Escolar Documentos
Profissional Documentos
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DECISION
CAGUIOA, J : p
The petitions 1 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 Decision 2 ("Gamboa Decision") and
Resolution 3 ("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:
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.
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.:
WHEREFORE, we DENY the motions for reconsideration WITH
FINALITY. No further pleadings shall be entertained.
SO ORDERED. 5
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 Judgment 9 from the
Court certifying that on October 18, 2012, the Gamboa Decision had become final and
executory. 10
On March 25, 2013, the SEC posted another Notice in its website soliciting from
the public comments and suggestions on the draft guidelines. 11
On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy") submitted his written
comments on the draft guidelines. 12 CAIHTE
On May 20, 2013, the SEC, through respondent Chairperson Teresita J. 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." It was
published in the Philippine Daily Inquirer and the Business Mirror on May 22, 2013. 13
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 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.
Corporations covered by special laws which provide specific citizenship
requirements shall comply with the provisions of said law. 14
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. Petitioner Roy seeks to apply the 60-40 Filipino ownership
requirement separately to each class of shares of a public utility corporation, whether
common, preferred non-voting, preferred voting or any other class of shares. 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.
Wilson C. Gamboa, Jr., 16 Daniel V. Cartagena, John Warren P. Gabinete,
Antonio V. Pesina, Jr., Modesto Martin Y. Mamon III, and Gerardo C. Erebaren
("intervenors Gamboa, et al. ") filed a Motion for Leave to File Petition-in-Intervention 17
on July 30, 2013, which the Court granted. The Petition-in-Intervention 18 filed by
intervenors Gamboa, et al. mirrored the issues, arguments and prayer of petitioner Roy.
On September 5, 2013, respondent PLDT filed its Comment (on the Petition dated
10 June 2013). 19 PLDT posited that the Petition should be dismissed because it
violates the doctrine of hierarchy of courts as there are no compelling reasons to invoke
the Court's original jurisdiction; it is prematurely filed because petitioner Roy failed to
exhaust administrative remedies before the SEC; the principal actions/remedies of
mandamus and declaratory relief are not within the exclusive and/or original jurisdiction
of the Court; the petition for certiorari is an inappropriate remedy since the SEC issued
SEC-MC No. 8 in the exercise of its quasi -legislative power; it deprives the necessary
and indispensable parties of their constitutional right to due process; and the SEC
merely implemented the dispositive portion of the Gamboa Decision.
On September 20, 2013, respondents Chairperson Teresita Herbosa and SEC
filed their Consolidated Comment. 20 They sought the dismissal of the petitions on the
following grounds: (1) the petitioners do not possess locus standi to assail the
constitutionality of SEC-MC No. 8; (2) a petition for certiorari under Rule 65 is not the
appropriate and proper remedy to assail the validity and constitutionality of the SEC-MC
No. 8; (3) the direct resort to the Court violates the doctrine of hierarchy of courts; (4)
the SEC did not abuse its discretion; (5) on PLDT's compliance with the capital
requirement as stated in the Gamboa ruling, the petitioners' challenge is premature
considering that the SEC has not yet issued a definitive ruling thereon.
On October 22, 2013, PLDT filed its Comment (on the Petition-in-Intervention
dated 16 July 2013). 21 PLDT adopted the position that intervenors Gamboa, et al. have
no standing and are not the proper party to question the constitutionality of SEC-MC No.
8; they are in no position to assail SEC-MC No. 8 considering that they did not
participate in the public consultations or give comments thereon; and their Petition-in-
Intervention is a disguised motion for reconsideration of the Gamboa Decision and
Resolution.
On May 7, 2014, Petitioner Roy and intervenors Gamboa, et al. 22 filed their Joint
Consolidated Reply with Motion for Issuance of Temporary Restraining Order. 23
On May 22, 2014, PLDT filed its Rejoinder [To Petitioner and Petitioners-in-
Intervention's Joint Consolidated Reply dated 7 May 2014] and Opposition [To Petitioner
and Petitioners-in-Intervention's Motion for Issuance of a Temporary Restraining Order
dated 7 May 2014]. 24
On June 18, 2014, the Philippine Stock Exchange, Inc. ("PSE") filed its Motion to
Intervene with Leave of Court 25 and its Comment-in-Intervention. 26 The PSE alleged
that it has standing to intervene as the primary regulator of the stock exchange and will
sustain direct injury should the petitions be granted. The PSE argued that in the
Gamboa ruling, "capital" refers only to shares entitled to vote in the election of directors,
and excludes those not so entitled; and the dispositive portion of the decision is the
controlling factor that determines and settles the questions presented in the case. The
PSE further argued that adopting a new interpretation of Section 11, Article XII of the
Constitution violates the policy of conclusiveness of judgment, stare decisis, and the
State's obligation to maintain a stable and predictable legal framework for foreign
investors under international treaties; and adopting a new definition of "capital" will
prove disastrous for the Philippine stock market. The Court granted the Motion to
Intervene filed by PSE. 27
PLDT filed its Consolidated Memorandum 28 on February 10, 2015. DETACa
The Court directly answered the issue and consistently defined the term "capital"
as follows:
. . . 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.
