DIGEST 1

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R.

No. 1!"#, $%ne &', &(11
D E C I S I O N
CARPIO, J.:
I. THE FACTS
T)is is a *etition to n%lli+y t)e sale o+ s)ares o+ stoc, o+ P)ili**ine Telecomm%nications
Investment -or*oration .PTI-/ by t)e government o+ t)e Re*%blic o+ t)e P)ili**ines, acting t)ro%g)
t)e Inter01gency Privati2ation -o%ncil .IP-/, to Metro Paci+ic 1ssets 3ol4ings, Inc. .MP13/, an
a++iliate o+ First Paci+ic -om*any 5imite4 .First Paci+ic/, a 3ong 6ong0base4 investment management
an4 )ol4ing com*any an4 a s)are)ol4er o+ t)e P)ili**ine 5ong Distance Tele*)one -om*any
.P5DT/.
T)e *etitioner 7%estione4 t)e sale on t)e gro%n4 t)at it also involve4 an in4irect sale o+ 1&
million s)ares .or abo%t !.8 *ercent o+ t)e o%tstan4ing common s)ares/ o+ P5DT o9ne4 by PTI- to
First Paci+ic. Wit) t)e t)is sale, First Paci+ic:s common s)are)ol4ings in P5DT increase4 +rom 8(.
*ercent to 8 *ercent, t)ereby increasing t)e total common s)are)ol4ings o+ +oreigners in P5DT to
abo%t '1.;<. T)is, accor4ing to t)e *etitioner, violates Section 11, 1rticle =II o+ t)e 1#' P)ili**ine
-onstit%tion 9)ic) limits +oreign o9ners)i* o+ t)e ca*ital o+ a *%blic %tility to not more t)an ;(<,
t)%s>
Section 11. No franchise, certificate, or any other form of authoriation for the o!eration of
a !u"#ic uti#ity sha## "e $rante% e&ce!t to citiens of the Phi#i!!ines or to cor!orations or
associations or$anie% un%er the #a's of the Phi#i!!ines, at #east si&ty !er centum of 'hose
ca!ita# is o'ne% "y such citiens? nor s)all s%c) +ranc)ise, certi+icate, or a%t)ori2ation be e@cl%sive in
c)aracter or +or a longer *erio4 t)an +i+ty years. Neit)er s)all any s%c) +ranc)ise or rig)t be grante4
e@ce*t %n4er t)e con4ition t)at it s)all be s%bAect to amen4ment, alteration, or re*eal by t)e -ongress
9)en t)e common goo4 so re7%ires. T)e State s)all enco%rage e7%ity *artici*ation in *%blic %tilities by
t)e general *%blic. T)e *artici*ation o+ +oreign investors in t)e governing bo4y o+ any *%blic %tility
enter*rise s)all be limite4 to t)eir *ro*ortionate s)are in its ca*ital, an4 all t)e e@ec%tive an4 managing
o++icers o+ s%c) cor*oration or association m%st be citi2ens o+ t)e P)ili**ines. .Em*)asis s%**lie4/
II. THE ISS(E
Does t)e term Bca*italC in Section 11, 1rticle =II o+ t)e -onstit%tion re+er to t)e total common
s)ares only, or to t)e total o%tstan4ing ca*ital stoc, .combine4 total o+ common an4 non0voting
*re+erre4 s)ares/ o+ P5DT, a *%blic %tilityD
III. THE R()IN*
[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 ote in the election of directors of a pu!lic
utility, i"e", to the total common shares in #$%T"&
-onsi4ering t)at common s)ares )ave voting rig)ts 9)ic) translate to control, as o**ose4 to
*re+erre4 s)ares 9)ic) %s%ally )ave no voting rig)ts, t)e term Bca*italC in Section 11, 1rticle =II o+
t)e -onstit%tion re+ers only to common s)ares. 3o9ever, i+ t)e *re+erre4 s)ares also )ave t)e rig)t
to vote in t)e election o+ 4irectors, t)en t)e term Bca*italC s)all incl%4e s%c) *re+erre4
s)ares beca%se t)e rig)t to *artici*ate in t)e control or management o+ t)e cor*oration is e@ercise4
t)ro%g) t)e rig)t to vote in t)e election o+ 4irectors. In s)ort, the term +ca!ita#, in Section --,
Artic#e .II of the Constitution refers on#y to shares of stoc/ that can 0ote in the e#ection of
%irectors.

To constr%e broa4ly t)e term Bca*italC as t)e total o%tstan4ing ca*ital stoc,, incl%4ing bot)
common an4 non'oting *re+erre4 s)ares, grossly contravenes t)e intent an4 letter o+ t)e
-onstit%tion t)at t)e BState s)all 4evelo* a sel+0reliant an4 in4e*en4ent national economy effectiely
controlled by Fili*inos.C 1 broa4 4e+inition %nA%sti+iably 4isregar4s 9)o o9ns t)e all0im*ortant voting
stoc,, 9)ic) necessarily e7%ates to control o+ t)e *%blic %tility.

3ol4ers o+ P5DT *re+erre4 s)ares are e@*licitly 4enie4 o+ t)e rig)t to vote in t)e election o+
4irectors. P5DT:s 1rticles o+ Incor*oration e@*ressly state t)at Bthe ho#%ers of Seria# Preferre%
Stoc/ sha## not "e entit#e% to 0ote at any meetin$ of the stoc/ho#%ers for the e#ection of
%irectors or for any other !ur!ose or ot)er9ise *artici*ate in any action ta,en by t)e cor*oration
or its stoc,)ol4ers, or to receive notice o+ any meeting o+ stoc,)ol4ers.C En t)e ot)er )an4, )ol4ers
o+ common s)ares are grante4 t)e e@cl%sive rig)t to vote in t)e election o+ 4irectors. P5DT:s 1rticles
o+ Incor*oration state t)at Beac) )ol4er o+ -ommon -a*ital Stoc, s)all )ave one vote in res*ect o+
eac) s)are o+ s%c) stoc, )el4 by )im on all matters vote4 %*on by t)e stoc,)ol4ers, an4 the
ho#%ers of Common Ca!ita# Stoc/ sha## ha0e the e&c#usi0e ri$ht to 0ote for the e#ection of
%irectors an% for a## other !ur!oses.C

It m%st be stresse4, an4 res*on4ents 4o not 4is*%te, t)at +oreigners )ol4 a maAority o+ t)e
common s)ares o+ P5DT. In +act, base4 on P5DT:s &(1( General In+ormation S)eet .GIS/, 9)ic) is a
4oc%ment re7%ire4 to be s%bmitte4 ann%ally to t)e Sec%rities an4 E@c)ange -ommission, +oreigners
)ol4 1&(,(;!,!#( common s)ares o+ P5DT 9)ereas Fili*inos )ol4 only !!,"(,!&& common
s)ares. In ot)er 9or4s, +oreigners )ol4 !;.&< o+ t)e total n%mber o+ P5DT:s common s)ares, 9)ile
Fili*inos )ol4 only 8".8<. Since )ol4ing a maAority o+ t)e common s)ares e7%ates to control, it is
clear t)at +oreigners e@ercise control over P5DT. S%c) amo%nt o+ control %nmista,ably e@cee4s t)e
allo9able ;( *ercent limit on +oreign o9ners)i* o+ *%blic %tilities e@*ressly man4ate4 in Section 11,
1rticle =II o+ t)e -onstit%tion.
1s s)o9n in P5DT:s &(1( GIS, as s%bmitte4 to t)e SE-, t)e *ar val%e o+ P5DT common
s)ares is P".(( *er s)are, 9)ereas t)e *ar val%e o+ *re+erre4 s)ares is P1(.(( *er s)are. In ot)er
9or4s, *re+erre4 s)ares )ave t9ice t)e *ar val%e o+ common s)ares b%t cannot elect 4irectors an4
)ave only 1F( o+ t)e 4ivi4en4s o+ common s)ares. Moreover, ##.;;< o+ t)e *re+erre4 s)ares are
o9ne4 by Fili*inos 9)ile +oreigners o9n only a min%sc%le (."!< o+ t)e *re+erre4 s)ares. Worse,
*re+erre4 s)ares constit%te .'"< o+ t)e a%t)ori2e4 ca*ital stoc, o+ P5DT 9)ile common s)ares
constit%te only &&.1"<. T)is %n4eniably s)o9s t)at bene+icial interest in P5DT is not 9it) t)e non0
voting *re+erre4 s)ares b%t 9it) t)e common s)ares, blatantly violating t)e constit%tional
re7%irement o+ !( *ercent Fili*ino control an4 Fili*ino bene+icial o9ners)i* in a *%blic %tility.

In s)ort, Fili*inos )ol4 less t)an !( *ercent o+ t)e voting stoc,, an4 earn less t)an !(
*ercent o+ t)e 4ivi4en4s, o+ P5DT. T)is 4irectly contravenes t)e e@*ress comman4 in Section 11,
1rticle =II o+ t)e -onstit%tion t)at BGnHo +ranc)ise, certi+icate, or any ot)er +orm o+ a%t)ori2ation +or t)e
o*eration o+ a *%blic %tility s)all be grante4 e@ce*t to @ @ @ cor*orations @ @ @ organi2e4 %n4er t)e
la9s o+ t)e P)ili**ines, at least si@ty *er cent%m o+ 9)ose ca*ital is o9ne4 by s%c) citi2ens @ @ @.C
To re*eat, .1/ +oreigners o9n !;.&< o+ t)e common s)ares o+ P5DT, 9)ic) class o+ s)ares
e@ercises t)e sole rig)t to vote in t)e election o+ 4irectors, an4 t)%s e@ercise control over P5DT? .&/
Fili*inos o9n only 8".8< o+ P5DT:s common s)ares, constit%ting a minority o+ t)e voting stoc,, an4
t)%s 4o not e@ercise control over P5DT? .8/ *re+erre4 s)ares, ##.;;< o9ne4 by Fili*inos, )ave no
voting rig)ts? .;/ *re+erre4 s)ares earn only 1F( o+ t)e 4ivi4en4s t)at common s)ares earn? ."/
*re+erre4 s)ares )ave t9ice t)e *ar val%e o+ common s)ares? an4 .!/ *re+erre4 s)ares constit%te
.'"< o+ t)e a%t)ori2e4 ca*ital stoc, o+ P5DT an4 common s)ares only &&.1"<. T)is ,in4 o+
o9ners)i* an4 control o+ a *%blic %tility is a moc,ery o+ t)e -onstit%tion.
GT)%s, t)e Res*on4ent -)air*erson o+ t)e Sec%rities an4 E@c)ange -ommission
9as DIRECTED by t)e -o%rt to a**ly t)e +oregoing 4e+inition o+ t)e term Bca*italC in 4etermining t)e
e@tent o+ allo9able +oreign o9ners)i* in res*on4ent P)ili**ine 5ong Distance Tele*)one -om*any,
an4 i+ t)ere is a violation o+ Section 11, 1rticle =II o+ t)e -onstit%tion, to im*ose t)e a**ro*riate
sanctions %n4er t)e la9.H
DIGEST 2
CARPIO, J.:
I. 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 Privatiation Council
(IPC), to !etro Paci"c Assets #ol$ings, Inc% (!PA#), an a&liate of 'irst Paci"c
Company (imite$ ('irst Paci"c), a #ong )ong-base$ investment management an$
hol$ing company an$ a sharehol$er of the Philippine (ong *istance Telephone
Company (P(*T)%
The petitioner +uestione$ the sale on the groun$ that it also involve$ an in$irect
sale of ,- million shares (or about .%/ percent of the outstan$ing common shares)
of P(*T o0ne$ by PTIC to 'irst Paci"c% 1ith the this sale, 'irst Paci"c2s common
sharehol$ings in P(*T increase$ from /3%4 percent to /4 percent, thereby
increasing the total common sharehol$ings of foreigners in P(*T to about
5,%647% This, accor$ing to the petitioner, violates 8ection ,,, Article 9II of the ,:54
Philippine Constitution 0hich limits foreign o0nership of the capital of a public utility
to not more than 637%
II. THE ISSUE
*oes the term ;capital< in 8ection ,,, Article 9II of the Constitution refer to the total
common shares only, or to the total outstan$ing capital stock (combine$ total of
common an$ non-voting preferre$ shares) of P(*T, 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 ote in the
election of directors of a pu!lic utility, or in the instant case, to the total common
shares of "#$T%&
8ection ,,, Article 9II (>ational ?conomy an$ Patrimony) of the ,:54 Constitution
man$ates the 'ilipiniation of public utilities, to 0it@
8ection ,,% No franchise, ceri!cae, or an" oher for# of a$hori%aion for
he o&eraion of a &$'(ic $i(i" sha(( 'e )rane* e+ce& o cii%ens of he
Phi(i&&ines or o cor&oraions or associaions or)ani%e* $n*er he (a,s of
he Phi(i&&ines, a (eas si+" &er cen$# of ,hose ca&ia( is o,ne* '"
s$ch cii%ensA nor shall such franchise, certi"cate, or authoriation be eBclusive in
character or for a longer perio$ than "fty years% >either shall any such franchise or
right be grante$ eBcept un$er the con$ition that it shall be subCect to amen$ment,
alteration, or repeal by the Congress 0hen the common goo$ so re+uires% The 8tate
shall encourage e+uity participation in public utilities by the general public% The
participation of foreign investors in the governing bo$y of any public utility
enterprise shall be limite$ to their proportionate share in its capital, an$ all the
eBecutive an$ managing o&cers of such corporation or association must be citiens
of the Philippines% (?mphasis supplie$)
The term ;capital< in 8ection ,,, Article 9II of the Constitution refers only to shares
of stock entitle$ to vote in the election of $irectors, an$ thus in the present case
only to common shares, an$ not to the total outstan$ing capital stock comprising
both common an$ non-voting preferre$ shares Dof P(*TE%
BBB BBB BBB
In$isputably, one of the rights of a stockhol$er is the right to participate in the
control or management of the corporation% This is eBercise$ through his vote in the
election of $irectors because it is the boar$ of $irectors that controls or manages
the corporation% In the absence of provisions in the articles of incorporation $enying
voting rights to preferre$ shares, preferre$ shares have the same voting rights as
common shares% #o0ever, preferre$ sharehol$ers are often eBclu$e$ from any
control, that is, $eprive$ of the right to vote in the election of $irectors an$ on other
matters, on the theory that the preferre$ sharehol$ers are merely investors in the
corporation for income in the same manner as bon$hol$ers% BBB%
Consi$ering that common shares have voting rights 0hich translate to control, as
oppose$ to preferre$ shares 0hich usually have no voting rights, the term ;capital<
in 8ection ,,, Article 9II of the Constitution refers only to common shares% #o0ever,
if the preferre$ shares also have the right to vote in the election of $irectors, then
the term ;capital< shall inclu$e such preferre$ shares because the right to
participate in the control or management of the corporation is eBercise$ through the
right to vote in the election of $irectors% In short, the term ;capital< in 8ection ,,,
Article 9II of the Constitution refers only to shares of stock that can vote in the
election of $irectors%
BBB BBB BBB
!ere legal title is insu&cient to meet the .3 percent 'ilipino-o0ne$ ;capital<
re+uire$ in the Constitution% 'ull bene"cial o0nership of .3 percent of the
outstan$ing capital stock, couple$ 0ith .3 percent of the voting rights, is re+uire$%
The legal an$ bene"cial o0nership of .3 percent of the outstan$ing capital stock
must rest in the han$s of 'ilipino nationals in accor$ance 0ith the constitutional
man$ate% Fther0ise, the corporation is ;consi$ere$ as non-Philippine nationalDsE%<
BBB BBB BBB
To construe broa$ly the term ;capital< as the total outstan$ing capital stock,
inclu$ing both common an$ non'oting preferre$ shares, grossly contravenes the
intent an$ letter of the Constitution that the ;8tate shall $evelop a self-reliant an$
in$epen$ent national economy e(ectiely controlled by 'ilipinos%< A broa$ $e"nition
unCusti"ably $isregar$s 0ho o0ns the all-important voting stock, 0hich necessarily
e+uates to control of the public utility%
1e shall illustrate the glaring anomaly in giving a broa$ $e"nition to the term
;capital%< (et us assume that a corporation has ,33 common shares o0ne$ by
foreigners an$ ,,333,333 non-voting preferre$ shares o0ne$ by 'ilipinos, 0ith both
classes of share having a par value of one peso (P,%33) per share% Gn$er the broa$
$e"nition of the term ;capital,< such corporation 0oul$ be consi$ere$ compliant
0ith the 63 percent constitutional limit on foreign e+uity of public utilities since the
over0helming maCority, or more than ::%::: percent, of the total outstan$ing
capital stock is 'ilipino o0ne$% This is obviously absur$%
In the eBample given, only the foreigners hol$ing the common shares have voting
rights in the election of $irectors, even if they hol$ only ,33 shares% The foreigners,
0ith a minuscule e+uity of less than 3%33, percent, eBercise control over the public
utility% Fn the other han$, the 'ilipinos, hol$ing more than ::%::: percent of the
e+uity, cannot vote in the election of $irectors an$ hence, have no control over the
public utility% This starkly circumvents the intent of the framers of the Constitution,
as 0ell as the clear language of the Constitution, to place the control of public
utilities in the han$s of 'ilipinos% It also ren$ers illusory the 8tate policy of an
in$epen$ent national economy e(ectiely controlled by 'ilipinos%
The eBample given is not theoretical but can be foun$ in the real 0orl$, and in fact
e)ists in the present case%
BBB BBB BBB
DFEnly hol$ers of common shares can vote in the election of $irectors Dof P(*TE,
meaning only common sharehol$ers eBercise control over P(*T% Conversely, hol$ers
of preferre$ shares, 0ho have no voting rights in the election of $irectors, $o not
have any control over P(*T% In fact, un$er P(*T2s Articles of Incorporation, hol$ers
of common shares have voting rights for all purposes, 0hile hol$ers of preferre$
shares have no voting right for any purpose 0hatsoever%
It must be stresse$, an$ respon$ents $o not $ispute, that foreigners hol$ a maCority
of the common shares of P(*T% In fact, base$ on P(*T2s -3,3 Heneral Information
8heet (HI8), 0hich is a $ocument re+uire$ to be submitte$ annually to the
8ecurities an$ ?Bchange Commission, foreigners hol$ ,-3,36.,.:3 common shares
of P(*T 0hereas 'ilipinos hol$ only ..,4I3,.-- common shares% In other 0or$s,
foreigners hol$ .6%-47 of the total number of P(*T2s common shares, 0hile
'ilipinos hol$ only /I%4/7% 8ince hol$ing a maCority of the common shares e+uates
to control, it is clear that foreigners eBercise control over P(*T% 8uch amount of
control unmistakably eBcee$s the allo0able 63 percent limit on foreign o0nership of
public utilities eBpressly man$ate$ in 8ection ,,, Article 9II of the Constitution%
As sho0n in P(*T2s -3,3 HI8, as submitte$ to the 8?C, the par value of P(*T
common shares is PI%33 per share, 0hereas the par value of preferre$ shares
is P,3%33 per share% In other 0or$s, preferre$ shares have t0ice the par value of
common shares but cannot elect $irectors an$ have only ,J43 of the $ivi$en$s of
common shares% !oreover, ::%667 of the preferre$ shares are o0ne$ by 'ilipinos
0hile foreigners o0n only a minuscule 3%I.7 of the preferre$ shares% 1orse,
preferre$ shares constitute 44%5I7 of the authorie$ capital stock of P(*T 0hile
common shares constitute only --%,I7% This un$eniably sho0s that bene"cial
interest in P(*T is not 0ith the non-voting preferre$ shares but 0ith the common
shares, blatantly violating the constitutional re+uirement of .3 percent 'ilipino
control an$ 'ilipino bene"cial o0nership in a public utility%
The legal an$ bene"cial o0nership of .3 percent of the outstan$ing capital stock
must rest in the han$s of 'ilipinos in accor$ance 0ith the constitutional man$ate%
'ull bene"cial o0nership of .3 percent of the outstan$ing capital stock, couple$
0ith .3 percent of the voting rights, is constitutionally re+uire$ for the 8tate2s grant
of authority to operate a public utility% The un$ispute$ fact that the P(*T preferre$
shares, ::%667 o0ne$ by 'ilipinos, are non-voting an$ earn only ,J43 of the
$ivi$en$s that P(*T common shares earn, grossly violates the constitutional
re+uirement of .3 percent 'ilipino control an$ 'ilipino bene"cial o0nership of a
public utility%
In short, 'ilipinos hol$ less than .3 percent of the voting stock, an$ earn less than
.3 percent of the $ivi$en$s, of P(*T% This $irectly contravenes the eBpress
comman$ in 8ection ,,, Article 9II of the Constitution that ;DnEo franchise,
certi"cate, or any other form of authoriation for the operation of a public utility
shall be grante$ eBcept to B B B corporations B B B organie$ un$er the la0s of the
Philippines, at least siBty per centum of 0hose capital is o0ne$ by such citiens B B
B%<
To repeat, (,) foreigners o0n .6%-47 of the common shares of P(*T, 0hich class of
shares eBercises the sole right to vote in the election of $irectors, an$ thus eBercise
control over P(*TA (-) 'ilipinos o0n only /I%4/7 of P(*T2s common shares,
constituting a minority of the voting stock, an$ thus $o not eBercise control over
P(*TA (/) preferre$ shares, ::%667 o0ne$ by 'ilipinos, have no voting rightsA (6)
preferre$ shares earn only ,J43 of the $ivi$en$s that common shares earnA (I)
preferre$ shares have t0ice the par value of common sharesA an$ (.) preferre$
shares constitute 44%5I7 of the authorie$ capital stock of P(*T an$ common
shares only --%,I7% This kin$ of o0nership an$ control of a public utility is a
mockery of the Constitution%
Inci$entally, the fact that P(*T common shares 0ith a par value of PI%33 have a
current stock market value of P-,/-5%33 per share, 0hile P(*T preferre$ shares 0ith
a par value of P,3%33 per share have a current stock market value ranging from
only P,3%:- to P,,%3. per share, is a glaring con"rmation by the market that control
an$ bene"cial o0nership of P(*T rest 0ith the common shares, not 0ith the
preferre$ shares%
BBB BBB BBB
-HEREFORE, 0e PARTL. GRANT the petition an$ rule that the term ;capital< in
8ection ,,, Article 9II of the ,:54 Constitution refers only to shares of stock entitle$
to vote in the election of $irectors, an$ thus in the present case only to common
shares, an$ not to the total outstan$ing capital stock (common an$ non-voting
preferre$ shares)% Respon$ent Chairperson of the 8ecurities an$ ?Bchange
Commission is DIRECTED to apply this $e"nition of the term ;capital< in
$etermining the eBtent of allo0able foreign o0nership in respon$ent Philippine (ong
*istance Telephone Company, an$ if there is a violation of 8ection ,,, Article 9II of
the Constitution, to impose the appropriate sanctions un$er the la0%
Republic of the Philippines
SUPRE/E COURT
!anila
?> KA>C
G.R. No. 012314 Oco'er 4, 2502
HEIRS OF -ILSON P. GA/6OA,
7
Petitioners,
vs%
FINANCE SECRETAR./ARGARITO 6. TE8ES, FINANCE
UNDERSECRETAR.9OHN P. SE8ILLA, AND CO//ISSIONER RICARDO A6CEDE
OF THE PRESIDENTIAL CO//ISSION ON GOOD GO8ERN/ENT:PCGG; IN
THEIR CAPACITIES AS CHAIR AND /E/6ERS, RESPECTI8EL., OF THE
PRI8ATI<ATION COUNCIL, CHAIR/AN ANTHONI SALI/ OF FIRST PACIFIC
CO., LTD. IN HIS CAPACIT. AS DIRECTOR OF /ETRO PACIFIC ASSET
HOLDINGS INC., CHAIR/AN /ANUEL 8. PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE CO/PAN. :PLDT; IN HIS CAPACIT. AS /ANAGING
DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.
NA<ARENO OF PHILIPPINE LONG DISTANCE TELEPHONE CO/PAN., CHAIR
FE 6ARIN OF THE SECURITIES AND E=CHANGE CO//ISSION, an*
PRESIDENT FRANCIS LI/ OF THE PHILIPPINE STOC>
E=CHANGE, Respon$ents%
PA6LITO 8. SANIDAD an* ARNO 8. SANIDAD, Petitioner-in-Intervention%
R ? 8 F ( G T I F >
CARPIO, J.:
This resolves the motions for reconsi$eration of the -5 Lune -3,, *ecision "le$ by
(,) the Philippine 8tock ?BchangeMs (P8?) Presi$ent,
,
(-) !anuel N% Pangilinan
(Pangilinan),
-
(/) >apoleon (% >aareno (>aareno ),
/
an$ ( 6) the 8ecurities an$
?Bchange Commission (8?C)
6
(collectively, movants )%
The F&ce of the 8olicitor Heneral (F8H) initially "le$ a motion for reconsi$eration
on behalfofthe 8?C,
I
assailing the -5 Lune -3,, *ecision% #o0ever, it subse+uently
"le$ a Consoli$ate$ Comment on behalf of the 8tate,
.
$eclaring eBpressly that it
agrees 0ith the CourtMs $e"nition of the term OcapitalO in 8ection ,,, Article 9II of
the Constitution% *uring the Fral Arguments on -. Lune -3,-, the F8H reiterate$ its
position consistent 0ith the CourtMs -5 Lune -3,, *ecision%
1e $eny the motions for reconsi$eration%
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As 0e emphatically state$ in the -5 Lune -3,, *ecision, the interpretation of the
term OcapitalO in 8ection ,,, Article 9II of the Constitution has far-reaching
implications to the national economy% In fact, a resolution of this issue 0ill $etermine
0hether 'ilipinos are masters, or secon$-class citiens, in their o0n country% 1hat is
at stake here is 0hether 'ilipinos or foreigners 0ill have efective control of the
Philippine national economy% In$ee$, if ever there is a legal issue that has far-
reaching implications to the entire nation, an$ to future generations of 'ilipinos, it is
the threshol$ legal issue presente$ in this case%
Contrary to Pangilinan2s narro0 vie0, the serious economic conse+uences resulting
in the interpretation of the term OcapitalO in 8ection ,,, Article 9II of the
Constitution un$oubte$ly $eman$ an imme$iate a$Cu$ication of this issue% Si#&("
&$, he far?reachin) i#&(icaions of his iss$e @$sif" he rea#en of he
&eiion as one for #an*a#$s.
4
In #u*on Steedoring Corp% % Anti'$ummy +oard,
5
the Court $eeme$ it 0ise an$
eBpe$ient to resolve the case although the petition for $eclaratory relief coul$ be
outrightly $ismisse$ for being proce$urally $efective% There, appellant a$mitte$ly
ha$ alrea$y committe$ a breach of the Public 8ervice Act in relation to the Anti-
*ummy (a0 since it ha$ been employing non- American aliens long before the
$ecision in a prior similar case% #o0ever, the main issue in #u*on Steedoring 0as
of transcen$ental importance, involving the eBercise or enCoyment of rights,
franchises, privileges, properties an$ businesses 0hich only 'ilipinos an$ +uali"e$
corporations coul$ eBercise or enCoy un$er the Constitution an$ the statutes%
!oreover, the same issue coul$ be raise$ by appellant in an appropriate action%
Thus, in #u*on Steedoring the Court $eeme$ it necessary to "nally $ispose of the
case for the gui$ance of all concerne$, $espite the apparent proce$ural Pa0 in the
petition%
The circumstances surroun$ing the present case, such as the suppose$ proce$ural
$efect of the petition an$ the pivotal legal issue involve$, resemble those in #u*on
Steedoring% Conse+uently, in the interest of substantial Custice an$ faithful
a$herence to the Constitution, 0e opte$ to resolve this case for the gui$ance of the
public an$ all concerne$ parties%
II.
No change of any long-standing rule;
thus, no redenition of the term !capital.!
!ovants conten$ that the term OcapitalO in 8ection ,,, Article 9II of the Constitution
has long been settle$ an$ $e"ne$ to refer to the total outstan$ing shares of stock,
0hether voting or non-voting% In fact, movants claim that the 8?C, 0hich is the
a$ministrative agency taske$ to enforce the .3-63 o0nership re+uirement in favor
of 'ilipino citiens in the Constitution an$ various statutes, has consistently a$opte$
this particular $e"nition in its numerous opinions% !ovants point out that 0ith the
-5 Lune -3,, *ecision, the Court in eQect intro$uce$ a One0O $e"nition or
Omi$stream re$e"nitionO
:
of the term OcapitalO in 8ection ,,, Article 9II of the
Constitution%
This is egregious error%
'or more than 4I years since the ,:/I Constitution, the Court has not interprete$
or $e"ne$ the term OcapitalO foun$ in various economic provisions of the ,:/I,
,:4/ an$ ,:54 Constitutions% There has never been a Cu$icial prece$ent interpreting
the term OcapitalO in the ,:/I, ,:4/ an$ ,:54 Constitutions, until no0% #ence, it is
patently 0rong an$ utterly baseless to claim that the Court in $e"ning the term
OcapitalO in its -5 Lune -3,, *ecision mo$i"e$, reverse$, or set asi$e the purporte$
long-stan$ing $e"nition of the term Ocapital,O 0hich suppose$ly refers to the total
outstan$ing shares of stock, 0hether voting or non-voting% To repeat, until the
present case there has never been a Court ruling categorically $e"ning the term
OcapitalO foun$ in the various economic provisions of the ,:/I, ,:4/ an$ ,:54
Philippine Constitutions%
The opinions of the 8?C, as 0ell as of the *epartment of Lustice (*FL), on the
$e"nition of the term OcapitalO as referring to both voting an$ non-voting shares
(combine$ total of common an$ preferre$ shares) are, in the "rst place, conPicting
an$ inconsistent% There is no basis 0hatsoever to the claim that the 8?C an$ the
*FL have consistently an$ uniformly a$opte$ a $e"nition of the term OcapitalO
contrary to the $e"nition that this Court a$opte$ in its -5 Lune -3,, *ecision%
In *FL Fpinion >o% ,/3, s% ,:5I,
,3
$ate$ 4 Fctober ,:5I, the scope of the term
OcapitalO in 8ection :, Article 9IN of the ,:4/ Constitution 0as raise$, that is,
0hether the term OcapitalO inclu$es Oboth preferre$ an$ common stocks%O The issue
0as raise$ in relation to a stock-s0ap transaction bet0een a 'ilipino an$ a Lapanese
corporation, both stockhol$ers of a $omestic corporation that o0ne$ lan$s in the
Philippines% Then !inister of Lustice ?stelito P% !en$oa rule$ that the resulting
o0nership structure of the corporation 0oul$ be$nconsi$iona( because .37 of
the voting stock 0oul$ be o0ne$ by Lapanese 0hile 'ilipinos 0oul$ o0n only 637 of
the voting stock, although 0hen the non-voting stock is a$$e$, 'ilipinos 0oul$ o0n
.37 of the combine$ voting an$ non-voting stock% This o,nershi& sr$c$re is
re#arAa'(" si#i(ar o he c$rren o,nershi& sr$c$re of PLDT% !inister
!en$oa rule$@
B B B B
Thus, the 'ilipino group still o0ns siBty (.37) of the entire subscribe$ capital stock
(common an$ preferre$) 0hile the Lapanese investors control siBty percent (.37) of
the common (voting) shares%
I is "o$r &osiion ha + + + since Secion 4, Aric(e =I8 of he Consi$ion
$ses he ,or* Bca&ia(,B ,hich is consr$e* Bo inc($*e 'oh &referre* an*
co##on sharesB an* Bha ,here he (a, *oes no *isin)$ish, he co$rs
sha(( no *isin)$ish.B
B B B B
In light of the foregoing Curispru$ence, i is #" o&inion ha he socA?s,a&
ransacion in C$esion #a" no 'e consi$iona((" $&he(*% 1hile it may be
or$inary corporate practice to classify corporate shares into common voting shares
an$ preferre$ non-voting shares, any arrangement 0hich attempts to $efeat the
constitutional purpose shoul$ be esche0e$% Th$s, he res$(an eC$i"
arran)e#en ,hich ,o$(* &(ace o,nershi& of 25D
,,
of he co##on
:Eoin); shares in he 9a&anese )ro$&, ,hi(e reainin) 25D of he oa(
&ercena)e of co##on an* &referre* shares in Fi(i&ino han*s ,o$(*
a#o$n o circ$#Eenion of he &rinci&(e of conro( '" Phi(i&&ine
socAho(*ers ha is i#&(ici in he 25D Phi(i&&ine naiona(i" reC$ire#en
in he Consi$ion. (?mphasis supplie$)
In short, !inister !en$oa cae)orica((" re@ece* the theory that the term
OcapitalO in 8ection :, Article 9IN of the ,:4/ Constitution inclu$es Oboth preferre$
an$ common stocksO treate$ as the same class of shares regar$less of $iQerences in
voting rights an$ privileges% !inister !en$oa stresse$ that the .3-63 o0nership
re+uirement in favor of 'ilipino citiens in the Constitution is not complie$ 0ith
unless the corporation Osais!es he crierion of 'ene!cia( o,nershi&O an$
that in applying the same Ohe &ri#or*ia( consi*eraion is si$s of conro(%O
Fn the other han$, in Fpinion >o% -/-,3 $ate$ ,5 August -3,3, a$$resse$ to
Castillo (aman Tan Pantaleon R 8an Lose, then 8?C Heneral Counsel Nernette H%
Gmali-Paco applie$ the 8oin) Conro( Tes, that is, using only the voting stock to
$etermine 0hether a corporation is a Philippine national% The Fpinion states@
Applying the foregoing, &aric$(ar(" he Conro( Tes, !(RC is $eeme$ as a
Philippine national because@ (,) siBty percent (.37) of its o$san*in) ca&ia(
socA entitled to vote is o0ne$ by a Philippine national, the TrusteeA an$ (-) at
least siBty percent (.37) of the ?R' 0ill accrue to the bene"t of Philippine
nationals% Si(( &$rs$an o he Conro( Tes, /LRCFs inEes#en in 25D of
6FDCFs o$san*in) ca&ia( socA entitled to vote sha(( 'e *ee#e* as of
Phi(i&&ine naiona(i", here'" C$a(if"in) 6FDC o o,n &riEae (an*%
'urther, un$er, an$ for purposes of, the 'IA, !(RC an$ K'*C are both Philippine
nationals, consi$ering that@ (,) siBty percent (.37) of their respective o$san*in)
ca&ia( socA entitled to vote is o0ne$ by a Philippine national (i%e%, by the
Trustee, in the case of !(RCA an$ by !(RC, in the case of K'*C)A an$ (-) at least
.37 of their respective boar$ of $irectors are 'ilipino citiens% (Kol$facing an$
italiciation supplie$)
Clearly, these *FL an$ 8?C opinions are compatible 0ith the Court2s interpretation
of the .3-63 o0nership re+uirement in favor of 'ilipino citiens man$ate$ by the
Constitution for certain economic activities% At the same time, these opinions
highlight the conPicting, contra$ictory, an$ inconsistent positions taken by the *FL
an$ the 8?C on the $e"nition of the term OcapitalO foun$ in the economic provisions
of the Constitution%
The opinions issue$ by 8?C legal o&cers $o not have the force an$ eQect of 8?C
rules an$ regulations because only the 8?C en !anc can a$opt rules an$
regulations% As eBpressly provi$e$ in 8ection 6%. of the 8ecurities Regulation
Co$e,
,-
the 8?C cannot $elegate to any of its in$ivi$ual Commissioner or staQ the
po0er to a$opt any rule or regulation% 'urther, $n*er Secion 3.0 of he sa#e
Co*e, i is the "#$ as a collegial %ody, an* no an" of is (e)a( oGcers, ha
is e#&o,ere* o iss$e opinions an* a&&roEe r$(es an* re)$(aions. Thus@
6%.% The Commission may, for purposes of e&ciency, $elegate any of its functions
to any $epartment or o&ce of the Commission, an in$ivi$ual Commissioner or staQ
member of the Commission e+ce&its revie0 or appellate authority an$ is &o,er
o a*o&, a(er an* s$&&(e#en an" r$(e or re)$(aion.
The Commission may revie0 upon its o0n initiative or upon the petition of any
intereste$ party any action of any $epartment or o&ce, in$ivi$ual Commissioner, or
staQ member of the Commission%
8?C% I% "o,ers and -unctions of the Commission%' I%,% The Commission shall act
0ith transparency an$ shall have the po0ers an$ functions provi$e$ by this Co$e,
Presi$ential *ecree >o% :3--A, the Corporation Co$e, the Investment #ouses (a0,
the 'inancing Company Act an$ other eBisting la0s% Pursuant thereto the
Commission shall have, among others, the follo0ing po0ers an$ functions@
B B B B
:); Pre&are, a&&roEe, a#en* or re&ea( r$(es, re)$(aions an* or*ers, an*
iss$e opinionsan* &roEi*e )$i*ance on an* s$&erEise co#&(iance ,ih
s$ch r$(es, re)$(aions an* or*ersH
B B B B (?mphasis supplie$)
Thus, the act of the in$ivi$ual Commissioners or legal o&cers of the 8?C in issuing
opinions that have the eQect of 8?C rules or regulations is ultra ires% Gn$er
8ections 6%. an$ I%,(g) of the Co$e, only the 8?C en !anc can Oissue opinionsO that
have the force an$ eQect of rules or regulations% 8ection 6%. of the Co$e bars the
8?C en !anc from $elegating to any in$ivi$ual Commissioner or staQ the po0er to
a$opt rules or regulations% In shor, an" o&inion of in*iEi*$a( Co##issioners
or SEC (e)a( oGcers *oes no consi$e a r$(e or re)$(aion of he SEC%
The 8?C a$mits $uring the Fral Arguments that only the 8?C en !anc, an$ not any
of its in$ivi$ual commissioners or legal staQ, is empo0ere$ to issue opinions 0hich
have the same bin$ing eQect as 8?C rules an$ regulations, thus@
LG8TIC? CARPIF@
8o, un$er the la0, it is the Commission ?n Kanc that can issue an
8?C Fpinion, correct=
CF!!I88IF>?R HAIT?@
,/
That2s correct, Sour #onor%
LG8TIC? CARPIF@
Can the Commission ?n Kanc $elegate this function to an 8?C o&cer=
CF!!I88IF>?R HAIT?@
Ses, Sour #onor, 0e have $elegate$ it to the Heneral Counsel%
LG8TIC? CARPIF@
It can be $elegate$% 1hat cannot be $elegate$ by the Commission ?n Kanc to a
commissioner or an in$ivi$ual employee of the Commission=
CF!!I88IF>?R HAIT?@
>ovel opinions that DhaveE to be $eci$e$ by the ?n Kanc%%%
LG8TIC? CARPIF@
1hat cannot be $elegate$, among others, is the po0er to a$opt or amen$ rules an$
regulations, correct=
CF!!I88IF>?R HAIT?@
That2s correct, Sour #onor%
9USTICE CARPIO:
So, "o$ co#'ine he ,o :2;, he SEC oGcer, if *e(e)ae* ha &o,er, can
iss$e an o&inion '$ ha o&inion *oes no consi$e a r$(e or re)$(aion,
correcI
CO//ISSIONER GAITE:
Correc, .o$r Honor.
9USTICE CARPIO:
So, a(( of hese o&inions ha "o$ #enione* he" are no r$(es an*
re)$(aions, correcI
CO//ISSIONER GAITE:
The" are no r$(es an* re)$(aions.
LG8TIC? CARPIF@
If they are not rules an$ regulations, they apply only to that particular situation an$
0ill not constitute a prece$ent, correct=
CF!!I88IF>?R HAIT?@
Ses, Sour #onor%
,6
(?mphasis supplie$)
8igni"cantly, the 8?C en !anc, 0hich is the collegial bo$y statutorily empo0ere$ to
issue rules an$ opinions on behalf of the 8?C, has a$opte$ even the Hran$father
Rule in $etermining compliance 0ith the .3-63 o0nership re+uirement in favor of
'ilipino citiens man$ate$ by the Constitution for certain economic activities% This
prevailing 8?C ruling, 0hich the 8?C correctly a$opte$ to th0art any circumvention
of the re+uire$ 'ilipino Oo,nershi& an* conro(,O is lai$ $o0n in the -I !arch
-3,3 8?C en !anc ruling in .edmont Consolidated /ines, Corp% % /cArthur /ining,
Inc%, et al%,
,I
to 0it@
The avo0e$ purpose of the Constitution is to place in the han$s of 'ilipinos the
eBploitation of our natural resources% Necessari(", herefore, he R$(e
iner&rein) he consi$iona( &roEision sho$(* no *i#inish ha ri)h
hro$)h he (e)a( !cion of cor&orae o,nershi& an* conro(% Kut the
constitutional provision, as interprete$ an$ practice$ via the ,:.4 8?C Rules, has
favore$ foreigners contrary to the comman$ 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%
Compliance 0ith the constitutional limitation(s) on engaging in nationalie$
activities must be $etermine$ by ascertaining if .37 of the investing corporation2s
outstan$ing capital stock is o0ne$ by O'ilipino citiensO, or as interprete$, by
natural or in$ivi$ual 'ilipino citiens% If such investing corporation is in turn o0ne$
to some eBtent by another investing corporation, the same process must be
observe$% Fne must not stop until the citienships of the in$ivi$ual or natural
stockhol$ers of layer after layer of investing corporations have been establishe$,
the very essence of the Hran$father Rule%
Las(", i ,as he inen of he fra#ers of he 04J1 Consi$ion o a*o&
he Gran*faher R$(e. In one of the $iscussions on 0hat is no0 Article 9II of the
present Constitution, the framers ma$e the follo0ing eBchange@
!R% >F((?*F% In 8ections /, : an$ ,I, the Committee state$ local or 'ilipino e+uity
an$ foreign e+uityA namely, .3-63 in 8ection /, .3-63 in 8ection :, an$ -J/-,J/ in
8ection ,I%
!R% NI((?HA8% That is right%
!R% >F((?*F% In teaching la0, 0e are al0ays face$ 0ith the +uestion@ T1here $o
0e base the e+uity re+uirement, is it on the authorie$ capital stock, on the
subscribe$ capital stock, or on the pai$-up capital stock of a corporation2= 1ill the
Committee please enlighten me on this=
!R% NI((?HA8% 1e have Cust ha$ a long $iscussion 0ith the members of the team
from the GP (a0 Center 0ho provi$e$ us a $raft% The phrase that is containe$ here
0hich 0e a$opte$ from the GP $raft is T.3 percent of voting stock%2
!R% >F((?*F% That must be base$ on the subscribe$ capital stock, because unless
$eclare$ $elin+uent, unpai$ capital stock shall be entitle$ to vote%
!R% NI((?HA8% That is right%
!R% >F((?*F% Thank you% 1ith respect to an investment by one corporation in
another corporation, say, a corporation 0ith .3-63 percent e+uity invests in another
corporation 0hich is permitte$ by the Corporation Co$e, $oes the Committee a$opt
the gran$father rule=
!R% NI((?HA8% Ses, that is the un$erstan$ing of the Committee%
!R% >F((?*F% Therefore, 0e nee$ a$$itional 'ilipino capital=
!R% NI((?HA8% Ses% (Kol$facing an$ un$erscoring supplie$A italiciation in the
original)
This 8?C en !anc ruling conforms to our -5 Lune -3,, *ecision that the .3-63
o0nership re+uirement in favor of 'ilipino citiens in the Constitution to engage in
certain economic activities applies not only to voting control of the corporation,
but a(so o he 'ene!cia( o,nershi& of he cor&oraion% Thus, in our -5 Lune
-3,, *ecision 0e state$@
!ere legal title is insu&cient to meet the .3 percent 'ilipinoo0ne$ OcapitalO
re+uire$ in the Constitution% F$(( 'ene!cia( o,nershi& of 25 &ercen of he
o$san*in) ca&ia( socA, co$&(e* ,ih 25 &ercen of he Eoin) ri)hs, is
reC$ire*% The legal an$ bene"cial o0nership of .3 percent of the outstan$ing
capital stock must rest in the han$s of 'ilipino nationals in accor$ance 0ith the
constitutional man$ate% Fther0ise, the corporation is Oconsi$ere$ as non-Philippine
nationalDsE%O (?mphasis supplie$)
Koth the Noting Control Test an$ the Kene"cial F0nership Test must be applie$ to
$etermine 0hether a corporation is a OPhilippine national%O
The interpretation by legal o&cers of the 8?C of the term Ocapital,O embo$ie$ in
various opinions 0hich respon$ents relie$ upon, is merely preliminary an$ an
opinion only of such o&cers% To repeat, any such opinion $oes not constitute an 8?C
rule or regulation% In fact, many of these opinions contain a $isclaimer 0hich
eBpressly states@ OB B B he fore)oin) o&inion is base$ solely on facts $isclose$ in
your +uery an$ relevant only to the particular issue raise$ therein an$ sha(( no 'e
$se* in he na$re of a san*in) r$(e 'in*in) $&on he Co##ission in
oher cases ,heher of si#i(ar or *issi#i(ar circ$#sances%O
,.
Thus, the
opinions clearly make a caeat that they $o not constitute bin$ing prece$ents on
any one, not even on the 8?C itself%
(ike0ise, the opinions of the 8?C en !anc, as 0ell as of the *FL, interpreting the la0
are neither conclusive nor controlling an$ thus, $o not bin$ the Court% It is hornbook
$octrine that any interpretation of the la0 that a$ministrative or +uasi-Cu$icial
agencies make is only preliminary, never conclusive on the Court% The po0er to
make a "nal interpretation of the la0, in this case the term OcapitalO in 8ection ,,,
Article 9II of the ,:54 Constitution, lies 0ith this Court, not 0ith any other
government entity%
In his motion for reconsi$eration, the P8? Presi$ent cites the cases of 0ational
Telecommunications Commission % Court of Appeals
,4
an$ "hilippine #ong $istance
Telephone Company % 0ational Telecommunications Commission
,5
in arguing that
the Court has alrea$y $e"ne$ the term OcapitalO in 8ection ,,, Article 9II of the
,:54 Constitution%
,:
The P8? Presi$ent is grossly mistaken% In both cases of 0ational
Telecommunications % Court of Appeals
-3
an$"hilippine #ong $istance Telephone
Company % 0ational Telecommunications Commission,
-,
the Court $i$ not $e"ne
the term OcapitalO as foun$ in 8ection ,,, Article 9II of the ,:54 Constitution% In
fac, hese ,o cases neEer #enione*, *isc$sse* or cie* Secion 00,
Aric(e =II of he Consi$ion or an" of is econo#ic &roEisions, an* h$s
canno serEe as &rece*en in he iner&reaion of Secion 00, Aric(e =II of
he Consi$ion% These t0o cases $ealt solely 0ith the $etermination of the
correct regulatory fees un$er 8ection 63(e) an$ (f) of the Public 8ervice Act, to 0it@
(e) 'or annual reimbursement of the eBpenses incurre$ by the Commission in the
supervision of other public services an$Jor in the regulation or "Bing of their rates,
t0enty centavos for each one hun$re$ pesos or fraction thereof, of the ca&ia(
socA s$'scri'e* or &ai*, or if no shares have been issue$, of the capital
investe$, or of the property an$ e+uipment 0hichever is higher%
(f) 'or the issue or increase of ca&ia( socA, t0enty centavos for each one
hun$re$ pesos or fraction thereof, of the increase$ capital% (?mphasis supplie$)
The Court2s interpretation in these t0o cases of the terms Ocapital stock subscribe$
or pai$,O Ocapital stockO an$ OcapitalO $oes not pertain to, an$ cannot control, the
$e"nition of the term OcapitalO as use$ in 8ection ,,, Article 9II of the Constitution,
or any of the economic provisions of the Constitution 0here the term OcapitalO is
foun$% The $e"nition of the term OcapitalO foun$ in the Constitution must not be
taken out of conteBt% A careful rea$ing of these t0o cases reveals that the terms
Ocapital stock subscribe$ or pai$,O Ocapital stockO an$ OcapitalO 0ere $e"ne$ solely
to $etermine the basis for computing the supervision an$ regulation fees un$er
8ection 63(e) an$ (f) of the Public 8ervice Act%
III.
Filipini)ation of *u%lic +tilities
The Preamble of the ,:54 Constitution, as the prologue of the supreme la0 of the
lan$, embo$ies the i$eals that the Constitution inten$s to achieve%
--
The Preamble
rea$s@
1e, the sovereign 'ilipino people, imploring the ai$ of Almighty Ho$, in or$er to
buil$ a Cust an$ humane society, an$ establish a Hovernment that shall embo$y our
i$eals an$ aspirations, promote the common goo$, conserEe an* *eEe(o& o$r
&ari#on", an$ secure to ourselves an$ our posterity, the blessings of
in$epen$ence an$ $emocracy un$er the rule of la0 an$ a regime of truth, Custice,
free$om, U love, e+uality, an$ peace, $o or$ain an$ promulgate this Constitution%
(?mphasis supplie$)
Consistent 0ith these i$eals, 8ection ,:, Article II of the ,:54 Constitution $eclares
as 8tate policy the $evelopment of a national economy Oefectively controlledO by
'ilipinos@
8ection ,:% The 8tate shall $evelop a self-reliant an$ in$epen$ent national
economy efectively controlled %y Filipinos%
'ortifying the 8tate policy of a 'ilipino-controlle$ economy, the Constitution $ecrees@
8ection ,3% The Congress shall, upon recommen$ation of the economic an$
planning agency, 0hen the national interest $ictates, reserve to citiens of the
Philippines or to corporations or associations at least siBty per centum of 0hose
capital is o0ne$ by such citiens, or such higher percentage as Congress may
prescribe, certain areas of investments% The Congress shall enact measures that 0ill
encourage the formation an$ operation of enterprises 0hose capital is 0holly o0ne$
by 'ilipinos%
In the grant of rights, privileges, an$ concessions covering the national economy
an$ patrimony, the 8tate shall give preference to +uali"e$ 'ilipinos%
The 8tate shall regulate an$ eBercise authority over foreign investments 0ithin its
national Curis$iction an$ in accor$ance 0ith its national goals an$ priorities%
-/
Gn$er 8ection ,3, Article 9II of the ,:54 Constitution, Congress may Oreserve to
citiens of the Philippines or to corporations or associations at least siBty per
centum of 0hose capital is o0ne$ by such citiens, or such higher percentage as
Congress may prescribe, certain areas of investments%O Thus, in numerous la0s
Congress has reserve$ certain areas of investments to 'ilipino citiens or to
corporations at least siBty percent of the Oca&ia(O of 0hich is o0ne$ by 'ilipino
citiens% 8ome of these la0s are@ (,) Regulation of A0ar$ of Hovernment Contracts
or R%A% >o% I,5/A (-) Philippine Inventors Incentives Act or R%A% >o% /5I3A (/) !agna
Carta for !icro, 8mall an$ !e$ium ?nterprises or R%A% >o% .:44A (6) Philippine
Fverseas 8hipping *evelopment Act or R%A% >o% 464,A (I) *omestic 8hipping
*evelopment Act of -336 or R%A% >o% :-:IA (.) Philippine Technology Transfer Act of
-33: or R%A% >o% ,33IIA an$ (4) 8hip !ortgage *ecree or P%*% >o% ,I-,%
1ith respect to public utilities, the ,:54 Constitution speci"cally or$ains@
8ection ,,% No franchise, ceri!cae, or an" oher for# of a$hori%aion for
he o&eraion of a &$'(ic $i(i" sha(( 'e )rane* e+ce& o cii%ens of he
Phi(i&&ines or o cor&oraions or associaions or)ani%e* $n*er he (a,s of
he Phi(i&&ines, a (eas si+" per centum of ,hose ca&ia( is o,ne* '"
s$ch cii%ensH nor shall such franchise, certi"cate, or authoriation be eBclusive in
character or for a longer perio$ than "fty years% >either shall any such franchise or
right be grante$ eBcept un$er the con$ition that it shall be subCect to amen$ment,
alteration, or repeal by the Congress 0hen the common goo$ so re+uires% The 8tate
shall encourage e+uity participation in public utilities by the general public% The
participation of foreign investors in the governing bo$y of any public utility
enterprise shall be limite$ to their proportionate share in its capital, an$ all the
eBecutive an$ managing o&cers of such corporation or association must be citiens
of the Philippines% (?mphasis supplie$)
This provision, 0hich man$ates the 'ilipiniation of public utilities, re+uires that any
form of authoriation for the operation of public utilities shall be grante$ only to
Ocitiens of the Philippines or to corporations or associations organie$ un$er the
la0s of the Philippines at least siBty per centum of 0hose capital is o0ne$ by such
citiens%O OThe &roEision is Kan e+&ressL reco)niion of he sensiiEe an*
Eia( &osiion of &$'(ic $i(iies 'oh in he naiona( econo#" an* for
naiona( sec$ri".B
-6
The ,:54 Constitution reserves the o0nership an$ operation of public utilities
eBclusively to (,) 'ilipino citiens, or (-) corporations or associations at least .3
percent of 0hose OcapitalO is o0ne$ by 'ilipino citiens% #ence, in the case of
in$ivi$uals, only 'ilipino citiens can vali$ly o0n an$ operate a public utility% In the
case of corporations or associations, at least .3 percent of their OcapitalO must be
o0ne$ by 'ilipino citiens% In oher ,or*s, $n*er Secion 00, Aric(e =II of he
04J1 Consi$ion, o o,n an* o&erae a &$'(ic $i(i" a cor&oraionFs
ca&ia( #$s a (eas 'e 25 &ercen o,ne* '" *hilippine nationals.
I,.
-enition of !*hilippine National!
