Detailed Digest of Gamboa vs. Finance Secretary, G.R. No.

176579, June 28, Considering that common shares have voting rights which translate to
2011 control, as opposed to preferred shares which usually have no voting rights, the term
WILSON P. GAMBOA vs. FINANCE SECRETARY TEVES “capital” in Section 11, Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote in the election of directors,
G.R. No. 176579, promulgated June 28, 2011 then the term “capital” shall include such preferred shares because the right to
X-----------------------------------------------------------------------------X participate in the control or management of the corporation is exercised through the
right to vote in the election of directors. In short, the term “capital” in Section 11, Article
XII of the Constitution refers only to shares of stock that can vote in the election of
DECISION directors.

CARPIO, J.: xxx xxx xxx

I. THE FACTS Mere legal title is insufficient to meet the 60 percent Filipino-owned
“capital” required in the Constitution. Full beneficial ownership of 60 percent of the
This is a petition to nullify the sale of shares of stock of Philippine outstanding capital stock, coupled with 60 percent of the voting rights, is required. The
Telecommunications Investment Corporation (PTIC) by the government of the legal and beneficial ownership of 60 percent of the outstanding capital stock must rest
Republic of the Philippines, acting through the Inter-Agency Privatization Council in the hands of Filipino nationals in accordance with the constitutional mandate.
(IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Otherwise, the corporation is “considered as non-Philippine national[s].”
Company Limited (First Pacific), a Hong Kong-based investment management and
holding company and a shareholder of the Philippine Long Distance Telephone xxx xxx xxx
Company (PLDT).
To construe broadly the term “capital” as the total outstanding capital
The petitioner questioned the sale on the ground that it also involved an stock, including both common and non-voting preferred shares, grossly contravenes
indirect sale of 12 million shares (or about 6.3 percent of the outstanding common the intent and letter of the Constitution that the “State shall develop a self-reliant and
shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s independent national economy effectively controlled by Filipinos.” A broad definition
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby unjustifiably disregards who owns the all-important voting stock, which necessarily
increasing the total common shareholdings of foreigners in PLDT to about equates to control of the public utility.
81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership of the capital of a public utility to We shall illustrate the glaring anomaly in giving a broad definition to the
not more than 40%. term “capital.” Let us assume that a corporation has 100 common shares owned by
foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both
II. THE ISSUE classes of share having a par value of one peso (P1.00) per share. Under the broad
definition of the term “capital,” such corporation would be considered compliant with
Does the term “capital” in Section 11, Article XII of the Constitution refer to the 40 percent constitutional limit on foreign equity of public utilities since the
the total common shares only, or to the total outstanding capital stock (combined total overwhelming majority, or more than 99.999 percent, of the total outstanding capital
of common and non-voting preferred shares) of PLDT, a public utility? stock is Filipino owned. This is obviously absurd.

III. THE RULING In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only 100 shares. The
[The Court partly granted the petition and held that the term “capital” in foreigners, with a minuscule equity of less than 0.001 percent, exercise control over
Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of
in the election of directors of a public utility, or in the instant case, to the total common the equity, cannot vote in the election of directors and hence, have no control over the
shares of PLDT.] public utility. This starkly circumvents the intent of the framers of the Constitution, as
well as the clear language of the Constitution, to place the control of public utilities in
Section 11, Article XII (National Economy and Patrimony) of the 1987 the hands of Filipinos. It also renders illusory the State policy of an independent
Constitution mandates the Filipinization of public utilities, to wit: national economy effectively controlled by Filipinos.

Section 11. No franchise, certificate, or any other form of The example given is not theoretical but can be found in the real
authorization for the operation of a public utility shall be granted except to world, and in fact exists in the present case.
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 xxx xxx xxx
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 [O]nly holders of common shares can vote in the election of directors [of
right be granted except under the condition that it shall be subject to amendment, PLDT], meaning only common shareholders exercise control over PLDT. Conversely,
alteration, or repeal by the Congress when the common good so requires. The State holders of preferred shares, who have no voting rights in the election of directors, do
shall encourage equity participation in public utilities by the general public. The not have any control over PLDT. In fact, under PLDT’s Articles of Incorporation,
participation of foreign investors in the governing body of any public utility enterprise holders of common shares have voting rights for all purposes, while holders of
shall be limited to their proportionate share in its capital, and all the executive and preferred shares have no voting right for any purpose whatsoever.
managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied) It must be stressed, and respondents do not dispute, that foreigners hold
a majority of the common shares of PLDT. In fact, based on PLDT’s 2010 General
The term “capital” in Section 11, Article XII of the Constitution refers only Information Sheet (GIS), which is a document required to be submitted annually to the
to shares of stock entitled to vote in the election of directors, and thus in the present Securities and Exchange Commission, foreigners hold 120,046,690 common shares of
case only to common shares, and not to the total outstanding capital stock comprising PLDT whereas Filipinos hold only 66,750,622 common shares. In other words,
both common and non-voting preferred shares [of PLDT]. foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos
hold only 35.73%. Since holding a majority of the common shares equates to control, it
xxx xxx xxx is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public
Indisputably, one of the rights of a stockholder is the right to participate in utilities expressly mandated in Section 11, Article XII of the Constitution.
the control or management of the corporation. This is exercised through his vote in the
election of directors because it is the board of directors that controls or manages the As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of
corporation. In the absence of provisions in the articles of incorporation denying voting PLDT common shares is P5.00 per share, whereas the par value of preferred shares
rights to preferred shares, preferred shares have the same voting rights as common is P10.00 per share. In other words, preferred shares have twice the par value of
shares. However, preferred shareholders are often excluded from any control, that is, common shares but cannot elect directors and have only 1/70 of the dividends of
deprived of the right to vote in the election of directors and on other matters, on the common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos
theory that the preferred shareholders are merely investors in the corporation for while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred
income in the same manner as bondholders. xxx. shares constitute 77.85% of the authorized capital stock of PLDT while common
shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT Hyatt filed a motion for leave of court to amend the complaint, alleging that LG
is not with the non-voting preferred shares but with the common shares, blatantly transferred all assets to a joint venue agreement with Otis elevator Company of
violating the constitutional requirement of 60 percent Filipino control and Filipino the USA to LG Otis Elevator Company
beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital Goldstar filed a Motion to dismiss the amended complaint alleging that venue
stock must rest in the hands of Filipinos in accordance with the constitutional mandate. was improperly laid as neither the Hyatt, LG or Goldstar itself resided in
Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with Mandaluyong city where the case was originally filed.
60 percent of the voting rights, is constitutionally required for the State’s grant of
authority to operate a public utility. The undisputed fact that the PLDT preferred
shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends
that PLDT common shares earn, grossly violates the constitutional requirement of 60 The RTC denied the motion
percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn The CA dismissed the case and held that Makati was the principal place of
less than 60 percent of the dividends, of PLDT. This directly contravenes the express business of both respondent and petitioner, as stated in the latter’s Articles of
command in Section 11, Article XII of the Constitution that “[n]o franchise, certificate, Incorporation, that place was controlling for purposes of determining the proper
or any other form of authorization for the operation of a public utility shall be granted venue.
except to x x x corporations x x x organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens x x x.”

