Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 176579 October 9, 2012
HEIRS OF WISON P. G!M"O!,
#
Petitioners,
vs.
FIN!NCE SECRET!R$M!RG!RITO ". TE%ES, FIN!NCE
UN&ERSECRET!R$'OHN P. SE%I!, !N& COMMISSIONER
RIC!R&O !"CE&E OF THE PRESI&ENTI! COMMISSION ON
GOO& GO%ERNMENT(PCGG) IN THEIR C!P!CITIES !S
CH!IR !N& MEM"ERS, RESPECTI%E$, OF THE
PRI%!TI*!TION COUNCI, CH!IRM!N !NTHONI S!IM OF
FIRST P!CIFIC CO., T&. IN HIS C!P!CIT$ !S &IRECTOR OF
METRO P!CIFIC !SSET HO&INGS INC., CH!IRM!N
M!NUE %. P!NGIIN!N OF PHIIPPINE ONG &IST!NCE
TEEPHONE COMP!N$ (P&T) IN HIS C!P!CIT$ !S
M!N!GING &IRECTOR OF FIRST P!CIFIC CO., T&.,
PRESI&ENT N!POEON . N!*!RENO OF PHIIPPINE ONG
&IST!NCE TEEPHONE COMP!N$, CH!IR FE "!RIN OF THE
SECURITIES !N& E+CH!NGE COMMISSION, ,-. PRESI&ENT
FR!NCIS IM OF THE PHIIPPINE STOC/
E+CH!NGE, Respondents.
P!"ITO %. S!NI&!& ,-. !RNO %. S!NI&!&, Petitioner-in-
Intervention.
R E S ! " # I N
C!RPIO, J.:
#his resolves the $otions for reconsideration of the %& 'une %())
*ecision +led b, -). the Philippine Stoc/ E0chan1e2s -PSE.
President,
)
-%. Manuel 3. Pan1ilinan -Pan1ilinan.,
%
-4. Napoleon !.
Na5areno -Na5areno .,
4
and - 6. the Securities and E0chan1e
Co$$ission -SEC.
6
-collectivel,, $ovants ..
#he 7ce of the Solicitor 8eneral -S8. initiall, +led a $otion for
reconsideration on behalfofthe SEC,
9
assailin1 the %& 'une %())
*ecision. :o;ever, it subse<uentl, +led a Consolidated Co$$ent
on behalf of the State,
=
declarin1 e0pressl, that it a1rees ;ith the
Court2s de+nition of the ter$ >capital> in Section )), Article ?II of
the Constitution. *urin1 the ral Ar1u$ents on %= 'une %()%, the
S8 reiterated its position consistent ;ith the Court2s %& 'une
%()) *ecision.
@e den, the $otions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for
mandamus.
As ;e e$phaticall, stated in the %& 'une %()) *ecision, the
interpretation of the ter$ >capital> in Section )), Article ?II of the
Constitution has far-reachin1 i$plications to the national
econo$,. In fact, a resolution of this issue ;ill deter$ine ;hether
Ailipinos are $asters, or second-class citi5ens, in their o;n
countr,. @hat is at sta/e here is ;hether Ailipinos or forei1ners
;ill have efective control of the Philippine national econo$,.
Indeed, if ever there is a le1al issue that has far-reachin1
i$plications to the entire nation, and to future 1enerations of
Ailipinos, it is the threshold le1al issue presented in this case.
Contrar, to Pan1ilinanBs narro; vie;, the serious econo$ic
conse<uences resultin1 in the interpretation of the ter$ >capital>
in Section )), Article ?II of the Constitution undoubtedl, de$and
an i$$ediate adCudication of this issue. S01234 25t, t6e 7,r8
re,c60-9 01230c,t0o-: o7 t60: 0::5e ;5:t074 t6e tre,t1e-t o7
t6e 2et0t0o- ,: o-e 7or 1,-.,15:.
D
In Luzon Stevedoring Corp. v. Anti-Dummy Board,
&
the Court
dee$ed it ;ise and e0pedient to resolve the case althou1h the
petition for declarator, relief could be outri1htl, dis$issed for
bein1 procedurall, defective. #here, appellant ad$ittedl, had
alread, co$$itted a breach of the Public Service Act in relation
to the Anti-*u$$, !a; since it had been e$plo,in1 non-
A$erican aliens lon1 before the decision in a prior si$ilar case.
:o;ever, the $ain issue in Luzon Stevedoring ;as of
transcendental i$portance, involvin1 the e0ercise or enCo,$ent
of ri1hts, franchises, privile1es, properties and businesses ;hich
onl, Ailipinos and <uali+ed corporations could e0ercise or enCo,
under the Constitution and the statutes. Moreover, the sa$e
issue could be raised b, appellant in an appropriate action. #hus,
in Luzon Stevedoring the Court dee$ed it necessar, to +nall,
dispose of the case for the 1uidance of all concerned, despite the
apparent procedural Ea; in the petition.
#he circu$stances surroundin1 the present case, such as the
supposed procedural defect of the petition and the pivotal le1al
issue involved, rese$ble those in Luzon
Stevedoring. Conse<uentl,, in the interest of substantial Custice
and faithful adherence to the Constitution, ;e opted to resolve
this case for the 1uidance of the public and all concerned parties.
II.
No change of any long-standing rule;
thus, no redenition of the term !capital.!
Movants contend that the ter$ >capital> in Section )), Article ?II
of the Constitution has lon1 been settled and de+ned to refer to
the total outstandin1 shares of stoc/, ;hether votin1 or non-
votin1. In fact, $ovants clai$ that the SEC, ;hich is the
ad$inistrative a1enc, tas/ed to enforce the =(-6( o;nership
re<uire$ent in favor of Ailipino citi5ens in the Constitution and
various statutes, has consistentl, adopted this particular
de+nition in its nu$erous opinions. Movants point out that ;ith
the %& 'une %()) *ecision, the Court in eFect introduced a >ne;>
de+nition or >$idstrea$ rede+nition>
G
of the ter$ >capital> in
Section )), Article ?II of the Constitution.
#his is e1re1ious error.
Aor $ore than D9 ,ears since the )G49 Constitution, the Court
has not interpreted or de+ned the ter$ >capital> found in various
econo$ic provisions of the )G49, )GD4 and )G&D Constitutions.
#here has never been a Cudicial precedent interpretin1 the ter$
>capital> in the )G49, )GD4 and )G&D Constitutions, until no;.
:ence, it is patentl, ;ron1 and utterl, baseless to clai$ that the
Court in de+nin1 the ter$ >capital> in its %& 'une %()) *ecision
$odi+ed, reversed, or set aside the purported lon1-standin1
de+nition of the ter$ >capital,> ;hich supposedl, refers to the
total outstandin1 shares of stoc/, ;hether votin1 or non-votin1.
#o repeat, until the present case there has never been a Court
rulin1 cate1oricall, de+nin1 the ter$ >capital> found in the
various econo$ic provisions of the )G49, )GD4 and )G&D
Philippine Constitutions.
#he opinions of the SEC, as ;ell as of the *epart$ent of 'ustice
-*'., on the de+nition of the ter$ >capital> as referrin1 to both
votin1 and non-votin1 shares -co$bined total of co$$on and
preferred shares. are, in the +rst place, conEictin1 and
inconsistent. #here is no basis ;hatsoever to the clai$ that the
SEC and the *' have consistentl, and unifor$l, adopted a
de+nition of the ter$ >capital> contrar, to the de+nition that this
Court adopted in its %& 'une %()) *ecision.
In *' pinion No. )4(, s. )G&9,
)(
dated D ctober )G&9, the
scope of the ter$ >capital> in Section G, Article ?I3 of the )GD4
Constitution ;as raised, that is, ;hether the ter$ >capital>
includes >both preferred and co$$on stoc/s.> #he issue ;as
raised in relation to a stoc/-s;ap transaction bet;een a Ailipino
and a 'apanese corporation, both stoc/holders of a do$estic
corporation that o;ned lands in the Philippines. #hen Minister of
'ustice Estelito P. Mendo5a ruled that the resultin1 o;nership
structure of the corporation ;ould be5-co-:t0t5t0o-,3 because
=(H of the votin1 stoc/ ;ould be o;ned b, 'apanese ;hile
Ailipinos ;ould o;n onl, 6(H of the votin1 stoc/, althou1h ;hen
the non-votin1 stoc/ is added, Ailipinos ;ould o;n =(H of the
co$bined votin1 and non-votin1 stoc/. T60: o<-er:602
:tr5ct5re 0: re1,r=,b34 :0103,r to t6e c5rre-t o<-er:602
:tr5ct5re o7 P&T. Minister Mendo5a ruledI
0 0 0 0
#hus, the Ailipino 1roup still o;ns si0t, -=(H. of the entire
subscribed capital stoc/ -co$$on and preferred. ;hile the
'apanese investors control si0t, percent -=(H. of the co$$on
-votin1. shares.
It 0: 4o5r 2o:0t0o- t6,t > > > :0-ce Sect0o- 9, !rt0c3e +I% o7
t6e Co-:t0t5t0o- 5:e: t6e <or. ?c,20t,3,? <60c6 0:
co-:tr5e. ?to 0-c35.e bot6 2re7erre. ,-. co11o- :6,re:?
,-. ?t6,t <6ere t6e 3,< .oe: -ot .0:t0-950:6, t6e co5rt:
:6,33 -ot .0:t0-950:6.?
0 0 0 0
In li1ht of the fore1oin1 Curisprudence, 0t 0: 14 o20-0o- t6,t
t6e :toc=8:<,2 tr,-:,ct0o- 0- @5e:t0o- 1,4 -ot be
co-:t0t5t0o-,334 526e3.. @hile it $a, be ordinar, corporate
practice to classif, corporate shares into co$$on votin1 shares
and preferred non-votin1 shares, an, arran1e$ent ;hich
atte$pts to defeat the constitutional purpose should be
esche;ed. T65:, t6e re:53t,-t e@50t4 ,rr,-9e1e-t <60c6
<o53. 23,ce o<-er:602 o7 60A
))
o7 t6e co11o- (Bot0-9)
:6,re: 0- t6e ',2,-e:e 9ro52, <603e ret,0-0-9 60A o7 t6e
tot,3 2erce-t,9e o7 co11o- ,-. 2re7erre. :6,re: 0-
F03020-o 6,-.: <o53. ,1o5-t to c0rc51Be-t0o- o7 t6e
2r0-c023e o7 co-tro3 b4 P6030220-e :toc=6o3.er: t6,t 0:
01230c0t 0- t6e 60A P6030220-e -,t0o-,30t4 re@50re1e-t 0-
t6e Co-:t0t5t0o-. -E$phasis supplied.
In short, Minister Mendo5a c,te9or0c,334 re;ecte. the theor,
that the ter$ >capital> in Section G, Article ?I3 of the )GD4
Constitution includes >both preferred and co$$on stoc/s>
treated as the sa$e class of shares re1ardless of diFerences in
votin1 ri1hts and privile1es. Minister Mendo5a stressed that the
=(-6( o;nership re<uire$ent in favor of Ailipino citi5ens in the
Constitution is not co$plied ;ith unless the corporation
>:,t0:Ce: t6e cr0ter0o- o7 be-eCc0,3 o<-er:602> and that in
appl,in1 the sa$e >t6e 2r01or.0,3 co-:0.er,t0o- 0: :0t5: o7
co-tro3.>
n the other hand, in pinion No. %4-)( dated )& Au1ust %()(,
addressed to Castillo !a$an #an Pantaleon J San 'ose, then SEC
8eneral Counsel 3ernette 8. "$ali-Paco applied the %ot0-9
Co-tro3 Te:t, that is, usin1 onl, the votin1 stoc/ to deter$ine
;hether a corporation is a Philippine national. #he pinion statesI
Appl,in1 the fore1oin1, 2,rt0c53,r34 t6e Co-tro3 Te:t, M!RC is
dee$ed as a Philippine national becauseI -). si0t, percent -=(H.
of its o5t:t,-.0-9 c,20t,3 :toc= entitled to vote is o;ned b,
a Philippine national, the #rusteeK and -%. at least si0t, percent
-=(H. of the ERA ;ill accrue to the bene+t of Philippine
nationals. St033 25r:5,-t to t6e Co-tro3 Te:t, MRCD:
0-Be:t1e-t 0- 60A o7 "F&CD: o5t:t,-.0-9 c,20t,3
:toc= entitled to vote :6,33 be .ee1e. ,: o7 P6030220-e
-,t0o-,30t4, t6ereb4 @5,30740-9 "F&C to o<- 2r0B,te 3,-..
Aurther, under, and for purposes of, the AIA, M!RC and BA*C are
both Philippine nationals, considerin1 thatI -). si0t, percent
-=(H. of their respective o5t:t,-.0-9 c,20t,3 :toc= entitled
to vote is o;ned b, a Philippine national -i.e., b, the #rustee, in
the case of M!RCK and b, M!RC, in the case of BA*C.K and -%. at
least =(H of their respective board of directors are Ailipino
citi5ens. -Boldfacin1 and italici5ation supplied.
Clearl,, these *' and SEC opinions are co$patible ;ith the
CourtBs interpretation of the =(-6( o;nership re<uire$ent in
favor of Ailipino citi5ens $andated b, the Constitution for certain
econo$ic activities. At the sa$e ti$e, these opinions hi1hli1ht
the conEictin1, contradictor,, and inconsistent positions ta/en b,
the *' and the SEC on the de+nition of the ter$ >capital> found
in the econo$ic provisions of the Constitution.
#he opinions issued b, SEC le1al o7cers do not have the force
and eFect of SEC rules and re1ulations because onl, the SEC en
banc can adopt rules and re1ulations. As e0pressl, provided in
Section 6.= of the Securities Re1ulation Code,
)%
the SEC cannot
dele1ate to an, of its individual Co$$issioner or staF the po;er
to adopt an, rule or re1ulation. Aurther, 5-.er Sect0o- 5.1 o7
t6e :,1e Co.e, 0t 0: the "#$ as a collegial %ody, ,-. -ot
,-4 o7 0t: 3e9,3 oEcer:, t6,t 0: e12o<ere. to
0::5e opinions ,-. ,22roBe r53e: ,-. re953,t0o-:. #husI
6.=. #he Co$$ission $a,, for purposes of e7cienc,, dele1ate
an, of its functions to an, depart$ent or o7ce of the
Co$$ission, an individual Co$$issioner or staF $e$ber of the
Co$$ission e>ce2tits revie; or appellate authorit, and 0t:
2o<er to ,.o2t, ,3ter ,-. :5223e1e-t ,-4 r53e or
re953,t0o-.
#he Co$$ission $a, revie; upon its o;n initiative or upon the
petition of an, interested part, an, action of an, depart$ent or
o7ce, individual Co$$issioner, or staF $e$ber of the
Co$$ission.
SEC. 9. Powers and Functions of te Commission.- 9.). #he
Co$$ission shall act ;ith transparenc, and shall have the
po;ers and functions provided b, this Code, Presidential *ecree
No. G(%-A, the Corporation Code, the Invest$ent :ouses !a;, the
Ainancin1 Co$pan, Act and other e0istin1 la;s. Pursuant thereto
the Co$$ission shall have, a$on1 others, the follo;in1 po;ers
and functionsI
0 0 0 0
(9) Pre2,re, ,22roBe, ,1e-. or re2e,3 r53e:, re953,t0o-:
,-. or.er:, ,-. 0::5e opinions,-. 2roB0.e 950.,-ce o-
,-. :52erB0:e co1230,-ce <0t6 :5c6 r53e:, re953,t0o-:
,-. or.er:F
0 0 0 0 -E$phasis supplied.
