The Path of the Law Donna S. Talledo Justice Holmes I. What is the study of law?

? The object of our study is prediction, the prediction of the incidence of the public force through the instrumentality of the court. The most important meaning of every new effort of legal thought is to make these prophesies more precise, and to generalize them into a thoroughly connected system. II. Holmes objectives were: 1. To lay down principles for the study of this body of dogma or systematized prediction which we call the law. 2. To point out an ideal whichour law has not yet attained. (Holmes ideal: The time when the part played by history in the explanation of dogma shall be very small, and instead of ingenious research we shall spend our energy on a study of the ends sought to be attained and the reasons for desiring them) III. Morality, Law, and its limits. The confusion between morality and law should be dispelled in view of learning and understanding the law. This distinction is important for a right study and mastery of the law as a business with well understood limits, a dogma enclosed within definite lines. He presented two views that of a bad man and a good man, and if you want to know the law and nothing else, you must look at it as a bad man, who cares only for the material consequences not as a good one, who finds his reasons for his conduct in the vaguer sanctions of conscience. Nothing but confusion of thought can result from assuming that rights of man in a moral sense are equally rights in the sense of the Constitution and the law. IV. What constitutes the law? Text writers: Its a system of reason, that it is a deduction from principles of ethics or admitted axioms, which may or may not coincide with the decisions. Bad mans view: He does not care about axioms or deductions but that of what the courts are likely to do in fact. Holmes: The prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law. V. What are the forces which determine its content and its growth? We should be interested in discovering some order, some rational explanation, and some principle of growth for the rules which were laid down because in every system there are such explanations and principles. Logic The notion that the only force at work in the development of the law is logic is a fallacy. The danger is of the notion that a given system can be worked out like mathematics from some general axioms of conduct. This mode of thinking is entirely natural. The language of judicial decision is mainly the language of logic. And the logical method and form flatter that longing for certainty which is in every human mind. But certainty generally is illusion. Behind the logical form lies a judgment as to the relative worth and importance of competing legislative grounds, often an inarticulate and unconscious judgment

Tradition In many cases, if we want to know why a rule of law has taken its particular shape, and more or less if we want to know why it exists at all, we go to tradition. The rational study of law is still to a large extent the study of history. It is the first step toward a deliberate reconsideration of the worth of those rules. But this is only the first step. For the rational study of the law the black-letter man may be the man of the present, but the man of the future is the man of statistics and the master of economics It is revolting to have no better reason for a rule of law than that it was laid down a long time ago. Its even more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past. Everywhere the basis of principle is tradition, to such an extent that we even are in danger of making the role of history more important that it is. The study of history necessarily plays a part in the intelligent study of the law but we must beware of it pitfalls, and remember that our only interest in the past is for the light it throws upon the present. And as a step toward the ideal, the time when history shall play a small part, every lawyer ought to seek an understanding of economics. We are called on to consider and weigh the ends of legislation, the means of attaining them, and the cost. VI. Jurisprudence Jurisprudence is simply law in its most generalized past. Every effort to reduce a case to a rule is an effort of jurisprudence. And to be a master of the law means to look straight through all the dramatic incidents and to discern the true basis for prophesy. Thus, to gain a liberal view of the subject, one must get to the bottom of the subject itself. The means of doing that are: 1. to follow the existing body of dogma into its highest generalizations by the help of jurisprudence; 2. to discover from history how it has come to be what it is; and 3. to consider the ends which the several rules seek to accomplish. VII. Theory Theory is the most important part dogma of the law, as the architect is the most importance man who takes part in the building of a house. It is not to be feared as unpractical for it simply means going to the bottom of the subject. The remoter and more general aspects of the law are those which give it universal interest. It is through them that you not only become a great master in your calling, but connect your subject with the universe and catch an echo of the infinite, a glimpse of its unfathomable process, a hint of universal law.

