2016 (Political Law) Bar Exam Questions: Question 2

[Answer/discuss the question below, or see 2016 bar exam Political Law Instructions; 2016 Political Law Questions: 13, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, and 20; See also 2016 Bar Exam: Information, Discussions, Tips, Questions and Results]

-II-

Sec. 11, Art. XII of the Constitution, provides: “No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens xx x.” Does the term “capital” mentioned in the cited section refer to the total common shares only, or to the total outstanding capital stock, or to both or “separately to each class of shares, whether common, preferred non-voting, preferred voting or any class of shares?” Explain your answer. (5%)

4 comments

  1. The term “Capital” refers to both Total Common Shares and Total Outstanding Capital Stock.

    The Constitution under Art. XII Sec. 11 did not distinguish as to the type of Capital subject to the rules on Foreign Ownership Limitation. It is horn book that if the law does not distinguish, then the application of the said law should also not distinguish.

    1. Gamboa vs Teves 2012. Intent is to give full effect to Filipino first policy. Not only ownership in title or control but enjoyment of economic benefits as well. In line with this, capital is interpreted to mean both voting and nonvoting. Therefore, 60-40 applies separately to each kind of shares.

  2. The term “capital” refers to shares which have voting rights.

    In a case decided by the Most Honorable Court, it elucidated that the term “capital” should be interpreted together with the term “control”. It refers to those shares which could exercise control over the corporation.

    Hence, the term “capital” in Section 11, Article XII of the Constitution refers to voting shares.

  3. BAR EXAMS QUESTION 2
    Political Law

    Sec. 11, Art. XII of the Constitution, provides: “No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens xx x.” Does the term “capital” mentioned in the cited section refer to the total common shares only, or to the total outstanding capital stock, or to both or “separately to each class of shares, whether common, preferred non-voting, preferred voting or any class of shares?” Explain your answer. (5%)

    SUGGESTED ANSWER:

    Section 11 of Article XII of the Constitution provides:

    No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive character or for a longer period than fifty years.

    In law, there is a clear distinction between the “operation” of a public utility and the ownership of the facilities and equipment used to serve the public.

    Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).

    The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a public utility includes the transportation of passengers from one point to another point, their loading and unloading at designated places and the movement of the trains at pre-scheduled times ( United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868,

    The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof, the term capital refer to preferred voting or any class of shares.

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