1
GARCIA v EXECUTIVE SECRETARY
FACTS
1. The petitioner challenges RA 7042 on the ground that it
defeats the constitutional policy of developing a self-reliant
and independent national economy effectively controlled by
Filipinos and the protection of Filipino enterprises against
unfair foreign competition and trade practices.
a. He claims that the law abdicates all regulation of
foreign enterprises in this country and gives them
unfair advantages over local investments
b. that under Section 5 of the said law a foreign
investor may do business in the Philippines or invest
in a domestic enterprise up to 100% of its capital
without need of prior approval.
c. that "the SEC or BTRCP, as the case may be, shall not
impose any limitations on the extent of foreign
ownership in an enterprise additional to those
provided in this Act.
d. Section 7 provides that "non-Philippine nationals may
own up to one hundred percent (100%) of domestic
market enterprises unless foreign ownership therein
is prohibited or limited by existing law or the Foreign
Investment Negative List under Section 8 hereof
e. The petitioner attacks List A as not a true negative
list in the strict sense of the term. It would merely
enumerate areas of activities already reserved to
Philippine nationals by mandate of the Constitution
and specific laws.
f. List B would contain areas of activities and
enterprises already regulated according to law and
includes small and medium-sized domestic market
enterprises or export enterprises which utilize raw
materials from depleting natural resources with paid-
in equity capital of less than the equivalent of
US$500,000.00.
i. "small to medium" are reserved to Philippine
nationals; in effect Filipinos are not
encouraged to go big.
g. List C would merely contain areas of investment m
which "existing enterprises already serve adequately
the needs of the economy and the consumers and do
not need further foreign investments." The category
of "existing enterprises" should be qualified by the
term "Filipino." Otherwise, List C would protect
existing foreign enterprises as well.
h. Section 9 because if a Philippine national believes
that an area of investment should be included in list
C, the burden is on him to show that the criteria
enumerated in said section are met.
i. abandons the regulation of foreign investments by
doing away with important requirements for doing
business in the Philippines.
j. transitory provisions of RA 7042, which allow
practically unlimited entry of foreign investments for
three years, subject only to a supposed Transitory
Foreign Investment Negative List, not only
completely deregulates foreign investments but
would place Filipino enterprises at a fatal
disadvantage in their own country.
2. OSG counters that the phrase "without need of prior
approval" applies to equity restrictions alone. This is well
explained by the fact that prior to the effectivity of RA 7042,
Article 46 of the Omnibus Investments Code of 1987 (EO No.
226), provided that a non-Philippine national could, without
need of prior authority from the Board of Investments (BOI),
invest in: (1) any enterprise registered under Book I
(Investments with Incentives); and (2) enterprises not
registered under Book I, to the extent that the total
investment of the non-Philippine national did not exceed
40% of the outstanding capital.
3. On the other hand, under Article 47 thereof, if an investment
by a non-Philippine nationals in an enterprise not registered
under Book I was such that the total participation by non-
Philippine nationals in the outstanding capital thereof
exceeded 40%, prior authority from the BOI was required.
4. With the effectivity of RA 7042, a certain layer of
bureaucracy has been removed, specifically, the case-to-
case authorization by BOI.
5. This registration constitutes regulation and exercise of
authority over foreign investments. Under SEC and BTRCP
rules and regulations, foreign investors must first comply
with certain requirements before they can be issued a
license to do business in the Philippines.
Basically, Section 7 of RA 7042 allows non-Philippine nationals to
own up to 100% of domestic market enterprises only in areas of
investments outside the prohibitions and limitations imposed by
 2
law to protect Filipino ownership and interest. Furthermore, the What we see here is a debate on the wisdom or the efficacy
Foreign Investment Negative List under Section 8 reserves to of the Act, but this is a matter on which we are not
Filipinos sensitive areas of investments. List C prohibits foreign competent to rule.
investors from engaging in areas of activities where existing
enterprises already serve adequately the needs of the economy
and the consumer.
6. Se nator Paterno raises the same arguments as the OSG
saying that Act does not deregulate foreign investment to
the disadvantage of the Filipino entrepreneur.
ISSUE: WON RA 7042 is Constitutional?
HELD: Yes, case is premature.
RATIO:

there is at this point no actual case or controversy,

particularly because of the absence of the implementing
rules that are supposed to carry the Act into effect. A
controversy must be one that is appropriate or "ripe" for
determination, not conjectural or anticipatory. We hold,
however, that the petitioner, as a citizen and taxpayer, and
particularly as a member of the House of Representatives,
comes under the definition that a proper party is one who
has sustained or is in danger of sustaining an injury as a
result of the act complained of
constitutional challenge must be rejected for failure to show
that there is an indubitable ground for it, not to say even a
necessity to resolve it. The policy of the courts is to avoid
ruling on constitutional questions and to presume that the
acts of the political departments are valid in the absence of
a clear and unmistakable showing to the contrary. To doubt
is to sustain. This presumption is based on the doctrine of
separation of powers which enjoins upon each department a
becoming respect for the acts of the other departments.
In the case at bar, the law is challenged on broad
constitutional principles and the proposition that the Filipino
investor is unduly discriminated against in his own land. Due
process is invoked. The provisions on nationalism are cited.
Economic dependency is deplored. In the light, however, of
the explanation given by the Solicitor General and of the
Intervenor in their respective Comments, we hold that the
cause of unconstitutionality has not been proved by the
petitioner.

ERIKS PTE LTD v CA
FACTS
1. Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation
engaged in the manufacture and sale of elements used in
sealing pumps, valves and pipes for industrial purposes,
valves and control equipment used for industrial fluid
control and PVC pipes and fittings for industrial uses.
2. It alleged that it is duly organized in Rep of SG not licensed
to do business in the PH and is not so engaged and is suing
on an isolated transaction for which it has capacity to sue
3. From Jan 17-Aug16, 1989, Delfin Enriquez, doing business
under Delrene EB Controls Center and/or EB Karmine
Commercial, ordered and received from petitioner various
elements used in sealing pumps, valves, pipes and control
equipment, PVC pipes and fittings. The ordered materials
were delivered via airfreight
4. The transfers of goods were perfected in Singapore, for
private respondents account, F.O.B. Singapore, with a 90-
day credit term.Subsequently, demands were made by
petitioner upon private respondent to settle his account, but
the latter failed/refused to do so.
5. Pet Corp filed w Makati RTC an action for recovery for
S$41,939,63 or its equivalent in PH currency plus interest
and dmaages
6. Private resp respondend w MD contending that pet had no
legal capacity to sue
7. TC dismissed the action on the ground that petitioner is a
foreign coreporation soing business in the PH without a
license.
8. CA affirmed.
9. Petitioner insists that the series of sales made to private
respondent would still constitute isolated transactions
despite the number of invoices covering several separate
and distinct items sold and shipped over a span of four to
five months, and that an affirmation of respondent Courts
ruling would result in injustice and unjust enrichment.
10. Private respondent counters that to declare petitioner as
possessing capacity to sue will render nugatory the
provisions of the Corporation Code and constitute a gross
violation of our laws
ISSUE: WON petitioner has a legal capacity to sue?
3
HELD: No.
RATIO:
Sec. 133. Doing business without a license. - No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines; but
such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The aforementioned provision prohibits, not merely absence
of the prescribed license, but it also bars a foreign
corporation doing business in the Philippines without such
license access to our courts.[8] A foreign corporation without
such license is not ipso factoincapacitated from bringing an
action. A license is necessary only if it is transacting or
doing business in the country.
(d) the phrase doing business shall include soliciting orders,
service contracts, opening offices, whether called liaison
offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods
totalling one hundred eight(y) (180) days or more;
participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and
in progressive prosecution of, commercial gain or of the
purpose and object of the business organization: Provided,
however, That the phrase doing business shall not be
deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor
having a nominee director or officer to represent its
interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own
account. (underscoring supplied)
The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the
 4
business or enterprise for which it was organized or whether entity which happens to obtain an isolated order for
it has substantially retired from it and turned it over to business in the Philippines. Neither, did it intend to shield
another. debtors from their legitimate liabilities or obligations. [15] But
The invoices and delivery receipts covering the period of it cannot allow foreign corporations or entities which
(sic) from January 17, 1989 to August 16, 1989 cannot be conduct regular business any access to courts without the
treated to mean a singular and isolated business transaction fulfillment by such corporations of the necessary requisites
that is temporary in character. Granting that there is no to be subjected to our governments regulation and
distributorship agreement between herein parties, yet by authority.
the mere fact that plaintiff, each time that the defendant REMEDY: Res judicata does not set in a case dismissed for
posts an order delivers the items as evidenced by the lack of capacity to sue, because there has been no
several invoices and receipts of various dates only indicates determination on the merits. [16] Moreover, this Court has
that plaintiff has the intention and desire to repeat the (sic) ruled that subsequent acquisition of the license will cure the
said transaction in the future in pursuit of its ordinary lack of capacity at the time of the execution of the contract
business.Furthermore, and if the corporation is doing that
for which it was created, the amount or volume of the
business done is immaterial and a single act of that
character may constitute doing business.
In the case at bar, the transactions entered into by the
appellant with the appellee are a series of commercial
dealings which would signify an intent on the part of the
appellant (petitioner) to do business in the Philippines and
could not by any stretch of the imagination be considered
an isolated one, thus would fall under the category of doing
business.
Further, its grant and extension of 90-day credit terms to
private respondent for every purchase made, unarguably
shows an intention to continue transacting with private
respondent, since in the usual course of commercial
transactions, credit is extended only to customers in good
standing or to those on whom there is an intention to
maintain long-term relationship.
What is determinative of doing business is not really the
number or the quantity of the transactions, but more
importantly, the intention of an entity to continue the body
of its business in the country. The number and quantity are
merely evidence of such intention. The phrase isolated
transaction has a definite and fixed meaning, i.e. a
transaction or series of transactions set apart from the
common business of a foreign enterprise in the sense that
there is no intention to engage in a progressive pursuit of
the purpose and object of the business organization.
NO LEGAL CAPACITY: It was never the intent of the
legislature to bar court access to a foreign corporation or

