Supreme court

In 1928, the legislature enacted Act 3436, granting Philippine Long Distance Telephone Company (PLDT) a franchise to provide telecommunications services across the country. Forty years later in 1969, General Telephone and Electronics Corporation, an American company and major PLDT stockholder, sold 26% of PLDT’s equity to the Philippine Telecommunications Investment Corporation (PTIC).

Subsequently, PTIC assigned 46% of its equity or 111,415 shares of stock to Prime Holdings, Inc. In 1986, the Presidential Commission on Good Government sequestered these shares. Eventually, the Court declared these as properties of the Republic of the Philippines.

In 1999, First Pacific, a Bermuda-registered and Hongkong-based investment firm, acquired the remaining 54% of PTIC’s equity in PLDT.

In 2006, the government’s Inter-agency Privatization Council offered to auction the 46% PTIC equity in PLDT that the Court adjudged to the Republic. Parallax Venture Fund XXVII won with a bid of ₱25.2 billion or US$510 million. First Pacific announced that it would exercise its right of first refusal and buy those shares by matching Parallax’s bid. In 2007, First Pacific, through its subsidiary, Metro Pacific Assets Holdings, Inc., entered into a Conditional Sale and Purchase Agreement with the national government involving the 46% PTIC equity for ₱25.2 billion or US$510 million.

In this petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale, petitioner Wilson P. Gamboa, a PLDT stockholder, seeks to annul the sale of the 46% PTIC equity or 111,415 shares of stock to Metro Pacific on the ground that it violates Section 11, Article XII of the 1987 Constitution which limits foreign ownership of a public utility company to 40% of its capital. Gamboa claims that since PTIC is a PLDT stockholder, the sale of the 46% of its equity is actually an indirect sale of 6.3% PLDT equity or 12 million shares of stock. This would increase First Pacific’s equity in PLDT from 30.7% to 37%, and concomitantly increase the common shareholdings of foreigners in PLDT to about 64.27%.

The action presents two primordial issues:

1. Whether or not the Court can hear and decide Gamboa’s petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale; and

2. Whether or not Metro Pacific’s acquisition of 46% of PTIC’s equity violates the constitutional limit on foreign ownership of the capital of PLDT, a public utility company, provided under Section 11, Article XII of the 1987 Constitution.

One. The objection to the idea of the Court hearing and deciding Gamboa’s action seems to have some basis in the rules. Under Section 1, Rule 56 of the Rules of Court, only the following cases may be filed originally in the Supreme Court:

Sec. 1. Original cases cognizable.—Only petitions for certiorari, prohibition, mandamus, quo warranto, habeas corpus, disciplinary proceedings against members of the judiciary and attorneys, and cases affecting ambassadors, other public ministers and consuls may be filed originally in the Supreme Court.

Strictly speaking, Gamboa actions for injunction, declaratory relief, and declaration of nullity of sale are not among the cases that can be initiated before the Supreme Court. Those actions belong to some other tribunal.

And, although the Court has original jurisdiction in prohibition cases, the Court shares this authority with the Court of Appeals and the Regional Trial Courts. But this concurrence of jurisdiction does not give the parties absolute and unrestrained freedom of choice on which court the remedy will be sought. They must observe the hierarchy of courts.¹ As a rule, the Supreme Court will not entertain direct resort to it unless the remedy desired cannot be obtained in other tribunals. Only exceptional and compelling circumstances such as cases of national interest and of serious implications justify direct resort to the Supreme Court for the extraordinary remedy of writ of certiorari, prohibition, or mandamus.²

The majority of the Court of course suggests that although Gamboa entitles his actions as ones for injunction, declaratory relief, and declaration of nullity of sale, what controls the nature of such actions are the allegations of his petition. And a valid special civil action for mandamus can be made out of those allegations since respondent Secretary of Finance, his undersecretary, and respondent Chairman of the Securities and Exchange Commission are the officials who appear to have the duty in law to implement the foreign ownership restriction that the Constitution commands.³

To a certain extent, I agree with the position that the majority of my colleagues takes on this procedural issue. I believe that a case can be made for giving due course to Gamboa’s action. Indeed, there are in his actions compelling reasons to relax the doctrine of hierarchy of courts. The need to address the important question of defining the constitutional limit on foreign ownership of public utilities under Section 11, Article XII of the 1987 Constitution, a bedrock policy adopted by the Filipino people, is certainly a matter of serious national interest. Such policy is intended to develop a self-reliant and independent national economy effectively controlled by Filipino entrepreneurs.

