM or its finances. That Manlapaz concurrentlyheld the positions of president, chairman and
treasurer, or that the Manlapaz’s residence is the registered principal office of WPM, are insufficient
considerations to prove that he had exercised absolutecontrol over WPM.

In this connection, we stress thatthe control necessary to invoke the instrumentality or alter ego rule is not
majority or even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so tospeak, no separate mind, will or existence of its own, and is but a conduit for
its principal. The control must be shown to have been exercised at the time the acts complained of took place.
Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the
complaint is made.

Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control over
WPM.1âwphi1 Even granting that he exercised a certain degree of control over the finances, policies and
practices of WPM, in view of his position as president, chairman and treasurer of the corporation, such control
does not necessarily warrant piercing the veil of corporate fiction since there was not a single proof that WPM
was formed to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith or fraud.

On the contrary, the evidence establishes that CLN and the respondent knew and acted on the knowledgethat
they were dealing with WPM for the renovation of the latter’s restaurant, and not with Manlapaz. That WPM
later reneged on its monetary obligation to CLN, resulting to the filing of a civil case for sum of money against
the respondent, does not automatically indicate fraud, in the absence of any proof to support it.

This Court also observed that the CA failed to demonstrate how the separate and distinct personalityof WPM
was used by Manlapaz to defeat the respondent’s right for reimbursement. Neither was there any showing that
WPM attempted to avoid liability or had no property against which to proceed.

Since no harm could be said to have been proximately caused by Manlapaz for which the latter could be held
solidarily liable with WPM, and considering that there was no proof that WPM had insufficient funds, there was
no sufficient justification for the RTC and the CA to have ruled that Manlapaz should be held jointly and
severally liable to the respondent for the amount she paid to CLN. Hence, only WPM is liable to indemnify the
respondent.

Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon and thus, must be done
with caution.15 It can only be done if it has been clearly established that the separate and distinct personality of
the corporation is used to justify a wrong, protect fraud, or perpetrate a deception. The court must be certain
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against
another, in disregard of its rights; it cannot be presumed.

On the Award of Moral Damages

On the award of moral damages, we find the same in order in view of WPM's unjustified refusal to pay a just
debt. Under Article 2220 of the New Civil Code,16 moral damages may be awarded in cases of a breach of
contract where the defendant acted fraudulently or in bad faith or was guilty of gross negligence amounting to
bad faith.

In the present case, when payment for the balance of the renovation cost was demanded, WPM, instead of
complying with its obligation, denied having authorized the respondent to contract in its behalf and accordingly
refused to pay. Such cold refusal to pay a just debt amounts to a breach of contract in bad faith, as
contemplated by Article 2220. Hence, the CA's order to pay moral damages was in order.

WHEREFORE, in light of the foregoing, the decision dated September 28, 2007 of the Court of Appeals in CA-
G.R. CV No. 68289 is MODIFIED and.that petitioner Warlito P. Manlapaz is ABSOLVED from any liability
under the renovation agreement.

SO ORDERED.

CASES
G.R. No. 176579               June 28, 2011

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

DECISION

CARPIO, J.:

The Case

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

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

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

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the
outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government
announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public
bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two
bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of ₱25.6
billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC
shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and
instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007,
First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of ₱25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.

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

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

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

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

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of ₱25,217,556,000.
The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February
2007 to exercise its right of first refusal in accordance with PTIC’s Articles of Incorporation. First Pacific announced its intention to
match Parallax’s bid.

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

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC
shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First
Pacific and its affiliates); (b) Parallax offered the highest bid amounting to ₱25,217,556,000; (c) pursuant to the right of first refusal in
favor of PTIC and its shareholders granted in PTIC’s Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first
refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was
consummated when MPAH paid IPC ₱25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner.

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

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

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New York Stock
Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached the constitutional limit of
40 percent ownership as early as 2003. x x x"7

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

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

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

The Issue

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

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

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

While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain from discussing
the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when
MPAH paid IPC ₱25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.

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

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

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

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

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

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

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

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

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

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

Petitioner has locus standi

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

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

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

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

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

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

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

Definition of the Term "Capital" in

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

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

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

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

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

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

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

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

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

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because
such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term
"capital" in Section 11, Article XII of the Constitution refers to "the ownership of common capital stock subscribed and outstanding,
which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is
undisputed that PLDT’s non-voting preferred shares are held mostly by Filipino citizens. 30 This arose from Presidential Decree No.
217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to
non-voting preferred shares to pay for the investment cost of installing the telephone line. 32
Petitioners-in-intervention basically reiterate petitioner’s arguments and adopt petitioner’s definition of the term
"capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of PLDT x x x already
amounts to at least 63.54% of the total outstanding common stock," which means that foreigners exercise significant control over
PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.

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

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

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

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

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

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

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

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

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of
stock entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said activities. Otherwise, if the
Trial Court’s ruling upholding respondents’ arguments were to be given credence, it would be possible for the ownership structure of
a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks.
Following the Trial Court’s ruling adopting respondents’ arguments, the common shares can be owned entirely by foreigners thus
creating an absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utility
corporation.

xxxx

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

xxxx

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

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

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

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

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

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

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

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

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

xxxx

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

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

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

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

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

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall
not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a
consideration less than the value of five (₱5.00) pesos per share: Provided, further, That the entire consideration received by the
corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.

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

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

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

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

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

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

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

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

8. Dissolution of the corporation.

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

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

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

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

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

MR. VILLEGAS. That is right.

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

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

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

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

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

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

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

MR. VILLEGAS. Yes.48

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

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

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

MR. VILLEGAS. Yes.

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

MR. VILLEGAS. That is right.

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

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

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

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

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

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

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

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

b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens
of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital
stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund
will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a
Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the
members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall
be considered a Philippine national. The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are generally entitled to vote are considered.

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

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

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

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

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

We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that a corporation has 100
common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share
having a par value of one peso (₱1.00) per share. Under the broad definition of the term "capital," such corporation would be
considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or
more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

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

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

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT’s Articles of Incorporation
expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the
election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or
to receive notice of any meeting of stockholders." 51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDT’s Articles of
Incorporation52 state that "each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by
him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote
for the election of directors and for all other purposes."53
In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control
over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control
over PLDT. In fact, under PLDT’s 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 PLDT’s 2010 General Information Sheet (GIS), 54 which is a document required to be submitted annually to the Securities and
Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common
shares.56 In other words, foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos hold only 35.73%.
Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount
of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section
11, Article XII of the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009, 57 as submitted to the SEC, shows that per share the SIP 58 preferred shares
earn a pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at ₱70.00 per share,
while the declared dividends for the preferred shares amounted to a measly ₱1.00 per share. 59 So the preferred shares not only
cannot vote in the election of directors, they also have very little and obviously negligible dividend earning capacity compared to
common shares.

As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is ₱5.00 per share, whereas the par
value of preferred shares is ₱10.00 per share. In other words, preferred shares have twice the par value of common shares but
cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned
by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. 61 Worse, preferred shares constitute 77.85% of the
authorized capital stock of PLDT while common shares constitute only 22.15%. 62 This undeniably shows that beneficial interest in
PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of
60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance
with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is constitutionally required for the State’s 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 PLDT’s common shares, constituting a
minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; 63 (5) preferred shares have twice the
par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares
only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of ₱5.00 have a current stock market value of ₱2,328.00 per
share,64 while PLDT preferred shares with a par value of ₱10.00 per share have a current stock market value ranging from only
₱10.92 to ₱11.06 per share,65 is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the
common shares, not with the preferred shares.

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

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

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

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

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

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

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

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

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen
and the alien have violated the law, none of them should have a recourse against the other, and it should only be the State that
should be allowed to intervene and determine what is to be done with the property subject of the violation. We have said that what
the State should do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial authority.
(Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what
policy should be followed in cases of violations against the constitutional prohibition, courts of justice cannot go beyond by
declaring the disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied)

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

This Court has held that the SEC "has both regulatory and adjudicative functions." 69 Under its regulatory functions, the SEC can be
compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or
quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate such violation.1awphi1

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

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

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

SO ORDERED.
 G.R. No. 148076               January 12, 2011

ANTONIO M. CARANDANG, Petitioner,
vs.
HONORABLE ANIANO A. DESIERTO, OFFICE OF THE OMBUDSMAN, Respondent.

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

G.R. No. 153161

ANTONIO M. CARANDANG, Petitioner,
vs.
SANDIGANBAYAN (FIFTH DIVISION), Respondent.

DECISION

BERSAMIN, J.:

Petitioner Antonio M. Carandang (Carandang) challenges the jurisdiction over him of the Ombudsman and of the Sandiganbayan on
the ground that he was being held to account for acts committed while he was serving as general manager and chief operating
officer of Radio Philippines Network, Inc. (RPN), which was not a government-owned or -controlled corporation; hence, he was not a
public official or employee.

In G.R. No. 148076, Carandang seeks the reversal of the decision 1 and resolution2 promulgated by the Court of Appeals (CA) affirming
the decision3 of the Ombudsman dismissing him from the service for grave misconduct.

In G.R. No. 153161, Carandang assails on certiorari the resolutions dated October 17, 2001 4 and March 14, 20025 of the
Sandiganbayan (Fifth Division) that sustained the Sandiganbayan’s jurisdiction over the criminal complaint charging him with
violation of Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act).

Antecedents

Roberto S. Benedicto (Benedicto) was a stockholder of RPN, a private corporation duly registered with the Securities and Exchange
Commission (SEC).6 In March 1986, the Government ordered the sequestration of RPN’s properties, assets, and business. On
November 3, 1990, the Presidential Commission on Good Government (PCGG) entered into a compromise agreement with
Benedicto, whereby he ceded to the Government, through the PCGG, all his shares of stock in RPN. Consequently, upon motion of
the PCGG, the Sandiganbayan (Second Division) directed the president and corporate secretary of RPN to transfer to the PCGG
Benedicto’s shares representing 72.4% of the total issued and outstanding capital stock of RPN.

However, Benedicto moved for a reconsideration, contending that his RPN shares ceded to the Government, through the PCGG,
represented only 32.4% of RPN’s outstanding capital stock, not 72.4%. Benedicto’s motion for reconsideration has remained
unresolved to this date.7

Administrative Complaint for Grave Misconduct

On July 28, 1998, Carandang assumed office as general manager and chief operating officer of RPN. 8

On April 19, 1999, Carandang and other RPN officials were charged with grave misconduct before the Ombudsman. The charge
alleged that Carandang, in his capacity as the general manager of RPN, had entered into a contract with AF Broadcasting
Incorporated despite his being an incorporator, director, and stockholder of that corporation; that he had thus held financial and
material interest in a contract that had required the approval of his office; and that the transaction was prohibited under Section 7
(a) and Section 9 of Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees), thereby
rendering him administratively liable for grave misconduct.
Carandang sought the dismissal of the administrative charge on the ground that the Ombudsman had no jurisdiction over him
because RPN was not a government-owned or -controlled corporation. 9

On May 7, 1999, the Ombudsman suspended Carandang from his positions in RPN.

On September 8, 1999, Carandang manifested that he was no longer interested and had no further claim to his positions in RPN. He
was subsequently replaced by Edgar San Luis. 10

In its decision dated January 26, 2000,11 the Ombudsman found Carandang guilty of grave misconduct and ordered his dismissal from
the service.

Carandang moved for reconsideration on two grounds: (a) that the Ombudsman had no jurisdiction over him because RPN was not a
government-owned or -controlled corporation; and (b) that he had no financial and material interest in the contract that required
the approval of his office.12

The Ombudsman denied Carandang’s motion for reconsideration on March 15, 2000. 13

On appeal (CA G.R. SP No. 58204),14 the CA affirmed the decision of the Ombudsman on February 12, 2001, stating:

The threshold question to be resolved in the present case is whether or not the Office of the Ombudsman has jurisdiction over the
herein petitioner.

It is therefore of paramount importance to consider the definitions of the following basic terms, to wit: A public office "is the right,
authority and duty, created and conferred by law, by which for a given period, either fixed by law or enduring at the pleasure of the
creating power, an individual is invested with some portion of the sovereign functions of the state to be exercised by him for the
benefit of the public." (San Andres, Catanduanes vs. Court of Appeals, 284 SCRA 276: Chapter I, Section 1, Mechem, A Treatise on
Law of Public Offices and Officers). The individual so invested is called the public officer which "includes elective and appointive
officials and employees, permanent or temporary, whether in the classified or unclassified or exemption service receiving
compensation, even nominal, from the government as defined in xxx [Sec. 2 (a) of Republic Act No. 3019 as amended]." (Sec. 2 (b) of
Republic Act No. 3019 as amended. Unless the powers conferred are of this nature, the individual is not a public officer.

With these time-honored definitions and the substantial findings of the Ombudsman, We are constrained to conclude that, indeed,
the herein petitioner (Antonio M. Carandang) is a public officer. Precisely, since he (Antonio M. Carandang) was appointed by then
President Joseph Ejercito Estrada as general manager and chief operating officer of RPN-9 (page 127 of the Rollo). As a presidential
appointee, the petitioner derives his authority from the Philippine Government. It is luce clarius that the function of the herein
petitioner (as a presidential appointee), relates to public duty, i.e., to represent the interest of the Philippine Government in RPN-9
and not purely personal matter, thus, the matter transcends the petitioner’s personal pique or pride.

xxx

Having declared earlier that the herein petitioner is a public officer, it follows therefore that, that jurisdiction over him is lodged in
the Office of the Ombudsman.

It is worth remembering that as protector of the people, the Ombudsman has the power, function and duty to act promptly on
complaints filed in any form or manner against officers or employees of the Government, or of any, subdivision, agency or
instrumentality thereof, including government-owned or controlled corporations, and enforce their administrative, civil and criminal
liability in every case where the evidence warrants in order to promote efficient service by the Government to the people. (Section
13 of Republic Act No. 6770).

xxx

Accordingly, the Office of the Ombudsman is, therefore, clothed with the proper armor when it assumed jurisdiction over the case
filed against the herein petitioner. x x x

xxx
It appears that RPN-9 is a private corporation established to install, operate and manage radio broadcasting and/or television
stations in the Philippines (pages 59-79 of the Rollo). On March 2, 1986, when RPN-9 was sequestered by the Government on ground
that the same was considered as an illegally obtained property (page 3 of the Petition for Review; page 2 of the Respondent’s
Comment; pages 10 and 302 of the Rollo), RPN-9 has shed-off its private status. In other words, there can be no gainsaying that as of
the date of its sequestration by the Government, RPN-9, while retaining its own corporate existence, became a government-owned
or controlled corporation within the Constitutional precept.

Be it noted that a government-owned or controlled corporation "refers to any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether government or proprietary in nature, and owned by the Government directly
or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-
one (51) percent of its capital stock; Provided, That government-owned or controlled corporations may be further categorized by the
department of Budget, the Civil Service, and the Commission on Audit for purposes of the exercise and discharge of their respective
powers, functions and responsibilities with respect to such corporations." (Section 2 [13], Executive Order No. 292).

Contrary to the claim of the petitioner, this Court is of the view and so holds that RPN-9 perfectly falls under the foregoing definition.
For one, "the government’s interest to RPN-9 amounts to 72.4% of RPN’s capital stock with an uncontested portion of 32.4% and a
contested or litigated portion of 40%." (page 3 of the Petition for Review; pages 8-9 of the Respondent’s Comment). On this score, it
ought to be pointed out that while the forty percent (40%) of the seventy two point four percent (72.4%) is still contested and
litigated, until the matter becomes formally settled, the government, for all interests and purposes still has the right over said
portion, for the law is on its side. Hence, We can safely say that for the moment, RPN-9 is a government owned and controlled
corporation. Another thing, RPN 9, though predominantly tackles proprietary functions—those intended for private advantage and
benefit, still, it is irrefutable that RPN-9 also performs governmental roles in the interest of health, safety and for the advancement
of public good and welfare, affecting the public in general.

xxx

Coming now to the last assignment of error- While it may be considered in substance that the "latest GIS clearly shows that
petitioner was no longer a stockholder of record of AF Broadcasting Corporation at the time of his assumption of Office in RPN 9 x x
x" (Petitioner’s Reply [to Comment]; page 317 of the Rollo), still severing ties from AF Broadcasting Corporation does not convince
this Court fully well to reverse the finding of the Ombudsman that Antonio Carandang "appears to be liable for Grave Misconduct"
(page 10 of the Assailed Decision; page 36 of the Rollo). Note that, as a former stockholder of AF Broadcasting Corporation, it is
improbable that the herein petitioner was completely oblivious of the developments therein and unaware of the contracts it (AF
Broadcasting Corporation) entered into. By reason of his past (Antonio Carandang) association with the officers of the AF
Broadcasting Corporation, it is unbelievable that herein petitioner could simply have ignored the contract entered into between
RPN-9 and AF Broadcasting Corporation and not at all felt to reap the benefits thereof. Technically, it is true that herein petitioner
did not directly act on behalf of AF Broadcasting Corporation, however, We doubt that he (herein petitioner) had no financial and/or
material interest in that particular transaction requiring the approval of his office—a fact that could not have eluded Our attention.

xxx

WHEREFORE, premises considered and pursuant to applicable laws and jurisprudence on the matter, the present Petition for Review
is hereby DENIED for lack of merit. The assailed decision (dated January 26, 2000) of the Office of the Ombudsman in OMB-ADM-0-
99-0349 is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.15

After the denial of his motion for reconsideration, 16 Carandang commenced G.R. No. 148076.

