Professional Documents
Culture Documents
CASES REPORTED
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* EN BANC.
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Filipino has the investment power over the “specific stock” (he can
dispose of the stock or direct another to dispose it for him), or he
has both (he can vote and dis-
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SCRA 397 (2012), nor hold the Commission liable for grave
abuse of discretion. As it has manifested in Gamboa, in issuing
MC No. 8, the SEC abided by the Court’s decision and deferred to
the Court’s definition of the term “capital” in Section 11, Article
XII of the Constitution.
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CAGUIOA, J.:
The petitions1 before the Court are special civil actions
for certiorari under Rule 65 of the Rules of Court seeking to
annul Memorandum Circular No. 8, Series of 2013 (“SEC-
MC No. 8”) issued by the Securities and Exchange
Commission (“SEC”) for allegedly being in violation of the
Court’s Decision2 (“Gamboa Decision”) and Resolution3
(“Gamboa Resolution”) in Gamboa v. Finance Secretary
Teves, G.R. No. 176579, respectively promulgated on June
28, 2011, and October 9, 2012, which jurisprudentially
established the proper interpretation of Section 11, Article
XII of the Constitution.
The Antecedents
On June 28, 2011, the Court issued the Gamboa
Decision, the dispositive portion of which reads:
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1 These are the Petition for Certiorari filed on June 10, 2013 (the
“Petition”) and Petition-in-Intervention (for Certiorari) filed on July 30,
2013 (the “Petition-in-Intervention”). They will be referred to collectively
as the “petitions.”
2 Gamboa v. Teves, 668 Phil. 1; 652 SCRA 690 (2011).
3 Heirs of Wilson P. Gamboa v. Teves, 696 Phil. 276; 682 SCRA 397
(2012).
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SO ORDERED.4
Several motions for reconsideration were filed assailing
the Gamboa Decision. They were denied in the Gamboa
Resolution issued by the Court on October 9, 2012, viz.:
The Gamboa Decision attained finality on October 18,
2012, and Entry of Judgment was thereafter issued on
December 11, 2012.6
On November 6, 2012, the SEC posted a Notice in its
website inviting the public to attend a public dialogue and
to submit comments on the draft memorandum circular
(attached thereto) on the guidelines to be followed in
determining compliance with the Filipino ownership
requirement in public utilities under Section 11, Article XII
of the Constitution pursuant to the Court’s directive in the
Gamboa Decision.7
On November 9, 2012, the SEC held the scheduled
dialogue and more than 100 representatives from various
organizations, government agencies, the academe and the
private sector attended.8
On January 8, 2013, the SEC received a copy of the
Entry of Judgment9 from the Court certifying that on
October 18, 2012, the Gamboa Decision had become final
and executory.10
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On June 10, 2013, petitioner Roy, as a lawyer and
taxpayer, filed the Petition,15 assailing the validity of SEC-
MC No. 8 for not conforming to the letter and spirit of the
Gamboa Decision and Resolution and for having been
issued by
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11 Id.
12 Id. (Vol. I), pp. 31-33.
13 Id. (Vol. II), pp. 549, 587-588.
14 Id., at p. 588.
15 Id. (Vol. I), pp. 3-206 (with annexes).
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Petitioners’ hypothetical illustration as to how SEC-MC
No. 8 “practically encourages circumvention of the 60-40
ownership rule” is evidently speculative and fraught with
conjectures and assumptions. There is clearly wanting
specific facts against which the veracity of the conclusions
purportedly following from the speculations and
assumptions can be validated. The lack of a specific factual
milieu from which the petitions originated renders any
pronouncement from the Court as a purely advisory
opinion and not a decision binding on identified and
definite parties and on a known set of facts.
Firstly, unlike in Gamboa, the identity of the public
utility corporation, the capital of which is at issue, is
unknown. Its outstanding capital stock and the actual
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41 Galicto v. Aquino III, 683 Phil. 141, 170-171; 667 SCRA 150, 170
(2012), citing Miñoza v. Lopez, 664 Phil. 115, 123; 648 SCRA 684, 692
(2011).
42 Id., at p. 170, citing Tolentino v. Commission on Elections, 465 Phil.
385, 402; 420 SCRA 438, 452 (2004).
43 Id., at p. 172. Citations omitted.
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50 Republic v. Roque, 718 Phil. 294, 307; 706 SCRA 273, 285-286
(2013), citing Southern Hemisphere Engagement Network, Inc. v. Anti-
Terrorism Council, 646 Phil. 452, 478; 632 SCRA 146, 174 (2010).
51 Supra note 41 at p. 170; pp. 173-174, citing Lozano v. Nograles, 607
Phil. 334, 344; 589 SCRA 354, 362 (2009).
52 693 Phil. 399; 679 SCRA 237 (2012).
39
Petitioners’ invocation of “transcendental importance” is
hollow and does not merit the relaxation of the rule on
hierarchy of courts. There being no special, important or
compelling reason that justified the direct filing of the
petitions in the Court in violation of the policy on hierarchy
of courts, their outright dismissal on this ground is further
warranted.54
The petitioners failed to
implead indispensable
parties.
The cogent submissions of the PSE in its Comment-in-
Intervention dated June 16, 201455 and SHAREPHIL in its
Omnibus Motion [1] For Leave to Intervene; and [2] To
Admit Attached Comment-in-Intervention dated May 30,
201656 demonstrate how petitioners should have impleaded
not only PLDT but all other corporations in nationalized
and partlynationalized industries — because the propriety
of the SEC’s enforcement of the Court’s interpretation of
“capital” through SEC-MC No. 8 affects them as well.
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57 See Cua, Jr. v. Tan, 622 Phil. 661, 720; 607 SCRA 645, 708 (2009).
58 De Galicia v. Mercado, 519 Phil. 122, 127; 484 SCRA 131, 136-137
(2006).
59 Rollo (Vol. II), p. 1107.
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42
In turn, the Gamboa Resolution stated:
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61 Supra note 2.
62 In its Manifestation and Omnibus Motion dated July 29, 2011, the
SEC stated: “x x x The Commission, however, would submit to whatever
would be the final decision of this Honorable Court on the meaning of the
term ‘capital.’”
In its Memorandum, the SEC also stated: “In the event that this
Honorable Court rules with finality on the meaning of “capital,” the SEC
will yield to the Court and follow its interpretation.” Heirs of Wilson P.
