G.R. No.

176579 October 9, 2012 provisions of the 1935, 1973 and 1987 Philippine
Constitutions.―For more than 75 years since the 1935
HEIRS OF WILSON P. GAMBOA,* Petitioners, Constitution, the Court has not interpreted or defined the
vs. term “capital” found in various economic provisions of
FINANCE SECRETARYMARGARITO B. TEVES, the 1935, 1973 and 1987 Constitutions. There has never
FINANCE UNDERSECRETARYJOHN P. SEVILLA,
been a judicial precedent interpreting the term “capital”
AND COMMISSIONER RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON GOOD in the 1935, 1973 and 1987 Constitutions, until now.
GOVERNMENT(PCGG) IN THEIR CAPACITIES AS Hence, it is patently wrong and utterly baseless to claim
CHAIR AND MEMBERS, RESPECTIVELY, OF THE that the Court in defining the term “capital” in its 28 June
PRIVATIZATION COUNCIL, CHAIRMAN 2011 Decision modified, reversed, or set aside the
ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN purported long-standing definition of the term “capital,”
HIS CAPACITY AS DIRECTOR OF METRO PACIFIC which supposedly refers to the total outstanding shares
ASSET HOLDINGS INC., CHAIRMAN MANUEL V. of stock, whether voting or non-voting. To repeat, until
PANGILINAN OF PHILIPPINE LONG DISTANCE the present case there has never been a Court ruling
TELEPHONE COMPANY (PLDT) IN HIS CAPACITY
categorically defining the term “capital” found in the
AS MANAGING DIRECTOR OF FIRST PACIFIC CO.,
LTD., PRESIDENT NAPOLEON L. NAZARENO OF various economic provisions of the 1935, 1973 and 1987
PHILIPPINE LONG DISTANCE TELEPHONE Philippine Constitutions.
COMPANY, CHAIR FE BARIN OF THE SECURITIES
AND EXCHANGE COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE STOCK Securities and Exchange Commission (SEC); Securities
EXCHANGE, Respondents. Regulation Code; Under Section 5.1 of the Securities
Regulation Code, it is the Securities and Exchange
PABLITO V. SANIDAD and ARNO V. Commission (SEC) as a collegial body, and not any of its legal
SANIDAD, Petitioner-in-Intervention officers, that is empowered to issue opinions and approve rules
and regulations.―The opinions issued by SEC legal officers
do not have the force and effect of SEC rules and
Constitutional Law; Capital; Words and Phrases; Until the regulations because only the SEC en banc can adopt rules
present case there has never been a Court ruling categorically and regulations. As expressly provided in Section 4.6 of
defining the term “capital” found in the various economic the Securities Regulation Code, the SEC cannot delegate
to any of its individual Commissioner or staff the power Section 11, Article XII of the 1987 Constitution, lies with this
to adopt any rule or regulation. Further, under Section Court, not with any other government entity.―The opinions
5.1 of the same Code, it is the SEC as a collegial body, of the SEC en banc, as well as of the DOJ, interpreting the
and not any of its legal officers, that is empowered to law are neither conclusive nor controlling and thus, do
issue opinions and approve rules and regulations. not bind the Court. It is hornbook doctrine that any
interpretation of the law that administrative or quasi-
judicial agencies make is only preliminary, never
Same; Grandfather Rule; The Securities and Exchange conclusive on the Court. The power to make a final
Commission (SEC) en banc, which is the collegial body interpretation of the law, in this case the term “capital” in
statutorily empowered to issue rules and opinions on behalf of Section 11, Article XII of the 1987 Constitution, lies with
the SEC, has adopted even the Grandfather Rule in this Court, not with any other government entity.
determining compliance with the 60-40 ownership requirement
in favor of Filipino citizens mandated by the Constitution for
certain economic activities.―Significantly, the SEC en banc, Same; Constitutional Law; Under Section 10, Article XII of the
which is the collegial body statutorily empowered to 1987 Constitution, Congress may “reserve to citizens of the
issue rules and opinions on behalf of the SEC, has Philippines or to corporations or associations at least sixty per
adopted even the Grandfather Rule in determining centum of whose capital is owned by such citizens, or such
compliance with the 60-40 ownership requirement in higher percentage as Congress may prescribe, certain areas of
favor of Filipino citizens mandated by the Constitution investments.”―Under Section 10, Article XII of the 1987
for certain economic activities. This prevailing SEC Constitution, Congress may “reserve to citizens of the
ruling, which the SEC correctly adopted to thwart any Philippines or to corporations or associations at least
circumvention of the required Filipino “ownership and sixty per centum of whose capital is owned by such
control,” is laid down in the 25 March 2010 SEC en banc citizens, or such higher percentage as Congress may
ruling in Redmont Consolidated Mines, Corp. v. prescribe, certain areas of investments.” Thus, in
McArthur Mining, Inc., et al. 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
Capital; Statutory Construction; The power to make a final Filipino citizens. Some of these laws are: (1) Regulation of
interpretation of the law, in this case the term “capital” in Award of Government Contracts or R.A. No. 5183; (2)
Philippine Inventors Incentives Act or R.A. No. 3850; (3) participation in public utilities by the general public. The
Magna Carta for Micro, Small and Medium Enterprises participation of foreign investors in the governing body
or R.A. No. 6977; (4) Philippine Overseas Shipping of any public utility enterprise shall be limited to their
Development Act or R.A. No. 7471; (5) Domestic proportionate share in its capital, and all the executive
Shipping Development Act of 2004 or R.A. No. 9295; (6) and managing officers of such corporation or association
Philippine Technology Transfer Act of 2009 or R.A. No. must be citizens of the Philippines. (Emphasis supplied)
10055; and (7) Ship Mortgage Decree or P.D. No. 1521. This provision, which mandates the Filipinization of
public utilities, requires that any form of authorization
for the operation of public utilities shall be granted only
Same; Same; Public Utilities; Section 11, Article XII of the to “citizens of the Philippines or to corporations or
1987 Constitution mandates the Filipinization of public associations organized under the laws of the Philippines
utilities, requires that any form of authorization for the at least sixty per centum of whose capital is owned by
operation of public utilities shall be granted only to “citizens of such citizens.” “The provision is [an express] recognition
the Philippines or to corporations or associations organized of the sensitive and vital position of public utilities both
under the laws of the Philippines at least sixty per centum of in the national economy and for national security.”
whose capital is owned by such citizens.”―With respect to
public utilities, the 1987 Constitution specifically ordains:
Section 11. No franchise, certificate, or any other form of Same; Same; Same; Under Section 11, Article XII of the 1987
authorization for the operation of a public utility shall be Constitution, to own and operate a public utility a
granted except to citizens of the Philippines or to corporation’s capital must at least be 60 percent owned by
corporations or associations organized under the laws of Philippine nationals.―The 1987 Constitution reserves the
the Philippines, at least sixty per centum of whose capital ownership and operation of public utilities exclusively to
is owned by such citizens; nor shall such franchise, (1) Filipino citizens, or (2) corporations or associations at
certificate, or authorization be exclusive in character or least 60 percent of whose “capital” is owned by Filipino
for a longer period than fifty years. Neither shall any citizens. Hence, in the case of individuals, only Filipino
such franchise or right be granted except under the citizens can validly own and operate a public utility. In
condition that it shall be subject to amendment, the case of corporations or associations, at least 60
alteration, or repeal by the Congress when the common percent of their “capital” must be owned by Filipino
good so requires. The State shall encourage equity citizens. In other words, under Section 11, Article XII of
the 1987 Constitution, to own and operate a public utility percent (60%) of the capital stock outstanding and entitled to
a corporation’s capital must at least be 60 percent owned vote” is owned by Filipino citizens.―The FIA, like all its
by Philippine nationals. predecessor statutes, clearly defines a “Philippine
national” as a Filipino citizen, or a domestic corporation
“at least sixty percent (60%) of the capital stock
Same; Same; Same; Omnibus Investments Code of 1987; outstanding and entitled to vote” is owned by Filipino
Under Article 48(3) of the Omnibus Investments Code of 1987, citizens. A domestic corporation is a “Philippine
no corporation which is not a ‘Philippine national’ shall do national” only if at least 60% of its voting stock is owned
business in the Philippines without first securing from the by Filipino citizens. This definition of a “Philippine
Board of Investments a written certificate to the effect that such national” is crucial in the present case because the FIA
business or economic activity would not conflict with the reiterates and clarifies Section 11, Article XII of the 1987
Constitution or laws of the Philippines.―Under Article 48(3) Constitution, which limits the ownership and operation
of the Omnibus Investments Code of 1987, “no corporation of public utilities to Filipino citizens or to corporations or
x x x which is not a ‘Philippine national’ x x x shall do associations at least 60% Filipino-owned.
business x x x in the Philippines x x x without first securing
from the Board of Investments a written certificate to the effect
that such business or economic activity x x x would not Same; Same; Same; Same; Among the areas of investment
conflict with the Constitution or laws of the Philippines.” covered by the Foreign Investment Negative List A is the
Thus, a “non-Philippine national” cannot own and operate a ownership and operation of public utilities, which the
reserved economic activity like a public utility. This means, of Constitution expressly reserves to Filipino citizens and to
course, that only a “Philippine national” can own and operate corporations at least 60% owned by Filipino citizens.―Among
a public utility. the areas of investment covered by the Foreign
Investment Negative List A is the ownership and
operation of public utilities, which the Constitution
Same; Same; Same; Foreign Investments Act of 1991 (FIA);
expressly reserves to Filipino citizens and to corporations
Philippine Nationals; Domestic Corporations; Words and
at least 60% owned by Filipino citizens. In other words,
Phrases; The Foreign Investments Act of 1991, like all its
Negative List A of the FIA reserves the ownership and
predecessor statutes, clearly defines a “Philippine national” as
operation of public utilities only to “Philippine
a Filipino citizen, or a domestic corporation “at least sixty
nationals,” defined in Section 3(a) of the FIA as “(1) a
citizen of the Philippines; x x x or (3) a corporation or any other class of shares. This uniform application of
organized under the laws of the Philippines of which at the 60-40 ownership requirement in favor of Filipino
least sixty percent (60%) of the capital stock outstanding citizens clearly breathes life to the constitutional
and entitled to vote is owned and held by citizens of the command that the ownership and operation of public
Philippines; or (4) a corporation organized abroad and utilities shall be reserved exclusively to corporations at
registered as doing business in the Philippines under the least 60 percent of whose capital is Filipino-owned.
Corporation Code of which one hundred percent (100%) Applying uniformly the 60-40 ownership requirement in
of the capital stock outstanding and entitled to vote is favor of Filipino citizens to each class of shares,
wholly owned by Filipinos or a trustee of funds for regardless of differences in voting rights, privileges and
pension or other employee retirement or separation restrictions, guarantees effective Filipino control of public
benefits, where the trustee is a Philippine national and at utilities, as mandated by the Constitution.
least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals.”
Same; Same; Same; The use of the term “capital” was intended
to replace the word “stock” because associations without stocks
Same; Same; Same; The 60-40 ownership requirement in favor can operate public utilities as long as they meet the 60-40
of Filipino citizens must apply separately to each class of ownership requirement in favor of Filipino citizens prescribed
shares, whether common, preferred non-voting, preferred in Section 11, Article XII of the Constitution.―The use of the
voting or any other class of shares.―If a corporation, term “capital” was intended to replace the word “stock”
engaged in a partially nationalized industry, issues a because associations without stocks can operate public
mixture of common and preferred non-voting shares, at utilities as long as they meet the 60-40 ownership
least 60 percent of the common shares and at least 60 requirement in favor of Filipino citizens prescribed in
percent of the preferred non-voting shares must be Section 11, Article XII of the Constitution. However, this
owned by Filipinos. Of course, if a corporation issues did not change the intent of the framers of the
only a single class of shares, at least 60 percent of such Constitution to reserve exclusively to Philippine
shares must necessarily be owned by Filipinos. In short, nationals the “controlling interest” in public utilities.
the 60-40 ownership requirement in favor of Filipino
citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting
Same; Same; Same; Allowing foreign shareholders to elect a framers of the Constitution intended public utilities to be
controlling majority of the board, even if all the directors are majority Filipino-owned and controlled. To ensure that
Filipinos, grossly circumvents the letter and intent of the Filipinos control public utilities, the framers of the
Constitution and defeats the very purpose of our Constitution approved, as additional safeguard, the
nationalization laws.―Even if foreigners who own more inclusion of the last sentence of Section 11, Article XII of
than forty percent of the voting shares elect an all- the Constitution commanding that “[t]he participation of
Filipino board of directors, this situation does not foreign investors in the governing body of any public
guarantee Filipino control and does not in any way cure utility enterprise shall be limited to their proportionate
the violation of the Constitution. The independence of share in its capital, and all the executive and managing
the Filipino board members so elected by such foreign officers of such corporation or association must be
shareholders is highly doubtful. As the OSG pointed out, citizens of the Philippines.” In other words, the last
quoting Justice George Sutherland’s words in sentence of Section 11, Article XII of the Constitution
Humphrey’s Executor v. US, “x x x it is quite evident that mandates that (1) the participation of foreign investors in
one who holds his office only during the pleasure of the governing body of the corporation or association
another cannot be depended upon to maintain an shall be limited to their proportionate share in the capital
attitude of independence against the latter’s will.” of such entity; and (2) all officers of the corporation or
Allowing foreign shareholders to elect a controlling association must be Filipino citizens.
majority of the board, even if all the directors are
Filipinos, grossly circumvents the letter and intent of the
Constitution and defeats the very purpose of our Same; Same; Same; Foreign Investments Act of 1991 (FIA);
nationalization laws. The Constitution explicitly reserves the ownership and
operation of public utilities to Philippine nationals, who are
defined in the Foreign Investments Act of 1991 as Filipino
Same; Same; Same; The last sentence of Section 11, Article XII citizens, or corporations or associations at least 60 percent of
of the Constitution mandates that (1) the participation of whose capital with voting rights belongs to Filipinos.―The
foreign investors in the governing body of the corporation or Constitution expressly declares as State policy the
association shall be limited to their proportionate share in the development of an economy “effectively controlled” by
capital of such entity; and (2) all officers of the corporation or Filipinos. Consistent with such State policy, the
association must be Filipino citizens.―It is clear that the Constitution explicitly reserves the ownership and
operation of public utilities to Philippine nationals, who The Office of the Solicitor General (OSG) initially filed a
are defined in the Foreign Investments Act of 1991 as motion for reconsideration on behalfofthe SEC,5 assailing
Filipino citizens, or corporations or associations at least the 28 June 2011 Decision. However, it subsequently filed
60 percent of whose capital with voting rights belongs to a Consolidated Comment on behalf of the
Filipinos. The FIA’s implementing rules explain that State,6 declaring expressly that it agrees with the Court's
definition of the term "capital" in Section 11, Article XII of
“[f]or stocks to be deemed owned and held by Philippine
the Constitution. During the Oral Arguments on 26 June
citizens or Philippine nationals, mere legal title is not
2012, the OSG reiterated its position consistent with the
enough to meet the required Filipino equity. Full
Court's 28 June 2011 Decision.
beneficial ownership of the stocks, coupled with
appropriate voting rights is essential.” In effect, the FIA We deny the motions for reconsideration.
clarifies, reiterates and confirms the interpretation that
the term “capital” in Section 11, Article XII of the 1987 I.
Constitution refers to shares with voting rights, as well as Far-reaching implications of the legal issue justify
with full beneficial ownership. This is precisely because treatment of petition for declaratory relief as one for
the right to vote in the election of directors, coupled with mandamus.
full beneficial ownership of stocks, translates to effective
As we emphatically stated in the 28 June 2011 Decision,
control of a corporation.
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
CARPIO, J.: of this issue will determine whether Filipinos are
masters, or second-class citizens, in their own country.
This resolves the motions for reconsideration of the 28 What is at stake here is whether Filipinos or foreigners
June 2011 Decision filed by (1) the Philippine Stock will have effective control of the Philippine national
Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan economy. Indeed, if ever there is a legal issue that has
(Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno far-reaching implications to the entire nation, and to
),3 and ( 4) the Securities and Exchange Commission future generations of Filipinos, it is the threshold legal
(SEC)4 (collectively, movants ). issue presented in this case.
Contrary to Pangilinan’s narrow view, the serious Stevedoring. Consequently, in the interest of substantial
economic consequences resulting in the interpretation of justice and faithful adherence to the Constitution, we
the term "capital" in Section 11, Article XII of the opted to resolve this case for the guidance of the public
Constitution undoubtedly demand an immediate and all concerned parties.
adjudication of this issue. Simply put, the far-reaching
implications of this issue justify the treatment of the II.
petition as one for mandamus.7 No change of any long-standing rule;
thus, no redefinition of the term "capital."
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the
Court deemed it wise and expedient to resolve the case Movants contend that the term "capital" in Section 11,
although the petition for declaratory relief could be Article XII of the Constitution has long been settled and
outrightly dismissed for being procedurally defective. defined to refer to the total outstanding shares of stock,
There, appellant admittedly had already committed a whether voting or non-voting. In fact, movants claim that
breach of the Public Service Act in relation to the Anti- the SEC, which is the administrative agency tasked to
Dummy Law since it had been employing non- American enforce the 60-40 ownership requirement in favor of
aliens long before the decision in a prior similar case. Filipino citizens in the Constitution and various statutes,
However, the main issue in Luzon Stevedoring was of has consistently adopted this particular definition in its
transcendental importance, involving the exercise or numerous opinions. Movants point out that with the 28
enjoyment of rights, franchises, privileges, properties and June 2011 Decision, the Court in effect introduced a
businesses which only Filipinos and qualified "new" definition or "midstream redefinition"9 of the term
corporations could exercise or enjoy under the "capital" in Section 11, Article XII of the Constitution.
Constitution and the statutes. Moreover, the same issue
could be raised by appellant in an appropriate action. This is egregious error.
Thus, in Luzon Stevedoring the Court deemed it necessary
to finally dispose of the case for the guidance of all For more than 75 years since the 1935 Constitution, the
concerned, despite the apparent procedural flaw in the Court has not interpreted or defined the term "capital"
petition. found in various economic provisions of the 1935, 1973
and 1987 Constitutions. There has never been a judicial
The circumstances surrounding the present case, such as precedent interpreting the term "capital" in the 1935, 1973
the supposed procedural defect of the petition and the and 1987 Constitutions, until now. Hence, it is patently
pivotal legal issue involved, resemble those in Luzon wrong and utterly baseless to claim that the Court in
defining the term "capital" in its 28 June 2011 Decision would be owned by Japanese while Filipinos would own
modified, reversed, or set aside the purported long- only 40% of the voting stock, although when the non-
standing definition of the term "capital," which voting stock is added, Filipinos would own 60% of the
supposedly refers to the total outstanding shares of stock, combined voting and non-voting stock. This ownership
whether voting or non-voting. To repeat, until the structure is remarkably similar to the current
present case there has never been a Court ruling ownership structure of PLDT. Minister Mendoza ruled:
categorically defining the term "capital" found in the
various economic provisions of the 1935, 1973 and 1987 xxxx
Philippine Constitutions.
Thus, the Filipino group still owns sixty (60%) of the
The opinions of the SEC, as well as of the Department of entire subscribed capital stock (common and preferred)
Justice (DOJ), on the definition of the term "capital" as while the Japanese investors control sixty percent (60%)
referring to both voting and non-voting shares of the common (voting) shares.
(combined total of common and preferred shares) are, in
the first place, conflicting and inconsistent. There is no It is your position that x x x since Section 9, Article XIV
basis whatsoever to the claim that the SEC and the DOJ of the Constitution uses the word "capital," which is
have consistently and uniformly adopted a definition of construed "to include both preferred and common
the term "capital" contrary to the definition that this shares" and "that where the law does not distinguish,
Court adopted in its 28 June 2011 Decision. the courts shall not distinguish."

