WILSON P. GAMBOA vs.
FINANCE except to citizens of the Philippines or to
SECRETARY TEVES
I. THE FACTS
This is a petition to nullify the sale of
shares of stock of Philippine Telecommunications
Investment Corporation (PTIC) by the
government of the Republic of the Philippines,
acting through the Inter-Agency Privatization
Council (IPC), to Metro Pacific Assets Holdings,
Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific), a Hong Kong-based
investment management and holding
company and a shareholder of the Philippine
Long Distance Telephone Company (PLDT).
The petitioner questioned the sale on the
ground that it also involved an indirect sale of 12
million shares (or about 6.3 percent of the
outstanding common shares) of PLDT owned by
PTIC to First Pacific. With the this sale, First
Pacific’s common shareholdings in PLDT
increased from 30.7 percent to 37 percent,
thereby increasing the total common
shareholdings of foreigners in PLDT to about
81.47%. This, according to the petitioner,
violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign
ownership of the capital of a public utility to not
more than 40%.
II. THE ISSUE
Does the term “capital” in Section 11,
Article XII of the Constitution refer to the total
common shares only, or to the total outstanding
capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public
utility?
III. THE RULING
[The Court partly granted the petition
and held that the term “capital” in Section 11,
Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of
directors of a public utility, or in the instant case,
to the total common shares of PLDT.]
Section 11, Article XII (National Economy
and Patrimony) of the 1987 Constitution
mandates the Filipinization of public utilities, to
wit:
Section 11. No franchise, certificate, or
any other form of authorization for the
operation of a public utility shall be granted
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)
The term “capital” in Section 11, Article
XII of the Constitution refers only to shares of
stock entitled to vote in the election of directors,
and thus in the present case only to common
shares, and not to the total outstanding capital
stock comprising both common and non-voting
preferred shares [of PLDT].
xxx
xxx xxx
Indisputably, one of the rights of a
stockholder is the right to participate in the
control or management of the corporation. This is
exercised through his vote in the election of
directors because it is the board of directors that
controls or manages the corporation. In the
absence of provisions in the articles of
incorporation denying voting rights to preferred
shares, preferred shares have the same voting
rights as common shares. However, preferred
shareholders are often excluded from any
control, that is, deprived of the right to vote in
the election of directors and on other matters, on
the theory that the preferred shareholders are
merely investors in the corporation for income in
the same manner as bondholders. xxx.
Considering that common shares have
voting rights which translate to control, as
opposed to preferred shares which usually have
no voting rights, the term “capital” in Section 11,
Article XII of the Constitution refers only to
common shares. However, if the preferred shares
also have the right to vote in the election of
directors, then the term “capital” shall include
such preferred shares because the right to
participate in the control or management of the
corporation is exercised through the right to vote
in the election of directors. In short, the term
“capital” in Section 11, Article XII of the
Constitution refers only to shares of stock that
can vote in the election of directors.
xxx
xxx xxx
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].”
xxx
xxx xxx
To construe broadly the term “capital” as
the total outstanding capital stock, including both
common and non-voting preferred 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.” A
broad definition unjustifiably disregards who
owns the all-important voting stock, which
necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in
giving a broad definition to the term “capital.” 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.
