EN BANC

[G.R. No. 176579. October 9, 2012.]

HEIRS OF WILSON P. GAMBOA , * petitioners, vs. FINANCE

SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY
JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN
THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF
THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST
PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO
PACIFIC ASSET HOLDINGS, INC., CHAIRMAN MANUEL V. PANGILINAN
OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN
HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO.,
LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE
SECURITIES AND EXCHANGE COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, respondents.

PABLITO V. SANIDAD and ARNO V. SANIDAD , petitioners-in-

Intervention.

RESOLUTION

CARPIO, J:
This resolves the motions for reconsideration of the 28 June 2011 Decision filed
by (1) the Philippine Stock Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan
(Pangilinan), 2 (3) Napoleon L. Nazareno (Nazareno), 3 and (4) the Securities and
Exchange Commission (SEC) 4 (collectively, movants).
The Office of the Solicitor General (OSG) initially filed a motion for
reconsideration on behalf of the SEC, 5 assailing the 28 June 2011 Decision. However,
it subsequently filed a Consolidated Comment on behalf of the State, 6 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.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the interpretation of the
term "capital" in Section 11, Article XII of the Constitution has far-reaching implications
to the national economy. In fact, a resolution of this issue will determine whether
Filipinos are masters, or second-class citizens, in their own country. What is at stake
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 here is whether Filipinos or foreigners will have effective control of the Philippine
national economy. Indeed, if ever there is a legal issue that has far-reaching
implications to the entire nation, and to future generations of Filipinos, it is the threshold
legal issue presented in this case. TcDAHS

Contrary to Pangilinan's narrow view, the serious economic consequences

resulting in the interpretation of the term "capital" in Section 11, Article XII of the
Constitution undoubtedly demand an immediate adjudication of this issue. Simply put,
the far-reaching implications of this issue justify the treatment of the petition as
one for mandamus. 7
In Luzon Stevedoring Corp. v. Anti-Dummy Board, 8 the Court deemed it wise
and expedient to resolve the case although the petition for declaratory relief could be
outrightly dismissed for being procedurally defective. There, appellant admittedly had
already committed a breach of the Public Service Act in relation to the Anti-Dummy Law
since it had been employing non-American aliens long before the decision in a prior
similar case. However, the main issue in Luzon Stevedoring was of transcendental
importance, involving the exercise or enjoyment of rights, franchises, privileges,
properties and businesses which only Filipinos and qualified corporations could
exercise or enjoy under the Constitution and the statutes. Moreover, the same issue
could be raised by appellant in an appropriate action. Thus, in Luzon Stevedoring the
Court deemed it necessary to finally dispose of the case for the guidance of all
concerned, despite the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the supposed
procedural defect of the petition and the pivotal legal issue involved, resemble those in
Luzon Stevedoring. Consequently, in the interest of substantial justice and faithful
adherence to the Constitution, we opted to resolve this case for the guidance of the
public and all concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the
Constitution has long been settled and defined to refer to the total outstanding shares of
stock, whether voting or non-voting. In fact, movants claim that the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership requirement in favor of
Filipino citizens in the Constitution and various statutes, has consistently adopted this
particular definition in its numerous opinions. Movants point out that with the 28 June
2011 Decision, the Court in effect introduced a "new" definition or "midstream
redefinition" 9 of the term "capital" in Section 11, Article XII of the Constitution.
HCaIDS

This is egregious error.

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. To repeat, until the present case there has never been a
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 Court ruling categorically defining the term "capital" found in the various economic
provisions of the 1935, 1973 and 1987 Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the
definition of the term "capital" as referring to both voting and non-voting shares
(combined total of common and preferred shares) are, in the first place, conflicting and
inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ have
consistently and uniformly adopted a definition of the term "capital" contrary to the
definition that this Court adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985, 10 dated 7 October 1985, the scope of the term
"capital" in Section 9, Article XIV of the 1973 Constitution was raised, that is, whether
the term "capital" includes "both preferred and common stocks." The issue was raised
in relation to a stock-swap transaction between a Filipino and a Japanese corporation,
both stockholders of a domestic corporation that owned lands in the Philippines. Then
Minister of Justice Estelito P. Mendoza ruled that the resulting ownership structure of
the corporation would be unconstitutional because 60% of the voting stock would be
owned by Japanese while Filipinos would own only 40% of the voting stock, although
when the non-voting stock is added, Filipinos would own 60% of the combined voting
and non-voting stock. This ownership structure is remarkably similar to the current
ownership structure of PLDT. Minister Mendoza ruled:
xxx xxx xxx

Thus, the Filipino group still owns sixty (60%) of the entire subscribed
capital stock (common and preferred) while the Japanese investors control sixty
percent (60%) of the common (voting) shares.

It is your position that . . . since Section 9, Article XIV of the

Constitution uses the word "capital," which is construed "to include both
preferred and common shares" and "that where the law does not
distinguish, the courts shall not distinguish."

xxx xxx xxx

In light of the foregoing jurisprudence, it is my opinion that the stock-

swap transaction in question may not be constitutionally upheld. While it
may be ordinary corporate practice to classify corporate shares into common
voting shares and preferred non-voting shares, any arrangement which attempts
to defeat the constitutional purpose should be eschewed. Thus, the resultant
equity arrangement which would place ownership of 60% 11 of the
common (voting) shares in the Japanese group, while retaining 60% of
the total percentage of common and preferred shares in Filipino hands
would amount to circumvention of the principle of control by
Philippine stockholders that is implicit in the 60% Philippine nationality
requirement in the Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory that the term
"capital" in Section 9, Article XIV of the 1973 Constitution includes "both preferred and
common stocks" treated as the same class of shares regardless of differences in voting
rights and privileges. Minister Mendoza stressed that the 60-40 ownership requirement
in favor of Filipino citizens in the Constitution is not complied with unless the corporation
"satisfies the criterion of beneficial ownership" and that in applying the same " the
primordial consideration is situs of control."

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 On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to
Castillo Laman Tan Pantaleon & San Jose, then SEC General Counsel Vernette G.
Umali-Paco applied the Voting Control Test , that is, using only the voting stock to
determine whether a corporation is a Philippine national. The Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed
as a Philippine national because: (1) sixty percent (60%) of its outstanding
capital stock entitled to vote is owned by a Philippine national, the Trustee;
and (2) at least sixty percent (60%) of the ERF will accrue to the benefit of
Philippine nationals. Still pursuant to the Control Test, MLRC's investment in
60% of BFDC's outstanding capital stock entitled to vote shall be deemed
as of Philippine nationality, thereby qualifying BFDC to own private land. EcICSA

Further, under, and for purposes of, the FIA, MLRC and BFDC are both
Philippine nationals, considering that: (1) sixty percent (60%) of their respective
outstanding capital stock entitled to vote is owned by a Philippine national
(i.e., by the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC);
and (2) at least 60% of their respective board of directors are Filipino citizens.
(Boldfacing and italicization supplied)

Clearly, these DOJ and SEC opinions are compatible with the Court's
interpretation of the 60-40 ownership requirement in favor of Filipino citizens mandated
by the Constitution for certain economic activities. At the same time, these opinions
highlight the conflicting, contradictory, and inconsistent positions taken by the DOJ and
the SEC on the definition of the term "capital" found in the economic provisions of the
Constitution.
The opinions issued by SEC legal officers do not have the force and effect of
SEC rules and regulations because only the SEC en banc can adopt rules and
regulations. As expressly provided in Section 4.6 of the Securities Regulation Code, 12
the SEC cannot delegate to any of its individual Commissioner or staff the power to
adopt any 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 legal officers, that is empowered to
issue opinions and approve rules and regulations . Thus:
4.6. The Commission may, for purposes of efficiency, delegate any
of its functions to any department or office of the Commission, an individual
Commissioner or staff member of the Commission except its review or
appellate authority and its power to adopt, alter and supplement any rule or
regulation.
The Commission may review upon its own initiative or upon the petition
of any interested party any action of any department or office, individual
Commissioner, or staff member of the Commission.
SEC. 5. Powers and Functions of the Commission. — 5.1. The
Commission shall act with transparency and shall have the powers and
functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company Act
and other existing laws. Pursuant thereto the Commission shall have, among
others, the following powers and functions: DcTAIH

xxx xxx xxx

(g) Prepare, approve, amend or repeal rules, regulations and
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 orders, and issue opinions and provide guidance on and supervise
compliance with such rules, regulations and orders;
xxx xxx xxx (Emphasis supplied)

Thus, the act of the individual Commissioners or legal officers of the SEC in
issuing opinions that have the effect of SEC rules or regulations is ultra vires. Under
Sections 4.6 and 5.1 (g) of the Code, only the SEC en banc can "issue opinions" that
have the force and effect of rules or regulations. Section 4.6 of the Code bars the SEC
en banc from delegating to any individual Commissioner or staff the power to adopt
rules or regulations. In short, any opinion of individual Commissioners or SEC
legal officers does not constitute a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not
any of its individual commissioners or legal staff, is empowered to issue opinions which
have the same binding effect as SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an SEC
Opinion, correct?

COMMISSIONER GAITE: 13
That's correct, Your Honor.