Gamboa v. Teves, supra note 3 at pp. 356-357; p. 462. (emphasis omitted)
43
To recall, the sole issue in the Gamboa case was:
“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 nonvoting preferred shares) of PLDT, a public
utility.”64
The Court directly answered the issue and consistently
defined the term “capital” as follows:
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63 Heirs of Wilson P. Gamboa v. Teves, id., at pp. 356, 358; pp. 463-
464.
64 Supra note 2 at p. 35; p. 705.
65 Id., at pp. 51-53; pp. 723-726.
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46
standing capital stock whether fully paid or not, but only such
stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens
or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. Thus, stocks,
the voting rights of which have been assigned or transferred to
aliens cannot be considered held by Philippine citizens or
Philippine nationals.70
Echoing the FIA-IRR, the Court stated in the Gamboa
Decision that:
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Was the definition of the term “capital” in Section 11,
Article XII of the 1987 Constitution declared for the first
time by
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72 Department of Justice.
73 Executive Order No. 226 or the OMNIBUS INVESTMENTS CODE OF 1987;
PRESIDENTIAL DECREE NO. 1789 OR THE OMNIBUS INVESTMENTS CODE OF 1981,
and Republic Act No. 5186 or the INVESTMENT INCENTIVES ACT OF 1967.
74 Supra note 3 at p. 321; p. 424.
75 Id., at p. 331; p. 435.
76 Id., at p. 342; p. 446.
48
XII.
Final Word
The Constitution expressly declares as State policy the
development of an economy “effectively controlled” by Filipinos.
Consistent with such State policy, the Constitution explicitly
reserves the ownership and operation of public utilities to
Philippine nationals, who are defined in the Foreign Investments
Act of 1991 as Filipino citizens, or corporations or associations at
least 60 percent of whose capital with voting rights belongs to
Filipinos. The FIA’s implementing rules explain that “[f]or stocks
to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of stocks, coupled
with appropriate voting rights is essential.” In effect, the
FIA clarifies, reiterates and confirms the interpretation that the
term “capital” in Section 11, Article XII of the 1987 Constitution
refers to shares with voting rights, as well as with full
beneficial ownership. This is precisely because the right to vote
in the election of directors, coupled with full beneficial ownership
of stocks, translates to effective control of a corporation.77
Everything told, the Court, in both the Gamboa Decision
and Gamboa Resolution, finally settled with the FIA’s
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Section 2 of SEC-MC No. 8 clearly incorporates the
Voting Control Test or the controlling interest requirement.
In fact, Section 2 goes beyond requiring a 60-40 ratio
in favor of Filipino nationals in the voting stocks; it
moreover requires the 60-40 percentage ownership
in the total number of outstanding shares of stock,
whether voting or not. The SEC formulated SEC-MC
No. 8 to adhere to the Court’s unambiguous pronouncement
that “[f]ull beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the
voting rights is required.”79 Clearly, SEC-MC No. 8 cannot
be said to have been issued with grave abuse of discretion.
A simple illustration involving Company X with three
kinds of shares of stock, easily shows how compliance with
the requirements of SEC-MC No. 8 will necessarily result
to full and faithful compliance with the Gamboa Decision
as well as the Gamboa Resolution.
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50
GAMBOA
SEC-MC No. 8
DECISION/RESOLUTION
(2) 60% (required percentage of “Full beneficial ownership of
Filipino) applied to BOTH (a) the 60 percent of the
total number of outstanding shares outstanding capital stock,
of stock, entitled to vote in the coupled with 60 percent of
election of directors; AND (b) the the voting rights”81
total number of outstanding shares
of stock, whether or not entitled to
vote in the election of directors. or “Full beneficial ownership
of the stocks, coupled with
appropriate voting rights
x x x shares with voting
rights, as well as with full
beneficial ownership”82
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The definition of “beneficial owner” or “beneficial
ownership” in the Implementing Rules and Regulations of
the Securities Regulation Code (“SRC-IRR”) is consistent
with the concept of full beneficial ownership” in the FIA-
IRR.
As defined in the SRC-IRR, “[b]eneficial owner or
beneficial ownership means any person who, directly or
indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares
voting power (which includes the power to vote or direct the
voting of such security) and/or investment returns or power
(which includes the power to dispose of, or direct the
disposition of such security) x x x.”84
While it is correct to state that beneficial ownership is
that which may exist either through voting power and/or
investment returns, it does not follow, as espoused by the
minority opinion, that the SRC-IRR, in effect, recognizes a
possible situation where voting power is not commensurate
to investment power. That is a wrong syllogism. The fallacy
arises from a misunderstanding on what the definition is
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53
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54
XII.
Final Word
x x x The FIA’s implementing rules explain that “[f]or stocks to
be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required
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86 Supra note 2 at pp. 57, 63; pp. 730-737. Emphasis and underscoring
supplied.
87 Supra note 3 at p. 361; pp. 467-468.
55
As worded, effective control by Filipino citizens of a
public utility is already assured in the provision. With
respect to a stock corporation engaged in the business of a
public utility, the constitutional provision mandates three
safeguards: (1) 60% of its capital must be owned by Filipino
citizens; (2) participation of foreign investors in its board of
directors is limited to their proportionate share in its
capital and (3) all its executive and managing officers must
be citizens of the Philippines.
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The fact that from an accounting standpoint, the
substance or essence of the financial instrument is the key
determinant whether it should be categorized as a financial
liability or an equity instrument, there is no compelling
reason why the same treatment may not be recognized
from a legal perspective. Thus, to require Filipino
shareholders to acquire preferred shares that are
substantially debts, in order to meet the “restrictive”
Filipino ownership requirement that petitioners espouse,
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may not bode well for the Philippine corporation and its
Filipino shareholders.
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92 Id.
60
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62
stock may be issued only with a stated par value. The Board
of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof: Provided, That such
terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange
Commission.
x x x x
A corporation may, furthermore, classify its shares for
the purpose of insuring compliance with constitutional or
legal requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, each
share shall be equal in all respects to every other share.
Where the articles of incorporation provide for nonvoting
shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following
matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of bylaws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with
another corporation or other corporations;
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The Gamboa Decision held that preferred shares are to
be factored in only if they are entitled to vote in the election
of directors. If preferred shares have no voting rights, then
they cannot elect members of the board of directors, which
wields control of the corporation. As to the right of
nonvoting preferred shares to vote in the 8 instances
enumerated in Section 6 of the Corporation Code, the
Gamboa Decision considered them but, in the end, did not
find them significant in resolving the issue of the proper
interpretation of the word “capital” in Section 11, Article
XII of the Constitution.
