CASE 2012-0072: HEIRS OF WILSON P.

GAMBOA, PETITIONERS, VS. FINANCE

SECRETARY
MARGARITO
B.
TEVES,
FINANCE UNDERSECRETARY JOHN P.
SEVILLA, AND COMMISSIONER RICARDO
ABCEDE
OF
THE
PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT
(PCGG) IN THEIR CAPACITIES AS CHAIR
AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, CHAIRMAN
ANTHONI SALIM OF FIRST PACIFIC CO.,
LTD. IN HIS CAPACITY AS DIRECTOR OF
METRO PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC
CO., LTD., PRESIDENT NAPOLEON L.
NAZARENO
OF
PHILIPPINE
LONG
DISTANCE TELEPHONE COMPANY, CHAIR
FE BARIN OF THE SECURITIES AND
EXCHANGE
COMMISSION,
AND
PRESIDENT FRANCIS LIM OF THE
PHILIPPINE
STOCK
EXCHANGE,
RESPONDENTS. (G.R. NO. 176579, 09
OCTOBER 2012, CARPIO, J.) SUBJECT/S:
DEFINITION
OF
CAPITAL
IN
CORPORATION LAW; THE GODFATHER
RULE (BRIEF TITLE: HEIRS OF GAMBOA
VS. TEVES)
Filed
under: LATEST
SUPREME
COURT
CASES Leave a comment

MANAGING DIRECTOR OF FIRST PACIFIC

CO.,

LTD.,

PRESIDENT

NAZARENO

OF

NAPOLEON

PHILIPPINE

L.

LONG

DISTANCE TELEPHONE COMPANY, CHAIR

FE

BARIN

OF

EXCHANGE

THE

SECURITIES

COMMISSION,

PRESIDENT

FRANCIS

PHILIPPINE

LIM

STOCK

RESPONDENTS. (G.R.

AND
AND

OF

THE

EXCHANGE,

NO.

176579,

09

OCTOBER 2012, CARPIO, J.) SUBJECT/S:

DEFINITION

OF

CAPITAL

IN

CORPORATION LAW; THE GODFATHER

RULE (BRIEF TITLE: HEIRS OF GAMBOA
VS. TEVES)
=====================
DISPOSITIVE:
WHEREFORE, we DENY the motions for
reconsideration WITH FINALITY. No further
pleadings shall be entertained.
SO ORDERED.

November 4, 2012
CASE 2012-0072: HEIRS OF WILSON P.
GAMBOA, PETITIONERS,
SECRETARY
FINANCE

VS.

MARGARITO

FINANCE

B.

UNDERSECRETARY

=====================
SUBJECTS/DOCTRINES/DIGEST:

TEVES,
JOHN

P.

SUPPOSE A PETITION FOR REVIEW IS

SEVILLA, AND COMMISSIONER RICARDO

PROCEDURALLY DEFECTIVE.

ABCEDE

SUPREME

OF

THE

PRESIDENTIAL

COMMISSION ON GOOD GOVERNMENT

STILL

WILL THE

ENTERTAIN

THE

PETITION?

(PCGG) IN THEIR CAPACITIES AS CHAIR

AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION

COUNCIL,

CHAIRMAN

YES, IF THE MAIN ISSUE IN THE CASE IS

ANTHONI SALIM OF FIRST PACIFIC CO.,

OF TRANSCENDENTAL IMPORTANCE.

LTD. IN HIS CAPACITY AS DIRECTOR OF

In Luzon Stevedoring Corp. v. Anti-Dummy

METRO PACIFIC ASSET HOLDINGS INC.,

Board,8 the Court deemed it wise and

CHAIRMAN MANUEL V. PANGILINAN OF

expedient to resolve the case although the

PHILIPPINE LONG DISTANCE TELEPHONE

petition

COMPANY (PLDT) IN HIS CAPACITY AS

outrightly dismissed for being procedurally

for

declaratory

relief

could

be

defective. There, appellant admittedly had

REFER TO THE TOTAL OUTSTANDING

already committed a breach of the Public

SHARES OF STOCK, WHETHER VOTING

Service Act in relation to the Anti-Dummy

OR NON-VOTING. IS THEIR CONTENTION

Law since it had been employing non-

CORRECT?

