Section 11, Art.

XII of the
1987 Constitution
Section 11, Article XII

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.
PUBLIC UTILITY, DEFINED.

A public utility is a business or service engaged in regularly supplying the

public with some commodity or service of public consequence, such as
electricity, gas, water, transportation, telephone or telegraph service. To
constitute a public utility, the facility must be necessary for the maintenance
of life and occupation of the residents. As the name indicates, public utility
implies public use and service to the public. (JG. Summit Holdings v. CA,
September 24, 2003)

What constitutes a public utility is not the ownership but the use to the
public. The Constitution requires a franchise for the operation of public
utilities. However, it does not require a franchise before one can own the
facilities needed to operate a public utility so long as it does not operate
them to serve the public. (Tatad v. Garcia, April 6, 1995)
sixty per centum of whose capital is owned
by such citizens

capital refers to the common total shares only, or the total outstanding
capital stock, including both common and non-voting preferred shares.
"Mere legal title is insufficient to meet the 60% Filipino-owned capital
required in the Constitution. Full beneficial ownership of 60% of the
outstanding capital stock, coupled with 60% of the voting rights, is
required. The legal and beneficial ownership of 60% 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]."
NATURE OF A FRANCHISE

1) It is a privilege not a right

2) Shall not be exclusive
3) Shall not be for a period of more than 50 years
4) Shall be subject to amendment, alteration or repeal by Congress
REQUIREMENTS FOR THE GRANT OF
CERTIFICATE OF PUBLIC CONVENIENCE
(CPC)
a) Applicant must be a citizen of the Philippines. If the applicant is a
Corporation, 60% of its capital must be owned by Filipinos
b) Applicant must prove public necessity
c) Applicant must prove the operation of proposed public service will promote
public interest in a proper and suitable manner; and
d) Applicant must have sufficient financial capability to undertake proposed
services and meeting responsibilities incidental to its operation. (Kilusang
Mayo Uno v. Garcia, Dec. 22, 1994)
WHO MAY GRANT PUBLIC UTILITY
FRANCHISES?
The Congress does not have the exclusive power to issue franchises.
Administrative bodies may be empowered by the law to do so. (Albano v.
Reyes)
The Supreme Court acknowledged that there is a trend towards delegating the
legislative power to authorize the operation of certain public utilities to
administrative agencies and dispensing with the requirement of a congressional
franchise.
Land Transportation Franchising and Regulatory Board (EO No. 202) empowered to
issue, amend, revise, suspend or cancel Certificates of Public Convenience or permits
authorizing the operation of, public land transportation services provided by motorized
motor vehicles, and to prescribe the appropriate terms and conditions therefor.
[Sec.5(b)]
Energy Regulatory Board (EO No. 172) empowered to license refineries and regulate their
capacities and to issue certificates of public convenience for the operation of electric
power utilities and services except electric cooperatives. [Sec.9 (d) and , PD No. 1206]
TATAD vs. GARCIA
G.R. No. 114222 April 6, 1995
FACTS
In 1989, the government planned to build a railway transit line along EDSA. No bidding was
made but certain corporations were invited to prequalify. The only corporation to qualify was the
EDSA LRT Consortium which was obviously formed for this particular undertaking. An agreement
was then made between the government, through the Department of Transportation and
Communication (DOTC), and EDSA LRT Consortium. The agreement was based on the Build-
Operate-Transfer scheme provided for by law (RA 6957, amended by RA 7718). Under the
agreement, EDSA LRT Consortium shall build the facilities, i.e., railways, and shall supply the
train cabs. Every phase that is completed shall be turned over to the DOTC and the latter shall
pay rent for the same for 25 years. By the end of 25 years, it was projected that the government
shall have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium shall sell the
facilities to the government for $1.00.
However, Senators Francisco Tatad, John Osmea, and Rodolfo Biazon opposed the
implementation of said agreement as they averred that EDSA LRT Consortium is a foreign
corporation as it was organized under Hongkong laws; that as such, it cannot own a public utility