Therefore, to now insist in the present case that
preferred shares be regarded differently from their
unambiguous treatment in the Gamboa Decision is enough
proof that the Gamboa Decision, which had attained
finality more than 4 years ago, is being drastically changed
or expanded.
In this regard, it should be noted that the 8 corporate
matters enumerated in Section 6 of the Corporation Code
require, at the outset, a favorable recommendation by the
management to the board. As mandated by Section 11,
Article XII of the Constitution, all the executive and
managing officers of a public utility company must be
Filipinos. Thus, the all-Filipino management team must
first be convinced that any of the 8 corporate actions in
Section 6 will be to the best interest of the company. Then,
when the all-Filipino management team recommends this
to the board, a majority of the
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In its Omnibus Motion [1] For Leave to Intervene; and
[2] To Admit Attached Comment-in-Intervention dated
May 30, 2016,99 SHAREPHIL further warns that “[t]he
restrictive re-
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68
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69
Petitioners have failed to counter or refute these
submissions of the PSE and SHAREPHIL. These unrefuted
observations indicate to the Court that a restrictive
interpretation — or rather, reinterpretation, of “capital,” as
already defined with finality in the Gamboa Decision and
Resolution — directly affects the well-being of the country
and cannot be labelled as “irrelevant and impertinent
concerns x x x add[ing] burden [to] the Court.”102 These
observations by the PSE103 and SHAREPHIL,104 unless
refuted, must be considered by the Court to be valid and
sound.
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general public and the national economy. The rise and fall
of stock market indices reflect to a considerable degree the
state of the economy. Trends in stock prices tend to herald
changes in business conditions. Consequently, securities
transactions are impressed with public interest x x x.”106
The importance of the stock market in the economy cannot
simply be glossed over.
In view of the foregoing, the pronouncement of the Court
in the Gamboa Resolution — the constitutional
requirement to apply uniformly and across the board to all
classes of shares, regardless of nomenclature and category,
comprising the capital of a corporation107 — is clearly an
obiter dictum that cannot override the Court’s unequivocal
definition of the term “capital” in both the Gamboa
Decision and Resolution.
Nowhere in the discussion of the definition of the term
“capital” in Section 11, Article XII of the 1987 Constitution
in the Gamboa Decision did the Court mention the 60%
Filipino equity requirement to be applied to each class of
shares. The definition of “Philippine national” in the FIA
and expounded in its IRR, which the Court adopted in its
interpretation of the term “capital,” does not support such
application. In fact, even the Final Word of the Gamboa
Resolution does not even
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108 716 Phil. 500, 515-516; 704 SCRA 24, 38-39 (2013). Emphasis
supplied; citations omitted.
72
The onus rests on petitioners to clearly and sufficiently
establish that the SEC, in issuing SEC-MC No. 8, acted in
a capricious, whimsical, arbitrary or despotic manner in
the exercise of its jurisdiction as to be equivalent to lack of
jurisdiction or that the SEC’s abuse of discretion is so
patent and gross as to amount to an evasion of a positive
duty or to a virtual refusal to perform a duty enjoined by
law, or to act at all in contemplation of law and the
Gamboa Decision and Resolution. Petitioners miserably
failed in this respect.
The clear and unequivocal
definition of “capital” in Gam-
boa has attained finality.
It is an elementary principle in procedure that the
resolution of the court in a given issue as embodied in the
dispositive portion or fallo of a decision controls the
settlement of rights of the parties and the questions,
notwithstanding statement in the body of the decision
which may be somewhat confusing, inasmuch as the
dispositive part of a final decision is definite, clear and
unequivocal and can be wholly given effect without need of
interpretation or construction.109
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110 Contreras and Gingco v. Felix and China Banking Corp., 78 Phil.
570, 577-578 (1947). Citations omitted.
111 Id., at p. 575.
74
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112 See Land Bank of the Philippines v. Suntay, 678 Phil. 879, 913-
914; 662 SCRA 614, 647 (2011).
113 FGU Insurance Corporation v. Regional Trial Court of Makati
City, Branch 66, 659 Phil. 117, 123; 644 SCRA 50, 56 (2011).
114 Id.
75
As Justice Bersamin further noted during the
deliberations, the petitions are in reality second motions for
reconsideration prohibited by the Internal Rules of the
Supreme Court.115 The parties, particularly intervenors
Gamboa, et al., could have filed a motion for clarification in
Gamboa in order to fill in the perceived shortcoming
occasioned by the noninclusion in the dispositive portion of
the Gamboa Resolution of what was discussed in the
body.116 The statement in the fallo of the Gamboa
Resolution to the effect that “[n]o further pleadings shall be
entertained” could not be a hindrance to a motion for
clarification that sought an unadulterated inquiry arising
upon an ambiguity in the decision.117
Closing
Ultimately, the key to nationalism is in the individual.
Particularly for a public utility corporation or association,
whether stock or nonstock, it starts with the Filipino share-
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115 A.M. No. 10-4-20-SC, Rule 15, Sec. 3. Second motion for
reconsideration.—The Court shall not entertain a second motion for
reconsideration, and any exception to this rule can only be granted in the
higher interest of justice by the Court En Banc upon a vote of at least two-
thirds of its actual membership. There is reconsideration “in the higher
interest of justice” when the assailed decision is not only legally
erroneous, but is likewise patently unjust and potentially capable of
causing unwarranted and irremediable injury or damage to the parties. A
second motion for reconsideration can only be entertained before the
ruling sought to be reconsidered becomes final by operation of law or by
the Court’s declaration.
x x x x
116 See Mahusay v. B.E. San Diego, Inc., 666 Phil. 528, 536; 651 SCRA
533, 537-538 (2011).
117 See Commissioner on Higher Education v. Mercado, 519 Phil. 399,
406; 484 SCRA 424, 431 (2006).
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77
CONCURRING OPINION
SERENO, CJ.:
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Evidently, the circular limits the application of the
ownership requirement only to the number of stocks in a
corporation. It does not take into consideration the par
value, which, in turn, affects the dividends or earnings of
the shares.
