Joaquin Cunanan & Co.

December 27, 1995 Joaquin Cunanan & Co. 8th Flr. B.A. Lepanto Bldg. 8747 Paseo de Roxas Makati, Metro Manila Attention : Mr . George Lavadia S i r : This refers to your letter dated December 18, 1995, requesting confirmation of your view that "in order to determine whether or not a corporation which owns land complies with the nationality requirement of a Philippine National the computation of the required 60% minimum Filipino ownership is based only on capital stock outstanding and entitled to vote . In other words, preferred non-voting stock shall not be taken into account in determining such nationality requirement and said preferred non-voting shares can be fully owned by foreigners ". Ownership in " land " must be distinguished from ownership or control in a " corporation ". The threshold question raised in the present query is what should be the basis of determining the required Filipino interest in a corporation for purposes of land ownership . Hence, the applicable laws on the matter are the PHILIPPINE CONSTITUTION & PUBLIC LAND ACT, not necessarily the FOREIGN INVESTMENTS ACT. The legal capacity of a corporation to acquire "private land" is regulated by law. Section 7, Article XII of the Philippine Constitution provides, thus: "Save in cases of hereditary succession, no private lands shall be transferred except to individuals, corporations or associations qualified to acquire or hold lands of public domain ." (Emphasis supplied) Corollary thereto, Sections 22 and 23 of Commonwealth Act No. 141, otherwise known as the "Public Land Act" provide as to who are qualified to own private lands: "SECTION 22. Any citizen of lawful age of the Philippines and any such citizen not of lawful age, who is a head of the family, and any corporation or association of which at least sixty percentum of the CAPITAL STOCK belongs wholly to citizens of the Philippines , and which is organized and constituted under the laws of the Philippines, authorized under their charter, to do so, may purchase any tract of public agricultural land disposable under this Act. . . .. (Emphasis supplied) "SECTION 23. No person, corporation, association or partnership other than those mentioned in the last preceding section , may acquire or own agricultural public land or land of any other denomination or classification , which is at the time or was originally, really or presumably of the public domain, or any permanent improvement thereon, or any real right on such land and improvement . . . . (Emphasis provided) The above provision does not qualify whether the required ownership of "capital stock" are voting or non-voting. Hence, it should be interpreted to mean the sum total of the capital stock subscribed, irrespective of their nomenclature and whether or not they are voting or non-voting . The use of the phrase " capital stock belongs " connotes that in order to comply with the Filipino nationality requirement for land ownership, it is necessary that the criterion of " beneficial ownership " should be met, not merely the control of the corporation . To construe the 60-40% equity requirement is merely based on the voting shares, disregarding the preferred non-voting shares , not on the total outstanding subscribed capital stock, would give rise to a situation where the actual foreign interest would not really be only 40% but may extend beyond that because they could also own even the entire preferred non-voting shares. In this situation, Filipinos may have the control in the operation of the corporation by way of voting rights, but have no effective ownership of the corporate assets which include lands , because the actual Filipino equity constitutes only a minority of the entire outstanding capital stock. Therefore, in essence, the company, although controlled by Filipinos, is beneficially owned by foreigners since the actual ownership of at least 60% of the entire outstanding capital stocks would be in the hands of foreigners. Allowing this situation would open the floodgates to circumvention of the intent of the law to make the Filipinos the principal beneficiaries in the ownership of Philippine alienable lands. Take note that the Supreme Court decision cited in your letter Re: Register of Deeds vs. Ung Siu Si Temple, G.R. No. L-6776, May 21, 1955, 97 Phil. 58,is not applicable in the present situation as the entity involved is a religious organization whose founder, trustees and administrator are non-Filipinos, not a stock corporation which issues different classes of capital stock. Hence, said decided case is of no moment. Thus, for purpose of "land ownership", non-voting preferred shares should be included in the computation of the statutory 60-40% Filipino-alien equity requirement. To rule otherwise would result in the emergence of foreign beneficial ownership of land, thereby defeating the purpose of the law. On the other hand, to view the equity ratio as determined on the basis of the entire outstanding capital stock would be to uphold the unequivocal purpose of the above-cited law of ensuring Filipino rightful domination of land ownership. Please be advised, however, that the foregoing opinion does not preclude judicial interpretation and/or application of the law should the issue be raised or litigated in the proper forum. The interpretation of the above provisions of law is not the sole prerogative of the SEC as there are other government agencies more directly responsible for their proper interpretation, particularly the Land Registration Authority and Department of Justice. (SGD.) PERFECTO R. YASAY, JR. Acting Chairman