In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, xxxx

the scope of the term "capital" in Section 9, Article XIV of
the 1973 Constitution was raised, that is, whether the In light of the foregoing jurisprudence, it is my opinion
term "capital" includes "both preferred and common that the stock-swap transaction in question may not be
stocks." The issue was raised in relation to a stock-swap constitutionally upheld. While it may be ordinary
transaction between a Filipino and a Japanese corporate practice to classify corporate shares into
corporation, both stockholders of a domestic corporation common voting shares and preferred non-voting shares,
that owned lands in the Philippines. Then Minister of any arrangement which attempts to defeat the
Justice Estelito P. Mendoza ruled that the resulting constitutional purpose should be eschewed. Thus, the
resultant equity arrangement which would place
ownership structure of the corporation would
ownership of 60%11 of the common (voting) shares in
be unconstitutional because 60% of the voting stock
the Japanese group, while retaining 60% of the total will accrue to the benefit of Philippine nationals. Still
percentage of common and preferred shares in Filipino pursuant to the Control Test, MLRC’s investment in
hands would amount to circumvention of the principle 60% of BFDC’s outstanding capital stock entitled to
of control by Philippine stockholders that is implicit in vote shall be deemed as of Philippine nationality,
the 60% Philippine nationality requirement in the thereby qualifying BFDC to own private land.
Constitution. (Emphasis supplied)
Further, under, and for purposes of, the FIA, MLRC and
In short, Minister Mendoza categorically rejected the BFDC are both Philippine nationals, considering that: (1)
theory that the term "capital" in Section 9, Article XIV of sixty percent (60%) of their respective outstanding
the 1973 Constitution includes "both preferred and capital stock entitled to vote is owned by a Philippine
common stocks" treated as the same class of shares national (i.e., by the Trustee, in the case of MLRC; and by
regardless of differences in voting rights and privileges. MLRC, in the case of BFDC); and (2) at least 60% of their
Minister Mendoza stressed that the 60-40 ownership respective board of directors are Filipino citizens.
requirement in favor of Filipino citizens in the (Boldfacing and italicization supplied)
Constitution is not complied with unless the corporation
"satisfies the criterion of beneficial ownership" and that Clearly, these DOJ and SEC opinions are compatible with
in applying the same "the primordial consideration is the Court’s interpretation of the 60-40 ownership
situs of control." requirement in favor of Filipino citizens mandated by the
Constitution for certain economic activities. At the same
On the other hand, in Opinion No. 23-10 dated 18 August time, these opinions highlight the conflicting,
2010, addressed to Castillo Laman Tan Pantaleon & San contradictory, and inconsistent positions taken by the
Jose, then SEC General Counsel Vernette G. Umali-Paco DOJ and the SEC on the definition of the term "capital"
applied the Voting Control Test, that is, using only the found in the economic provisions of the Constitution.
voting stock to determine whether a corporation is a
Philippine national. The Opinion states: The opinions issued by SEC legal officers do not have the
force and effect of SEC rules and regulations because
Applying the foregoing, particularly the Control Test, only the SEC en banc can adopt rules and regulations. As
MLRC is deemed as a Philippine national because: (1) expressly provided in Section 4.6 of the Securities
sixty percent (60%) of its outstanding capital Regulation Code,12 the SEC cannot delegate to any of its
stock entitled to vote is owned by a Philippine national, individual Commissioner or staff the power to adopt any
the Trustee; and (2) at least sixty percent (60%) of the ERF rule or regulation. Further, under Section 5.1 of the same
Code, it is the SEC as a collegial body, and not any of its x x x x (Emphasis supplied)
legal officers, that is empowered to issue opinions and
approve rules and regulations. Thus: Thus, the act of the individual Commissioners or legal
officers of the SEC in issuing opinions that have the effect
4.6. The Commission may, for purposes of efficiency, of SEC rules or regulations is ultra vires. Under Sections
delegate any of its functions to any department or office 4.6 and 5.1(g) of the Code, only the SEC en banc can "issue
of the Commission, an individual Commissioner or staff opinions" that have the force and effect of rules or
member of the Commission except its review or appellate regulations. Section 4.6 of the Code bars the SEC en
authority and its power to adopt, alter and supplement banc from delegating to any individual Commissioner or
any rule or regulation. staff the power to adopt rules or regulations. In short,
any opinion of individual Commissioners or SEC legal
The Commission may review upon its own initiative or officers does not constitute a rule or regulation of the
upon the petition of any interested party any action of SEC.
any department or office, individual Commissioner, or
staff member of the Commission. The SEC admits during the Oral Arguments that only the
SEC en banc, and not any of its individual commissioners
SEC. 5. Powers and Functions of the Commission.- 5.1. The or legal staff, is empowered to issue opinions which have
Commission shall act with transparency and shall have the same binding effect as SEC rules and regulations,
the powers and functions provided by this Code, thus:
Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses Law, the Financing Company Act JUSTICE CARPIO:
and other existing laws. Pursuant thereto the
Commission shall have, among others, the following So, under the law, it is the Commission En Banc
powers and functions: that can issue an

xxxx SEC Opinion, correct?

(g) Prepare, approve, amend or repeal rules, regulations COMMISSIONER GAITE:13

and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulations That’s correct, Your Honor.
and orders;
JUSTICE CARPIO: So, you combine the two (2), the SEC officer, if
delegated that power, can issue an opinion but
Can the Commission En Banc delegate this that opinion does not constitute a rule or
function to an SEC officer? regulation, correct?

COMMISSIONER GAITE: COMMISSIONER GAITE:

Yes, Your Honor, we have delegated it to the Correct, Your Honor.

General Counsel.
JUSTICE CARPIO:
JUSTICE CARPIO:
So, all of these opinions that you mentioned they
It can be delegated. What cannot be delegated by are not rules and regulations, correct?
the Commission En Banc to a commissioner or an
individual employee of the Commission? COMMISSIONER GAITE:

COMMISSIONER GAITE: They are not rules and regulations.

Novel opinions that [have] to be decided by the En JUSTICE CARPIO:

Banc...
If they are not rules and regulations, they apply
JUSTICE CARPIO: only to that particular situation and will not
constitute a precedent, correct?
What cannot be delegated, among others, is the
power to adopt or amend rules and regulations, COMMISSIONER GAITE:
correct?
Yes, Your Honor.14 (Emphasis supplied)
COMMISSIONER GAITE:
Significantly, the SEC en banc, which is the collegial body
That’s correct, Your Honor. statutorily empowered to issue rules and opinions on
behalf of the SEC, has adopted even the Grandfather
JUSTICE CARPIO: Rule in determining compliance with the 60-40
ownership requirement in favor of Filipino citizens layer after layer of investing corporations have been
mandated by the Constitution for certain economic established, the very essence of the Grandfather Rule.
activities. This prevailing SEC ruling, which the SEC
correctly adopted to thwart any circumvention of the Lastly, it was the intent of the framers of the 1987
required Filipino "ownership and control," is laid down Constitution to adopt the Grandfather Rule. In one of
in the 25 March 2010 SEC en banc ruling in Redmont the discussions on what is now Article XII of the present
Consolidated Mines, Corp. v. McArthur Mining, Inc., et Constitution, the framers made the following exchange:
al.,15 to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee
The avowed purpose of the Constitution is to place in the stated local or Filipino equity and foreign equity; namely,
hands of Filipinos the exploitation of our natural 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in
resources. Necessarily, therefore, the Rule interpreting Section 15.
the constitutional provision should not diminish that
right through the legal fiction of corporate ownership MR. VILLEGAS. That is right.
and control. But the constitutional provision, as
interpreted and practiced via the 1967 SEC Rules, has MR. NOLLEDO. In teaching law, we are always faced
favored foreigners contrary to the command of the with the question: ‘Where do we base the equity
Constitution. Hence, the Grandfather Rule must be requirement, is it on the authorized capital stock, on the
applied to accurately determine the actual participation, subscribed capital stock, or on the paid-up capital stock
both direct and indirect, of foreigners in a corporation of a corporation’? Will the Committee please enlighten
engaged in a nationalized activity or business. me on this?