American aliens long before the decision in a

prior similar case. However, the main issue
in Luzon Stevedoringwas of transcendental

NO. THE SUPREME COURT HAS NEVER

importance,

or

YET INTERPRETED THE MEANING OF

enjoyment of rights, franchises, privileges,

CAPITAL IN THE CONTEXT OF SECTION

properties

11, ARTICLE XII OF THE CONSTITUTION.

involving
and

the

exercise

businesses

which

only

Filipinos and qualified corporations could

For more than 75 years since the 1935

exercise or enjoy under the Constitution and

Constitution, the Court has notinterpreted or

the statutes.

defined the term capital found in various

economic provisions of the 1935, 1973 and

XXXXXXXXXXXXXXXXXXXXXXX

1987 Constitutions. There has never been a

judicial

precedent

capital

in

the

interpreting
1935,

1973

the

term

and

1987

WHAT IS TRANSCENDENTAL IN THE CASE

Constitutions, until now. Hence, it is patently

AT HAND AND WHY?

wrong and utterly baseless to claim that the

Court in defining the term capital in its 28
June 2011 Decision modified, reversed, or set

THE

INTERPRETATION

OF THE

TERM

aside the purported long-standing

CAPITAL IN SECTION 11, ARTICLE XII

definition

OF

THE

CONSTITUTION

REACHING
NATIONAL
RESOLUTION

IMPLICATIONS
ECONOMY.
OF

THIS

IN

of

the

term

capital,

which

HAS

FAR-

supposedly refers to the total outstanding

TO

THE

shares of stock, whether voting or non-

FACT,

ISSUE

WILL

voting.

DETERMINE WHETHER FILIPINOS ARE

To repeat, until the present case there has

MASTERS, OR SECOND-CLASS CITIZENS,

never been a Court ruling categorically

IN THEIR OWN COUNTRY. WHAT IS AT

defining the term capital found in the

STAKE HERE IS WHETHER FILIPINOS OR

various economic provisions of the 1935,

FOREIGNERS

1973 and 1987 Philippine Constitutions.

WILL

HAVE

EFFECTIVE

CONTROL OF THE PHILIPPINE NATIONAL

XXXXXXXXXXXXXXXXXX

ECONOMY.
XXXXXXXXXXXXXXXXXXXXXXX
PANGILINAN ET AL CONTENDS THAT SEC
PANGILINAN ET AL CONTEND THAT THE

AND DOJ HAVE ALWAYS INTERPRETED

TERM CAPITAL

CAPITAL

IN

SECTION

11,

ARTICLE XII OF THE CONSTITUTION HAS

LONG BEEN SETTLED AND DEFINED TO

TO

OUTSTANDING

REFER

TO

SHARES

THE

TOTAL

OF

STOCK

WHETHER VOTING OR NOT. IS THEIR

stockholders of a domestic corporation that

CONTENTION CORRECT?

owned lands in the Philippines. Then Minister

of Justice Estelito P. Mendoza ruled that the
resulting

NO.

DOJ

AND

SEC

HAVE

ISSUED

ownership

structure

of

corporation

the
would

CONFLICTING INTERPRETATIONS.

be unconstitutionalbecause

60%

of

the

.....

voting stock would be owned by Japanese

The opinions of the SEC, as well as of the

while Filipinos would own only 40% of the

Department of Justice (DOJ), on the definition

voting stock, although when the non-voting

of the term capital as referring to both

stock is added, Filipinos would own 60% of

voting and non-voting shares (combined total

the combined voting and non-voting stock.

of common and preferred shares) are, in the

first place, conflicting and inconsistent.

