Wilson P.

Gamboa
vs
Margarito B. Teves (Finance Secretary)
June 28, 2011
En Banc
Original Action in the Supreme Court.
Prohibition, Injunction, Declaratory Relief and Declaration of Nullity of Sale of Shares of
Stock
Carpio, J.:

Act No. 3436
- Granted PLDT a franchise and right to engage in telecommunications business
Article 2: Declaration of Principles and State Policies Principles
Section 19. The State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos.
Article 12: National Economy and Patrimony
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; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines.

Declaration of nullity of sales of shares of stock of Philippine Telecommunications
Investment Corporation (PTIC) by the government to Metro Pacific Assets Holdings, Inc.
(MPAH) which is an affiliate of First Pacific Company Limited (First Pacific)



Facts:
- Wilson P. Gamboa
o Stockholder of PLDT
- November 28, 1928
o PLDT was granted the franchise
- 1969
o General Telephone and Electronics Corporation (GTE), an American company
and a major PLDT stockholder, sold 26% of PLDTs shares to PTIC
- 1977
o Prime Holdings, Inc (PHI) was incorporated by several persons and became
the owner of 111,415 shares of stock of PTIC (Ramon Cojuangco and Luis
Rivilla)
- 1986
o These shares of stock of PTIC held by PHI were sequestered by the
Presidential Commission on Good Government
o 46.125% of owned by government
- 1999
o First Pacific, a Bermuda-registered HK based investment firm acquired the
remaining 56% of PTIC.
- November 20, 2006
o Inter-Agency Privatization Council (IPC) announced that it would sell 46%
through a public bidding
o 2 bidders:
Parallax Venture Fund (P25.6B won)
Pan-Asia Presidio Capital
o First Pacific announced that it would exercise its right of first refusal and buy
the shares by matching the bid price
Failed to do so by February 2007 and gave its right to PTIC itself, who
was given till March to buy.
First Pacific, through MPAH, entered into a Conditional Sale for the
price of P25.2B or $510M
- Sale of PTIC shares is an indirect sale of 12m shares of 6.3% of PLDT
- First Pacifics common shareholdings increased from 30.7 to 37%
o Increased the common shareholdings of foreigners in PLDT to 81.47%
- Violates Article 12, Section 111 of the 1987 Constitution
o Foreign ownership of the capital of a public utility <40%
- Respondent:
o First Pacifics acquisition of 100% of PTIC actually only constitutes 13.847%
of the total outstanding shares of PLDT

ISSUES:
1. W/O/N sale of the shares violates the constitutional limit on foreign ownership of
a public utility
2. W/O/N public respondents committed grave abuse of discretion in allowing the
sale
3. W/O/N the sale of common shares in excise of 40% violates constitutional limit
on foreign ownership of a public utility

Court is not a trier of facts and will focus on the pure legal issue of what the term capital in
Section 11, Article 12 of the Constitution refers to.

Held: Partly meritorious

Petition for Declaratory Relief Treated as Petition for Mandamus
- Only petition for prohibition is within the original jurisdiction of this court, which is
not exclusive but concurrent with RTC and CoA.
- Declaratory relief, injunction, annulment is not embraced in the original jurisdiction.
- Petition could have been dismissed outright
- But Court shall discuss the legal issue as it has
o far-reaching implications to the national economy (determine if Filipinos
have effective control of own national economy)
o Transcendental importance to the national economy
o Fundamental requirement to a faithful adherence to our Constitution.
o Present and future foreign investor deserve a ruling in their participation
- Hence, court shall treat this petition for declaratory relief as one for mandamus
o Salvacion vs. CB
Considering the grave injustice that would result in the interpretation
of a banking law
o Alliance of Government Workers vs. Minister of Labor
Court brushed aside the procedural infirmity of the petition
W/P/M government unlawfully excluded petitioners (gov.
employees) from enjoyment of rights to which they were
entitled under the law. (13
th
month pay)
This affects all government employees
Clearly justifying a relaxation of technical rules of procedure