Violation of Section 3 (g), Republic Act No. 3019

On January 17, 2000, the Ombudsman formally charged Carandang in the Sandiganbayan with a violation of Section 3 (g) of RA 3019
by alleging in the following information, 17 viz:

That sometime on September 8, 1998 or thereabouts, in Quezon City, Philippines and within the jurisdiction of this Honorable Court,
accused ANTONIO M. CARANDANG, a high ranking officer (HRO) being then the General Manager of Radio Philippines Network, Inc.
(RPN-9), then a government owned and controlled corporation, did then and there willfully, unlawfully and criminally give
unwarranted benefits to On Target Media Concept, Inc. (OTMCI) through manifest partiality and gross inexcusable negligence and
caused the government undue injury, by pre-terminating the existing block time contract between RPN 9 and OTMCI for the telecast
of "Isumbong Mo Kay Tulfo" which assured the government an income of Sixty Four Thousand and Nine Pesos (P 64,009.00) per
telecast and substituting the same with a more onerous co-production agreement without any prior study as to the profitability
thereof, by which agreement RPN-9 assumed the additional obligation of taking part in the promotions, sales and proper marketing
of the program, with the end result in that in a period of five (5) months RPN-9 was able to realize an income of only Seventy One
Thousand One Hundred Eighty Five Pesos (P 71,185.00), and further, by waiving RPN-9’s collectible from OTMCI for August 1-30,
1998 in the amount of Three Hundred Twenty Thousand and Forty Five Pesos (P 320,045.00).

Carandang moved to quash the information,18 arguing that Sandiganbayan had no jurisdiction because he was not a public official
due to RPN not being a government-owned or -controlled corporation.

The Sandiganbayan denied Carandang’s motion to quash on October 17, 2001. 19

After the denial by the Sandiganbayan of his motion for reconsideration, 20 Carandang initiated G.R. No. 153161.21

On May 27, 2002, Carandang moved to defer his arraignment and pre-trial, citing the pendency of G.R. No. 153161. 22

On July 29, 2002, the Court directed the parties in G.R. No. 153161 to maintain the status quo until further orders. 23

On November 20, 2006, G.R. No. 148076 was consolidated with G.R. No. 153161. 24

Issue

Carandang insists that he was not a public official considering that RPN was not a government-owned or -controlled corporation; and
that, consequently, the Ombudsman and the Sandiganbayan had no jurisdiction over him. He prays that the administrative and
criminal complaints filed against him should be dismissed. Accordingly, decisive is whether or not RPN was a government-owned or
-controlled corporation.

Ruling

We find the petitions to be meritorious.

It is not disputed that the Ombudsman has jurisdiction over administrative cases involving grave misconduct committed by the
officials and employees of government-owned or -controlled corporations; and that the Sandiganbayan has jurisdiction to try and
decide criminal actions involving violations of R.A. 3019 committed by public officials and employees, including presidents, directors
and managers of government-owned or -controlled corporations. The respective jurisdictions of the respondents are expressly
defined and delineated by the law.25

Similarly, the law defines what are government-owned or -controlled corporations. For one, Section 2 of Presidential Decree No.
2029 (Defining Government Owned or Controlled Corporations and Identifying Their Role in National Development) states:

Section 2. A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental
or proprietary functions, which is directly chartered by a special law or if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least
a majority of its outstanding capital stock or of its outstanding voting capital stock.

Section 2 (13) of Executive Order No. 292 (Administrative Code of 1987) 26 renders a similar definition of government-owned or
-controlled corporations:

Section 2. General Terms Defined. – Unless the specific words of the text or the context as a whole or a particular statute, shall
require a different meaning:

xxx

(13) government-owned or controlled corporations refer to any agency organized as a stock or non-stock corporation vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the government directly or
indirectly through its instrumentalities either wholly, or where applicable as in the case of stock corporations to the extent of at least
51% of its capital stock.

It is clear, therefore, that a corporation is considered a government-owned or -controlled corporation only when the Government
directly or indirectly owns or controls at least a majority or 51% share of the capital stock. Applying this statutory criterion, the Court
ruled in Leyson, Jr. v. Office of the Ombudsman:27

But these jurisprudential rules invoked by petitioner in support of his claim that the CIIF companies are government owned and/or
controlled corporations are incomplete without resorting to the definition of "government owned or controlled corporation"
contained in par. (13), Sec.2, Introductory Provisions of the Administrative Code of 1987, i.e., any agency organized as a stock or
non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature, and owned by
the government directly or indirectly through its instrumentalities either wholly, or where applicable as in the case of stock
corporations to the extent of at least fifty-one (51) percent of its capital stock. The definition mentions three (3) requisites, namely,
first, any agency organized as a stock or non-stock corporation; second, vested with functions relating to public needs whether
governmental or proprietary in nature; and, third, owned by the Government directly or through its instrumentalities either wholly,
or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) of its capital stock.

In the present case, all three (3) corporations comprising the CIIF companies were organized as stock corporations. The UCPB-CIIF
owns 44.10% of the shares of LEGASPI OIL, xxx. Obviously, the below 51% shares of stock in LEGASPI OIL removes this firm from
the definition of a government owned or controlled corporation. x x x The Court thus concludes that the CIIF are, as found by public
respondent, private corporations not within the scope of its jurisdiction. 28

Consequently, RPN was neither a government-owned nor a controlled corporation because of the Government’s total share in RPN’s
capital stock being only 32.4%.

Parenthetically, although it is true that the Sandiganbayan (Second Division) ordered the transfer to the PCGG of Benedicto’s shares
that represented 72.4% of the total issued and outstanding capital stock of RPN, such quantification of Benedicto’s shareholding
cannot be controlling in view of Benedicto’s timely filing of a motion for reconsideration whereby he clarified and insisted that the
shares ceded to the PCGG had accounted for only 32.4%, not 72.4%, of RPN’s outstanding capital stock. With the extent of
Benedicto’s holdings in RPN remaining unresolved with finality, concluding that the Government held the majority of RPN’s capital
stock as to make RPN a government-owned or -controlled corporation would be bereft of any factual and legal basis.

Even the PCGG and the Office of the President (OP) have recognized RPN’s status as being neither a government-owned nor
-controlled corporation.

In its Opinion/Clarification dated August 18, 1999, the PCGG communicated to San Luis as the president and general manager of RPN
regarding a case involving RPN and Carandang:29

MR. EDGAR S. SAN LUIS

President & General Manager
Radio Philippines Network, Inc.
Broadcast City, Capitol Hills
Diliman, Quezon City

Sir:

This refers to your letter dated August 4, 1999, seeking "PCGG’s position on the following:

"1. Whether RPN-9 is a GOCC x x x or a private corporation outside the scope of OGCC and COA’s control given 32% Government
ownership x x x.

xxx

It appears that under the RP-Benedicto Compromise Agreement dated November 3, 1990 – validity of which has been sustained by
the Supreme Court in G.R. No. 96087, March 31, 1992, (Guingona, Jr. vs. PCGG, 207 SCRA 659) – Benedicto ceded all his rights,
interest and/or participation, if he has any, in RPN-9, among others, to the government which rights, interest and/or participation
per PCGG’s understanding, include 9,494,327.50 shares of stock, i.e, about 72.4% of the total issued and outstanding capital stock of
RPN-9.

Accordingly, the Sandiganbayan (Second Division), on motion of the government through PCGG, ordered the president and
corporate secretary of the RPN-9 to "effect the immediate cancellation and transfer of the 9,494,327.50 shares corresponding to
Benedicto’s proprietary interest in RPN-9 to the Republic of the Philippines c/o PCGG" (Sandiganbayan’s Resolution of February 3,
1998 in Civil Case No. 0034, RP vs. Roberto Benedicto, et. al.) Benedicto, however, filed a motion for reconsideration of said
Resolution, contending that the number of RPN-9 shares ceded by him embraces only his personal holdings and those of his
immediate family and nominees totaling 4,161,207.5 shares but excluding the RPN-9 shares in the name of Far East Managers and
Investors, Inc. ("FEMIE"), which is about 40%, as they are corporate properties/assets of FEMIE and not his personal holdings. Said
motion for reconsideration is still pending resolution by the Sandiganbayan.

xxx

We agree with your x x x view that RPN-9 is not a government owned or controlled corporation within the contemplation of the
Administrative Code of 1987, for admittedly, RPN-9 was organized for private needs and profits, and not for public needs and was
not specifically vested with functions relating to public needs.

Neither could RPN-9 be considered a "government-owned or controlled corporation" under Presidential Decree (PD) No. 2029
dated February 4, 1986, which defines said terms as follows:

"Sec.2. Definition. – A government owned- or controlled corporation is a stock or non-stock corporation, whether performing
governmental or proprietary functions which is directly chartered by special law or organized under the general corporation law is
owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent
of at least a majority of its outstanding capital stock or of its outstanding voting capital stock;

Provided, that a corporation organized under the general corporation law under private ownership at least a majority of the shares
of stock of which were conveyed to a government corporation in satisfaction of debts incurred with a government financial
institution, whether by foreclosure or otherwise, or a subsidiary corporation of a government corporation organized exclusively to
own and manage, or lease, or operate specific physical assets acquired by a government financial institution in satisfaction of debts
incurred therewith, and which in any case by enunciated policy of the government is required to be disposed of to private ownership
within a specified period of time, shall not be considered a government-owned or controlled corporation before such disposition and
even if the ownership or control thereof is subsequently transferred to another government-owned or controlled corporation."

A government-owned or controlled corporation is either "parent" corporation, i.e., one "created by special law" (Sec. 3 (a), PD 2029)
or a "subsidiary" corporation, i.e, one created pursuant to law where at least a majority of the outstanding voting capital stock of
which is owned by parent government corporation and/or other government-owned subsidiaries. (Sec. 3 (b), PD 2029).

RPN-9 may not likewise be considered as an "acquired asset corporation" which is one organized under the general corporation law
(1) under private ownership at least a majority of the shares of stock of which were conveyed to a government corporation in
satisfaction of debts incurred with a government financial institution, whether by foreclosure or otherwise, or (2) as a subsidiary
corporation of a government corporation organized exclusively to own and manage, or lease, or operate specific physical assets
acquired by a government financial institution in satisfaction of debts incurred therewith, and which in any case by enunciated policy
of the government is required to be disposed of to private ownership within a specified period of time" (Sec 3 c, PD 2029), for the
following reasons:

1. as noted above, the uncontested (not litigated) RPN-9 shares of the government is only 32.4% (not a majority) of its
capital stock;

2. said 32.4% shares of stock, together with the contested/litigated 40%, were not conveyed to a government corporation
or the government "in satisfaction of debts incurred with government financial institution, whether by foreclosure or
otherwise;

3. RPN-9 was not organized as a subsidiary corporation of a government corporation organized exclusively to own and
manage, or lease, or operate specific physical assets acquired by a government financial institution in satisfaction of debts
incurred therewith.
It should be parenthetically noted that the 32.4% or 72.4% shares of stocks were turned over to the government by virtue of a
compromise agreement between the government and Benedicto in Civil Case No. 0034 which is "a civil action against Defendants
Roberto S. Benedicto, Ferdinand E. Marcos, Imelda R. Marcos" and others, to recover from them ill-gotten wealth" (Amended
Complaint, Aug. 12, 1987, Civil Case No. 0034, p. 2.) As the case between the government and Benedicto, his family and nominees
was compromised, no judicial pronouncement was made as to the character or nature of the assets and properties turned over by
Benedicto to the government – whether they are ill-gotten wealth or not. 30

The PCGG’s Opinion/Clarification was affirmed by the OP itself on February 10, 2000: 31

February 10, 2000

Mr. Edgar S. San Luis

President and General Manager
Radio Philippines Network Inc.
Broadcasting City, Capitol Hills, Diliman Quezon City

Dear President San Luis,

xxx

Relative thereto, please be informed that we affirm the PCGG’s opinion that RPNI is not a government-owned and/or controlled
corporation (GOCC). Section 2 (13), Introductory Provisions of the Administrative Code of 1987 defines a GOCC as an agency
organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in
nature, and owned by the government directly or indirectly through its instrumentalities either wholly, or where applicable as in the
case of stock corporations to the extent of at least 51% of its capital stock. As government ownership over RPNI is only 32.4% of its
capital stock, pending the final judicial determination of the true and legal ownership of RPNI, the corporation is deemed
private.32

Even earlier, a similar construction impelled the Ombudsman to dismiss a criminal complaint for violation of R.A. 3019 filed against
certain

RPN officials, as the Ombudsman’s resolution dated December 15, 1997 indicates, 33 a pertinent portion of which is quoted thus:

This is not to mention the fact that the other respondents, the RPN officials, are outside the jurisdiction of this Office (Office of the
Ombudsman); they are employed by a private corporation registered with the Securities and Exchange Commission, the RPN, which
is not a government owned or controlled corporation x x x34

Considering that the construction of a statute given by administrative agencies deserves respect, 35 the uniform administrative
constructions of the relevant aforequoted laws defining what are government-owned or -controlled corporations as applied to RPN
is highly persuasive.

Lastly, the conclusion that Carandang was a public official by virtue of his having been appointed as general manager and chief
operating officer of RPN by President Estrada deserves no consideration. President Estrada’s intervention was merely to recommend
Carandang’s designation as general manager and chief operating officer of RPN to the PCGG, which then cast the vote in his favor
vis-à-vis said positions.36 Under the circumstances, it was RPN’s Board of Directors that appointed Carandang to his positions
pursuant to RPN’s By-Laws.371avvphi1

In fine, Carandang was correct in insisting that being a private individual he was not subject to the administrative authority of the
Ombudsman and to the criminal jurisdiction of the Sandiganbayan. 38

WHEREFORE, we grant the petitions in G.R. No. 148076 and G.R. No. 153161.

We reverse and set aside the decision promulgated on February 12, 2001 by the Court of Appeals in C.A.-G.R. SP No. 58204, and
dismiss the administrative charge for grave misconduct against the petitioner.
We annul and set aside the resolutions dated October 17, 2001 and March 14, 2002, as well as the order dated March 15, 2002, all
issued by the Sandiganbayan (Fifth Division) in Criminal Case No. 25802, and dismiss Criminal Case No. 25802 as against the
petitioner.

SO ORDERED.
 [G.R. No. L-45911. April 11, 1979.]
JOHN GOKONGWEI, JR., Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUÑAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS,
ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, Respondents.

De Santos, Balgos & Perez for Petitioner.

Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos.

Sequion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.

R. T. Capulong for respondent Eduardo R. Visaya.

SYNOPSIS

Petitioner (a) seeks to declare null and void the amended by-laws of respondent corporation which disqualifies any
stockholder engaged in any business that competes with or is antagonistic to that of the corporation from being
nominated or elected to the Board of Directors; (b) assails the order of the Securities and Exchange Commission denying
his right to inspect the books of a wholly-owned subsidiary of respondent corporation; (c) assails the act of the Securities
and Exchange Commission in allowing the stockholders of respondent corporation to ratify the investment of corporate
funds in a foreign corporation.

The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books
and records of the wholly-owned subsidiary of respondent corporation.

For lack of necessary votes the Court denied the petition insofar as it assails the validity of the by-laws and ratification of
the foreign investment of respondent corporation.

On the validity of the amended By-laws, six justices (Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, JJ.,)
voted to sustain the validity per se of the amended by-laws and to dismiss the petition without prejudice to the question
of petitioner’s actual disqualification from running if elected from sitting as director of respondent corporation being
decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission and ultimately to the Supreme Court.

The aforementioned six justices, together with Fernando, J., voted to declare the issue on the validity of the foreign
investment of respondent corporation as moot.

Fred Ruiz Castro, C.J., reserved his vote on the validity of the amended by-laws pending hearing by this Court on the
applicability of section 13(5) of the Corporation law to petitioner.

Fernando, J., reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result.

Four Justices (Teehankee, Conception Jr., Fernandez and Guerrero, JJ.,) in a separate opinion voted against the validity of
the questioned amended by-laws and held that this question should properly be resolved first by the SEC as the agency
of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director in the
scheduled election and subsequent elections until disqualified after proper hearing by the respondent’s Board of
Directors and petitioner’s disqualification shall have been sustained by respondent SEC en banc and ultimately by final
judgment of this Court.

SYLLABUS
 1. APPEAL; SUPREME COURT MAY RESOLVED CASE ON THE MERITS, INSTEAD OF REMANDING IT TO LOWER COURT. —
The Supreme Court always strives to settle the entire controversy in a single proceeding, "leaving no root or branch to
bear the seeds of future litigation," and to decide a case on the merits instead of remanding it to the trial court for
further proceedings (a) where the ends of justice would not be subserved by the remand of the case, or (b) where public
interest demands an early disposition of the case; or (c) while the trial court had already received all the evidence
presented by both parties and the Supreme Court is in a position, based upon said evidence, to decide the case on its
merits.

