G.R. No. 124293
January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.
“x x x.
On the landholding issue, J.G. Summit submits that since PHILSECO is a
landholding company, KAWASAKI could exercise its right of first refusal only up
to 40% of the shares of PHILSECO due to the constitutional prohibition on
landholding by corporations with more than 40% foreign-owned equity. It further
argues that since KAWASAKI already held at least 40% equity in PHILSECO, the
right of first refusal was inutile and as such, could not subsequently be
converted into the right to top. 37 Petitioner also asserts that, at
present, PHILSECO continues to violate the constitutional provision on
landholdings as its shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have
previously held land but had already divested such landholdings.39 It contends, however, that even if
PHILSECO owned land, this would not affect the right of first refusal but only
the exercise thereof. If the land is retained, the right of first refusal,
being a property right, could be assigned to a qualified party. In the
alternative, the land could be divested before the exercise of the right of
first refusal. In the case at bar, respondents assert that since the right of
first refusal was validly converted into a right to top, which was exercised
not by KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of
its shares are owned by Filipinos), then there is no violation of the
Constitution.40 At first, it would seem that questions
of fact beyond cognizance by this Court were involved in the issue. However,
the records show that PHILYARDS admits it had owned land up until the
time of the bidding.41 Hence, the only issue is whether
KAWASAKI had a valid right of first refusal over PHILSECO shares under the JVA
considering that PHILSECO owned land until the time of the bidding and KAWASAKI
already held 40% of PHILSECO’s equity.
We uphold the validity of the mutual rights of first refusal
under the JVA between KAWASAKI and NIDC. First of all, 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 land
ownership to Filipinos and Filipino corporations. As PHILYARDS correctly
puts it, if PHILSECO still owns land, the right of first refusal can be validly
assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio.
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 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 PHILSECO’s 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 land –
that 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 juridical 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. This is the clear import of the
following provisions in the Constitution:
Section 2. All lands of the public
domain, waters, minerals, coal, petroleum, and other mineral oils, all forces
of potential energy, fisheries, forests or timber, wildlife, flora and fauna,
and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake
such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations
or associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty-five
years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
xxx xxx xxx
Section 7. 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.42(emphases supplied)
The petitioner further argues that "an option to buy
land is void in itself (Philippine Banking Corporation v. Lui She, 21 SCRA 52
[1967]). The right of first refusal granted to KAWASAKI, a Japanese
corporation, is similarly void. Hence, the right to top, sourced from the right
of first refusal, is also void."43 Contrary to the contention of
petitioner, the case of Lui She did not that say "an
option to buy land is void in itself," for we ruled as follows:
x x x To be sure, 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. As this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely
excluded by the Constitution from the use of lands for residential purposes.
Since their residence in the Philippines is temporary, they may be granted
temporary rights such as a lease contract which is not forbidden by the Constitution.
Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.
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 whereby the owner divests himself in stages not only of
the right to enjoy the land (jus possidendi, jus utendi, jus fruendi
and jus abutendi) but also of the right to dispose of it (jus disponendi)
— rights the sum total of which make up ownership. It is just as if today the
possession is transferred, tomorrow, the use, the next day, the disposition,
and so on, until ultimately all the rights of which ownership is made
up are consolidated in an alien. And yet this is just exactly what the parties
in this case did within this pace of one year, with the result that Justina
Santos'[s] ownership of her property was reduced to a hollow concept. If this
can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko vs. Register of Deeds, is
indeed in grave peril.44 (emphases supplied; Citations
omitted)
In Lui She, the option to buy was invalidated
because it amounted to a virtual transfer of ownership as the owner could not
sell or dispose of his properties. The contract in Lui She prohibited
the owner of the land from selling, donating, mortgaging, or encumbering the
property during the 50-year period of the option to buy. This is not so in the
case at bar where the mutual right of first refusal in favor of NIDC and
KAWASAKI does not amount to a virtual transfer of land to a non-Filipino. In
fact, the case at bar involves a right of first refusal over shares of
stock while the Lui She case involves an option
to buy the land itself. As discussed earlier, there is a distinction
between the shareholder’s ownership of shares and the corporation’s ownership
of land arising from the separate juridical personalities of the corporation
and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit
alleges that PHILSECO continues to violate the Constitution as its foreign
equity is above 40% and yet owns long-term leasehold rights which are
real rights.45It cites Article 415 of the Civil Code which
includes in the definition of immovable property, "contracts for public
works, and servitudes and other real rights over immovable property."46 Any existing landholding, however, is
denied by PHILYARDS citing its recent financial statements.47 First, these are questions of fact, the
veracity of which would require introduction of evidence. The Court needs to
validate these factual allegations based on competent and reliable evidence. As
such, the Court cannot resolve the questions they pose. X x x.
X x x.
As correctly observed by the public respondents, the
prohibition in the Constitution applies only to ownership of land.48 It does not extend to immovable or
real property as defined under Article 415 of the Civil Code. Otherwise, we
would have a strange situation where the ownership of immovable property such
as trees, plants and growing fruit attached to the land49 would be limited to Filipinos and
Filipino corporations only.
X x x.”