Hahn v.

CA
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn- Manila". Respondent Bayerische Motoren
Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of
Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney,":
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of the said BMW trademark and
device in favor of the ASSIGNEE herein with the Philippines Patent Office.
Per the agreement, the parties "continue[d] business relations as has been usual in the past without a formal contract." But on Feb
16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez,
petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had
expressed interest in acquiring the same.
BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract,
otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate petitioner's exclusive
dealership effective June 30, 1993. Petitioner protested, claiming that the termination of his exclusive dealership would be a breach
of the Deed of Assignment. Hahn insisted that as long as the assignment of its trademark and device subsisted, he remained BMW's
exclusive dealer in the Philippines because the assignment was made in consideration of the exclusive dealership.
Because of Hahn's insistence on the former business relations, BMW withdrew on March 26, 1993 its offer of a "standard importer
contract" and terminated the exclusive dealer relationship effective June 30, 1993. On April 29, 1993, BMW proposed that Hahn and
CMC jointly import and distribute BMW cars and parts. Hahn found the proposal unacceptable. On May 14, 1993, he fled a complaint
for specifc performance and damages against BMW to compel it to continue the exclusive dealership. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars and parts.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction over it through the
service of summons on the Department of Trade and Industry, because it (BMW) was a foreign corporation and it was not doing
business in the Philippines. It contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn was not
its agent because the latter undertook to assemble and sell BMW cars and products without the participation of BMW and sold other
products; and that Hahn was an indentor or middleman transacting business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines through him as its agent, as
shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave warranties as exclusive
BMW dealer; that BMW offcials periodically inspected standards of service rendered by him; and that he was described in service
booklets and international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines.
ISSUE: Did the court acquire jurisdiction over the foreign corporation?
RULING:
Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign corporation, or a nonresident joint stock company or
association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law
for that purpose, or, if there be no such agent, on the government offcial designated by law to that effect, or on any of its
officers or agents within the Philippines.
The acts that are considered "doing business in the Philippines" are enumerated in 3(d) of the Foreign Investments
Act of 1991 (R.A. No. 7042) as follows:
d) the phrase "doing business" shall include soliciting orders, service contracts, opening offces, whether called "liaison"
offces 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. frm, 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 offcer 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 phrase includes "appointing representatives or distributors in the Philippines" but not when the representative or distributor
"transacts business in its name and for its own account." In addition, Section 1(f)(1) of the Rules and Regulations implementing (IRR)
the Omnibus Investment Code of 1987 (E.O. No. 226) provided:
(f) "doing business" shall be any act or combination of acts, enumerated in Article 44 of the Code. In particular, "doing
business" includes:
(1) . . . A foreign frm which does business through middlemen acting in their own names, such as indentors,
commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the
Philippines.
Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fxed the down payment
and pricing charges, noticed Hahn of the scheduled production month for the orders, and reconfrmed the orders by signing and
returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to
the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission
equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confrmation in writing that the vehicles had
been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed

after sale services, including, warranty services. for which he received reimbursement from BMW. All orders were on invoices and
forms of BMW. These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of Appeals.
Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made. The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily
prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW exercised control
over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce compliance with BMW standards and
specifcations. Thus, the court had acquired jurisdiction over BMW through the summons served.
On the other hand, private respondent need not apprehend that by responding to the summons it would be waiving its objection to
the trial court's jurisdiction. It is now settled that for purposes of having summons served on a foreign corporation in accordance with
Rule 14, 14, it is suffcient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The
court need not go beyond the allegations of the complaint in order to determine whether it has jurisdiction. A determination that the
foreign corporation is doing business is only tentative and is made only for the purpose of enabling the local court to acquire
jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, 4. Such determination does not foreclose a
contrary fnding should evidence later show that it is not transacting business in the country.
Gamboa v. Teves
June 28, 2011
Facts:
The facts according to petitioner Gamboa, a stockholder of PLDT:

1.

2.

3.