xxx xxx xxx
Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting rights, the
term "capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the
election of directors, then the term "capital" shall include such preferred shares
because the right to participate in the control or management of the corporation
is exercised through the right to vote in the election of directors. In short, the
term "capital" in Section 11, Article XII of the Constitution refers only to
shares of stock that can vote in the election of directors. 65
The decretal portion of the Gamboa Decision follows the definition of the term "capital"
in the body of the decision, to wit: ". . . we . . . 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)." 66
The Court adopted the foregoing definition of the term "capital" in Section 11,
Article XII of the 1987 Constitution in furtherance of "the intent and letter of the
Constitution that the 'State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos' [because a] broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to
control of the public utility." 67 The Court, recognizing that the provision is an express
recognition of the sensitive and vital position of public utilities both in the national
economy and for national security, also pronounced that the evident purpose of the
citizenship requirement is to prevent aliens from assuming control of public utilities,
which may be inimical to the national interest. 68 Further, the Court noted that the
foregoing interpretation is consistent with the intent of the framers of the Constitution to
place in the hands of Filipino citizens the control and management of public utilities;
and, as revealed in the deliberations of the Constitutional Commission, "capital" refers
to the voting stock or controlling interest of a corporation. 69
In this regard, it would be apropos to state that since Filipinos own at least 60% of
the outstanding shares of stock entitled to vote directors, which is what the Constitution
precisely requires, then the Filipino stockholders control the corporation, i.e., they
dictate corporate actions and decisions, and they have all the rights of ownership
including, but not limited to, offering certain preferred shares that may have greater
economic interest to foreign investors — as the need for capital for corporate pursuits
(such as expansion), may be good for the corporation that they own. Surely, these "true
owners" will not allow any dilution of their ownership and control if such move will not be
beneficial to them.
As owners of the corporation, the economic benefits will necessarily accrue to
them. There is thus no logical reason why Filipino shareholders will allow foreigners to
have greater economic benefits than them. It is illogical to speculate that they will create
shares which have features that will give greater economic interests or benefits than
they are holding and not benefit from such offering, or that they will allow foreigners to
profit more than them from their own corporation — unless they are dummies. But,
Commonwealth Act No. 108, the Anti-Dummy Law, is NOT in issue in these petitions.
Notably, even if the shares of a particular public utility were owned 100% Filipino, that
does not discount the possibility of a dummy situation from arising. Hence, even if the
60-40 ownership in favor of Filipinos rule is applied separately to each class of shares
of a public utility corporation, as the petitioners insist, the rule can easily be side-
stepped by a dummy relationship. In other words, even applying the 60-40 Filipino-
foreign ownership rule to each class of shares will not assure the lofty purpose
enunciated by petitioners.
The Court observed further in the Gamboa Decision that reinforcing this
interpretation of the term "capital," as referring to interests or shares entitled to vote, is
the definition of a Philippine national in the Foreign Investments Act of 1991 ("FIA"),
which is explained in the Implementing Rules and Regulations of the FIA ("FIA-IRR").
The FIA-IRR provides:
Compliance with the required Filipino ownership of a corporation shall
be determined on the basis of outstanding 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:
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]."
AaCTc I
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.
The following is the composition of the outstanding capital stock of Company X:
100 common shares
100 Class A preferred shares (with right to elect directors)
100 Class B preferred shares (without right to elect directors)
SEC-MC No. 8 GAMBOA DECISION
If at least a total of 120 of common shares and Class A preferred shares (in any
combination) are owned and controlled by Filipinos, Company X is compliant with the
60% of the voting rights in favor of Filipinos requirement of both SEC-MC No. 8 and the
Gamboa Decision.
SEC-MC No. 8 GAMBOA DECISION/
RESOLUTION
If at least a total of 180 shares of all the outstanding capital stock of Company X
are owned and controlled by Filipinos, provided that among those 180 shares a total of
120 of the common shares and Class A preferred shares (in any combination) are
owned and controlled by Filipinos, then Company X is compliant with both requirements
of voting rights and beneficial ownership under SEC-MC No. 8 and the Gamboa
Decision and Resolution.