such as the EDSA railway transit because this falls under the nationalized areas of activities. The
petition was filed against Jesus Garcia, Jr. in his capacity as DOTC Secretary.
TATAD vs. GARCIA
G.R. No. 114222 April 6, 1995
ISSUE
Can respondent EDSA LRT Corp. Ltd., a foreign corporation own EDSA LRT III; a public utility?
HELD
No. The SC ruled that EDSA LRT Consortium, under the agreement, does not and will not
become the owner of a public utility hence, the question of its nationality is misplaced.
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.
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.
TATAD vs. GARCIA
G.R. No. 114222 April 6, 1995
It is true that a foreign corporation cannot own a public utility but in this case what EDSA
LRT Consortium will be owning are the facilities that it will be building for the EDSA railway
project. There is no prohibition against a foreign corporation to own facilities used for a public
utility. Further, it cannot be said that EDSA LRT Consortium will be the one operating the public
utility for it will be DOTC that will operate the railway transit. DOTC will be the one exacting
fees from the people for the use of the railway and from the proceeds, it shall be paying the rent
due to EDSA LRT Consortium. All that EDSA LRT Consortium has to do is to build the facilities and
receive rent from the use thereof by the government for 25 years it will not operate the railway
transit. Although EDSA LRT Consortium is a corporation formed for the purpose of building a
public utility it does not automatically mean that it is operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a franchise,
certificate or any other form of authorization for that purpose.
JG SUMMIT HOLDINGS INC. vs CA
G.R. No. 124293 January 31, 2005
FACTS
The National Investment and Development Corporation (NIDC), a government corporation,
entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic
National Shipyard Inc., (SNS) which subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO).Under the JVA, the NDC and KAWASAKI will contribute P330M for the
capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features is
the grant to the parties of the right of first refusal should either of them decide to sell, assign or
transfer its interest in the joint venture. NIDC transferred all its rights, title and interest in
PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to
the National Government pursuant to an Administrative Order. When the former President
Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and
the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage
and dispose of non-performing assets of the National Government, a trust agreement was
entered into between the National Government and the APT wherein the latter was named
the trustee of the National Governments share in PHILSECO.
JG SUMMIT HOLDINGS INC. vs CA
G.R. No. 124293 January 31, 2005
In the interest of the national economy and the government, the COP and the APT deemed
it best to sell the National Governments share in PHILSECO to private entities. After a series of
negotiations between the APT and KAWASAKI, they agreed that the latters right of first refusal
under the JVA be exchanged for the right to top by 5%, the highest bid for the said shares. They
further agreed that KAWASAKI would be entitled to name a company in which it was
a stockholder, which could exercise the right to top. KAWASAKI then informed APT that Philyards
Holdings, Inc. (PHI) would exercise its right to top. At the public bidding, petitioner J.G. Summit
Holdings Inc. submitted a bid of Two Billion and Thirty Million Pesos (Php2,030,000,000.00) with
an acknowledgement of KAWASAKI/PHILYARDS right to top. As petitioner was declared the highest
bidder, the COP approved the sale subject to the right of Kawasaki Heavy Industries, Inc. /
PHILYARDS Holdings Inc. to top JGs bid by 5% as specified in the bidding rules.
On the other hand, the respondent by virtue of right to top by 5%, the highest bid for the
said shares timely exercised the same. Petitioners, in their motion for reconsideration, raised,
inter alia, the issue on the maintenance of the 60%-40% relationship between the NIDC and
KAWASAKI arising from the Constitution because PHILSECO is a landholding corporation and need
notbe a public utility to be bound by the 60%-40% constitutional limitation.
JG SUMMIT HOLDINGS INC. vs CA
G.R. No. 124293 January 31, 2005
ISSUE
Whether or not the respondent is prohibited to possess the disputed property considering
the prohibition stipulated in the 1987 Constitution against foreign owned companies.

