amboa v. Teves, GR No.

176579, June 28, 2011652 SCRA 690

definition of the term capital to satisfy the nationality requirement under Sec. 11, Art. XII

FACTS:PLDT was granted a franchise to engage in the telecommunications business in 1928 through
Act. No. 3436. During Martial Law 26 percent of the outstanding common shares were so
ld byGeneral Telephone and Electronics Corporation (GTE) (an American company) to Philippine
Telecommunications Investment Corporation (PTIC), who in turn assigned 111,415 shares of stock of
PTIC (46 percent of outstanding capital stock) to Prime Holdings Inc. (PHI). These shares of
PTIC were later sequestered by PCGG and adjudged by the court to belong to the Republic. 54
percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and the remaining
46 percent was sold through public bidding by the Inter-
Agency Privatization Council, andeventually ended up being bought by First Pacific subsidiary
Metro Pacific Asset Holdings Inc. (MPAH) after the corporation exercised it‟s right of first refusal. The
transaction was an indirect sale of 12 million shares or 6.3 percent of the outstanding common shares
of PLDT, making First Pacific‟s common shareholdings of PLDT to 37 percent and the total common
shareholdings of foreigners in PLDT to 81.47 percent. Japanese NTT DoCoMo owns 51.56 percent of
the other foreign shareholdings/equity. Petitioner Gamboa, alleged that the sale of 111,415
shares to MPAH violates Sec. 11 of Art. XII of the Constitution, which limits foreign ownership of the
capital of a public utility to not more than 40 percent.

ISSUE:
(1) Whether petitioner‟s choice of remedy was proper?
(2) Whether the term “capital” under Sec. 11, Article XII of the Constitution refers only to
the total common shares or to the total outstanding stock of PLDT (public utility)?

HELD:(1) NO.
However, since the threshold and purely legal issue on the definition of the term “capital” in Section
11, Article XII of the Constitution has far-reaching implications to the national economy, the Court
treats the petition for declaratory relief as one for mandamus. It is well-settled that this
Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-
reaching implications.
(2)The term “capital” in Section 11, Article XII of the Constitution refers only to shares
of stock entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock comprising both common and non-
voting preferred shares.
The SC directed the SEC to apply this definition in determining what wasthe extent of
allowable foreign ownership in PLDT, and in case of violation, impose theappropriate
penalty under the law.

Consistent with the constitutional mandate that the “State shall develop a self
-reliant and independent national economy effectively controlled by Filipinos,” the term "capital"
means the outstanding capital stock entitled to vote (voting stock), coupled with beneficial
ownership, both of which results to "effective control."
"Mere legal title is insufficient to meet the 60 percent Filipino owned “capital” required in the
Constitution for certain industries. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required." In this case, such twin requirements
must apply uniformly and across the board to all classes of shares comprising the capital. Thus, "the
60-40 ownership requirement in favor of Filipino citizens must apply separately to each
class of shares, whether common, preferred non-voting, preferred voting or anyother
class of shares." This guarantees that the “controlling interest” in public utilities always lies in the
hands of Filipino citizens. A broader definition would unjustifiably disregards who owns the
all-important voting stock, which necessarily equates to control of the public utility would be
contrary to Sec. 11, Art. XII, aself-executing provision of the Constitution. A similar definition is
found in Section 10, Article XII of the Constitution, the Foreign
Investments Act of 1991 and it‟s IRR,
Regulation of Award of Government Contracts or R.A. No.5183, Philippine Inventors Incentives Act or
R.A. No. 3850, Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977, Philippine
Overseas Shipping Development Act or
R.A. No. 7471, Domestic Shipping Development Act of 2004 or R.A. No. 9295, PhilippineTe
chnology Transfer Act of 2009 or R.A. No. 10055, and Ship Mortgage Decree or P.D. No.1521.
VELASCO (Separate Dissenting Opinion)
The present petition partakes of a collateral attack on PL
DT‟s franchise as a public utility with petitioner pleading as ground PLDT‟s alleged breach of
the 40% limit on foreign equity. Such is not allowed. As discussed in PLDT v. National
Telecommunications Commission, a franchise is a property right that can only
be questioned in a direct proceeding.(1) The intent of the framers of the Constitution
was not to limit the application of the word “capital” to voting or common shares alone.
Constitutional Commission records show that by using the word “capital,” the framers of the
Constitution adopted the definition or interpretationthat includes all types of shares, whether
voting or non-voting.