AGILENT TECHNOLOGIES SINGAPORE LTD v INTEGRATED SILICON
TECHNOLOGY PH CORP, ET AL
FACTS
1. Petitioner Agilent Technologies Singapore (Pte.), Ltd.
(Agilent) is a foreign corporation, which, by its own
admission, is not licensed to do business in the Philippines.
2. Respondent Integrated Silicon Technology Philippines
Corporation (Integrated Silicon) is a private domestic
corporation, 100% foreign owned, which is engaged in the
business of manufacturing and assembling electronics
components.
3. Respondents Teoh Kiang Hong, Teoh Kiang Seng and
Anthony Choo, Malaysian nationals, are current members of
Integrated Silicons board of directors, while Joanne Kate
M. dela Cruz, Jean Kay M. dela Cruz, and Rolando
T. Nacilla are its former members.
4. A Value Added Assembly Services Agreement (VAASA) was
entered into between Integrated Silicon and HP Singapore.
Wherein:
a. Integrated Silicon was to locally manufacture and
assemble fiber optics for export to HP-Singapore.
b. HP-Singapore, for its part, was to consign raw
materials to Integrated Silicon and transport
machinery to plant of Integrated Silicon
c. pay Integrated Silicon the purchase price of the
finished products.
d. It had a 5yr term with a provision for annual renewal
by mutual written consent
5. HP-Singapore assigned all its rights and obligations under
VAASA to Agilent.
6. Integrated Silicon filed a complaint for Specific Performance
and Damages against Agilent and its officers Tan BianEe,
Lim Chin Hong, Tey Boon Teck and Francis Khor. [3110 case]
Alleging that:
a. Agilent breached the parties oral agreement to
extend the VAASA.
b. Integrated Silicon thus prayed that defendant be
ordered to execute a written extension of
the VAASA for a period of five years and comply with
the extended VAASA
c. and to pay actual, moral, exemplary damages and
attorneys fees.
5
7. Summons was received by Atty. Quisimbing who returned it
saying that he was not the registered agent, but entered a
special appearance to assail jurisdiction over person of
Agilent.
8. Agilent filed a separate complaint against Integrated
Silicon, Teoh Kang Seng, Teoh Kiang Gong, Anthony Choo,
Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz and Rolando
T. Nacilla for Specific Performance, Recovery of Possession,
and Sum of Money with Replevin, Preliminary Mandatory
Injunction, and Damages, before RTC Calamba, Laguna
praying: [3123 case]
a. a writ of replevin or, in the alternative, a writ of
preliminary mandatory injunction, be issued ordering
defendants to immediately return and deliver to
plaintiff its equipment, machineries and the materials
to be used for fiber-optic components which were left
in the plant of Integrated Silicon.
b. be ordered to pay actual and exemplary damages
and attorneys fees.
9. Respondents filed MTD on grounds of Agilents legal capacity
to sue, litis pendentia, forum shopping and failure to state
cause of action.
10. TC denied MTD and granted Agilents writ of replevin.
11. Resp filed petition for certiorari, without filing an MR, before
CA.
12. Judge Pozas of RTC Calamba inhibited himself in the 3123
case, so it was reraffled to the branch where the 3110 case
was filed by Integrated Silicon was pending.
13. CA ruled against Agilents and granted certiorari and set
aside the order of TC. Hence, this petition.
ISSUE: WON the CA was correct in reversing the ruling of TC?
HELD: No, it was wrong.
RATIO:
PROCEDURAL: [Issue here is WON the CA was correct since MR is
sine qua non in filing Certiorari; here, no MR was filed, it was
immediately Certiorari)
It was an error on the part of CA to rule that TC had no
jurisdiction over 3123 case because of the pendency pf
3110 case, thus MR was not necessary.
o Jurisdiction is fixed by law. Batas Pambansa Blg. 129
vests jurisdiction over the subject matter of 3123
case in the RTC.

It was also wrong for CA to rule that the Order of RTC was a
nullity for lack of jurisdiction due to litis pendentia and FS
since it has no basis; The pendency of another action does
not strip a court of the jurisdiction granted by law.
It was also wrong for CA to say that there is urgent necessity
in this case so MR was not necessary.
o GERONIMO v COMELEC: where the urgent necessity
of resolving a disqualification case for a position in
local government warranted the expeditious resort to
certiorari. In the case at bar, there is no analogously
urgent circumstance which would necessitate the
relaxation of the rule on a Motion for
Reconsideration.
o No such patent nullity is evident in the Order issued
by the trial court in this case. Finally, while urgency
may be a ground for dispensing with a Motion for
Reconsideration, in the case of Vivo v. Cloribel cited
by respondents, the slow progress of the case would
have rendered the issues moot had a motion for
reconsideration been availed of. We find no such
urgent circumstance in the case at bar.
Respondents, therefore, availed of a premature
remedy when they immediately raised the matter to
the Court of Appeals on certiorari; and the appellate
court committed reversible error when it took
cognizance of respondents petition instead of
dismissing the same outright.
SUBSTANTIVE:
LITIS PENDETIA -
Litis pendentia is a Latin term which literally means a pending suit.
as a ground for the dismissal of a civil action refers to that
situation wherein another action is pending between the
same parties for the same cause of action, such that the
second action becomes unnecessary and vexatious.
Requisites:
(a) identity of parties or at least such as represent the
same interest in both actions;
(b) identity of rights asserted and reliefs prayed for,
the reliefs being founded on the same facts; and
6
(c) the identity in the two cases should be such that the
judgment that may be rendered in one would,
regardless of which party is successful, amount
to res judicata in the other
litis pendentia does not obtain in this case because of
the absence of the second and third requisites. The
rights asserted in each of the cases involved are
separate and distinct; there are two subjects of
controversy presented for adjudication; and two causes
of action are clearly involved. The fact that respondents
instituted a prior action for Specific Performance and
Damages is not a ground for defeating the petitioners
action for Specific Performance, Recovery of Possession,
and Sum of Money with Replevin, Preliminary Mandatory
Injunction, and Damages.
3110 CASE: the issue is whether or not there was a
breach of an oral promise to renew of the VAASA.
3123 CASE: issue is whether petitioner has the right to
take possession of the subject properties. Petitioners
right of possession is founded on the ownership of the
subject goods, which ownership is not disputed and is
not contingent on the extension or non-extension of
the VAASA. Hence, the replevin suit can validly be tried
even while the prior suit is being litigated in the
Regional Trial Court.
Concededly, some items or pieces of evidence may be
admissible in both actions. It cannot be said, however,
that exactly the same evidence will support the
decisions in both, since the legally significant and
controlling facts in each case are entirely different.
Although the VAASA figures prominently in both suits,
3110 case is premised on a purported breach of an oral
obligation to extend the VAASA, and damages arising
out of Agilents alleged failure to comply with such
purported extension. 3123 case, on the other hand, is
premised on a breach of the VAASA itself, and damages
arising to Agilent out of that purported breach.
In this case, any judgment rendered in one of the
actions will not amount to res judicata in the other
action. There being different causes of action, the