2. ID.; ID.; QUESTION OF PRIMARY JURISDICTION HAS NO APPLICATION WHERE ONLY QUESTION OF LAW IS INVOLVED.
— The doctrine of primary jurisdiction has no application where only a question of law is involved. Because uniformity
may be secured through review by a single Supreme Court questions of law may appropriately de determined in the first
instance by courts.

3. ID.; VALIDITY OF BY-LAW OF CORPORATION IS A QUESTION OF LAW. — The validity of reasonableness of a by-laws of
a corporation, whether the by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a
legal sense unreasonable and therefore unlawful is purely a question of law. This rule is subject, however, to the
limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable
minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of
those who are authorized to make by-laws and who have exercised their authority.

4. CORPORATIONS; POWER TO ADOPT BY-LAWS. — Every corporation has the inherent power to adopt by-laws for its
internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and
among themselves in reference to the management of it affairs. In the absence of positive legislative provisions limiting
it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent
of any specific enabling provision in its character or in general law, such power of self-government being essential to
enable the corporation to accomplish the purposes of its creation.

5. ID.; ID.; QUALIFICATIONS OF OFFICERS AND EMPLOYEES. — The term "qualifications" under section 21 of the
Corporation Law which expressly empowers a corporation to prescribed in its by-laws the qualifications of directors
must necessarily refer to qualifications in addition to that specified by section 30 of the Corporation law, which provides
that "every director must own in his own right at least one share of the capital stock of the stock corporation of which he
is a director."cralaw virtua1aw library

6. ID.; STOCKHOLDERS MUST ABIDE BY RULE OF THE MAJORITY. — Any person "who buys stock in a corporation does so
with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that
the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-
laws and not forbidden by law. To this extent the stockholder may be considered to have parted with his personal right
or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and
surrendered it to the will of majority of his fellow incorporators. It cannot, therefore, be justly said that the contract,
express or implied, between the corporation and the stockholders is infringed by any act of the former which is
authorized by a majority.

7. ID.; ID.; AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING MINORITY STOCKHOLDER. — Where the articles of the
incorporation or the by-laws of a corporation has been amended by the required number of votes as provided for in the
Corporation Law, and the amendment changes, diminishes or restricts the rights of the existing stockholders, the
dissenting minority has only one right, viz.; to object thereto in writing and demand payment of his share.

8. ID.; STOCKHOLDER HAS NO VESTED RIGHT TO BE ELECTED DIRECTOR. — A stockholder has no vested right to be
elected director, where the law at the time such right as stockholder was acquired contained the prescription that the
corporate charter and the by-law will be subject to amendment, alteration and modification.

9. ID.; DIRECTOR STANDS IN A FIDUCIARY RELATION TO CORPORATION AND STOCKHOLDER. — Although in the strict and
technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their
 character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents
entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a
fiduciary relation, and in this sense the relation is one of trust." The ordinary trust relationship of directors of a
corporation and stockholders is not a matter of statutory or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity
recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries
thereof.

10. ID.; BY-LAWS; QUALIFICATION OF DIRECTORS. — Corporations have the power to make by-laws declaring a person
employed in the service of a rival company to be ineligible for the corporation’s Board of Directors.

11. ID.; ID.; ID.; CONFLICT OF INTERESTS. — An amendment which renders ineligible, or if elected, subjects to removal, a
director if he be also a director if he be also a director in a corporation whose business is in competition with or is
antagonistic to the other corporation is valid. This is based upon the principle that were the director also employed in
the service of a rival company, he cannot serve both, but must betray one or the other. Thus, an officer of a corporation
cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing
information he has received as such officer, under "the established law that a director or officer of a corporation may
not enter into a competing enterprise which cripples or injuries the business of the corporation of which he is an officer
or director."cralaw virtua1aw library

12. ID.; ID.; DOCTRINE OF "CORPORATE OPPORTUNITY." — Corporate officers are not permitted to the use their position
of trust and confidence to further their interests. The doctrine of "corporate opportunity" is precisely a recognition by
the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with
competing interests. This doctrine rests fundamentally of the unfairness, in particular circumstances, of an officer or
director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls
for protection.

13. ID.; MONOPOLIES. — The Constitution and the law prohibit combinations in restraint of trade and unfair
competition. Thus, section 2 of article XIV of the Constitution provides: "The State shall regulate or prohibit private
monopolies when the public interest so requires. No combination in restraint of trade or unfair competition shall be
allowed." These anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising
levels of competition by improving the consumers’ effectiveness as the final arbiter in free markets. They are designed
to preserve free and unfettered competition as the rule of trade, and operate to forestall concentration of economic
power.

14. ID.; ID.; NATURE AND DEFINITION OF MONOPOLY. — A "monopoly" embraces any combination, the tendency of
which is to prevent competition in the broad and general sense, or to control prices to the detriment of the public. It is
the concentration of business in the hands of a few. The material consideration in determining its existence is not that
prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition when
desired. It includes a condition produced by the mere act of individuals. Its dominant thought is the notion of
exclusiveness or unity, or the suppression of competition by the unification of interest or management, or thru
agreement and concert of action. An express agreement is not necessary for the existence of a combination or
conspiracy in restraint of trade.

15. ID.; ID.; STOCK OWNERSHIP IN AGRICULTURAL CORPORATIONS, LIMITATIONS. — The election of the president and
controlling shareholder of a corporation engaged in agriculture, to the board of another corporation, also engaged in
agriculture, may constitute a violation of the prohibition contained in section 13 (5) of the Corporation Law which
provides in part that "any stockholder of more than one corporation organized for the purpose of engaging in agriculture
may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to
bring about a combination to exercise control of such corporations."cralaw virtua1aw library

16. ID.; BY-LAW; QUALIFICATION IF MEMBERS OF THE BOARD; EQUAL PROTECTION. — If the by-law were to be applied
in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-law
 was being applied in a discriminatory manner, but not if the by-law, by its terms, applies to all stockholders. The equal
protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Sound
principles of public policy and management support the view that a by-law which disqualifies a competitor from election
to the Board of Directors of another corporation is valid and reasonable.

17. ID.; ID.; PROTECTION OF LEGITIMATE CORPORATE INTERESTS. — In the absence of any legal prohibition or overriding
public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporate
interests.

18. ID.; COMPETITION DEFINED. — "Competition" implies a struggle for advantage between two or more forces, each
possessing, in substantially similar if not identical degree, certain characteristics essential to the business sought. It
means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more
advantageous terms as an inducement to secure trade. The test must be whether the business does in fact compete, not
whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non characteristic activity.

19. ID.; ID.; EXERCISE OF POWER TO DISQUALIFY A STOCKHOLDER FROM BEING MEMBER OF THE BOARD. — The
amended by-laws which grants the Board the power by 3/4 votes to bar a stockholder from his right to be elected as
director where such stockholder is found to be engaged in a "competitive or antagonistic business" is valid. However,
consonant with the requirement of due process, there must be due hearing at which the stockholder must be given the
fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the
stockholders, it is the responsibility of directors to act with fairness to the stockholders. Pursuant to this obligation and
to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate
themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed
by the Securities and Exchange Commission en banc and its decision shall be final unless reversed by the Supreme Court
on certiorari.

20. ID.; REVIEW OF ACTION OF THE BOARD OF DIRECTORS. — Where the action of a Board of Directors is an abuse of
discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or
creditors, or will result in waste, dissipation or misapplication of the corporate assets, a court of equity has the power to
grant appropriate relief.

21. ID.; STOCKHOLDER’S RIGHT; INSPECTION OF BOOKS. — The stockholders’ right of inspection of the corporation’s
books and records is based upon their ownership of the assets and property of the corporation. It is an incident of
ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial
ownership, or quasi-ownership. It is predicated upon the necessity of self-protection.

22. ID.; ID.; RIGHT MUST BE EXERCISED IN GOOD FAITH. — Where a right is granted by statute to the stockholder, it is
given to him as such and must be exercised by him with respect to his interest as stockholder and for some purpose
germane thereto or in the interest of the corporation. In other words, the inspection has to be germane to the
petitioner’s interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the
corporation. It must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for
speculative or vexatious purposes.

23. ID.; ID.; COURT MAY INQUIRE INTO MOTIVE OF STOCKHOLDER. — On application for mandamus to enforce the right
to examine the books of a corporation, it is proper for the court to inquire into and consider the stockholder’s good faith
and his purpose and motives in seeking inspection. The right given by the statute is not absolute and may be refused
when the information is not sought in good faith or is used to the detriment of the corporation.

24. ID.; ID.; RIGHT TO EXAMINE BOOKS OF A WHOLLY OWNED SUBSIDIARY. — While the right of a stockholder to
examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to
examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a
different thing. Where a foreign subsidiary is wholly owned by respondent corporation and, therefore, under its control,
it would be in accord with equity, good faith and fair dealing to construe the statutory right of a stockholder to inspect
the books and records of the corporation as extending to books and records of such wholly owned subsidiary which are
in respondent corporation’s possession and control.

25. ID.; BOARD DIRECTORS; POWER TO INVEST FUNDS. — Section 17-1/2 of the Corporation Law allows a corporation to
"invest its fund in any corporation or business or for any purpose other than the main purpose for which it was
organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding
shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the
corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done
solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the
stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary.

26. ID.; ID.; RATIFICATION OF ACT OF BOARD OF DIRECTORS. — Where the Board of Directors had no authority to make
an investment, the corporation, like an individual, may ratify and thereby render binding upon it the originally
unauthorized acts of its officers or other agents. Mere ultra vires acts or those which are not illegal and void ab initio,
but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders.

27. ID.; ID.; INVESTMENT IN AID OF CORPORATE PURPOSE. — The purchase of beer manufacturing facilities by San
Miguel Corporation was an investment in the same business as its main purpose in its Articles of Incorporation and is
relevant to the corporate purpose.

28. ID.; ID.; SUBMISSION OF ASSAILED INVESTMENT FOR RATIFICATION BY STOCKHOLDERS. — The mere fact that a
corporation submits the assailed investment to the stockholders for its ratification at the annual meeting cannot be
construed as an admission that the corporation had committed an ultra vires act, considering the common practices of
corporations of periodically submitting for ratification of their stockholders the acts of their directors, officers and
managers.

BARREDO, J., concurring:chanrob1es virtual 1aw library

1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. — Where petitioner and respondents
placed the issue of the validity of amended by-laws squarely before the Court for resolution and six justices voted in
favor, while four justices voted against, its validity, thereby resulting in the dismissal, of the petition "insofar as it assails
the validity of the amended by-laws . . . for lack of necessary votes," such dismissal is the law of the case as far as the
parties are concerned albeit the majority of six against four justices is not doctrinal in the sense that it cannot be cited as
necessarily a precedent for subsequent cases. This means that the petitioner and respondents are bound by the
foregoing result, namely that the Court en banc has not found merit in the claim that the amended by-laws in question
are invalid. In other words, the issue of the challenged amended by-laws is already a settled matter for the parties as the
law of the case, and said amended by-law already enforceable in so far as the parties are concerned. Petitioner may not
thereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange
Commission, the Supreme Court or in any other forum, unless, he proceeds on the basis of a different factual milieu
from the setting of the case. Only the actual implementation of the impugned amended by-laws remained to be passed
upon by the Securities and Exchange Commission.

2. ID.; ID.; DECISION ON THE MERITS. — It is somewhat of a misreading and misconstruction of Section 11 of Rule 56,
contrary to the well-known established norm observed by the Supreme Court, to state that the dismissal of a petition for
lack of necessary votes does not amount to a decision on the merits. The Supreme Court is deemed to find no merit in a
petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the required
number of justices needed to sustain the same cannot be had.

DE CASTRO, J., concurring:chanrob1es virtual 1aw library

1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED DIRECTOR. — If a person became a stockholder

of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation
 competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and
President of his own corporation, he may be removed from his position as director, admittedly one of trust and
confidence. If this is so, a person controlling, and also the Chairman of the Board and President of, a corporation, may be
barred form becoming a member of the Board of Directors of a competitive corporation.

2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. — The scope of the provision of Section 13(5) of the Philippine
Corporation Law should be limited to corporations engaged in agriculture, only as the word "agriculture" refers to its
more limited meaning as distinguished from its general and broad connotation. The term would then mean "farming" or
raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the
acquisition of agricultural land, such as by homestead, before the patent may be issued, but does not extend to poultry
raising or piggery which may be included in the term "agriculture" in its broad sense.

3. JUDGMENTS; LAW OF THE CASE. — Although only six votes are for upholding the validity of the by-laws, their validity
is deemed upheld as constituting the "law of the case." It could not be otherwise, after the petition is dismissed with the
relief sought do declare null and void the said by-laws being denied in effect. A vicious circle would be created should
petitioner come against to the Court, raising the same question he raised in the present petition, unless the principle of
the "law of the case" is applied.

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., : Supplement to separate opinion.

1. JUDGMENTS; LAW OF THE CASE. — The doctrine of the law of the case may be invoked only where there has been a
final and conclusive determination of an issue in the first case later invoked as the law of the case. It has no application
where the judgment in the first case is inconclusive, as where no final and conclusive determination could be reached on
account of lack of necessary votes and the case was simply dismissed pursuant to Rule 56, Section 11. It cannot be
contended that the Supreme Court in dismissing the petition for lack of necessary votes had directly ruled on the issue
presented when it itself could not reach a final conclusive vote thereon.

DECISION

ANTONIO, J.:

The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction,
arose out of two cases filed by petitioner with the Securities and Exchange Commission, as follows:chanrob1es virtual
1aw library

SEC CASE NO. 1375

On October 22, 1976, Petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and
Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing
of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the majority of the
members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled "John
Gokongwei, Jr., v. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B.
Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375.

As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of
the corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when
the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common
shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the
outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that
according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend,
modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of
stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3
should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was
based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the
power of the stockholders.

As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and
1963, after which the authority of the Board ceased to exist.

As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the
authority was given in 1961, there being six (6) new directors.

As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications
to be a director of respondent corporation, being a substantial stockholder thereof; that as a stockholder, petitioner had
acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors;
and that in amending the by-laws, respondents purposely provided for petitioner’s disqualification and deprived him of
his vested right as afore-mentioned, hence the amended by-laws are null and void. 1

As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from
being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or
Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract)
with respondent corporation, which was avowed because the questioned amendment gave the Board itself the
prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the
portion of the amended by-laws which states that in determining whether or not a person is engaged in competitive
business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and,
therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of
directors . . . shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the
Annual Meeting" is likewise unreasonable and oppressive.

It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be
cancelled, and that individual respondents be made to pay damages, in specified amounts, to petitioner.

On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an
"Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of respondent corporation
refused to allow him to inspect its records despite request made by petitioner for production of certain documents
enumerated in the request, and that respondent corporation had been attempting to suppress information from its
stockholders despite a negative reply by the SEC to its query regarding their authority to do so. Among the documents
requested to be copied were (a) minutes of the stockholder’s meeting held on March 13, 1961; (b) copy of the
management contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet
of San Miguel International, Inc.; (d) authority of the stockholders to invest the funds of respondent corporation in San
Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses, and other compensation, if any, received by
Andres M. Soriano, Jr. and/or its successor-in-interest.

The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents, alleging, among others,
that the motion has no legal basis; that the demand is not based on good faith; that the motion is premature since the
materiality or relevance of the evidence sought cannot be determined until the issues are joined; that it fails to show
good cause and constitutes continued harassment; and that some of the information sought are not part of the records
of the corporation and, therefore, privileged.

During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas
and Antonio Prieto filed their answer to the petition, denying the substantial allegations therein and stating, by way of
affirmative defenses that "the action taken by the Board of Directors on September 18, 1976 resulting in the . . .
amendments is valid and legal because the power to ‘amend, modify, repeal or adopt new By-laws’ delegated to said
Board on March 13, 1961 and long prior thereto has never been revoked, withdrawn or otherwise nullified by the
stockholders of SMC" ; that contrary to petitioner’s claim, "the vote requirement for a valid delegation of the power to
amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the
delegation of said power is made, not when the Board opts to exercise said delegated power" ; that petitioner has not
availed of his intra-corporate remedy for the nullification of the amendment, which is to secure its repeal by vote of the
stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in
Article VIII, section 1 of the by-laws and section 22 of the Corporation Law, hence the petition is premature; that
petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board, since he failed
to object to other amendments made on the basis of the same 1961 authorization; that the power of the corporation to
amend its by-laws is broad, subject only to the condition that the by-laws adopted should not be inconsistent with any
existing law; that respondent corporation should not be precluded from adopting protective measures to minimize or
eliminate situations where its directors might be tempted to put their personal interests over that of the corporation;
that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be
interfered with; that the by-laws, as amended, are valid and binding and are intended to prevent the possibility of
violation of criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of
action. It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and
attorney’s fees to respondents. The application for writ of preliminary injunction was likewise on various grounds.

Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material
averments thereof and stating, as part of their affirmative defenses, that in August 1972, the Universal Robina
Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation, began acquiring
shares therein, until September 1976 when its total holding amounted to 622,987 shares; that in October 1972, the
Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent corporation, until its total holdings
amounted to P543,959.00 in September 1976; that on January 12, 1976, Petitioner, who is president and controlling
shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation,
and thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against
SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and
CFC interests, a seat in the Board of Directors of SMC", that in the stockholders’ meeting of March 18, 1976, petitioner
was rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that petitioner
was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave
disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual
meeting" ; that thereafter the Board of Directors amended the by-laws as afore-stated.

As counterclaims, actual damages, moral damages, exemplary damages, expenses of obligation and attorney’s fees were
presented against petitioner.

Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents
was filed by all the respondents. This was duly opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco,
Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositions-in-
intervention to the petition.

On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of
documents by issuing Order No. 26, Series of 1977, stating, in part as follows:jgc:chanrobles.com.ph

"Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled
case, it is hereby ordered:chanrob1es virtual 1aw library

1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-
movant, John Gokongwei, Jr., of the minutes of the stockholders’ meeting of the respondent San Miguel Corporation
held on March 13, 1961, which are in the possession, custody and control of the said corporation, it appearing that the
same is material and relevant to the issues involved in the main case. Accordingly, the respondents should allow
petition-movant entry in the principal office of the respondent Corporation, San Miguel Corporation on January 14,
1977, at 9:30 o’clock in the morning for purposes of enforcing the rights herein granted; it being understood that the
inspection, copying and photographing of the said documents shall be undertaken under the direct and strict
supervision of this Commission. Provided, however, that other documents and/or papers not heretofore included are
not covered by this Order and any inspection thereof shall require the prior permission of this Commission;

2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses,
compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel
International, Inc. and/or its successors-in-interest, the Petition to produce and inspect the same is hereby DENIED, as
petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect
said documents;

3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and
inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and
amendments thereof for the reason that he had already obtained the same, the Commission takes note thereof; and

4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority
of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International,
Inc., until after the hearing on the merits of the principal issues in the above-entitled case.

This Order is immediately executory upon its approval." 2

Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.

Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of
special stockholders’ meeting for the purpose of "ratification and confirmation of the amendment to the By-laws",
setting such meeting for February 10, 1977. This prompted petitioner to ask respondent Commission for a summary
judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders’
meeting for the aforesaid purpose, private respondents admitted the invalidity of the amendments of September 18,
1976. The motion for summary judgment was opposed by private respondents. Pending action on the motion, petitioner
filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of
petitioner’s application for the issuance of a preliminary injunction and or petitioner’s motion for summary judgment, a
temporary restraining order be issued, restraining respondents from holding the special stockholders’ meeting as
scheduled. This motion was duly opposed by respondents.

On February 10, 1977, respondent Cremation issued an order denying the motion for issuance of temporary restraining
order. After receipt of the order of denial, respondents conducted the special stockholders’ meeting wherein the
amendments to the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated motion for contempt
and for nullification of the special stockholders’ meeting.

A motion for reconsideration of the order denying petitioner’s motion for summary judgment was filed by petitioner
before respondent Commission on March 10, 1977. Petitioner alleges that up to the time of the filing of the instant
petition, the said motion had not yet been scheduled for hearing. Likewise, the motion for reconsideration of the order
granting in part and denying in part petitioner’s motion for production of records had not yet been resolved.

In view of the fact that the annual stockholders’ meeting of respondent corporation had been scheduled for May 10,
1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of
director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission,
submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from
being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the
disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof,
petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction,
alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the
respondent Commission, to petitioner’s irreparable damage and prejudice. Allegedly despite a subsequent
Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders’
meeting.

Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act, hence petitioner
came to this Court.

SEC CASE NO. 1423

Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in
other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17-
1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have
private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of
such violation, and ordered to account for such investments and to answer for damages.

On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and
to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner.
Despite the fact that said motions were filed as early as February 4, 1977, the Commission acted thereon only on April
25, 1977, when it denied respondents’ motions to dismiss and gave them two (2) days within which to file their answer,
and set the case for hearing on April 29 and May 3, 1977.

Respondents issued notices of the annual stockholders’ meeting, including in the Agenda thereof, the
following:jgc:chanrobles.com.ph

"6. Reaffirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to
invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the
Corporation has been organized, and ratification of the investments thereafter made pursuant thereto."cralaw
virtua1aw library

By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of
preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders’
meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on
the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to
May 16 and 17, 1977, or after the scheduled annual stockholders’ meeting. For the purpose of urging the Commission to
act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to
the date of the filing of the instant petition.

With respect to the afore-mentioned SEC cases, it is petitioner’s contention before this Court that respondent
Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner
seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent
corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner’s rights to
property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before
it.

On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or
preventing petitioner from running or from being voted as director of respondent corporation and from submitting for
ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual
stockholders’ meeting on May 10, 1977, or from making effective the amended by-laws of respondent corporation, until
further orders from this Court or until the Securities and Exchange Commission acts on the matters complained of in the
instant petition.

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this
Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders:chanrob1es
virtual 1aw library
(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner’s motion for reconsideration, with its
supplement, of the order of the Commission denying in part petitioner’s motion for production of documents,
petitioner’s motion for reconsideration of the order denying the issuance of a temporary restraining order denying the
issuance of a temporary restraining order, and petitioner’s consolidated motion to declare respondents in contempt and
to nullify the stockholders’ meeting;

(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation
but stating that he should not sit as such if elected, until such time that the Commission has decided the validity of the
by-laws in dispute, and denying deferment of Item 6 of the Agenda for the annual stockholders’ meeting; and

(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner’s motion for reconsideration of the order of
respondent Commission denying petitioner’s motion for summary judgment;

It is petitioner’s assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and
without circumspection in issuing the aforesaid orders to petitioner’s irreparable damage and injury; (2) that it acted
without jurisdiction and in violation of petitioner’s right to due process when it decided en banc an issue not raised
before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite petitioner’s
request to have the same calendared for hearing; and (3) that the respondents acted oppressively against the petitioner
in violation of his rights as a stockholder, warranting immediate judicial intervention.

It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that
respondent Commission be ordered to allow petitioner to undertake discovery proceedings relative to San Miguel
International, Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits.

On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the
petition is without merit for the following reasons:chanrob1es virtual 1aw library

(1) that the petitioner and the interests he represents are engaged in businesses competitive and antagonistic to that of
respondent San Miguel Corporation, it appearing that he owns and controls a greater portion of his SMC stock thru the
Universal Robina Corporation and the Consolidated Foods Corporation, which corporations are engaged in businesses
directly and substantially competing with the allied businesses of respondent SMC and of corporations in which SMC has
substantial investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC
realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby
have easy and direct access to SMC’s business and trade secrets and plans;

(2) that the amended by-laws were adopted to preserve and protect respondent SMC from the clear and present danger
that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its
business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its
stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of
no less than the Constitution and pertinent laws against combinations in restraint of trade;

(3) that by-laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself
by excluding competitors and antagonistic parties, under the law of self-preservation, and it should be allowed a wide
latitude in the selection of means to preserve itself;

(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner’s own acts or
omissions, since he failed to have the petition to suspend, pendente lite, the amended by-laws calendared for hearing. It
was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension
(preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that
respondent Commission was not given a chance to act "with deliberate dispatch" ; and

(5) that even assuming that the petition was meritorious, it has become moot and academic because respondent
Commission has acted on the pending incidents complained of. It was, therefore, prayed that the petition be dismissed.
On May 21, 1977, respondent Emigdio G. Tanjuatco, Sr. filed his comment, alleging that the petition has become moot
and academic for the reason, among others, that the acts of private respondents sought to be enjoined have reference
to the annual meeting of the stockholders of respondent San Miguel Corporation, which was held on May 10, 1977; that
in said meeting, in compliance with the order of respondent Commission, petitioner was allowed to run and be voted for
as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed.
Further, it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange
Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the
elevation of these issues before the Supreme Court is premature.

Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the
determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and
oppresively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant case, is
not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of
Item 6 of the Agenda of the annual stockholders’ meeting of May 10, 1977 did not render the case moot; that the
amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his
vested rights.

Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the
restraining order issued by this Court and noting that the restraining order did not foreclose action by it, the Commission
en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375.

In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6
of the Agenda of the annual stockholders’ meeting of respondent corporation, took into consideration an urgent
manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion
of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the
authority of the corporation as well as falling within the sphere of stockholders’ right to know, deliberate upon and/or to
express their wishes regarding disposition of corporate funds considering that their investments are the ones directly
affected." It was alleged that the main petition has, therefore, become moot and academic.

On September 29, 1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging
that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions
on the facts now pending before the respondent Commission are now before this Honorable Court which has the
authority and the competence to act on them as it may see fit." (Rollo, pp. 927-928.)

Petitioner, in his memorandum, submits the following issues for resolution;

(1) Whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from
nomination or election to the Board of Directors are valid and reasonable;

(2) whether or not respondent SEC gravely abused its discretion in denying petitioner’s request for an examination of
the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and

(3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda
of the Annual Stockholders’ Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of
the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law.

Whether or not amended by-laws are valid is purely a legal question, which public interest requires to be resolved —

It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate
ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative
remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid . . . is
purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to
determine whether such amended by-laws are valid as framed and approved . . ." ; second: "it is for the interest and
guidance of the public that an immediate and final ruling on the question be made . . ." ; third: "petitioner was denied
due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner . . .", and
"Commissioner Sulit . . . approved the amended by-laws ex-parte and obviously found the same intrinsically valid" ; and
finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice."cralaw virtua1aw library

Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by
the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear the seeds of future ligiation", citing Gayos v. Gayos.
3 To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its
amended by-laws and the rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted
by the parties concerned and, more importantly, by this Honorable Court, would have been for naught because the main
question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar
appeal.

It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of
the issues involved, invoking the latter’s primary jurisdiction to hear and decide cases involving intra-corporate
controversies.

It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a
single proceeding, leaving no root or branch to bear the seeds of future litigation. 4 Thus, in Francisco v. City of Davao, 5
this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings
since the ends of justice would not be subserved by the remand of the case. In Republic v. Security Credit and
Acceptance Corporation, Et Al., 6 this Court, finding that the main issue is one of law, resolved to decide the case on the
merits "because public interest demands an early disposition of the case", and in Republic v. Central Surety and
Insurance Company, 7 this Court denied remand of the third-party complaint to the trial court for further proceedings,
citing precedents where this Court, in similar situations, resolved to decide the cases on the merits, instead of
remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case; or (b)
where public interest demands an early disposition of the case; or (c) where the trial court had already received all the
evidence presented by both parties and the Supreme Court is now in a position, based upon said evidence, to decide the
case on its merits. 8 It is settled that the doctrine of primary jurisdiction has no application where only a question of law
is involved. 8 Because uniformity may be secured through review by a single Supreme Court, questions of law may
appropriately be determined in the first instance by courts. 8 In the case at bar, there are facts which cannot be denied,
viz: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of
the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special
meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of
the stockholders of record; that the foreign investment in the Hongkong Brewery and Distillery, a beer manufacturing
company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders’ annual meeting
held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the
stockholders.

II

Whether or not the amended by-laws of SMC disqualifying a competitor from nomination or election to the Board of
Directors of SMC are valid and reasonable —

The validity or reasonableness of a by-law of a corporation is purely a question of law. 9 Whether the by-law is in conflict
with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore
unlawful is a question of law. 10 This rule is subject, however, to the limitation that where the reasonableness of a by-
law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be
warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who
have exercised their authority. 11

Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the
minority and prevent them from having representation in the Board", at the same time depriving petitioner of his
"vested right" to be voted for and to vote for a person of his choice as director.

Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that
exclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor,
petitioner cannot devote an unselfish and undivided loyalty to the corporation; that it is essentially a preventive
measure to assure stockholders of San Miguel Corporation of reasonable protection from the unrestrained self-interest
of those charged with the promotion of the corporate enterprise; that access to confidential information by a
competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel
Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may,
therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free
competition to the detriment of the consuming public. It is further argued that there is not vested right of any
stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6,1978,
has exercised, personally or thru two corporations owned or controlled by him, control over the following shareholdings
in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal Robina Corporation — 738,647
shares; (c) CFC Corporation — 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San
Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total
shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel
Corporation. It is also contended that petitioner is the president and substantial stockholder of Universal Robina
Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is
also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and
substantially competing with the allied businesses of San Miguel Corporation, and of corporations in which SMC has
substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER’S CORPORATIONS AND SAN MIGUEL CORPORATION

According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of
competition are enumerated in its Board Resolution dated April 28, 1978, thus:chanrob1es virtual 1aw library

Product Line Estimated Market Share Total

1977 SMC Robina-CFC

Table Eggs 0.6% 10.0% 10.6%

Layer Pullets 33.0% 24.0% 57.0%

Dressed Chicken 35.0% 14.0% 49.0%

Poultry & Hog Feeds 40.0% 12.0% 52.0%

Ice Cream 70.0% 13.0% 83.0%

Instant Coffee 45.0% 40.0% 85.0%

Woven Fabrics 17.5% 9.1% 26.6%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400
million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC
and CFC-Robina in layer pullets, dressed chicken, poultry and hog feeds, ice cream, instant coffee and woven fabrics
would result in a position of such dominance as to affect the prevailing market factors.

It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC,
represented sales amounting to more than P478 million. In addition, CFC-Robina was directly competing in the sale of
coffee with Filipino, a subsidiary of SMC, which product line represented sales for SMC amounting to more than P275
million. The CFC-Robina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly also in
direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The
areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales of more than
P849 million.

According to private respondents, at the Annual Stockholders’ Meeting of March 18, 1976, 9,894 stockholders, in person
or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected
petitioner’s candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the
event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of
powers delegated to it by the stockholders," approved the amendment to the by-laws in question. At the meeting of
February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or
more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the
confirmation and ratification. At the Annual Stockholders’ Meeting of May 10, 1977, 11,349 shareholders, owning
27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner’s candidacy, while 946 stockholders,
representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders’ Meeting, 12,480 shareholders,
owning more than 30 million shares, or more than 90% of the total outstanding shares, voted against petitioner.

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW

Private respondents contend that the disputed amended by-laws were adopted by the Board of Directors of San Miguel
Corporation as a measure of self-defense to protect the corporation from the clear and present danger that the election
of a business competitor to the Board may cause upon the corporation and the other stockholders "irreparable
prejudice." Submitted for resolution, therefore, is the issue — whether or not respondent San Miguel Corporation could,
as a measure of self-protection, disqualify a competitor from nomination and election to its Board of Directors.

It is recognized by all authorities that ‘every corporation has the inherent power to adopt by-laws ‘for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.’" 12 At common law, the rule was "that the power to make
and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. And it is
settled throughout the United States that in the absence of positive legislative provisions limiting it, every private
corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific
enabling provision in its charter or in general law, such power of self-government being essential to enable the
corporation to accomplish the purposes of its creation." 13

In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the
qualifications, duties and compensation of directors, officers and employees . . ." This must necessarily refer to a
qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must
own in his right at least one share of the capital stock of the stock corporation of which he is a director . . ." In
Government v. El Hogar, 14 the Court sustained the validity of a provision in the corporate by-law requiring that persons
elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be held as
security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the
corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with
good practice."cralaw virtua1aw library

NO VESTED RIGHT OF STOCKHOLDER TO BE

ELECTED DIRECTOR

Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of
the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits
of the act of incorporation and lawfully enacted by-laws and not forbidden by law." 15 To this extent, therefore, the
stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his
property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of
his fellow incorporators. . . . It can not therefore be justly said that the contract, express or implied, between the
corporation and the stockholders is infringed . . . by any act of the former which is authorized by a majority . . ." 16

Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or
written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation. If
the amendment changes, diminishes or restricts the rights of the existing shareholders, then the dissenting minority has
only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law,
the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It
cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at
the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law
shall be subject to amendment, alteration and modification. 17

It being settled that the corporation has the power to provide for the qualifications of its directors, the next question
that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority.

A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS

Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot
be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders,
"they occupy a fiduciary relation, and in this sense the relation is one of trust." 18 "The ordinary trust relationship of
directors of a corporation and stockholders", according to Ashaman v. Miller, 19 "is not a matter of statutory or technical
law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of
the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate
interests and are ultimately the only beneficiaries thereof . . ."cralaw virtua1aw library

Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary obligation of the directors of
corporations, thus:jgc:chanrobles.com.ph

"A director is a fiduciary. . . . Their powers are powers in trust. . . . He who is in such fiduciary position cannot serve
himself first and his cestuis second. . . . He cannot manipulate the affairs of his corporation to their detriment and in
disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient
precept against serving two masters. . . . He cannot utilize his inside information and strategic position for his own
preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so
directly. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly.
He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter
how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that
power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference,
or advantage of the fiduciary to the exclusion or detriment of the cestuis."cralaw virtua1aw library

And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said:jgc:chanrobles.com.ph

". . . A person cannot serve two hostile and adverse masters without detriment to one of them. A judge cannot be
impartial if personally interested in the cause. No more can a director. Human nature is too weak for this. Take whatever
statute provision you please giving power to stockholders to choose directors, and in none will you find any express
prohibition against a discretion to select directors having the company’s interest at heart, and it would simply be going
far to deny by mere implication the existence of such a salutary power.