The par value of shares is not always equal. The par
value of common shares may be lower than that of
preferred shares. The latter take any of a variety of forms
— they may be cumulative, noncumulative, participating,
nonparticipating, or convertible. Their par values tend to
differ depending on their features and entitlement to
dividends.
The number and the par value of the permutation of
shares definitely affect the issue of the stockholding of a
corporation. As illustrated by Justice Antonio T. Carpio,
pre-
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From that determination, the SEC may be able to gather
the necessary information to correctly classify various
kinds of shares in different combinations of numbers, par
values, and dividends. However, with the SEC considering
only the matter of the number of shares under the assailed
circular, and absent any deeper analysis of PLDT equity
structure, any disposition in this case would be premature.
I would even venture that in the case of a company
where 60% of stocks are voting and 40% are preferred, with
each stock having the same par value, and which complies
with the 60% Filipino voting share rule by requiring that
all voting
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1 Gamboa v. Teves, 668 Phil. 1; 652 SCRA 690 (2011) and Heirs of
Wilson P. Gamboa v. Teves, 696 Phil. 276, 485; 682 SCRA 397, 416 (2012).
1 668 Phil. 1; 652 SCRA 690 (2011).
80
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Significantly, in the 9 October 2012 Resolution in
Gamboa (Gamboa Resolution)6 denying the motion for
reconsideration,
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81
The Court further clarified, in no uncertain terms, that
the 60 percent constitutional requirement of Filipino
ownership applies uniformly and across the board to all
classes of shares comprising the capital of a corporation.
The 60 percent Filipino ownership requirement applies to
each class of share, not to the total outstanding capital
stock as a single class of share. The Court explained:
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81
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Clearly, in both Gamboa Decision and Resolution, the
Court categorically declared that the 60 percent minimum
Filipino ownership refers not only to voting rights but
likewise to full beneficial ownership of the stocks. Likewise,
the 60 percent Filipino ownership applies uniformly to each
class of shares. Such interpretation ensures effective
control by Filipinos of public utilities, as expressly
mandated by the Constitution.
On 20 May 2013, the Securities and Exchange
Commission (SEC), through respondent Chairperson
Teresita J. Herbosa, issued Memorandum Circular No. 8,
Series of 2013, to implement the Court’s directive in the
Gamboa Decision and Resolution. Section 2 thereof
pertinently provides:
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SEC Memorandum Circular No. 8 provides for two
conditions in determining whether a corporation intending
to operate or operating a public utility complies with the
mandatory 60 percent Filipino ownership requirement. It
expressly states that the 60 percent Filipino ownership
requirement “shall be applied to BOTH (a) the total
number of outstanding shares of stock entitled to vote in
the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote
in the election of directors.” Section 2 of SEC Memorandum
Circular No. 8 therefore mandates that the 60 percent
Filipino ownership requirement shall be applied separately
to both the total number of stocks with voting rights, and
to the entire outstanding stock with and without voting
rights. If the 60 percent Filipino ownership requirement is
not met either by the outstanding voting stock or by the
total outstanding voting and nonvoting stock, then the
Constitutional requirement is violated.
SEC Memorandum Circular No. 8 can be sustained as
valid and fully compliant with the Gamboa Decision and
Resolution only if (1) the stocks with voting rights and (2)
the stocks without voting rights, which comprise the
capital of a corporation operating a public utility, have
equal par values. If the shares of stock have different par
values, then applying SEC Memorandum Circular No. 8
would contravene the Gamboa Decision that the “legal
and beneficial ownership of 60 percent of the
outstanding capital stock x x x rests in
85
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9 Belo v. Philippine National Bank, 405 Phil. 851; 353 SCRA 359
(2001); Soriano v. Offshore Shipping and Manning Corporation, 258 Phil.
309; 177 SCRA 513 (1989).
87
CONCURRING OPINION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a petition for Certiorari under Rule
65 of the Rules of Court assailing the constitutionality and
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1 G.R. No. 176579, June 28, 2011, 652 SCRA 690 and Heirs of Wilson
P. Gamboa v. Teves, G.R. No. 176579, October 9, 2012, 682 SCRA 397.
2 Emphasis supplied.
88
Petitioner Jose Roy III takes exception to the foregoing
provision alleging that it is not in accord with the ruling of
the Court in Gamboa. He contends that the SEC committed
grave abuse of discretion since Section 2 of MC No. 8 “fails
to
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89
90
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The petitioner’s failure to sufficiently allege, much less
prove the existence of the first two requisites, warrants the
outright dismissal of the petition.
To satisfy legal standing in assailing the
constitutionality of a governmental act, the petitioner must
prove the direct and personal injury that he might
suffer if the act is permitted to stand. Petitioner Roy,
however, merely glossed over this requisite, simply
claiming that the law firm he represents is “a subscriber of
PLDT.” It is not even clear whether the law firm is a
“subscriber” of PLDT’s shares or purely of its various
communication services.
Clearly, the very limited information provided by the
petitioner does not sufficiently demonstrate how he is left
to sustain or is in immediate danger of sustaining some
direct injury as a result of the SEC’s issuance of MC No. 8.
As correctly argued by the respondents, assuming that his
law firm is indeed a subscriber of PLDT shares of stocks,
whether or not the constitutionality of MC No. 8 is upheld,
his law firm’s rights as
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4 In the Matter of: Save the Supreme Court Judicial Independence and
Fiscal Autonomy Movement v. Abolition of Judiciary Development Fund
(JDF) and Reduction of Fiscal Autonomy, UDK-15143, January 21, 2015,
746 SCRA 352.
5 General v. Urro, G.R. No. 191560, March 29, 2011, 646 SCRA 567,
577, citing Integrated Bar of the Philippines v. Zamora, 392 Phil. 618, 632;
338 SCRA 81, 99 (2000).
91
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6 Galicto v. Aquino III, G.R. No. 193978, February 28, 2012, 667 SCRA
150, 172-173, citing Integrated Bar of the Philippines v. Zamora, id.
7 Automotive Industry Workers Alliance (AIWA) v. Romulo, 489 Phil.
710, 719; 449 SCRA 1, 11 (2005); Gonzales v. Narvasa, 392 Phil. 518, 525;
337 SCRA 733, 742 (2000).
92
The liberality of the Court in bypassing the locus standi
rule cannot, therefore, be abused. If the Court is to
maintain
_______________
8 Republic v. Roque, G.R. No. 204603, September 24, 2013, 706 SCRA
273, 285-286.