#hus, the act of the individual Co$$issioners or le1al o7cers of
the SEC in issuin1 opinions that have the eFect of SEC rules or
re1ulations is u!tra vires. "nder Sections 6.= and 9.)-1. of the
Code, onl, the SEC en banc can >issue opinions> that have the
force and eFect of rules or re1ulations. Section 6.= of the Code
bars the SEC en banc fro$ dele1atin1 to an, individual
Co$$issioner or staF the po;er to adopt rules or re1ulations. I-
:6ort, ,-4 o20-0o- o7 0-.0B0.5,3 Co110::0o-er: or SEC
3e9,3 oEcer: .oe: -ot co-:t0t5te , r53e or re953,t0o- o7
t6e SEC.
#he SEC ad$its durin1 the ral Ar1u$ents that onl, the SEC en
banc, and not an, of its individual co$$issioners or le1al staF, is
e$po;ered to issue opinions ;hich have the sa$e bindin1 eFect
as SEC rules and re1ulations, thusI
'"S#ICE CARPII
So, under the la;, it is the Co$$ission En Banc
that can issue an
SEC pinion, correctL
CMMISSINER 8AI#EI
)4
#hatBs correct, Mour :onor.
'"S#ICE CARPII
Can the Co$$ission En Banc dele1ate this
function to an SEC o7cerL
CMMISSINER 8AI#EI
Mes, Mour :onor, ;e have dele1ated it to the
8eneral Counsel.
'"S#ICE CARPII
It can be dele1ated. @hat cannot be dele1ated b,
the Co$$ission En Banc to a co$$issioner or an
individual e$plo,ee of the Co$$issionL
CMMISSINER 8AI#EI
Novel opinions that NhaveO to be decided b, the En
Banc...
'"S#ICE CARPII
@hat cannot be dele1ated, a$on1 others, is the
po;er to adopt or a$end rules and re1ulations,
correctL
CMMISSINER 8AI#EI
#hatBs correct, Mour :onor.
'USTICE C!RPIOG
So, 4o5 co1b0-e t6e t<o (2), t6e SEC oEcer,
07 .e3e9,te. t6,t 2o<er, c,- 0::5e ,- o20-0o-
b5t t6,t o20-0o- .oe: -ot co-:t0t5te , r53e or
re953,t0o-, correctH
COMMISSIONER G!ITEG
Correct, $o5r Ho-or.
'USTICE C!RPIOG
So, ,33 o7 t6e:e o20-0o-: t6,t 4o5 1e-t0o-e.
t6e4 ,re -ot r53e: ,-. re953,t0o-:, correctH
COMMISSIONER G!ITEG
T6e4 ,re -ot r53e: ,-. re953,t0o-:.
'"S#ICE CARPII
If the, are not rules and re1ulations, the, appl,
onl, to that particular situation and ;ill not
constitute a precedent, correctL
CMMISSINER 8AI#EI
Mes, Mour :onor.
)6
-E$phasis supplied.
Si1ni+cantl,, the SEC en banc, ;hich is the colle1ial bod,
statutoril, e$po;ered to issue rules and opinions on behalf of
the SEC, has adopted even the 8randfather Rule in deter$inin1
co$pliance ;ith the =(-6( o;nership re<uire$ent in favor of
Ailipino citi5ens $andated b, the Constitution for certain
econo$ic activities. #his prevailin1 SEC rulin1, ;hich the SEC
correctl, adopted to th;art an, circu$vention of the re<uired
Ailipino >o<-er:602 ,-. co-tro3,> is laid do;n in the %9 March
%()( SEC en banc rulin1 in "edmont Conso!idated #ines$ Corp. v.
#cArtur #ining$ %nc.$ et a!.,
)9
to ;itI
#he avo;ed purpose of the Constitution is to place in the hands
of Ailipinos the e0ploitation of our natural
resources. Nece::,r034, t6ere7ore, t6e R53e 0-ter2ret0-9 t6e
co-:t0t5t0o-,3 2roB0:0o- :6o53. -ot .010-0:6 t6,t r096t
t6ro596 t6e 3e9,3 Cct0o- o7 cor2or,te o<-er:602 ,-.
co-tro3. But the constitutional provision, as interpreted and
practiced via the )G=D SEC Rules, has favored forei1ners contrar,
to the co$$and of the Constitution. &ence, the 'randfather
(ule must %e applied to accurately determine the actual
participation, %oth direct and indirect, of foreigners in a
corporation engaged in a nationali)ed activity or
%usiness.
Co$pliance ;ith the constitutional li$itation-s. on en1a1in1 in
nationali5ed activities $ust be deter$ined b, ascertainin1 if =(H
of the investin1 corporationBs outstandin1 capital stoc/ is o;ned
b, >Ailipino citi5ens>, or as interpreted, b, natural or individual
Ailipino citi5ens. If such investin1 corporation is in turn o;ned to
so$e e0tent b, another investin1 corporation, the sa$e process
$ust be observed. ne $ust not stop until the citi5enships of the
individual or natural stoc/holders of la,er after la,er of investin1
corporations have been established, the ver, essence of the
8randfather Rule.
,:t34, 0t <,: t6e 0-te-t o7 t6e 7r,1er: o7 t6e 19I7
Co-:t0t5t0o- to ,.o2t t6e Gr,-.7,t6er R53e. In one of the
discussions on ;hat is no; Article ?II of the present Constitution,
the fra$ers $ade the follo;in1 e0chan1eI
MR. N!!E*. In Sections 4, G and )9, the Co$$ittee stated
local or Ailipino e<uit, and forei1n e<uit,K na$el,, =(-6( in
Section 4, =(-6( in Section G, and %P4-)P4 in Section )9.
MR. 3I!!E8AS. #hat is ri1ht.
MR. N!!E*. In teachin1 la;, ;e are al;a,s faced ;ith the
<uestionI Q@here do ;e base the e<uit, re<uire$ent, is it on the
authori5ed capital stoc/, on the subscribed capital stoc/, or on
the paid-up capital stoc/ of a corporationBL @ill the Co$$ittee
please enli1hten $e on thisL
MR. 3I!!E8AS. @e have Cust had a lon1 discussion ;ith the
$e$bers of the tea$ fro$ the "P !a; Center ;ho provided us a
draft. #he phrase that is contained here ;hich ;e adopted fro$
the "P draft is Q=( percent of votin1 stoc/.B
MR. N!!E*. #hat $ust be based on the subscribed capital
stoc/, because unless declared delin<uent, unpaid capital stoc/
shall be entitled to vote.
MR. 3I!!E8AS. #hat is ri1ht.
MR. N!!E*. #han/ ,ou. @ith respect to an invest$ent b, one
corporation in another corporation, sa,, a corporation ;ith =(-6(
percent e<uit, invests in another corporation ;hich is per$itted
b, the Corporation Code, does the Co$$ittee adopt the
1randfather ruleL
MR. 3I!!E8AS. Mes, that is the understandin1 of the Co$$ittee.
MR. N!!E*. #herefore, ;e need additional Ailipino capitalL
MR. 3I!!E8AS. Mes. -Boldfacin1 and underscorin1 suppliedK
italici5ation in the ori1inal.
#his SEC en banc rulin1 confor$s to our %& 'une %()) *ecision
that the =(-6( o;nership re<uire$ent in favor of Ailipino citi5ens
in the Constitution to en1a1e in certain econo$ic activities
applies not onl, to votin1 control of the corporation, but ,3:o to
t6e be-eCc0,3 o<-er:602 o7 t6e cor2or,t0o-. #hus, in our %&
'une %()) *ecision ;e statedI
Mere le1al title is insu7cient to $eet the =( percent
Ailipinoo;ned >capital> re<uired in the Constitution. F533
be-eCc0,3 o<-er:602 o7 60 2erce-t o7 t6e o5t:t,-.0-9
c,20t,3 :toc=, co523e. <0t6 60 2erce-t o7 t6e Bot0-9
r096t:, 0: re@50re.. #he le1al and bene+cial o;nership of =(
percent of the outstandin1 capital stoc/ $ust rest in the hands of
Ailipino nationals in accordance ;ith the constitutional $andate.
ther;ise, the corporation is >considered as non-Philippine
nationalNsO.> -E$phasis supplied.
Both the 3otin1 Control #est and the Bene+cial ;nership #est
$ust be applied to deter$ine ;hether a corporation is a
>Philippine national.>
#he interpretation b, le1al o7cers of the SEC of the ter$
>capital,> e$bodied in various opinions ;hich respondents relied
upon, is $erel, preli$inar, and an opinion onl, of such o7cers.
#o repeat, an, such opinion does not constitute an SEC rule or
re1ulation. In fact, $an, of these opinions contain a disclai$er
;hich e0pressl, statesI >0 0 0 t6e 7ore9o0-9 o20-0o- is based
solel, on facts disclosed in ,our <uer, and relevant onl, to the
particular issue raised therein and :6,33 -ot be 5:e. 0- t6e
-,t5re o7 , :t,-.0-9 r53e b0-.0-9 52o- t6e Co110::0o- 0-
ot6er c,:e: <6et6er o7 :0103,r or .0::0103,r
c0rc51:t,-ce:.>
)=
#hus, the opinions clearl, $a/e a caveat that
the, do not constitute bindin1 precedents on an, one, not even
on the SEC itself.
!i/e;ise, the opinions of the SEC en banc, as ;ell as of the *',
interpretin1 the la; are neither conclusive nor controllin1 and
thus, do not bind the Court. It is hornboo/ doctrine that an,
interpretation of the la; that ad$inistrative or <uasi-Cudicial
a1encies $a/e is onl, preli$inar,, never conclusive on the Court.
#he po;er to $a/e a +nal interpretation of the la;, in this case
the ter$ >capital> in Section )), Article ?II of the )G&D
Constitution, lies ;ith this Court, not ;ith an, other 1overn$ent
entit,.
In his $otion for reconsideration, the PSE President cites the
cases of &ationa! 'e!ecommunications Commission v. Court of
Appea!s
)D
and Pi!ippine Long Distance 'e!epone Company v.
&ationa! 'e!ecommunications Commission
)&
in ar1uin1 that the
Court has alread, de+ned the ter$ >capital> in Section )), Article
?II of the )G&D Constitution.
)G
#he PSE President is 1rossl, $ista/en. In both cases of &ationa!
'e!ecommunications v. Court of Appea!s
%(
andPi!ippine Long
Distance 'e!epone Company v. &ationa! 'e!ecommunications
Commission$
%)
the Court did not de+ne the ter$ >capital> as
found in Section )), Article ?II of the )G&D Constitution. I- 7,ct,
t6e:e t<o c,:e: -eBer 1e-t0o-e., .0:c5::e. or c0te.
Sect0o- 11, !rt0c3e +II o7 t6e Co-:t0t5t0o- or ,-4 o7 0t:
eco-o10c 2roB0:0o-:, ,-. t65: c,--ot :erBe ,: 2rece.e-t
0- t6e 0-ter2ret,t0o- o7 Sect0o- 11, !rt0c3e +II o7 t6e
Co-:t0t5t0o-. #hese t;o cases dealt solel, ;ith the
deter$ination of the correct re1ulator, fees under Section 6(-e.
and -f. of the Public Service Act, to ;itI
-e. Aor annual rei$burse$ent of the e0penses incurred b, the
Co$$ission in the supervision of other public services andPor in
the re1ulation or +0in1 of their rates, t;ent, centavos for each
one hundred pesos or fraction thereof, of the c,20t,3 :toc=
:5b:cr0be. or 2,0., or if no shares have been issued, of the
capital invested, or of the propert, and e<uip$ent ;hichever is
hi1her.
-f. Aor the issue or increase of c,20t,3 :toc=, t;ent, centavos
for each one hundred pesos or fraction thereof, of the increased
capital. -E$phasis supplied.
#he CourtBs interpretation in these t;o cases of the ter$s
>capital stoc/ subscribed or paid,> >capital stoc/> and >capital>
does not pertain to, and cannot control, the de+nition of the ter$
>capital> as used in Section )), Article ?II of the Constitution, or
an, of the econo$ic provisions of the Constitution ;here the
ter$ >capital> is found. #he de+nition of the ter$ >capital> found
in the Constitution $ust not be ta/en out of conte0t. A careful
readin1 of these t;o cases reveals that the ter$s >capital stoc/
subscribed or paid,> >capital stoc/> and >capital> ;ere de+ned
solel, to deter$ine the basis for co$putin1 the supervision and
re1ulation fees under Section 6(-e. and -f. of the Public Service
Act.
III.
Filipini)ation of *u%lic +tilities
#he Prea$ble of the )G&D Constitution, as the prolo1ue of the
supre$e la; of the land, e$bodies the ideals that the
Constitution intends to achieve.
%%
#he Prea$ble readsI
@e, the soverei1n Ailipino people, i$plorin1 the aid of Al$i1ht,
8od, in order to build a Cust and hu$ane societ,, and establish a
8overn$ent that shall e$bod, our ideals and aspirations,
pro$ote the co$$on 1ood, co-:erBe ,-. .eBe3o2 o5r
2,tr01o-4, and secure to ourselves and our posterit,, the
blessin1s of independence and de$ocrac, under the rule of la;
and a re1i$e of truth, Custice, freedo$, love, e<ualit,, and peace,
do ordain and pro$ul1ate this Constitution. -E$phasis supplied.
Consistent ;ith these ideals, Section )G, Article II of the )G&D
Constitution declares as State polic, the develop$ent of a
national econo$, >efectively controlled> b, AilipinosI
Section )G. #he State shall develop a self-reliant and independent
national econo$, efectively controlled %y Filipinos.
Aortif,in1 the State polic, of a Ailipino-controlled econo$,, the
Constitution decreesI
Section )(. #he Con1ress shall, upon reco$$endation of the
econo$ic and plannin1 a1enc,, ;hen the national interest
dictates, reserve to citi5ens of the Philippines or to corporations
or associations at least si0t, per centum of ;hose capital is
o;ned b, such citi5ens, or such hi1her percenta1e as Con1ress
$a, prescribe, certain areas of invest$ents. #he Con1ress shall
enact $easures that ;ill encoura1e the for$ation and operation
of enterprises ;hose capital is ;holl, o;ned b, Ailipinos.
In the 1rant of ri1hts, privile1es, and concessions coverin1 the
national econo$, and patri$on,, the State shall 1ive preference
to <uali+ed Ailipinos.
#he State shall re1ulate and e0ercise authorit, over forei1n
invest$ents ;ithin its national Curisdiction and in accordance
;ith its national 1oals and priorities.
%4
"nder Section )(, Article ?II of the )G&D Constitution, Con1ress
$a, >reserve to citi5ens of the Philippines or to corporations or
associations at least si0t, per centum of ;hose capital is o;ned
b, such citi5ens, or such hi1her percenta1e as Con1ress $a,
prescribe, certain areas of invest$ents.> #hus, in nu$erous la;s
Con1ress has reserved certain areas of invest$ents to Ailipino
citi5ens or to corporations at least si0t, percent of the >c,20t,3>
of ;hich is o;ned b, Ailipino citi5ens. So$e of these la;s areI -).