Pursuant to the eBpress man$ate of 8ection ,,, Article 9II of the ,:54 Constitution,
Congress enacte$ Republic Act >o% 436- or the -oreign Inestments Act of
1111 ('IA), as amen$e$, 0hich $e"ne$ a OPhi(i&&ine naiona(O as follo0s@
8?C% /% *e"nitions% - As use$ in this Act@
a% The term O"hilippine national2 shall mean a citien of the PhilippinesA or a
$omestic partnership or association 0holly o0ne$ by citiens of the PhilippinesA or a
cor&oraion or)ani%e* $n*er he (a,s of he Phi(i&&ines of ,hich a (eas
si+" &ercen :25D; of he ca&ia( socA o$san*in) and entitled to vote is
o,ne* an* he(* '" cii%ens of he Phi(i&&inesA or a corporation organie$
abroa$ an$ registere$ as $oing business in the Philippines un$er the Corporation
Co$e of 0hich one hun$re$ percent (,337) of the capital stock outstan$ing an$
entitle$ to vote is 0holly o0ne$ by 'ilipinos or a trustee of fun$s for pension or
other employee retirement or separation bene"ts, 0here the trustee is a Philippine
national an$ at least siBty percent (.37) of the fun$ 0ill accrue to the bene"t of
Philippine nationals@ "roided, That 0here a corporation an$ its non-'ilipino
stockhol$ers o0n stocks in a 8ecurities an$ ?Bchange Commission (8?C) registere$
enterprise, at least siBty percent (.37) of the capital stock outstan$ing an$ entitle$
to vote of each of both corporations must be o0ne$ an$ hel$ by citiens of the
Philippines an$ at least siBty percent (.37) of the members of the Koar$ of
*irectors of each of both corporations must be citiens of the Philippines, in or$er
that the corporation, shall be consi$ere$ a OPhilippine national%O (Kol$facing,
italiciation an$ un$erscoring supplie$)
Thus, the 'IA clearly an$ une+uivocally $e"nes a OPhi(i&&ine naiona(O as a
Philippine citien, or a $omestic corporation at least O25D of he ca&ia( socA
o$san*in) an* entitled to voteO is o0ne$ by Philippine citiens%
The $e"nition of a OPhilippine nationalO in the 'IA reiterate$ the meaning of such
term as provi$e$ in its pre$ecessor statute, ?Becutive Fr$er >o% --. or
the 3mni!us Inestments Code of 1145,
-I
0hich 0as issue$ by then Presi$ent
Coraon C% A+uino% Article ,I of this Co$e states@
Article ,I% OPhilippine nationalO shall mean a citien of the Philippines or a
$iplomatic partnership or association 0holly-o0ne$ by citiens of the PhilippinesA
or a cor&oraion or)ani%e* $n*er he (a,s of he Phi(i&&ines of ,hich a
(eas si+" &er cen :25D; of he ca&ia( socA o$san*in)and entitled to
vote is o,ne* an* he(* '" cii%ens of he Phi(i&&inesA or a trustee of fun$s for
pension or other employee retirement or separation bene"ts, 0here the trustee is a
Philippine national an$ at least siBty per cent (.37) of the fun$ 0ill accrue to the
bene"t of Philippine nationals@ Provi$e$, That 0here a corporation an$ its non-
'ilipino stockhol$ers o0n stock in a registere$ enterprise, at least siBty per cent
(.37) of the capital stock outstan$ing an$ entitle$ to vote of both corporations
must be o0ne$ an$ hel$ by the citiens of the Philippines an$ at least siBty per cent
(.37) of the members of the Koar$ of *irectors of both corporations must be
citiens of the Philippines in or$er that the corporation shall be consi$ere$ a
Philippine national% (Kol$facing, italiciation an$ un$erscoring supplie$)
Gn$er Article 65(/)
-.
of the Fmnibus Investments Co$e of ,:54, Ono corporation B B
B 0hich is not a TPhilippine national2 B B B shall $o business
B B B in the Philippines B B B 0ithout "rst securing from the Koar$ of Investments a
0ritten certi"cate to the eQect that such business or economic activity B B B
0oul$ no conPict 0ith the Constitution or la0s of the Philippines%O
-4
Thus, a Onon-
Philippine nationalO cannot o0n an$ operate a reserve$ economic activity like a
public utility% This means, of course, that only a OPhilippine nationalO can o0n an$
operate a public utility%
In turn, the $e"nition of a OPhilippine nationalO un$er Article ,I of the Fmnibus
Investments Co$e of ,:54 0as a reiteration of the meaning of such term as
provi$e$ in Article ,6 of the 3mni!us Inestments Code of 1141,
-5
to 0it@
Article ,6% OPhilippine nationalO shall mean a citien of the PhilippinesA or a $omestic
partnership or association 0holly o0ne$ by citiens of the PhilippinesA or a
cor&oraion or)ani%e* $n*er he (a,s of he Phi(i&&ines of ,hich a (eas
si+" &er cen :25D; of he ca&ia( socA o$san*in) and entitled to
vote is o,ne* an* he(* '" cii%ens of he Phi(i&&inesH or a trustee of fun$s for
pension or other employee retirement or separation bene"ts, 0here the trustee is a
Philippine national an$ at least siBty per cent (.37) of the fun$ 0ill accrue to the
bene"t of Philippine nationals@ Provi$e$, That 0here a corporation an$ its non-
'ilipino stockhol$ers o0n stock in a registere$ enterprise, at least siBty per cent
(.37) of the capital stock outstan$ing an$ entitle$ to vote of both corporations
must be o0ne$ an$ hel$ by the citiens of the Philippines an$ at least siBty per cent
(.37) of the members of the Koar$ of *irectors of both corporations must be
citiens of the Philippines in or$er that the corporation shall be consi$ere$ a
Philippine national% (Kol$facing, italiciation an$ un$erscoring supplie$)
Gn$er Article .:(/) of the Fmnibus Investments Co$e of ,:5,, Ono corporation B B B
0hich is not a TPhilippine national2 B B B shall $o business B B B in the Philippines B B
B 0ithout "rst securing a 0ritten certi"cate from the Koar$ of Investments to the
eQect that such business or economic activity B B B 0oul$ no conPict 0ith the
Constitution or la0s of the Philippines%O
-:
Thus, a Onon-Philippine nationalO cannot
o0n an$ operate a reserve$ economic activity like a public utility% Again, this means
that only a OPhilippine nationalO can o0n an$ operate a public utility%
Prior to the Fmnibus Investments Co$e of ,:5,, Republic Act >o% I,5.
/3
or
the Inestment Incenties Act, 0hich took eQect on ,. 8eptember ,:.4, containe$
a similar $e"nition of a OPhilippine national,O to 0it@
(f) OPhilippine >ationalO shall mean a citien of the PhilippinesA or a partnership or
association 0holly o0ne$ by citiens of the PhilippinesA or a cor&oraion
or)ani%e* $n*er he (a,s of he Phi(i&&ines of ,hich a (eas si+" &er cen
of he ca&ia( socA o$san*in) and entitled to vote is o,ne* an* he(* '"
cii%ens of he Phi(i&&inesA or a trustee of fun$s for pension or other employee
retirement or separation bene"ts, 0here the trustee is a Philippine >ational an$ at
least siBty per cent of the fun$ 0ill accrue to the bene"t of Philippine >ationals@
Provi$e$, That 0here a corporation an$ its non-'ilipino stockhol$ers o0n stock in a
registere$ enterprise, at least siBty per cent of the capital stock outstan$ing an$
entitle$ to vote of both corporations must be o0ne$ an$ hel$ by the citiens of the
Philippines an$ at least siBty per cent of the members of the Koar$ of *irectors of
both corporations must be citiens of the Philippines in or$er that the corporation
shall be consi$ere$ a Philippine >ational% (Kol$facing, italiciation an$ un$erscoring
supplie$)
Gn$er 8ection / of Republic Act >o% I6II or the -oreign +usiness .egulations Act,
0hich took eQect on /3 8eptember ,:.5, if the investment in a $omestic enterprise
by non-Philippine nationals eBcee$s /37 of its outstan$ing capital stock, such
enterprise must obtain prior approval from the Koar$ of Investments before
accepting such investment% 8uch approval shall no be grante$ if the investment
O0oul$ conPict 0ith eBisting constitutional provisions an$ la0s regulating the
$egree of re+uire$ o0nership by Philippine nationals in the enterprise%O
/,
A Onon-
Philippine nationalO cannot o0n an$ operate a reserve$ economic activity like a
public utility% Again, this means that only a OPhilippine nationalO can o0n an$
operate a public utility%
The 'IA, li.e all its predecessor statutes, clearly $e"nes a OPhi(i&&ine
naiona(O as a 'ilipino citien, or a*o#esic cor&oraion Ba (eas si+" &ercen
:25D; of he ca&ia( socA o$san*in) and entitled to voteBis o0ne$ by
'ilipino citiens% A $omestic corporation is a OPhilippine nationalO only if at least .37
of its voting stoc. is o0ne$ by 'ilipino citiens% This $e"nition of a OPhilippine
nationalO is crucial in the present case because the 'IA reiterates an$ clari"es
8ection ,,, Article 9II of the ,:54 Constitution, 0hich limits the o0nership an$
operation of public utilities to 'ilipino citiens or to corporations or associations at
least .37 'ilipino-o0ne$%
The 'IA is the basic la0 governing foreign investments in the Philippines,
irrespective of the nature of business an$ area of investment% The 'IA spells out the
proce$ures by 0hich non-Philippine nationals can invest in the Philippines% Among
the key features of this la0 is the concept of a negative list or the 'oreign
Investments >egative (ist%
/-
8ection 5 of the la0 states@
8?C% 5% /ist of Investment 0reas (eserved to *hilippine Nationals [-oreign
Inestment 0egatie #ist&% - The 'oreign Investment >egative (ist shall have
t0o
-
component lists@ A an$ +@
a% /ist 0 sha(( en$#erae he areas of activities reserved to *hilippine
nationals %y mandate of the $onstitution an* s&eci!c (a,s.
b% #ist + shall contain the areas of activities an$ enterprises regulate$ pursuant to
la0@
,% 0hich are $efense-relate$ activities, re+uiring prior clearance an$ authoriation
from the *epartment of >ational *efense D*>*E to engage in such activity, such as
the manufacture, repair, storage an$Jor $istribution of "rearms, ammunition, lethal
0eapons, military or$inance, eBplosives, pyrotechnics an$ similar materialsA unless
such manufacturing or repair activity is speci"cally authorie$, 0ith a substantial
eBport component, to a non-Philippine national by the 8ecretary of >ational
*efenseA or
-% 0hich have implications on public health an$ morals, such as the manufacture
an$ $istribution of $angerous $rugsA all forms of gamblingA nightclubs, bars, beer
houses, $ance halls, sauna an$ steam bathhouses an$ massage clinics% (Kol$facing,
un$erscoring an$ italiciation supplie$)
8ection 5 of the 'IA enumerates the investment areas Oreserve$ to Philippine
nationals%O Forei)n InEes#en Ne)aiEe Lis A consiss of Bareas of
activities reserved to *hilippine nationals %y mandate of the $onstitution
and specic la1s,B ,here forei)n eC$i" &arici&aion in an" ener&rise
sha(( 'e (i#ie* o he #a+i#$# &ercena)e e+&ress(" &rescri'e* '" he
Consi$ion an* oher s&eci!c (a,s. In shor, o o,n an* o&erae a &$'(ic
$i(i" in he Phi(i&&ines one #$s 'e a BPhi(i&&ine naiona(B as *e!ne* in
he FIA. The FIA is a'$n*an noice o forei)n inEesors o ,ha e+en
he" can inEes in &$'(ic $i(iies in he Phi(i&&ines%
To repeat, among the areas of investment covere$ by the 'oreign Investment
>egative (ist A is the o0nership an$ operation of public utilities, 0hich the
Constitution eBpressly reserves to 'ilipino citiens an$ to corporations at least .37
o0ne$ by 'ilipino citiens% In oher ,or*s, Ne)aiEe Lis A of he FIA reserEes
he o,nershi& an* o&eraion of &$'(ic $i(iies on(" o BPhi(i&&ine
naiona(s,B *e!ne* in Secion M:a; of he FIA as O(,) a citien of the
PhilippinesA B B B or (/) a cor&oraion or)ani%e* $n*er he (a,s of he
Phi(i&&ines of ,hich a (eas si+" &ercen :25D; of he ca&ia( socA
o$san*in) and entitled to vote is o,ne* an* he(* '" cii%ens of he
Phi(i&&inesA or (6) a corporation organie$ abroa$ an$ registere$ as $oing
business in the Philippines un$er the Corporation Co$e of 0hich one hun$re$
percent (,337) of the capital stock outstan$ing an$ entitle$ to vote is 0holly o0ne$
by 'ilipinos or a trustee of fun$s for pension or other employee retirement or
separation bene"ts, 0here the trustee is a Philippine national an$ at least siBty
percent (.37) of the fun$ 0ill accrue to the bene"t of Philippine nationals%O
Clearly, from the eQectivity of the Investment Incentives Act of ,:.4 to the a$option
of the Fmnibus Investments Co$e of ,:5,, to the enactment of the Fmnibus
Investments Co$e of ,:54, an$ to the passage of the present 'oreign Investments
Act of ,::,, or for #ore han fo$r *eca*es, he sa$or" *e!niion of he
er# BPhi(i&&ine naiona(B has 'een $nifor# an* consisen: i #eans a
Fi(i&ino cii%en, or a *o#esic cor&oraion a (eas 25D of he voting
stoc. is o,ne* '" Fi(i&inos. LiAe,ise, hese sa#e sa$es haEe $nifor#("
an* consisen(" reC$ire* ha on(" BPhi(i&&ine naiona(sB co$(* o,n an*
o&erae &$'(ic $i(iies in he Phi(i&&ines. The follo0ing eBchange $uring the
Fral Arguments is revealing@
LG8TIC? CARPIF@
Counsel, I have some +uestions% Sou are a0are of the 'oreign Investments Act of
,::,, B B B= An$ the 'IA of ,::, took eQect in ,::,, correct= That2s over t0enty
(-3) years ago, correct=
CF!!I88IF>?R HAIT?@
Correct, Sour #onor%
LG8TIC? CARPIF@
An$ 8ection 5 of the 'oreign Investments Act of ,::, states that DEonly Philippine
nationals can o0n an$ operate public utilitiesDE, correct=
CF!!I88IF>?R HAIT?@
Ses, Sour #onor%
LG8TIC? CARPIF@
An$ the same 'oreign Investments Act of ,::, $e"nes a OPhilippine nationalO either
as a citien of the Philippines, or if it is a corporation at least siBty percent (.37) of
the voting stock is o0ne$ by citiens of the Philippines, correct=
CF!!I88IF>?R HAIT?@
Correct, Sour #onor%
LG8TIC? CARPIF@
An$, you are also a0are that un$er the pre$ecessor la0 of the 'oreign Investments
Act of ,::,, the Fmnibus Investments Act of ,:54, the same provisions apply@ B B B
only Philippine nationals can o0n an$ operate a public utility an$ the Philippine
national, if it is a corporation, B B B siBty percent (.37) of the capital stock of that
corporation must be o0ne$ by citiens of the Philippines, correct=
CF!!I88IF>?R HAIT?@
Correct, Sour #onor%
LG8TIC? CARPIF@
An$ even prior to the Fmnibus Investments Act of ,:54, un$er the Fmnibus
Investments Act of ,:5,, the same rules apply@ B B B only a Philippine national can
o0n an$ operate a public utility an$ a Philippine national, if it is a corporation, siBty
percent (.37) of its B B B voting stock, must be o0ne$ by citiens of the Philippines,
correct=
CF!!I88IF>?R HAIT?@
Correct, Sour #onor%
LG8TIC? CARPIF@
An$ even prior to that, un$er DtheE,:.4 Investments Incentives Act an$ the 'oreign
Company Act of ,:.5, the same rules applie$, correct=
CF!!I88IF>?R HAIT?@
Correct, Sour #onor%
9USTICE CARPIO:
So, for he (as fo$r :N; *eca*es, + + +, he (a, has 'een Eer" consisen O
on(" a Phi(i&&ine naiona( can o,n an* o&erae a &$'(ic $i(i", an* a
Phi(i&&ine naiona(, if i is a cor&oraion, + + + a (eas si+" &ercen :25D;
of he Eoin) socA #$s 'e o,ne* '" cii%ens of he Phi(i&&ines, correcI
CO//ISSIONER GAITE:
Correc, .o$r Honor.
//
(?mphasis supplie$)
Hovernment agencies like the 8?C cannot simply ignore 8ections /(a) an$ 5 of the
'IA 0hich categorically prescribe that certain economic activities, like the o0nership
an$ operation of public utilities, are reserve$ to corporations Oat least siBty percent
(.37) of the capital stock outstan$ing and entitled to vote is o0ne$ an$ hel$ by
citiens of the Philippines%O 'oreign Investment >egative (ist A refers to Oactivities
reserve$ to Philippine nationals by man$ate of the Constitution an$ speci"c
la0s%O The FIA is he 'asic sa$e re)$(ain) forei)n inEes#ens in he
Phi(i&&ines% Hovernment agencies taske$ 0ith regulating or monitoring foreign
investments, as 0ell as counsels of foreign investors, shoul$ start 0ith the 'IA in
$etermining to 0hat eBtent a particular foreign investment is allo0e$ in the
Philippines% 'oreign investors an$ their counsels 0ho ignore the 'IA $o so at their
o0n peril% 'oreign investors an$ their counsels 0ho rely on opinions of 8?C legal
o&cers that obviously contra$ict the 'IA $o so also at their o0n peril%
Fccasional opinions of 8?C legal o&cers that obviously contra$ict the 'IA shoul$
imme$iately raise a re$ Pag% There are alrea$y numerous opinions of 8?C legal
o&cers that cite the $e"nition of a OPhilippine nationalO in 8ection /(a) of the 'IA in
$etermining 0hether a particular corporation is +uali"e$ to o0n an$ operate a
nationalie$ or partially nationalie$ business in the Philippines% This sho0s that
8?C legal o&cers are not only a0are of, but also rely on an$ invoke, the provisions
of the 'IA in ascertaining the eligibility of a corporation to engage in partially
nationalie$ in$ustries% The follo0ing are some of such opinions@
,% Fpinion of -/ !arch ,::/, a$$resse$ to !r% 'rancis '% #o0A
-% Fpinion of ,6 April ,::/, a$$resse$ to *irector Angeles T% 1ong of the Philippine
Fverseas ?mployment A$ministrationA
/% Fpinion of -/ >ovember ,::/, a$$resse$ to !essrs% *omina$or Alme$a an$
Renato 8% CalmaA
6% Fpinion of 4 *ecember ,::/, a$$resse$ to Roco Kunag )apunan !igallos R
Lar$eleaA
I% 8?C Fpinion >o% 6:-36, a$$resse$ to Romulo !abanta Kuenaventura 8ayoc R *e
(os AngelesA
.% 8?C-FHC Fpinion >o% ,4-34, a$$resse$ to !r% Reynal$o H% *avi$A an$
4% 8?C-FHC Fpinion >o% 3/-35, a$$resse$ to Attys% Ruby Rose L% Susi an$ Ru$yar$ 8%
Arbola$o%
The 8?C legal o&cers2 occasional but blatant $isregar$ of the $e"nition of the term
OPhilippine nationalO in the 'IA signi"es their lack of integrity an$ competence in
resolving issues on the .3-63 o0nership re+uirement in favor of 'ilipino citiens in
8ection ,,, Article 9II of the Constitution%
The P8? Presi$ent argues that the term OPhilippine nationalO $e"ne$ in the 'IA
shoul$ be limite$ an$ interprete$ to refer to corporations seeking to avail of taB an$
"scal incentives un$er investment incentives la0s an$ cannot be e+uate$ 0ith the
term OcapitalO in 8ection ,,, Article 9II of the ,:54 Constitution% Pangilinan similarly
conten$s that the 'IA an$ its pre$ecessor statutes $o not apply to Ocompanies
0hich have not registere$ an$ obtaine$ special incentives un$er the schemes
establishe$ by those la0s%O
Koth are $esperately grasping at stra0s% The 'IA $oes not grant taB or "scal
incentives to any enterprise% TaB an$ "scal incentives to investments are grante$
separately un$er the Fmnibus Investments Co$e of ,:54, not un$er the 'IA% In fact,
the 'IA eBpressly repeale$ Articles 66 to I. of Kook II of the Fmnibus Investments
Co$e of ,:54, 0hich articles previously regulate$ foreign investments in
nationalie$ or partially nationalie$ in$ustries%
The 'IA is the applicable la0 regulating foreign investments in nationalie$ or
partially nationalie$ in$ustries% There is nothing in the 'IA, or even in the Fmnibus
Investments Co$e of ,:54 or its pre$ecessor statutes, that states, eBpressly or
implie$ly, that the 'IA or its pre$ecessor statutes $o not apply to enterprises not
availing of taB an$ "scal incentives un$er the Co$e% The 'IA an$ its pre$ecessor
statutes apply to investments in all $omestic enterprises, 0hether or not such
enterprises enCoy taB an$ "scal incentives un$er the Fmnibus Investments Co$e of
,:54 or its pre$ecessor statutes% The reason is C$ie o'Eio$s O #ere non?
aEai(#en of a+ an* !sca( inceniEes '" a non?Phi(i&&ine naiona( canno
e+e#& i fro# Secion 00, Aric(e =II of he Consi$ion re)$(ain)
forei)n inEes#ens in &$'(ic $i(iies% In fact, the Koar$ of
Investments2 Pri#er on InEes#en Po(icies in he Phi(i&&ines,
/6
0hich is given
out to foreign investors, provi$es@
PART III. FOREIGN IN8EST/ENTS -ITHOUT INCENTI8ES
Investors 0ho $o not seek incentives an$Jor 0hose chosen activities $o not +ualify
for incentives, (i%e%, the activity is not liste$ in the IPP, an$ they are not eBporting at
least 437 of their pro$uction) may go ahea$ an$ make the investments 0ithout
seeking incentives% The" on(" haEe o 'e )$i*e* '" he Forei)n InEes#ens
Ne)aiEe Lis :FINL;.
The 'I>( clearly $e"nes investment areas re+uiring at least .37 'ilipino o0nership%
All other areas outsi$e of this list are fully open to foreign investors% (?mphasis
supplie$)
,.
(ight to elect directors, coupled 1ith %enecial o1nership,
translates to efective control.
The -5 Lune -3,, *ecision $eclares that the .3 percent 'ilipino o0nership re+uire$
by the Constitution to engage in certain economic activities applies not only to
voting control of the corporation, but a(so o he 'ene!cia( o,nershi& of he
cor&oraion% To repeat, 0e hel$@
!ere legal title is insu&cient to meet the .3 percent 'ilipino-o0ne$ OcapitalO
re+uire$ in the Constitution% F$(( 'ene!cia( o,nershi& of 25 &ercen of he
o$san*in) ca&ia( socA, co$&(e* ,ih 25 &ercen of he Eoin) ri)hs, is
reC$ire*% The legal an$ bene"cial o0nership of .3 percent of the outstan$ing
capital stock must rest in the han$s of 'ilipino nationals in accor$ance 0ith the
constitutional man$ate% Fther0ise, the corporation is Oconsi$ere$ as non-Philippine
nationalDsE%O (?mphasis supplie$)
This is consistent 0ith 8ection / of the 'IA 0hich provi$es that 0here ,337 of the
capital stock is hel$ by Oa trustee of fun$s for pension or other employee retirement
or separation bene"ts,O the trustee is a Philippine national if Oat least siBty percent
(.37) of the fun$ 0ill accrue to the bene"t of Philippine nationals%O (ike0ise,
8ection ,(b) of the Implementing Rules of the 'IA provi$es that Ofor stocks to be
$eeme$ o0ne$ an$ hel$ by Philippine citiens or Philippine nationals, mere legal
title is not enough to meet the re+uire$ 'ilipino e+uity% F$(( 'ene!cia( o,nershi&
of he socAs, co$&(e* ,ih a&&ro&riae Eoin) ri)hs, is essenia(.B
8ince the constitutional re+uirement of at least .3 percent 'ilipino o0nership
applies not only to voting control of the corporation but also to the bene"cial
o0nership of the corporation, it is therefore imperative that such re+uirement apply
uniformly an$ across the boar$ to all classes of shares, regar$less of nomenclature
an$ category, comprising the capital of a corporation% Gn$er the Corporation Co$e,
capital stock
/I
consists of all classes of shares issue$ to stockhol$ers, that is,
common shares as 0ell as preferre$ shares, 0hich may have $iQerent rights,
privileges or restrictions as state$ in the articles of incorporation%
/.
The Corporation Co$e allo0s $enial of the right to vote to preferre$ an$ re$eemable
shares, but $isallo0s $enial of the right to vote in speci"c corporate matters% Thus,
common shares have the right to vote in the election of $irectors, 0hile preferre$
shares may be $enie$ such right% >onetheless, preferre$ shares, even if $enie$ the
right to vote in the election of $irectors, are entitle$ to vote on the follo0ing
corporate matters@ (,) amen$ment of articles of incorporationA (-) increase an$
$ecrease of capital stockA (/) incurring, creating or increasing bon$e$ in$ebte$nessA
(6) sale, lease, mortgage or other $isposition of substantially all corporate assetsA
(I) investment of fun$s in another business or corporation or for a purpose other
than the primary purpose for 0hich the corporation 0as organie$A (.) a$option,
amen$ment an$ repeal of by-la0sA (4) merger an$ consoli$ationA an$ (5) $issolution
of corporation%
/4
8ince a speci"c class of shares may have rights an$ privileges or restrictions
$iQerent from the rest of the shares in a corporation, the .3-63 o0nership
re+uirement in favor of 'ilipino citiens in 8ection ,,, Article 9II of the Constitution
must apply not only to shares 0ith voting rights but also to shares 0ithout voting
rights% Preferre$ shares, $enie$ the right to vote in the election of $irectors, are
any0ay still entitle$ to vote on the eight speci"c corporate matters mentione$
above% Th$s, if a cor&oraion, en)a)e* in a &aria((" naiona(i%e* in*$sr",
iss$es a #i+$re of co##on an* &referre* non?Eoin) shares, a (eas 25
&ercen of he co##on shares an* a (eas 25 &ercen of he &referre*
non?Eoin) shares #$s 'e o,ne* '" Fi(i&inos. Ff course, if a corporation
issues only a single class of shares, at least .3 percent of such shares must
necessarily be o0ne$ by 'ilipinos% In shor, he 25?N5 o,nershi& reC$ire#en
in faEor of Fi(i&ino cii%ens #$s a&&(" se&arae(" o each c(ass of shares,
,heher co##on, &referre* non?Eoin), &referre* Eoin) or an" oher
c(ass of shares. This uniform application of the .3-63 o0nership re+uirement in
favor of 'ilipino citiens clearly breathes life to the constitutional comman$ that the
o0nership an$ operation of public utilities shall be reserve$ eBclusively to
corporations at least .3 percent of 0hose capital is 'ilipino-o0ne$% Applying
uniformly the .3-63 o0nership re+uirement in favor of 'ilipino citiens to each class
of shares, regar$less of $iQerences in voting rights, privileges an$ restrictions,
guarantees eQective 'ilipino control of public utilities, as man$ate$ by the
Constitution%
!oreover, such uniform application to each class of shares insures that the
Ocontrolling interestO in public utilities al0ays lies in the han$s of 'ilipino citiens%
This a$$resses an$ eBtinguishes Pangilinan2s 0orry that foreigners, o0ning most of
the non-voting shares, 0ill eBercise greater control over fun$amental corporate
matters re+uiring t0o-thir$s or maCority vote of all sharehol$ers%
,I.
Intent of the framers of the $onstitution
1hile Lustice Nelasco +uote$ in his *issenting Fpinion
/5
a portion of the
$eliberations of the Constitutional Commission to support his claim that the term
OcapitalO refers to the total outstan$ing shares of stock, 0hether voting or non-
voting, the follo0ing eBcerpts of the $eliberations reveal other0ise% It is clear from
the follo0ing eBchange that the term OcapitalO refers to conro((in) ineres of a
corporation, thus@
!R% >F((?*F% In 8ections /, : an$ ,I, the Committee state$ local or 'ilipino e+uity
an$ foreign e+uityA namely, .3-63 in 8ection /, .3-63 in 8ection : an$ -J/-,J/ in
8ection ,I%
!R% NI((?HA8% That is right%
!R% >F((?*F% In teaching la0, 0e are al0ays face$ 0ith this +uestion@ O1here $o
0e base the e+uity re+uirement, is it on the authorie$ capital stock, on the
subscribe$ capital stock, or on the pai$-up capital stock of a corporationO= 1ill the
Committee please enlighten me on this=
!R% NI((?HA8% 1e have Cust ha$ a long $iscussion 0ith the members of the team
from the GP (a0 Center 0ho provi$e$ us a $raft% The &hrase ha is conaine*
here ,hich ,e a*o&e* fro# he UP *raf is B25 &ercen of Eoin) socA.B
!R% >F((?*F% That must be base$ on the subscribe$ capital stock, because unless
$eclare$ $elin+uent, unpai$ capital stock shall be entitle$ to vote%
!R% NI((?HA8% That is right%
!R% >F((?*F% Thank you%
1ith respect to an investment by one corporation in another corporation, say, a
corporation 0ith .3-63 percent e+uity invests in another corporation 0hich is
permitte$ by the Corporation Co$e, $oes the Committee a$opt the gran$father
rule=
!R% NI((?HA8% Ses, that is the un$erstan$ing of the Committee%
!R% >F((?*F% Therefore, 0e nee$ a$$itional 'ilipino capital=
!R% NI((?HA8% Ses%
/:
B B B B
!R% AVCG>A% !ay I be clari"e$ as to that portion that 0as accepte$ by the
Committee%
!R% NI((?HA8% The portion accepte$ by the Committee is the $eletion of the phrase
Ovoting stock or controlling interest%O
!R% AVCG>A% #ence, 0ithout the *avi$e amen$ment, the committee report 0oul$
rea$@ Ocorporations or associations at least siBty percent of 0hose CAPITA( is o0ne$
by such citiens%O
!R% NI((?HA8% Ses%
!R% AVCG>A% 8o if the *avi$e amen$ment is lost, 0e are stuck 0ith .3 percent of
the capital to be o0ne$ by citiens%
!R% NI((?HA8% That is right%
/R. A<CUNA. 6$ he conro( can 'e ,ih he forei)ners eEen if he" are
he #inori". Le $s sa" N5 &ercen of he ca&ia( is o,ne* '" he#, '$ i
is he Eoin) ca&ia(, ,hereas, he Fi(i&inos o,n he nonEoin) shares. So
,e can haEe a si$aion ,here he cor&oraion is conro((e* '" forei)ners
*es&ie 'ein) he #inori" 'eca$se he" haEe he Eoin) ca&ia(. Tha is
he ano#a(" ha ,o$(* res$( here.
/R. 6ENG<ON. No, he reason ,e e(i#inae* he ,or* BsocAB as sae* in
he 041M an* 04M3 Consi$ions is ha accor*in) o Co##issioner
Ro*ri)o, here are associaions ha *o no haEe socAs. Tha is ,h" ,e
sa" BCAPITAL.B
/R. A<CUNA. -e sho$(* no e(i#inae he &hrase Bconro((in) ineres.B
/R. 6ENG<ON. In he case of socA cor&oraions, i is ass$#e*.
63
(Kol$facing
an$ un$erscoring supplie$)
Thus, .3 percent of the OcapitalO ass$#es, or shoul$ result in, a Oconro((in)
ineresO in the corporation%
The use of the term OcapitalO 0as inten$e$ to replace the 0or$ OstockO because
associations 0ithout stocks can operate public utilities as long as they meet the .3-
63 o0nership re+uirement in favor of 'ilipino citiens prescribe$ in 8ection ,,,
Article 9II of the Constitution% #o0ever, this $i$ not change the intent of the framers
of the Constitution to reserve eBclusively to Philippine nationals the Oconro((in)
ineresO in public utilities%
*uring the $rafting of the ,:/I Constitution, economic protectionism 0as Othe
battle-cry of the nationalists in the Convention%O
6,
The same battle-cry resulte$ in
the nationaliation of the public utilities%
6-
This is also the same intent of the framers
of the ,:54 Constitution 0ho a$opte$ the eBact formulation embo$ie$ in the ,:/I
an$ ,:4/ Constitutions on foreign e+uity limitations in partially nationalie$
in$ustries%
The F8H, in its o0n behalf an$ as counsel for the 8tate,
6/
agrees fully 0ith the
Court2s interpretation of the term Ocapital%O In its Consoli$ate$ Comment, the F8H
eBplains that the $eletion of the phrase Ocontrolling interestO an$ replacement of
the 0or$ OstockO 0ith the term OcapitalO 0ere inten$e$ speci"cally to eBten$ the
scope of the entities +uali"e$ to operate public utilities to inclu$e associations
0ithout stocks% The framers2 omission of the phrase Ocontrolling interestO $i$ not
mean the inclusion of all shares of stock, 0hether voting or non-voting% The F8H
reiterate$ essentially the Court2s $eclaration that the Constitution reserve$
eBclusively to Philippine nationals the o0nership an$ operation of public utilities
consistent 0ith the 8tate2s policy to O$evelop a self-reliant an$ in$epen$ent national
economy efectively controlled %y Filipinos%O
As 0e hel$ in our -5 Lune -3,, *ecision, to construe broa$ly the term OcapitalO as
the total outstan$ing capital stock, treate$ as a single class regar$less of the
actual classi"cation of shares, grossly contravenes the intent an$ letter of the
Constitution that the O8tate shall $evelop a self-reliant an$ in$epen$ent national
economyefectively controlled by 'ilipinos%O 1e illustrate$ the glaring anomaly
0hich 0oul$ result in $e"ning the term OcapitalO as the total outstan$ing capital
stock of a corporation, treate$ as a single class of shares regar$less of the actual
classi"cation of shares, to 0it@
(et us assume that a corporation has ,33 common shares o0ne$ by foreigners an$
,,333,333 non-voting preferre$ shares o0ne$ by 'ilipinos, 0ith both classes of share
having a par value of one peso (P ,%33) per share% Gn$er the broa$ $e"nition of the
term Ocapital,O such corporation 0oul$ be consi$ere$ compliant 0ith the 63 percent
constitutional limit on foreign e+uity of public utilities since the over0helming
maCority, or more than ::%::: percent, of the total outstan$ing capital stock is
'ilipino o0ne$% This is obviously absur$%
In the eBample given, only the foreigners hol$ing the common shares have voting
rights in the election of $irectors, even if they hol$ only ,33 shares% The foreigners,
0ith a minuscule e+uity of less than 3%33, percent, eBercise control over the public
utility% Fn the other han$, the 'ilipinos, hol$ing more than ::%::: percent of the
e+uity, cannot vote in the election of $irectors an$ hence, have no control over the
public utility% This starkly circumvents the intent of the framers of the Constitution,
as 0ell as the clear language of the Constitution, to place the control of public
utilities in the han$s of 'ilipinos% B B B
'urther, even if foreigners 0ho o0n more than forty percent of the voting shares
elect an all-'ilipino boar$ of $irectors, this situation $oes not guarantee 'ilipino
control an$ $oes not in any 0ay cure the violation of the Constitution% The
in$epen$ence of the 'ilipino boar$ members so electe$ by such foreign
sharehol$ers is highly $oubtful% As the F8H pointe$ out, +uoting Lustice Heorge
8utherlan$2s 0or$s in 6umphrey7s 8)ecutor % 9S,
66
OB B B it is +uite evi$ent that one
0ho hol$s his o&ce only $uring the pleasure of another cannot be $epen$e$ upon
to maintain an attitu$e of in$epen$ence against the latter2s 0ill%O Allo0ing foreign
sharehol$ers to elect a controlling maCority of the boar$, even if all the $irectors are
'ilipinos, grossly circumvents the letter an$ intent of the Constitution an$ $efeats
the very purpose of our nationaliation la0s%
,II.
/ast sentence of "ection 22, 0rticle 3II of the $onstitution
The last sentence of 8ection ,,, Article 9II of the ,:54 Constitution rea$s@
The participation of foreign investors in the governing bo$y of any public utility
enterprise shall be limite$ to their proportionate share in its capital, an$ all the
eBecutive an$ managing o&cers of such corporation or association must be citiens
of the Philippines%
*uring the Fral Arguments, the F8H emphasie$ that there 0as never a +uestion
on the intent of the framers of the Constitution to limit foreign o0nership, an$
assure maCority 'ilipino o0nership an$ control of public utilities% The F8H argue$,
O0hile the $elegates $isagree$ as to the percentage threshol$ to a$opt, B B B the
recor$s sho0 they clearly un$erstoo$ that 'ilipino control of the public utility
corporation can only be an$ is obtaine$ only through the election of a maCority of
the members of the boar$%O
In$ee$, the only point of contention $uring the $eliberations of the Constitutional
Commission on -/ August ,:5. 0as the eBtent of maCority 'ilipino control of public
utilities% This is evi$ent from the follo0ing eBchange@
T#? PR?8I*?>T% Commissioner Lamir is recognie$%
!R% LA!IR% !a$am Presi$ent, my propose$ amen$ment on lines -3 an$ -, is to
$elete the phrase Ot0o thir$s of 0hose voting stock or controlling interest,O an$
instea$ substitute the 0or$s O8I9TS P?RC?>T F' 1#F8? CAPITA(O so that the
sentence 0ill rea$@ O>o franchise, certi"cate, or any other form of authoriation for
the operation of a public utility shall be grante$ eBcept to citiens of the Philippines
or to corporations or associations organie$ un$er the la0s of the Philippines at
least 8I9TS P?RC?>T F' 1#F8? CAPITA( is o0ne$ by such citiens%O
B B B B
T#? PR?8I*?>T@ 1ill Commissioner Lamir "rst eBplain=
!R% LA!IR% Ses, in this Article on >ational ?conomy an$ Patrimony, there 0ere t0o
previous sections in 0hich 0e "Be$ the 'ilipino e+uity to .3 percent as against 63
percent for foreigners% It is only in this 8ection ,I 0ith respect to public utilities that
the committee proposal 0as increase$ to t0o-thir$s% I think it 0oul$ be better to
harmonie this provision by provi$ing that even in the case of public utilities, the
minimum e+uity for 'ilipino citiens shoul$ be .3 percent%
!R% RF!G(F% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Romulo is recognie$%
!R% RF!G(F% !y reason for supporting the amen$ment is base$ on the $iscussions
I have ha$ 0ith representatives of the 'ilipino maCority o0ners of the international
recor$ carriers, an$ the subse+uent memoran$a they submitte$ to me% B B B
Their secon$ point is that un$er the Corporation Co$e, the management an$ control
of a corporation is veste$ in the boar$ of $irectors, not in the o&cers but in the
boar$ of $irectors% The o&cers are only agents of the boar$% An$ they believe that
0ith .3 percent of the e+uity, the 'ilipino maCority stockhol$ers un$eniably control
the boar$% Fnly on important corporate acts can the 63-percent foreign e+uity
eBercise a veto, B B B%
B B B B
6I
!8% RF8ARIF KRAI*% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Rosario Krai$ is recognie$%
!8% RF8ARIF KRAI*% Ses, in the interest of e+ual time, may I also rea$ from a
memoran$um by the spokesman of the Philippine Chamber of Communications on
0hy they 0oul$ like to maintain the present e+uity, I am referring to the .. -J/%
They 0oul$ prefer to have a 4I--I ratio but 0oul$ settle for .. -J/% B B B
B B B B
T#? PR?8I*?>T% Lust to clarify, 0oul$ Commissioner Rosario Krai$ support the
proposal of t0o-thir$s rather than the .3 percent=
!8% RF8ARIF KRAI*% I have a$$e$ a clause that 0ill put management in the han$s
of 'ilipino citiens%
B B B B
6.
1hile they ha$ $iQering vie0s on the percentage of 'ilipino o0nership of capital, it
is clear that the framers of the Constitution inten$e$ public utilities to
be majority 'ilipino-o0ne$ an$ controlle$% To ensure that 'ilipinos control public
utilities, the framers of the Constitution approve$, as a$$itional safeguar$, the
inclusion of the last sentence of 8ection ,,, Article 9II of the Constitution
comman$ing that ODtEhe participation of foreign investors in the governing bo$y of
any public utility enterprise shall be limite$ to their proportionate share in its
capital, an$ all the eBecutive an$ managing o&cers of such corporation or
association must be citiens of the Philippines%O In other 0or$s, the last sentence of
8ection ,,, Article 9II of the Constitution man$ates that (,) the participation of
foreign investors in the governing bo$y of the corporation or association shall be
limite$ to their proportionate share in the capital of such entityA an$ (-) all o&cers
of the corporation or association must be 'ilipino citiens%
Commissioner Rosario Krai$ propose$ the inclusion of the phrase re+uiring the
managing o&cers of the corporation or association to be 'ilipino citiens speci"cally
to prevent management contracts, 0hich 0ere $esigne$ primarily to circumvent the
'ilipiniation of public utilities, an$ to assure 'ilipino control of public utilities, thus@
!8% RF8ARIF KRAI*% B B B They also like to suggest that 0e amen$ this provision by
a$$ing a phrase 0hich states@ OT#? !A>AH?!?>T KF*S F' ?N?RS CFRPFRATIF>
FR A88FCIATIF> 8#A(( I> A(( CA8?8 K? CF>TRF((?* KS CITIV?>8 F' T#?
P#I(IPPI>?8%O I have 0ith me their position paper%
T#? PR?8I*?>T% The Commissioner may procee$%
!8% RF8ARIF KRAI*% The three maCor international recor$ carriers in the Philippines,
0hich Commissioner Romulo mentione$ W Philippine Hlobal Communications,
?astern Telecommunications, Hlobe !ackay Cable W are 63-percent o0ne$ by
foreign multinational companies an$ .3-percent o0ne$ by their respective 'ilipino
partners% All three, ho0ever, also have management contracts 0ith these foreign
companies W Philcom 0ith RCA, ?TPI 0ith Cable an$ 1ireless P(C, an$ H!CR 0ith
ITT% Gp to the present time, the general managers of these carriers are foreigners%
1hile the foreigners in these common carriers are only minority o0ners, the foreign
multinationals are the ones managing an$ controlling their operations by virtue of
their management contracts an$ by virtue of their strength in the governing bo$ies
of these carriers%
64
B B B B
!R% FP(?% I think a number of us have agree$ to ask Commissioner Rosario Krai$ to
propose an amen$ment 0ith respect to the operating management of public
utilities, an$ in this amen$ment, 0e are associate$ 0ith 'r% Kernas, Commissioners
>ieva an$ Ro$rigo% Commissioner Rosario Krai$ 0ill state this amen$ment no0%
Thank you%
!8% RF8ARIF KRAI*% !a$am Presi$ent%
T#? PR?8I*?>T% This is still on 8ection ,I%
!8% RF8ARIF KRAI*% Ses%
!R% NI((?HA8% Ses, !a$am Presi$ent%
B B B B
!8% RF8ARIF KRAI*% !a$am Presi$ent, I propose a ne0 section to rea$@ TT#?
!A>AH?!?>T KF*S F' ?N?RS CFRPFRATIF> FR A88FCIATIF> 8#A(( I> A((
CA8?8 K? CF>TRF((?* KS CITIV?>8 F' T#? P#I(IPPI>?8%O
This ,i(( &reEen #ana)e#en conracs an* ass$re conro( '" Fi(i&ino
cii%ens. 1ill the committee assure us that this amen$ment 0ill insure that past
activities such as management contracts 0ill no longer be possible un$er this
amen$ment=
B B B B
'R% K?R>A8% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Kernas is recognie$%
'R% K?R>A8% 1ill the committee accept a reformulation of the "rst part=
!R% K?>HVF>% (et us hear it%
'R% K?R>A8% The reformulation 0ill be essentially the formula of the ,:4/
Constitution 0hich rea$s@ OT#? PARTICIPATIF> F' 'FR?IH> I>N?8TFR8 I> T#?
HFN?R>I>H KF*S F' A>S PGK(IC GTI(ITS ?>T?RPRI8? 8#A(( K? (I!IT?* TF T#?IR
PRFPFRTIF>AT? 8#AR? I> T#? CAPITA( T#?R?F' A>*%%%O
!R% NI((?HA8% OA(( T#? ?9?CGTIN? A>* !A>AHI>H F''IC?R8 F' 8GC#
CFRPFRATIF>8 A>* A88FCIATIF>8 !G8T K? CITIV?>8 F' T#? P#I(IPPI>?8%O
!R% K?>HVF>% 1ill Commissioner Kernas rea$ the 0hole thing again=
'R% K?R>A8% OT#? PARTICIPATIF> F' 'FR?IH> I>N?8TFR8 I> T#? HFN?R>I>H KF*S
F' A>S PGK(IC GTI(ITS ?>T?RPRI8? 8#A(( K? (I!IT?* TF T#?IR PRFPFRTIF>AT?
8#AR? I> T#? CAPITA( T#?R?F'%%%O I $o not have the rest of the copy%
!R% K?>HVF>% OA>* A(( T#? ?9?CGTIN? A>* !A>AHI>H F''IC?R8 F' 8GC#
CFRPFRATIF>8 FR A88FCIATIF>8 !G8T K? CITIV?>8 F' T#? P#I(IPPI>?8%O Is that
correct=
!R% NI((?HA8% Ses%
!R% K?>HVF>% !a$am Presi$ent, I think that 0as sai$ in a more elegant language%
1e accept the amen$ment% Is that all right 0ith Commissioner Rosario Krai$=
!8% RF8ARIF KRAI*% Ses%
B B B B
!R% *? (F8 R?S?8% The governing bo$y refers to the boar$ of $irectors an$
trustees%
!R% NI((?HA8% That is right%
!R% K?>HVF>% Ses, the governing bo$y refers to the boar$ of $irectors%
!R% R?HA(A*F% It is accepte$%
!R% RA!A% The bo$y is no0 rea$y to vote, !a$am Presi$ent%
NFTI>H
B B B B
The results sho0 -: votes in favor an$ none againstA so the propose$ amen$ment is
approve$%
B B B B
T#? PR?8I*?>T% All right% Can 0e procee$ no0 to vote on 8ection ,I=
!R% RA!A% Ses, !a$am Presi$ent%
T#? PR?8I*?>T% 1ill the chairman of the committee please rea$ 8ection ,I=
!R% NI((?HA8% The entire 8ection ,I, as amen$e$, rea$s@ O>o franchise, certi"cate,
or any other form of authoriation for the operation of a public utility shall be
grante$ eBcept to citiens of the Philippines or to corporations or associations
organie$ un$er the la0s of the Philippines at least .3 P?RC?>T F' 1#F8? CAPITA(
is o0ne$ by such citiens%O !ay I re+uest Commissioner Kengon to please continue
rea$ing%
!R% K?>HVF>% OT#? PARTICIPATIF> F' 'FR?IH> I>N?8TFR8 I> T#? HFN?R>I>H
KF*S F' A>S PGK(IC GTI(ITS ?>T?RPRI8? 8#A(( K? (I!IT?* TF T#?IR
PRFPFRTIF>AT? 8#AR? I> T#? CAPITA( T#?R?F' A>* A(( T#? ?9?CGTIN? A>*
!A>AHI>H F''IC?R8 F' 8GC# CFRPFRATIF>8 FR A88FCIATIF>8 !G8T K?
CITIV?>8 F' T#? P#I(IPPI>?8%O
!R% NI((?HA8% O>FR 8#A(( 8GC# 'RA>C#I8?, C?RTI'ICAT? FR AGT#FRIVATIF> K?
?9C(G8IN? I> C#ARACT?R FR 'FR A P?RIF* (F>H?R T#A> T1?>TS-'IN? S?AR8
R?>?1AK(? 'FR >FT !FR? T#A> T1?>TS-'IN? S?AR8% >either shall any such
franchise or right be grante$ eBcept un$er the con$ition that it shall be subCect to
amen$ment, alteration, or repeal by Congress 0hen the common goo$ so re+uires%
The 8tate shall encourage e+uity participation in public utilities by the general
public%O
NFTI>H
B B B B
The results sho0 -: votes in favor an$ 6 againstA 8ection ,I, as amen$e$, is
approve$%
65
(?mphasis supplie$)
The last sentence of 8ection ,,, Article 9II of the ,:54 Constitution, particularly the
provision on the limite$ participation of foreign investors in the governing bo$y of
public utilities, is a reiteration of the last sentence of 8ection I, Article 9IN of the
,:4/ Constitution,
6:
signifying its importance in reserving o0nership an$ control of
public utilities to 'ilipino citiens%
,III.
4he undisputed facts
There is no $ispute, an$ respon$ents $o not claim the contrary, that (,) foreigners
o0n .6%-47 of the common shares of P(*T, 0hich class of shares eBercises
the so(e right to vote in the election of $irectors, an$ thus foreigners control P(*TA
(-) 'ilipinos o0n only /I%4/7 of P(*T2s common shares, constituting a minority of
the voting stock, an$ thus 'ilipinos $o not control P(*TA (/) preferre$ shares,
::%667 o0ne$ by 'ilipinos, have no voting rightsA (6) preferre$ shares earn only
,J43 of the $ivi$en$s that common shares earnA
I3
(I) preferre$ shares have t0ice
the par value of common sharesA an$ (.) preferre$ shares constitute 44%5I7 of the
authorie$ capital stock of P(*T an$ common shares only --%,I7%
*espite the foregoing facts, the Court $i$ not $eci$e, an$ in fact refraine$ from
ruling on the +uestion of 0hether P(*T violate$ the .3-63 o0nership re+uirement in
favor of 'ilipino citiens in 8ection ,,, Article 9II of the ,:54 Constitution% 8uch
+uestion in$isputably calls for a presentation an$ $etermination of evi$ence
through a hearing, 0hich is generally outsi$e the province of the Court2s Curis$iction,
but 0ell 0ithin the 8?C2s statutory po0ers% Thus, for obvious reasons, the Court
limite$ its $ecision on the purely legal an$ threshol$ issue on the $e"nition of the
term OcapitalO in 8ection ,,, Article 9II of the Constitution an$ $irecte$ the 8?C to
apply such $e"nition in $etermining the eBact percentage of foreign o0nership in
P(*T%
I3.
*/-4 is not an indispensa%le party;
"#$ is impleaded in this case.
In his petition, Hamboa prays, among others@
B B B B
I% 'or the #onorable Court to issue a $eclaratory relief that o0nership of common or
voting shares is the sole basis in $etermining foreign e+uity in a public utility an$
that any other government rulings, opinions, an$ regulations inconsistent 0ith this
$eclaratory relief be $eclare$ unconstitutional an$ a violation of the intent an$ spirit
of the ,:54 ConstitutionA
.% 'or the #onorable Court to $eclare null an$ voi$ all sales of common stocks to
foreigners in eBcess of 63 percent of the total subscribe$ common sharehol$ingsA
an$
4% 'or the #onorable Court o *irec he Sec$riies an* E+chan)e
Co##ission an$ Philippine 8tock ?Bchange o reC$ire PLDT o #aAe a &$'(ic
*isc(os$re of a(( of is forei)n shareho(*in)s an* heir ac$a( an* rea(
'ene!cia( o,ners%
Fther relief(s) Cust an$ e+uitable are like0ise praye$ for% (?mphasis supplie$)
As can be gleane$ from his prayer, Hamboa clearly asks this Court to compel the
8?C to perform its statutory $uty to investigate 0hether Othe re+uire$ percentage of
o0nership of the capital stock to be o0ne$ by citiens of the Philippines has been
complie$ 0ith Dby P(*TE as re+uire$ by B B B the Constitution%O
I,
8uch plea clearly
negates 8?C2s argument that it 0as not implea$e$%
Hranting that only the 8?C Chairman 0as implea$e$ in this case, the Court has
ample po0ers to or$er the 8?C2s compliance 0ith its $irective containe$ in the -5
Lune -3,, *ecision in vie0 of the far-reaching implications of this case% In $omingo
% Scheer,
I-
the Court $ispense$ 0ith the amen$ment of the plea$ings to implea$
the Kureau of Customs consi$ering (,) the uni+ue back$rop of the caseA (-) the
utmost nee$ to avoi$ further $elaysA an$ (/) the issue of public interest involve$%
The Court hel$@
The Court may be curing the $efect in this case by a$$ing the KFC as party-
petitioner% The petition shoul$ not be $ismisse$ because the secon$ action 0oul$
only be a repetition of the "rst% In Salador, et al%, % Court of Appeals, et al%, 0e hel$
that this Court has full po0ers, apart from that po0er an$ authority 0hich is
inherent, to amen$ the processes, plea$ings, procee$ings an$ $ecisions by
substituting as party-plaintiQ the real party-in-interest% The Co$r has he &o,er
o aEoi* *e(a" in he *is&osiion of his case, o or*er is a#en*#en as o
i#&(ea* he 6OC as &ar"?res&on*en. In*ee*, i #a" no (on)er 'e
necessar" o *o so aAin) ino acco$n he $niC$e 'acA*ro& in his case,
inEo(Ein) as i *oes an iss$e of &$'(ic ineres. After all, the F&ce of the
8olicitor Heneral has represente$ the petitioner in the instant procee$ings, as 0ell
as in the appellate court, an$ maintaine$ the vali$ity of the $eportation or$er an$ of
the KFC2s Fmnibus Resolution% It cannot, thus, be claime$ by the 8tate that the
KFC 0as not aQor$e$ its $ay in court, simply because only the petitioner, the
Chairperson of the KFC, 0as the respon$ent in the CA, an$ the petitioner in the
instant recourse% In Alonso % :illamor, 0e ha$ the occasion to state@
There is nohin) sacre* a'o$ &rocesses or &(ea*in)s, heir for#s or
conens. Their so(e &$r&ose is o faci(iae he a&&(icaion of @$sice o he
riEa( c(ai#s of conen*in) &aries. They 0ere create$, not to hin$er an$ $elay,
but to facilitate an$ promote, the a$ministration of Custice% They $o not constitute
the thing itself, 0hich courts are al0ays striving to secure to litigants% They are
$esigne$ as the means best a$apte$ to obtain that thing% In other 0or$s, they are a
means to an en$% 1hen they lose the character of the one an$ become the other,
the a$ministration of Custice is at fault an$ courts are correspon$ingly remiss in the
performance of their obvious $uty%
I/
(?mphasis supplie$)
In an" eEen, he SEC has e+&ress(" #anifese*
I6
ha i ,i(( a'i*e '" he
Co$rFs *ecision an* *efer o he Co$rFs *e!niion of he er# Bca&ia(B in
Secion 00, Aric(e =II of he Consi$ion. F$rher, he SEC enere* is
s&ecia( a&&earance in his case an* ar)$e* *$rin) he Ora( Ar)$#ens,
in*icain) is s$'#ission o he Co$rFs @$ris*icion. I is c(ear, herefore,
ha here e+iss no (e)a( i#&e*i#en a)ains he &ro&er an* i##e*iae
i#&(e#enaion of he Co$rFs *ireciEe o he SEC%
P(*T is an in$ispensable party only insofar as the other issues, particularly the
factual +uestions, are concerne$% In other 0or$s, P(*T must be implea$e$ in or$er
to fully resolve the issues on (,) 0hether the sale of ,,,,6,I PTIC shares to 'irst
Paci"c violates the constitutional limit on foreign o0nership of P(*TA (-) 0hether the
sale of common shares to foreigners eBcee$e$ the 63 percent limit on foreign e+uity
in P(*TA an$ (/) 0hether the total percentage of the P(*T common shares 0ith
voting rights complies 0ith the .3-63 o0nership re+uirement in favor of 'ilipino
citiens un$er the Constitution for the o0nership an$ operation of P(*T% These
issues in$isputably call for an eBamination of the parties2 respective evi$ence, an$
thus are clearly 0ithin the Curis$iction of the 8?C% In short, P(*T must be implea$e$,
an$ must necessarily be hear$, in the procee$ings before the 8?C 0here the factual
issues 0ill be thoroughly threshe$ out an$ resolve$%
Noa'(", he fore)oin) iss$es ,ere (ef $no$che* '" he Co$r% The Court
$i$ not rule on the factual issues raise$ by Hamboa, eBcept the single an$ purely
legal issue on the $e"nition of the term OcapitalO in 8ection ,,, Article 9II of the
Constitution% The Court con"ne$ the resolution of the instant case to this threshol$
legal issue in $eference to the fact-"n$ing po0er of the 8?C%
>ee$less to state, the Court can vali$ly, properly, an$ fully $ispose of the
fun$amental legal issue in this case even 0ithout the participation of P(*T since
$e"ning the term OcapitalO in 8ection ,,, Article 9II of the Constitution $oes not, in
any 0ay, $epen$ on 0hether P(*T 0as implea$e$% 8imply put, P(*T is not
in$ispensable for a complete resolution of the purely legal +uestion in this case%
II
In
fact, the Court, by treating the petition as one for man$amus,
I.
merely $irecte$ the
8?C to apply the Court2s $e"nition of the term OcapitalO in 8ection ,,, Article 9II of
the Constitution in $etermining 0hether P(*T committe$ any violation of the sai$
constitutional provision% The *is&osiiEe &orion of he Co$rFs r$(in) is
a**resse* no o PLDT '$ so(e(" o he SEC, ,hich is he a*#inisraiEe
a)enc" asAe* o enforce he 25?N5 o,nershi& reC$ire#en in faEor of
Fi(i&ino cii%ens in Secion 00, Aric(e =II of he Consi$ion%
8ince the Court limite$ its resolution on the purely legal issue on the $e"nition of
the term OcapitalO in 8ection ,,, Article 9II of the ,:54 Constitution, an$ $irecte$
the 8?C to investigate any violation by P(*T of the .3-63 o0nership re+uirement in
favor of 'ilipino citiens un$er the Constitution,
I4
there is no $eprivation of P(*T2s
property or $enial of P(*T2s right to $ue process, contrary to Pangilinan an$
>aareno2s misimpression% *ue process 0ill be aQor$e$ to P(*T 0hen it presents
proof to the 8?C that it complies, as it claims here, 0ith 8ection ,,, Article 9II of the
Constitution%
3.
Foreign Investments in the *hilippines
!ovants fear that the -5 Lune -3,, *ecision 0oul$ spell $isaster to our economy,
as it may result in a su$$en Pight of eBisting foreign investors to Ofrien$lierO
countries an$ simultaneously $eterring ne0 foreign investors to our country% In
particular, the P8? claims that the -5 Lune -3,, *ecision may result in the
follo0ing@ (,) loss of more than P ./3 billion in foreign investments in P8?-liste$
sharesA (-) massive $ecrease in foreign tra$ing transactionsA (/) lo0er P8?