". . . If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director,
the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder, on
account of the supposed interest of the wife in her husband’s affairs, and his supposed influence over her. It is perhaps
true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation
until tried and tested. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of
the board in passing the by-law. The strife over the matter of control in this corporation as in many others is perhaps
carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or
not the action of the Board is authorized and sanctioned by law. . . ." 22

These principles have been applied by this Court in previous cases. 23

AN AMENDMENT TO THE CORPORATE BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE

ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION,
HAS BEEN SUSTAINED AS VALID

It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws
declaring a person employed in the service of a rival company to be ineligible for the corporation’s Board of Directors.." .
. (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a
corporation whose business is in competition with or is antagonistic to the other corporation is valid." 24 This is based
upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but
must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." An exception
exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only
qualification, and therefore the corporation was not empowered to add additional qualifications. 25 This is the exact
opposite of the situation in the Philippines because as stated heretofore, section 21 of the Corporation Law expressly
provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of
a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by
utilizing information he has received as such officer, under "the established law that a director or officer of a corporation
may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an
officer or director." 26

It is also well established that corporate officers "are not permitted to use their position of trust and confidence to
further their private interests." 27 In a case where directors of a corporation cancelled a contract of the corporation for
exclusive sale of a foreign firm’s products, and after establishing a rival business, the directors entered into a new
contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the
new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary
may not reap the fruits of his misconduct to the exclusion of his principal. 28

The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not
be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on
the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own
personal profit when the interest of the corporation justly calls for protection. 30

It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly
confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and
diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers
or tie-ups with other firms.

It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also
the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director
to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the
questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial
sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy
his loyalty to both corporations and place the performance of his corporation duties above his personal concerns.

Thus, in McKee & Co. v. First National Bank of San Diego, supra, the court sustained as valid and reasonable an
amendment to the by-laws of a bank, requiring that its directors should not be directors, officers, employees, agents,
nominees or attorneys of any other banking corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee,
explained the reasons of the court, thus:jgc:chanrobles.com.ph

". . . A bank director has access to a great deal of information concerning the business and plans of a bank which would
likely be injurious to the bank if known to another bank, and it was reasonable and prudent to enlarge this minimum
disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California.
The Ashkins case, supra, specifically recognizes protection against rivals and others who might acquire information
which might be used against the interests of the corporation as a legitimate object of by-law protection. With respect to
attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or
potential conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual
office discussions or accessibility of files. Defendant’s directors determined that its welfare was best protected if this
opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed."cralaw
virtua1aw library

In McKee, the Court further listed qualificational by-laws upheld by the courts, as follows:jgc:chanrobles.com.ph

"(1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association
which competes with the subject corporation.

(2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or
association which competes with the subject corporation.

(3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association
which compete with the subject corporation.

(4) A director shall be of good moral character as an essential qualification to holding office.

(5) No person who is an attorney against the corporation in a law suit is eligible for service on the board." (At p. 7.)

These are not based on theorical abstractions but on human experience — that a person cannot serve two hostile
masters without detriment to one of them.

The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as
director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be
discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart from the
impractical results that would ensue from such arrangement, it would be inconsistent with petitioner’s primary motive
in running for board membership — which is to protect his investments in San Miguel Corporation. More important,
such a proposed norm of conduct would be against all accepted principles underlying a director’s duty of fidelity to the
corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by
Oleck: 31 "The law will not tolerate the passive attitude of directors . . . without active and conscientious participation in
the managerial functions of the company. As directors, it is their duty to control and supervise the day to day business
activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it
that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the
corporation."cralaw virtua1aw library

Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary
duty of loyalty may well require that he disclose this information to a competitive rival. These dangers are enhanced
considerably where the common director such as the petitioner is a controlling stockholder of two of the competing
corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for
the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director.

Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San
Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for
advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or
new products could enable said competitor to utilize such knowledge to his advantage. 32

There is another important consideration in determining whether or not the amended by-laws are reasonable. The
Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of Article XIV
of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition shall be allowed."cralaw virtua1aw library

Article 186 of the Revised Penal Code also provides:jgc:chanrobles.com.ph

"Art. 186. Monopolies and combinations in restraint of trade. — The penalty of prision correccional in its minimum
period or a fine ranging from two hundred to six thousand pesos, or both, shall be imposed upon:chanrob1es virtual
1aw library

1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the
form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the
market.

2. Any person who shall monopolize any merchandise or object of trade or commerce, or shall combine with any other
person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false
rumors or making use of any other artifice to restrain free competition in the market.

3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an
importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesale or
retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture,
production, processing, assembling or importation of such merchandise or object of commerce or with any other
persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing
the market price in any part of the Philippines, or any such merchandise or object of commerce manufactured,
produced, processed, assembled in or imported into the Philippines, or of any article in the manufacture of which such
manufactured, produced, processed, or imported merchandise or object of commerce is used."cralaw virtua1aw library

There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of trade. 33
Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising
levels of competition by improving the consumers’ effectiveness as the final arbiter in free markets. These laws are
designed to preserve free and unfettered competition as the rule of trade. "It rests on the premise that the unrestrained
interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices and the
highest quality . . ." 34 they operate to forestall concentration of economic power. 35 The law against monopolies and
combinations in restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of the
contemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructing the course of
trade. 36

The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a well defined
meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of which is to prevent
competition in the broad and general sense, or to control prices to the detriment of the public. 37 In short, it is the
concentration of business in the hands of a few. The material consideration in determining its existence is not that prices
are raised and competition actually excluded, but that power exists to raise prices or exclude competition when desired.
38 Further, it must be considered that the idea of monopoly is now understood to include a condition produced by the
mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition
by the unification of interest or management, or it may be thru agreement and concert of action. It is, in brief, unified
tactics with regard to prices. 39

From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with reality. The
election of petitioner to the Board of respondent Corporation can bring about an illegal situation. This is because an
express agreement is not necessary for the existence of a combination or conspiracy in restraint of trade. 40 It is enough
that a concert of action is contemplated and that the defendants conformed to the arrangements, 41 and what is to be
considered is what the parties actually did and not the words they used. For instance, the Clayton Act prohibits a person
from serving at the same time as a director in any two or more corporations, if such corporations are, by virtue of their
business and location of operation, competitors so that the elimination of competition between them would constitute
violation of any provision of the anti-trust laws. 42 There is here a statutory recognition of the anti-competitive dangers
which may arise when an individual simultaneously acts as a director of two or more competing corporations. A
common director of two or more competing corporations would have access to confidential sales, pricing and marketing
information and would be in a position to coordinate policies or to aid one corporation at the expense of another,
thereby stifling competition. This situation has been aptly explained by Travers, thus:jgc:chanrobles.com.ph

"The argument for prohibiting competing corporations from sharing even one director is that the interlock permits the
coordination of policies between nominally independent firms to an extent that competition between them may be
completely eliminated. Indeed, if a director, for example, is to be faithful to both corporations, some accommodation
must result. Suppose X is a director of both Corporation A and Corporation B. X could hardly vote for a policy by A that
would injure B without violating his duty of loyalty to B; at the same time he could hardly abstain from voting without
depriving A of his best judgment. If the firms really do compete — in the sense of vying for economic advantage at the
expense of the other — there can hardly be any reason for an interlock between competitors other than the suppression
of competition." 43 (Emphasis supplied.)

According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the Clayton Act, it was
established that: "By means of the interlocking directorates one man or group of men have been able to dominate and
control a great number of corporations . . . to the detriment of the small ones dependent upon them and to the injury of
the public." 44

Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders,
shipments, capacity and inventories may lead to control of production for the purpose of controlling prices.

Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation,
the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public
would be frustrated. The competitor could so manipulate the prices of his products or vary its marketing strategies by
region or by brand in order to get the most out of the consumers. Where the two competing firms control a substantial
segment of the market this could lead to collusion and combination in restraint of trade. Reason and experience point to
the inevitable conclusion that the inherent tendency of interlocking directorates between companies that are related to
each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising
opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of
SMC’s costs in various industries and regions in the country will enable the former to practice price discrimination. CFC-
Robina can segment the entire consuming population by geographical areas or income groups and change varying prices
in order to maximize profits from every market segment. CFC-Robina could determine the most profitable volume at
which it could produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina
would in effect destroy free competition and deprive the consuming public of opportunity to buy goods of the highest
possible quality at the lowest prices.

Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of
petitioner to the Board of SMC may constitute a violation of the prohibition contained in section 13(5) of the
Corporation Law. Said section provides in part that "any stockholder of more than one corporation organized for the
purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose
of bringing about or attempting to bring about a combination to exercise control of such corporations . . .)."cralaw
virtua1aw library

Neither are We persuaded by the claim that the by-law was intended to prevent the candidacy of petitioner for election
to the Board. If the by-law were to be applied in the case of one stockholder but waived in the case of another, then it
could be reasonably claimed that the by-law was being applied in a discriminatory manner. However, the by-law, by its
terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate
equally upon all persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must
be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of
public policy and management, therefore, support the view that a by-law which disqualifies a competition from election
to the Board of Directors of another corporation is valid and reasonable.

In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in
adopting measures to protect legitimate corporate interests. Thus, "where the reasonableness of a by-law is a mere
matter of judgment, and upon which reasonable minds must necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have expressed
their authority." 45

Although it is asserted that the amended by-laws confer on the present Board powers to perpetuate themselves in
power, such fears appear to be misplaced. This power, by its very nature, is subject to certain well established
limitations. One of these is inherent in the very concept and definition of the terms "competition" and "competitor."
"Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if
not identical degree, certain characteristics essential to the business sought. It means an independent endeavor of two
or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to
secure trade. 46 The test must be whether the business does in fact compete, not whether it is capable of an indirect
and highly unsubstantial duplication of an isolated or non-characteristic activity. 47 It is, therefore, obvious that not
every person or entity engaged in business of the same kind is a competitor. Such factors as quantum and place of
business, identity of products and area of competition should be taken into consideration. It is, therefore, necessary to
show that petitioner’s business covers a substantial portion of the same markets for similar products to the extent of not
less than 10% of respondent corporation’s market for competing products. While We here sustain the validity of the
amended by-laws, it does not follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant
with the requirement of due process, there must be due hearing at which the petitioner must be given the fullest
opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the
stockholders, it is the responsibility of directors to act with fairness to the stockholders. 48 Pursuant to this obligation
and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate
themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed
by the Securities and Exchange Commission en banc and its decision shall be final unless reversed by this Court
on certiorari. 49 Indeed, it is a settled principle that where the action of a Board of Directors is an abuse of discretion, or
forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or
will result in waste, dissipation or misapplication of the corporation assets, a court of equity has the power to grant
appropriate relief. 50

III

Whether or not respondent SEC gravely abused its discretion in denying petitioner’s request for an examination of the
records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation —

Respondent San Miguel Corporation stated in its memorandum that petitioner’s claim that he was denied inspection
rights as stockholder of SMC "was made in the teeth of undisputed facts that, over a specific period, petitioner had been
furnished numerous documents and information," to wit: (1) a complete list of stockholders and their stockholdings; (2)
a complete list of proxies given by the stockholders for use at the annual stockholders’ meeting of May 18, 1975; (3) a
copy of the minutes of the stockholders’ meeting of March 18, 1976; (4) a breakdown of SMC’s P186.6 million
investment in associated companies and other companies as of December 31, 1975; (5) a listing of the salaries,
allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC;
(6) a copy of the US$100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes of all meetings of the
Board of Directors from January 1975 to May 1976, with deletions of sensitive data, which deletions were not objected
to by petitioner.

Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC’s
foreign investments are handled by San Miguel International, Inc., incorporated in Bermuda and wholly owned by SMC;
this was SMC’s first venture abroad, having started in 1948 with an initial outlay of P500,000.00, augmented by a loan of
Hongkong $6 million from a foreign bank under the personal guaranty of SMC’s former President, the late Col. Andres
Soriano; (2) that as of December 31, 1975, the estimated value of SMI would amount to almost P400 million; (3) that the
total cash dividends received by SMC from SMI since 1953 has amount to US$9.4 million; and (4) that from 1972-1975,
SMI did not declare cash or stock dividends, all earnings having been used in line with a program for the setting up of
breweries by SMI.

These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of the afore-
mentioned documents. 51

Pursuant to the second paragraph of section 51 of the Corporation Law," (t)he record of all business transactions of the
corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the
corporation at reasonable hours."cralaw virtua1aw library

The stockholder’s right of inspection of the corporation’s books and records is based upon their ownership of the assets
and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this
ownership or interest be termed an equitable ownership, a beneficial ownership, or a quasi-ownership. 52 This right is
predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is
granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest
as a stockholder and for some purpose germane thereto or in the interest of the corporation. 53 In other words, the
inspection has to be germane to the petitioner’s interest as a stockholder, and has to be proper and lawful in character
and not inimical to the interest of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that "the right to
examine the books of the corporation must be exercised in good faith, for specific and honest purpose, and not to
gratify curiosity, or for speculative or vexatious purposes." The weight of judicial opinion appears to be, that on
application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder’s
good faith and his purpose and motives in seeking inspection. 56 Thus, it was held that "the right given by statute is not
absolute and may be refused when the information is not sought in good faith or is used to the detriment of the
corporation." 57 But the "impropriety of purpose such as will defeat enforcement must be set up the corporation
defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the
stockholder the burden of showing propriety of purpose and place upon the corporation the burden of showing
impropriety of purpose or motive." 58 It appears to be the "general rule that stockholders are entitled to full
information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to
obtain such information, especially where it appears that the company is being mismanaged or that it is being managed
for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others." 59

While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of
law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in
which he is a stockholder is a different thing.

Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a
corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely
agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities may be disregarded
and the books, papers and documents of all the corporations may be required to be produced for examination, 60 and
that a writ of mandamus may be granted, as the records of the subsidiary were, to all intents and purposes, the records
of the parent even though the subsidiary was not named as a party. 61 Mandamus was likewise held proper to inspect
both the subsidiary’s and the parent corporation’s books upon proof of sufficient control or dominion by the parent
showing the relation of principal or agent or something similar thereto. 62

On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate
and distinct corporation domiciled and with its books and records in another jurisdiction, and is not legally subject to the
control of the parent company, although it owned a vast majority of the stock of the subsidiary. 63 Likewise, inspection
of the books of an allied corporation by a stockholder of the parent company which owns all the stock of the subsidiary
has been refused on the ground that the stockholder was not within the class of "persons having an interest." 64

In the Nash case, 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect
books and records of the corporation "included the right to inspect corporation’s subsidiaries’ books and records which
were in corporation’s possession and control in its office in New York."cralaw virtua1aw library

In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary
corporation which used the same offices and had identical officers and directors.

In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner contended that
respondent corporation "had been attempting to suppress information from the stockholders" and that petitioner, "as
stockholder of respondent corporation, is entitled to copies of some documents which for some reason or another,
respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm would be
caused thereby to the corporation." 67 There is no question that stockholders are entitled to inspect the books and
records of a corporation in order to investigate the conduct of the management, determine the financial condition of the
corporation, and generally take an account of the stewardship of the officers and directors. 68

In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and,
therefore, under Its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory
right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records
of such wholly owned subsidiary which are in respondent corporation’s possession and control.

IV

Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to
ratify the investment of corporate funds in a foreign corporation

Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI
without prior authority of the stockholders, thus violating section 17-112 of the Corporation Law, and alleges that
respondent SEC should have investigated the charge, being a statutory offense, instead of allowing ratification of the
investment by the stockholders.

Respondent SEC’s position is that submission of the investment to the stockholders for ratification is a sound corporate
practice and should not be thwarted but encouraged.

Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or
for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been
so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the
voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the
stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of
its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-
thirds of the voting power is necessary. 69

As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the
same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market beer. It
appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a
beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer
thereat. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free
reorganization.

Under these circumstances, the ruling in De la Rama v. Ma-ao Sugar Central Co., Inc., supra, appears relevant. In said
case, one of the issues was the legality of an investment made by Ma-ao Sugar Central Co., Inc., without prior resolution
approved by the affirmative vote of 2/3 of the stockholders’ voting power, in the Philippine Fiber Processing Co., Inc., a
company engaged in the manufacture of sugar bags. The lower court said that "there is more logic in the stand that if
the investment is made in a corporation whose business is important to the investing corporation and would aid it in its
purpose, to require authority of the stockholders would be to unduly curtail the power of the Board of Directors." This
Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara,
said:jgc:chanrobles.com.ph

"‘j. Power to acquire or dispose of shares or securities. — A private corporation, in order to accomplish is purpose as
stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to
acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any
domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval
of stockholders; but when the purchase of shares of another corporation is done solely for investment and not to
accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the
purchase of such shares or securities must be subject to the limitations established by the Corporation law; namely, (a)
that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation;
or (b) that a non-agricultural or non-mining corporation shall be restricted to own not more than 15% of the voting stock
of any agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the
purpose of bringing about a monopoly in any line of commerce or combination in restraint of trade.’ (The Philippine
Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis ours.)

