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GAMBOA vs. FINANCE SECRETARY TEVES (G.R. No. 176579, promulgated June 28, 2011; Carpio, J.

) Facts: • Petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by PHL govt, thru the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Ltd (First Pacific), a Hong Kong-based investment management and holding company and shareholder of the PLDT. • Petitioner questioned the sale on the ground that it also involved an indirect sale of 12 m shares (about 6.3% of outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s common shareholdings in PLDT increased from 30.7% to 37%, 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%. Issue: WON the term “capital” in Sec 11, Art 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 and Ratio: NO, refers to shares of stock entitled to vote in the election of directors of a public utility, to the total common shares of PLDT. • Section 11, Art XII (National Economy and Patrimony) 1987 Consti: 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 • “Capital” in Sec 11, Art XII refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both common and non-voting PLDT preferred shares • 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 Sect 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. • 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.” • 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. • Only holders of common shares can vote in the election of directors of PLDT, meaning only common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDT’s Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose whatsoever.

046. the par value of PLDT common shares is P5 per share. the fact that PLDT common shares with a par value of P5. In other words.85% of the authorized capital stock of PLDT while common shares constitute only 22. In fact. it is clear that foreigners exercise control over PLDT.56% of the preferred shares.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0. . 99.690 common shares of PLDT whereas Filipinos hold only 66. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares.92 to P11. The legal and beneficial ownership of 60% of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. This directly contravenes the express command in Section 11. preferred shares constitute 77. or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines. blatantly violating the constitutional requirement of 60 % Filipino control and Filipino beneficial ownership in a public utility. foreigners hold 120. and if there is a violation of Sec 11.328. foreigners hold 64. preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares.27% of the total number of PLDT’s common shares. In other words.06 per share.00 per share. and earn less than 60% of the dividends.” Incidentally. Respondent Chairperson of the SEC is DIRECTED to apply this definition of the term “capital” in determining the extent of allowable foreign ownership in PLDT. as submitted to the SEC.73%.• • • Foreigners hold a majority of the common shares of PLDT. is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common shares. while PLDT preferred shares with a par value of P10. Art XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors. In short. and not to the total outstanding capital stock (common and nonvoting preferred shares). Since holding a majority of the common shares equates to control.00 per share have a current stock market value ranging from only P10. Moreover. of PLDT.750. Art XII impose the appropriate sanctions under the law. which is a document required to be submitted annually to the Securities and Exchange Commission. and thus in the present case only to common shares. Filipinos hold less than 60 %of the voting stock. Dispositive: PARTIALLY GRANTED.15%. Such amount of control unmistakably exceeds the allowable 40% limit on foreign ownership of public utilities expressly mandated in Section 11. at least sixty per centum of whose capital is owned by such citizens x x x. Worse. based on PLDT’s 2010 General Information Sheet (GIS). certificate. whereas the par value of preferred shares is P10 per share.622 common shares. Article XII of the Constitution that “[n]o franchise. Article XII As shown in PLDT’s 2010 GIS. not with the preferred shares. the term “capital” in Sec 11.00 have a current stock market value of P2. while Filipinos hold only 35.