THE PATH OF THE LAW HOLMES Prediction Theory of the Law At its most basic, the theory is a refutation of most previous definitions of the law. Holmes believed that the law should be defined as a prediction, most specifically, a prediction of how the courts behave. His rationale was based on an argument regarding the opinion of a "bad man." Bad men, care little for ethics or lofty conceptions of natural law; instead they care simply about staying out of jail and avoiding paying damages. In Holmes's mind, therefore, it was most useful to define "the law" as a prediction of what will bring punishment or other consequences from a court. "a bad man has as much reason as a good one for wishing to avoid an encounter with the public force, and therefore you can see the practical importance of the distinction between morality and law". Nearly every man what to avoid the disagreeable consequences of disobeing the law, but not all want to obey the law only to obey it. This is why the point of view of the bad guy is the better, because it is the only who ensure that the whole people will obey the law, and the only that permit to a lawyer to correctly advise his client. Fallacies Morality Holmes suggests that the conflation of law and morality might be reduced by changing legal terminology so that moral and legal terms do not overlap, a proposal with potential drawbacks that Holmes did not seem to appreciate. Holmes compared the Law to a bad man "who cares only for the material consequences of things" rather than as an independent moral entity. "Men make their own laws...these laws do not flow from some mysterious omnipresence in the sky, and...judges are not independent mouthpieces of the infinite. The common law is not a brooding omnipresence in the sky." Rather than a set of abstract, rational, mathematical, or in any way unwordly set of principals, the prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law." Morality deals with the internal state of mind. o But for example, in contract law, one can never know of ones assent. The making of a contract depends on external factors which are the parties having said, and not having meant. Confounding morality with law is a trap. Accdg to Holmes, it could be beneficial to convey legal ideas without the trappings of morality. Logic Opposed natural law Tradition overrides rational policy; we give meaning to history which is more than what it deserves. o Most of the things we do, we do for no other reason than that our fathers have done them. In a broad sense, law is logical. But it does not work like mathematics or some general axioms of conduct. o Example, the act of implying conditions on contract. Why imply? Because attitudes are not quantitatively measureable, therefore not capable of making exact logical conclusions. o Law is open to reconsideration upon a slight change in the habit of the public mind. The rational study of the law is to a large extent, a study of history. History must be a part of the study, because without it we cannot know the precise scope of rules which is the lawyers business to know. Study of jurisprudence is undervalued by the practical minded Jurisprudence Law in its most generalized part. An effort to reduce a case into a rule -Theory is going to the bottom of the subject.

Cardozo, Benjamin The Nature of the Judicial Process Lecture I. Introduction. The Method of Philosophy (Digest by Paolo Tamase)

I.

II.

III.

Introduction: The judicial process is like a blend of different ingredients. a. There is some principleno matter how unavowed, inarticulate, and subconsciousthat regulates the infusion of all these ingredients. b. To determine these ingredients, one must ask: Where does the judge find the law which he embodies in his judgment? i. Constitution or statute 1. Judge-made law is secondary to the legislatures laws 2. But there are certain issues: there are gaps to be filled, doubts and ambiguities to be cleared, etc. ii. Common law 1. Source when the constitution and statures are silent 2. The judge is the living oracle of the law 3. The principles of case law are not final truths, but are working hypotheses 4. which are continuously retested and reformulated Thesis: Because of the slowly but perpetually changing common law, the judge is faced with a two-fold problem. First, he must extract the precedents from the ratio from case law. Second, he must determine the path or directionalong which the principle is to move and developthrough the method of philosophy(line of analogy), evolution(line of historical development), tradition(line of community customs), or sociology (lines of justice morals and social welfaretodays mores). The Method of Philosophy a. Not the most important, but has a primacy that comes from the natural and logical succession i. If the other competing methods do not produce a better right, this will prevail b. Essentially logic and adherence to precedentif a group of cases involves the same point, litigants will expect a similar decision c. Sometimes, however, precedents may point to different paths i. This is when the other methods come in. In the end, the principle that prevails is the one thought to be most fundamental, to represent the larger and deeper social interests. ii. Hence, there is a constant checking and testing of philosophy by justice, and of justice by philosophy d. Logic and philosophy are misused when its method and ends are treated as supreme and final. e. Rules or principles given by induction tend to form the premises for new deductions.

