GAMBOA VS TEVES

Facts: The Philippine Legislature enacted Act No. 3436 granting PLDT a franchise and the right
to engage in telecommunications business. Then, General Telephone and Electronics
Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of
the outstanding common shares of PLDT to PTIC.

In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons and became the owner
of 111,415 shares of stock of PTIC. However, this shares held by PHI were sequestered by the
Presidential Commission on Good Government (PCGG).

The shares, which represent about 46.125 percent of the outstanding capital stock of PTIC,
were later declared by this Court to be owned by the Republic of the Philippines.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent
of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the
outstanding common shares of PLDT. With the sale, First Pacifics common shareholdings in
PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings
of foreigners in PLDT to about 81.47 percent. This 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 percent.

Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to the
common shares of PLDT, a public utility.

Held: Yes. The term capital 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 preferred shares.”

It also refers to shares with voting rights, as well as with full beneficial ownership as the right
to vote in the election of directors, coupled with full beneficial ownership of stocks, translates
to effective control of a corporation.

This interpretation is consistent with the intent of the framers of the Constitution to place in
the hands of Filipino citizens the control and management of public utilities.