JUSTICE CARPIO:
Can the Commission En Banc delegate this function to an SEC officer?
SECIcT

COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:

It can be delegated. What cannot be delegated by the Commission En

Banc to a commissioner or an individual employee of the Commission?

COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the En Banc . . .

JUSTICE CARPIO:
What cannot be delegated, among others, is the power to adopt or amend
rules and regulations, correct?

COMMISSIONER GAITE:
That's correct, Your Honor.

JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that power,
can issue an opinion but that opinion does not constitute a rule or
regulation, correct?
COMMISSIONER GAITE:
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 Correct, Your Honor.
JUSTICE CARPIO:

So, all of these opinions that you mentioned they are not rules and
regulations, correct? cDAISC

COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:

If they are not rules and regulations, they apply only to that particular
situation and will not constitute a precedent, correct?
COMMISSIONER GAITE:

Yes, Your Honor. 14 (Emphasis supplied)

Significantly, the SEC en banc, which is the collegial body statutorily empowered
to issue rules and opinions on behalf of the SEC, has adopted even the Grandfather
Rule in determining compliance with the 60-40 ownership requirement in favor of
Filipino citizens mandated by the Constitution for certain economic activities. This
prevailing SEC ruling, which the SEC correctly adopted to thwart any circumvention of
the required Filipino "ownership and control," is laid down in the 25 March 2010 SEC
en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al. , 15
to wit:
The avowed purpose of the Constitution is to place in the hands of
Filipinos the exploitation of our natural resources. Necessarily, therefore, the
Rule interpreting the constitutional provision should not diminish that right
through the legal fiction of corporate ownership and control. But the
constitutional provision, as interpreted and practiced via the 1967 SEC Rules,
has favored foreigners contrary to the command of the Constitution. Hence, the
Grandfather Rule must be applied to accurately determine the actual
participation, both direct and indirect, of foreigners in a corporation
engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in nationalized
activities must be determined by ascertaining if 60% of the investing corporation's
outstanding capital stock is owned by "Filipino citizens", or as interpreted, by
natural or individual Filipino citizens. If such investing corporation is in turn owned
to some extent by another investing corporation, the same process must be
observed. One must not stop until the citizenships of the individual or natural
stockholders of layer after layer of investing corporations have been established,
the very essence of the Grandfather Rule. EScHDA

Lastly, it was the intent of the framers of the 1987 Constitution to

adopt the Grandfather Rule. In one of the discussions on what is now Article XII
of the present Constitution, the framers made the following exchange:
MR. NOLLEDO.
In Sections 3, 9 and 15, the Committee stated local or Filipino
equity and foreign equity; namely, 60-40 in Section 3, 60-40 in
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 Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS.

That is right.
MR. NOLLEDO.
In teaching law, we are always faced with the question: 'Where do
we base the equity requirement, is it on the authorized capital stock,
on the subscribed capital stock, or on the paid-up capital stock of a
corporation'? Will the Committee please enlighten me on this?
MR. VILLEGAS.

We have just had a long discussion with the members of the team
from the UP Law Center who provided us a draft. The phrase that is
contained here which we adopted from the UP draft is '60 percent of
voting stock.'
MR. NOLLEDO.
That must be based on the subscribed capital stock, because
unless declared delinquent, unpaid capital stock shall be entitled to
vote.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.

Thank you. With respect to an investment by one corporation in

another corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the Corporation
Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS.
Yes, that is the understanding of the Committee.
MR. NOLLEDO.

Therefore, we need additional Filipino capital?

MR. VILLEGAS.
Yes. (Boldfacing and underscoring supplied; italicization in the
original)

This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40
ownership requirement in favor of Filipino citizens in 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. Thus, in our 28 June 2011 Decision
we stated:
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,
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 is required. The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
ADEaHT

Both the Voting Control Test and the Beneficial Ownership Test must be applied
to determine whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in
various opinions which respondents relied upon, is merely preliminary and an opinion
only of such officers. To repeat, any such opinion does not constitute an SEC rule or
regulation. In fact, many of these opinions contain a disclaimer which expressly states:
". . . the foregoing opinion is based solely on facts disclosed in your query and
relevant only to the particular issue raised therein and shall not be used in the nature
of a standing rule binding upon the Commission in other cases whether of similar
or dissimilar circumstances." 16 Thus, the opinions clearly make a caveat that they do
not constitute binding precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the
law are neither conclusive nor controlling and thus, do 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 conclusive on the Court. The power to make a final
interpretation of the law, in this case the term "capital" in Section 11, Article XII of the
1987 Constitution, lies with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases of National
Telecommunications Commission v. Court of Appeals 17 and Philippine Long Distance
Telephone Company v. National Telecommunications Commission 18 in arguing that the
Court has already defined the term "capital" in Section 11, Article XII of the 1987
Constitution. 19
The PSE President is grossly mistaken. In both cases of National
Telecommunications v. Court of Appeals 20 and Philippine Long Distance Telephone
Company v. National Telecommunications Commission , 21 the Court did not define the
term "capital" as found in Section 11, Article XII of the 1987 Constitution. In fact, these
two cases never mentioned, discussed or cited Section 11, Article XII of the
Constitution or any of its economic provisions, and thus cannot serve as
precedent in the interpretation of Section 11, Article XII of the Constitution. These
two cases dealt solely with the determination of the correct regulatory fees under
Section 40 (e) and (f) of the Public Service Act, to wit: SEIDAC

(e) For annual reimbursement of the expenses incurred by the

Commission in the supervision of other public services and/or in the regulation
or fixing of their rates, twenty centavos for each one hundred pesos or fraction
thereof, of the capital stock subscribed or paid, or if no shares have been
issued, of the capital invested, or of the property and equipment whichever is
higher.
(f) For the issue or increase ofcapital stock, twenty centavos for
each one hundred pesos or fraction thereof, of the increased capital.
(Emphasis supplied)
The Court's interpretation in these two cases of the terms "capital stock
subscribed or paid," "capital stock" and "capital" does not pertain to, and cannot control,
the definition of the term "capital" as used in Section 11, Article XII of the Constitution,
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 or any of the economic provisions of the Constitution where the term "capital" is found.
The definition of the term "capital" found in the Constitution must not be taken out of
context. A careful reading of these two cases reveals that the terms "capital stock
subscribed or paid," "capital stock" and "capital" were defined solely to determine the
basis for computing the supervision and regulation fees under Section 40 (e) and (f) of
the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the
land, embodies the ideals that the Constitution intends to achieve. 22 The Preamble
reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in
order to build a just and humane society, and establish a Government that shall
embody our ideals and aspirations, promote the common good, conserve and
develop our patrimony, and secure to ourselves and our posterity, the blessings
of independence and democracy under the rule of law and a regime of truth,
justice, freedom, love, equality, and peace, do ordain and promulgate this
Constitution. (Emphasis supplied)

Consistent with these ideals, Section 19, Article II of the 1987 Constitution
declares as State policy the development of a national economy "effectively
controlled" by Filipinos: DHIcET

Section 19. The State shall develop a self-reliant and independent

national economy effectively controlled by Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the Constitution
decrees:
Section 10. The Congress shall, upon recommendation of the
economic and planning agency, when the national interest dictates, 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. The Congress shall
enact measures that will encourage the formation and operation of enterprises
whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national

economy and patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments
within its national jurisdiction and in accordance with its national goals and
priorities. 23

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." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to corporations at least sixty
percent of the "capital" of which is owned by Filipino citizens. Some of these laws are:
(1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
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 Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development
Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No.
9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship
Mortgage Decree or P.D. No. 1521. ATCaDE

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. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines.
(Emphasis supplied)
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 to
"citizens of the Philippines or to corporations or associations organized under the laws
of the Philippines at least sixty per centum of whose capital is owned by such citizens."
"The provision is [an express] recognition of the sensitive and vital position of
public utilities both in the national economy and for national security." 24
The 1987 Constitution reserves the ownership and operation of public utilities
exclusively to (1) Filipino citizens, or (2) corporations or associations at least 60 percent
of whose "capital" is owned by Filipino citizens. Hence, in the case of individuals, only
Filipino citizens can validly own and operate a public utility. In the case of corporations
or associations, at least 60 percent of their "capital" must be owned by Filipino citizens.
In other words, under Section 11, Article XII of the 1987 Constitution, to own and
operate a public utility a corporation's capital must at least be 60 percent owned
by Philippine nationals. IcDCaT

IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the 1987
Constitution, Congress enacted Republic Act No. 7042 or the Foreign Investments Act
of 1991 (FIA), as amended, which defined a "Philippine national" as follows:

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

a. The term "Philippine national" shall mean a citizen of the

Philippines; or a domestic partnership or association wholly owned by citizens of
the Philippines; or a corporation organized under the laws of the Philippines
of which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a
corporation organized abroad and registered as doing business in the Philippines
under the Corporation Code of which one hundred percent (100%) of the capital
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 stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of
funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a corporation
and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the
capital stock outstanding and entitled to vote of each of both corporations must
be owned and held by citizens of the Philippines and at least sixty percent (60%)
of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a
"Philippine national." (Boldfacing, italicization and underscoring supplied)