CARDOZO THE NATURE OF THE JUDICIAL PROCESS LECTURE I. THE METHOD OF PHILOSOPHY Distinguish between the conscious and the subconscious. o Subconscious forces keep judges consistent with themselves, and inconsistent with one another. o We may try to see things as objectively as we please, but nonetheless, we only see it with our own eyes. o Where does a judge find the law which embodies his judgment. o Obvious: Constitution or statute judges duty is to obey o Judge-made law is subordinate to a statute. secondary. Problem arises when the legislation has no meaning; judges have to guess The judge as the interpreter of a community of its sense of the law and order must supply omissions, correct uncertainties, and harmonize results with justice through a method of free decision. this power is subject to abuse. There is no guarantee of justice, except the personality of a judge. Interpretation becomes more than ascertainment; it fills in the gaps (in the same methods that built up customary law) Process of stare decisis search and match precedent with current case. It is when there is no match that the business of a judge begins. He fashions a law. His words will determine the future right and wrong. o Common law is inductive. o The method of seeking a social sense of justice is experimental o Rules and principles of case laws have never been treated as final versions of the truth, but as working hypotheses. o If a precedent is no longer applicable, it must be re-examined. o Accdg to the author, there are cracks and loopholes in decisions. There is a constant need to separate the accidental from the essential. o Directive force of a principle Analogy or Method of Philosphy logical progression Evolution historical development Customs of a Community Tradition Sociology the mores of the day; line of justice, moral and social welfare o Method of philosophy o Adherence to precedent o Accidental may replace the essential o Lack of precision o The directive force of logic does not always exert itself along a single and unobstructed path. One precedent may lead to one point, but another, employing the same logic, may lead to a completely different conclusion. we must choose between to paths. When the divergence occurs, the judge then considers History, Custom or Tradition or a Compelling Sentiment of Justice or the Spirit of the Law. The judge then is guided by sentiment upon reason, in choosing between logic to another. The misuse of logic begins when its method and its ends are treated as supreme and final. o The truths given by induction tend to form the premises for new deductions. o Yearning for consistency, certainty, uniformity.

LECTURE II. THE METHODS OF HISTORY, TRADITION AND SOCIOLOGY o o o The effect of history is to make the path of law clear. Growth may be logical whether it is shaped by the principle of the past or a pre-established norm. Development may involve either an investigation of origins or an effort of pure reason. Some conceptions of the law owe their existing form exclusively to history. o Considerations of history and custom come into play to regulate. o It does not mean that the law seeks repetition; rather, it is the view that in illuminating the past, the present is likewise illuminated, and in the illumination of the present, the future is illuminated as well. o History enlightens, explains There can never be progress without history. o Legal distinctions are provided in history If history does not help in the direction of principle, custom may step in. o Common law and custom o Common law 1) General customs 2)Particular customs 3)Certain particular laws

Cardozo Lecture II Vargas As can be gleaned from Lecture I, philosophy or logic is one of the directive forces of law. Aside from philosophy, the other forces through which law may be exerted are along the lines of historical development (method of evolution), custom of community (method of tradition) and justice, morals and social welfare/mores of the day (method of sociology). History -In using the method of philosophy, the tendency of a principle (or law) is to expand or push itself to the limit of its logic. History on the other hand tends to confine a principle in its history. -But though the two are seemingly opposing, there are certain overlapping of lines and principles. The effect of history is to make the path of logic clear. Often the two methods supplement each other. -Method of history is important because there are some law that can be understood and owe their existing form almost exclusively to history. History doesnt confine law of the future to repetition of the past but rather, history serves to explain the pas t so that the pressure that the past exercises on the present and the present to the future can be lightened (illuminate the past, etcstudy the day before yesterdaymay not paralyze tomorrow). -Example of field of law that is shaped by history is real property. It is not through process of logical deduction that these laws evolved but rather through history. Although, philosophy still plays a role in pushing the laws to their logical limits/conclusions but to do that we must be mindful of the origins of the laws. Custom -Custom, according to Pound is not custom of popular action but more of custom of judicial decision. It is doubtful, whether rules laid down by judges have not generated custom, rather than custom generated the rules, according to Gray. -As such, we look to customs today more as tests and standards that are to determine how established rules should be applied. -Customs of recent growth are not so easily accepted by judges and given imprimatur of law. But that is not to say that new customs cannot affect law since new inventions (example in the lecture are electricity, railroad, telephone etc) are capable of building new customs and in effect new laws. -Custom must determine whether there has been adherence of departure when general standards of rights and duties are established. Constant assumption runs throughout the law that natural and spontaneous evolutions of habit fix the limit of right and wrong. -Customary morality is slight extension of custom. It is the prevailing standard of right conduct or mores of the time.

