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Gamboavs.

Teves
June28,2011

Petitioner

Respondents

In 1969,
General Telephone and Electronics
Corporation(GTE),an Americancompanyand
a major PLDT stockholder, sold 26 percent of
the outstanding common shares of PLDT to
PTIC.

In1999,
FirstPacific
,aBermudaregistered,
HongKongbasedinvestmentfirm,acquiredthe
remaining54percentoftheoutstandingcapital
stockofPTIC

PHI
becametheownerof111,415sharesof
stockofPTICbyvirtueofthreeDeedsof
Assignment.However,the111,415PTIC
shares,whichrepresentabout46.125percent
oftheoutstandingcapitalstockofPTIC,were
laterdeclaredbytheCourttobeownedbythe
Republic.

Andthroughpublicbidding,the46.125percent
shareswassoldtoParallax.FirstPacifictriedto
matchthebidofParallaxbutfailedtodoso

ThusOn14February2007,FirstPacific,through
itssubsidiary,
MPAH,1
enteredintoaConditional
SaleandPurchaseAgreementofthe111,415
PTICshares,or46.125percentofthe
outstandingcapitalstockofPTIC,withthe
PhilippineGovernment.

Petitionerfiledtheinstantpetitionforprohibition,
injunction,declaratoryrelief,anddeclarationof
nullityofsaleofthe111,415PTICshares.

SincePTICisastockholderofPLDT,thesale
byGovernmentof46.125percentofPTIC
sharesisactuallyanindirectsaleof12million
sharesorabout6.3percentoftheoutstanding
commonsharesofPLDT.
Withthesale,First
PacificscommonshareholdingsinPLDT
increasedfrom30.7percentto37percent,
therebyincreasingthecommon
shareholdingsofforeignersinPLDTto
about81.47percent.
ThisviolatesSection11,
ArticleXIIofthe1987PhilippineConstitution
whichlimitsforeignownershipofthecapitalofa
publicutility
tonotmorethan40percent

Petitionerraisesthefollowingissues:

(1)whethertheconsummationofthethen
impendingsaleof111,415PTICsharestoFirst
Pacificviolatestheconstitutionallimitonforeign
ownershipofapublicutility

(2)whetherthesaleofcommonsharesto
foreignersinexcessof40percentoftheentire
subscribedcommoncapitalstockviolatesthe
constitutionallimitonforeignownershipofa
publicutility

MAINISSUE:
whetherthetermcapitalinSection11,ArticleXII2 oftheConstitutionreferstothe
total
common shares only or to the t
otal outstanding capital stock
(combined total of common and
nonvotingpreferredshares)ofPLDT,apublicutility.

RULING:

The term capital in Section 11, Article 12 of the 1987 Constitution refers only to
shares of stock
entitledto voteintheelectionofdirectors,andthusinthepresentcase
onlytocommonshares,
and

nottothetotaloutstandingcapitalstock

(commonandnonvotingpreferredshares).

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a
corporation to be granted authorityto operate apublicutility,atleast60percentofitscapitalmustbe
ownedbyFilipinocitizens.

Petitionersubmitsthat the40percentforeignequitylimitationindomesticpublicutilitiesrefersonlyto
common shares becausesuchsharesareentitled tovote anditis through voting thatcontrolovera
corporation is exercised. Petitioner posits that the term capital in Section 11, Article XII of the
Constitution referstotheownershipofcommoncapitalstocksubscribedandoutstanding,whichclass
of shares alone, under the corporate setup of PLDT, can vote and elect members of theboardof
directors.

Respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the
Constitution. Neither does he refute petitioners claim of foreigners holding morethan40percent of
PLDTs common shares3 . Instead, respondent Pangilinan focuses on the procedural flaws of the
petitionandtheallegedviolationofthedueprocessrightsofforeigners.

Mere legal title is insufficient to meet the 60 percent Filipinoowned capital required in the
Constitution. Fullbeneficial ownership of60 percentof the outstandingcapitalstock,coupledwith60
percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutionalmandate.Otherwise,thecorporationisconsideredasnonPhilippinenational[s].
2

Section11.Nofranchise,certificate,oranyotherformofauthorizationfortheoperationofapublicutilityshallbegrantedexceptto
citizensofthePhilippinesortocorporationsorassociationsorganizedunderthelawsofthePhilippines,atleastsixtypercentumof
whosecapitalisownedbysuchcitizens