Re1ulation of A;ard of 8overn$ent Contracts or R.A. No. 9)&4K
-%. Philippine Inventors Incentives Act or R.A. No. 4&9(K -4.
Ma1na Carta for Micro, S$all and Mediu$ Enterprises or R.A. No.
=GDDK -6. Philippine verseas Shippin1 *evelop$ent Act or R.A.
No. D6D)K -9. *o$estic Shippin1 *evelop$ent Act of %((6 or R.A.
No. G%G9K -=. Philippine #echnolo1, #ransfer Act of %((G or R.A.
No. )((99K and -D. Ship Mort1a1e *ecree or P.*. No. )9%).
@ith respect to public utilities, the )G&D Constitution speci+call,
ordainsI
Section )). No 7r,-c60:e, cert0Cc,te, or ,-4 ot6er 7or1 o7
,5t6or0J,t0o- 7or t6e o2er,t0o- o7 , 25b30c 5t030t4 :6,33 be
9r,-te. e>ce2t to c0t0Je-: o7 t6e P6030220-e: or to
cor2or,t0o-: or ,::oc0,t0o-: or9,-0Je. 5-.er t6e 3,<: o7
t6e P6030220-e:, ,t 3e,:t :0>t4 per centum o7 <6o:e c,20t,3
0: o<-e. b4 :5c6 c0t0Je-:F nor shall such franchise, certi+cate,
or authori5ation be e0clusive in character or for a lon1er period
than +ft, ,ears. Neither shall an, such franchise or ri1ht be
1ranted e0cept under the condition that it shall be subCect to
a$end$ent, alteration, or repeal b, the Con1ress ;hen the
co$$on 1ood so re<uires. #he State shall encoura1e e<uit,
participation in public utilities b, the 1eneral public. #he
participation of forei1n investors in the 1overnin1 bod, of an,
public utilit, enterprise shall be li$ited to their proportionate
share in its capital, and all the e0ecutive and $ana1in1 o7cers of
such corporation or association $ust be citi5ens of the
Philippines. -E$phasis supplied.
#his provision, ;hich $andates the Ailipini5ation of public
utilities, re<uires that an, for$ of authori5ation for the operation
of public utilities shall be 1ranted onl, to >citi5ens of the
Philippines or to corporations or associations or1ani5ed under the
la;s of the Philippines at least si0t, per centu$ of ;hose capital
is o;ned b, such citi5ens.> >T6e 2roB0:0o- 0: K,- e>2re::L
reco9-0t0o- o7 t6e :e-:0t0Be ,-. B0t,3 2o:0t0o- o7 25b30c
5t030t0e: bot6 0- t6e -,t0o-,3 eco-o14 ,-. 7or -,t0o-,3
:ec5r0t4.?
%6
#he )G&D Constitution reserves the o;nership and operation of
public utilities e0clusivel, to -). Ailipino citi5ens, or -%.
corporations or associations at least =( percent of ;hose
>capital> is o;ned b, Ailipino citi5ens. :ence, in the case of
individuals, onl, Ailipino citi5ens can validl, o;n and operate a
public utilit,. In the case of corporations or associations, at least
=( percent of their >capital> $ust be o;ned b, Ailipino
citi5ens. I- ot6er <or.:, 5-.er Sect0o- 11, !rt0c3e +II o7 t6e
19I7 Co-:t0t5t0o-, to o<- ,-. o2er,te , 25b30c 5t030t4 ,
cor2or,t0o-D: c,20t,3 15:t ,t 3e,:t be 60 2erce-t o<-e.
b4 *hilippine nationals.
I,.
-enition of !*hilippine National!
Pursuant to the e0press $andate of Section )), Article ?II of the
)G&D Constitution, Con1ress enacted Republic Act No. D(6% or
the Foreign %nvestments Act of ())( -AIA., as a$ended, ;hich
de+ned a >P6030220-e -,t0o-,3> as follo;sI
SEC. 4. *e+nitions. - As used in this ActI
a. #he ter$ >Pi!ippine nationa!* shall $ean a citi5en of the
PhilippinesK or a do$estic partnership or association ;holl,
o;ned b, citi5ens of the PhilippinesK or , cor2or,t0o-
or9,-0Je. 5-.er t6e 3,<: o7 t6e P6030220-e: o7 <60c6 ,t
3e,:t :0>t4 2erce-t (60A) o7 t6e c,20t,3 :toc=
o5t:t,-.0-9 and entitled to vote 0: o<-e. ,-. 6e3. b4
c0t0Je-: o7 t6e P6030220-e:K or a corporation or1ani5ed abroad
and re1istered as doin1 business in the Philippines under the
Corporation Code of ;hich one hundred percent -)((H. of the
capital stoc/ outstandin1 and entitled to vote is ;holl, o;ned b,
Ailipinos or a trustee of funds for pension or other e$plo,ee
retire$ent or separation bene+ts, ;here the trustee is a
Philippine national and at least si0t, percent -=(H. of the fund
;ill accrue to the bene+t of Philippine nationalsI Provided, #hat
;here a corporation and its non-Ailipino stoc/holders o;n stoc/s
in a Securities and E0chan1e Co$$ission -SEC. re1istered
enterprise, at least si0t, percent -=(H. of the capital stoc/
outstandin1 and entitled to vote of each of both corporations
$ust be o;ned and held b, citi5ens of the Philippines and at
least si0t, percent -=(H. of the $e$bers of the Board of
*irectors of each of both corporations $ust be citi5ens of the
Philippines, in order that the corporation, shall be considered a
>Philippine national.> -Boldfacin1, italici5ation and underscorin1
supplied.
#hus, the AIA clearl, and une<uivocall, de+nes a >P6030220-e
-,t0o-,3> as a Philippine citi5en, or a do$estic corporation at
least >60A o7 t6e c,20t,3 :toc= o5t:t,-.0-9 ,-. entitled to
vote> is o;ned b, Philippine citi5ens.
#he de+nition of a >Philippine national> in the AIA reiterated the
$eanin1 of such ter$ as provided in its predecessor statute,
E0ecutive rder No. %%= or the +mnibus %nvestments Code of
(),-,
%9
;hich ;as issued b, then President Cora5on C. A<uino.
Article )9 of this Code statesI
Article )9. >Philippine national> shall $ean a citi5en of the
Philippines or a diplo$atic partnership or association ;holl,-
o;ned b, citi5ens of the PhilippinesK or , cor2or,t0o-
or9,-0Je. 5-.er t6e 3,<: o7 t6e P6030220-e: o7 <60c6 ,t
3e,:t :0>t4 2er ce-t (60A) o7 t6e c,20t,3 :toc=
o5t:t,-.0-9and entitled to vote 0: o<-e. ,-. 6e3. b4
c0t0Je-: o7 t6e P6030220-e:K or a trustee of funds for pension or
other e$plo,ee retire$ent or separation bene+ts, ;here the
trustee is a Philippine national and at least si0t, per cent -=(H.
of the fund ;ill accrue to the bene+t of Philippine nationalsI
Provided, #hat ;here a corporation and its non-Ailipino
stoc/holders o;n stoc/ in a re1istered enterprise, at least si0t,
per cent -=(H. of the capital stoc/ outstandin1 and entitled to
vote of both corporations $ust be o;ned and held b, the citi5ens
of the Philippines and at least si0t, per cent -=(H. of the
$e$bers of the Board of *irectors of both corporations $ust be
citi5ens of the Philippines in order that the corporation shall be
considered a Philippine national. -Boldfacin1, italici5ation and
underscorin1 supplied.
"nder Article 6&-4.
%=
of the $nibus Invest$ents Code of )G&D,
>no corporation 0 0 0 ;hich is not a QPhilippine nationalB 0 0 0
shall do business
0 0 0 in the Philippines 0 0 0 ;ithout +rst securin1 fro$ the Board
of Invest$ents a ;ritten certi+cate to the eFect that such
business or econo$ic activit, 0 0 0 ;ould -ot conEict ;ith the
Constitution or la;s of the Philippines.>
%D
#hus, a >non-Philippine
national> cannot o;n and operate a reserved econo$ic activit,
li/e a public utilit,. #his $eans, of course, that onl, a >Philippine
national> can o;n and operate a public utilit,.
In turn, the de+nition of a >Philippine national> under Article )9 of
the $nibus Invest$ents Code of )G&D ;as a reiteration of the
$eanin1 of such ter$ as provided in Article )6 of the +mnibus
%nvestments Code of (),(,
%&
to ;itI
Article )6. >Philippine national> shall $ean a citi5en of the
PhilippinesK or a do$estic partnership or association ;holl,
o;ned b, citi5ens of the PhilippinesK or , cor2or,t0o-
or9,-0Je. 5-.er t6e 3,<: o7 t6e P6030220-e: o7 <60c6 ,t
3e,:t :0>t4 2er ce-t (60A) o7 t6e c,20t,3 :toc=
o5t:t,-.0-9 and entitled to vote 0: o<-e. ,-. 6e3. b4
c0t0Je-: o7 t6e P6030220-e:F or a trustee of funds for pension or
other e$plo,ee retire$ent or separation bene+ts, ;here the
trustee is a Philippine national and at least si0t, per cent -=(H.
of the fund ;ill accrue to the bene+t of Philippine nationalsI
Provided, #hat ;here a corporation and its non-Ailipino
stoc/holders o;n stoc/ in a re1istered enterprise, at least si0t,
per cent -=(H. of the capital stoc/ outstandin1 and entitled to
vote of both corporations $ust be o;ned and held b, the citi5ens
of the Philippines and at least si0t, per cent -=(H. of the
$e$bers of the Board of *irectors of both corporations $ust be
citi5ens of the Philippines in order that the corporation shall be
considered a Philippine national. -Boldfacin1, italici5ation and
underscorin1 supplied.
"nder Article =G-4. of the $nibus Invest$ents Code of )G&),
>no corporation 0 0 0 ;hich is not a QPhilippine nationalB 0 0 0
shall do business 0 0 0 in the Philippines 0 0 0 ;ithout +rst
securin1 a ;ritten certi+cate fro$ the Board of Invest$ents to
the eFect that such business or econo$ic activit, 0 0 0
;ould -ot conEict ;ith the Constitution or la;s of the
Philippines.>
%G
#hus, a >non-Philippine national> cannot o;n and
operate a reserved econo$ic activit, li/e a public utilit,. A1ain,
this $eans that onl, a >Philippine national> can o;n and operate
a public utilit,.
Prior to the $nibus Invest$ents Code of )G&), Republic Act No.
9)&=
4(
or the %nvestment %ncentives Act$ ;hich too/ eFect on )=
Septe$ber )G=D, contained a si$ilar de+nition of a >Philippine
national,> to ;itI
-f. >Philippine National> shall $ean a citi5en of the PhilippinesK or
a partnership or association ;holl, o;ned b, citi5ens of the
PhilippinesK or , cor2or,t0o- or9,-0Je. 5-.er t6e 3,<: o7
t6e P6030220-e: o7 <60c6 ,t 3e,:t :0>t4 2er ce-t o7 t6e
c,20t,3 :toc= o5t:t,-.0-9 and entitled to vote 0: o<-e.
,-. 6e3. b4 c0t0Je-: o7 t6e P6030220-e:K or a trustee of funds
for pension or other e$plo,ee retire$ent or separation bene+ts,
;here the trustee is a Philippine National and at least si0t, per
cent of the fund ;ill accrue to the bene+t of Philippine NationalsI
Provided, #hat ;here a corporation and its non-Ailipino
stoc/holders o;n stoc/ in a re1istered enterprise, at least si0t,
per cent of the capital stoc/ outstandin1 and entitled to vote of
both corporations $ust be o;ned and held b, the citi5ens of the
Philippines and at least si0t, per cent of the $e$bers of the
Board of *irectors of both corporations $ust be citi5ens of the
Philippines in order that the corporation shall be considered a
Philippine National. -Boldfacin1, italici5ation and underscorin1
supplied.
"nder Section 4 of Republic Act No. 9699 or the Foreign Business
"egu!ations Act, ;hich too/ eFect on 4( Septe$ber )G=&, if the
invest$ent in a do$estic enterprise b, non-Philippine nationals
e0ceeds 4(H of its outstandin1 capital stoc/, such enterprise
$ust obtain prior approval fro$ the Board of Invest$ents before
acceptin1 such invest$ent. Such approval shall -ot be 1ranted if
the invest$ent >;ould conEict ;ith e0istin1 constitutional
provisions and la;s re1ulatin1 the de1ree of re<uired o;nership
b, Philippine nationals in the enterprise.>
4)
A >non-Philippine
national> cannot o;n and operate a reserved econo$ic activit,
li/e a public utilit,. A1ain, this $eans that onl, a >Philippine
national> can o;n and operate a public utilit,.
#he AIA, li.e all its predecessor statutes, clearl, de+nes a
>P6030220-e -,t0o-,3> as a Ailipino citi5en, or a.o1e:t0c
cor2or,t0o- ?,t 3e,:t :0>t4 2erce-t (60A) o7 t6e c,20t,3
:toc= o5t:t,-.0-9 and entitled to vote?is o;ned b, Ailipino
citi5ens. A do$estic corporation is a >Philippine national> onl, if
at least =(H of its voting stoc. is o;ned b, Ailipino citi5ens.
#his de+nition of a >Philippine national> is crucial in the present
case because the AIA reiterates and clari+es Section )), Article
?II of the )G&D Constitution, ;hich li$its the o;nership and
operation of public utilities to Ailipino citi5ens or to corporations
or associations at least =(H Ailipino-o;ned.
#he AIA is the basic la; 1overnin1 forei1n invest$ents in the
Philippines, irrespective of the nature of business and area of
invest$ent. #he AIA spells out the procedures b, ;hich non-
Philippine nationals can invest in the Philippines. A$on1 the /e,
features of this la; is the concept of a ne1ative list or the Aorei1n
Invest$ents Ne1ative !ist.
4%
Section & of the la; statesI
SEC. &. /ist of Investment 0reas (eserved to *hilippine
Nationals .Foreign %nvestment &egative List/. - #he Aorei1n
Invest$ent Ne1ative !ist shall have t;o
%
co$ponent
listsI A and BI
a. /ist 0 :6,33 e-51er,te t6e areas of activities reserved
to *hilippine nationals %y mandate of the
$onstitution ,-. :2ec0Cc 3,<:.
b. List B shall contain the areas of activities and enterprises
re1ulated pursuant to la;I
). ;hich are defense-related activities, re<uirin1 prior clearance
and authori5ation fro$ the *epart$ent of National *efense
N*N*O to en1a1e in such activit,, such as the $anufacture,
repair, stora1e andPor distribution of +rear$s, a$$unition, lethal
;eapons, $ilitar, ordinance, e0plosives, p,rotechnics and si$ilar
$aterialsK unless such $anufacturin1 or repair activit, is
speci+call, authori5ed, ;ith a substantial e0port co$ponent, to a
non-Philippine national b, the Secretar, of National *efenseK or
%. ;hich have i$plications on public health and $orals, such as
the $anufacture and distribution of dan1erous dru1sK all for$s of
1a$blin1K ni1htclubs, bars, beer houses, dance halls, sauna and
stea$ bathhouses and $assa1e clinics. -Boldfacin1,
underscorin1 and italici5ation supplied.