Composite In$eBA an$ (6) local investors not investing in P8?-liste$ shares%
I5
*r% Kernar$o !% Nillegas, one of the amici curiae in the Fral Arguments, share$
movants2 apprehension% 1ithout provi$ing speci"c $etails, he pointe$ out the
$epressing state of the Philippine economy compare$ to our neighboring countries
0hich boast of gro0ing economies% 'urther, *r% Nillegas eBplaine$ that the solution
to our economic 0oes is for the government to Otake-overO strategic in$ustries, such
as the public utilities sector, thus@
LG8TIC? CARPIF@
I 0oul$ like also to get from you *r% Nillegas if you have a$$itional information on
0hether this high '*I
I:
countries in ?ast Asia have allo0e$ foreigners B B B control
DofE their public utilities, so that 0e can compare apples 0ith apples%
*R% NI((?HA8@
Correct, but let me Cust make a comment% 1hen these neighbors of ours "n$ an
in$ustry strategic, their solution is not to O'ilipinieO or ONietnamieO or
O8ingaporie%O Their so($ion is o #aAe s$re ha hose in*$sries are in he
han*s of sae ener&rises. So, in hese co$nries, naiona(i%aion #eans
he )oEern#en aAes oEer. An* 'eca$se heir )oEern#ens are
co#&een an* hones eno$)h o he &$'(ic, ha is he so($ion. B B
B
.3
(?mphasis supplie$)
If government o0nership of public utilities is the solution, then foreign investments
in our public utilities serve no purpose% Fbviously, there can never be foreign
investments in public utilities if, as *r% Nillegas claims, the Osolution is to make sure
that those in$ustries are in the han$s of state enterprises%O *r% Nillegas2s argument
that foreign investments in telecommunication companies like P(*T are ba$ly
nee$e$ to save our ailing economy contra$icts his o0n theory that the solution is
for government to take over these companies% *r% Nillegas is barking up the 0rong
tree since 8tate o0nership of public utilities an$ foreign investments in such
in$ustries are $iametrically oppose$ concepts, 0hich cannot possibly be reconcile$%
In any event, the eBperience of our neighboring countries cannot be use$ as
argument to $eci$e the present case $iQerently for t0o reasons% 'irst, the
governments of our neighboring countries have, as claime$ by *r% Nillegas, taken
over o0nership an$ control of their strategic public utilities like the
telecommunications in$ustry% 8econ$, our Constitution has speci"c provisions
limiting foreign o0nership in public utilities 0hich the Court is s0orn to uphol$
regar$less of the eBperience of our neighboring countries%
In our Curis$iction, the Constitution eBpressly reserves the o0nership an$ operation
of public utilities to 'ilipino citiens, or corporations or associations at least .3
percent of 0hose capital belongs to 'ilipinos% 'ollo0ing *r% Nillegas2s claim, the
Philippines appears to be more liberal in allo0ing foreign investors to o0n 63
percent of public utilities, unlike in other Asian countries 0hose governments o0n
an$ operate such in$ustries%
3I.
*rospective 0pplication of "anctions
In its !otion for Partial Reconsi$eration, the 8?C sought to clarify the reckoning
perio$ of the application an$ imposition of appropriate sanctions against P(*T if
foun$ violating 8ection ,,, Article 9II of the Constitution%1aphi1
As $iscusse$, the Court has $irecte$ the 8?C to investigate an$ $etermine 0hether
P(*T violate$ 8ection ,,, Article 9II of the Constitution% Thus, there is no $ispute
that it is only after the 8?C has $etermine$ P(*T2s violation, if any eBists at the time
of the commencement of the a$ministrative case or investigation, that the 8?C may
impose the statutory sanctions against P(*T% In other 0or$s, once the -5 Lune -3,,
*ecision becomes "nal, the 8?C shall impose the appropriate sanctions only if it
"n$s after $ue hearing that, at the start of the a$ministrative case or investigation,
there is an eBisting violation of 8ection ,,, Article 9II of the Constitution% Gn$er
prevailing Curispru$ence, public utilities that fail to comply 0ith the nationality
re+uirement un$er 8ection ,,, Article 9II an$ the 'IA can cure their $e"ciencies
prior to the start of the a$ministrative case or investigation%
.,
3II.
Final 5ord
The Constitution eBpressly $eclares as 8tate policy the $evelopment of an economy
Oefectively controlledO by 'ilipinos% Consistent 0ith such 8tate policy, the
Constitution eBplicitly reserves the o0nership an$ operation of public utilities to
Philippine nationals, 0ho are $e"ne$ in the 'oreign Investments Act of ,::, as
'ilipino citiens, or corporations or associations at least .3 percent of 0hose
capital 1ith voting rights belongs to 'ilipinos% The 'IA2s implementing rules
eBplain that ODfEor stocks to be $eeme$ o0ne$ an$ hel$ by Philippine citiens or
Philippine nationals, mere legal title is not enough to meet the re+uire$ 'ilipino
e+uity% F$(( 'ene!cia( o,nershi& of he socAs, co$&(e* ,ih a&&ro&riae
Eoin) ri)hs is essenia(%O In eQect, the 'IA clari"es, reiterates an$ con"rms the
interpretation that the term OcapitalO in 8ection ,,, Article 9II of the ,:54
Constitution refers to shares 1ith voting rights, as 1ell as 1ith full %enecial
o1nership% This is precisely because the right to vote in the election of $irectors,
couple$ 0ith full bene"cial o0nership of stocks, translates to eQective control of a
corporation%
Any other construction of the term OcapitalO in 8ection ,,, Article 9II of the
Constitution contravenes the letter an$ intent of the Constitution% Any other
meaning of the term OcapitalO openly invites alien $omination of economic activities
reserve$ eBclusively to Philippine nationals% Therefore, respon$ents2 interpretation
0ill ultimately result in han$ing over eQective control of our national economy to
foreigners in patent violation of the Constitution, making 'ilipinos secon$-class
citiens in their o0n country%
'ilipinos have only to remin$ themselves of ho0 this country 0as eBploite$ un$er
the Parity Amen$ment, 0hich gave Americans the same rights as 'ilipinos in the
eBploitation of natural resources, an$ in the o0nership an$ control of public utilities,
in the Philippines% To $o this the ,:/I Constitution, 0hich containe$ the same .3
percent 'ilipino o0nership an$ control re+uirement as the present ,:54
Constitution, ha$ to be amen$e$ to give Americans parity rights 0ith 'ilipinos%
There 0as bitter opposition to the Parity Amen$ment
.-
an$ many 'ilipinos eagerly
a0aite$ its eBpiration% In late ,:.5, P(*T 0as one of the American-controlle$ public
utilities that became 'ilipino-controlle$ 0hen the controlling American stockhol$ers
$iveste$ in anticipation of the eBpiration of the Parity Amen$ment on / Luly
,:46%
./
>o economic suici$e happene$ 0hen control of public utilities an$ mining
corporations passe$ to 'ilipinos2 han$s upon eBpiration of the Parity Amen$ment%
!ovants2 interpretation of the term OcapitalO 0oul$ bring us back to the same evils
spa0ne$ by the Parity Amen$ment, efectively giving foreigners parity rights
1ith Filipinos, %ut this time even 1ithout any amendment to the present
$onstitution% 1orse, movants2 interpretation opens up our national economy
toefective control not only by Americans but also by a(( forei)ners, 'e he"
In*onesians, /a(a"sians or Chinese, eEen in he a'sence of reci&roca(
rea" arran)e#ens% At least the Parity Amen$ment, as implemente$ by the
(aurel-(angley Agreement, gave the capital-starve$ 'ilipinos theoretical parity W the
same rights as Americans to eBploit natural resources, an$ to o0n an$ control
public utilities, in the 9nited States of America% #ere, movants2 interpretation 0oul$
eQectively mean a unilateral opening up of our national economy to all
foreigners, 1ithout any reciprocal arrangements% That 0oul$ mean that
In$onesians, !alaysians an$ Chinese nationals coul$ eQectively control our mining
companies an$ public utilities 0hile 'ilipinos, even if they have the capital, coul$ not
control similar corporations in these countries%
The ,:/I, ,:4/ an$ ,:54 Constitutions have the same .3 percent 'ilipino
o0nership an$ control re+uirement for public utilities like P(FT% Any $eviation from
this re+uirement necessitates an amen$ment to the Constitution as eBempli"e$ by
the Parity Amen$ment% This Court has no po0er to amen$ the Constitution for its
po0er an$ $uty is only to faithfully apply an$ interpret the Constitution%
-HEREFORE, ,e DEN. the motions for reconsi$eration -ITH FINALIT.. >o
further plea$ings shall be entertaine$%
8F FR*?R?*%
ANTONIO T. CARPIO
Associate Lustice
1? CF>CGR@
/ARIA LOURDES P.A. SERENO
Chief Lustice
PRES6ITERO 9. 8ELASCO, 9R.
Associate Lustice
TERESITA 9. LEONARDO?DE
CASTRO
Associate Lustice
ARTURO D. 6RION
Associate Lustice
DIOSDADO /. PERALTA
Associate Lustice
LUCAS P. 6ERSA/IN
Associate Lustice
/ARIANO C. DEL CASTILLO
Associate Lustice
RO6ERTO A. A6AD
Associate Lustice
/ARTIN S. 8ILLARA/A, 9R.
Associate Lustice
9OSE U PORTUGAL PERE<
Associate Lustice
9OSE C. /ENDO<A
Associate Lustice
6IEN8ENIDO L. RE.ES
Associate Lustice
ESTELA /. PERLAS?6ERNA6E
Associate Lustice
C ? R T I ' I C A T I F >
Pursuant to 8ection ,/, Article NIII of the Constitution, I certify that the conclusions
in the above Resolution ha$ been reache$ in consultation before the case 0as
assigne$ to the 0riter of the opinion of the Court%
/ARIA LOURDES P.A. SERENO
Chief Lustice
Foonoes
X
The #eirs of 1ilson P% Hamboa substitute$ petitioner 1ilson P% Hamboa per
Resolution $ate$ ,4 April -3,- 0hich note$ the !anifestation of (auro Hamboa
$ate$ ,- April -3,-%
,
RolJo(Nol%lll),pp%l6/,-,6I,% *ate$ II Luly-3,,%
-
I$% at ,I./-,.,/% *ate$ ,6 Luly -3,,%
/
I$% at ,6I6-,I/4% *ate$ ,I Luly -3,,%
6
I$% at ,..:-,.53% Through its F&ce of the Heneral Counsel an$ Commissioner
!anuel llubeiio K% Haite% In its !anifestation an$ Fmnibus !otion $ate$ -: Luly -3 II,
the 8?C manifeste$ that the position of the F8H on the meaning of the term
OcapitalO $oes not rePect the vie0 of the 8?C%
The 8?C sought a partial reYonsi$eration praying that the statement on 8?CMs
unla0ful neglect of its statutory $uty be eBpunge$ an$ for clari"cation on the
reckoning perio$ of the imposition of any sanctions against P(FT%
I
I$% at ,.,6-,.-4% *ate$ ,/ Luly -3,,% Fn behalfofthe 8?C, by special appearance%
The F8H praye$ that the CourtMs $ecision Obe cure$ of its proce$ural $efect 0hich
ho0ever shoul$ not prevail over the substantive aspect of the *ecision%O
.
I $% at -,3---,-6% 'ile$ on ,I *ecember -3 II%
4
Salacion % Central +ank of the "hilippines, /6/ Phil% I/: (,::4)%
5
,I3-K Phil% /53 (,:4-)%
:
.ollo (Nol% III), p% ,I5/%
,3
A$$resse$ to Hov% (ilia Kautista of the Koar$ of Investments%
,,
A typographical error in *FL Fpinion >o% ,/3 0here it states 537%
,-
Republic Act >o% 54::%
,/
Heneral Counsel an$ Commissioner !anuel #uberto K% Haite of the 8ecurities an$
?Bchange Commission%
,6
T8> (Fral Arguments), -. Lune -3,-, pp% 5,-5/% ?mphasis supplie$%
,I
8?C ?n Kanc Case >o% 3:-3:-,44, -I !arch -3,3%
,.
8?C Fpinion >o% 6:-36, Re@ Corporations consi$ere$ as Philippine >ationals, $ate$
-- *ecember -336, a$$resse$ to Romulo !abanta Kuenaventura 8ayoc R *e (os
Angeles an$ signe$ by Heneral Counsel Nernette H% Gmali-PacoA 8?C-FHC Fpinion
>o% 3/-35, $ate$ ,I Lanuary -335, a$$resse$ to Attys% Ruby Rose L% Susi an$
Ru$yar$ 8% Arbola$o an$ signe$ by Heneral Counsel Nernette H% Gmali-PacoA 8?C-
FHC Fpinion >o% 3:-3:, $ate$ -5 April -33:, a$$resse$ to Nillaraa Cru !arcelo
Angangco an$ signe$ by Heneral Counsel Nernette H% Gmali-PacoA 8?CFHC Fpinion
>o% 35-,3, $ate$ 5 'ebruary -3,3, a$$resse$ to !r% Teo$oro K% ZuiCano an$ signe$
by Heneral Counsel Nernette H% Gmali-PacoA 8?C-FHC Fpinion >o% -/-,3, $ate$ ,5
August -3,3, a$$resse$ to Castillo (aman Tan Pantaleon an$ 8an Lose an$ signe$
by Heneral Counsel Nernette H% Gmali-PacoA 8?C-FHC Fpinion >o% ,5-34, $ate$ -5
>ovember -334, a$$resse$ to !r% Rafael C% Kueno, Lr% an$ signe$ by Heneral
Counsel Nernette H% Gmali-Paco%
In 8?C Fpinion >o% /--3/, $ate$ - Lune -33/, a$$resse$ to >ational
Telecommunications Commissioner Armi Lane R% KorCe, 8?C Heneral Counsel
Nernette H% Gmali-Paco state$@
In this light, it is imperative that 0e reiterate the policy of this Commission (8?C) in
refraining from ren$ering opinions that might preCu$ice or aQect the outcome of a
case, 0hich is subCect to present litigation before the courts, or any other forum for
that matter% The opinion, 0hich may be ren$ere$ thereon, 0oul$ not be bin$ing
upon any party 0ho 0oul$ in all probability, if the opinion happens to be a$verse to
his or its interest, take issue there0ith an$ contest it before the proper venue% The
Commission, therefore, has to refrain from giving categorical ans0ers to your +uery%
,4
/43 Phil% I/5 (,:::)%
,5
H%R% >o% ,I-.5I, 6 *ecember -334, I/: 8CRA /.I%
,:
.ollo (Nol% III), pp% ,/:--,/:/%
-3
8upra%
-,
8upra%
--
*e (eon, #ector 8%, T?9TKFF) F> T#? P#I(IPPI>? CF>8TITGTIF>, -33I ?$ition,
pp% /-, //%
-/
8ection ,3, Article 9II of the ,:54 Constitution%
-6
Kernas, Loa+uin H%, 8%L%, T#? ,:54 CF>8TITGTIF> F' T#? R?PGK(IC F' T#?
P#I(IPPI>?8@ A CF!!?>TARS, ,::. ?$ition, p% ,366, citing Smith, +ell and Co% %
0atiidad, 63 Phil% ,/., ,65 (,:,:)A#u*on Steedoring Corporation % Anti'$ummy
+oard, ,I3-K Phil% /53, 63/-636 (,:4-)%
-I
Issue$ on ,4 Luly ,:54%
-.
Articles 66 to I. of the Fmnibus Investments Co$e of ,:54 0ere later repeale$ by
the 'oreign Investments Act of ,::,% 8ee infra, p% -.%
-4
Article 65% Authority to $o +usiness% >o alien, an$ no "rm association, partnership,
corporation or any other form of business organiation forme$, organie$, chartere$
or eBisting un$er any la0s other than those of the Philippines, or 0hich is not a
Philippine national, or more than forty percent (637) of the outstan$ing capital of
0hich is o0ne$ or controlle$ by aliens shall $o business or engage in any economic
activity in the Philippines or be registere$, license$, or permitte$ by the 8ecurities
an$ ?Bchange Commission or by any other bureau, o&ce, agency, political
sub$ivision or instrumentality of the government, to $o business, or engage in any
economic activity in the Philippines 0ithout "rst securing a 0ritten certi"cate from
the Koar$ of Investments to the eQect@
B B B B
(/) That such business or economic activity by the applicant 0oul$ not conPict 0ith
the Constitution or la0s of the PhilippinesA
B B B B
-5
Presi$ential *ecree >o% ,45:%
-:
Article .:% Authority to $o +usiness% >o alien, an$ no "rm, association,
partnership, corporation or any other form of business organiation forme$,
organie$, chartere$ or eBisting un$er any la0s other than those of the Philippines,
or 0hich is not a Philippine national, or more than thirty (/37) per cent of the
outstan$ing capital of 0hich is o0ne$ or controlle$ by aliens shall $o business or
engage in any economic activity in the Philippines, or be registere$, license$, or
permitte$ by the 8ecurities an$ ?Bchange Commission or by any other bureau,
o&ce, agency, political sub$ivision or instrumentality of the government, to $o
business, or engage in any economic activity in the Philippines, 0ithout "rst
securing a 0ritten certi"cate from the Koar$ of Investments to the eQect@
B B B B
(/) That such business or economic activity by the applicant 0oul$ not conPict 0ith
the Constitution or la0s of the PhilippinesA
B B B B
/3
An Act Prescribing Incentives An$ Huarantees To Investments In The Philippines,
Creating A Koar$ Ff Investments, Appropriating The >ecessary 'un$s Therefor An$
'or Fther Purposes%
/,
8ection / of RA >o% I6II states@
8ection /% "ermissi!le Inestments% If an investment by a non-Philippine national in
an enterprise not registere$ un$er the Investment Incentives Act is such that the
total participation by non-Philippine nationals in the outstan$ing capital thereof shall
eBcee$ thirty per cent, the enterprise must obtain prior authority from the Koar$ of
Investments, 0hich authority shall be grante$ unless the propose$ investment
(a) 1oul$ conPict 0ith eBisting constitutional provisions an$ la0s regulating the
$egree of re+uire$ o0nership by Philippine nationals in the enterpriseA or
(b) 1oul$ pose a clear an$ present $anger of promoting monopolies or
combinations in restraint of tra$eA or
(c) 1oul$ be ma$e in an enterprise engage$ in an area a$e+uately being eBploite$
by Philippine nationalsA or
($) 1oul$ conPict or be inconsistent 0ith the Investments Priorities Plan in force at
the time the investment is sought to be ma$eA or
(e) 1oul$ not contribute to the soun$ an$ balance$ $evelopment of the national
economy on a self-sustaining basis%
B B B B
/-
?Becutive Fr$er >o% 5I5, Promulgating the ?ighth Regular 'oreign Investment
>egative (ist, signe$ on I 'ebruary -3,3, http@JJ000%boi%gov%phJp$fJla0sJeoJ?F
7-35I5%p$f (accesse$ ,4 August -3,,)%
//
T8> (Fral Arguments), -. Lune -3,-, pp% 4,-46%
/6
Publishe$ by the Koar$ of Investments% 'or on-line copy, see
http@JJ000%f$i%netJ$ocumentsJ1orl$KankJ$atabasesJphilippinesJprimer%htm
(accesse$ / 8eptember -3,-)
/I
In his book, 'letcher eBplains@
The term OstockO has been use$ in the same sense as Ocapital stockO or Ocapital,O
an$ it has been sai$ that Otis primary meaning is capital, in 0hatever form it may be
investe$% !ore commonly, it is no0 being use$ to $esignate shares of the stock in
the han$s of the in$ivi$ual sharehol$ers, or the certi"cates issue$ by the
corporation to them% ('letcher Cyclope$ia of the (a0 of Private Corporations, ,::I
Revise$ Nolume, Nol% ,,, [ I34:, p% ,/A citations omitte$)%
/.
8?CTIF> ,/4% Futstan$ing capital stock $e"ne$% - The term Ooutstan$ing capital
stockO as use$ in this Co$e, means the total shares of stock issue$ to subscribers or
stockhol$ers, 0hether or not fully or partially pai$, eBcept treasury shares%
8?C% .% Classi;cation of shares% - The shares of stock of stock corporations may be
$ivi$e$ into classes or series of shares, or both, any of 0hich classes or series of
shares may have such rights, privileges or restrictions as may be state$ in the
articles of incorporation@ Provi$e$, That no share may be $eprive$ of voting rights
eBcept those classi"e$ an$ issue$ as Opreferre$O or Ore$eemableO shares, unless
other0ise provi$e$ in this Co$e@ Provi$e$, further, That there shall al0ays be a class
or series of shares 0hich have complete voting rights% Any or all of the shares or
series of shares may have a par value or have no par value as may be provi$e$ for
in the articles of incorporation@ Provi$e$, ho0ever, That banks, trust companies,
insurance companies, public utilities, an$ buil$ing an$ loan associations shall not be
permitte$ to issue no-par value shares of stock%
Preferre$ shares of stock issue$ by any corporation may be given preference in the
$istribution of the assets of the corporation in case of li+ui$ation an$ in the
$istribution of $ivi$en$s, or such other preferences as may be state$ in the articles
of incorporation 0hich are not violative of the provisions of this Co$e@ Provi$e$, That
preferre$ shares of stock may be issue$ only 0ith a state$ par value% The boar$ of
$irectors, 0here authorie$ in the articles of incorporation, may "B the terms an$
con$itions of preferre$ shares of stock or any series thereof@ Provi$e$, That such
terms an$ con$itions shall be eQective upon the "ling of a certi"cate thereof 0ith
the 8ecurities an$ ?Bchange Commission%
8hares of capital stock issue$ 0ithout par value shall be $eeme$ fully pai$ an$ non-
assessable an$ the hol$er of such shares shall not be liable to the corporation or to
its cre$itors in respect thereto@ Provi$e$A That shares 0ithout par value may not be
issue$ for a consi$eration less than the value of "ve (P I%33) pesos per share@
Provi$e$, further, That the entire consi$eration receive$ by the corporation for its
no-par value shares shall be treate$ as capital an$ shall not be available for
$istribution as $ivi$en$s%
A corporation may, furthermore, classify its shares for the purpose of insuring
compliance 0ith constitutional or legal re+uirements%
?Bcept as other0ise provi$e$ in the articles of incorporation an$ state$ in the
certi"cate of stock, each share shall be e+ual in all respects to every other share%
B B B B
/4
Gn$er 8ection . of the Corporation Co$e%
/5
*issenting Fpinion to the -5 Lune -3,, *ecision%
/:
Recor$ of the Constitutional Commission, Nol% III, pp% -II--I.%
63
I$% at /.3%
6,
Aruego, Lose !%, T#? 'RA!I>H F' T#? P#I(IPPI>? CF>8TITGTIF>, Nol% II, ,:/., p%
.I5%
6-
I$%
6/
The F8H state$, OIt must be stresse$ that 0hen the F8H state$ its concurrence
0ith the #onorable Court2s ruling on the proper $e"nition of capital, it $i$ so, not on
behalf of the 8?C, its in$ivi$ual client in this case% Rather, the F8H $i$ so in the
eBercise of its $iscretion not only in its capacity as statutory counsel of the 8?C but
as counsel for no less than the 8tate itself%O
66
-:I G%8% .3-, II 8%Ct% 5.:, G%8% ,:/I (-4 !ay ,:/I)%
6I
Recor$ of the Constitutional Commission, Nol% /, pp% .I3-.I, (-/ August ,:5.)%
6.
Recor$ of the Constitutional Commission, Nol% /, pp% .I--.I/ (-/ August ,:5.)%
64
Recor$ of the Constitutional Commission, Nol% /, p% .I- (-/ August ,:5.)%
65
Recor$ of the Constitutional Commission, Nol% /, pp% ..I-..4 (-/ August ,:5.)%
6:
8ection I, Article 9IN of the ,:4/ Constitution provi$es@
8ection I% >o franchise, certi"cate, or any other form of authoriation for the
operation of a public utility shall be grante$ eBcept to citiens of the Philippines or
to corporations or associations organie$ un$er the la0s of the Philippines at least
siBty per centum of the capital of 0hich is o0ne$ by such citiens, nor shall such
franchise, certi"cate, or authoriation be eBclusive in character or for a longer
perio$ than "fty years% >either shall any such franchise or right be grante$ eBcept
un$er the con$ition that it shall be subCect to amen$ment, alteration, or repeal by
the >ational Assembly 0hen the public interest so re+uires% The 8tate shall
encourage e+uity participation in public utilities by the general public% The
&arici&aion of forei)n inEesors in he )oEernin) 'o*" of an" &$'(ic
$i(i" ener&rise sha(( 'e (i#ie* o heir &ro&orionae share in he
ca&ia( hereof.(?mphasis supplie$)
I3
'or the year -33:%
I,
8?C% ,4% <rounds ,hen articles of incorporation or amendment may !e re=ected
or disapproed% W The 8ecurities an$ ?Bchange Commission may reCect the articles
of incorporation or $isapprove any amen$ment thereto if the same is not in
compliance 0ith the re+uirements of this Co$e@ Provi$e$, Tha he Co##ission
sha(( )iEe he incor&oraors a reasona'(e i#e ,ihin ,hich o correc or
#o*if" he o'@eciona'(e &orions of he aric(es or a#en*#en% The
follo0ing are groun$s for such reCection or $isapproval@
B B B B
(6) Tha he &ercena)e of o,nershi& of he ca&ia( socA o 'e o,ne* '"
cii%ens of he Phi(i&&ines has no 'een co#&(ie* ,ih as reC$ire* '"
e+isin) (a,s or he Consi$ion% (?mphasis supplie$)
8ection I of R%A% >o% 54:: provi$es@
8ection I% "o,ers and -unctions of the Commission%W I%,% The Commission shall act
0ith transparency an$ shall have the po0ers an$ functions provi$e$ by this Co$e,
Presi$ential *ecree >o% :3--A, the Corporation Co$e, the Investment #ouses (a0,
the 'inancing Company Act an$ other eBisting la0s% Pursuant thereto the
Commission shall have, among others, the follo0ing po0ers an$ functions@
(a) #ave Curis$iction an$ supervision over all corporations, partnerships or
associations 0ho are the grantees of primary franchises an$Jor a license or a permit
issue$ by the HovernmentA
B B B B
(c) Approve, reCect, suspen$, revoke or re+uire amen$ments to registration
statements, an$ registration an$ licensing applicationsA
B B B B
(f) Impose sanctions for the violation of la0s an$ the rules, regulations an$ or$ers,
issue$ pursuant theretoA
B B B B
(i) Issue cease an$ $esist or$ers to prevent frau$ or inCury to the investing publicA
B B B B
(m) 8uspen$, or revoke, after proper notice an$ hearing the franchise or certi"cate
of registration of corporations, partnership or associations, upon any of the groun$s
provi$e$ by la0A an$
(n) ?Bercise such other po0ers as may be provi$e$ by la0 as 0ell as those 0hich
may be implie$ from, or 0hich are necessary or inci$ental to the carrying out of, the
eBpress po0ers grante$ the Commission to achieve the obCectives an$ purposes of
these la0s%
I-
6.. Phil% -/I (-336)%
I/
I$% at -..--.4%
I6
In its !anifestation an$ Fmnibus !otion $ate$ -: Luly -3,,, the 8?C state$@ OThe
Commission respectfully manifests that the position of the F&ce of the 8olicitor
Heneral (TF8H2) on the meaning of the term OcapitalO $oes not rePect the vie0 of
the Commission% The Commission2s position has been lai$ $o0n in countless
opinions that nee$s no reiteration% The Co##ission, ho,eEer, ,o$(* s$'#i o
,haeEer ,o$(* 'e he !na( *ecision of his Honora'(e Co$r on he
#eanin) of he er# Bca&ia(.B(?mphasis supplie$A citations omitte$)
In its !emoran$um, the 8?C state$@ OIn the event that this #onorable Court rules
0ith "nality on the meaning of OcapitalO, the 8?C 0ill yiel$ to the Court an$ follo0 its
interpretation%O
II
In #ucman % /ala,i, I63 Phil% -5: (-33.), the Court $e"ne$ in$ispensable parties
as parties ininterest 0ithout 0hom there can be no "nal $etermination of an action%
I.
8ection /, Rule .I of the Rules of Court states@
8?C% /% "etition for mandamus% W 1hen any tribunal, corporation, boar$, o&cer or
person unla0fully neglects the performance of an act 0hich the la0 speci"cally
enCoins as a $uty resulting from an o&ce, trust, or station, or unla0fully eBclu$es
another from the use an$ enCoyment of a right or o&ce to 0hich such other is
entitle$, an$ there is no other plain, spee$y an$ a$e+uate reme$y in the or$inary
course of la0, the person aggrieve$ thereby may "le a veri"e$ petition in the proper
court, alleging the facts 0ith certainty an$ praying that Cu$gment be ren$ere$
comman$ing the respon$ent, imme$iately or at some other time to be speci"e$ by
the court, to $o the act re+uire$ to be $one to protect the rights of the petitioner
an$ to pay the $amages sustaine$ by the petitioner by reason of the 0rongful acts
of the respon$ent%
B B B B
I4
8ee #ucman % /ala,i, supra, 0here the Court referre$ to the *epartment of
Interior an$ (ocal Hovernment (though not implea$e$) for investigation an$
appropriate action the matter regar$ing the 0ith$ra0als of $eposits representing
the concerne$ barangays2 Internal Revenue Allotments%
I5
.ollo (Nol% III), pp% ,666-,66I%
I:
'oreign *irect Investments%
.3
T8> (Fral Arguments), -. Lune -3,-, p% ,,4%
.,
8ee 6alili % Court of Appeals, /I3 Phil% :3. (,::5)A 9nited Church +oard for >orld
/inistries % Se!astian, -6- Phil% 565 (,:55)%
.-
Grbano A% Vafra, The #aurel'#angley Agreement and the "hilippine 8conomy, p% 6/
(,:4/)% 8ee also/a!anag % #ope* :ito, 45 Phil% , (,:64)%
./
8ee #a$i 8alehi ?sfahani, The "olitical 8conomy of the "hilippines7
Telecommunications Sector, 1orl$ Kank Policy Research *epartment (,::6)%
DISSENTING OPINION
8ELASCO, 9R., J.:
Kefore Gs are separate motions for reconYi$eration of the CourtMs Lune -5, -3,,
*ecision,
,
0hich partially grante$ the petition for prohibition, inCunction an$
$eclaratory relief interpose$ by 1ilson P% Hamboa (petitioner or Hamboa)% Nery
simply, the Court hel$ that the term OcapitalO appearing in 8ection ,,, Article 9II of
the ,:54 Constitution refers only to common shares or shares of stock entitle$ to
vote in the election of the members of the boar$ of $irectors of a public utility, an$
not to the total outstan$ing capital stock%
Respon$ents !anuel N% Pangilinan (Pangilinan) an$ >apoleon (%>aare no
(>aareno) separately move$ for reconsi$eration on proce$ural an$ substantive
groun$s, but reserve$ their main arguments against the maCorityMs hol$ing on the
meaning of Ocapital%O The F&ce of the 8olicitor Heneral (F8H), 0hich initially
represent(@$ the 8ecurities an$ ?Bchange Commission (8?C), also re+ueste$
reconYitkratiun even as it manifeste$ agreement 0ith the maCorityMs construal ctM
the \Nor$ Ocapital%O Gnable to Coin the F8HMs stan$ on the $eterminative issue of
capital, the 8?C sought leave to Coin the fray on its mvn% fn its ?tdotion to Admit
A1anifestation and 3mni!us /otion, the 8?C state$ that the F8H2s position on sai$
issue $oes not rePect its o0n an$ in fact $iverges from 0hat the Commission has
consistently a$opte$ prior to this case. An$ because the $ecision in +uestion has a
penalty component 0hich it is taske$ to impose, 8?C re+ueste$ clari"cation as
to ,hen he recAonin) &erio* of a&&(icaion of he a&&ro&riae sancions
#a" 'e i#&ose* on Phi(i&&ine Lon) Disance Te(e&hone Co#&an" :PLDT; in
case he SEC *eer#ines ha i has Eio(ae* Sec. 00, Ar. =II of he
Consi$ion%
To the foregoing motions, the main petitioner, no0 $ecease$, "le$ his Comment
and@or 3pposition to /otions for .econsideration%
Acting on the various motions an$ comment, the Court con$ucte$ an$ hear$ the
parties in oral arguments on April ,4 an$ Lune -., -3,-%
After consi$ering the parties2 positions as articulate$ $uring the oral arguments an$
in their plea$ings an$ respective memoran$a, I vote to grant reconsi$eration% This
$isposition is consistent 0ith my $issent, on proce$ural an$ substantive groun$s, to
the Lune -5, -3,, maCority *ecision%
Cons&ec$s
The core issue is the meaning of the 0or$ OcapitalO in the opening sentence of 8ec%
,,, Art% 9II of the ,:54 Constitution 0hich rea$s@
Secion 00. No franchise, ceri!cae, or an" oher for# of a$hori%aion for
he o&eraion of a &$'(ic $i(i" sha(( 'e )rane* e+ce& o cii%ens of he
Phi(i&&ines or o cor&oraions or associaions or)ani%e* $n*er he (a,s of
he Phi(i&&ines, a (eas si+" &er cen$# of ,hose ca&ia( is o,ne* '"
s$ch cii%ensH nor shall such franchise, certi"cate, or authoriation be eBclusive in
character or for a longer perio$ than "fty years% >either shall any such franchise or
right be grante$ eBcept un$er the con$ition that it shall be subCect to amen$ment,
alteration, or repeal by the Congress 0hen the common goo$ so re+uires% The 8tate
shall encourage e+uity participation in public utilities by the general public% The
&arici&aion of forei)n inEesors in he )oEernin) 'o*" of an" &$'(ic
$i(i" ener&rise sha(( 'e (i#ie* o heir &ro&orionae share in is
ca&ia(, an* a(( he e+ec$iEe an* #ana)in) oGcers of s$ch cor&oraion or
associaion #$s 'e cii%ens of he Phi(i&&ines% (?mphasis supplie$%)
'or an easier comprehension of the t0o contrasting positions on the contentious
meaning of the 0or$ Ocapital,O as foun$ in the "rst sentence of the afore+uote$
provision, allo0 me to present a brief comparative analysis sho0ing the
$issimilarities%
The maCority, in the Lune -5, -3,, *ecision, as reiterate$ in the $raft resolution, is
of the vie0 that the 0or$ OcapitalO in the "rst sentence of 8ec% ,,, Art% 9II refers to
common shares or voting shares on("A thus limiting foreign o0nership of such
shares to 637% The rationale, as state$ in the basic ponencia, is that this
interpretation ensures that control of the Koar$ of *irectors stays in the han$s of
'ilipinos, since foreigners can only o0n a maBimum of 637 of sai$ shares an$,
accor$ingly, can only elect the e+uivalent percentage of $irectors% As a necessary
corollary, 'ilipino stockhol$ers can al0ays elect .37 of the Koar$ of *irectors 0hich,
to the maCority, translates to control over the corporation%
The opposite vie0 is that the 0or$ OcapitalO in the "rst sentence refers to the entire
capital stock of the corporation or both voting an$ non-voting shares an$ >FT solely
to common shares% 'rom this stan$point, .37 control over the capital stock or the
stockhol$ers o0ning both voting an$ non-voting shares is assure$ to 'ilipinos an$,
as a conse+uence, over corporate matters vote$ upon an$ $ecisions reache$ $uring
stockhol$ers2 meetings% Fn the other han$, the last sentence of 8ec% ,,, Art% 9II,
0ith the 0or$ OcapitalO embe$$e$ in it, is the provision that ensures 'ilipino control
over the Koar$ of *irectors an$ its $ecisions%
To resolve the conPicting interpretations of the 0or$ Ocapital,O the "rst sentence of
8ec% ,,, Art% 9II must be rea$ an$ consi$ere$ in conCunction 0ith the last sentence
of sai$ 8ec% ,, 0hich prescribes that Othe participation of foreign investors in the
governing bo$y of any public utility enterprise shall be limite$ to their proportionate
share in its capital%O After all, it is an establishe$ principle in constitutional
construction that provisions in the Constitution must be harmonie$%
It has been ma$e very clear $uring the oral arguments an$ even by the parties2
0ritten submissions that control by 'ilipinos over the public utility enterprise eBists
on three (/) levels, namely@
,% 8iBty percent (.37) control of 'ilipinos over the capital stock 0hich covers both
voting an$ non-voting shares an$ inevitably over the stockhol$ers% This level of
control is embo$ie$ in the "rst sentence of 8ec% ,,, Art% 9II 0hich rea$s@
Secion 00. No franchise, ceri!cae, or an" oher for# of a$hori%aion for
he o&eraion of a &$'(ic $i(i" sha(( 'e )rane* e+ce& o cii%ens of he
Phi(i&&ines or o cor&oraions or associaions or)ani%e* $n*er he (a,s of
he Phi(i&&ines, a (eas si+" &er cen$# of ,hose ca&ia( is o,ne* '"
s$ch cii%ens + + +.
The 0or$ OcapitalO in the above provision refers to capital stock or both voting an$
non-voting shares% 8iBty percent (.37) control over the capital stock translates to
control by 'ilipinos over almost all $ecisions by the stockhol$ers $uring
stockhol$ers2 meetings inclu$ing rati"cation of the $ecisions an$ acts of the Koar$
of *irectors% *uring sai$ meetings, voting an$ even non-voting shares are entitle$
to vote% The eBercise by non-voting shares of voting rights over maCor corporate
$ecisions is eBpressly provi$e$ in 8ec% . of the Corporation Co$e 0hich rea$s@
8ec% .% B B B B
1here the articles of incorporation provi$e for non-voting shares in the cases
allo0e$ by this Co$e, the hol$ers of such shares shall nevertheless be entitle$ to
vote on the follo0ing matters@
,% Amen$ment of the articles of incorporationA
-% A$option an$ amen$ment of by-la0sA
/% 8ale, lease, eBchange, mortgage, ple$ge or other $isposition of all or
substantially all of the corporate propertyA
6% Incurring, creating or increasing bon$e$ in$ebte$nessA
I% Increase or $ecrease of capital stockA
.% !erger or consoli$ation of the corporation 0ith another corporation or other
corporationsA
4% Investment of corporate fun$s in another corporation or business in accor$ance
0ith this Co$eA an$
5% *issolution of the corporation%
Construing the 0or$ OcapitalO in the "rst sentence of 8ec% ,,, Art% 9II of the
Constitution as capital stock 0oul$ ensure 'ilipino control over the public utility 0ith
respect to maCor corporate $ecisions% If 0e a$opt the vie0 espouse$ by Lustice
Carpio that the 0or$ OcapitalO means only common shares or voting shares, then
foreigners can o0n even up to ,337 of the non-voting shares% In such a situation,
foreigners may very 0ell eBercise control over all maCor corporate $ecisions as their
o0nership of the nonvoting shares remains unfettere$ by the 637 cap lai$ $o0n in
the "rst sentence of 8ec% ,,, Art% 9II% This 0ill spa0n an even greater anomaly
because it 0oul$ give the foreigners the opportunity to ac+uire o0nership of the net
assets of the corporation upon its $issolution to inclu$e 0hat the Constitution
enCoinsWWlan$ o0nership possibly through $ummy corporations% 1ith the vie0 of
Lustice Carpio, 'ilipinos 0ill $e"nitely lose control over maCor corporate $ecisions
0hich are $eci$e$ by stockhol$ers o0ning the maCority of the non-voting shares%
-% 8iBty percent (.37) control by 'ilipinos over the common shares or voting shares
an$ necessarily over the Koar$ of *irectors of the public utility% Control on this level
is guarantee$ by the last sentence of 8ec% ,,, Art% 9II 0hich rea$s@
The &arici&aion of forei)n inEesors in he )oEernin) 'o*" of an" &$'(ic
$i(i" ener&rise sha(( 'e (i#ie* o heir &ro&orionae share in is
Bca&ia(B B B B%
In its or$inary signi"cation, OparticipationO connotes Othe action or state of taking
part 0ith others in an activity%O
-
This participation in its $ecision-making function can
only be the right to elect boar$ $irectors% #ence, he (as senence of Sec. 00,
Ar. =II of he Consi$ion ePeciEe(" resrics he ri)h of forei)ners o
e(ec *irecors o he 'oar* in &ro&orion o he (i#i on heir oa(
shareho(*in)s. 8ince the "rst part of 8ec% ,,, Art% 9II of the Constitution speci"es
a 637 limit of foreign o0nership in the total capital of the public utility corporation,
then the rights of foreigners to be electe$ to the boar$ of $irectors, is like0ise
limite$ to 63 percent% If the foreign o0nership of common shares is lo0er than 637,
the participation of foreigners is limite$ to their proportionate share in the capital
stock%
In the highly hypothetical public utility corporation 0ith ,33 common shares an$
,,333,333 preferre$ non-voting shares, or a total of ,,333,,33 shares cite$ in the
Lune -5, -3,, *ecision, foreigners can thus only o0n up to 633,363 shares of the
corporation, consisting of the #a+i#$# 63 (out of the ,33) voting shares an$
633,333 non-voting shares% An$, assuming a ,3- member boar$, the foreigners can
elect only 6 members of the boar$$sin) he N5 Eoin) shares he" are a((o,e*
o o,n%
Fo((o,in), in !ne, he *icaes of Sec. 00, Ar. =II, as co$che*, he forei)n
shareho(*ersF ri)h o e(ec #e#'ers of he )oEernin) 'oar* of a )iEen
&$'(ic $i(i" cor&oraion is &ro&oriona( on(" o heir ri)h o ho(* a &ar
of he oa( shareho(*in)s of ha eni". 8ince foreigners can only o0n, in the
maBimum, up to 637 of the total sharehol$ings of the company, then heir Eoin)
eni(e#en as o he n$#erica( co#&osiion of he 'oar* ,o$(* *e&en* on
he (eEe( of heir shareho(*in) in re(aion o he ca&ia( socA, '$ in no
case sha(( i e+cee* he N5D hresho(*.
Contrary to the vie0 of Lustice Carpio that the obCective behin$ the "rst sentence of
8ec% ,,, Art% 9II is to ensure control of 'ilipinos over the Koar$ of *irectors by
limiting foreign o0nership of the common shares or voting shares up to 637, i is
ac$a((" he !rs &ar of he aforeC$oe* (as senence of Sec. 00, Ar. =II
ha (i#is he ri)hs of forei)ners o e(ec no #ore han N5D of he 'oar*
seas thus ensuring a clear maCority in the Koar$ of *irectors to 'ilipinos% If 0e
follo0 the line of reasoning of Lustice Carpio on the meaning of the 0or$ OcapitalO in
the "rst sentence, then there is no nee$ for the framers of the Constitution to
incorporate the last sentence in 8ec% ,,, Art% 9II on the 637 maBimum participation
of the foreigners in the Koar$ of *irectors% The last sentence 0oul$ be a useless
re$un$ancy, a situation $oubtless uninten$e$ by the framers of the Constitution% A
construction that ren$ers a part of the la0 or Constitution being construe$
superPuous is an aberration,
/
for it is at all times presume$ that each 0or$ use$ in
the la0 is intentional an$ has a particular an$ special role in the approBimation of
the policy sought to be attaine$, ut magis aleat Auam pereat%
/% The thir$ level of control procee$s from the re+uirement tucke$ in the secon$
part of the ultimate sentence that Oa(( he e+ec$iEe an* #ana)in) oGcers of
he cor&oraion #$s 'e cii%ens of he Phi(i&&ines%O This assures full 'ilipino
control, at all times, over the management of the public utility%
To summarie, the Constitution, as enacte$, establishes not Cust one but a three-
tiere$ control-enhancing-an$-locking mechanism in 8ec% ,,, Article 9II to ensure
that 'ilipinos 0ill al0ays have full bene"cial o0nership an$ control of public utility
corporations@
,% 637 ceiling on foreign o0nership in the capital stock that ensures siBty percent
(.37) 'ilipino control over the capital stock 0hich covers both voting an$ non-voting
shares% As a conse+uence, 'ilipino control over the stockhol$ers is assure$% ('irst
sentence of 8ec% ,,, Art% 9II)% Thus, foreigners can o0n only up to 637 of the capital
stock%
-% 637 ceiling on the right of foreigners to elect boar$ $irectors that guarantees
siBty percent (.37) 'ilipino control over the Koar$ of *irectors% ('irst part of last
sentence of 8ec% ,,, Art% 9II)%
/% Reservation to 'ilipino citiens of the eBecutive an$ managing o&cers, regar$less
of the level of alien e+uity o0nership to secure total 'ilipino control over the
management of the public utility enterprise (8econ$ part of last sentence of 8ec%
,,, Art% 9II)% Thus, all eBecutive an$ managing o&cers must be 'ilipinos%
Disc$ssion
Gn$oubte$ly there is a clash of conPicting opinions as to 0hat OcapitalO in the "rst
sentence of 8ec% ,,, Art% 9II means% The maCority says it refers only to common or
voting shares% The minority says it inclu$es both voting an$ non-voting shares% A
resort to constitutional construction is unavoi$able%
It is settle$ though that the Oprimary source from 0hich to ascertain constitutional
intent or purpose is the language of the constitution itself%O
6
To this en$, he ,or*s
$se* '" he Consi$ion sho$(* as #$ch as &ossi'(e 'e $n*ersoo* in
heir or*inar" #eanin) as the Constitution is not a la0yer2s $ocument%
I
This
approach, other0ise kno0n as he ver%a legis r$(e, sho$(* 'e a&&(ie* saEe
,here echnica( er#s are e#&(o"e*%
.
The &(ain #eanin) of Bca&ia(B in he !rs
senence of Sec. 00, Ar. =II of he Consi$ion
inc($*es 'oh Eoin) an* non?Eoin) shares
?%/% Tuason B Co%, Inc% % #and Tenure Administration illustrates the er!a legis rule%
There, the Court cautions against $eparting from the commonly un$erstoo$
meaning of or$inary 0or$s use$ in the Constitution, i*%@
1e look to the language of the $ocument itself in our search for its meaning% 1e $o
not of course stop there, but that is 0here 0e begin% It is to be assume$ that
the ,or*s in ,hich consi$iona( &roEisions are co$che* e+&ress he
o'@eciEe so$)h o 'e aaine*% They are to be given their or$inary meaning
eBcept 0here technical terms are employe$ in 0hich case the signi"cance thus
attache$ to them prevails. As the Constitution is not primarily a la0yerMs $ocument,
it being essential for the rule of la0 to obtain that it shoul$ ever be present in the
peopleMs consciousness, is (an)$a)e as #$ch as &ossi'(e sho$(* 'e
$n*ersoo* in he sense he" haEe in co##on $se% 1hat it says accor$ing to
the teBt of the provision to be construe$ compels acceptance an$ negates the
po0er of the courts to alter it, base$ on the postulate that the framers an$ the
people mean 0hat they say% Thus, there are cases 0here the nee$ for construction
is re$uce$ to a minimum%
4
(?mphasis supplie$%)
The primary reason for the er!a legis approach, as pointe$ out by 'r% Loa+uin
Kernas $uring the Lune -., -3,- arguments, is that the people 0ho rati"e$ the
Constitution vote$ on their un$erstan$ing of the 0or$ capital in its every$ay
meaning% 'r% Kernas eluci$ate$ thus@
B B B Fver the years, from the ,:/I to the ,:4/ an$ "nally even un$er the ,:54
Constitution, the prevailing practice has been to base the .3-63 proportion on total
outstan$ing capital stock, that is, the combine$ total of common an$ non-voting
preferre$ shares% This is 0hat occasione$ the case un$er consi$eration%
1hat is the constitutional relevance of this continuing practice= I suggest that it is
relevant for $etermining 0hat the people in the street vote$ for 0hen they rati"e$
the Constitution% -hen he *raf of a Consi$ion is &resene* o he &eo&(e
for rai!caion, ,ha he &eo&(e Eoe on is no he *e'aes in he
consi$en 'o*" '$ he e+ of he *raf. Concree(", ,ha he e(ecorae
Eoe* on ,as heir $n*ersan*in) of he ,or* ca&ia( in is eEer"*a"
#eanin) he" enco$ner in *ai(" (ife. 1e cannot attribute to the voters a Curist2s
sophisticate$ meaning of capital an$ its break$o0n into common an$ preferre$%
1hat they vote on is 0hat they see% >or $o they vote on 0hat the $rafters sa0 as
assume$ meaning, to use Kengon2s eBplanation% In the language of the
sophisticates, 0hat Eoers in a &(e'iscie Eoe on is ver%a legis an*
no anima legis a'o$ ,hich raine* @$riss *e'ae.
1hat then $oes it make of the contemporary un$erstan$ing by 8?C etc% Is the
contemporary un$erstan$ing unconstitutional or constitutional= I hesitate to
characterie it as constitutional or unconstitutional% I 0oul$ merely characterie it as
popular% 1hat I mean is it rePects the common un$erstan$ing of the
or$inary populi, common but incomplete%
5
(?mphasis supplie$%)
OCapitalO in the "rst sentence of 8ec% ,,, Art% 9II must then be accor$e$ a meaning
accepte$, un$erstoo$, an$ use$ by an or$inary person not verse$ in the
technicalities of la0% As $e"ne$ in a non-legal $ictionary, capital stock or capital is
or$inarily taken to mean Othe o$san*in) shares of a Coint stock company
consi$ere$ as an aggregateO
:
or Othe o,nershi& e(e#en of a corporation $ivi$e$
into shares an$ represente$ by certi"cates%O
,3
The term OcapitalO inclu$es all the outstan$ing shares of a company that represent
Othe proprietary claim in a business%O
,,
I *oes no *isin)$ish 'ase* on he
Eoin) fea$re of he socAs '$ refers o a(( shares, 'e he" Eoin) or non?
Eoin)% >either is the term limite$ to the management aspect of the corporation
but clearly refers to the separate aspect of o,nershi& of the corporate shares
thereby encompassing all shares representing the e+uity of the corporation%
This plain meaning, as un$erstoo$, accepte$, an$ use$ in or$inary parlance, he0s
0ith the $e"nition given by Klack 0ho e+uates capital to capital stock
,-
an$ $e"nes
it as Othe total number of shares of stock that a corporation may issue un$er its
charter or articles of incorporation, inc($*in) 'oh co##on socA an*
&referre* socA%O
,/
This meaning is also rePecte$ in legal commentaries on the
Corporation Co$e% The respecte$ commentator Ruben ?% Agpalo $e"nes OcapitalO as
the Omoney, property or means contribute$ by stockhol$ers for the business or
enterprise for 0hich the corporation 0as forme$ an$ generally implies that such
money or property or means have been contribute$ in payment for stock issue$ to
the contributors%O
,6
!ean0hile, Ocapital stockO is Ohe a))re)ae of he shares
ac$a((" s$'scri'e* DorE the amount subscribe$ an$ pai$-in an$ upon 0hich the
corporation is to con$uct its operations, or the amount pai$-in by its stockhol$ers in
money, property or services 0ith 0hich it is to con$uct its business%O
,I
This $e"nition has been echoe$ by numerous other eBperts in the "el$ of
corporation la0% *ean Nillanueva 0rote, thus@
In $e"ning the relationship bet0een the corporation an$ its stockhol$ers, the capital
stock represents the proportional stan$ing of the stockhol$ers 0ith respect to the
corporation an$ corporate matters, such as their rights to vote an$ to receive
$ivi$en$s%
In "nancial terms, he ca&ia( socA of he cor&oraion as reQece* in he
!nancia( sae#en of he cor&oraion re&resens he !nancia( or
&ro&riear" c(ai#s of he socAho(*ers o he ne asses of he cor&oraion
$&on *isso($ion. In a$$ition, the capital stock represents the totality of the
portion of the corporation2s assets an$ receivables 0hich are covere$ by the trust
fun$ $octrine an$ provi$e for the amount of assets an$ receivables of the
corporation 0hich are $eeme$ protecte$ for the bene"t of the corporate cre$itors
an$ from 0hich the corporation cannot $eclare any $ivi$en$s%
,.
(?mphasis
supplie$%)
8imilarly, reno0ne$ author #ector 8% $e (eon $e"nes OcapitalO an$ Ocapital stockO in
the follo0ing manner@
Capital is use$ broa$ly to in$icate the entire property or assets of the corporation% It
inclu$es the amount investe$ by the stockhol$ers plus the un$istribute$ earnings
less losses an$ eBpenses% In the strict sense, the term refers to that portion of the
net assets pai$ by the stockhol$ers as consi$eration for the shares issue$ to them,
0hich is utilie$ for the prosecution of the business of the corporation% It inclu$es all
balances or instalments $ue the corporation for shares of stock sol$ by it an$ all
unpai$ subscription for shares%
B B B B
The term is also use$ synonymously 0ith the 0or$s Ocapital stock,O as meaning the
amount subscribe$ an$ pai$-in an$ upon 0hich the corporation is to con$uct its
operation (,, 'letcher Cyc% Corp%, p% ,I D,:5. e$%E) an$ i is i##aeria( ho, he
socA is c(assi!e*, ,heher as co##on or &referre*%
,4
(?mphasis an$
un$erscoring supplie$%)
#ence, follo0ing the er!a legis approach, I see no reason to stray a0ay from 0hat
appears to be a common an$ settle$ acceptation of the 0or$ Ocapital,O given that,
as use$ in the constitutional provision in +uestion, i san*s $nC$a(i!e* by any
restrictive or eBpansive 0or$ as to reasonably Custify a $istinction or a $elimitation
of the meaning of the 0or$% 9!i le) non distinguit nos distinguere de!emus, 0hen
the la0 $oes not $istinguish, 0e must not $istinguish%
,5
Gsing this plain meaning of
OcapitalO 0ithin the conteBt of 8ec% ,,, Art% 9II, foreigners are entitle$ to o0n no
#ore han N5D of he o$san*in) ca&ia( socA, 0hich 0oul$ inclu$e both
voting an$ non-voting shares%
E+raneo$s ai*s o ferre o$ consi$iona( inen
1hen the seeming ambiguity on the meaning of OcapitalO cannot be threshe$ out by
looking at the language of the Constitution, then resort to eBtraneous ai$s has
become imperative% The Court can utilie the follo0ing eBtraneous ai$s, to 0it@ (,)
procee$ings of the conventionA (-) changes in phraseologyA (/) history or realities
eBisting at the time of the a$option of the ConstitutionA (6) prior la0s an$ Cu$icial
$ecisionsA (I) contemporaneous constructionA an$ (.) conse+uences of alternative
interpretations%
,:
I submit that all these ai$s of constitutional construction a&rm
that the only acceptable construction of OcapitalO in the "rst sentence of 8ec% ,,,
Art% 9II of the ,:54 Constitution is that it refers to a(( shares of a corporation, both
voting an$ non-voting%
De(i'eraions of he Consi$iona( Co##ission
of 04J2 *e#onsrae ha ca&ia( #eans 'oh
Eoin) an* non?Eoin) shares :0s e+rinsic ai*;
The procee$ings of the ,:5. Constitutional Commission that $rafte$ the ,:54
Constitution 0ere accurately recor$e$ in the Recor$s of the Constitutional
Commission%
To bring to light the true meaning of the 0or$ OcapitalO in the "rst line of 8ec% ,,,
Art% 9II, one must peruse, $issect an$ analye the entire $eliberations of the
Constitutional Commission pertinent to the article on national economy an$
patrimony, as +uote$ belo0@
August ,/, ,:5., 1e$nes$ay
PRFPF8?* R?8F(GTIF> >F% 6:.
R?8F(GTIF> TF I>CFRPFRAT? I> T#? >?1 CF>8TITGTIF> A> ARTIC(? F>
>ATIF>A( ?CF>F!S A>* PATRI!F>S
+e it resoled as it is here!y resoled !y the Constitutional Commission in session
assem!led, To incorporate the >ational ?conomy an$ Patrimony of the ne0
Constitution, the follo0ing provisions@
ARTIC(?]]]]
