O.
ADDITIONAL CASES  Since the constitutional requirement of at least 60 percent Filipino
1. HEIRS OF GAMBOA v. FINANCE SECRETARY MARGARITO B. TEVES
I. Right to elect directors, coupled with beneficial ownership, translates to
effective control.
 60 percent Filipino ownership required by the Constitution to
engage in certain economic activities applies not only to voting
control of the corporation, but also to the beneficial ownership of
the corporation. To repeat, we held:
o 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 outstanding
capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent
of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional
mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
 This is consistent with Section 3 of the Foreign Investments Act of
1991 (FIA) which provides that where 100% of the capital stock is
held by "a trustee of funds for pension or other employee
retirement or separation benefits," the trustee is a Philippine
national if "at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals."
o Likewise, Section 1(b) of the Implementing Rules of the FIA
provides that "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."
ownership applies not only to voting control of the corporation but
also to the beneficial ownership of the corporation, it is therefore
imperative that such requirement apply uniformly and across the
board to all classes of shares, regardless of nomenclature and
category, comprising the capital of a corporation.
o Under the Corporation Code, capital stock consists of all
classes of shares issued to stockholders, that is, common
shares as well as preferred shares, which may have different
rights, privileges or restrictions as stated in the articles of
incorporation.
 The Corporation Code allows denial of the right to vote to preferred
and redeemable shares, but disallows denial of the right to vote in
specific corporate matters. Thus, common shares have the right to
vote in the election of directors, while preferred shares may be
denied such right.
o Nonetheless, preferred shares, even if denied the right to
vote in the election of directors, are entitled to vote on the
following corporate matters:
(1) amendment of articles of incorporation;
(2) increase and decrease of capital stock;
(3) incurring, creating or increasing bonded
indebtedness;
(4) sale, lease, mortgage or other disposition of
substantially all corporate assets;
(5) investment of funds in another business or
corporation or for a purpose other than the primary
purpose for which the corporation was organized;
(6) adoption, amendment and repeal of by-laws;
(7) merger and consolidation; and
(8) dissolution of corporation.
 UNIFORM APPLICATION TO EACH CLASS OF SHARES: Since a
specific class of shares may have rights and privileges or restrictions
different from the rest of the shares in a corporation, the 60-40
ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution must apply not only to shares with
voting rights but also to shares without voting rights.
o Preferred shares, denied the right to vote in the election of
directors, are anyway still entitled to vote on the eight
specific corporate matters mentioned above.
 Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common
and preferred non-voting shares, at least 60 percent
of the common shares and at least 60 percent of
the preferred non-voting shares must be owned by
Filipinos.
 Of course, if a corporation issues only a single class
of shares, at least 60 percent of such shares must
necessarily be owned by Filipinos.
o In short, 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 uniform application of the 60-40 ownership
requirement in favor of Filipino citizens clearly
breathes life to the constitutional command that
the ownership and operation of public utilities shall
be reserved exclusively to corporations at least 60
percent of whose capital is Filipino-owned.
 Applying uniformly the 60-40 ownership
requirement in favor of Filipino citizens to each
class of shares, regardless of differences in voting
rights, privileges and restrictions, guarantees
effective Filipino control of public utilities, as
mandated by the Constitution.
o Moreover, such uniform application to each class of shares
insures that the "controlling interest" in public utilities
always lies in the hands of Filipino citizens. This addresses
and extinguishes Pangilinan’s worry that foreigners, owning
most of the non-voting shares, will exercise greater control
over fundamental corporate matters requiring two-thirds or
majority vote of all shareholders.
 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 (FIA) 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 the stocks, coupled with appropriate voting
rights is essential."
o 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.
 Any other construction of the term "capital" in Section 11, Article XII
of the Constitution contravenes the letter and intent of the
Constitution. Any other meaning of the term "capital" openly invites
alien domination of economic activities reserved exclusively to
Philippine nationals. Therefore, respondents’ interpretation will
ultimately result in handing over effective control of our national
economy to foreigners in patent violation of the Constitution,
making Filipinos second-class citizens in their own country.
 P. SECURITY REGULATIONS CODE
1. PHILIPPINE VETERANS BANK v. JUSTINA CALLANGAN
I. Public Company
 To determine whether the Bank is a "public company" burdened
with the reportorial requirements ordered by the SEC, we look to
Subsections 17.1 and 17.2 of the SRC, which provide:
o 17.1. Every issuer satisfying the requirements in Subsection
17.2 hereof shall file with the Commission:
a) Within one hundred thirty-five (135) days, after
the end of the issuer's fiscal year, or such other time
as the Commission may prescribe, an annual report
which shall include, among others, a balance sheet,
profit and loss statement and statement of cash
flows, for such last fiscal year, certified by an
independent certified public accountant, and a
management discussion and analysis of results of
operations; and
b) Such other periodical reports for interim fiscal
periods and current reports on significant
developments of the issuer as the Commission may
prescribe as necessary to keep current information
on the operation of the business and financial
condition of the issuer.
