Gamboa v. Teves, GR No. 176579, June 28, 2011 652 SCRA 690 definition of the term capital to satisfy the nationality requirement under Sec. 11, Art. XII FACTS: PLDT was granted a franchise to engage in the telecommunications business in 1928 through Act. No. 3436. During Martial Law 26 percent of the outstanding outstanding common shares were sold by General Telephone and Electronics Corporation (GTE) (an American company) to Philippine Telecommunications Investment Corporation (PTIC), who in turn assigned 111,415 shares of stock of PTIC (46 percent of outstanding capital stock) to Prime Holdings Inc. (PHI). These shares of PTIC were later sequestered by PCGG and adjudged by the court to belong to the Republic. 54 percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and the remaining 46 percent was sold through public bidding by the Inter-Agency Privatization Privatization Council, and eventually ended up being bought by First Pacific subsidiary Metro Pacific Asset Holdings Inc. (MPAH) after the corporation exercised it’s right of first refusal . The transaction was an indirect sale of 12 million shares or 6.3 percent of the outstanding common shares of PLDT, making First Pacific’s common shareholdings of PLDT to 37 percent and the total common shareholdings of foreigners in PLDT to 81.47 percent. Japanese NTT DoCoMo owns 51.56 percent of the other foreign shareholdings/equity. shareholdings/equity. Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH violates Sec. 11 of Art. XII of the Constitution, which limits foreign ownership of the capital of a public utility to not more than 40 percent. ISSUE: (1) Whether petitioner’s choice of remedy was proper? (2) Whether the term “capital” under Sec. 11, Article XII of the Constitution refers only to the total common shares or to the total outstanding stock of PLDT (public utility)? HELD: (1) NO. However, since the threshold and purely legal issue on the definition of the term “capital” in Section 11, Article XII of the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for mandamus. It is wellsettled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching implications. (2) The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled 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. The SC directed the SEC to apply this definition in determining what was the extent of allowable foreign ownership in PLDT, and in case of violation, impose the appropriate penalty under the law. Consistent with the constitutional mandate that the “State shall develop a self -reliant and independent national economy effectively controlled by Filipinos,” the term "capital" means the
outstanding capital stock entitled to vote (voting stock), coupled with beneficial ownership, both of which results to "effective control." "Mere legal title is insufficient to meet the 60 percent Filipino owned “capital” required in the Constitution for certain industries. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required." In this case, such twin requirements must apply uniformly and across the board to all classes of shares comprising the capital. Thus, "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." This guarantees that the “controlling interest” in public utilities always lies in the hands of Filipino citizens. A broader definition would unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility would be contrary to Sec. 11, Art. XII, a self-executing provision of the Constitution. A similar definition is found in Section 10, Article XII of the Constitution, the Foreign Investments Act of 1991 and it’s IRR, Regulation of Award of Government Contracts or R.A. No. 5183, Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine Overseas Shipping Development Act or R.A. No. 7471, Domestic Shipping Development Act of 2004 or R.A. No. 9295, Philippine Technology Transfer Act of 2009 or R.A. No. 10055, and Ship Mortgage Decree or P.D. No. 1521. VELASCO (Separate Dissenting Opinion)
The present petition partakes of a collateral attack on PL DT’s franchise as a public utility with petitioner pleading as ground PLDT’s alleged breach of the 40% limit on foreign equity. Such is not allowed. As discussed in PLDT v. National Telecommunications Commission, a franchise is a property right that can only be questioned in a direct proceeding. (1) The intent of the framers of the Constitution was not to limit the application of the word “capital” to voting or common shares alone . Constitutional Commission records show that by using the word “capital,” the framers of the Constitution adopted the definition or interpretation that includes all types of shares, whether voting or non-voting. (2) Cassus Omissus Pro Omisso Habendus Est –– a person, object or thing omitted must have been omitted intentionally. In this case, the intention of the framers of the Constitution is very clear –– to omit the phrases “voting stock” and “controlling interest.” (3) The FIA should also be read in harmony with the Constitution. Since the Constitution only provides for a single requirement for the operation of a public utility under Sec. 11, i.e., 60% capital must be Filipino-owned, a mere statute cannot add another requirement. Otherwise, such statute may be considered unconstitutional. Accordingly, the phrase “entitled to vote” should not be interpreted to be limited to common shares alone or those shares entitled to vote in the election of members of the Board of Directors. (4) Further, the FIA did not say “entitled to vote in the management affairs of the corporation” or “entitled to vote in the election of the members of the Board of Directors.” Verily, where the law does not distinguish, neither should We. Hence, the proper interpretation of the phrase “entitled to vote” under the FIA should be that it applies to all shares, whether classified as voting or non-
voting shares. (5) Additionally, control is another inherent right of ownership. The circumstances enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting rights to the stocks deemed as non-voting as to fundamental and major corporate changes. Thus, the issue should not only dwell on the daily management affairs of the corporation but also on the equally important fundamental changes that may need to be voted on. (6) The SEC rules, opinions and jurisprudence use the “control test”, which requires that the nationality of a corporation is determined by the total outstanding capital stock irrespective of the number of shares, and “capital” denotes the total shares subscribed and paid irrespective of their nomenclature. (7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the foreign investors in the governing body to their proportionate share in the capital of the corporation. ABAD (Dissenting Opinion)
(1) Authority to define and interpret the meaning of “capital” in Sec. 11, Art. XII belongs to Congress as part of it’s policy making powers, as the power to authorize and control a public utility is a prerogative of Congress. Sec. 11, Art. XII is no self-executing and requires Congressional action to clarify it’s meaning. FIA is restricted to certain areas of investment and should not be construed to clarify the meaning of “capital” und er the constitutional provision as they are rules which apply to future investors. (2) “Capital” refers to the entirety of the corporation’ s outstanding voting stock as, first , the 40 percent limit (if held only to preferred shareholders) would render meaningless the fourth sentence which limits foreign participation in the governing body of public utilities, and, second , amicus curiae Dr. Villegas, Chairman of the Committee of National Economy, said that the term “capital” did not distinguish among the classes of shares. In both economic and business terms, capital always meant the entire shares of stock. Further, Philippine policy on foreign ownership already discourages foreign investments and to impose additional restrictions would aggravate economic growth. (3) Sec. 11, Article XII already provides 3 limitations on foreign participation in public utilities and the Court need not add more by restricting the definition of capital.