9 Supra note 6.
10 Emphasis supplied.
93
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11 Liga ng mga Barangay National v. Atienza, Jr., G.R. No. 154599,
January 21, 2004, 420 SCRA 562, 572.
12 Vergara, Sr. v. Suelto, 240 Phil. 719, 732; 156 SCRA 753, 766
(1987); De Castro v. Santos, G.R. No. 194994, April 16, 2013, 696 SCRA
400, 407.
13 De Castro v. Santos, id., citing Santiago v. Vasquez, G.R. Nos.
99289-90, January 27, 1993, 217 SCRA 633; and People v. Cuaresma, 254
Phil. 418, 427; 172 SCRA 415, 422-424 (1989).
94
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14 Cua, Jr. v. Tan, G.R. Nos. 181455-56, December 4, 2009, 607 SCRA
645, 695.
15 Id., citing De Galicia v. Mercado, G.R. No. 146744, March 6, 2006,
484 SCRA 131, 136-137.
95
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16 See David v. Paragas, Jr., G.R. No. 176973, February 25, 2015, 751
SCRA 648, 663 and Sy v. Court of Appeals, G.R. No. 94285, August 31,
1999, 313 SCRA 328, 353-354.
96
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17 Id.
18 OKS DesignTech, Inc. v. Caccam, G.R. No. 211263, August 5, 2015,
765 SCRA 433, 442-443.
19 Gold City Integrated Services, Inc. (INPORT) v. Intermediate
Appellate Court, G.R. Nos. 71771-73, March 31, 1989, 171 SCRA 579, 585,
citing Arguelles v. Young, No. L-59880, September 11, 1987, 153 SCRA
690; Republic v. Heirs of Spouses Florentino and Pacencia Molinyawe,
G.R. No. 217120, April 18, 2016, 790 SCRA 107, 116-117; Olaño v. Lim
Eng Co, G.R. No. 195835, March 14, 2016, 787 SCRA 272, 285; City of
Iloilo v. Honrado, G.R. No. 160399, December 9, 2015, 777 SCRA 23, 34;
OKS DesignTech, Inc. v. Caccam, id.
97
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The Court explained in the June 28, 2011 Decision in
Gamboa that the term “capital” in Section 11, Article
XII refers “only to shares of stock entitled to vote in
the election of directors.” The rationale provided by the
majority was that this interpretation ensures that control
of the Board of Directors stays in the hands of Filipinos,
since foreigners can only own a maximum of 40% of said
shares and, accordingly, can only elect the equivalent
percentage of directors. As a necessary corollary, Filipino
stockholders can always elect 60% of the Board of Directors
which, to the majority of the Court, translates to control
over the corporation. The June 28, 2011 Decision, thus,
reads:
98
The dispositive portion of the June 28, 2011 Decision in
Gamboa clearly spelled out the doctrinal declaration of the
Court on the meaning of “capital” in Section 11, Article XII
of the Constitution, viz.:
99
Clearly, the Court had no intention, express or
otherwise, to amend the construction of the term “capital”
in the June 28, 2011 Decision in Gamboa, much less in the
manner proposed by petitioner Roy. Hence, no grave abuse
of discretion can be attributed to the SEC in applying the
term “capital” to the “voting shares” of a corporation.
The portion quoted by the petitioners is nothing more
than an obiter dictum that has never been discussed as an
issue during the deliberations in Gamboa. As such, it is not
a binding pronouncement of the Court20 that can be used as
basis to declare the SEC’s circular as unconstitutional.
This Court explained the concept and effect of an obiter
dictum thusly:
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20 Ocean East Agency Corporation v. Lopez, G.R. No. 194410, October
14, 2015, 772 SCRA 414, 428-429.
100
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What is more, requiring the SEC to impose the 60-40
requirement to “each and every class of shares” in a public
utility is not only unsupported by Section 11, Article XII, it
is also administratively and technically infeasible to
implement and enforce given the variety and number of
classes that may be issued by public utility corporations.
Common and preferred are the usual forms of stock.
However, it is also possible for companies to customize and
issue different classes of stock in any way they want. Thus,
while all issued common shares may be voting, their
dividends may be “deferred” or subject to certain
conditions. Corporations can also issue “cumulative
preferred shares” that are issued with the stipulation that
any scheduled dividends that cannot be paid when due are
carried forward and must be paid before the company can
pay out ordinary share dividends. A company can likewise
issue “hybrid stocks” or preferred shares that can be
converted to a fixed number of common stocks at a
specified time. These stocks may or may not be given voting
rights. Further, some stocks may be embedded with
derivative options so that a type of stock may be “called” or
redeemed by the company at a specified time at a fixed
price,
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21 Land Bank of the Philippines v. Suntay, G.R. No. 188376, December
14, 2011, 662 SCRA 614, 648.
101
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102
The definition was taken a step further in the
Implementing Rules and Regulations of the law where the
phrase “beneficial ownership” was used, as follows:
103
While the foregoing provisions were cited in Gamboa in
identifying the “capital stock outstanding and entitled to
vote” as equivalent to “capital” in Section 11, Article XII of
the Constitution, nothing in either provision requires the
application of the 60% threshold to “each and every class of
shares” of public utilities.
At most, as pointed out by the majority, “beneficial
ownership” must be understood in the context in which it is
used. Thusly, the phrase simply means that the name and
full rights of ownership over the 60% of the voting
shares in public utilities must belong to Filipinos. If either
the voting rights or the right to dividends, among others, of
voting shares registered in the name Filipino citizens or
nationals are assigned or transferred to an alien, these
shares shall not be included in the computation of the 60%
threshold.