Sociology -Customary morality is the point of contact between method of tradition and sociology. -Social justice is the force which is becoming the greatest in controlling the direction of the development of law in our day and generation. Welfare of society Method of sociology as outlet of social justice: -In the method of sociology, the final cause of law is the welfare of the society. Logic, history, and custom have the power to shape the law but the ends which the law serves will dominate them all. -This does not mean that judges can set aside existing rules at pleasure but rather called upon to let welfare of society guide how far existing rules are to be extended or restricted. The judge should still apply the rules of law, logic, history (precedents), when they are not unreasonable and inconvenient. Theory of gaps emphasis on social welfare to fill in such gaps: -To some extent, judges legislate too, interstitially (As is said by Holmes.) This theory is the gaps in law where judges f ill in the general framework of law through interpretation. Many principles can be used to guide on in filling the gaps. The method of sociology in filling the gaps puts its emphasis on the social welfare. -In law, the social value of a rule has become a test of growing power and importance. Areas of law in which method of sociology has fruitful application: Constitutional law A constitution is not intended to embody a particular economic theory or rules for the passing hour. It ought to state principles for an expanding future. It should maintain its power of adaptation and suppleness. Content of constitutional immunities are not constant but varies from age to age. Likewise,to speak of an exclusive correct interpretation of statutes, one which would be the true meaning of the statute from beginning to end of its days, is altogether erroneous. In judging validity of statutes, the standards that judges must employ should be an objective one. Considerable latitude must be allowed for difference of view. They shouldnt be subjective, personal element should have little if any sway. Private law There are some rules in private law which have been shaped almost exclusively by public policy. Course of policy however, as time advances, undergo change and development. The role of courts therefore is to ascertain what the rule of policy is for the present time.

Lecture 3. Method of Sociology. The Judge as a Legislator Legal Theory Sociology arbiter between other methods Arbitration involves weighing of competing claims, setting bounds, balancing and moderating and harmonizing them all Instrument of the end of law determining the direction of its growth philosophy of pragmatism o Law in words is permanent but what it means may differ; point of origin is not the focus. Demands that judicial legislation is done with social justice as the goal Changes: Rules are cut out or changed because of this process (ex. Right of a beneficiary to recover on a contract)

o The exceptions broadened therefore, little is left of the rule o Done because of the concept of utility and justice Field of Procedure became more liberal

Judge as a legislator Objectivity vs subjectivity Objectivity can never really be attained due to the limitations of the ego o Enforced by the traditions of our jurisprudence o Must be striven for within the limits of our capacity, else, jurisprudence will be governed by sentiment or feeling Subjectivity judges is likely to decide according to the notions of right and wrong of his community or his own notions Objectivity and subjectivity cannot work independent of each other. The personal and general mind and will are inseparably united. Judge must follow the norms of the community; not impose Judicial Process shaped by logic, history, custom, utility and standards of right conduct The aim is uniformity, adherence to precedent; but it must not be uniformity of oppression The dominant among these will be determined by the value that will be promoted. Which one outweighs another? o Answer from experience, study and reflection. In general, from life. (same as how legislators get the answer and therefore get to legislate) Judges legislates only between the gaps left by the legislators. Limits are to be learned by himself through years of practice and exposure to tradition This is the way the courts have gone about their business for centuries in the development of common law. o The courts had to adapt to the changes brought about by time a large part of law is open to reconsideration upon a slight change in habit of the public Judges vs legislators same aims o Legislator: not hampered by any limitation in the appreciation of a situation o Judge: has to disengage himself from any influence and base his judgments from objective elements Gaps have been filled by borrowing from other systems (ex. Law of Rome) Judges have a duty to maintain a relationship between law and morals, jurisprudence and good conscience. Customs, no matter how firmly established, are not law until adopted by the courts. Even statutes are not law because the courts must fix their meaning. The law is what the courts declare; the statutes, precedents, opinions of learned experts, customs and morality are the sources of the Law. Natural law is no longer eternal; it is the last resort when positive law fails. It is the duty of the courts to keep doctrines up to date with the mores by continual restatement and by giving them a continually new content. Judges may not interpret the mores any better than other men, but this power has to be lodged somewhere. o Must do so in valid methodology systematic