From the foregoing illustration, SEC-MC No. 8 simply implemented, and is fully in
accordance with, the Gamboa Decision and Resolution.
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 (Republic Act No. 8799; "SRC") and its implementing rules. 83
The full beneficial ownership test.
The minority justifies the application of the 60-40 Filipino-foreign ownership rule
separately to each class of shares of a public utility corporation in this fashion:
. . . The words "own and control," used to qualify the minimum Filipino
participation in Section 11, Article XII of the Constitution, reflects the importance
of Filipinos having both the ability to influence the corporation through voting
rights and economic benefits. In other words, full ownership up to 60% of a
public utility encompasses both control and economic rights, both of which
must stay in Filipino hands. Filipinos, who own 60% of the controlling interest,
must also own 60% of the economic interest in a public utility. HSAc aE
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 for. The "beneficial
ownership" referred to in the definition, while it may ultimately and indirectly refer to the
overall ownership of the corporation, more pertinently refers to the ownership of the
share subject of the question: is it Filipino-owned or not?
As noted earlier, the FIA-IRR states:
Compliance with the required Filipino ownership of a corporation
shall be determined on the basis of outstanding 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. 85
The emphasized portions in the foregoing provision is the equivalent of the so-called
"beneficial ownership test." That is all.
The term "full beneficial ownership" found in the FIA-IRR is to be understood in
the context of the entire paragraph defining the term "Philippine national." Mere legal title
is not enough to meet the required Filipino equity, which means that it is not sufficient
that a share is registered in the name of a Filipino citizen or national, i.e., he should also
have full beneficial ownership of the share. If the voting right of a share held in the name
of a Filipino citizen or national is assigned or transferred to an alien, that share is not to
be counted in the determination of the required Filipino equity. In the same vein, if the
dividends and other fruits and accessions of the share do not accrue to a Filipino citizen
or national, then that share is also to be excluded or not counted.
In this regard, it is worth reiterating the Court's pronouncement in the Gamboa
Decision, which is consistent with the FIA-IRR, viz.:
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. . . .
xxx xxx xxx
The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipinos in accordance with the
constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the State's grant of authority to operate a
public utility . . . . . 86
HESIc T
And the "Final Word" of the Gamboa Resolution is in full accord with the foregoing
pronouncement of the Court, to wit:
XII.
Final Word
. . . 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." 87
Given that beneficial ownership of the outstanding capital stock of the public
utility corporation has to be determined for purposes of compliance with the 60% Filipino
ownership requirement, the definition in the SRC-IRR can now be applied to resolve
only the question of who is the beneficial owner or who has beneficial ownership of each
"specific stock" of the said corporation. Thus, if a "specific stock" is owned by a Filipino
in the books of the corporation, but the stock's voting power or disposing power belongs
to a foreigner, then that "specific stock" will not be deemed as "beneficially owned" by a
Filipino.
Stated inversely, if the Filipino has the "specific stock's" voting power (he can
vote the stock or direct another to vote for him), or the 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 dispose of the "specific stock" or direct
another to vote or dispose it for him), then such Filipino is the "beneficial owner" of that
"specific stock" — and that "specific stock" is considered (or counted) as part of the
60% Filipino ownership of the corporation. In the end, all those "specific stocks" that are
determined to be Filipino (per definition of "beneficial owner" or "beneficial ownership")
will be added together and their sum must be equivalent to at least 60% of the total
outstanding shares of stock entitled to vote in the election of directors and at least 60%
of the total number of outstanding shares of stock, whether or not entitled to vote in the
election of directors.
To reiterate, the "beneficial owner or beneficial ownership" definition in the SRC-
IRR is understood only in determining the respective nationalities of the outstanding
capital stock of a public utility corporation in order to determine its compliance with the
percentage of Filipino ownership required by the Constitution.
The restrictive re-interpretation of
"capital" as insisted by the
petitioners is unwarranted.
Petitioners' insistence that the 60% Filipino equity requirement must be applied to
each class of shares is simply beyond the literal text and contemplation of Section 11,
Article XII of the 1987 Constitution, viz.:
Sec. 11. No franchise, certificate, or any other foam of authorization
for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum or whose capital is owned by such
citizens, nor shall such franchise, certificate or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such franchise
or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
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.
