Gamboa vs. Finance Secretary Teves, et al.

The term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors (common shares), and not to the total outstanding capital stock (combined common and non-voting preferred shares). Consequently, the 60-40 Filipino-foreign ownership requirement in public utilities applies to the voting stock to ensure effective Filipino control.

The case arises from the privatization of sequestered government shares in PTIC, a holding company that owns a significant stake in PLDT, a telecommunications public utility. The dispute centers on the interpretation of the constitutional limit on foreign ownership, specifically whether non-voting preferred shares can be used to dilute the voting power of foreign-held common shares while technically satisfying the 60-40 ownership ratio.

• Filed directly with the SC as an original action for prohibition, injunction, declaratory relief, and declaration of nullity of sale.
• The SC treated the petition for declaratory relief as one for mandamus due to the transcendental importance of the issue and the far-reaching implications to the national economy.
• The sale of PTIC shares was consummated on 28 February 2007 while the petition was pending.

• PLDT is a public utility granted a franchise under Act No. 3436.
• PTIC held 26,034,263 common shares of PLDT (13.847% of outstanding common shares).
• The Republic of the Philippines owned 111,415 PTIC shares (46.125% of PTIC stock), sequestered as ill-gotten wealth and later adjudicated to the government.
• First Pacific already owned 54% of PTIC.
• On 28 February 2007, the government sold its 46.125% PTIC stake to MPAH (a First Pacific affiliate) for P25.2 billion.
• This acquisition increased First Pacific's common shareholdings in PLDT from 30.7% to 37%.
• Combined with Japanese firm NTT DoCoMo's holdings, foreign common shareholdings in PLDT reached approximately 81.47%.
• PLDT's Capital Structure:
  • Common Shares: Par value P5.00; foreigners held 120,046,690 shares (64.27%), Filipinos held 66,750,622 shares (35.73%). Only common shares could vote in director elections.
  • Preferred Shares: Par value P10.00; 99.44% owned by Filipinos, non-voting, earning only P1.00 dividend per share (vs. P70.00 for common shares in 2009).
  • Preferred shares constituted 77.85% of authorized capital stock; common shares only 22.15%.

• The term "capital" in Section 11, Article XII of the Constitution refers exclusively to common shares (voting shares), as control is exercised through voting.
• The constitutional requirement of at least 60% Filipino ownership aims to ensure effective control by Filipinos, not merely nominal ownership.
• Foreigners already held more than 40% of PLDT's common shares prior to the contested sale; the sale further entrenched foreign control.
• Mere legal title is insufficient; full beneficial ownership coupled with voting rights is required to meet the constitutional mandate.

• Procedural Defenses: Petitioner lacked standing; the petition was moot because the sale was consummated; direct filing with the SC violated the hierarchy of courts; foreign shareholders were indispensable parties not impleaded.
• Definition of Capital: The term "capital" includes the total outstanding capital stock (common and preferred shares), as consistently interpreted by the SEC and as implied by the Corporation Code definition of "outstanding capital stock."
• Foreign Investments Act (FIA): The FIA defines "Philippine national" based on "capital stock outstanding and entitled to vote," but this is statutory and does not retroactively redefine the constitutional term "capital."
• Due Process: Divesting foreign shareholders of their property (common shares) without notice and trial violates due process.

• Procedural Issues:
  • Whether the SC has jurisdiction over the petition for declaratory relief, injunction, and annulment of sale.
  • Whether petitioner has locus standi to bring the action.
  • Whether the petition is moot due to the consummation of the sale.
• Substantive Issues:
  • Whether the term "capital" in Section 11, Article XII of the Constitution refers to common shares only or to the total outstanding capital stock (common and preferred shares).
  • Whether the sale of PTIC shares to First Pacific violated the constitutional 40% limit on foreign ownership of public utilities.