Section & of the AIA enu$erates the invest$ent areas >reserved
to Philippine nationals.> Fore09- I-Be:t1e-t Ne9,t0Be 0:t !
co-:0:t: o7 ?areas of activities reserved to *hilippine
nationals %y mandate of the $onstitution and specic
la1s,? <6ere 7ore09- e@50t4 2,rt0c02,t0o- 0- ,-4
e-ter2r0:e :6,33 be 3010te. to t6e 1,>0151 2erce-t,9e
e>2re::34 2re:cr0be. b4 t6e Co-:t0t5t0o- ,-. ot6er
:2ec0Cc 3,<:. I- :6ort, to o<- ,-. o2er,te , 25b30c 5t030t4
0- t6e P6030220-e: o-e 15:t be , ?P6030220-e -,t0o-,3? ,:
.eC-e. 0- t6e FI!. T6e FI! 0: ,b5-.,-t -ot0ce to 7ore09-
0-Be:tor: to <6,t e>te-t t6e4 c,- 0-Be:t 0- 25b30c 5t030t0e:
0- t6e P6030220-e:.
#o repeat, a$on1 the areas of invest$ent covered b, the Aorei1n
Invest$ent Ne1ative !ist A is the o;nership and operation of
public utilities, ;hich the Constitution e0pressl, reserves to
Ailipino citi5ens and to corporations at least =(H o;ned b,
Ailipino citi5ens. I- ot6er <or.:, Ne9,t0Be 0:t ! o7 t6e FI!
re:erBe: t6e o<-er:602 ,-. o2er,t0o- o7 25b30c 5t030t0e:
o-34 to ?P6030220-e -,t0o-,3:,? .eC-e. 0- Sect0o- M(,) o7
t6e FI! ,: >-). a citi5en of the PhilippinesK 0 0 0 or -4. ,
cor2or,t0o- or9,-0Je. 5-.er t6e 3,<: o7 t6e P6030220-e: o7
<60c6 ,t 3e,:t :0>t4 2erce-t (60A) o7 t6e c,20t,3 :toc=
o5t:t,-.0-9 and entitled to vote 0: o<-e. ,-. 6e3. b4
c0t0Je-: o7 t6e P6030220-e:K or -6. a corporation or1ani5ed
abroad and re1istered as doin1 business in the Philippines under
the Corporation Code of ;hich one hundred percent -)((H. of
the capital stoc/ outstandin1 and entitled to vote is ;holl, o;ned
b, Ailipinos or a trustee of funds for pension or other e$plo,ee
retire$ent or separation bene+ts, ;here the trustee is a
Philippine national and at least si0t, percent -=(H. of the fund
;ill accrue to the bene+t of Philippine nationals.>
Clearl,, fro$ the eFectivit, of the Invest$ent Incentives Act of
)G=D to the adoption of the $nibus Invest$ents Code of )G&),
to the enact$ent of the $nibus Invest$ents Code of )G&D, and
to the passa1e of the present Aorei1n Invest$ents Act of )GG),
or 7or 1ore t6,- 7o5r .ec,.e:, t6e :t,t5tor4 .eC-0t0o- o7
t6e ter1 ?P6030220-e -,t0o-,3? 6,: bee- 5-07or1 ,-.
co-:0:te-tG 0t 1e,-: , F03020-o c0t0Je-, or , .o1e:t0c
cor2or,t0o- ,t 3e,:t 60A o7 t6e voting stoc. 0: o<-e. b4
F03020-o:. 0=e<0:e, t6e:e :,1e :t,t5te: 6,Be 5-07or134
,-. co-:0:te-t34 re@50re. t6,t o-34 ?P6030220-e -,t0o-,3:?
co53. o<- ,-. o2er,te 25b30c 5t030t0e: 0- t6e
P6030220-e:. #he follo;in1 e0chan1e durin1 the ral Ar1u$ents
is revealin1I
'"S#ICE CARPII
Counsel, I have so$e <uestions. Mou are a;are of
the Aorei1n Invest$ents Act of )GG), 0 0 0L And
the AIA of )GG) too/ eFect in )GG), correctL #hatBs
over t;ent, -%(. ,ears a1o, correctL
CMMISSINER 8AI#EI
Correct, Mour :onor.
'"S#ICE CARPII
And Section & of the Aorei1n Invest$ents Act of
)GG) states that NOonl, Philippine nationals can
o;n and operate public utilitiesNO, correctL
CMMISSINER 8AI#EI
Mes, Mour :onor.
'"S#ICE CARPII
And the sa$e Aorei1n Invest$ents Act of )GG)
de+nes a >Philippine national> either as a citi5en of
the Philippines, or if it is a corporation at least si0t,
percent -=(H. of the votin1 stoc/ is o;ned b,
citi5ens of the Philippines, correctL
CMMISSINER 8AI#EI
Correct, Mour :onor.
'"S#ICE CARPII
And, ,ou are also a;are that under the
predecessor la; of the Aorei1n Invest$ents Act of
)GG), the $nibus Invest$ents Act of )G&D, the
sa$e provisions appl,I 0 0 0 onl, Philippine
nationals can o;n and operate a public utilit, and
the Philippine national, if it is a corporation, 0 0 0
si0t, percent -=(H. of the capital stoc/ of that
corporation $ust be o;ned b, citi5ens of the
Philippines, correctL
CMMISSINER 8AI#EI
Correct, Mour :onor.
'"S#ICE CARPII
And even prior to the $nibus Invest$ents Act of
)G&D, under the $nibus Invest$ents Act of )G&),
the sa$e rules appl,I 0 0 0 onl, a Philippine
national can o;n and operate a public utilit, and a
Philippine national, if it is a corporation, si0t,
percent -=(H. of its 0 0 0 votin1 stoc/, $ust be
o;ned b, citi5ens of the Philippines, correctL
CMMISSINER 8AI#EI
Correct, Mour :onor.
'"S#ICE CARPII
And even prior to that, under NtheO)G=D
Invest$ents Incentives Act and the Aorei1n
Co$pan, Act of )G=&, the sa$e rules applied,
correctL
CMMISSINER 8AI#EI
Correct, Mour :onor.
'USTICE C!RPIOG
So, 7or t6e 3,:t 7o5r (N) .ec,.e:, > > >, t6e
3,< 6,: bee- Ber4 co-:0:te-t O o-34 ,
P6030220-e -,t0o-,3 c,- o<- ,-. o2er,te ,
25b30c 5t030t4, ,-. , P6030220-e -,t0o-,3, 07 0t 0:
, cor2or,t0o-, > > > ,t 3e,:t :0>t4 2erce-t
(60A) o7 t6e Bot0-9 :toc= 15:t be o<-e. b4
c0t0Je-: o7 t6e P6030220-e:, correctH
COMMISSIONER G!ITEG
Correct, $o5r Ho-or.
44
-E$phasis supplied.
8overn$ent a1encies li/e the SEC cannot si$pl, i1nore Sections
4-a. and & of the AIA ;hich cate1oricall, prescribe that certain
econo$ic activities, li/e the o;nership and operation of public
utilities, are reserved to corporations >at least si0t, percent
-=(H. of the capital stoc/ outstandin1 and entitled to vote is
o;ned and held b, citi5ens of the Philippines.> Aorei1n
Invest$ent Ne1ative !ist A refers to >activities reserved to
Philippine nationals b, $andate of the Constitution and speci+c
la;s.> T6e FI! 0: t6e b,:0c :t,t5te re953,t0-9 7ore09-
0-Be:t1e-t: 0- t6e P6030220-e:. 8overn$ent a1encies tas/ed
;ith re1ulatin1 or $onitorin1 forei1n invest$ents, as ;ell as
counsels of forei1n investors, should start ;ith the AIA in
deter$inin1 to ;hat e0tent a particular forei1n invest$ent is
allo;ed in the Philippines. Aorei1n investors and their counsels
;ho i1nore the AIA do so at their o;n peril. Aorei1n investors and
their counsels ;ho rel, on opinions of SEC le1al o7cers that
obviousl, contradict the AIA do so also at their o;n peril.
ccasional opinions of SEC le1al o7cers that obviousl, contradict
the AIA should i$$ediatel, raise a red Ea1. #here are alread,
nu$erous opinions of SEC le1al o7cers that cite the de+nition of
a >Philippine national> in Section 4-a. of the AIA in deter$inin1
;hether a particular corporation is <uali+ed to o;n and operate a
nationali5ed or partiall, nationali5ed business in the Philippines.
#his sho;s that SEC le1al o7cers are not onl, a;are of, but also
rel, on and invo/e, the provisions of the AIA in ascertainin1 the
eli1ibilit, of a corporation to en1a1e in partiall, nationali5ed
industries. #he follo;in1 are so$e of such opinionsI
). pinion of %4 March )GG4, addressed to Mr. Arancis A.
:o;K
%. pinion of )6 April )GG4, addressed to *irector An1eles
#. @on1 of the Philippine verseas E$plo,$ent
Ad$inistrationK
4. pinion of %4 Nove$ber )GG4, addressed to Messrs.
*o$inador Al$eda and Renato S. Cal$aK
6. pinion of D *ece$ber )GG4, addressed to Roco Buna1
Rapunan Mi1allos J 'ardele5aK
9. SEC pinion No. 6G-(6, addressed to Ro$ulo Mabanta
Buenaventura Sa,oc J *e !os An1elesK
=. SEC-8C pinion No. )D-(D, addressed to Mr. Re,naldo
8. *avidK and
D. SEC-8C pinion No. (4-(&, addressed to Att,s. Rub,
Rose '. Musi and Rud,ard S. Arbolado.
#he SEC le1al o7cersB occasional but blatant disre1ard of the
de+nition of the ter$ >Philippine national> in the AIA si1ni+es
their lac/ of inte1rit, and co$petence in resolvin1 issues on the
=(-6( o;nership re<uire$ent in favor of Ailipino citi5ens in
Section )), Article ?II of the Constitution.
#he PSE President ar1ues that the ter$ >Philippine national>
de+ned in the AIA should be li$ited and interpreted to refer to
corporations see/in1 to avail of ta0 and +scal incentives under
invest$ent incentives la;s and cannot be e<uated ;ith the ter$
>capital> in Section )), Article ?II of the )G&D Constitution.
Pan1ilinan si$ilarl, contends that the AIA and its predecessor
statutes do not appl, to >co$panies ;hich have not re1istered
and obtained special incentives under the sche$es established
b, those la;s.>
Both are desperatel, 1raspin1 at stra;s. #he AIA does not 1rant
ta0 or +scal incentives to an, enterprise. #a0 and +scal incentives
to invest$ents are 1ranted separatel, under the $nibus
Invest$ents Code of )G&D, not under the AIA. In fact, the AIA
e0pressl, repealed Articles 66 to 9= of Boo/ II of the $nibus
Invest$ents Code of )G&D, ;hich articles previousl, re1ulated
forei1n invest$ents in nationali5ed or partiall, nationali5ed
industries.
#he AIA is the applicable la; re1ulatin1 forei1n invest$ents in
nationali5ed or partiall, nationali5ed industries. #here is nothin1
in the AIA, or even in the $nibus Invest$ents Code of )G&D or
its predecessor statutes, that states, e0pressl, or i$pliedl,, that
the AIA or its predecessor statutes do not appl, to enterprises not
availin1 of ta0 and +scal incentives under the Code. #he AIA and
its predecessor statutes appl, to invest$ents in all do$estic
enterprises, ;hether or not such enterprises enCo, ta0 and +scal
incentives under the $nibus Invest$ents Code of )G&D or its
predecessor statutes. T6e re,:o- 0: @50te obB0o5: O 1ere
-o-8,B,031e-t o7 t,> ,-. C:c,3 0-ce-t0Be: b4 , -o-8
P6030220-e -,t0o-,3 c,--ot e>e12t 0t 7ro1 Sect0o- 11,
!rt0c3e +II o7 t6e Co-:t0t5t0o- re953,t0-9 7ore09-
0-Be:t1e-t: 0- 25b30c 5t030t0e:. In fact, the Board of
Invest$entsB Pr01er o- I-Be:t1e-t Po30c0e: 0- t6e
P6030220-e:,
46
;hich is 1iven out to forei1n investors, providesI
P!RT III. FOREIGN IN%ESTMENTS WITHOUT INCENTI%ES
Investors ;ho do not see/ incentives andPor ;hose chosen
activities do not <ualif, for incentives, -i.e., the activit, is not
listed in the IPP, and the, are not e0portin1 at least D(H of their
production. $a, 1o ahead and $a/e the invest$ents ;ithout
see/in1 incentives. T6e4 o-34 6,Be to be 950.e. b4 t6e
Fore09- I-Be:t1e-t: Ne9,t0Be 0:t (FIN).
#he AIN! clearl, de+nes invest$ent areas re<uirin1 at least =(H
Ailipino o;nership. All other areas outside of this list are full,
open to forei1n investors. -E$phasis supplied.
,.
(ight to elect directors, coupled 1ith %enecial
o1nership,
translates to efective control.
#he %& 'une %()) *ecision declares that the =( percent Ailipino
o;nership re<uired b, the Constitution to en1a1e in certain
econo$ic activities applies not onl, to votin1 control of the
corporation, but ,3:o to t6e be-eCc0,3 o<-er:602 o7 t6e
cor2or,t0o-. #o repeat, ;e heldI
Mere le1al title is insu7cient to $eet the =( percent Ailipino-
o;ned >capital> re<uired in the Constitution. F533 be-eCc0,3
o<-er:602 o7 60 2erce-t o7 t6e o5t:t,-.0-9 c,20t,3 :toc=,
co523e. <0t6 60 2erce-t o7 t6e Bot0-9 r096t:, 0: re@50re..
#he le1al and bene+cial o;nership of =( percent of the
outstandin1 capital stoc/ $ust rest in the hands of Ailipino
nationals in accordance ;ith the constitutional $andate.
ther;ise, the corporation is >considered as non-Philippine
nationalNsO.> -E$phasis supplied.
#his is consistent ;ith Section 4 of the AIA ;hich provides that
;here )((H of the capital stoc/ is held b, >a trustee of funds for
pension or other e$plo,ee retire$ent or separation bene+ts,>
the trustee is a Philippine national if >at least si0t, percent -=(H.
of the fund ;ill accrue to the bene+t of Philippine nationals.>
!i/e;ise, Section )-b. of the I$ple$entin1 Rules of the AIA
provides that >for stoc/s to be dee$ed o;ned and held b,
Philippine citi5ens or Philippine nationals, $ere le1al title is not
enou1h to $eet the re<uired Ailipino e<uit,. F533 be-eCc0,3
o<-er:602 o7 t6e :toc=:, co523e. <0t6 ,22ro2r0,te Bot0-9
r096t:, 0: e::e-t0,3.?
Since the constitutional re<uire$ent of at least =( percent
Ailipino o;nership applies not onl, to votin1 control of the
corporation but also to the bene+cial o;nership of the
corporation, it is therefore i$perative that such re<uire$ent
appl, unifor$l, and across the board to all classes of shares,
re1ardless of no$enclature and cate1or,, co$prisin1 the capital
of a corporation. "nder the Corporation Code, capital
stoc/
49
consists of all classes of shares issued to stoc/holders,
that is, co$$on shares as ;ell as preferred shares, ;hich $a,
have diFerent ri1hts, privile1es or restrictions as stated in the
articles of incorporation.