(2)
Cassus Omissus Pro Omisso Habendus Est
––
a person, object or thing omitted must have been omitted intentionally. In this case, the intention of
the framers of the Constitution is very clear –– to omit the phrases “voting stock” and “controlling
interest.”
(3) The FIA should also be read in harmony with the Constitution. Since the Constitution
only provides for a single requirement for the operation
of a public utility under Sec. 11, i.e., 60%capital must be Filipino-owned, a mere statute cannot
add another requirement. Otherwise, such statute may be considered unconstitutional. Accordingly,
the phrase “entitled to vote” should not be interpreted to be limited to common shares
alone or those shares entitled to vote in the election of members of the Board of
Directors.
(4) Further, the FIA did not say “entitled to vote in the management affairs of the corporation”
or “entitled to vote in the election of the members of the Board of Directors.” Verily, where the law
does not distinguish, neither should We. Hence, the proper interpretation of the phrase “entitled to
vote” under the FIA should be that it applies to all shares, whether classified as voting or non-voting
shares.
(5) Additionally, control is another inherent right of ownership
. The circumstances enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting
rights to the stocks deemed as non-voting as to f u n d a m e n t a l and m a j o r corporate
changes. Thus, the issue should not only dwell on the daily management affairs of the corporation
but also on the equally important fundamental changes that may need to be voted on.
(6) The SEC rules, opinions and jurisprudence use the “control test”, which requires that the nationality
of a corporation is determined by the total outstanding capital stock irrespective of the number of
shares, and “capital” denotes the total shares subscribed and paid irrespective of
their nomenclature.
(7) Lastly, the last sentence of Sec. 11, Art. XII limits the participation of the foreign
investors in the governing body to their proportionate share in the capital of the
corporation.

ABAD (Dissenting Opinion)

(1)
Authority to define and interpret the meaning of “capital” in Sec. 11, Art. XII belongs to Congress as
part of it‟s policy making powers, as the power to authorize and control a public utility is a
prerogative of Congress. Sec. 11, Art. XII is no self-executing and requires Congressional
action to clarify it‟s meaning.
FIA is restricted to certain areas of investment and should not be construed to clarify the meaning of
“capital” under the constitutional provision as they are rules which apply to future
investors.
(2)
“Capital” refers to the entirety of the corporation‟
s outstanding voting stock as, first , the
40 percent limit (if held only to preferred shareholders) would render meaningless the fo
urthsentence which limits foreign participation in the governing body of public utilities,
and, second , amicus curiae Dr. Villegas, Chairman of the Committee of National Economy, said
that the term “capital” did not distinguish among the classes of shares. In both economic
and business terms, capital always meant the entire shares of stock. Further, Philippine
policy on foreign ownership already discourages foreign investments and to impose additional
restrictions would aggravate economic growth.(3)

Sec. 11, Article XII already provides 3 limitations on foreign participation in public utilities and the Court
need not add more by restricting the definition of capital.
Heirs of Gamboa v. Teves, et al., G.R. No. 176579, 09 October 2012

[CARPIO, J.]

FACTS

Movants Philippine Stock Exchange‟s (PSE) President, Manuel V. Pangilinan, Napoleon L.

Nazareno, and the Securities and Exchange Commission (SEC) contend that the term
“capital” in Section 11, Article XII of the Constitution has long been settled and defined
to refer to the total outstanding shares of stock, whether voting or non-voting. In fact,
movants claim that the SEC, which is the administrative agency tasked to enforce the
60-40 ownership requirement in favor of Filipino citizens in the Constitution and various
statutes, has consistently adopted this particular definition in its numerous opinions.
Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a
“new” definition or “midstream redefinition” of the term “capital” in Section 11, Article
XII of the Constitution.

ISSUE

Whether the term “capital” includes both voting and non-voting shares.

RULING

NO.

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 the 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.
Gamboa v. Teves etal., GR No. 176579, October 9, 2012

Facts:

The issue started when petitioner Gamboa questioned the indirect sale of shares
involving almost 12 million shares of the Philippine Long Distance Telephone Company
(PLDT) owned by PTIC to First Pacific. Thus, First Pacific‟s common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. The petitioner contends that it
violates the Constitutional provision on filipinazation of public utility, stated in Section 11,
Article XII of the 1987 Philippine Constitution, which limits foreign ownership of the
capital of a public utility to not more than 40%. Then, in 2011, the court ruled the case in
favor of the petitioner, hence this new case, resolving the motion for reconsideration for
the 2011 decision filed by the respondents.

Issue: Whether or not the Court made an erroneous interpretation of the term „capital‟
in its 2011 decision?

Held/Reason: The Court said that the Constitution is clear in expressing its State policy of
developing an economy „effectively controlled‟ by Filipinos. Asserting the ideals that
our Constitution‟s Preamble want to achieve, that is – to conserve and develop our
patrimony , hence, the State should fortify a Filipino-controlled economy. In the 2011
decision, the Court finds no wrong in the construction of the term „capital‟ which refers
to the „shares with voting rights, as well as with full beneficial ownership‟ (Art. 12, sec. 10)
which implies that the right to vote in the election of directors, coupled with benefits, is
tantamount to an effective control. Therefore, the Court‟s interpretation of the term
„capital‟ was not erroneous. Thus, the motion for reconsideration is denied.
JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No. 207246, 2016-11-22

Facts:

On June 28, 2011, the Court issued the Gamboa Decision,... that the term "capital" in
Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus in the present case only to common shares,
and not to the total outstanding capital stock (common and non-voting preferred
shares).

The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment
was thereafter issued on December 11, 2012

On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued
SEC-MC No. 8

Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith,
the required percentage of Filipino ownership 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.