Sec.6.
Classificationofshares.
Thesharesofstockofstockcorporationsmaybedividedintoclassesorseriesofshares,orboth,
anyofwhichclassesorseriesofsharesmayhavesuchrights,privilegesorrestrictionsasmaybestatedinthearticlesof
incorporation:Provided,
Thatnosharemaybedeprivedofvotingrightsexceptthoseclassifiedandissuedaspreferredor
redeemableshares,unlessotherwiseprovidedinthisCode
:Provided,further,Thatthereshallalwaysbeaclassorseriesofshares
whichhavecompletevotingrights.Anyorallofthesharesorseriesofsharesmayhaveaparvalueorhavenoparvalueasmaybe
providedforinthearticlesofincorporation:Provided,however,Thatbanks,trustcompanies,insurancecompanies,publicutilities,
andbuildingandloanassociationsshallnotbepermittedtoissuenoparvaluesharesofstock.

Preferredsharesofstockissuedbyanycorporationmaybegivenpreferenceinthedistributionoftheassetsofthecorporationincase
ofliquidationandinthedistributionofdividends,orsuchotherpreferencesasmaybestatedinthearticlesofincorporationwhichare
notviolativeoftheprovisionsofthisCode:Provided,Thatpreferredsharesofstockmaybeissuedonlywithastatedparvalue.The
BoardofDirectors,whereauthorizedinthearticlesofincorporation,mayfixthetermsandconditionsofpreferredsharesofstockor
anyseriesthereof:Provided,Thatsuchtermsandconditionsshallbeeffectiveuponthefilingofacertificatethereofwiththe
SecuritiesandExchangeCommission.


UnderSection 10, ArticleXII oftheConstitution,Congress may reserveto citizens ofthePhilippines
or to corporations or associations at least sixty
per centum of whose capital is owned by such
citizens,orsuchhigherpercentageasCongressmayprescribe,certainareasofinvestments.

To construe broadly the term capital as the total outstanding capital stock, including both common
and
nonvoting preferred shares,grossly contravenestheintent andletteroftheConstitutionthatthe
State shall develop a selfreliant and independent national economy
effectively controlled by
Filipinos. A broad definition unjustifiably disregards who owns the allimportant voting stock, which
necessarilyequatestocontrolofthepublicutility.

1) foreigners own64.27% of thecommon shares of PLDT,whichclass of shares exercises the


sole
righttovoteintheelectionofdirectors,andthusexercisecontroloverPLDT
(2) Filipinos own only 35.73% ofPLDTs commonshares, constituting a minority of thevoting stock,
andthusdonotexercisecontroloverPLDT
(3)preferredshares,99.44%ownedbyFilipinos,havenovotingrights
(4)preferredsharesearnonly1/70ofthedividendsthatcommonsharesearn
(5)preferred shares have twicethepar value ofcommon shares and(6)preferredsharesconstitute
77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of
ownershipandcontrolofapublicutilityisamockeryoftheConstitution.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally requiredfortheStatesgrantofauthoritytooperateapublicutility.Theundisputedfact
thatthe PLDTpreferredshares, 99.44% ownedbyFilipinos,arenonvoting andearnonly1/70ofthe
dividends that PLDT common shares earn, grossly violates the constitutional requirement of 60
percentFilipinocontrolandFilipinobeneficialownershipofapublicutility.

Section 11,Article XIIof the Constitution, likeotherprovisionsoftheConstitutionexpresslyreserving


toFilipinos
specific
areasofinvestment,suchasthe developmentofnaturalresourcesandownership
of land, educational institutions and advertising business, is
selfexecuting
. There is no need for
legislationtoimplementtheseselfexecutingprovisionsoftheConstitution.

Underitsregulatoryfunctions, the SEC can be compelledbymandamustoperformitsstatutoryduty


when it unlawfully neglects to performthesame.Underitsadjudicativeorquasijudicialfunctions,the
SEC can be also be compelled by mandamus to hear and decide apossible violation of any law it
administersorenforceswhenitismandatedbylawtoinvestigatesuchviolation.

70
Under Section 17(4)
of the Corporation Code, the SEC has the regulatory function to reject or
disapprove the Articles of Incorporation of any corporation where
the required percentage of
ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as requiredbyexistinglawsortheConstitution. Thus, theSECisthegovernment
agencytaskedwith the statutoryduty to enforcethenationalityrequirementprescribedinSection11,
Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for
declaratory relief that is treated as a petition for mandamus as in the present case, can direct the
SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully
neglectedtodobasedonthe2010GISthatrespondentPLDTsubmittedtotheSEC.