4=
#he Corporation Code allo;s denial of the ri1ht to vote to
preferred and redee$able shares, but disallo;s denial of the
ri1ht to vote in speci+c corporate $atters. #hus, co$$on shares
have the ri1ht to vote in the election of directors, ;hile preferred
shares $a, be denied such ri1ht. Nonetheless, preferred shares,
even if denied the ri1ht to vote in the election of directors, are
entitled to vote on the follo;in1 corporate $attersI -).
a$end$ent of articles of incorporationK -%. increase and
decrease of capital stoc/K -4. incurrin1, creatin1 or increasin1
bonded indebtednessK -6. sale, lease, $ort1a1e or other
disposition of substantiall, all corporate assetsK -9. invest$ent of
funds in another business or corporation or for a purpose other
than the pri$ar, purpose for ;hich the corporation ;as
or1ani5edK -=. adoption, a$end$ent and repeal of b,-la;sK -D.
$er1er and consolidationK and -&. dissolution of corporation.
4D
Since a speci+c class of shares $a, have ri1hts and privile1es or
restrictions diFerent fro$ the rest of the shares in a corporation,
the =(-6( o;nership re<uire$ent in favor of Ailipino citi5ens in
Section )), Article ?II of the Constitution $ust appl, not onl, to
shares ;ith votin1 ri1hts but also to shares ;ithout votin1 ri1hts.
Preferred shares, denied the ri1ht to vote in the election of
directors, are an,;a, still entitled to vote on the ei1ht speci+c
corporate $atters $entioned above. T65:, 07 , cor2or,t0o-,
e-9,9e. 0- , 2,rt0,334 -,t0o-,30Je. 0-.5:tr4, 0::5e: ,
10>t5re o7 co11o- ,-. 2re7erre. -o-8Bot0-9 :6,re:, ,t
3e,:t 60 2erce-t o7 t6e co11o- :6,re: ,-. ,t 3e,:t 60
2erce-t o7 t6e 2re7erre. -o-8Bot0-9 :6,re: 15:t be
o<-e. b4 F03020-o:. f course, if a corporation issues onl, a
sin1le class of shares, at least =( percent of such shares $ust
necessaril, be o;ned b, Ailipinos. I- :6ort, t6e 608N0
o<-er:602 re@50re1e-t 0- 7,Bor o7 F03020-o c0t0Je-: 15:t
,2234 :e2,r,te34 to e,c6 c3,:: o7 :6,re:, <6et6er
co11o-, 2re7erre. -o-8Bot0-9, 2re7erre. Bot0-9 or ,-4
ot6er c3,:: o7 :6,re:. #his unifor$ application of the =(-6(
o;nership re<uire$ent in favor of Ailipino citi5ens clearl,
breathes life to the constitutional co$$and that the o;nership
and operation of public utilities shall be reserved e0clusivel, to
corporations at least =( percent of ;hose capital is Ailipino-
o;ned. Appl,in1 unifor$l, the =(-6( o;nership re<uire$ent in
favor of Ailipino citi5ens to each class of shares, re1ardless of
diFerences in votin1 ri1hts, privile1es and restrictions,
1uarantees eFective Ailipino control of public utilities, as
$andated b, the Constitution.
Moreover, such unifor$ application to each class of shares
insures that the >controllin1 interest> in public utilities al;a,s lies
in the hands of Ailipino citi5ens. #his addresses and e0tin1uishes
Pan1ilinanBs ;orr, that forei1ners, o;nin1 $ost of the non-votin1
shares, ;ill e0ercise 1reater control over funda$ental corporate
$atters re<uirin1 t;o-thirds or $aCorit, vote of all shareholders.
,I.
Intent of the framers of the $onstitution
@hile 'ustice 3elasco <uoted in his *issentin1 pinion
4&
a portion
of the deliberations of the Constitutional Co$$ission to support
his clai$ that the ter$ >capital> refers to the total outstandin1
shares of stoc/, ;hether votin1 or non-votin1, the follo;in1
e0cerpts of the deliberations reveal other;ise. It is clear fro$ the
follo;in1 e0chan1e that the ter$ >capital> refers to co-tro330-9
0-tere:t of a corporation, thusI
MR. N!!E*. In Sections 4, G and )9, the Co$$ittee stated
local or Ailipino e<uit, and forei1n e<uit,K na$el,, =(-6( in
Section 4, =(-6( in Section G and %P4-)P4 in Section )9.
MR. 3I!!E8AS. #hat is ri1ht.
MR. N!!E*. In teachin1 la;, ;e are al;a,s faced ;ith this
<uestionI >@here do ;e base the e<uit, re<uire$ent, is it on the
authori5ed capital stoc/, on the subscribed capital stoc/, or on
the paid-up capital stoc/ of a corporation>L @ill the Co$$ittee
please enli1hten $e on thisL
MR. 3I!!E8AS. @e have Cust had a lon1 discussion ;ith the
$e$bers of the tea$ fro$ the "P !a; Center ;ho provided us a
draft. T6e 26r,:e t6,t 0: co-t,0-e. 6ere <60c6 <e ,.o2te.
7ro1 t6e UP .r,7t 0: ?60 2erce-t o7 Bot0-9 :toc=.?
MR. N!!E*. #hat $ust be based on the subscribed capital
stoc/, because unless declared delin<uent, unpaid capital stoc/
shall be entitled to vote.
MR. 3I!!E8AS. #hat is ri1ht.
MR. N!!E*. #han/ ,ou.
@ith respect to an invest$ent b, one corporation in another
corporation, sa,, a corporation ;ith =(-6( percent e<uit, invests
in another corporation ;hich is per$itted b, the Corporation
Code, does the Co$$ittee adopt the 1randfather ruleL
MR. 3I!!E8AS. Mes, that is the understandin1 of the Co$$ittee.
MR. N!!E*. #herefore, ;e need additional Ailipino capitalL
MR. 3I!!E8AS. Mes.
4G
0 0 0 0
MR. ASC"NA. Ma, I be clari+ed as to that portion that ;as
accepted b, the Co$$ittee.
MR. 3I!!E8AS. #he portion accepted b, the Co$$ittee is the
deletion of the phrase >votin1 stoc/ or controllin1 interest.>
MR. ASC"NA. :ence, ;ithout the *avide a$end$ent, the
co$$ittee report ;ould readI >corporations or associations at
least si0t, percent of ;hose CAPI#A! is o;ned b, such citi5ens.>
MR. 3I!!E8AS. Mes.
MR. ASC"NA. So if the *avide a$end$ent is lost, ;e are stuc/
;ith =( percent of the capital to be o;ned b, citi5ens.
MR. 3I!!E8AS. #hat is ri1ht.
MR. !*CUN!. "5t t6e co-tro3 c,- be <0t6 t6e 7ore09-er:
eBe- 07 t6e4 ,re t6e 10-or0t4. et 5: :,4 N0 2erce-t o7 t6e
c,20t,3 0: o<-e. b4 t6e1, b5t 0t 0: t6e Bot0-9 c,20t,3,
<6ere,:, t6e F03020-o: o<- t6e -o-Bot0-9 :6,re:. So <e
c,- 6,Be , :0t5,t0o- <6ere t6e cor2or,t0o- 0: co-tro33e.
b4 7ore09-er: .e:20te be0-9 t6e 10-or0t4 bec,5:e t6e4
6,Be t6e Bot0-9 c,20t,3. T6,t 0: t6e ,-o1,34 t6,t <o53.
re:53t 6ere.
MR. "ENG*ON. No, t6e re,:o- <e e3010-,te. t6e <or.
?:toc=? ,: :t,te. 0- t6e 197M ,-. 19M5 Co-:t0t5t0o-: 0:
t6,t ,ccor.0-9 to Co110::0o-er Ro.r09o, t6ere ,re
,::oc0,t0o-: t6,t .o -ot 6,Be :toc=:. T6,t 0: <64 <e :,4
?C!PIT!.?
MR. !*CUN!. We :6o53. -ot e3010-,te t6e 26r,:e
?co-tro330-9 0-tere:t.?
MR. "ENG*ON. I- t6e c,:e o7 :toc= cor2or,t0o-:, 0t 0:
,::51e..
6(
-Boldfacin1 and underscorin1 supplied.
#hus, =( percent of the >capital> ,::51e:, or should result in, a
>co-tro330-9 0-tere:t> in the corporation.
#he use of the ter$ >capital> ;as intended to replace the ;ord
>stoc/> because associations ;ithout stoc/s can operate public
utilities as lon1 as the, $eet the =(-6( o;nership re<uire$ent in
favor of Ailipino citi5ens prescribed in Section )), Article ?II of the
Constitution. :o;ever, this did not chan1e the intent of the
fra$ers of the Constitution to reserve e0clusivel, to Philippine
nationals the >co-tro330-9 0-tere:t> in public utilities.
*urin1 the draftin1 of the )G49 Constitution, econo$ic
protectionis$ ;as >the battle-cr, of the nationalists in the
Convention.>
6)
#he sa$e battle-cr, resulted in the nationali5ation
of the public utilities.
6%
#his is also the sa$e intent of the fra$ers
of the )G&D Constitution ;ho adopted the e0act for$ulation
e$bodied in the )G49 and )GD4 Constitutions on forei1n e<uit,
li$itations in partiall, nationali5ed industries.
#he S8, in its o;n behalf and as counsel for the State,
64
a1rees
full, ;ith the CourtBs interpretation of the ter$ >capital.> In its
Consolidated Co$$ent, the S8 e0plains that the deletion of the
phrase >controllin1 interest> and replace$ent of the ;ord >stoc/>
;ith the ter$ >capital> ;ere intended speci+call, to e0tend the
scope of the entities <uali+ed to operate public utilities to include
associations ;ithout stoc/s. #he fra$ersB o$ission of the phrase
>controllin1 interest> did not $ean the inclusion of all shares of
stoc/, ;hether votin1 or non-votin1. #he S8 reiterated
essentiall, the CourtBs declaration that the Constitution reserved
e0clusivel, to Philippine nationals the o;nership and operation of
public utilities consistent ;ith the StateBs polic, to >develop a
self-reliant and independent national econo$, efectively
controlled %y Filipinos.>
As ;e held in our %& 'une %()) *ecision, to construe broadl, the
ter$ >capital> as the total outstandin1 capital stoc/, treated as
a single class re1ardless of the actual classi+cation of shares,
1rossl, contravenes the intent and letter of the Constitution that
the >State shall develop a self-reliant and independent national
econo$,efectively controlled b, Ailipinos.> @e illustrated the
1larin1 ano$al, ;hich ;ould result in de+nin1 the ter$ >capital>
as the total outstandin1 capital stoc/ of a corporation, treated as
a single class of shares re1ardless of the actual classi+cation of
shares, to ;itI
!et us assu$e that a corporation has )(( co$$on shares o;ned
b, forei1ners and ),(((,((( non-votin1 preferred shares o;ned
b, Ailipinos, ;ith both classes of share havin1 a par value of one
peso -P ).((. per share. "nder the broad de+nition of the ter$
>capital,> such corporation ;ould be considered co$pliant ;ith
the 6( percent constitutional li$it on forei1n e<uit, of public
utilities since the over;hel$in1 $aCorit,, or $ore than GG.GGG
percent, of the total outstandin1 capital stoc/ is Ailipino o;ned.
#his is obviousl, absurd.
In the e0a$ple 1iven, onl, the forei1ners holdin1 the co$$on
shares have votin1 ri1hts in the election of directors, even if the,
hold onl, )(( shares. #he forei1ners, ;ith a $inuscule e<uit, of
less than (.(() percent, e0ercise control over the public utilit,.
n the other hand, the Ailipinos, holdin1 $ore than GG.GGG
percent of the e<uit,, cannot vote in the election of directors and
hence, have no control over the public utilit,. #his star/l,
circu$vents the intent of the fra$ers of the Constitution, as ;ell
as the clear lan1ua1e of the Constitution, to place the control of
public utilities in the hands of Ailipinos. 0 0 0
Aurther, even if forei1ners ;ho o;n $ore than fort, percent of
the votin1 shares elect an all-Ailipino board of directors, this
situation does not 1uarantee Ailipino control and does not in an,
;a, cure the violation of the Constitution. #he independence of
the Ailipino board $e$bers so elected b, such forei1n
shareholders is hi1hl, doubtful. As the S8 pointed out, <uotin1
'ustice 8eor1e SutherlandBs ;ords in 0umprey1s 23ecutor v.
4S$
66
>0 0 0 it is <uite evident that one ;ho holds his o7ce onl,
durin1 the pleasure of another cannot be depended upon to
$aintain an attitude of independence a1ainst the latterBs ;ill.>
Allo;in1 forei1n shareholders to elect a controllin1 $aCorit, of
the board, even if all the directors are Ailipinos, 1rossl,
circu$vents the letter and intent of the Constitution and defeats
the ver, purpose of our nationali5ation la;s.
,II.
/ast sentence of "ection 22, 0rticle 3II of the $onstitution
#he last sentence of Section )), Article ?II of the )G&D
Constitution readsI
#he participation of forei1n investors in the 1overnin1 bod, of
an, public utilit, enterprise shall be li$ited to their proportionate
share in its capital, and all the e0ecutive and $ana1in1 o7cers of
such corporation or association $ust be citi5ens of the
Philippines.
*urin1 the ral Ar1u$ents, the S8 e$phasi5ed that there ;as
never a <uestion on the intent of the fra$ers of the Constitution
to li$it forei1n o;nership, and assure $aCorit, Ailipino o;nership
and control of public utilities. #he S8 ar1ued, >;hile the
dele1ates disa1reed as to the percenta1e threshold to adopt, 0 0
0 the records sho; the, clearl, understood that Ailipino control of
the public utilit, corporation can onl, be and is obtained onl,
throu1h the election of a $aCorit, of the $e$bers of the board.>
Indeed, the onl, point of contention durin1 the deliberations of
the Constitutional Co$$ission on %4 Au1ust )G&= ;as the e0tent
of $aCorit, Ailipino control of public utilities. #his is evident fro$
the follo;in1 e0chan1eI
#:E PRESI*EN#. Co$$issioner 'a$ir is reco1ni5ed.
MR. 'AMIR. Mada$ President, $, proposed a$end$ent on lines
%( and %) is to delete the phrase >t;o thirds of ;hose votin1
stoc/ or controllin1 interest,> and instead substitute the ;ords
>SI?#M PERCEN# A @:SE CAPI#A!> so that the sentence ;ill
readI >No franchise, certi+cate, or an, other for$ of authori5ation
for the operation of a public utilit, shall be 1ranted e0cept to
citi5ens of the Philippines or to corporations or associations
or1ani5ed under the la;s of the Philippines at least SI?#M
PERCEN# A @:SE CAPI#A! is o;ned b, such citi5ens.>
0 0 0 0
#:E PRESI*EN#I @ill Co$$issioner 'a$ir +rst e0plainL
MR. 'AMIR. Mes, in this Article on National Econo$, and
Patri$on,, there ;ere t;o previous sections in ;hich ;e +0ed
the Ailipino e<uit, to =( percent as a1ainst 6( percent for
forei1ners. It is onl, in this Section )9 ;ith respect to public
utilities that the co$$ittee proposal ;as increased to t;o-thirds.