Court:
- Resolution of this issue will determine whether Filipinos are masters, or second class
citizens in their own country.
- Whether Filipinos or foreigners will have effective control of the national economy.
- Fernandez vs. Cojuangco
o PLDT and almost the same private respondents
o Court declined to resolve the case as it disregarded the hierarchy of courts
o This is an opportunity to settle this purely legal issue.
- This has remained unresolved for 75 years since the 1935 constitution.
- Capital appears in:
o Article 12, Section 11
o Section 2-our natural resources
o Section 7-ownership of private lands
o Section 10-reservation of certain investments to Filipino Citizens
Regulation of Award of Government Contracts
Philippine Inventors Incentives Act
Magna Carta for Micro, SME
Philippine Overseas Shipping Development Act
Philippine Technology Transfer Act
Ship Mortgage Decree
o Article 14, Section 4(2)-ownership of educational institutions
o Article 16, Section 11(2)- ownership of advertising companies

Petitioner has Locus Standi
- Petitioner is a stockholder, hence, has the right to question the subject sale
- If sale violates Constitution, the franchise could be revoked, which affects petitioners
interests
- Transcendental Importance
o Involving national economy and economic welfare of Filipino
people>procedural infirmity
Chavez vs. PCGG
In Tanada vs. Tuvera, when the issue concerns a public right,
the people are regarded as real parties
Sufficient that petitioner is a citizen and interested in the
execution of laws
Need not show that he has any legal or special interest
Legaspi vs. Civil Service Commission
Regarding assertion of public right, requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen,
and therefore, part of the general public which possesses the
right.
Albano vs. Reyes
Although expenditure of public funds may not have been
involved, public interest was definitely involved considering
the important role of the contract in the economic development
of the country and the magnitude of the financial consideration
involved.
Definition of Capital as used in the 1987 Constitution
Court:
- Section 11, Article 12 of the 1987 Constitution is substantially a reiteration of
o 1973 Constitution, Article 14, Section 5
o 1935 Constitution, Article 14 Section 8
- Commissioner Joaquin Bernas
o Reminds us of the Filipinization provision as one of the products of the spirit
of nationalism
o Provision is an express recognition of the sensitive and vital position of public
utilities both in the national economy and for national security.
Prevent alien from controlling which may be inimical to national
interest.
- What does the Constitution refer to when it speaks of Capital?
o Common Shares
o Total outstanding capital stock (combined total of common and nonvoting
preferred shares)
- Petitioner:
o Capital refers to common shares only
As these stocks are entitled to vote
Through voting of the board of directors that control over corporation
is exercised
o These shares constitute the sole basis in determining foreign equity
o Court to declare any ruling inconsistent with such interpretation as
unconstitutional.
- Respondents:
o Do not offer any definition
o Focuses on procedural infirmities
Absence of Courts juristdiction
Lack of standing
Mootness of the petition
Non-availability of declaratory relief
Violation of due process rights of foreign common shareholders
They must be impleaded in the suit so they can be heard
o Uniform interpretation by government agencies (SEC, PNOC-EDC)
Controlling interesting= preferred + common in controlling interest
SEC has categorically rules that outstanding shares is capital.
o Panganiban:
Section 11 imposes no nationality requirement on the shareholders of
the utility company as a condition for keeping their shares in the utility
company
Does not authorize taking one persons property on the basis of
failure to satisfy a requirement
o Constitution does not distinguish, hence, court must not distinguish too.


