142-GAMBOA vs. TEVES G.R. NO. 176579 June 28, 2011

Gamboa v. Teves G.R. No.
176579 1 of 42
Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 176579 June 28, 2011
WILSON P. GAMBOA, Petitioner,
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA,
AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF
THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN
HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN
MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN
HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON
L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF
THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of
shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the
Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone
Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the
right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE),
an American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT
to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and
Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds
of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415
shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government
(PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC,
were later declared by this Court to be owned by the Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent
of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of
Gamboa v. Teves G.R. No. 176579 2 of 42
the Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently,
the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax)
and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February
2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March
2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a
Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital
stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was
completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT.
With the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates
Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public
utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and
PCGG Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC
held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on
the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the
outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis
Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently
declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC
shares were reconveyed to the Republic of the Philippines in accordance with this Courts decision 4 which became
final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding
common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the
Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published
in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of
P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results
and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles
of Incorporation. First Pacific announced its intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public
hearing on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla
were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the
auction of the governments 111,415 PTIC shares bore due diligence, transparency and conformity with existing
legal procedures; and (b) First Pacifics intended acquisition of the governments 111,415 PTIC shares
resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on
foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding common
shares of PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of
PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of
111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC
shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to
P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs
Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest
bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and
declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the
111,415 PTIC shares would result in an increase in First Pacifics common shareholdings in PLDT from 30.7
percent to 37 percent, and this, combined with Japanese NTT DoCoMos common shareholdings in PLDT, would
result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent
constitutional limit.6 Petitioner asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its
common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign
investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless
telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale,
data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs common
equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the
New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities
breached the constitutional limit of 40 percent ownership as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public
respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific;
and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common
capital stock violates the constitutional limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit
Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the
Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify
the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim
that, as PLDT subscribers, they have a "stake in the outcome of the controversy x x x where the Philippine
Government is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in
violation of the nationality restrictions of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand a
thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this
well-settled principle, 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 non-voting preferred
shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition
for prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent
with the Regional Trial Court and the Court of Appeals. The actions for declaratory relief, 10 injunction, and
annulment of sale are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the
petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain
from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned
sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for
the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, Article XII
of the Constitution has far-reaching implications to the national economy, the Court treats the petition for
declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for
mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case,
which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the
final judgment in the civil case for damages on the tourists dollar deposit with a local bank, the Court declared
Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment
or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court
held that "injustice would result especially to a citizen aggrieved by a foreign guest like accused x x x" that would
"negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of
laws, it is presumed that the lawmaking body intended right and justice to prevail." The Court therefore required
respondents Central Bank of the Philippines, the local bank, and the accused to comply with the writ of execution
issued in the civil case for damages and to release the dollar deposit of the accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural
infirmity of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was
whether the government unlawfully excluded petitioners, who were government employees, from the enjoyment of
rights to which they were entitled under the law. Specifically, the question was: "Are the branches, agencies,
subdivisions, and instrumentalities of the Government, including government owned or controlled corporations
included among the four employers under Presidential Decree No. 851 which are required to pay their employees
x x x a thirteenth (13th) month pay x x x ?" The Constitutional principle involved therein affected all government
employees, clearly justifying a relaxation of the technical rules of procedure, and certainly requiring the
interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue
involved has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to
this rule have been recognized. Thus, where the petition has far-reaching implications and raises questions
that should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII of
the Constitution. He prays that this Court declare that the term "capital" refers to common shares only, and that
such shares constitute "the sole basis in determining foreign equity in a public utility." Petitioner further asks this
Court to declare any ruling inconsistent with such interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications
to the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second
class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective
control of the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire
nation, and to future generations of Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of the
Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same
public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition involved a purely legal question, the Court
declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy of courts. 17
There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of 21 February
2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition, became final on 21
December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue
which is of transcendental importance to the national economy and a fundamental requirement to a faithful
adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the
litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the
Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos."18 Besides, in
the light of vague and confusing positions taken by government agencies on this purely legal issue, present and
future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on
the extent of their participation in the capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for
over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring
fundamental issue and delay again defining the term "capital," which appears not only in Section 11, Article XII of
the Constitution, but also in Section 2, Article XII on co-production and joint venture agreements for the
development of our natural resources,19 in Section 7, Article XII on ownership of private lands, 20 in Section 10,
Article XII on the reservation of certain investments to Filipino citizens, 21 in Section 4(2), Article XIV on the
ownership of educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising
companies.23
Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale,
which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If
the sale indeed violates the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire
consequence directly affecting petitioners interest as a stockholder.
More importantly, there is no question that the instant petition raises matters of transcendental importance to the
public. The fundamental and threshold legal issue in this case, involving the national economy and the economic
welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to
bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance
to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of
mandamus is to obtain the enforcement of a public duty, the people are regarded as the real
parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested
in the execution of the laws, he need not show that he has any legal or special interest in the result
of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on
matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in
connection with the rule that laws in order to be valid and enforceable must be published in the Official
Gazette or otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court
declared that the right they sought to be enforced is a public right recognized by no less than the
fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a
mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general
public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved
under the questioned contract for the development, management and operation of the Manila
International Container Terminal, public interest [was] definitely involved considering the
important role [of the subject contract] . . . in the economic development of the country and the
magnitude of the financial consideration involved. We concluded that, as a consequence, the
disclosure provision in the Constitution would constitute sufficient authority for upholding the
petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the
petitioner has the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of
public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens ; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration,
or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens , nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage
equity participation in public utilities by the general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis
supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:
shall be granted except to citizens of the Philippines or to corporations or other entities organized under the
laws of the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor
shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No
franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis
supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the
Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped
the 1935 Constitutional Convention.25 The 1987 Constitution "provides for the Filipinization of public utilities by
requiring that any form of authorization for the operation of public utilities should be granted only to citizens of
the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens. The provision is [an express] recognition of the sensitive
and vital position of public utilities both in the national economy and for national security." 26 The evident
purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be
inimical to the national interest. 27 This specific provision explicitly reserves to Filipino citizens control of public
utilities, pursuant to an overriding economic goal of the 1987 Constitution: to "conserve and develop our
patrimony"28 and ensure "a self-reliant and independent national economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality
requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted
authority to operate a public utility, at least 60 percent of its "capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, Article
XII of the Constitution refer to common shares or to the total outstanding capital stock (combined total of common
and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common
shares because such shares are entitled to vote and it is through voting that control over a corporation is exercised.
Petitioner posits that the term "capital" in Section 11, Article XII of the Constitution refers to "the ownership of
common capital stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT,
can vote and elect members of the board of directors." It is undisputed that PLDTs non-voting preferred shares are
held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217, 31 issued on 16 June 1973 by then
President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting
preferred shares to pay for the investment cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term
"capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of
PLDT x x x already amounts to at least 63.54% of the total outstanding common stock," which means that
foreigners exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in
public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII of the
Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more
than 40 percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural
infirmities of the petition and the supposed violation of the due process rights of the "affected foreign common
shareholders." Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common
shareholdings of PLDT. Nazareno stressed mainly that the petition "seeks to divest foreign common shareholders
purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over their
shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can
be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.
While Nazareno does not introduce any definition of the term "capital," he states that "among the factual
assertions that need to be established to counter petitioners allegations is the uniform interpretation by
government agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil
Company-Energy Development Corporation or PNOC-EDC) of including both preferred shares and
common shares in "controlling interest" in view of testing compliance with the 40% constitutional limitation
on foreign ownership in public utilities."35
Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of the
Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs
common shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged
violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the
absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the petition;
(4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan
alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares in companies
holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies without any
law requiring them to surrender their shares and also without notice and trial."
Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes no nationality
requirement on the shareholders of the utility company as a condition for keeping their shares in the utility
company." According to him, "Section 11 does not authorize taking one persons property (the shareholders stock
in the utility company) on the basis of another partys alleged failure to satisfy a requirement that is a condition
only for that other partys retention of another piece of property (the utility company being at least 60% Filipino-
owned to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term "capital." In
its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural
defects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of
basis for injunction. The OSG does not present any definition or interpretation of the term "capital" in Section 11,
Article XII of the Constitution. The OSG contends that "the petition actually partakes of a collateral attack on
PLDTs franchise as a public utility," which in effect requires a "full-blown trial where all the parties in interest are
given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock
Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the petition on the following
grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required
all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the
petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of
PLDT, contended that the term "capital" in the 1987 Constitution refers to shares entitled to vote or the common
shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control
is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully
nationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporation
undertaking said activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be
given credence, it would be possible for the ownership structure of a public utility corporation to be divided into
one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts
ruling adopting respondents arguments, the common shares can be owned entirely by foreigners thus creating an
absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utility
corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the
controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of
shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino
citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of
foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the
Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedly
refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how
the stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as
stated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-
quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an
administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot
prevail over the clear intent of the framers of the Constitution.
In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory
for it is the courts that finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y.
Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L.
Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term "capital" in Section 11, Article XII of
the Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporations "capital," without distinction as
to classes of shares. x x x
In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution
was drafted defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term "outstanding capital stock", as used in this Code, means
the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or
not fully or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude
either class of shares, in determining the outstanding capital stock (the "capital") of a corporation. Consequently,
petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding common shares is
without legal basis. The language of the Constitution should be understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is
nothing in the Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the
Petition x x x which supports petitioners view that only common shares should form the basis for computing a
public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code,
and which also has the responsibility of ensuring compliance with the Constitutions foreign equity restrictions as
regards nationalized activities x x x has categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting
preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be
stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of shares which 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 provided for in the articles
of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and
building and loan associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in
the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares
of stock may be issued only with a stated par value. The Board of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That
such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of
such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without
par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided,
further, That the entire consideration received by the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or
legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall
be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of
such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate
act as provided in this Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying voting
rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors
and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for
income in the same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable
shares can be deprived of the right to vote. 46 Common shares cannot be deprived of the right to vote in any
corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders
to vote is invalid.47
Considering that common shares have voting rights which translate to control, as opposed to preferred shares
which usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have the right to vote in the election of directors, then the
term "capital" shall include such preferred shares because the right to participate in the control or management of
the corporation is exercised through the right to vote in the election of directors. In short, the term "capital" in
Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of
directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino
citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional
Commission, "capital" refers to the voting stock or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely,
60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of
a corporation"? Will the Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of
voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be entitled to vote.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling
interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
citizens.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40
percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting
shares. So we can have a situation where the corporation is controlled by foreigners despite being the
minority because they have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not have stocks.
That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation.
Reinforcing this interpretation of the term "capital," as referring to controlling interest or shares entitled to vote, is
the definition of a "Philippine national" in the Foreign Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines
under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in
a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a "Philippine national." (Emphasis
supplied)
In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly
owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which
at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of
the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities
and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding
and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty
percent [60%] of the members of the Board of Directors of each of both corporation must be citizens of the
Philippines, in order that the corporation shall be considered a Philippine national. The control test shall be applied
for this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote
are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-
Philippine nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the " capital" of
which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Section 11, Article
XII of the Constitution is also used in the same context in numerous laws reserving certain areas of investments
to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop a
self-reliant and independent national economy effectively controlled by Filipinos." A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that a
corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of
the term "capital," such corporation would be considered compliant with the 40 percent constitutional limit on
foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise
control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity,
cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents
the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control
of public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs
Articles of Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote
at any meeting of the stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of
stockholders."51
On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors.
PLDTs Articles of Incorporation52 state that "each holder of Common Capital Stock shall have one vote in respect
of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of
Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other
purposes."53
In short, only holders of common shares can vote in the election of directors, meaning only common shareholders
exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of
directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose
whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of
PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS), 54 which is a document required to be
submitted annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares of
PLDT whereas Filipinos hold only 66,750,622 common shares. 56 In other words, foreigners hold 64.27% of the
total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in
Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP58
preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the
common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a measly
P1.00 per share.59 So the preferred shares not only cannot vote in the election of directors, they also have very little
and obviously negligible dividend earning capacity compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per
share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the
par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares.
Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of
the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the
non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos
in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to
operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-
voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the
dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution
that "[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right
to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs
common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the
dividends that common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This
kind of ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of
P2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock
market value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control
and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include both voting and
non-voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to
a clear abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino
citizens, such as the exploitation of natural resources as well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to foreign control what the Constitution has expressly
reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The Court must
perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the
Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos."
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos
specific areas of investment, such as the development of natural resources and ownership of land, educational
institutions and advertising business, is self-executing. There is no need for legislation to implement these self-
executing provisions of the Constitution. The rationale why these constitutional provisions are self-executing was
explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate,
the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are
treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and
practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is,
as it has always been, that
. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . .
Unless the contrary is clearly intended, the provisions of the Constitution should be considered self-
executing, as a contrary rule would give the legislature discretion to determine when, or whether, they shall
be effective. These provisions would be subordinated to the will of the lawmaking body, which could make them
entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief
Justice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future
legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-
executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored and
nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may
give breath to constitutional rights but congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the
rights of a person under custodial investigation, the rights of an accused, and the privilege against self-
incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions
guaranteeing the fundamental rights of life, liberty and the protection of property. The same treatment is accorded
to constitutional provisions forbidding the taking or damaging of property for public use without just
compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the
provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68
this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and
as both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it
should only be the State that should be allowed to intervene and determine what is to be done with the property
subject of the violation. We have said that what the State should do or could do in such matters is a matter of public
policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-
5996, June 27, 1956.) While the legislature has not definitely decided what policy should be followed in cases
of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935
Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of
investments to corporations, at least 60 percent of the "capital" of which is owned by Filipinos, was enforceable. In
short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos
specific areas of investment, like the operation by corporations of public utilities, the exploitation by corporations
of mineral resources, the ownership by corporations of real estate, and the ownership of educational institutions.
All the legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital
constitutional provisions that determine who will effectively control the national economy, Filipinos or foreigners.