>ATIF>A( ?CF>F!S A>* PATRI!F>S
8?CTIF> ,% The 8tate shall $evelop a self-reliant an$ in$epen$ent national
economy% B B B
B B B B
8?C% /% B B B The eBploration, $evelopment, an$ utiliation of natural resources shall
be un$er the full control an$ supervision of the 8tate% 8uch activities may be
$irectly un$ertaken by the 8tate, or it may enter into co-pro$uction, Coint venture,
pro$uction-sharing agreements 0ith 'ilipino citiens orcor&oraions or
associaions a (eas si+" &ercen of ,hose Eoin) socA or conro((in)
ineres is o,ne* '" s$ch cii%ens. B B B
B B B B
8?C% :% The Congress shall reserve to citiens of the Philippines or to corporations or
associations a (eas si+" &er cen of ,hose Eoin) socA or conro((in)
ineres is o0ne$ by such citiens or such higher percentage as Congress may
prescribe, certain areas of investments 0hen the national interest so $ictates%
B B B B
8?C% ,I% >o franchise, certi"cate, or any other form of authoriation for the
operation of a public utility shall be grante$ eBcept to citiens of the Philippines or
to corporations or associations organie$ un$er the la0s of the Philippines a (eas
,o?hir*s of ,hose Eoin) socA or conro((in) ineres is o,ne* '" s$ch
cii%ens. >either shall any such franchise or right be grante$ eBcept un$er the
con$ition that it shall be subCect to amen$ment, alteration, or repeal by Congress
0hen the common goo$ so re+uires% The 8tate shall encourage e+uity participation
in public utilities by the general public% (Frigin of 8ec% ,,, Article 9II)
B B B B
!R% >F((?*F% In 8ections /, : an$ ,I, the Committee state$ local or 'ilipino e+uity
an$ foreign e+uityA namely, .3-63 in 8ection /, .3-63 in 8ection :, an$ -J/-,J/ in
8ection ,I%
!R% NI((?HA8% That is right%
!R% >F((?*F% In teaching la0, 0e are al0ays face$ 0ith this +uestion@ O1here $o
0e base the e+uity re+uirement, is it on the authorie$ capital stock, on the
subscribe$ capital stock, or on the pai$-up capital stock of a corporation=O 1ill the
Committee please enlighten me on this=
!R% NI((?HA8% 1e have Cust ha$ a long $iscussion 0ith the members of the team
from the GP (a0 Center 0ho provi$e$ us a $raft% The phrase that is containe$ here
0hich 0e a$opte$ from the GP $raft is O.3 percent of voting stock%O
!R% >F((?*F% That must be base$ on the subscribe$ capital stock, because unless
$eclare$ $elin+uent, unpai$ capital stock shall be entitle$ to vote%
!R% NI((?HA8% That is right%
!R% >F((?*F% Thank you%
1ith respect to an investment by one corporation in another corporation, say, a
corporation 0ith .3-63 percent e+uity invests in another corporation 0hich is
permitte$ by the Corporation Co$e, $oes the Committee a$opt the gran$father
rule=
!R% NI((?HA8% Ses, that is the un$erstan$ing of the Committee%
!R% >F((?*F% Therefore, 0e nee$ a$$itional 'ilipino capital=
!R% NI((?HA8% Ses%
-3
August ,6, ,:5., Thurs$ay
!R% 'FV% !r% Nice-Presi$ent, in 8ections / an$ :, the provision on e+uity is both .3
percent, but I notice that this is no0 $iQerent from the provision in the ,:4/
Constitution in that the basis for the e+uity provision is voting stock or controlling
interest instea$ of the usual capital percentage as provi$e$ for in the ,:4/
Constitution% 1e 0oul$ like to kno0 0hat the $iQerence 0oul$ be bet0een the
previous an$ the propose$ provisions regar$ing e+uity interest%
!R% NI((?HA8% Commissioner 8uare 0ill ans0er that%
!R% 8GAR?V% Thank you%
As a matter of fact, this particular portion is still being revie0e$ by this Committee%
In 8ection ,, Article 9III of the ,:/I Constitution, the 0or$ing is that the percentage
shoul$ be base$ on the capital 0hich is o0ne$ by such citiens% In the propose$
$raft, this phrase 0as propose$@ Ovoting stock or controlling interest%O This 0as a
plan submitte$ by the GP (a0 Center%
Three $ays ago, 0e ha$ an early morning breakfast conference 0ith the members of
the GP (a0 Center an$ precisely, 0e 0ere seeking clari"cation regar$ing the
$iQerence% 1e 0oul$ have three criteria to go by@ Fne 0oul$ be base$ on capital,
0hich is capital stock of the corporation, authorie$, subscribe$ or pai$ up, as
employe$ un$er the ,:/I an$ the ,:4/ Constitution% The i$ea behin$ the
intro$uction of the phrase Ovoting stock or controlling interestO 0as precisely to
avoi$ the perpetration of $ummies, 'ilipino $ummies of multinationals% It is
theoretically possible that a situation may $evelop 0here these multinational
interests 0oul$ not really be only 63 percent but 0ill eBten$ beyon$ that in the
matter of voting because they coul$ enter into 0hat is kno0n as a voting trust or
voting agreement 0ith the rest of the stockhol$ers an$, therefore, not0ithstan$ing
the fact that on recor$ their capital eBtent is only up to 63-percent interest in the
corporation, actually, they 0oul$ be managing an$ controlling the entire company%
That is 0hy the GP (a0 Center members suggeste$ that 0e utilie the 0or$s Ovoting
interestO 0hich 0oul$ preclu$e multinational control in the matter of voting,
in$epen$ent of the capital structure of the corporation% An$ then they also a$$e$
the phrase Ocontrolling interestO 0hich up to no0 they have not been able to
successfully $e"ne the eBact meaning of% Kut they mentione$ the situation 0here
theoretically the boar$ 0oul$ be controlle$ by these multinationals, such that
instea$ of, say, three 'ilipino $irectors out of "ve, there 0oul$ be three foreign
$irectors an$, therefore, they 0oul$ be controlling the management of the company
0ith foreign interest% That is 0hy they volunteere$ to Pesh out this particular portion
0hich 0as submitte$ by them, but up to no0, they have not come up 0ith a
constructive rephrasing of this portion% An$ as far as I am concerne$, I am not
speaking in behalf of the Committee, I ,o$(* fee( #ore co#fora'(e if ,e )o
'acA o he ,or*in) of he 04M3 an* he 041M Consi$ion, ha is o sa",
he 25?N5 &ercena)e co$(* 'e 'ase* on he ca&ia( socA of he
cor&oraion.
!R% 'FV% I un$erstan$ that that 0as the same vie0 of *ean Carale 0ho $oes not
agree 0ith the others on this panel at the GP (a0 Center regar$ing the percentage
of the ratio%
!R% 8GAR?V% That is right% *ean Carale shares my sentiment about this matter%
!R% K?>HVF>% I also share the sentiment of Commissioner 8uare in that respect%
8o there are alrea$y t0o in the Committee 0ho 0ant to go back to the 0or$ing of
the ,:/I an$ the ,:4/ Constitution%
-,
August ,I, ,:5., 'ri$ay
!R% !AA!KF>H% I ask that Commissioner Tre^as be recognie$ for an amen$ment
on line ,6%
T#? PR?8I*?>T% Commissioner Tre^as is recognie$%
!R% TR?_A8% !a$am Presi$ent, may I propose an amen$ment on line ,6 of 8ection
/ by $eleting therefrom O0hose voting stock an$ controlling interest%O An* in (ie$
hereof, inser he CAPITAL so he (ine sho$(* rea*: Bassociaions a (eas
si+" &ercen of he CAPITAL is o,ne* '" s$ch cii%ens.
/R. 8ILLEGAS. -e acce& he a#en*#en.
/R. TRERAS. ThanA "o$.
THE PRESIDENT. The a#en*#en of Co##issioner TreSas on (ine 0N has
'een acce&e* '" he Co##iee.
Is here an" o'@ecionI :"ilence; The Chair hears noneH he a#en*#en is
a&&roEe*.
B B B B
T#? PR?8I*?>T% Commissioner 8uare is recognie$%
!R% 8GAR?V% Thank you, !a$am Presi$ent%
T0o points actually are being raise$ by Commissioner *avi$e2s propose$
amen$ment% Fne has reference to the percentage of hol$ings an$ the other one is
the basis for that percentage% 1oul$ the bo$y have any obCection if 0e split it into
t0o portions because there may be several Commissioners 0ho 0oul$ be 0illing to
accept the Commissioner2s proposal on capital stock in contra$istinction to a voting
stock for controlling interest=
!R% NI((?HA8% The proposal has been accepte$ alrea$y%
!R% *ANI*?% Ses, but it 0as .3 percent%
!R% NI((?HA8% That is right%
!R% 8GAR?V% 8o, it is no0 .3 percent as against 0holly o0ne$=
!R% *ANI*?% Ses%
!R% 8GAR?V% Is the Commissioner not insisting on the voting capital stock because
that 0as alrea$y accepte$ by the Committee=
!R% *ANI*?% 1oul$ it mean that it 0oul$ be ,33-percent voting capital stock=
!R% 8GAR?V% >o, un$er the Commissioner2s proposal it is Cust OCAPITA(O not Ostock%O
/R. DA8IDE. No, I ,an i o 'e Eer" c(ear. -ha is he a(ernaiEe &ro&osa(
of he Co##ieeI Ho, sha(( i rea*I
/R. SUARE<. I ,i(( on(" rea* so#ehin) (iAe: Bhe CAPITAL OF -HICH IS
FULL. o,ne*.B
/R. 8ILLEGAS. Le #e rea* (ines 02 o 0N ,hich sae:
T ener ino co?&ro*$cion, @oin Een$re, &ro*$cion sharin) a)ree#ens
,ih Fi(i&ino cii%ens or cor&oraions or associaions a (eas 25 &ercen of
,hose CAPITAL is o,ne* '" s$ch cii%ens.
-e are )oin) 'acA o he 04M3 an* 041M for#$(aions.
/R. DA8IDE. I canno acce& he &ro&osa( 'eca$se he ,or* CAPITAL
sho$(* no rea((" 'e he )$i*in) &rinci&(e. I is he o,nershi& of he
cor&oraion. I #a" 'e Eoin) or no Eoin), '$ ha is no he )$i*in)
&rinci&(e.
/R. SUARE<. So, he Co##issioner is insisin) on he $se of he er#
BCAPITAL STOC>BI
/R. DA8IDE. .es, o 'e fo((o,e* '" he &hrase B-HOLL. o,ne*.B
/R. SUARE<. .es, '$ ,e are on(" concenrain) on he !rs &oin O
BCAPITAL STOC>B or #ere(" BCAPITAL.B
/R. DA8IDE. CAPITAL STOC>I
/R. SUARE<. .es, i is BCAPITAL STOC>.O
8G8P?>8IF> F' 8?88IF>
At CDCE p%m%, the session ,as resumed%
THE PRESIDENT. The session is res$#e*.
Co##issioner DaEi*e is o c(arif" his &oin.
/R. 8ILLEGAS. .es, Co##issioner DaEi*e has acce&e* he ,or*
BCAPITALB in &(ace of BEoin) socA or conro((in) ineres.B This is an
a#en*#en a(rea*" acce&e* '" he Co##iee.
1e 0oul$ like to call for a vote on ,33-percent 'ilipino versus .3- percent 'ilipino%
!R% A(F>TF% Is it .3 percent=
!R% NI((?HA8% 8iBty percent, yes%
!R% HA8CF>% !a$am Presi$ent, shall 0e vote on the propose$ amen$ment of
Commissioner *avi$e of OF>? #G>*R?* P?RC?>T=O
!R% NI((?HA8% Ses%
!R% HA8CF>% Assuming that it is lost, that $oes not preCu$ice any other
Commissioner to make any recommen$ations on other percentages=
!R% NI((?HA8% I 0oul$ suggest that 0e vote on OsiBty,O 0hich is in$icate$ in the
committee report%
!R% HA8CF>% It is the amen$ment of Commissioner *avi$e that 0e shoul$ vote on,
not the committee report%
!R% NI((?HA8% Ses, it is all right%
!R% AVCG>A% !a$am Presi$ent%
THE PRESIDENT. Co##issioner A%c$na is reco)ni%e*.
/R. A<CUNA. /a" I 'e c(ari!e* as o ha &orion ha ,as acce&e* '" he
Co##ieeI
/R. 8ILLEGAS. The &orion acce&e* '" he Co##iee is he *e(eion of
he &hrase BEoin) socA or conro((in) ineres.B
/R. A<CUNA. Hence, ,iho$ he DaEi*e a#en*#en, he co##iee
re&or ,o$(* rea*: Bcor&oraions or associaions a (eas si+" &ercen of
,hose CAPITAL is o,ne* '" s$ch cii%ens.B
/R. 8ILLEGAS. .es.
/R. A<CUNA. So if he DaEi*e a#en*#en is (os, ,e are s$cA ,ih 25
&ercen of he ca&ia( o 'e o,ne* '" cii%ensI
/R. 8ILLEGAS. Tha is ri)h.
!R% AVCG>A% Kut the control can be 0ith the foreigners even if they are the
minority% (et us say 63 percent of the capital is o0ne$ by them, but it is the voting
capital, 0hereas, the 'ilipinos o0n the nonvoting shares% 8o 0e can have a situation
0here the corporation is controlle$ by foreigners $espite being the minority
because they have the voting capital% That is the anomaly that 0oul$ result there%
!R% K?>HVF>% >o, the reason 0e eliminate$ the 0or$ OstockO as state$ in the ,:4/
an$ ,:/I Constitutions is that accor$ing to Commissioner Ro$rigo, there are
associations that $o not have stocks% That is 0hy 0e say OCAPITA(%O
!R% AVCG>A% 1e shoul$ not eliminate the phrase Ocontrolling interest%O
!R% K?>HVF>% In the case of stock corporations, it is assume$%
!R% AVCG>A% Ses, but 0hat I mean is that the control shoul$ be 0ith the 'ilipinos%
!R% K?>HVF>% Ses, that is un$erstoo$%
!R% AVCG>A% Ses, because if 0e Cust say OsiBty percent of 0hose capital is o0ne$ by
the 'ilipinos,O the capital may be voting or nonvoting%
!R% K?>HVF>% That is correct%
!R% AVCG>A% !y concern is the situation 0here there is a voting stock% It is a stock
corporation% 1hat the Committee re+uires is that .3 percent of the capital shoul$
be o0ne$ by 'ilipinos% Kut that 0oul$ not assure control because that .3 percent
may be non-voting%
!8% AZGI>F% !a$am Presi$ent%
!R% RF!G(F% !ay 0e vote on the percentage "rst=
T#? PR?8I*?>T% Kefore 0e vote on this, 0e 0ant to be clari"e$ "rst%
!8% AZGI>F% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner A+uino is recognie$%
!8% AZGI>F% I 0oul$ suggest that 0e vote on the *avi$e amen$ment 0hich is ,33-
percent capital, an$ if it is vote$ $o0n, then 0e refer to the original $raft 0hich is
Ocapital stockO not Cust Ocapital%O
!R% AVCG>A% The phrase Ocontrolling interestO is an important consi$eration%
T#? PR?8I*?>T% (et us procee$ to vote then%
/R. PADILLA. /a*a# Presi*en.
THE PRESIDENT. The 8ice?Presi*en, Co##issioner Pa*i((a, is reco)ni%e*.
/R. PADILLA. The TreSas a#en*#en has a(rea*" 'een a&&roEe*. The on("
one (ef is he DaEi*e a#en*#en ,hich is s$'si$in) he Bsi+" &ercenB
o B-HOLL. o,ne* '" Fi(i&inos.O (The Tre^as amen$ment $elete$ the phrase
O0hose voting stocks an$ controlling interestO an$ inserte$ the 0or$ Ocapital%O It
approve$ the phrase Oassociations at least siBty percent of the CAPITA( is o0ne$ by
such citiens%)(see page ,.)
!a$am Presi$ent, I am against the propose$ amen$ment of Commissioner *avi$e
because that is an i$eal situation 0here $omestic capital is available for the
eBploration, $evelopment an$ utiliation of these natural resources, especially
minerals, petroleum an$ other mineral oils% These are not only risky business but
they also involve substantial capital% Fbviously, it is an i$eal situation but it is not
practical% An$ if 0e a$opt the ,33-percent capital of 'ilipino citiens, I am afrai$ that
these natural resources, particularly these minerals an$ oil, et cetera, may remain
hi$$en in our lan$s, or in other oQshore places 0ithout anyone being able to
eBplore, $evelop or utilie them% If it 0ere possible to have a ,33-percent 'ilipino
capital, I 0oul$ prefer that rather than the .3 percent, but if 0e a$opt the ,33
percent, my fear is that 0e 0ill never be able to eBplore, $evelop an$ utilie our
natural resources because 0e $o not have the $omestic resources for that%
!R% *ANI*?% !a$am Presi$ent, may I be allo0e$ to react=
T#? PR?8I*?>T% Commissioner *avi$e is recognie$%
!R% *ANI*?% I am very gla$ that Commissioner Pa$illa emphasie$ minerals,
petroleum an$ mineral oils% The Commission has Cust approve$ the possible foreign
entry into the $evelopment, eBploration an$ utiliation of these minerals, petroleum
an$ other mineral oils by virtue of the Lamir amen$ment% I vote$ in favour of the
Lamir amen$ment because it 0ill eventually give 0ay to vesting in eBclusively
'ilipino citiens an$ corporations 0holly o0ne$ by 'ilipino citiens the right to utilie
the other natural resources% This means that as a matter of policy, natural resources
shoul$ be utilie$ an$ eBploite$ only by 'ilipino citiens or corporations 0holly
o0ne$ by such citiens% Kut by virtue of the Lamir amen$ment, since 0e feel that
'ilipino capital may not be enough for the $evelopment an$ utiliation of minerals,
petroleum an$ other mineral oils, the Presi$ent can enter into service contracts 0ith
foreign corporations precisely for the $evelopment an$ utiliation of such resources%
An$ so, there is nothing to fear that 0e 0ill stagnate in the $evelopment of
minerals, petroleum, an$ mineral oils because 0e no0 allo0 service contracts% It is,
therefore, 0ith more reason that at this time 0e must provi$e for a ,33-percent
'ilipiniation generally to all natural resources%
!R% NI((?HA8% I think 0e are rea$y to vote, !a$am Presi$ent%
T#? PR?8I*?>T% The Acting 'loor (ea$er is recognie$%
!R% !AA!KF>H% !a$am Presi$ent, 0e ask that the matter be put to a vote%
T#? PR?8I*?>T% 1ill Commissioner *avi$e please rea$ lines ,6 an$ ,I 0ith his
amen$ment%
!R% *ANI*?% (ines ,6 an$ ,I, 8ection /, as amen$e$, 0ill rea$@ Oassociations 0hose
CAPITA( stock is 1#F((S o0ne$ by such citiens%O
NFTI>H
T#? PR?8I*?>T% As many as are in favour of this propose$ amen$ment of
Commissioner *avi$e on lines ,6 an$ ,I of 8ection /, please raise their han$% (-e,
/em!ers raised their hand%)
As many as are against the amen$ment, please raise their han$% (Seeral /em!ers
raised their hand%)
The results sho0 ,. votes in favour an$ -- againstA the amen$ment is lost%
!R% !AA!KF>H% !a$am Presi$ent, I ask that Commissioner *avi$e be recognie$
once more for further amen$ments%
T#? PR?8I*?>T% Commissioner *avi$e is recognie$%
!R% *ANI*?% Thank you, !a$am Presi$ent%
This is Cust an insertion of a ne0 paragraph bet0een lines -6 an$ -I of 8ection / of
the same page% It 0ill rea$ as follo0s@ T#? HFN?R>I>H A>* !A>AHI>H KFAR*8 F'
8GC# CFRPFRATIF>8 8#A(( K? N?8T?* ?9C(G8IN?(S I> CITIV?>8 F' T#?
P#I(IPPI>?8%
!R% NI((?HA8% 1hich corporations is the Commissioner referring to=
!R% *ANI*?% This refers to corporations .3 percent of 0hose capital is o0ne$ by
such citiens%
!R% NI((?HA8% Again the amen$ment 0ill rea$`
!R% *ANI*?% OT#? HFN?R>I>H A>* !A>AHI>H KF*I?8 F' 8GC# CFRPFRATIF>8
8#A(( K? N?8T?* ?9C(G8IN?(S I> CITIV?>8 F' T#? P#I(IPPI>?8%O
R?N% RIHF8% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Rigos is recognie$%
R?N% RIHF8% I 0on$er if Commissioner *avi$e 0oul$ agree to put that sentence
imme$iately after OcitiensO on line ,I%
!R% RF!G(F% !ay I ask a +uestion% Presumably, it is .3-63=
!R% *ANI*?% Ses%
!R% RF!G(F% 1hat about the 63 percent= 1oul$ they not be entitle$ to a
proportionate seat in the boar$=
!R% *ANI*?% Gn$er my proposal, they shoul$ not be allo0e$ to sit in the boar$%
!R% RF!G(F% Then the Commissioner is really proposing ,33 percent 0hich is the
opposite 0ay=
!R% *ANI*?% >ot necessarily, because if 63 percent of the capital stock 0ill be
o0ne$ by aliens 0ho may sit in the boar$, they can still eBercise their right as
or$inary stockhol$ers an$ can submit the necessary proposal for, say, a policy to be
un$ertaken by the boar$%
!R% RF!G(F% Kut that is part of the stockhol$er2s right W to sit in the boar$ of
$irectors%
!R% *ANI*?% That may be allo0e$ but this is a very unusual an$ abnormal situation
so the Constitution itself can prohibit them to sit in the boar$%
!R% RF!G(F% Kut it 0oul$ be pointless to allo0 them 63 percent 0hen they cannot
sit in the boar$ nor have a say in the management of the company% (ike0ise, that
0oul$ be eBtraor$inary because both the ,:/I an$ the ,:4/ Constitutions allo0e$
not only the 63 percent but commensurately they 0ere represente$ in the boar$
an$ management only to the eBtent of their e+uity interest, 0hich is 63 percent%
The management of a company is lo$ge$ in the boar$A so if the .3 percent, 0hich is
compose$ of 'ilipinos, controls the boar$, then the 'ilipino part has control of the
company%
I think it is rather unfair to say@ OSou may have 63 percent of the company, but that
is all% Sou cannot manage, you cannot sit in the boar$%O That 0oul$ $iscourage
investments% Then it is like having a one hun$re$percent o0nershipA I mean, either
0e allo0 a .3-63 0ith full rights to the 63 percent, limite$ as it is as to a minority, or
0e $o not allo0 them at all% This means if it is allo0e$A 0e cannot have it both
0ays%
!R% *ANI*?% The aliens cannot also have everything% 1hile they may be given entry
into subscriptions of the capital stock of the corporation, it $oes not necessarily
follo0 that they cannot be $eprive$ of the right of membership in the managing or
in the governing boar$ of a particular corporation% Kut it 0ill not totally $eprive
them of a say because they can still eBercise the or$inary rights of stockhol$ers%
They can submit their proposal an$ they can be hear$%
!R% RF!G(F% Ses, but they have no vote% That is like being represente$ in the
Congress but not being allo0e$ to vote like our ol$ resi$ent Commissioners in the
Gnite$ 8tates% They can be hear$A they can be seen but they cannot vote%
!R% *ANI*?% If that 0as allo0e$ un$er that situation, 0hy can 0e not $o it no0 in
respect to our natural resources= This is a very critical an$ $elicate issue%
!R% RF!G(F% Precisely, 0e use$ to complain ho0 unfair that 0as% Fne can be seen
an$ hear$ but he cannot vote%
!R% *ANI*?% 1e kno0 that un$er the corporation la0, 0e have the rights of the
minority stockhol$ers% They can be hear$% As a matter of fact, they can probably
allo0 a proBy to vote for them an$, therefore, they still retain that speci"c
prerogative to participate Cust like 0hat 0e $i$ in the Article on 8ocial Lustice%
!R% RF!G(F% That 0oul$ encourage $ummies if 0e give them proBies%
!R% *ANI*?% As a matter of fact, 0hen it comes to encouraging $ummies, by
allo0ing 63-percent o0nership to come in 0e 0ill eBpect the proliferation of
corporations actually o0ne$ by aliens using $ummies%
!R% RF!G(F% >o, because 63 percent is a substantial an$ fair share an$, therefore,
the bona "$e foreign investor is satis"e$ 0ith that proportion% #e $oes not have to
look for $ummies% In fact, that is 0hat assures a genuine investment if 0e give a
foreign investor the 63 percent an$ all the rights that go 0ith it% Fther0ise, 0e are
either $iscouraging the investment altogether or 0e are encouraging circumvention%
(et us be fair% If it is .3-63, then 0e give him the right, limite$ as to his minority
position%
!R% !AA!KF>H% !a$am Presi$ent, the bo$y 0oul$ like to kno0 the position of the
Committee so that 0e can put the matter to a vote%
!R% NI((?HA8% The Committee $oes not accept the amen$ment%
T#? PR?8I*?>T% The Committee $oes not accept%
1ill Commissioner *avi$e insist on his amen$ment=
!R% *ANI*?% 1e re+uest a vote%
T#? PR?8I*?>T% 1ill Commissioner *avi$e state his propose$ amen$ment again=
!R% *ANI*?% The propose$ amen$ment 0oul$ be the insertion of a ne0 paragraph
to 8ection /, bet0een lines -6 an$ -I, page -, 0hich rea$s@ OT#? HFN?R>I>H A>*
!A>AHI>H KF*I?8 F' 8GC# CFRPFRATIF>8 8#A(( K? N?8T?* ?9C(G8IN?(S I>
CITIV?>8 F' T#? P#I(IPPI>?8%O
!R% PA*I((A% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Pa$illa is recognie$%
!R% PA*I((A% !a$am Presi$ent, may I Cust say that this 8ection / speaks of Oco-
pro$uction, Coint venture, pro$uction sharing agreements 0ith 'ilipino citiens%O If
the foreign share of, say, 63 percent 0ill not be represente$ in the boar$ or in
management, I 0on$er if there 0oul$ be any foreign investor 0ho 0ill accept
putting capital but 0ithout any voice in management% I think that might make the
provision on Ocopro$uction, Coint venture an$ pro$uction sharingO illusory%
NFTI>H
T#? PR?8I*?>T% If the Chair is not mistaken, that 0as the same point eBpresse$ by
Commissioner Romulo, a member of the Committee%
As many as are in favour of the *avi$e amen$ment, please raise their han$% (-e,
/em!ers raised their hand%)
As many as are against, please raise their han$% (Seeral /em!ers raised their
hand%)
As many as are abstaining, please raise their han$% (3ne /em!er raised his hand%)
B B B B
T#? PR?8I*?>T% Commissioner Harcia is recognie$%
/R. GARCIA. /" a#en*#en is on Secion M, he sa#e ie# ,hich
Co##issioner DaEi*e rie* o a#en*. I is 'asica((" on he share of 25
&ercen. I ,o$(* (iAe o &ro&ose ha ,e raise he 25 &ercen o SE8ENT.?
FI8E PERCENT so he (ine ,o$(* rea*: BSE8ENT.?FI8E PERCENT of ,hose
CAPITAL is o,ne* '" s$ch cii%ens.O
T#? PR?8I*?>T% 1hat $oes the Committee say=
8G8P?>8IF> F' 8?88IF>
!R% NI((?HA8% The Committee insists on staying 0ith the .3 percent W .3-63%
!a$am Presi$ent, may 0e ask for a suspension of the session%
T#? PR?8I*?>T% The session is suspen$e$%
It ,as FDG5 p%m%
R?8G!PTIF> F' 8?88IF>
At FDH1 p%m%, the session ,as resumed%
T#? PR?8I*?>T% The session is resume$%
!R% 8AR!I?>TF% !a$am Presi$ent%
T#? PR?8I*?>T% The Acting 'loor (ea$er, Commissioner 8armiento, is recognie$%
!R% 8AR!I?>TF@ Commissioner Harcia still has the Poor% !ay I ask that he be
recognie$%
T#? PR?8I*?>T% Commissioner Harcia is recognie$%
/R. GARCIA. ThanA "o$ Eer" #$ch, /a*a# Presi*en.
I ,o$(* (iAe o &ro&ose he fo((o,in) a#en*#en on Secion M, (ine 0N on
&a)e 2. I &ro&ose o chan)e he ,or* Bsi+"B o SE8ENT.?FI8E. So, his ,i((
rea*: Bor i #a" ener ino co?&ro*$cion, @oin Een$re, &ro*$cion sharin)
a)ree#ens ,ih Fi(i&ino cii%ens or cor&oraions or associaions a (eas
SE8ENT.?FI8E &ercen of ,hose CAPITAL socA or conro((in) ineres is
o,ne* '" s$ch cii%ens.B
/R. 8ILLEGAS. This is @$s a correcion. I hinA Co##issioner A%c$na is no
insisin) on he reenion of he &hrase Bconro((in) ineres,B so ,e ,i((
reain BCAPITALB o )o 'acA rea((" o he 04M3 an* 041M for#$(aions.
!R% K?>>AH?>% !ay I suggest that 0e retain the phrase Ocontrolling interestO=
!R% NI((?HA8% Ses, 0e 0ill retain it% (The statement of Commissioner Nillegas is
possibly erroneous consi$ering his consistent statement, especially $uring the oral
arguments, that the Constitutional Commission reCecte$ the GP Proposal to use the
phrase Ocontrolling interest%O)
T#? PR?8I*?>T% Are 0e no0 rea$y to vote=
!R% 8AR!I?>TF% Ses, !a$am Presi$ent%
NFTI>H
T#? PR?8I*?>T% As many as are in favour of the propose$ amen$ment of
Commissioner Harcia for O8?N?>TS-'IN?O percent, please raise their han$% (-e,
/em!ers raised their hand%)
As many as are against the amen$ment, please raise their han$% (Seeral /em!ers
raised their hand%)
As many as are abstaining, please raise their han$% (3ne /em!er raised his hand%)
The res$(s sho, 02 Eoes in faEo$r, 0J a)ains an* 0 a'senionH he
Garcia a#en*#en is (os.
!R% 8AR!I?>TF% !a$am Presi$ent, may I ask that Commissioner 'o be recognie$%
T#? PR?8I*?>T% Commissioner 'o is recognie$%
!R% 'FV% After losing by only t0o votes, I suppose that this neBt proposal 0ill "nally
get the vote of the maCority% The amen$ment is to provi$e for at least T1F-T#IR*8%
!R% 8GAR?V% It is e+uivalent to .. -J/%
T#? PR?8I*?>T% 1ill the Commissioner repeat=
/R. FO<. I &ro&ose BT-O?THIRDS of ,hose CAPITAL is o,ne* '" s$ch
cii%ens.B /a*a# Presi*en, ,e are referrin) o he sa#e &roEision o
,hich he &reEio$s a#en*#ens haEe 'een s$))ese*. Firs, ,e ca((e* for
a 055?&ercen o,nershi&H an* hen, secon*, ,e ca((e* for a 13?&ercen
o,nershi& '" Fi(i&ino cii%ens.
8o my proposal is to provi$e for at least T1F-T#IR*8 of the capital to be o0ne$ by
'ilipino citiens% I 0oul$ like to call the attention of the bo$y that the same ratio or
e+uity re+uirement is provi$e$ in the case of public utilities% An$ if 0e are 0illing to
provi$e such e+uity re+uirements in the case of public utilities, 0e shoul$ at least
like0ise provi$e the same e+uity ratio in the case of natural resources%
!R% NI((?HA8% Commissioner Romulo 0ill respon$%
!R% RF!G(F% I Cust 0ant to point out that there is an amen$ment here "le$ to also
re$uce the ratio in 8ection ,I to .3-63%
!R% PA*I((A% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Pa$illa is recognie$%
!R% PA*I((A% The .3 percent 0hich appears in the committee report has been
repeate$ly uphel$ in various votings% Fne proposal 0as 0hole W ,33 percentA
another one 0as 4I percent an$ no0 it is .. -J/ percent% Is not the $ecision of this
Commission in voting to uphol$ the percentage in the committee report alrea$y a
$ecision on this issue=
!R% 'FV% Fur amen$ment has been previously brought to the attention of the bo$y%
!R% NI((?HA8% The Committee $oes not accept the Commissioner2s amen$ment%
This has been $iscusse$ fully an$, 0ith only one-thir$ of the vote, it is like having
nothing at all in $ecision-making% It can be completely vetoe$%
!R% RF*RIHF% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Ro$rigo is recognie$%
!R% RF*RIHF% This is an eBtraor$inary suggestion% Kut consi$ering the
circumstances that the proposals from the ,33 percent to 4I percent lost, an$ no0
it 0ent $o0n to .. -J/ percent, 0e might go $o0n to .I percent neBt time% 8o I
suggest that 0e vote bet0een .. -J/ an$ .3 percent% 1hich $oes the bo$y 0ant=
Then that shoul$ be the en$ of itA other0ise, this is ri$iculous% After this, if the ..
-J/ percent 0ill lose, then somebo$y can say@ O1ell, ho0 about .I percent=O
T#? PR?8I*?>T% The Chair 0as ma$e to un$erstan$ that Commissioner 'o2
proposal is the last proposal on this particular line% 1ill Commissioner 'o restate
his proposal=
!R% 'FV% !y proposal is OT1F-T#IR*8 of 0hose CAPITA( or controlling interest is
o0ne$ by such citiens%O
NFTI>H
THE PRESIDENT. -e no, &$ Co##issioner Fo%F a#en*#en o a Eoe.
As many as are in favour of the amen$ment of Commissioner 'o, please raise their
han$% (-e, /em!ers raised their hand%)
As many as are against, please raise their han$% (Seeral /em!ers raised their
hand%)
The res$(s sho, 01 Eoes in faEo$r, 25 a)ains, an* no a'senionH he
a#en*#en is (os.
--
B B B B
August --, ,:5., 'ri$ay
T#? PR?8I*?>T% Commissioner >olle$o is recognie$%
/R. NOLLEDO. ThanA "o$, /a*a# Presi*en.
I ,o$(* (iAe o &ro&o$n* so#e C$esions o he chair#an an* #e#'ers of
he co##iee. I haEe here a co&" of he a&&roEe* &roEisions on Aric(e on
he Naiona( Econo#" an* Pari#on". On &a)e 2, he !rs ,o (ines are
,ih res&ec o he Fi(i&ino an* forei)n eC$i" an* I sai*: BA (eas si+"
&ercen of ,hose ca&ia( or conro((in) ineres is o,ne* '" s$ch cii%ens.B
I noice ha his &roEision ,as a#en*e* '" Co##issioner DaEi*e '"
chan)in) BEoin) socAsB o BCAPITAL,B '$ I si(( noice ha here a&&ears
he er# Bconro((in) ineresB ,hich see#s o refer o assocaiions oher
han cor&oraions an* i is #ere(" 35 &ercen &($s one &ercen ,hich is
(ess han 25 &ercen. 6esi*es, he ,or*in)s #a" in*icae ha he 25
&ercen #a" 'e 'ase* no on(" on ca&ia( '$ a(so on conro((in) ineresH
i co$(* #ean 25 &ercen or 30 &ercen.
6efore I &ro&o$n* he !na( C$esion, I ,o$(* (iAe o #aAe a co##en in
re(aion o Secion 03 since he" are re(ae* o each oher. I noice ha in
Secion 03, here si(( a&&ears he &hrase BEoin) socA or conro((in)
ineres.B The er# BEoin) socAsB as he 'asis of he Fi(i&ino eC$i"
#eans ha if 25 &ercen of he Eoin) socAs 'e(on) o Fi(i&inos,
forei)ners #a" no, o,n #ore han N5 &ercen of he ca&ia( as (on) as
he N5 &ercen or he e+cess hereof ,i(( coEer nonEoin) socA. This is
asi*e fro# he fac ha $n*er he Cor&oraion Co*e, eEen nonEoin)
shares can Eoe on cerain insances. Conro( oEer inEes#ens #a" coEer
as&ecs of #ana)e#en an* &arici&aion in he fr$is of &ro*$cion or
e+&(oiaion.
So, I ho&e he co##iee ,i(( consi*er faEora'(" #" reco##en*aion ha
insea* of $sin) Bconro((in) ineress,B ,e @$s $se BCAPITALB $nifor#(" in
cases ,here forei)n eC$i" is &er#ie* '" (a,, 'eca$se he &$r&ose is
rea((" o he(& he Fi(i&inos in he e+&(oiaion of na$ra( reso$rces an* in
he o&eraion of &$'(ic $i(iies. I Ano, he co##iee, a is o,n insance,
can #aAe he a#en*#en.
-ha *oes he co##iee sa"I
/R. 8ILLEGAS. -e co#&(ee(" a)ree ,ih he Co##issionerFs Eie,s.
Ac$a((", i ,as rea((" an oEersi)h. -e *i* *eci*e on he ,or* BCAPITAL.B I
hinA i ,as he o&inion of he #a@ori" ha he &hrase Bconro((in)
ineresB is a#'i)$o$s.
So, ,e *o acce& he Co##issionerFs &ro&osa( o e(i#inae he &hrase Bor
conro((in) ineresB in a(( he &roEisions ha a(A a'o$ forei)n
&arici&aion.
/R. NOLLEDO. No on(" in Secion M, '$ a(so ,ih res&ec o Secion 03.
Thank you very much%
!R% !AA!KF>H% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner !aambong is recognie$%
!R% !AA!KF>H% In vie0 of the manifestation of the committee, I 0oul$ like to be
clari"e$ on the use of the 0or$ OCAPITA(%O
!R% NI((?HA8% Ses, that 0as the 0or$ use$ in the ,:4/ an$ ,:/I Constitutions%
/R. /AA/6ONG. Le $s *e(i#i o$rse(Ees o ha ,or* BCAPITALB. In he
Cor&oraion La,, if I re#e#'er correc(", ,e haEe hree "&es of ca&ia(:
he a$hori%e* ca&ia( socA, he s$'scri'e* ca&ia( socA an* he &ai*?$&
ca&ia( socA.
The a$hori%e* ca&ia( socA co$(* 'e iner&ree* as he ca&ia( of he
cor&oraion ise(f 'eca$se ha is he oa(i" of he inEes#en of he
cor&oraion as sae* in he aric(es of incor&oraion. -hen ,e refer o 25
&ercen, are ,e referrin) o he a$hori%e* ca&ia( socA or he &ai*?$&
ca&ia( socA since he *eer#inan as o ,ho o,ns he cor&oraion, as far
as eC$i" is concerne*, is he s$'scri&ion of he &ersonI
I hinA ,e sho$(* *e(i#i o$rse(Ees a(so o ,ha ,e #ean '" 25 &ercen.
Are ,e referrin) o he a$hori%e* ca&ia( socA or o he s$'scri'e*
ca&ia( socA, 'eca$se he *eer#inaion, as I sai*, on he conro((in)
ineres of a cor&oraion is 'ase* on he s$'scri'e* ca&ia( socAI I ,o$(*
(iAe a re&(" on ha.
!R% NI((?HA8% Commissioner 8uare, a member of the committee, 0oul$ like to
ans0er that%
T#? PR?8I*?>T% Commissioner 8uare is recognie$%
!R% 8GAR?V% Thank you, !a$am Presi$ent%
1e state$ this because there might be a misun$erstan$ing regar$ing the
interpretation of the term OCAPITA(O as no0 use$ as the basis for the percentage of
foreign investments in appropriate instances an$ the interpretation attribute$ to the
0or$ is that it shoul$ be base$ on the pai$up capital% 1e eliminate$ the use the
phrase Ovoting stock or controlling interestO because that is only use$ in connection
0ith the matter of voting% As a matter of fact, in the $eclaration of $ivi$en$s for
private corporations, it is usually base$ on the pai$-up capitaliation%
8o, 0hat is really the $ominant factor to be consi$ere$ in matters of $etermining
the .3-63 percentage shoul$ really be the pai$-up capital of the corporation%
!R% !AA!KF>H% I 0oul$ like to get clari"cation on this% If I remember my
corporation la0 correctly, 0e usually use a $eterminant in or$er to "n$ out 0hat the
ratio of o0nership is, not really on the pai$-up capital stock but on the subscribe$
capital stock%
'or eBample, if the 0hole authorie$ capital stock of the corporation is P , million, if
the subscription is .3 percent of P , million 0hich is P .33,333, then that is
suppose$ to be the $eterminant 0hether there is a sharing of .3 percent of 'ilipinos
or not% It is not really on the pai$-up capital because once a person subscribes to a
capital stock then 0hether that capital stock is pai$ up or not, $oes not really
matter, as far as the books of the corporation are concerne$% The subscribe$ capital
stock is suppose$ to be o0ne$ by the person 0ho makes the subscription% There are
so many la0s on ho0 to collect the $elin+uency an$ so on%
I vie0 of the Commissioner2s ans0er, I 0oul$ like to kno0 0hether he is $etermine$
to put on the recor$ that in or$er to $etermine the .3-63 percent sharing, 0e have
to $etermine 0hether 0e 0ill use a $eterminant 0hich is the subscribe$ capital
stock or the pai$-up capital stock%
!R 8GAR?V% 1e are principally concerne$ about the interpretation 0hich 0oul$ be
attache$ to itA that is, it shoul$ be limite$ to authorie$ capital stock, not to
subscribe$ capital stock%
I 0ill give the Commissioner an illustration of 0hat he is eBplaining to the
Commission%
!R% !AA!KF>H% Ses, thank you%
!R% 8GAR?V% (et us say the authorie$ capital stock is P , million% Gn$er the
present rules in the 8ecurities an$ ?Bchange Commission, at least -I percent of
that amount must be subscribe$ an$ at least -I percent of this subscribe$ capital
must be pai$ up%
>o0, let us $iscuss the basis of .3-63% To illustrate the matter further, let us say
that .3 percent of the subscriptions 0oul$ be allocate$ to 'ilipinos an$ 63 percent
of the subscribe$ capital 0oul$ be hel$ by foreigners% Then 0e come to the pai$-up
capitaliation% Gn$er the present rules in the 8ecurities an$ ?Bchange Commission,
a foreign corporation is suppose$ to subscribe to a 63-percent share 0hich must be
fully pai$ up%
Fn the other han$, the .3 percent allocate$ to 'ilipinos nee$ not be pai$ up%
#o0ever, at least -I percent of the subscription must be pai$ up for purposes of
complying 0ith the Corporation (a0% 1e can illustrate the matter further by saying
that the compliance of -I percent pai$-up of the subscribe$ capital 0oul$ be
ful"lle$ by the full payment of the 63 percent by the foreigners%
8o, 0e have a situation 0here the 'ilipino percentage of .3 may not even comply
0ith the -I-percent re+uirement because of the totality $ue to the fully payment of
the 63-percent of the foreign investors, the payment of -I percent pai$-up on the
subscription 0oul$ have been consi$ere$ ful"lle$% That is eBactly 0hat 0e are trying
to avoi$%
!R% !AA!KF>H I appreciate very much the eBplanation but I 0on$er if the
committee 0oul$ subscribe to that vie0 because I 0ill stick to my thinking that in
the computation of the .3-63 ratio, the basis shoul$ be on the subscription% If the
subscription is being $one by .3 percent 'ilipinos, 0hether it is pai$-up or not an$
the subscription is accepte$ by the corporation, I think that is the proper
$eterminant% If 0e base the .3-63 on the pai$-up capital stock, 0e have a problem
here 0here the 63 percent is fully pai$ up an$ the .3 percent is not fully pai$ up W
this may be contrary to the provisions of the Constitution% 8o I 0oul$ like to ask for
the proper a$visement from the Committee as to 0hat shoul$ be the proper
interpretation because this 0ill cause havoc on the interpretation of our Corporation
(a0%
!R% RF!G(F% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Romulo is recognie$%
!R% RF!G(F% 1e go by the establishe$ rule 0hich I believe is uniformly hel$% It is
base$ on the subscribe$ capital% I kno0 only of one possible eBception an$ that is
0here the byla0s prohibit the subscriber from voting% Kut that is a very rare
provision in byla0s% Fther0ise, my information an$ belief is that it is base$ on the
subscribe$ capital%
!R% !AA!KF>H% It is, therefore, the un$erstan$ing of this !ember that the
Commissioner is some0hat revising the ans0er of Commissioner 8uare to that
eBtent=
!R% RF!G(F% >o, I $o not think 0e contra$ict each other% #e is talking really of the
instance 0here the subscriber is a non-resi$ent an$, therefore, must fully pay% That
is ho0 I un$erstan$ his position%
!R% !AA!KF>H% !y un$erstan$ing is that in the computation of the .3-63 sharing
un$er the present formulation, the $eterminant is the pai$-up capital stock to 0hich
I $isagree%
/R. RO/ULO. A (eas, fro# #" &oin of Eie,, i is he s$'scri'e* ca&ia(
socA.
/R. /AA/6ONG. Then ha is c(ari!e*.
-/
B B B B
August -/, ,:5., 8atur$ay
!8% RF8ARIF KRAI*% !a$am Presi$ent, I propose a ne0 section to rea$@ OT#?
!A>AH?!?>T KF*S F' ?N?RS CFRPFRATIF> FR A88FCIATIF> 8#A(( I> A((
CA8?8 K? CF>TRF((?* KS CITIV?>8 F' T#? P#I(IPPI>?8%O
This 0ill prevent management contracts an$ assure control by 'ilipino citiens% 1ill
the committee assure us that this amen$ment 0ill insure that past activities such as
management contracts 0ill no longer be possible un$er this amen$ment=
!R% RF!G(F% !a$am Presi$ent, if I may reply%
T#? PR?8I*?>T% Commissioner Romulo is recognie$%
!R% RF!G(F% !ay I ask the proponent to rea$ the amen$ment again%
!8% RF8ARIF KRAI*% The amen$ment rea$s@ OT#? !A>AH?!?>T KF*S F' ?N?RS
CFRPFRATIF> FR A88FCIATIF> 8#A(( I> A(( CA8?8 K? CF>TRF((?* KS CITIV?>8
F' T#? P#I(IPPI>?8%O
!R% *? (F8 R?S?8% !a$am Presi$ent, 0ill Commissioner Rosario Krai$ agree to a
reformulation of her amen$ment for it to be more comprehensive an$ all-
embracing=
T#? PR?8I*?>T% Commissioner $e los Reyes is recognie$%
!R% *? (F8 R?S?8% This is an amen$ment I submitte$ to the committee 0hich
rea$s@ O!ALFRITS F' T#? *IR?CTFR8 FR TRG8T??8 A>* A(( T#? ?9?CGTIN? A>*
!A>AHI>H F''IC?R8 F' 8GC# CFRPFRATIF> FR A88FCIATIF> !G8T K? CITIV?>8
F' T#? P#I(IPPI>?8%O
This amen$ment is more $irect because it refers to particular o&cers to be all-
'ilipino citiens%
!R% K?>HVF>% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Kengon is recognie$%
!R% K?>HVF>% The committee sitting out here accepts the amen$ment of
Commissioner $e los Reyes 0hich subsumes the amen$ment of Commissioner
Rosario Krai$%
T#? PR?8I*?>T% 8o this 0ill be a Coint amen$ment no0 of Commissioners Rosario
Krai$, $e los Reyes an$ others%
!R% R?HA(A*F% !a$am Presi$ent, I Coin in that amen$ment 0ith the re+uest that it
0ill be the last sentence of 8ection ,I because 0e inten$ to put an anterior
amen$ment% #o0ever, that particular sentence 0hich subsumes also the proposal
of Commissioner Rosario Krai$ can Cust be place$ as the last sentence of the article%
T#? PR?8I*?>T% Is that acceptable to the committee=
!R% NI((?HA8% Ses, !a$am Presi$ent%
!8% RF8ARIF KRAI*% Thank you%
!R% RA!A, The bo$y is no0 rea$y to vote on the amen$ment%
'R% K?R>A8% !a$am Presi$ent%
T#? PR?8I*?>T% Commissioner Kernas is recognie$%
'R% K?R>A8% 1ill the committee accept a reformulation of the "rst part=
!R% K?>HVF>% (et us hear it%
FR. 6ERNAS. The refor#$(aion ,i(( 'e essenia((" he for#$(a of he 041M
Consi$ion ,hich rea*s: BTHE PARTICIPATION OF FOREIGN IN8ESTORS IN
THE GO8ERNING 6OD. OF AN. PU6LIC UTILIT. ENTERPRISE SHALL 6E
LI/ITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF
ANDTB
/R. 8ILLEGAS. BALL THE E=ECUTI8E AND /ANAGING OFFICERS OF SUCH
CORPORATIONS AND ASSOCIATIONS /UST 6E CITI<ENS OF THE
PHILIPPINES.B
/R. 6ENG<ON. -i(( Co##issioner 6ernas rea* he ,ho(e hin) a)ainI
FR. 6ERNAS. BTHE PARTICIPATION OF FOREIGN IN8ESTORS IN THE
GO8ERNING 6OD. OF AN. PU6LIC UTILIT. ENTERPRISE SHALL 6E LI/ITED
TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOFTB I *o no
haEe he res of he co&".
/R. 6ENG<ON. BAND ALL THE E=ECUTI8E AND /ANAGING OFFICERS OF
SUCH CORPORATIONS OR ASSOCIATIONS /UST 6E CITI<ENS OF THE
PHILIPPINES.B Is ha correcI
/R. 8ILLEGAS. .es.
/R. 6ENG<ON. /a*a# Presi*en, I hinA ha ,as sai* in a #ore e(e)an
(an)$a)e. -e acce& he a#en*#en. Is ha a(( ri)h ,ih Co##issioner
Rosario 6rai*I
/S. ROSARIO 6RAID. .es.
THE PRESIDENT. The ori)ina( a$hors of his a#en*#en are
Co##issioners Rosario 6rai*, *e (os Re"es, Re)a(a*o, NaiEi*a*,
G$in)ona an* Fr. 6ernas.
/R. DE LOS RE.ES. The )oEernin) 'o*" refers o he 'oar* of *irecors
an* r$sees.
/R. 8ILLEGAS. Tha is ri)h.
/R. 6ENG<ON. .es, he )oEernin) 'o*" refers o he 'oar* of *irecors.
/R. REGALADO. I is acce&e*.
/R. RA/A. The 'o*" is no, rea*" o Eoe, /a*a# Presi*en.
NFTI>H
T#? PR?8I*?>T% As many as are in favour of this propose$ amen$ment 0hich
shoul$ be the last sentence of 8ection ,I an$ has been accepte$ by the committee,
pleas raise their han$% (All /em!ers raised their hand%)
As many as are against, please raise their han$% (0o /em!er raised his hand%)
The res$(s sho, 24 Eoes in faEo$r an* none a)ainsH so he &ro&ose*
a#en*#en is a&&roEe*.
-6
It can be conclu$e$ that the vie0 a$vance$ by Lustice Carpio is incorrect as the
$eliberations easily reveal thathe inen of he fra#ers ,as no o (i#i he
*e!niion of he ,or* Bca&ia(B as #eanin) Eoin) sharesUsocAs%
The maCority in the original $ecision repro$uce$ the CF>CF! $eliberations hel$ on
August ,/ an$ August ,I, ,:5., but neglecte$ to +uote the other pertinent portions
of the $eliberations that 0oul$ have she$ light on the true intent of the framers of
the Constitution%
It is conce$e$ that Propose$ Resolution >o% 6:. on the language of 0hat 0oul$ be
Art% 9II of the Constitution containe$ the phrase Ovoting stock or controlling
interest,O vi@
PRFPF8?* R?8F(GTIF> >F% 6:.
R?8F(GTIF> TF I>CFRPFRAT? I> T#? >?1 CF>8TITGTIF> A> ARTIC(? F>
>ATIF>A( ?CF>F!S A>* PATRI!F>S
+e it resoled as it is here!y resoled !y the Constitutional Commission in session
assem!led, To incorporate the >ational ?conomy an$ Patrimony of the ne0
Constitution, the follo0ing provisions@
ARTIC(?]]]]
>ATIF>A( ?CF>F!S A>* PATRI!F>S
B B B B
8?C% ,I% >o franchise, certi"cate, or any other form of authoriation for the
operation of a public utility shall be grante$ eBcept to citiens of the Philippines or
to corporations or associations organie$ un$er the la0s of the Philippines a (eas
,o?hir*s of ,hose Eoin) socA or conro((in) ineres is o,ne* '" s$ch
cii%ens. >either shall any such franchise or right be grante$ eBcept un$er the
con$ition that it shall be subCect to amen$ment, alteration, or repeal by Congress
0hen the common goo$ so re+uires% The 8tate shall encourage e+uity participation
in public utilities by the general public%
-I
(This became 8ec% ,,, Art% 9II)(?mphasis
supplie$%)
The afore+uote$ $eliberations $isclose that he Co##ission eEen$a((" an*
$neC$iEoca((" *eci*e* o $se Bca&ia(,B ,hich refers o he ca&ia( socA of
he cor&oraion, Bas ,as e#&(o"e* in he 04M3 an* 041M Consi$ion,B
insea* of he &ro&ose* BEoin) socA or conro((in) ineresB as he 'asis
for he &ercena)e of o,nershi& a((o,e* o forei)ners% The follo0ing
eBchanges among Commissioners 'o, 8uare an$ Kengon rePect this $ecision, but
the maCority opinion in the Lune -5, -3,, *ecision left their statements out@
!R% 'FV% !r% Nice-Presi$ent, in 8ections / an$ :,
-.
he &roEision on eC$i" is
'oh 25 &ercen, '$ I notice that his is no, *iPeren fro# the provision
in he 041M Consi$ion in ha he 'asis for he eC$i" &roEision is Eoin)
socA or conro((in) ineres insea* of he $s$a( ca&ia( percentage as
provi$e$ for in the ,:4/ Constitution% -e ,o$(* (iAe o Ano, ,ha he
*iPerence ,o$(* 'e 'e,een he &reEio$s an* he &ro&ose* &roEisions
re)ar*in) eC$i" ineres.
B B B B
!R% 8GAR?V% B B B As a matter of fact, this particular portion is still being revie0e$ B
B B% In 8ection ,, Article 9III of the 04M3 Consi$ion, the 0or$ing is that he
&ercena)e sho$(* 'e 'ase* on he ca&ia( ,hich is o,ne* '" s$ch
cii%ens. In he &ro&ose* *raf, his &hrase ,as &ro&ose*: BEoin) socA or
conro((in) ineres.B This 0as a plan s$'#ie* '" he UP La, Cener.
B B B 1e 0oul$ haEe hree crieria to go by@ One ,o$(* 'e 'ase* on ca&ia(,
,hich is ca&ia( socA of he cor&oraion, a$hori%e*, s$'scri'e* or &ai*
$&, as e#&(o"e* $n*er he 04M3 an* he 041M Consi$ion% The i$ea behin$
the intro$uction of the phrase Ovoting stock or controlling interestO 0as precisely to
avoi$ the perpetration of $ummies, 'ilipino $ummies of multinationals% It is
theoretically possible that a situation may $evelop 0here these multinational
interests 0oul$ not really be only 63 percent but 0ill eBten$ beyon$ that in the
matter of voting because they coul$ enter into 0hat is kno0n as a voting trust or
voting agreement 0ith the rest of the stockhol$ers an$, therefore, not0ithstan$ing
the fact that on recor$ their capital eBtent is only up to 63- percent interest in the
corporation, actually, they 0oul$ be managing an$ controlling the entire company%
That is 0hy the GP (a0 Center members suggeste$ that 0e utilie the 0or$s Ovoting
interestO 0hich 0oul$ preclu$e multinational control in the matter of voting,
in$epen$ent of the capital structure of the corporation% An$ then he" a(so a**e*
he &hrase Bconro((in) ineresO 0hich up to no0 they have not been able to
successfully $e"ne the eBact meaning of% B B B An$ as far as I am concerne$, I am
not speaking in behalf of the Committee, I 0oul$ feel more co#fora'(e if ,e )o
'acA o the 0or$ing of he 04M3 an* he 041M Consi$ion, ha is o sa",
he 25?N5 &ercena)e co$(* 'e 'ase* on he ca&ia( socA of he
cor&oraion%
B B B B
!R% K?>HVF>% I also share the sentiment of Commissioner 8uare in that respect%
8o there are alrea$y t0o in the Committee 0ho 0ant to go back to the 0or$ing of
the ,:/I an$ the ,:4/ Constitution%
-4
In fact, in another portion of the CF>CF! $eliberations conveniently glosse$ over
by the Lune -5, -3,, *ecision, then Commissioner *avi$e strongly resiste$ the
retention of the term OcapitalO as use$ in the ,:/I an$ ,:4/ Constitution on the
groun$ that the term refers to both voting an$ nonvoting% ?ventually, ho0ever, he
came aroun$ to accept the use of OCAPITA(O along 0ith the maCority of the members
of the Committee on >atural ?conomy an$ Patrimony in the afternoon session hel$
on August ,I, ,:5.@
/R. TRERAS. B B B #a" I &ro&ose an a#en*#en on line ,6 of 8ection / '"
*e(ein) herefro# B,hose Eoin) socA an* conro((in) ineres.B An$ in
(ie$ hereof, inser he CAPITAL so he (ine sho$(* rea*: Bassociaions a
(eas si+" &ercen of he CAPITAL is o,ne* '" s$ch cii%ens.