Compliance with the constitutional limitation(s) on MR. VILLEGAS. We have just had a long discussion with
engaging in nationalized activities must be determined the members of the team from the UP Law Center who
by ascertaining if 60% of the investing corporation’s provided us a draft. The phrase that is contained here
outstanding capital stock is owned by "Filipino citizens", which we adopted from the UP draft is ‘60 percent of
or as interpreted, by natural or individual Filipino voting stock.’
citizens. If such investing corporation is in turn owned to
some extent by another investing corporation, the same MR. NOLLEDO. That must be based on the subscribed
process must be observed. One must not stop until the capital stock, because unless declared delinquent, unpaid
citizenships of the individual or natural stockholders of capital stock shall be entitled to vote.
MR. VILLEGAS. That is right. 60 percent of the outstanding capital stock must rest in
the hands of Filipino nationals in accordance with the
MR. NOLLEDO. Thank you. With respect to an constitutional mandate. Otherwise, the corporation is
investment by one corporation in another corporation, "considered as non-Philippine national[s]." (Emphasis
say, a corporation with 60-40 percent equity invests in supplied)
another corporation which is permitted by the
Corporation Code, does the Committee adopt the Both the Voting Control Test and the Beneficial
grandfather rule? Ownership Test must be applied to determine whether a
corporation is a "Philippine national."
MR. VILLEGAS. Yes, that is the understanding of the
Committee. The interpretation by legal officers of the SEC of the term
"capital," embodied in various opinions which
MR. NOLLEDO. Therefore, we need additional Filipino respondents relied upon, is merely preliminary and an
capital? opinion only of such officers. To repeat, any such opinion
does not constitute an SEC rule or regulation. In fact,
MR. VILLEGAS. Yes. (Boldfacing and underscoring many of these opinions contain a disclaimer which
supplied; italicization in the original) expressly states: "x x x the foregoing opinion is based
solely on facts disclosed in your query and relevant only
This SEC en banc ruling conforms to our 28 June 2011 to the particular issue raised therein and shall not be
Decision that the 60-40 ownership requirement in favor used in the nature of a standing rule binding upon the
of Filipino citizens in the Constitution to engage in Commission in other cases whether of similar or
certain economic activities applies not only to voting dissimilar circumstances."16 Thus, the opinions clearly
control of the corporation, but also to the beneficial make a caveat that they do not constitute binding
ownership of the corporation. Thus, in our 28 June 2011 precedents on any one, not even on the SEC itself.
Decision we stated:
Likewise, the opinions of the SEC en banc, as well as of
Mere legal title is insufficient to meet the 60 percent the DOJ, interpreting the law are neither conclusive nor
Filipinoowned "capital" required in the Constitution. Full controlling and thus, do not bind the Court. It is
beneficial ownership of 60 percent of the outstanding hornbook doctrine that any interpretation of the law that
capital stock, coupled with 60 percent of the voting administrative or quasi-judicial agencies make is only
rights, is required. The legal and beneficial ownership of preliminary, never conclusive on the Court. The power to
make a final interpretation of the law, in this case the thereof, of the capital stock subscribed or paid, or if no
term "capital" in Section 11, Article XII of the 1987 shares have been issued, of the capital invested, or of the
Constitution, lies with this Court, not with any other property and equipment whichever is higher.
government entity.
(f) For the issue or increase of capital stock, twenty
In his motion for reconsideration, the PSE President cites centavos for each one hundred pesos or fraction thereof,
the cases of National Telecommunications Commission v. of the increased capital. (Emphasis supplied)
Court of Appeals17 and Philippine Long Distance Telephone
Company v. National Telecommunications Commission18 in The Court’s interpretation in these two cases of the terms
arguing that the Court has already defined the term "capital stock subscribed or paid," "capital stock" and
"capital" in Section 11, Article XII of the 1987 "capital" does not pertain to, and cannot control, the
Constitution.19 definition of the term "capital" as used in Section 11,
Article XII of the Constitution, or any of the economic
The PSE President is grossly mistaken. In both cases provisions of the Constitution where the term "capital" is
of National Telecommunications v. Court of found. The definition of the term "capital" found in the
Appeals20 and Philippine Long Distance Telephone Company Constitution must not be taken out of context. A careful
v. National Telecommunications Commission,21 the Court did reading of these two cases reveals that the terms "capital
not define the term "capital" as found in Section 11, stock subscribed or paid," "capital stock" and "capital"
Article XII of the 1987 Constitution. In fact, these two were defined solely to determine the basis for computing
cases never mentioned, discussed or cited Section 11, the supervision and regulation fees under Section 40(e)
Article XII of the Constitution or any of its economic and (f) of the Public Service Act.
provisions, and thus cannot serve as precedent in the
interpretation of Section 11, Article XII of the III.
Constitution. These two cases dealt solely with the Filipinization of Public Utilities
determination of the correct regulatory fees under
Section 40(e) and (f) of the Public Service Act, to wit: The Preamble of the 1987 Constitution, as the prologue of
the supreme law of the land, embodies the ideals that the
(e) For annual reimbursement of the expenses incurred Constitution intends to achieve.22 The Preamble reads:
by the Commission in the supervision of other public
services and/or in the regulation or fixing of their rates, We, the sovereign Filipino people, imploring the aid of
twenty centavos for each one hundred pesos or fraction Almighty God, in order to build a just and humane
society, and establish a Government that shall embody In the grant of rights, privileges, and concessions
our ideals and aspirations, promote the common covering the national economy and patrimony, the State
good, conserve and develop our patrimony, and secure shall give preference to qualified Filipinos.
to ourselves and our posterity, the blessings of
independence and democracy under the rule of law and The State shall regulate and exercise authority over
a regime of truth, justice, freedom, love, equality, and foreign investments within its national jurisdiction and in
peace, do ordain and promulgate this Constitution. accordance with its national goals and priorities.23
(Emphasis supplied)
Under Section 10, Article XII of the 1987 Constitution,
Consistent with these ideals, Section 19, Article II of the Congress may "reserve to citizens of the Philippines or to
1987 Constitution declares as State policy the corporations or associations at least sixty per centum of
development of a national economy "effectively whose capital is owned by such citizens, or such higher
controlled" by Filipinos: percentage as Congress may prescribe, certain areas of
investments." Thus, in numerous laws Congress has
Section 19. The State shall develop a self-reliant and reserved certain areas of investments to Filipino citizens
independent national economy effectively controlled by or to corporations at least sixty percent of the "capital" of
Filipinos. which is owned by Filipino citizens. Some of these laws
are: (1) Regulation of Award of Government Contracts or
Fortifying the State policy of a Filipino-controlled R.A. No. 5183; (2) Philippine Inventors Incentives Act or
economy, the Constitution decrees: R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine
Section 10. The Congress shall, upon recommendation of Overseas Shipping Development Act or R.A. No. 7471;
the economic and planning agency, when the national (5) Domestic Shipping Development Act of 2004 or R.A.
interest dictates, reserve to citizens of the Philippines or No. 9295; (6) Philippine Technology Transfer Act of 2009
to corporations or associations at least sixty per centum of or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D.
whose capital is owned by such citizens, or such higher No. 1521.
percentage as Congress may prescribe, certain areas of
investments. The Congress shall enact measures that will With respect to public utilities, the 1987 Constitution
encourage the formation and operation of enterprises specifically ordains:
whose capital is wholly owned by Filipinos.
Section 11. No franchise, certificate, or any other form of The 1987 Constitution reserves the ownership and
authorization for the operation of a public utility shall operation of public utilities exclusively to (1) Filipino
be granted except to citizens of the Philippines or to citizens, or (2) corporations or associations at least 60
corporations or associations organized under the laws percent of whose "capital" is owned by Filipino citizens.
of the Philippines, at least sixty per centum of whose Hence, in the case of individuals, only Filipino citizens
capital is owned by such citizens; nor shall such can validly own and operate a public utility. In the case
franchise, certificate, or authorization be exclusive in of corporations or associations, at least 60 percent of their
character or for a longer period than fifty years. Neither "capital" must be owned by Filipino citizens. In other
shall any such franchise or right be granted except under words, under Section 11, Article XII of the 1987
the condition that it shall be subject to amendment, Constitution, to own and operate a public utility a
alteration, or repeal by the Congress when the common corporation’s capital must at least be 60 percent owned
good so requires. The State shall encourage equity by Philippine nationals.
participation in public utilities by the general public. The
participation of foreign investors in the governing body IV.
of any public utility enterprise shall be limited to their Definition of "Philippine National"
proportionate share in its capital, and all the executive
and managing officers of such corporation or association Pursuant to the express mandate of Section 11, Article XII
must be citizens of the Philippines. (Emphasis supplied) of the 1987 Constitution, Congress enacted Republic Act
No. 7042 or the Foreign Investments Act of 1991 (FIA), as
This provision, which mandates the Filipinization of amended, which defined a "Philippine national" as
public utilities, requires that any form of authorization follows:
for the operation of public utilities shall be granted only
to "citizens of the Philippines or to corporations or SEC. 3. Definitions. - As used in this Act:
associations organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by a. The term "Philippine national" shall mean a citizen of
such citizens." "The provision is [an express] recognition the Philippines; or a domestic partnership or association
of the sensitive and vital position of public utilities wholly owned by citizens of the Philippines; or a
both in the national economy and for national corporation organized under the laws of the
security."24 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 by then President Corazon C. Aquino. Article 15 of this
Philippines under the Corporation Code of which one Code states:
hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a Article 15. "Philippine national" shall mean a citizen of
trustee of funds for pension or other employee retirement the Philippines or a diplomatic partnership or association
or separation benefits, where the trustee is a Philippine wholly-owned by citizens of the Philippines; or a
national and at least sixty percent (60%) of the fund will corporation organized under the laws of the
accrue to the benefit of Philippine nationals: Provided, Philippines of which at least sixty per cent (60%) of the
That where a corporation and its non-Filipino capital stock outstanding and entitled to vote is owned
stockholders own stocks in a Securities and Exchange and held by citizens of the Philippines; or a trustee of
Commission (SEC) registered enterprise, at least sixty funds for pension or other employee retirement or
percent (60%) of the capital stock outstanding and separation benefits, where the trustee is a Philippine
entitled to vote of each of both corporations must be national and at least sixty per cent (60%) of the fund will
owned and held by citizens of the Philippines and at least accrue to the benefit of Philippine nationals: Provided,
sixty percent (60%) of the members of the Board of That where a corporation and its non-Filipino
Directors of each of both corporations must be citizens of stockholders own stock in a registered enterprise, at least
the Philippines, in order that the corporation, shall be sixty per cent (60%) of the capital stock outstanding and
considered a "Philippine national." (Boldfacing, entitled to vote of both corporations must be owned and
italicization and underscoring supplied) held by the citizens of the Philippines and at least sixty
per cent (60%) of the members of the Board of Directors
Thus, the FIA clearly and unequivocally defines a of both corporations must be citizens of the Philippines in
"Philippine national" as a Philippine citizen, or a order that the corporation shall be considered a
domestic corporation at least "60% of the capital stock Philippine national. (Boldfacing, italicization and
outstanding and entitled to vote" is owned by Philippine underscoring supplied)
citizens.
Under Article 48(3)26 of the Omnibus Investments Code
The definition of a "Philippine national" in the FIA of 1987, "no corporation x x x which is not a ‘Philippine
reiterated the meaning of such term as provided in its national’ x x x shall do business
predecessor statute, Executive Order No. 226 or
the Omnibus Investments Code of 1987,25 which was issued x x x in the Philippines x x x without first securing from
the Board of Investments a written certificate to the effect
that such business or economic activity x x x of both corporations must be citizens of the Philippines in
would not conflict with the Constitution or laws of the order that the corporation shall be considered a
Philippines."27 Thus, a "non-Philippine national" cannot Philippine national. (Boldfacing, italicization and
own and operate a reserved economic activity like a underscoring supplied)
public utility. This means, of course, that only a
"Philippine national" can own and operate a public Under Article 69(3) of the Omnibus Investments Code of
utility. 1981, "no corporation x x x which is not a ‘Philippine
national’ x x x shall do business x x x in the Philippines x
In turn, the definition of a "Philippine national" under x x without first securing a written certificate from the
Article 15 of the Omnibus Investments Code of 1987 was Board of Investments to the effect that such business or
a reiteration of the meaning of such term as provided in economic activity x x x would not conflict with the
Article 14 of the Omnibus Investments Code of 1981,28 to Constitution or laws of the Philippines."29 Thus, a "non-
wit: Philippine national" cannot own and operate a reserved
economic activity like a public utility. Again, this means
Article 14. "Philippine national" shall mean a citizen of that only a "Philippine national" can own and operate a
the Philippines; or a domestic partnership or association public utility.
wholly owned by citizens of the Philippines; or a
corporation organized under the laws of the Prior to the Omnibus Investments Code of 1981, Republic
Philippines of which at least sixty per cent (60%) of the Act No. 518630 or the Investment Incentives Act, which took
capital stock outstanding and entitled to vote is owned effect on 16 September 1967, contained a similar
and held by citizens of the Philippines; or a trustee of definition of a "Philippine national," to wit:
funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine (f) "Philippine National" shall mean a citizen of the
national and at least sixty per cent (60%) of the fund will Philippines; or a partnership or association wholly
accrue to the benefit of Philippine nationals: Provided, owned by citizens of the Philippines; or a corporation
That where a corporation and its non-Filipino organized under the laws of the Philippines of which at
stockholders own stock in a registered enterprise, at least least sixty per cent of the capital stock outstanding and
sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
entitled to vote of both corporations must be owned and Philippines; or a trustee of funds for pension or other
held by the citizens of the Philippines and at least sixty employee retirement or separation benefits, where the
per cent (60%) of the members of the Board of Directors trustee is a Philippine National and at least sixty per cent
of the fund will accrue to the benefit of Philippine Filipino citizens. A domestic corporation is a "Philippine
Nationals: Provided, That where a corporation and its national" only if at least 60% of its voting stock is owned
non-Filipino stockholders own stock in a registered by Filipino citizens. This definition of a "Philippine
enterprise, at least sixty per cent of the capital stock national" is crucial in the present case because the FIA
outstanding and entitled to vote of both corporations reiterates and clarifies Section 11, Article XII of the 1987
must be owned and held by the citizens of the Constitution, which limits the ownership and operation
Philippines and at least sixty per cent of the members of of public utilities to Filipino citizens or to corporations or
the Board of Directors of both corporations must be associations at least 60% Filipino-owned.
citizens of the Philippines in order that the corporation
shall be considered a Philippine National. (Boldfacing, The FIA is the basic law governing foreign investments in
italicization and underscoring supplied) the Philippines, irrespective of the nature of business and
area of investment. The FIA spells out the procedures by
Under Section 3 of Republic Act No. 5455 or the Foreign which non-Philippine nationals can invest in the
Business Regulations Act, which took effect on 30 Philippines. Among the key features of this law is the
September 1968, if the investment in a domestic concept of a negative list or the Foreign Investments
enterprise by non-Philippine nationals exceeds 30% of its Negative List.32 Section 8 of the law states:
outstanding capital stock, such enterprise must obtain
prior approval from the Board of Investments before SEC. 8. List of Investment Areas Reserved to Philippine
accepting such investment. Such approval shall not be Nationals [Foreign Investment Negative List]. - The Foreign
granted if the investment "would conflict with existing Investment Negative List shall have two 2 component
constitutional provisions and laws regulating the degree lists: A and B:
of required ownership by Philippine nationals in the
enterprise."31 A "non-Philippine national" cannot own a. List A shall enumerate the areas of activities reserved
and operate a reserved economic activity like a public to Philippine nationals by mandate of the
utility. Again, this means that only a "Philippine Constitution and specific laws.
national" can own and operate a public utility.
b. List B shall contain the areas of activities and
The FIA, like all its predecessor statutes, clearly defines a enterprises regulated pursuant to law:
"Philippine national" as a Filipino citizen, or a domestic
corporation "at least sixty percent (60%) of the capital 1. which are defense-related activities, requiring prior
stock outstanding and entitled to vote" is owned by clearance and authorization from the Department of
National Defense [DND] to engage in such activity, such operation of public utilities, which the Constitution
as the manufacture, repair, storage and/or distribution of expressly reserves to Filipino citizens and to corporations
firearms, ammunition, lethal weapons, military at least 60% owned by Filipino citizens. In other words,
ordinance, explosives, pyrotechnics and similar Negative List A of the FIA reserves the ownership and
materials; unless such manufacturing or repair activity is operation of public utilities only to "Philippine
specifically authorized, with a substantial export nationals," defined in Section 3(a) of the FIA as "(1) a
component, to a non-Philippine national by the Secretary citizen of the Philippines; x x x or (3) a corporation
of National Defense; or organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock
2. which have implications on public health and morals, outstanding and entitled to vote is owned and held by
such as the manufacture and distribution of dangerous citizens of the Philippines; or (4) a corporation
drugs; all forms of gambling; nightclubs, bars, beer organized abroad and registered as doing business in the
houses, dance halls, sauna and steam bathhouses and Philippines under the Corporation Code of which one
massage clinics. (Boldfacing, underscoring and hundred percent (100%) of the capital stock outstanding
italicization supplied) and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement
Section 8 of the FIA enumerates the investment areas or separation benefits, where the trustee is a Philippine
"reserved to Philippine nationals." Foreign Investment national and at least sixty percent (60%) of the fund will
Negative List A consists of "areas of activities reserved accrue to the benefit of Philippine nationals."
to Philippine nationals by mandate of the Constitution
and specific laws," where foreign equity participation in Clearly, from the effectivity of the Investment Incentives
any enterprise shall be limited to the maximum Act of 1967 to the adoption of the Omnibus Investments
percentage expressly prescribed by the Constitution Code of 1981, to the enactment of the Omnibus
and other specific laws. In short, to own and operate a Investments Code of 1987, and to the passage of the
public utility in the Philippines one must be a present Foreign Investments Act of 1991, or for more
"Philippine national" as defined in the FIA. The FIA is than four decades, the statutory definition of the term
abundant notice to foreign investors to what extent they "Philippine national" has been uniform and consistent:
can invest in public utilities in the Philippines. it means a Filipino citizen, or a domestic corporation at
least 60% of the voting stock is owned by Filipinos.
To repeat, among the areas of investment covered by the Likewise, these same statutes have uniformly and
Foreign Investment Negative List A is the ownership and consistently required that only "Philippine nationals"
could own and operate public utilities in the COMMISSIONER GAITE:
Philippines. The following exchange during the Oral
Arguments is revealing: Correct, Your Honor.

JUSTICE CARPIO: JUSTICE CARPIO:

Counsel, I have some questions. You are aware of And, you are also aware that under the
the Foreign Investments Act of 1991, x x x? And predecessor law of the Foreign Investments Act of
the FIA of 1991 took effect in 1991, correct? That’s 1991, the Omnibus Investments Act of 1987, the
over twenty (20) years ago, correct? same provisions apply: x x x only Philippine
nationals can own and operate a public utility and
COMMISSIONER GAITE: the Philippine national, if it is a corporation, x x x
sixty percent (60%) of the capital stock of that
Correct, Your Honor. corporation must be owned by citizens of the
Philippines, correct?
JUSTICE CARPIO:
COMMISSIONER GAITE:
And Section 8 of the Foreign Investments Act of
1991 states that []only Philippine nationals can Correct, Your Honor.
own and operate public utilities[], correct?
JUSTICE CARPIO:
COMMISSIONER GAITE:
And even prior to the Omnibus Investments Act of
Yes, Your Honor. 1987, under the Omnibus Investments Act of 1981,
the same rules apply: x x x only a Philippine
JUSTICE CARPIO: national can own and operate a public utility and
a Philippine national, if it is a corporation, sixty
And the same Foreign Investments Act of 1991 percent (60%) of its x x x voting stock, must be
defines a "Philippine national" either as a citizen of owned by citizens of the Philippines, correct?
the Philippines, or if it is a corporation at least
sixty percent (60%) of the voting stock is owned by COMMISSIONER GAITE:
citizens of the Philippines, correct?
 Correct, Your Honor. by citizens of the Philippines." Foreign Investment
Negative List A refers to "activities reserved to Philippine
JUSTICE CARPIO: nationals by mandate of the Constitution and specific
laws." The FIA is the basic statute regulating foreign
And even prior to that, under [the]1967 investments in the Philippines. Government agencies
Investments Incentives Act and the Foreign tasked with regulating or monitoring foreign
Company Act of 1968, the same rules applied, investments, as well as counsels of foreign investors,
correct? should start with the FIA in determining to what extent a
particular foreign investment is allowed in the
COMMISSIONER GAITE: Philippines. Foreign investors and their counsels who
ignore the FIA do so at their own peril. Foreign investors
Correct, Your Honor. and their counsels who rely on opinions of SEC legal
officers that obviously contradict the FIA do so also at
JUSTICE CARPIO: their own peril.
So, for the last four (4) decades, x x x, the law has Occasional opinions of SEC legal officers that obviously
been very consistent – only a Philippine national contradict the FIA should immediately raise a red flag.
can own and operate a public utility, and a
There are already numerous opinions of SEC legal
Philippine national, if it is a corporation, x x x at
officers that cite the definition of a "Philippine national"
least sixty percent (60%) of the voting stock must
in Section 3(a) of the FIA in determining whether a
be owned by citizens of the Philippines, correct?
particular corporation is qualified to own and operate a
nationalized or partially nationalized business in the
COMMISSIONER GAITE:
Philippines. This shows that SEC legal officers are not
Correct, Your Honor.33 (Emphasis supplied) only aware of, but also rely on and invoke, the provisions
of the FIA in ascertaining the eligibility of a corporation
Government agencies like the SEC cannot simply ignore to engage in partially nationalized industries. The
Sections 3(a) and 8 of the FIA which categorically following are some of such opinions:
prescribe that certain economic activities, like the
ownership and operation of public utilities, are reserved 1. Opinion of 23 March 1993, addressed to Mr.
to corporations "at least sixty percent (60%) of the capital Francis F. How;
stock outstanding and entitled to vote is owned and held
 2. Opinion of 14 April 1993, addressed to Director and cannot be equated with the term "capital" in Section
Angeles T. Wong of the Philippine Overseas 11, Article XII of the 1987 Constitution. Pangilinan
Employment Administration; similarly contends that the FIA and its predecessor
statutes do not apply to "companies which have not
3. Opinion of 23 November 1993, addressed to registered and obtained special incentives under the
Messrs. Dominador Almeda and Renato S. Calma; schemes established by those laws."

4. Opinion of 7 December 1993, addressed to Roco Both are desperately grasping at straws. The FIA does
Bunag Kapunan Migallos & Jardeleza; not grant tax or fiscal incentives to any enterprise. Tax
and fiscal incentives to investments are granted
5. SEC Opinion No. 49-04, addressed to Romulo separately under the Omnibus Investments Code of 1987,
Mabanta Buenaventura Sayoc & De Los Angeles; not under the FIA. In fact, the FIA expressly repealed
Articles 44 to 56 of Book II of the Omnibus Investments
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Code of 1987, which articles previously regulated foreign
Reynaldo G. David; and investments in nationalized or partially nationalized
industries.
7. SEC-OGC Opinion No. 03-08, addressed to
Attys. Ruby Rose J. Yusi and Rudyard S. The FIA is the applicable law regulating foreign
Arbolado. investments in nationalized or partially nationalized
industries. There is nothing in the FIA, or even in the
The SEC legal officers’ occasional but blatant disregard of Omnibus Investments Code of 1987 or its predecessor
the definition of the term "Philippine national" in the FIA statutes, that states, expressly or impliedly, that the FIA
signifies their lack of integrity and competence in or its predecessor statutes do not apply to enterprises not
resolving issues on the 60-40 ownership requirement in availing of tax and fiscal incentives under the Code. The
favor of Filipino citizens in Section 11, Article XII of the FIA and its predecessor statutes apply to investments in
Constitution. all domestic enterprises, whether or not such enterprises
enjoy tax and fiscal incentives under the Omnibus
The PSE President argues that the term "Philippine Investments Code of 1987 or its predecessor statutes. The
national" defined in the FIA should be limited and reason is quite obvious – mere non-availment of tax
interpreted to refer to corporations seeking to avail of tax and fiscal incentives by a non-Philippine national
and fiscal incentives under investment incentives laws cannot exempt it from Section 11, Article XII of the
Constitution regulating foreign investments in public beneficial ownership of the corporation. To repeat, we
utilities. In fact, the Board of Investments’ Primer on held:
Investment Policies in the Philippines,34 which is given
out to foreign investors, provides: Mere legal title is insufficient to meet the 60 percent
Filipino-owned "capital" required in the
PART III. FOREIGN INVESTMENTS WITHOUT Constitution. Full beneficial ownership of 60 percent of
INCENTIVES the outstanding capital stock, coupled with 60 percent
of the voting rights, is required. The legal and beneficial
Investors who do not seek incentives and/or whose ownership of 60 percent of the outstanding capital stock
chosen activities do not qualify for incentives, (i.e., the must rest in the hands of Filipino nationals in accordance
activity is not listed in the IPP, and they are not exporting with the constitutional mandate. Otherwise, the
at least 70% of their production) may go ahead and make corporation is "considered as non-Philippine national[s]."
the investments without seeking incentives. They only (Emphasis supplied)
have to be guided by the Foreign Investments Negative
List (FINL). This is consistent with Section 3 of the FIA which
provides that where 100% of the capital stock is held by
The FINL clearly defines investment areas requiring at "a trustee of funds for pension or other employee
least 60% Filipino ownership. All other areas outside of retirement or separation benefits," the trustee is a
this list are fully open to foreign investors. (Emphasis Philippine national if "at least sixty percent (60%) of the
supplied) fund will accrue to the benefit of Philippine nationals."
Likewise, Section 1(b) of the Implementing Rules of the
V. FIA provides that "for stocks to be deemed owned and
Right to elect directors, coupled with beneficial held by Philippine citizens or Philippine nationals, mere
ownership, legal title is not enough to meet the required Filipino
translates to effective control. equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights, is essential."
The 28 June 2011 Decision declares that the 60 percent
Filipino ownership required by the Constitution to Since the constitutional requirement of at least 60 percent
engage in certain economic activities applies not only to Filipino ownership applies not only to voting control of
voting control of the corporation, but also to the the corporation but also to the beneficial ownership of
the corporation, it is therefore imperative that such
requirement apply uniformly and across the board to all the Constitution must apply not only to shares with
classes of shares, regardless of nomenclature and voting rights but also to shares without voting rights.
category, comprising the capital of a corporation. Under Preferred shares, denied the right to vote in the election
the Corporation Code, capital stock35 consists of all of directors, are anyway still entitled to vote on the eight
classes of shares issued to stockholders, that is, common specific corporate matters mentioned above. Thus, if a
shares as well as preferred shares, which may have corporation, engaged in a partially nationalized
different rights, privileges or restrictions as stated in the industry, issues a mixture of common and preferred
articles of incorporation.36 non-voting shares, at least 60 percent of the common
shares and at least 60 percent of the preferred non-
The Corporation Code allows denial of the right to vote voting shares must be owned by Filipinos. Of course, if
to preferred and redeemable shares, but disallows denial a corporation issues only a single class of shares, at least
of the right to vote in specific corporate matters. Thus, 60 percent of such shares must necessarily be owned by
common shares have the right to vote in the election of Filipinos. In short, the 60-40 ownership requirement in
directors, while preferred shares may be denied such favor of Filipino citizens must apply separately to each
right. Nonetheless, preferred shares, even if denied the class of shares, whether common, preferred non-voting,
right to vote in the election of directors, are entitled to preferred voting or any other class of shares. This
vote on the following corporate matters: (1) amendment uniform application of the 60-40 ownership requirement
of articles of incorporation; (2) increase and decrease of in favor of Filipino citizens clearly breathes life to the
capital stock; (3) incurring, creating or increasing bonded constitutional command that the ownership and
indebtedness; (4) sale, lease, mortgage or other operation of public utilities shall be reserved exclusively
disposition of substantially all corporate assets; (5) to corporations at least 60 percent of whose capital is
investment of funds in another business or corporation or Filipino-owned. Applying uniformly the 60-40 ownership
for a purpose other than the primary purpose for which requirement in favor of Filipino citizens to each class of
the corporation was organized; (6) adoption, amendment shares, regardless of differences in voting rights,
and repeal of by-laws; (7) merger and consolidation; and privileges and restrictions, guarantees effective Filipino
(8) dissolution of corporation.37 control of public utilities, as mandated by the
Constitution.
Since a specific class of shares may have rights and
privileges or restrictions different from the rest of the Moreover, such uniform application to each class of
shares in a corporation, the 60-40 ownership requirement shares insures that the "controlling interest" in public
in favor of Filipino citizens in Section 11, Article XII of utilities always lies in the hands of Filipino citizens. This
addresses and extinguishes Pangilinan’s worry that MR. VILLEGAS. We have just had a long discussion with
foreigners, owning most of the non-voting shares, will the members of the team from the UP Law Center who
exercise greater control over fundamental corporate provided us a draft. The phrase that is contained here
matters requiring two-thirds or majority vote of all which we adopted from the UP draft is "60 percent of
shareholders. voting stock."