I thin/ it ;ould be better to har$oni5e this provision b, providin1
that even in the case of public utilities, the $ini$u$ e<uit, for
Ailipino citi5ens should be =( percent.
MR. RM"!. Mada$ President.
#:E PRESI*EN#. Co$$issioner Ro$ulo is reco1ni5ed.
MR. RM"!. M, reason for supportin1 the a$end$ent is based
on the discussions I have had ;ith representatives of the Ailipino
$aCorit, o;ners of the international record carriers, and the
subse<uent $e$oranda the, sub$itted to $e. 0 0 0
#heir second point is that under the Corporation Code, the
$ana1e$ent and control of a corporation is vested in the board
of directors, not in the o7cers but in the board of directors. #he
o7cers are onl, a1ents of the board. And the, believe that ;ith
=( percent of the e<uit,, the Ailipino $aCorit, stoc/holders
undeniabl, control the board. nl, on i$portant corporate acts
can the 6(-percent forei1n e<uit, e0ercise a veto, 0 0 0.
0 0 0 0
69
MS. RSARI BRAI*. Mada$ President.
#:E PRESI*EN#. Co$$issioner Rosario Braid is reco1ni5ed.
MS. RSARI BRAI*. Mes, in the interest of e<ual ti$e, $a, I also
read fro$ a $e$orandu$ b, the spo/es$an of the Philippine
Cha$ber of Co$$unications on ;h, the, ;ould li/e to $aintain
the present e<uit,, I a$ referrin1 to the == %P4. #he, ;ould
prefer to have a D9-%9 ratio but ;ould settle for == %P4. 0 0 0
0 0 0 0
#:E PRESI*EN#. 'ust to clarif,, ;ould Co$$issioner Rosario Braid
support the proposal of t;o-thirds rather than the =( percentL
MS. RSARI BRAI*. I have added a clause that ;ill put
$ana1e$ent in the hands of Ailipino citi5ens.
0 0 0 0
6=
@hile the, had diFerin1 vie;s on the percenta1e of Ailipino
o;nership of capital, it is clear that the fra$ers of the
Constitution intended public utilities to be majority Ailipino-
o;ned and controlled. #o ensure that Ailipinos control public
utilities, the fra$ers of the Constitution approved, as additional
safe1uard, the inclusion of the last sentence of Section )), Article
?II of the Constitution co$$andin1 that >NtOhe participation of
forei1n investors in the 1overnin1 bod, of an, public utilit,
enterprise shall be li$ited to their proportionate share in its
capital, and all the e0ecutive and $ana1in1 o7cers of such
corporation or association $ust be citi5ens of the Philippines.> In
other ;ords, the last sentence of Section )), Article ?II of the
Constitution $andates that -). the participation of forei1n
investors in the 1overnin1 bod, of the corporation or association
shall be li$ited to their proportionate share in the capital of such
entit,K and -%. all o7cers of the corporation or association $ust
be Ailipino citi5ens.
Co$$issioner Rosario Braid proposed the inclusion of the phrase
re<uirin1 the $ana1in1 o7cers of the corporation or association
to be Ailipino citi5ens speci+call, to prevent $ana1e$ent
contracts, ;hich ;ere desi1ned pri$aril, to circu$vent the
Ailipini5ation of public utilities, and to assure Ailipino control of
public utilities, thusI
MS. RSARI BRAI*. 0 0 0 #he, also li/e to su11est that ;e
a$end this provision b, addin1 a phrase ;hich statesI >#:E
MANA8EMEN# B*M A E3ERM CRPRA#IN R ASSCIA#IN
S:A!! IN A!! CASES BE CN#R!!E* BM CI#ISENS A #:E
P:I!IPPINES.> I have ;ith $e their position paper.
#:E PRESI*EN#. #he Co$$issioner $a, proceed.
MS. RSARI BRAI*. #he three $aCor international record carriers
in the Philippines, ;hich Co$$issioner Ro$ulo $entioned T
Philippine 8lobal Co$$unications, Eastern #eleco$$unications,
8lobe Mac/a, Cable T are 6(-percent o;ned b, forei1n
$ultinational co$panies and =(-percent o;ned b, their
respective Ailipino partners. All three, ho;ever, also have
$ana1e$ent contracts ;ith these forei1n co$panies T Philco$
;ith RCA, E#PI ;ith Cable and @ireless P!C, and 8MCR ;ith I##.
"p to the present ti$e, the 1eneral $ana1ers of these carriers
are forei1ners. @hile the forei1ners in these co$$on carriers are
onl, $inorit, o;ners, the forei1n $ultinationals are the ones
$ana1in1 and controllin1 their operations b, virtue of their
$ana1e$ent contracts and b, virtue of their stren1th in the
1overnin1 bodies of these carriers.
6D
0 0 0 0
MR. P!E. I thin/ a nu$ber of us have a1reed to as/
Co$$issioner Rosario Braid to propose an a$end$ent ;ith
respect to the operatin1 $ana1e$ent of public utilities, and in
this a$end$ent, ;e are associated ;ith Ar. Bernas,
Co$$issioners Nieva and Rodri1o. Co$$issioner Rosario Braid
;ill state this a$end$ent no;.
#han/ ,ou.
MS. RSARI BRAI*. Mada$ President.
#:E PRESI*EN#. #his is still on Section )9.
MS. RSARI BRAI*. Mes.
MR. 3I!!E8AS. Mes, Mada$ President.
0 0 0 0
MS. RSARI BRAI*. Mada$ President, I propose a ne; section
to readI Q#:E MANA8EMEN# B*M A E3ERM CRPRA#IN R
ASSCIA#IN S:A!! IN A!! CASES BE CN#R!!E* BM CI#ISENS
A #:E P:I!IPPINES.>
T60: <033 2reBe-t 1,-,9e1e-t co-tr,ct: ,-. ,::5re
co-tro3 b4 F03020-o c0t0Je-:. @ill the co$$ittee assure us that
this a$end$ent ;ill insure that past activities such as
$ana1e$ent contracts ;ill no lon1er be possible under this
a$end$entL
0 0 0 0
AR. BERNAS. Mada$ President.
#:E PRESI*EN#. Co$$issioner Bernas is reco1ni5ed.
AR. BERNAS. @ill the co$$ittee accept a refor$ulation of the
+rst partL
MR. BEN8SN. !et us hear it.
AR. BERNAS. #he refor$ulation ;ill be essentiall, the for$ula of
the )GD4 Constitution ;hich readsI >#:E PAR#ICIPA#IN A
AREI8N IN3ES#RS IN #:E 83ERNIN8 B*M A ANM P"B!IC
"#I!I#M EN#ERPRISE S:A!! BE !IMI#E* # #:EIR
PRPR#INA#E S:ARE IN #:E CAPI#A! #:EREA AN*...>
MR. 3I!!E8AS. >A!! #:E E?EC"#I3E AN* MANA8IN8 AAICERS
A S"C: CRPRA#INS AN* ASSCIA#INS M"S# BE CI#ISENS
A #:E P:I!IPPINES.>
MR. BEN8SN. @ill Co$$issioner Bernas read the ;hole thin1
a1ainL
AR. BERNAS. >#:E PAR#ICIPA#IN A AREI8N IN3ES#RS IN #:E
83ERNIN8 B*M A ANM P"B!IC "#I!I#M EN#ERPRISE S:A!! BE
!IMI#E* # #:EIR PRPR#INA#E S:ARE IN #:E CAPI#A!
#:EREA...> I do not have the rest of the cop,.
MR. BEN8SN. >AN* A!! #:E E?EC"#I3E AN* MANA8IN8
AAICERS A S"C: CRPRA#INS R ASSCIA#INS M"S# BE
CI#ISENS A #:E P:I!IPPINES.> Is that correctL
MR. 3I!!E8AS. Mes.
MR. BEN8SN. Mada$ President, I thin/ that ;as said in a $ore
ele1ant lan1ua1e. @e accept the a$end$ent. Is that all ri1ht
;ith Co$$issioner Rosario BraidL
MS. RSARI BRAI*. Mes.
0 0 0 0
MR. *E !S REMES. #he 1overnin1 bod, refers to the board of
directors and trustees.
MR. 3I!!E8AS. #hat is ri1ht.
MR. BEN8SN. Mes, the 1overnin1 bod, refers to the board of
directors.
MR. RE8A!A*. It is accepted.
MR. RAMA. #he bod, is no; read, to vote, Mada$ President.
3#IN8
0 0 0 0
#he results sho; %G votes in favor and none a1ainstK so the
proposed a$end$ent is approved.
0 0 0 0
#:E PRESI*EN#. All ri1ht. Can ;e proceed no; to vote on Section
)9L
MR. RAMA. Mes, Mada$ President.
#:E PRESI*EN#. @ill the chair$an of the co$$ittee please read
Section )9L
MR. 3I!!E8AS. #he entire Section )9, as a$ended, readsI >No
franchise, certi+cate, or an, other for$ of authori5ation for the
operation of a public utilit, shall be 1ranted e0cept to citi5ens of
the Philippines or to corporations or associations or1ani5ed under
the la;s of the Philippines at least =( PERCEN# A @:SE
CAPI#A! is o;ned b, such citi5ens.> Ma, I re<uest Co$$issioner
Ben15on to please continue readin1.
MR. BEN8SN. >#:E PAR#ICIPA#IN A AREI8N IN3ES#RS IN
#:E 83ERNIN8 B*M A ANM P"B!IC "#I!I#M EN#ERPRISE
S:A!! BE !IMI#E* # #:EIR PRPR#INA#E S:ARE IN #:E
CAPI#A! #:EREA AN* A!! #:E E?EC"#I3E AN* MANA8IN8
AAICERS A S"C: CRPRA#INS R ASSCIA#INS M"S# BE
CI#ISENS A #:E P:I!IPPINES.>
MR. 3I!!E8AS. >NR S:A!! S"C: ARANC:ISE, CER#IAICA#E R
A"#:RISA#IN BE E?C!"SI3E IN C:ARAC#ER R AR A PERI*
!N8ER #:AN #@EN#M-AI3E MEARS RENE@AB!E AR N# MRE
#:AN #@EN#M-AI3E MEARS. Neither shall an, such franchise or
ri1ht be 1ranted e0cept under the condition that it shall be
subCect to a$end$ent, alteration, or repeal b, Con1ress ;hen
the co$$on 1ood so re<uires. #he State shall encoura1e e<uit,
participation in public utilities b, the 1eneral public.>
3#IN8
0 0 0 0
#he results sho; %G votes in favor and 6 a1ainstK Section )9, as
a$ended, is approved.
6&
-E$phasis supplied.
#he last sentence of Section )), Article ?II of the )G&D
Constitution, particularl, the provision on the li$ited
participation of forei1n investors in the 1overnin1 bod, of public
utilities, is a reiteration of the last sentence of Section 9, Article
?I3 of the )GD4 Constitution,
6G
si1nif,in1 its i$portance in
reservin1 o;nership and control of public utilities to Ailipino
citi5ens.
,III.
4he undisputed facts
#here is no dispute, and respondents do not clai$ the contrar,,
that -). forei1ners o;n =6.%DH of the co$$on shares of P!*#,
;hich class of shares e0ercises the :o3e ri1ht to vote in the
election of directors, and thus forei1ners control P!*#K -%.
Ailipinos o;n onl, 49.D4H of P!*#Bs co$$on shares, constitutin1
a $inorit, of the votin1 stoc/, and thus Ailipinos do not control
P!*#K -4. preferred shares, GG.66H o;ned b, Ailipinos, have no
votin1 ri1htsK -6. preferred shares earn onl, )PD( of the dividends
that co$$on shares earnK
9(
-9. preferred shares have t;ice the
par value of co$$on sharesK and -=. preferred shares constitute
DD.&9H of the authori5ed capital stoc/ of P!*# and co$$on
shares onl, %%.)9H.
*espite the fore1oin1 facts, the Court did not decide, and in fact
refrained fro$ rulin1 on the <uestion of ;hether P!*# violated
the =(-6( o;nership re<uire$ent in favor of Ailipino citi5ens in
Section )), Article ?II of the )G&D Constitution. Such <uestion
indisputabl, calls for a presentation and deter$ination of
evidence throu1h a hearin1, ;hich is 1enerall, outside the
province of the CourtBs Curisdiction, but ;ell ;ithin the SECBs
statutor, po;ers. #hus, for obvious reasons, the Court li$ited its
decision on the purel, le1al and threshold issue on the de+nition
of the ter$ >capital> in Section )), Article ?II of the Constitution
and directed the SEC to appl, such de+nition in deter$inin1 the
e0act percenta1e of forei1n o;nership in P!*#.
I3.
*/-4 is not an indispensa%le party;
"#$ is impleaded in this case.
In his petition, 8a$boa pra,s, a$on1 othersI
0 0 0 0
9. Aor the :onorable Court to issue a declarator, relief that
o;nership of co$$on or votin1 shares is the sole basis in
deter$inin1 forei1n e<uit, in a public utilit, and that an, other
1overn$ent rulin1s, opinions, and re1ulations inconsistent ;ith
this declarator, relief be declared unconstitutional and a violation
of the intent and spirit of the )G&D ConstitutionK
=. Aor the :onorable Court to declare null and void all sales of
co$$on stoc/s to forei1ners in e0cess of 6( percent of the total
subscribed co$$on shareholdin1sK and
D. Aor the :onorable Court to .0rect t6e Sec5r0t0e: ,-.
E>c6,-9e Co110::0o- and Philippine Stoc/ E0chan1e to
re@50re P&T to 1,=e , 25b30c .0:c3o:5re o7 ,33 o7 0t:
7ore09- :6,re6o3.0-9: ,-. t6e0r ,ct5,3 ,-. re,3 be-eCc0,3
o<-er:.
ther relief-s. Cust and e<uitable are li/e;ise pra,ed for.
-E$phasis supplied.
As can be 1leaned fro$ his pra,er, 8a$boa clearl, as/s this
Court to co$pel the SEC to perfor$ its statutor, dut, to
investi1ate ;hether >the re<uired percenta1e of o;nership of the
capital stoc/ to be o;ned b, citi5ens of the Philippines has been
co$plied ;ith Nb, P!*#O as re<uired b, 0 0 0 the
Constitution.>
9)
Such plea clearl, ne1ates SECBs ar1u$ent that it
;as not i$pleaded.
8rantin1 that onl, the SEC Chair$an ;as i$pleaded in this case,
the Court has a$ple po;ers to order the SECBs co$pliance ;ith
its directive contained in the %& 'une %()) *ecision in vie; of the
far-reachin1 i$plications of this case. In Domingo v. Sceer,
9%
the
Court dispensed ;ith the a$end$ent of the pleadin1s to i$plead
the Bureau of Custo$s considerin1 -). the uni<ue bac/drop of
the caseK -%. the ut$ost need to avoid further dela,sK and -4. the
issue of public interest involved. #he Court heldI
#he Court $a, be curin1 the defect in this case b, addin1 the
BC as part,-petitioner. #he petition should not be dis$issed
because the second action ;ould onl, be a repetition of the +rst.