/R. 8ILLEGAS. -e acce& he a#en*#en.
/R. TRERAS. ThanA "o$.
THE PRESIDENT. The a#en*#en of Co##issioner TreSas on (ine 0N has
'een acce&e* '" he Co##iee.
Is here an" o'@ecionI :"ilence; The Chair hears noneH he a#en*#en is
a&&roEe*.
-5
B B B B
!R% 8GAR?V% B B B T0o points are being raise$ by Commissioner *avi$e2s propose$
amen$ment% Fne has reference to the percentage of hol$ings an$ the other one is
the basis for the percentage B B B B Is he Co##issioner no insisin) on he
Eoin) ca&ia( socA 'eca$se ha ,as a(rea*" acce&e* '" he Co##ieeI
!R% *ANI*?% 1oul$ it mean that it 0oul$ be ,33-percent voting capital stock=
!R% 8GAR?V% >o, un$er the Commissioner2s proposal it is Cust OCAPITA(O not Ostock%O
!R% *ANI*?% >o, I 0ant it to be very clear% 1hat is the alternative proposal of the
Committee= #o0 shall it rea$=
!R% 8GAR?V% It 0ill only rea$ something like@ Othe CAPITA( F' 1#IC# I8 'G((S
o0ne$%O
!R% NI((?HA8% (et me rea$ lines ,- to ,6 0hich state@
` enter into co-pro$uction, Coint venture, pro$uction sharing agreements 0ith
'ilipino citiens or corporations or associations at least .3 percent of 0hose CAPITA(
is o0ne$ by such citiens%
1e are going back to the ,:/I an$ ,:4/ formulations%
/R. DA8IDE. I canno acce& he &ro&osa( 'eca$se he ,or* CAPITAL
sho$(* no rea((" 'e he )$i*in) &rinci&(e. I is he o,nershi& of he
cor&oraion. I #a" 'e Eoin) or no Eoin), '$ ha is no he )$i*in)
&rinci&(e.
B B B B
T#? PR?8I*?>T`% Commissioner *avi$e is to clarify his point%
/R. 8ILLEGAS. .es, Co##issioner DaEi*e has acce&e* he ,or*
BCAPITALB in &(ace of BEoin) socA or conro((in) ineres.B This is an
a#en*#en a(rea*" acce&e* '" he Co##iee%
-:
The above eBchange prece$es the clari"cations ma$e by then Commissioner
Acuna, 0hich 0ere cite$ in the Lune -5, -3,, *ecision% !oreover, the statements
ma$e subse+uent to the portion +uote$ in the Lune -5, -3,, *ecision emphasie
the CF>CF!2s a0areness of the plain meaning of the term OcapitalO 0ithout the
+uali"cation espouse$ in the maCority2s $ecision@
!R% AVCG>A% !ay I be clari"e$ as to D0hatE 0as accepte$ B B B%
!R% NI((?HA8% The portion accepte$ by the Committee is the *e(eion of he
&hrase BEoin) socA or conro((in) ineres%O
!R% AVCG>A% #ence, 0ithout the *avi$e amen$ment, the committee report 0oul$
rea$@ Ocorporations or associations at least siBty percent of 0hose CAPITA( is o0ne$
by such citiens%O
!R% NI((?HA8% Ses%
!R% AVCG>A% So if he DaEi*e a#en*#en is (os, ,e are s$cA ,ih 25
&ercen of he ca&ia( o 'e o,ne* '" cii%ensI
!R% NI((?HA8% That is right%
!R% AVCG>A% Kut the control can be 0ith the foreigners even if they are the
minority% (et us say 63 percent of the capital is o0ne$ by them, but it is the voting
capital, 0hereas, the 'ilipinos o0n the nonvoting shares% 8o 0e can have a situation
0here the corporation is controlle$ by foreigners $espite being the minority
because they have the voting capital% That is the anomaly that 0oul$ result here%
!R% K?>HVF>% >o, the reason 0e eliminate$ the 0or$ OstockO as state$ in the ,:4/
an$ ,:/I Constitutions is that BBB there are associations that $o not have stocks%
That is 0hy 0e say OCAPITA(%O
!R% AVCG>A% 1e shoul$ not eliminate the phrase Ocontrolling interest%O
!R% K?>HVF>% In the case of stock corporation, it is assume$%
!R% AVCG>A% Ses, but 0hat I mean is that the control shoul$ be 0ith the 'ilipinos%
!R% K?>HVF>% Ses, that is un$erstoo$%
/R. A<CUNA. .es, 'eca$se if ,e @$s sa" Bsi+" &ercen of ,hose ca&ia( is
o,ne* '" he Fi(i&inos,B he ca&ia( #a" 'e Eoin) or non?Eoin).
/R. 6ENG<ON. Tha is correc.
/3
!ore importantly, on the very same August ,I, ,:5. session, Commissioner Acuna
no longer insiste$ on retaining the $elimiting phrase Ocontrolling interestO@
!R% HARCIA% Thank you very much, !a$am Presi$ent%
I 0oul$ like to propose the follo0ing amen$ment on 8ection /, line ,6 on page -% I
propose to change the 0or$ OsiBtyO to 8?N?>TS-'IN?% 8o, this 0ill rea$@ Oor it may
enter into co-pro$uction, Coint venture, pro$uction sharing agreements 0ith 'ilipino
citiens or corporations or associations at least 8?N?>TS-'IN? percent of 0hose
CAPITA( stock or controlling interest is o0ne$ by such citiens%O
!R% NI((?HA8% This is Cust a correction. I hinA Co##issioner A%c$na is no
insisin) on he reenion of he &hrase Bconro((in) ineres,B so ,e ,i((
reain BCAPITALB o )o 'acA rea((" o he 04M3 an* 041M
for#$(aions%
/,
(?mphasis supplie$%)
The later $eliberations hel$ on August --, ,:5. further un$erscore the framers2 true
intent to inclu$e both voting an$ non-voting shares as coming 0ithin the pale of the
0or$ Ocapital%O The GP (a0 Center attempte$ to limit the scope of the 0or$ along
the line then an$ no0 a$opte$ by the maCority, but, as can be gleane$ from the
follo0ing $iscussion, he fra#ers o&e* no o a*o& he &ro&osa( of he UP
La, Cener o a** he #ore &roecionis &hrase BEoin) socA or
conro((in) ineresB@
!R% >F((?*F% B B B I 0oul$ like to propoun$ some +uestions BBB% I have here a
copy of the approve$ provisions on Article on the >ational ?conomy an$ Patrimony%
B B B
I notice that this provision 0as amen$e$ by Commissioner *avi$e by changing
Ovoting stocksO to OCAPITA(,O but I still notice that there appears the term
Ocontrolling interestO B B B% Kesi$es, the 0or$ings may in$icate that the .3 percent
may be base$ not only on capital but also on controlling interestA it coul$ mean .3
percent or I, percent%
Kefore I propoun$ the "nal +uestion, I 0oul$ like to make a comment in relation to
8ection ,I since they are relate$ to each other% I notice that in 8ection ,I, there still
appears the phrase Ovoting stock or controlling interest%O The term Ovoting stocksO
as the basis of the 'ilipino e+uity means that if .3 percent of the voting stocks
belong to 'ilipinos, foreigners may no0 o0n more than 63 percent of the capital as
long as the 63 percent or the eBcess thereof 0ill cover nonvoting stock% This is asi$e
from the fact that un$er the Corporation Co$e, even nonvoting shares can vote on
certain instances%Conro( oEer inEes#ens #a" coEer as&ecs of
#ana)e#en an* &arici&aion in he fr$is of &ro*$cion or e+&(oiaion.
8o, I ho&e he co##iee ,i(( consi*er faEora'(" #" reco##en*aion ha
insea* of $sin) Bconro((in) ineress,B ,e @$s $se BCAPITALB $nifor#(" in
cases ,here forei)n eC$i" is &er#ie* '" (a,, 'eca$se he &$r&ose is
rea((" o he(& he Fi(i&inos in he e+&(oiaion of na$ra( reso$rces an* in
he o&eraion of &$'(ic $i(iies% B B B
1hat $oes the committee say=
/R. 8ILLEGAS. -e co#&(ee(" a)ree 0ith the Commissioner2s vie0s. Actually, it
0as really an oversight. -e *i* *eci*e on he ,or* BCAPITAL.B I hinA i ,as
he o&inion of he #a@ori" ha he &hrase Bconro((in) ineresB is
a#'i)$o$s.
So, ,e *o acce& he Co##issionerFs &ro&osa( o e(i#inae he &hrase Bor
conro((in) ineresB in a(( he &roEisions ha a(A a'o$ forei)n
&arici&aion.
!R% >F((?*F% >ot only in 8ection /, but also 0ith respect to 8ection ,I%
/-
(?mphasis
supplie$%)
In fact, on the very same $ay of $eliberations, the Commissioners clari"e$ that the
proper an$ more speci"c OinterpretationO that shoul$ be attache$ to the 0or$
OcapitalO is that it refers to the Osubscribe$ capital,O a corporate concept $e"ne$ as
Othat portion of the authorie$ capital stock that is covere$ by subscription
agreements 0hether fully pai$ or notO
//
an$ refers to both voting an$ non-voting
shares@
/R. /AA/6ONG. B B B I ,o$(* (iAe o 'e c(ari!e* on he $se of he ,or*
BCAPITAL.B
/R. 8ILLEGAS. .es, ha ,as he ,or* $se* in he 041M an* he 04M3
Consi$ions.
!R% !AA!KF>H% (et us $elimit ourselves to that 0or$ OCAPITA(%O In the Corporation
(a0, if I remember correctly, 0e have three types of capital@ the authorie$ capital
stock, the subscribe$ capital stock an$ the pai$-up capital stock%
B B B B
I 0oul$ like to get clari"cation on this% If I re#e#'er #" cor&oraion (a,
correc(", ,e $s$a((" $se a *eer#inan in or*er o !n* o$ ,ha he raio
of o,nershi& is, no rea((" on he &ai*?$& ca&ia( socA '$ on he
s$'scri'e ca&ia( socA.
B B B B
B B B I 0oul$ like to kno0 0hether (Commissioner 8uare) is $etermine$ to put on
the recor$ that in or$er to $etermine the .3-63 percent sharing, 0e have to
$etermine 0hether 0e 0ill use a $eterminant 0hich is the subscribe$ capital stock
or the pai$-up capital stock%
/R. SUARE<. -e are &rinci&a((" concerne* a'o$ he iner&reaion ,hich
,o$(* 'e aache* o i, ha is, i sho$(* 'e (i#ie* o a$hori%e* ca&ia(
socA, no o s$'scri'e* ca&ia( socA.
I 0ill give the Commissioner an illustration of 0hat he is eBplaining to the
Commission%
B B B B
(et us say authorie$ capital stock is P , million% Gn$er the present rules in the
D8?CE, at least -I percent of that amount must be subscribe$ an$ at least -I
percent of this subscribe$ capital must be pai$ up%
>o0, let us $iscuss the basis of .3-63% To illustrate the matter further, let us say
that .3 percent of the subscriptions 0oul$ be allocate$ to 'ilipinos an$ 63 percent
of the subscribe$ capital stock 0oul$ be hel$ by foreigners% Then 0e come to the
pai$-up capitaliation% Gn$er the present rules in the D8?CE, a foreign corporation is
suppose$ to subscribe to 63-percent share 0hich must be fully pai$ up%
Fn the other han$, the .3 percent allocate$ to 'ilipinos nee$ not be pai$ up%
#o0ever, at least -I percent of the subscription must be pai$ up for purposes of
complying 0ith the Corporation (a0% 1e can illustrate the matter further by saying
that the compliance of -I percent pai$-up of the subscribe$ capital 0oul$ be
ful"lle$ by the full payment of the 63 percent by the foreigners%
8o, 0e have a situation 0here the 'ilipino percentage of .3 may not even comply
0ith the -I-percent re+uirement because of the totality $ue to the full payment of
the 63-percent of the foreign investors, the payment of -I percent pai$-up on the
subscription 0oul$ have been consi$ere$ ful"lle$% That is eBactly 0hat 0e are trying
to avoi$%
!R% !AA!KF>H% I appreciate very much the eBplanation but I 0on$er if the
committee 0oul$ subscribe to that vie0 because I 0ill stick to my thinking that in
the computation of the .3-63 ratio, the basis shoul$ be on the subscription% B B B
B B B B
!R% RF!G(F. -e )o '" he esa'(ishe* r$(e ,hich I 'e(ieEe is $nifor#("
he(*. I is 'ase* on he s$'scri'e* ca&ia(. B B B
B B B B
I $o not think that 0e contra$ict each other% (Commisioner 8uare) is talking really
of the instance 0here the subscriber is a non-resi$ent an$, therefore, must fully pay%
That is ho0 I un$erstan$ his position%
!R% !AA!KF>H% !y un$erstan$ing is that in the computation of the .3-63 sharing
un$er the present formulation, the $eterminant is the pai$-up capital stock to 0hich
I $isagree%
!R % RF!G(F% At least, from my point of vie0, i is he s$'scri'e* ca&ia(
socA.O
/6
Clearly, 0hile the concept of voting capital as the norm to $etermine the .3-63
'ilipino-alien ratio 0as initially $ebate$ upon as a result of the &ro&osa( to use Oat
least t,o'thirds of ,hose oting stock or controlling interest is o,ned !y such
citi*ens,O
/I
in 0hat 0oul$ eventually be 8ec% ,,, Art% 9II of the Constitution, that
proposal 0as eventually *iscar*e*% An$ no0here in the recor$s of the CF>CF!
can it be $e$uce$ that the i$ea of full o0nership of voting stocks presently parlaye$
by the maCority 0as earnestly, if at all, consi$ere$% In fact, the framers $eci$e$ that
the term Ocapital,O as use$ in the ,:/I an$ ,:4/ Constitutions, shoul$ be properly
interprete$ as the Osubscribe$ capital,O 0hich, again, $oes not $istinguish stocks
base$ on their boar$-membership voting features%
In$ee$, the phrase Ooting stock or controlling interestO 0as suggeste$ for an$ in
fact $eliberate$, but 0as similarly $roppe$ in the approve$ $raft provisions on
>ational ?conomy an$ Patrimony, particularly in 0hat 0oul$ become 8ections
-
/.
an$ ,3,
/4
Article 9II of the ,:54 Constitution% #o0ever, the framers eBpresse$
preference to the formulation of the provision in +uestion in the ,:/I an$ ,:4/
Constitutions, both of 0hich employe$ the 0or$ OcapitalO alone% This 0as very
apparent in the aforementione$ $eliberations an$ a&rme$ by amicus curiae *r%
Kernar$o Nillegas, Chair of the Committee on the >ational ?conomy an$ Patrimony
in charge of $rafting 8ection ,, an$ the rest of Article 9II of the Constitution% *uring
the Lune -., -3,- oral arguments, *r% Nillegas manifeste$ that@
B B B Lustice Aba$ 0as right% DIf iEt 0as not in the min$s of the Commissioners to
$e"ne capital broa$ly, these a$$itional provisions 0oul$ be meaningless% An$ it
0oul$ have been really more or less eBpressing some kin$ of a contra$iction in
terms% 8o, that is 0hy I 0as pleasantly surprise$ that one of the most pro-'ilipino
members of the Commission, Atty% Lose 8uare, 0ho actually vote$ O>FO to the
entire Constitution has only sai$, 0as one of the "rst to insist, $uring one of the
plenary sessions that 0e shoul$ reCect the GP (a0 Center recommen$ation% In his
,or*s, I C$oe BI ,o$(* fee( #ore co#fora'(e if ,e )o 'acA o he ,or*in)
of he 04M3 an* 0415 Consi$ions ha is o sa" he 25?N5 &ercena)e
co$(* 'e 'ase* on he ca&ia( socA of he cor&oraion.B The "nal motion 0as
ma$e by Commissioner ?fren Tre^as, in the same plenary session 0hen he move$,
O!a$am Presi$ent, may I propose an amen$ment on line ,6 of 8ection / by $eleting
therefrom T0hose voting stock an$ controlling interest2 an$ in lieu thereof, insert
capital, so the line shoul$ rea$@ Oassociations of at least siBty percent (.37) of the
capital is o0ne$ by such citiens%O Afer I acce&e* he a#en*#en since I ,as
he chair#an of he Naiona( Econo#" Co##iee, in he na#e of he
Co##iee, he Presi*en of he Co##ission asAe* for an" o'@ecion.
-hen no one o'@ece*, he Presi*en so(e#n(" anno$nce* ha he
a#en*#en ha* 'een a&&roEe* '" he P(enar". I is c(ear, herefore, ha
in he #in*s of he Co##issioners he ,or* Bca&ia(B in Secion 00 of
Aric(e =II refers, no o Eoin) socA, '$ o oa( s$'scri'e* ca&ia(, 'oh
co##on an* &referre*.
/5
(?mphasis supplie$%)
There ,as no chan)e in &hraseo(o)" fro# he 04M3 an*
041M Consi$ions, or a ransior" &roEision ha si)na(s
s$ch chan)e, ,ih res&ec o forei)n o,nershi& in &$'(ic
$i(i" cor&oraions :2n* e+rinsic ai*;
If the framers 0ante$ the 0or$ OcapitalO to mean voting capital stock, their
terminology 0oul$ have certainly been unmistakably limiting as to leave no $oubt
about their intention% Kut he fra#ers conscio$s(" an* &$r&ose(" e+c($*e*
resriciEe &hrases, such as Ovoting stocksO or Ocontrolling interest,O in the
approve$ "nal $raft, the proposal of the GP (a0 Center, Commissioner *avi$e an$
Commissioner Acuna not0ithstan$ing% Instea$, they retaine$ OcapitalO as Ouse$ in
the ,:/I an$ ,:4/ Constitutions%O
/:
There 0as, therefore, a conscious $esign to
avoi$ stringent 0or$s that 0oul$ limit the meaning of OcapitalO in a sense insiste$
upon by the maCority% Cassus omissus pro omisso ha!endus estWWa person, obCect, or
thing omitte$ must have been omitte$ intentionally% !ore importantly, by using the
0or$ Ocapital,O the intent of the framers of the Constitution 0as to inclu$e a(( types
of shares, 0hether voting or nonvoting, 0ithin the ambit of the 0or$%
Hisor" or rea(iies or circ$#sances &reEai(in) *$rin) he
*rafin) of he Consi$ion Ea(i*ae he a*o&ion of he &(ain
#eanin) of BCa&ia(B :Mr* e+rinsic ai*;
This plain, non-eBclusive interpretation of OcapitalO also comes to light consi$ering
the economic back$rop of the ,:5. CF>CF! 0hen the country 0as still starting to
rebuil$ the "nancial markets an$ regain the foreign investors2 con"$ence follo0ing
the changes cause$ by the toppling of the !artial (a0 regime% As previously pointe$
out, the Court, in construing the Constitution, must take into consi$eration the aims
of its framers an$ the evils they 0ishe$ to avoi$ an$ a$$ress% In $ivil /i%erties
+nion v. #6ecutive "ecretary,
63
1e hel$@
A foolproof yar$stick in constitutional construction is the intention un$erlying the
provision un$er consi$eration% Thus, it has been hel$ that he Co$r in consr$in)
a Consi$ion sho$(* 'ear in #in* he o'@ec so$)h o 'e acco#&(ishe*
'" is a*o&ion, an* he eEi(s, if an", so$)h o 'e &reEene* or re#e*ie*%
A $oubtful provision 0ill be eBamine$ in the light of the history of the times, an$ the
con$ition an$ circumstances un$er 0hich the Constitution 0as frame$% The o'@ec
is o ascerain he reason ,hich in*$ce* he fra#ers of he Consi$ion o
enac he &aric$(ar &roEision an* he &$r&ose so$)h o 'e acco#&(ishe*
here'", in or*er o consr$e he ,ho(e as o #aAe he ,or*s consonan o
ha reason an* ca(c$(ae* o ePec ha &$r&ose% (?mphasis supplie$%)
It is, thus, proper to revisit the circumstances prevailing $uring the $rafting perio$%
In an astute observation of the economic realities in ,:5., +uote$ by respon$ent
Pangilinan, Gniversity of the Philippines 8chool of ?conomics Professor *r%
?mmanuel 8% $e *ios eBamine$ the nation2s $ire nee$ for foreign investments an$
foreign eBchange $uring the time 0hen the framers $eliberate$ on 0hat 0oul$
eventually be the >ational ?conomy an$ Patrimony provisions of the Constitution@
The &erio* i##e*iae(" afer he 04J2 EDSA ReEo($ion is ,e(( Ano,n o
haEe ,inesse* he co$nr"Fs *ee&es econo#ic crisis since he Secon*
-or(* -ar. F&cial $ata rea$ily sho0 this perio$ 0as characterise$ by the highest
unemployment, highest interest rates, an$ largest contractions in output the
Philippine economy eBperience$ in the post0ar perio$% At the start of the A+uino
a$ministration in ,:5., total output ha$ alrea$y contracte$ by more than seven
percent annually for t0o consecutive years (,:56 an$ ,:5I), inPation 0as running
at an average of /I percent, unemployment more than ,, percent, an$ the
currency $evalue$ by /I percent%
The &ro+i#ae reason for his ,as he #oraori$# on forei)n*e'
&a"#ens he co$nr" ha* ca((e* in (ae 04JM, ePeciEe(" c$in) oP he
co$nr"Fs access o inernaiona( cre*i #arAes (for a $eeper contemporary
analysis of 0hat le$ to the $ebt crisis, see $e *ios
,:56
)% The co$nr" herefore
ha* o s$'sis on(" on is c$rren earnin)s fro# e+&ors, ,hich #ean
here ,as a criica( shora)e of forei)n e+chan)e. I#&ors es&ecia((" of
ca&ia( )oo*s an* iner#e*iae )oo*s herefore ha* o 'e *rasica(("
c$rai(e* B B B%
'or the same reasons, obviously, ne0 foreign investments 0ere unlikely to be
forthcoming% This is recor$e$ by Kautista
-33/@,I5
, 0ho 0rites@
(ong-term capital inPo0s have been rising at $ouble-$igit rates since ,:53, e+ce&
*$rin) 04J2?0445, a i#e of )rea &o(iica( an* econo#ic $ncerain"
fo((o,in) he &erio* of #aria( (a, $n*er Presi*en /arcos.
The foreign-eBchange controls then eQectively in place 0ill have ma$e importing
inputs $i&cult for ne0 enterprises, particularly foreign investors (especially
Lapanese) intereste$ in relocating some of theireBport-oriente$ but import-
$epen$ent operations to the Philippines% B B B The same foreign-eBchange
restrictions 0oul$ have ma$e the free$om to remit pro"ts a $icey aQairs% 'inally,
ho0ever, the perio$ 0as also characterise$ by eBtreme political uncertainty, 0hich
$i$ not cease even after the !arcos regime 0as topple$%
6,
B B B
8urely, it 0as far from the min$s of the framers to alienate an$ $isenfranchise
foreign investors by imposing an in$irect restriction that only eBacerbates the
$ichotomy bet0een management an$ o0nership 0ithout the actual guarantee of
giving control an$ protection to the 'ilipino investors% Instea$, it can be fairly
assume$ that the framers inten$e$ to avoi$ further economic melt$o0n an$ so
chose to attract foreign investors by allo0ing them to 637 e+uity o0nership of the
entirety of the corporate sharehol$ings but, 0isely, imposing limits on their
participation in the governing bo$y to ensure that the eQective control an$ ultimate
economic bene"ts still remaine$ 0ith the 'ilipino sharehol$ers%
9$*icia( *ecisions an* &rior (a,s $se an*Uor rea
Bca&ia(B as Bca&ia( socAB :Nh e+rinsic ai*;
That the term OcapitalO in 8ec% ,,, Art% 9II is e+uivalent to Ocapital stock,O 0hich
encompasses all classes of shares regar$less of their nomenclature or voting
capacity, is easily $etermine$ by a revie0 of various la0s passe$ prior to the
rati"cation of the ,:54 Constitution% In ,:/., for instance, the Public 8ervice
Act
6-
establishe$ the nationality re+uirement for corporations that may be grante$
the authority to operate a Opublic service,O
6/
0hich inclu$e most of the present-$ay
public utilities, by referring to the pai$-up Ocapital stockO of a corporation, vi@
8ec% ,.% Procee$ings of the Commission, upon notice an$ hearing% W The
Commission shall have po0er, upon proper notice an$ hearing in accor$ance 0ith
the rules an$ provisions of this Act, subCect to the limitations an$ eBceptions
mentione$ an$ saving provisions to the contrary@
(a) To issue certi"cates 0hich shall be kno0n as certi"cates of public convenience,
authoriing the operation of public service 0ithin the Philippines 0henever the
Commission "n$s that the operation of the public service propose$ an$ the
authoriation to $o business 0ill promote the public interest in a proper an$ suitable
manner% Provi$e$, That thereafter, ceri!caes of &$'(ic conEenience an*
ceri!caes of &$'(ic conEenience an* necessi" ,i(( 'e )rane* on("
o citiens of the Philippines or of the Gnite$ 8tates or to cor&oraions, co?
&arnershi&s, associaions or @oin?socA co#&anies consi$e* an*
or)ani%e* $n*er he (a,s of he Phi(i&&inesH ProEi*e*, Tha si+" &er
cen$# of he socA or &ai*?$& ca&ia( of an" s$ch cor&oraions, co?
&arnershi&, associaion or @oin?socA co#&an" #$s 'e(on) enire(" o
cii%ens of he Phi(i&&ines or of the Gnite$ 8tates@ Provi$e$, further, That no such
certi"cates shall be issue$ for a perio$ of more than "fty years% (?mphasis
supplie$%)
The hea$ing of 8ec% - of Common0ealth Act >o% (CA) ,35, or the Anti-*ummy (a0,
0hich 0as approve$ on Fctober /3, ,:/., similarly conveys the i$ea that the term
OcapitalO is e+uivalent to Ocapital stockO
66
@
8ection -% "imulation of minimum capital stoc. a In a(( cases in ,hich a
consi$iona( or (e)a( &roEision reC$ires ha, in or*er ha a cor&oraion
or associaion #a" e+ercise or en@o" a ri)h, franchise or &riEi(e)e, no
(ess han a cerain &er cen$# of is ca&ia( #$s 'e o,ne* '" cii%ens of
he Phi(i&&ines or of any other speci"c country, it shall be unla0ful to falsely
simulate the eBistence of such #ini#$# socA or ca&ia( as o0ne$ by such
citiens, for the purpose of eva$ing sai$ provision% The presi$ent or managers an$
$irectors or trustees of corporations or associations convicte$ of a violation of this
section shall be punishe$ by imprisonment of not less than "ve nor more than
"fteen years, an$ by a "ne not less than the value of the right, franchise or
privilege, enCoye$ or ac+uire$ in violation of the provisions hereof but in no case
less than "ve thousan$ pesos%
6I
(?mphasis an$ un$erscoring supplie$%)
Pursuant to these legislative acts an$ un$er the aegis of the Constitutional
nationality re+uirement of public utilities then in force, Congress grante$ various
franchises upon the un$erstan$ing that the Ocapital stockO of the grantee is at least
.37 'ilipino% In ,:.6, Congress, via Republic Act >o% (RA) 6,64,
6.
grante$ 'ilipinas
Frient Air0ay, Inc% a legislative franchise to operate an air carrier upon the
un$erstan$ing that its Ocapital stockO 0as .37 percent 'ilipino-o0ne$% 8ection ,6 of
RA 6,64, provi$e$@
8ec% ,6% This franchise is grante$ 0ith the un$erstan$ing that he )ranee is a
cor&oraion si+" &er cen of he ca&ia( socA of ,hich is he 'ona !*e
&ro&er" of cii%ens of he Phi(i&&inesan$ that the interest of such citiens in its
capital stock or in the capital of the Company 0ith 0hich it may merge shall at no
time be allo0e$ to fall belo0 such percentage, un$er the penalty of the cancellation
of this franchise% (?mphasis an$ un$erscoring supplie$%)
The grant of a public utility franchise to Air !anila% Inc% to establish an$ maintain air
transport in the country a year later pursuant to RA 6I3,
64
containe$ eBactly the
same 'ilipino capitaliation re+uirement impose$ in RA 6,64@
8ec% ,6% This franchise is grante$ 0ith the un$erstan$ing that the grantee is a
corporation, si+" &er cen of he ca&ia( socA of ,hich is o,ne* or he
'ona !*e &ro&er" of cii%ens of he Phi(i&&ines an$ that the interest of such
citiens in its capital stock or in the capital of the company 0ith 0hich it may merge
shall at no time be allo0e$ to fall belo0 such percentage, un$er the penalty of the
cancellation of this franchise% (?mphasis an$ un$erscoring supplie$%)
In like manner, RA II,6,
65
0hich grante$ a franchise to the Philippine
Communications 8atellite Corporation in ,:.:, re+uire$ of the grantee to eBecute
management contracts only 0ith corporations 0hose Ocapital or capital stockO are at
least .37 'ilipino@
8ec% :% The grantee shall not lease, transfer, grant the usufruct of, sell or assign this
franchise to any person or entity, eBcept any branch or instrumentality of the
Hovernment, 0ithout the previous approval of the Congress of the Philippines@
Provi$e$, That the grantee may enter into management contract 0ith any person or
entity, 0ith the approval of the Presi$ent of the Philippines@ Provi$e$, further, That
such person or entity 0ith 0hom the grantee may enter into management contract
shall be a citien of the Philippines an$ in case of an entity or a cor&oraion, a
(eas si+" &er cen$# of he ca&ia( or ca&ia( socA of ,hich is o,ne* '"
cii%ens of he Phi(i&&ines% (?mphasis supplie$%)
In ,:.5, RA I-34,
6:
other0ise kno0n as the OAtomic ?nergy Regulatory Act of ,:.5,O
consi$ere$ a corporation siBty percent of 0hose capital stock as $omestic@
8ec% :% Cii%enshi& ReC$ire#en% >o license to ac+uire, o0n, or operate any
atomic energy facility shall be issue$ to an alien, or any corporation or other entity
0hich is o0ne$ or controlle$ by an alien, a foreign corporation, or a foreign
government%
'or purposes of this Act, a corporation or entity is no o,ne* or conro((e* '" an
a(ien, a foreign corporation of a foreign government if a (eas si+" &ercen
:25D; of is ca&ia( socA is o,ne* '" Fi(i&ino cii%ens% (?mphasis supplie$%)
Anent pertinent Cu$icial $ecisions, this Court has use$ the very same $e"nition of
capital as e+uivalent to the entire capital stockhol$ings in a corporation in resolving
various other issues% In National 4elecommunications $ommission v. $ourt of
0ppeals,
I3
this Court, thus, hel$@
The er# Bca&ia(B an* oher er#s $se* o *escri'e he ca&ia( sr$c$re
of a cor&oraion are of $niEersa( acce&ance, an* heir $sa)es haEe (on)
'een esa'(ishe* in @$ris&r$*ence% KriePy, ca&ia( refers o he Ea($e of he
&ro&er" or asses of a cor&oraion. The ca&ia( s$'scri'e* is he oa(
a#o$n of he ca&ia( ha &ersons :s$'scri'ers or shareho(*ers; haEe
a)ree* o aAe an* &a" for, ,hich nee* no necessari(" 'e, an* can 'e
#ore han, he &ar Ea($e of he shares. In !ne, i is he a#o$n ha he
cor&oraion receiEes, inc($siEe of he &re#i$#s if an", in consi*eraion of
he ori)ina( iss$ance of he shares. In the case of stock $ivi$en$s, it is the
amount that the corporation transfers from its surplus pro"t account to its capital
account% It is the same amount that can loosely be terme$ as the Otrust fun$O of the
corporation% The OTrust 'un$O $octrine consi$ers this subscribe$ capital as a trust
fun$ for the payment of the $ebts of the corporation, to 0hich the cre$itors may
look for satisfaction% Gntil the li+ui$ation of the corporation, no part of the
subscribe$ capital may be returne$ or release$ to the stockhol$er (eBcept in the
re$emption of re$eemable shares) 0ithout violating this principle% Thus, $ivi$en$s
must never impair the subscribe$ capitalA subscription commitments cannot be
con$one$ or remitte$A nor can the corporation buy its o0n shares using the
subscribe$ capital as the consi$eration therefor%
I,
This is similar to the hol$ing in 7anco Filipino v. 8onetary 7oard
I-
0here the
Court treate$ the term OcapitalO as inclu$ing both common an$ preferre$ stock,
0hich are usually $eprive$ of voting rights@
It is clear from the la0 that a solvent bank is one in 0hich its assets eBcee$ its
liabilities% It is a basic accounting principle that assets are compose$ of liabilities
an$ capital% The term OassetsO inclu$es capital an$ surplusO (?Bley v% #arris, -.4 p%
:43, :4/, ,-. )an%, /3-)% Fn the other han$, he er# Bca&ia(B inc($*es
co##on an* &referre* socA, s$r&($s reserEes, s$r&($s an* $n*iEi*e*
&ro!s% (!anual of ?Bamination Proce$ures, Report of ?Bamination on *epartment
of Commercial an$ 8avings Kanks, p% /-C)% If valuation reserves 0oul$ be $e$ucte$
from these items, the result 0oul$ merely be the net0orth or the unimpaire$ capital
an$ surplus of the bank applying 8ec% I of RA //4 but not the total "nancial
con$ition of the bank%
In $ommissioner of Internal (evenue v. $ourt of 0ppeals,
I/
the Court allu$e$
to the $octrine of e+uality of shares in resolving the issue therein an$ hel$ that all
shares comprise the capital stock of a corporation@
A common stock represents the resi$ual o0nership interest in the corporation% It is a
basic class of stock or$inarily an$ usually issue$ 0ithout eBtraor$inary rights or
privileges an$ entitles the sharehol$er to a pro rata $ivision of pro"ts% Preferre$
stocks are those 0hich entitle the sharehol$er to some priority on $ivi$en$s an$
asset $istribution% 6oh shares are &ar of he cor&oraionFs ca&ia( socA.
6oh socAho(*ers are no *iPeren fro# or*inar" inEesors ,ho aAe on
he sa#e inEes#en risAs. Preferre* an* co##on shareho(*ers
&arici&ae in he sa#e Een$re, ,i((in) o share in he &ro! an* (osses of
he ener&rise. /oreoEer, $n*er he *ocrine of eC$a(i" of shares ??? a((
socAs iss$e* '" he cor&oraion are &res$#e* eC$a( ,ih he sa#e
&riEi(e)es an* (ia'i(iies, provi$e$ that the Articles of Incorporation is silent on
such $iQerences%
I6
(?mphasis supplie$%)
The SEC has reQece* he &o&$(ar cone#&oraneo$s
consr$cion of ca&ia( in co#&$in) he naiona(i"
reC$ire#en 'ase* on he oa( ca&ia( socA, no on("
he Eoin) socA, of a cor&oraion :3h e+rinsic ai*;
The 8?C has con"rme$ that, as an institution, it has al0ays interprete$ an$ applie$
the 637 maBimum foreigno,nershi& limit for public utilities to the total capital
stock, an$ not Cust its total voting stock%
In its Luly -:, -3,, !anifestation an$ Fmnibus !otion, the 8?C rea&rme$ its
longstan$ing practice an$ history of enforcement of the 637 maBimum foreign
o0nership limit for public utilities, vi@
I% The Commission respectfully submits that it has al0ays performe$ its $uty un$er
8ection ,4(6) of the Corporation Co$e to enforce the foreign e+uity restrictions
un$er 8ection ,,, Article 9II of the Constitution on the o0nership of public utilities%
B B B B
5% Thus, in *eer#inin) co#&(iance ,ih he Consi$iona( resricions on
forei)n eC$i", he Co##ission consisen(" consr$e* an* a&&(ie* he
er# Bca&ia(B in is co##on(" acce&e* $sa)e, ha is O he s$# oa( of
he shares s$'scri'e* irres&eciEe of heir no#enc(a$re an* ,heher or
no he" are Eoin) or non?Eoin) (?mphasis supplie$)%
:% This commonly accepte$ usage of the term Tcapital2 is base$ on persuasive
authorities such as the 0i$ely esteeme$ -letcher Cyclopedia of the #a, of "riate
Corporations, an$ $octrines from American Lurispru$ence% To illustrate, in
its 3pinion $ate$ 'ebruary ,I, ,:55 a$$resses to Hoon, 'ernan$e, *efensor an$
Associates, the Commission $iscusse$ ho0 the term Tcapital2 is commonly use$@
OAnent thereto, please be informe$ that the term Tcapital2 as applie$ to
corporations, refers to the money, property or means contribute$ by stockhol$ers
as the form or basis for the business or enterprise for 0hich the corporation 0as
forme$ an$ generally implies that such money or property or means have been
contribute$ in payment for stock issue$ to the contributors% (Gnite$ Hrocers, (t$% v%
Gnite$ 8tates '% 8upp% 5/6, cite$ in ,, 'letcher, Cyc% Corp%, ,:5., rev% vol%, sec%
I353 at ,5)% As further rule$ by the court, Tcapital of a corporation is he f$n* or
oher &ro&er", ac$a((" or &oenia((" in is &ossession, *eriEe* or o 'e
*eriEe* fro# he sa(e '" i of shares of is socA or his e+chan)e '" i for
&ro&er" oher han #one"% This fun$ inclu$es not only money or other property
receive$ by the corporation for shares of stock but all balances of purchase money,
or instalments, $ue the corporation for shares of stock sol$ by it, an$ all unpai$
subscriptions for shares%2O (1illiams v% Kro0nstein, ,'% -$ 643, cite$ in ,, 'letcher,
Cyc% Corp%, ,3I5 rev% vol%, sec% I353, p% -,)%
The term Tcapital2 is also use$ synonymously 0ith the 0or$s Tcapital stock2, as
meaning the amount subscribe$ an$ pai$in an$ upon 0hich the corporation is to
con$uct its operation% (,, 'letcher, Cyc% Corp% ,:5., rev% vol%, sec% I353 at ,I)% An$,
as hel$ by the court in #aggar$ v% (eBington Gtilities Co%, (-.3 )y -I,, 56 81 -$ 56,
cite$ in ,, 'letcher, Cyc% Corp%, ,:I5 rev% vol%, sec% I34: at ,4), TThe capital stock of
a corporation is the amount pai$in by its stockhol$ers in money, property or
services 0ith 0hich it is to con$uct its business, an$ it is immaterial ho1 the
stoc. is classied, 1hether as common or preferred%7
The Commission, in a previous opinion, rule$ that the term Tcapital2 $enotes the
sum total of the shares subscribe$ an$ pai$ by the sharehol$ers or serve$ to be
pai$, irrespective of their nomenclature% ((etter to 8upreme Technotronics
Corporation, $ate$ April ,6, ,:54)%O (?mphasis ours)
,3% 'urther, in a$opting this common usage of the term Tcapital,2 the Commission
believe$ in goo$ faith an$ 0ith soun$ reasons that it 0as consistent 0ith the intent
an$ purpose of the Constitution% In an 3pinion $ate$ -4 *ecember ,::I a$$resse$
to Loa+uin Cunanan R Co% the Commission observe$ that@
OTo construe the .3-637 e+uity re+uirement as merely base$ on the voting shares,
$isregar$ing the preferre$ non-voting share, not on the total outstan$ing subscribe$
capital stock, 0oul$ give rise to a situation 0here the actual foreign interest 0oul$
not really be only 637 but may eBten$ beyon$ that because they coul$ also o0n
even the entire preferre$ non-voting shares% In this situation, 'ilipinos may have the
control in the operation of the corporation by 0ay of voting rights, but have no
eQective o0nership of the corporate assets 0hich inclu$es lan$s, because the
actual 'ilipino e+uity constitutes only a minority of the entire outstan$ing capital
stock% Therefore, in essence, he co#&an", a(ho$)h conro((e* '" Fi(i&inos,
is 'ene!cia((" o,ne* '" forei)ners since he ac$a( o,nershi& of a (eas
25D of he enire o$san*in) ca&ia( socAs ,o$(* 'e in he han*s of
forei)ners. A((o,in) his si$aion ,o$(* o&en he Qoo*)aes o
circ$#Eenion of he inen of he (a, o #aAe he Fi(i&inos he &rinci&a(
'ene!ciaries in he o,nershi& of a(iena'(e (an*s.B (?mphasis ours)
,,% The foregoing settle$ principles an$ esteeme$ authorities relie$ upon by the
Commission sho0 that its interpretation of the term Tcapital2 is reasonable%
,-% An$, it is 0ell settle$ that courts must give $ue $eference to an a$ministrative
agency2s reasonable interpretation of the statute it enforces%
II
It shoul$ be borne in min$ that the 8?C is the government agency investe$ 0ith the
Curis$iction to $etermine at the "rst instance the observance by a public utility of
the constitutional nationality re+uirement prescribe$ vis-b-vis the o0nership of
public utilities
I.
an$ to interpret legislative acts, like the 'IA% The rationale behin$
the $octrine of primary Curis$iction lies on the postulate that such a$ministrative
agency has the Ospecial kno0le$ge, eBperience an$ tools to $etermine technical
an$ intricate matters of fact`O
I4
Thus, the $etermination of the 8?C is aQor$e$
great respect by other eBecutive agencies, like the *epartment of Lustice
(*FL),
I5
an$ by the courts%
Nerily, 0hen aske$ as early as ,:55W O1oul$ it be legal for foreigners to o0n in a
public utility entity more than 637 of the common shares but not more than 637 of
the total outstan$ing capital stock 0hich 0oul$ inclu$e both common an$ non-
voting preferre$ shares=O Wthe 8?C, citing 'letcher, invariably ans0ere$ in the
a&rmative, 0hether the poser 0as ma$e in light of the present or previous
Constitutions@
The pertinent provision of the Philippine Constitution un$er Article 9II, 8ection 4,
rea$s in part thus@
O>o franchise, certi"cate, or any form of authoriation for the operation of a public
utility shall be grante$ eBcept to citiens of the Philippines, or to corporations or
associations organie$ un$er the la0s of the Philippines at least siBty per centum of
0hose capital is o0ne$ by such citiens% % %O B B B
The iss$e raise* on "o$r (eer %eroes in on he #eanin) of he ,or*
Bca&ia(B as $se* in he a'oEe consi$iona( &roEision. Anent thereto, please
be informe$ that the term OcapitalO as applie$ to corporations, refers to the money,
property or means contribute$ by stockhol$ers as the form or basis for the business
or enterprise for 0hich the corporation 0as forme$ an$ generally implies that such
money or property or means have been contribute$ in payment for stock issue$ to
the contributors% (Gnite$ Hrocers, (t$% v% Gnite$ 8tates '% 8upp% 5/6, cite$ in ,,
'letcher, Cyc% Corp%, ,:5., rev% vol%, sec% I353 at ,5)% As further rule$ by the court,
Ocapital of a corporation is the fun$ or other property, actually or potentially in its
possession, $erive$ or to be $erive$ from the sale by it of shares of its stock or his
eBchange by it for property other than money% This fun$ inclu$es not only money or
other property receive$ by the corporation for shares of stock but all balances of
purchase money, or installments, $ue the corporation for shares of stock sol$ by it,
an$ all unpai$ subscriptions for shares%O (1illiams v% Kro0nstein, ,'% -$ 643, cite$ in
,, 'letcher, Cyc% Corp%, ,3I5 rev% vol%, sec% I353, p% -,)%
The term OcapitalO is also use$ synonymously 0ith the 0or$s Ocapital stockO, as
meaning the amount subscribe$ an$ pai$-in an$ upon 0hich the corporation is to
con$uct its operation% (,, 'letcher, Cyc% Corp% ,:5., rev% vol%, sec% I353 at ,I)% An$,
as hel$ by the court in #aggar$ v% (eBington Gtilities Co%, (-.3 )y -I,, 56 81 -$ 56,
cite$ in ,, 'letcher, Cyc% Corp%, ,:I5 rev% vol%, sec% I34: at ,4), BThe ca&ia( socA
of a cor&oraion is he a#o$n &ai*?in '" is socAho(*ers in #one",
&ro&er" or serEices ,ih ,hich i is o con*$c is '$siness, an* i is
i##aeria( ho, he socA is c(assi!e*, ,heher as co##on or &referre*.B
The Co##ission, in a &reEio$s o&inion, r$(e* ha he er# Vca&ia(F
*enoes he s$# oa( of he shares s$'scri'e* an* &ai* '" he
shareho(*ers or serEe* o 'e &ai*, irres&eciEe of heir
no#enc(a$re. ((etter to 8upreme Technotronics Corporation, $ate$ April ,6,
,:54)% #ence, your +uery is ans0ere$ in the a&rmative%
I:
(?mphasis supplie$%)
As it 0ere, the 8?C has hel$ on the same positive response long before the ,:54
Constitution came into eQect, a matter of fact 0hich has receive$ $ue
ackno0le$gment from this Court% In *eople v. 9uasha,
.3
a case $eci$e$ un$er the
,:/I Constitution, this Court narrate$ that in ,:6. the 8?C approve$ the
incorporation of a common carrier, a public utility, 0here 'ilipinos, 0hile not hol$ing
the controlling vote, o0ne$ the maCority of the capital, vi@
The essential facts are not in $ispute% Fn >ovember 6, ,:6., the Paci"c Air0ays
Corporation registere$ its articles of incorporation 0ith the D8?CE% The articles 0ere
prepare$ an$ the registration 0as eQecte$ by the accuse$, 0ho 0as in fact the
organier of the corporation% The articles state$ that the primary purpose of the
corporation 0as to carry on the business of a common carrier by air, lan$, or 0ater,
that its ca&ia( socA ,as P 0,555,555, re&resene* '" 4,555 &referre* an*
055,555 co##on shares, each &referre* share 'ein) of he &ar Ea($e
of P 055 an* eni(e* o 0UM Eoe an* each co##on share, of he &ar Ea($e
of P 0 an* eni(e* o one EoeA that the amount of capital stock actually
subscribe$ 0as P -33,333, an$ the names of the subscriber 0ere Arsenio Kaylon,
?ruin ?% 8hannahan, Albert 1% Fnstott, Lames F2bannon, *enel L% Cavin, an$ 1illiam
#% Zuasha, he !rs 'ein) a Fi(i&ino an* he oher !Ee a(( A#ericansH that
Kaylon2s subscription 0as for ,,,6I preferre$ shares, of the total value of P ,,6,I33
an$ .,I33 common shares, of the total par value of P .,I33, 0hile the aggregate
subscriptions of the American subscribers 0ere for -33 preferre$ shares, of the total
par value of P -3,333 an$ I:,333 common shares, of the total par value
of P I:,333A an$ that Kaylon an$ the American subscribers ha$ alrea$y pai$ -I
percent of their respective subscriptions% Osensi'(" he o,ner of, or s$'scri'er
o, 25.553 &er cen of he s$'scri'e* ca&ia( socA of he cor&oraion,
6a"(on, *i* no haEe he conro((in) Eoe 'eca$se of he *iPerence in
Eoin) &o,er 'e,een he &referre* shares an* he co##on shares. Si((,
,ih he ca&ia( sr$c$re as i ,as, he aric(es of incor&oraion ,ere
acce&e* for re)israion an* a ceri!cae of incor&oraion ,as iss$e* '"
he KSECL% (?mphasis supplie$%)
The 8?C has, through the years, stoo$ by this interpretation% In an Fpinion $ate$
>ovember -,, ,:5:, the 8?C hel$ that the basis of the computation for the
nationality re+uirement is the total outstan$ing capital stock, to 0it@
As to the basis of computation of the .3-63 percentage nationality re+uirement
un$er eBisting la0s (0hether it shoul$ be base$ on the number of shares or the
aggregate amount in pesos of the par value of the shares), the follo0ing $e"nitions
of corporate terms are 0orth mentioning%
OThe term capital stock signi"es the aggregate of the shares actually subscribe$O%
(,, 'letcher, Cyc% Corps% (,:4, Rev% Nol%) sec% I35-, citing Hoo$no0 v% American
1riting Paper Co%, 4/ >L ?+% .:-, .: A ,3,6 aQMg 4- >L ?+% .6I, .. A, .34)%
OCapital stock means the capital subscribe$ (the share capital)O% (Ibi$%, emphasis
supplie$)%
OIn its primary sense a share of stock is simply one of the proportionate integers or
units, the sum of 0hich constitutes the capital stock of corporation% ('letcher, sec%
I35/)%
The e+uitable interest of the sharehol$er in the property of the corporation is
represente$ by the term stock, an$ the eBtent of his interest is $escribe$ by the
term shares% The eBpression shares of stock 0hen +uali"e$ by 0or$s in$icating
number an$ o0nership eBpresses the eBtent of the o0nerMs interest in the corporate
property (Ibi$, 8ec% I35/, emphasis supplie$)%
(ike0ise, in all provisions of the Corporation Co$e the stockhol$ers2 right to vote
an$ receive $ivi$en$s is al0ays $etermine$ an$ base$ on the Ooutstan$ing capital
stockO, $e"ne$ as follo0s@
O8?CTIF> ,/4% Futstan$ing capital stock $e"ne$% a The term Ooutstan$ing capital
stockO as use$ in this Co$e, means the total shares of stock issue$ to subscribers or
stockhol$ers, 0hether or not fully or partially pai$ (as long as there is a bin$ing
subscription agreement, eBcept treasury shares%O
The computation, therefore, shoul$ be base$ on the total outstan$ing capital stock,
irrespective of the amount of the par value of the shares%
Then came 8?C-FHC Fpinion >o% 35-,6 $ate$ Lune 3-, -335@
The instant +uery no0 centers on 0hether both voting an$ nonvoting shares are
inclu$e$ in the computation of the re+uire$ percentage of 'ilipino e+uity, As a rule,
the ,:54 Constitution $oes not $istinguish bet0een voting an$ non-voting shares
0ith regar$ to the computation of the percentage interest by 'ilipinos an$ non-
'ilipinos in a company% In oher ,or*s, non?Eoin) shares sho$(* 'e inc($*e*
in he co#&$aion of he forei)n o,nershi& (i#i for *o#esic
cor&oraion.This 0as the rule applie$ Din 8?C Fpinion >o% 36-/3 B B B It 0as opine$
therein that the o0nership of the shares of stock of a corporation is base$ on the
total outstan$ing or subscribe$Jissue$ capital stock regar$less of 0hether they are
classi"e$ as common voting shares or preferre$ shares 0ithout voting rights% This is
in line 0ith the policy of the 8tate to $evelop an in$epen$ent national economy
eQectively controlle$ by 'ilipinos% B B B (?mphasis a$$e$%)
The 8?C again echoe$ the same interpretation in an Fpinion issue$ last April ,:,
-3,, 0herein it state$, thus@
This is, thus, the general rule, such that 0hen the provision merely uses the term
OcapitalO 0ithout +uali"cation (as in 8ection ,,, Article 9II of the ,:54 Constitution,
0hich $eals 0ith e+uity structure in a public utility company), the same shoul$ be
interprete$ to refer to the sum total of the outstan$ing capital stock, irrespective of
the nomenclature or classi"cation as common, preferre$, voting or non-voting%
.,
The above construal is in harmony 0ith the letter an$ spirit of 8ec% ,,, Art% 9II of the
Constitution an$ its counterpart provisions in the ,:/I an$ ,:4/ Constitution an$,
thus, is entitle$ to respectful consi$eration% As the Court $eclare$ in *hilippine
'lo%al $ommunications, Inc. v. (elova@
.-
B B B As far back as In re Allen, (- Phil% ./3) a ,:3/ $ecision, Lustice !c*onough, as
ponente, cite$ this eBcerpt from the lea$ing American case of Pennoyer v%
!cConnaughy, $eci$e$ in ,5:,@ OThe &rinci&(e ha he cone#&oraneo$s
consr$cion of a sa$e '" he e+ec$iEe oGcers of he )oEern#en,
,hose *$" i is o e+ec$e i, is eni(e* o )rea res&ec, an* sho$(*
or*inari(" conro( he consr$cion of he sa$e '" he co$rs, is so "rmly
embe$$e$ in our Curispru$ence that no authorities nee$ be cite$ to support it%2 B B B
There 0as a paraphrase by Lustice !alcolm of such a pronouncement in !olina v%
RaQerty, (/4 Phil% I6I) a ,:,5 $ecision@O Courts 0ill an$ shoul$ respect the
contemporaneous construction place$ upon a statute by the eBecutive o&cers
0hose $uty it is to enforce it, an$ unless such interpretation is clearly erroneous 0ill
or$inarily be controlle$ thereby% (Ibi$, III) 8ince then, such a $octrine has been
reiterate$ in numerous $ecisions%
./
(?mphasis supplie$%)
/a6amana v. 7alta)ar
.6
restates this long-stan$ing $ictum@ OD0Ehere a statute has
receive$ a contemporaneous an$ practical interpretation an$ the statute as
interprete$ is re-enacte$, the practical interpretation is accor$e$ greater 0eight
than it or$inarily receives, an$ is regar$e$ as presumptively the correct
interpretation of the la0% The rule here is base$ upon the theory that the legislature
is ac+uainte$ 0ith the contemporaneous interpretation of a statute, especially 0hen
ma$e by an a$ministrative bo$y or eBecutive o&cers charge$ 0ith the $uty of
a$ministering or enforcing the la0, an$ therefore implie$ly a$opts the interpretation
upon re-enactment%O
.I
#ence, it can be safely assume$ that the framers, in the
course of $eliberating the ,:54 Constitution, kne0 of the a$verte$ 8?C
interpretation%
Parenthetically, it is immaterial 0hether the 8?C opinion 0as ren$ere$ by
the !anc or by the 8?C-F&ce of the Heneral Counsel (FHC) consi$ering that the
latter has been given the authority to issue opinions on the la0s that the 8?C
implements un$er 8?C-?98% Res% >o% ,3., 8eries of -33-%
..
The conferment $oes not
violate 8ec% 6%.
.4
of the 8ecurities an$ Regulation Co$e (8RC) that proscribes the
non-$elegation of the legislative rule making po0er of the 8?C, 0hich is in the
nature of subor$inate legislation% As may be note$, the same 8ec% 6%. $oes not
mention the 8?C2s po0er to issue interpretative Oopinions an$ provi$e gui$ance on
an$ supervise compliance 0ith such rules,O
.5
0hich is inci$ental to the 8?C2s
enforcement functions% A legislative rule an$ an interpretative rule are t0o $iQerent
concepts an$ the $istinction bet0een the t0o is establishe$ in a$ministrative
la0%
.:
#ence, the various opinions issue$ by the 8?C-FHC $eserve as much respect
as the opinions issue$ by the 8?C en !anc%
>onetheless, the esteeme$ ponente posits that the 8?C, contrary to its claim, has
been less than consistent in its construal of Ocapital%O *uring the oral arguments, he
$re0 attention to various 8?C Fpinions, nine (:) to be precise, that purporte$ly
consi$er OcapitalO as referring only to voting stocks%
Refuting this position, the 8?C in its !emoran$um $ate$ Luly -I, -3,- eBplaine$ in
some $etail that he Co##ission has 'een consisen in a&&("in) he er#
Bca&ia(B o he oa( o$san*in) ca&ia( socA, ,heher Eoin) or non?