XXXXXXXXXXXXXXX
IS THERE ANY DOJ OPINION WHICH IS

In

CONSISTENT

rejected the theory that the term capital

BEING

WITH

NOW

THE

SC

CONTESTED,

RULING,
ON

THE

MATTER?

in

short,

Minister

Section

9,

Mendoza categorically

Article

XIV

of

the

1973

Constitution includes both preferred and

common stocks treated as the same class of
shares regardless of differences in voting

YES IN DOJ OPINION NO. 130 DATED 07

rights

OCTOBER 1985, DOJ RULED THAT THE

stressed

RESULTING OWNERSHIP STRUCTURE OF

requirement in favor of Filipino citizens in the

THE SUBJECT CORPORATION WOULD BE

Constitution is not complied with unless the

UNCONSTITUTIONAL BECAUSE 60% OF

corporation

THE VOTING STOCK WOULD BE OWNED

beneficial ownership and that in applying

BY JAPANESE WHILE FILIPINOS WOULD

the same the primordial consideration

OWN ONLY 40% OF THE VOTING STOCK,

is situs of control.

ALTHOUGH

XXXXXXXXXXXXX

WHEN

THE

NON-VOTING

and

privileges.
that

Minister

the

60-40

satisfies

the

Mendoza
ownership

criterion

of

STOCK IS ADDED, FILIPINOS WOULD

OWN 60% OF THE COMBINED VOTING

IS THERE ANY SEC OPINION WHICH IS

AND NON-VOTING STOCK.

CONSISTENT

In DOJ Opinion No. 130, s. 1985,10 dated 7

BEING

October

MATTER?

1985,

the

scope

of

the

term

NOW

WITH

THE

SC

CONTESTED,

RULING,
ON

THE

capital in Section 9, Article XIV of the 1973

Constitution was raised, that is, whether the

YES. IN OPINION NO. 23-10 DATED18

term capital includes both preferred and

AUGUST

common stocks. The issue was raised in

VOTING CONTROL TEST, THAT IS USING

relation to a stock-swap transaction between

ONLY

a Filipino and a Japanese corporation, both

2012,
THE

SEC
VOTING

APPLIED
STOCK

THE
TO

DETERMINE WHETHER A CORPORATION

IS A PHILIPPINE NATIONAL.

IS THE GRANDFATHER RULE APPLICABLE

On the other hand, in Opinion No. 23-10

TO THIS CASE?

dated 18 August 2010, addressed to Castillo

Laman Tan Pantaleon & San Jose, then SEC
General

Counsel

Vernette

G.

YES. EVEN SEC APPLIED IT.

Umali-Paco

applied the Voting Control Test, that is,

Significantly, the SEC en banc, which is the

using only the voting stock to determine

collegial body statutorily empowered to issue

whether

rules and opinions on behalf of the SEC, has

corporation

is

Philippine

national.

adopted the 60-40 ownership requirement in

XXXXXXXXXXXXXXXXXXX

favor of Filipino citizens mandated by the

Constitution for certain economic activities.
This prevailing SEC ruling, which the SEC

WILL THE OPINION ISSUED BY A SEC

correctly

LEGAL

circumvention

OFFICER

OR

COMMISSIONER

SEC

ESTABLISH

PRECEDENCE?

adopted
of

to
the

thwart
required

any
Filipino

ownership and control, is laid down in

the

25

March

2010

SEC en

banc ruling

in Redmont Consolidated Mines, Corp. v.

McArthur Mining, Inc., et al.,15 to wit:
NO. THEIR OPINION APPLIES ONLY TO A

The avowed purpose of the Constitution is to

PARTICULAR CASE. IT IS THE OPINION

place

OF

exploitation

THE

WHOLE

COMMISSION

THAT

ESTABLISHES A PRECEDENCE.

in

the

hands

of

of

our

resources. Necessarily,
Rule

interpreting

Filipinos

the

the

natural

therefore,

the

constitutional

XXXXXXXXXXXXXX

provision should not diminish that right

The opinions issued by SEC legal officers do

through the legal fiction of corporate

not have the force and effect of SEC rules

ownership

and regulations because only the SEC en

constitutional provision, as interpreted and

banc can adopt rules and regulations. As

practiced via the 1967 SEC Rules, has

expressly provided in Section 4.6 of the

favored foreigners contrary to the command

Securities

of

Regulation

Code,12

the

SEC

the

and

control.