Indeed, as the Court said in Espina v. Zamora,⁴ the provisions of Article XII of the 1987 Constitution lay down the ideals of economic nationalism. One of these is the Filipinization of public utilities under Section 11 which recognizes the very strategic position of public utilities both in the national economy and for national security.⁵ The participation of foreign capital is encouraged since the establishment and operation of public utilities may require the investment of substantial capital that Filipino citizens could possibly not afford. But at the same time, the Constitution wants to limit foreign involvement to prevent them from assuming control of public utilities which may be inimical to national interest.⁶

Two. Still, the question is whether it is for the Court to decide in this case the shape and substance of what the Constitution meant when it restricted the size of foreign ownership of the capital of public utility corporations provided for in Section 11, Article XII of the 1987 Constitution which reads:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; x x x.

Gamboa contends that the constitutional limit on foreign ownership in public utilities should be based on the ownership of common or voting shares since it is through voting that stockholders are able to have control over a corporation. Preferred or non-voting shares should be excluded from the reckoning.

But this interpretation, adopted by the majority, places on the Court the authority to define and interpret the meaning of "capital" in section 11. I believe, however, that such authority should be for Congress to exercise since it partakes of policy making founded on a general principle laid down by the fundamental law. The capital restriction written in the constitution lacks sufficient details for orderly and meaningful implementation. Indeed, in the twenty-four years that the provision has been in the Constitution, no concrete step has been taken by any government agency to see to its actual implementation given the absence of clear legislative guidance on how to go about it.

It has been said that a constitution is a system of fundamental laws for the governance and administration of a nation. It prescribes the permanent framework of a system of government, assigns to the different departments their respective powers and duties, and establishes certain fixed principles on which the government is founded.⁷ But while some constitutional provisions are self-executing, others are not.

A constitutional provision is self-executing if it fixes the nature and extent of the right conferred and the liability imposed such that they can be determined by an examination and construction of its terms, and there is no language indicating that the subject is referred to the legislature for action. On the other hand, if the provision needs a supplementary or enabling legislation, it is merely a declaration of policy and principle which is not self-executing.⁸

Here, the Constitution simply states that no franchise for the operation of a public utility shall be granted to a corporation organized under Philippine laws unless at least sixty per centum of its capital is owned by Filipino citizens.

Evidently, the Constitution fails to provide for the meaning of the term "capital," considering that the shares of stock of a corporation vary in kinds. The usual classification depends on how profits are to be distributed and which stockholders have the right to vote the members of the corporation’s board of directors.

The Corporation Code does not offer much help, albeit it only confuses, since it uses the terms "capital," "capital stock," or "outstanding capital stock" interchangeably. "Capital" refers to the money, property, or means contributed by stockholders in the corporation and generally implies that the same have been contributed in payment for stock issued to the stockholders.⁹ "Capital stock" signifies the amount subscribed and paid-in in money, property or services.¹⁰ "Outstanding capital stock" means the total shares of stock issued to stockholders, whether or not fully or partially paid, except treasury shares.¹¹

Meanwhile, the Foreign Investments Act of 1991 defines a "Philippine national" as, among others, a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines.¹² This gives the impression, as Justice Carpio noted, that the term "capital" refers only to controlling interest or shares entitled to vote.¹³

On the other hand, government agencies such as the Securities and Exchange Commission, institutions, and corporations (such as the Philippine National Oil Company-Energy Development Corporation) interpret the term "capital" to include both preferred and common shares.¹⁴

Under this confusing legislative signals, the Court should not leave the matter of compliance with the constitutional limit on foreign ownership in public utilities, a matter of transcendental importance, to judicial legislation especially since any ruling the Court makes on the matter could have deep economic repercussions. This is not a concern over which the Court has competence. The 1987 Constitution laid down the general framework for restricting foreign ownership of public utilities. It is apt for Congress to build up on this framework by defining the meaning of "capital," establishing rules for the implementation of the State policy, providing sanctions for its violation, and vesting in the appropriate agency the responsibility for carrying out the purposes of such policy.

Parenthetically, there have been several occasions in the past where Congress provided supplementary or enabling legislation for constitutional provisions that are not self-executing. To name just some: the Comprehensive Agrarian Reform Law of 1988,¹⁵ the Indigenous Peoples Rights Act of 1997,¹⁶ the Local Government Code of 1991,¹⁷ the Anti-Graft and Corrupt Practices Act,¹⁸ the Speedy Trial Act of 1998,¹⁹ the Overseas Absentee Voting Act of 2003,²⁰ the Party-List System Act,²¹ the Paternity Leave Act of 1996,²² and the Solo Parents' Welfare Act of 2000.²³

Based on the foregoing, I vote to DENY the petition on the ground that the constitutional limit on foreign ownership in public utilities under Section 11, Article XII of the 1987 Constitution is not a self-executing provision and requires an implementing legislation for its enforcement.