Thus, the FIA clearly and unequivocally defines a "Philippine national" as a

Philippine citizen, or a domestic corporation at least "60% of the capital stock
outstanding and entitled to vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such
term as provided in its predecessor statute, Executive Order No. 226 or the Omnibus
Investments Code of 1987, 25 which was issued by then President Corazon C. Aquino.
Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the
Philippines or a diplomatic partnership or association wholly-owned by citizens
of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty per cent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty
per cent (60%) of the fund will accrue to the benefit of Philippine nationals:
Provided, That where a corporation and its non-Filipino stockholders own stock
in a registered enterprise, at least sixty per cent (60%) of the capital stock
outstanding and entitled to vote of both corporations must be owned and held
by the citizens of the Philippines and at least sixty per cent (60%) of the
members of the Board of Directors of both corporations must be citizens of the
Philippines in order that the corporation shall be considered a Philippine
national. (Boldfacing, italicization and underscoring supplied)aDCIHE

Under Article 48 (3) 26 of the Omnibus Investments Code of 1987, "no corporation
. . . which is not a 'Philippine national' . . . shall do business . . . in the Philippines . . .
without first securing from the Board of Investments a written certificate to the effect that
such business or economic activity . . . would not conflict with the Constitution or laws
of the Philippines." 27 Thus, a "non-Philippine national" cannot own and operate a
reserved economic activity like a public utility. This means, of course, that only a
"Philippine national" can own and operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the Omnibus
Investments Code of 1987 was a reiteration of the meaning of such term as provided in
Article 14 of the Omnibus Investments Code of 1981 , 28 to wit:
Article 14. "Philippine national" shall mean a citizen of the Philippines;
or a domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a trustee
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 of funds for pension or other employee retirement or separation benefits, where
the trustee is a Philippine national and at least sixty per cent (60%) of the fund
will accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered enterprise,
at least sixty per cent (60%) of the capital stock outstanding and entitled to vote
of both corporations must be owned and held by the citizens of the Philippines
and at least sixty per cent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines in order that the corporation
shall be considered a Philippine national. (Boldfacing, italicization and
underscoring supplied)

Under Article 69 (3) of the Omnibus Investments Code of 1981, "no corporation . .
. which is not a 'Philippine national' . . . shall do business . . . in the Philippines . . .
without first securing a written certificate from the Board of Investments to the effect that
such business or economic activity . . . would not conflict with the Constitution or laws
of the Philippines." 29 Thus, a "non-Philippine national" cannot own and operate a
reserved economic activity like a public utility. Again, this means that only a "Philippine
national" can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 5186 30 or the
Investment Incentives Act, which took effect on 16 September 1967, contained a similar
definition of a "Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a
partnership or association wholly owned by citizens of the Philippines; or a
corporation organized under the laws of the Philippines of which at least
sixty per cent of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines; or a trustee of funds for
pension or other employee retirement or separation benefits, where the trustee
is a Philippine National and at least sixty per cent of the fund will accrue to the
benefit of Philippine Nationals: Provided, That where a corporation and its non-
Filipino stockholders own stock in a registered enterprise, at least sixty per cent
of the capital stock outstanding and entitled to vote of both corporations must
be owned and held by the citizens of the Philippines and at least sixty per cent
of the members of the Board of Directors of both corporations must be citizens
of the Philippines in order that the corporation shall be considered a Philippine
National. (Boldfacing, italicization and underscoring supplied) IEHDAT

Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations
Act, which took effect on 30 September 1968, if the investment in a domestic enterprise
by non-Philippine nationals exceeds 30% of its outstanding capital stock, such
enterprise must obtain prior approval from the Board of Investments before accepting
such investment. Such approval shall not be granted if the investment "would conflict
with existing constitutional provisions and laws regulating the degree of required
ownership by Philippine nationals in the enterprise." 31 A "non-Philippine national"
cannot own and operate a reserved economic activity like a public utility. Again, this
means that only a "Philippine national" can own and operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine
national" as a Filipino citizen, or a domestic corporation "at least sixty percent
(60%) of the capital stock outstanding and entitled to vote" is owned by Filipino
citizens. A domestic corporation is a "Philippine national" only if at least 60% of its
voting stock is owned by Filipino citizens. This definition of a "Philippine national" is
crucial in the present case because the FIA reiterates and clarifies Section 11, Article
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 XII of the 1987 Constitution, which limits the ownership and operation of public utilities
to Filipino citizens or to corporations or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines,
irrespective of the nature of business and area of investment. The FIA spells out the
procedures by which non-Philippine nationals can invest in the Philippines. Among the
key features of this law is the concept of a negative list or the Foreign Investments
Negative List. 32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine
Nationals [Foreign Investment Negative List]. — The Foreign Investment
Negative List shall have two [2] component lists: A and B:
a. List A shall enumerate the areas of activities reserved
to Philippine nationals by mandate of the Constitution and specific
laws.
b. List B shall contain the areas of activities and enterprises
regulated pursuant to law:SEcADa

1. which are defense-related activities, requiring prior

clearance and authorization from the Department of National
Defense [DND] to engage in such activity, such as the
manufacture, repair, storage and/or distribution of firearms,
ammunition, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such manufacturing or
repair activity is specifically authorized, with a substantial export
component, to a non-Philippine national by the Secretary of
National Defense; or
2. which have implications on public health and morals,
such as the manufacture and distribution of dangerous drugs; all
forms of gambling; nightclubs, bars, beer houses, dance halls,
sauna and steam bathhouses and massage clinics. (Boldfacing,
underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to Philippine
nationals." Foreign Investment Negative List A consists of " areas of activities
reserved to Philippine nationals by mandate of the Constitution and specific
laws," where foreign equity participation in any enterprise shall be limited to the
maximum percentage expressly prescribed by the Constitution and other specific
laws. In short, to own and operate a public utility in the Philippines one must be a
"Philippine national" as defined in the FIA. The FIA is abundant notice to foreign
investors to what extent they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment
Negative List A is the ownership and operation of public utilities, which the Constitution
expressly reserves to Filipino citizens and to corporations at least 60% owned by
Filipino citizens. In other words, Negative List A of the FIA reserves the ownership
and operation of public utilities only to "Philippine nationals," defined in Section
3 (a) of the FIA as "(1) a citizen of the Philippines; . . . or (3) a corporation organized
under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines; or (4) a corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which one hundred percent
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 (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos
or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals." ASDCaI

Clearly, from the effectivity of the Investment Incentives Act of 1967 to the
adoption of the Omnibus Investments Code of 1981, to the enactment of the Omnibus
Investments Code of 1987, and to the passage of the present Foreign Investments Act
of 1991, or for more than four decades, the statutory definition of the term
"Philippine national" has been uniform and consistent: it means a Filipino citizen,
or a domestic corporation at least 60% of the voting stock is owned by Filipinos.
Likewise, these same statutes have uniformly and consistently required that only
"Philippine nationals" could own and operate public utilities in the Philippines.
The following exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign
Investments Act of 1991, . . .? And the FIA of 1991 took effect in 1991,
correct? That's over twenty (20) years ago, correct?

COMMISSIONER GAITE:
Correct, Your Honor.

JUSTICE CARPIO:

And Section 8 of the Foreign Investments Act of 1991 states that []only
Philippine nationals can own and operate public utilities[], correct?

COMMISSIONER GAITE:

Yes, Your Honor.

JUSTICE CARPIO:

And the same Foreign Investments Act of 1991 defines a "Philippine

national" either as a citizen of the Philippines, or if it is a corporation at
least sixty percent (60%) of the voting stock is owned by citizens of the
Philippines, correct? aIcTCS

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And, you are also aware that under the predecessor law of the Foreign
Investments Act of 1991, the Omnibus Investments Act of 1987, the same
provisions apply: . . . only Philippine nationals can own and operate a
public utility and the Philippine national, if it is a corporation, . . . sixty
percent (60%) of the capital stock of that corporation must be owned by
citizens of the Philippines, correct?

COMMISSIONER GAITE:
Correct, Your Honor.

JUSTICE CARPIO:
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 And even prior to the Omnibus Investments Act of 1987, under the
Omnibus Investments Act of 1981, the same rules apply: . . . only a
Philippine national can own and operate a public utility and a Philippine
national, if it is a corporation, sixty percent (60%) of its . . . voting stock,
must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:
Correct, Your Honor.

JUSTICE CARPIO:
And even prior to that, under [the] 1967 Investments Incentives Act and
the Foreign Company Act of 1968, the same rules applied, correct? ITCHSa

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, for the last four (4) decades, . . ., the law has been very consistent
— only a Philippine national can own and operate a public utility, and
a Philippine national, if it is a corporation, . . . at least sixty percent
(60%) of the voting stock must be owned by citizens of the
Philippines, correct?

