Ponente: CARPIO, J.

Decision Date: 2012-10-09

GR Number: G.R. No. 176579

DIGEST Admin 10 months ago
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Summary:

The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12 million shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First Pacific. Thus, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. The petitioner contends that it violates the Constitutional provision on Filipinization of public utility, stated in Section 11, Article XII of the 1987 Philippine Constitution, which limits foreign ownership of the capital of a public utility to not more than 40%. Then, in 2011, the court ruled the case in favor of the petitioner, hence this new case, resolving the motion for reconsideration for the 2011 decision filed by the respondents.

Doctrine:

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens.

The constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of 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 classes of shares, regardless of nomenclature and category, comprising the capital of a corporation.

Facts:

  • The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalf of the SEC, assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf of the State, declaring expressly that it agrees with the Court’s definition of the term “capital” in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the OSG reiterated its position consistent with the Court’s 28 June 2011 Decision. 

Issues Ratio:

  1. WON the definition of capital in Section 11, Article XII of the Constitution changed–NO

There is no change in the longstanding definition of capital. For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term “capital” found in various economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial precedent interpreting the term “capital” in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court, in defining the term “capital” in its 28 June 2011 Decision modified, reversed, or set aside the purported long-standing definition of the term “capital”, which supposedly refers to the total outstanding shares of stock, whether voting or non-voting.

 

  1. WON the 60-40 nationality requirement applies to each class of shares – YES

 

The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation. Mere legal title is insufficient to meet the 60 percent Filipino owned “capital” required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. Full beneficial ownership of the stocks, coupled with appropriate voting rights, is essential.

 

Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of 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 classes of shares, regardless of nomenclature and category, comprising the capital of a corporation. Under the Corporation Code, capital stock consists of all classes of shares issued to stockholders, that is, common shares as well as preferred shares, which may have different rights, privileges or restrictions as stated in the articles of incorporation.

 

                  The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial of the right to vote in specific corporate matters. Thus, common shares as well as preferred shares which may have different rights, privileges or restrictions as stated in the articles of incorporation. Thus, if a corporation, engaged in a partially nationalized industry, issues a mixture of common and preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the preferred non-voting shares must be owned by Filipinos. In short, 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 or any other class of shares.

Dispositive:

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be entertained. SO ORDERED.

Other Notes:

Section 19, Article II of the 1987 Constitution declares as State policy the development of a national economy “effectively controlled” by Filipinos. Under Section 10, Article XII of the 1987 Constitution, Congress may “reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments.” With respect to public utilities, the 1987 Constitution specifically ordains: Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.

 

This case digest was kindly submitted by Mr. JR Nicolas.

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