This Court cannot allow such an absurd interpretation of the Constitution.
This Court has held that the SEC "has both regulatory and adjudicative functions." 69 Under its regulatory
functions, the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to
perform the same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by
mandamus to hear and decide a possible violation of any law it administers or enforces when it is mandated by law
to investigate such violation.1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the
Articles of Incorporation of any corporation where "the required percentage of ownership of the capital stock
to be owned by citizens of the Philippines has not been complied with as required by existing laws or the
Constitution." Thus, the SEC is the government agency tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This
Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct
the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do
based on the 2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code, 71 the SEC is vested with the "power and function" to
"suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law." The SEC is mandated
under Section 5(d) of the same Code with the "power and function" to "investigate x x x the activities of persons
to ensure compliance" with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against violations of the
nationality requirement prescribed in the Constitution and existing laws. This Court can compel the SEC, in a
petition for declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a
possible violation of Section 11, Article XII of the Constitution in view of the ownership structure of PLDTs
voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT submitted to SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of
the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total outstanding capital stock (common and non-voting
preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply
this definition of the term "capital" in determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.
SO ORDERED.
Corona, C.J., Join the dissent of J. Velasco.
Leonardo-De Castro, Brion, Peralta, Bersamin, Del Castillo, Villarama, Jr., Perez, Mendoza, and Sereno, JJ.,
concur.
Velasco, Jr., J., I dissent. (please see dissenting opinion.)
Abad, J., see my dissenting opinion.
SEPARATE DISSENTING OPINION
VELASCO, JR., J.:
With due respect, I dissent.
A summary of the pertinent facts is as follows:
Philippine Long Distance Telephone Company (PLDT), a Philippine-registered telecommunications firm, was
granted an initial 50-year charter and the right to establish a telephone network by Act No. 3436 on November 28,
1928.1
In 1969, American-owned General Telephone and Electronics Corporation (GTE), a major shareholder of PLDT,
sold 26% of PLDTs equity to Philippine Telecommunications Investment Corporation (PTIC). 2 PTIC was
incorporated on November 9, 1967 and is engaged in the business of investment holdings. It held 26,034,263 of
PLDT shares, or 13.847% of the total outstanding common stocks of PLDT.3
In 1977, Prime Holdings Inc. (PHI) was incorporated and 100% owned by the Conjuangco group. Subsequently,
PHI became the owner of 111,415 shares or 46.125% of PTIC by virtue of three (3) Deeds of Assignment executed
by Ramon Cojuangco and Luis Tirso Rivilla.4
On May 9, 1986, the 111,415 PTIC shares held by PHI were sequestered by the Presidential Commission on Good
Government (PCGG) pursuant to Executive Order No. 1. 5 Later, this Court declared the said shares to be owned by
the Republic of the Philippines.6
In 1999, First Pacific Company Limited (First Pacific), a Bermuda-registered, Hong Kong-based investment firm,
acquired the remaining 54% equity of PTIC.7
Thereafter, the government decided to sell its 46.1% stake in PTIC (equivalent to 6.4% indirect stake in PLDT),
designating the Privatization Council of the Philippine Government as the disposition entity. On December 8, 2006,
a public bidding was held where Singapore-based Parallax Capital Management LP (Parallax) emerged as the
highest bidder with an offer of PhP 25,217,556,000.8
On January 31, 2007, the House of Representatives Committee on Good Government conducted a public hearing
on the particulars of the impending sale. Finance Secretary Margarito Teves, Finance Undersecretary John Sevilla,
PCGG Chairperson Camilo Sabio, Commissioners Narciso Nario and Nick Conti, Securities and Exchange
Commission (SEC) General Counsel Vernette Umali-Paco, Philippine Stock Exchange (PSE) Chairperson Jose
Vitug and President Francisco Ed Lim, Development Bank of the Philippines (DBP) President Reynaldo David and
Director Miguel Romero all attended the hearing.9
In Report No. 2270, the House Committee on Good Government concluded that: (1) the auction of the
governments PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and (2)
First Pacifics intended acquisition of the governments PTIC shares resulting in its 100% ownership in PTIC will
not violate the 40% constitutional limit on foreign ownership of a public utility since PTIC held only 13.847% of
the total outstanding common stocks of PLDT.10
Subsequently, the government informed First Pacific of the results of the bidding and gave it until February 1, 2007
to exercise its right of first refusal as provided under PTICs Articles of Incorporation. Consequently, First Pacific
announced that it would match Parallaxs bid.11 However, First Pacific failed to raise the money for the purchase
by the February 1, 2007 deadline and, instead, yielded the right to PTIC itself. The deadline was then reset to
March 2, 2007.12
On February 14, 2007, First Pacific, through its subsidiary, Metro Pacific Assets Holdings Inc. (MPAH), entered
into a Conditional Sale and Purchase Agreement with the government for the latters 46.1% stake in PTIC at the
price of PhP 25,217,556,000.13 The acquisition was completed on February 28, 2007.
On the same date, Wilson Gamboa (Gamboa) filed the instant petition for prohibition, injunction, declaratory relief
and declaration of nullity of sale of the 111,415 shares of PTIC. He argues that: (1) the consummation of the
impending sale of 111,415 shares to First Pacific violates the constitutional limitation on foreign ownership of a
public utility; (2) respondents committed grave abuse of discretion by allowing the sale of PTIC shares to First
Pacific; (3) respondents have made a complete misrepresentation of the impending sale by saying that it does not
breach the constitutional limitation on foreign ownership of a public utility; and (4) the sale of common shares to
foreigners in excess of 40% of the entire subscribed common capital stock violates the 1987 Philippine
Constitution.14
After a careful examination of the facts and law applicable to the case, I submit that the petition should be
dismissed.
At the outset, it is strikingly clear that the petition suffers from several jurisdictional and procedural defects.
Petitioner Has No Locus Standi
Petitioner Gamboa claims that he filed the petition in his capacity as a "nominal shareholder of PLDT and as [a]
taxpayer."15 However, these claims do not clothe him with the requisite legal standing to bring this suit.
The Rules of Court specifically requires that "[e]very action must be prosecuted or defended in the name of the real
party in interest."16 A real party in interest is defined as the "party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit."
Petitioner has failed to allege any interest in the 111,415 PTIC shares nor in any of the previous purchase contracts
he now seeks to annul. He is neither a shareholder of PTIC nor of First Pacific. Also, he has not alleged that he was
an interested bidder in the governments auction sale of the PTIC shares. Finally, he has not shown how, as a
nominal shareholder of PLDT, he stands to benefit from the annulment of the sale of the 111,415 PTIC shares or of
any of the sales of the PLDT common shares held by foreigners. In fine, petitioner has not shown any real interest
substantial enough to give him the requisite locus standi to question the sale of the governments PTIC shares to
First Pacific.
Likewise, petitioners assertion that he has standing to bring the suit as a "taxpayer" must fail. In Gonzales v.
Narvasa, We discussed that "a taxpayer is deemed to have the standing to raise a constitutional issue when it is
established that public funds have been disbursed in alleged contravention of the law or the Constitution." 17 In this
case, no public funds have been disbursed. In fact, the opposite has happenedthere is an inflow of funds into the
government coffers.
Evidently, petitioner Gamboa has no legal standing to bring the present petition before this Court.
This Court Has No Jurisdiction
Petitioner Gamboa filed four (4) different petitions before this Courtdeclaratory relief, annulment, prohibition
and injunction. However, all of these actions are not within the exclusive and/or original jurisdiction of the
Supreme Court.
Article VII of the 1987 Constitution, particularly Section 5(1), in relation to Sec. 5(5), enumerates the instances
where this Court exercises original jurisdiction:
Article VIII
Section 5. The Supreme Court shall have the following powers:
(1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and over
petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.
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(5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading, practice, and
procedure in all courts, the admission to the practice of law, the integrated bar, and legal assistance to the under-
privileged. Such rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases,
shall be uniform for all courts of the same grade, and shall not diminish, increase, or modify substantive rights.
Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the
Supreme Court.
Accordingly, this Court promulgated the Rules of Court, Sec. 1, Rule 56 of which states:
RULE 56
Original Cases
Section 1. Original cases cognizable. Only petitions for certiorari, prohibition, mandamus, quo warranto, habeas
corpus, disciplinary proceedings against members of the judiciary and attorneys, and cases affecting ambassadors,
other public ministers and consuls may be filed originally in the Supreme Court.
Based on the foregoing provisos, it is patently clear that petitions for declaratory relief, annulment of sale and
injunction do not fall within the exclusive original jurisdiction of this Court.
First, the court with the proper jurisdiction for declaratory relief is the Regional Trial Court (RTC). Sec. 1, Rule 63
of the Rules of Court stresses that an action for declaratory relief is within the exclusive original jurisdiction of the
RTC, viz:
Any person interested under a deed, will, contract or other written instrument, whose rights are affected by a
statute, executive order or regulation, ordinance, or any other governmental regulation may, before breach or
violation thereof, bring an action in the appropriate Regional Trial Court to determine any question of construction
or validity arising, and for a declaration of his rights or duties, thereunder. (Emphasis supplied.)
An action for declaratory relief also requires the following: (1) a justiciable controversy between persons whose
interests are adverse; (2) the party seeking the relief has a legal interest in the controversy; and (3) the issue is ripe
for judicial determination.18 As previously discussed, petitioner lacks any real interest in this action; thus, no
justiciable controversy between adverse interests exists.
Further, the Rules of Court also requires that "[a]ll persons who have or claim any interest which would be affected
by the declaration shall be made parties."19 The failure to implead all persons with a claim or interest in the subject
matter of the petition for declaratory relief is a jurisdictional defect. 20
What is more, an action for declaratory relief requires that it be filed before "the breach or violation of the statute,
deed, contract, etc. to which it refers. Where the law or contract has already been contravened prior to the filing of
an action for declaratory relief, the court can no longer assume jurisdiction over the action." 21 Here, petitioner
himself points out the fact that, using the common stockholding basis, the 40% maximum foreign ownership limit
on PLDT was already violated long before the sale of the PTIC shares by the government. 22 In addition, the sale
itself has already been consummated. This only means that an action for declaratory relief is no longer proper.
Despite this, the ponencia decided to treat the petition for declaratory relief as one for mandamus, citing the rule
that "where the petition has far-reaching implications and raises questions that should be resolved, it may be treated
as one for mandamus."23 However, such rule is not absolute. In Macasiano v. National Housing Authority, 24 the
Court explicitly stated that the exercise of such discretion, whether to treat a petition for declaratory relief as one
for mandamus, presupposes that the petition is otherwise viable or meritorious. As I shall discuss subsequently in
the substantive portion of this opinion, the petition in this case is clearly not viable or meritorious.
Moreover, one of the reasons pointed out by the Court in Macasiono when it refused to treat the petition for
declaratory relief as one for mandamus was that the petitioner lacked the proper standing to file the petition. Thus,
the petition was subsequently dismissed. This is exactly similar to the instant case. As previously explained,
petitioner has no legal standing to bring the present petition before this Court. He failed to show any real interest in
the case substantial enough to give him the required legal standing to question the sale of the PTIC shares of the
government to First Pacific.
Further, a petition for mandamus is premature if there are administrative remedies available to petitioner. 25 Under
the doctrine of primary administrative jurisdiction, "courts cannot or will not determine a controversy where the
issues for resolution demand the exercise of sound administrative discretion requiring the special knowledge,
experience, and services of the administrative tribunal to determine technical and intricate matters of fact. In other
words, if a case is such that its determination requires the expertise, specialized training and knowledge of an
administrative body, relief must first be obtained in an administrative proceeding before resort to the courts is had
even if the matter may well be within their proper jurisdiction." 26 Along with this, the doctrine of exhaustion of
administrative remedies also requires that where an administrative remedy is provided by statute relief must be
sought by exhausting this remedy before the courts will act.27
In the instant case, the power and authority to determine compliance with the Constitution lies with the SEC. Under
Section 17(4) of the Corporation Code, the SEC has the power to approve or reject the Articles of Incorporation of
any corporation where "the required percentage of ownership of the capital stock to be owned by citizens of the
Philippines has not been complied with as required by existing laws or the Constitution." Similarly, under Section 5
of the Securities Regulation Code, the SEC is conferred with the power to suspend or revoke the franchise or
certificate of registration of corporations upon any of the grounds provided by law.28 It bears stressing that the SEC
also has the power to investigate violations of the Securities Regulation Code and its Amended Rules. With this, it
is clear that petitioner failed to invoke the primary jurisdiction of the SEC with respect to this matter.
Additionally, the petition contains numerous questions of fact which is not allowed in a petition for mandamus. 29
Hence, based on the foregoing, a petition for mandamus is evidently improper.
Second, since an action for annulment of sale is an ordinary civil action incapable of pecuniary estimation, 30 it also
falls within the exclusive original jurisdiction of the RTC.31
Lastly, although this Court, the CA, and the RTC have "concurrent jurisdiction to issue writs of certiorari,
prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not give the petitioner
unrestricted freedom of choice of court forum."32 The doctrine of hierarchy of courts dictates that when jurisdiction
is shared concurrently with different courts, the proper suit should first be filed with the lower-ranking court.
