Case Summary (G.R. No. 176579)
II. No Prior Judicial Definition; SEC/DOJ Opinions Not Binding
– For 75 years no court had defined “capital” in economic clauses of 1935, 1973, or 1987 Constitutions.
– SEC and DOJ administrative opinions on capital were inconsistent, preliminary, and not adopted by SEC en banc; thus have no binding effect.
III. Constitutional Filipinization of Public Utilities
– State policy (Art. II, Sec. 19) to develop economy effectively controlled by Filipinos.
– Art. XII, Sec. 11: franchise for public utilities only to citizens or corporations with ≥ 60% capital owned by citizens; executive officers must be Filipino.
IV. Definition of “Philippine National” under IRA 7042 (FIA)
– Citizens; domestic entities wholly owned by citizens; or Philippine-organized corporations with ≥ 60% of outstanding, voting capital stock owned by citizens.
– Only Philippine nationals may own and operate public utilities.
V. Voting Rights + Beneficial Ownership Required for Control
– “Capital” in Sec. 11, Art. XII requires full beneficial ownership of ≥ 60% of all share classes plus ≥ 60% of voting rights.
– The 60-40 rule applies separately to each share class—common, preferred (voting or nonvoting) and any others—to secure effective Filipino control.
VI. Framers’ Intent Excludes “Voting Stock Only” Interpretation
– CONCOM deliberations (Aug. 1986) replaced “voting stock or controlling interest” with “capital” to include entities without stock.
– Framers intended capital to mean share capital generally, not merely voting shares.
VII. Governance-Body Limitation Confirms Filipino Control
– Last sentence of Sec. 11: foreign participation in governing body limited to proportionate capital share; all executive officers must be Filipino—reiterating reservation of control.
VIII. Undisputed PLDT Shareholding Facts
– Foreigners own 64.27% of PLDT common (voting) shares; Filipinos 35.73%.
– Preferred (nonvoting) shares 99.44% Filipino.
– Court did not rule on constitutional breach but directed SEC to apply the new definition and investigate.
IX. SEC as Proper Respondent; PLDT Not Indispensable for Legal Issue
– Petition seeks to compel SEC to enforce constitutional limit on capital ownership.
– PLDT need not be impleaded to define the term “capital.”
– PLDT must participate later in SEC administrative process for fact-finding.
X. Foreign Investment Policy and Comparative Context
– Neighboring countries nationalize utilities via state ownership; PH grants only 40% foreign equity under constitutional and statutory
Case Syllabus (G.R. No. 176579)
Facts
- Petitioners‐in‐interest are the heirs of Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), challenging foreign ownership in PLDT.
- Respondents include top officials of the Department of Finance, the Presidential Commission on Good Government (PCGG), the Privatization Council, PLDT executives, the Securities and Exchange Commission (SEC), and the Philippine Stock Exchange (PSE).
- The Court’s June 28, 2011 Decision held that “capital” in Section 11, Article XII of the Constitution means only voting shares (common stock), not total capital stock.
- The Court directed the SEC to apply this new definition to determine PLDT’s compliance and to impose sanctions for any violation of the 60% Filipino-owned threshold.
Issue
- What is the proper meaning of “capital” in Section 11, Article XII of the 1987 Constitution:
• Does it refer solely to shares entitled to vote in the election of directors (common shares)?
• Or does it encompass all outstanding capital stock (common and non-voting preferred shares)?
Ruling
- The majority reaffirmed that “capital” in the first sentence of Section 11, Article XII is limited to voting shares entitled to elect directors.
- The Court denied the motions for reconsideration and held that this interpretation applies immediately to ongoing SEC investigations of PLDT and other public utilities.
- The SEC was ordered to implement the ruling by measuring only voting shares for the 60% Filipino-owned requirement and to sanction public utilities accordingly.
Ratio Decidendi
- Control of the Board: Limiting “capital” to voting shares ensures Filipino control of the governing body by reserving a 60% majority of board seats.
- Absence of Prior Definition: No Supreme Court precedent had previously defined “capital” in this context, so the Court filled the gap.
- Scope of Man