The Commission even went above and beyond the duty
levied by the court and imposed the 60-40 requirement not
only on the voting shares but also on the totality of the
corporation’s shareholding, thus ensuring that the public
utilities are, in fact, “effectively controlled” by Filipinos
given the added layers of protection given to ensure that
Filipino stockholders have the full beneficial ownership and
control of public utility corporations in accordance with the
Constitution, thus:
104
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In my opinion in Heirs of Gamboa v. Teves,23 I pointed
out the dire consequences of not imposing the 40% limit on
foreign ownership on the totality of the shareholdings, viz.:
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105
Let us, however, take this corporate scenario a little bit farther
and consider the irresistible implications of changes and
circumstances that are inevitable and common in the business
world. Consider the simple matter of a possible investment of
corporate funds in another corporation or business, or a merger of
the public utility corporation, or a possible dissolution of the
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107
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108
109
Thus, the zealous watchfulness demonstrated by
the SEC in imposing another tier of protection for
Filipino stockholders cannot, therefore, be penalized
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110
CONCURRING OPINION
BERSAMIN, J.:
Petitioner Jose M. Roy III (Roy) initiated this special
civil action for certiorari and prohibition to seek the
declaration of Memorandum Circular No. 8, Series of 2013
(MC No. 8), particularly Section 2 thereof issued by the
Securities and Exchange Commission (SEC)
unconstitutional. Allegedly, MC No. 8 was in contravention
of the rule on the nationality of the shareholdings in a
public utility pronounced in Gamboa v. Teves.1
According to Roy, MC No. 8 effectively limited the
application of the 60-40 nationality rule to voting and other
shares alone; and the SEC thereby gravely abused its
discretion amounting to lack or excess of jurisdiction.
Section 2 of MC No. 8 reads:
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I CONCUR.
I VOTE TO DISMISS the petition for certiorari and
prohibition of Roy and the petition in intervention. The
SEC did
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1 G.R. No 176579, June 28, 2011, 652 SCRA 690; Heirs of Wilson P.
Gamboa v. Teves, G.R. No. 176579, October 9, 2012, 682 SCRA 397
(resolution).
111
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112
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113
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114
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The Supreme Court, like all other courts, has one main
function: to settle actual controversies involving conflicts of
rights which are demandable and enforceable. There are
rights which are guaranteed by law but cannot be enforced
by a judicial party. In a decided case, a husband complained
that his wife was unwilling to perform her duties as a wife.
The Court said: “We can tell your wife what her duties as
such are and that she is bound to comply with them, but we
cannot force her physically to discharge her main marital
duty to her
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able and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.
8 G.R. No. 209287, July 1, 2014, 728 SCRA 1, 68-69.
115
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119
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120
In the decision promulgated on June 28, 2011 in
Gamboa v. Teves, the Court explicitly defined the term
capital as referring only to shares of stock entitled to vote
in the election of directors.11 In the case of Philippine Long
Distance Telephone Company (PLDT), its capital — for
purposes of complying with the constitutional requirement
on nationality — should include only its common shares,
not its total outstanding capital stock comprising both
common and nonvoting preferred shares.12
The Court clarified, however, that —
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121
In the June 28, 2011 decision, the Court disposed as
follows:
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123
The SEC issued MC No. 8 to conform with the Court’s
pronouncement in its decision of June 28, 2011. As stated,
Section 2 of MC No. 8 declared that “[f]or purposes of
determining compliance therewith, the required percentage
of Filipino shall be applied to BOTH (a) the total number of
outstanding shares of stock entitled to vote in the election
of directors; AND (b) the total number of outstanding
shares of stock, whether or not entitled to vote in the
election of directors.”
Roy and the intervenors submit herein, however, that
MC No. 8 thereby defied the pronouncement in Gamboa v.
Teves on the determination of foreign ownership of a public
utility by failing “to make a distinction between different
classes of shares, and instead offers only a general
distinction between voting and all other shares.”
I disagree with the submission of Roy and the
intervenors.
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x x x [T]he 60-40 ownership requirement in favor of Filipino citizens must apply
separately to each class of shares, whether common, preferred nonvoting,
preferred voting or any other class of shares.
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decision fail to reflect the exact views of the court, especially those
of concurring justices in a collegiate court. We often encounter in
judicial decisions, lapses, findings, loose statements and
generalities which do not bear on the issues or are apparently
opposed to the otherwise sound and considered result reached by
the court as expressed in the dispositive part, so called, of the
decision.
There is also no need to try to harmonize the seeming
conflict between the fallo of the October 9, 2012 resolution
and its body in order to favor Roy and the intervenors. The
dispositive portion of the resolution of October 9, 2012,
which tersely stated that “we DENY the motions for
reconsideration WITH FINALITY,” was clear and
forthright enough, and should prevail. The only time when
the body of the decision or resolution should be controlling
is when one can unquestionably find a persuasive showing
in the body of the decision or resolution that there was a
clear mistake in the dispositive portion.24 Yet, no effort has
been exerted herein to show that there was such an error
or mistake in the dispositive portion or fallo of the October
9, 2012 resolution.
Under the circumstances, the dispositive portions of
both the decision of June 28, 2011 and of the resolution of
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24 Cobarrubias v. People, G.R. No. 160610, August 14, 2009, 596 SCRA
77, 89-90.
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Had the intervenors genuinely desired to correct the
perceived omission in the resolution of October 9, 2012 in
Gamboa v. Teves, their proper recourse was not for Roy to
bring the petition herein, but to file by themselves a motion
for clarification in Gamboa v. Teves itself. As the Court
observed in Mahusay v. B.E. San Diego, Inc.:25
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The statement in the dispositive portion or fallo of the
resolution of October 9, 2012 to the effect that “[n]o further
pleadings shall be entertained” would not have been a
hindrance to the filing of the motion for clarification
because such statement referred only to motions that
would have sought the reversal or modification of the
decision on its merits, or to motions ill-disguised as
requests for clarification.26 Indeed, the intervenors as the
petitioners in Gamboa v. Teves would not have been
precluded from filing such motion that would have
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DISSENTING OPINION
MENDOZA, J.:
The final ruling in a case includes not only the decision
but also the clarifications and amplifications contained in
subsequent resolutions before its finality. A party cannot
isolate the decision and ignore the elucidations contained
in the resolutions. It is only after the decision becomes final
that it becomes immutable and unalterable.1
Accordingly, the June 28, 2011 Decision in Gamboa v.
Teves2 (Gamboa Decision) is not the final ruling in said
case but includes the clarification and amplifications of the
Court in its October 9, 2012 Resolution (Gamboa
Resolution). Therefore, any regulation which ignores the
Court’s final ruling is not compliant with it. Hence —
I dissent.
My position is that SEC MC No. 8 is noncompliant with
the final Gamboa ruling and must be amended to conform
thereto.