In the exhaustive review made by the Court in the Gamboa Resolution of the
deliberations of the Constitutional Commission, the opinions of the framers of the 1987
Constitution, the opinions of the SEC and the DOJ as well as the provisions of the FIA,
its implementing rules and its predecessor statutes, the intention to apply the voting
control test and the beneficial ownership test was not mentioned in reference to "each
class of shares." Even the Gamboa Decision was silent on this point. c aITAC
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, may not bode
well for the Philippine corporation and its Filipino shareholders.
Parenthetically, given the innumerable permutations that the types and classes of
stocks may take, requiring the SEC and other government agencies to keep track of the
ever-changing capital classes of corporations will be impracticable, if not downright
impossible. And the law does not require the impossible. (Lex non cogit ad
impossibilia.) 93
That stock corporations are allowed to create shares of different classes with
varying features is a flexibility that is granted, among others, for the corporation to
attract and generate capital (funds) from both local and foreign capital markets. This
access to capital — which a stock corporation may need for expansion, debt
relief/repayment, working capital requirement and other corporate pursuits — will be
greatly eroded with further unwarranted limitations that are not articulated in the
Constitution. The intricacies and delicate balance between debt instruments (liabilities)
and equity (capital) that stock corporations need to calibrate to fund their business
requirements and achieve their financial targets are better left to the judgment of their
boards and officers, whose bounden duty is to steer their companies to financial stability
and profitability and who are ultimately answerable to their shareholders.
Going back to the illustration above, the restrictive meaning of the term "capital"
espoused by petitioners will definitely be complied with if 60% of each of the three
classes of shares of Company X, consisting of 100 common shares, 100 Class A
preferred shares (with right to elect directors) and 100 Class B preferred shares
(without right to elect directors), is owned by Filipinos. However, what if the 60%
Filipino ownership in each class of preferred shares, i.e., 60 Class A preferred shares
and 60 Class B preferred shares, is not fully subscribed or achieved because there are
not enough Filipino takers? Company X will be deprived of capital that would otherwise
be accessible to it were it not for this unwarranted "restrictive" meaning of "capital."
The fact that all shares have the right to vote in 8 specific corporate actions as
provided in Section 6 of the Corporation Code does not per se justify the favorable
adoption of the restrictive re-interpretation of "capital" as the petitioners espouse. As
observed in the Gamboa Decision, viz.:
The Corporation Code of the Philippines classifies shares as common or
preferred, thus:
Sec. 6. Classification of shares. — The shares of stock of
stock corporations may be divided into classes or series of shares,
or both, any of which classes or series of shares may have such
rights, privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as
"preferred" or "redeemable" shares, unless otherwise
provided in this Code: Provided, further, That there shall always
be a class or series of shares which have complete voting rights.
Any or all of the shares or series of shares may have a par value
or have no par value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust companies,
insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by any corporation may be
given preference in the distribution of the assets of the corporation
in case of liquidation and in the distribution of dividends, or such
other preferences as may be stated in the articles of incorporation
which are not violative of the provisions of this Code: Provided,
That preferred shares of 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. TCASc E
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 non-voting 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 board
has to approve the recommendation — and, as required by the Constitution, foreign
participation in the board cannot exceed 40% of the total number of board seats. Since
the Filipino directors comprise the majority, they, if united, do not even need the vote of
the foreign directors to approve the intended corporate act. After approval by the board,
all the shareholders (with and without voting rights) will vote on the corporate action.
The required vote in the shareholders' meeting is 2/3 of the outstanding capital stock. 95
Given the super majority vote requirement, foreign shareholders cannot dictate upon
their Filipino counterpart. However, foreigners (if owning at least a third of the
outstanding capital stock) must agree with Filipino shareholders for the corporate action
to be approved. The 2/3 voting requirement applies to all corporations, given the
significance of the 8 corporate actions contemplated in Section 6 of the Corporation
Code.
In short, if the Filipino officers, directors and shareholders will not approve of the
corporate act, the foreigners are helpless.
Allowing stockholders holding preferred shares without voting rights to vote in the
8 corporate matters enumerated in Section 6 is an acknowledgment of their right of
ownership. If the owners of preferred shares without right to vote/elect directors are not
allowed to vote in any of those 8 corporate actions, then they will not be entitled to the
appraisal right provided under Section 81 96 of the Corporation Code in the event that
they dissent in the corporate act. As required in Section 82, the appraisal right can only
be exercised by any stockholder who voted against the proposed action. Thus, without
recognizing the right of every stockholder to vote in the 8 instances enumerated in
Section 6, the stockholder cannot exercise his appraisal right in case he votes against
the corporate action. In simple terms, the right to vote in the 8 instances enumerated in
Section 6 is more in furtherance of the stockholder's right of ownership rather than as a
mode of control.