In Sa!vador$ et a!.$ v. Court of Appea!s$ et a!., ;e held that this
Court has full po;ers, apart fro$ that po;er and authorit, ;hich
is inherent, to a$end the processes, pleadin1s, proceedin1s and
decisions b, substitutin1 as part,-plaintiF the real part,-in-
interest. T6e Co5rt 6,: t6e 2o<er to ,Bo0. .e3,4 0- t6e
.0:2o:0t0o- o7 t60: c,:e, to or.er 0t: ,1e-.1e-t ,: to
0123e,. t6e "OC ,: 2,rt48re:2o-.e-t. I-.ee., 0t 1,4 -o
3o-9er be -ece::,r4 to .o :o t,=0-9 0-to ,cco5-t t6e
5-0@5e b,c=.ro2 0- t60: c,:e, 0-Bo3B0-9 ,: 0t .oe: ,- 0::5e
o7 25b30c 0-tere:t. After all, the 7ce of the Solicitor 8eneral
has represented the petitioner in the instant proceedin1s, as ;ell
as in the appellate court, and $aintained the validit, of the
deportation order and of the BCBs $nibus Resolution. It
cannot, thus, be clai$ed b, the State that the BC ;as not
aForded its da, in court, si$pl, because onl, the petitioner, the
Chairperson of the BC, ;as the respondent in the CA, and the
petitioner in the instant recourse. In A!onso v. 5i!!amor$ ;e had
the occasion to stateI
T6ere 0: -ot60-9 :,cre. ,bo5t 2roce::e: or 23e,.0-9:,
t6e0r 7or1: or co-te-t:. T6e0r :o3e 25r2o:e 0: to 7,c030t,te
t6e ,2230c,t0o- o7 ;5:t0ce to t6e r0B,3 c3,01: o7 co-te-.0-9
2,rt0e:. #he, ;ere created, not to hinder and dela,, but to
facilitate and pro$ote, the ad$inistration of Custice. #he, do not
constitute the thin1 itself, ;hich courts are al;a,s strivin1 to
secure to liti1ants. #he, are desi1ned as the $eans best adapted
to obtain that thin1. In other ;ords, the, are a $eans to an end.
@hen the, lose the character of the one and beco$e the other,
the ad$inistration of Custice is at fault and courts are
correspondin1l, re$iss in the perfor$ance of their obvious
dut,.
94
-E$phasis supplied.
I- ,-4 eBe-t, t6e SEC 6,: e>2re::34 1,-07e:te.
96
t6,t 0t
<033 ,b0.e b4 t6e Co5rtD: .ec0:0o- ,-. .e7er to t6e Co5rtD:
.eC-0t0o- o7 t6e ter1 ?c,20t,3? 0- Sect0o- 11, !rt0c3e +II o7
t6e Co-:t0t5t0o-. F5rt6er, t6e SEC e-tere. 0t: :2ec0,3
,22e,r,-ce 0- t60: c,:e ,-. ,r95e. .5r0-9 t6e Or,3
!r951e-t:, 0-.0c,t0-9 0t: :5b10::0o- to t6e Co5rtD:
;5r0:.0ct0o-. It 0: c3e,r, t6ere7ore, t6,t t6ere e>0:t: -o
3e9,3 012e.01e-t ,9,0-:t t6e 2ro2er ,-. 011e.0,te
0123e1e-t,t0o- o7 t6e Co5rtD: .0rect0Be to t6e SEC.
P!*# is an indispensable part, onl, insofar as the other issues,
particularl, the factual <uestions, are concerned. In other ;ords,
P!*# $ust be i$pleaded in order to full, resolve the issues on
-). ;hether the sale of ))),6)9 P#IC shares to Airst Paci+c
violates the constitutional li$it on forei1n o;nership of P!*#K -%.
;hether the sale of co$$on shares to forei1ners e0ceeded the
6( percent li$it on forei1n e<uit, in P!*#K and -4. ;hether the
total percenta1e of the P!*# co$$on shares ;ith votin1 ri1hts
co$plies ;ith the =(-6( o;nership re<uire$ent in favor of
Ailipino citi5ens under the Constitution for the o;nership and
operation of P!*#. #hese issues indisputabl, call for an
e0a$ination of the partiesB respective evidence, and thus are
clearl, ;ithin the Curisdiction of the SEC. In short, P!*# $ust be
i$pleaded, and $ust necessaril, be heard, in the proceedin1s
before the SEC ;here the factual issues ;ill be thorou1hl,
threshed out and resolved.
Not,b34, t6e 7ore9o0-9 0::5e: <ere 3e7t 5-to5c6e. b4 t6e
Co5rt. #he Court did not rule on the factual issues raised b,
8a$boa, e0cept the sin1le and purel, le1al issue on the
de+nition of the ter$ >capital> in Section )), Article ?II of the
Constitution. #he Court con+ned the resolution of the instant
case to this threshold le1al issue in deference to the fact-+ndin1
po;er of the SEC.
Needless to state, the Court can validl,, properl,, and full,
dispose of the funda$ental le1al issue in this case even ;ithout
the participation of P!*# since de+nin1 the ter$ >capital> in
Section )), Article ?II of the Constitution does not, in an, ;a,,
depend on ;hether P!*# ;as i$pleaded. Si$pl, put, P!*# is not
indispensable for a co$plete resolution of the purel, le1al
<uestion in this case.
99
In fact, the Court, b, treatin1 the petition
as one for $anda$us,
9=
$erel, directed the SEC to appl, the
CourtBs de+nition of the ter$ >capital> in Section )), Article ?II of
the Constitution in deter$inin1 ;hether P!*# co$$itted an,
violation of the said constitutional provision. T6e .0:2o:0t0Be
2ort0o- o7 t6e Co5rtD: r530-9 0: ,..re::e. -ot to P&T b5t
:o3e34 to t6e SEC, <60c6 0: t6e ,.10-0:tr,t0Be ,9e-c4
t,:=e. to e-7orce t6e 608N0 o<-er:602 re@50re1e-t 0-
7,Bor o7 F03020-o c0t0Je-: 0- Sect0o- 11, !rt0c3e +II o7 t6e
Co-:t0t5t0o-.
Since the Court li$ited its resolution on the purel, le1al issue on
the de+nition of the ter$ >capital> in Section )), Article ?II of the
)G&D Constitution, and directed the SEC to investi1ate an,
violation b, P!*# of the =(-6( o;nership re<uire$ent in favor of
Ailipino citi5ens under the Constitution,
9D
there is no deprivation
of P!*#Bs propert, or denial of P!*#Bs ri1ht to due process,
contrar, to Pan1ilinan and Na5arenoBs $isi$pression. *ue
process ;ill be aForded to P!*# ;hen it presents proof to the
SEC that it co$plies, as it clai$s here, ;ith Section )), Article ?II
of the Constitution.
3.
Foreign Investments in the *hilippines
Movants fear that the %& 'une %()) *ecision ;ould spell disaster
to our econo$,, as it $a, result in a sudden Ei1ht of e0istin1
forei1n investors to >friendlier> countries and si$ultaneousl,
deterrin1 ne; forei1n investors to our countr,. In particular, the
PSE clai$s that the %& 'une %()) *ecision $a, result in the
follo;in1I -). loss of $ore than P =4( billion in forei1n
invest$ents in PSE-listed sharesK -%. $assive decrease in forei1n
tradin1 transactionsK -4. lo;er PSE Co$posite Inde0K and -6. local
investors not investin1 in PSE-listed shares.
9&
*r. Bernardo M. 3ille1as, one of the amici curiae in the ral
Ar1u$ents, shared $ovantsB apprehension. @ithout providin1
speci+c details, he pointed out the depressin1 state of the
Philippine econo$, co$pared to our nei1hborin1 countries ;hich
boast of 1ro;in1 econo$ies. Aurther, *r. 3ille1as e0plained that
the solution to our econo$ic ;oes is for the 1overn$ent to >ta/e-
over> strate1ic industries, such as the public utilities sector, thusI
'"S#ICE CARPII
I ;ould li/e also to 1et fro$ ,ou *r. 3ille1as if ,ou have additional
infor$ation on ;hether this hi1h A*I
9G
countries in East Asia have
allo;ed forei1ners 0 0 0 control NofO their public utilities, so that
;e can co$pare apples ;ith apples.
*R. 3I!!E8ASI
Correct, but let $e Cust $a/e a co$$ent. @hen these nei1hbors
of ours +nd an industr, strate1ic, their solution is not to
>Ailipini5e> or >3ietna$i5e> or >Sin1apori5e.> T6e0r :o35t0o- 0: to
1,=e :5re t6,t t6o:e 0-.5:tr0e: ,re 0- t6e 6,-.: o7 :t,te
e-ter2r0:e:. So, 0- t6e:e co5-tr0e:, -,t0o-,30J,t0o- 1e,-:
t6e 9oBer-1e-t t,=e: oBer. !-. bec,5:e t6e0r
9oBer-1e-t: ,re co12ete-t ,-. 6o-e:t e-o596 to t6e
25b30c, t6,t 0: t6e :o35t0o-. 0 0 0
=(
-E$phasis supplied.
If 1overn$ent o;nership of public utilities is the solution, then
forei1n invest$ents in our public utilities serve no purpose.
bviousl,, there can never be forei1n invest$ents in public
utilities if, as *r. 3ille1as clai$s, the >solution is to $a/e sure
that those industries are in the hands of state enterprises.> *r.
3ille1asBs ar1u$ent that forei1n invest$ents in
teleco$$unication co$panies li/e P!*# are badl, needed to
save our ailin1 econo$, contradicts his o;n theor, that the
solution is for 1overn$ent to ta/e over these co$panies. *r.
3ille1as is bar/in1 up the ;ron1 tree since State o;nership of
public utilities and forei1n invest$ents in such industries are
dia$etricall, opposed concepts, ;hich cannot possibl, be
reconciled.
In an, event, the e0perience of our nei1hborin1 countries cannot
be used as ar1u$ent to decide the present case diFerentl, for
t;o reasons. Airst, the 1overn$ents of our nei1hborin1 countries
have, as clai$ed b, *r. 3ille1as, ta/en over o;nership and
control of their strate1ic public utilities li/e the
teleco$$unications industr,. Second, our Constitution has
speci+c provisions li$itin1 forei1n o;nership in public utilities
;hich the Court is s;orn to uphold re1ardless of the e0perience
of our nei1hborin1 countries.
In our Curisdiction, the Constitution e0pressl, reserves the
o;nership and operation of public utilities to Ailipino citi5ens, or
corporations or associations at least =( percent of ;hose capital
belon1s to Ailipinos. Aollo;in1 *r. 3ille1asBs clai$, the Philippines
appears to be $ore liberal in allo;in1 forei1n investors to o;n 6(
percent of public utilities, unli/e in other Asian countries ;hose
1overn$ents o;n and operate such industries.
3I.
*rospective 0pplication of "anctions
In its Motion for Partial Reconsideration, the SEC sou1ht to clarif,
the rec/onin1 period of the application and i$position of
appropriate sanctions a1ainst P!*# if found violatin1 Section )),
Article ?II of the Constitution.(avvpi(
As discussed, the Court has directed the SEC to investi1ate and
deter$ine ;hether P!*# violated Section )), Article ?II of the
Constitution. #hus, there is no dispute that it is onl, after the SEC
has deter$ined P!*#Bs violation, if an, e0ists at the ti$e of the
co$$ence$ent of the ad$inistrative case or investi1ation, that
the SEC $a, i$pose the statutor, sanctions a1ainst P!*#. In
other ;ords, once the %& 'une %()) *ecision beco$es +nal, the
SEC shall i$pose the appropriate sanctions onl, if it +nds after
due hearin1 that, at the start of the ad$inistrative case or
investi1ation, there is an e0istin1 violation of Section )), Article
?II of the Constitution. "nder prevailin1 Curisprudence, public
utilities that fail to co$pl, ;ith the nationalit, re<uire$ent under
Section )), Article ?II and the AIA can cure their de+ciencies prior
to the start of the ad$inistrative case or investi1ation.
=)
3II.
Final 5ord
#he Constitution e0pressl, declares as State polic, the
develop$ent of an econo$, >efectively controlled> b,
Ailipinos. Consistent ;ith such State polic,, the Constitution
e0plicitl, reserves the o;nership and operation of public utilities
to Philippine nationals, ;ho are de+ned in the Aorei1n
Invest$ents Act of )GG) as Ailipino citi5ens, or corporations or
associations at least =( percent of ;hose capital 1ith voting
rights belon1s to Ailipinos. #he AIABs i$ple$entin1 rules e0plain
that >NfOor stoc/s to be dee$ed o;ned and held b, Philippine
citi5ens or Philippine nationals, $ere le1al title is not enou1h to
$eet the re<uired Ailipino e<uit,. F533 be-eCc0,3 o<-er:602 o7
t6e :toc=:, co523e. <0t6 ,22ro2r0,te Bot0-9 r096t: 0:
e::e-t0,3.> In eFect, the AIA clari+es, reiterates and con+r$s the
interpretation that the ter$ >capital> in Section )), Article ?II of
the )G&D Constitution refers to shares 1ith voting rights, as
1ell as 1ith full %enecial o1nership. #his is precisel,
because the ri1ht to vote in the election of directors, coupled
;ith full bene+cial o;nership of stoc/s, translates to eFective
control of a corporation.
An, other construction of the ter$ >capital> in Section )), Article
?II of the Constitution contravenes the letter and intent of the
Constitution. An, other $eanin1 of the ter$ >capital> openl,
invites alien do$ination of econo$ic activities reserved
e0clusivel, to Philippine nationals. #herefore, respondentsB
interpretation ;ill ulti$atel, result in handin1 over eFective
control of our national econo$, to forei1ners in patent violation
of the Constitution, $a/in1 Ailipinos second-class citi5ens in their
o;n countr,.
Ailipinos have onl, to re$ind the$selves of ho; this countr, ;as
e0ploited under the Parit, A$end$ent, ;hich 1ave A$ericans
the sa$e ri1hts as Ailipinos in the e0ploitation of natural
resources, and in the o;nership and control of public utilities, in
the Philippines. #o do this the )G49 Constitution, ;hich contained
the sa$e =( percent Ailipino o;nership and control re<uire$ent
as the present )G&D Constitution, had to be a$ended to 1ive
A$ericans parit, ri1hts ;ith Ailipinos. #here ;as bitter opposition
to the Parit, A$end$ent
=%
and $an, Ailipinos ea1erl, a;aited its
e0piration. In late )G=&, P!*# ;as one of the A$erican-controlled
public utilities that beca$e Ailipino-controlled ;hen the
controllin1 A$erican stoc/holders divested in anticipation of the
e0piration of the Parit, A$end$ent on 4 'ul, )GD6.
=4
No
econo$ic suicide happened ;hen control of public utilities and
$inin1 corporations passed to AilipinosB hands upon e0piration of
the Parit, A$end$ent.