It also renders illusory the State policy of an
independent national economy effectively
controlled by Filipinos.
The example given is not theoretical but
can be found in the real world, and in fact exists
in the present case.
xxx
xxx xxx
[O]nly holders of common shares can vote
in the election of directors [of PLDT], meaning
only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares,
who have no voting rights in the election of
directors, do not have any control over PLDT. In
fact, under PLDT’s Articles of Incorporation,
holders of common shares have voting rights for
all purposes, while holders of preferred shares
have no voting right for any purpose whatsoever.
It must be stressed, and respondents do
not dispute, that foreigners hold a majority of the
common shares of PLDT. In fact, based on PLDT’s
2010 General Information Sheet (GIS), which is a
document required to be submitted annually to
the Securities and Exchange
Commission, foreigners hold 120,046,690
common shares of PLDT whereas Filipinos hold
only 66,750,622 common shares. In other words,
foreigners hold 64.27% of the total number of
PLDT’s common shares, while Filipinos hold only
35.73%. Since holding a majority of the common
shares equates to control, it is clear that
foreigners exercise control over PLDT. Such
amount of control unmistakably exceeds the
allowable 40 percent limit on foreign ownership
of public utilities expressly mandated in Section
11, Article XII of the Constitution.
As shown in PLDT’s 2010 GIS, as
submitted to the SEC, the par value of PLDT
common shares is P5.00 per share, whereas the
par value of preferred shares is P10.00 per share.
In other words, preferred shares have twice the
par value of common shares but cannot elect
directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the
preferred shares are owned by Filipinos while
foreigners own only a minuscule 0.56% of the
preferred shares. Worse, preferred shares
constitute 77.85% of the authorized capital stock
of PLDT while common shares constitute only
22.15%. This undeniably shows that beneficial
interest in PLDT is not with the non-voting
preferred shares but with the common shares,
blatantly violating the constitutional requirement
of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.
The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest
in the hands of Filipinos in accordance with the
constitutional mandate. Full beneficial ownership
of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is
constitutionally required for the State’s grant of
authority to operate a public utility. The
undisputed fact that the PLDT preferred shares,
99.44% owned by Filipinos, are non-voting and
earn only 1/70 of the dividends that PLDT
common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino
control and Filipino beneficial ownership of a
public utility.
In short, Filipinos hold less than 60
percent of the voting stock, and earn less than
60 percent of the dividends, of PLDT. This directly
contravenes the express command in Section 11,
Article XII of the Constitution that “[n]o
franchise, certificate, or any other form of
authorization for the operation of a public utility
shall be granted except to x x x corporations x x
x organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned
by such citizens x x x.”
and beneficial ownership of PLDT rest with the
common shares, not with the preferred shares.
xxx
xxx xxx
WHEREFORE, we PARTLY GRANT the
petition and rule that the term “capital” in
Section 11, Article XII of the 1987 Constitution
refers only to shares of stock entitled to vote in
the election of directors, and thus in the present
case only to common shares, and not to the total
outstanding capital stock (common and non-
voting preferred shares). Respondent
Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition
of the term “capital” in determining the extent of
allowable foreign ownership in respondent
Philippine Long Distance Telephone Company,
and if there is a violation of Section 11, Article
XII of the Constitution, to impose the appropriate
sanctions under the law.

