JG Summit Holdings Inc. vs. CA G.R. No.

124293, 2005 FACTS: The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have the right of first refusal in case of a sale. Through a series of transfers, NIDCs rights, title and interest in PHILSECO eventually went to the National Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling 87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasakis right of first refusal under the JVA be exchanged for the right to top by five percent the highest bid for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its stead. During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent the highest bid, it was able to top JG Summits bid. JG Summit protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock. In the year 2000 case, it was settled by the Court that PHILSECO is a public utility and is therefore required to comply with the 60%-40% capitalization under the constitution. On the other hand, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock should not exceed 40% of the entire shares of stock due to the constitutional and contractual proscriptions. NIDC being a government corporation may purchase even beyond the 60% of the total shares. Separate motions for reconsideration were filed and the Court held in a Resolution in 2003 that: 1)PHILSECO is not a public utility because by nature, a shipyard is not a public utility; 2) Nothing in the JVA prevents Kawasaki from owning more than 40 % of the total capitalization; 3) the right to top did not violate the principles in bidding. Petitioner now assails the SC decision through a motion for reconsideration and motion to elevate the case en banc. ISSUE: Whether or not PHILSECO continues to violate the Constitution by owning longterm leasehold rights which are real rights within the meaning of immovable property under Art. 415 of the Civil Code HELD: Petitioner cites Article 415 of the Civil Code alleges that PHILSECO continues to violate the constitution by owning long-term leasehold rights. It states that in the definition of immovable property, it includes: contracts for public works, and servitudes and other real rights over immovable property. The Court ruled that

whether or not owning long-term leasehold rights are questions of fact, the veracity of which would require introduction of evidence and the Court needs to validate these factual allegations based on competent and reliable evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own pleadings, to wit: Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation, and this violates the Constitution x x x The violation continues to this day because under the law, it continues to own real property To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the JVA was signed in 1977), provided: Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. This provision is the same as Section 7, Article XII of the 1987 Constitution. It was correctly observed by the public respondents that the prohibition in the Constitution applies only to ownership of land. It does not extend to immovable or real property as defined under Article 415 of the Civil Code which embraces real rights. Otherwise, we would be confronted with a strange situation where the ownership of immovable property such as trees, plants and growing fruit attached to the land would be limited to Filipinos and Filipino corporations only. Moreover, since PHILSECO is not a public utility, it is not covered by the constitutional proscription regarding ownership. 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. A lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership which is prohibited by law. The MOTION for RECONSIDERATION is DENIED WITH FINALITY. The 2003 Supreme Court Resolution is AFFIRMED.