What things, rights or services cannot be the authorization for the operation of a public utility shall

object of contracts? be granted except to citizens of the Philippines or to

corporations or associations organized under the laws
ANS: The following cannot be the object of contracts: of the Philippines at least sixty per centum of whose
(1) Things which are outside the commerce of men; capital is owned by such citizens xx x." Does the
(2) Intransmissible rights; term "capital" mentioned in the cited section refer to
(3) Future inheritance except in cases expressly authorized
the total common shares only, or to the total
by law;
(4) Impossible things or services; outstanding capital stock, or to both or "separately to
(5) Services which are contrary to law, morals, good each class of shares, whether common, preferred non-
customs, public order or public policy; and voting, preferred voting or any class of shares?"
(6) Objects which are not determinable as to their kind. Explain your answer.
(See Arts. 1347,1348, 1349, NCC.) The term “capital” mentioned in Section 11, Article
XII of the Constitution refers to the total outstanding
Article XII, Sec. 18. The State may, in the interest of capital stock of public utilities. The requirement that
national welfare or defense, establish and operate at least sixty percent of the capital must be owned by
vital industries and, upon payment of just Filipino citizens applies separately to each class of
compensation, transfer to public ownership utilities shares, whether common, preferred, non-voting,
and other private enterprises to be operated by the preferred voting, or any class of shares. Mere legal
government. title is not enough. Full beneficial ownership of sixty
In Agan, Jr. v. Philippine International Air Terminals Co., G.R. percent of the outstanding capital stock is required.
No. 155001, the Supreme Court said that PIATCO cannot, by (Gamboa v. Teves, 652 SCRA 690, [2011]).
mere contractual stipulation, contravene this constitutional
provision, and obligate the government to pay “reasonable
cost for the use of the Terminal and/or Terminal complex”.
The constitutional provision envisions a situation wherein the
exigencies of the times necessitate the government to
“temporarily take over or direct the operation of any privately
owned public utility or business affected with public interest”.
It is the welfare and interest of the public which is the
paramount consideration in determining whether or not to
temporarily take over a particular business. Clearly, the State,
in effecting the temporary takeover is exercising its police
power.

ii) Note that the temporary takeover by the government

extends only to the operation of the business and not to the
ownership thereof. As such, the government is not required to
compensate the private entity-owner of the said business as
there is no transfer of ownership, whether permanent or
temporary.
The private entity-owner affected by the temporary takeover
cannot, likewise, claim just compensation for the use of said
business and its properties, as the temporary takeover by the
government is in exercise of the police power and not the
power of eminent domain David v. Macapagal-Arroyo, supra.,
the Court declared that Sec. 17, Art. XII must be understood
as an aspect of the emergency powers
clause. The taking over of private businesses affected with
public interest is just another facet of the emergency powers
generally reposed in Congress. Thus, when Sec. 17, Art. XII,
provides that “The State may, during the emergency and
under reasonable terms and conditions prescribed by it,
temporarily take over or direct the operation of any privately-
owned public utility or business affected with public interest”,
it refers to Congress, not the President. Whether the
President may exercise such power is dependent on whether
Congress delegates it to the former pursuant to a law
prescribing the reasonable terms thereof.

Sec. 11, Art. XII of the Constitution, provides: "No

franchise, certificate or any other form of