• Procedural:
  • The SC treated the petition for declaratory relief as one for mandamus because the issue has far-reaching implications to the national economy and involves matters of transcendental importance.
  • Petitioner has locus standi as a stockholder of PLDT and as a citizen asserting a public right.
  • The petition is not moot; the transcendental public interest in the constitutional issue outweighs the consummation of the sale.
• Substantive:
  • The term "capital" in Section 11, Article XII refers only to shares entitled to vote in the election of directors (common shares).
  • The constitutional intent is to ensure Filipino control over public utilities; control is exercised through voting rights.
  • PLDT's structure—where foreigners held 64.27% of voting common shares while Filipinos held 99.44% of non-voting preferred shares—violates the constitutional limit.
  • The SC directed the SEC Chairperson to apply this definition of "capital" in determining foreign ownership in PLDT and to impose appropriate sanctions if a violation is confirmed.

• Control Test (as applied to Public Utilities) — The 60-40 ownership requirement in Section 11, Article XII applies to the voting stock or controlling interest of the corporation. The SC applied this by interpreting "capital" as shares with voting rights in the election of directors, ensuring Filipinos retain actual control, not just nominal ownership of non-voting shares.
• Self-Executing Constitutional Provisions — Section 11, Article XII is self-executing; it does not require implementing legislation to be enforceable. The SC may directly apply constitutional provisions reserving specific areas of investment to Filipinos.
• Transcendental Importance — Procedural rules (such as hierarchy of courts and mootness) may be relaxed when the issue involves matters of transcendental public importance affecting the national economy and the fundamental right of Filipinos to control their patrimony.
• Full Beneficial Ownership Requirement — To meet the 60% Filipino ownership requirement, there must be full beneficial ownership of the voting shares, not merely legal title. Stocks with assigned voting rights to aliens cannot be considered held by Philippine nationals.

• "What is at stake here is whether Filipinos or foreigners will have effective control of the national economy."
• "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, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares)."
• "Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State's grant of authority to operate a public utility."
• "This kind of ownership and control of a public utility is a mockery of the Constitution."
• "The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest."

• Salvacion v. Central Bank of the Philippines — Cited for the principle that the SC may treat a petition for declaratory relief as one for mandamus when the issue has far-reaching implications and raises questions that should be resolved.
• Fernandez v. Cojuangco — Distinguished; a prior case involving similar issues against PLDT which was dismissed for disregard of the hierarchy of courts.
• Manila Prince Hotel v. GSIS — Cited for the doctrine that constitutional provisions are presumed self-executing unless the contrary is clearly intended.
• Chavez v. PCGG — Cited for the rule that a citizen has standing to sue on matters of transcendental importance to the public.

• 1987 Constitution, Article XII, Section 11 — The provision limiting foreign ownership of public utilities to not more than 40% of the capital.
• 1987 Constitution, Article II, Section 19 — State policy to develop a self-reliant and independent national economy effectively controlled by Filipinos.
• Corporation Code (B.P. Blg. 68), Section 6 — Classification of shares; distinction between common and preferred shares.
• Corporation Code (B.P. Blg. 68), Section 137 — Definition of outstanding capital stock (distinguished by the SC from the constitutional term "capital").
• Foreign Investments Act of 1991 (R.A. No. 7042), Section 3 — Definition of "Philippine national" using the phrase "capital stock outstanding and entitled to vote," cited as legislative confirmation that "capital" implies voting control.
• Securities Regulation Code (R.A. No. 8799), Section 5 — Powers of the SEC to suspend or revoke franchises and investigate violations.

• N/A. (Justices Leonardo-De Castro, Brion, Peralta, Bersamin, Del Castillo, Villarama, Jr., Perez, Mendoza, and Sereno concurred with the majority opinion without separate written opinions).

• Justice Velasco, Jr. — Argued that the term "capital" includes both voting and non-voting shares based on the Constitutional Commission deliberations showing an intentional deletion of the phrase "voting stock or controlling interest" in favor of the broader term "capital." He maintained that the SEC's long-standing interpretation including all shares in the computation deserved great respect. He also emphasized procedural defects, arguing the petition was moot, violated hierarchy of courts, and failed to implead indispensable parties (foreign shareholders).
• Justice Abad — Argued that Section 11, Article XII is not self-executing and requires implementing legislation from Congress to define "capital" and establish enforcement mechanisms. He contended that defining the term is a policy-making function belonging to the legislature, not the judiciary.