Lochner v New York

Jeane Yaneza

Facts 1 Lochner, employer of a baker, was charged with violating the Labor Law of New York for allowing said baker to work more than 60 hours per week. The Labor Law (The Bakeshop Act) limits the working hours of those who worked at a biscuit, bread, or cake bakery, or confectionery establishment to not more than 10 hours per day or 60 hours per week. The lower court upheld the la w as a valid exercise of police power. Issue Whether or not Labor Law of New York is valid Holding and Ratio No. Said law violates the right of contract between an employer and an employee. The Fourteenth Amendment guarantees that no one shall be deprived of life, liberty, and property without due process of law. This right necessarily includes the right to purchase or sell labor. The Fourteenth Amendment protects a persons general right to make a contract in relation to business but such right is not absolute. In certain instances, the State can prevent one from entering into certain contracts under its police power. In Holden v Hardy, which involved limitations on the working hours of laborers involved in mining, smelting, etc., the State properly exercised its police power to protect the laborers involved in such tasks. In this case, there are no conclusive grounds to prevent one from exercising this right. First, as a labor law, it does not concern the safety, the morals, the welfare, or the interest of the public. Second, though the Labor Law may be upheld on the grounds of public health it is not nor was it intended to be a health law. Moreover, unlike the miners involved in Holden v Hardy, there is no reasonable health concern which would warrant the limitation of freedom of contract through regulating the working hours of a baker. The decisions of the SC of NY, CA of NY, and the county court of Oneida County were reversed. The case was remanded to Oneida

198 U.S. 45 (1905), argued 2324 Feb. 1905, decided 17 Apr. 1905 by vote of 5 to 4; Peckham for the Court, Harlan and Holmes in dissent. In 1905 the Supreme Court invalidated a New York regulation limiting the hours of labor in bakeries to ten per day or sixty per week. At the turn of the century it was not uncommon for journeymen bakers to work more than one hundred hours per week. In cities, bakeries were usually located in the cellar of a tenement house. The combination of long hours exposed to flour dust, plus the dampness and extremes of hot and cold in tenement cellars, was thought to have an ill effect on workers' health. Because this unsanitary environment affected both the product and the workers, the state in 1895 enacted legislation to regulate sanitary conditions as well as reform working conditions and reduce the hours of labor prevalent in the industry. Proponents of shorter hours statutes had for decades been arguing that such legislation was needed to promote citizenship, improve family life, and protect health and safety. But mostly shorter hours laws were seen as a means to assure fairness for workers who were in no position to bargain for equitable conditions of employment. Opponents based their arguments on theories of social Darwinism and laissezfaire economics. To them such legislation represented unwarranted governmental intrusion into the marketplace. Political conditions in late nineteenthcentury New York did not favor laws regulating business and industry. State government was dominated by a business oriented Republican political machine headed by boss Thomas Collier Platt. Large cities were controlled by Democratic machines like Tammany Hall. Organized labor, the most likely proponent of such laws, represented only a small portion of the labor force. State regulation of the baking industry was made possible only when other reformers took an interest. Journalist Edward Marshall observed the squalor of New York City's cellar bakeries while serving on the Tenement House Committee of 1894. Beginning with an editorial in the New York Press, he led a crusade to clean up the industry and improve conditions of employment. Marshall was able to convince mainstream urban reformers that problems in the baking industry were linked to tenement reform and social reform
1

Also known as the Bakeshop Act, but it was never referred to as such in the text of the case itself.