4. PHI

7. Parallax

5. PCGG
6. First Pacifc

8.
9. MPAH

1) The Philippine Legislature granted PLDT the franchise and right to engage in telecommunications business.
2) The American company, General Telephone Electronics Corporation (GTE) which is a major stockholder of PLDT,
3) sold 26% of its common shares to Philippine Telecommunications Investment Corporation (PTIC).
4) PTIC stockholders executed three deeds of assignment in favor of Prime Holdings, Inc. (PHI) which became the owner of 111,415
shares of stock of PTIC.
5) Such 111,415 shares of PTIC held by PHI were sequestered by the PCGG which represent 46.125% of the outstanding capital stock
of PTIC that were later declared to be owned by the Republic of the Philippines.
6) First Pacifc which is a Bermuda-registered & HK-based frm acquired the remaining 54% of PTIC.
7) Subsequently, Interagency Privatization Council announced selling the 111,415 shares or 46.125% of PTIC through a public
bidding. Parallax won the bid.
8) Thereafter, First Pacifc as PTIC stockholder announced to match the bid of Parallax to buy the 111,415 shares. However, it failed to
do so.
9) Through its subsidiary MPAH, First Pacifc entered into a Conditional Sale & Purchase Agreement with the government for the 111,
415 shares.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125% of PTIC shares is actually an indirect sale of
12M shares or about 6.3% of the outstanding common shares of PLDT. With the completed sale, First Pacifc common shareholdings in
PLDT increased from 30.7% to 37%, thereby increasing the shares of foreigners to about 81.47% and thus violating the constitutional
limitation of foreign ownership of the capital of a public utility.
The facts according to public respondents Finance Secretary Teves, Undersecretary Sevilla, and PCGG Commissioner
Abcede: The HR Committee on Good Government conducted a public hearing of the impending sale and concluded that First Pacifcs
intended acquisition of the governments 111,415 PTIC shares (see 9 in the illustration above) resulting in First Pacifcs 100%
ownership of PTIC will not violate the constitutional limit since PTIC holds only 13.847% of the total outstanding common shares of
PLDT.
Petitioner fled the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of 111,415 shares
and averred that the sale would result in an increase in First Pacifcs common shareholdings in PLDT from 30.7% to 37%, and this,
combined with Japanese NTT DoCoMos common shareholdings in PLDT would result to 51.56% foreign shareholdings which is
over the 40% constitutional limit.
TN: First Pacifc + Japanese NTT DoCoMos common shareholdings = 51.56% foreign shareholdings
Issue: WON the term capital in Sec. 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.

Held:
The term capital in Section 11, Article XII of the 1987 Constitution ONLY to common shares refers only to shares of stock entitled
to vote in the election of directors, and thus in the present case, and NOT to the total outstanding capital stock (common and nonvoting preferred shares). Respondent Chairperson of the SEC is directed to apply this defnition of the term capital in determining
the extent of allowable foreign ownership in respondent PLDT Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.

Other relevant discussion in the case:

1. 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 usually refers only to common shares but shall also include preferred shares ONLY IF they
are also given the right to vote.
Fernandez v. Conjuangco. The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote
in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock
comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines classifes shares as common or preferred, thus:
Sec. 6. Classifcation 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...

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. This is
exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation. 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. In fact, under the Corporation Code only preferred or
redeemable shares can be deprived of the right to vote. 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.
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.
2. 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. 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 defnition of a "Philippine
national" in the Foreign Investments Act of 1991.
Mere legal title is not enough to meet the required Filipino equity. Full benefcial 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 qualifcations are
considered as non-Philippine nationals.
3. Including both common and non-voting preferred shares contravenes the Constitutional provision that "State shall
develop a self-reliant and independent national economy effectively controlled by Filipinos."
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 defnition unjustifably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility.
4. Illustration
We shall illustrate the glaring anomaly in giving a broad defnition to the term "capital." Let us assume that a corporation has 100
common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having
a par value of one peso (P1.00) per share. Under the broad defnition 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.

5. Application in the instant case

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."
On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDT's Articles of
Incorporation 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."
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.
6. 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; (5) preferred shares have twice the par
value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%.
This kind of ownership and control of a public utility is a mockery of the Constitution. Incidentally, the fact that PLDT common shares
with a par value of P5.00 have a current stock market value of P2,328.00 per share, while PLDT preferred shares with a par value of
P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per share, is a glaring confrmation by the
market that control and benefcial ownership of PLDT rest with the common shares, not with the preferred shares.
7. Section 11, Article XII of the Constitution is self-executing.
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specifc 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.
8. 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.
Under Section 17 (4) 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.
Gamboa v. Teves (2012 case)
Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Corp.
G.R. No. 195580, [April 21, 2014]
Facts:
Redmont took interest in mining and exploring areas in Palawan. After inquiring, it learned that areas were already covered by Mineral
Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro & McArthur. Petitioner McArthur through its
predecessor-in-interest Sara Marie Mining, Inc (SMMI) applied and was issued MPSA & Exploration Permit (EP). These were later on
transferred to Madridejos Mining Corp (MMC) and assigned to McArthur. Petitioner Narra acquired its MPSA from Alpha Resources &
Devt Corp and PLMDC which previously fled an application. Subsequently, PLMDC assigned its rights and interests over the MPSA
application in favour of Narra. Another application of SMMI was fled and assigned such to Tesoro.
Total of
1
2
3