VI. MR. NOLLEDO. That must be based on the subscribed

Intent of the framers of the Constitution capital stock, because unless declared delinquent, unpaid
capital stock shall be entitled to vote.
While Justice Velasco quoted in his Dissenting
Opinion38 a portion of the deliberations of the MR. VILLEGAS. That is right.
Constitutional Commission to support his claim that the
term "capital" refers to the total outstanding shares of MR. NOLLEDO. Thank you.
stock, whether voting or non-voting, the following
excerpts of the deliberations reveal otherwise. It is clear With respect to an investment by one corporation in
from the following exchange that the term "capital" refers another corporation, say, a corporation with 60-40
to controlling interest of a corporation, thus: percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee adopt the grandfather rule?
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 MR. VILLEGAS. Yes, that is the understanding of the
Section 15. Committee.

MR. VILLEGAS. That is right. MR. NOLLEDO. Therefore, we need additional Filipino
capital?
MR. NOLLEDO. In teaching law, we are always faced
with this question: "Where do we base the equity MR. VILLEGAS. Yes.39
requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock xxxx
of a corporation"? Will the Committee please enlighten
me on this?
MR. AZCUNA. May I be clarified as to that portion that Rodrigo, there are associations that do not have stocks.
was accepted by the Committee. That is why we say "CAPITAL."

MR. VILLEGAS. The portion accepted by the Committee MR. AZCUNA. We should not eliminate the phrase
is the deletion of the phrase "voting stock or controlling "controlling interest."
interest."
MR. BENGZON. In the case of stock corporations, it is
MR. AZCUNA. Hence, without the Davide amendment, assumed.40 (Boldfacing and underscoring supplied)
the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is Thus, 60 percent of the "capital" assumes, or should
owned by such citizens." result in, a "controlling interest" in the corporation.

MR. VILLEGAS. Yes. The use of the term "capital" was intended to replace the
word "stock" because associations without stocks can
MR. AZCUNA. So if the Davide amendment is lost, we operate public utilities as long as they meet the 60-40
are stuck with 60 percent of the capital to be owned by ownership requirement in favor of Filipino citizens
citizens. prescribed in Section 11, Article XII of the Constitution.
However, this did not change the intent of the framers of
MR. VILLEGAS. That is right. the Constitution to reserve exclusively to Philippine
nationals the "controlling interest" in public utilities.
MR. AZCUNA. But the control can be with the
foreigners even if they are the minority. Let us say 40 During the drafting of the 1935 Constitution, economic
percent of the capital is owned by them, but it is the protectionism was "the battle-cry of the nationalists in the
voting capital, whereas, the Filipinos own the Convention."41 The same battle-cry resulted in the
nonvoting shares. So we can have a situation where the nationalization of the public utilities.42 This is also the
corporation is controlled by foreigners despite being same intent of the framers of the 1987 Constitution who
the minority because they have the voting capital. That adopted the exact formulation embodied in the 1935 and
is the anomaly that would result here. 1973 Constitutions on foreign equity limitations in
partially nationalized industries.
MR. BENGZON. No, the reason we eliminated the
word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner
The OSG, in its own behalf and as counsel for the shares owned by Filipinos, with both classes of share
State,43 agrees fully with the Court’s interpretation of the having a par value of one peso (₱ 1.00) per share. Under
term "capital." In its Consolidated Comment, the OSG the broad definition of the term "capital," such
explains that the deletion of the phrase "controlling corporation would be considered compliant with the 40
interest" and replacement of the word "stock" with the percent constitutional limit on foreign equity of public
term "capital" were intended specifically to extend the utilities since the overwhelming majority, or more than
scope of the entities qualified to operate public utilities to 99.999 percent, of the total outstanding capital stock is
include associations without stocks. The framers’ Filipino owned. This is obviously absurd.
omission of the phrase "controlling interest" did not
mean the inclusion of all shares of stock, whether voting In the example given, only the foreigners holding the
or non-voting. The OSG reiterated essentially the Court’s common shares have voting rights in the election of
declaration that the Constitution reserved exclusively to directors, even if they hold only 100 shares. The
Philippine nationals the ownership and operation of foreigners, with a minuscule equity of less than 0.001
public utilities consistent with the State’s policy to percent, exercise control over the public utility. On the
"develop a self-reliant and independent national other hand, the Filipinos, holding more than 99.999
economy effectively controlled by Filipinos." percent of the equity, cannot vote in the election of
directors and hence, have no control over the public
As we held in our 28 June 2011 Decision, to construe utility. This starkly circumvents the intent of the framers
broadly the term "capital" as the total outstanding capital of the Constitution, as well as the clear language of the
stock, treated as a single class regardless of the actual Constitution, to place the control of public utilities in the
classification of shares, grossly contravenes the intent hands of Filipinos. x x x
and letter of the Constitution that the "State shall develop
a self-reliant and independent national Further, even if foreigners who own more than forty
economy effectively controlled by Filipinos." We percent of the voting shares elect an all-Filipino board of
illustrated the glaring anomaly which would result in directors, this situation does not guarantee Filipino
defining the term "capital" as the total outstanding capital control and does not in any way cure the violation of the
stock of a corporation, treated as a single class of shares Constitution. The independence of the Filipino board
regardless of the actual classification of shares, to wit: members so elected by such foreign shareholders is
highly doubtful. As the OSG pointed out, quoting Justice
Let us assume that a corporation has 100 common shares George Sutherland’s words in Humphrey’s Executor v.
owned by foreigners and 1,000,000 non-voting preferred US,44 "x x x it is quite evident that one who holds his
office only during the pleasure of another cannot be Indeed, the only point of contention during the
depended upon to maintain an attitude of independence deliberations of the Constitutional Commission on 23
against the latter’s will." Allowing foreign shareholders August 1986 was the extent of majority Filipino control of
to elect a controlling majority of the board, even if all the public utilities. This is evident from the following
directors are Filipinos, grossly circumvents the letter and exchange:
intent of the Constitution and defeats the very purpose of
our nationalization laws. THE PRESIDENT. Commissioner Jamir is recognized.

VII. MR. JAMIR. Madam President, my proposed amendment

Last sentence of Section 11, Article XII of the on lines 20 and 21 is to delete the phrase "two thirds of
Constitution whose voting stock or controlling interest," and instead
substitute the words "SIXTY PERCENT OF WHOSE
The last sentence of Section 11, Article XII of the 1987 CAPITAL" so that the sentence will read: "No franchise,
Constitution reads: certificate, or any other form of authorization for the
operation of a public utility shall be granted except to
The participation of foreign investors in the governing citizens of the Philippines or to corporations or
body of any public utility enterprise shall be limited to associations organized under the laws of the Philippines
their proportionate share in its capital, and all the at least SIXTY PERCENT OF WHOSE CAPITAL is
executive and managing officers of such corporation or owned by such citizens."
association must be citizens of the Philippines.
xxxx
During the Oral Arguments, the OSG emphasized that
there was never a question on the intent of the framers of THE PRESIDENT: Will Commissioner Jamir first
the Constitution to limit foreign ownership, and assure explain?
majority Filipino ownership and control of public
utilities. The OSG argued, "while the delegates disagreed MR. JAMIR. Yes, in this Article on National Economy
as to the percentage threshold to adopt, x x x the records and Patrimony, there were two previous sections in
show they clearly understood that Filipino control of the which we fixed the Filipino equity to 60 percent as
public utility corporation can only be and is obtained against 40 percent for foreigners. It is only in this Section
only through the election of a majority of the members of 15 with respect to public utilities that the committee
the board." proposal was increased to two-thirds. I think it would be
better to harmonize this provision by providing that even MS. ROSARIO BRAID. Yes, in the interest of equal time,
in the case of public utilities, the minimum equity for may I also read from a memorandum by the spokesman
Filipino citizens should be 60 percent. of the Philippine Chamber of Communications on why
they would like to maintain the present equity, I am
MR. ROMULO. Madam President. referring to the 66 2/3. They would prefer to have a 75-25
ratio but would settle for 66 2/3. x x x
THE PRESIDENT. Commissioner Romulo is recognized.
xxxx
MR. ROMULO. My reason for supporting the
amendment is based on the discussions I have had with THE PRESIDENT. Just to clarify, would Commissioner
representatives of the Filipino majority owners of the Rosario Braid support the proposal of two-thirds rather
international record carriers, and the subsequent than the 60 percent?
memoranda they submitted to me. x x x
MS. ROSARIO BRAID. I have added a clause that will
Their second point is that under the Corporation Code, put management in the hands of Filipino citizens.
the management and control of a corporation is vested in
the board of directors, not in the officers but in the board x x x x46
of directors. The officers are only agents of the board.
And they believe that with 60 percent of the equity, the While they had differing views on the percentage of
Filipino majority stockholders undeniably control the Filipino ownership of capital, it is clear that the framers
board. Only on important corporate acts can the 40- of the Constitution intended public utilities to
percent foreign equity exercise a veto, x x x. be majority Filipino-owned and controlled. To ensure
that Filipinos control public utilities, the framers of the
x x x x45 Constitution approved, as additional safeguard, the
inclusion of the last sentence of Section 11, Article XII of
MS. ROSARIO BRAID. Madam President. the Constitution commanding that "[t]he participation of
foreign investors in the governing body of any public
THE PRESIDENT. Commissioner Rosario Braid is utility enterprise shall be limited to their proportionate
recognized. share in its capital, and all the executive and managing
officers of such corporation or association must be
citizens of the Philippines." In other words, the last
sentence of Section 11, Article XII of the Constitution contracts with these foreign companies – Philcom with
mandates that (1) the participation of foreign investors in RCA, ETPI with Cable and Wireless PLC, and GMCR
the governing body of the corporation or association with ITT. Up to the present time, the general managers of
shall be limited to their proportionate share in the capital these carriers are foreigners. While the foreigners in these
of such entity; and (2) all officers of the corporation or common carriers are only minority owners, the foreign
association must be Filipino citizens. multinationals are the ones managing and controlling
their operations by virtue of their management contracts
Commissioner Rosario Braid proposed the inclusion of and by virtue of their strength in the governing bodies of
the phrase requiring the managing officers of the these carriers.47
corporation or association to be Filipino citizens
specifically to prevent management contracts, which xxxx
were designed primarily to circumvent the Filipinization
of public utilities, and to assure Filipino control of public MR. OPLE. I think a number of us have agreed to ask
utilities, thus: Commissioner Rosario Braid to propose an amendment
with respect to the operating management of public
MS. ROSARIO BRAID. x x x They also like to suggest utilities, and in this amendment, we are associated with
that we amend this provision by adding a phrase which Fr. Bernas, Commissioners Nieva and Rodrigo.
states: "THE MANAGEMENT BODY OF EVERY Commissioner Rosario Braid will state this amendment
CORPORATION OR ASSOCIATION SHALL IN ALL now.
CASES BE CONTROLLED BY CITIZENS OF THE
PHILIPPINES." I have with me their position paper. Thank you.

THE PRESIDENT. The Commissioner may proceed. MS. ROSARIO BRAID. Madam President.

MS. ROSARIO BRAID. The three major international THE PRESIDENT. This is still on Section 15.
record carriers in the Philippines, which Commissioner
Romulo mentioned – Philippine Global Communications, MS. ROSARIO BRAID. Yes.
Eastern Telecommunications, Globe Mackay Cable – are
40-percent owned by foreign multinational companies MR. VILLEGAS. Yes, Madam President.
and 60-percent owned by their respective Filipino
partners. All three, however, also have management xxxx
MS. ROSARIO BRAID. Madam President, I propose a MR. VILLEGAS. "ALL THE EXECUTIVE AND
new section to read: ‘THE MANAGEMENT BODY OF MANAGING OFFICERS OF SUCH CORPORATIONS
EVERY CORPORATION OR ASSOCIATION SHALL IN AND ASSOCIATIONS MUST BE CITIZENS OF THE
ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES."
PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the
This will prevent management contracts and assure whole thing again?
control by Filipino citizens. Will the committee assure
us that this amendment will insure that past activities FR. BERNAS. "THE PARTICIPATION OF FOREIGN
such as management contracts will no longer be possible INVESTORS IN THE GOVERNING BODY OF ANY
under this amendment? PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO
THEIR PROPORTIONATE SHARE IN THE CAPITAL
xxxx THEREOF..." I do not have the rest of the copy.

FR. BERNAS. Madam President. MR. BENGZON. "AND ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH CORPORATIONS
THE PRESIDENT. Commissioner Bernas is recognized. OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES." Is that correct?
FR. BERNAS. Will the committee accept a reformulation
of the first part? MR. VILLEGAS. Yes.