Failure to do so is sufficient cause for the dismissal of a petition.33
In Santiago v. Vasquez,34 the Court took the opportunity to explain why the blatant disregard of the hierarchy of
courts is frowned upon, to wit:
x x x We discern in the proceedings in this case a propensity on the part of petitioner, and, for that matter, the same
may be said of a number of litigants who initiate recourses before us, to disregard the hierarchy of courts in our
judicial system by seeking relief directly from this Court despite the fact that the same is available in the lower
courts in the exercise of their original or concurrent jurisdiction, or is even mandated by law to be sought therein.
This practice must be stopped, not only because of the imposition upon the precious time of this Court but also
because of the inevitable and resultant delay, intended or otherwise, in the adjudication of the case which often has
to be remanded or referred to the lower court as the proper forum under the rules of procedure, or as better
equipped to resolve the issues since this Court is not a trier of facts. We, therefore, reiterate the judicial policy that
this Court will not entertain direct resort to it unless the redress desired cannot be obtained in the appropriate courts
or where exceptional and compelling circumstances justify availment of a remedy within and calling for the
exercise of our primary jurisdiction.
In the instant case, petitioner should have filed the petition for injunction and prohibition with the trial courts.
Petitioner failed to show any exceptional or compelling circumstance to justify the exception to the rule of
hierarchy of courts. Thus, absent such justification, the rule must be upheld.
In fact, in Fernandez v. Cojuangco, 35 which also involved a similar issue, questioning the issuance of PLDTs
common shares to Smart and NTTs stockholders on the ground, among others, that such issuance of shares
violated the 40% foreign ownership constitutional restriction for public utilities, this Court issued a Resolution
dismissing the petition filed with it for disregarding the hierarchy of courts.
More importantly, the function of a writ of prohibition is to prevent the performance of an act which is yet to be
done. It is not intended to provide a remedy for acts already performed. 36 The rationale behind this was discussed
in Cabanero v. Torres,37 citing U.S. v. Hoffman,38 viz:
The writ of prohibition, as its name imports, is one which commands the person to whom it is directed not to do
something which, by the suggested to the relator, the court is informed he is about to do. If the thing be already
done, it is manifest the writ of prohibition cannot undo it, for that would require an affirmative act; and the only
effect to a writ of prohibition is to suspend all action, and to prevent any further proceeding in the prohibited
direction.
As previously pointed out, the sale by the government of the PTIC shares had already been completed. Thus, the
Petition for Prohibition has become moot. As a result, this Court has no obligation to entertain the petition.
Finally, it should be noted that the non-joinder of ordinary civil actions with special civil actions is elementary in
remedial law. Sec. 5, Rule 2 of the Rules specifically prohibits the joining of special civil actions or actions
governed by special rules with ordinary civil actions.39 In this case, petitioner violated this basic rule when he
joined several special civil actions, prohibition and declaratory relief, and the ordinary civil actions for annulment
and injunction.
Violation of Due Process
It is a fundamental guarantee in the Constitution that "[n]o person shall be deprived of life, liberty or property
without due process of law."40 Due process has two aspects: substantive and procedural. Substantive due process is
a prohibition of arbitrary laws, while procedural due process is a guarantee of procedural fairness. 41 Here, what
petitioner asks of this Court is a finding of a violation of both substantive and procedural due process.
Sec. 11, Art. XII of the Constitution contemplates of two situations: first, where the applicant of a franchise is a
natural person, he must be a Filipino citizen; and second, where the applicant is a juridical person, 60% of its
capital must be owned by Filipino citizens. In the first scenario, only one person and one property is involved, i.e.,
the Filipino citizen and his or her franchise. In the second, two different property holders and two different
properties are involved, i.e., the public utility company holding its franchise and the shareholders owning the
capital of the utility company. However, in both situations, Sec. 11 imposes a qualification for the retention of
property on just one property holder, the franchise holder, as a condition for keeping his or its franchise. It imposes
no nationality qualification on the shareholders of the utility company as a condition for keeping their shares in the
utility company. Thus, if a utility company or the franchise holder fails to maintain the nationality qualification,
only its franchise should be revoked.
In J.G. Summit Holdings, Inc. v. CA,42 this Court had the chance to rule on a similar set of facts. In that case, We
refused to annul the sale of the governments shares despite the petitioners claim that it would breach the
maximum 40% foreign ownership limit found in the Constitution. According to the Court:
x x x In fact, it can even be said that if the foreign shareholdings of a landholding corporation exceeds 40%, it is
not the foreign stockholders ownership of the shares which is adversely affected but the capacity of the
corporation to own land that is, the corporation becomes disqualified to own land. This finds support under the
basic corporate law principle that the corporation and its stockholders are separate juridical entities. In this vein,
the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the
corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal.
No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the
allowed foreign equity, what the law disqualifies is the corporation from owning land. (Emphasis supplied.)
Certainly, the Court has differentiated the two property owners and their properties. Confusing the two would result
in "an unreasonable curtailment of property rights without due process of law."43
Furthermore, procedural due process requires that before any of the common shares in excess of the 40%
maximum foreign ownership limit can be taken, all the shareholders have to be given notice and a trial should be
held before their shares are taken. This means that petitioner should have impleaded all the foreign natural and
juridical shareholders of PLDT so that they can be heard. The foreign shareholders are considered as an
"indispensable party" or one who:
has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence,
without injuring or affecting that interest[;] a party who has not only an interest in the subject matter of the
controversy, but also has an interest of such nature that a final decree cannot be made without affecting his interest
or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity
and good conscience. It has also been considered that an indispensable party is a person in whose absence there
cannot be a determination between the parties already before the court which is effective, complete, or equitable.
Further, an indispensable party is one who must be included in an action before it may properly go forward.44
At the same time, the Rules of Court explicitly requires the joinder of indispensable parties or "[p]arties in interest
without whom no final determination can be had." 45 This is mandatory. As held in Pepsico, Inc. v. Emerald Pizza,
Inc.,46 their absence renders all actions of the court null and void, viz:
x x x x Their presence is necessary to vest the court with jurisdiction, which is "the authority to hear and determine
a cause, the right to act in a case." Thus, without their presence to a suit or proceeding, judgment of a court cannot
attain real finality. The absence of an indispensable party renders all subsequent actions of the court null and void
for want of authority to act, not only as to the absent parties but even as to those present. (Emphasis supplied.)
In this case, petitioner failed to implead all the indispensable parties. Accordingly, in the absence of such
indispensable parties, this Court is wanting in authority to act or rule on the present petition.
Ultimately, the present petition partakes of a collateral attack on PLDTs franchise as a public utility with petitioner
pleading as ground PLDTs alleged breach of the 40% limit on foreign equity. Such is not allowed. As discussed in
PLDT v. National Telecommunications Commission,47 a franchise is a property right that can only be questioned in
a direct proceeding:
x x x A franchise is a property right and cannot be revoked or forfeited without due process of law. The
determination of the right to the exercise of a franchise, or whether the right to enjoy such privilege has been
forfeited by non-user, is more properly the subject of the prerogative writ of quo warranto, the right to assert
which, as a rule, belongs to the State "upon complaint or otherwise" x x x the reason being that the abuse of a
franchise is a public wrong and not a private injury. A forfeiture of a franchise will have to be declared in a direct
proceeding for the purpose brought by the State because a franchise is granted by law and its unlawful exercise is
primarily a concern of Government.
Hence, due process requires that for the revocation of franchise a petition for quo warranto be filed directly
attacking the franchise itself.
Evidently, the petition is patently flawed and the petitioner availed himself of the wrong remedies. These
jurisdictional and procedural grounds, by themselves, are ample enough to warrant the dismissal of the petition.
Granting arguendo that the petition is sufficient in substance and form, it will still suffer the same fate.
The Proper Definition of "Capital"
Petitioners main substantive issue revolves around the proper definition of the word "capital" found in Section 11,
Article 12 of the Constitution. The said section reads:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of
such corporation or association must be citizens of the Philippines. (Emphasis supplied.)
He argues that the framers of the Constitution intended the word "capital" to be limited to voting shares alone and
not the total outstanding capital stock (combined total of voting and non-voting shares). Specifically, he contends
that the term "capital" refers only to shares of stock that can vote in the election of the members of the Board of
Directors. The question is, is this the proper definition?
The ponencia resolved this in the affirmative and held that the term "capital" only refers to voting shares since
these are the shares that "have voting rights which translate to control" 48, i.e., the right to elect directors who
ultimately control or manage the corporation. Generally, these are referred to as "common" shares. However, he
clarified that if preferred shares also have the right to vote in the election of the members of the Board of Directors,
then the term "capital" shall also include such preferred shares. Further, the ponencia maintains that "mere legal
title is insufficient to meet the required Filipino equity," but that "full beneficial ownership of the stocks coupled
with appropriate voting rights" is required.49
I beg to disagree with the ponencias resolution of this issue for the following reasons:
First, contrary to pronouncement of the ponencia, the intent of the framers of the Constitution was not to limit the
application of the word "capital" to voting or common shares alone. In fact, the Records of the Constitutional
Commission reveal that even though the UP Law Center proposed the phrase "voting stock or controlling interest,"
the framers of the Constitution did not adopt this but instead used the word "capital," viz:
MR. BENGZON. We would also like to indicate that perhaps the better term in order to avoid any conflict or
misinterpretations would be the use of the phrase "capital stock."
MR. NATIVIDAD. Capital stock?
MR. SUAREZ. We will discuss that on the committee level because precisely, there were three criteria that were
submitted. One of them is with reference to the authorized capital stock; the second would be with respect to the
voting rights; and the third would be with respect to the management. And so, again, we would like to inform the
members that the Committee is still trying to polish this particular provision.50
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MR. FOZ. Mr. Vice-President, in Sections 3 and 9, 51 the provision on equity is both 60 percent, but I notice that
this is now different from the provision in the 1973 Constitution in that the basis for the equity provision is voting
stock or controlling interest instead of the usual capital percentage as provided for in the 1973 Constitution. We
would like to know what the difference would be between the previous and the proposed provisions regarding
equity interest.
MR. VILLEGAS. Commissioner Suarez will answer that.
MR. SUAREZ. Thank you.
As a matter of fact, this particular portion is still being reviewed by this Committee. In Section 1, Article XIII of
the 1935 Constitution, the wording is that the percentage should be based on the capital which is owned by such
citizens. In the proposed draft, this phrase was proposed: "voting stock or controlling interest." This was a plan
submitted by the UP Law Center.
Three days ago, we had an early morning breakfast conference with the members of the UP Law Center and
precisely, we were seeking clarification regarding the difference. We would have three criteria to go by: One would
be based on capital, which is capital stock of the corporation, authorized, subscribed or paid up, as employed under
the 1935 and the 1973 Constitution. The idea behind the introduction of the phrase "voting stock or controlling
interest" was precisely to avoid the perpetration of dummies, Filipino dummies of multinationals. It is theoretically
possible that a situation may develop where these multinational interests would not really be only 40 percent but
will extend beyond that in the matter of voting because they could enter into what is known as a voting trust or
voting agreement with the rest of the stockholders and, therefore, notwithstanding the fact that on record their
capital extent is only up to 40-percent interest in the corporation, actually, they would be managing and controlling
the entire company. That is why the UP Law Center members suggested that we utilize the words "voting interest"
which would preclude multinational control in the matter of voting, independent of the capital structure of the
corporation. And then they also added the phrase "controlling interest" which up to now they have not been able to
successfully define the exact meaning of. x x x And as far as I am concerned, I am not speaking in behalf of the
Committee, I would feel more comfortable if we go back to the wording of the 1935 and the 1973 Constitution,
that is to say, the 60-40 percentage could be based on the capital stock of the corporation.
MR. FOZ. I understand that that was the same view of Dean Carale who does not agree with the other on this panel
at the UP Law Center regarding the percentage of the ratio.
MR. Suarez. That is right. Dean Carale shares my sentiment about this matter.
MR. BENGZON. I also share the sentiment of Commissioner Suarez in that respect. So there are already two in the
Committee who want to go back to the wording of the 1935 and the 1973 Constitution.52
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MR. TREAS. Madam President, may I propose an amendment on line 14 of Section 3 by deleting therefrom
"whose voting stock and controlling interest." And in lieu thereof, insert the CAPITAL so the line should read:
"associations at least sixty percent of the CAPITAL is owned by such citizens.
MR. VILLEGAS. We accept the amendment.
MR. TREAS. Thank you.
THE PRESIDENT. The amendment of Commissioner Treas on line 14 has been accepted by the Committee.
Is there any objection? (Silence) The Chair hears none; the amendment is approved.53
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MR. VILLEGAS. Yes, Commissioner Davide has accepted the word "CAPITAL" in place of "voting stock or