"‘40. Power to invest corporate funds. — A private corporation has the power to invest its corporate funds "in any other
corporation or business, or for any purpose other than the main purpose for which it was organized, provided that ‘its
board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders’
meeting called for that purpose,’ and provided further, that no agricultural or mining corporation shall in anywise be
interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose
or purposes as stated in its articles of incorporation, the approval of the stockholders is not necessary." " (Id., p. 108.)
(Emphasis ours.)" (pp. 258-259.)

Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no
question that a corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized
acts of its officers or other agents. 70 This is true because the questioned investment is neither contrary to law, morals,
public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is
defective from a purported failure to observe in its execution the requirement of the law that the investment must be
authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. This requirement is for
the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify
the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset.
"Mere ultra vires acts", said this Court in Pirovano, 71 "or those which are not illegal and void ab initio, but are not
merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable
when ratified by the stockholders."cralaw virtua1aw library

Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently
relevant to the corporate purpose. The mere fact that respondent corporation submitted the assailed investment to the
stockholders for ratification at the annual meeting of May 10, 1977 cannot be construed as an admission that
respondent corporation had committed an ultra vires act, considering the common practice of corporations of
periodically submitting for the ratification of their stockholders the acts of their directors, officers and managers.
WHEREFORE, judgment is hereby rendered as follows:chanrob1es virtual 1aw library

The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books
and records of San Miguel International, Inc., as specified by him.

On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely,
Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to sustain the validity per se of the
amended by-laws in question and to dismiss the petition without prejudice to the question of the actual disqualification
of petitioner John Gokongwei, Jr. to run and if elected to sit as director of respondent San Miguel Corporation being
decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be
appealable to the respondent Securities and Exchange Commission deliberating and acting en banc, and ultimately to
this Court. Unless disqualified in the manner herein provided, the prohibition in the afore-mentioned amended by-laws
shall not apply to petitioner.

The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the
foreign investment of respondent corporation as moot.

Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on
the applicability of section 13(5) of the Corporation Law to petitioner.

Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the
result.

Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate opinion, wherein
they voted against the validity of the questioned amended by-laws and that this question should properly be resolved
first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for
and sit as director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections until disqualified
after proper hearing by the respondent’s Board of Directors and petitioner’s disqualification shall have been sustained
by respondent SEC en banc and ultimately by final judgment of this Court.

In resume, subject to the qualifications afore-stated, judgment is hereby rendered GRANTING the petition by allowing
petitioner to examine the books and records of San Miguel International, Inc. as specified in the petition. The petition, *
insofar as it assails the validity of the amended by-laws and the ratification of the foreign investment of respondent
corporation, for lack of necessary votes, is hereby DISMISSED. No costs.

Makasiar, Santos, Abad Santos and De Castro, JJ., concur.

Castro, C J., reserves his right to file a separate opinion.

Fernando, J., concurs in the result and reserves his right to file a separate opinion.

Aquino, and Melencio Herrera, JJ., took no part.

CERTIFICATION

The undersigned hereby certifies that Justice VICENTE ABAD SANTOS concurred in the opinion of Justice FELIX Q.
ANTONIO.

Separate Opinions

TEEHANKEE, CONCEPCION JR.,

FERNANDEZ and GUERRERO, JJ., concurring:chanrob1es virtual 1aw library

As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment granting the
petitioner as stockholder of respondent San Miguel Corporation the right to inspect, examine and secure copies of the
records of San Miguel International, Inc. (SMI), a wholly owned foreign subsidiary corporation of respondent San Miguel
Corporation. Respondent commission’s en banc Order No. 449, Series of 1977, denying petitioner’s right of inspection
for "not being a stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed
out that:chanrob1es virtual 1aw library

a) The commission’s reasoning grossly disregards the fact that the stockholders of San Miguel Corporation are likewise
the owners of San Miguel International, Inc. as the corporation’s wholly owned foreign subsidiary and therefore have
every right to have access to its books and records otherwise, the directors and management of any Philippine
corporation by the simple device of organizing with the corporation’s funds foreign subsidiaries would be granted
complete immunity from the stockholders’ scrutiny of its foreign operations and would have a conduit for dissipating, if
not misappropriating, the corporate funds and assets by merely channeling them into foreign subsidiaries’ operations;
and

b) Petitioner’s right of examination herein recognized refers to all books and records of the foreign subsidiary SMI which
are "in respondent corporation’s possession and control" 1 , meaning to say regardless of whether or not such books
and records are physically within the Philippines. All such books and records of SMI are legally within respondent
corporation’s "possession and control" and if any books or records are kept abroad, (e.g. in the foreign subsidiary’s state
of domicile, as is to be expected), then the respondent corporation’s board and management are obliged under the
Court’s judgment to bring and make them (or true copies thereof) available within the Philippines for petitioner’s
examination and inspection.
II

On the other main issue of the validity of respondent San Miguel Corporation’s amendment of its by-laws 2 whereby
respondent corporation’s board of directors under its resolution dated April 29, 1977 declared petitioner ineligible to be
nominated or to be voted or to be elected as of the board of directors, the Court, composed of 12 members (since Mme.
Justice Ameurfina Melencio Herrera inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon
submittal of the main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or the
required majority of 8 votes to settle the issue one way or the other.

Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, considered
the issue purely legal and voted to sustain the validity per se of the questioned amended by-laws but nevertheless voted
that the prohibition and disqualification therein provided shall not apply to petitioner Gokongwei until and after he shall
have been given "a new and proper hearing" by the corporation’s board of directors and the board’s decision of
disqualification shall have been sustained on appeal by respondent Securities and Exchange Commission and ultimately
by this Court.

The undersigned Justices do not consider the issue as purely legal in the light of respondent commission’s Order No.
451, Series of 1977, denying petitioner’s "Motion for Summary Judgment" on the ground that "the Commission en banc
finds that there (are) unresolved and genuine issues of fact" 3 as well as its position in this case thru the Solicitor General
that the case at bar is "premature" and that the administrative remedies before the commission should first be availed
of and exhausted. 4

We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century of respondent
corporation’s existence as a public corporation with its shares freely purchased and traded in the open market without
restriction and disqualification) which would bar petitioner from qualification, nomination and election as director and
worse, grant the board by 3/4 vote the arbitrary power to bar any stockholder from his right to be elected as director by
the simple expedient of declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a
"nominee" of the "competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and unreasonable.

We consider the questioned amended by-laws as being specifically tailored to discriminate against petitioner and
depriving him in violation of substantive due process of his vested substantial rights as stockholder of respondent
corporation. We further consider said amended by-laws as violating specific provisions of the Corporation Law which
grant and recognize the right of a minority stockholder like petitioner to be elected director by the process of cumulative
voting ordained by the Law (secs. 21 and 30) and the right of a minority director once elected not to be removed from
office of director except for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a
minority stockholder could be disqualified by such a by-laws amendment under the guise of providing for
"qualifications," these mandates of the Corporation Law would have no meaning or purpose.

These vested and substantial rights granted stockholders under the Corporation Law may not be diluted or defeated by
the general authority granted by the Corporation Law itself to corporations to adopt their by-laws (in section 21) which
deal principally with the procedures governing their internal business. The by-laws of any corporation must be always
within the charter limits. What the Corporation Law has granted stockholders may not be taken away by the
corporation’s by-laws. The amendment is further an instrument of oppressiveness and arbitrariness in that the
incumbent directors are thereby enabled to perpetuate themselves in office by the simple expedient of disqualifying any
unwelcome candidate, no matter how many votes he may have.

However, in view of the inconclusiveness of the vote, we sustain respondent commission’s stand as expressed in its
Orders Nos. 450 and 451, Series of 1977 that there are "unresolved and genuine issues of fact" and that it has yet to rule
on and finally decide the validity of the disputed by-law provision", subject to appeal by either party to this Court.

In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case should as a
consequence be remanded to the Securities and Exchange Commission as the agency of primary jurisdiction for a full
hearing and reception of evidence of all relevant facts (which should property be submitted to the commission instead
of the piecemeal documents submitted as annexes to this Court which is not a trier of facts) concerning not only the
petitioner but the members of the board of directors of respondent corporation as well, so that it may determine on the
basis thereof the issue of the legality of the questioned amended by-laws, and assuming that it holds the same to be
valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors, who, petitioner
claims, should in such event be likewise disqualified from sitting in the board of directors by virtue of conflict of interests
or their being likewise engaged in "competitive or antagonistic business" with the corporation such as investment and
finance, coconut oil mills, cement, milk and hotels. 5

It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote and the Court’s
failure to attain the required 8-vote majority to resolve the issue, such as dismissal (for lack of necessary votes) is of no
doctrinal value and does not in any manner resolve the issue of the validity of the questioned amended by-laws nor
foreclose the same. The same should properly be determined in a proper case in the first instance by the Securities and
Exchange Commission as the agency of primary jurisdiction, as above indicated.

The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if elected, sit
as, member of the board of directors of respondent San Miguel Corporation as stated in the dispositive portion of the
main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given a "new and proper hearing by the
board of directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange
Commission deliberating and acting en banc and ultimately to this Court" and until "disqualified in the manner herein
provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." In other words, until
and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the
question of his qualification or disqualification under the questioned amended by-laws (assuming that the respondent
Securities and Exchange Commission ultimately upholds the validity of said by-laws), and such disqualification shall have
been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court,
petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if elected to sit as a
member of the board of directors of respondent San Miguel Corporation.

In view of the Court’s unanimous judgment on this point, the portion of respondent commission’s Order No. 450, Series
of 1977 which imposed "the condition that he [petitioner] cannot sit as board member if elected until after the
Commission shall have finally decided the validity of the disputed by-law provision" has been likewise accordingly set
aside.

III

By way of recapitulation, so that the Court’s decision and judgment may be clear and not subject to ambiguity, we state
the following:chanrob1es virtual 1aw library

1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four votes, plus the Chief
Justice’s vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes unanimously rendered judgment
granting petitioner’s right to examine and secure copies of the books and records of San Miguel International, Inc. as a
foreign subsidiary of respondent corporation and respondent commission’s Order No. 449, Series of 1977, to the
contrary is set aside:chanrob1es virtual 1aw library

2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that until and after
petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question
of his disqualification under the questioned amended by-laws (assuming that the respondent Securities and Exchange
Commission ultimately upholds the validity of said by-laws), and such disqualification shall have been sustained by
respondent Securities and Exchange Commission and ultimately by final judgment of this Court petitioner is deemed
eligible for all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board of
directors of respondent San Miguel Corporation. Accordingly, respondent commission’s Order No. 450, Series of 1977 to
the contrary has likewise been set aside; and

3. The Court’s voting on the validity of respondent corporation’s amendment of the by-laws (sec. 2, Art. III) is
inconclusive without the required majority of eight votes to settle the issue one way or the other having been reached.
No judgment is rendered by the Court thereon and the statements of the six Justices who have signed the main opinion
on the legality thereof have no binding effect, much less doctrinal value.chanrobles law library

The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is concerned is
not by any judgment with the required eight votes but simply by force of Rule 56, section 11 of the Rules of Court, the
pertinent portion of which provides that "where the court en banc is equally divided in opinion, or the necessary
majority cannot be had, the case shall be reheard, and if on re-hearing no decision is reached, the action shall be
dismissed if originally commenced in the court . . ." The end result is that the Court has thereby dismissed the petition
which prayed that the Court bypass the commission and directly resolved the issue and therefore the respondent
commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive
all relevant evidence bearing on the issue as hereinabove indicated, and resolve the "unresolved and genuine issues of
fact" (as per Order No. 451, Series of 1977) and the issues of legality of the disputed by-laws amendment.

Guerrero, J., concurred.

Fernandez, J., concurs.

TEEHANKEE, CONCEPCION JR.,

FERNANDEZ and GUERRERO, JJ., concurring:chanrob1es virtual 1aw library

Supplement to separate opinion.

JUDGMENT; LAW OF THE CASE. — The doctrine of the law of the case may be invoked only where there has been a final
and conclusive determination of an issue in the first case later invoked as the law of the case. It has no application where
the judgment in the first case is inconclusive, as where no final and conclusive determination could be reached on
account of lack of necessary votes and the case was simply dismissed pursuant to Rule 56, Section 11. It cannot be
contended that the Supreme Court is dismissing the petition for lack of necessary votes had directly ruled on the issue
presented when it itself could not reach a final and conclusive vote thereon.

This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice Barredo issued by him
as to "certain misimpressions as to the import of the decision in this case" which might be produced by our joint
separate opinion of April 11, 1979 and "urgent(ly) to clarify (his) position in respect to the rights of the parties resulting
from the dismissal of the petition herein and the outline of the procedure by which the disqualification of petitioner
Gokongwei can be made effective."cralaw virtua1aw library

1. Mr. Justice Barredo’s advances separate opinion "that as between the parties herein, the issue of the validity of the
challenged by-laws is already settled" had, of course, no binding effect. The judgment of the Court is found on pages 59-
61 of the decision of April 11, 1979, penned by Mr. Justice Antonio, wherein on the question of the validity of the
amended by-laws the Court’s inconclusive voting is set forth as follows:jgc:chanrobles.com.ph

"Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court
on the applicability of section 13(5) of the Corporation Law to petitioner.

"Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the
result.

"Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate opinion, wherein
they voted against the validity of the questioned amended by-laws and that this question should properly be resolved
first by the SEC as the agency of primary jurisdiction . . ." 1

As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the validity of the
questioned by-laws, was dismissed.

2. Mr. Justice Barredo now contends contrary to the undersigned’s understanding, as stated on pages 8 and 9 of our
joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the petition on the question of validity of
the amended by-laws for lack of the necessary votes simply means that "the Court has thereby dismissed the petition
which prayed that the Court by-pass the commission and directly resolve the issue and therefore the respondent
commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive
all relevant evidence bearing on the issue as hereinabove indicated, and resolve the ‘unresolved and genuine issues of
fact’ (as per Order No. 451, Series of 1977) and the issue of legality of the disputed by-laws amendment," that such
dismissal "has no other legal consequence than that it is the law of the case as far as the parties are concerned, albeit
the majority of the opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a
precedent for subsequent cases."cralaw virtua1aw library

We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no applicability for the
following reasons:chanrob1es virtual 1aw library

a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final and conclusive
determination of an issue in the first case later invoked as the law of the case.

Thus, in People v. Olarte 2 , we held that

"‘Law of the case’ has been defined as the opinion delivered on a former appeal. More specifically, it means that
whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the same
case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such
decision was predicated continue to be the facts of the case before the court. . . .

"It need not be stated that the Supreme Court, being the court of last resort, is the final arbiter of all legal questions
properly brought before it and that its decision in any given case constitutes the law of that particular case. Once its
judgment becomes final it is binding on all inferior courts, and hence beyond their power and authority to alter or
modify (Kabigting v. Acting Director of Prisons, G. R. No. L-15548, October 30, 1962).

"‘The decision of this Court on that appeal by the government from the order of dismissal, holding that said appeal did
not place the appellants, including Absalon Bignay, in double jeopardy, signed and concurred in by six Justices as against
three dissenters headed by the Chief Justice, promulgated way back in the year 1952, has long become the law of the
case. It may be erroneous, judged by the law on double jeopardy as recently interpreted by this same Tribunal. Even so,
it may not be disturbed and modified. Our recent interpretation of the law may be applied to new cases, but certainly
not to an old one finally and conclusively determined. As already stated, the majority opinion in that appeal is now the
law of the case.’" (People v. Pinuila)

The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the question of the
validity or invalidity of the amended by-laws is concerned. The Court’s judgment of April 11, 1979 clearly shows that the
voting on this question was inconclusive with six against four Justices and two other Justices (the Chief Justice and Mr.
Justice Fernando) expressly reserving their votes thereon, and Mr. Justice Aquino while taking no part in effect likewise
expressly reserved his vote thereon. No final and conclusive determination could be reached on the issue and pursuant
to the provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the action was
simply dismissed with the result that no law of the case was laid down insofar as the issue of the validity or invalidity of
the questioned by-laws is concerned, and the relief sought herein by petitioner that this Court by-pass the SEC which has
yet to hear and determine the same issue pending before it below and that this Court itself directly resolve the said
issue stands denied.

b) The contention of Mr. Justice Barredo that the result of the dismissal of the case was that "petitioner Gokongwei may
not hereafter act on the assumption that he can revive the issue of the validity whether in the Securities and Exchange
Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the
setting of this case. Not even the Securities and Exchange Commission may pass on such question anymore at the
instance of herein petitioner or anyone acting in his stead or on his behalf," appears to us to be untenable.