But

Constitution. Hence,

the

the

cannot delegate to any of its individual

Grandfather Rule must be applied to

Commissioner or staff the power to adopt

accurately

any

Further, under

participation, both direct and indirect,

Section 5.1 of the same Code, it is the

of foreigners in a corporation engaged

SEC as a collegial body, and not any of

in a nationalized activity or business.

rule

or

regulation.

determine

its legal officers, that is empowered to

issue opinions and approve rules and
regulations.
XXXXXXXXXXXXXXXXXXXX

XXXXXXXXXXXXX

the

actual

THAT
WHAT IS THE GRANDFATHER RULE?

THE
IN

ENGAGE
WITH

CONSTITUTIONAL

THE

LIMITATION(S)

ON

THE

IN

ACTIVITIES

APPLIES

VOTING

CONTROL

CORPORATION,

MUST

BENEFICIAL

DETERMINED

ASCERTAINING

IF

60%

INVESTING

BY

OF

THE

CORPORATIONS

OUTSTANDING

CAPITAL

ECONOMIC

NOT

BUT

TO

ONLY
OF

ALSO

OWNERSHIP

TO
THE

TO

THE

OF

THE

CORPORATION. MERE LEGAL TITLE IS

INSUFFICIENT

TO

MEET

THE

60

IS

PERCENT FILIPINO OWNED CAPITAL

OWNED BY FILIPINO CITIZENS, OR AS

REQUIRED IN THE CONSTITUTION. FULL

INTERPRETED,

BENEFICIAL

BY

STOCK

CONSTITUTION

CERTAIN

ENGAGING IN NATIONALIZED ACTIVITIES

BE

OWNERSHIP

REQUIREMENT IN FAVOR OF FILIPINO

CITIZENS

COMPLIANCE

60-40

NATURAL

OR

OWNERSHIP

60

INDIVIDUAL FILIPINO CITIZENS. IF SUCH

PERCENT

OF

INVESTING CORPORATION IS IN TURN

CAPITAL

STOCK,

OWNED TO SOME EXTENT BY ANOTHER

PERCENT OF THE VOTING RIGHTS, IS

INVESTING CORPORATION, THE SAME

REQUIRED. THE LEGAL AND BENEFICIAL

PROCESS

ONE

OWNERSHIP OF 60 PERCENT OF THE

THE

OUTSTANDING

MUST

MUST
NOT

BE

OBSERVED.

STOP

UNTIL

OUTSTANDING

COUPLED

CAPITAL

STOCKHOLDERS

OF

NATIONALS IN ACCORDANCE WITH THE

AFTER

LAYER

INVESTING

HAVE

BEEN

OF

MUST

NATURAL

CORPORATIONS

HANDS

STOCK

60

REST

OF

THE

WITH

CITIZENSHIPS OF THE INDIVIDUAL OR

LAYER

IN

THE

OF

CONSTITUTIONAL
OTHERWISE,

ESTABLISHED.

CONSIDERED

xxxxxxxxxxxxxxxx

NATIONAL[S].

FILIPINO
MANDATE.

THE

CORPORATION

AS
BOTH

IS

NON-PHILIPPINE
THE

VOTING

CONTROL TEST AND THE BENEFICIAL

WHAT WAS THE MAIN RULING IN THE 28

OWNERSHIP TEST MUST BE APPLIED TO

JUNE

DETERMINE WHETHER A CORPORATION

2011

DECISION

REGARDING THIS CASE?

OF

THE

SC

IS A PHILIPPINE NATIONAL.