controlling interest." This is an amendment already accepted by the Committee.54 x x x x
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MR. NOLLEDO. Thank you, Madam President.
I would like to propound some questions to the chairman and members of the committee. I have here a copy of the
approved provisions on Article on the National Economy and Patrimony. On page 2, the first two lines are with
respect to the Filipino and foreign equity and I said: "At least sixty percent of whose capital or controlling interest
is owned by such citizen."
I notice that this provision was amended by Commissioner Davide by changing "voting stocks" to "CAPITAL," but
I still notice that there appears the term "controlling interest" which seems to refer to associations other than
corporations and it is merely 50 percent plus one percent which is less than 60 percent. Besides, the wordings may
indicate that the 60 percent may be based not only on capital but also on controlling interest; it could mean 60
percent or 51 percent.
Before I propound the final question, I would like to make a comment in relation to Section 15 since they are
related to each other. I notice that in Section 15, there still appears the phrase "voting stock or controlling interest."
The term "voting stocks" as the basis of the Filipino equity means that if 60 percent of the voting stocks belong to
Filipinos, foreigners may not own more than 40 percent of the capital as long as the 40 percent or the excess
thereof will cover nonvoting stock. This is aside from the fact that under the Corporation Code, even nonvoting
shares can vote on certain instances. Control over investments may cover aspects of management and participation
in the fruits of production or exploitation.
So, I hope the committee will consider favorably my recommendation that instead of using "controlling interests,"
we just use "CAPITAL" uniformly in cases where foreign equity is permitted by law, because the purpose is really
to help the Filipinos in the exploitation of natural resources and in the operation of public utilities. I know the
committee, at its own instance, can make the amendment.
What does the committee say?
MR. VILLEGAS. We completely agree with the Commissioners views. Actually, it was really an oversight. We
did decide on the word "CAPITAL." I think it was the opinion of the majority that the phrase "controlling interest"
is ambiguous.
So, we do accept the Commissioners proposal to eliminate the phrase "or controlling interest" in all the provisions
that talk about foreign participation. (Emphasis supplied.)
MR. NOLLEDO. Not only in Section 3, but also with respect to Section 15.
Thank you very much.55
Undoubtedly, the framers of the Constitution decided to use the word "capital" in all provisions that talk about
foreign participation and intentionally left out the phrase "voting stocks" or "controlling interest." Cassus Omissus
Pro Omisso Habendus Esta person, object or thing omitted must have been omitted intentionally. In this case, the
intention of the framers of the Constitution is very clearto omit the phrases "voting stock" and "controlling
interest."
Evidently, the framers of the Constitution were more comfortable with going back to the wording of the 1935 and
1973 Constitutions, which is to use the 60-40 percentage for the basis of the capital stock of the corporation.
Additionally, the phrases "voting stock or controlling interest" were also initially used in Secs. 2 56 and 10,57 Article
XII of the 1987 Constitution. These provisions involve the development of natural resources and certain
investments. However, after much debate, they were also replaced with the word "capital" alone. All of these were
very evident in the aforementioned deliberations.
Much more significant is the fact that a comprehensive examination of the constitutional deliberations in their
entirety will reveal that the framers of the Constitution themselves understood that the word capital includes both
voting and non-voting shares and still decided to use "capital" alone, to wit:
interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
citizens?
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MR. AZCUNA. Yes, but what I mean is that the control should be with the Filipinos.
MR. BENGZON. Yes, that is understood.
MR. AZCUNA. Yes, because if we just say "sixty percent of whose capital is owned by the Filipinos," the capital
may be voting or non-voting.
MR. BENGZON. That is correct.58
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MR. GARCIA. Thank you very much, Madam President.
I would like to propose the following amendment on Section 3, line 14 on page 2. I propose to change the word
"sixty" to SEVENTY-FIVE. So, this will read: "or it may enter into co-production, joint venture, production
sharing agreements with Filipino citizens or corporations or associations at least SEVENTY-FIVE percent of
whose CAPITAL stock or controlling interest is owned by such citizens."
MR. VILLEGAS. This is just a correction. I think Commissioner Azcuna is not insisting on the retention of the
phrase "controlling interest," so we will retain "CAPITAL" to go back really to the 1935 and 1973 formulations. 59
(Emphasis supplied.)
To emphasize, by using the word "capital," the framers of the Constitution adopted the definition or interpretation
that includes all types of shares, whether voting or non-voting.
The fundamental principle in the construction of constitutional provisions is "to give the intent to the framers of the
organic law and the people adopting it. The intention to which force is to be given is that which is embodied and
expressed in the constitutional provisions themselves." 60 Generally, "in construing constitutional provisions which
are ambiguous or of doubtful meaning, the courts may consider the debates in the constitutional convention as
throwing light on the intent of the framers of the Constitution. It is true that the intent of the convention is not
controlling by itself, but as its proceeding was preliminary to the adoption by the people of the Constitution the
understanding of the convention as to what was meant by the terms of the constitutional provision which was the
subject of the deliberation, goes a long way toward explaining the understanding of the people when they ratified
it."61
Second, the ponencia also points to the provisions of the Foreign Investments Act of 1991 (FIA),62 as a
reinforcement of the interpretation of the word "capital" as only referring to those shares entitled to vote. However,
a careful examination of its provisions would reveal otherwise.
Section 3(a) of the FIA, as amended, defines the term "Philippine national" as:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; of a domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which
at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a "Philippine national." (Emphasis
supplied.)
The ponencia failed to see the fact that the FIA specifically has the phrase "entitled to vote" after the phrase "total
outstanding capital stock." Logically, this means that interpreting the phrase "total outstanding capital stock" alone
connotes the inclusion of all types of shares under the term "capital" and not just those that are entitled to vote. By
adding the phrase "entitled to vote," the FIA sought to distinguish between the shares that can vote and those that
cannot. Thus, it is very clear that even the FIA itself supports the definition of the term "capital" as including all
types of shares.
As a matter of fact, in the Senate deliberations of the FIA, Senator Angara pointed out that the word "capital," as
used in the 1987 Constitution, includes all types of shares:
Senator Angara. x x x x
Before I leave that point, Mr. President, as we know, the constitutional test is capital. That means, equity
investment, not control. Would this control test then now become an additional requirement to the constitutional
requirement?
Senator Paterno. Well, this is an amplification of the constitutional stipulation, Mr. President. It is a definition, by
law, of what is contained in the Constitution.
Senator Angara. No, Mr. President, because the Constitution requires 60 percent of capital. That means, whether
voting or nonvoting, 60 percent of that must belong to Filipinos. Whereas, under this proposed definition, it is only
the voting shares that we require to be 60 percent owned.
Senator Paterno. Yes.
Senator Angara. So, my question is: Would this requirement of control be in addition to what the Constitution
imposes?
Senator Paterno. No, this would be the definition of what the Constitution requires. We are saying that it is the
capital stock outstanding and entitled to vote. It is the definition of capital as maintained by the Constitution.
Senator Angara. On the contrary, I am saying that the constitutional test is capital, which is distinguished from
capital stock entitled to vote. Capital means equity which can be voting or nonvoting, common or preferred. That is
the constitutional test.63 x x x (Emphasis supplied.)
Moreover, it is a well-settled rule of statutory construction that a statute should be construed whenever possible in a
manner that will avoid conflict with the Constitution. 64 Where a statute is reasonably susceptible of two
constructions, one constitutional and the other unconstitutional, the construction in favor of its constitutionality
should be adopted.
In this case, the FIA should be read in harmony with the Constitution. Since the Constitution only provides for a
single requirement for the operation of a public utility under Sec. 11, i.e., 60% capital must be Filipino-owned, a
mere statute cannot add another requirement. Otherwise, such statute may be considered unconstitutional.
Accordingly, the phrase "entitled to vote" should not be interpreted to be limited to common shares alone or those
shares entitled to vote in the election of members of the Board of Directors. It should also include those deemed
non-voting because they also have voting rights. Sec. 6 of the Corporation Code 65 grants voting rights to holders of
shares of a corporation on certain key fundamental corporate matters despite being classified as non-voting in the
articles of incorporation. These are:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
Clearly, the shares classified as non-voting are also entitled to vote under these circumstances.
In fact, the FIA did not say "entitled to vote in the management affairs of the corporation" or "entitled to vote in the
election of the members of the Board of Directors." Verily, where the law does not distinguish, neither should We.
Hence, the proper interpretation of the phrase "entitled to vote" under the FIA should be that it applies to all shares,
whether classified as voting or non-voting shares. Such construction is in fact in harmony with the fundamental law
of the land.
Stockholders, whether holding voting or non-voting stocks, have all the rights, powers and privileges of ownership
over their stocks. This necessarily includes the right to vote because such is inherent in and incidental to the
ownership of corporate stocks, and as such is a property right.66
Additionally, control is another inherent right of ownership.67 The circumstances enumerated in Sec. 6 of the
Corporation Code clearly evince this. It gives voting rights to the stocks deemed as non-voting as to fundamental
and major corporate changes. Thus, the issue should not only dwell on the daily management affairs of the
corporation but also on the equally important fundamental changes that may need to be voted on. On this, the "non-
voting" shares also exercise control, together with the voting shares.
Consequently, the fact that only holders of common shares can elect a corporations board of directors does not
mean that only such holders exercise control over the corporation. Particularly, the control exercised by the board
of directors over the corporation, by virtue of the corporate entity doctrine, is totally distinct from the corporations
stockholders and any power stockholders have over the corporation as owners.
It is settled that when the activity or business of a corporation falls within any of the partly nationalized provisions
of the Constitution or a special law, the "control test" must also be applied to determine the nationality of a
corporation on the basis of the nationality of the stockholders who control its equity.
The control test was laid down by the Department of Justice (DOJ) in its Opinion No. 18 dated January 19, 1989. It
determines the nationality of a corporation with alien equity based on the percentage of capital owned by Filipino
citizens. It reads:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered as Philippine nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60% only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality.68
In a catena of opinions, the SEC, "the government agency tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities," 69 has
consistently applied the control test.70
The FIA likewise adheres to the control test. This intent is evident in the May 21, 1991 deliberations of the
Bicameral Conference Committee (Committees on Economic Affairs of the Senate and House of Representatives),
to wit:
CHAIRMAN TEVES. x x x On definition of terms, Ronnie, would you like anything to say here on the definition
of terms of Philippine national?
HON. RONALDO B. ZAMORA. I think weve we have already agreed that we are adopting here the control
test. Wasnt that the result of the
CHAIRMAN PATERNO. No. I thought that at the last meeting, I have made it clear that the Senate was not able to
make a decision for or against the grandfather rule and the control test, because we had gone into caucus and we
had voted but later on the agreement was rebutted and so we had to go back to adopting the wording in the present
law which is not clearly, by its language, a control test formulation.
HON. ANGARA. Well, I dont know. Maybe I was absent, Ting, when that happened but my recollection is that we
went into caucus, we debated [the] pros and cons of the control versus the grandfather rule and by actual vote the
control test bloc won. I dont know when subsequent rejection took place, but anyway even if the we are
adopting the present language of the law I think by interpretation, administrative interpretation, while there may be
some differences at the beginning, the current interpretation of this is the control test. It amounts to the control test.
CHAIRMAN TEVES. Thats what I understood, that we could manifest our decision on the control test formula
even if we adopt the wordings here by the Senate version.
xxxx
CHAIRMAN PATERNO. The most we can do is to say that we have explained is to say that although the House
Panel wanted to adopt language which would make clear that the control test is the guiding philosophy in the
definition of [a] Philippine national, we explained to them the situation in the Senate and said that we would be
was asked them to adopt the present wording of the law cognizant of the fact that the present administrative
interpretation is the control test interpretation. But, you know, we cannot go beyond that.71
interest."
This intent is even more apparent in the Implementing Rules and Regulations (IRR) of the FIA. In defining a
"Philippine national," Section 1(b) of the IRR of the FIA categorically states that for the purposes of determining
the nationality of a corporation the control test should be applied.72
The cardinal rule in the interpretation of laws is to ascertain and give effect to the intention of the legislator. 73
Therefore, the legislative intent to apply the control test in the determination of nationality must be given effect.
Significantly, in applying the control test, the SEC has consistently ruled that the determination of the nationality of
the corporation must be based on the entire outstanding capital stock, which includes both voting and non-voting
shares. One such ruling can be found in an Opinion dated November 21, 1989 addressed to Atty. Reynaldo G.
Geronimo, to wit:
As to the basis of computation of the 60-40 percentage nationality requirement under existing laws (whether it
should be based on the number of shares or the aggregate amount in pesos of the par value of the shares), the
following definitions of corporate terms are worth mentioning.
"The term capital stock signifies the aggregate of the shares actually subscribed". (11 Fletcher, Cyc. Corps. (1971