decision in one case will not constitute res judicata as to
the other.
FORUM SHOPPING
Forum shopping exists where the elements
of litis pendentia are present, or where a final
judgment in one case will amount
to resjudicata in the final other. There being
no litis pendentia in this case, a judgment in the
said case will not amount to res judicata in 3110
case, and respondents contention on forum
shopping must likewise fail.
If respondent Integrated Silicon eventually wins 3110
case, and the VAASAs terms are extended, petitioner
corporation will have to comply with its
obligations thereunder, which would include the
consignment of properties similar to those it may
recover by way of replevin in 3123 case. However,
petitioner will also suffer an injustice if denied the
remedy of replevin, resort to which is not only allowed
but encouraged by law.
AGILENTS LEGAL CAPACITY TO SUE:
A foreign corporation without a license is not ipso
facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign
corporation is transacting or doing business in the
country.
o Sec. 133. Doing business without a license. No
foreign corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines;
but such corporation may be sued or proceeded
against before Philippine courts or administrative
tribunals on any valid cause of action recognized
under Philippine laws.
an unlicensed foreign corporation doing
business in the Philippines may bring suit
in Philippine courts against a Philippine
7
citizen or entity who had contracted with
and benefited from said corporation. Such
a suit is premised on the doctrine
of estoppel. A party is estopped from
challenging the personality of a
corporation after having acknowledged
the same by entering into a contract with
it.
Continuity test: continuity of commercial dealings and
arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of
the functions normally incident to, and in the
progressive prosecution of, the purpose and object of its
organization.
o An analysis of the relevant case law, in
conjunction with Section 11 of the Implementing
Rules and Regulations of the FIA (as amended by
Republic Act No. 8179), would demonstrate
that the acts enumerated in the VAASA
do not constitute doing business in the
Philippines.
1 Section 1 of the Implementing Rules and Regulations of the FIA (as amended by
Republic Act No. 8179) provides that the following shall not be deemed doing
business:(1) Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor;
(2) Having a nominee director or officer to represent its interest in such corporation;
(3) Appointing a representative or distributor domiciled in the Philippines which
transacts business in the representatives or distributors own name and account;
(4) The publication of a general advertisement through any print or broadcast
media;
(5) Maintaining a stock of goods in the Philippines solely for the purpose of having
the same processed by another entity in the Philippines;
(6) Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated contract of sale which are
not on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.
 8
o By the clear terms of the VAASA, Agilents activities in
the Philippines were confined to (1) maintaining a
stock of goods in the Philippines solely for the
purpose of having the same processed by Integrated
Silicon; and (2) consignment of equipment with
Integrated Silicon to be used in the processing of
products for export. As such, we hold that, based on
the evidence presented thus far, Agilentcannot be
deemed to be doing business in
the Philippines. Respondents contention
that Agilent lacks the legal capacity to file suit is
therefore devoid of merit. As a foreign corporation
not doing business in the Philippines, it needed no
license before it can sue before our courts.

B VAN ZUIDEN BROS LTD v GTVL MANUFACTURING INDUSTRIES
FACTS
1. Petitioner filed a complaint for sum of money against
respondent
a. Petitioner is corporation incorporated under laws of
HK nad is not engaged in business in the PH but is
using PH COURTS
b. GTVL purchased lace products from pet
c. Zuiden delivers the purchased products to HK Corp
KENZAR and the proucts are the considered sold
upon receipt by kenzar
d. Kenzar will deliver it to PH
e. When zuiden delivers it to kenzar, transaction is
concluded and gtvl will then be obligated to pay the
agreed purchase price
f. Hover GT L failed and resufed to pay the agreed
purchase price for several deliveries ordered by it
and delivered by zuiden
2. GTVL filed MD on the ground that pet has no legal capacity
to sue saying that pet is doing business in the PH w.o
securing the required license
3. TC dismissed the complaint. CA sustained saying that
delivery of goods in HK did not exempt pet from being
considered as doing business in PH
ISSUE: WON pet has a legal capacity to sue?
HELD: Yes
RATIO:
Doing business without license. No foreign
corporation transacting business in the Philippines
without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may
be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause
of action recognized under Philippine laws.
The law is clear. An unlicensed foreign corporation doing
business in the Philippines cannot sue before Philippine
courts. On the other hand, an unlicensed foreign
9
corporation not doing business in the Philippines can sue
before Philippine courts.
In the present controversy, petitioner is a foreign
corporation which claims that it is not doing business in the
Philippines. As such, it needs no license to institute a
collection suit against respondent before Philippine courts.
doing business includes:
x x x soliciting orders, service contracts, opening
offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled
in the Philippines or who in any calendar year stay in
the country for a period or periods totalling one
hundred eighty (180) days or more; participating in
the management, supervision or control of any
domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of
acts or works, or the exercise of some of the
functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose
and object of the business organization: Provided,
however, That the phrase doing business shall not be
deemed to include mere investment as a shareholder
by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of
rights as such investor; nor having a nominee
director or officer to represent its interests in such
corporation; nor appointing a representative or
distributor domiciled in the Philippines which
transacts business in its own name and for its own
account.
The series of transactions between petitioner and
respondent cannot be classified as doing business in the
Philippines under Section 3(d) of RA 7042. An essential
condition to be considered as doing business in the
Philippines is the actual performance of specific commercial
acts within the territory of the Philippines for the plain
reason that the Philippines has no jurisdiction over
commercial acts performed in foreign territories. Here, there
is no showing that petitioner performed within the Philippine
territory the specific acts of doing business mentioned in
 10
Section 3(d) of RA 7042. Petitioner did not also open an
office here in the Philippines, appoint a representative or
distributor, or manage, supervise or control a local business.
While petitioner and respondent entered into a series of
transactions implying a continuity of commercial dealings,
the perfection and consummation of these transactions
were done outside the Philippines.
In other words, the sale of lace products was consummated
in Hong Kong.
As earlier stated, the series of transactions between
petitioner and respondent transpired and were
consummated in Hong Kong.[9]We also find no single activity
which petitioner performed here in the Philippines pursuant
to its purpose and object as a business organization
The importing country does not acquire jurisdiction over the
foreign exporter who has not performed any specific
commercial act within the territory of the importing
country. Without jurisdiction over the foreign exporter, the
importing country cannot compel the foreign exporter to
secure a license to do business in the importing country.
To be doing or transacting business in the Philippines for
purposes of Section 133 of the Corporation Code, the foreign
corporation must actually transact business in the
Philippines, that is, perform specific business transactions
within the Philippine territory on a continuing basis in its
own name and for its own account. Actual transaction of
business within the Philippine territory is an essential
requisite for the Philippines to acquire jurisdiction over a
foreign corporation and thus require the foreign corporation
to secure a Philippine business license. If a foreign
corporation does not transact such kind of business in the
Philippines, even if it exports its products to the Philippines,
the Philippines has no jurisdiction to require such foreign
corporation to secure a Philippine business license.