Eoin)% The 8?C Fpinions referre$ to by Lustice Carpio, 0hich cite$ the provisions of
the 'IA, is not, ho0ever, pertinent or $ecisive of the issue on the meaning of
Ocapital%O The sai$ 8?C !emoran$um states@
*uring the oral arguments hel$ on -. Lune -3,-, the 8?C 0as $irecte$ to eBplain
nine (:) of its Fpinions in relation to the $e"nition of OcapitalO as use$ in 8ection ,,,
Article 9II of the Constitution, namely@ (,) Fpinion $ate$ / !arch ,::/ for !r%
'rancis '% #o0A (-) Fpinion $ate$ ,6 April ,::/ for *irector Angeles T% 1ongA (/)
Fpinion $ate$ -/ >ovember ,::/ for !ssrs% *omina$or Alme$a an$ Renato 8%
CalmaA (6) Fpinion $ate$ 4 *ecember ,::/ for Roco Ku^ag )apunan !igallos R
Lar$elea (a0 F&cesA (I) Fpinion $ate$ -- *ecember -336 for Romulo !abanta
Kuenaventura 8ayoc R *e (os AngelesA (.) Fpinion $ate$ -4 8eptember -334 for
Reynal$o H% *avi$A (4) Fpinion $ate$ -5 >ovember -334 for 8antiago R 8antiago
la0 F&cesA (5) Fpinion $ate$ ,I Lanuary -335 for Attys% Ruby Rose L% Susi an$
Ru$yar$ 8% Arbola$oA an$ (:) Fpinion $ate$ ,5 August -3,3 for Castillo (aman Tan
Pantaleon R 8an Lose%
B B B B
-ih *$e res&ec, he iss$e of ,heher Bca&ia(B refers o o$san*in)
ca&ia( socA or on(" Eoin) socAs ,as neEer raise* in he reC$ess for
hese o&inions% In fact, the $e"nition of OcapitalO coul$ not have been a relevant
an$Jor a material issue in some of these opinions because the common an$
preferre$ shares involve$ have the same voting rights% Also, some Fpinions
mentione$ the 'IA to emphasie that the sai$ la0 man$ates the application of the
Control Test% !oreover, these Fpinions state they are base$ solely on the facts
$isclose$ an$ relevant only to the issues raise$ therein%
'or one, the Fpinion $ate$ / !arch ,::/ for !r% 'rancis '% #o0 *oes no *isc$ss
,heher Bca&ia(B refers o oa( o$san*in) ca&ia( socA or on(" Eoin)
socAs% Instea$, it talks about the application of the Control test in a mining
corporation by looking into the nationality of its investors% The FIA is no
#enione* o &roEi*e a *e!niion of Bca&ia(,B '$ o e+&(ain he
naiona(i" reC$ire#en &erinen o inEesors of a #inin) cor&oraion%
The Fpinion $ate$ ,6 April ,::/ for *ir% Angeles T% 1ong also *oes no *e!ne
Bca&ia(B as referrin) o oa( o$san*in) ca&ia( or on(" o Eoin) shares,
'$ a(As a'o$ he a&&(icaion of he Conro( Tes B B B% The 'IA is again
mentione$ only to eBplain the nationality re+uire$ of investors of a corporation
engage$ in overseas recruitment%
The Fpinion $ate$ -/ >ovember ,::/ for !ssrs% *omina$or Alme$a an$ Renato 8%
Calma*isin)$ishes 'e,een he naiona(i" of a cor&oraion as an
inEesin) eni" an* he naiona(i" of a cor&oraion as an inEesee
cor&oraion. The FIA is #enione* on(" in he *isc$ssion of he naiona(i"
of he inEesors of a cor&oraion o,nin) (an* in he Phi(i&&ines, compose$
of a trustee for pension or other employee retirement or separation bene"ts, 0here
the trustee is a Philippine national an$ at least siBty percent (.37) of the fun$ 0ill
accrue to the bene"t of Philippine nationals, an$ another $omestic corporation
0hich is ,337 foreign o0ne$%
Gnlike the $ecision ren$ere$ by this #onorable Court on -5 Lune -3,,, the Fpinion
$ate$ 34 *ecember ,::/ for Roco Ku^ag )apunan !igallos R Lar$elea *oes no
&ar(e" on he iss$e of he &ro&er iner&reaion of Bca&ia(B 'eca$se i is
no a re(eEan an*Uor a #aeria( iss$e in his o&inion BBB% The FIA is
#enione* on(" o e+&(ain he a&&(icaion of he conro( es.>ote, ho0ever,
that manufacturing fertilier is neither a nationalie$ or partly nationalie$ activity,
0hich is another reason 0hy this Fpinion has no relevance in this case%
The Fpinion $ate$ -- *ecember -336 for Romulo !abanta Kuenaventura 8ayoc R
*e (os Angeles focuses on the nationality of the investors of a corporation that 0ill
ac+uire lan$ 0herein one of the investors is a foun$ation% I con!r#s he Eie,
ha he es for co#&(iance ,ih he naiona(i" reC$ire#en is 'ase* on
he oa( o$san*in) ca&ia( socA irres&eciEe of he a#o$n of he &ar
Ea($e of shares. The 'IA is use$ merely to Custify the application of the Control
Test as a$opte$ in the *epartment of Lustice Fpinion, >o% ,5, 8eries of ,:5:, $ate$
,: Lanuary ,:5:m i* I
B B B B
The Fpinion $ate$ -4 8eptember -334 for !r% Reynal$o H% *avi$, like0ise, *oes
no *isc$ss ,heher Bca&ia(B refers o oa( o$san*in) ca&ia( socA or
on(" o Eoin) socAs, '$ raher ,heher he Conro( Tes is a&&(ica'(e in
*eer#inin) he naiona(i" of he &ro&ose* cor&orae 'i**er or '$"er of
PNOC?EDC shares% B B B The 'IA 0as cite$ only to emphasie that the sai$ la0
man$ates the application of the Control Test%
The Fpinion $ate$ -5 >ovember -334 for 8antiago R 8antiago (a0
F&ces #ainains an* s$&&ors he &osiion of he Co##ission ha Secion
00, Aric(e =II of he Consi$ion #aAes no *isincion 'e,een co##on
an* &referre* shares, h$s, 'oh shares sho$(* 'e inc($*e* in he
co#&$aion of he forei)n eC$i" ca& for *o#esic cor&oraions% 8imply
put, the total outstan$ing capital stock, 0ithout regar$ to ho0 the shares are
classi"e$, shoul$ be use$ as the basis in $etermining the compliance by public
utilities 0ith the nationality re+uirement as provi$e$ for in 8ection ,,, Article 9II of
the Constitution% >otably, all shares of the subCect corporation, Pilipinas 'irst, have
voting rights, 0hether common or preferre$% #ence, the issue on 0hether OcapitalO
refers to total outstan$ing capital stock or only to voting stocks has no relevance in
this Fpinion%
In the same 0ay, the Fpinion $ate$ ,I Lanuary -335 for Attys% Ruby Rose L% Susi an$
Ru$yar$ 8% Arbola$a neEer *isc$sse* ,heher Bca&ia(B refers o o$san*in)
ca&ia( socA or on(" o Eoin) socAs, '$ raher ,heher he Conro( Tes
is a&&(ica'(e or no. The 'IA 0as use$ merely to Custify the application of the
Control Test% !ore importantly, the term OcapitalO coul$ not have been relevant
an$Jor material issue in this Fpinion because the common an$ preferre$ shares
involve$ have the same voting rights%
The Fpinion $ate$ ,5 August -3,3 for Castillo (aman Tan Pantaleon R 8an
Lose reieraes ha he es for co#&(iance ,ih he naiona(i"
reC$ire#en is 'ase* on he oa( o$san*in) ca&ia( socA, irres&eciEe
of he a#o$n of he &ar Ea($e of he shares. The FIA is #enione* on(" o
e+&(ain he a&&(icaion of he Conro( Tes an* he Gran*faher R$(e in a
corporation o0ning lan$ in the Philippines by looking into the nationality of its
investors% (?mphasis supplie$)%
43
In vie0 of the foregoing, it is submitte$ that the long-establishe$ interpretation an$
mo$e of computing by the 8?C of the total capital stock strongly recognie the
intent of the framers of the Constitution to allo0 access to much-nee$e$ foreign
investments con"ne$ to 637 of the capital stock of public utilities%
ConseC$ences of a(ernaiEe iner&reaion: #ischieEo$s
ePecs of he consr$cion &ro&ose* in he &eiion an*
s$saine* in he 9$ne 2J, 2500 Decision. :2h e+rinsic ai*;
-ilipino shareholders ,ill not
control the fundamental corporate
matters nor o,n the ma=ority
economic !ene;ts of the pu!lic
utility corporation%
In$ee$, if the Court persists in a$hering to the rationale un$erlying the maCority2s
original interpretation of OcapitalO foun$ in the "rst sentence of 8ection ,,, Article
9II, 1e may perhaps be allo0ing 'ilipinos to $irect an$ control the $aily business of
our public utilities, but 0oul$ irreEoca'(" an* in@$*icio$s(" *e&riEe he# of
ePeciEe Bconro(B oEer he #a@or an* eC$a((" i#&oran cor&orae
*ecisions an* he eEen$a( 'ene!cia( o,nershi& of he cor&orae asses
ha co$(* inc($*e, a#on) ohers, c(ai# oEer o$r soi(OOo$r (an*% This
un$ermines the clear teBtual commitment un$er the Constitution that reserves
o0nership of $isposable lan$s to 'ilipino citiens% The interplay of the ensuing
provisions of Article 9II is unmistakable@
8?CTIF> -% All lan$s of the public $omain B B B forests or timber, 0il$life, Pora an$
fauna, an$ other natural resources are o0ne$ by the 8tate% 1ith the eBception of
agricultural lan$s, all other natural resources shall not be alienate$% The
e+&(oraion, *eEe(o&#en, an* $i(i%aion of na$ra( reso$rces sha(( 'e
$n*er he f$(( conro( an* s$&erEision of he Sae. B B B
B B B B
8?CTIF> /% (an$s of the public $omain are classi"e$ into agricultural, forest or
timber, mineral lan$s, an$ national parks% Agricultural lan$s of the public $omain
may be further classi"e$ by la0 accor$ing to the uses 0hich they may be $evote$%
Alienable lan$s of the public $omain shall be limite$ to agricultural lan$s% Private
corporations or associations may not hol$ such alienable lan$s eBcept by lease, for
a perio$ not eBcee$ing t0enty-"ve years, rene0able for not more than t0enty-"ve
years, an$ not to eBcee$ one thousan$ hectares in area% Citiens of the Philippines
may lease not more than "ve hun$re$ hectares, or ac+uire not more than t0elve
hectares thereof by purchase, homestea$ or grant%
B B B B
8?CTIF> 4% 8ave in cases of here$itary succession, no &riEae (an*s sha(( 'e
ransferre* or conEe"e* e+ce& o in*iEi*$a(s, cor&oraions or
associaions C$a(i!e* o acC$ire or ho(* (an*s of he &$'(ic
*o#ain. (?mphasis supplie$%)
Consi$er the hypothetical case presente$ in the original ponencia@
(et us assume that a corporation has ,33 common shares o0ne$ by foreigners an$
,,333,333 non-voting preferre$ shares o0ne$ by 'ilipinos, 0ith both classes of share
having a par value of one peso (P ,%33) per share% Gn$er the broa$ $e"nition of the
term Ocapital,O such corporation 0oul$ be consi$ere$ compliant 0ith the 63 percent
constitutional limit on foreign e+uity of public utilities since the over0helming
maCority, or more than ::%::: percent, of the total outstan$ing capital stock is
'ilipino o0ne$% This is obviously absur$%
Albeit trying not to appear to, the maCority actually "n$s fault in the 0is$om of, or
motive behin$, the provision in +uestion through Ohighly unlikely scenarios of
clinical eBtremes,O to borro0 from :eterans -ederation "arty % C3/8#8C%
4,
It is
submitte$ that the Pip si$e of the ponencia2s hypothetical illustration, 0hich 0ill be
eBhaustively eluci$ate$ in this opinion, is more anomalous an$ preCu$icial to 'ilipino
interests%
'or instance, let us suppose that the authorie$ capital stock of a public utility
corporation is $ivi$e$ into ,33 common shares an$ ,,333,333 non-voting preferre$
shares% 8ince, accor$ing to the Court2s Lune -5, -3,, *ecision, the 0or$ OcapitalO in
8ec% ,,, Art% 9II refers only to the voting shares, then the 637 cap on foreign
o0nership applies only to the ,33 common shares% 'oreigners can, therefore, o0n
,337 of the ,,333,333 nonvoting preferre$ shares% Kut then again,
the ponencia continues, at least, the OcontrolO rests 0ith the 'ilipinos because the
.37 'ilipino-o0ne$ common shares 0ill necessarily or$ain the maCority in the
governing bo$y of the public utility corporation, the boar$ of $irectorsJtrustees%
#ence, 'ilipinos are assure$ of control over the $ay-to-$ay activities of the public
utility corporation%
(et us, ho0ever, take this corporate scenario a little bit farther an$ consi$er the
irresistible implications of changes an$ circumstances that are inevitable an$
common in the business 0orl$% Consi$er the simple matter of a possible investment
of corporate fun$s in another corporation or business, or a merger of the public
utility corporation, or a possible $issolution of the public utility corporation% -ho
has he Bconro(B oEer hese Eia( an* i#&oran cor&orae #aersI The
last paragraph of 8ec% . of the Corporation Co$e provi$es@
1here the articles of incorporation provi$e for non-voting shares in the cases
allo0e$ by this Co$e,he ho(*ers of s$ch :non?Eoin); shares sha((
neEerhe(ess 'e eni(e* o Eoe on he fo((o,in) #aers@
,% Amen$ment of the articles of incorporationA
-% A$option an$ amen$ment of by-la0sA
/% 8ale, lease, eBchange, mortgage, ple$ge or other $isposition of all or
substantially all of the corporate propertyA
6% Incurring, creating or increasing bon$e$ in$ebte$nessA
I% Increase or $ecrease of capital stockA
.% !erger or consoli$ation of the corporation 0ith another corporation or other
corporationsA
4% Investment of corporate fun$s in another corporation or business in accor$ance
0ith this Co$eA an$
5% *issolution of the corporation%O(?mphasis an$ un$erscoring supplie$%)
In our hypothetical case, all ,,333,,33 (voting an$ non-voting) shares are entitle$ to
vote in cases involving fun$amental an$ maCor changes in the corporate structure,
such as those liste$ in 8ec% . of the Corporation Co$e% #ence, 0ith only .3 out of
the ,,333,,33 shares in the han$s of the 'ilipino sharehol$ers, control is $e"nitely in
the han$s of the foreigners% The foreigners can opt to invest in other businesses an$
corporations, increase its bon$e$ in$ebte$ness, an$ even $issolve the public utility
corporation against the interest of the 'ilipino hol$ers of the maCority voting shares%
This cannot plausibly be the constitutional intent%
Consi$er further a situation 0here the maCority hol$ers of the total outstan$ing
capital stock, both voting an$ non-voting, $eci$e to $issolve our hypothetical public
utility corporation% -ho ,i(( eEen$a((" acC$ire he 'ene!cia( o,nershi& of
he cor&orae asses $&on *isso($ion an* (iC$i*aionI >ote that 8ec% ,-- of
the Corporation Co$e states@
8ection ,--% Corporate li+ui$ation%W?very corporation 0hose charter eBpires by its
o0n limitation or is annulle$ by forfeiture or other0ise, or 0hose corporate
eBistence for other purposes is terminate$ in any other manner, shall nevertheless
be continue$ as a bo$y corporate for three (/) years` o *is&ose of an* conEe"
is &ro&er" an* o *isri'$e is asses, but not for the purpose of continuing
the business for 0hich it 0as establishe$%
At any time $uring sai$ three (/) years, the corporation is authorie$ an$
empo0ere$ to convey all of its property to trustees for he 'ene! of
socAho(*ers, #e#'ers, cre$itors, an$ other persons in interest% 'rom an$ after
any such conveyance by the corporation of its property in trust for the bene"t of its
stockhol$ers, members, cre$itors an$ others in interest, a(( ineres ,hich he
cor&oraion ha* in he &ro&er" er#inaes, the legal interest vests in the
trustees, an$ he 'ene!cia( ineres in he socAho(*ers, #e#'ers ,
cre*iors or oher &ersons in ineres. (?mphasis an$ un$erscoring supplie$%)
Clearly then, the bulk of the assets of our imaginary public utility corporation, 0hich
may inclu$e private lan$s, 0ill go to the bene"cial o0nership of the foreigners 0ho
can hol$ up to 63 out of the ,33 common shares an$ the entire ,,333,333 preferre$
non-voting shares of the corporation% These foreign sharehol$ers 0ill enCoy the bulk
of the procee$s of the sale of the corporate lan$s, or 0orse, eBercise control over
these lan$s behin$ the faca$e of corporations nominally o0ne$ by 'ilipino
sharehol$ers% Kluntly, 0hile the Constitution eBpressly prohibits the transfer of lan$
to aliens, foreign stockhol$ers may resort to schemes or arrangements 0here such
lan$ 0ill be conveye$ to their $ummies or nominees% Is this not circumvention, if
not an outright violation, of the fun$amental Constitutional tenet that only 'ilipinos
can o0n Philippine lan$=
A construction of OcapitalO as referring to the total sharehol$ings of the company is
an ackno0le$gment of the eBistence of numerous corporate control-enhancing
mechanisms, besi$es o0nership of voting rights, that limits the proportion bet0een
the separate an$ $istinct concepts of econo#ic ri)h to the cash Po0 of the
corporation an*the right to corporate conro( (hence, they are also referre$ to as
proportionality-limiting measures)% This corporate reality is rePecte$ in 8RC Rule
/(?) of the Amen$e$ Implementing Rules an$ Regulations (IRR) of the 8RC an$ 8ec%
/(g) of The Real ?state Investment Trust Act (R?IT) of -33:,
4-
0hich both provi$e
that control can eBist re)ar*(ess of o,nershi& of Eoin) shares% The 8RC IRR
states@
Conro( is he &o,er o )oEern the !nancia( an$ o&erain) &o(icies of an
enterprise so as to obtain bene"ts from its activities% Control is presume$ to eBist
0hen the parent o0ns, $irectly or in$irectly through subsi$iaries, more than one half
of the voting po0er of an enterprise unless, in eBceptional circumstances, it can be
clearly $emonstrate$ that such o0nership $oes not constitute control% Conro( a(so
e+iss eEen ,hen he &aren o,ns one ha(f or (ess of he Eoin) &o,er of
an ener&rise ,hen here is@
i% Po,er oEer #ore han one ha(f of he Eoin) ri)hs by virtue of
an a)ree#en 0ith other investorsA
ii% Po,er o )oEern he !nancia( an* o&erain) &o(icies of the enterprise
un$er a statute or an a)ree#entA
iii% Po,er o a&&oin or re#oEe he #a@ori" of he #e#'ers of he 'oar* of
$irectors or e+uivalent governing bo$yA
iv% Po,er o cas he #a@ori" of Eoes at meetings of the boar$ of $irectors or
e+uivalent governing bo$y% (?mphasis an$ un$erscoring supplie$%)
As sho0n above, o,nershi& of Eoin) shares or &o,er a(one ,iho$
econo#ic conro( of he co#&an" *oes no necessari(" eC$ae o cor&orae
conro(% A shareholder7s agreement can eQectively clip the voting po0er of a
sharehol$er hol$ing voting shares% In the same 0ay, a oting right ceiling, 0hich is
Oa restriction prohibiting sharehol$ers to vote above a certain threshol$ irrespective
of the number of voting shares they hol$,O
4/
can limit the control that may be
eBerte$ by a person 0ho o0ns voting stocks but 0ho $oes not have a substantial
economic interest over the company% 8o also $oes the use of ;nancial
deriaties 0ith attache$ con$itions to ensure the ac+uisition of corporate control
separately from the o0nership of voting shares, or the use of superma=ority
proisions in the byla0s an$ articles of incorporation or association% In$ee$, there
are innumerable 0ays an$ means, both eBplicit an$ implicit, by 0hich the control of
a corporation can !e attained and retained een ,ith ery limited oting shares,
i%e%%, there are a number of 0ays by 0hich control can be $isproportionately
increase$ compare$ to o0nership
46
so long as economic rights over the maCority of
the assets an$ e+uity of the corporation are maintaine$%
#ence, if 1e follo0 the construction of OcapitalO in 8ec% ,,, Art% 9II state$ in
the ponencia of Lune -5, -3,, an$ turn a blin$ eye to these realities of the business
0orl$, his Co$r #a" haEe Eeria'(" &$ a (i#i on he forei)n o,nershi& of
co##on shares '$ haEe in*irec(" a((o,e* forei)ners o acC$ire )reaer
econo#ic ri)h o he cash Qo, of &$'(ic $i(i" cor&oraions, 0hich is a
leverage to bargain for far greater control through the various enhancing
mechanisms or proportionality-limiting measures available in the business 0orl$%
In our eBtremely hypothetical public utility corporation 0ith the e+uity structure as
thus $escribe$, since the maCority recognie$ only the ,33 common shares as the
OcapitalO referre$ to in the Constitution, the entire economic right to the cash Po0
arising from the ,,333,333 non-voting preferre$ shares can be ac+uire$ by
foreigners% 1ith this economic po0er, the foreign hol$ers of the minority common
shares 0ill, as they easily can, bargain 0ith the hol$ers of the maCority common
shares for more corporate control in or$er to protect their economic interest an$
re$uce their economic risk in the public utility corporation% 'or instance, they can
easily $eman$ the right to cast the maCority of votes $uring the meeting of the
boar$ of $irectors% After all, money comman$s control%
The court cannot, an$ ought not, accept as correct a hol$ing that routinely
$isregar$s legal an$ practical consi$erations as signi"cant as above in$icate$%
Committing an error is ba$ enough, persisting in it is 0orse%
-oreigners can !e o,ners of fully
nationali*ed industries
(est it be overlooke$, OcapitalO is an oft-use$ term in the Constitution an$ various
legislative acts that regulate corporate entities% #ence, the meaning assigne$ to it
0ithin the conteBt of a constitutional provision limiting foreign o0nership in
corporations can aQect corporations 0hose o0nership is reserve$ to 'ilipinos, or
0hose foreign e+uity is limite$ by la0 pursuant to 8ec% ,3, Art% 9II of the
Constitution 0hich states@
8?CTIF> ,3% The Congress shall, upon recommen$ation of the economic an$
planning agency, 0hen the national interest $ictates, reserEe o cii%ens of he
Phi(i&&ines or o cor&oraions or associaions a (eas si+" &er cen$# of
,hose ca&ia( is o,ne* '" s$ch cii%ens, or s$ch hi)her &ercena)e as
Con)ress #a" &rescri'e, cerain areas of inEes#ens. The Con)ress sha((
enac #eas$res ha ,i(( enco$ra)e he for#aion an* o&eraion of
ener&rises ,hose ca&ia( is ,ho((" o,ne* '" Fi(i&inos. (?mphasis supplie$)%
'or instance, Republic Act >o% 436-, also kno0n as the -oreign Inestments Act of
1111
4I
('IA), provi$es for the formation of a Regular 'oreign Investment >egative
(ist (R'I>() covering investment areasJactivities that are partially or entirely
reserve$ to 'ilipinos% The 5
th
R'I>(
4.
provi$es that O>o 'oreign ?+uityO is allo0e$ in
the follo0ing areas of investmentsJactivities@
,% !ass !e$ia eBcept recor$ing (Article 9NI, 8ection , of the Constitution an$
Presi$ential !emoran$um $ate$ !ay 6, ,::6)A
-% Practice of all professions (Article 9II, 8ection ,6 of the Constitution an$ 8ection
,, RA I,5,)A
44
/% Retail tra$e enterprises 0ith pai$-up capital of less than d-,I33,333 (8ection I,
RA 54.-)A
6% Cooperatives (Chapter III, Article -., RA .:/5)A
I% Private 8ecurity Agencies (8ection 6, RA I654)A
.% 8mall-scale !ining (8ection /, RA 434.)
4% Gtiliation of !arine Resources in archipelagic 0aters, territorial sea, an$
eBclusive economic one as 0ell as small scale utiliation of natural resources in
rivers, lakes, bays, an$ lagoons (Article 9II, 8ection - of the Constitution)A
5% F0nership, operation an$ management of cockpits (8ection I, P* 66:)A
:% !anufacture, repair, stockpiling an$Jor $istribution of nuclear 0eapons (Article II,
8ection 5 of the Constitution)A
,3% !anufacture, repair, stockpiling an$Jor $istribution of biological, chemical an$
ra$iological 0eapons an$ anti-personnel mines (Narious treaties to 0hich the
Philippines is a signatory an$ conventions supporte$ by the Philippines)A
,,% !anufacture of "re crackers an$ other pyrotechnic $evices (8ection I, RA 4,5/)%
If the construction of Ocapital,O as espouse$ by the Lune -5, -3,, *ecision, 0ere to
be sustaine$, the reservation of the full o0nership of corporations in the foregoing
in$ustries to 'ilipinos coul$ easily be negate$ by the simple eBpe$ience of issuing
an$ making available non-voting shares to foreigners% After all, these non-voting
shares $o not, follo0ing the Lune -5, -3,, *ecision, form part of the OcapitalO of
these suppose$ly fully nationalie$ in$ustries% Conse+uently, 0hile 'ilipinos can
occupy all of the seats in the boar$ of $irectors of corporations in fully nationalie$
in$ustries, it is possible for foreigners to o0n the maCority of the e+uity of the
corporations through Onon-votingO shares, 0hich are nonetheless allo0e$ to
$etermine fun$amental corporate matters recognie$ in 8ec% . of the Corporation
Co$e% 'ilipinos may therefore be un0ittingly $eprive$ of the OeQectiveO o0nership of
corporations suppose$ly reserve$ to them by the Constitution an$ various la0s%
The Forei)n InEes#ens Ac of 0440 *oes
no C$a(if" or resric he #eanin) of Bca&ia(B
in Sec. 00, Ar. =II of he Consi$ion.
>onetheless, Lustice Carpio parlays the thesis that the 'IA, an$ its pre$ecessors, the
Investments Incentives Act of ,:.4 (O,:.4 IIAO),
45
Fmnibus Investments Co$e of
,:5, (O,:5, FICO),
4:
an$ the Fmnibus Incentives Co$e of ,:54 (O,:54
FICO),
53
(collectively, OInvestment Incentives (a0sO) more particularly their $e"nition
of the term OPhilippine >ational,O constitutes a goo$ gui$e for ascertaining the
intent behin$ the use of the term OcapitalO in 8ec% ,,, Art% 9IIathat it refers only to
voting shares of public utility corporations%
I cannot share this posture% The Consi$ion #a" on(" 'e a#en*e* hro$)h
he &roce*$re o$(ine* in he 'asic *oc$#en ise(f%
5,
An a#en*#en
canno, herefore, 'e #a*e hro$)h he e+&e*ience of a (e)is(aiEe acion
ha *ia)ona((" o&&oses he c(ear &roEisions of he Consi$ion.
In$ee$, the consi$iona( inen on the e+uity prescribe$ by 8ec% ,,, Art%
9II canno &(a$si'(" 'e Qeshe* o$ '" a (ooA hro$)h he &ris# of
econo#ic sa$es &asse* afer he a*o&ion of he Consi$ion, such as
the cite$ 'IA, the /agna Carta for !icro, 8mall an$ !e$ium In$ustries (Republic Act
>o% .:44) an$ other kin$re$ la0s envisage$ to 'ilipinie certain areas of
investment% It shoul$ be the other 0ay aroun$% 8urely, the $e"nition of a OPhilippine
>ationalO in the 'IA, or for that matter, the ,:54 FIC
5-
coul$ not have inPuence$ the
min$s of the ,:5. CF>CF! or the people 0hen they rati"e$ the Constitution% As
heretofore $iscusse$, the primary source 0hence to ascertain constitutional intent
or purpose is the constitutional teBt, or, to be more precise, the language of the
provision itself,
5/
as in+uiry on any controversy arising out of a constitutional
provision ought to start an$ en$ as much as possible 0ith the provision
itself%
56
Le)is(aiEe enac#ens on co##erce, ra*e an* naiona( econo#"
#$s 'e so consr$e*, ,hen a&&ro&riae, o *eer#ine ,heher he
&$r&ose $n*er("in) he# is in accor* ,ih he &o(icies an* o'@eciEes (ai*
o$ in he Consi$ion. S$re(", a (a, canno Ea(i*(" 'roa*en or resric he
hr$s of a consi$iona( &roEision $n(ess e+&ress(" sancione* '" he
Consi$ion ise(f% An$ the Court may not rea$ into the Constitution an intent or
purpose that is not there% Any attempt to enlarge the brea$th of constitutional
limitations beyon$ 0hat its provision $ictates shoul$ be stricken $o0n%
In fact, it is obvious from the 'IA itself that its framers $eeme$ it necessary to
+ualify the term OcapitalO 0ith the phrase Ostock outstan$ing an$ entitle$ to voteO in
$e"ning a OPhilippine >ationalO in 8ec% /(a)% This only supports the construal that
the term Ocapital,O stan$ing alone as in 8ec% ,,, Art% 9II of the Constitution, applies
to all shares, 0hether classi"e$ as voting or non-voting, an$ his is he
iner&reaion in har#on" ,ih he Consi$ion%
In passing the 'IA, the legislature coul$ not have plausibly inten$e$ to restrict the
637 foreign o0nership limit impose$ by the Constitution on all capital stock to only
voting stock% Precisely, Congress enacte$ the 'IA to liberalie the la0s on foreign
investments% 8uch intent is at once apparent in the very title of the statute, i%e%, OAn
Act to Promote 'oreign Investments,O an$ the policy@ Oattract, promote an$ 0elcome
pro$uctive investments from foreign in$ivi$uals, partnerships, corporations, an$
government,O
5I
eBpresses the same%
The 8enate, through then 8enator Nicente Paterno, categorically state$ that the 'IA
is aime$ at Oliberaliing foreign investmentsO
5.
because O'ilipino investment is not
going to be enough Dan$E 0e nee$ the support an$ the assistance of foreign
investors B B B%O
54
The senator ma$e clear that Othe term TPhilippine national2O
means either 'ilipino citiens or enterprises of 0hich the Ototal 'ilipino o,nershi&O
is .3 percent or greater, thus@
Senaor Paerno. !ay I "rst say that he er# BPhi(i&&ine naiona(B #eans
eiher Fi(i&ino cii%ens or ener&rises of ,hich he oa( Fi(i&ino o,nershi&
is 25 &ercen or )reaer. In other 0or$s, 0e are not eBclu$ing foreign
participation in $omestic market enterprises 0ith total assets of less than P -I
million% 1e are merely limiting foreign participation to not more than 63 percent in
this $e"nition%
55
?ven granting, arguendo, that the $e"nition of a OPhilippine >ationalO in the 'IA 0as
lifte$ from the Investment Incentives (a0s issue$ in ,:.4, ,:5,, an$ ,:54 that
$e"ne$ OPhilippine >ationalO as a corporation .37 of 0hose voting stocks is o0ne$
by 'ilipino citiens, such $e"nition $oes not limit or +ualify the nationality
re+uirement prescribe$ for public utility corporations by 8ec% ,,, Art% 9II of the ,:54
Constitution% The latter $oes not refer to the $e"nition of a OPhilippine >ational%O
Instea$, 8ec% ,,, Art% 9II reiterates the use of the $nC$a(i!e* er# Bca&ia(B in
the ,:/I an$ ,:4/ Constitutions% In fact, neither the ,:4/ Constitutional
Convention nor the ,:5. CF>CF! allu$e$ to the Investment Incentives (a0s in
their $eliberations on the nationality re+uirement of public utility corporations% 1ith
the une+uivocal reCection of the GP (a0 Center proposal to use the +ualifying
Ovoting stock or controlling interest,O the non-consi$eration of the Investment
Incentives (a0s means that these la0s are not pertinent to the issue of the 'ilipino-
foreign capital ratio in public utility corporations%
Kesi$es, none of the Investment Incentives (a0s $e"ning a OPhilippine >ationalO has
sought to eBpan$ or mo$ify the $e"nition of Ocapital,O as use$ in the Constitutions
then eBisting% The $e"nition of a OPhilippine >ationalO in these la0s 0as, to stress,
only inten$e$ to i$entify the corporations +uali"e$ for registration to avail of the
incentives prescribe$ therein% The $e"nition 0as not meant to "n$ conteBt outsi$e
the scope of the various Investment Incentives (a0s, much less to mo$ify a
nationality re+uirement set by the then eBisting Constitution% This much is obvious
in the very hea$ing of the "rst of these Investment Incentives (a0s, ,:.4 IIA @
SECTION M. De!niion of Ter#s. ? For &$r&oses of his Ac@
B B B B
(f) OPhilippine >ationalO shall mean a citien of the PhilippinesA or a partnership or
association 0holly o0ne$ by citiens of the PhilippinesA or a corporation organie$
an$ eBisting un$er the la0s of the Philippines of 0hich at least siBty per cent of the
capital stock outstan$ing an$ entitle$ to vote is o0ne$ an$ hel$ by citiens of the
Philippines BBBB (?mphasis an$ un$erscoring supplie$%)
In$ee$, the $e"nition of a OPhilippine >ationalO in the 'IA cannot apply to the
o0nership structure of enterprises applying for, an$ those grante$, a franchise to
operate as a public utility un$er 8ec% ,,, Art% 9II of the Constitution% As aptly
observe$ by the 8?C, the $e"nition of a OPhilippine >ationalO provi$e$ in the 'IA
refers only to a corporation that is permitte$ to invest in an enterprise as a
Philippine citien (inestorcorporation)% The FIA *oes no &rescri'e he eC$i"
o,nershi& sr$c$re of he ener&rise )rane* he franchise or he &o,er
o o&erae in a f$((" or &aria((" naiona(i%e* in*$sr" (inestee'
corporation). This is apparent from the 'IA itself, 0hich also $e"nes the act of an
OinvestmentO an$ Oforeign investmentO@
8ection /% *e"nitions% W As use$ in this Act@
a) The term OPhilippine nationalO shall mean a citien of the Philippines, or a
$omestic partnership or association 0holly o0ne$ by citiens of the PhilippinesA or a
corporation organie$ un$er the la0s of the Philippines of 0hich at least siBty
percent D.37E of the capital stock outstan$ing an$ entitle$ to vote is o0ne$ an$
hel$ by citiens of the Philippines B B B
b) The term OinEes#enO shall mean eC$i" &arici&aion in any enterprise
organie$ or eBisting the la0s of the PhilippinesA
c) The term Bforei)n inEes#enB shall mean as eC$i" inEes#en ma$e by a
non-Philippine national in the form of foreign eBchange an$Jor other assets actually
transferre$ to the Philippines an$ $uly registere$ 0ith the Central Kank 0hich shall
assess an$ appraise the value of such assets other than foreign eBchange%
In fact, 8ec% 4 of the 'IA, as amen$e$, allo0s aliens or non-Philippine nationals
to o,n an enterprise up to the eBtent provi$e$ by the Constitution, eBisting la0s or
the 'I>(@
8ec% 4% 'oreign investments in $omestic market enterprises% W >on- Philippine
nationals may o,n up to one hun$re$ percent D,337E of $omestic market
enterprises unless foreign o0nership therein is prohibite$ or limite$ by the
Constitution an$ eBisting la0s or the 'oreign Investment >egative (ist un$er 8ection
5 hereof% (?mphasis supplie$%)
#ence, pursuant to the ?ight Regular 'I>(, (ist A, the foreign Oe:uityO is up to 637
in enterprises engage$ in the operation an$ management of public utilities 0hile
the remaining .37 of the Oe:uityO is reserve$ to 'ilipino citiens an$ OPhilippine
>ationalsO as $e"ne$ in 8ec% /(a) of the 'IA% >otably, the term Oe+uityO refers to the
Oo,nershi&interest in` a businessO
5:
or a Oshare in a publicly tra$e$
company,O
:3
an$ not to the OcontrollingO or OmanagementO interest in a company% It
necessarily inclu$es all an$ every share in a corporation, 0hether voting or non-
voting%
Again, 1e must recognie the $istinction of the separate concepts of Oo0nershipO
an$ OcontrolO in mo$ern corporate governance in or$er to realie the intent of the
framers of our Constitution to reserve for 'ilipinos the ultimate an$ all-
encompassing control of public utility entities from their $aily a$ministration to the
acts of o0nership enumerate$ in 8ec% . of the Corporation Co$e%
:,
As eluci$ate$, by
e+uating the 0or$ OcapitalO in 8ec% ,,, Art% 9II to the limite$ aspect of the right to
control the composition of the boar$ of $irectors, the Court coul$ very 0ell be
$epriving 'ilipinos of the maCority economic interest in the public utility corporation
an$, thus, the eQective control an$ o0nership of such corporation%
The Co$r has no @$ris*icion oEer PLDT an* forei)n
socAho(*ers ,ho are in*is&ensa'(e &aries in ineres
!ore importantly, this Court cannot apply a ne0 $octrine a$opte$ in a prece$ent-
setting $ecision to parties that have never been given the chance to present their
o0n vie0s on the substantive an$ factual issues involve$ in the prece$ent-setting
case%
To recall, the instant controversy arose out of an original petition "le$ in 'ebruary
-334 for, among others,*ec(araor" re(ief on 8ec% ,,, Art% 9II of the ,:54
Constitution Oto clarify the intent of the Constitutional Commission that crafte$ the
,:54 Constitution to $etermine the very nature of such limitation on foreign
o0nership%O
:-
The petition implea$e$ the follo0ing personalities as the respon$ents@ (,) !argarito
K% Teves, then 8ecretary of 'inance an$ Chair of the Privatiation CouncilA (-) Lohn P%
8evilla, then un$ersecretary for privatiation of the *epartment of 'inanceA (/)
Ricar$o Abce$e, commissioner of the Presi$ential Commission on Hoo$
HovernmentA (6) Anthoni 8alim, chair of 'irst Paci"c Co% (t$% an$ $irector of !etro
Paci"c Asset #ol$ings, Inc% (!PA#)A (I) !anuel N% Pangilinan, chairman of the boar$
of P(*TA (.) >apoleon (% >aareno, the presi$ent of P(*TA (4) 'e Karin (Karin), then
chair of the 8?CA an$ (5) 'rancis (im ((im), then presi$ent of the P8?%
>otably, neither P(*T itself nor any of its stockhol$ers 0ere name$ as respon$ents
in the petition, albeit it sought from the Court the follo0ing main reliefs@
I% B B B to issue a $eclaratory relief that o0nership of common or voting shares is
the sole basis in $etermining foreign e+uity in a public utility an$ that any other
government rulings, opinions, an$ regulations inconsistent 0ith this $eclaratory
relief be $eclare$ as unconstitutional an$ a violation of the intent an$ spirit of the
,:54 ConstitutionA
.% B B B to $eclare null an$ voi$ all sales of common stocks to foreigners in eBcess of
63 percent of the total subscribe$ common sharehol$ingsA an$
4% B B B to $irect the D8?CE an$ DP8?E to re+uire P(*T to make a public $isclosure of
all of its foreign sharehol$ings an$ their actual an$ real bene"cial o0ners%O
Clearly, the petition seeks a Cu$gment that can a$versely aQect P(*T an$ its foreign
sharehol$ers% If this Court 0ere to accommo$ate the petition2s prayer, as the
maCority $i$ in the Lune -5, -3,, *ecision an$ proposes to $o presently, P(*T
stan$s to lose its franchise, 0hile the foreign stockhol$ers 0ill be compelle$ to
$ivest their voting shares in eBcess of 637 of P(*T2s voting stock, if any, even at a
loss% It cannot, therefore, be gainsai$ that P(*T an$ its foreign sharehol$ers are
in$ispensable parties to the instant case un$er the terms of 8ecs% - an$ 4, Rule / of
the Rules of Civil Proce$ure, 0hich rea$@
8ection -% Parties in interest%W?very action must be prosecute$ an$ $efen$e$ in the
name of the real party in interest% All persons having an interest in the subCect of
the action an$ in obtaining the relief $eman$e$ shall be Coine$ as plaintiQs% All
persons 0ho claim an interest in the controversy or the subCect thereof a$verse to
the plaintiQ, or 0ho are necessary to a complete $etermination or settlement of the
+uestions involve$ therein, shall be Coine$ as $efen$ants%
B B B B
8ection 4% Compulsory Coin$er of in$ispensable parties%W Parties in interest 0ithout
0hom no "nal $etermination can be ha$ of an action shall be Coine$ either as
plaintiQs or $efen$ants%
Set, again, P(*T an$ its foreign sharehol$ers have not been given notice of this
petition to appear before, much less hear$ by, this Court% >onetheless, the maCority
has allo0e$ such irregularity in contravention of the settle$ Curispru$ence that an
action cannot procee$ unless in$ispensable parties are Coine$
:/
since the non-Coin$er
of these in$ispensable parties $eprives the court the Curis$iction to issue a $ecision
bin$ing on the in$ispensable parties that have not been Coine$ or implea$e$% In
other 0or$s, if an in$ispensable party is not implea$e$, any personal Cu$gment
0oul$ have no eQectiveness
:6
as to them for the tribunal2s 0ant of Curis$iction%
In 0rcelona v. $ourt of 0ppeals,
:I
1e eBplaine$ that the basic notions of $ue
process re+uire the observance of this rule that refuses the eQectivity of a $ecision
that 0as ren$ere$ $espite the non-Coin$er of in$ispensable parties@
Kasic consi$erations of $ue process, ho0ever, impel a similar hol$ing in cases
involving Curis$iction over the persons of in$ispensable parties 0hich a court must
ac+uire before it can vali$ly pronounce Cu$gments personal to sai$ $efen$ants%
Courts ac+uire Curis$iction over a party plaintiQ upon the "ling of the complaint% Fn
the other han$, Curis$iction over the person of a party $efen$ant is assure$ upon
the service of summons in the manner re+uire$ by la0 or other0ise by his voluntary
appearance% As a rule, if a $efen$ant has not been summone$, the court ac+uires
no Curis$iction over his person, an$ a personal Cu$gment ren$ere$ against such
$efen$ant is null an$ voi$% A *ecision ha is n$(( an* Eoi* for ,an of
@$ris*icion on he &ar of he ria( co$r is no a *ecision in he
cone#&(aion of (a, an*, hence, i can neEer 'eco#e !na( an* e+ec$or".
Rule /, 8ection 4 of the Rules of Court, $e"nes in$ispensable parties as parties-in-
interest 0ithout 0hom there can be no "nal $etermination of an action% As such,
they must be Coine$ either as plaintiQs or as $efen$ants% The )enera( r$(e ,ih
reference o he #aAin) of &aries in a ciEi( acion reC$ires, of co$rse, he
@oin*er of a(( necessar" &aries ,here &ossi'(e, an* he @oin*er of a((
in*is&ensa'(e &aries $n*er an" an* a(( con*iions, heir &resence 'ein) a
sine C$a non for he e+ercise of @$*icia( &o,er. I is &recise(" B,hen an
in*is&ensa'(e &ar" is no 'efore he co$r :ha; he acion sho$(* 'e
*is#isse*.B The a'sence of an in*is&ensa'(e &ar" ren*ers a(( s$'seC$en
acions of he co$r n$(( an* Eoi* for ,an of a$hori" o ac, no on(" as
o he a'sen &aries '$ eEen as o hose &resen.
:.
#ence, the Lune -5, -3,, *ecision having been ren$ere$ in a case 0here the
in$ispensable parties have not been implea$e$, much less summone$ or hear$,
cannot be given any eQect an$ is, thus, null an$ voi$% 8rgo, the assaile$ Lune -5,
-3,, *ecision is virtually a useless Cu$gment, at least insofar as it ten$s to penalie
P(*T an$ its foreign stockhol$ers% It cannot bin$ an$ aQect P(*T an$ the foreign
stockhol$ers or be enforce$ an$ eBecute$ against them% It is settle$ that co$rs of
(a, Bsho$(* no ren*er @$*)#ens ,hich canno 'e enforce* '" an"
&rocess Ano,n o he (a,,B
:4
hence, this Court shoul$ have refuse$ to give
cogniance to the petition%
The ineQectivity cause$ by the non-Coin$er of the in$ispensable parties, the
$eprivation of their $ay in court, an$ the $enial of their right to $ue process, cannot
be cure$ by the sophistic eBpe$ience of naming P(*T in the fallo of the $ecision as
a respon$ent% The $ispositive portion of the Lune -5, -3,, *ecision all the more
only highlights the unenforceability of the maCority2s $isposition an$ serves as an
implie$ a$mission of this Court2s lack of Curis$iction over the persons of P(*T an$ its
foreign stockhol$ers 0hen it $i$ not $irectly or$er the latter to $ispose the common
shares in eBcess of the 637 limit% Instea$, it took the circuitous route of or$ering the
8?C, in the fallo of the assaile$ $ecision, Oto apply this $e"nition of the term
Tcapital2 in $etermining the eBtent of allo0able o0nership in respon$ent P(*T an$, if
there is a violation of 8ec% ,,, Art% 9II of the Constitution, to impose the appropriate
sanctions un$er the la0%O
:5
C(ear(", since PLDT an* he forei)n socAho(*ers ,ere no i#&(ea*e* as
in*is&ensa'(e &aries o he case, he #a@ori" ,o$(* ,an o in*irec("
e+ec$e is *ecision ,hich i co$(* no e+ec$e *irec(". The Co$r #a" 'e
criici%e* for Eio(ain) he Eer" r$(es i &ro#$()ae* an* for renchin) he
&roEisions of Sec. 3, Ar. 8III of he Consi$ion, ,hich *e!nes he &o,ers
an* @$ris*icion of his Co$r.
It is apropos to stress, as a remin$er, that the Rules of Court is not a mere bo$y of
technical rules that can be $isregar$e$ at 0ill 0henever convenient% It forms an
integral part of the basic notion of fair play as eBpresse$ in this Constitutional
caveat@ O>o person shall be $eprive$ of life, liberty or property 0ithout $ue process
of la0,O
::
an$ obliges this Court, as 0ell as other courts an$ tribunals, to hear a
person "rst before ren$ering a Cu$gment for or against him% As *aniel 1ebster
eBplaine$, O$ue process of la0 is more clearly inten$e$ the general la0, a la0 0hich
hears before it con$emnsA 0hich procee$s upon en+uiry, an$ ren$ers Cu$gment only
after trial%O
,33
The principle of $ue process of la0 Ocontemplates notice an$
opportunity to be hear$ before Cu$gment is ren$ere$, aQecting one2s person or
property%O
,3,
Thus, this Court has stresse$ the strict observance of the follo0ing
re+uisites of proce$ural $ue process in Cu$icial procee$ings in or$er to comply 0ith
this honore$ principle@
(,) There must be a court or tribunal clothe$ 0ith Cu$icial po0er to hear an$
$etermine the matter before itA
(-) Luris$iction must be la0fully ac+uire$ over the person of the $efen$ant or over
the property 0hich is the subCect of the procee$ingsA
(/) The $efen$ant must be given an opportunity to be hear$A an$
(6) Lu$gment must be ren$ere$ upon la0ful hearing%
,3-
Apparently, not one of these re+uisites has been complie$ 0ith before the Lune -5,
-3,, *ecision 0as ren$ere$% Instea$, P(*T an$ its foreign stockhol$ers 0ere not
given their $ay in court, even 0hen they stan$ to lose their properties, their shares,
an$ even the franchise to operate as a public utility% This stan$s counter to our
$iscussion in 0ga%on v. N/($,
,3/
0here 1e emphasie$ that the principle of $ue
process comports 0ith the simplest notions of 0hat is fair an$ Cust@
To be sure, the *ue Process Clause in Article III, 8ection , of the Constitution
embo$ies a system of rights base$ on moral principles so $eeply imbe$$e$ in the
tra$itions an$ feelings of our people as to be $eeme$ fun$amental to a civilie$
society as conceive$ by our entire history% D$e &rocess is ha ,hich co#&ors
,ih he *ee&es noions of ,ha is fair an* ri)h an* @$s% I is a
consi$iona( resrain on he legislative as 0ell as on the eBecutive
an$ @$*icia( &o,ers of he )oEern#en &roEi*e* '" he 6i(( of Ri)hs%
,36
Parenthetically, the present petition partakes of a collateral attack on P(*T2s
franchise as a public utility% Hiving $ue course to the recourse is contrary to the
Court2s ruling in */-4 v. National 4elecommunications $ommission,
,3I
0here
1e $eclare$ a franchise to be a property right that can only be +uestione$ in a
$irect procee$ing%
,3.
1orse, the Lune -5, -3,, *ecision faci(iaes an*
)$aranees he s$ccess of ha $n(a,f$( aacA by allo0ing it to be
un$ertaken in the absence of P(*T%
The Phi(i&&ine GoEern#en is 'arre* '" eso&&e( fro#
or*erin) forei)n inEesors o *iEes Eoin) shares
in &$'(ic $i(iies in e+cess of he N5 &ercen ca&
The Philippine government2s act of pushing for an$ approving the sale of the PTIC
shares, 0hich is e+uivalent to ,- million P(*T common shares, to foreign investors
preclu$es it from asserting that the purchase violates the Constitutional limit on
foreign o0nership of public utilities so that the foreign investors must no0 $ivest
the common P(*T shares bought% The elementary principle that a person is
prevente$ from going back on his o0n act or representation to the preCu$ice of
another 0ho relie$ thereon
,34
"n$s application in the present case%
Art% ,6/, of the Civil Co$e provi$es that an Oa$mission or representation is
ren$ere$ conclusive upon the person making it, an$ cannot be $enie$ or $isprove$
as against a person relying thereon%O This rule is supporte$ by 8ection -(a) of Rule
,/, of the Rules of Court on the bur$en of proof an$ presumptions, 0hich states@
8ection -% Conclusive presumptions% W The follo0ing are instances of conclusive
presumptions@
(a) 1henever a party has, by his o0n $eclaration, act, or omission, intentionally an$
$eliberately le$ another to believe a particular thing true, an$ to act upon such
belief, he cannot, in any litigation arising out of such $eclaration, act or omission, be
permitte$ to falsify it%
The government cannot plausibly hi$e behin$ the mantle of its general immunity to
resist the application of this e+uitable principle for Othe rule on non-estoppel of the
government is not $esigne$ to perpetrate an inCustice%O
,35
#ence, this Court has
allo0e$ several eBceptions to the rule on the government2s non-estoppel% As
succinctly eBplaine$ in (epu%lic of the *hilippines v. $ourt of 0ppeals@
,3:
The general rule is that the 8tate cannot be put in estoppel by the mistakes or
errors of its o&cials or agents% #o0ever, like all general rules, this is also subCect to
eBceptions, vi%@
O?stoppel against the public are little favore$% They shoul$ not be invoke$ eBcept in
rare an$ unusual circumstances an$ may not be invoke$ 0here they 0oul$ operate
to $efeat the eQective operation of a policy a$opte$ to protect the public% They
must be applie$ 0ith circumspection an$ shoul$ be applie$ only in those special
cases 0here the interests of Custice clearly re+uire it% >evertheless, he
)oEern#en #$s no 'e a((o,e* o *ea( *ishonora'(" or ca&ricio$s(" ,ih
is cii%ens, an* #$s no &(a" an i)no'(e &ar or *o a sha''" hin)H an*
s$'@ec o (i#iaions . . ., he *ocrine of eC$ia'(e eso&&e( #a" 'e
inEoAe* a)ains &$'(ic a$horiies as 0ell as against private in$ivi$uals%O
In .epu!lic % Sandigan!ayan, the government, in its eQort to recover ill-gotten
0ealth, trie$ to skirt the application of estoppel against it by invoking a speci"c
constitutional provision% The Court countere$@
O1e agree 0ith the statement that the 8tate is immune from estoppel, but this
concept is un$erstoo$ to refer to acts an$ mistakes of its o&cials especially those
0hich are irregular (8harp International !arketing vs% Court of Appeals, -3, 8CRA
-::A /3.
,::,
A Republic v% A+uino, ,-3 8CRA ,5.
,:5/
), 0hich peculiar circumstances
are absent in the case at bar% Although the 8tateMs right of action to recover ill-
gotten 0ealth is not vulnerable to estoppelDAE it is non se+uitur to suggest that a
conrac, free(" an* in )oo* faih e+ec$e* 'e,een he &aries hereo is
s$sce&i'(e o *is$r'ance a* in!ni$#. A *iPeren iner&reaion ,i(( (ea*
o he a's$r* scenario of &er#iin) a &ar" o $ni(aera((" @eison a
co#&ro#ise a)ree#en ,hich is s$&&ose* o haEe he a$hori" of res
@$*icaa :Aric(e 25M1, Ne, CiEi( Co*e;, an* (iAe an" oher conrac, has
he force of (a, 'e,een &aries hereo (Article ,,I:, >e0 Civil Co$eA
#ernae vs% )ao, ,4 8CRA -:.
,:..
A . Pa$illa, Civil Co$e Annotate$, 4th e$%, ,:54, p%
4,,A / A+uino, Civil Co$e, ,::3 e$%, p% 6./) % % %O
The Court further $eclare$ that O(t)he real o&ce of the e+uitable norm of estoppel is
limite$ to supplyDingE $e"ciency in the la0, but it shoul$ not supplant positive
la0%O
,,3
(?mphasis supplie$%)
8imilarly, in (amos v. $entral 7an. of the *hilippines,
,,,
this Court berate$ the
government for reneging on its representations an$ urge$ it to keep its 0or$, vi@
?ven in the absence of contract, the recor$ plainly sho0s that the CK DCentral KankE
ma$e eBpress representations to petitioners herein that it 0oul$ support the FK!