Rev. Vol.) sec. 5082, citing Goodnow v. American Writing Paper Co., 73 NJ Eq. 692, 69 A 1014 aff'g 72 NJ Eq.
645, 66 A, 607).
"Capital stock means the capital subscribed (the share capital)". (Ibid., emphasis supplied).
"In its primary sense a share of stock is simply one of the proportionate integers or units, the sum of which
constitutes the capital stock of corporation. (Fletcher, sec. 5083).
The equitable interest of the shareholder in the property of the corporation is represented by the term stock, and the
extent of his interest is described by the term shares. The expression shares of stock when qualified by words
indicating number and ownership expresses the extent of the owner's interest in the corporate property (Ibid, Sec.
5083, emphasis supplied).
Likewise, in all provisions of the Corporation Code the stockholders right to vote and receive dividends is always
determined and based on the "outstanding capital stock", defined as follows:
"SECTION 137. Outstanding capital stock defined. The term "outstanding capital stock" as used in this Code,
means the total shares of stock issued to subscribers or stockholders, whether or not fully or partially paid (as long
as there is a binding subscription agreement, except treasury shares."
The computation, therefore, should be based on the total outstanding capital stock, irrespective of the amount of the
par value of the shares.
Again in SEC Opinion dated December 22, 2004 addressed to Atty. Priscilla B. Valer, the SEC reiterated the
application of the control test to the total outstanding capital stock irrespective of the amount of the par value of
shares, viz:
"Under the control concept, the nationality of the corporation depends on the nationality of the controlling
stockholders. In determining the nationality of a corporation under the control test, the following ruling was
adopted by the Commission:
xxxx
Hence, we confirm your view that the test for compliance with the nationality requirement is based on the total
outstanding capital stock irrespective of the amount of the par value of shares.74 (Emphasis supplied.)
More importantly, the SEC defined "capital" as to include both voting and non-voting in the determination of the
nationality of a corporation, to wit:
In view of the foregoing, it is opined that the term "capital" denotes the sum total of the shares subscribed and paid
by the shareholders, or secured to be paid, irrespective of their nomenclature to be issued by the corporation in the
conduct of its operation. Hence, non-voting preferred shares are considered in the computation of the 60-40%
Filipino-alien equity requirement of certain economic activities under the Constitution.75 (Emphasis supplied.)
In fact, the issue in the present case was already answered by the SEC in its Opinion dated February 15, 1988. The
opinion was issued as an answer to the query"Would it be legal for foreigners to own more than 40% of the
common shares but not more than 40% of the total outstanding capital stock which would include both common
and non-voting preferred shares?" This is exactly the question in this case. The SEC ruled in the affirmative and
stated:
The pertinent provision of the Philippine Constitution under Article XII, Section 7, reads in part thus:
"No franchise, certificate, or any form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines, or to corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens. . ." x x x
The issue raised on your letter zeroes in on the meaning of the word "capital" as used in the above constitutional
provision.
Anent thereto, please be informed that the term "capital" as applied to corporations, refers to the money, property
or means contributed by stockholders as the form or basis for the business or enterprise for which the corporation
was formed and generally implies that such money or property or means have been contributed in payment for
stock issued to the contributors. (United Grocers, Ltd. v. United States F. Supp. 834, cited in 11 Fletcher, Cyc.
Corp., 1986, rev. vol., sec. 5080 at 18). As further ruled by the court, "capital of a corporation is the fund or other
property, actually or potentially in its possession, derived or to be derived from the sale by it of shares of its stock
or his exchange by it for property other than money. This fund includes not only money or other property received
by the corporation for shares of stock but all balances of purchase money, or installments, due the corporation for
shares of stock sold by it, and all unpaid subscriptions for shares." (Williams v. Brownstein, 1F. 2d 470, cited in 11
Fletcher, Cyc. Corp., 1058 rev. vol., sec. 5080, p. 21).
The term "capital" is also used synonymously with the words "capital stock", as meaning the amount subscribed
and paid-in and upon which the corporation is to conduct its operation. (11 Fletcher, Cyc. Corp. 1986, rev. vol., sec.
5080 at 15). And, as held by the court in Haggard v. Lexington Utilities Co., (260 Ky 251, 84 SW 2d 84, cited in 11
Fletcher, Cyc. Corp., 1958 rev. vol., sec. 5079 at 17), "The capital stock of a corporation is the amount paid-in by
its stockholders in money, property or services with which it is to conduct its business, and it is immaterial how the
stock is classified, whether as common or preferred."
The Commission, in a previous opinion, ruled that the term capital denotes the sum total of the shares subscribed
and paid by the shareholders or served to be paid, irrespective of their nomenclature. (Letter to Supreme
Technotronics Corporation, dated April 14, 1987).
Hence, your query is answered in the affirmative.76 (Emphasis supplied.)
This opinion was reiterated in another Opinion dated July 16, 1996 addressed to Mr. Mitsuhiro Otsuki:
Relative to the second issue, "In the absence of special provisions the holders of preferred stock in a corporation
are in precisely the same position, both with respect to the corporation itself and with respect to the creditors of the
corporation, as the holders of common stock, except only that they are entitled to receive dividends on their shares,
to the extent guaranteed or agreed upon, before any dividends can be paid to the holders of common stock. x x x.
Accordingly, as a general rule, they are considered in the computation of the 60-40% Filipino-alien equity
percentage requirement, unless the law covering the type of business to be undertaken provides otherwise.
(Emphasis supplied.)
In Opinion No. 32-03 dated June 2, 2003 addressed to Commissioner Armi Jane R. Borje, the SEC likewise held
that the word "capital" as used in Sec. 11, Art. XII of the 1987 Constitution refers to the entire outstanding capital
stock, regardless of its share classification, viz:
Please note that Article XII, Section 11 of the Philippine Constitution provides:
"No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by such citizens"
The legal capacity of the corporation to acquire franchise, certificate, or authority for the operation of a public
utility is regulated by the aforequoted Constitutional provision, which requires that at least sixty per centum (60%)
of the capital of such corporation be owned by citizens of the Philippines. However, such provision does not
qualify whether the required ownership of "capital" shall be that of the voting or non-voting, common or preferred.
Hence, it should be interpreted to refer to the sum total of the outstanding capital stock, irrespective of the
nomenclature or classification as common, preferred, voting or non-voting. (Emphasis supplied.)
In the same way, the SEC has also adopted the same interpretation of the word "capital" to various laws or statutes
imposing a minimum on Filipino ownership. In an Opinion dated November 11, 1988 addressed to Mr. Nito Doria,
which involved Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, the SEC
stated:
For permitted and permissible investments, the maximum percentage of control allowable to foreign investors is
found in Sections 46 and 47 of the Omnibus Investments Code of 1987, copy enclosed. In relation thereto,
"Outstanding capital stock" refers to the total shares issued to subscribers or stockholders, whether or not fully or
partially paid, except treasury shares. (Section 137, Corporation Code of the Philippines), and it is immaterial how
the stock is classified, whether as common or preferred, (SEC Opinions, dated June 13, 1988, April 14, 1987, and
February 15, 1988).
Again, in an Opinion dated October 16, 1981 addressed to Atty. Jose A. Baez which involved Republic Act No.
1180, otherwise known as the Retail Trade Nationalization Law, the SEC opined that the issuance of preferred
shares to a foreigner will disqualify the corporation from engaging in retail trade, because the law provides that "no
association, partnership, or corporation the capital of which is not wholly owned by citizens of the Philippines,
shall engage directly or indirectly in the retail business."77 The SEC held:
Your client will lose its character of being one hundred percent (100%) Filipino-owned if said Japanese entity is
allowed to subscribe to its preferred shares. The issuance of shares to an alien will reduce the ownership of Filipino
citizens to less than the required percentage based on the outstanding capital stock of the corporation, regardless of
the fact that said shares are non-voting and non-convertible.
Please be advised that under the Retail Trade Nationalization Law (R.A. 1180), "No association, partnership, or
corporation the capital of which is not wholly owned by citizens of the Philippines, shall engage directly or
indirectly in the retail business."
Notably, the foregoing Opinion was rendered before the promulgation of the 1987 Constitution. Thus, it must be
assumed that the framers of the Constitution were aware of the administrative interpretation of the word "capital"
and that they also adhered to the same interpretation when they re-adopted it in the 1987 Constitution from the
1935 and 1973 Constitutions. As held in Laxamana v. Baltazar, "[w]here a statute has received a contemporaneous
and practical interpretation and the statute as interpreted is re-enacted, the practical interpretation is accorded
greater weight than it ordinarily receives, and is regarded as presumptively the correct interpretation of the law. The
rule here is based upon the theory that the legislature is acquainted with the contemporaneous interpretation of a
statute, especially when made by an administrative body or executive officers charged with the duty of
administering or enforcing the law, and therefore impliedly adopts the interpretation upon re-enactment."78
Without a doubt, the SECs definition of the word "capital" has been consistently applied to include the entire
outstanding capital stock of a corporation, irregardless of whether it is common or preferred or voting or non-
voting.
This contemporaneous construction of the SEC is entitled to great respect and weight especially since it is
consistent with the Constitutional Commissions intention to use the term "capital" as applying to all shares,
whether common or preferred. It is well to reiterate the principle of contemporaneous construction and the reason
why it is entitled to great respect, viz:
x x x As far back as In re Allen, (2 Phil. 630) a 1903 decision, Justice McDonough, as ponente, cited this excerpt
from the leading American case of Pennoyer v. McConnaughy, decided in 1891: "The principle that the
contemporaneous construction of a statute by the executive officers of the government, whose duty it is to execute
it, is entitled to great respect, and should ordinarily control the construction of the statute by the courts, is so firmly
embedded in our jurisprudence that no authorities need be cited to support it. (Ibid, 640. Pennoyer v.
McConnaughly is cited in 140 US 1. The excerpt is on p. 23 thereof. Cf. Government v. Municipality of Binalonan,
32 Phil, 634 [1915]) There was a paraphrase by Justice Malcolm of such a pronouncement in Molina v. Rafferty,
(37 Phil. 545) a 1918 decision:" Courts will and should respect the contemporaneous construction placed upon a
statute by the executive officers whose duty it is to enforce it, and unless such interpretation is clearly erroneous
will ordinarily be controlled thereby. (Ibid, 555) Since then, such a doctrine has been reiterated in numerous
decisions.79 (Emphasis supplied.)
Similarly, the Corporation Code defines "outstanding capital stock" as the "total shares of stock issued." 80 It does
not distinguish between common and preferred shares. It includes all types of shares.
Since foreigners hold 64.27% of to the total number of PLDTs common shares which are entitled to select the
Board of Directors, the ponencia claims foreigners will elect the majority of the Board of Director in PLDT and,
hence, have control over the company.
This is incorrect.
First of all, it has been established that the word "capital" in the phrase "corporation or associations organized
under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens" under Sec.
11, Art. XII of the 1987 Constitution means both common or preferred shares or voting or non-voting shares. This
phrase is qualified by the last sentence of Sec. 11, which reads:
x x x x The participation of foreign investors in the governing body of any public utility enterprise shall be limited
to their proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied.)
The aforequoted constitutional provision is unequivocalit limits the participation of the foreign investors in the
governing body to their proportionate share in the capital of the corporation. Participation is "the act of taking part
in something."81 Accordingly, it includes the right to elect or vote for in the election of the members of the Board
of Directors. However, this right to participate in the election is restricted by the first sentence of Sec. 11 such that
their right cannot exceed their proportionate share in the capital, i.e., 40%. In other words, the right of foreign
investors to elect the members of the Board of Directors cannot exceed the voting rights of the 40% of the common
shares, even though their ownership of common shares may exceed 40%. Thus, since they can only vote up to 40%
of the common shares of the corporation, they will never be in a position to elect majority of the members of the
Board of Directors. Consequently, control over the membership of the Board of Directors will always be in the
hands of Filipino stockholders although they actually own less than 50% of the common shares.
Let Us apply the foregoing principles to the situation of PLDT. Granting without admitting that foreigners own
64.27% of PLDTs common shares and say they own 40% of the total number of common and preferred shares,
still they can only vote up to 40% of the common shares of PLDT since their participation in the election of the
Board of Directors (the governing body of the corporation) is limited by the 40% ownership of the capital under
the first sentence of Sec. 11, Art. XII of the Constitution. The foreigners can only elect members of the Board of
Directors based on their 40% ownership of the common shares and their directors will only constitute the minority.
In no instance can the foreigners obtain the majority seats in the Board of Directors.
Further, the 2010 General Information Sheet (GIS) of PLDT reveals that among the thirteen (13) members of the
Board of Directors, only two (2) are foreigners. It also reveals that the foreign investors only own 13.71% of the
capital of PLDT.82
Obviously, the nomination and election committee of PLDT uses the 40% cap on the foreign ownership of the
capital which explains why the foreigners only have two (2) members in the Board of Directors. It is apparent that
the 64.27% ownership by foreigners of the common shares cannot be used to elect the majority of the Board of
Directors. The fact that the proportionate share of the foreigners in the capital (voting and non-voting shares or
common and preferred shares) is even less than 40%, then they are only entitled to voting rights equivalent to the
said proportionate share in the capital and in the process elect only a smaller number of directors. This is the reality
in the instant case. Hence, the majority control of Filipinos over the management of PLDT is, at all times, assured.
This intent to limit the participation of the foreign investors in the governing body of the corporation was solidified
in Commonwealth Act No. 108, otherwise known as the Anti-Dummy Law. Sec. 2-A of the aforementioned law, as
amended, provides in part:

x x x Provided, finally, that the election of aliens as members of the Board of Directors of governing body of
corporations or associations engaging in partially nationalized activity shall be allowed in proportion to their
allowable participation or share in the capital of such entities.
The view that the definition of the word "capital" is limited to common or voting shares alone would certainly have
the effect of removing the 60-40% nationality requirement on the non-voting shares. This would then give rise to a
situation wherein foreign interest would not really be limited to only 40% but may even extend beyond that
because foreigners could also own the entire 100% of the preferred or non-voting shares. As a result, Filipinos will
no longer have effective ownership of the corporate assets which may include lands. This is because the actual
Filipino equity constitutes only a minority of the entire outstanding capital stock. Therefore, the company would
then be technically owned by foreigners since the actual ownership of at least 60% of the entire outstanding capital
stock would be left to the hands of the foreigners. Allowing this to happen would violate and circumvent the
purpose for which the provision in the Constitution was created.83
This situation was the subject matter of the Opinion dated December 27, 1995 addressed to Mr. George Lavidia
where the SEC opined that for the computation of the required minimum 60% Filipino ownership in a land owning
corporation, both voting and preferred non-voting shares must be included, to wit:
The [law] does not qualify whether the required ownership of "capital stock" are voting or non-voting. Hence, it
should be interpreted to mean the sum total of the capital stock subscribed, irrespective of their nomenclature and
whether or not they are voting or non-voting. The use of the phrase "capital stock belongs" connotes that in order to
comply with the Filipino nationality requirement for land ownership, it is necessary that the criterion of "beneficial
ownership" should be met, not merely the control of the corporation.
To construe the 60-40% equity requirement is merely based on the voting shares, disregarding the preferred non-
voting shares, not on the total outstanding subscribed capital stock, would give rise to a situation where the actual
foreign interest would not really be only 40% but may extend beyond that because they could also own even the
entire preferred non-voting shares. In this situation, Filipinos may have the control in the operation of the
corporation by way of voting rights, but have no effective ownership of the corporate assets which include lands,
because the actual Filipino equity constitutes only a minority of the entire outstanding capital stock. Therefore, in
essence, the company, although controlled by Filipinos, is beneficially owned by foreigners since the actual
ownership of at least 60% of the entire outstanding capital stocks would be in the hands of foreigners. Allowing
this situation would open the floodgates to circumvention of the intent of the law to make the Filipinos the
principal beneficiaries in the ownership of Philippine alienable lands.
xxxx
Thus, for purpose of "land ownership", non-voting preferred shares should be included in the computation of the
statutory 60-40% Filipino-alien equity requirement. To rule otherwise would result in the emergence of foreign
beneficial ownership of land, thereby defeating the purpose of the law. On the other hand, to view the equity ratio
as determined on the basis of the entire outstanding capital stock would be to uphold the unequivocal purpose of
the above-cited law of ensuring Filipino rightful domination of land ownership. (Emphasis supplied.)
Clearly, applying the ponencias definition of the word "capital" will give rise to a greater anomaly because it will
result in the foreigners obtaining beneficial ownership over the corporation, which is contrary to the provisions of
the Constitution; whereas interpreting "capital" to include both voting and non-voting shares will result in giving
both legal and beneficial ownership of the corporation to the Filipinos.
In the event that the word "capital" is construed as limited to common or voting shares only, it should not have any
retroactive effect. Reliance in good faith on the opinions issued by the SEC, the regulating body in charged with
the duty to enforce the nationality required by the Constitution, should not prejudice any one, especially not the
foreign investors. Giving such interpretation retroactive effect is tantamount to violation of due process and would
impact negatively on the various foreign investments already present in the country. Accordingly, such construction
should only be applied prospectively.
In sum, the Constitution requires that 60% of the capital be owned by Filipinos. It further requires that the foreign
ownership of capital be limited to 40%, as well as its participation in the governing body of the public utility
corporation be limited to its proportionate share in the capital which cannot exceed 40% thereof. As a result,
control over the Board of Directors and full beneficial ownership of 60% of the capital stock of the corporation are
secured in the hands of the Filipinos.
I, therefore, vote to DISMISS the petition.
PRESBITERO J. VELASCO, JR.
Associate Justice
DISSENTING OPINION
ABAD, J.:
In 1928, the legislature enacted Act 3436, granting Philippine Long Distance Telephone Company (PLDT) a
franchise to provide telecommunications services across the country. Forty years later in 1969, General Telephone
and Electronics Corporation, an American company and major PLDT stockholder, sold 26% of PLDTs equity to
the Philippine Telecommunications Investment Corporation (PTIC).
Subsequently, PTIC assigned 46% of its equity or 111,415 shares of stock to Prime Holdings, Inc. In 1986, the
Presidential Commission on Good Government sequestered these shares. Eventually, the Court declared these as
properties of the Republic of the Philippines.
In 1999, First Pacific, a Bermuda-registered and Hongkong-based investment firm, acquired the remaining 54% of
PTICs equity in PLDT.
In 2006, the governments Inter-agency Privatization Council offered to auction the 46% PTIC equity in PLDT that
the Court adjudged to the Republic. Parallax Venture Fund XXVII won with a bid of P25.2 billion or US$510
million. First Pacific announced that it would exercise its right of first refusal and buy those shares by matching
Parallaxs bid. In 2007, First Pacific, through its subsidiary, Metro Pacific Assets Holdings, Inc., entered into a
Conditional Sale and Purchase Agreement with the national government involving the 46% PTIC equity for P25.2
billion or US$510 million.
In this petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale, petitioner Wilson P.
Gamboa, a PLDT stockholder, seeks to annul the sale of the 46% PTIC equity or 111,415 shares of stock to Metro
Pacific on the ground that it violates Section 11, Article XII of the 1987 Constitution which limits foreign
ownership of a public utility company to 40% of its capital. Gamboa claims that since PTIC is a PLDT stockholder,
the sale of the 46% of its equity is actually an indirect sale of 6.3% PLDT equity or 12 million shares of stock. This
would increase First Pacifics equity in PLDT from 30.7% to 37%, and concomitantly increase the common
shareholdings of foreigners in PLDT to about 64.27%.
The action presents two primordial issues:

1. Whether or not the Court can hear and decide Gamboas petition for prohibition, injunction, declaratory
relief, and declaration of nullity of sale; and
2. Whether or not Metro Pacifics acquisition of 46% of PTICs equity violates the constitutional limit on
foreign ownership of the capital of PLDT, a public utility company, provided under Section 11, Article XII
of the 1987 Constitution.
One. The objection to the idea of the Court hearing and deciding Gamboas action seems to have some basis in the
rules. Under Section 1, Rule 56 of the Rules of Court, only the following cases may be filed originally in the
Supreme Court:
Sec. 1. Original cases cognizable.Only petitions for certiorari, prohibition, mandamus, quo warranto, habeas
corpus, disciplinary proceedings against members of the judiciary and attorneys, and cases affecting ambassadors,
other public ministers and consuls may be filed originally in the Supreme Court.
Strictly speaking, Gamboa actions for injunction, declaratory relief, and declaration of nullity of sale are not among
the cases that can be initiated before the Supreme Court. Those actions belong to some other tribunal.
And, although the Court has original jurisdiction in prohibition cases, the Court shares this authority with the Court
of Appeals and the Regional Trial Courts. But this concurrence of jurisdiction does not give the parties absolute
and unrestrained freedom of choice on which court the remedy will be sought. They must observe the hierarchy of
courts.1 As a rule, the Supreme Court will not entertain direct resort to it unless the remedy desired cannot be
obtained in other tribunals. Only exceptional and compelling circumstances such as cases of national interest and
of serious implications justify direct resort to the Supreme Court for the extraordinary remedy of writ of certiorari,
prohibition, or mandamus.2
The majority of the Court of course suggests that although Gamboa entitles his actions as ones for injunction,
declaratory relief, and declaration of nullity of sale, what controls the nature of such actions are the allegations of
his petition. And a valid special civil action for mandamus can be made out of those allegations since respondent
Secretary of Finance, his undersecretary, and respondent Chairman of the Securities and Exchange Commission are
the officials who appear to have the duty in law to implement the foreign ownership restriction that the
Constitution commands.3
To a certain extent, I agree with the position that the majority of my colleagues takes on this procedural issue. I
believe that a case can be made for giving due course to Gamboas action. Indeed, there are in his actions
compelling reasons to relax the doctrine of hierarchy of courts. The need to address the important question of
defining the constitutional limit on foreign ownership of public utilities under Section 11, Article XII of the 1987
Constitution, a bedrock policy adopted by the Filipino people, is certainly a matter of serious national interest.
Such policy is intended to develop a self-reliant and independent national economy effectively controlled by
Filipino entrepreneurs.
Indeed, as the Court said in Espina v. Zamora,4 the provisions of Article XII of the 1987 Constitution lay down the
ideals of economic nationalism. One of these is the Filipinization of public utilities under Section 11 which
recognizes the very strategic position of public utilities both in the national economy and for national security. 5 The
participation of foreign capital is encouraged since the establishment and operation of public utilities may require
the investment of substantial capital that Filipino citizens could possibly not afford. But at the same time, the
Constitution wants to limit foreign involvement to prevent them from assuming control of public utilities which
may be inimical to national interest.6
Two. Still, the question is whether it is for the Court to decide in this case the shape and substance of what the
Constitution meant when it restricted the size of foreign ownership of the capital of public utility corporations
provided for in Section 11, Article XII of the 1987 Constitution which reads:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens; x x x.
Gamboa contends that the constitutional limit on foreign ownership in public utilities should be based on the
ownership of common or voting shares since it is through voting that stockholders are able to have control over a
corporation. Preferred or non-voting shares should be excluded from the reckoning.
But this interpretation, adopted by the majority, places on the Court the authority to define and interpret the
meaning of "capital" in section 11. I believe, however, that such authority should be for Congress to exercise since
it partakes of policy making founded on a general principle laid down by the fundamental law. The capital
restriction written in the constitution lacks sufficient details for orderly and meaningful implementation. Indeed, in
the twenty-four years that the provision has been in the Constitution, no concrete step has been taken by any
government agency to see to its actual implementation given the absence of clear legislative guidance on how to go
about it.
It has been said that a constitution is a system of fundamental laws for the governance and administration of a
nation. It prescribes the permanent framework of a system of government, assigns to the different departments their
respective powers and duties, and establishes certain fixed principles on which the government is founded. 7 But
while some constitutional provisions are self-executing, others are not.
A constitutional provision is self-executing if it fixes the nature and extent of the right conferred and the liability
imposed such that they can be determined by an examination and construction of its terms, and there is no language
indicating that the subject is referred to the legislature for action. On the other hand, if the provision needs a
supplementary or enabling legislation, it is merely a declaration of policy and principle which is not self-
executing.8
Here, the Constitution simply states that no franchise for the operation of a public utility shall be granted to a
corporation organized under Philippine laws unless at least sixty per centum of its capital is owned by Filipino
citizens.
Evidently, the Constitution fails to provide for the meaning of the term "capital," considering that the shares of
stock of a corporation vary in kinds. The usual classification depends on how profits are to be distributed and
which stockholders have the right to vote the members of the corporations board of directors.
The Corporation Code does not offer much help, albeit it only confuses, since it uses the terms "capital," "capital
stock," or "outstanding capital stock" interchangeably. "Capital" refers to the money, property, or means
contributed by stockholders in the corporation and generally implies that the same have been contributed in
payment for stock issued to the stockholders. 9 "Capital stock" signifies the amount subscribed and paid-in in
money, property or services.10 "Outstanding capital stock" means the total shares of stock issued to stockholders,
whether or not fully or partially paid, except treasury shares.11
Meanwhile, the Foreign Investments Act of 1991 defines a "Philippine national" as, among others, a corporation
organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines. 12 This gives the impression, as Justice Carpio noted, that the
term "capital" refers only to controlling interest or shares entitled to vote.13
On the other hand, government agencies such as the Securities and Exchange Commission, institutions, and
corporations (such as the Philippine National Oil Company-Energy Development Corporation) interpret the term
"capital" to include both preferred and common shares.14
Under this confusing legislative signals, the Court should not leave the matter of compliance with the constitutional
limit on foreign ownership in public utilities, a matter of transcendental importance, to judicial legislation
especially since any ruling the Court makes on the matter could have deep economic repercussions. This is not a
concern over which the Court has competence. The 1987 Constitution laid down the general framework for
restricting foreign ownership of public utilities. It is apt for Congress to build up on this framework by defining the
meaning of "capital," establishing rules for the implementation of the State policy, providing sanctions for its
violation, and vesting in the appropriate agency the responsibility for carrying out the purposes of such policy.
Parenthetically, there have been several occasions in the past where Congress provided supplementary or enabling
legislation for constitutional provisions that are not self-executing. To name just some: the Comprehensive
Agrarian Reform Law of 1988,15 the Indigenous Peoples Rights Act of 1997, 16 the Local Government Code of
1991,17 the Anti-Graft and Corrupt Practices Act,18 the Speedy Trial Act of 1998, 19 the Overseas Absentee Voting
Act of 2003,20 the Party-List System Act,21 the Paternity Leave Act of 1996,22 and the Solo Parents' Welfare Act of
2000.23
Based on the foregoing, I vote to DENY the petition on the ground that the constitutional limit on foreign
ownership in public utilities under Section 11, Article XII of the 1987 Constitution is not a self-executing provision
and requires an implementing legislation for its enforcement.
ROBERTO A. ABAD
Associate Justice

142-GAMBOA vs. TEVES G.R. NO. 176579 June 28, 2011

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Gamboa v. Teves G.R. No.

Republic of the Philippines

Petitioner has locus standi

MR. VILLEGAS. Yes.48

MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

SEC. 3. Definitions. - As used in this Act:

Director Miguel Romero all attended the hearing.9

Thank you very much.55

MR. BENGZON. That is correct.58

Hence, your query is answered in the affirmative.76 (Emphasis supplied.)

amended, provides in part:

The action presents two primordial issues:

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