The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating Justices headed by
the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and proper hearing" by the SMC board of
directors on the matter of his disqualification under the questioned by-laws and that the board’s "decision shall be
appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this
Court (and) unless disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws
shall not apply to petitioner."cralaw virtua1aw library

The entire Court, therefore, recognized that petitioner had not been given procedural due process by the SMC board on
the matter of his disqualification and that he was entitled to a "new and proper hearing." It stands to reason that in such
hearing, petitioner could raise not only questions of fact but questions of law, particularly questions of law affecting the
investing public and their right to representation on the board as provided by law — not to mention that as borne out by
the fact that no restriction whatsoever appears in the Court’s decision, it was never contemplated that petitioner was to
be limited to questions of fact and could not raise the fundamental questions of law bearing on the invalidity of the
questioned amended by-laws at such hearing before the SMC board. Furthermore, it was expressly provided
unanimously in the Court’s decision that the SMC board’s decision on the disqualification of petitioner ("assuming the
board of directors of San Miguel Corporation should, after the proper hearing, disqualify him" as qualified in Mr. Justice
Barredo’s own separate opinion, at page 2) shall be appealable to respondent Securities and Exchange Commission
"deliberating and acting en banc" and "untimately to this Court." Again, the Court’s judgment as set forth in its decision
of April 11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities and
Exchange Commission may not pass anymore on the question of the invalidity of the amended by-laws. Certainly, it
cannot be contended that the Court in dismissing the petition for lack of necessary votes actually by-passed the
Securities and Exchange Commission and directly ruled itself on the invalidity of the questioned by-laws when it itself
could not reach a final and conclusive vote (a minimum of eight votes) on the issue and three other Justices (the Chief
Justice and Messrs. Justices Fernando and Aquino) had expressly reserved their vote until after further hearings (first
before the Securities and Exchange Commission and ultimately in this Court).

Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation where supposedly
under the law of this case the questioned by-laws would be held valid as against petitioner Gokongwei and yet the same
may be stricken off as invalid as to all other SMC shareholders in a proper case.

3. It need only be pointed out that Mr. Justice Barredo’s advance separate opinion can in no way affect or modify the
judgment of this Court as set forth in the decision of April 11, 1979 and discussed hereinabove. The same bears the
unqualified concurrence of only three Justices out of the six Justices who originally voted for the validity per se of the
questioned by-laws, namely, Messrs. Justices Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar
did not concur therein but they instead concurred with the limited concurrence of the Chief Justice touching on the law
of the case which guardedly held that the Court has not found merit in the claim that the amended by-laws in question
are invalid but without in any manner foreclosing the issue and as a matter of fact and law, without in any manner
changing or modifying the above-quoted vote of the Chief Justice as officially rendered in the decision of April 11, 1979,
wherein he precisely "reserved (his) vote on the validity of the amended by-laws."cralaw virtua1aw library

4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate opinion of Mr.
Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive construction of section 13(5) of the
Philippine Corporation Law, ignoring or disregarding the fact that during the Court’s deliberations it was brought out
that this prohibitory provision was and is not raised in issue in this case whether here or in the Securities and Exchange
Commission below (outside of a passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for
respondent Sorianos in their Memorandum of June 26, 1978 that" (T)he disputed By-Laws does not prohibit petitioner
from holding onto, or even increasing his SMC investment; it only restricts any shifting on the part of petitioner from
passive investor to a director of the company." 3

As a consequence, the Court abandoned the idea of calling for another hearing wherein the parties could properly raise
and discuss this question as a new issue and instead rendered the decision in question, under which the question of
section 13(5) could be raised at a new and proper hearing before the SMC board and in the Securities and Exchange
Commission and in due course before this Court (but with the clear understanding that since both corporations, the
Robina and SMC are engaged in agriculture as submitted by the Sorianos’ counsel in their said memorandum, the issue
could be raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As expressly stated
in the Chief Justice’s reservation of his vote, the matter of the question of the applicability of the said section 13(5) to
petitioner would be heard by this Court at the appropriate time after the proceedings below (and necessarily the
question of the validity of the amended by-laws would be taken up anew and the Court would at that time be able to
reach a final and conclusive vote).

Mr. Justice De Castro’s personal interpretation of the decision of April 11, 1979 that petitioner may be allowed to run for
election despite adverse decision of both the SMC board and the Securities and Exchange Commission "only if he comes
to this Court and obtains an injunction against the enforcement of the decision disqualifying him" is patently
contradictory of his vote on the matter as expressly given in the judgment in the Court’s decision of April 11, 1979 (at
page 59) that petitioner could run and if elected, sit as director of the respondent SMC and could be disqualified only
after a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable to the
respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless-
disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to
petitioner."cralaw virtua1aw library

BARREDO, J., concurring:chanrob1es virtual 1aw library

1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. — Where petitioner and respondents
placed the issue of the validity of amended by-laws squarely before the Court for resolution and six justices vote in
favor, while four justices voted against, its validity, thereby resulting in the dismissal of the petition "insofar as it assails
the validity of the amended by-laws . . . for lack of necessary votes," such dismissal is the law of the case as far as the
parties are concerned, albeit the majority of six against four justices is not doctrinal in the sense that it cannot be cited
as necessarily a precedent for subsequent cases. This means that the petitioner and respondents are bound by the
forgoing result, namely, that the Court en banc has not found merit in the claims that the amended by-laws in question
are invalid. In other words, the issue of the challenged amended by-laws is already a settled matter for the parties as the
law of the case, and said amended by-laws already enforceable in so far as the parties are concerned. Petitioner may not
thereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange
Commission, the Supreme Court or in any other forum, unless, he proceeds on the basis of a different factual milieu
from the setting of the case. Only the actual implementation of the impugned amended by-laws remained to be passed
upon by the Securities and Exchange Commission.

2. ID.; ID.; DECISION ON THE MERITS. — It is somewhat of a misreading and misconstruction of Section 11 of Rule 56,
contrary to the well-known established norm observed by the Supreme Court, to estate that the dismissal of a petition
for lack of necessary votes does not amount to a decision on the merits. The Supreme Court is deemed to find no merit
in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the
required number of justices needed to sustain the same cannot be had.

I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the validity of the
amended by-laws in question. Regrettably, I have not yet finished preparing the same. In view, however, of the joint
separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and Guerrero, the full text of which has just come to
my attention, and which I am afraid might produce certain misimpressions as to the import of the decision in this case, I
consider it urgent to clarify my position in respect to the rights of the parties resulting from the dismissal of the petition
herein and the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made effective,
hence this advance separate opinion.

To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said amended by-laws
squarely before the Court for resolution, because he feels, rightly or wrongly, he can no longer have due process or
justice from the Securities and Exchange Commission, and the private respondents have joined with him in that respect,
the six votes cast by Justices Makasiar, Antonio, Santos, Abad Santos, de Castro and this writer in favor of validity of the
amended by-laws in question, with only four members of this Court, namely, Justices Teehankee, Concepcion Jr.,
Fernandez and Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes
thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the petition "insofar
as it assails the validity of the amended by-laws . . . for lack of necessary votes", has no other legal consequence than
that it is the law of the case as far as the parties herein are concerned, albeit the majority opinion of six against four
Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means
that petitioner Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the
foregoing result, namely, that the Court en banc has not found merit in the claim that the amended by-laws in question
are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal and entirely another thing to maintain
that such dismissal leaves the issue unsettled. It is somewhat of a misreading and misconstruction of Section 11 of Rule
56, contrary to the well-known established norm observed by this Court, to state that the dismissal of a petition for lack
of the necessary votes does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no
merit in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the
required number of justices needed to sustain the same cannot be had.chanrobles virtual lawlibrary

I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-laws is already
settled. From which it follows that the same are already enforceable insofar as they are concerned. Petitioner
Gokongwei may not hereafter act on the assumption that he can revive the issue of validity whether in the Securities
and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu
different from the setting of this case. Not even the Securities and Exchange Commission may pass on such question
anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to
remand the case thereto cannot alter the situation.
It is very clear that under the decision herein, the issue of validity is a settled matter for the parties herein as the law of
the case, and it is only the actual implementation of the impugned amended by-laws in the particular case of petitioner
that remains to be passed upon by the Securities and Exchange Commission, and on appeal therefrom to Us, assuming
the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him.

To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that he is a controlling
stockholder of corporations which are competitors of San Miguel Corporation. The very substantial areas of such
competition involving hundreds of millions of pesos worth of businesses stand uncontroverted in the records hereof. In
fact, petitioner has even offered, if he should be elected, as director, not to take part when the board takes up matters
affecting the corresponding areas of competition between his corporation and San Miguel. Nonetheless, perhaps, it is
best that such evidence be formally offered at the hearing contemplated in Our decision.

As to whether or not petitioner may sit in the board, if he win, definitely, under the decision in this case, even if
petitioner should win, he will have to immediately leave his position or should be ousted, the moment this Court settles
the issue of his actual disqualification, either in a full blown decision or by denying the petition for review of
corresponding decision of the Securities and Exchange Commission unfavorable to him. And, of course, as a matter of
principle, it is to be expected that the matter of his disqualification should be resolved expeditiously and within the
shortest possible time, so as to avoid as much juridical injury as possible, considering that the matter of the validity of
the prohibition against competitors embodied in the amended by-laws is already unquestionable among the parties
herein and to allow him to be in the board for sometime would create an obviously anomalous and legally incongruous
situation that should not be tolerated. Thus, all the parties concerned must act promptly and expeditiously.

Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands.chanrobles law library
: red

Castro, C.J., concurs in Justice Barredo’s statement that the dismissal (for lack of necessary votes) of the petition to the
extent that "it assails the validity of the amended by-laws," is the law of the case at bar, which means in effect that as far
and only in so far as the parties and the Securities and Exchange Commission are concerned, the Court has not found
merit in the claim that the amended by-laws in question are invalid.

Antonio and Santos, JJ., concur.

DE CASTRO, J., concurring:chanrob1es virtual 1aw library

1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED DIRECTOR. — If a person becomes a stockholder

of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation
competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and
President of his own corporation, he may be removed from his position as director, admittedly one of trust and
confidence. If this is so, a person controlling, and also the Chairman of the Board and President of, a corporation, may be
barred from becoming a member of the Board of Directors of a competitive corporation.

2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. — The scope of the provision of Section 13(5) of the Philippine
Corporation Law should be limited to corporations engaged in agriculture, only as the word "agriculture" refers to its
more limited meaning as distinguished from its general and broad connotation. The term would then mean "farming" or
raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the
acquisition of agricultural land, such as by homestead, before the patent may be issued, but does not extend to poultry
raising or piggery which may be included in the term "agriculture" in its broad sense.

3. JUDGMENT; LAW OF THE CASE. — Although only six votes are for upholding the validity of the by-laws, their validity is
deemed upheld as constituting the "law of the case." It could not be otherwise, after the petition is dismissed with the
relief sought do declare null and void the said by-laws being denied in effect. A vicious circle would be created should
petitioner come against to the Court, raising the same question he raised in the present petition, unless the principle of
the "law of the case" is applied.
As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the by-laws in
question. What induced me to this view is the practical consideration easily perceived in the following illustration: If a
person becomes a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he
forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes
Chairman of the Board and President of his own corporation, he may be removed from his position as director,
admittedly one of trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling,
and also the Chairman of the Board and President of, a corporation, may be barred from becoming a member of the
board of directors of a competitive corporation. This is my view,. even as I am for a restrictive interpretation of Section
13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in
agricultural, but only as the word "agriculture" refers to its more limited meaning as distinguished from its general and
broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by
cultivation, in the manner as is required by the Public Land Act in the acquisition of agricultural land, such as by
homestead, before the patent may be issued. It is my opinion that under the public land statute, the development of a
certain portion of the land applied for as specified in the law as a condition precedent before the applicant may obtain a
patent, is cultivation, not let us say, poultry raising or piggery, which may be included in the term "agriculture" in its
broad sense. For under Section 13(5) of the Philippine Corporation Law, construed not in the strict way as I believe it
should, because the provision is in derogation of property rights, the petitioner in this case would be disqualified from
becoming an officer of either the San Miguel Corporation or his own supposedly agricultural corporations. It is thus
beyond my comprehension why, feeling as though I am the only member of the Court for a restricted interpretation of
Section 13(5) of Act 1459, doubt still seems to be in the minds of other members giving the cited provision an
unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them null and void.

I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the validity of the
by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be otherwise, after the
present petition is dismissed with the relief sought to declare null and void the said by-laws being denied in effect. A
vicious circle would be created if, should petitioner Gokongwei be barred or disqualified from running by the Board of
Directors of San Miguel Corporation and the Securities and Exchange Commission sustain the Board, petitioner could
come again to Us, raising the same question he has raised in the present petition, unless the principle of the "law of the
case" is applied.

Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing
unimpaired, it is now for petitioner to show that he does not come within the disqualification as therein provided, both
to the Board and later to the Securities and Exchange Commission, it being a foregone conclusion that, unless petitioner
disposes of his stockholdings in the so-called competitive corporations, San Miguel Corporation would apply the by-laws
against him. His right, therefore, to run depends on what, on election day, May 8, 1979, the ruling of the Board and or
the Securities and Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court
in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of
Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after petitioner’s "disqualification" has
ultimately been passed upon by this Court should petitioner not be allowed to run, Petitioner may be allowed to run,
despite an adverse decision of both the Board and the Securities and Exchange Commission, only if he comes to this
Court and obtain an injunction against the enforcement of the decision disqualifying him. Without such injunction being
required, all that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the
meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding,
if not conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon appellate
courts, which should, accordingly, be enforced until reversed by this Tribunal.

Fernando, J., concurs.
 G.R. No. 170783               June 18, 2012
LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA, ROSANNA D. IMAI, GLORIA DOMINGO and RAY VINCENT, Petitioners,
vs.
AMELIA P. MUER, SAMUEL M. TANCHOCO, ROMEO TANKIANG, RUDEL PANGANIBAN, DOLORES AGBAYANI, ARLENEDAL A.
YASUMA, GODOFREDO M. CAGUIOA and EDGARDO M. SALANDANAN, Respondents.

DECISION

PERALTA, J.:

This is a petition for review on certiorari of the Court of Appeals’ Decision 1 dated July 22, 2005 in CA-G.R. CV No. 87684, and its
Resolution2 dated November 24, 2005, denying petitioners’ motion for reconsideration.

The Court of Appeals held that Judge Antonio I. De Castro of the Regional Trial Court (RTC) of Manila, Branch 3, did not commit grave
abuse of discretion in issuing the Orders dated July 21, 2004 and September 24, 2004 in Civil Case No. 04-109655, denying
petitioners’ Motion to Admit Second Amended Complaint.

The facts, as stated by the Court of Appeals, are as follows:

Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners Lilia Marquinez Palanca, Rosanna D. Imai, Gloria Domingo and Ray
Vincent, the incumbent Board of Directors, set the annual meeting of the members of the condominium corporation and the
election of the new Board of Directors for the years 2004-2005 on April 2, 2004 at 5:00 p.m. at the lobby of Legaspi Towers 300, Inc.

Out of a total number of 5,723 members who were entitled to vote, 1,358 were supposed to vote through their respective proxies
and their votes were critical in determining the existence of a quorum, which was at least 2,863 (50% plus 1). The Committee on
Elections of Legaspi Towers 300, Inc., however, found most of the proxy votes, at its face value, irregular, thus, questionable; and for
lack of time to authenticate the same, petitioners adjourned the meeting for lack of quorum.

However, the group of respondents challenged the adjournment of the meeting. Despite petitioners' insistence that no quorum was
obtained during the annual meeting held on April 2, 2004, respondents pushed through with the scheduled election and were
elected as the new Board of Directors and officers of Legaspi Towers 300, Inc. Subsequently, they submitted a General Information
Sheet to the Securities and Exchange Commission (SEC) with the following new set of officers: Amelia P. Muer, President; Samuel M.
Tanchoco, Internal Vice President; Romeo V. Tankiang, External Vice-President; Rudel H. Panganiban, Secretary; Dolores B. Agbayani,
Assistant Secretary; Arlenedal A. Yasuma, Treasurer; Godofredo M. Caguioa, Assistant Treasurer; and Edgardo M. Salandanan,
Internal Auditor.

On April 13, 2004, petitioners filed a Complaint for the Declaration of Nullity of Elections with Prayers for the lssuance of Temporary
Restraining Orders and Writ of Preliminary Injunction and Damages  against respondents with the RTC of Manila. Before respondents
could file an Answer  to the original Complaint, petitioners filed an Amended Complaint, which was admitted by the RTC in an
Order  dated April 14, 2004.

On April 20, 2004, before respondents could submit an Answer  to the Amended Complaint, petitioners again filed an Urgent Ex-
Parte Motion to Admit Second Amended Complaint and for the lssuance of Ex-Parte Temporary Restraining Order Effective only for
Seventy-Two (72) Hours.  It was stated in the said pleading that the case was raffled to Branch 24, but Presiding Judge Antonio
Eugenio, Jr. inhibited himself from handling the case; and when the case was assigned to Branch 46, Presiding Judge Artemio S.
Tipon also inhibited himself from the case.