To repeat, (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 exercise control
over PLDT; (2) Filipinos own only 35.73% of
PLDT’s common shares, constituting a minority of
the voting stock, and thus do not exercise control
over 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; (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%. This kind of ownership and
control of a public utility is a mockery of the
Constitution.

Incidentally, the fact that PLDT common

shares with a par value of P5.00 have a current
stock market value of P2,328.00 per share, while
PLDT preferred shares with a par value of P10.00
per share have a current stock market value
ranging from only P10.92 to P11.06 per share, is
a glaring confirmation by the market that control
EXPRESS INVESTMENTS III PRIVATE LTD.,
et al v BAYAN TELECOMMUNICATIONS
SUMMARY: Bayan Telecommunications, a 2001, Bayantel entered into serveral credit
domestic corporation engaged in providing
telecommunication services, contracted several
loans with some local and foreign-owned banks
and credit facilities. It eventually defaulted in its
obligation. After its repeated failure to pay its
debts, Bank of New York, a trustee of its
creditors, petitioned that it be placed under
corporate rehabilitation. The Amended
Rehabilitation Plan stated that its unsustainable
debt will be converted to equity, however the
same shall be limited to 40% of its paid-up
capital, in conformity with the limitation on
foreign ownership stated in the Constitution. The
creditors, consisting of foreign entities, contested
the said provision in the Rehabilitation Plan,
alleging that their 77.7% equity conversion
proposal does not violate the Constitution. The
Court ruled otherwise, stating that since (1) the
plan provides that the debt will be converted to
common stocks, which have voting rights, and
(2) Bayantel is considered a public utility, the
conversion must observe the constitutional limit
of 40%. To rule otherwise will be contrary to the
vision of “Filipinization” of the economy as it will
allow foreign entities to have bigger shares in the
capital of public utilities.
DOCTRINE: Considering that common shares
have voting rights which translate to control as
opposed to preferred shares which usually have
no voting rights, the term “capital” in Section 11,
Article XII of the Constitution refers only to
common shares. However, if the preferred shares
also have the right to vote in the election of
directors, then the term “capital” shall include
such preferred shares because the right to
participate in the control or management of the
corporation is exercised through the right to vote
in the election of directors.
FACTS:
 Bayan Telecommunications (Bayantel), is a
duly organized domestic corporation engaged
in the business of providing
telecommunication services.
o 98.6% of Bayantel is owned by Bayan
Telecommunications Holdings
Corporations (BTHC), which in turn is
85.4% owned by Lopez Group of
Companies.
 On various dates between the years 1995 and
agreements with local and foreign-owned
banks and credit facilities (see Notes for
complete list).
 As a security for the loans contracted,
Bayantel executed an Omnibus Agreement
and an EVTELCO Mortgage Trust Indenture.
o Under the Omnibus Agreement, Bayantel
executed an Assignment Agreement
whereby it bound itself to assign, convey,
and transfer to the Collateral Agent some
of its properties (i.e. accounts receivables,
project documents and rights, intangibles,
and all other proceeds, products,
property, assets and revenues) as
collateral security for its obligations (the
creditors under this Agreement were
terms Bank Creditors)
o Under the Mortgage Trust Indenture,
Bayantel issued bonds and debentures in
in favor of its creditors, to be paid
pursuant to the maturity date and other
terms stated therein (the creditors under
this Agreement were called Holders of
Notes)
 Bayantel eventually defaulted in its obligation.
It then sent a proposal for restructuring of its
debts.
o An Informal Steering Committee was
formed, composed of some of Bayantel’s
creditors. They arrived with the “First
Term Sheet”, where Bayantel was allowed
to pay the restructured debt, paripassu
(equally), out of its cash flow.
 Bayantel continued to pay reduced interest on
its debt to Bank Creditors but stopped paying
the Holders of Notes.
o By then, Bayantel’s total debt had reached
US$674M (PhP35.928B) in unpaid
principal and interest.
o 43.2% or US$291M of the total debt is
owed to the Holders of the Notes.
 Bank of New York, a trustee for the Holders of
Notes, wrote Bayantel an Acceleration Letter
demanding immediate payment of its
obligations. When Bayantel failed to comply,
it filed a petition for corporate rehabilitation of
Bayantel.
 Pursuant to the petition for rehabilitation, a
Stay Order was issued, suspending all claims
against Bayantel and requiring all its creditors
and interested parties to file their comment or
opposition to the petition.
 The Rehabilitation court, giving due course to
the petition, found that Bayantel may be
successfully rehabilitated.
 o Bayantel’s creditors were then classified o Given the substantial write-off of penalties