The Antecedents
The case of Gamboa was filed by the late Wilson
Gamboa, questioning the sale of 111,415 shares of
Philippine Telecommunications Investment Corporation
(PTIC) to First Pacific, a foreign corporation, as it was
violative of Section 11, Article
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Thereafter, motions for reconsideration were filed. In its
Resolution5 dated October 9, 2012 (Gamboa Resolution),
the Court stressed that the 60-40 ownership requirement
in favor of Filipino citizens in the Constitution to engage in
certain economic activities applied not only to voting
control, but also to the beneficial ownership of the
corporation. The Court wrote that the same limits must
apply uniformly and separately to each class of
shares, without regard to their restrictions or
privileges. Specifically, the Court explained:
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Hence, the Court finally decreed:
Eventually, the definition of “capital,” as finally
amplified and elucidated by the Court in the Gamboa
Resolution, became final and executory.
On March 25, 2013, the SEC issued a notice to the
public, soliciting comments on, and suggestions to, the
draft guidelines in compliance with the Filipino ownership
requirement in public utilities prescribed in Section 11,
Article XII of the Constitution.
On April 22, 2013, petitioner Atty. Jose M. Roy III (Roy)
submitted his written comments7 pursuant to the SEC
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6 Id.
7 Rollo, pp. 270-272.
134
The Subject Petition
Contending that the issuance of the assailed circular
contradicted the intent and spirit of Gamboa, Roy, as a
lawyer and taxpayer, filed the subject petition, contending
that the assailed circular contradicted the intent and spirit
of the final Gamboa ruling. He feared that the assailed
circular would encourage circumvention of the
constitutional limitation for it would allow the creation of
several classes of voting shares with different degrees of
beneficial ownership over the same, but at the same time,
not imposing a forty percent (40%) limit on foreign
ownership of the higher yielding stocks; and that
permitting foreigners to benefit from equity structures with
Filipinos being given merely voting rights, but not the full
economic benefits, thwarts the constitutional directive of
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8
<https://.sec.gov.ph/.../memorandumcircular/.../sec%20%memo%20no.%208>
(last visited, April 21, 2015).
135
Petition-in-Intervention
Following the filing of the said petition by Roy, the
Court granted the Motion to Leave to File Petition-in-
Intervention filed by Wilson C. Gamboa, Jr., the son of the
petitioner in Gamboa, together with lawyers Daniel V.
Cartagena, John Warren P. Gabinete, Antonio V. Pesina,
Jr., Modesto Martin Y. Manon, and Gerardo C. Erebaren
(Gamboa, et al.). In their Petition-in-Intervention (For
Certiorari),9 dated July 16, 2013, Gamboa, et al. merely
adopted the issues, arguments and prayer of Roy.
Both Roy and Gamboa, et al. (petitioners) claimed that
by issuing MC No. 8, the SEC defied the final Gamboa
ruling as to the determination of foreign ownership in a
public utility corporation. They argued that MC No. 8 did
not conform to the letter and spirit of the final Court ruling
as the Gamboa Resolution clearly stated that the 60-40
ownership requirement must apply separately to each class
of shares. MC No. 8, they asserted, failed “to make a
distinction between different claims of shares, and instead
offers only a general distinction between voting and all
other shares.”10 They further pointed out that, as an effect
of this faulty interpretation by the SEC, PLDT would be in
direct violation of the Constitution as it did not comply
with the 60-40 rule and, therefore, could not be considered
a Filipino corporation.
Respondents’ Position
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The SEC, in its Consolidated Comment,11 dated
September 13, 2013, and PLDT, in its Comment (on the
Petition dated 10 June 2013),12 dated September 5, 2013,
and Comment (on The
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Petitioners’ Reply
On May 7, 2014, the petitioners filed their Joint
Consolidated Reply with Motion for Issuance of Temporary
Restraining Order14 wherein they insisted that the Court
had already determined the transcendental importance of
the matters being raised, citing the rule that where there
was already a
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20 Rollo.
140
Issues
1. WHETHER OR NOT SEC MEMORANDUM CIRCULAR
NO. 8, SERIES OF 2013 CONFORMS TO THE LETTER
AND SPIRIT OF THE DECISION AND RESOLUTION OF
THIS HONORABLE COURT DATED 28 JUNE 2011 AND
9 OCTOBER 2012 IN G.R. NO. 176579 ENTITLED HEIRS
OF WILSON GAMBOA v. FINANCE SECRETARY
MARGARITO B. TEVES, ET AL.
2. WHETHER THE SEC GRAVELY ABUSED ITS
DISCRETION IN RULING THAT PLDT IS COMPLIANT
WITH THE CONSTITUTIONAL RULE ON FOREIGN
OWNERSHIP.
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26 Id.
27 Malana v. Tappa, 616 Phil. 177; 600 SCRA 189 (2009).
144
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33 Imbong v. Ochoa, Jr., G.R. No. 204819, April 8, 2014, 721 SCRA
146, 282.
34 Id.
35 Id.
147
Legal Standing
As defined, locus standi or legal standing is the personal
and substantial interest in a case such that the party has
sustained or will sustain direct injury as a result of the
governmental act that is being challenged.36 The party
must also demonstrate that the injury is likely to be
redressed by a favorable action of the courts.37 Absent this,
the Court cannot consider a case. In every situation, the
Court must scrutinize first whether a petitioner is suited to
challenge a particular governmental act.
The petitioners’ invocation of standing is based on being
a citizen, lawyer, taxpayer, and additionally for petitioner
Roy, a partner of a firm that patronizes PLDT for its
telecommunication needs.
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36 Galicto v. Aquino III, supra note 17, citing Lozano v. Nograles,
supra note 32.
37 Anak Mindanao Party-List Group v. The Executive Secretary, 558
Phil. 338, 351; 531 SCRA 583, 592 (2007).
38 392 Phil. 618; 338 SCRA 81 (2000).
39 Supra note 33.
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The Court then went on to explain that “[f]ull
beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60% of the voting rights, is also
required.” In other words, not only should the 60% of the
total outstanding capital stock and the shares with the
right to elect the directors be registered in the names of
Filipinos, but also the beneficial or equitable title to such
shares must be reasonably45 traced to Filipinos.
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46 Id.
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47 Id.
48 To illustrate:
Suppose that X corporation seeks to engage as a public utility company.