To repeat, (1) foreigners own 64.27% of the common shares of PLDT,

which class of shares exercises the sole right to vote in the election of directors, and
thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT’s common
LGISC was to be substituted or changed to LG OTIS, its successor-in-
shares, constituting a minority of the voting stock, and thus do not exercise control
interest. Likewise, the motion averred that x x x GOLDSTAR was
over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4)
being utilized by LG OTIS and LGIC in perpetrating their unlawful
preferred shares earn only 1/70 of the dividends that common shares earn; (5)
preferred shares have twice the par value of common shares; and (6) preferred shares and unjustified acts against HYATT. Consequently, in order to afford
constitute 77.85% of the authorized capital stock of PLDT and common shares only complete relief, GOLDSTAR was to be additionally impleaded as a
22.15%. This kind of ownership and control of a public utility is a mockery of the party-defendant. Hence, in the Amended Complaint, HYATT
Constitution. impleaded x x x GOLDSTAR as a party-defendant, and all references
to LGISC were correspondingly replaced with LG OTIS.
Incidentally, the fact that PLDT common shares with a par value of P5.00 On December 18, 2000, LG OTIS (LGISC) and LGIC filed their
have a current stock market value of P2,328.00 per share, while PLDT preferred opposition to HYATTs motion to amend the complaint. It argued
shares with a par value of P10.00 per share have a current stock market value ranging that: (1) the inclusion of GOLDSTAR as party-defendant would lead
from only P10.92 to P11.06 per share, is a glaring confirmation by the market that to a change in the theory of the case since the latter took no part in
control and beneficial ownership of PLDT rest with the common shares, not with the the negotiations which led to the alleged unfair trade practices
preferred shares. subject of the case; and (b) HYATTs move to amend the complaint at
that time was dilatory, considering that HYATT was aware of the
xxx xxx xxx existence of GOLDSTAR for almost two years before it sought its
inclusion as party-defendant.
WHEREFORE, we PARTLY GRANT the petition and rule that the term On January 8, 2001, the [trial] court admitted the Amended
“capital” in Section 11, Article XII of the 1987 Constitution refers only to shares of stock Complaint. LG OTIS (LGISC) and LGIC filed a motion for
entitled to vote in the election of directors, and thus in the present case only to reconsideration thereto but was similarly rebuffed on October 4,
common shares, and not to the total outstanding capital stock (common and non- 2001.
voting preferred shares). Respondent Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition of the term “capital” in determining
the extent of allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law. Issue:

HYATT ELEVATORS AND ESCALATORS CORPORATION vs. Whether or not the “residence” of the corporation is the same one as stated in the
GOLDSTAR ELEVATORS, PHILS., INC. Articles of Incorporation.
G.R. No. 161026, October 24, 2005
PANGANIBAN, J.:
Held:

Fact:
Yes, although the Rules of Court do not provide that when the plaintiff is a corporation,
the complaint should be filed in the location of its principal office as indicated in its
articles of incorporation. Jurisprudence has, however, settled that the place where the
In this case, the petitioner is Goldstar Elevator Philippines Inc. and on the other hand
principal office of a corporation is located, as stated in the articles, indeed establishes
the private respondent, Hyatt Elevators and Escalators Company. Both engaged in
its residence. This ruling is important in determining the venue of an action by or
installing, maintaining/servicing of elavators and escalators
against a corporation, as in the present case.

Hyatt (herein petitioner) filed an unfair trade practices and damages against LG
industrial systems Co. Ltd, and LG International Corporation alleging that it was
appointed as the exclusive distributor of LG elevators and escalators in the Philippines
under Distributorship Agreement

LG filed a motion to dismiss alleging that lack of jurisdiction over the persons of
defendant, improper venue and failure to state a cause of action.