Gamboa vs.

Teves
G.R. No. 176579; June 28, 2011
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 this sale, First Pacifics 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%, thus:
Section 11. 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; x x x
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?
HELD:
[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, i.e., to the total common shares in PLDT.]
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.
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.