generally. Meanwhile, Henry Weismann, an opportunistic leader of the Bakers' Union, seized the moment by getting his union behind the proposed law. Marshall's connection with urban mainstream reformers, however, provided the clout needed to push bakeshop regulation through the legislature. With their backing, the Bakeshop Act unanimously passed both houses of the legislature and was signed by the governor on 2 May 1895. The people hurt most by the new legislation were master bakers or boss bakers. These were owners of the small shops that made up the breadbaking industry. Most employed fewer than five workers and operated on a small margin of profit. Joseph Lochner owned this type of shop in Utica, New York. In 1902 he was fined fifty dollars for allowing an employee to work more than sixty hours in one week. Lochner appealed his conviction to the Appellate Division of the New York Supreme Court, where he lost by a vote of 3 to 2. He then appealed to the New York Court of Appeals, where he lost again in a 4to3 ruling. Ironically, former labor leader Henry Weismann came to his aid. After a falling out with the Bakers' Union, Weismann had opened two bakeshops and become an active member of the Master Bakers' Association. He also studied law. With the help of attorney Frank Harvey Field, Weismann took Lochner's appeal to the Supreme Court of the United States. Lochner claimed the Bakeshop Act violated the Fourteenth Amendment by depriving him of life, liberty, or property without due process of law. Due process was originally thought of only as a guarantee that laws would be enforced through correct judicial procedure, but the concept changed drastically in the late nineteenth century. Under a theory called substantive due process courts assumed the power to examine the content of legislation as well as the means by which it was enforced. In the late 1880s the doctrine was employed successfully to overrule state attempts at regulating railroads. But it carried the broader implication that the Court could invalidate any type of state economic or reform legislation determined to be in conflict with a right protected by the Constitution. In Lochner's case, the right arguably infringed by New York's workday ceiling was liberty of contract (see Contract, Freedom of). This was not a right written into the Constitution. Rather, like substantive due process, it evolved through judicial interpretation of the Fourteenth Amendment. Justice Stephen Field, dissenting in the Slaughterhouse Cases (1873), first advanced the idea that the liberty protected by the Due Process Clause included the right to pursue an ordinary trade or calling. With subsequent decisions expanding the idea, it became the means by which the judicial supervision envisioned by proponents of substantive due process could be applied to laws regulating the employeremployee relationship. Laws such as those requiring that wages be paid in cash rather than company scrip or setting standards for computing miners' pay were invalidated. By the 1880s this doctrineliberty of contractwas being used by state courts to suggest that the Constitution protected a right to enter into any agreement free from unreasonable governmental interference. However, the U.S. Supreme Court had applied the theory only once, in Allgeyer v. Louisiana (1897). Justice Rufus Peckham, who wrote Allgeyer, also wrote Lochner. He more firmly entrenched the doctrine of liberty of contract into constitutional law by ruling that New York's attempt to regulate hours of labor in bakeries necessarily interfered with the right of contract between the employer and the employee. Peckham held that the liberty protected by the Fourteenth Amendment included the right to purchase and sell labor. Therefore, any statute interfering with it would be invalid unless there are circumstances which exclude that right. Liberty of contract was recognized, but it was not absolute. The protection it provided had to be balanced against the legitimate exercise of the state's power to govern. This authority was referred to as the police power of the states. As originally understood, the phrase was used to simply distinguish the function of state governments from that of the federal government. In the late nineteenth century, however, it was transformed into an illdefined limit on the power of states to govern within their own sphere of authority. When interpreted broadly as the duty to enhance the general welfare, police power could accommodate most any type of law. But Peckham had a narrow conception of police power in mind when he wrote the Lochner decision. For him only legislation designed to protect public morals, health, safety, or peace and good order represented a legitimate exercise of a state's police power. In the Lochner case this became a question of whether the Bakeshop Act was necessary to protect the public health or health of bakers. In Holden v. Hardy (1898), the Court upheld an eighthour day for workers in mines and smelters. There the danger was obvious. But the claim that baking was an unhealthy trade was not so graphic. Reformers