COMMISSIONER GAITE:
Correct, Your Honor. 33 (Emphasis supplied)

Government agencies like the SEC cannot simply ignore Sections 3 (a) and 8 of
the FIA which categorically prescribe that certain economic activities, like the ownership
and operation of public utilities, are reserved to corporations "at least sixty percent
(60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines." Foreign Investment Negative List A refers to "activities
reserved to Philippine nationals by mandate of the Constitution and specific laws." The
FIA is the basic statute regulating foreign investments in the Philippines.
Government agencies tasked with regulating or monitoring foreign investments, as well
as counsels of foreign investors, should start with the FIA in determining to what extent
a particular foreign investment is allowed in the Philippines. Foreign investors and their
counsels who ignore the FIA do so at their own peril. Foreign investors and their
counsels who rely on opinions of SEC legal officers that obviously contradict the FIA do
so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA should
immediately raise a red flag. There are already numerous opinions of SEC legal officers
that cite the definition of a "Philippine national" in Section 3 (a) of the FIA in determining
whether a particular corporation is qualified to own and operate a nationalized or
partially nationalized business in the Philippines. This shows that SEC legal officers are
not only aware of, but also rely on and invoke, the provisions of the FIA in ascertaining
the eligibility of a corporation to engage in partially nationalized industries. The following
are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
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 2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of
the Philippine Overseas Employment Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador
Almeda and Renato S. Calma; acADIT

4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan

Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta
Buenaventura Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David;
and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi
and Rudyard S. Arbolado.
The SEC legal officers' occasional but blatant disregard of the definition of the
term "Philippine national" in the FIA signifies their lack of integrity and competence in
resolving issues on the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the FIA
should be limited and interpreted to refer to corporations seeking to avail of tax and
fiscal incentives under investment incentives laws and cannot be equated with the term
"capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly contends
that the FIA and its predecessor statutes do not apply to "companies which have not
registered and obtained special incentives under the schemes established by those
laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal
incentives to any enterprise. Tax and fiscal incentives to investments are granted
separately under the Omnibus Investments Code of 1987, not under the FIA. In fact, the
FIA expressly repealed Articles 44 to 56 of Book II of the Omnibus Investments Code of
1987, which articles previously regulated foreign investments in nationalized or partially
nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized or
partially nationalized industries. There is nothing in the FIA, or even in the Omnibus
Investments Code of 1987 or its predecessor statutes, that states, expressly or
impliedly, that the FIA or its predecessor statutes do not apply to enterprises not
availing of tax and fiscal incentives under the Code. The FIA and its predecessor
statutes apply to investments in all domestic enterprises, whether or not such
enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of
1987 or its predecessor statutes. The reason is quite obvious — mere non-
availment of tax and fiscal incentives by a non-Philippine national cannot exempt
it from Section 11, Article XII of the Constitution regulating foreign investments in
public utilities. In fact, the Board of Investments' Primer on Investment Policies in
the Philippines, 34 which is given out to foreign investors, provides: SDIACc

PART III.FOREIGN INVESTMENTS WITHOUT INCENTIVES. —

Investors who do not seek incentives and/or whose chosen activities do
not qualify for incentives, (i.e., the activity is not listed in the IPP, and they are
not exporting at least 70% of their production) may go ahead and make the
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 investments without seeking incentives. They only have to be guided by the
Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino
ownership. All other areas outside of this list are fully open to foreign investors.
(Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
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. To repeat, we held:
Mere legal title is insufficient to meet the 60 percent Filipino-owned
"capital" required in the Constitution. Full beneficial ownership of 60 percent of
the outstanding capital stock, coupled with 60 percent of the voting rights,
is required. The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)

This is consistent with Section 3 of the FIA which provides that where 100% of
the capital stock is held by "a trustee of funds for pension or other employee retirement
or separation benefits," the trustee is a Philippine national if "at least sixty percent
(60%) of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1
(b) of the Implementing Rules of the FIA provides that "for stocks to be deemed owned
and held by Philippine citizens or Philippine nationals, mere legal title is not enough to
meet the required Filipino equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights, is essential."
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 35
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. 36
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 have the right to vote in the election of directors, while
preferred shares may be denied such right. Nonetheless, preferred shares, even if
denied the right to vote in the election of directors, are entitled to vote on the following
corporate matters: (1) amendment of articles of incorporation; (2) increase and
decrease of capital stock; (3) incurring, creating or increasing bonded indebtedness; (4)
sale, lease, mortgage or other disposition of substantially all corporate assets; (5)
investment of funds in another business or corporation or for a purpose other than the
primary purpose for which the corporation was organized; (6) adoption, amendment and
repeal of by-laws; (7) merger and consolidation; and (8) dissolution of corporation. 37 HESAIT

Since a specific class of shares may have rights and privileges or restrictions
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 different from the rest of the shares in a corporation, the 60-40 ownership requirement
in favor of Filipino citizens in Section 11, Article XII of the Constitution must apply not
only to shares with voting rights but also to shares without voting rights. Preferred
shares, denied the right to vote in the election of directors, are anyway still entitled to
vote on the eight specific corporate matters mentioned above. 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.
Of course, if a corporation issues only a single class of shares, at least 60 percent of
such shares must necessarily 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. This uniform application of the 60-40 ownership requirement in favor
of Filipino citizens clearly breathes life to the constitutional command that the ownership
and operation of public utilities shall be reserved exclusively to corporations at least 60
percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership
requirement in favor of Filipino citizens to each class of shares, regardless of
differences in voting rights, privileges and restrictions, guarantees effective Filipino
control of public utilities, as mandated by the Constitution.
Moreover, such uniform application to each class of shares insures that the
"controlling interest" in public utilities always lies in the hands of Filipino citizens. This
addresses and extinguishes Pangilinan's worry that foreigners, owning most of the non-
voting shares, will exercise greater control over fundamental corporate matters requiring
two-thirds or majority vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion 38 a portion of the
deliberations of the Constitutional Commission to support his claim that the term
"capital" refers to the total outstanding shares of stock, whether voting or non-voting,
the following excerpts of the deliberations reveal otherwise. It is clear from the following
exchange that the term "capital" refers to controlling interest of a corporation, thus: TcIAHS

MR. NOLLEDO.

In Sections 3, 9 and 15, the Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3
in Section 15.
MR. VILLEGAS.

That is right.
MR. NOLLEDO.

In teaching law, we are always faced with this question: "Where do we

base the equity requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock of a corporation"?
Will the Committee please enlighten me on this?
MR. VILLEGAS.

We have just had a long discussion with the members of the team from
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 the UP Law Center who provided us a draft. The phrase that is
contained here which we adopted from the UP draft is "60 percent of
voting stock."

MR. NOLLEDO.
That must be based on the subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall be entitled to vote.

MR. VILLEGAS.
That is right.

MR. NOLLEDO.

Thank you.
With respect to an investment by one corporation in another corporation,
say, a corporation with 60-40 percent equity invests in another corporation
which is permitted by the Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS.

Yes, that is the understanding of the Committee.

MR. NOLLEDO.
Therefore, we need additional Filipino capital? cDTCIA

MR. VILLEGAS.
Yes. 39

xxx xxx xxx

MR. AZCUNA.
May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS.

The portion accepted by the Committee is the deletion of the phrase

"voting stock or controlling interest."

MR. AZCUNA.

Hence, without the Davide amendment, the committee report would read:
"corporations or associations at least sixty percent of whose CAPITAL is
owned by such citizens."

MR. VILLEGAS.

Yes.
MR. AZCUNA.

So if the Davide amendment is lost, we are stuck with 60 percent of the

capital to be owned by citizens.
MR. VILLEGAS.
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 That is right.
MR. AZCUNA.

But the control can be with the foreigners even if they are the
minority. Let us say 40 percent of the capital is owned by them, but it
is the voting capital, whereas, the Filipinos own the nonvoting
shares. So we can have a situation where the corporation is
controlled by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would result here. TAHcCI

MR. BENGZON.

No, the reason we eliminated the word "stock" as stated in the 1973
and 1935 Constitutions is that according to Commissioner Rodrigo,
there are associations that do not have stocks. That is why we say
"CAPITAL."

MR. AZCUNA.
We should not eliminate the phrase "controlling interest."

MR. BENGZON.

In the case of stock corporations, it is assumed. 40 (Boldfacing and

underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest"
in the corporation.
The use of the term "capital" was intended to replace the word "stock" because
associations without stocks can operate public utilities as long as they meet the 60-40
ownership requirement in favor of Filipino citizens prescribed in Section 11, Article XII of
the Constitution. However, this did not change the intent of the framers of the
Constitution to reserve exclusively to Philippine nationals the "controlling interest" in
public utilities.
During the drafting of the 1935 Constitution, economic protectionism was "the
battle-cry of the nationalists in the Convention." 41 The same battle-cry resulted in the
nationalization of the public utilities. 42 This is also the same intent of the framers of the
1987 Constitution who adopted the exact formulation embodied in the 1935 and 1973
Constitutions on foreign equity limitations in partially nationalized industries.
The OSG, in its own behalf and as counsel for the State, 43 agrees fully with the
Court's interpretation of the term "capital." In its Consolidated Comment, the OSG
explains that the deletion of the phrase "controlling interest" and replacement of the
word "stock" with the term "capital" were intended specifically to extend the scope of the
entities qualified to operate public utilities to include associations without stocks. The
framers' omission of the phrase "controlling interest" did not mean the inclusion of all
shares of stock, whether voting or non-voting. The OSG reiterated essentially the
Court's declaration that the Constitution reserved exclusively to Philippine nationals the
ownership and operation of public utilities consistent with the State's policy to "develop
a self-reliant and independent national economy effectively controlled by Filipinos."
cDTIAC

As we held in our 28 June 2011 Decision, to construe broadly the term "capital"
as the total outstanding capital stock, treated as a single class regardless of the actual
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 classification of shares, grossly contravenes the intent and letter of the Constitution that
the "State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos." We illustrated the glaring anomaly which would result in
defining the term "capital" as the total outstanding capital stock of a corporation, treated
as a single class of shares regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares owned by
foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with
both classes of share having a par value of one peso (P1.00) per share. Under
the broad definition of the term "capital," such corporation would be considered
compliant with the 40 percent constitutional limit on foreign equity of public
utilities since the overwhelming majority, or more than 99.999 percent, of the
total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only 100 shares.
The foreigners, with a minuscule equity of less than 0.001 percent, exercise
control over the public utility. On the other hand, the Filipinos, holding more than
99.999 percent of the equity, cannot vote in the election of directors and hence,
have no control over the public utility. This starkly circumvents the intent of the
framers of the Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. . . .