It divided its total outstanding capital stock of 1000 into three classes of
shares — 300 common shares, 200 preferred shares with the right to vote
in the election of directors (Class A preferred), and 500 preferred without
such right to elect the directors (Class B preferred). Another Corporation,
Y, an entity considered as a Philippine national under the FIA on the
assumption that 60% of its capital is owned by Filipinos, owns all common
and class B preferred shares.
Three Hundred (300) common shares in the hands of Y, a Philippine
national represents sixty percent (60%) control over all shares with the
right to vote in the election of directors (sum of 200 Class A preferred
shares and 300 common shares). Coupled with another 500 preferred
Class B shares, Y can be considered in control of eighty percent (80%) of
the total outstanding capital stock of X.
Applying the control test leads to the conclusion that a Philippine
national in the person of Y controls X both with respect to the total
outstanding capital stock and the sum of all shares with the right to elect
the directors. However, after applying beneficial ownership test, which
means looking into each stockholders of Y through the grandfather rule, it
would show insufficient Filipino equity of at least sixty percent (60%) in X
as required under the Constitution, Foreign Investments Act and the
Court’s ruling in Gamboa.
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Roy points out that the SEC did not include in the
assailed circular the requirement of applying the 60-40 rule
to each and every class of shares. He fears that although
Filipinos
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Sixty percent (60%) of 300 common shares = 180 shares or 36% beneficial equity
in all shares with the rights to vote in the election of directors (sum of 300 common
shares and 200 Class A Preferred shares).
Sixty percent (60%) of 500 Class B preferred shares = 300 shares with the right
to elect directors.
To compute total Filipino beneficial equity in the total outstanding capital
stock, 300 shares plus the 180 shares as calculated above must be added. Thus,
300 shares + 180 shares = 480 shares or forty eight (48%) of the total outstanding
capital stock of X.
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1 Gamboa v. Teves, 668 Phil. 1; 652 SCRA 690 (2011) [Per J. Carpio,
En Banc].
161
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2 Heirs of Wilson P. Gamboa v. Teves, 696 Phil. 276; 682 SCRA 397
(2012) [Per J. Carpio, En Banc].
3 CONST., Art. XII, Secs. 2, 10, 11, and Art. XIV, Sec. 4(2) provide:
ARTICLE XII. National Economy and Patrimony
. . . .
SECTION 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other natural resources
are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development,
and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities,
or it may enter into coproduction, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit
of the grant.
. . . .
SECTION 10. The Congress shall, upon recommendation of the
economic and planning agency, when the national interest dictates,
reserve to citizens of the Philippines or to corporations or associations at
least sixty per centum of whose capital is owned by such
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that denial.
This position does not violate the doctrine on
immutability of judgments. The Gamboa ruling is not being
revisited or reevaluated in such a manner as to alter it. Far
from it, this position affirms and reinforces it. In resolving
the validity of the Securities and Exchange Commission’s
Memorandum Circular No. 8, this position merely echoes
the conception of capital already articulated in Gamboa; it
does not invent an unprecedented idea. This echoing builds
on an integrated understanding, rather than on a myopic
or even isolationist emphasis on a matter that the
dispositive portion no longer even needed to state.
In any case, the present Petition does not purport or sets
itself out as a bare continuation of Gamboa. If at all, it
accepts Gamboa as a settled matter, a fait accompli; and
only sets out to ensure that the matters settled there are
satisfied. This, then, is an entirely novel proceeding
precipitated by a distinct action of an instrumentality of
government that, as the present Petition alleges, deviates
from what this Court has put to rest.
Memorandum Circular No. 8, an official act of the
Securities and Exchange Commission, suffices to trigger a
justiciable controversy. There is no shortage of precedents
(e.g., Province of North Cotabato, et al. v. Government of the
Republic of the Philippines Peace Panel on Ancestral
Domain (GRP), et al.,8 Imbong v. Ochoa, Jr.,9 and Disini,
Jr., et al. v. The Secretary of Justice, et al.10) in which this
Court appreciated a controversy as ripe for adjudication
even when the trigger for
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. . . .
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In the most crucial corporate actions — those that go
into the very constitution of the corporation — even so-
called nonvoting shares may vote. Not only can they vote;
they can be pivotal in deciding the most basic issues
confronting a corporation. Certainly, the ability to decide a
corporation’s framework of governance (i.e., its articles of
incorporation and bylaws), viability (through the
encumbrance or disposition of all or substantially all of its
assets, engagement in another enterprise, or subjection to
indebtedness), or even its very existence (through its
merger or consolidation with another corporate entity, or
even through its outright dissolution) demonstrates not
only a measure of control, but even possibly overruling
control. “Nonvoting” preferred and redeemable shares are
hardly irrelevant in controlling a corporation.
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The Control Test serves the purposes of ensuring
effective control and full beneficial ownership of
corporations by Filipinos, even as several corporations may
be involved in the equity structure of another. As I
explained in my Dissent from the April 21, 2014 Decision
in Narra Nickel:
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An illustration is apt.
Suppose that a corporation, “C,” is engaged in a nationalized
activity requiring that 60% of its capital be owned by Filipinos
and that this 60% is owned by another corporation, “B,” while the
remaining 40% is owned by stockholders, collectively referred to
as “Y.” Y is composed entirely of foreign nationals. As for B, 60%
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Full beneficial ownership is addressed both with respect
to voting power and investment returns or power.
As I explained, on voting power:
As I also explained, on investment returns or power:
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27 Id., at pp. 469-471; p. 498, citing Gamboa v. Teves, supra note 1 at
pp. 51, 53 and 69-71; pp. 730, 760.
28 Id., at p. 475; p. 502.
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Nevertheless, ostensible equity ownership does not
preclude unscrupulous parties’ resort to devices that
undermine the constitutional objective of full beneficial
ownership of and effective control by Filipinos. It is at this
juncture that the Grandfather Rule finds application:
1. That the foreign investor provides practically all the funds
for the joint investment undertaken by Filipino
businessmen and their foreign partner[;]
2. That the foreign investors undertake to provide practically
all the technological support for the joint venture[; and]
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It is opportune that the present Petition has enabled
this Court to clarify both the conception of capital, for
purposes of compliance with the 1987 Constitution, and the
mechanisms — primarily the Control Test, and
suppletorily, the Grandfather Rule — through which such
compliance may be assessed.
ACCORDINGLY, I vote to grant the Petition.
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30 Id., at pp. 478-479; pp. 506-507, citing DOJ Opinion No. 165, Series
of 1984, p. 5.
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