DFverseas Kank of !anilaE, an$ avoi$ its li+ui$ation if the petitioners 0oul$ eBecute
(a) the Noting Trust Agreement turning over the management of FK! to the CK or
its nominees, an$ (b) mortgage or assign their properties to the Central Kank to
cover the over$raft balance of FK!% The petitioners having complie$ 0ith these
con$itions an$ parte$ 0ith value to the pro"t of the CK (0hich thus ac+uire$
a$$itional security for its o0n a$vances), the CK may not no0 renege on its
representations an$ li+ui$ate the FK!, to the $etriment of its stockhol$ers,
$epositors an$ other cre$itors, un$er the rule of promissory estoppel (,: Am% Lur%,
pages .I4-.I5A -5 Am% Lur% -$, .I.-.I4A ?$% >ote, ,,I A(R, ,I4)%
OThe broa$ general rule to the eQect that a promise to $o or not to $o something in
the future $oes not 0ork an estoppel must be +uali"e$, since there are numerous
cases in 0hich an estoppel has been pre$icate$ on promises or assurances as to
future con$uct% The $octrine of Tpromissory estoppel2 is by no means ne0, although
the name has been a$opte$ only in comparatively recent years% Accor$ing to that
$octrine, an estoppel may arise from the making of a promise even though 0ithout
consi$eration, if it 0as inten$e$ that the promise shoul$ be relie$ upon an$ in fact it
0as relie$ upon, an$ if a refusal to enforce it 0oul$ be virtually to sanction the
perpetration of frau$ or 0oul$ result in other inCustice% In this respect, the reliance
by the promises is generally evi$ence$ by action or forbearance on his part, an$ the
i$ea has been eBpresse$ that such action or forbearance 0oul$ reasonably have
been eBpecte$ by the promisor% !ere omission by the promisee to $o 0hatever the
promisor promise$ to $o has been hel$ insu&cient Tforbearance2 to give rise to a
promissory estoppel%O (,: Am% Lur%, loc% cit%)
The eBception establishe$ in the foregoing cases is particularly appropriate
presently since the Oin$irectO sale of P(*T common shares to foreign investors
partook of a propriety business transaction of the government 0hich 0as not
un$ertaken as an inci$ent to any of its governmental functions% Accor$ingly, the
government, by conclu$ing the sale, has $escen$e$ to the level of an or$inary
citien an$ strippe$ itself of the vestiges of immunity that is available in the
performance of governmental acts%
,,-
?rgo, the government is vulnerable to, an$ cannot hol$ oQ, the application of the
principle of estoppel that the foreign investors can very 0ell invoke in case they are
compelle$ to $ivest the voting shares they have previously ac+uire$ through the
in$ucement of no less the government% In other 0or$s, the government is preclu$e$
from penaliing these alien investors for an act performe$ upon its guarantee,
through its facilities, an$ 0ith its imprimatur%
Un*er he Bfair an* eC$ia'(e rea#enB c(a$se of o$r 'i(aera(
inEes#en reaies an* fair ra*e a)ree#ens, forei)n inEesors
haEe he ri)h o re(" on he sa#e (e)a( fra#e,orA e+isin) a he
i#e he" #a*e heir inEes#ens
>ot only is the government put in estoppel by its acts an$ representations $uring
the sale of the PTIC shares to !PA#, it is like0ise boun$ by its guarantees in the
Kilateral Investment Treaties (KITs) an$ 'ree Tra$e Agreements ('TAs) 0ith other
countries%
To $ate, the Philippines has conclu$e$ numerous KITs an$ 'TAs to encourage an$
facilitate foreign $irect investments in the country% These KITs an$ 'TAs invariably
contain guarantees calculate$ to ensure the safety an$ stability of these foreign
investments% 'oremost of these is the commitment to give fair an$ e+uitable
treatment ('?T) to the foreign investors an$ investments in the country%
Take for instance the KIT conclu$e$ bet0een the Philippines an$ China,
,,/
Article
/(,) thereof provi$es that Oinvestments an$ activities associate$ 0ith such
investments of investors of either Contracting Party sha(( 'e accor*e* eC$ia'(e
rea#en an* sha(( en@o" &roecion in the territory of the other Contracting
Party%O
,,6
The same assurance is in the Agreement on Investment of the 'rame0ork
Agreement on Comprehensive ?conomic Cooperation Ket0een the Association of
8outheast Asian >ations an$ the People2s Republic of China (A8?A>-China
Investment Agreement)
,,I
0here the Philippines assure$ Chinese investors that the
country Oshall accor$ to DthemE fair an* eC$ia'(e rea#en an$ full protection
an$ security%O
,,.
In the same manner, the Philippines agree$ to Oaccor$ investments
Dma$e by Lapanese investorsE treatment in accor$ance 0ith international la0,
inclu$ing fair an* eC$ia'(e rea#en an$ full protection an$ securityO
,,4
in the
Agreement bet0een the Republic of the Philippines an$ Lapan for ?conomic
Partnership (LP?PA)%
,,5
8imilar provisions are foun$ in the A8?A> Comprehensive Investment Agreement
(ACIA)
,,:
an$ the KITs conclu$e$ by the Philippines 0ith, among others, the
Argentine
Republic,
,-3
U Australia,
,-,
Austria,
,--
Kangla$esh,
,-/
Kelgium,
,-6
Cambo$ia,
,-I
Cana$a,
,-.

Chile,
,-4
the Cech
Republic,
,-5
*enmark,
,-:
'inlan$,
,/3
U 'rance,
,/,
U Hermany,
,/-
In$ia,
,//
In$onesia,
,/6
Iran,
,
/I
Italy,
,/.
!ongolia,
,/4
!yanmar,
,/5
U >etherlan$s,
,/:
Pakistan,
,63
Portuguese
Republic,
,6,
Romania,
,6-
Russia,
,6/
8au$i
Arabia,
,66
U 8pain,
,6I
80e$en,
,6.
80iterlan$,
,64
Thailan$,
,65
Turkey,
,6:
Gnite$
)ing$om,
,I3
an$ Nietnam%
,I,
?Bplaining the '?T as a stan$ar$ concor$ant 0ith the rule of la0, Professor
Nan$evel$e 0rote that it re+uires the host county to treat foreign investments 0ith
consistency, security, non-$iscrimination an$ reasonableness@
The thesis is that the a0ar$s issue$ to $ate implicitly have interprete$ the fair an$
e+uitable treatment stan$ar$ as re+uiring treatment in accor$ance 0ith the concept
of the rule of la0% That is, he conce& of (e)a(i" is he $nif"in) heor" 'ehin*
he fair an* eC$ia'(e rea#en san*ar*.
B B B B
Thus, international arbitral a0ar$s interpreting the fair an$ e+uitable treatment
stan$ar$ have incorporate$ the substantive an$ proce$ural principles of the rule of
la0 into that stan$ar$% The fair an* eC$ia'(e rea#en san*ar* in 6ITs has
'een iner&ree* as reC$irin) ha coEere* inEes#en or inEesors
receiEe rea#en ha is reasona'(e, consisen, non?*iscri#inaor",
rans&aren, an* in accor*ance ,ih *$e &rocess. As 0ill be seen, these
principles eBplain virtually all of the a0ar$s applying the fair an$ e+uitable
treatment stan$ar$% >o a0ar$ is inconsistent 0ith this theory of the stan$ar$%
Gn$erstan$ing fair an$ e+uitable treatment as legality is consistent 0ith the
purposes of the KITs% KITs essentially are instruments that impose legal restraints on
the treatment of covere$ investments an$ investors by host states% The very
essence of a KIT is a partial subor$ination of the sovereignMs po0er to the legal
constraints of the treaty% 'urther, in$ivi$ual KIT provisions are themselves a
rePection of the principles of the rule of la0% (?mphasis an$ un$erscoring
supplie$%)
,I-
Fn the re+uirement of consistency, the International Centre for the 8ettlement of
Investment *isputes (IC8I*) eBplaine$ in 4ecnicas 8edioam%ientales 4ecmed
".0. v. 4he united 8e6ican "tates
,I/
that the host country must maintain a
sa'(e an$ &re*ica'(e (e)a( an* '$siness enEiron#en to accor$ a fair an$
e+uitable treatment to foreign investors%
,I/% The Arbitral Tribunal "n$s that the co##i#en of fair an* eC$ia'(e
rea#en inclu$e$ in Article 6(,) of the Agreement is an e+&ression an* &ar
of he %ona de &rinci&(e reco)ni%e* in inernaiona( (a,, although ba$ faith
from the 8tate is not re+uire$ for its violation@
To the mo$ern eye, 0hat is unfair or ine+uitable nee$ not e+uate 0ith the
outrageous or the egregious% In particular, a 8tate may treat foreign investment
unfairly an$ ine+uitably 0ithout necessarily acting in ba$ faith%
,I6% The Arbitral Tribunal consi$ers that his &roEision of the Agreement, in light
of the goo$ faith principle establishe$ by international la0, reC$ires he
Conracin) Paries o &roEi*e o inernaiona( inEes#ens rea#en ha
*oes no aPec he 'asic e+&ecaions ha ,ere aAen ino acco$n '" he
forei)n inEesor o #aAe he inEes#en% The forei)n inEesor e+&ecs he
hos Sae o ac in a consisen #anner, free fro# a#'i)$i" an* oa(("
rans&aren(" in is re(aions ,ih he forei)n inEesor, so ha i #a" Ano,
'eforehan* an" an* a(( r$(es an* re)$(aions ha ,i(( )oEern is
inEes#ens, as ,e(( as he )oa(s of he re(eEan &o(icies an*
a*#inisraiEe &racices or *ireciEes, o 'e a'(e o &(an is inEes#en
an* co#&(" ,ih s$ch re)$(aions. Any an$ all 8tate actions conforming to such
criteria shoul$ relate not only to the gui$elines, $irectives or re+uirements issue$,
or the resolutions approve$ thereun$er, but also to the goals un$erlying such
regulations% The forei)n inEesor a(so e+&ecs he hos Sae o ac
consisen(", i.e. ,iho$ ar'irari(" reEoAin) an" &ree+isin) *ecisions or
&er#is iss$e* '" he Sae ha ,ere re(ie* $&on '" he inEesor o
ass$#e is co##i#ens as ,e(( as o &(an an* (a$nch is co##ercia( an*
'$siness aciEiies% The inEesor a(so e+&ecs he Sae o $se he (e)a(
insr$#ens ha )oEern he acions of he inEesor or he inEes#en in
confor#i" ,ih he f$ncion $s$a((" assi)ne* o s$chinsr$#ens, an* no
o *e&riEe he inEesor of is inEes#en ,iho$ he reC$ire*
co#&ensaion% In fact, failure by the host 8tate to comply 0ith such pattern of
con$uct 0ith respect to the foreign investor or its investments aQects the investor2s
ability to measure the treatment an$ protection a0ar$e$ by the host 8tate an$ to
$etermine 0hether the actions of the host 8tate conform to the fair an$ e+uitable
treatment principle% Therefore, co#&(iance '" he hos Sae ,ih s$ch
&aern of con*$c is c(ose(" re(ae* o he a'oEe?#enione* &rinci&(e, o
he ac$a( chances of enforcin) s$ch &rinci&(e, an* o e+c($*in) he
&ossi'i(i" ha sae acion 'e characeri%e* as ar'irar"A i%e% as presenting
insu&ciencies that 0oul$ be recognie$ O`by any reasonable an$ impartial man,O
or, although not in violation of speci"c regulations, as being contrary to the la0
because@
%%%(it) shocks, or at least surprises, a sense of Curi$ical propriety% (?mphasis an$
un$erscoring supplie$ a$$e$%)
The Phi(i&&ines, herefore, canno, ,iho$ so #$ch as a noice of &o(ic"
shif, a(er an* chan)e he (e)a( an* '$siness enEiron#en in ,hich he
forei)n inEes#ens in he co$nr" ,ere #a*e in he !rs &(ace. These
investors obviously ma$e the $ecision to come in after stu$ying the country2s legal
frame0ork-its restrictions an$ incentivesWWan$ so, as a matter of fairness, they must
be accor$e$ the right to eBpect that the same legal climate an$ the same
substantive set of rules 0ill remain $uring the perio$ of their investments%
The representation that foreigners can invest up to 637 of the entirety of the total
stockhol$ings, an$ not Cust the voting shares, of a public utility corporation is an
implie$ covenant that the Philippines cannot renege 0ithout violating the '?T
guarantee% ?specially in this case 0here the Philippines ma$e speci"c commitments
to countries like Lapan an$ China that their investing nationals can o0n up to 637 of
the eC$i" of a public utility like a telecommunications corporation% In the table
containe$ in 8che$ule ,(K), AnneB . of the LP?PA, the Philippines categorically
represente$ that Lapanese investors2 entry into the Philippine telecommunications
in$ustry, speci"cally corporations oQering Ovoice telephone services,O is subCect to
only the follo0ing re+uirements an$ con$itions@
A% 'ranchise from Congress of the Philippines
K% Certi"cate of Public Convenience an$ >ecessity (CPC>) from the >ational
Telecommunications Commission
C% Forei)n eC$i" is &er#ie* $& o N5 &ercen%
*% B B B
,I6
(?mphasis supplie$%)
The same representation is ma$e in the Philippines2 8che$ule of 8peci"c
Commitments appen$e$ to the A8?A>-China Agreement on Tra$e in 8ervices%
,II
'urther, as previously pointe$ out, it 0as the Philippine government that pushe$ for
an$ approve$ the sale of the ,,,,6,I PTIC shares to !PA#, thereby in$irectly
transferring the o0nership of .%/ percent of the outstan$ing common shares of
P(*T, to a foreign "rm an$ so increasing the foreign voting sharehol$ing in P(*T%
#ence, the presence of goo$ faith may not be convincingly argue$ in favour of the
Philippine government in a suit for violation of its '?T guarantee%
In fact, it has been hel$ that a !ona ;de change in policy by a branch of
government $oes not eBcuse compliance 0ith the '?T obligations% In ;ccidental
#6ploration and *roduction $ompany <;#*$= v. the (epu%lic of
#cuador,
,I.
the Gnite$ >ations Commission on International Tra$e (a0 (G>CITRA()
rule$ that ?cua$or violate$ the G8J?cua$or KIT by $enying F?PC fair an$ e+uitable
treatment 0hen it faile$ to provi$e a pre$ictable frame0ork for its investment
planning% Ruling thus, the tribunal cite$ ?cua$or2s change in taB la0 an$ its taB
authority2s unsatisfactory an$ vague response to F?PC2s consulta, vi@
,5/% B B B The stability of the legal an$ business frame0ork is thus an essential
element of fair an$ e+uitable treatment%
,56% The tribunal must note in his cone+ ha he fra#e,orA $n*er ,hich
he inEes#en ,as #a*e an* o&eraes has 'een chan)e* in an i#&oran
#anner '" acions a*o&e* '" Khe Ec$a*orian a+ a$hori"L. ` The
clari"cations that F?PC sought on the applicability of NAT by means of OconsultaO
ma$e to Dthe ?cua$orian taB authorityE receive$ a 0holly unsatisfactory an$
thoroughly vague ans0er% The a+ (a, ,as chan)e* ,iho$ &roEi*in) an"
c(ari" a'$ is #eanin) an* e+en* an* he &racice an* re)$(aions ,ere
a(so inconsisen ,ih s$ch chan)es.
,5I% Narious arbitral tribunals have recently insiste$ on the nee$ for this stability%
The tribunal in/etalcad hel$ that the Respon$ent Ofaile$ to ensure a transparent
an$ pre$ictable frame0ork for !etalca$2s business planning an$ investment% The
totality of these circumstances $emonstrate a lack of or$erly process an$ timely
$isposition in relation to an investor of a Party acting in the eBpectation that it
0oul$ be treate$ fairly an$ Custly`O B B B
,5.% It is +uite clear from the recor$ of this case an$ from the events $iscusse$ in
this 'inal A0ar$ that such re+uirements 0ere not met by ?cua$or% !oreover, his is
an o'@eciEe reC$ire#en ha *oes no *e&en* on ,heher he
Res&on*en has &rocee*e* in )oo* faih or no.
,54% The Tribunal accor$ingly hol$s that the Respon$ent has breache$ its
obligations to accor$ fair an$ e+uitable treatment un$er Article II (/)
(a) of the Treaty% B B B
B B B B
,:,% The relevant +uestion for international la0 in this $iscussion is not 0hether
there is an obligation to refun$ NAT, 0hich is the point on 0hich the parties have
argue$ most intensely, but rather,heher he (e)a( an* '$siness fra#e,orA
#ees he reC$ire#ens of sa'i(i" an* &re*ica'i(i" $n*er inernaiona(
(a,. It 0as earlier conclu$e$ that there is not a NAT refun$ obligation un$er
international la0, eBcept in the speci"c case of the An$ean Community (a0, 0hich
provi$es for the option of either compensation or refun$, but here is cerain(" an
o'(i)aion no o a(er he (e)a( an* '$siness enEiron#en in ,hich he
inEes#en has 'een #a*e. In his case i is he (aer C$esion ha
ri))ers a rea#en ha is no fair an* eC$ia'(e% (?mphasis supplie$%)
To maintain the '?T guarantee containe$ in the various KITs an$ 'TAs conclu$e$ by
the country an$ avert a $eluge of investor suits before the IC8I*, the G>CITRA( or
other fora, an" *ecision of his co$r ha en*s o *rasica((" a(er he
forei)n inEesorsF 'asic e+&ecaions ,hen he" #a*e heir inEes#ens,
taking into account the consistent 8?C Fpinions an$ the eBecutive an$ legislative
branches2 8peci"c Commitments, #$s 'e a&&(ie* &ros&eciEe("%
This Court cannot turn oblivious to the fact that if 1e $iverge from the prospectivity
rule an$ implement the resolution on the present issue imme$iately an$, 0ithout
giving $ue $eference to the foreign investors2 rights to $ue process an$ the e+ual
protection of the la0s, compel the foreign stockhol$ers to $ivest their voting shares
against their 0ishes at prices lo0er than the ac+uisition costs, these foreign
investors may very 0ell shy a0ay from Philippine stocks an$ avoi$ investing in the
Philippines% >ot to mention, the vali$ity of the franchise grante$ to P(*T an$
similarly situate$ public utilities 0ill be put un$er a clou$ of $oubt% 8uch uncertainty
an$ the unfair treatment of foreign investors 0ho merely relie$ in goo$ faith on the
policies, rules an$ regulations of the P8? an$ the 8?C 0ill likely upset the volatile
capital market as it 0oul$ have a negative impact on the value of these companies
that 0ill $iscourage investors, both local an$ foreign, from purchasing their shares%
In 0hich case, foreign $irect investments ('*Is) in the country (0hich alrea$y lags
behin$ our Asian neighbors) 0ill take a nose$ive% In$ee$, it cannot be gainsai$ that
a su$$en an$ uneBpecte$ $eviation from the accepte$ an$ consistent construction
of the term OcapitalO 0ill create a $omino eQect that may cripple our capital
markets%
Therefore, in applying the ne0 comprehensive interpretation of 8ec% ,,, Art% 9II of
the Constitution, the current voting shares of the foreign investors in public utilities
in eBcess of the 637 capital shall be maintaine$ an$ honore$% Fther0ise the $ue
process guarantee un$er the Constitution an$ the long establishe$ precepts of
Custice, e+uity an$ fair play 0oul$ be impaire$%
Pros&eciEe a&&(icaion of ne, (a,s or chan)es in iner&reaion
The Lune -5, -3,, *ecision construe$ OcapitalO in the "rst sentence of 8ection ,,,
Article 9II of the Constitution as Ofull bene"cial o0nership of .3 percent of the
outstan$ing capital stocks couple$ 0ith .3 percent of the voting rights%O In the
Resolution $enying the motions for reconsi$eration, it further ampli"e$ the scope of
the 0or$ OcapitalO by clarifying that Othe .3- 63 o0nership re+uirement in favor of
'ilipino citiens must apply separately to each class of shares 0hether common,
preferre$, preferre$ voting or any other class of shares%O This is a ra$ical $eparture
from the clear intent of the framers of the ,:54 Constitution an$ the long
establishe$ interpretation ascribe$ to sai$ 0or$ by the 8ecurities an$ ?Bchange
Commissionathat OcapitalO in the "rst sentence of 8ec% ,,, Art% 9II means capital
stock or KFT# voting an$ non-voting shares% The recent interpretation enunciate$ in
the Lune -5, -3,, an$ in the Resolution at han$ can only be applie$ PRF8P?CTIN?(S%
It cannot be applie$ retroactively to corporations such as P(*T an$ its investors
such as its sharehol$ers 0ho have all along relie$ on the consistent rea$ing of
OcapitalO by 8?C an$ the Philippine government to apply it to a public utility2s total
capital stock%
#e) prospicit, non respicit W Ola0s have no retroactive eQect unless the contrary is
provi$e$%O
,I4
As a necessary corollary, Cu$icial rulings shoul$ not be accor$e$
retroactive eQect since OCu$icial $ecisions applying or interpreting the la0s or the
Constitution shall form part of the legal system of the Philippines%O
,I5
It has been the
constant hol$ing of the Court that a Cu$icial $ecision setting a ne0 $octrine or
principle (Oprece$ent-setting $ecisionO) shall not retroactively apply to parties 0ho
relie$ in goo$ faith on the principles an$ $octrines stan$ing prior to the
promulgation thereof (Ool$ principlesJ$octrinesO), especially 0hen a retroactive
application of the prece$ent-setting $ecision 0oul$ impair the rights an$ obligations
of the parties% 8o it is that as early as ,:63, the Court has refuse$ to apply the ne0
$octrine of =us sanguinis to persons 0ho relie$ in goo$ faith on the principle of =us
soli a$opte$ in(oa v. $ollector of $ustoms%
,I:
8imilarly, in $o v. $ourt of
0ppeals,
,.3
the Court sustaine$ petitioner Co2s bona "$e reliance on the !inister of
Lustice2s Fpinion $ate$ *ecember ,I, ,:5, that the $elivery of a OrubberO check as
guarantee for an obligation is not a punishable oQense $espite the Court2s
pronouncement on 8eptember -,, ,:54 in 9ue v. *eople that +atas "am!ansa
+lg% (KP) -- nonetheless covers a check issue$ to guarantee the payment of an
obligation% In so ruling, the Court +uote$ various $ecisions applying prece$ent-
setting $ecisions prospectively% 1e hel$@
9$*icia( *ecisions a&&("in) or iner&rein) he (a,s or he Consi$ion
sha(( for# a &ar of he (e)a( s"se# of he Phi(i&&ines,B accor*in) o
Aric(e J of he CiEi( Co*e. BLa,s sha(( haEe no reroaciEe ePec, $n(ess
he conrar" is &roEi*e*,B *ec(ares Aric(e N of he sa#e Co*e, a $eclaration
that is echoe$ by Article -- of the Revise$ Penal Co$e@ OPenal la0s shall have a
retroactive eQect insofar as they favor the person guilty of a felony, 0ho is not a
habitual criminal % % %O
B B B B
The &rinci&(e of &ros&eciEi" has a(so 'een a&&(ie* o @$*icia( *ecisions
,hich, Ba(ho$)h in he#se(Ees no (a,s, are neEerhe(ess eEi*ence of
,ha he (a,s #ean, . . . :his 'ein); he reason ,h" $n*er Aric(e J of he
Ne, CiEi( Co*e, W9$*icia( *ecisions a&&("in) or iner&rein) he (a,s or he
Consi$ion sha(( for# a &ar of he (e)a( s"se# . . .W O
8o $i$ this Court hol$, for eBample, in "eo% % ?a!inal, II 8CRA .34, .,,@
B B B B
8o, too, $i$ the Court rule in Spouses <auain and +ernardita +en*onan % Court of
Appeals, et al%(H%R% >o% :4:4/) an$ $eelopment +ank of the "hilippines % Court of
Appeals, et al% (H%R% >o :4::5), Lan% -4, ,::-, -3I 8CRA I,I, I-4-I-5@
B B B B
A compelling rationaliation of the prospectivity principle of Cu$icial $ecisions is 0ell
set forth in the oft-cite$ case of Chicot County $rainage $ist% % +a)ter States +ank,
/35 G8 /4,, /46
,:63
% The Chicot $octrine a$vocates he i#&eraiEe necessi" o
aAe acco$n of he ac$a( e+isence of a sa$e &rior o is n$((i!caion,
as an o&eraiEe fac ne)ain) acce&ance of Ba &rinci&(e of a'so($e
reroaciEe inEa(i*i".O
B B B B
!uch earlier, in $e Ag!ayani % "0+, /5 8CRA 6-: BBB the Court ma$e substantially
the same observations`
B B B B
Again, treating of the eQect that shoul$ be given to its $ecision in 3laguer % /ilitary
Commission 0o HC, a $eclaring invali$ criminal procee$ings con$ucte$ $uring the
martial la0 regime against civilians, 0hich ha$ resulte$ in the conviction an$
incarceration of numerous persons a this Court, in Tan s% +arrios, ,:3 8CRA .5.,
at p% 433, rule$ as follo0s@
OIn he ineres of @$sice an* consisenc", ,e ho(* ha O(a)$er sho$(*, in
&rinci&(e, 'e a&&(ie* &ros&eciEe(" on(" o f$$re cases an* cases si((
on)oin) or no "e !na( ,hen ha *ecision ,as &ro#$()ae*. B B BO
It 0oul$ seem, then, that the 0eight of authority is $eci$e$ly in favor of the
proposition ha he Co$rFs *ecision of Se&e#'er 20, 04J1 in Jue % "eople,
,I6 8CRA ,.3 (,:54) a i%e%, that a check issue$ merely to guarantee the
performance of an obligation is nevertheless covere$ by K%P% Klg% -- a sho$(* no
'e )iEen reros&eciEe ePec o he &re@$*ice of he &eiioner an* oher
&ersons si#i(ar(" si$ae*, ,ho re(ie* on he oGcia( o&inion of he
/iniser of 9$sice that such a check $i$ not fall 0ithin the scope of K%P% Klg% --%
(?mphasis supplie$)%
In$ee$, pursuant to the $octrine of prospectivity, ne0 $octrines an$ principles must
be applie$ only to acts an$ events transpiring afer the prece$ent-setting Cu$icial
$ecision, an$ not to those that occurre$ an$ 0ere cause$ by persons 0ho relie$ on
the Ool$O $octrine an$ acte$ on the faith thereof%
>ot content 0ith changing the rule in the mi$$le of the game, the maCority, in the
Lune -5, -3,, *ecision, 0ent a little further by or$ering respon$ent 8?C
Chairperson Oto apply this $e"nition of the term Tcapital2 in $etermining the eBtent
of allo0able foreign o0nership in respon$ent Philippine (ong *istance Telephone
Company, an$ if there is a violation of 8ection ,,, Article 9II of the Constitution, to
impose the appropriate sanctions un$er the la0%O This may be vie0e$ as
unreasonable an$ arbitrary% The Court in the challenge$ Lune -5, -3,, *ecision
alrea$y ma$e a "n$ing that foreigners hol$ .6%-47 of the total number of P(*T
common shares 0hile 'ilipinos hol$ only /I%4/7%
,.,
In this factual setting, P(*T 0ill,
as clear as $ay, face sanctions since its present capital structure is presently in
breach of the rule on the 637 cap on foreign o0nership of voting shares even
0ithout nee$ of a 8?C investigation%
In ans0ering the 8?C2s +uery regar$ing the proper perio$ of application an$
imposition of appropriate sanctions against P(*T, Lustice Carpio tersely state$ that
Oonce the -5 Lune -3,, *ecision becomes "nal, the 8?C shall impose the
appropriate sanctions only if it "n$s after $ue hearing that, at the start of the
a$ministrative cases or investigation, there is an eBisting violation of 8ec% ,,, Art%
9II of the Constitution%O
,.-
As basis therefor, Lustice Carpio cite$ 6alili % Court of
Appeals
,./
an$ 9nited Church +oard for >orld /inistries K9C+>/L %
Se!astian%
,.6
#o0ever, these cases $o not provi$e a Curispru$ential foun$ation to
this man$ate that may very 0ell $eprive P(*T foreign sharehol$ers of their voting
shares% In fact, 9C+>/ % Se!astian respecte$ the voluntary transfer in a 0ill by an
American of his shares of stocks in a lan$-hol$ing corporation% In the same
manner, 6alili % Court of Appeals sustaine$ as vali$ the 0aiver by an alien of her
right of inheritance over a piece of lan$ in favour of her son% >o0here in these cases
$i$ this Court or$er the involuntary $ispossession of corporate stocks by alien
stockhol$ers% At most, these t0o cases only recognie$ the principle vali$ating the
transfer of lan$ to an alien 0ho, after the transfer, subse+uently becomes a
Philippine citien or transfers the lan$ to a 'ilipino citien% They $o not encompass
the situation that 0ill eventually ensue after the investigation con$ucte$ by the 8?C
in accor$ance 0ith the Lune -5, -3,, an$ the present resolution% They $o not Custify
the compulsory $eprivation of voting shares in public utility corporations from
foreign stockhol$ers 0ho ha$ legally ac+uire$ these stocks in the "rst instance%
The abrupt application of the construction of 8ec% ,,, Art% 9II of the Constitution to
foreigners currently hol$ing voting shares in a public utility corporation is not only
constitutionally problematicA it is like0ise replete 0ith pragmatic $i&culties that
coul$ hin$er the real-0orl$ translation of this Court2s Resolution% Although
apparently benevolent, the maCority2s concession to allo0 Opublic utilities that fail to
comply 0ith the nationality re+uirement un$er 8ection ,,, Article 9II an$ the 'IA
DtoE c$re heir *e!ciencies &rior o he sar of he a*#inisraiEe case or
inEesi)aionO
,.I
coul$ in$irectly occasion a compulsory $eprivation of the public
utilities2 foreign stockhol$ers of their voting shares% Certainly, these public utilities
must imme$iately pare $o0n their foreign-o0ne$ voting shares to avoi$ the
imposable sanctions% This hol$s true especially for P(*T 0hose .6%-47 of its
common voting shares are foreign-subscribe$ an$ hel$% P(*T is, therefore, force$ to
imme$iately $eprive, or at the very least, $ilute the property rights of their foreign
stockhol$ers before the commencement of the a$ministrative procee$ings, 0hich
0oul$ be a mere farce consi$ering the transparency of the public utility from the
onset%
?ven 0ith the chance grante$ to the public utilities to reme$y their suppose$
$e"ciency, the nebulous time-frame given by the maCority, i%e%, Oprior to the start of
the a$ministrative case or investigation,O
,..
may very 0ell prove too short for these
public utilities to raise the necessary amount of money to increase the number of
their authorie$ capital stock in or$er to $ilute the property rights of their foreign
stockhol$ers hol$ing voting shares%
,.4
8imilarly, if they in$uce their foreign
stockhol$ers to transfer the eBcess voting shares to +uali"e$ Philippine nationals,
this perio$ before the "ling of the a$ministrative may not be su&cient for these
stockhol$ers to "n$ Philippine nationals 0illing to purchase these voting shares at
the market price% This Court cannot ignore the fact that the voting shares of
Philippine public utilities like P(*T are liste$ an$ sol$ at large in foreign capital
markets% #ence, foreigners 0ho have previously purchase$ their voting shares in
these markets 0ill not have a rea$y Philippine market to imme$iately transfer their
shares% !ore than likely, these foreign stockhol$ers 0ill be force$ to sell their voting
shares at a loss to the fe0 Philippine nationals 0ith money to spare, or the public
utility itself 0ill be constraine$ to ac+uire these voting shares to the preCu$ice of its
retaine$ earnings%
,.5
1hatever means the public utilities choose to employ in or$er to cut $o0n the
foreign stockhol$ings of voting shares, it is necessary to $etermine 0ho among the
foreign stockhol$ers of these public utilities must bear the bur$en of unloa$ing the
voting shares or the $ilution of their property rights% In a situation like this, there is
at present no settle$ rule on 0ho shoul$ be $eprive$ of their property rights% 1ill it
be the foreign stockhol$ers 0ho bought the latest issuances= Fr the "rst foreign
stockhol$ers of the public utility corporations= This issue cannot be realistically
settle$ 0ithin the time-frame given by the maCority 0ithout raising more $isputes%
1ith these loose en$s, the maCority cannot penalie the public utilities if they shoul$
fail to comply 0ith the $irective of complying 0ith the Onationality re+uirement
un$er 8ection ,,, Article 9II an$ the 'IAO 0ithin the unreasonably nebulous an$
limite$ perio$ Oprior to the start of the a$ministrative case or investigation%O
,.:
In the light of the ne0 pronouncement of the Court that public utilities that fail to
comply 0ith the nationality re+uirement un$er 8ection ,,, Article 9II of the
Constitution CA> CGR? T#?IR *?'ICI?>CI?8 prior to the start of the a$ministrative
case or investigation, I submit that aQecte$ companies like P(*T shoul$ be given
reasonable time to un$ertake the necessary measures to make their respective
capital structure compliant, an$ the 8?C, as the regulatory authority, shoul$ come
up 0ith the appropriate gui$elines on the process an$ supervise the same% 8?C
shoul$ like0ise a$opt the necessary rules an$ regulations to implement the
prospective compliance by all aQecte$ companies 0ith the ne0 ruling regar$ing the
interpretation of the provision in +uestion% 8uch rules an$ regulations must respect
the $ue process rights of all aQecte$ corporations an$ $e"ne a reasonable perio$
for them to comply 0ith the Lune -5, -3,, *ecision%
A "nal note%
Sear in an$ year out, the government2s tra$e managers atten$ economic summits
courting businessmen to invest in the country, $oubtless promising them a playing
"el$ 0here the rules are frien$ly as they are pre$ictable% 8o it 0oul$ appear o$$ if a
branch of government 0oul$ make business life complicate$ for investors 0ho are
alrea$y here% In$ee$, stability an$ pre$ictability are the key pillars on 0hich our
legal system must be foun$e$ an$ run to guarantee a business environment
con$ucive to the country2s sustainable economic gro0th% #ence, it behoves this
Court to respect the basic eBpectations taken into account by the investors at the
time they ma$e the investments% In other 0or$s, it is the $uty of this Court to stan$
guar$ against any unto0ar$ change of the rules in the mi$$le of the game%
I, therefore, vote to GRANT the motions for reconsi$eration an$
accor$ingly RE8ERSE an$ SET ASIDE the Lune -5, -3,, *ecision% The Court
shoul$ $eclare that the 0or$ OcapitalO in the "rst sentence of 8ection ,,, Article 9ll
of the ,:54 Constitution means the entire capital stock or both voting an$ non-
voting shares%
8ince the Lune -5, -3,, *ecision 0as ho0ever sustaine$, I submit that sai$ $ecision
shoul$ take eQect only on the $ate of its "nality an$ shoul$ be
applie$ &ros&eciEe(".
P(*T shoul$ be given time to umkrtake the necYssary meast,res to make its capital
structure compliant, an$ thY 8ecurities an$ ?Bchange Commission shoul$ formulalc
appropriate gui$elines an$ supervise the process% 8ai$ Commission shoul$ also
a$opt ruks an$ regulations to implement the prospective compliance by all aQecte$
companies 0ith the ne0 ruling on the interpretation of 8ec% ,,, Art% 9II of the
Constitution% 8uch rules an$ regulations must respect the $ue process rights of all
aQecte$ corporations an$ provi$e a reasonable perio$ for them to com pi y 0ith the
Lune -5, -3,, *ecision% The rights of foreigners over the voting shares they
presently o0n in eBcess of 637 of sai$ shares shoul$, in the meantime, be
respecte$%
PRES6ITERO 9. 8ELASCO, 9R.
Associate Lustice
Foonoes
,
Penne$ by Lustice Antonio T% Carpio%
-
1ebster2s Thir$ >e0 International *ictionary of the ?nglish (anguage@ Gnabri$ge$
(,:5,), 8pring"el$, !A, p% ,.6.%
/
Allied +anking Corporation % Court of Appeals, H%R% >o% ,-6-:3, Lanuary ,., ,::5,
-56 8CRA /-4, /.4 an$ Inding % Sandigan!ayan, H%R% >o% ,6/364, Luly ,6, -336,
6/6 8CRA /55, 63/%
6
Agpalo, Ruben ?% 8tatutory Construction, .th e$% (-33:), p% I5I%
I
I$%A citations omitte$%
.
8ee also /acalintal % "residential 8lectoral Tri!unal, H%R% >o% ,:,.,5, >ovember
-/, -3,3, ./I 8CRA 45/A #a +ugal'+7#aan Tri!al Assn%, Inc% % .amos, H%R% >o%
,-455-, *ecember ,, -33-A -rancisco % 6ouse of .epresentaties, >ovember ,3,
-3,3A :ictoria % C3/8#8C, H%R% >o% ,3:33I, Lanuary ,3, ,::6%
4
>o% (--,3.6, 'ebruary ,5, ,:43, /, 8CRA 6,/, 6---6-/%
5
!emoran$um, The /eaning of 2Capital,2 p% ,3, rea$ by 'r% Kernas as amicus curiae
in the Lune -., -3,- Fral Argument%
:
1ebster2s Thir$ >e0 International *ictionary Gnabri$ge$, !erriam-1ebsters Inc%,
8pring"el$, !A% ,:5,, p% /--%
,3
I$%A emphasis supplie$%
,,
I$%
,-
Klack2s la0 *ictionary, :th ?$%, for the iPhoneJiPa$JiPo$ touch, Nersion -%3%3
(K,3-/:), p% -/.%
,/
I$%A emphasis supplie$%
,6
Agpalo, Ruben ?% Agpalo2s (egal 1or$s an$ Phrases, ,:54 ?$%, p% :. citing Ruben
?% Agpalo Comments on the Corporation Co$e, ,::/ e$%, p% 6I%
,I
I$%
,.
Nillanueva, Cesar (apu% Philippine Corporate (a0% -33/ ?$%, p% I/4% ?mphasis an$
un$erscoring supplie$%
,4
*e (eon, #ector 8% The Corporation Co$e of the Philippines Annotate$, -33- ?$%
!anila, Phil% P% 4,-4- citing (8?C Fpinion, 'eb% ,I, ,:55 0hich states@ The term
OcapitalO $enotes the sum total of the shares subscribe$ an$ pai$ by the
stockhol$ers or agree$ to be pai$ irrespective of their nomenclature% It 0oul$,
therefore, be legal for foreigners to o0n more than 637 of the common shares but
not more than the 637 constitutional limit of the outstan$ing capital stock 0hich
0oul$ inclu$e both common an$ non-voting preferre$ shares%O (?mphasis an$
un$erscoring supplie$%)
,5
Tongson % Arellano, H%R% >o% 44,36, >ovember ., ,::-, -,I 8CRA 6-.%
,:
Agpalo, Ruben ?% 8tatutory Construction, .th e$% (-33:), p% I55%
-3
Recor$ of the (,:5.) Constitutional Commission, Nol% III, pp% -I3--I.%
-,
I$% at /-.-/-4%
--
I$% at /I4-/.I%
-/
I$% at I5--I56%
-6
I$% at ..I-...%
-I
Recor$ of the (,:5.) Constitutional Commission, Nol% III, pp% -I3--I,%
-.
Referring to 8ections - an$ ,3, Article 9II of the ,:54 Constitution%
-4
Recor$s of the Constitutional Commission, Nolume III, pp% /-.-/-4%
-5
I$% at /I4%
-:
Recor$s of the Constitutional Commission, Nolume III, pp% /I4-/.3%
/3
Recor$s of the Constitutional Commission, Nolume III, p% /.3%
/,
I$% at /.6%
/-
I$% at I5-%
//
8un$iang Lose, R% an$ A+uino, Timoteo K% Revie0er on Commercial (a0, -33. ?$%,
p% -I4%
/6
Recor$s of the Constitutional Commission, Nolume III, pp% I5/-I56%
/I
8ee Kernas, 8%L%, The Intent of the ,:5. Constitution 1riters, ,::I e$%, p% 56:%
/.
8ection -, Article 9II, ,:54 Constitution@
8ection -% All lan$s of the public $omain, 0aters, minerals, coal, petroleum, an$
other mineral oils, all forces of potential energy, "sheries, forests or timber, 0il$life,
Pora an$ fauna, an$ other natural resources are o0ne$ by the 8tate% 1ith the
eBception of agricultural lan$s, all other natural resources shall not be alienate$%
The eBploration, $evelopment, an$ utiliation of natural resources shall be un$er
the full control an$ supervision of the 8tate% The 8tate may $irectly un$ertake such
activities, or it may enter into copro$uction, Coint venture, or pro$uction-sharing
agreements 0ith 'ilipino citiens, or corporations or associations at least siBty per
centum of 0hose capital is o0ne$ by such citiens% B B B B (?mphasis supplie$%)
/4
8ection ,3, Article 9II, ,:54 Constitution@
8ection ,3% The Congress shall, upon recommen$ation of the economic an$
planning agency, 0hen the national interest $ictates, reserve to citiens of the
Philippines or to corporations or associations at least siBty per centum of 0hose
capital is o0ne$ by such citiens, or such higher percentage as Congress may
prescribe, certain areas of investments% The Congress shall enact measures that 0ill
encourage the formation an$ operation of enterprises 0hose capital is 0holly o0ne$
by 'ilipinos% (?mphasis supplie$%)
/5
Lune -., -3,- Fral Arguments T8>, pp% ,,I-,,.%
/:
Recor$s of the Constitutional Commission, Nolume III, pp% /-., I5/%
63
H%R% >o% 5/5:., 'ebruary --, ,::,, ,:6 8CRA /,4%
6,
Respon$ent Pangilinan2s !otion for Reconsi$eration $ate$ Luly ,6, -3,,, pp% /.-/4
citing Philippine Institute of *evelopment 8tu$ies, O)ey In$icators of the Philippines,
,:43--3,,O, at http@JJecon$b%pi$s%gov%phJtablelistsJtableJ/-. an$ $e *ios, ?%
(e$%)
,:56
An Analysis of the Philippine ?conomic Crisis% A ,orkshop report% Zueon
City@ Gniversity of the PhilippinesA also $e *ios, ?%
-33:
OHovernance, institutions, an$
political economyO in@ *% Canlas, !%?% )han an$ L% Vhuang, e$s% $iagnosing the
"hilippine economyD to,ard inclusie gro,th% (on$on@ Anthem Press an$ Asian
*evelopment Kank% -:I-//. an$ Kautista, R%
-33/
OInternational $imensionsO, in@ A%
Kalisacan an$ #% #ill ?$s% The "hilippine economyD deelopment, policies, and
challenges% FBfor$ Gniversity Press% ,/.- ,4,%
6-
Common0ealth Act >o% (CA) ,6., as amen$e$ an$ mo$i"e$ by Presi$ential
*ecree >o% ,, Integrate$ Reorganiation Plan an$ ?F I6.A Approve$ on >ovember
4, ,:/.%
6/
8ec% ,/(b), CA ,6.@ The term Opublic serviceO inclu$es every person that no0 or
hereafter may o0n, operate, manage, or control in the Philippines, for hire or
compensation, 0ith general or limite$ clientele, 0hether permanent, occasional or
acci$ental, an$ $one for general business purposes, any common carrier, railroa$,
street rail0ay, traction rail0ay, sub-0ay motor vehicle, either for freight or
passenger, or both 0ith or 0ithout "Be$ route an$ 0hether may be its classi"cation,
freight or carrier service of any class, eBpress service, steamboat or steamship line,
pontines, ferries, an$ 0ater craft, engage$ in the transportation of passengers or
freight or both, shipyar$, marine rail0ays, marine repair shop, D0arehouseE 0harf or
$ock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light,
heat an$ po0er 0ater supply an$ po0er, petroleum, se0erage system, 0ire or
0ireless communications system, 0ire or 0ireless broa$casting stations an$ other
similar public services B B B%
66
O#ea$notes, hea$ing or epigraphs of sections of a statute are convenient in$eB to
the contents of its provisions%O (Agpalo, Ruben, Statutory Construction, 8iBth
?$ition
-33:
, p% ,.. citing In re ?state of Lohnson, /: Phil% ,I.
,:,5
A )are v% Platon, I.
Phil% -65
,:/,
)%
6I
As amen$e$ by Republic Act >o% ,/6, 0hich 0as approve$ on Lune ,6, ,:64%
6.
?ntitle$ OAn Act Hranting A 'ranchise To 'ilipinas Frient Air0ays, Incorporate$, To
?stablish An$ !aintain Air Transport 8ervice In The Philippines An$ Ket0een The
Philippines An$ Fther Countries%O Approve$ on Lune -3, ,:.6%
64
?ntitle$ OAn Act Hranting A 'ranchise To Air !anila, Incorporate$, To ?stablish An$
!aintain Air Transport 8ervice In The Philippines An$ Ket0een The Philippines An$
Fther Countries%O Approve$ on Lune ,:, ,:.I%
65
?ntitle$ OAn Act Hranting The Philippine Communications 8atellite Corporation A
'ranchise To ?stablish An$ Fperate Hroun$ 8atellite Terminal 8tation Fr 8tations 'or
Telecommunication 1ith 8atellite 'acilities An$ *elivery To Common Carriers%O
Approve$ on Lune -,, ,:.:
6:
?ntitle$ OAn Act Provi$ing 'or The (icensing An$ Regulation Ff Atomic ?nergy
'acilities An$ !aterials, ?stablishing The Rules Fn (iability 'or >uclear *amage, An$
'or Fther Purposes,O as amen$e$ by P* ,656% Approve$ on Lune ,I, ,:.5 an$
publishe$ in the F&cial Haette on !ay I, ,:.:%
I3
H%R% >o% ,-4:/4 Luly -5, ,:::, /,, 8CRA I35%
I,
?mphasis supplie$%
I-
H%R% >o% 433I6, *ecember ,,, ,::,, -36 8CRA 4.4% ?mphasis an$ un$erscoring
supplie$%
I/
H%R% >o% ,35I4., Lanuary -3, ,:::, /3, 8CRA ,I-%
I6
8ee also .epu!lic "lanters +ank % Agana, H%R% >o% I,4.I, !arch /, ,::4, -.:
8CRA ,, 0here this Court state$ that O8harehol$ers, both common an$ preferre$,
are consi$ere$ risk takers 0ho invest capital in the business an$ 0ho can look only
to 0hat is left after corporate $ebts an$ liabilities are fully pai$%O
II
Citations omitte$%
I.
"onencia, pp% /3-/,%
I4
3Mce of the 3m!udsman % 6eirs of /argarita :da% $e :entura, H%R% >o% ,I,533,
>ovember I, -33:, .3I 8CRA ,%
I5
In numerous Fpinions, he DO9 ref$se* o consr$e he Consi$iona(
&roEisions on he naiona(i" reC$ire#en i#&ose* '" Eario$s (e)is(aiEe
acs (iAe he FIA, in re(aion o he 04J1 Consi$ion, on he )ro$n* ha
he iner&reaion an* a&&(icaion of he sai* (a, &ro&er(" fa(( ,ihin he
@$ris*icion of he Naiona( Econo#ic DeEe(o&#en A$hori" :NEDA;, in
cons$(aion ,ih he 6$rea$ of InEes#ens :6OI; an* he Sec$riies an*
E+chan)e Co##ission% (Fpinion >o% ,., 8eries ,:::, 'ebruary -, ,::: citing 8ec%
of Lustice Fpn% >o% /, current seriesA >os% ,., 66 an$ 6I, s% ,::5A Fpinion >o% ,/,
8eries of -335, !arch ,-, -335 citing 8ec% of Lustice Fp% >F% I/, current series >o%
4I, s% -33.%
I:
8?C Fpinion $ate$ 'ebruary ,I, ,:55%
.3
:/ Phil% /// (,:I/)%
.,
8?C-FHC Fpinion >o% -.-,,%
.-
"hilippine <lo!al Communications, Inc% % .eloa, >o% (-.3I65, >ovember ,3,
,:5., ,6I 8CRA /5IA citing "hilippine Association of -ree #a!or 9nions ["A-#9& %
+ureau of #a!or .elations, August -,, ,:4., 4- 8CRA /:., 63-%
./
I$%
.6
>o% (-I:II, 8eptember ,:, ,:I-%
.I
I$%
..
AnneB OKO of the 8?C !emoran$um $ate$ Luly -I, -3,- 0herein the Commission
8ecretary certi"e$ that@ O*uring the Commission 8n +anc meeting hel$ on Luly -,
-33- at the Commission Room, 5
th
'lorr, 8?C Kuil$ing, ?*8A, Hreenhills,
!an$aluyong City, the Commission 8n +anc approve$ the follo0ing@
2(#";/,#-, That all opinions to !e issues !y the S8C pursuant to a formal reAuest,
prepared and acted upon !y the appropriate operating departments shall !e
reie,ed !y the 3<C and !e issued under the signature of the S8C <eneral
Counsel% 6enceforth, all opinions to !e issues !y the S8C shall !e num!ered
accordingly
KS8C'8XS% .8S% 03% 1GN s, of EGGEL
.4
8?C% 6%., 8RC@ The Commission may, for purposes of e&ciency, $elegate any of its
functions to any $epartment or o&ce of the Commission, an in$ivi$ual
Commissioner or staQ member of the Commission eBcept its revie0 or appellate
authority an$ its po0er to a$opt, alter an$ supplement any rule or regulation%
The Commission may revie0 upon its o0n initiative or upon the petition of any
intereste$ party any action of any $epartment or o&ce, in$ivi$ual Commissioner, or
staQ member of the Commission%
.5
8ec% I%, (g), 8RC%
.:
/isamis 3riental Association of Coco Traders, Inc% % $epartment of -inance
Secretary, H%R% >o% ,35I-6, >ovember ,3, ,::6, -/5 8CRA ./A citing :ictorias
/illing Co% % Social Security Commission, ,,6 Phil% III (,:.-) an$ "hilippine
+looming /ills % Social Security System, ,-6 Phil% 6:: (,:..)%
43
8?C !emoran$um $ate$ Luly -I, -3,-, pp% //-/.%
4,
H%R% >os% ,/.45,, ,/.45., ,/.4:I, Fctober ., -333, /6- 8CRA -66, -43%
4-
Republic Act :5I., (apse$ into la0 on *ecember ,4, -33:%
4/
Report on the Proportionality Principle in the ?uropean Gnion@ ?Bternal 8tu$y
Commissione$ by the ?uropean Commission, p% 4%
46
This fact is recognie$ even by the Frganisation for ?conomic Cooperation an$
*evelopment (F?C*), vi%@
O?conomic literature tra$itionally i$enti"es t0o main channels through 0hich
corporate investors may $ecouple the cash Po0s an$ voting rights of shares,
inclu$ing the leveraging of voting po0er an$ mechanisms to Olock inO control% The
most commonly use$ such mechanisms are liste$ belo0% >ot covere$ by the
present section are a number of company-internal arrangements that can in some
circumstances also be employe$ to leverage the control of certain sharehol$ers% 'or
instance, the ongoing $iscussions in the Gnite$ 8tates about corporate proBies an$
the voting arrangements at general meetings (e%g% maCority versus plurality vote)
may have important rami"cations for the allocation of control rights in G8
companies% In a$$ition, a number of markete$ "nancial instruments are increasingly
available that can be use$ by investors, inclu$ing incumbent management, to
he$ge their "nancial interest in a company 0hile retaining voting rights%
(everaging of voting po0er% The t0o main types P(!s use$ to bolster the voting
po0ers of in$ivi$uals, hence creating controlling sharehol$ers, are $iQerentiate$
voting rights on company shares an$ multi-"rm structures% !echanisms inclu$e@
*iQerentiate$ voting rights% The most straightfor0ar$ W an$, as the case may be,
transparent W 0ay of leveraging voting po0er is to stipulate $iQerential voting rights
in the corporate charter or byla0s% Companies have gone about this in a number of
0ays, inclu$ing $ualclass share structures an$, in a$$ition to common stock, issuing
non-voting shares or preference shares 0ithout or 0ith limite$ voting rights% The
latter is a bor$erline case@ preference shares have common characteristics 0ith
$ebt as 0ell as e+uity, an$ in most Curis$ictions they assume voting rights if the
issuers fail to honour their preference commitments%
!ulti-"rm structures% Noting rights can be separate$ from cash-Po0 rights even
0ith a single class of shares by creating a set of casca$ing sharehol$ings or a
pyrami$al hierarchy in 0hich higher-tier companies o0n shares in lo0er-tier
companies% Pyrami$s are complementary to $ual-class share structures insofar as
almost any pyrami$al control structure can be repro$uce$ through $ual (or, rather,
multiple) share classes% #o0ever, for compleB control structures, the controlling
sharehol$ers may prefer pyrami$s since the un$erlying shares ten$ to be more
li+ui$ than stocks split into several classes% (In the remain$er of this paper the 0or$
Opyrami$O is use$ Cointly to $enote truly pyrami$al structures an$ casca$ing
sharehol$ings%)
(ock-in mechanisms% The other main category of P(!s consists of instruments that
lock in control W that is cut oQ, or in some cases bolster, the voting rights of
common stock% A clear-cut lock-in mechanism is voting right ceilings prohibiting
sharehol$ers from voting about a certain threshol$ irrespective of the Corporate
AQairs *ivision, *irectorate for 'inancial an$ ?nterprise AQairs Frganisation for
?conomic Co-operation an$ *evelopment - rue An$re-Pascal, Paris
4I,,., U 'rance000%oec$%orgJ$afJcorporate-aQairsJ number of voting shares they
hol$% 8econ$ly, a type of lock-in mechanism that confers greater voting right on
selecte$ sharehol$ers is priority shares, 0hich grant their hol$ers eBtraor$inary
po0er over speci"c types of corporate $ecisions% This type of lock-in mechanism,
0hen hel$ by the state, is commonly referre$ to as a Ogol$en shareO% 'inally,
company byla0s or national legislation may contain supermaCority provisions
accor$ing to 0hich a simple maCority is insu&cient to approve certain maCor
corporate changes%
Relate$ or complementary instruments% Fther instruments, 0hile not themselves
sources of $isproportionality, may either compoun$ the eQect of P(!s or pro$uce
some of the same corporate governance conse+uences as P(!s% Fne eBample is
cross-sharehol$ings, 0hich can be use$ to leverage the eQectiveness of P(!s an$,
in conse+uence, are often an integral part of pyrami$al structures% A secon$ such
instrument is sharehol$er agreements that, 0hile their eQects can be replicate$ by
sharehol$ers acting in concert of their o0n accor$, nevertheless a$$ an element of
certainty to voting coalitions`O ((ack of Proportionality bet0een F0nership an$
Control@ Fvervie0 an$ Issues for *iscussion% Issue$ by the Frganisation for
?conomic Co-Fperation an$ *evelopment (F?C*) 8teering Hroup on Corporate
Hovernance, *ecember -334, pp% ,--,/% Available from
http@JJ000%oec$%orgJ$ataoec$J-,J/-J633/5/I,%p$f, last accesse$ 'ebruary 4, -3,-%
8ee also Clarke, Thomas an$ Chanlat, Lean 'rancois% ?uropean Corporate
Hovernance@ Rea$ings an$ Perspectives% (-33:) Routle$ge, >e0 Sork, p% //A Report
on the Proportionality Principle in the ?uropean Gnion@ ?Bternal 8tu$y
Commissione$ by the ?uropean Commission% 8ee also #u an$ Klack, supra%
4I
Approve$ on Lune ,/, ,::,, an$ amen$e$ by Republic Act >o% 5,4:%
4.
?Becutive Fr$er >o% 5I5, 'ebruary I, -3,3%
44
8ee also P* ,I43 (Aeronautical engineering)A RA 5II: (Agricultural ?ngineering)A
RA :-:4 (Chemical engineering)A RA ,I5- (Civil engineering) RA 4:-3 (?lectrical
?ngineering)A RA :-:- (?lectronics an$ Communication ?ngineering)A RA 5I.3
(Heo$etic ?ngineering)A RA 56:I (!echanical ?ngineering)A P* ,I/. (!etallurgical
?ngineering)A RA 6-46 (!ining ?ngineering)A RA 6I.I (>aval Architecture an$
!arine ?ngineering)A RA ,/.6 (8anitary ?ngineeringA RA -/5- as amen$e$ by RA
6--6 (!e$icine)A RA II-4 as amen$e$ by RA ./,5, P* .,/5, P* 6:5 an$ P* ,I/6
(!e$ical Technology)A RA :656 (*entistry)A RA 4/:- (!i$0ifery)A RA :,4/ (>ursing)A
P* ,-5. (>utrition an$ *ietetics)A RA 53I3 (Fptometry)A RA I:-, (Pharmacy)A RA
I.53 (Physical an$ Fccupational Therapy)A RA 46/, (Ra$iologic an$ 9-ray
Technology)A RA :-.5 (Neterinary !e$icine)A RA :-:5 (Accountancy)A RA :-..