MR. BENGZON. Let us hear it. MR. BENGZON. Madam President, I think that was said
in a more elegant language. We accept the amendment. Is
FR. BERNAS. The reformulation will be essentially the that all right with Commissioner Rosario Braid?
formula of the 1973 Constitution which reads: "THE
PARTICIPATION OF FOREIGN INVESTORS IN THE MS. ROSARIO BRAID. Yes.
GOVERNING BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR xxxx
PROPORTIONATE SHARE IN THE CAPITAL
THEREOF AND..." MR. DE LOS REYES. The governing body refers to the
board of directors and trustees.
MR. VILLEGAS. That is right. the Philippines at least 60 PERCENT OF WHOSE
CAPITAL is owned by such citizens." May I request
MR. BENGZON. Yes, the governing body refers to the Commissioner Bengzon to please continue reading.
board of directors.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN
MR. REGALADO. It is accepted. INVESTORS IN THE GOVERNING BODY OF ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO
MR. RAMA. The body is now ready to vote, Madam THEIR PROPORTIONATE SHARE IN THE CAPITAL
President. THEREOF AND ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH CORPORATIONS
VOTING OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES."
xxxx
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE,
The results show 29 votes in favor and none against; so CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE
the proposed amendment is approved. IN CHARACTER OR FOR A PERIOD LONGER THAN
TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE
xxxx THAN TWENTY-FIVE YEARS. Neither shall any such
franchise or right be granted except under the condition
THE PRESIDENT. All right. Can we proceed now to vote that it shall be subject to amendment, alteration, or repeal
on Section 15? by Congress when the common good so requires. The
State shall encourage equity participation in public
MR. RAMA. Yes, Madam President.
utilities by the general public."
THE PRESIDENT. Will the chairman of the committee
VOTING
please read Section 15?
xxxx
MR. VILLEGAS. The entire Section 15, as amended,
reads: "No franchise, certificate, or any other form of The results show 29 votes in favor and 4 against; Section
authorization for the operation of a public utility shall be 15, as amended, is approved.48 (Emphasis supplied)
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
The last sentence of Section 11, Article XII of the 1987 presentation and determination of evidence through a
Constitution, particularly the provision on the limited hearing, which is generally outside the province of the
participation of foreign investors in the governing body Court’s jurisdiction, but well within the SEC’s statutory
of public utilities, is a reiteration of the last sentence of powers. Thus, for obvious reasons, the Court limited its
Section 5, Article XIV of the 1973 decision on the purely legal and threshold issue on the
Constitution,49 signifying its importance in reserving definition of the term "capital" in Section 11, Article XII of
ownership and control of public utilities to Filipino the Constitution and directed the SEC to apply such
citizens. definition in determining the exact percentage of foreign
ownership in PLDT.
VIII.
The undisputed facts IX.
PLDT is not an indispensable party;
There is no dispute, and respondents do not claim the SEC is impleaded in this case.
contrary, that (1) foreigners own 64.27% of the common
shares of PLDT, which class of shares exercises In his petition, Gamboa prays, among others:
the sole right to vote in the election of directors, and thus
foreigners control PLDT; (2) Filipinos own only 35.73% of xxxx
PLDT’s common shares, constituting a minority of the
voting stock, and thus Filipinos do not control PLDT; (3) 5. For the Honorable Court to issue a declaratory relief
preferred shares, 99.44% owned by Filipinos, have no that ownership of common or voting shares is the sole
voting rights; (4) preferred shares earn only 1/70 of the basis in determining foreign equity in a public utility and
dividends that common shares earn;50 (5) preferred that any other government rulings, opinions, and
shares have twice the par value of common shares; and regulations inconsistent with this declaratory relief be
(6) preferred shares constitute 77.85% of the authorized declared unconstitutional and a violation of the intent
capital stock of PLDT and common shares only 22.15%. and spirit of the 1987 Constitution;

Despite the foregoing facts, the Court did not decide, and 6. For the Honorable Court to declare null and void all
in fact refrained from ruling on the question of whether sales of common stocks to foreigners in excess of 40
PLDT violated the 60-40 ownership requirement in favor percent of the total subscribed common shareholdings;
of Filipino citizens in Section 11, Article XII of the 1987 and
Constitution. Such question indisputably calls for a
7. For the Honorable Court to direct the Securities and et al., we held that this Court has full powers, apart from
Exchange Commission and Philippine Stock Exchange to that power and authority which is inherent, to amend the
require PLDT to make a public disclosure of all of its processes, pleadings, proceedings and decisions by
foreign shareholdings and their actual and real substituting as party-plaintiff the real party-in-
beneficial owners. interest. The Court has the power to avoid delay in the
disposition of this case, to order its amendment as to
Other relief(s) just and equitable are likewise prayed for. implead the BOC as party-respondent. Indeed, it may
(Emphasis supplied) no longer be necessary to do so taking into account the
unique backdrop in this case, involving as it does an
As can be gleaned from his prayer, Gamboa clearly asks issue of public interest. After all, the Office of the
this Court to compel the SEC to perform its statutory Solicitor General has represented the petitioner in the
duty to investigate whether "the required percentage of instant proceedings, as well as in the appellate court, and
ownership of the capital stock to be owned by citizens of maintained the validity of the deportation order and of
the Philippines has been complied with [by PLDT] as the BOC’s Omnibus Resolution. It cannot, thus, be
required by x x x the Constitution."51 Such plea clearly claimed by the State that the BOC was not afforded its
negates SEC’s argument that it was not impleaded. day in court, simply because only the petitioner, the
Chairperson of the BOC, was the respondent in the CA,
Granting that only the SEC Chairman was impleaded in and the petitioner in the instant recourse. In Alonso v.
this case, the Court has ample powers to order the SEC’s Villamor, we had the occasion to state:
compliance with its directive contained in the 28 June
2011 Decision in view of the far-reaching implications of There is nothing sacred about processes or pleadings,
this case. In Domingo v. Scheer,52 the Court dispensed with their forms or contents. Their sole purpose is to
the amendment of the pleadings to implead the Bureau facilitate the application of justice to the rival claims of
of Customs considering (1) the unique backdrop of the contending parties. They were created, not to hinder and
case; (2) the utmost need to avoid further delays; and (3) delay, but to facilitate and promote, the administration of
the issue of public interest involved. The Court held: justice. They do not constitute the thing itself, which
courts are always striving to secure to litigants. They are
The Court may be curing the defect in this case by adding designed as the means best adapted to obtain that thing.
the BOC as party-petitioner. The petition should not be In other words, they are a means to an end. When they
dismissed because the second action would only be a lose the character of the one and become the other, the
repetition of the first. In Salvador, et al., v. Court of Appeals, administration of justice is at fault and courts are
correspondingly remiss in the performance of their proceedings before the SEC where the factual issues will
obvious duty.53 (Emphasis supplied) be thoroughly threshed out and resolved.

In any event, the SEC has expressly manifested54 that it Notably, the foregoing issues were left untouched by
will abide by the Court’s decision and defer to the the Court. The Court did not rule on the factual issues
Court’s definition of the term "capital" in Section 11, raised by Gamboa, except the single and purely legal
Article XII of the Constitution. Further, the SEC entered issue on the definition of the term "capital" in Section 11,
its special appearance in this case and argued during Article XII of the Constitution. The Court confined the
the Oral Arguments, indicating its submission to the resolution of the instant case to this threshold legal issue
Court’s jurisdiction. It is clear, therefore, that there in deference to the fact-finding power of the SEC.
exists no legal impediment against the proper and
immediate implementation of the Court’s directive to Needless to state, the Court can validly, properly, and
the SEC. fully dispose of the fundamental legal issue in this case
even without the participation of PLDT since defining the
PLDT is an indispensable party only insofar as the other term "capital" in Section 11, Article XII of the Constitution
issues, particularly the factual questions, are concerned. does not, in any way, depend on whether PLDT was
In other words, PLDT must be impleaded in order to impleaded. Simply put, PLDT is not indispensable for a
fully resolve the issues on (1) whether the sale of 111,415 complete resolution of the purely legal question in this
PTIC shares to First Pacific violates the constitutional case.55 In fact, the Court, by treating the petition as one
limit on foreign ownership of PLDT; (2) whether the sale for mandamus,56 merely directed the SEC to apply the
of common shares to foreigners exceeded the 40 percent Court’s definition of the term "capital" in Section 11,
limit on foreign equity in PLDT; and (3) whether the total Article XII of the Constitution in determining whether
percentage of the PLDT common shares with voting PLDT committed any violation of the said constitutional
rights complies with the 60-40 ownership requirement in provision. The dispositive portion of the Court’s ruling
favor of Filipino citizens under the Constitution for the is addressed not to PLDT but solely to the SEC, which
ownership and operation of PLDT. These issues is the administrative agency tasked to enforce the 60-40
indisputably call for an examination of the parties’ ownership requirement in favor of Filipino citizens in
respective evidence, and thus are clearly within the Section 11, Article XII of the Constitution.
jurisdiction of the SEC. In short, PLDT must be
impleaded, and must necessarily be heard, in the Since the Court limited its resolution on the purely legal
issue on the definition of the term "capital" in Section 11,
Article XII of the 1987 Constitution, and directed the SEC solution to our economic woes is for the government to
to investigate any violation by PLDT of the 60-40 "take-over" strategic industries, such as the public
ownership requirement in favor of Filipino citizens under utilities sector, thus:
the Constitution,57 there is no deprivation of PLDT’s
property or denial of PLDT’s right to due process, JUSTICE CARPIO:
contrary to Pangilinan and Nazareno’s misimpression.
Due process will be afforded to PLDT when it presents I would like also to get from you Dr. Villegas if you have
proof to the SEC that it complies, as it claims here, with additional information on whether this high
Section 11, Article XII of the Constitution. FDI59 countries in East Asia have allowed foreigners x x x
control [of] their public utilities, so that we can compare
X. apples with apples.
Foreign Investments in the Philippines
DR. VILLEGAS:
Movants fear that the 28 June 2011 Decision would spell
disaster to our economy, as it may result in a sudden Correct, but let me just make a comment. When these
flight of existing foreign investors to "friendlier" neighbors of ours find an industry strategic, their
countries and simultaneously deterring new foreign solution is not to "Filipinize" or "Vietnamize" or
investors to our country. In particular, the PSE claims "Singaporize." Their solution is to make sure that those
that the 28 June 2011 Decision may result in the industries are in the hands of state enterprises. So, in
following: (1) loss of more than ₱ 630 billion in foreign these countries, nationalization means the government
investments in PSE-listed shares; (2) massive decrease in takes over. And because their governments are
foreign trading transactions; (3) lower PSE Composite competent and honest enough to the public, that is the
Index; and (4) local investors not investing in PSE-listed solution. x x x 60 (Emphasis supplied)
shares.58
If government ownership of public utilities is the
Dr. Bernardo M. Villegas, one of the amici curiae in the solution, then foreign investments in our public utilities
Oral Arguments, shared movants’ apprehension. serve no purpose. Obviously, there can never be foreign
Without providing specific details, he pointed out the investments in public utilities if, as Dr. Villegas claims,
depressing state of the Philippine economy compared to the "solution is to make sure that those industries are in
our neighboring countries which boast of growing the hands of state enterprises." Dr. Villegas’s argument
economies. Further, Dr. Villegas explained that the that foreign investments in telecommunication
companies like PLDT are badly needed to save our ailing In its Motion for Partial Reconsideration, the SEC sought
economy contradicts his own theory that the solution is to clarify the reckoning period of the application and
for government to take over these companies. Dr. imposition of appropriate sanctions against PLDT if
Villegas is barking up the wrong tree since State found violating Section 11, Article XII of the
ownership of public utilities and foreign investments in Constitution.1avvphi1
such industries are diametrically opposed concepts,
which cannot possibly be reconciled. As discussed, the Court has directed the SEC to
investigate and determine whether PLDT violated
In any event, the experience of our neighboring countries Section 11, Article XII of the Constitution. Thus, there is
cannot be used as argument to decide the present case no dispute that it is only after the SEC has determined
differently for two reasons. First, the governments of our PLDT’s violation, if any exists at the time of the
neighboring countries have, as claimed by Dr. Villegas, commencement of the administrative case or
taken over ownership and control of their strategic public investigation, that the SEC may impose the statutory
utilities like the telecommunications industry. Second, sanctions against PLDT. In other words, once the 28 June
our Constitution has specific provisions limiting foreign 2011 Decision becomes final, the SEC shall impose the
ownership in public utilities which the Court is sworn to appropriate sanctions only if it finds after due hearing
uphold regardless of the experience of our neighboring that, at the start of the administrative case or
countries. investigation, there is an existing violation of Section 11,
Article XII of the Constitution. Under prevailing
In our jurisdiction, the Constitution expressly reserves jurisprudence, public utilities that fail to comply with the
the ownership and operation of public utilities to Filipino nationality requirement under Section 11, Article XII and
citizens, or corporations or associations at least 60 percent the FIA can cure their deficiencies prior to the start of the
of whose capital belongs to Filipinos. Following Dr. administrative case or investigation.61
Villegas’s claim, the Philippines appears to be more
liberal in allowing foreign investors to own 40 percent of XII.
public utilities, unlike in other Asian countries whose Final Word
governments own and operate such industries.
The Constitution expressly declares as State policy the
XI. development of an economy "effectively controlled" by
Prospective Application of Sanctions Filipinos. Consistent with such State policy, the
Constitution explicitly reserves the ownership and
operation of public utilities to Philippine nationals, who which gave Americans the same rights as Filipinos in the
are defined in the Foreign Investments Act of 1991 as exploitation of natural resources, and in the ownership
Filipino citizens, or corporations or associations at least and control of public utilities, in the Philippines. To do
60 percent of whose capital with voting rights belongs to this the 1935 Constitution, which contained the same 60
Filipinos. The FIA’s implementing rules explain that percent Filipino ownership and control requirement as
"[f]or stocks to be deemed owned and held by Philippine the present 1987 Constitution, had to be amended to give
citizens or Philippine nationals, mere legal title is not Americans parity rights with Filipinos. There was bitter
enough to meet the required Filipino equity. Full opposition to the Parity Amendment62 and many
beneficial ownership of the stocks, coupled with Filipinos eagerly awaited its expiration. In late 1968,
appropriate voting rights is essential." In effect, the FIA PLDT was one of the American-controlled public utilities
clarifies, reiterates and confirms the interpretation that that became Filipino-controlled when the controlling
the term "capital" in Section 11, Article XII of the 1987 American stockholders divested in anticipation of the
Constitution refers to shares with voting rights, as well expiration of the Parity Amendment on 3 July 1974.63 No
as with full beneficial ownership. This is precisely economic suicide happened when control of public
because the right to vote in the election of directors, utilities and mining corporations passed to Filipinos’
coupled with full beneficial ownership of stocks, hands upon expiration of the Parity Amendment.
translates to effective control of a corporation.
Movants’ interpretation of the term "capital" would bring
Any other construction of the term "capital" in Section 11, us back to the same evils spawned by the Parity
Article XII of the Constitution contravenes the letter and Amendment, effectively giving foreigners parity rights
intent of the Constitution. Any other meaning of the term with Filipinos, but this time even without any
"capital" openly invites alien domination of economic amendment to the present Constitution. Worse, movants’
activities reserved exclusively to Philippine nationals. interpretation opens up our national economy to effective
Therefore, respondents’ interpretation will ultimately control not only by Americans but also by all foreigners,
result in handing over effective control of our national be they Indonesians, Malaysians or Chinese, even in
economy to foreigners in patent violation of the the absence of reciprocal treaty arrangements. At least
Constitution, making Filipinos second-class citizens in the Parity Amendment, as implemented by the Laurel-
their own country. Langley Agreement, gave the capital-starved Filipinos
theoretical parity – the same rights as Americans to
Filipinos have only to remind themselves of how this exploit natural resources, and to own and control public
country was exploited under the Parity Amendment, utilities, in the United States of America. Here, movants’
interpretation would effectively mean G.R. No. 176579 June 28, 2011
a unilateral opening up of our national economy to all
foreigners, without any reciprocal arrangements. That WILSON P. GAMBOA, Petitioner,
would mean that Indonesians, Malaysians and Chinese vs.
nationals could effectively control our mining companies FINANCE SECRETARY MARGARITO B. TEVES,
and public utilities while Filipinos, even if they have the FINANCE UNDERSECRETARY JOHN P. SEVILLA,
capital, could not control similar corporations in these AND COMMISSIONER RICARDO ABCEDE OF THE
countries. PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
The 1935, 1973 and 1987 Constitutions have the same 60 CHAIR AND MEMBERS, RESPECTIVELY, OF THE
percent Filipino ownership and control requirement for PRIVATIZATION COUNCIL, CHAIRMAN
public utilities like PLOT. Any deviation from this ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN
requirement necessitates an amendment to the HIS CAPACITY AS DIRECTOR OF METRO PACIFIC
Constitution as exemplified by the Parity Amendment. ASSET HOLDINGS INC., CHAIRMAN MANUEL V.
This Court has no power to amend the Constitution for PANGILINAN OF PHILIPPINE LONG DISTANCE
its power and duty is only to faithfully apply and TELEPHONE COMPANY (PLDT) IN HIS CAPACITY
AS MANAGING DIRECTOR OF FIRST PACIFIC CO.,
interpret the Constitution.
LTD., PRESIDENT NAPOLEON L. NAZARENO OF
PHILIPPINE LONG DISTANCE TELEPHONE
WHEREFORE, we DENY the motions for
COMPANY, CHAIR FE BARIN OF THE SECURITIES
reconsideration WITH FINALITY. No further pleadings
EXCHANGE COMMISSION, and PRESIDENT
shall be entertained.
FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE, Respondents.
SO ORDERED
PABLITO V. SANIDAD and ARNO V.
SANIDAD, Petitioners-in-Intervention.

