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outstanding capital stock entitled to vote (voting stock), coupled with beneficial ownership, both
of which results to "effective control."
"Mere legal title is insufficient to meet the 60 percent Filipino owned capital required in the
Constitution for certain industries. Full beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights, is required." In this case, such twin
requirements must apply uniformly and across the board to all classes of shares comprising the
capital. Thus, "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." This guarantees that the controlling interest in public utilities always lies
in the hands of Filipino citizens.
A broader definition would unjustifiably disregards who owns the all-important voting stock,
which necessarily equates to control of the public utility would be contrary to Sec. 11, Art. XII, a
self-executing provision of the Constitution.
A similar definition is found in Section 10, Article XII of the Constitution, the Foreign
Investments Act of 1991 and its IRR, Regulation of Award of Government Contracts or R.A. No.
5183, Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977, Philippine Overseas Shipping Development Act or R.A.
No. 7471, Domestic Shipping Development Act of 2004 or R.A. No. 9295, Philippine
Technology Transfer Act of 2009 or R.A. No. 10055, and Ship Mortgage Decree or P.D. No.
1521.
VELASCO (Separate Dissenting Opinion)
The present petition partakes of a collateral attack on PLDTs franchise as a public utility with
petitioner pleading as ground PLDTs alleged breach of the 40% limit on foreign equity. Such is
not allowed. As discussed in PLDT v. National Telecommunications Commission, a franchise is a
property right that can only be questioned in a direct proceeding.
(1) The intent of the framers of the Constitution was not to limit the application of the word
capital to voting or common shares alone. Constitutional Commission records show that by
using the word capital, the framers of the Constitution adopted the definition or interpretation
that includes all types of shares, whether voting or non-voting.
(2) Cassus Omissus Pro Omisso Habendus Esta person, object or thing omitted must have been
omitted intentionally. In this case, the intention of the framers of the Constitution is very clear
to omit the phrases voting stock and controlling interest.
(3) The FIA should also be read in harmony with the Constitution. Since the Constitution only
provides for a single requirement for the operation of a public utility under Sec. 11, i.e., 60%
capital must be Filipino-owned, a mere statute cannot add another requirement. Otherwise, such
statute may be considered unconstitutional. Accordingly, the phrase entitled to vote should not
be interpreted to be limited to common shares alone or those shares entitled to vote in the election
of members of the Board of Directors.
(4) Further, the FIA did not say entitled to vote in the management affairs of the corporation or
entitled to vote in the election of the members of the Board of Directors. Verily, where the law
does not distinguish, neither should We. Hence, the proper interpretation of the phrase entitled to
vote under the FIA should be that it applies to all shares, whether classified as voting or non-
voting shares.
(5) Additionally, control is another inherent right of ownership. The circumstances
enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting rights to the
stocks deemed as non-voting as to fundamental and major corporate changes. Thus, the issue
should not only dwell on the daily management affairs of the corporation but also on the equally
important fundamental changes that may need to be voted on.
(6) The SEC rules, opinions and jurisprudence use the control test, which requires that the
nationality of a corporation is determined by the total outstanding capital stock irrespective of the
number of shares, and capital denotes the total shares subscribed and paid irrespective of their
nomenclature.
(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the foreign investors
in the governing body to their proportionate share in the capital of the corporation.
ABAD (Dissenting Opinion)
(1) Authority to define and interpret the meaning of capital in Sec. 11, Art. XII belongs to
Congress as part of its policy making powers, as the power to authorize and control a public
utility is a prerogative of Congress. Sec. 11, Art. XII is no self-executing and requires
Congressional action to clarify its meaning. FIA is restricted to certain areas of investment
and should not be construed to clarify the meaning of capital under the constitutional
provision as they are rules which apply to future investors.
(2) Capital refers to the entirety of the corporations outstanding voting stock as, first, the 40
percent limit (if held only to preferred shareholders) would render meaningless the fourth
sentence which limits foreign participation in the governing body of public utilities, and,
second, amicus curiae Dr. Villegas, Chairman of the Committee of National Economy, said
that the term capital did not distinguish among the classes of shares. In both economic and
business terms, capital always meant the entire shares of stock. Further, Philippine policy on
foreign ownership already discourages foreign investments and to impose additional
restrictions would aggravate economic growth.
(3) Sec. 11, Article XII already provides 3 limitations on foreign participation in public utilities
and the Court need not add more by restricting the definition of capital.