(Architecture)A RA .I3. (Criminology)A RA 4I6 (Chemistry)A RA :-53 (Customs
Krokerage)A P* ,/35 (?nvironmental Planning)A RA .-/: ('orestry)A RA 6-3:
(Heology)A RA 5I/6 (Interior *esign)A RA :3I/ ((an$scape Architecture)A Article NIII,
8ection I of the Constitution, Rule ,/5, 8ection - of the Rules of Court of the
Philippines ((a0)A RA :-6. ((ibrarianship)A RA 5I66 (!arine *eck F&cers an$
!arine ?ngine F&cers)A RA ,/45 (!aster Plumbing)@ RA I,:4 (8ugar Technology)A
RA 6/4/ (8ocial 1ork)A RA 45/. (Teaching)A RA 56/I (Agriculture)A RA 5II3
('isheries)A an$ RA :-I5 (Hui$ance Counselling)%
45
Republic Act >o% I,5., approve$ on 8eptember ,., ,:.4%
4:
Presi$ential *ecree ,45:, Publishe$ in the *aily ?Bpress $ate$ April ,, ,:5, an$
Amen$e$ by Katas Pambansa Klg% /:, other0ise kno0n as OInvestment Incentive
Policy Act of ,:5/,O approve$ April -5, ,:5/%
53
?Becutive Fr$er (s,:54) >o% --., kno0n as the OFmnibus Investments Co$e of
,:54,O approve$ on Luly ,., ,:54%
5,
8ection ,, Article 9NII% Any amen$ment to, or revision of, this Constitution may be
propose$ by@
(,) The Congress, upon a vote of three-fourths of all its !embersA or
(-) A constitutional convention%
8ection -% Amen$ments to this Constitution may like0ise be $irectly propose$ by
the people through initiative`%
B B B B B B B B B
8ection 6% Any amen$ment to, or revisions of, this Constitution un$er 8ection ,
hereof shall be vali$ 0hen rati"e$ by a maCority vote of the votes cast in a plebiscite
0hich shall be hel$ not earlier than siBty $ays nor later than ninety $ays after the
approval of such amen$ment or revision%
5-
The ,:54 FIC 0as enacte$ as ?F --. on Luly ,., ,:54, or after the rati"cation of
the ,:54 Constitution%
5/
Ang Kagong Kayani v% CF!?(?C, 6,- Phil% /35 (-33,)%
56
8ee *issenting Fpinion of Lustice Pa$illa in .omualde*'/arcos % C3/8#8C, H%R%
>o% ,,::4., 8eptember ,5, ,::I, -65 8CRA /33, /.:%
5I
Republic Act >o% 436-, 8ection -%
5.
Recor$ of the 8enate, Nol% II, >o% I4, p% ,:.I%
54
I$% at ,:.6%
55
I$% Nol% /, >o% 4., p% -3I%
5:
Klack2s (a0 *ictionary, :th ?$%, for the iPhoneJiPa$JiPo$ touch% Nersion@ -%,%3
(K,-,/.), p% .,:%
:3
I$%
:,
As early as ,:/-, A$olf A% Kerle an$ Har$ine C% !eans in their book OThe !o$ern
Corporation an$ Private PropertyO eBplaine$ that the large business corporation is
characterie$ by Oseparation of o0nership an$ control%O 8ee also #u, #enry T%C% an$
Klack, Kernar$ 8%, ?mpty Noting an$ #i$$en (!orphable) F0nership@ TaBonomy,
Implications, an$ Reforms% As publishe$ in Kusiness (a0yer, Nol% .,, pp% ,3,,-,343,
-33.A ?uropean Corporate Hovernance Institute - (a0 Research Paper >o% .6J-33.A
Gniversity of TeBas (a0, (a0 an$ ?conomics Research Paper >o% 43% Available at
88R>@ http@JJssrn%comJabstractf554,5/A Ringe, 1olf-Heorg, *eviations from
F0nership-Control Proportionality - ?conomic Protectionism Revisite$ (-3,3)%
CF!PA>S (A1 A>* ?CF>F!IC PRFT?CTIF>I8! - >?1 C#A((?>H?8 TF ?GRFP?A>
I>T?HRATIF>, G% Kernit an$ 1%H% Ringe, e$s%, FGP, -3,3A FBfor$ (egal 8tu$ies
Research Paper >o% -/J-3,,% Available at 88R>@ http@JJssrn%comJabstractf,45:35:%
:-
.ollo, p% ,,%
:/
Corte* % Aila, ,3, Phil 43I (,:I4)A +orlasa % "olistico, 64 Phil% /6I (,:-I)%
:6
Regala$o, Reme$ial (a0 Compen$ium, p% :,%
:I
H%R% >o% ,3-:33, Fctober -, ,::4, -53 8CRA -3%
:.
I$%A citing 8chearria % "arsons 6ard,are Co%, I, Phil% :53, :54 (,:-4)A +orlasa %
"olistico, 64 Phil% /6I, /64 (,:-I)A "eople et al% % 6on% .odrigue*, et al%, ,3. Phil
/-I, /-4 (,:I:), among others% ?mphasis an$ un$erscoring supplie$%
:4
+oard of 8d% of City of San $iego % Common Council of City of San $iego, ,
Cal%App% /,,, 5- P% 5:, Cal%App% - *ist% ,:3I, Luly ,/, ,:3I citing ?ohnson % /alloy,
46 Cal% 6/-% 8ee also Oil!erg % #ouisiana 6igh,ay Commission, 5 (a%App% 66, cite$
in "erry % #ouisiana 6igh,ay Commission ,.6 8o% //I (a%App% - Cir% ,:/I%
*ecember ,/, ,:/I an$ 3regon % #ouisiana "o,er B #ight Co%, ,: (a%App% .-5, ,63
8o% -5-A 8uccession of CarbaCal, ,I6 (a% ,3.3, :5 8o% ... (,:-6) cite$ in In re <ulf
3)ygen >elderPs Supply "ro;t Sharing "lan and Trust Agreement -:4 8o%-$ ../ (A
,:46% Luly ,, ,:46 %
:5
<am!oa % Tees, H%R% >o% ,4.I4:, Lune -5, -3,,, .I- 8CRA .:3, 466%
::
8ection ,, Article III, ,:54 Constitution%
,33
3scar "alma "agasian % Cesar A*ura, A%!% >o% RTL-5:-6-I, April ,4, ,::3, ,56
8CRA /:,%
,3,
#ope* % $irector of #ands, 64 Phil% -/, /- (,:-6)A emphasis supplie$%
,3-
+anco 8spaQol -ilipino % "alanca, /4 Phil% :-,, :/6 (,:,5)%
,3/
H%R% >o% ,I5.:/, >ovember ,4, -336, 66- 8CRA I4/%
,36
H%R% >o% ,I5.:/, >ovember ,4, -336, 66- 8CRA I4/% ?mphasis supplie$%
,3I
H%R% >o% 56636, Fctober ,5, ,::3, ,:3 8CRA 4,4%
,3.
I$% at 4-:%
,34
"0+ % "alma, H%R% >o% ,I4-4:, August :, -33IA citing #aurel % Ciil Serice
Commission, H%R% >o% 4,I.-, Fctober -5, ,::,, -3/ 8CRA ,:IA Stokes % /alayan
Insurance Inc%, -,- Phil% 43I (,:56)A /edi=a % "atcho, -,4 Phil% I3: (,:56)A #lacer %
/uQo*, ,- Phil% /-5 (,:35)%
,35
#eca .ealty Corporation % .epu!lic of the "hilippines, represented !y the
$epartment of "u!lic >orks and 6igh,ays, H%R% >o% ,II.3I, 8eptember -4, -33.,
I3/ 8CRA I./%
,3:
H%R% >o% ,,.,,,, Lanuary -,, ,:::, /3, 8CRA /..%
,,3
Citing /, CL8 .4I-.4.A .epu!lic % Sandigan!ayan, H%R% >o% ,35-:-, 8eptember
,3, ,::/, --. 8CRA /,6%
,,,
>o% (--:/I-, Fctober 6, ,:4,, 6, 8CRA I.IA see also San .oAue .ealty and
$eelopment Corporation % .epu!lic of the "hilippines Kthrough the Armed -orced
of the "hilippinesL, H%R% >o% ,II.3I, 8eptember -4, -33.%
,,-
.epu!lic % :in*on, H%R% >o% ,I643I, Lune -., -33/, 63I 8CRA ,-.A Air
Transportation 3Mce % $aid and .amos% H%R% >o% ,I:63-, 'ebruary -/, -3,,% 8ee
also /inucher % Court of Appeals, H%R% >o% ,6-/:., 'ebruary ,,, -33/ citing Hary (%
!aris2, TInternational #a,, An Introduction,2
Gniversity Press of America, ,:56, p% ,,:A *%1% Hrieg, RInternational #a,,2 (on$on
Kutter0orths, ,:43, p% --,%
,,/
Particularly relevant in the case of P(*T 0hose biggest group of foreign
sharehol$ers is Chinese, follo0e$ by the Lapanese an$ the Americans% Per the
Heneral Information 8heet (HI8) of P(*T as of Lune ,6, -3,-, the follo0ing are the
foreign sharehol$ers of P(*T@ (,) #ong-)ong base$ L%P% !organ Asset #ol$ings (#))
(imite$ o0ns 6:,3-/,53, common shares Dinclu$ing 5,I//,-I/, shares of P(*T
common stock un$erlying A*8 bene"cially o0ne$ by >TT *oCo!o an$ 4,.I/,43/
shares of P(*T common stock un$erlying A*8 bene"cially-o0ne$ by non-Philippine
0holly-o0ne$ subsi$iaries of 'irst Paci"c Company, (imite$EA the Lapanese "rms, (-)
>TT *oCo!o, Inc% hol$ing --,4:.,:3- common sharesA (/) >TT Communications
Corporation 0ith ,-,.//,654 common sharesA an$ the Americans, (6) #8KC FKF AJC
333-/435,4-II3 0ith -,.:3,/,. common sharesA (I) ?$0ar$ Tortorici an$Jor Anita
R% Tortorici 0ith :.,546 common sharesA (.) #are an$ Co%, hol$ing /6,5,, common
sharesA an$ (4) !aurice Nerstraete, 0ith -:,466 common shares%
(http@JJ000%pl$t%com%phJinvestorJ*ocumentsJHI8](as7-3of
7-33.7-3-:7-3,-)]"nal%p$f last accesse$ 8eptember -I, -3,-)
,,6
,::- Agreement Ket0een the Hovernment of The People2s Republic Ff China an$
The Hovernment of the Republic of the Philippines Concerning ?ncouragement an$
Reciprocal Protection of Investments, 8igne$ in !anila, Philippines on Luly -3, ,::-%
?mphasis an$ un$erscoring supplie$%
,,I
Lanuary ,6, -334%
,,.
A8?A>-China Investment Agreement, Article 4(,), emphasis an$ un$erscoring
supplie$% 8ee also the A8?A>-)orea Investment Agreement, Article I (,)%
,,4
LP?PA, Article :,% ?mphasis an$ un$erscoring supplie$%
,,5
8igne$ on 8eptember :, -33.%
,,:
ACIA, Article II (,) re+uires that the parties thereto must give Oinvestments of
investors of Dthe other partiesE fair an* eC$ia'(e rea#en an$ full protection
an$ security%O ?mphasis an$ un$erscoring supplie$%
,-3
Article III (,) W ?ach Contracting Party shall at all times ensure fair an$ e+uitable
treatment of the investments by investors of the other Contracting Party an$ shall
not impair the management, maintenance, use, enCoyment or $isposal thereof,
through unCusti"e$ an$ $iscriminatory measures% (?mphasis an$ un$erscoring
supplie$%)
,-,
Article /(-) thereof provi$es that the Philippines Oshall ensure that DAustralianE
investments are accor$e$ fair an$ e+uitable treatment%O
,--
Article - (,) W ?ach Contracting Party shall in its territory promote, as far as
possible, investments of investors of the other Contracting Party, a$mit such
investments in accor$ance 0ith its legislation an$ in any case accor$ such
investments fair an$ e+uitable treatment% (?mphasis an$ un$erscoring supplie$%)
,-/
Article III (,) W Investments an$ returns of investors of each Contracting Party
shall at all times be accor$e$ fair an$ e+uitable treatment an$ shall enCoy full
protection an$ security in the territory of the other Contracting Party% (?mphasis an$
un$erscoring supplie$%)
,-6
Article II W ?ach Contracting Party shall promote investments in its territory by
investors of the other Contracting Party an$ shall a$mit such investments in
accor$ance 0ith its Constitution, la0s, an$ regulations% 8uch investments shall be
accor$e$ fair an$ e+uitable treatment% (?mphasis an$ un$erscoring supplie$%)
,-I
Article II (-) W Investments of nationals of either Contracting Party shall at all
times be accor$e$ fair an$ e+uitable treatment an$ shall enCoy a$e+uate protection
an$ security in the territory of the other Contracting Party% ?mphasis an$
un$erscoring supplie$%)
,-.
Article II (-) W ?ach Contracting Party shall accor$ investments or returns of
investors of the other Contracting Party D@E (a) fair an$ e+uitable treatment in
accor$ance 0ith the principles of international la0, an$ (b) full protection an$
security% (?mphasis an$ un$erscoring supplie$%)
,-4
Article IN (,) W ?ach Contracting Party shall guarantee fair an$ e+uitable
treatment to investments ma$e by investors of the other Contracting Party on its
territory an$ shall ensure that the eBercise of the right thus recognie$ shall not be
hin$ere$ in practice% (?mphasis an$ un$erscoring supplie$%)
,-5
Article II (-) W InvestmentDsDE of investors of DtheE other Contracting Party shall at
all times be accor$e$ fair an$ e+uitable treatment an$ enCoy full protection an$
security in the territory of the other Contracting Party% (?mphasis an$ un$erscoring
supplie$%)
,-:
Article III (,) W ?ach Contracting Party shall accor$ to investments ma$e by
investors of the other Contracting Party fair an$ e+uitable treatment% (?mphasis an$
un$erscoring supplie$%)
,/3
Article /(,) W ?ach Contracting Party shall guarantee fair an$ e+uitable treatment
to investments ma$e by investors of the other Contracting Party in its territory%
?mphasis an$ un$erscoring supplie$%)
,/,
Article / W ?ither Contracting Party shall eBten$ fair an$ e+uitable treatment in
accor$ance 0ith the principles of International (a0 to investments ma$e by
nationals an$ companies of the other Contracting Party in its territory an$ shall
ensure that the eBercise of the right thus recognie$ shall not be hin$ere$%
?mphasis an$ un$erscoring supplie$%)
,/-
Article - (,) W ?ach Contracting 8tate shall promote as far as possible investments
in its territory by investors of the other Contracting Party an$ a$mit such
investments in accor$ance 0ith its Constitution, la0s an$ regulations as referre$ to
in Article , paragraph ,% 8uch investments shall be accor$e$ fair an$ e+uitable
treatment% (?mphasis an$ un$erscoring supplie$%)
,//
Article IN (,) W ?ach Contracting Party shall accor$ fair an$ e+uitable treatment to
investments ma$e by investors of the other Contracting Party in its territory%
(?mphasis an$ un$erscoring supplie$)
,/6
Article II (-) W Investments of investors of either Contracting party shall at all
times be accor$e$ fair an$ e+uitable treatment an$ shall enCoy a$e+uate protection
an$ security in the territory of the other Contracting Party% (?mphasis an$
un$erscoring supplie$)
,/I
Article 6(,) W A$mitte$ investments of investors of one Contracting Party eQecte$
0ithin the territory of the other Contracting Party in accor$ance 0ith the la0s an$
regulations of the latter, shall receive in the other Contracting Party full legal
protection an$ fair treatment not less favourable than that accor$e$ to its o0n
investor or investors of any thir$ state 0hich are in a comparable situation%
,/.
Article I W ?ach Contracting Party shall promote as far as possible the investments
in its territory by investors of the other Contracting party a$mit such investments
accor$ing to its la0s an$ regulations an$ accor$ such investments e+uitable an$
reasonable treatment% (?mphasis an$ un$erscoring supplie$)
,/4
Article IN (-) W ?ach Contracting Party shall ensure fair an$ e+uitable treatment
0ithin its territory of the investments of the investors of the other Contracting
Party` (?mphasis an$ un$erscoring supplie$)
,/5
Article I(,) W ?ach Contracting Party shall promote as far as possible investments
in its territory by nationals an$ companies of one Contracting Party an$ shall a$mit
such investments in accor$ance 0ith its Constitution, la0s an$ regulations% 8uch
investments shall be accor$e$ e+uitable an$ reasonable treatment% ((?mphasis an$
un$erscoring supplie$)
,/:
Article / (-) W Investments of nationals of either Contracting Party shall, in their
entry, operation, management, maintenance, use enCoyment or $isposal, be
accor$e$ fair an$ e+uitable treatment an$ shall enCoy full protection an$ security in
the territory of the other Contracting party% (?mphasis an$ un$erscoring supplie$)
,63
Article I W ?ach Contracting Party shall promote as far as possible investments in
its territory by investors of the other Contracting Party an$ shall a$mit such
investments in accor$ance 0ith its Constitution, la0s, an$ regulations% 8uch
investments shall be accor$e$ e+uitable an$ reasonable treatment% (?mphasis
supplie$)
,6,
Article -(,) W ?ach contracting party shall promote an$ encourage, as far as
possible, 0ithin its territory investments ma$e by investors of the other Contracting
Party an$ shall a$mit such investments into its territory in accor$ance 0ith its la0s
an$ regulations% It shall in any case accor$ such investments fair an$ e+uitable
treatment% (?mphasis an$ un$erscoring supplie$)
,6-
Article -(/) W ?ach Contracting Party un$ertakes to provi$e in its territory a fair
an$ e+uitable treatment for investments of investors of the other Contracting Party%
>either Contracting Party shall in any 0ay impair by arbitrary, unreasonable or
$iscriminatory measures the management, maintenance or use of investments as
0ell as the right to the $isposal thereof% (?mphasis an$ un$erscoring supplie$)
,6/
Article III (,) W ?ach Contracting Party shall ensure in its territory fair an$
e+uitable treatment of the investments ma$e by the investor of the other
Contracting Party an$ any activities in connection 0ith such investments eBclu$e
the use of $iscriminatory measures that might hin$er management an$
a$ministration of investments% (?mphasis an$ un$erscoring supplie$)
,66
Article g(,) W ?ach Contracting Party shall in its territory promote as far as
possible investments by investors of the other Contracting Party an$ a$mit such
investments in accor$ance 0ith its legislation% It shall in any case accor$ such
investments free an$ e+uitable treatment% (?mphasis supplie$)
,6I
Article II W ?ach party shall promote, as far as possible, investments in its territory
by investors of the other Party an$ shall a$mit such investments in accor$ance 0ith
its eBisting la0s an$ regulation% 8uch investments shall be accor$e$ e+uitable an$
fair treatment%(?mphasis an$ un$erscoring supplie$)
,6.
Article III (,) W ?ach Contracting Party shall at all times ensure fair an$ e+uitable
treatment of the investments by investors of the other contracting party an$ shall
not impair the management, maintenance, use, enCoyment or $isposal thereof nor
the ac+uisition of goo$s an$ services or the sale of their pro$uction, through
unreasonable or $iscriminatory measures% (?mphasis an$ un$erscoring supplie$)
,64
Article IN (,) W Investments an$ returns of investors of each Contracting Party
shall at all times be accor$e$ fair an$ e+uitable treatment an$ shall enCoy full
protection an$ security in the territory of the other Contracting Party% (?mphasis an$
un$erscoring supplie$)
,65
Article III (-) W Investments of national or companies of one Contracting Party in
the territory of the other Contracting Party, an$ also the returns therefrom, shall at
all times be accor$e$ fair an$ e+uitable treatment an$ shall enCoy the constant
protection an$ security in the territory of the host country% (?mphasis an$
un$erscoring supplie$)
,6:
Article II (,) W ?ach Contracting Party shall promote as far as possible investments
in its territory of one Contracting Party an$ shall a$mit, on a basis no less
favourable than that accor$e$ in similar situations to investments of any thir$
country, in accor$ance 0ith its Constitution, la0s an$ regulations% 8uch investments
shall be accor$e$ e+uitable an$ reasonable treatment% (?mphasis an$ un$erscoring
supplie$)
,I3
Article III (-) W Investments of nationals or companies of either Contracting Party
shall at all times be accor$e$ fair an$ e+uitable treatment an$ shall enCoy full
protection an$ security in the territory of the other contracting party% (?mphasis an$
un$erscoring supplie$)
,I,
Article II (-) W Investments of investors of each Contracting Party shall at all times
be accor$e$ fair an$ e+uitable treatment an$ shall enCoy a$e+uate protection an$
security in the territory of the other Contracting Party% (?mphasis an$ un$erscoring
supplie$)
,I-
)enneth L% Nan$evel$e, A Gni"e$ Theory of 'air an$ ?+uitable Treatment, 6/ >%S%G%
L% IntMl (% R Pol% 6/%
,I/
IC8I* Case >o% ARK A'J33J-, A0ar$ of !ay -:, -33/%
,I6
AnneB . Referre$ to in Chapter 4 of the LP?PA@ 8che$ule of 8peci"c Commitments
an$ (ist of !ost-'avore$->ation Treatment ?Bemptions% (ast accesse$ at
http@JJ000%mofa%go%CpJregionJasiapaciJphilippineJepa3.3:JanneB.%p$f on August /3,
-3,,-%
,II
AnneB ,J8C,, A8?A>-China Agreement on Tra$e in 8ervices% (ast accesse$ at
http@JJ000%asean%orgJ--,.3%htm on August /3, -3,-%
,I.
(on$on Court of International Arbitration A$ministere$ Case >o% G> /6.4, Luly ,,
-336% (ast accesse$ at http@JJarbitrationla0%comJ"lesJfree]p$fsJFcci$ental7-3v
7-3?cua$or7-3-7-3A0ar$%p$f on August /3, -3,-%
,I4
Article 6, Civil Co$e of the Philippines%
,I5
Article 5, Civil Co$e of the Philippines%
,I:
-/ Phil% /,I (,:,-)%
,.3
H%R% >o% ,3344., Fctober -5, ,::/, --4 8CRA 666, 665-6IIA /onge, et al% %
Angeles, et al%, ,3, Phil% I./ (,:I4)A among others%
,.,
*ecision, H%R% >o% ,4.I4:, Lune -5, -3,,%
,.-
Resolution, p% 64%
,./
/I3 Phil% :3. (,::5)%
,.6
-6- Phil% 565 (,:55)%
,.I
Resolution, p% 64%
,..
I$%
,.4
8ec% /5, Corporation Co$e% "o,er to increase or decrease capital stockS incur,
create or increase !onded inde!tedness% - >o corporation shall increase or $ecrease
its capital stock or incur, create or increase any bon$e$ in$ebte$ness unless
approve$ by a maCority vote of the boar$ of $irectors an$, at a stockhol$erMs
meeting $uly calle$ for the purpose, t0o-thir$s (-J/) of the outstan$ing capital stock
shall favor the increase or $iminution of the capital stock, or the incurring, creating
or increasing of any bon$e$ in$ebte$ness% 1ritten notice of the propose$ increase
or $iminution of the capital stock or of the incurring, creating, or increasing of any
bon$e$ in$ebte$ness an$ of the time an$ place of the stockhol$erMs meeting at
0hich the propose$ increase or $iminution of the capital stock or the incurring or
increasing of any bon$e$ in$ebte$ness is to be consi$ere$, must be a$$resse$ to
each stockhol$er at his place of resi$ence as sho0n on the books of the corporation
an$ $eposite$ to the a$$ressee in the post o&ce 0ith postage prepai$, or serve$
personally%
B B B B
Any increase or $ecrease in the capital stock or the incurring, creating or increasing
of any bon$e$ in$ebte$ness shall re+uire prior approval of the 8ecurities an$
?Bchange Commission%
Fne of the $uplicate certi"cates shall be kept on "le in the o&ce of the corporation
an$ the other shall be "le$ 0ith the 8ecurities an$ ?Bchange Commission an$
attache$ to the original articles of incorporation%
'rom an$ after approval by the 8ecurities an$ ?Bchange Commission an$ the
issuance by the Commission of its certi"cate of "ling, the capital stock shall stan$
increase$ or $ecrease$ an$ the incurring, creating or increasing of any bon$e$
in$ebte$ness authorie$, as the certi"cate of "ling may $eclare@ Provi$e$, That he
Sec$riies an* E+chan)e Co##ission sha(( no acce& for !(in) an"
ceri!cae of increase of ca&ia( socA $n(ess acco#&anie* '" he s,orn
sae#en of he reas$rer of he cor&oraion (a,f$((" ho(*in) oGce a he
i#e of he !(in) of he ceri!cae, sho,in) ha a (eas ,en"?!Ee :23D;
&ercen of s$ch increase* ca&ia( socA has 'een s$'scri'e* an* ha a
(eas ,en"?!Ee :23D; &ercen of he a#o$n s$'scri'e* has 'een &ai*
eiher in ac$a( cash o he cor&oraion or ha here has 'een ransferre*
o he cor&oraion &ro&er" he Ea($aion of ,hich is eC$a( o ,en"?!Ee
:23D; &ercen of he s$'scri&ion@ Provi$e$, further, That no $ecrease of the
capital stock shall be approve$ by the Commission if its eQect shall preCu$ice the
rights of corporate cre$itors% (?mphasis supplie$%)
,.5
8ec% 6,, Corporation Co$e% "o,er to acAuire o,n shares% - A stock corporation
shall have the po0er to purchase or ac+uire its o0n shares for a legitimate
corporate purpose or purposes, inclu$ing but not limite$ to the follo0ing cases@
Provi$e$, That the corporation has unrestricte$ retaine$ earnings in its books to
cover the shares to be purchase$ or ac+uire$@
,% To eliminate fractional shares arising out of stock $ivi$en$sA
-% To collect or compromise an in$ebte$ness to the corporation, arising out of
unpai$ subscription, in a $elin+uency sale, an$ to purchase $elin+uent shares sol$
$uring sai$ saleA an$
/% To pay $issenting or 0ith$ra0ing stockhol$ers entitle$ to payment for their
shares un$er the provisions of this Co$e%
,.:
Resolution, p% 64%
DISSENTING OPINION
A6AD, J.:
In the *ecision $ate$ Lune -5, -3,,, the Court partially grante$ the petition for
prohibition, inCunction, $eclaratory relieC an$ $eclaration of nullity of sale, of 1ilson
P% Hamboa, a Philippine (ong *istance Telephone Company (P(*T) stockhol$er, an$
rule$ that the term OcapitalO in 8ection ,,, Article 9II of the ,:54 Constitution refers
only to shares of stock entitle$ to vote in the election of $irectors, an$ thus only to
common shares, an$ not to the total outstan$ing capital stock (common an$ non-
voting preferre$ shares)% The Court also $irecte$ the Chairperson of the 8ecurities
an$ ?Bchange Commission (8?C) to apply this $e"nition of the term OcapitalO in
$etermining the eBtent of allo0able hmYign o0nership in P(*T, an$ to impose the
appropriate sanctions if there is a violation of 8ection ,,, Article 9II ofthe ,:54
Constitution%
Respon$ents !anuel N% Pangilinan, >apoleon (% >aareno, 'rancis (im, Pablito N%
8ani$a$, Arno N% 8ani$a$, an$ the 8?C "le$ their respective motions for
reconsi$eration%
Thereafter, the Court con$ucte$ oral arguments to hear the parties on the follo0ing
issues@
,% 1hether the term MMcapitalO in 8ection ll, Article 9II of the ,:54 Constitution refers
only to shares of stock 0ith the right to vote in the election of $irectors (common
shares), or to all kin$s of shares of stock, inclu$ing those 0ith no right to vote in the
election of $irectorsA
-% Assuming the term OcapitalO refers only to shares of stock 0ith the right to vote in
the election of $irectors, 0hether this ruling of the Court shoul$ have retroactive
eQect to aQect such shares of stock o0ne$ by foreigners prior to this rulingA
/% 1hether P(*T an$ its foreign stockhol$ers are in$ispensable parties in the
resolution of the legal issue on the $e"nition of the term OcapitalO in 8ection ,,,
Article 9II of the ,:54 ConstitutionA an$
/%,% If so, 0hether the Court has ac+uire$ Curis$iction over the persons of P(*T an$
its foreign stockhol$ers%
I am constraine$ to maintain my $issent to the maCority opinion%
One. To reiterate, the authority to $e"ne an$ interpret the meaning of OcapitalO in
8ection ,,, Article 9II of the ,:54 Constitution belongs, not to the Court, but to
Congress, as part of its policy making po0ers% This matter is a$$resse$ to the soun$
$iscretion of the la0making $epartment of government since the po0er to authorie
an$ control a public utility is a$mitte$ly a prerogative that stems from Congress%
,
It
may very 0ell in its 0is$om $e"ne the limit of foreign o0nership in public utilities%
8ection ,,, Article 9II of the ,:54 Constitution 0hich rea$s@
8ection ,,% >o franchise, certi"cate, or any other form of authoriation for the
operation of a public utility shall be grante$ eBcept to citiens of the Philippines or
to corporations or associations organie$ un$er the la0s of the Philippines, at least
siBty per centum of 0hose capital is o0ne$ by such citiensA nor shall such
franchise, certi"cate, or authoriation be eBclusive in character or for a longer
perio$ than "fty years% >either shall any such franchise or right be grante$ eBcept
un$er the con$ition that it shall be subCect to amen$ment, alteration, or repeal by
the Congress 0hen the common goo$ so re+uires% The 8tate shall encourage e+uity
participation in public utilities by the general public% The participation of foreign
investors in the governing bo$y of any public utility enterprise shall be limite$ to
their proportionate share in its capital, an$ all the eBecutive an$ managing o&cers
of such corporation or association must be citiens of the Philippines%
is one of the constitutional provisions that are not self-eBecuting an$ nee$ su&cient
$etails for a meaningful implementation% 1hile the provision states that no
franchise for the operation of a public utility shall be grante$ to a corporation
organie$ un$er Philippine la0s unless at least .37 of its capital is o0ne$ by
'ilipino citiens, it $oes not provi$e for the meaning of the term Ocapital%O
As 'r% Loa+uin H% Kernas, 8%L% eBplaine$, acting as Amicus Curiae, the result of the
absence of a clear $e"nition of the term Ocapital,O 0as to base the .3-63 proportion
on the total outstan$ing capital stock, that is, the combine$ total of both common
an$ non-voting preferre$ shares% Kut 0hile this has become the popular an$
common un$erstan$ing of the people, it is still incomplete% #e a$$e$ that in the
'oreign Investments Act of ,::, ('IA), Congress trie$ to clarify this un$erstan$ing
by specifying 0hat capital means for the purpose of $etermining corporate
citienship, thus@
8ec% /% *e"nitions% - As use$ in this Act@
a% The term OPhilippine nationalO shall mean a citien of the PhilippinesA of a
$omestic partnership or association 0holly o0ne$ by citiens of the PhilippinesA or a
corporation organie$ un$er the la0s of the Philippines of 0hich at least siBty
percent (.37) of the capital stock outstan$ing an$ entitle$ to vote is o0ne$ an$
hel$ by citiens of the PhilippinesA or a corporation organie$ abroa$ an$ registere$
as $oing business in the Philippines un$er the Corporation Co$e of 0hich one
hun$re$ percent (,337) of the capital stock outstan$ing an$ entitle$ to vote is
0holly o0ne$ by 'ilipinos or a trustee of fun$s for pension or other employee
retirement or separation bene"ts, 0here the trustee is a Philippine national an$ at
least siBty percent (.37) of the fun$ 0ill accrue to the bene"t of Philippine
nationals@ Provi$e$, That 0here a corporation an$ its non-'ilipino stockhol$ers o0n
stocks in a 8ecurities an$ ?Bchange Commission (8?C) registere$ enterprise, at
least siBty percent (.37) of the capital stock outstan$ing an$ entitle$ to vote of
each of both corporations must be o0ne$ an$ hel$ by citiens of the Philippines an$
at least siBty percent (.37) of the members of the Koar$ of *irectors of each of
both corporations must be citiens of the Philippines, in or$er that the corporation,
shall be consi$ere$ a OPhilippine national%O (As amen$e$ by Republic Act 5,4:)
In$ee$, the maCority opinion also resorte$ to the various investment (a0s
-
in
construing the term Ocapital%O Kut 0hile these la0s a$mitte$ly govern foreign
investments in the country, they $o not eBpressly or implie$ly seek to supplant the
ambiguity in the $e"nition of the term OcapitalO nor $o they seek to mo$ify foreign
o0nership limitation in public utilities% It is a rule that 0hen the operation of the
statute is limite$, the la0 shoul$ receive a restricte$ construction%
/
!ore particularly, much $iscussion 0as ma$e on the 'IA since it 0as enacte$ after
the ,:54 Constitution took eQect% Set it $oes not seem to be a supplementary or
enabling legislation 0hich accurately $e"nes the term Ocapital%O
'or one, it speci"cally applies only to companies 0hich inten$ to invest in certain
areas of investment% It $oes not apply to companies 0hich inten$ to apply for a
franchise, much less to those 0hich are alrea$y enCoying their franchise% It aims Oto
attract, promote or 0elcome pro$uctive investments from foreign in$ivi$uals,
partnerships, corporations an$ government, inclu$ing their political sub$ivisions, in
activities 0hich signi"cantly contribute to national in$ustrialiation an$ socio-
economic $evelopment%O
6
1hat the 'IA provi$es are ne0 rules for investing in the
country%
!oreover, 0ith its a$option of the $e"nition of the term OPhilippine national,O has
the previous un$erstan$ing that the term OcapitalO referre$ to the total outstan$ing
capital stock, as 'r% Kernas eBplaine$, been supplante$ or mo$i"e$= 1hile it is clear
that the term OPhilippine nationalO shall mean a corporation organie$ un$er
Philippine la0s at least .37 of the capital stock outstan$ing an$ entitle$ to vote is
o0ne$ an$ hel$ by 'ilipino citiens Bas $se* in he FIA,B it is not evi$ent 0hether
Congress inten$e$ this $e"nition to be use$ in all other cases 0here the term
OcapitalO presents itself as an issue%
T,o. Hranting that it is the Court, an$ not Congress, 0hich must $e"ne the
meaning of Ocapital,O I submit that it must be interprete$ to encompass the entirety
of a corporation2s outstan$ing capital stock (both common an$ preferre$ shares,
voting or non-voting)%
-irst, the term OcapitalO is also use$ in the fourth sentence of 8ection ,,, Article 9II,
as follo0s@
8ection ,,% BBB The participation of foreign investors in the governing bo$y of any
public utility enterprise shall be limite$ to their proportionate share in its capital,
an$ all the eBecutive an$ managing o&cers of such corporation or association must
be citiens of the Philippines%
If the term OcapitalO as use$ in the "rst sentence is interprete$ as pertaining only to
shares of stock 0ith the right to vote in the election of $irectors, then such sentence
0ill alrea$y prescribe the limit of foreign participation in the election of the boar$ of
$irectors% Fn the basis of the "rst sentence alone, the capacity of foreign
stockhol$ers to elect the $irectors 0ill alrea$y be limite$ by their o0nership of 637
of the voting shares% This 0ill then ren$er the fourth sentence meaningless an$ 0ill
run counter to the principle that the provisions of the Constitution shoul$ be rea$ in
consonance 0ith its other relate$ provisions%
Second, *r% Kernar$o !% Nillegas, also an Amicus Curiae, 0ho 0as the Chairman of
the Committee on the >ational ?conomy that $rafte$ Article 9II of the ,:54
Constitution, emphasie$ that by employing the term Ocapital,O the ,:54
Constitution itself $i$ not $istinguish among classes of shares%
*uring their Committee meetings, *r% Nillegas eBplaine$ that in both economic an$
business terms, the term OcapitalO foun$ in the balance sheet of any corporation
al0ays meant the entire capital stock, both common an$ preferre$% #e a$$e$ that
even the non-voting shares in a corporation have a great inPuence in its maCor
$ecisions such as@ (,) the amen$ment of the articles of incorporationA (-) the
a$option an$ amen$ment of by-la0sA (/) the sale, lease, eBchange, mortgage,
ple$ge or other $isposition of all or substantially all of the corporate propertyA (6)
incurring, creating or increasing bon$e$ in$ebte$nessA (I) the increase or $ecrease
of capital stockA (.) the merger or consoli$ation of the corporation 0ith another
corporation or other corporationsA (4) the investment of corporate fun$s in another
corporation or business in accor$ance 0ith this Co$eA an$ (5) the $issolution of the
corporation%
Thus, the Committee $ecisively reCecte$ in the en$ the proposal of the GP (a0
Center to $e"ne the term OcapitalO as voting stock or controlling interest% To +uote
*r% Nillegas, Oin the min$s of the Commissioners the 0or$ Tcapital2 in 8ection ,, of
Article 9II refers, not to voting stock, but to total subscribe$ capital, both common
an$ preferre$%O
'inally, *r% Nillegas observe$ that our eBisting policy on foreign o0nership in public
utilities alrea$y $iscourages, as it is, foreign investments to come in% To impose
a$$itional restrictions, such as the restrictive interpretation of the term Ocapital,O
0ill only aggravate our alrea$y slo0 economic gro0th an$ incapacity to compete
0ith our ?ast Asian neighbours%
The Court can simply a$opt the interpretations given by 'r% Kernas an$ *r% Nillegas
since they 0ere both part of the Constitutional Commission that $rafte$ the ,:54
Constitution% >o one is in a better position to $etermine the intent of the framers of
the +uestione$ provision than they are% 'urthermore, their interpretations also
coinci$e 0ith the long-stan$ing practice to base the .3-63 proportion on the total
outstan$ing capital stock, that is, both common an$ preferre$ shares%
'or sure, both common an$ preferre$ shares have al0ays been consi$ere$ part of
the corporation2s capital stock% Its sharehol$ers are no $iQerent from or$inary
investors 0ho take on the same investment risks% They participate in the same
venture, 0illing to share in the pro"ts an$ losses of the enterprise% Gn$er the
$octrine of e+uality of shares W all stocks issue$ by the corporation are presume$
e+ual 0ith the same privileges an$ liabilities, provi$e$ that the Articles of
Incorporation is silent on such $iQerences%
I
As a "nal note, the 'ilipiniation of public utilities un$er the ,:54 Constitution is a
recognition of the very strategic position of public utilities both in the national
economy an$ for national security%
.
The participation of foreign capital is enCoine$
since the establishment an$ operation of public utilities may re+uire the investment
of substantial capital 0hich 'ilipino citiens may not aQor$% Kut at the same time,
foreign involvement is limite$ to prevent them from assuming control of public
utilities 0hich may be inimical to national interest%
4
8ection ,,, Article 9II of the
,:54 Constitution alrea$y provi$es three limitations on foreign participation in
public utilities% The Court nee$ not a$$ more by further restricting the meaning of
the term MMcapitalO 0hen none 0as inten$e$ by the Pamers of the ,:54 Constitution%
Kase$ on these consi$erations, I vote to GRANT the motions for reconsi$eration%
RO6ERTO A. A6AD
Associate Lustice
Foonoes
,
-rancisco, ?r% % Toll .egulatory +oard, H%R% >o% ,..:,3, Fctober ,:, -3,3, .//
8CRA 643, 6::%
-
These la0s inclu$e the Investment Incentives Act of ,:.4, the 'oreign Kusiness
Regulations Act of ,:.5, the Fmnibus Investments Co$e of ,:5,, the Fmnibus
Investments Co$e of ,:54, an$ the 'oreign Investments Act of ,::,%
/
#okin, ?r% % Commission on 8lections, H%R% >os% ,4:6/,-/- R ,5366/, Lune --,
-3,3, .-, 8CRA /5I, 6,3%
6
8ection -, 'oreign Investments Act of ,::,%
I
Commissioner of Internal .eenue % Court of Appeals, H%R% >o% ,35I4., Lanuary
-3, ,:::, /3, 8CRA ,I-, ,54%
.
K?R>A8, LFAZGI> H%, 'FR?IH> R?(ATIF>8 I> CF>8TITGTIF>A( (A1, ,::I ?$%, p%
54 citing Smith, +ell and Co% % 0atiidad, 63 Phil ,/., ,65 ( ,:,:)A #u*on
Steedoring Corponaion Anti'$ummy +oard, 6. 8CRA 646, 6:3 ( ,:4-)A *? (?F>,
#?CTFR8%, P#I(IPPI>? CF>8TITGTIF>A( (A1 (Principles an$ Cases), -336 ?$%, Nol%
-, p% :63%
4
*? (?F>, #?CTFR 8%, P#I(IPPI>? CF>8TITGTIF>A( (A1 (Principles an$ CasYs),
-33@, ic@L , Nol% -, p%
*igest
I. THE FACTS
T)is is a *etition to n%lli+y t)e sale o+ s)ares o+ stoc, o+ P)ili**ine Telecomm%nications
Investment -or*oration .PTI-/ by t)e government o+ t)e Re*%blic o+ t)e P)ili**ines, acting t)ro%g)
t)e Inter01gency Privati2ation -o%ncil .IP-/, to Metro Paci+ic 1ssets 3ol4ings, Inc. .MP13/, an
a++iliate o+ First Paci+ic -om*any 5imite4 .First Paci+ic/, a 3ong 6ong0base4 investment management
an4 )ol4ing com*any an4 a s)are)ol4er o+ t)e P)ili**ine 5ong Distance Tele*)one -om*any
.P5DT/.
T)e *etitioner 7%estione4 t)e sale on t)e gro%n4 t)at it also involve4 an in4irect sale o+ 1&
million s)ares .or abo%t !.8 *ercent o+ t)e o%tstan4ing common s)ares/ o+ P5DT o9ne4 by PTI- to
First Paci+ic. Wit) t)e t)is sale, First Paci+ic:s common s)are)ol4ings in P5DT increase4 +rom 8(.
*ercent to 8 *ercent, t)ereby increasing t)e total common s)are)ol4ings o+ +oreigners in P5DT to
abo%t '1.;<. T)is, accor4ing to t)e *etitioner, violates Section 11, 1rticle =II o+ t)e 1#' P)ili**ine
-onstit%tion 9)ic) limits +oreign o9ners)i* o+ t)e ca*ital o+ a *%blic %tility to not more t)an ;(<.
II. THE ISS(E
Does t)e term Bca*italC in Section 11, 1rticle =II o+ t)e -onstit%tion re+er to t)e total common
s)ares only, or to t)e total o%tstan4ing ca*ital stoc, .combine4 total o+ common an4 non0voting
*re+erre4 s)ares/ o+ P5DT, a *%blic %tilityD
III. THE R()IN*
[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 ote in the election of directors of a pu!lic
utility, or in the instant case, to the total common shares of #$%T"&
Section 11, 1rticle =II .National Economy an4 Patrimony/ o+ t)e 1#' -onstit%tion man4ates
t)e Fili*ini2ation o+ *%blic %tilities, to 9it>
Section 11. No franchise, certificate, or any other form of authoriation for the o!eration of
a !u"#ic uti#ity sha## "e $rante% e&ce!t to citiens of the Phi#i!!ines or to cor!orations or
associations or$anie% un%er the #a's of the Phi#i!!ines, at #east si&ty !er centum of 'hose
ca!ita# is o'ne% "y such citiens? nor s)all s%c) +ranc)ise, certi+icate, or a%t)ori2ation be e@cl%sive in
c)aracter or +or a longer *erio4 t)an +i+ty years. Neit)er s)all any s%c) +ranc)ise or rig)t be grante4
e@ce*t %n4er t)e con4ition t)at it s)all be s%bAect to amen4ment, alteration, or re*eal by t)e -ongress
9)en t)e common goo4 so re7%ires. T)e State s)all enco%rage e7%ity *artici*ation in *%blic %tilities by
t)e general *%blic. T)e *artici*ation o+ +oreign investors in t)e governing bo4y o+ any *%blic %tility
enter*rise s)all be limite4 to t)eir *ro*ortionate s)are in its ca*ital, an4 all t)e e@ec%tive an4 managing
o++icers o+ s%c) cor*oration or association m%st be citi2ens o+ t)e P)ili**ines. .Em*)asis s%**lie4/
T)e term Bca*italC in Section 11, 1rticle =II o+ t)e -onstit%tion re+ers only to s)ares o+ stoc,
entitle4 to vote in t)e election o+ 4irectors, an4 t)%s in t)e *resent case only to common s)ares, an4
not to t)e total o%tstan4ing ca*ital stoc, com*rising bot) common an4 non0voting *re+erre4 s)ares
Go+ P5DTH.
@@@ @@@ @@@
In4is*%tably, one o+ t)e rig)ts o+ a stoc,)ol4er is t)e rig)t to *artici*ate in t)e control or
management o+ t)e cor*oration. T)is is e@ercise4 t)ro%g) )is vote in t)e election o+ 4irectors
beca%se it is t)e boar4 o+ 4irectors t)at controls or manages t)e cor*oration. In t)e absence o+
*rovisions in t)e articles o+ incor*oration 4enying voting rig)ts to *re+erre4 s)ares, *re+erre4 s)ares
)ave t)e same voting rig)ts as common s)ares. 3o9ever, *re+erre4 s)are)ol4ers are o+ten
e@cl%4e4 +rom any control, t)at is, 4e*rive4 o+ t)e rig)t to vote in t)e election o+ 4irectors an4 on
ot)er matters, on t)e t)eory t)at t)e *re+erre4 s)are)ol4ers are merely investors in t)e cor*oration
+or income in t)e same manner as bon4)ol4ers. @@@.
-onsi4ering t)at common s)ares )ave voting rig)ts 9)ic) translate to control, as o**ose4 to
*re+erre4 s)ares 9)ic) %s%ally )ave no voting rig)ts, t)e term Bca*italC in Section 11, 1rticle =II o+
t)e -onstit%tion re+ers only to common s)ares. 3o9ever, i+ t)e *re+erre4 s)ares also )ave t)e rig)t
to vote in t)e election o+ 4irectors, t)en t)e term Bca*italC s)all incl%4e s%c) *re+erre4 s)ares
beca%se t)e rig)t to *artici*ate in t)e control or management o+ t)e cor*oration is e@ercise4 t)ro%g)
t)e rig)t to vote in t)e election o+ 4irectors. In s)ort, t)e term Bca*italC in Section 11, 1rticle =II o+ t)e
-onstit%tion re+ers only to s)ares o+ stoc, t)at can vote in t)e election o+ 4irectors.
@@@ @@@ @@@
Mere legal title is ins%++icient to meet t)e !( *ercent Fili*ino0o9ne4 Bca*italC re7%ire4 in t)e
-onstit%tion. F%ll bene+icial o9ners)i* o+ !( *ercent o+ t)e o%tstan4ing ca*ital stoc,, co%*le4 9it) !(
*ercent o+ t)e voting rig)ts, is re7%ire4. T)e legal an4 bene+icial o9ners)i* o+ !( *ercent o+ t)e
o%tstan4ing ca*ital stoc, m%st rest in t)e )an4s o+ Fili*ino nationals in accor4ance 9it) t)e
constit%tional man4ate. Et)er9ise, t)e cor*oration is Bconsi4ere4 as non0P)ili**ine nationalGsH.C
@@@ @@@ @@@
To constr%e broa4ly t)e term Bca*italC as t)e total o%tstan4ing ca*ital stoc,, incl%4ing bot)
common an4 non'oting *re+erre4 s)ares, grossly contravenes t)e intent an4 letter o+ t)e
-onstit%tion t)at t)e BState s)all 4evelo* a sel+0reliant an4 in4e*en4ent national economy effectiely
controlled by Fili*inos.C 1 broa4 4e+inition %nA%sti+iably 4isregar4s 9)o o9ns t)e all0im*ortant voting
stoc,, 9)ic) necessarily e7%ates to control o+ t)e *%blic %tility.
We s)all ill%strate t)e glaring anomaly in giving a broa4 4e+inition to t)e term Bca*ital.C 5et %s
ass%me t)at a cor*oration )as 1(( common s)ares o9ne4 by +oreigners an4 1,(((,((( non0voting
*re+erre4 s)ares o9ne4 by Fili*inos, 9it) bot) classes o+ s)are )aving a *ar val%e o+ one *eso
.P1.((/ *er s)are. In4er t)e broa4 4e+inition o+ t)e term Bca*ital,C s%c) cor*oration 9o%l4 be
consi4ere4 com*liant 9it) t)e ;( *ercent constit%tional limit on +oreign e7%ity o+ *%blic %tilities since
t)e over9)elming maAority, or more t)an ##.### *ercent, o+ t)e total o%tstan4ing ca*ital stoc, is
Fili*ino o9ne4. T)is is obvio%sly abs%r4.
In t)e e@am*le given, only t)e +oreigners )ol4ing t)e common s)ares )ave voting rig)ts in
t)e election o+ 4irectors, even i+ t)ey )ol4 only 1(( s)ares. T)e +oreigners, 9it) a min%sc%le e7%ity o+
less t)an (.((1 *ercent, e@ercise control over t)e *%blic %tility. En t)e ot)er )an4, t)e Fili*inos,
)ol4ing more t)an ##.### *ercent o+ t)e e7%ity, cannot vote in t)e election o+ 4irectors an4 )ence,
)ave no control over t)e *%blic %tility. T)is star,ly circ%mvents t)e intent o+ t)e +ramers o+ t)e
-onstit%tion, as 9ell as t)e clear lang%age o+ t)e -onstit%tion, to *lace t)e control o+ *%blic %tilities in
t)e )an4s o+ Fili*inos. It also ren4ers ill%sory t)e State *olicy o+ an in4e*en4ent national
economy effectiely controlled by Fili*inos.
T)e e@am*le given is not t)eoretical b%t can be +o%n4 in t)e real 9orl4, and in fact e(ists in
the present case"
@@@ @@@ @@@
GEHnly )ol4ers o+ common s)ares can vote in t)e election o+ 4irectors Go+ P5DTH, meaning
only common s)are)ol4ers e@ercise control over P5DT. -onversely, )ol4ers o+ *re+erre4 s)ares,
9)o )ave no voting rig)ts in t)e election o+ 4irectors, 4o not )ave any control over P5DT. In +act,
%n4er P5DT:s 1rticles o+ Incor*oration, )ol4ers o+ common s)ares )ave voting rig)ts +or all
*%r*oses, 9)ile )ol4ers o+ *re+erre4 s)ares )ave no voting rig)t +or any *%r*ose 9)atsoever.
It m%st be stresse4, an4 res*on4ents 4o not 4is*%te, t)at +oreigners )ol4 a maAority o+ t)e
common s)ares o+ P5DT. In +act, base4 on P5DT:s &(1( General In+ormation S)eet .GIS/, 9)ic) is a
4oc%ment re7%ire4 to be s%bmitte4 ann%ally to t)e Sec%rities an4 E@c)ange -ommission, +oreigners
)ol4 1&(,(;!,!#( common s)ares o+ P5DT 9)ereas Fili*inos )ol4 only !!,"(,!&& common
s)ares. In ot)er 9or4s, +oreigners )ol4 !;.&< o+ t)e total n%mber o+ P5DT:s common s)ares, 9)ile
Fili*inos )ol4 only 8".8<. Since )ol4ing a maAority o+ t)e common s)ares e7%ates to control, it is
clear t)at +oreigners e@ercise control over P5DT. S%c) amo%nt o+ control %nmista,ably e@cee4s t)e
allo9able ;( *ercent limit on +oreign o9ners)i* o+ *%blic %tilities e@*ressly man4ate4 in Section 11,
1rticle =II o+ t)e -onstit%tion.
1s s)o9n in P5DT:s &(1( GIS, as s%bmitte4 to t)e SE-, t)e *ar val%e o+ P5DT common
s)ares is P".(( *er s)are, 9)ereas t)e *ar val%e o+ *re+erre4 s)ares is P1(.(( *er s)are. In ot)er
9or4s, *re+erre4 s)ares )ave t9ice t)e *ar val%e o+ common s)ares b%t cannot elect 4irectors an4
)ave only 1F( o+ t)e 4ivi4en4s o+ common s)ares. Moreover, ##.;;< o+ t)e *re+erre4 s)ares are
o9ne4 by Fili*inos 9)ile +oreigners o9n only a min%sc%le (."!< o+ t)e *re+erre4 s)ares. Worse,
*re+erre4 s)ares constit%te .'"< o+ t)e a%t)ori2e4 ca*ital stoc, o+ P5DT 9)ile common s)ares
constit%te only &&.1"<. T)is %n4eniably s)o9s t)at bene+icial interest in P5DT is not 9it) t)e non0
voting *re+erre4 s)ares b%t 9it) t)e common s)ares, blatantly violating t)e constit%tional
re7%irement o+ !( *ercent Fili*ino control an4 Fili*ino bene+icial o9ners)i* in a *%blic %tility.
T)e legal an4 bene+icial o9ners)i* o+ !( *ercent o+ t)e o%tstan4ing ca*ital stoc, m%st rest in
t)e )an4s o+ Fili*inos in accor4ance 9it) t)e constit%tional man4ate. F%ll bene+icial o9ners)i* o+ !(
*ercent o+ t)e o%tstan4ing ca*ital stoc,, co%*le4 9it) !( *ercent o+ t)e voting rig)ts, is
constit%tionally re7%ire4 +or t)e State:s grant o+ a%t)ority to o*erate a *%blic %tility. T)e %n4is*%te4
+act t)at t)e P5DT *re+erre4 s)ares, ##.;;< o9ne4 by Fili*inos, are non0voting an4 earn only 1F(
o+ t)e 4ivi4en4s t)at P5DT common s)ares earn, grossly violates t)e constit%tional re7%irement o+
!( *ercent Fili*ino control an4 Fili*ino bene+icial o9ners)i* o+ a *%blic %tility.
In s)ort, Fili*inos )ol4 less t)an !( *ercent o+ t)e voting stoc,, an4 earn less t)an !(
*ercent o+ t)e 4ivi4en4s, o+ P5DT. T)is 4irectly contravenes t)e e@*ress comman4 in Section 11,
1rticle =II o+ t)e -onstit%tion t)at BGnHo +ranc)ise, certi+icate, or any ot)er +orm o+ a%t)ori2ation +or t)e
o*eration o+ a *%blic %tility s)all be grante4 e@ce*t to @ @ @ cor*orations @ @ @ organi2e4 %n4er t)e
la9s o+ t)e P)ili**ines, at least si@ty *er cent%m o+ 9)ose ca*ital is o9ne4 by s%c) citi2ens @ @ @.C
To re*eat, .1/ +oreigners o9n !;.&< o+ t)e common s)ares o+ P5DT, 9)ic) class o+ s)ares
e@ercises t)e sole rig)t to vote in t)e election o+ 4irectors, an4 t)%s e@ercise control over P5DT? .&/
Fili*inos o9n only 8".8< o+ P5DT:s common s)ares, constit%ting a minority o+ t)e voting stoc,, an4
t)%s 4o not e@ercise control over P5DT? .8/ *re+erre4 s)ares, ##.;;< o9ne4 by Fili*inos, )ave no
voting rig)ts? .;/ *re+erre4 s)ares earn only 1F( o+ t)e 4ivi4en4s t)at common s)ares earn? ."/
*re+erre4 s)ares )ave t9ice t)e *ar val%e o+ common s)ares? an4 .!/ *re+erre4 s)ares constit%te
.'"< o+ t)e a%t)ori2e4 ca*ital stoc, o+ P5DT an4 common s)ares only &&.1"<. T)is ,in4 o+
o9ners)i* an4 control o+ a *%blic %tility is a moc,ery o+ t)e -onstit%tion.
Inci4entally, t)e +act t)at P5DT common s)ares 9it) a *ar val%e o+ P".(( )ave a c%rrent
stoc, mar,et val%e o+ P&,8&'.(( *er s)are, 9)ile P5DT *re+erre4 s)ares 9it) a *ar val%e o+ P1(.((
*er s)are )ave a c%rrent stoc, mar,et val%e ranging +rom only P1(.#& to P11.(! *er s)are, is a
glaring con+irmation by t)e mar,et t)at control an4 bene+icial o9ners)i* o+ P5DT rest 9it) t)e
common s)ares, not 9it) t)e *re+erre4 s)ares.
@@@ @@@ @@@
1HEREFORE, 9e PART)2 *RANT t)e *etition an4 r%le t)at t)e term Bca*italC in Section
11, 1rticle =II o+ t)e 1#' -onstit%tion re+ers only to s)ares o+ stoc, entitle4 to vote in t)e election o+
4irectors, an4 t)%s in t)e *resent case only to common s)ares, an4 not to t)e total o%tstan4ing
ca*ital stoc, .common an4 non0voting *re+erre4 s)ares/. Res*on4ent -)air*erson o+ t)e Sec%rities
an4 E@c)ange -ommission is DIRECTED to a**ly t)is 4e+inition o+ t)e term Bca*italC in 4etermining
t)e e@tent o+ allo9able +oreign o9ners)i* in res*on4ent P)ili**ine 5ong Distance Tele*)one
-om*any, an4 i+ t)ere is a violation o+ Section 11, 1rticle =II o+ t)e -onstit%tion, to im*ose t)e
a**ro*riate sanctions %n4er t)e la9.