Corporation Law; Words and Phrases; “Capital”; The term

“capital” in Section 11, Article XII of the Constitution refers
only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares,
and not to the total outstanding capital stock comprising both redeemable shares can be deprived of the right to vote.
common and non-voting preferred shares.—We agree with Common shares cannot be deprived of the right to vote
petitioner and petitioners-in-intervention. The term in any corporate meeting, and any provision in the
“capital” in Section 11, Article XII of the Constitution articles of incorporation restricting the right of common
refers only to shares of stock entitled to vote in the shareholders to vote is invalid.
election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred Same; Same; The term “capital” in Section 11, Article XII of
shares. the Constitution refers only to shares of stock that can vote in
the election of directors.—Considering that common shares
have voting rights which translate to control, as opposed
Same; Capital; Common shares cannot be deprived of the right to preferred shares which usually have no voting rights,
to vote in any corporate meeting, and any provision in the the term “capital” in Section 11, Article XII of the
articles of incorporation restricting the right of common Constitution refers only to common shares. However, if
shareholders to vote is invalid.—Indisputably, one of the the preferred shares also have the right to vote in the
rights of a stockholder is the right to participate in the election of directors, then the term “capital” shall include
control or management of the corporation. This is such preferred shares because the right to participate in
exercised through his vote in the election of directors the control or management of the corporation is exercised
because it is the board of directors that controls or through the right to vote in the election of directors. In
manages the corporation. In the absence of provisions in short, the term “capital” in Section 11, Article XII of the
the articles of incorporation denying voting rights to Constitution refers only to shares of stock that can vote in
preferred shares, preferred shares have the same voting the election of directors.
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 Same; Same; The term “capital” in Section 11, Article XII of
and on other matters, on the theory that the preferred the Constitution to include both voting and non-voting shares
shareholders are merely investors in the corporation for will result in the abject surrender of our telecommunications
income in the same manner as bondholders. In fact, industry to foreigners, amounting to a clear abdication of the
under the Corporation Code only preferred or State’s constitutional duty to limit control of public utilities to
Filipino citizens; The Court should never open to foreign by law.—Under Section 5(m) of the Securities Regulation
control what the Constitution has expressly reserved to Code, the SEC is vested with the “power and function” to
Filipinos for that would be a betrayal of the Constitution and of “suspend or revoke, after proper notice and hearing, the
the national interest.—Indisputably, construing the term franchise or certificate of registration of corporations,
“capital” in Section 11, Article XII of the Constitution to partnerships or associations, upon any of the grounds
include both voting and non-voting shares will result in provided by law.” The SEC is mandated under Section
the abject surrender of our telecommunications industry 5(d) of the same Code with the “power and function” to
to foreigners, amounting to a clear abdication of the “investigate x x x the activities of persons to ensure
State’s constitutional duty to limit control of public compliance” with the laws and regulations that SEC
utilities to Filipino citizens. Such an interpretation administers or enforces. The GIS that all corporations are
certainly runs counter to the constitutional provision required to submit to SEC annually should put the SEC
reserving certain areas of investment to Filipino citizens, on guard against violations of the nationality
such as the exploitation of natural resources as well as requirement prescribed in the Constitution and existing
the ownership of land, educational institutions and laws. This Court can compel the SEC, in a petition for
advertising businesses. The Court should never open to declaratory relief that is treated as a petition for
foreign control what the Constitution has expressly mandamus as in the present case, to hear and decide a
reserved to Filipinos for that would be a betrayal of the possible violation of Section 11, Article XII of the
Constitution and of the national interest. The Court must Constitution in view of the ownership structure of
perform its solemn duty to defend and uphold the intent PLDT’s voting shares, as admitted by respondents and as
and letter of the Constitution to ensure, in the words of stated in PLDT’s 2010 GIS that PLDT submitted to SEC.
the Constitution, “a self-reliant and independent national
economy effectively controlled by Filipinos.”
This is an original petition for prohibition, injunction,
declaratory relief and declaration of nullity of the sale of
Same; Securities and Exchange Commission; The Securities shares of stock of Philippine Telecommunications
and Exchange Commission (SEC) is vested with the power and Investment Corporation (PTIC) by the government of the
function to suspend or revoke, after proper notice and hearing, Republic of the Philippines to Metro Pacific Assets
the franchise or certificate of registration of corporations, Holdings, Inc. (MPAH), an affiliate of First Pacific
partnerships or associations, upon any of the grounds provided Company Limited (First Pacific).
 The Antecedents the outstanding capital stock of PTIC, through a public
bidding to be conducted on 4 December 2006.
The facts, according to petitioner Wilson P. Gamboa, a Subsequently, the public bidding was reset to 8
stockholder of Philippine Long Distance Telephone December 2006, and only two bidders, Parallax Venture
Company (PLDT), are as follows:1 Fund XXVII (Parallax) and Pan-Asia Presidio Capital,
submitted their bids. Parallax won with a bid of ₱25.6
On 28 November 1928, the Philippine Legislature enacted billion or US$510 million.
Act No. 3436 which granted PLDT a franchise and the
right to engage in telecommunications business. In 1969, Thereafter, First Pacific announced that it would exercise
General Telephone and Electronics Corporation (GTE), its right of first refusal as a PTIC stockholder and buy the
an American company and a major PLDT stockholder, 111,415 PTIC shares by matching the bid price of
sold 26 percent of the outstanding common shares of Parallax. However, First Pacific failed to do so by the 1
PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was February 2007 deadline set by IPC and instead, yielded
incorporated by several persons, including Roland its right to PTIC itself which was then given by IPC until
Gapud and Jose Campos, Jr. Subsequently, PHI became 2 March 2007 to buy the PTIC shares. On 14 February
the owner of 111,415 shares of stock of PTIC by virtue of 2007, First Pacific, through its subsidiary, MPAH, entered
three Deeds of Assignment executed by PTIC into a Conditional Sale and Purchase Agreement of the
stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 111,415 PTIC shares, or 46.125 percent of the outstanding
1986, the 111,415 shares of stock of PTIC held by PHI capital stock of PTIC, with the Philippine Government
were sequestered by the Presidential Commission on for the price of ₱25,217,556,000 or US$510,580,189. The
Good Government (PCGG). The 111,415 PTIC shares, sale was completed on 28 February 2007.
which represent about 46.125 percent of the outstanding
capital stock of PTIC, were later declared by this Court to Since PTIC is a stockholder of PLDT, the sale by the
be owned by the Republic of the Philippines.2 Philippine Government of 46.125 percent of PTIC shares
is actually an indirect sale of 12 million shares or about
In 1999, First Pacific, a Bermuda-registered, Hong Kong- 6.3 percent of the outstanding common shares of
based investment firm, acquired the remaining 54 PLDT. With the sale, First Pacific’s common
percent of the outstanding capital stock of PTIC. On 20 shareholdings in PLDT increased from 30.7 percent to
November 2006, the Inter-Agency Privatization Council 37 percent, thereby increasing the common
(IPC) of the Philippine Government announced that it shareholdings of foreigners in PLDT to about 81.47
would sell the 111,415 PTIC shares, or 46.125 percent of percent. This violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership as the disposing entity. An invitation to bid was
of the capital of a public utility to not more than 40 published in seven different newspapers from 13 to 24
percent.3 November 2006. On 20 November 2006, a pre-bid
conference was held, and the original deadline for
On the other hand, public respondents Finance Secretary bidding scheduled on 4 December 2006 was reset to 8
Margarito B. Teves, Undersecretary John P. Sevilla, and December 2006. The extension was published in nine
PCGG Commissioner Ricardo Abcede allege the different newspapers.
following relevant facts:
During the 8 December 2006 bidding, Parallax Capital
On 9 November 1967, PTIC was incorporated and had Management LP emerged as the highest bidder with a
since engaged in the business of investment holdings. bid of ₱25,217,556,000. The government notified First
PTIC held 26,034,263 PLDT common shares, or 13.847 Pacific, the majority owner of PTIC shares, of the bidding
percent of the total PLDT outstanding common shares. results and gave First Pacific until 1 February 2007 to
PHI, on the other hand, was incorporated in 1977, and exercise its right of first refusal in accordance with PTIC’s
became the owner of 111,415 PTIC shares or 46.125 Articles of Incorporation. First Pacific announced its
percent of the outstanding capital stock of PTIC by virtue intention to match Parallax’s bid.
of three Deeds of Assignment executed by Ramon
Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 On 31 January 2007, the House of Representatives (HR)
PTIC shares held by PHI were sequestered by the PCGG, Committee on Good Government conducted a public
and subsequently declared by this Court as part of the ill- hearing on the particulars of the then impending sale of
gotten wealth of former President Ferdinand Marcos. The the 111,415 PTIC shares. Respondents Teves and Sevilla
sequestered PTIC shares were reconveyed to the were among those who attended the public hearing. The
Republic of the Philippines in accordance with this HR Committee Report No. 2270 concluded that: (a) the
Court’s decision4 which became final and executory on 8 auction of the government’s 111,415 PTIC shares bore
August 2006. due diligence, transparency and conformity with existing
legal procedures; and (b) First Pacific’s intended
The Philippine Government decided to sell the 111,415 acquisition of the government’s 111,415 PTIC shares
PTIC shares, which represent 6.4 percent of the resulting in First Pacific’s 100% ownership of PTIC will
outstanding common shares of stock of PLDT, and not violate the 40 percent constitutional limit on foreign
designated the Inter-Agency Privatization Council (IPC), ownership of a public utility since PTIC holds only
composed of the Department of Finance and the PCGG, 13.847 percent of the total outstanding common shares
of PLDT.5 On 28 February 2007, First Pacific completed If and when the sale is completed, First Pacific’s equity in
the acquisition of the 111,415 shares of stock of PTIC. PLDT will go up from 30.7 percent to 37.0 percent of its
common – or voting- stockholdings, x x x. Hence, the
Respondent Manuel V. Pangilinan admits the following consummation of the sale will put the two largest foreign
facts: (a) the IPC conducted a public bidding for the sale investors in PLDT – First Pacific and Japan’s NTT
of 111,415 PTIC shares or 46 percent of the outstanding DoCoMo, which is the world’s largest wireless
capital stock of PTIC (the remaining 54 percent of PTIC telecommunications firm, owning 51.56 percent of PLDT
shares was already owned by First Pacific and its common equity. x x x With the completion of the sale,
affiliates); (b) Parallax offered the highest bid amounting data culled from the official website of the New York
to ₱25,217,556,000; (c) pursuant to the right of first refusal Stock Exchange (www.nyse.com) showed that those
in favor of PTIC and its shareholders granted in PTIC’s foreign entities, which own at least five percent of
Articles of Incorporation, MPAH, a First Pacific affiliate, common equity, will collectively own 81.47 percent of
exercised its right of first refusal by matching the highest PLDT’s common equity. x x x
bid offered for PTIC shares on 13 February 2007; and (d)
on 28 February 2007, the sale was consummated when x x x as the annual disclosure reports, also referred to as
MPAH paid IPC ₱25,217,556,000 and the government Form 20-K reports x x x which PLDT submitted to the
delivered the certificates for the 111,415 PTIC shares. New York Stock Exchange for the period 2003-2005,
Respondent Pangilinan denies the other allegations of revealed that First Pacific and several other foreign
facts of petitioner. entities breached the constitutional limit of 40 percent
ownership as early as 2003. x x x"7
On 28 February 2007, petitioner filed the instant petition
for prohibition, injunction, declaratory relief, and Petitioner raises the following issues: (1) whether the
declaration of nullity of sale of the 111,415 PTIC shares. consummation of the then impending sale of 111,415
Petitioner claims, among others, that the sale of the PTIC shares to First Pacific violates the constitutional
111,415 PTIC shares would result in an increase in First limit on foreign ownership of a public utility; (2) whether
Pacific’s common shareholdings in PLDT from 30.7 public respondents committed grave abuse of discretion
percent to 37 percent, and this, combined with Japanese in allowing the sale of the 111,415 PTIC shares to First
NTT DoCoMo’s common shareholdings in PLDT, would Pacific; and (3) whether the sale of common shares to
result to a total foreign common shareholdings in PLDT foreigners in excess of 40 percent of the entire subscribed
of 51.56 percent which is over the 40 percent common capital stock violates the constitutional limit on
constitutional limit.6 Petitioner asserts: foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. The Ruling of the Court
Sanidad filed a Motion for Leave to Intervene and Admit
Attached Petition-in-Intervention. In the Resolution of 28 The petition is partly meritorious.
August 2007, the Court granted the motion and noted the
Petition-in-Intervention. Petition for declaratory relief treated as petition for
mandamus
Petitioners-in-intervention "join petitioner Wilson
Gamboa x x x in seeking, among others, to enjoin and/or At the outset, petitioner is faced with a procedural
nullify the sale by respondents of the 111,415 PTIC shares barrier. Among the remedies petitioner seeks, only the
to First Pacific or assignee." Petitioners-in-intervention petition for prohibition is within the original jurisdiction
claim that, as PLDT subscribers, they have a "stake in the of this court, which however is not exclusive but is
outcome of the controversy x x x where the Philippine concurrent with the Regional Trial Court and the Court
Government is completing the sale of government owned of Appeals. The actions for declaratory
assets in [PLDT], unquestionably a public utility, in relief,10 injunction, and annulment of sale are not
violation of the nationality restrictions of the Philippine embraced within the original jurisdiction of the Supreme
Constitution." Court. On this ground alone, the petition could have
been dismissed outright.
The Issue
While direct resort to this Court may be justified in a
This Court is not a trier of facts. Factual questions such as petition for prohibition,11 the Court shall nevertheless
those raised by petitioner,9 which indisputably demand a refrain from discussing the grounds in support of the
thorough examination of the evidence of the parties, are petition for prohibition since on 28 February 2007, the
generally beyond this Court’s jurisdiction. Adhering to questioned sale was consummated when MPAH paid
this well-settled principle, the Court shall confine the IPC ₱25,217,556,000 and the government delivered the
resolution of the instant controversy solely on certificates for the 111,415 PTIC shares.
the threshold and purely legal issue of whether the term
"capital" in Section 11, Article XII of the Constitution However, since the threshold and purely legal issue on
refers to the total common shares only or to the total the definition of the term "capital" in Section 11, Article
outstanding capital stock (combined total of common and XII of the Constitution has far-reaching implications to
non-voting preferred shares) of PLDT, a public utility. 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 question was: "Are the branches, agencies, subdivisions,
treated the petition for declaratory relief as one for and instrumentalities of the Government, including
mandamus considering the grave injustice that would government owned or controlled corporations included
result in the interpretation of a banking law. In that case, among the four ‘employers’ under Presidential Decree
which involved the crime of rape committed by a foreign No. 851 which are required to pay their employees x x x a
tourist against a Filipino minor and the execution of the thirteenth (13th) month pay x x x ?" The Constitutional
final judgment in the civil case for damages on the principle involved therein affected all government
tourist’s dollar deposit with a local bank, the Court employees, clearly justifying a relaxation of the technical
declared Section 113 of Central Bank Circular No. 960, rules of procedure, and certainly requiring the
exempting foreign currency deposits from attachment, interpretation of the assailed presidential decree.
garnishment or any other order or process of any court,
inapplicable due to the peculiar circumstances of the In short, it is well-settled that this Court may treat a
case. The Court held that "injustice would result petition for declaratory relief as one for mandamus if the
especially to a citizen aggrieved by a foreign guest like issue involved has far-reaching implications. As this
accused x x x" that would "negate Article 10 of the Civil Court held in Salvacion:
Code which provides that ‘in case of doubt in the
interpretation or application of laws, it is presumed that The Court has no original and exclusive jurisdiction over
the lawmaking body intended right and justice to a petition for declaratory relief. However, exceptions to
prevail.’" The Court therefore required respondents this rule have been recognized. Thus, where the
Central Bank of the Philippines, the local bank, and the petition has far-reaching implications and raises
accused to comply with the writ of execution issued in questions that should be resolved, it may be treated as
the civil case for damages and to release the dollar one for mandamus.15 (Emphasis supplied)
deposit of the accused to satisfy the judgment.
In the present case, petitioner seeks primarily the
In Alliance of Government Workers v. Minister of Labor,14 the interpretation of the term "capital" in Section 11, Article
Court similarly brushed aside the procedural infirmity of XII of the Constitution. He prays that this Court declare
the petition for declaratory relief and treated the same as that the term "capital" refers to common shares only, and
one for mandamus. In Alliance, the issue was whether the that such shares constitute "the sole basis in determining
government unlawfully excluded petitioners, who were foreign equity in a public utility." Petitioner further asks
government employees, from the enjoyment of rights to this Court to declare any ruling inconsistent with such
which they were entitled under the law. Specifically, the interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, national economy and a fundamental requirement to a
Article XII of the Constitution has far-reaching faithful adherence to our Constitution. The Court must
implications to the national economy. In fact, a resolution forthwith seize such opportunity, not only for the benefit
of this issue will determine whether Filipinos are of the litigants, but more significantly for the benefit of
masters, or second class citizens, in their own country. the entire Filipino people, to ensure, in the words of the
What is at stake here is whether Filipinos or foreigners Constitution, "a self-reliant and independent national
will have effective control of the national economy. economy effectively controlled by Filipinos."18 Besides,
Indeed, if ever there is a legal issue that has far-reaching in the light of vague and confusing positions taken by
implications to the entire nation, and to future government agencies on this purely legal issue, present
generations of Filipinos, it is the threshhold legal issue and future foreign investors in this country deserve, as a
presented in this case. matter of basic fairness, a categorical ruling from this
Court on the extent of their participation in the capital of
The Court first encountered the issue on the definition of public utilities and other nationalized businesses.
the term "capital" in Section 11, Article XII of the
Constitution in the case of Fernandez v. Despite its far-reaching implications to the national
Cojuangco, docketed as G.R. No. 157360.16 That case economy, this purely legal issue has remained
involved the same public utility (PLDT) and substantially unresolved for over 75 years since the 1935 Constitution.
the same private respondents. Despite the importance There is no reason for this Court to evade this ever
and novelty of the constitutional issue raised therein and recurring fundamental issue and delay again defining the
despite the fact that the petition involved a purely legal term "capital," which appears not only in Section 11,
question, the Court declined to resolve the case on the Article XII of the Constitution, but also in Section 2,
merits, and instead denied the same for disregarding the Article XII on co-production and joint venture
hierarchy of courts.17 There, petitioner Fernandez agreements for the development of our natural
assailed on a pure question of law the Regional Trial resources,19 in Section 7, Article XII on ownership of
Court’s Decision of 21 February 2003 via a petition for private lands,20 in Section 10, Article XII on the
review under Rule 45. The Court’s Resolution, denying reservation of certain investments to Filipino citizens,21 in
the petition, became final on 21 December 2004. Section 4(2), Article XIV on the ownership of educational
institutions,22 and in Section 11(2), Article XVI on the
The instant petition therefore presents the Court with ownership of advertising companies.23
another opportunity to finally settle this purely legal
issue which is of transcendental importance to the Petitioner has locus standi
There is no dispute that petitioner is a stockholder of recognized in Section 6, Article IV of the 1973
PLDT. As such, he has the right to question the subject Constitution, in connection with the rule that laws in
sale, which he claims to violate the nationality order to be valid and enforceable must be published in
requirement prescribed in Section 11, Article XII of the the Official Gazette or otherwise effectively promulgated.
Constitution. If the sale indeed violates the Constitution, In ruling for the petitioners’ legal standing, the Court
then there is a possibility that PLDT’s franchise could be declared that the right they sought to be enforced ‘is a
revoked, a dire consequence directly affecting public right recognized by no less than the fundamental
petitioner’s interest as a stockholder. law of the land.’