maintained that long hours of labor in bakeshops created a likelihood that workers would develop respiratory ailments such as consumption. Peckham rejected this idea outright. Taking judicial notice of a common understanding that baking was never considered an unhealthy trade, he concluded that the Bakeshop Act was not a legitimate exercise of the police power and was therefore unconstitutional. Dissenting, Justice John Marshall Harlan argued that the majority started its reasoning from the wrong presumption. Harlan believed that, when the validity of a statute was questioned on constitutional grounds, a presumption ought to exist in favor of the legislature's determination. In his words, legislative enactments should be enforced unless they are plainly and palpably beyond all question in violation of the fundamental law of the Constitution (p. 68). Harlan did not disagree that liberty of contract applied to this situation. Nor did he disagree that concern for worker health and safety would be the only legitimate justification for the Bakeshop Act. Harlan was simply more willing than Peckham and the majority to recognize that there was evidence supporting that claim. The very fact that there was room for debate should have laid to rest all arguments that the law was unconstitutional. The weighing of claims regarding health conditions in the industry was a matter of legislative discretion. Taking a position similar to Harlan's, Justice Oliver Wendell Holmes maintained that a state law should be upheld unless a rational person would necessarily admit that it would infringe upon fundamental principles of American laws and traditions (see Fundamental Rights). But Holmes's famous dissent also criticized the majority's decision to expand liberty of contract and its narrow view of the police power. Recognizing that these doctrines reflected the theories of social Darwinism and laissezfaire economics, Holmes directly attacked the underlying premise of the decision. A constitution is not intended to embody a particular economic theory, he wrote. It is made for people of fundamentally differing views (p. 74). For Holmes, the opinion was dangerous because it represented the unwarranted infusion into the Constitution of a new fundamental right. Peckham claimed his opinion did not substitute the judgment of the Court for that of the legislature on the matter of health in the baking industry. But many observers thought this was exactly what he had done. The Bakeshop Act had passed the state legislature unanimously. One hundred and nineteen elected representatives had voted in favor of the workday ceiling. Even seven of the twelve appellate judges who had previously ruled on Lochner's case voted to uphold the law. Critics maintained that the Court had no special knowledge of the industry and that it was in no better position than the state legislature to determine if the trade was unhealthy. And, although it was not irrefutable that the baking trade was unhealthy, ample statistical support for that contention was included in the record before the Supreme Court. The usurpation of legislative authority and glaring subjectivity of Peckham's ruling brought the case into the limelight. In 1910, President Theodore Roosevelt pointed at Lochner when denouncing the judiciary for erecting insurmountable obstacles in the path of needed social reform (see Judicial Activism). Critics found it frustrating that the opinion of one appointed judge could reverse the reforms adopted by elected legislatures. For the next three decades, Lochner symbolized judicial misuse of power. The specific outcome was not the most important thing about the Lochner case. It was a setback, but not a fatal blow to the shorter hours movement. By 1912 collective bargaining gave the union bakers of New York the tenhour day. In Muller v. Oregon (1908) the Court upheld a workday limit for women, and in Bunting v. Oregon (1917) it gave its blessing to a tenhour ceiling for adult males as well as women and children working in most industries. (See Gender.) Of more lasting importance was the rationale adopted by the Lochner majority. It made the Court the overseer of all kinds of state regulatory legislation. Between 1905 and 1937, when the Court rejected this rationale in *West Coast Hotel v. Parrish (1937), countless subsequent attempts to reform social and economic conditions were challenged on the precedent ofLochner. Many of these state regulations were upheld. But state statutes such as minimum wage laws, child labor laws, regulations of the banking, insurance, and transportation industries were vetoed by the Court. Enough reform statutes were invalidated that the history of constitutional law during that time is commonly called the Lochner era. The Court is said to have made the mistake in Lochner of becoming involved in formulating policy rather than

interpreting the law. As Holmes pointed out, it also embraced one theory of the function of government at the expense of all others. Judicial construction alone had imbedded that theory into the fundamental law of the land. For these reasons the case still stands as a symbol of unrestrained judicial activism. GAMBOA v TEVES (2011) THE FACTS
This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT). The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%. II. THE ISSUE Does the term capital in Section 11, Article XII of the Constitution refer to the total common shares only, or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility? III. THE RULING [The Court partly granted the petition and held that the term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility, or in the instant case, to the total common shares of PLDT.] Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens ; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)

I.

The term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both common and non-voting preferred shares [of PLDT].

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Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders. xxx. Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. xxx xxx xxx

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is considered as non Philippine national[s]. xxx xxx xxx

To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility. We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of the term capital, such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd. In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case. xxx xxx xxx

[O]nly holders of common shares can vote in the election of directors [of PLDT], meaning only common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose whatsoever. It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS), which is a document required to be submitted annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution. As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are nonvoting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility. In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x. To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares have twice the par value of common shares; and (6)

preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution. Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per share, while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per share, is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common shares, not with the preferred shares. xxx xxx xxx

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term capital in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.