CARGILL v INTRA STRATA ASSURANCE CORPORATION
FACTS
1. Cargill Inc is a corporation organized and existing under laws
of the State of Delaware, USA.
2. Cargill and Northern Mindanao Corp (NMC) executed a
contract wherein NMC agreed to sell to pet 20k-24k metric
tons of molasses at $44 per metric ton.
a. Contract provides that pet would open a Letter of
Credit w BPI
b. NMC was permitted to graw up to $500k the
mminimum price of contracts
c. It was amended three times
i. Increase of price to $47.5 per metric ton
ii. Reducing the quantity of molasses to 10,500
and increasing to $55
iii. Providing shipment of 5,250 metric tons of
molasses on the last half of decemeber 1990
and balance of 5250 metric tons on the last
half of Jan 1991
1. It also required NMC to put up a
performance bons which represents
10500 metric tons intended to
guarantee NMCs performance to
deliver it
3. Intra Strata issued a performance bons to guarantee the
delivery of 10500 and a surety bond to guarantee the
repayment of downpayment
4. NMC was only able to delvier 219.551 metric tons out of
10500
5. Pet sent a demand letters to resp claiming payment under
performance and surety bonds
6. Petitioner filed a complaint for sum of money against NMC
and Intra Strata
7. NMC and Strata entered into a compromise agreement,
which was approved by TC.
a. It provides that NMC would pay 3000 upon signing of
compromise agreement and would delvier te
remaining metric tons
b. NMC still failed to complay w its obligation under the
COMP AGREEMENT
8. TC rendered a decusuin infavor of Cargill ordering Intra
Strata to solidarily pay petitioner; counter claim of Intra
Strata was dismissed
11
9. CA reversed saying that petitioner does not have capacity to
sue since it is a foreign corp doing business in PH w/o
license.
ISSUE: WON the petitioner has a legal capacity to sue?
HELD: Yes
RATIO:
Since respondent is relying on Section 133 of the
Corporation Code to bar petitioner from maintaining an
action in Philippine courts, respondent bears the burden of
proving that petitioners business activities in the Philippines
were not just casual or occasional, but so systematic and
regular as to manifest continuity and permanence of activity
to constitute doing business in the Philippines. In this case,
we find that respondent failed to prove that petitioners
activities in the Philippines constitute doing business as
would prevent it from bringing an action.
Similarly, in this case, petitioner and NMC amended their
contract three times to give a chance to NMC to deliver to
petitioner the molasses, considering that NMC already
received the minimum price of the contract. There is no
showing that the transactions between petitioner and NMC
signify the intent of petitioner to establish a continuous
business or extend its operations in the Philippines.
Most of these activities do not bring any direct receipts or
profits to the foreign corporation, consistent with the ruling
of this Court in National Sugar Trading Corp. v. CA[18] that
activities within Philippine jurisdiction that do not create
earnings or profits to the foreign corporation do not
constitute doing business in the Philippines. [19] In that case,
the Court held that it would be inequitable for the National
Sugar Trading Corporation, a state-owned corporation, to
evade payment of a legitimate indebtedness owing to the
foreign corporation on the plea that the latter should have
obtained a license first before perfecting a contract with the
Philippine government. The Court emphasized that the
foreign corporation did not sell sugar and derive income
from the Philippines, but merely purchased sugar from the
Philippine government and allegedly paid for it in full.
In this case, the contract between petitioner and NMC
involved the purchase of molasses by petitioner from NMC.
It was NMC, the domestic corporation, which derived income
 12
from the transaction and not petitioner. To constitute doing
business, the activity undertaken in the Philippines should
involve profit-making.
Other factors which support the finding that petitioner is not
doing business in the Philippines are: (1) petitioner does not
have an office in the Philippines; (2) petitioner imports
products from the Philippines through its non-exclusive local
broker, whose authority to act on behalf of petitioner is
limited to soliciting purchases of products from suppliers
engaged in the sugar trade in the Philippines; and (3) the
local broker is an independent contractor and not an agent
of petitioner.
In the present case, petitioner is a foreign company merely
importing molasses from a Philipine exporter. A foreign
company that merely imports goods from a Philippine
exporter, without opening an office or appointing an agent
in the Philippines, is not doing business in the Philippines.

STEELCASE, INC v DESIGN INTERNATIONAL SELECTIONS
FACTS
1. Steelcase is a foreign corporation existing under laws of
Michigan, USA and engaged in the manufacture of office
furniture w dealers worldwide.
2. Design Intl (DISI) is corp under Ph Laws and engaged in
furniture business including distribution.
3. Steelcase and DOSO orally entered into a dealership
afreemen
a. Steelcase granted DISI the right to market, sell,
distribute and install its products to end user in PH
b. The business relationship continues smoothly until it
was terminated sometime in Jan 1999 after
agreement was breached w neither party admitting
any fault
4. Steelcase filed a complaint for sum of money against DISI
alleging that DISI had an unpaid aact of US$600K, it payed
that DISI be ordered to pay actual or damages exemplary,
attys fees, etc.
5. SISI in its answer w CC said sought for TRO and writ of
preliminary injunction to enjoing Steelcase from selling its
products in the PH except through DISI nad dismissal of
complaint for lack of merit and payment of actual moral and
exemplary damages
a. DISI alleged that complaint failed to state a cause of
action and to contain required allegations on its
capacity to sue in the PH despite that it was doing
business in the PH w/o license
6. Steelcase filed its Motion to Admit Amended Complaint,
granted.
7. TC dismissed tha complaint and granted the TRO prayed by
DISI, denied the motion to admit second amended complaint
of Steelxase. It ruled that Stealcase was doing business in
PH as contemplated under RA 7042 and since it did not have
license to do business in the country, ir was barred from
seeking redredd from our courts.
8. MR denied.
9. CA affirmed RTC saying that Steelcase was a foreign
corporation doing business thru the ff acts, in PH w/o
license.
a. sending a letter to Phinma, informing the latter that
the distribution rights for its products would be
established in the near future and directing other
13
questions about orders for Steelcase products to
Steelcase International;
b. cancelling orders from DISIs customers, particularly
Visteon, Phils., Inc. (Visteon);
c. continuing to send its products to the Philippines
through Modernform Group Company
Limited (Modernform), as evidenced by an Ocean Bill
of Lading; and
d. going beyond the mere appointment of DISI as a
dealer by making several impositions on
management and operations of DISI.
10. Mr DENIED.
ISSUE: WON Steelcase has a legal capacity to sue?
HELD: Yes
RATIO:
Anent the first issue, Steelcase argues that Section 3(d) of
R.A. No. 7042 or the Foreign Investments Act of
1991 (FIA)expressly states that the phrase doing business
excludes the appointment by a foreign corporation of a local
distributor domiciled in the Philippines which transacts
business in its own name and for its own account. Steelcase
claims that it was not doing business in the Philippines when
it entered into a dealership agreement with DISI where the
latter, acting as the formers appointed local distributor,
transacted business in its own name and for its own
account. Specifically, Steelcase contends that it was DISI
that sold Steelcases furniture directly to the end-users or
customers who, in turn, directly paid DISI for the furniture
they bought. Steelcase further claims that DISI, as a non-
exclusive dealer in the Philippines, had the right to market,
sell, distribute and service Steelcase products in its own
name and for its own account. Hence, DISI was an
independent distributor of Steelcase products, and not a
mere agent or conduit of Steelcase.
Implementing Rules and Regulations, Rule I, Section 1(f)
which elaborates on the meaning of the same phrase:
f. Doing business shall include soliciting orders,
service contracts, opening offices, whether liaison
offices or branches; appointing representatives or
distributors, operating under full control of the