HELD
The court upheld the validity of the mutual rights of first refusal under the JVA between
KAWASAKI and NIDC. The right of first refusal is a property right of PHILSECO shareholders,
KAWASAKI and NIDC, under the terms of their JVA. This right allows them to purchase the shares
of their co-shareholder before they are offered to a third party. The agreement of co-
shareholders to mutually grant this right to each other, by itself, does not constitute a violation
of the provisions of the Constitution limiting landownership to Filipinos and Filipino
corporations. As PHILYARDS correctly puts it, if PHILSECO still owns the land, the right of first
refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40%
ration. This transfer by itself, does not amount to a violation of the Anti-Dummy Laws, absent
proof of any fraudulent intent. The transfer could be made either to a nominee or such other
JG SUMMIT HOLDINGS INC. vs CA
G.R. No. 124293 January 31, 2005
party which the holder of the right of first refusal feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its
right of first refusal, can exceed 40% of PHILSECOs equity. In fact, it can even be said that if the
foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders
ownership of the shares which is adversely affected but the capacity of the corporation to own
landthat is, the corporation becomes disqualified to own land. This finds support under the
basic corporate law principle that the corporation and its stockholders are separate judicial
entities. In this vein, the right of first refusal over shares pertains to the shareholders whereas
the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land
cannot deprive stockholders of their right of first refusal.
No law disqualifies a person from purchasing shares in a landholding corporation even if
the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation
from owning land.
TELEBAP vs. COMELEC
G.R. No. 132922 April 21, 1998
FACTS
The petitioner Telecommunications and Broadcast Attorneys of the Philippines Inc. is an
organization of lawyers of radio and television broadcasting companies. They are suing as
citizens, taxpayers, and registered voters. The other petitioner, GMA Network, Inc., operates
radio and television broadcasting stations throughout the Philippines under a franchise granted by
Congress.
Petitioner Telecommunications and Broadcast Attorneys of the Philippines, Inc. (TELEBAP) is
an organization of lawyers of radio and television broadcasting companies. It was declared to be
without legal standing to sue in this case as, among other reasons, it was not able to show that it
was to suffer from actual or threatened injury as a result of the subject law. Petitioner GMA
Network, on the other hand, had the requisite standing to bring the constitutional challenge.
Petitioner operates radio and television broadcast stations in the Philippines affected by the
enforcement of Section 92, B.P. No. 881.
TELEBAP vs. COMELEC
G.R. No. 132922 April 21, 1998
Petitioners challenge the validity of Section 92, B.P. No. 881 which provides:
Comelec Time- The Commission shall procure radio and television time to be known as the
Comelec Time which shall be allocated equally and impartially among the candidates within
the area of coverage of all radio and television stations. For this purpose, the franchise of all
radio broadcasting and television stations are hereby amended so as to provide radio or
television time, free of charge, during the period of campaign.

Petitioner contends that while Section 90 of the same law requires COMELEC to procure
print space in newspapers and magazines with payment, Section 92 provides that air time shall
be procured by COMELEC free of charge. Thus it contends that Section 92 singles out radio and
television stations to provide free air time.
TELEBAP vs. COMELEC
G.R. No. 132922 April 21, 1998
Petitioner claims that it suffered losses running to several million pesos in providing
COMELEC Time in connection with the 1992 presidential election and 1995 senatorial election and
that it stands to suffer even more should it be required to do so again this year. Petitioners claim
that the primary source of revenue of the radio and television stations is the sale of air time to
advertisers and to require these stations to provide free air time is to authorize unjust taking of
private property. According to petitioners, in 1992 it lost P22,498,560.00 in providing free air
time for one hour each day and, in this years elections, it stands to lost P58,980,850.00 in view
of COMELECs requirement that it provide at least 30 minutes of prime time daily for such.