3 MPSI are granted and transferred/assigned:

Sara Marie Mining Inc (SMMI) Madridejos Mining Corp (MMC) MacArthur
SMMI Tesoro
Patricia Louise Mining & Devt Corp (PLMDC) Narra

Thereafter, Redmont fled before POA 3 separate petitions for denial of applications alleging that at least 60% of the capital stock of
McArthur, Narra & Tesoro are owned by MBMI- a 100% Canadian corporation. Thus, they were disqualifed from engaging in mining
through MPSAs which are reserved only for Filipinos. For the petitioners, they averred that they were qualifed pursuant to RA 7942
(Philippine Mining Act of 1995).
Respondent Redmont

invoked the grandfather rule

Petitioners Narra, Tesoro & McArthur

invoked the control test contending that issue on nationality should not be raised because 60% of their capital is owned by
Filipinos. For them, doubt only exists when the Filipino stockholdings are less than 60%
nationality as applicants immaterial because they also applied for Financial and Technical Assistance Agreements (FTAA)
The shareholding of Olympic mines is 60%, thus should consider MMC as 100% Philippine national. Since MMC is a Philippine
national, and it has 60% of McArthur then McArthur as well is a Philippine national. So take a look at our shareholdings- all
60%, the corporate layering is 60% and that is allowed by FIA. Further, they contend that with the Foreign Investment Act,
the grandfather rule is no longer applicable.

Issue:
The main issue in this case is centered on the issue of petitioners' nationality, whether Filipino or foreign.
Ruling:
Petitioners are NOT FILIPINO.
Two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.
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 6040 Filipino-equity ownership in the corporation, then it may apply the grandfather rule.
When to apply:
According to SEC Rules and DOJ Opinion: shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control test or the liberal rule. On the other
hand, the second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the corporation or partnership
is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine nationality," pertains to
the stricter, more stringent grandfather rule.
When doubt arise:
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.

Through a web of corporate layering, there is one common controlling investor. While corporate layering is allowed under
the Foreign Investment Act, but if it is issued to circumvent the Constitution and pertinent laws, then it becomes illegal.

The framers of the Constitution intends to apply the grandfather rule in cases where corporate layering is present. The basis of the
60% equity requirement is on the subscribed capital stock.
In this case, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporation MBMI, funded them. The grandfather rule must be used because there is intention to
circumvent the law..
Grandfathering of their Corporate Structure:
To establish actual ownership, interest or participation of MBMI
Major Stockholders:
Nationality
No. of Shares
Amount Paid (in PhP)
Madridejos
Filipino
5,997
825, 000
MBMI
Canadian
3,998
1,878,174.60
Madridejos
Mining Olympic
Filipino
6,663
0
Corp
MBMI
Canadian
3,331
2,803,000
Tesoro
Sara Marie Mining
Filipino
5997
825,000
MBMI
Canadian
3998
1,878,174.60
SMMI
Olympic
Filipino
6663
0
MBMI
Canadian
3331
2,794,000
Narra
PLMDC
Filipino
5997
1,677,000
MBMI
Canadian
3998
1,116,000
PLMDC
Palawan Alpha
Filipino
6596
0
MDMI
Canadian
3396
2,796,000
Olympic did not pay any amount in their subscribed shares. Thus, 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. This is true in the case of Tesoro and Narra.
MacArthur

Thru grandfathering of the corporate owners (MMC, SMMI, PLMDC), petitioners are NOT Filipino since MBMI, 100% Canadian, owns
more than 60% of their equity interests. In other words, MBMI owned more than 60% = 40% DIRECT Foreign ownership and 24%
INDIRECT Foreign ownership. The ownership of the layered corporations boils down to MBMI, Olympic, or Alpha Group where MBMI has
JVA.