into three: the Omnibus Creditors (Bank and default interest, it is only fair that
creditors), the Chattel Creditors (Holders they be given greater equity in Bayantel
of Notes), and Financial to compensate for the losses.
Creditors/Unsecured Creditors
 The Rehabilitation Receiver then submitted RULING: Petition denied.
her Report and Recommendations, which was
approved by the Rehabilitation Court, subject [TOPIC] Whether the conversion of debt to
to some clarifications and/or amendments: equity in excess of 40% of the outstanding
o There will be a paripassu treatment of all capital stock in favor of petitioners violates
creditors, secured or unsecured
the constitutional limit on foreign ownership
o Despite the paripassu treatment, due
of a public utility – YES.
regard shall be given to the rights of the
secured creditors and no changes in the
 Art. XII, Sec. 11 of the 1987 Constitution
security position of the creditors shall be
reserves to Filipino citizens control over public
granted
utilities pursuant to an overriding economic
o The level of sustainable debt of the
goal to conserve and develop our patrimony
rehabilitation plan shall be reduced to
and ensure a self-reliant and independent
US$325M payable in 19 years
national economy effectively controlled by
o All provisions relating to equity in the
Filipinos.
rehabilitation plan must strictly
o Art. XII, Sec. 11. No franchise, certificate,
conform to the requirements of the
or any other form ofauthorization for the
Constitution limiting foreign
operation of a public utility shall be
ownership to 40%
granted except tocitizens of the
o A monitoring committee shall be formed
Philippines or to corporations or
and the rehabilitation receiver’s role shall
associations organizedunder the laws of
be limited to the powers of monitoring and
the Philippines at least sixty per centum of
oversight
whose capitalis owned by such citizens,
 Dissatisfied by the ruling of the Rehabilitation
nor shall such franchise, certificate
Court, the creditors filed separate appeals,
orauthorization be exclusive in character
assailing, among others, the limiting of the
or for a longer period than fiftyyears.
equity conversion of Bayantel’s unsustainable
Neither shall any such franchise or right
debt to only 40% of its paid-up capital
be granted except under thecondition that
 CA ruled against the petitioners (creditors),
it shall be subject to amendment,
stating that the Receiver’s recommendation
alteration, or repeal by the Congress when
and the rehabilitation court’s ruling is
the common good so requires. The State
consistent with the constitutional limitation on
shall encourageequity participation in
the allowable foreign equity in Filipino
public utilities by the general public.
corporations.
Theparticipation of foreign investors in the
 Hence, these seven consolidated petitions.
governing body of any publicutility
Petitioners argue that:
enterprise shall be limited to their
o The conversion of the unsustainable debt
proportionate share in its capital,and all
to 77.7% equity in Bayantel will not
the executive and managing officers of
violate the nationality requirement since
such corporation orassociation must be
the domestic bank creditors account is
citizens of the Philippines.
70.18% of Bayantel’s total liabilities.
o The acquisition of shares by foreign
 As held in Gamboa v Teves, the term
Omnibus and Financial creditors shall be
“capital” in Sec. 11 pertains to shares of
done, both directly and indirectly in order
stock that can vote in the election of
to meet the control test principle under
directors.
the Foreign Investments Act.
o “Capital” refers to common shares, which
 Creditors shall own 40% of the
usually have voting rights which translate
outstanding capital stock of the
to control, or preferred shares which are
telecommunications company on a
given the right to vote in the election of
direct basis, while the remaining 40%
directors.
of shares shall be registered to a
 Following the test laid down by Gamboa v
holding company that shall retain, on a
Teves, a two-step inquiry must be followed to
direct basis, the other 60% equity
determine whether the proposed equity
reserved for Filipino citizens.
 conversion of 77.7% violates the
Constitution:
o FIRST: Identification into which class of
shares the debt shall be converted:
whether common shares, preferred shares
that have the right to vote in the election
of directors, or non-voting preferred
shares
o SECOND: Determination of the number of
shares with voting right held by foreign
entities prior to conversion
 IN THIS CASE: The plan of 77.7% equity
conversion, as proposed by the creditors,
will violate the constitutional limit on
foreign ownership.
o In the Rehabilitation Plan, it was stated
Bayantel’s shareholders shall “relinquish
the agreed-upon amount of common
stock[s] as payment.” The debt will
therefore be converted into common
stocks, which have voting rights.
o If the petitioners’ proposal will be
followed, the Omnibus Creditors, which
are all foreign corporations, shall have
control over 77.7% of Bayantel., a public
utility company – a far cry from the 40%
limit imposed by the Constitution.