Further, even if foreigners who own more than forty percent of the voting shares
elect an all-Filipino board of directors, this situation does not guarantee Filipino control
and does not in any way cure the violation of the Constitution. The independence of the
Filipino board members so elected by such foreign shareholders is highly doubtful. As
the OSG pointed out, quoting Justice George Sutherland's words in Humphrey's
Executor v. US, 44 ". . . it is quite evident that one who holds his office only during the
pleasure of another cannot be depended upon to maintain an attitude of independence
against the latter's will." Allowing foreign shareholders to elect a controlling 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 nationalization laws. TICAcD

VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all
the executive and managing officers of such corporation or association must be
citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a
question on the intent of the framers of the Constitution to limit foreign ownership, and
assure majority Filipino ownership and control of public utilities. The OSG argued, "while
the delegates disagreed as to the percentage threshold to adopt, . . . the records show
they clearly understood that Filipino control of the public utility corporation can only be
and is obtained only through the election of a majority of the members of the board."
Indeed, the only point of contention during the deliberations of the Constitutional
Commission on 23 August 1986 was the extent of majority Filipino control of public
utilities. This is evident from the following exchange:
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 THE PRESIDENT.
Commissioner Jamir is recognized.
MR. JAMIR.
Madam President, my proposed amendment on lines 20 and 21 is to
delete the phrase "two thirds of whose voting stock or controlling interest,"
and instead substitute the words "SIXTY PERCENT OF WHOSE
CAPITAL" so that the sentence will read: "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
PERCENT OF WHOSE CAPITAL is owned by such citizens." SEcTHA

xxx xxx xxx

THE PRESIDENT:
Will Commissioner Jamir first explain?
MR. JAMIR.

Yes, in this Article on National Economy and Patrimony, there were two
previous sections in which we fixed the Filipino equity to 60 percent as
against 40 percent for foreigners. It is only in this Section 15 with respect
to public utilities that the committee proposal was increased to two-thirds. I
think it would be better to harmonize this provision by providing that even
in the case of public utilities, the minimum equity for Filipino citizens
should be 60 percent.
MR. ROMULO.

Madam President.
THE PRESIDENT.
Commissioner Romulo is recognized.

MR. ROMULO.
My reason for supporting the amendment is based on the discussions I
have had with representatives of the Filipino majority owners of the
international record carriers, and the subsequent memoranda they
submitted to me. . . .
Their second point is that under the Corporation Code, the management
and control of a corporation is vested in the board of directors, not in the
officers but in the board of directors. The officers are only agents of the
board. And they believe that with 60 percent of the equity, the Filipino
majority stockholders undeniably control the board. Only on important
corporate acts can the 40-percent foreign equity exercise a veto, . . . .DcHSEa

xxx xxx xxx 45

MS. ROSARIO BRAID.

Madam President.

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 THE PRESIDENT.
Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID.

Yes, in the interest of equal time, may I also read from a memorandum by
the spokesman of the Philippine Chamber of Communications on why they
would like to maintain the present equity, I am referring to the 66 2/3. They
would prefer to have a 75-25 ratio but would settle for 66 2/3. . . .

xxx xxx xxx

THE PRESIDENT.
Just to clarify, would Commissioner Rosario Braid support the proposal of
two-thirds rather than the 60 percent?

MS. ROSARIO BRAID.

I have added a clause that will put management in the hands of Filipino
citizens.
xxx xxx xxx 46

While they had differing views on the percentage of Filipino ownership of capital,
it is clear that the framers of the Constitution intended public utilities to be majority
Filipino-owned and controlled. To ensure that Filipinos control public utilities, the
framers of the Constitution approved, as additional safeguard, the inclusion of the last
sentence of Section 11, Article XII of the Constitution commanding that "[t]he
participation of foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the
Philippines." In other words, the last sentence of Section 11, Article XII of the
Constitution mandates that (1) the participation of foreign investors in the governing
body of the corporation or association shall be limited to their proportionate share in the
capital of such entity; and (2) all officers of the corporation or association must be
Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring the
managing officers of the corporation or association to be Filipino citizens specifically to
prevent management contracts, which were designed primarily to circumvent the
Filipinization of public utilities, and to assure Filipino control of public utilities, thus:
MS. ROSARIO BRAID.
. . . They also like to suggest that we amend this provision by adding a
phrase which states: "THE MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me
their position paper.
THE PRESIDENT.

The Commissioner may proceed. TDcHCa

MS. ROSARIO BRAID.

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 The three major international record carriers in the Philippines, which
Commissioner Romulo mentioned — Philippine Global Communications,
Eastern Telecommunications, Globe Mackay Cable — are 40-percent
owned by foreign multinational companies and 60-percent owned by their
respective Filipino partners. All three, however, also have management
contracts with these foreign companies — Philcom with RCA, ETPI with
Cable and Wireless PLC, and GMCR with ITT. Up to the present time, the
general managers of these carriers are foreigners. While the foreigners in
these common carriers are only minority owners, the foreign multinationals
are the ones managing and controlling their operations by virtue of their
management contracts and by virtue of their strength in the governing
bodies of these carriers. 47

xxx xxx xxx

MR. OPLE.
I think a number of us have agreed to ask Commissioner Rosario Braid to
propose an amendment with respect to the operating management of
public utilities, and in this amendment, we are associated with Fr. Bernas,
Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state
this amendment now.
Thank you.
MS. ROSARIO BRAID.

Madam President. ADCSEa

THE PRESIDENT.
This is still on Section 15.

MS. ROSARIO BRAID.

Yes.
MR. VILLEGAS.

Yes, Madam President.

xxx xxx xxx
MS. ROSARIO BRAID.
Madam President, I propose a new section to read: 'THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL
CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES."

This will prevent management contracts and assure control by

Filipino citizens. Will the committee assure us that this amendment will
insure that past activities such as management contracts will no longer be
possible under this amendment?

xxx xxx xxx

FR. BERNAS.
Madam President.
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 THE PRESIDENT.
Commissioner Bernas is recognized.

FR. BERNAS.
Will the committee accept a reformulation of the first part?
MR. BENGZON.

Let us hear it.

FR. BERNAS.
The reformulation will be essentially the formula of the 1973 Constitution
which reads: "THE PARTICIPATION OF FOREIGN INVESTORS IN THE
GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL
THEREOF AND . . ."
MR. VILLEGAS.

"ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH

CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES."

MR. BENGZON.
Will Commissioner Bernas read the whole thing again?
FR. BERNAS.

"THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING

BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO
THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF . . ." I do
not have the rest of the copy.CDaSAE

MR. BENGZON.
"AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES." Is that correct?
MR. VILLEGAS.

Yes.
MR. BENGZON.
Madam President, I think that was said in a more elegant language. We
accept the amendment. Is that all right with Commissioner Rosario Braid?
MS. ROSARIO BRAID.

Yes.
xxx xxx xxx
MR. DE LOS REYES.

The governing body refers to the board of directors and trustees.

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 MR. VILLEGAS.

That is right.
MR. BENGZON.
Yes, the governing body refers to the board of directors.

MR. REGALADO.
It is accepted.
MR. RAMA.
The body is now ready to vote, Madam President.

VOTING
xxx xxx xxx
The results show 29 votes in favor and none against; so the proposed
amendment is approved.

xxx xxx xxx

THE PRESIDENT.
All right. Can we proceed now to vote on Section 15?

MR. RAMA.
Yes, Madam President.
THE PRESIDENT.
Will the chairman of the committee please read Section 15?

MR. VILLEGAS.
The entire Section 15, as amended, reads: "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 60
PERCENT OF WHOSE CAPITAL is owned by such citizens." May I
request Commissioner Bengzon to please continue reading. SCHcaT

MR. BENGZON.
"THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING
BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO
THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND
ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES."
MR. VILLEGAS.

"NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION

BE EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER THAN
TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE THAN TWENTY-
FIVE YEARS. Neither shall any such franchise or right be granted except
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 under the condition that it shall be subject to amendment, alteration, or
repeal by Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public."
VOTING

xxx xxx xxx

The results show 29 votes in favor and 4 against; Section 15, as
amended, is approved. 48 (Emphasis supplied)

The last sentence of Section 11, Article XII of the 1987 Constitution, particularly
the provision on the limited participation of foreign investors in the governing body of
public utilities, is a reiteration of the last sentence of Section 5, Article XIV of the 1973
Constitution, 49 signifying its importance in reserving ownership and control of public
utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that (1)
foreigners own 64.27% of the common shares of PLDT, which class of shares exercises
the sole right to vote in the election of directors, and thus foreigners control PLDT; (2)
Filipinos own only 35.73% of PLDT's common shares, constituting a minority of the
voting stock, and thus Filipinos do not control PLDT; (3) preferred shares, 99.44%
owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the
dividends that common shares earn; 50 (5) preferred shares have twice the par value of
common shares; and (6) preferred shares constitute 77.85% of the authorized capital
stock of PLDT and common shares only 22.15%. cSTCDA

Despite the foregoing facts, the Court did not decide, and in fact refrained from
ruling on the question of whether PLDT violated the 60-40 ownership requirement in
favor of Filipino citizens in Section 11, Article XII of the 1987 Constitution. Such question
indisputably calls for a presentation and determination of evidence through a hearing,
which is generally outside the province of the Court's jurisdiction, but well within the
SEC's statutory powers. Thus, for obvious reasons, the Court limited its decision on the
purely legal and threshold issue on the definition of the term "capital" in Section 11,
Article XII of the Constitution and directed the SEC to apply such definition in
determining the exact percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxx xxx xxx
5. For the Honorable Court to issue a declaratory relief that ownership
of common or voting shares is the sole basis in determining foreign equity in a
public utility and that any other government rulings, opinions, and regulations
inconsistent with this declaratory relief be declared unconstitutional and a
violation of the intent and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of
common stocks to foreigners in excess of 40 percent of the total subscribed
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 common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange
Commission and Philippine Stock Exchange to require PLDT to make a public
disclosure of all of its foreign shareholdings and their actual and real
beneficial owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis
supplied)

As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the
SEC to perform its statutory duty to investigate whether "the required percentage of
ownership of the capital stock to be owned by citizens of the Philippines has been
complied with [by PLDT] as required by . . . the Constitution." 51 Such plea clearly
negates SEC's argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has
ample powers to order the SEC's compliance with its directive contained in the 28 June
2011 Decision in view of the far-reaching implications of this case. In Domingo v.
Scheer, 52 the Court dispensed with the amendment of the pleadings to implead the
Bureau of Customs considering (1) the unique backdrop of the case; (2) the utmost
need to avoid further delays; and (3) the issue of public interest involved. The Court
held: aIcDCH

The Court may be curing the defect in this case by adding the BOC as
party-petitioner. The petition should not be dismissed because the second action
would only be a repetition of the first. In Salvador, et al. v. Court of Appeals, et
al., we held that this Court has full powers, apart from that power and authority
which is inherent, to amend the processes, pleadings, proceedings and decisions
by substituting as party-plaintiff the real party-in-interest. The Court has the
power to avoid delay in the disposition of this case, to order its amendment
as to implead the BOC as party-respondent. Indeed, it may no longer be
necessary to do so taking into account the unique backdrop in this case,
involving as it does an issue of public interest. After all, the Office of the
Solicitor General has represented the petitioner in the instant proceedings, as
well as in the appellate court, and maintained the validity of the deportation order
and of the BOC's Omnibus Resolution. It cannot, thus, be claimed by the State
that the BOC was not afforded its day in court, simply because only the
petitioner, the Chairperson of the BOC, was the respondent in the CA, and the
petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to
state:
There is nothing sacred about processes or pleadings, their
forms or contents. Their sole purpose is to facilitate the application
of justice to the rival claims of contending parties. They were created,
not to hinder and delay, but to facilitate and promote, the administration of
justice. They do not constitute the thing itself, which courts are always
striving to secure to litigants. They are designed as the means best
adapted to obtain that thing. In other words, they are a means to an end.
When they lose the character of the one and become the other, the
administration of justice is at fault and courts are correspondingly remiss
in the performance of their obvious duty. 53 (Emphasis supplied)

In any event, the SEC has expressly manifested 54 that it will abide by the
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 Court's decision and defer to the Court's definition of the term "capital" in
Section 11, Article XII of the Constitution. Further, the SEC entered its special
appearance in this case and argued during the Oral Arguments, indicating its
submission to the Court's jurisdiction. It is clear, therefore, that there exists no
legal impediment against the proper and immediate implementation of the Court's
directive to the SEC. DEcTIS

PLDT is an indispensable party only insofar as the other issues, particularly the
factual questions, are concerned. In other words, PLDT must be impleaded in order to
fully resolve the issues on (1) whether the sale of 111,415 PTIC shares to First Pacific
violates the constitutional limit on foreign ownership of PLDT; (2) whether the sale of
common shares to foreigners exceeded the 40 percent limit on foreign equity in PLDT;
and (3) whether the total percentage of the PLDT common shares with voting rights
complies with the 60-40 ownership requirement in favor of Filipino citizens under the
Constitution for the ownership and operation of PLDT. These issues indisputably call for
an examination of the parties' respective evidence, and thus are clearly within the
jurisdiction of the SEC. In short, PLDT must be impleaded, and must necessarily be
heard, in the proceedings before the SEC where the factual issues will be thoroughly
threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court . The Court
did not rule on the factual issues raised by Gamboa, except the single and purely legal
issue on the definition of the term "capital" in Section 11, Article XII of the Constitution.
The Court confined the resolution of the instant case to this threshold legal issue in
deference to the fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose of the
fundamental legal issue in this case even without the participation of PLDT since
defining the term "capital" in Section 11, Article XII of the Constitution does not, in any
way, depend on whether PLDT was impleaded. Simply put, PLDT is not indispensable
for a complete resolution of the purely legal question in this case. 55 In fact, the Court,
by treating the petition as one for mandamus, 56 merely directed the SEC to apply the
Court's definition of the term "capital" in Section 11, Article XII of the Constitution in
determining whether PLDT committed any violation of the said constitutional provision.
The dispositive portion of the Court's ruling is addressed not to PLDT but solely
to the SEC, which is the administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in Section 11, Article XII of the
Constitution.
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 to investigate any violation by PLDT of the 60-40 ownership requirement in favor
of Filipino citizens under the Constitution, 57 there is no deprivation of PLDT's property
or denial of PLDT's right to due process, contrary to Pangilinan and Nazareno's
misimpression. Due process will be afforded to PLDT when it presents proof to the SEC
that it complies, as it claims here, with Section 11, Article XII of the Constitution.
AHaDSI

X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our
economy, as it may result in a sudden flight of existing foreign investors to "friendlier"
countries and simultaneously deterring new foreign investors to our country. In
particular, the PSE claims that the 28 June 2011 Decision may result in the following:
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 (1) loss of more than P630 billion in foreign investments in PSE-listed shares; (2)
massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and
(4) local investors not investing in PSE-listed shares. 58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared
movants' apprehension. Without providing specific details, he pointed out the
depressing state of the Philippine economy compared to our neighboring countries
which boast of growing economies. Further, Dr. Villegas explained that the solution to
our economic woes is for the government to "take-over" strategic industries, such as the
public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional
information on whether this high FDI 59 countries in East Asia have
allowed foreigners . . . control [of] their public utilities, so that we can
compare apples with apples.

DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours
find an industry strategic, their solution is not to "Filipinize" or "Vietnamize"
or "Singaporize." Their solution is to make sure that those industries
are in the hands of state enterprises. So, in these countries,
nationalization means the government takes over. And because their
governments are competent and honest enough to the public, that is
the solution. . . . 60 (Emphasis supplied) cEAaIS

If government ownership of public utilities is the solution, then foreign

investments in our public utilities serve no purpose. Obviously, there can never be
foreign investments in public utilities if, as Dr. Villegas claims, the "solution is to make
sure that those industries are in the hands of state enterprises." Dr. Villegas's argument
that foreign investments in telecommunication companies like PLDT are badly needed
to save our ailing economy contradicts his own theory that the solution is for
government to take over these companies. Dr. Villegas is barking up the wrong tree
since State ownership of public utilities and foreign investments in such industries are
diametrically opposed concepts, which cannot possibly be reconciled.
In any event, the experience of our neighboring countries cannot be used as
argument to decide the present case differently for two reasons. First, the governments
of our neighboring countries have, as claimed by Dr. Villegas, taken over ownership and
control of their strategic public utilities like the telecommunications industry. Second,
our Constitution has specific provisions limiting foreign ownership in public utilities
which the Court is sworn to uphold regardless of the experience of our neighboring
countries.
In our jurisdiction, the Constitution expressly reserves the ownership and
operation of public utilities to Filipino citizens, or corporations or associations at least 60
percent of whose capital belongs to Filipinos. Following Dr. Villegas's claim, the
Philippines appears to be more liberal in allowing foreign investors to own 40 percent of
public utilities, unlike in other Asian countries whose governments own and operate
such industries.
XI.
Prospective Application of Sanctions
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 In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning
period of the application and imposition of appropriate sanctions against PLDT if found
violating Section 11, Article XII of the Constitution.
As discussed, the Court has directed the SEC to investigate and determine
whether PLDT violated Section 11, Article XII of the Constitution. Thus, there is no
dispute that it is only after the SEC has determined PLDT's violation, if any exists at the
time of the commencement of the administrative case or investigation, that the SEC
may impose the statutory sanctions against PLDT. In other words, once the 28 June
2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it
finds after due hearing that, at the start of the administrative case or investigation, there
is an existing violation of Section 11, Article XII of the Constitution. Under prevailing
jurisprudence, public utilities that fail to comply with the nationality requirement under
Section 11, Article XII and the FIA can cure their deficiencies prior to the start of the
administrative case or investigation. 61CTAIHc