More importantly, there is no question that the instant Legaspi v. Civil Service Commission, while reiterating
petition raises matters of transcendental importance to Tañada, further declared that ‘when a mandamus
the public. The fundamental and threshold legal issue in proceeding involves the assertion of a public right, the
this case, involving the national economy and the requirement of personal interest is satisfied by the
economic welfare of the Filipino people, far outweighs mere fact that petitioner is a citizen and, therefore, part
any perceived impediment in the legal personality of the of the general ‘public’ which possesses the right.’
petitioner to bring this action.
Further, in Albano v. Reyes, we said that while
In Chavez v. PCGG,24 the Court upheld the right of a expenditure of public funds may not have been involved
citizen to bring a suit on matters of transcendental under the questioned contract for the development,
importance to the public, thus: management and operation of the Manila International
Container Terminal, ‘public interest [was] definitely
In Tañada v. Tuvera, the Court asserted that when the involved considering the important role [of the subject
issue concerns a public right and the object of contract] . . . in the economic development of the
mandamus is to obtain the enforcement of a public country and the magnitude of the financial
duty, the people are regarded as the real parties in consideration involved.’ We concluded that, as a
interest; and because it is sufficient that petitioner is a consequence, the disclosure provision in the Constitution
citizen and as such is interested in the execution of the would constitute sufficient authority for upholding the
laws, he need not show that he has any legal or special petitioner’s standing. (Emphasis supplied)
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
Clearly, since the instant petition, brought by a citizen, The above provision substantially reiterates Section 5,
involves matters of transcendental public importance, the Article XIV of the 1973 Constitution, thus:
petitioner has the requisite locus standi.
Section 5. No franchise, certificate, or any other form of
Definition of the Term "Capital" in authorization for the operation of a public utility shall
Section 11, Article XII of the 1987 Constitution be granted except to citizens of the Philippines or to
corporations or associations organized under the laws
Section 11, Article XII (National Economy and of the Philippines at least sixty per centum of the
Patrimony) of the 1987 Constitution mandates the capital of which is owned by such citizens, nor shall
Filipinization of public utilities, to wit: such franchise, certificate, or authorization be exclusive
in character or for a longer period than fifty years.
Section 11. No franchise, certificate, or any other form of Neither shall any such franchise or right be granted
authorization for the operation of a public utility shall except under the condition that it shall be subject to
be granted except to citizens of the Philippines or to amendment, alteration, or repeal by the National
corporations or associations organized under the laws Assembly when the public interest so requires. The State
of the Philippines, at least sixty per centum of whose shall encourage equity participation in public utilities by
capital is owned by such citizens; nor shall such the general public. The participation of foreign investors
franchise, certificate, or authorization be exclusive in in the governing body of any public utility enterprise
character or for a longer period than fifty years. Neither shall be limited to their proportionate share in the capital
shall any such franchise or right be granted except under thereof. (Emphasis supplied)
the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common The foregoing provision in the 1973 Constitution
good so requires. The State shall encourage equity reproduced Section 8, Article XIV of the 1935
participation in public utilities by the general public. The Constitution, viz:
participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their Section 8. No franchise, certificate, or any other form of
proportionate share in its capital, and all the executive authorization for the operation of a public utility shall
and managing officers of such corporation or association be granted except to citizens of the Philippines or to
must be citizens of the Philippines. (Emphasis supplied) 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 Any citizen or juridical entity desiring to operate a public
in character or for a longer period than fifty years. No utility must therefore meet the minimum nationality
franchise or right shall be granted to any individual, firm, requirement prescribed in Section 11, Article XII of the
or corporation, except under the condition that it shall be Constitution. Hence, for a corporation to be granted
subject to amendment, alteration, or repeal by the authority to operate a public utility, at least 60 percent of
Congress when the public interest so requires. (Emphasis its "capital" must be owned by Filipino citizens.
supplied)
The crux of the controversy is the definition of the term
Father Joaquin G. Bernas, S.J., a leading member of the "capital." Does the term "capital" in Section 11, Article XII
1986 Constitutional Commission, reminds us that the of the Constitution refer to common shares or to the total
Filipinization provision in the 1987 Constitution is one of outstanding capital stock (combined total of common and
the products of the spirit of nationalism which gripped non-voting preferred shares)?
the 1935 Constitutional Convention.25 The 1987
Constitution "provides for the Filipinization of public Petitioner submits that the 40 percent foreign equity
utilities by requiring that any form of authorization for limitation in domestic public utilities refers only to
the operation of public utilities should be granted only to common shares because such shares are entitled to vote
‘citizens of the Philippines or to corporations or and it is through voting that control over a corporation is
associations organized under the laws of the Philippines exercised. Petitioner posits that the term "capital" in
at least sixty per centum of whose capital is owned by Section 11, Article XII of the Constitution refers to "the
such citizens.’ The provision is [an express] recognition ownership of common capital stock subscribed and
of the sensitive and vital position of public utilities outstanding, which class of shares alone, under the
both in the national economy and for national corporate set-up of PLDT, can vote and elect members of
security."26 The evident purpose of the citizenship the board of directors." It is undisputed that PLDT’s non-
requirement is to prevent aliens from assuming control of voting preferred shares are held mostly by Filipino
public utilities, which may be inimical to the national citizens.30 This arose from Presidential Decree No.
interest.27 This specific provision explicitly reserves to 217,31 issued on 16 June 1973 by then President Ferdinand
Filipino citizens control of public utilities, pursuant to an Marcos, requiring every applicant of a PLDT telephone
overriding economic goal of the 1987 Constitution: to line to subscribe to non-voting preferred shares to pay for
"conserve and develop our patrimony"28 and ensure "a the investment cost of installing the telephone line.32
self-reliant and independent national
economy effectively controlled by Filipinos."29
Petitioners-in-intervention basically reiterate petitioner’s invokes denial of due process on behalf of the foreign
arguments and adopt petitioner’s definition of the term common shareholders.
"capital."33 Petitioners-in-intervention allege that "the
approximate foreign ownership of common capital stock While Nazareno does not introduce any definition of the
of PLDT x x x already amounts to at least 63.54% of the term "capital," he states that "among the factual
total outstanding common stock," which means that assertions that need to be established to counter
foreigners exercise significant control over PLDT, petitioner’s allegations is the uniform interpretation by
patently violating the 40 percent foreign equity limitation government agencies (such as the SEC), institutions and
in public utilities prescribed by the Constitution. corporations (such as the Philippine National Oil
Company-Energy Development Corporation or PNOC-
Respondents, on the other hand, do not offer any EDC) of including both preferred shares and common
definition of the term "capital" in Section 11, Article XII of shares in "controlling interest" in view of testing
the Constitution. More importantly, private respondents compliance with the 40% constitutional limitation on
Nazareno and Pangilinan of PLDT do not dispute that foreign ownership in public utilities."35
more than 40 percent of the common shares of PLDT are
held by foreigners. Similarly, respondent Manuel V. Pangilinan does not
define the term "capital" in Section 11, Article XII of the
In particular, respondent Nazareno’s Memorandum, Constitution. Neither does he refute petitioner’s claim of
consisting of 73 pages, harps mainly on the procedural foreigners holding more than 40 percent of PLDT’s
infirmities of the petition and the supposed violation of common shares. Instead, respondent Pangilinan focuses
the due process rights of the "affected foreign common on the procedural flaws of the petition and the alleged
shareholders." Respondent Nazareno does not deny violation of the due process rights of foreigners.
petitioner’s allegation of foreigners’ dominating the Respondent Pangilinan emphasizes in his Memorandum
common shareholdings of PLDT. Nazareno stressed (1) the absence of this Court’s jurisdiction over the
mainly that the petition "seeks to divest foreign common petition; (2) petitioner’s lack of standing; (3) mootness of
shareholders purportedly exceeding 40% of the total the petition; (4) non-availability of declaratory relief; and
common shareholdings in PLDT of their ownership (5) the denial of due process rights. Moreover,
over their shares." Thus, "the foreign natural and respondent Pangilinan alleges that the issue should be
juridical PLDT shareholders must be impleaded in this whether "owners of shares in PLDT as well as owners of
suit so that they can be heard."34 Essentially, Nazareno 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 Respondent Francisco Ed Lim, impleaded as President
their shares and also without notice and trial." and Chief Executive Officer of the Philippine Stock
Exchange (PSE), does not also define the term "capital"
Respondent Pangilinan further asserts that "Section 11, and seeks the dismissal of the petition on the following
[Article XII of the Constitution] imposes no nationality grounds: (1) failure to state a cause of action against Lim;
requirement on the shareholders of the utility company (2) the PSE allegedly implemented its rules and required
as a condition for keeping their shares in the utility all listed companies, including PLDT, to make proper
company." According to him, "Section 11 does not and timely disclosures; and (3) the reliefs prayed for in
authorize taking one person’s property (the shareholder’s the petition would adversely impact the stock market.
stock in the utility company) on the basis of another
party’s alleged failure to satisfy a requirement that is a In the earlier case of Fernandez v. Cojuangco, petitioner
condition only for that other party’s retention of another Fernandez who claimed to be a stockholder of record of
piece of property (the utility company being at least 60% PLDT, contended that the term "capital" in the 1987
Filipino-owned to keep its franchise)."36 Constitution refers to shares entitled to vote or the
common shares. Fernandez explained thus:
The OSG, representing public respondents Secretary
Margarito Teves, Undersecretary John P. Sevilla, The forty percent (40%) foreign equity limitation in
Commissioner Ricardo Abcede, and Chairman Fe Barin, public utilities prescribed by the Constitution refers to
is likewise silent on the definition of the term "capital." In ownership of shares of stock entitled to vote, i.e.,
its Memorandum37 dated 24 September 2007, the OSG common shares, considering that it is through voting that
also limits its discussion on the supposed procedural control is being exercised. x x x
defects of the petition, i.e. lack of standing, lack of
jurisdiction, non-inclusion of interested parties, and lack Obviously, the intent of the framers of the Constitution in
of basis for injunction. The OSG does not present any imposing limitations and restrictions on fully
definition or interpretation of the term "capital" in Section nationalized and partially nationalized activities is for
11, Article XII of the Constitution. The OSG contends that Filipino nationals to be always in control of the
"the petition actually partakes of a collateral attack on corporation undertaking said activities. Otherwise, if the
PLDT’s franchise as a public utility," which in effect Trial Court’s ruling upholding respondents’ arguments
requires a "full-blown trial where all the parties in were to be given credence, it would be possible for the
interest are given their day in court."38 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 Parenthetically, the Opinions dated February 15, 1988
Trial Court’s ruling adopting respondents’ arguments, and April 14, 1987 cited by the Trial Court to support the
the common shares can be owned entirely by foreigners proposition that the meaning of the word "capital" as
thus creating an absurd situation wherein foreigners, used in Section 11, Article XII of the Constitution
who are supposed to be minority shareholders, control allegedly refers to the sum total of the shares subscribed
the public utility corporation. and paid-in by the shareholder and it allegedly is
immaterial how the stock is classified, whether as
xxxx common or preferred, cannot stand in the face of a clear
legislative policy as stated in the FIA which took effect in
Thus, the 40% foreign ownership limitation should be 1991 or way after said opinions were rendered, and as
interpreted to apply to both the beneficial ownership and clarified by the above-quoted Amendments. In this
the controlling interest. regard, suffice it to state that as between the law and an
opinion rendered by an administrative agency, the law
xxxx indubitably prevails. Moreover, said Opinions are merely
advisory and cannot prevail over the clear intent of the
Clearly, therefore, the forty percent (40%) foreign equity framers of the Constitution.
limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock In the same vein, the SEC’s construction of Section 11,
entitled to vote, i.e., common shares. Furthermore, Article XII of the Constitution is at best merely advisory
ownership of record of shares will not suffice but it must for it is the courts that finally determine what a law
be shown that the legal and beneficial ownership rests in means.39
the hands of Filipino citizens. Consequently, in the case
of petitioner PLDT, since it is already admitted that the On the other hand, respondents therein, Antonio O.
voting interests of foreigners which would gain entry to Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano,
petitioner PLDT by the acquisition of SMART shares Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-
through the Questioned Transactions is equivalent to Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa,
82.99%, and the nominee arrangements between the Napoleon L. Nazareno, Albert F. Del Rosario, and
foreign principals and the Filipino owners is likewise Orlando B. Vea, argued that the term "capital" in Section
admitted, there is, therefore, a violation of Section 11, 11, Article XII of the Constitution includes preferred
Article XII of the Constitution. shares since the Constitution does not distinguish among
classes of stock, thus:
16. The Constitution applies its foreign ownership (Vol. III) – which petitioner misleadingly cited in the
limitation on the corporation’s "capital," without Petition x x x – which supports petitioner’s view that
distinction as to classes of shares. x x x only common shares should form the basis for
computing a public utility’s foreign equity.
In this connection, the Corporation Code – which was
already in force at the time the present (1987) xxxx
Constitution was drafted – defined outstanding capital
stock as follows: 18. In addition, the SEC – the government agency
primarily responsible for implementing the Corporation
Section 137. Outstanding capital stock defined. – The Code, and which also has the responsibility of ensuring
term "outstanding capital stock", as used in this Code, compliance with the Constitution’s foreign equity
means the total shares of stock issued under binding restrictions as regards nationalized activities x x x – has
subscription agreements to subscribers or stockholders, categorically ruled that both common and preferred
whether or not fully or partially paid, except treasury shares are properly considered in determining
shares. outstanding capital stock and the nationality composition
thereof.40
Section 137 of the Corporation Code also does not
distinguish between common and preferred shares, nor We agree with petitioner and petitioners-in-intervention.
exclude either class of shares, in determining the The term "capital" in Section 11, Article XII of the
outstanding capital stock (the "capital") of a corporation. Constitution refers only to shares of stock entitled to vote
Consequently, petitioner’s suggestion to reckon PLDT’s in the election of directors, and thus in the present case
foreign equity only on the basis of PLDT’s outstanding only to common shares,41 and not to the total outstanding
common shares is without legal basis. The language of capital stock comprising both common and non-voting
the Constitution should be understood in the sense it has preferred shares.
in common use.
The Corporation Code of the Philippines42 classifies
xxxx shares as common or preferred, thus:

17. But even assuming that resort to the proceedings of Sec. 6. Classification of shares. - The shares of stock of stock
the Constitutional Commission is necessary, there is corporations may be divided into classes or series of
nothing in the Record of the Constitutional Commission shares, or both, any of which classes or series of shares
may have such rights, privileges or restrictions as may be creditors in respect thereto: Provided; That shares
stated in the articles of incorporation: Provided, That no without par value may not be issued for a consideration
share may be deprived of voting rights except those less than the value of five (₱5.00) pesos per share:
classified and issued as "preferred" or "redeemable" Provided, further, That the entire consideration received
shares, unless otherwise provided in this Code: by the corporation for its no-par value shares shall be
Provided, further, That there shall always be a class or treated as capital and shall not be available for
series of shares which have complete voting rights. Any distribution as dividends.
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 A corporation may, furthermore, classify its shares for
articles of incorporation: Provided, however, That banks, the purpose of insuring compliance with constitutional or
trust companies, insurance companies, public utilities, legal requirements.
and building and loan associations shall not be permitted
to issue no-par value shares of stock. Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, each
Preferred shares of stock issued by any corporation may share shall be equal in all respects to every other share.
be given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution Where the articles of incorporation provide for non-
of dividends, or such other preferences as may be stated voting shares in the cases allowed by this Code, the
in the articles of incorporation which are not violative of holders of such shares shall nevertheless be entitled to
the provisions of this Code: Provided, That preferred vote on the following matters:
shares of stock may be issued only with a stated par
value. The Board of Directors, where authorized in the 1. Amendment of the articles of incorporation;
articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series 2. Adoption and amendment of by-laws;
thereof: Provided, That such terms and conditions shall
be effective upon the filing of a certificate thereof with 3. Sale, lease, exchange, mortgage, pledge or other
the Securities and Exchange Commission. disposition of all or substantially all of the
corporate property;
Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of 4. Incurring, creating or increasing bonded
such shares shall not be liable to the corporation or to its indebtedness;
 5. Increase or decrease of capital stock; right to vote.46 Common shares cannot be deprived of the
right to vote in any corporate meeting, and any provision
6. Merger or consolidation of the corporation with in the articles of incorporation restricting the right of
another corporation or other corporations; common shareholders to vote is invalid.47

7. Investment of corporate funds in another Considering that common shares have voting rights
corporation or business in accordance with this which translate to control, as opposed to preferred shares
Code; and which usually have no voting rights, the term "capital" in
Section 11, Article XII of the Constitution refers only to
8. Dissolution of the corporation. common shares. However, if the preferred shares also
have the right to vote in the election of directors, then the
Except as provided in the immediately preceding term "capital" shall include such preferred shares because
paragraph, the vote necessary to approve a particular the right to participate in the control or management of
corporate act as provided in this Code shall be deemed to the corporation is exercised through the right to vote in
refer only to stocks with voting rights. the election of directors. In short, the term "capital" in
Section 11, Article XII of the Constitution refers only to
Indisputably, one of the rights of a stockholder is the shares of stock that can vote in the election of directors.
right to participate in the control or management of the
corporation.43 This is exercised through his vote in the This interpretation is consistent with the intent of the
election of directors because it is the board of directors framers of the Constitution to place in the hands of
that controls or manages the corporation.44 In the absence Filipino citizens the control and management of public
of provisions in the articles of incorporation denying utilities. As revealed in the deliberations of the
voting rights to preferred shares, preferred shares have Constitutional Commission, "capital" refers to the voting
the same voting rights as common shares. However, stock or controlling interest of a corporation, to wit:
preferred shareholders are often excluded from any
control, that is, deprived of the right to vote in the MR. NOLLEDO. In Sections 3, 9 and 15, the Committee
election of directors and on other matters, on the theory stated local or Filipino equity and foreign equity; namely,
that the preferred shareholders are merely investors in 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in
the corporation for income in the same manner as Section 15.
bondholders.45 In fact, under the Corporation Code only
preferred or redeemable shares can be deprived of the MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced MR. NOLLEDO. Therefore, we need additional Filipino
with this question: "Where do we base the equity capital?
requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock MR. VILLEGAS. Yes.48
of a corporation"? Will the Committee please enlighten
me on this? xxxx

MR. VILLEGAS. We have just had a long discussion with MR. AZCUNA. May I be clarified as to that portion that
the members of the team from the UP Law Center who was accepted by the Committee.
provided us a draft. The phrase that is contained here
which we adopted from the UP draft is "60 percent of MR. VILLEGAS. The portion accepted by the Committee
voting stock." is the deletion of the phrase "voting stock or controlling
interest."
MR. NOLLEDO. That must be based on the subscribed
capital stock, because unless declared delinquent, unpaid MR. AZCUNA. Hence, without the Davide amendment,
capital stock shall be entitled to vote. the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is
MR. VILLEGAS. That is right. owned by such citizens."