foreign corporation, domiciled in the Philippines or
who in any calendar year stay in the country for a
period totalling one hundred eighty [180] days or
more; participating in the management, supervision
or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of
some of the functions normally incident to and in
progressive prosecution of commercial gain or of the
purpose and object of the business organization.2
From the preceding citations, the appointment of a
distributor in the Philippines is not sufficient to constitute
2 The following acts shall not be deemed doing business in
the Philippines:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as
such investor;
2. Having a nominee director or officer to represent its interest in such
corporation;
3. Appointing a representative or distributor domiciled in
the Philippines which transacts business in the representative's or
distributor's own name and account;
4. The publication of a general advertisement through any print or
broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to
be used in the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale
which are not on a continuing basis, such as installing in the Philippines
machinery it has manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it, and similar incidental
services. (Emphases supplied)
14
doing business unless it is under the full control of the
foreign corporation. On the other hand, if the distributor is
an independent entity which buys and distributes products,
other than those of the foreign corporation, for its own name
and its own account, the latter cannot be considered to be
doing business in the Philippines.
Steelcase and DISI relationship: basically a buy and sell
arrangement whereby we would inform Steelcase of the
volume of the products needed for a particular project and
Steelcase would, in turn, give special quotations or
discounts after considering the value of the entire
package. In making the bid of the project, we would then
add out profit margin over Steelcases prices. After the
approval of the bid by the client, we would thereafter place
the orders to Steelcase. The latter, upon our payment,
would then ship the goods to the Philippines, with us
shouldering the freight charges and taxes.
Another point being raised by DISI is the delivery and sale of
Steelcase products to a Philippine client by Modernform
allegedly an agent of Steelcase. Basic is the rule in
corporation law that a corporation has a separate and
distinct personality from its stockholders and from other
corporations with which it may be connected. [19] Thus,
despite the admission by Steelcase that it owns 25% of
Modernform, with the remaining 75% being owned and
controlled by Thai stockholders,[20] it is grossly insufficient to
justify piercing the veil of corporate fiction and declare that
Modernform acted as the alter ego of Steelcase to enable it
to improperly conduct business in the Philippines. The
records are bereft of any evidence which might lend even a
hint of credence to DISIs assertions. As such, Steelcase
cannot be deemed to have been doing business in
the Philippines through Modernform.
All things considered, it has been sufficiently demonstrated
that DISI was an independent contractor which sold
Steelcase products in its own name and for its own
account. As a result, Steelcase cannot be considered to be
doing business in the Philippines by its act of appointing a
distributor as it falls under one of the exceptions under R.A.
No. 7042.
ESTOPPED DISI: Unquestionably, entering into a dealership
agreement with Steelcase charged DISI with the knowledge
that Steelcase was not licensed to engage in business
activities in the Philippines. This Court has carefully combed
 15
the records and found no proof that, from the inception of
the dealership agreement in 1986 until September 1998,
DISI even brought to Steelcases attention that it was
improperly doing business in the Philippines without a
license. It was only towards the latter part of 1998 that DISI
deemed it necessary to inform Steelcase of the impropriety
of the conduct of its business without the requisite
Philippine license. It should, however, be noted that DISI
only raised the issue of the absence of a license with
Steelcase after it was informed that it owed the latter
US$600,000.00 for the sale and delivery of its products
under their special credit arrangement.
As shown in the previously cited cases, this Court has time
and again upheld the principle that a foreign corporation
doing business in the Philippines without a license may still
sue before the Philippine courts a Filipino or a Philippine
entity that had derived some benefit from their contractual
arrangement because the latter is considered to be
estopped from challenging the personality of a corporation
after it had acknowledged the said corporation by entering
into a contract with it.

TEVEZ v GAMBOA
FACTS
1. OSG initially filed MR on behald of SEC assiling the 2011
decision.
2. It subsequently filed a Consolidated comment on behalf of
the State declaring expressly that it agrees w Courts
definition of Capital.
3. Court denies the MR.
4. Court here dispenses with procedural defect in the interest
of substantial justice and faithful adherence to Constitution.
5. There is no redefinition of Capital.
6. Movants contend that the capital refers to o the total
outstanding shares of stock, whether voting or non-voting.
In fact, movants claim that the SEC, which is the
administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in the
Constitution and various statutes, has consistently adopted
this particular definition in its numerous opinions.
a. with the 28 June 2011 Decision, the Court in effect
introduced a new definition or midstream
redefinition9 of the term capital
ISSUE: WON the term capital has been redefined?
HELD: No.
RATIO:
capital, which supposedly refers to the total outstanding
shares of stock, whether voting or non-voting. To repeat,
until the present case there has never been a Court ruling
categorically defining the term capital found in the various
economic provisions of the 1935, 1973 and 1987 Philippine
Constitutions.
The opinions of the SEC, as well as of the Department of
Justice (DOJ), on the definition of the term capital as
referring to both voting and non-voting shares (combined
total of common and preferred shares) are, in the first place,
conflicting and inconsistent.
Mendoza: includes both preferred and common stocks
treated as the same class of shares regardless of differences
in voting rights and privileges. Minister Mendoza stressed
16
that the 60-40 ownership requirement in favor of Filipino
citizens in the Constitution is not complied with unless the
corporation satisfies the criterion of beneficial ownership
and that in applying the same the primordial consideration
is situs of control.
SEC General: applied the Voting Control Test, that is, using
only the voting stock to determine whether a corporation is
a Philippine national.
o the act of the individual Commissioners or legal
officers of the SEC in issuing opinions that have the
effect of SEC rules or regulations is ultra vires. Under
Sections 4.6 and 5.1(g) of the Code, only the SEC en
banc can issue opinions that have the force and
effect of rules or regulations
Significantly, the SEC en banc, which is the collegial body
statutorily empowered to issue rules and opinions on behalf
of the SEC, has adopted even the Grandfather Rule in
determining compliance with the 60-40 ownership
requirement in favor of Filipino citizens mandated by the
Constitution for certain economic activities
o 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
o Compliance with the constitutional limitation(s) on
engaging in nationalized activities must be
determined by ascertaining if 60% of the investing
corporations outstanding capital stock is owned by
Filipino citizens, or as interpreted, by natural or
individual Filipino citizens. If such investing
corporation is in turn owned to some extent by
another investing corporation, the same process
must be observed. One must not stop until the
citizenships of the individual or natural stockholders
of layer after layer of investing corporations have
been established, the very essence of the
Grandfather Rule.
2011 decision: Mere legal title is insufficient to meet the 60
percent Filipinoowned capital required in the Constitution.
Full beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands of