MovantsB interpretation of the ter$ >capital> ;ould brin1 us bac/
to the sa$e evils spa;ned b, the Parit,
A$end$ent, efectively giving foreigners parity rights 1ith
Filipinos, %ut this time even 1ithout any amendment to
the present $onstitution. @orse, $ovantsB interpretation
opens up our national econo$, toefective control not onl, b,
A$ericans but also b, ,33 7ore09-er:, be t6e4 I-.o-e:0,-:,
M,3,4:0,-: or C60-e:e, eBe- 0- t6e ,b:e-ce o7 rec02roc,3
tre,t4 ,rr,-9e1e-t:. At least the Parit, A$end$ent, as
i$ple$ented b, the !aurel-!an1le, A1ree$ent, 1ave the capital-
starved Ailipinos theoretical parit, T the sa$e ri1hts as A$ericans
to e0ploit natural resources, and to o;n and control public
utilities, in te 4nited States of America. :ere, $ovantsB
interpretation ;ould eFectivel, $ean a unilateral openin1 up of
our national econo$, to all forei1ners, 1ithout any reciprocal
arrangements. #hat ;ould $ean that Indonesians, Mala,sians
and Chinese nationals could eFectivel, control our $inin1
co$panies and public utilities ;hile Ailipinos, even if the, have
the capital, could not control si$ilar corporations in these
countries.
#he )G49, )GD4 and )G&D Constitutions have the sa$e =(
percent Ailipino o;nership and control re<uire$ent for public
utilities li/e P!#. An, deviation fro$ this re<uire$ent
necessitates an a$end$ent to the Constitution as e0e$pli+ed b,
the Parit, A$end$ent. #his Court has no po;er to a$end the
Constitution for its po;er and dut, is onl, to faithfull, appl, and
interpret the Constitution.
WHEREFORE, <e &EN$ the $otions for reconsideration WITH
FIN!IT$. No further pleadin1s shall be entertained.
S R*ERE*.
!NTONIO T. C!RPIO
Associate 'ustice
@E CNC"RI
*etailed *i1est of 8a$boa vs. Ainance Secretar,, 8.R. No.
)D=9DG, 'une %&, %())
WISON P. G!M"O! B:. FIN!NCE SECRET!R$ TE%ES
8.R. No. )D=9DG, pro$ul1ated 'une %&, %())
?-----------------------------------------------------------------------------?
& E C I S I O N
C!RPIO, J.G
I. THE F!CTS
#his is a petition to nullif, the sale of shares of stoc/ of
Philippine #eleco$$unications Invest$ent Corporation -P#IC. b,
the 1overn$ent of the Republic of the Philippines, actin1 throu1h
the Inter-A1enc, Privati5ation Council -IPC., to Metro Paci+c
Assets :oldin1s, Inc. -MPA:., an a7liate of Airst Paci+c Co$pan,
!i$ited -Airst Paci+c., a :on1 Ron1-based invest$ent
$ana1e$ent and holdin1 co$pan, and a shareholder of the
Philippine !on1 *istance #elephone Co$pan, -P!*#..
#he petitioner <uestioned the sale on the 1round that it
also involved an indirect sale of )% $illion shares -or about =.4
percent of the outstandin1 co$$on shares. of P!*# o;ned b,
P#IC to Airst Paci+c. @ith the this sale, Airst Paci+cBs co$$on
shareholdin1s in P!*# increased fro$ 4(.D percent to 4D percent,
thereb, increasin1 the total co$$on shareholdin1s of forei1ners
in P!*# to about &).6DH. #his, accordin1 to the petitioner,
violates Section )), Article ?II of the )G&D Philippine Constitution
;hich li$its forei1n o;nership of the capital of a public utilit, to
not $ore than 6(H.
II. THE ISSUE
*oes the ter$ UcapitalV in Section )), Article ?II of the
Constitution refer to the total co$$on shares onl,, or to the total
outstandin1 capital stoc/ -co$bined total of co$$on and non-
votin1 preferred shares. of P!*#, a public utilit,L
III. THE RUING
.'e Court part!y granted te petition and e!d tat te
term 6capita!7 in Section (($ Artic!e 8%% of te Constitution refers
on!y to sares of stoc9 entit!ed to vote in te e!ection of directors
of a pub!ic uti!ity$ or in te instant case$ to te tota! common
sares of PLD'./
Section )), Article ?II -National Econo$, and Patri$on,.
of the )G&D Constitution $andates the Ailipini5ation of public
utilities, to ;itI
Section )). No 7r,-c60:e, cert0Cc,te, or ,-4 ot6er
7or1 o7 ,5t6or0J,t0o- 7or t6e o2er,t0o- o7 , 25b30c 5t030t4
:6,33 be 9r,-te. e>ce2t to c0t0Je-: o7 t6e P6030220-e: or to
cor2or,t0o-: or ,::oc0,t0o-: or9,-0Je. 5-.er t6e 3,<: o7
t6e P6030220-e:, ,t 3e,:t :0>t4 2er ce-t51 o7 <6o:e c,20t,3
0: o<-e. b4 :5c6 c0t0Je-:K nor shall such franchise, certi+cate,
or authori5ation be e0clusive in character or for a lon1er period
than +ft, ,ears. Neither shall an, such franchise or ri1ht be
1ranted e0cept under the condition that it shall be subCect to
a$end$ent, alteration, or repeal b, the Con1ress ;hen the
co$$on 1ood so re<uires. #he State shall encoura1e e<uit,
participation in public utilities b, the 1eneral public. #he
participation of forei1n investors in the 1overnin1 bod, of an,
public utilit, enterprise shall be li$ited to their proportionate
share in its capital, and all the e0ecutive and $ana1in1 o7cers of
such corporation or association $ust be citi5ens of the
Philippines. -E$phasis supplied.
#he ter$ UcapitalV in Section )), Article ?II of the
Constitution refers onl, to shares of stoc/ entitled to vote in the
election of directors, and thus in the present case onl, to
co$$on shares, and not to the total outstandin1 capital stoc/
co$prisin1 both co$$on and non-votin1 preferred shares Nof
P!*#O.
000 000
000
Indisputabl,, one of the ri1hts of a stoc/holder is the ri1ht
to participate in the control or $ana1e$ent of the
corporation. #his is e0ercised throu1h his vote in the election of
directors because it is the board of directors that controls or
$ana1es the corporation. In the absence of provisions in the
articles of incorporation den,in1 votin1 ri1hts to preferred shares,
preferred shares have the sa$e votin1 ri1hts as co$$on shares.
:o;ever, preferred shareholders are often e0cluded fro$ an,
control, that is, deprived of the ri1ht to vote in the election of
directors and on other $atters, on the theor, that the preferred
shareholders are $erel, investors in the corporation for inco$e
in the sa$e $anner as bondholders. 000.
Considerin1 that co$$on shares have votin1 ri1hts ;hich
translate to control, as opposed to preferred shares ;hich usuall,
have no votin1 ri1hts, the ter$ UcapitalV in Section )), Article ?II
of the Constitution refers onl, to co$$on shares. :o;ever, if the
preferred shares also have the ri1ht to vote in the election of
directors, then the ter$ UcapitalV shall include such preferred
shares because the ri1ht to participate in the control or
$ana1e$ent of the corporation is e0ercised throu1h the ri1ht to
vote in the election of directors. In short, the ter$ UcapitalV in
Section )), Article ?II of the Constitution refers onl, to shares of
stoc/ that can vote in the election of directors.
000 000
000
Mere le1al title is insu7cient to $eet the =( percent
Ailipino-o;ned UcapitalV re<uired in the Constitution. Aull
bene+cial o;nership of =( percent of the outstandin1 capital
stoc/, coupled ;ith =( percent of the votin1 ri1hts, is re<uired.
#he le1al and bene+cial o;nership of =( percent of the
outstandin1 capital stoc/ $ust rest in the hands of Ailipino
nationals in accordance ;ith the constitutional $andate.
ther;ise, the corporation is Uconsidered as non-Philippine
nationalNsO.V
000 000
000
#o construe broadl, the ter$ UcapitalV as the total
outstandin1 capital stoc/, includin1 both co$$on and non-
voting preferred shares, 1rossl, contravenes the intent and letter
of the Constitution that the UState shall develop a self-reliant and
independent national econo$, e:ective!y contro!!ed b,
Ailipinos.V A broad de+nition unCusti+abl, disre1ards ;ho o;ns
the all-i$portant votin1 stoc/, ;hich necessaril, e<uates to
control of the public utilit,.
@e shall illustrate the 1larin1 ano$al, in 1ivin1 a broad
de+nition to the ter$ Ucapital.V !et us assu$e that a corporation
has )(( co$$on shares o;ned b, forei1ners and ),(((,((( non-
votin1 preferred shares o;ned b, Ailipinos, ;ith both classes of
share havin1 a par value of one peso -P).((. per share. "nder
the broad de+nition of the ter$ Ucapital,V such corporation ;ould
be considered co$pliant ;ith the 6( percent constitutional li$it
on forei1n e<uit, of public utilities since the over;hel$in1
$aCorit,, or $ore than GG.GGG percent, of the total outstandin1
capital stoc/ is Ailipino o;ned. #his is obviousl, absurd.
In the e0a$ple 1iven, onl, the forei1ners holdin1 the
co$$on shares have votin1 ri1hts in the election of directors,
even if the, hold onl, )(( shares. #he forei1ners, ;ith a
$inuscule e<uit, of less than (.(() percent, e0ercise control over
the public utilit,. n the other hand, the Ailipinos, holdin1 $ore
than GG.GGG percent of the e<uit,, cannot vote in the election of
directors and hence, have no control over the public utilit,. #his
star/l, circu$vents the intent of the fra$ers of the Constitution,
as ;ell as the clear lan1ua1e of the Constitution, to place the
control of public utilities in the hands of Ailipinos. It also renders
illusor, the State polic, of an independent national
econo$, e:ective!y contro!!ed b, Ailipinos.
#he e0a$ple 1iven is not theoretical but can be found in
the real ;orld, and in fact e3ists in te present case.
000 000
000
NOnl, holders of co$$on shares can vote in the election
of directors Nof P!*#O, $eanin1 onl, co$$on shareholders
e0ercise control over P!*#. Conversel,, holders of preferred
shares, ;ho have no votin1 ri1hts in the election of directors, do
not have an, control over P!*#. In fact, under P!*#Bs Articles of
Incorporation, holders of co$$on shares have votin1 ri1hts for
all purposes, ;hile holders of preferred shares have no votin1
ri1ht for an, purpose ;hatsoever.
It $ust be stressed, and respondents do not dispute, that
forei1ners hold a $aCorit, of the co$$on shares of P!*#. In fact,
based on P!*#Bs %()( 8eneral Infor$ation Sheet -8IS., ;hich is a
docu$ent re<uired to be sub$itted annuall, to the Securities
and E0chan1e Co$$ission, forei1ners hold )%(,(6=,=G( co$$on
shares of P!*# ;hereas Ailipinos hold onl, ==,D9(,=%% co$$on
shares. In other ;ords, forei1ners hold =6.%DH of the total
nu$ber of P!*#Bs co$$on shares, ;hile Ailipinos hold onl,
49.D4H. Since holdin1 a $aCorit, of the co$$on shares e<uates
to control, it is clear that forei1ners e0ercise control over P!*#.
Such a$ount of control un$ista/abl, e0ceeds the allo;able 6(
percent li$it on forei1n o;nership of public utilities e0pressl,
$andated in Section )), Article ?II of the Constitution.
As sho;n in P!*#Bs %()( 8IS, as sub$itted to the SEC,
the par value of P!*# co$$on shares is P9.(( per share,
;hereas the par value of preferred shares is P)(.(( per share. In
other ;ords, preferred shares have t;ice the par value of
co$$on shares but cannot elect directors and have onl, )PD( of
the dividends of co$$on shares. Moreover, GG.66H of the
preferred shares are o;ned b, Ailipinos ;hile forei1ners o;n onl,
a $inuscule (.9=H of the preferred shares. @orse, preferred
shares constitute DD.&9H of the authori5ed capital stoc/ of P!*#
;hile co$$on shares constitute onl, %%.)9H. #his undeniabl,
sho;s that bene+cial interest in P!*# is not ;ith the non-votin1
preferred shares but ;ith the co$$on shares, blatantl, violatin1
the constitutional re<uire$ent of =( percent Ailipino control and
Ailipino bene+cial o;nership in a public utilit,.
#he le1al and bene+cial o;nership of =( percent of the
outstandin1 capital stoc/ $ust rest in the hands of Ailipinos in
accordance ;ith the constitutional $andate. Aull bene+cial
o;nership of =( percent of the outstandin1 capital stoc/, coupled
;ith =( percent of the votin1 ri1hts, is constitutionall, re<uired
for the StateBs 1rant of authorit, to operate a public utilit,. #he
undisputed fact that the P!*# preferred shares, GG.66H o;ned
b, Ailipinos, are non-votin1 and earn onl, )PD( of the dividends
that P!*# co$$on shares earn, 1rossl, violates the
constitutional re<uire$ent of =( percent Ailipino control and
Ailipino bene+cial o;nership of a public utilit,.
In short, Ailipinos hold less than =( percent of the votin1
stoc/, and earn less than =( percent of the dividends, of
P!*#. #his directl, contravenes the e0press co$$and in Section
)), Article ?II of the Constitution that UNnOo franchise, certi+cate,
or an, other for$ of authori5ation for the operation of a public
utilit, shall be 1ranted e0cept to 0 0 0 corporations 0 0 0
or1ani5ed under the la;s of the Philippines, at least si0t, per
centu$ of ;hose capital is o;ned b, such citi5ens 0 0 0.V
#o repeat, -). forei1ners o;n =6.%DH of the co$$on
shares of P!*#, ;hich class of shares e0ercises the sole ri1ht to
vote in the election of directors, and thus e0ercise control over
P!*#K -%. Ailipinos o;n onl, 49.D4H of P!*#Bs co$$on shares,
constitutin1 a $inorit, of the votin1 stoc/, and thus do not
e0ercise control over P!*#K -4. preferred shares, GG.66H o;ned
b, Ailipinos, have no votin1 ri1htsK -6. preferred shares earn onl,
)PD( of the dividends that co$$on shares earnK -9. preferred
shares have t;ice the par value of co$$on sharesK and -=.
preferred shares constitute DD.&9H of the authori5ed capital
stoc/ of P!*# and co$$on shares onl, %%.)9H. #his /ind of
o;nership and control of a public utilit, is a $oc/er, of the
Constitution.
Incidentall,, the fact that P!*# co$$on shares ;ith a par
value of P9.(( have a current stoc/ $ar/et value of P%,4%&.((
per share, ;hile P!*# preferred shares ;ith a par value of P)(.((
per share have a current stoc/ $ar/et value ran1in1 fro$
onl, P)(.G% to P)).(= per share, is a 1larin1 con+r$ation b, the
$ar/et that control and bene+cial o;nership of P!*# rest ;ith
the co$$on shares, not ;ith the preferred shares.
000 000
000
WHEREFORE, ;e P!RT$ GR!NT the petition and rule
that the ter$ UcapitalV in Section )), Article ?II of the )G&D
Constitution refers onl, to shares of stoc/ entitled to vote in the
election of directors, and thus in the present case onl, to
co$$on shares, and not to the total outstandin1 capital stoc/
-co$$on and non-votin1 preferred shares.. Respondent
Chairperson of the Securities and E0chan1e Co$$ission
is &IRECTE& to appl, this de+nition of the ter$ UcapitalV in
deter$inin1 the e0tent of allo;able forei1n o;nership in
respondent Philippine !on1 *istance #elephone Co$pan,, and if
there is a violation of Section )), Article ?II of the Constitution, to
i$pose the appropriate sanctions under the la;.