[02] GAMBOA v.
TEVES  PTIC was another shareholder of PLDT, owning 26 percent of the common
GR No. 176579 | Decision: June 28, 2011; MR: October 9, 2012 | J. Carpio
Bolante
PETITIONER: Heirs of Wilson Gamboa
RESPONDENTS: Finance Secretary Margarito Teves, et al.
TOPIC: National Economy and Patrimony
CASE SUMMARY: This case involves the ownership of PLDT, a corporation engaged
in telecommunications which, under the Constitution, must be at least 60% owned by
Filipinos. PLDT, immediately prior to the events of this case, was already partially
owned by First Pacific (a Hong Kong corporation) and NTT DoCoMo (based in
Japan). First Pacific intended to fully acquire PTIC, another corporation which also
owned PLDT shares. According to Gamboa, this would grant the foreign corporations
over 64% of the common shares of PLDT, in violation of the Constitution. The
respondents argued that the total outstanding capital stock should be counted, and
that the foreign ownership limit would not be breached if the preferred shares were
also counted.
DOCTRINE:
Main Decision: The term “capital” in Sec. 11, Art. XII of the Constitution refers to
shares of stock entitled to vote in the election of directors, not to the total outstanding
capital stock.
MR: The 60-40 ownership requirement in favor of Filipino citizens must apply
separately to each class of shares, whether common, preferred non-voting, preferred
voting or any other class of shares.
FACTS:
 Corpo recap: Common shares are entitled to vote in the election of directors of a
corporation. Preferred shares are not entitled to vote, but have other privileges
such as priority in the payment of dividends. The board of directors controls the
corporation and makes most of its decisions.
 First Pacific is a Hong Kong based corporation. Prior to the events of this case, it
already held 30.7% of PLDT's common shares. Another foreign shareholder was
the Japan-based NTT DoCoMo, which held 24.56% of PLDT's common shares.
shares. PTIC, in turn, was owned by First Pacific and the National Government
(54% and 46% respectively). In 2007, the government sold its stake in PTIC to
MPAH, a subsidiary of First Pacific.
 The end result was that First Pacific (directly and indirectly) and NTT DoCoMo,
both foreign corporations, owned 51.56% of PLDT's common shares. On the
other hand, Filipinos owned more than 99% of the preferred shares. PLDT's
capital stock is comprised of 22.15% common shares and 77.85% preferred
shares.
 The petitioner filed this case for mandamus against the Secretary of Finance, the
SEC, and the directors of the corporations involved, seeking to annul the sale.
According to him, “capital” in Sec. 11, Art. XII of the Constitution refers to the
shares which can vote in the election of directors, which are the common shares
in this case.
 The respondents argue that “capital” refers to the total outstanding capital stock
of the corporation. With this definition, Filipinos owned more than 80% of
PLDT's capital, well within the constitutional limit.
ISSUES and RULING:
 What does “capital” in Sec. 11, Art. XII of the Constitution refer to?
- First Decision: Only to the shares of stock entitled to vote in the election of
directors, or PLDT's common shares.
o Sec. 11, Art. XII must be read in conjunction with Sec. 19, Art. II, which seeks
to ensure “a self-reliant and independent national economy effectively
controlled by Filipinos”. Furthermore, the deliberations of the Constitutional
Commission show that they intended for “capital” to refer to the controlling
interest of the corporation.
o It is the board of directors of a corporation which controls and manages the
corporation. Shareholders which are entitled to vote in the election of the
board are also entitled to vote in all stockholders' meetings. Meanwhile, non-
voting shares can only vote in specific matters in Sec. 6 of the Corporation
Code (amendment of articles of incorporation and bylaws,
merger/consolidation, dissolution, etc.).
o Even worse, PLDT's preferred shares only earn 1/70 of the dividends that
their common shares earn. Despite holding more than 80% of PLDT's total
outstanding capital stock, Filipinos have a minority in the board of directors,
and earn less than 60% of the total dividends of PLDT.
 o Given the above considerations, “capital” should refer only to shares of and restrictions, guarantees effective Filipino control of
stock entitled to vote in the election of directors. In the case of PLDT, it public utilities, as mandated by the Constitution.
would refer to common shares.
Moreover, such uniform application to each class of shares insures that the "controlling
o However, the Court is limited to only pure questions of law, and it can only interest" in public utilities always lies in the hands of Filipino citizens. This addresses and
rule on the purely legal question of the definition of “capital”. It can only extinguishes Pangilinan’s worry that foreigners, owning most of the non-voting shares,
compel the SEC to determine if PLDT has violated the constitutional limit on will exercise greater control over fundamental corporate matters requiring two-thirds or
foreign ownership. majority vote of all shareholders.
o NOTE: The Court stated in the body of the decision that “Full beneficial o NOTE: The dispositive portion of the MR merely denied the motions for
ownership of 60 percent of the outstanding capital stock, coupled with 60 reconsideration, without modifying the disposition in the main decision.
percent of the voting rights, is constitutionally required for the State’s grant
of authority to operate a public utility”, but the dispositive portion treats
only the voting shares as capital. DISPOSITIVE: WHEREFORE, we PARTLY GRANT the petition and rule that the
term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of
-MR: To each and every class of shares, taken separately. stock entitled to vote in the election of directors, and thus in the present case only to
o The Court further expounded on its rationale in its decision, adding the common shares, and not to the total outstanding capital stock (common and non-
definition of “Philippine National” in the Foreign Investments Act to voting preferred shares). Respondent Chairperson of the Securities and Exchange
support its definition of “capital”: Commission is DIRECTED to apply this definition of the term "capital" in
 The term "Philippine national" shall mean a citizen of the determining the extent of allowable foreign ownership in respondent Philippine Long
Philippines; or a domestic partnership or association Distance Telephone Company, and if there is a violation of Section 11, Article XII of
wholly owned by citizens of the Philippines; or a the Constitution, to impose the appropriate sanctions under the law.
corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by
MR: WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No
citizens of the Philippines x x x
further pleadings shall be entertained.
o The Court further ruled that the 60-40 rule should apply to all classes of
shares, explaining:
 In short, the 60-40 ownership requirement in favor of
Filipino citizens must apply separately to each class of PROVISIONS:
shares, whether common, preferred non-voting,  NCC: Article x, Section y, par. Z: “xxximportant section of lawxxx”
preferred voting or any other class of shares. This
 P.D. No. 139843: “xxximportant section of special laws
uniform application of the 60-40 ownership requirement
in favor of Filipino citizens clearly breathes life to the
constitutional command that the ownership and operation
of public utilities shall be reserved exclusively to
corporations at least 60 percent of whose capital is
Filipino-owned. Applying uniformly the 60-40 ownership
requirement in favor of Filipino citizens to each class of
shares, regardless of differences in voting rights, privileges