o 17.2. The reportorial requirements of Subsection 17.1 shall
apply to the following:
II. Corporation’s obligation to provide its stockholders an annual report
c) An issuer with assets of at least Fifty million
pesos (P50,000,000.00) or such other amount as the
Commission shall prescribe, and having two
hundred (200) or more holders each holding at least
one hundred (100) shares of a class of its equity
securities: Provided, however, That the obligation of
such issuer to file reports shall be terminated ninety
(90) days after notification to the Commission by
the issuer that the number of its holders holding at
least one hundred (100) shares is reduced to less
than one hundred (100). (emphases supplied)
o We also cite Rule 3(1)(m) of the Amended Implementing
Rules and Regulations of the SRC, which defines a "public
company" as "any corporation with a class of equity
securities listed on an Exchange or with assets in excess of
Fifty Million Pesos (P50,000,000.00) and having two
hundred (200) or more holders, at least two hundred (200)
of which are holding at least one hundred (100) shares of a
class of its equity securities."
 From these provisions, it is clear that a "public company," as
contemplated by the SRC, is not limited to a company whose shares
of stock are publicly listed; even companies like the Bank, whose
shares are offered only to a specific group of people, are considered
a public company, provided they meet the requirements
enumerated above.
o The records establish, and the Bank does not dispute, that
the Bank has assets exceeding P50,000,000.00 and has
395,998 shareholders. It is thus considered a public
company that must comply with the reportorial
requirements set forth in Section 17.1 of the SRC.
 The Bank also argues that even assuming it is considered a "public
company" pursuant to Section 17 of the SRC, the Court should
interpret the pertinent SRC provisions in such a way that no
 financial prejudice is done to the thousands of veterans who are
stockholders of the Bank. Given that the legislature intended the
SRC to apply only to publicly traded companies, the Court should
exempt the Bank from complying with the reportorial requirements.
o On this point, the Bank is apparently referring to the
obligation set forth in Subsections 17.5 and 17.6 of the SRC,
which provide:
 Section 17.5. Every issuer which has a class of
equity securities satisfying any of the requirements
in Subsection 17.2 shall furnish to each holder of
such equity security an annual report in such form
and containing such information as the Commission
shall prescribe.
 Section 17.6. Within such period as the Commission
may prescribe preceding the annual meeting of the
holders of any equity security of a class entitled to
vote at such meeting, the issuer shall transmit to
such holders an annual report in conformity with
Subsection 17.5.
 In making this argument, the Bank ignores the fact that the first and
fundamental duty of the Court is to apply the law. Construction and
interpretation come only after a demonstration that the application
of the law is impossible or inadequate unless interpretation is
resorted to. In this case, we see the law to be very clear and free
from any doubt or ambiguity; thus, no room exists for construction
or interpretation.
o While compliance with this requirement will undoubtedly
cost the Bank money, the benefit provided to the
shareholders clearly outweighs the expense. For many
stockholders, these annual reports are the only means of
keeping in touch with the state of health of their
investments; to them, these are invaluable and continuing
links with the Bank that immeasurably contribute to the
transparency in public companies that the law envisions.
2. COSMOS BOTTLING CORPORATION vs. COMMISSION EN BANC of the
SECURITIES AND EXCHANGE COMMISSION (SEC) and JUSTINA F.
CALLANGAN
 As an administrative agency with both regulatory and adjudicatory
functions, the SEC was given the authority to delegate some of its
functions to, inter alia, its various operating departments, such as
the SEC-Corporation Finance Department (SEC-CFD), the
Enforcement and Investor Protection Department, and the
Company Registration and Monitoring Department, pursuant to
Section 4.6 of the SRC, to wit:
o SEC. 4. Administrative Agency.
4.6. The Commission may, for purposes of efficiency,
delegate any of its functions to any department or office of
the Commission, an individual Commissioner or staff
member of the Commission except its review or appellate
authority and its powerto adopt, alter and supplement any
rule or regulation.

The Commission may review upon its own initiative or upon

 Additionally, and contrary to the Bank's claim, the Bank's obligation
the petition of any interested party any action of any
to provide its stockholders with copies of its annual report is
department or office, individual Commissioner, or staff
actually for the benefit of the veterans-stockholders, as it gives
member or the Commission. (Emphasis and underscoring
these stockholders access to information on the Bank's financial
supplied)
status and operations, resulting in greater transparency on the part
of the Bank.
 Naturally, the aforesaid provision also gives the SEC the power to
review the acts performed by its operating departments in the
exercise of the former’s delegated functions.
o This power of review is squarely addressed by Section 11-1,
Rule XI of the 2006 SEC Rules of Procedure, which provides
that "[a]n appeal to the Commission En Banc may be taken
from a decision, order, or resolution issued by an Operating
Department if there are questions of fact, of law, or mixed
questions of fact and law."