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 the SEC with grave
abuse of discretion.

Issues:

whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the
Gamboa Decision and Gamboa Resolution

Ruling:

SEC did not commit grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC--MC No. 8. To the contrary, the Court finds SEC-MC No. 8
to have been issued in fealty to the Gamboa Decision and Resolution.
Gamboa Decision

"capital" in Section II, Article XII of the I987 Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock (common and non-
voting preferred shares).

the Gamboa Resolution

Foreign Investments Act of 1991 ("FIA")

Gamboa Resolution put to rest the Court's interpretation of the term "capital"

Full beneficial ownership of stocks, coupled with appropriate voting rights is essential...
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.

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

While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full
beneficial ownership of stocks requirement in the FIA, this will not, as it does not, render
it invalid meaning, it does not follow that the SEC will not apply this test in determining
whether the shares claimed to be owned by Philippine nationals are Filipino, i.e., are
held by them by mere title or in full beneficial ownership. To be sure, the SEC takes its
guiding lights also from the FIA and its implementing rules, the Securities Regulation
Code
G.R. No. 207246, November 22, 2016JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA
HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, AND PHILILIPPINE LONG
DISTANCE TELEPHONE COMPANY, Respondents.

FACTS OF THE CASE:

This is a case of special civil action 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 SEC for allegedly being in violation of the Court's Decision("Gamboa Decision") and
Resolution ("Gamboa Resolution") in Gamboa v. Finance Secretary Teves, G.R. No.
176579 which jurisprudentially established the proper interpretation of Section 11, Article
XII of the Constitution. On June 28, 2011, the Court issued the Gamboa Decision, the
dispositive portion of which reads:

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section
11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to
the total outstanding capital stock (common and non-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.

On May 20, 2013, the SEC, through Chairperson Herbosa, issued SEC-MC No. 8 entitled
"Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed
in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and
Partly Nationalized Activities." Section 2 of SEC-MC No. 8 provides:

Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith,
the required percentage of Filipino ownership shall be applied to BOTH (a) the tota l
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.

On June 10, 2013, Roy, as a lawyer and taxpayer, filed the Petition, 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 the SEC with grave abuse of discretion.
Petitioner Roy also questions the ruling of the SEC that respondent Philippine Long
Distance Telephone Company ("PLDT") is compliant with the constitutional rule on
foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional and
direct the SEC to issue new guidelines regarding the determination of compliance with
Section 11, Article XII of the Constitution in accordance with Gamboa.
ISSUE: Whether the petitioner has standing to question the validity of the subject act or
issuance, i.e., he has a personal and substantial interest in the case that he has
sustained, or will sustain, direct injury as a result of the enforcement of the act or
issuance

RULING: Petitioners have no legal standing to question the constitutionality of SEC-MC

No. 8. The personal and substantial interest that enables a party to have legal standing
is one that is both material, an interest in issue and to be affected by the government
action, as distinguished from mere interest in the issue involved, or a mere incidental
interest, and real, which means a present substantial interest, as distinguished from a
mere expectancy or a future, contingent, subordinate, or consequential interest. As to
injury, the party must show that (1) he will personally suffer some actual or threatened
injury because of the allegedly illegal conduct of the government; (2) the injury is fairly
traceable to the challenged action; and (3) the injury is likely to be redressed by a
favorable action. To establish his standing, petitioner Roy merely claimed that he has
standing to question SEC-MC No. 8 "as a concerned citizen, an officer of the Court and
as a taxpayer" as well as "the senior law partner of his own law firm[, which] x x x is a
subscriber of PLDT." The Court has previously emphasized that the locus standi requisite
is not met by the expedient invocation of one's citizenship or membership in the bar
who has an interest in ensuring that laws and orders of the Philippine government are
legally and validly issued as these supposed interests are too general, which ares hared
by other groups and by the whole citizenry. Per their allegations, the personal interest
invoked by petitioners as citizens and members of the bar in thev alidity or invalidity of
SEC-MC No. 8 is at best equivocal, and totally insufficient. Petitioners' status as taxpayers
is also of no moment. As often reiterated by the Court, a taxpayer's suit is allowed only
when the petitioner has demonstrated the direct correlation of the act complained of
and the disbursement of public funds in contravention of law or the Constitution, or has
shown that the case involves the exercise of the spending or taxing power of Congress.
SEC-MC No. 8 does not involve an additional expenditure of public funds and the
taxing or spending power of Congress. The allegation that petitioner Roy's law firm is a
"subscriber of PLDT" is ambiguous. It is unclear whether his law firm is a "subscriber" of
PLDT's shares of stock or of its various telecommunication services. Petitioner Roy has not
identified the specific direct and substantial injury he or his law firm stands to suffer as"
subscriber of PLDT" as a result of the issuance of SEC-MC No. 8 and its enforcement.
Moreover, in the most practical sense, a PLDT subscriber loses or gains nothing in the
event that SEC-MC No. 8 is either sustained or struck down by[the Court].