MR. NOLLEDO. Thank you. MR. VILLEGAS. Yes.

With respect to an investment by one corporation in MR. AZCUNA. So if the Davide amendment is lost, we
another corporation, say, a corporation with 60-40 are stuck with 60 percent of the capital to be owned by
percent equity invests in another corporation which is citizens.
permitted by the Corporation Code, does the Committee
adopt the grandfather rule? MR. VILLEGAS. That is right.

MR. VILLEGAS. Yes, that is the understanding of the MR. AZCUNA. But the control can be with the
Committee. 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 organized abroad and registered as doing business in the
the minority because they have the voting capital. That Philippines under the Corporation Code of which one
is the anomaly that would result here. hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a
MR. BENGZON. No, the reason we eliminated the trustee of funds for pension or other employee retirement
word "stock" as stated in the 1973 and 1935 or separation benefits, where the trustee is a Philippine
Constitutions is that according to Commissioner national and at least sixty percent (60%) of the fund will
Rodrigo, there are associations that do not have stocks. accrue to the benefit of Philippine nationals: Provided,
That is why we say "CAPITAL." That where a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange
MR. AZCUNA. We should not eliminate the phrase Commission (SEC) registered enterprise, at least sixty
"controlling interest."
percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be
MR. BENGZON. In the case of stock corporations, it is
owned and held by citizens of the Philippines and at least
assumed.49 (Emphasis supplied)
sixty percent (60%) of the members of the Board of
Directors of each of both corporations must be citizens of
Thus, 60 percent of the "capital" assumes, or should result
the Philippines, in order that the corporation, shall be
in, "controlling interest" in the corporation. Reinforcing
considered a "Philippine national." (Emphasis supplied)
this interpretation of the term "capital," as referring to
controlling interest or shares entitled to vote, is the
In explaining the definition of a "Philippine national," the
definition of a "Philippine national" in the Foreign
Implementing Rules and Regulations of the Foreign
Investments Act of 1991,50 to wit:
Investments Act of 1991 provide:
SEC. 3. Definitions. - As used in this Act:
b. "Philippine national" shall mean a citizen of the
Philippines or a domestic partnership or association
a. The term "Philippine national" shall mean a citizen of
wholly owned by the citizens of the Philippines; or a
the Philippines; or a domestic partnership or association
corporation organized under the laws of the
wholly owned by citizens of the Philippines; or a
Philippines of which at least sixty percent [60%] of the
corporation organized under the laws of the
capital stock outstanding and entitled to vote is owned
Philippines of which at least sixty percent (60%) of the
and held by citizens of the Philippines; or a trustee of
capital stock outstanding and entitled to vote is owned
funds for pension or other employee retirement or
and held by citizens of the Philippines; or a corporation
separation benefits, where the trustee is a Philippine Individuals or juridical entities not meeting the
national and at least sixty percent [60%] of the fund will aforementioned qualifications are considered as non-
accrue to the benefit of the Philippine Philippine nationals. (Emphasis supplied)
nationals; Provided, that where a corporation its non-
Filipino stockholders own stocks in a Securities and Mere legal title is insufficient to meet the 60 percent
Exchange Commission [SEC] registered enterprise, at Filipino-owned "capital" required in the Constitution.
least sixty percent [60%] of the capital stock outstanding Full beneficial ownership of 60 percent of the outstanding
and entitled to vote of both corporations must be owned capital stock, coupled with 60 percent of the voting
and held by citizens of the Philippines and at least sixty rights, is required. The legal and beneficial ownership of
percent [60%] of the members of the Board of Directors of 60 percent of the outstanding capital stock must rest in
each of both corporation must be citizens of the the hands of Filipino nationals in accordance with the
Philippines, in order that the corporation shall be constitutional mandate. Otherwise, the corporation is
considered a Philippine national. The control test shall be "considered as non-Philippine national[s]."
applied for this purpose.
Under Section 10, Article XII of the Constitution,
Compliance with the required Filipino ownership of a Congress may "reserve to citizens of the Philippines or to
corporation shall be determined on the basis of corporations or associations at least sixty per centum of
outstanding capital stock whether fully paid or not, but whose capital is owned by such citizens, or such higher
only such stocks which are generally entitled to vote are percentage as Congress may prescribe, certain areas of
considered. investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens
For stocks to be deemed owned and held by Philippine or to corporations at least sixty percent of the "capital" of
citizens or Philippine nationals, mere legal title is not which is owned by Filipino citizens. Some of these laws
enough to meet the required Filipino equity. Full are: (1) Regulation of Award of Government Contracts or
beneficial ownership of the stocks, coupled with R.A. No. 5183; (2) Philippine Inventors Incentives Act or
appropriate voting rights is essential. Thus, stocks, the R.A. No. 3850; (3) Magna Carta for Micro, Small and
voting rights of which have been assigned or Medium Enterprises or R.A. No. 6977; (4) Philippine
transferred to aliens cannot be considered held by Overseas Shipping Development Act or R.A. No. 7471;
Philippine citizens or Philippine nationals. (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 foreigners, with a minuscule equity of less than 0.001
XII of the Constitution is also used in the same context in percent, exercise control over the public utility. On the
numerous laws reserving certain areas of investments to other hand, the Filipinos, holding more than 99.999
Filipino citizens. percent of the equity, cannot vote in the election of
directors and hence, have no control over the public
To construe broadly the term "capital" as the total utility. This starkly circumvents the intent of the framers
outstanding capital stock, including both common of the Constitution, as well as the clear language of the
and non-voting preferred shares, grossly contravenes the Constitution, to place the control of public utilities in the
intent and letter of the Constitution that the "State shall hands of Filipinos. It also renders illusory the State policy
develop a self-reliant and independent national of an independent national economy effectively
economy effectively controlled by Filipinos." A broad controlled by Filipinos.
definition unjustifiably disregards who owns the all-
important voting stock, which necessarily equates to The example given is not theoretical but can be found in
control of the public utility. the real world, and in fact exists in the present case.

We shall illustrate the glaring anomaly in giving a broad Holders of PLDT preferred shares are explicitly denied of
definition to the term "capital." Let us assume that a the right to vote in the election of directors. PLDT’s
corporation has 100 common shares owned by foreigners Articles of Incorporation expressly state that "the holders
and 1,000,000 non-voting preferred shares owned by of Serial Preferred Stock shall not be entitled to vote at
Filipinos, with both classes of share having a par value of any meeting of the stockholders for the election of
one peso (₱1.00) per share. Under the broad definition of directors or for any other purpose or otherwise
the term "capital," such corporation would be considered participate in any action taken by the corporation or its
compliant with the 40 percent constitutional limit on stockholders, or to receive notice of any meeting of
foreign equity of public utilities since the overwhelming stockholders."51
majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is On the other hand, holders of common shares are
obviously absurd. granted the exclusive right to vote in the election of
directors. PLDT’s Articles of Incorporation52 state that
In the example given, only the foreigners holding the "each holder of Common Capital Stock shall have one
common shares have voting rights in the election of vote in respect of each share of such stock held by him on
directors, even if they hold only 100 shares. The all matters voted upon by the stockholders, and the
holders of Common Capital Stock shall have the Moreover, the Dividend Declarations of PLDT for
exclusive right to vote for the election of directors and 2009,57 as submitted to the SEC, shows that per share the
for all other purposes."53 SIP58 preferred shares earn a pittance in dividends
compared to the common shares. PLDT declared
In short, only holders of common shares can vote in the dividends for the common shares at ₱70.00 per share,
election of directors, meaning only common shareholders while the declared dividends for the preferred shares
exercise control over PLDT. Conversely, holders of amounted to a measly ₱1.00 per share.59 So the preferred
preferred shares, who have no voting rights in the shares not only cannot vote in the election of directors,
election of directors, do not have any control over PLDT. they also have very little and obviously negligible
In fact, under PLDT’s Articles of Incorporation, holders dividend earning capacity compared to common shares.
of common shares have voting rights for all purposes,
while holders of preferred shares have no voting right for As shown in PLDT’s 2010 GIS,60 as submitted to the SEC,
any purpose whatsoever. the par value of PLDT common shares is ₱5.00 per share,
whereas the par value of preferred shares is ₱10.00 per
It must be stressed, and respondents do not dispute, that share. In other words, preferred shares have twice the
foreigners hold a majority of the common shares of par value of common shares but cannot elect directors
PLDT. In fact, based on PLDT’s 2010 General Information and have only 1/70 of the dividends of common shares.
Sheet (GIS),54 which is a document required to be Moreover, 99.44% of the preferred shares are owned by
submitted annually to the Securities and Exchange Filipinos while foreigners own only a minuscule 0.56% of
Commission,55 foreigners hold 120,046,690 common the preferred shares.61 Worse, preferred shares constitute
shares of PLDT whereas Filipinos hold only 66,750,622 77.85% of the authorized capital stock of PLDT while
common shares.56 In other words, foreigners hold 64.27% common shares constitute only 22.15%.62 This undeniably
of the total number of PLDT’s common shares, while shows that beneficial interest in PLDT is not with the
Filipinos hold only 35.73%. Since holding a majority of non-voting preferred shares but with the common shares,
the common shares equates to control, it is clear that blatantly violating the constitutional requirement of 60
foreigners exercise control over PLDT. Such amount of percent Filipino control and Filipino beneficial ownership
control unmistakably exceeds the allowable 40 percent in a public utility.
limit on foreign ownership of public utilities expressly
mandated in Section 11, Article XII of the Constitution. 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 earn;63 (5) preferred shares have twice the par value of
capital stock, coupled with 60 percent of the voting common shares; and (6) preferred shares constitute
rights, is constitutionally required for the State’s grant of 77.85% of the authorized capital stock of PLDT and
authority to operate a public utility. The undisputed fact common shares only 22.15%. This kind of ownership and
that the PLDT preferred shares, 99.44% owned by control of a public utility is a mockery of the
Filipinos, are non-voting and earn only 1/70 of the Constitution.
dividends that PLDT common shares earn, grossly
violates the constitutional requirement of 60 percent Incidentally, the fact that PLDT common shares with a
Filipino control and Filipino beneficial ownership of a par value of ₱5.00 have a current stock market value of
public utility. ₱2,328.00 per share,64 while PLDT preferred shares with a
par value of ₱10.00 per share have a current stock market
In short, Filipinos hold less than 60 percent of the value ranging from only ₱10.92 to ₱11.06 per share,65 is a
voting stock, and earn less than 60 percent of the glaring confirmation by the market that control and
dividends, of PLDT. This directly contravenes the beneficial ownership of PLDT rest with the common
express command in Section 11, Article XII of the shares, not with the preferred shares.
Constitution that "[n]o franchise, certificate, or any other
form of authorization for the operation of a public utility Indisputably, construing the term "capital" in Section 11,
shall be granted except to x x x corporations x x x Article XII of the Constitution to include both voting and
organized under the laws of the Philippines, at least sixty non-voting shares will result in the abject surrender of
per centum of whose capital is owned by such citizens x our telecommunications industry to foreigners,
x x." amounting to a clear abdication of the State’s
constitutional duty to limit control of public utilities to
To repeat, (1) foreigners own 64.27% of the common Filipino citizens. Such an interpretation certainly runs
shares of PLDT, which class of shares exercises counter to the constitutional provision reserving certain
the sole right to vote in the election of directors, and thus areas of investment to Filipino citizens, such as the
exercise control over PLDT; (2) Filipinos own only exploitation of natural resources as well as the ownership
35.73% of PLDT’s common shares, constituting a of land, educational institutions and advertising
minority of the voting stock, and thus do not exercise businesses. The Court should never open to foreign
control over PLDT; (3) preferred shares, 99.44% owned control what the Constitution has expressly reserved to
by Filipinos, have no voting rights; (4) preferred shares Filipinos for that would be a betrayal of the Constitution
earn only 1/70 of the dividends that common shares and of the national interest. The Court must perform its
solemn duty to defend and uphold the intent and letter legislature discretion to determine when, or whether,
of the Constitution to ensure, in the words of the they shall be effective. These provisions would be
Constitution, "a self-reliant and independent national subordinated to the will of the lawmaking body, which
economy effectively controlled by Filipinos." could make them entirely meaningless by simply
refusing to pass the needed implementing statute.
Section 11, Article XII of the Constitution, like other (Emphasis supplied)
provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the In Manila Prince Hotel, even the Dissenting Opinion of
development of natural resources and ownership of land, then Associate Justice Reynato S. Puno, later Chief
educational institutions and advertising business, is self- Justice, agreed that constitutional provisions are
executing. There is no need for legislation to implement presumed to be self-executing. Justice Puno stated:
these self-executing provisions of the Constitution. The
rationale why these constitutional provisions are self- Courts as a rule consider the provisions of the
executing was explained in Manila Prince Hotel v. Constitution as self-executing, rather than as requiring
GSIS,66 thus: future legislation for their enforcement. The reason is not
difficult to discern. For if they are not treated as self-
x x x Hence, unless it is expressly provided that a executing, the mandate of the fundamental law ratified
legislative act is necessary to enforce a constitutional by the sovereign people can be easily ignored and
mandate, the presumption now is that all provisions of nullified by Congress. Suffused with wisdom of the
the constitution are self-executing. If the constitutional ages is the unyielding rule that legislative actions may
provisions are treated as requiring legislation instead of give breath to constitutional rights but congressional
self-executing, the legislature would have the power to inaction should not suffocate them.
ignore and practically nullify the mandate of the
fundamental law. This can be cataclysmic. That is why Thus, we have treated as self-executing the provisions in
the prevailing view is, as it has always been, that — the Bill of Rights on arrests, searches and seizures, the
rights of a person under custodial investigation, the
. . . in case of doubt, the Constitution should be rights of an accused, and the privilege against self-
considered self-executing rather than non-self-executing. incrimination. It is recognized that legislation is
. . . Unless the contrary is clearly intended, the unnecessary to enable courts to effectuate constitutional
provisions of the Constitution should be considered provisions guaranteeing the fundamental rights of life,
self-executing, as a contrary rule would give the liberty and the protection of property. The same
treatment is accorded to constitutional provisions constitutional provisions expressly reserving specific
forbidding the taking or damaging of property for public areas of investments to corporations, at least 60 percent
use without just compensation. (Emphasis supplied) of the "capital" of which is owned by Filipinos, was
enforceable. In short, the framers of the 1935, 1973 and
Thus, in numerous cases,67 this Court, even in the 1987 Constitutions miserably failed to effectively reserve
absence of implementing legislation, applied directly the to Filipinos specific areas of investment, like the
provisions of the 1935, 1973 and 1987 Constitutions operation by corporations of public utilities, the
limiting land ownership to Filipinos. In Soriano v. Ong exploitation by corporations of mineral resources, the
Hoo,68 this Court ruled: ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures
x x x As the Constitution is silent as to the effects or that convened since 1935 also miserably failed to enact
consequences of a sale by a citizen of his land to an alien, legislations to implement these vital constitutional
and as both the citizen and the alien have violated the provisions that determine who will effectively control the
law, none of them should have a recourse against the national economy, Filipinos or foreigners. This Court
other, and it should only be the State that should be cannot allow such an absurd interpretation of the
allowed to intervene and determine what is to be done Constitution.
with the property subject of the violation. We have said
that what the State should do or could do in such matters This Court has held that the SEC "has both regulatory
is a matter of public policy, entirely beyond the scope of and adjudicative functions."69 Under its regulatory
judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et functions, the SEC can be compelled by mandamus to
al., 6 G. R. No. L-5996, June 27, 1956.) While the perform its statutory duty when it unlawfully neglects to
legislature has not definitely decided what policy perform the same. Under its adjudicative or quasi-
should be followed in cases of violations against the judicial functions, the SEC can be also be compelled by
constitutional prohibition, courts of justice cannot go mandamus to hear and decide a possible violation of any
beyond by declaring the disposition to be null and void law it administers or enforces when it is mandated by
as violative of the Constitution. x x x (Emphasis law to investigate such violation.1awphi1
supplied)
Under Section 17(4)70 of the Corporation Code, the SEC
To treat Section 11, Article XII of the Constitution as not has the regulatory function to reject or disapprove the
self-executing would mean that since the 1935 Articles of Incorporation of any corporation where "the
Constitution, or over the last 75 years, not one of the required percentage of ownership of the capital stock to
be owned by citizens of the Philippines has not been PLDT’s voting shares, as admitted by respondents and as
complied with as required by existing laws or the stated in PLDT’s 2010 GIS that PLDT submitted to SEC.
Constitution." Thus, the SEC is the government agency
tasked with the statutory duty to enforce the nationality WHEREFORE, we PARTLY GRANT the petition and
requirement prescribed in Section 11, Article XII of the rule that the term "capital" in Section 11, Article XII of the
Constitution on the ownership of public utilities. This 1987 Constitution refers only to shares of stock entitled to
Court, in a petition for declaratory relief that is treated as vote in the election of directors, and thus in the present
a petition for mandamus as in the present case, can direct case only to common shares, and not to the total
the SEC to perform its statutory duty under the law, a outstanding capital stock (common and non-voting
duty that the SEC has apparently unlawfully neglected to preferred shares). Respondent Chairperson of the
do based on the 2010 GIS that respondent PLDT Securities and Exchange Commission is DIRECTED to
submitted to the SEC. apply this definition of the term "capital" in determining
the extent of allowable foreign ownership in respondent
Under Section 5(m) of the Securities Regulation Philippine Long Distance Telephone Company, and if
Code,71 the SEC is vested with the "power and function" there is a violation of Section 11, Article XII of the
to "suspend or revoke, after proper notice and hearing, Constitution, to impose the appropriate sanctions under
the franchise or certificate of registration of the law.
corporations, partnerships or associations, upon any of
the grounds provided by law." The SEC is mandated SO ORDERED.
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