XII.
Final Word
The Constitution expressly declares as State policy the development of an
economy "effectively controlled" by Filipinos. Consistent with such State policy, 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
citizens, or corporations or associations at least 60 percent of whose capital with
voting rights belongs to Filipinos. The FIA's implementing rules explain that "[f]or
stocks to be deemed owned and held by Philippine citizens or Philippine nationals,
mere legal title is not enough to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate voting rights is essential." In
effect, the FIA clarifies, reiterates and confirms the interpretation that the term "capital"
in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights,
as well as with full beneficial ownership. This is precisely because the right to vote
in the election of directors, coupled with full beneficial ownership of stocks, translates to
effective control of a corporation.
Any other construction of the term "capital" in Section 11, Article XII of the
Constitution contravenes the letter and intent of the Constitution. Any other meaning of
the term "capital" openly invites alien domination of economic activities reserved
exclusively to Philippine nationals. Therefore, respondents' interpretation will ultimately
result in handing over effective control of our national economy to foreigners in patent
violation of the Constitution, making Filipinos second-class citizens in their own country.
Filipinos have only to remind themselves of how this country was exploited under
the Parity Amendment, which gave Americans the same rights as Filipinos in the
exploitation of natural resources, and in the ownership and control of public utilities, in
the Philippines. To do this the 1935 Constitution, which contained the same 60 percent
Filipino ownership and control requirement as the present 1987 Constitution, had to be
amended to give Americans parity rights with Filipinos. There was bitter opposition to
the Parity Amendment 62 and many Filipinos eagerly awaited its expiration. In late 1968,
PLDT was one of the American-controlled public utilities that became Filipino-controlled
when the controlling American stockholders divested in anticipation of the expiration of
the Parity Amendment on 3 July 1974. 63 No economic suicide happened when control
of public utilities and mining corporations passed to Filipinos' hands upon expiration of
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 the Parity Amendment. AHSEaD

Movants' interpretation of the term "capital" would bring us back to the same evils
spawned by the Parity Amendment, effectively giving foreigners parity rights with
Filipinos, but this time even without any amendment to the present Constitution.
Worse, movants' interpretation opens up our national economy to effective control not
only by Americans but also by all foreigners, be they Indonesians, Malaysians or
Chinese, even in the absence of reciprocal treaty arrangements. At least the Parity
Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-
starved Filipinos theoretical parity — the same rights as Americans to exploit natural
resources, and to own and control public utilities, in the United States of America. Here,
movants' interpretation would effectively mean a unilateral opening up of our national
economy to all foreigners, without any reciprocal arrangements. That would mean
that Indonesians, Malaysians and Chinese nationals could effectively control our mining
companies and public utilities while Filipinos, even if they have the capital, could not
control similar corporations in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino
ownership and control requirement for public utilities like PLDT. Any deviation from this
requirement necessitates an amendment to the Constitution as exemplified by the
Parity Amendment. This Court has no power to amend the Constitution for its power
and duty is only to faithfully apply and interpret the Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No
further pleadings shall be entertained.
SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Brion, Peralta, Bersamin, Del Castillo,
Villarama, Jr., Perez and Mendoza, JJ., concur.
Velasco, Jr. and Abad, JJ., please see dissenting opinion.
Reyes, J., I join the dissenting position of J. Velasco, Jr.
Perlas-Bernabe, J., took no part due to prior participation in a related case.

Footnotes
*The Heirs of Wilson P. Gamboa substituted petitioner Wilson P. Gamboa per Resolution
dated 17 April 2012 which noted the Manifestation of Lauro Gamboa dated 12 April
2012.

1.Rollo (Vol. III), pp. 1431-1451. Dated 11 July 2011.

2.Id. at 1563-1613. Dated 14 July 2011.

3.Id. at 1454-1537. Dated 15 July 2011.

4.Id. at 1669-1680. Through its Office of the General Counsel and Commissioner Manuel
Huberto B. Gaite. In its Manifestation and Omnibus Motion dated 29 July 2011, the SEC
manifested that the position of the OSG on the meaning of the term "capital" does not
reflect the view of the SEC. The SEC sought a partial reconsideration praying that the
statement on SEC's unlawful neglect of its statutory duty be expunged and for
clarification on the reckoning period of the imposition of any sanctions against PLDT.
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 5.Id. at 1614-1627. Dated 13 July 2011. On behalf of the SEC, by special appearance. The
OSG prayed that the Court's decision "be cured of its procedural defect which however
should not prevail over the substantive aspect of the Decision."

6.Id. at 2102-2124. Filed on 15 December 2011.

7.Salvacion v. Central Bank of the Philippines, 343 Phil. 539 (1997).

8.150-B Phil. 380 (1972).

9.Rollo (Vol. III), p. 1583.

10.Addressed to Gov. Lilia Bautista of the Board of Investments.

11.A typographical error in DOJ Opinion No. 130 where it states 80%.
12.Republic Act No. 8799.
13.General Counsel and Commissioner Manuel Huberto B. Gaite of the Securities and
Exchange Commission.
14.TSN (Oral Arguments), 26 June 2012, pp. 81-83. Emphasis supplied.

15.SEC En Banc Case No. 09-09-177, 25 March 2010.

16.SEC Opinion No. 49-04, Re: Corporations considered as Philippine Nationals, dated 22
December 2004, addressed to Romulo Mabanta Buenaventura Sayoc & De Los
Angeles and signed by General Counsel Vernette G. Umali-Paco; SEC-OGC Opinion
No. 03-08, dated 15 January 2008, addressed to Attys. Ruby Rose J. Yusi and Rudyard
S. Arbolado and signed by General Counsel Vernette G. Umali-Paco; SEC-OGC
Opinion No. 09-09, dated 28 April 2009, addressed to Villaraza Cruz Marcelo Angangco
and signed by General Counsel Vernette G. Umali-Paco; SEC-OGC Opinion No. 08-10,
dated 8 February 2010, addressed to Mr. Teodoro B. Quijano and signed by General
Counsel Vernette G. Umali-Paco; SEC-OGC Opinion No. 23-10, dated 18 August 2010,
addressed to Castillo Laman Tan Pantaleon and San Jose and signed by General
Counsel Vernette G. Umali-Paco; SEC-OGC Opinion No. 18-07, dated 28 November
2007, addressed to Mr. Rafael C. Bueno, Jr. and signed by General Counsel Vernette
G. Umali-Paco.
In SEC Opinion No. 32-03, dated 2 June 2003, addressed to National
Telecommunications Commissioner Armi Jane R. Borje, SEC General Counsel Vernette
G. Umali-Paco stated:

In this light, it is imperative that we reiterate the policy of this Commission (SEC) in
refraining from rendering opinions that might prejudice or affect the outcome of a case,
which is subject to present litigation before the courts, or any other forum for that matter.
The opinion, which may be rendered thereon, would not be binding upon any party who
would in all probability, if the opinion happens to be adverse to his or its interest, take
issue therewith and contest it before the proper venue. The Commission, therefore, has
to refrain from giving categorical answers to your query.

17.370 Phil. 538 (1999).

18.G.R. No. 152685, 4 December 2007, 539 SCRA 365.

19.Rollo (Vol. III), pp. 1392-1393.

20.Supra.
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 21.Supra.
22.De Leon, Hector S., TEXTBOOK ON THE PHILIPPINE CONSTITUTION, 2005 Edition, pp.
32, 33.
23.Section 10, Article XII of the 1987 Constitution.

24.Bernas, Joaquin G., S.J., THE 1987 CONSTITUTION OF THE REPUBLIC OF THE
PHILIPPINES: A COMMENTARY, 1996 Edition, p. 1044, citing Smith, Bell and Co. v.
Natividad, 40 Phil. 136, 148 (1919); Luzon Stevedoring Corporation v. Anti-Dummy
Board, 150-B Phil. 380, 403-404 (1972).
25.Issued on 17 July 1987.
26.Articles 44 to 56 of the Omnibus Investments Code of 1987 were later repealed by the
Foreign Investments Act of 1991. See infra, p. 26.

27.Article 48. Authority to Do Business. — No alien, and no firm association, partnership,

corporation or any other form of business organization formed, organized, chartered or
existing under any laws other than those of the Philippines, or which is not a Philippine
national, or more than forty per cent (40%) of the outstanding capital of which is owned
or controlled by aliens shall do business or engage in any economic activity in the
Philippines or be registered, licensed, or permitted by the Securities and Exchange
Commission or by any other bureau, office, agency, political subdivision or
instrumentality of the government, to do business, or engage in any economic activity in
the Philippines without first securing a written certificate from the Board of Investments
to the effect:
xxx xxx xxx
(3) That such business or economic activity by the applicant would not conflict with the
Constitution or laws of the Philippines;

xxx xxx xxx

28.Presidential Decree No. 1789.