Filipino nationals in accordance with the constitutional
mandate.
Both the Voting Control Test and the Beneficial Ownership
Test must be applied to determine whether a corporation is
a Philippine national.
FILIPINIZATION OF PUBLIC UTILITIES:
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.
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.
The 1987 Constitution reserves the ownership and operation
of public utilities exclusively to (1) Filipino citizens, or (2)
corporations or associations at least 60 percent of whose
capital is owned by Filipino citizens.
o In other words, under Section 11, Article XII of the
1987 Constitution, to own and operate a public utility
a corporations capital must at least be 60 percent
owned by Philippine nationals.
PHILIPPINE NATIONAL:
SEC. 3. Definitions. - As used in this Act: a. The term
Philippine national shall mean a citizen of the Philippines;
17
or a domestic partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under
the laws of the Philippines of which at least sixty percent
(60%) of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines; or a
corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of
which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos
or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the
fund will accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled
to vote of each of both corporations must be owned and
held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors of each of
both corporations must be citizens of the Philippines, in
order that the corporation, shall be considered a Philippine
national. (Boldfacing, italicization and underscoring
supplied)
o Thus, the FIA clearly and unequivocally defines a
Philippine national as a Philippine citizen, or a
domestic corporation at least 60% of the capital
stock outstanding and entitled to vote is owned by
Philippine citizens.
The FIA, like all its predecessor statutes, clearly defines a
Philippine national as a Filipino citizen, or a domestic
corporation at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned by Filipino
citizens. A domestic corporation is a Philippine national
only if at least 60% of its voting stock is owned by Filipino
citizens. This definition of a Philippine national is crucial in
the present case because the FIA reiterates and clarifies
Section 11, Article XII of the 1987 Constitution, which limits
the ownership and operation of public utilities to Filipino
citizens or to corporations or associations at least 60%
Filipino-owned.
The FIA is the basic law governing foreign investments in the
Philippines, irrespective of the nature of business and area
of investment. The FIA spells out the procedures by which

non-Philippine nationals can invest in the Philippines. Among
the key features of this law is the concept of a negative list
or the Foreign Investments Negative List.
o Foreign Investment Negative List A consists of areas
of activities reserved to Philippine nationals by
mandate of the Constitution and specific laws,
where foreign equity participation in any enterprise
shall be limited to the maximum percentage
expressly prescribed by the Constitution and other
specific laws. In short, to own and operate a public
utility in the Philippines one must be a Philippine
national as defined in the FIA. The FIA is abundant
notice to foreign investors to what extent they can
invest in public utilities in the Philippines.
o Government agencies like the SEC cannot simply
ignore Sections 3(a) and 8 of the FIA which
categorically prescribe that certain economic
activities, like the ownership and operation of public
utilities, are reserved to corporations at least sixty
percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the
Philippines. Foreign Investment Negative List A
refers to activities reserved to Philippine nationals
by mandate of the Constitution and specific laws.
The FIA is the basic statute regulating foreign
investments in the Philippines.
The SEC legal officers occasional but blatant disregard of
the definition of the term Philippine national in the FIA
signifies their lack of integrity and competence in resolving
issues on the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of the Constitution.
Pangilinan similarly contends that the FIA and its
predecessor statutes do not apply to companies which
have not registered and obtained special incentives under
the schemes established by those laws.
The FIA and its predecessor statutes apply to investments in
all domestic enterprises, whether or not such enterprises
enjoy tax and fiscal incentives under the Omnibus
Investments Code of 1987 or its predecessor statutes. The
reason is quite obvious mere non-availment of tax and
fiscal incentives by a non-Philippine national cannot exempt
it from Section 11, Article XII of the Constitution regulating
foreign investments in public utilities.
18
RIGHT TO ELECT DIRECTORS, COUPLED WITH BENEFICIAL
OWNERSHIP, TRANSLATES TO EFFECTIVE CONTROL
The 28 June 2011 Decision declares that the 60 percent
Filipino ownership required by the Constitution to engage in
certain economic activities applies not only to voting control
of the corporation, but also to the beneficial ownership of
the corporation.
This is consistent with Section 3 of the FIA which provides
that where 100% of the capital stock is held by a trustee of
funds for pension or other employee retirement or
separation benefits, the trustee is a Philippine national if
at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals.
Full beneficial ownership of the stocks, coupled with
appropriate voting rights, is essential
Since a specific class of shares may have rights and
privileges or restrictions different from the rest of the shares
in a corporation, the 60-40 ownership requirement in favor
of Filipino citizens in Section 11, Article XII of the
Constitution must apply not only to shares with voting rights
but also to shares without voting rights
o Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common
and preferred non-voting shares, at least 60 percent
of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by
Filipinos. Of course, if a corporation issues only a
single class of shares, at least 60 percent of such
shares must necessarily be owned by Filipinos. In
short, the 60-40 ownership requirement in favor of
Filipino citizens must apply separately to each class
of shares, whether common, preferred non-voting,
preferred voting or any other class of shares.
INTENT OF FRAMERS OF THE CONSTITUTION
It is clear from the following exchange that the term
capital refers to controlling interest of a corporation
The phrase that is contained here which we adopted from
the UP draft is 60 percent of voting stock.

The OSG reiterated essentially the Courts declaration that
the Constitution reserved exclusively to Philippine nationals
the ownership and operation of public utilities consistent
with the States policy to develop a self-reliant and
independent national economy effectively controlled by
Filipinos.
LAST SENTENCE OF SECTION 11, ARTICLE XII
In other words, the last sentence of Section 11, Article XII of
the Constitution mandates that (1) the participation of
foreign investors in the governing body of the corporation or
association shall be limited to their proportionate share in
the capital of such entity; and (2) all officers of the
corporation or association must be Filipino citizens.
UNDISPUTED FACTS
There is no dispute, and respondents do not claim the
contrary, that (1) foreigners own 64.27% of the common
shares of PLDT, which class of shares exercises the sole
right to vote in the election of directors, and thus foreigners
control PLDT; (2) Filipinos own only 35.73% of PLDTs
common shares, constituting a minority of the voting stock,
and thus Filipinos do not control PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4)
preferred shares earn only 1/70 of the dividends that
common shares earn;50 (5) preferred shares have twice the
par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT
and common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in
fact refrained from ruling on the question of whether PLDT
violated the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the 1987 Constitution.
Such question indisputably calls for a presentation and
determination of evidence through a hearing, which is
generally outside the province of the Courts jurisdiction, but
well within the SECs statutory powers
PLDT IS NOT AN INDISPENSABLE PARTY, SEC IS IMPLEADED IN THIS
CASE
19
Granting that only the SEC Chairman was impleaded in this
case, the Court has ample powers to order the SECs
compliance with its directive contained in the 28 June 2011
Decision in view of the far-reaching implications of this case.
In any event, the SEC has expressly manifested54 that it will
abide by the Courts decision and defer to the Courts
definition of the term capital in Section 11, Article XII of
the Constitution. Further, the SEC entered its special
appearance in this case and argued during the Oral
Arguments, indicating its submission to the Courts
jurisdiction. It is clear, therefore, that there exists no legal
impediment against the proper and immediate
implementation of the Courts directive to the SEC.
PLDT is an indispensable party only insofar as the other
issues, particularly the factual questions, are concerned. In
other words, PLDT must be impleaded in order to fully
resolve the issues on (1) whether the sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on
foreign ownership of PLDT; (2) whether the sale of common
shares to foreigners exceeded the 40 percent limit on
foreign equity in PLDT; and (3) whether the total percentage
of the PLDT common shares with voting rights complies with
the 60-40 ownership requirement in favor of Filipino citizens
under the Constitution for the ownership and operation of
PLDT.
Notably, the foregoing issues were left untouched by the
Court. The Court did not rule on the factual issues raised by
Gamboa, except the single and purely legal issue on the
definition of the term capital in Section 11, Article XII of
the Constitution
In fact, the Court, by treating the petition as one for
mandamus,56 merely directed the SEC to apply the Courts
definition of the term capital in Section 11, Article XII of
the Constitution in determining whether PLDT committed
any violation of the said constitutional provision.
FOREIGN INVESTMENTS IN THE PHILIPPINES
the PSE claims that the 28 June 2011 Decision may result in
the following: (1) loss of more than P630 billion in foreign
investments in PSE-listed shares; (2) massive decrease in
foreign trading transactions; (3) lower PSE Composite Index;
and (4) local investors not investing in PSE-listed shares.
 20

PROSEPCTIVE APPLICATION OF SANCTIONS

In its Motion for Partial Reconsideration, the SEC sought to

clarify the reckoning period of the application and imposition
of appropriate sanctions against PLDT if found violating
Section 11, Article XII of the Constitution.
As discussed, the Court has directed the SEC to investigate
and determine whether PLDT violated Section 11, Article XII
of the Constitution. Thus, there is no dispute that it is only
after the SEC has determined PLDTs violation, if any exists
at the time of the commencement of the administrative
case or investigation, that the SEC may impose the
statutory sanctions against PLDT.
FINAL WORD:

Full beneficial ownership of the stocks, coupled with

appropriate voting rights is essential. In effect, the FIA
clarifies, reiterates and confirms the interpretation that the
term capital in Section 11, Article XII of the 1987
Constitution refers to shares with voting rights, as well as
with full beneficial ownership. This is precisely because the
right to vote in the election of directors, coupled with full
beneficial ownership of stocks, translates to effective control
of a corporation.
Movants interpretation of the term capital would bring us
back to the same evils spawned by the Parity Amendment,
effectively giving foreigners parity rights with Filipinos, but
this time even without any amendment to the present
Constitution. Worse, movants interpretation opens up our
national economy to effective control not only by Americans
but also by all foreigners, be they Indonesians, Malaysians
or Chinese, even in the absence of reciprocal treaty
arrangements

NARRA NICKEL MINING v REDMONT
FACTS
1. Redmont took interest in mining and exploring areas in
Palawan
2. After inquiring, it learned that the areas were already
covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.
3. Petitioner McArthur, through its predecessor-in-interest Sara
Marie Mining, Inc. (SMMI), filed an application for an MPSA
and Exploration Permit (EP) with the Mines and Geo-
Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources (DENR)
4. SMMI was issued MPSA-AMA-IVB-153 covering 1k ha and EPA
covering 3k ha.
5. The MPSA and EP were then transferred to Madridejos
Mining Corporation (MMC) and was later on assigned to
petitioner McArthur.
6. Narra acquired its MPSA from Alpha Resources and Patricia
Louise Mining Devt Corp
7. DENR issued MPSA covring 3ha; then PLMDC conveyed its
rights to Narra
8. Another MPSA application of SMMI was filed w DENR over 3k
ha in Narra, then SMMI conveyed its rights and interests to
Tesoro.
9. Redmont filed before Panel of Arbitrator of DENR 3 separate
petitions for denial of pets application for MPSA saying that
60% of Capital stock of McArthur , Teroso and Narra are
owned by MBMI (Canadian Corporation) and it was the
driving force behind petitioners filing of MPSAs over the
areas
10. In their Answers, petitioners averred that they were qualified
persons under Section 3(aq) of Republic Act No. (RA) 7942
or the Philippine Mining Act of 19953. they stated that their
nationality as applicants is immaterial because they also
applied for Financial or Technical Assistance Agreements
(FTAA) granted to foreign-owned corporations.
3 (aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the purpose of
engaging in mining, with technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per cent (60%) of the
capital of which is owned by citizens of the Philippines: Provided, That a legally organized
foreign-owned corporation shall be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance agreement or mineral processing permit.
21
a. Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as
60% of their capital is owned by citizens of the
Philippines.
b. They asserted that though MBMI owns 40% of the
shares of PLMC (which owns 5,997 shares of
Narra),3 40% of the shares of MMC (which owns 5,997
shares of McArthur)4 and 40% of the shares of SLMC
(which, in turn, owns 5,997 shares of Tesoro), 5 the
shares of MBMI will not make it the owner of at least
60% of the capital stock of each of petitioners.
c. They added that the best tool used in determining
the nationality of a corporation is the "control test,"
embodied in Sec. 3 of RA 7042 or the Foreign
Investments Act of 1991. They also claimed that the
POA of DENR did not have jurisdiction over the issues
in Redmonts petition since they are not enumerated
in Sec. 77 of RA 7942. Finally, they stressed that
Redmont has no personality to sue them because it
has no pending claim or application over the areas
applied for by petitioners.
11. POA issued a Resolution disqualifying petitioners from
gaining MPSAs holding that they are not qualified applicants
to engage in mining activities; the violation of requirements
for the issuance or grant of permit is established.
12. MR denied.
13. They appealed before Mines Adj Board emphasizing that
they are qualified ersosn under the law.
14. Redmont filed a complaint w SEC seeking revocation of the
certificates for registration of petitioners on the groundthat
they are foreogn owned aor controlled corp engaged in
mining.
a. It filed a motion to suspend proceedings before MAB
praying for the suspension of proceedings on appeals
15. Redmont filed before RTC QC a complaint for injunction w
application for TRO and or WPI praying for the deferral of
MAB proceedings pending resolution of complaint in SEC
16. MAB issued an Order reversing POA.
17. RTC issued an Order granting TRO
18. Redmint filed MR on Order of MAB
19. Redmont filed Supplemental Complain in RTC
20. RTC granted WPI enjoining MAB from finally disposing of the
appeals pf petitioners and from resolving MR of Redmont

21. MAB issued second Order denying Redmonts MR
22. Hencem petrev filed by Redmont before CA assiling orders
of MAB
23. CA partially granted it; MAB reversed; POA upheld, hence
rejection of petitioners application for MPSA should be
recommended to DENR.
24. CA denied MR by petitioners saying that there was doubt as
to the nationality of petitioners when it realized that
petitioners had a common investor, MBMI and it used the
grandfather rule.
a. 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.
b. CA looked into their corporate structures and their
corresponding common shareholders. Using the
grandfather rule, the CA discovered that MBMI in
effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of
other majority shareholders of petitioners through
joint venture agreements. The CA found that through
a "web of corporate layering, it is clear that one
common controlling investor in all mining
corporations involved x x x is MBMI.
c. CA viewed the conversion of the MPSA applications
of petitioners into FTAA applications suspicious in
nature and, as a consequence, it recommended the
rejection of petitioners MPSA applications by the
Secretary of the DENR.
25. Redmont filed in OP a petition seeking cancellation of
petitioners FTAA. Op RENDERED A DECISION WHEREIN IT
CANCELLED AND REVOKED petitioners FTAAs
26. MR denied by OP.
27. Petrev to CA; CA affirmed OP. Hence, this petition.
ISSUE: WON the petitioners are foreign owned corporations?
HELD:YES
RATIO:
22
FTAA APPLICATION
The filing of the FTAA application on June 15, 2007, during
the pendency of the case only demonstrate the violations
and lack of qualification of the respondent corporations to
engage in mining. The filing of the FTAA application
conversion which is allowed foreign corporation of the
earlier MPSA is an admission that indeed the respondent is
not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their head office
in Canada suggest that they are conducting operation only
through their local counterparts.
Interestingly, the OP rendered a Decision dated April 6,
2011, a day after this petition for review was filed,
cancelling and revoking the FTAAs, quoting the Order of the
POA and stating that petitioners are foreign corporations
since they needed the financial strength of MBMI, Inc. in
order to conduct large scale mining operations. The OP
Decision also based the cancellation on the
misrepresentation of facts and the violation of the "Small
Scale Mining Law and Environmental Compliance Certificate
as well as Sections 3 and 8 of the Foreign Investment Act
and E.O. 584.
Again, it is quite evident that petitioners have been trying to
have this case dismissed for being "moot." Their final act,
wherein MBMI was able to allegedly sell/assign all its shares
and interest in the petitioner "holding companies" to DMCI,
only proves that they were in fact not Filipino corporations
from the start. The recent divesting of interest by MBMI will
not change the stand of this Court with respect to the
nationality of petitioners prior the suspicious change in their
corporate structures.
GRAND FATHER RULE
Basically, there are two acknowledged tests in determining
the nationality of a corporation: the control test and the
grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series
of 2005, adopting the 1967 SEC Rules which implemented
the requirement of the Constitution and other laws
pertaining to the controlling interests in enterprises engaged
in the exploitation of natural resources owned by Filipino
citizens, provides:

o 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
[CONTROL TEST], 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.
[GRANDFATHER RULE] Thus, if 100,000 shares are
registered in the name of a corporation or
partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino
citizens, all of the shares shall be recorded as owned
by Filipinos. But if less than 60%, or say, 50% of the
capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens,
only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as
belonging to aliens.
The grandfather rule, petitioners reasoned, has no leg to
stand on in the instant case since the definition of a
"Philippine National" under Sec. 3 of the FIA does not
provide for it. They further claim that the grandfather rule
"has been abandoned and is no longer the applicable
rule."41 They also opined that the last portion of Sec. 3 of the
FIA admits the application of a "corporate layering" scheme
of corporations. Petitioners claim that the clear and
unambiguous wordings of the statute preclude the court
from construing it and prevent the courts use of discretion
in applying the law. They said that the plain, literal meaning
of the statute meant the application of the control test is
obligatory.
o We disagree. "Corporate layering" is admittedly
allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners
that the grandfather rule has already been
abandoned must be discredited for lack of basis.
Elementary in statutory construction is when there is conflict
between the Constitution and a statute, the Constitution will
prevail. In this instance, specifically pertaining to the
provisions under Art. XII of the Constitution on National
Economy and Patrimony, Sec. 3 of the FIA will have no place
23
of application. As decreed by the honorable framers of our
Constitution, the grandfather rule prevails and must be
applied.
In other words, based on the said SEC Rule and DOJ Opinion,
the Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity
ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less
than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-
alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.
Court finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by
the OP, doubt prevails and persists in the corporate
ownership of petitioners. Also, as found by the CA, doubt is
present in the 60-40 Filipino equity ownership of petitioners
Narra, McArthur and Tesoro, since their common investor,
the 100% Canadian corporationMBMI, funded them.
MCARTHUR
McArthur acquired its MPSA application from MMC, which
acquired its application from SMMI. McArthur has a capital
stock of ten million pesos (PhP 10,000,000) divided into
10,000 common shares at one thousand pesos (PhP 1,000)
per share
Interestingly, looking at the corporate structure of MMC, we
take note that it has a similar structure and composition as
McArthur. In fact, it would seem that MBMI is also a major
investor and "controls"45 MBMI and also, similar nominal
shareholders were present, i.e. Fernando B. Esguerra
(Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason
(Mason) and Kenneth Cawkell (Cawkell)
Thus, as demonstrated in this first corporation, McArthur,
when it is "grandfathered," company layering was utilized by
MBMI to gain control over McArthur. It is apparent that MBMI
has more than 60% or more equity interest in McArthur,
making the latter a foreign corporation.
TESORO
Tesoro, which acquired its MPSA application from SMMI, has
a capital stock of ten million pesos (PhP 10,000,000) divided

into ten thousand (10,000) common shares at PhP 1,000 per
share
Except for the name "Sara Marie Mining, Inc.," the table
above shows exactly the same figures as the corporate
structure of petitioner McArthur, down to the last centavo.
All the other shareholders are the same: MBMI, Salazar,
Esguerra, Agcaoili, Mason and Cawkell. The figures under
"Nationality," "Number of Shares," "Amount Subscribed,"
and "Amount Paid" are exactly the same.
SMMI
it is not farfetched for us to spot the glaring similarity
between SMMI and MMCs corporate structure. Again, the
presence of identical stockholders, namely: Olympic, MBMI,
Amanti Limson (Limson), Esguerra, Salazar, Hernando,
Mason and Cawkell. The figures under the headings
"Nationality," "Number of Shares," "Amount Subscribed,"
and "Amount Paid" are exactly the same except for the
amount paid by MBMI which now reflects the amount of two
million seven hundred ninety four thousand pesos (PhP
2,794,000). Oddly, the total value of the amount paid is two
million eight hundred nine thousand nine hundred pesos
(PhP 2,809,900).
MBMI is in control of Tesoro and owns 60% or more equity
interest in Tesoro. This makes petitioner Tesoro a non-Filipino
corporation and, thus, disqualifies it to participate in the
exploitation, utilization and development of our natural
resources.
NARRA
Narra, which is the transferee and assignee of PLMDCs
MPSA application, whose corporate structures arrangement
is similar to that of the first two petitioners discussed. The
capital stock of Narra is ten million pesos (PhP 10,000,000),
which is divided into ten thousand common shares (10,000)
at one thousand pesos (PhP 1,000) per share
MBMI, along with other nominal stockholders, i.e., Mason,
Agcaoili and Esguerra, is present in this corporate structure.
PATRICIA LOUISE MINING
Yet again, the usual players in petitioners corporate
structures are present. Similarly, the amount of money paid
24
by the 2nd tier majority stock holder, in this case, Palawan
Alpha South Resources and Development Corp. (PASRDC), is
zero.
Concluding from the above-stated facts, it is quite safe to say that
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI,
a 100% Canadian corporation, owns 60% or more of their equity
interests. Such conclusion is derived from grandfathering
petitioners corporate owners, namely: MMI, SMMI and PLMDC.
Going further and adding to the picture, MBMIs Summary of
Significant Accounting Policies statement regarding the "joint
venture" agreements that it entered into with the "Olympic" and
"Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down
to MBMI, Olympic or corporations under the "Alpha" group wherein
MBMI has joint venture agreements with, practically exercising
majority control over the corporations mentioned. In effect,
whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are
NOT Filipino nationals and must be considered foreign since 60% or
more of their capital stocks or equity interests are owned by MBMI.
A partnership is defined as two or more persons who bind
themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been deemed
to be "akin" to partnerships since it is difficult to distinguish
between joint ventures and partnerships.
Obviously, as the intricate web of "ventures" entered into by and
among petitioners and MBMI was executed to circumvent the legal
prohibition against corporations entering into partnerships, then
the relationship created should be deemed as "partnerships," and
the laws on partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen as
similar to partnerships since the elements of partnership are
present.
Considering that the relationships found between petitioners and
MBMI are considered to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by stating that "by entering
into a joint venture, MBMI have a joint interest" with Narra, Tesoro
and McArthur.

JURISDICTION OF POA
The POA has jurisdiction to settle disputes over rights to
mining areas which definitely involve the petitions filed by
Redmont against petitioners Narra, McArthur and Tesoro.
Redmont, by filing its petition against petitioners, is
asserting the right of Filipinos over mining areas in the
Philippines against alleged foreign-owned mining
corporations.
The phrase "disputes involving rights to mining areas" refers
to any adverse claim, protest, or opposition to an application
for mineral agreement. The POA therefore has the
jurisdiction to resolve any adverse claim, protest, or
opposition to a pending application for a mineral agreement
filed with the concerned Regional Office of the MGB.
It is clear that POA has exclusive and original jurisdiction
over any and all disputes involving rights to mining areas.
One such dispute is an MPSA application to which an
adverse claim, protest or opposition is filed by another
interested applicant.1wphi1 In the case at bar, the dispute
arose or originated from MPSA applications where
petitioners are asserting their rights to mining areas subject
of their respective MPSA applications. Since respondent filed
3 separate petitions for the denial of said applications, then
a controversy has developed between the parties and it is
POAs jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions
while what petitioners filed with the DENR Regional Office or
any concerned DENRE or CENRO are MPSA applications.
Thus POA has jurisdiction.
Selling of MBMIs shares to DMCI
25
As stated before, petitioners Manifestation and Submission
dated October 19, 2012 would want us to declare the instant
petition moot and academic due to the transfer and
conveyance of all the shareholdings and interests of MBMI to
DMCI, a corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-
owned.56Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares
supposedly cured the "defect" of their previous nationality.
They claimed that their current FTAA contract with the State
should stand since "even wholly-owned foreign corporations
can enter into an FTAA with the State." 57 Petitioners stress
that there should no longer be any issue left as regards their
qualification to enter into FTAA contracts since they are
qualified to engage in mining activities in the Philippines.
Thus, whether the "grandfather rule" or the "control test" is
used, the nationalities of petitioners cannot be doubted
since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have
any bearing in the instant case and said fact should be
disregarded.
In ending, the "control test" is still the prevailing mode of
determining whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled
to undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court
there is doubt, based on the attendant facts and circumstances of
the case, in the 60-40 Filipino-equity ownership in the corporation,
then it may apply the "grandfather rule."