On April 21, 2004, Executive Judge Enrico A. Lanzanas of the RTC of Manila acted on the Motion for the Issuance of an Ex
Parte Temporary Restraining Order, and issued an Order disposing, thus:

WHEREFORE, pursuant to administrative Circular No. 20-95 of the Supreme Court, a seventy-two (72) hour Temporary Restraining
Order is hereby issued, enjoining defendants from taking over management, or to maintain a status quo, in order to prevent further
irreparable damages and prejudice to the corporation, as day-to-day activities will be disrupted and will be paralyzed due to the legal
controversy.3

On the same date, April 21, 2004, respondents filed their Answer 4 to the Amended Complaint, alleging that the election on April 2,
2004 was lawfully conducted. Respondents cited the Report5 of SEC Counsel Nicanor P. Patricio, who was ordered by the SEC to
attend the annual meeting of Legaspi Towers 300, Inc. on April 2, 2004. Atty. Patricio stated in his Report that at 5:40 p.m. of April 2,
2004, a representative of the Board of the condominium corporation stated that the scheduled elections could not proceed because
the Election Committee was not able to validate the authenticity of the proxies prior to the election due to limited time available as
the submission was made only the day before. Atty. Patricio noted that the Board itself fixed the deadline for submission of proxies
at 5:00 p.m. of April 1, 2004. One holder of proxy stood up and questioned the motives of the Board in postponing the elections. The
Board objected to this and moved for a declaration of adjournment. There was an objection to the adjournment, which was ignored
by the Board. When the Board adjourned the meeting despite the objections of the unit owners, the unit owners who objected to
the adjournment gathered themselves at the same place of the meeting and proceeded with the meeting. The attendance was
checked from among the members who stayed at the meeting. Proxies were counted and recorded, and there was a declaration of a
quorum – out of a total of 5,721 votes, 2,938 were present either in person or proxy. Thereafter, ballots were prepared, proxies
were counterchecked with the number of votes entitled to each unit owner, and then votes were cast. At about 9:30 p.m.,
canvassing started, and by 11:30 p.m., the newly-elected members of the Board of Directors for the years 2004-2005 were named.

Respondents contended that from the proceedings of the election reported by SEC representative, Atty. Patricio, it was clear that
the election held on April 2, 2004 was legitimate and lawful; thus, they prayed for the dismissal of the complaint for lack cause of
action against them.

This case was scheduled to be re-raffled to regular courts on April 22, 2004, and was assigned to Judge Antonio I. De Castro of the
RTC of Manila, Branch 3 (trial court).

On April 26, 2004, the trial court conducted a hearing on the injunction sought by petitioners, and issued an Order clarifying that the
TRO issued by Executive Judge Enrico A. Lanzanas, enjoining respondents from taking over management, was not applicable as the
current Board of Directors (respondents) had actually assumed management of the corporation. The trial court stated that the status
quo mentioned in the said TRO shall mean that the current board of directors shall continue to manage the affairs of the
condominium corporation, but the court shall monitor all income earned and expenses incurred by the corporation. The trial court
stated:

Precisely this complaint seeks to annul the election of the Board due to alleged questionable proxy votes which could not have
produced a quorum. As such, there is nothing to enjoin and so injunction shall fail. As an answer has been filed, the case is ripe for
pre-trial and the parties are directed to file their pre-trial briefs by May 3, 2004.

As plaintiffs’ second amended complaint is admitted by the Court, defendants are given up to May 3, 2004 to file a comment
thereto. In the meantime, the banks and other persons & entities are advised to recognize the Board headed by its president, Amelia
Muer. All transactions made by the Board and its officers for the corporation are considered legal for all intents and purposes. 6

On May 3, 2004, respondents filed a Comment on the Motion to Amend Complaint, praying that the name of Legaspi Towers 300,
Inc., as party-plaintiff in the Second Amended Complaint, be deleted as the said inclusion by petitioners was made without the
authority of the current Board

of Directors, which had been recognized by the trial court in its Order dated April 26, 2004.

During the pre-trial conference held on July 21, 2004, the trial court resolved various incidents in the case and other issues raised by
the contending parties. One of the incidents acted upon by the trial court was petitioners' motion to amend complaint to implead
Legaspi Towers 300, Inc. as plaintiff, which motion was denied with the issuance of two Orders both dated July 21, 2004. The first
Order7 held that the said motion could not be admitted for being improper, thus:

xxxx

On plaintiffs’ motion to admit amended complaint (to include Legaspi Towers 300, Inc. as plaintiff), the Court rules to deny the
motion for being improper. (A separate Order of even date is issued.) As prayed for, movants are given 10 days from today to file a
motion for reconsideration thereof, while defendants are given 10 days from receipt thereof to reply. 8
The second separate Order,9 also dated July 21, 2004, reads:

This resolves plaintiffs’ motion to amend complaint to include Legaspi Towers 300, Inc. as party-plaintiff and defendants’ comment
thereto. Finding no merit therein and for the reasons stated in the comment, the motion is hereby DENIED.

Petitioners filed a Motion for Reconsideration of the Orders dated July 21, 2004. In the Order 10 dated September 24, 2004, the trial
court denied the motion for reconsideration for lack of merit.

Petitioners filed a petition for certiorari with the Court of Appeals alleging that the trial court gravely abused its discretion
amounting to lack or excess of jurisdiction in issuing the Orders dated July 21, 2004 and September 24, 2004, and praying that
judgment be rendered annulling the said Orders and directing RTC Judge De Castro to admit their Second Amended Complaint.

In a Decision dated July 22, 2005, the Court of Appeals dismissed the petition for lack of merit. It held that RTC Judge De Castro did
not commit grave abuse of discretion in denying petitioners' Motion To Admit Second Amended Complaint.

The Court of Appeals stated that petitioners’ complaint sought to nullify the election of the Board of Directors held on April 2, 2004,
and to protect and enforce their individual right to vote. The appellate court held that as the right to vote is a personal right of a
stockholder of a corporation, such right can only be enforced through a direct action; hence, Legaspi Towers 300, Inc. cannot be
impleaded as plaintiff in this case.

Petitioners’ motion for reconsideration was denied by the Court of Appeals in a Resolution dated November 24, 2005.

Petitioners filed this petition raising the following issues:

THE HONORABLE COURT OF APPEALS ERRED IN RESOLVING THAT PUBLIC RESPONDENT-APPELLEE DID NOT COMMIT ANY
WHIMSICAL, ARBITRARY AND OPPRESSIVE EXERCISE OF JUDICIAL AUTHORITY WHEN THE LATTER REVERSED HIS EARLIER
RULING ALREADY ADMITTING THE SECOND AMENDED COMPLAINT OF PETITIONERS-APPELLANTS.

II

THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF APPEALS TO RESOLVE THAT PETITIONERS-APPELLANTS HAVE NO
RIGHT AS BOARD OF DIRECTORS TO BRING AN ACTION IN BEHALF OF LEGASPI TOWERS 300, INC.

III

THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF APPEALS TO RESOLVE THAT THE ELECTIONS CONDUCTED IN
LEGASPI TOWERS 300, INC. FOR THE PERIOD OF 2005 TO 2006 HAVE RENDERED THE ISSUE IN CIVIL CASE NO. 04-10655
MOOT AND ACADEMIC.11

Petitioners contend that the Court of Appeals erred in not finding that RTC Judge Antonio I. De Castro committed grave abuse of
discretion amounting to lack or excess of jurisdiction in denying the admission of the Second Amended Complaint in the Orders
dated July 21, 2004 and September 24, 2004, despite the fact that he had already ordered its admission in a previous Order dated
April 26, 2004.

Petitioners’ contention is unmeritorious.

It is clear that in the Orders dated July 21, 2004, the trial court did not admit the Second Amended Complaint wherein petitioners
made the condominium corporation, Legaspi Towers 300, Inc., the party-plaintiff. In the Order dated September 24, 2004, denying
petitioners’ motion for reconsideration of the Orders dated July 21, 2004, the RTC explained its action, thus:

x x x The word "admitted" in the 3rd paragraph of the Order dated April 26, 2004 should read "received" for which defendants were
told to comment thereon as an answer has been filed. It was an oversight of the clerical error in said Order.
The Order of July 21, 2004 states "amended complaint" in the 3rd paragraph thereof and so it does not refer to the second amended
complaint. The amended complaint was admitted by the court of origin – Br. 24 in its Order of April 14, 2004 as there was no
responsive pleading yet.

Nonetheless, admission of the second amended complaint is improper. Why should Legaspi Towers 300, Inc. x x x be included as
party-plaintiff when defendants are members thereof too like plaintiffs. Both parties are deemed to be acting in their personal
capacities as they both claim to be the lawful board of directors. The motion for reconsideration for the admission of the second
amended complaint is hereby DENIED.12

The courts have the inherent power to amend and control their processes and orders so as to make them conformable to law and
justice.13 A judge has an inherent right, while his judgment is still under his control, to correct errors, mistakes, or injustices. 14

Next, petitioners state that the Court of Appeals seems to be under the impression that the action instituted by them is one brought
forth solely by way of a derivative suit. They clarified that the inclusion of Legaspi Towers 300, Inc. as a party-plaintiff in the Second
Amended Complaint was, first and foremost, intended as a direct action by the corporation acting through them (petitioners) as the
reconstituted Board of Directors of Legaspi Towers 300, Inc. Petitioners allege that their act of including the corporation as party-
plaintiff is consistent with their position that the election conducted by respondents was invalid; hence, petitioners, under their by-
laws, could reconstitute themselves as the Board of Directors of Legaspi Towers 300, Inc. in a hold-over capacity for the succeeding
term. By so doing, petitioners had the right as the rightful Board of Directors to bring the action in representation of Legaspi Towers
300, Inc. Thus, the Second Amended Complaint was intended by the petitioners as a direct suit by the corporation joined in by the
petitioners to protect and enforce their common rights.

Petitioners contend that Legaspi Towers 300, Inc. is a real party-in- interest as it stands to be affected the most by the controversy,
because it involves the determination of whether or not the corporation’s by-laws was properly carried out in the meeting held on
April 2, 2004, when despite the adjournment of the meeting for lack of quorum, the elections were still conducted. Although
petitioners admit that the action involves their right to vote, they argue that it also involves the right of the condominium
corporation to be managed and run by the duly-elected Board of Directors, and to seek redress against those who wrongfully occupy
positions of the corporation and who may mismanage the corporation.

Petitioners’ argument is unmeritorious.

The Court notes that in the Amended Complaint, petitioners as plaintiffs stated that they are the incumbent reconstituted Board of
Directors of Legaspi Towers 300, Inc., and that defendants, herein respondents, are the newly-elected members of the Board of
Directors; while in the Second Amended Complaint, the plaintiff is Legaspi Towers 300, Inc., represented by petitioners as the
allegedly incumbent reconstituted Board of Directors of Legaspi Towers 300, Inc.

The Second Amended Complaint states who the plaintiffs are, thus:

1. That the plaintiffs are: LEGASPI TOWERS 300, INC., non-stock corporation xxx duly represented by the incumbent reconstituted
Board of Directors of Legaspi Towers 300, Inc., namely: ELIADORA FE BOTE VERA xxx, as President; BRUNO C. HAMAN xxx, as
Director; LILY MARQUINEZ PALANCA xxx, as Secretary; ROSANNA DAVID IMAI xxx, as Treasurer; and members of the Board of
Directors, namely: ELIZABETH GUERRERO xxx, GLORIA DOMINGO xxx, and RAY VINCENT. 15

The Court agrees with the Court of Appeals that the Second Amended Complaint is meant to be a derivative suit filed by petitioners
in behalf of the corporation. The Court of Appeals stated in its Decision that petitioners justified the inclusion of Legaspi Towers 300,
Inc. as plaintiff in Civil Case No. 0410655 by invoking the doctrine of derivative suit, as petitioners specifically argued, thus:

xxxx

x x x [T]he sudden takeover by private respondents of the management of Legaspi Towers 300, Inc. has only proven the rightfulness
of petitioners’ move to include Legaspi Towers 300, Inc. as party-plaintiff. This is because every resolution passed by private
respondents sitting as a board result[s] in violation of Legaspi Towers 300, Inc.’s right to be managed and represented by herein
petitioners.

In short, the amendment of the complaint [to include] Legaspi Towers 300, Inc. was done in order to protect the interest and
enforce the right of the Legaspi [Towers 300,] Inc. to be administered and managed [by petitioners] as the duly constituted Board of
Directors. This is no different from and may in fact be considered as a DERIVATIVE SUIT instituted by an individual stockholder
against those controlling the corporation but is being instituted in the name of and for the benefit of the corporation whose right/s
are being violated.16

Is a derivative suit proper in this case?

Cua, Jr. v. Tan17 differentiates a derivative suit and an individual/class suit as follows:

A derivative suit must be differentiated from individual and representative or class suits, thus:

Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be
classified into individual suits, class suits, and derivative suits. Where a stockholder or member is denied the right of inspection, his
suit would be individual because the wrong is done to him personally and not to the other stockholders or the corporation. Where
the wrong is done to a group of stockholders, as where preferred stockholders' rights are violated, a class or representative suit will
be proper for the protection of all stockholders belonging to the same group. But where the acts complained of constitute a wrong
to the corporation itself, the cause of action belongs to the corporation and not to the individual stockholder or member. Although
in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein
would be impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise, not only would the theory of separate
entity be violated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors. Furthermore, there
is the difficulty of determining the amount of damages that should be paid to each individual stockholder.

However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees themselves, a stockholder
or member may find that he has no redress because the former are vested by law with the right to decide whether or not the
corporation should sue, and they will never be willing to sue themselves. The corporation would thus be helpless to seek remedy.
Because of the frequent occurrence of such a situation, the common law gradually recognized the right of a stockholder to sue on
behalf of a corporation in what eventually became known as a "derivative suit." It has been proven to be an effective remedy of the
minority against the abuses of management. Thus, an individual stockholder is permitted to institute a derivative suit on behalf of
the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the corporation refuse
to sue or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as the
nominal party, with the corporation as the party-in- interest.18

Since it is the corporation that is the real party-in-interest in a derivative suit, then the reliefs prayed for must be for the benefit or
interest of the corporation.19 When the reliefs prayed for do not pertain to the corporation, then it is an improper derivative suit. 20

The requisites for a derivative suit are as follows:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the number of his
shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate
relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the suit.21

In this case, petitioners, as members of the Board of Directors of the condominium corporation before the election in question, filed
a complaint against the newly-elected members of the Board of Directors for the years 2004-2005, questioning the validity of the
election held on April 2, 2004, as it was allegedly marred by lack of quorum, and praying for the nullification of the said election.

As stated by the Court of Appeals, petitioners’ complaint seek to nullify the said election, and to protect and enforce their individual
right to vote. Petitioners seek the nullification of the election of the Board of Directors for the years 2004-2005, composed of herein
respondents, who pushed through with the election even if petitioners had adjourned the meeting allegedly due to lack of quorum.
Petitioners are the injured party, whose rights to vote and to be voted upon were directly affected by the election of the new set of
board of directors. The party-in-interest are the petitioners as stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which did not have the right to vote. Hence, the complaint for
nullification of the election is a direct action by petitioners, who were the members of the Board of Directors of the corporation
before the election, against respondents, who are the newly-elected Board of Directors. Under the circumstances, the derivative suit
filed by petitioners in behalf of the condominium corporation in the Second Amended Complaint is improper.

The stockholder’s right to file a derivative suit is not based on any express provision of The Corporation Code, but is impliedly
recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders
for violation of their fiduciary duties,22 which is not the issue in this case.

Further, petitioners’ change of argument before this Court, asserting that the Second Amended Complaint is a direct action filed by
the corporation, represented by the petitioners as the incumbent Board of Directors, is an afterthought, and lacks merit, considering
that the newly-elected Board of Directors had assumed their function to manage corporate affairs. 23

In fine, the Court of Appeals correctly upheld the Orders of the trial court dated July 21, 2004 and September 24, 2004 denying
petitioners’ Motion to Admit Second Amended Complaint.

Lastly, petitioners contend that the Court of Appeals erred in resolving that the recent elections conducted by Legaspi Towers, 300,
Inc. have rendered the issue raised via the special civil action for certiorari before the appellate court moot and academic.

The Court of Appeals, in its Resolution dated November 24, 2005, stated:

x x x [T]he election of the corporation’s new set of directors for the years 2005-2006 has, finally, rendered the petition at bench
moot and academic. As correctly argued by private respondents, the nullification of the orders assailed by petitioners would,
therefore, be of little or no practical and legal purpose. 24

The statement of the Court of Appeals is correct.

Petitioners question the validity of the election of the Board of Directors for the years 2004-2005, which election they seek to nullify
in Civil Case No. 04-109655. However, the valid election of a new set of Board of Directors for the years 2005-2006 would, indeed,
render this petition moot and academic.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 87684, dated July 22, 2005, and its
Resolution dated November 24, 2005 are AFFIRMED.

Costs against petitioners.

SO ORDERED.