29.Article 69. Authority to Do Business. — No alien, and no firm, association, partnership,

corporation or any other form of business organization formed, organized, chartered or
existing under any laws other than those of the Philippines, or which is not a Philippine
national, or more than thirty (30%) per cent of the outstanding capital of which is owned
or controlled by aliens shall do business or engage in any economic activity in the
Philippines, or be registered, licensed, or permitted by the Securities and Exchange
Commission or by any other bureau, office, agency, political subdivision or
instrumentality of the government, to do business, or engage in any economic activity in
the Philippines, without first securing a written certificate from the Board of Investments
to the effect:

xxx xxx xxx

(3) That such business or economic activity by the applicant would not conflict with the
Constitution or laws of the Philippines;
xxx xxx xxx
30.An Act Prescribing Incentives and Guarantees to Investments in the Philippines, Creating A
Board of Investments, Appropriating the Necessary Funds Therefor and for Other
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 Purposes.
31.Section 3 of RA No. 5455 states:

Section 3. Permissible Investments. — If an investment by a non-Philippine national in

an enterprise not registered under the Investment Incentives Act is such that the total
participation by non-Philippine nationals in the outstanding capital thereof shall exceed
thirty per cent, the enterprise must obtain prior authority from the Board of Investments,
which authority shall be granted unless the proposed investment.
(a) Would conflict with existing constitutional provisions and laws regulating the degree
of required ownership by Philippine nationals in the enterprise; or

(b) Would pose a clear and present danger of promoting monopolies or combinations in
restraint of trade; or

(c) Would be made in an enterprise engaged in an area adequately being exploited by

Philippine nationals; or
(d) Would conflict or be inconsistent with the Investments Priorities Plan in force at the
time the investment is sought to be made; or
(e) Would not contribute to the sound and balanced development of the national
economy on a self-sustaining basis.
xxx xxx xxx

32.Executive Order No. 858, Promulgating the Eighth Regular Foreign Investment Negative
List, signed on 5 February 2010, http://www.boi.gov.ph/pdf/laws/eo/EO%20858.pdf
(accessed 17 August 2011).
33.TSN (Oral Arguments), 26 June 2012, pp. 71-74.
34.Published by the Board of Investments. For on-line copy, see
http://www.fdi.net/documents/WorldBank/databases/philippines/primer.htm (accessed 3
September 2012).
35.In his book, Fletcher explains:

The term "stock" has been used in the same sense as "capital stock" or "capital," and it
has been said that "its primary meaning is capital, in whatever form it may be invested.
More commonly, it is now being used to designate shares of the stock in the hands of
the individual shareholders, or the certificates issued by the corporation to them.
(Fletcher Cyclopedia of the Law of Private Corporations, 1995 Revised Volume, Vol. 11,
§ 5079, p. 13; citations omitted).

36.SECTION 137. Outstanding capital stock defined. — The term "outstanding capital stock"
as used in this Code, means the total shares of stock issued to subscribers or
stockholders, whether or not fully or partially paid, except treasury shares.

SEC. 6. Classification of shares. — The shares of stock of stock corporations may be

divided into classes or series of shares, or both, any of which classes or series of
shares may have such rights, privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided
in this Code: Provided, further, That there shall always be a class or series of shares
which have complete voting rights. Any or all of the shares or series of shares may have
a par value or have no par value as may be provided for in the articles of incorporation:
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 Provided, however, That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue no-par value shares
of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution
of dividends, or such other preferences as may be stated in the articles of incorporation
which are not violative of the provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof: Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided; That shares without par value may not be issued
for a consideration less than the value of five (P5.00) pesos per share: Provided,
further, That the entire consideration received by the corporation for its no-par value
shares shall be treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate
of stock, each share shall be equal in all respects to every other share.
xxx xxx xxx

37.Under Section 6 of the Corporation Code.

38.Dissenting Opinion to the 28 June 2011 Decision.
39.Record of the Constitutional Commission, Vol. III, pp. 255-256.

40.Id. at 360.

41.Aruego, Jose M., THE FRAMING OF THE PHILIPPINE CONSTITUTION, Vol. II, 1936, p.
658.

42.Id.
43.The OSG stated, "It must be stressed that when the OSG stated its concurrence with the
Honorable Court's ruling on the proper definition of capital, it did so, not on behalf of the
SEC, its individual client in this case. Rather, the OSG did so in the exercise of its
discretion not only in its capacity as statutory counsel of the SEC but as counsel for no
less than the State itself."
44.295 U.S. 602, 55 S.Ct. 869, U.S. 1935 (27 May 1935).
45.Record of the Constitutional Commission, Vol. 3, pp. 650-651 (23 August 1986).

46.Record of the Constitutional Commission, Vol. 3, pp. 652-653 (23 August 1986).
47.Record of the Constitutional Commission, Vol. 3, p. 652 (23 August 1986).
48.Record of the Constitutional Commission, Vol. 3, pp. 665-667 (23 August 1986).

49.Section 5, Article XIV of the 1973 Constitution provides:

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 Section 5. 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
the capital of which is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the National Assembly when the public
interest so requires. The State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share in the
capital thereof. (Emphasis supplied)
50.For the year 2009.

51.SEC. 17. Grounds when articles of incorporation or amendment may be rejected or

disapproved. — The Securities and Exchange Commission may reject the articles of
incorporation or disapprove any amendment thereto if the same is not in compliance
with the requirements of this Code: Provided, That the Commission shall give the
incorporators a reasonable time within which to correct or modify the
objectionable portions of the articles or amendment. The following are grounds for
such rejection or disapproval:
xxx xxx xxx
(4) That the percentage of ownership of the capital stock to be owned by citizens
of the Philippines has not been complied with as required by existing laws or the
Constitution. (Emphasis supplied)
Section 5 of R.A. No. 8799 provides:

Section 5. Powers and Functions of the Commission. — 5.1. The Commission shall act
with transparency and shall have the powers and functions provided by this Code,
Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the
Financing Company Act and other existing laws. Pursuant thereto the Commission shall
have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations
who are the grantees of primary franchises and/or a license or a permit issued by the
Government;

xxx xxx xxx

(c) Approve, reject, suspend, revoke or require amendments to registration statements,
and registration and licensing applications;
xxx xxx xxx
(f) Impose sanctions for the violation of laws and the rules, regulations and orders,
issued pursuant thereto;

xxx xxx xxx

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
xxx xxx xxx

(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnership or associations, upon any of the grounds
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 provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may
be implied from, or which are necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and purposes of these laws.
52.466 Phil. 235 (2004).

53.Id. at 266-267.
54.In its Manifestation and Omnibus Motion dated 29 July 2011, the SEC stated: "The
Commission respectfully manifests that the position of the Office of the Solicitor General
('OSG') on the meaning of the term "capital" does not reflect the view of the
Commission. The Commission's position has been laid down in countless opinions that
needs no reiteration. The Commission, however, would submit to whatever would
be the final decision of this Honorable Court on the meaning of the term "capital."
(Emphasis supplied; citations omitted)
In its Memorandum, the SEC stated: "In the event that this Honorable Court rules with
finality on the meaning of "capital", the SEC will yield to the Court and follow its
interpretation."

55.In Lucman v. Malawi, 540 Phil. 289 (2006), the Court defined indispensable parties as
parties-in-interest without whom there can be no final determination of an action.
56.Section 3, Rule 65 of the Rules of Court states:

SEC. 3. Petition for mandamus. — When any tribunal, corporation, board, officer or
person unlawfully neglects the performance of an act which the law specifically enjoins
as a duty resulting from an office, trust, or station, or unlawfully excludes another from
the use and enjoyment of a right or office to which such other is entitled, and there is no
other plain, speedy and adequate remedy in the ordinary course of law, the person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent,
immediately or at some other time to be specified by the court, to do the act required to
be done to protect the rights of the petitioner and to pay the damages sustained by the
petitioner by reason of the wrongful acts of the respondent.
xxx xxx xxx

57.See Lucman v. Malawi, supra, where the Court referred to the Department of the Interior
and Local Government (though not impleaded) for investigation and appropriate action
the matter regarding the withdrawals of deposits representing the concerned barangays'
Internal Revenue Allotments.

58.Rollo (Vol. III), pp. 1444-1445.

59.Foreign Direct Investments.

60.TSN (Oral Arguments), 26 June 2012, p. 117.

61.See Halili v. Court of Appeals, 350 Phil. 906 (1998); United Church Board for World
Ministries v. Sebastian, 242 Phil. 848 (1988).

62.Urbano A. Zafra, The Laurel-Langley Agreement and the Philippine Economy, p. 43 (1973).
See also Mabanag v. Lopez Vito, 78 Phil. 1 (1947).

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 63.See Hadi Salehi Esfahani, The Political Economy of the Philippines' Telecommunications
Sector, World Bank Policy Research Department (1994).

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