- Most of PLDTs non-voting preferred shares are held by Filipino Citizens
o P.D 217, requiring every application of a PLDT telephone line to subscribe to
a non-voting preferred shares to pay or investment cost of installing the
telephone line.
- Fernandez vs. Cojuangco
o Capital refers to shares entitled to vote or the common shares
o Intent of framers in imposing limitations is so that Filipino nationals will
always be in control
o It would be possible that 1% common stocks and 99% preferred stocks
o Common shares can be owned entirely by foreigners
o 40% foreign ownership should be applied to
Beneficial ownership
Controlling interest (Voting Rights)
o That the legal and beneficial ownership rests in Filipino hands.
o Although there were opinions cited by RTC to support that capital is
outstanding shares, FIA took effect in 1991
Law>Opinion by an administrative agency
Opinion is only advisory but ultimately it is the court which decides
- Court:
- Capital
o Refers only to shares of stock entitled to vote in the election of directors
and not to the total outstanding capital stock comprising both common and
non-voting preferred shares.
- Corporation Code (anent non-voting shares shall still be entitled to vote on)
o Amendment of articles of incorporation
o Adoption and amendment of by-laws
o Sale, lease, exchange of all or most of corporate property
o Incurring, creating or increasing bonded indebtedness
o Increase or decrease of capital stock
o Merger or consolidation
o Investment of corporate funds in another corporation
o Dissolution
But other than that provided, vote to approve a particular corporate act
shall be given only to stocks with voting rights.
Preferred stocks are merely investors for income.
But if preferred shares have such voting rights, then the term capital
shall include such.
- Consistent with intent of framers
o Capital- Refers to the voting stock or controlling interest
o Mr. Nolledo and Mr. Villegas
60% of voting stock
Adopts the grandfather rule
Control can be with foreigners even if minority, if 40% of voting
owned by them
Corporation controlled by foreigners despite being minority
Controlling interest is assumed in case of stock corporations.
- Foreign investments Act of 1991 (FIA)
o Philippine National
Citizen of Philippines
Domestic partnership or association wholly owned by Phil. Citizens
Corporation organized under the laws of the Philippine of which at
least 60% of the capital stock outstanding and entitled to vote is
owned and held by Phil. Citizens.
- IRR of FIA
o Philippine national
At least 60% of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines.
- Owned and held by Philippine citizens or nationals
o Legal title is not enough
o Full beneficial ownership of stocks, with voting rights is essential
o Stocks with voting rights assigned or transferred to aliens cannot be
considered held by Phil. Citizens.
- To hold that capital includes common and non-voting is to contravene the intent and
letter of the Constitution.
- Such contravention exists in this case
o PLDTs Articles of Incorporation expressly states that
Holders of Serial Preferred stock
Shall not be entitled to vote at any meeting of the stockholders
for the election of directors of for any other purpose.
Each holder of Common Capital Stock
Shall have one vote in respect of each share of such stock held
by him on all matters voted upon by stockholders and has the
exclusive right to vote for the election of directors and for all
other purposes.
o Beneficial interest (dividends), controlling interest (voting) is with the
common shares.
o Par value of preferred stocks 2x than common shares but still unable to vote.
- Filipinos hold less than 60% of the voting stock, and earn less than 60% of the
dividends, of PLDT.
- Section 11, Article 12 of the Constitution, like other provisions expressly reserving to
Filipinos specific areas of investment, is self-executing
o Manila Prince Hotel vs. GSIS
Provisions must be considered self-executing unless the contrary is
provided
Contrary would give the legislature unbridled discretion to determine
when, or whether, they shall be effective.
o To treat said section as non self-executing means that over the 75 years, none
of the provisions reserving areas of investments to Filipinos was enforceable.
1935, 1973, 1987 Constitution failed to reserve to Filipinos.
Legislature also failed to enact legislations to implement such.
SECs role (Regulatory and adjudicative functions)
Tasked with enforcing said nationality requirement provided by Section 11 of the 1987
Constitution
- Regulatory
o Can be compelled by mandamus to perform its statutory duty when it
unlawfully neglects to perform the same
o Section 5(m): Can pass, suspend or revoke applications, certificates of
registration, franchise, etc. after proper notice and hearing upon grounds
provided by law.
o Section 5 (d): Investigate the activities of persons to ensure compliance with
laws.
o Approve or reject articles of Incorporation of any corporation where the
required % of ownership of the capital stock ti be owned by Philippine
Citizens has not been complied with as required by existing laws or the
Constitution.
Commission shall give incorporators a reasonable time to modify as to
comply
- Adjudicative or Quasi-judicial functions
o Compelled by mandamus to hear and decide a possible violation of a law

PLDT
(outstanding
capital stock)
Preferred Shares (77.85%)
Par Value: P10
Dividends: P1
Market Value: P10.92-
P11.06
Filipinos
(99.44%)
Foreigners
(0.54%)
Common Shares (22.15%)
Par Value: P5
Dividends: P99
Market Value: 2,328
Filipinos
(35.73%)
Foreigners
(64.27%)