ISSUES

(1) Whether of not Section 92 of B.P. No. 881 denies radio and television broadcast companies the
equal protection of the laws.

(2) Whether or not Section 92 of B.P. No. 881 constitutes taking of property without due process
of law and without just compensation.
TELEBAP vs. COMELEC
G.R. No. 132922 April 21, 1998
HELD
Petitioners argument is without merit. All broadcasting, whether radio or by television
stations, is licensed by the government. Airwave frequencies have to be allocated as there are
more individuals who want to broadcast that there are frequencies to assign. Radio and
television broadcasting companies, which are given franchises, do not own the airwaves and
frequencies through which they transmit broadcast signals and images. They are merely given
the temporary privilege to use them. Thus, such exercise of the privilege may reasonably be
burdened with the performance by the grantee of some form of public service. In granting the
privilege to operate broadcast stations and supervising radio and television stations, the state
spends considerable public funds in licensing and supervising them.

The argument that the subject law singles out radio and television stations to provide
free air time as against newspapers and magazines which require payment of just compensation
for the print space they may provide is likewise without merit. Regulation of the broadcast
industry requires spending of public funds which it does not do in the case of print media. To
require the broadcast industry to provide free air time for COMELEC is a fair exchange for what
the industry gets.
TELEBAP vs. COMELEC
G.R. No. 132922 April 21, 1998
As radio and television broadcast stations do not own the airwaves, no private property
is taken by the requirement that they provide air time to the COMELEC.

Election Code of 1971 (RA No 6388) Sec. 49. Regulation of election propaganda through
mass media a) The franchises of all radio broadcasting and television stations are hereby
amended so as to require each such station to furnish free of charge, upon request of the
Commission [on Elections], during the period of sixty days before the election not more than
fifteen minutes of prime time once a week which shall be known as Comelec Time and which
shall be used exclusively by the Commission to disseminate vital election information. Said
Comelec Time shall be considered as part of the public service time said stations are required
to furnish the Government for the dissemination of public information and education under
their respective franchises or permits.

1978 Election Code (P.D. No. 1296) Sec. 46. Comelec Time The Commission [on
Elections shall procure radio and television time to be known as COMELEC Time which shall be
allocated equally and impartially among the candidates within the area of coverage of said
radio and television stations are hereby amended so as to require such stations to furnish the
Commission radio or television time, free of charge, during the period of the campaign, at
least once but not oftener that every other day.
TELEBAP vs. COMELEC
G.R. No. 132922 April 21, 1998
B.P. Blg. 881, s. 1985 Sec. 92. Comelec Time The Commission shall procure radio and television time to be
known as Comelec Time which shall be allocated equally and impartially among the candidates within the area of
coverage of all radio and television stations. For this purpose, the franchise of all radio broadcasting and television
stations are hereby amended so as to provide radio or television time, free of charge, during the period of the
campaign. (Sec. 46, 1978 EC)

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 executive and managing officers of such corporation or association must be citizens
of the Philippines. The proportionate share is 60% for the Filipino citizens and 40% to foreign investors.

Capital Sec. 11, Art. XII, refers to the total common shares only, or to the total outstanding capital stock (combined
total of common and non-voting preferred shares). The Supreme Court ruled that it refers only to shares of stock entitled to
vote in the election of directors, and thus, in this case, only to common shares. (Wilson Gamboa v. Sec. Margarito Teves, G.R.
No. 176579, June 28, 2011)
Q&A

1) May a foreigner who owns substantial stockholdings in a corporation engaged

in the advertising industry sit as a treasurer of said corporation?

No, because a treasurer is an executive or a managing officer. Law

provides that the participation of the foreign investors in the governing
bodies of entities shall be limited to their proportionate share in the
capital thereof, and all the managing and executive officers of such
entities must be citizens of the Philippines.
Q&A

1) What is public utility?

A public utility is a business or service engaged in regularly supplying

the public with some commodity or service of public consequence.