 In this case, the Court disagrees with the findings of both the SEC En
Banc and the CA that the Revocation Order emanated from the SEC
En Banc. Rather, such Order was merely issued by the SEC-CFD as
one of the SEC’s operating departments, as evidenced by the
following:
(a) it was printed and issued on the letterhead of the SEC-
CFD, and not the SEC En Banc;
(b) it was docketed as a case under the SEC-CFD as an
operating department of the SEC, since it bore the serial
number "SEC-CFD Order No. 027, [s.] 2008;" and
(c) it was signed solely by Director Callangan as director of
the SEC-CFD, and not by the commissioners of the SEC En
Banc.
 Further, both the SEC En Banc and the CA erred in holding that the
Revocation Order merely reflected Resolution No. 87, s. 2008, and
thus, should already be considered as the ruling of the SEC En Banc
in this case.
o As admitted by respondents, the SEC-CFD’s referral of the
case to the SEC En Banc for its consideration in its March 13,
2008 meeting, which eventually resulted in the issuance of
Resolution No. 87, s.2008, was merely an internal
procedure inherent in the exercise by the SEC of its
administrative and regulatory functions.37 Moreover,
Cosmos never knew of the existence of Resolution No. 87, s.
2008, as it was not furnished a copy thereof; nor did the
Revocation Order make any specific reference to the same.
o Essentially, Cosmos was only apprised of the existence of
Resolution No. 87, s. 2008 when it was finally cited by the
SEC En Banc in its September 10, 2009 Decision.38
Accordingly, when Cosmos received the Revocation Order,
it had every reason to believe that it was issued by the SEC-
CFD as an Operating Department ofthe SEC, and thus,
appealable to the SEC En Banc.
o Therefore, the outright dismissal of Cosmos’s appeal by the
SEC En Banc effectively denied it of its right to appeal, as
provided for under the SRC and the 2006 SEC Rules of
Procedure, and therefore could not be countenanced.
 In sum, the Revocation Order is properly deemed as a decision
issued by the SEC-CFD as one of the Operating Departments of the
SEC, and accordingly, may be appealed to the SEC En Banc, as what
Cosmos properly did in this case. Perforce, the SEC En Banc and the
CA erred in deeming Cosmos’s appeal as a motion for
reconsideration and ordering its dismissal on such ground. In view
thereof, the Court deems it prudent to reinstate and remand the
case to the SEC En Banc for its resolution on the merits.
3. SECURITIES AND EXCHANGE COMMISSION vs. PROSPERITY.COM, INC
 The Securities Regulation Code treats investment contracts as
"securities" that have to be registered with the SEC before they can
be distributed and sold.
o An investment contract is a contract, transaction, or
scheme where a person invests his money in a common
enterprise and is led to expect profits primarily from the
efforts of others.
 The United States Supreme Court held in Securities and Exchange
Commission v. W.J. Howey Co. that, for an investment contract to
exist, the following elements, referred to as the Howey Test must
concur:
(1) a contract, transaction, or scheme;
(2) an investment of money;
(3) investment is made in a common enterprise;
(4) expectation of profits; and
(5) profits arising primarily from the efforts of others.
Thus, to sustain the SEC position in this case, PCI’s scheme or
contract with its buyers must have all these elements.
 The commissions, interest in real estate, and insurance
 An example that comes to mind would be the long-term
commercial papers that large companies, like San Miguel
Corporation (SMC), offer to the public for raising funds that it needs
for expansion.
o When an investor buys these papers or securities, he invests
his money, together with others, in SMC with an
expectation of profits arising from the efforts of those who
manage and operate that company. SMC has to register
these commercial papers with the SEC before offering them
to investors.
o Actually, PCI appears to be engaged in network marketing,
a scheme adopted by companies for getting people to buy
their products outside the usual retail system where
products are bought from the store’s shelf.
 Under this scheme, adopted by most health product
distributors, the buyer can become a down-line
seller.
 The latter earns commissions from purchases made
by new buyers whom he refers to the person who
sold the product to him. The network goes down
the line where the orders to buy come.
coverage worth ₱50,000.00 are incentives to down-line sellers
to bring in other customers. These can hardly be regarded as
profits from investment of money under the Howey test.

 Here, PCI’s clients do not make such investments. They buy a

product of some value to them: an Internet website of a 15-MB
capacity. The client can use this website to enable people to have
internet access to what he has to offer to them, say, some skin
cream. The buyers of the website do not invest money in PCI that it
could use for running some business that would generate profits for
the investors. The price of US$234.00 is what the buyer pays for the
use of the website, a tangible asset that PCI creates, using its
computer facilities and technical skills.