Gamboa vs

Teves G.R. No. 176579

G.R. No. 176579 June 28, 2011

June 28, 2011
En Banc decision
Penned by Justice Carpio
Petition for Prohibition, Injunction,
Declaratory Relief and Declaration of
Nullity of the Sale of shares of stock,
which was treated as a Petition for
Mandamus
En Banc decision
Penned by Justice Carpio
Petition for Prohibition, Injunction,
Declaratory Relief and Declaration of
Nullity of the Sale of shares of stock, which
was treated as a Petition for Mandamus
By:
Wilson P. Gamboa, a stockholder in Philippine Long
Distance Telephone Company (PLDT),
Pablito Sanidad and Arno Sanidad, PLDT subscribers

Against:
Chair and Members of the Privatization Council;
Director, and Managing Director of Metro Pacific Asset
Holdings Inc.; President of PLDT; Chair of the
Securities and Exchange Commission (SEC); and
President of the Philippine Stock Exchange (PSE)
Article XII (National Economy and Patrimony) of
the 1987 Constitution

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…
• Act No. 3436: Franchise and the right to engage
in telecommunications business to PLDT
• Philippine Telecommunications Investment
Corporation (PTIC) owns 26% PLDT shares.
• First Pacific, a Bermuda-registered, Hong Kong-
based investment firm, owns 54% of PTIC
shares.
Facts:

•
Government sequestered 111,415 shares of stock
of PTIC and announced that it would sell the
same, through a public bidding.
•

•
First Pacific, bought the shares through its
subsidiary, MPAH. Petitioners question this sale.
They argue that
•
Since PTIC is a stockholder of PLDT, the sale is
actually an indirect sale of 12 million shares or
about 6.3 percent of the outstanding common
shares of PLDT.
•

•
First Pacific’s common shareholdings in PLDT
increased from 30.7 percent to 37 percent.
• The result will be the common shareholdings of
foreigners in PLDT will amount to 81.47
percent.
•

• This allegedly violates Section 11, Article XII

which limits foreign ownership of the capital of a
public utility to not more than 40 percent.
• Respondents do not deny that more than 40% of
the common shares are owned by foreigners.
•

• But, they insist on a full-blown trial where the

foreign shareholders are duly heard before their
ownership of the shares may be relinquished.
However,

• The Supreme Court is not a trier of facts.

•

•
It confined itself to resolving the legal issue in
this case.
Issue:

Whether the term "capital" in Section 11, Article

XII of the Constitution refers 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.
Why this issue?

• Of transcendental importance to the National

Economy.
•

• Unresolved for 75 years since the 1935

Constitution
•

• Matter of basic fairness to foreign investors.

Ruling:

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).
Ratio:

Intent of the framers to place in the hands of

Filipino citizens the control and management of
public utilities.

“60 percent of the "capital" assumes, or

should result in, "controlling interest" in the
corporation.”
Sec. 3(a), Foreign Investments Act of 1991:

The term "Philippine national" shall mean… a

corporation…of which at least 60% of the
capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines.
“Title” means full and beneficial ownership, not
merely legal title.
The term “capital” is also used in the same context
in numerous laws reserving certain areas of
investments to Filipino Citizens, as mandated by
Sec. 10 Art. XII of the Constitution.
More importantly, it is a policy that the ”State shall
develop a self-reliant and independent national
economy effectively controlled by Filipinos.“
Self-executing provision:

Section 11, Article XII of the Constitution, like

other provisions of the Constitution expressly
reserving to Filipinos specific areas of investment,
such as the development of natural resources and
ownership of land, educational institutions and
advertising business, is self-executing.
 The rationale why these constitutional provisions are
self-executing was explained in Manila Prince Hotel v.
GSIS, thus:

“Unless the contrary is clearly intended, the provisions

of the Constitution should be considered self-executing,
as a contrary rule would give the legislature discretion to
determine when, or whether, they shall be effective.”
“Legislative actions may give breath to constitutional
rights but congressional inaction should not suffocate
them.”