NOTES:

 The banks and credit facilities are:

o Express Investments III Private Ltd.
o Export Development Canada
o Asian Finance and Investment Corporation
o BayesricheLandesbank (Singapore
Branch)
o Clearwater Capital Partners Singapore Pte
Ltd. (as agent for Credit Industriel et
Commercial – Singapore)
o Deutsche Bank AG
o Equitable PCI Bank
o JP Morgan Chase Bank
o Metropolitan Bank and Trust Co.
o P.T. Negara Indonesia
o TBK Hong Kong Branch
o Rizal Commercial Banking Corporation
o Standard Chartered Bank
JOSE M. ROY III v. CHAIRPERSON TERESITA
HERBOSA, GR No. 207246, 2016-11-22
Facts:
On June 28, 2011, the Court issued the Gamboa
Decision,... that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to
shares of stock entitled to vote in the election of
directors, and thus in the present case only to
common shares, and not to the total outstanding
capital stock (common and non-voting preferred
shares).
The Gamboa Decision attained finality on October
18, 2012, and Entry of Judgment was thereafter
issued on December 11, 2012
On May 20, 2013, the SEC, through respondent
Chairperson Teresita J. Herbosa, issued SEC-MC
No. 8
Section 2. All covered corporations shall, at all
times, observe the constitutional or statutory
ownership requirement. For purposes of
determining compliance therewith, the required
percentage of Filipino ownership shall be applied
to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of
directors; AND (b) the total number of
outstanding shares of stock, whether or not
entitled to vote in the election of directors.
On June 10, 2013, petitioner Roy, as a lawyer
and taxpayer, filed the Petition,[15] assailing the
validity of SEC-MC No. 8 for not conforming to
the letter and spirit of the Gamboa Decision and
Resolution and for having been issued by the SEC
with grave abuse of discretion.
Issues:
whether the SEC gravely abused its discretion in
issuing SEC-MC No. 8 in light of the Gamboa
Decision and Gamboa Resolution
Ruling:
SEC did not commit grave abuse of discretion
amounting to lack or excess of jurisdiction when
it issued SEC-MC No. 8. To the contrary, the
Court finds SEC-MC No. 8 to have been issued in
fealty to the Gamboa Decision and Resolution.
Gamboa Decision
"capital" in Section II, Article XII of the I987
Constitution refers only to shares of stock
entitled to vote in the election of directors, and
thus in the present case only to common shares,
and not to the total outstanding capital stock
(common and non-voting preferred shares).
the Gamboa Resolution
Foreign Investments Act of 1991 ("FIA")
Gamboa Resolution put to rest the Court's
interpretation of the term "capital"
Full beneficial ownership of stocks, coupled with
appropriate voting rights is essential... 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.
Section 2 of SEC-MC No. 8 clearly incorporates
the Voting Control Test or the controlling interest
requirement. In fact, Section 2 goes beyond
requiring a 60-40 ratio in favor of Filipino
nationals in the voting stocks; it moreover
requires the 60-40 percentage ownership in the
total number of outstanding shares of stock,
whether voting or not. The SEC formulated SEC-
MC No. 8 to adhere to the Court's unambiguous
pronouncement that "[f]ull beneficial ownership
of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights is
required."[79] Clearly, SEC-MC No. 8 cannot be
said to have been issued with grave abuse of
discretion
While SEC-MC No. 8 does not expressly mention
the Beneficial Ownership Test or full beneficial
ownership of stocks requirement in the FIA, this
will not, as it does not, render it invalid meaning,
it does not follow that the SEC will not apply this
test in determining whether the shares claimed to
be owned by Philippine nationals are Filipino, i.e.,
are held by them by mere title or in full beneficial
ownership. To be sure, the SEC takes its guiding
lights also from the FIA and its implementing
rules, the Securities Regulation Code.
METROPOLITAN CEBU WATER DISTRICT water districts is clear from the fact that,
(MCWD) v. M. ADALA 526 SCRA 465 (2007) pursuant to the procedure outlined in P.D. 198, it
no longer plays a direct role in authorizing
The Metropolitan Cebu Water District (MCWD), a the formation and maintenance of water districts,
public corporation, appealed the decision it having vested the same to local legislative
rendered in favor of Margarita A. Adala (Adala) bodies and the Local Water Utilities
by the National Water Resources Board (NWRB), Administration (LWUA).
granting her a franchise permit to supply water
to three sitios in Bulacao. MCWD was the
exclusive distributor of water in the district.
MCWD contended that the proposed waterworks
would interfere with their water supply which it
has the right to protect, and the water needs of
the residents in the subject area was already
being well served by petitioner. They also
contend that they were granted by Section 47 of
Presidential Decree 198, granting exclusive
franchise only to public
utilities. Engineer Paredes, the general manager
of MCWD, filed Certificate of Public Convenience
by the National Water Resources Board (NWRB),
which permitted the company to operate and
maintain waterworks supply services. MCWD
alleged that the Board of Directors of MCWD did
not give consent to the issuance of the franchise
applied for.

ISSUES:

Whether or not Section 47 of Presidential Decree

198 grants exclusive franchise to public utilities

HELD:

MWCD‘s position that an overly

strict construction of the term ―franchise as used
in Section 47 of P.D. 198 would lead to an absurd
result impresses. If franchises, in this context,
were strictly understood to mean
an authorizationissuing directly from the
legislature, it would follow that, while Congress
cannot issue franchises for operating waterworks
systems without the water district‘s consent, the
NWRB may keep on issuing CPCs authorizing the
very same acteven without such consent. In
effect, not only would the NWRB be subject to
less constraints than Congress in issuing
franchises. The exclusive character of the
franchise provided for by Section 47 would be
illusory. While the prohibition in Section 47 of
P.D. 198 applies to the issuance of CPCs for the
reasons discussed above, the same provision
must be deemed void ab initio for being
irreconcilable with Article XIV Section 5 of the
1973 Constitution which was ratified on January
17, 1973 – the constitution in force when P.D.
198 was issued on May 25, 1973. That the
legislative authority – in this instance, then
President Marcos – intended to delegate its
power to issue franchises in the case of
RADIO COMMUNICATIONS V NTC G.R. NO. L-
68729 MAY 29, 1987
Facts:
RCPI operated a radio communications system
since 1957 under legislative franchise granted by
Republic Act No. 2036 (1957). The petitioner
established a radio telegraph service in Sorsogon,
Sorsogon (1968). in San Jose, Mindoro (1971),
and Catarman, Samar (1983).
Kayumanggi Radio, on the other hand, was given
the rights by the NTC to operate radio networks
in the same areas.
RCPI filed a complaint in the NTC and sought to
prohibit Kayumanggi Radio to operate in the
same areas. The NTC ruled against the RTC’s
favor and commanded RCPI to desist in the
operation of radio telegraphs in the three areas.
RTC filed a MFR in 1984. This was denied.
In the SC, Petitioner alleged that the Public
Service Law had sections that was still in effect
even if the Public Service Commission
was abolished and the NTC was established.
These were S13- the Commission shall have
jurisdiction, supervision, and control over all
public services and their franchises
S 14- Radio companies are exempt from the
commission’s authority except with respect to the
fixing of rates
And S 15-no public service shall operate in
the Philippines without possessing a valid and
subsisting certificate from the Public Service
Commission, known as "certificate of public
convenience,"
Issue: Whether or not petitioner RCPI, a grantee
of a legislative franchise to operate a radio
company, is required to secure a certificate of
public convenience and necessity before it can
validly operate its radio stations including radio
telephone services in the aforementioned areas
Held: Yes. Petition dismissed.
Ratio:
Presidential Decree No. 1- the Public Service
Commission was abolished and its functions were
transferred to three specialized regulatory
boards, as follows: the Board of Transportation,
the Board of Communications and the Board of
Power and Waterworks. The functions so
transferred were still subject to the limitations
provided in sections 14 and 15 of the Public
Service Law, as amended.
The succeeding Executive Order No. 546- the
Board of Communications and the
Telecommunications Control Bureau
were abolished and their functions were
transferred to the National Telecommunications
Commission
Section 15- b. Establish, prescribe and regulate
areas of operation of particular operators of
public service communications; and determine
and prescribe charges or rates pertinent to the
operation of such public utility facilities and
services except in cases where charges or rates
are established by international bodies or
associations of which the Philippines is a
participating member or by bodies recognized by
the Philippine Government as the proper arbiter
of such charges or rates;
c. Grant permits for the use of radio frequencies
for wireless telephone and telegraph systems and
radio communication systems including amateur
radio stations and radio and television
broadcasting systems;
The exemption enjoyed by radio companies from
the jurisdiction of the Public Service Commission
and the Board of Communications no longer
exists because of the changes effected by the
Reorganization Law and implementing executive
orders.
The petitioner's claim that its franchise cannot be
affected by Executive Order No. 546 on the
ground that it has long been in operation since
1957 cannot be sustained.
Today, a franchise, being merely a privilege
emanating from the sovereign power of the state
and owing its existence to a grant, is subject to
regulation by the state itself by virtue of its police
power through its administrative agencies.
Pangasinan transportation Co.- statutes enacted
for the regulation of public utilities, being a
proper exercise by the State of its police power,
are applicable not only to those public utilities
coming into existence after its passage, but
likewise to those already established and in
operation .
Executive Order No. 546, being an implementing
measure of P.D. No. I insofar as it amends the
Public Service Law (CA No. 146, as amended) is
applicable to the petitioner who must be bound
by its provisions.

The position of the petitioner that by the mere

grant of its franchise under RA No. 2036 it can
operate a radio communications system
anywhere within the Philippines is erroneous.

Sec. 4(a). This franchise shall not take effect nor

shall any powers thereunder be exercised by the
grantee until the Secretary of Public works and
Communications shall have allotted to the
grantee the frequencies and wave lengths to be
used, and issued to the grantee a license for such
case.

Thus, in the words of R.A. No. 2036 itself,

approval of the then Secretary of Public Works
and Communications was a precondition before
the petitioner could put up radio stations in areas
where it desires to operate.

The records of the case do not show any grant of

authority from the then Secretary of Public Works
and Communications before the
petitioner installed the questioned radio
telephone services in San Jose, Mindoro in 1971.
The same is true as regards the radio telephone
services opened in Sorsogon, Sorsogon and
Catarman, Samar in 1983. No certificate of public
convenience and necessity appears to have been
secured by the petitioner from the public
respondent when such certificate, was required
by the applicable public utility regulations.

The Constitution mandates that a franchise

cannot be exclusive in nature nor can a franchise
be granted except that it must be subject to
amendment, alteration, or even repeal by the
legislature when the common good so requires.