A Matter of Legal Philosophy

by

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

August 5, 2011

June 28, 2011

Wilson Gamboa vs. Margarito Teves (G. R. No. 176579)

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Independent Member Board of Advisers since mid-2009

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

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

J. Carpio (Ponente)

J. De Castro

J. Brion

J. Peralta

J. Bersamin

J. Del Castillo

J. Villarama

J. Perez

J. Mendoza

J. Sereno

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

J. Velasco

Chief Justice Corona

J. Abad

Vacant

Vacant

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

 a petition raises matters of transcendental importance, procedural issues pale into insignificance and should be set aside.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

The Court shall confine the resolution of the instant controversy solely on the threshold and purely legal issue of whether the term capital in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and nonvoting preferred shares) of PLDT, a public utility. (bold types in original)
CHIEF JUSTICE ARTEMIO V. PANGANIBAN

the respondent Chairperson of the Securities and Exchange Commission to investigate PLDT and to sanction it in case it violated the Constitution. But neither the SEC nor PLDT was a respondent in the case.
RESPONDENTS Chair Fe Barin Securities and Exchange Commission President Napoleon Nazareno Philippine Long Distance Telephone Company

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

DEPARTMENT OF JUSTICE SECURITIES AND EXCHANGE COMMISSION

the entire capital stock of a corporation including voting and non-voting shares determining the 40 percent allocation to non-Filipinos

road shows sponsored by the government

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Chairman Anthoni Salim of First Pacific Co. Ltd.

Manuel V. Pangilinan in his capacity as managing director of First Pacific Co. Ltd.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

No person shall be deprived of life, liberty or property without due process of law.
Bill of Rights

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Strike, but hear me first!

Themistocles

A law that hears before it condemns, proceeds upon inquiry and renders judgment only after trial.
Daniel Webster

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

1 2 3

Section 11 of Article XII

only Filipino citizens or corporations at least 60 per centum of whose capital is owned by such citizens may operate a public utility such as a telephone company; the participation of foreign investors in the (board of directors) of any public utility enterprise shall be limited to their proportionate share in its capital,

all the executive and managing officers of such corporations must be citizens of the Philippines.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

(a) voting or common shares (b) non-voting or preferred shares

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

capital = voting shares not to the total outstanding capital stock.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

foreign investments in public utilities limited to only 40% of the voting shares

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

 it is the board of directors that controls or manages a corporation.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

to apply this definition of the term capital in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of the Constitution, to impose the appropriate sanctions under the law.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

PHILIPPINE CONSTITUTION

the voting

preferred shares

1935 1973 1987

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Section 11 of Article XII

Under item 2 above, the Constitution already

assures Filipino control because, in electing directors, foreigners can use only 40 percent of the common shares they hold, even if they hold more than that percentage. Hence they will never be in a position to elect majority of the members of the Board of Directors (Filipinos will always control the board) although they (may) actually own less than 50 % of the common shares.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Section 11 of Article XII

all the executive and managing officers of such corporations must be citizens of the Philippines. 13 DIRECTORS OF PLDT
2 Japanese 11 Filipinos

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

In construing the economic provisions of the Constitution, courts should absent grave abuse of discretion - defer to the government, especially the Executive Department. Here, judicial restraint nay, selfrestraint is the better course.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

In litigations involving civil liberties, scales of justice should weigh heavily against the government and in favor of the people, particularly the poor and marginalized

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

If these elective officials fail to deliver on their mandate, they can be held accountable during periodic elections. This is how democracy thrives

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Almost all of the 200 or so nations in the world, including China and other heretofore hermit states, offer them various kinds of incentives to lure them.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

voting or common shares with par value of P5.00 earned P70 in cash dividends in 2009

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

non-voting or preferred shares with par value of P10.00 cash dividends of P1.00 per share

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares (mostly owned by Filipinos) but with the common shares (mostly owned by aliens), blatantly violating the constitutional requirement of 60 percent Filipino beneficial ownership in a public utility In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends of PLDT.(bold types in original
CHIEF JUSTICE ARTEMIO V. PANGANIBAN

the PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per share, while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from P10.92 to P11.06 per share.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Sometimes, a company P11.00 preferred share its high strikesthis or perfects P1.00 oil, basis, preferred On tech products. When 9% this shares the market times of earn three value happens, more shares exponentially common than the common P2,328 while the yields of common share P70.00 grows shares preferred shares 3% remain fixed.
CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Sometimes, a company strikes oil, or perfects its high tech products. When this happens, the market value of common shares exponentially grows while the yields of preferred shares remain fixed.
CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Bill Gates

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

2001
net income = P3.4 billion common shares = P417 (market price)

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

2005
net income = P34 billion

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

2010
net income = P40 billion common shares = P2,554 (market price)

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

In bad times, common shares could collapse and reduce billionaires to paupers, as has happened here in 1997, and in the US in 2008

CHIEF JUSTICE ARTEMIO V. PANGANIBAN

Lehman Brothers Merrill Lynch American International Group (AIG) Washington Mutual

2008
CHIEF JUSTICE ARTEMIO V. PANGANIBAN

But then, thats what business is all about. It is about taking and managing risks, not about legislating profits or promulgating decisions awarding economic benefits. It is not for the fainthearted or for jurists to intrude into unnecessarily and imprudently
CHIEF JUSTICE ARTEMIO V. PANGANIBAN

The most basic rule in a free market economy is that investors share in the profits and other benefits of an enterprise based on the amount they invested and the risk they assumed

Maraming Salamat po.

CHIEF JUSTICE ARTEMIO V. PANGANIBAN