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WILSON P. GAMBOA v. FINANCE SECRETARY MARGARITO B. TEVES

FACTS:

Petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), seeks the nullification of the sale of shares of Philippine Telecommunications Investment Corporation (PTIC) by the Philippine Government to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific). PLDT was granted a telecommunications franchise by Act No. 3436 in 1928. General Telephone and Electronics Corporation (GTE), an American company holding significant shares, sold 26% of PLDT's common shares to PTIC in 1969. In 1977, Prime Holdings, Inc. (PHI) acquired 111,415 PTIC shares through deeds of assignment from PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. These shares were sequestered in 1986 by the Presidential Commission on Good Government (PCGG) and later declared Philippine Government property.

In 1999, First Pacific acquired the remaining 54% of PTIC's outstanding capital stock. On November 20, 2006, the Inter-Agency Privatization Council (IPC) announced the public auction of the 111,415 PTIC shares. Parallax Venture Fund XXVII (Parallax) won the bid but First Pacific proposed exercising its right of first refusal, later yielding this right to PTIC. On February 14, 2007, MPAH agreed to purchase the shares from the Philippine Government for ₱25.217 billion, finalizing the sale on February 28, 2007.

PLDT is controlled by common shares, and with this sale, First Pacific's stake in PLDT increased its foreign shareholding from 30.7% to 37%, making the total foreign ownership in PLDT about 81.47%. This appears to breach the 40% foreign ownership cap mandated by the Philippine Constitution for public utilities. Public respondents, including Finance Secretary Margarito Teves and PCGG Commissioner Ricardo Abcede, defended the transaction, suggesting compliance with legal and procedural requirements. However, Gamboa challenges this, alleging a constitutional violation in PTIC’s foreign ownership structure affecting PLDT.

Respondents counter that the term "capital" as used in the Constitution refers to the total outstanding capital stock, including both common and preferred shares. Ultimately, Gamboa aims to elucidate that "capital" was intended by the Constitution's framers to pertain only to voting shares, ensuring that control over public utilities remains in Filipino hands. The petition for prohibition, injunction, and declaratory relief was later filed on February 28, 2007, seeking both judicial definition of "capital" in the context of constitutional limits and immediate cessation of foreign overreach in Philippine public utilities.

ISSUES:

  1. 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.

RULING:

  1. 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, and thus in the case of PLDT, only to common shares and not to the total outstanding capital stock (common and non-voting preferred shares).

  2. The Supreme Court directed the Securities and Exchange Commission (SEC) to apply this definition of "capital" in determining the extent of allowable foreign ownership in PLDT and, if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.

PRINCIPLES:

  1. Non-Trial of Facts by Supreme Court: The Supreme Court is generally not a trier of facts and confines its resolution to purely legal issues.

  2. Mandamus: The Court can treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching implications.

  3. Locus Standi: A Filipino citizen has the standing to enforce constitutional provisions on public utilities based on matters of transcendental importance to the public.

  4. Control and Nationality Requirement: The Constitutional mandate is to place control over public utilities in the hands of Filipino citizens, defined as ownership of at least 60% of the voting stock ("capital") of a public utility.

  5. Preferred vs. Common Shares: The term "capital" pertains only to shares that have the right to vote in the election of directors (typically common shares) and not non-voting preferred shares.

  6. Self-Executing Provisions: Certain provisions of the Constitution, such as those restricting foreign ownership in specific industries, are self-executing and do not require further legislation to be enforceable.

  7. Beneficial Ownership and Voting Rights: Full beneficial ownership coupled with appropriate voting rights is essential to meet the nationality requirements under the Constitution. Mere legal title without voting rights does not suffice.

  8. Application and Enforcement by SEC: The SEC has the statutory duty to enforce the nationality requirement as mandated by the Constitution and relevant laws/regulations.