As to financial interest, giving short-lived preferred or superior terms to certain
classes or series of shares may be a welcome option to expand capital, without the
Filipino shareholders putting up additional substantial capital and/or losing ownership
and control of the company. For shareholders who are not keen on the creation of those
shares, they may opt to avail themselves of their appraisal right. As acknowledged in
the Gamboa Decision, preferred shareholders are merely investors in the company for
income in the same manner as bondholders. Without a lucrative package, including an
attractive return of investment, preferred shares will not be subscribed and the much-
needed additional capital will be elusive. A too restrictive definition of "capital," one
which was never contemplated in the Gamboa Decision, will surely have a dampening
effect on the business milieu by eroding the flexibility inherent in the issuance of
preferred shares with varying terms and conditions. Consequently, the rights and
prerogatives of the owners of the corporation will be unwarrantedly stymied. c SaATC
The Court in Abacus Securities Corp. v. Ampil 105 observed that: "[s]tock market
transactions affect the 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 . . . ." 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 corporation 107 — 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 intimate or suggest the need for a
clarification or re-interpretation.
To revisit or even clarify the unequivocal definition of the term "capital" as
referring "only to shares of stock entitled to vote in the election of directors" and apply
the 60% Filipino ownership requirement to each class of share is effectively and
unwarrantedly amending or changing the Gamboa Decision and Resolution. The
Gamboa Decision and Resolution Doctrine did NOT make any definitive ruling that the
60% Filipino ownership requirement was intended to apply to each class of share.
In Malayang Manggagawa ng Stayfast Phils., Inc. v. NLRC , 108 the Court stated:
Where a petition for certiorari under Rule 65 of the Rules of Court alleges
grave abuse of discretion, the petitioner should establish that the
respondent court or tribunal acted in a capricious, whimsical, arbitrary or
despotic manner in the exercise of its jurisdiction as to be equivalent to
lack of jurisdiction. This is so because "grave abuse of discretion" is well-
defined and not an amorphous concept that may easily be manipulated to suit
one's purpose. In this connection, Yu v. Judge Reyes-Carpio, is instructive:
The term "grave abuse of discretion" has a specific
meaning. An act of a court or tribunal can only be considered as
with grave abuse of discretion when such act is done in a
"capricious or whimsical exercise of judgment as is equivalent to
lack of jurisdiction." The abuse of discretion must be 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, as where the power is exercised in an
arbitrary and despotic manner by reason of passion and hostility."
Furthermore, the use of a petition for certiorari is restricted only to
"truly extraordinary cases wherein the act of the lower court or
quasi-judicial body is wholly void." From the foregoing definition, it
is clear that the special civil action of certiorari under Rule 65 can
only strike an act down for having been done with grave abuse of
discretion if the petitioner could manifestly show that such act
was patent and gross. . . . .
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. ISHCc T
Petitioners cannot, after Gamboa has attained finality, seek a belated correction
or reconsideration of the Court's unequivocal definition of the term "capital." At the core
of the doctrine of finality of judgments is that public policy and sound practice demand
that, at the risk of occasional errors, judgments of courts should become final at some
definite date fixed by law and the very objects for which courts were instituted was to
put an end to controversies. 111 Indeed, the definition of the term "capital" in the fallo of
the Gamboa Decision has acquired finality.
Because the SEC acted pursuant to the Court's pronouncements in both the
Gamboa Decision and Gamboa Resolution, then it could not have gravely abused its
discretion. That portion found in the body of the Gamboa Resolution which the
petitioners rely upon is nothing more than an obiter dictum and the SEC could not be
expected to apply it as it was not — is not — a binding pronouncement of the Court. 112
Furthermore, as opined by Justice Bersamin during the deliberations, the doctrine
of immutability of judgment precludes the Court from re-examining the definition of
"capital" under Section 11, Article XII of the Constitution. Under the doctrine of finality
and immutability of judgment, a decision that has acquired finality becomes immutable
and unalterable, and may no longer be modified in any respect, even if the modification
is meant to correct erroneous conclusions of fact and law, and even if the modification
is made by the court that rendered it or by the Highest Court of the land. Any act that
violates the principle must be immediately stricken down. 113 The petitions have not
succeeded in pointing to any exceptions to the doctrine of finality of judgments, under
which the present case falls, to wit: (1) the correction of clerical errors; (2) the so-called
nunc pro tunc entries which cause no prejudice to any party; (3) void judgments; and
(4) whenever circumstances transpire after the finality of the decision rendering its
execution unjust and inequitable. 114
With the foregoing disquisition, the Court rules that SEC-MC No. 8 is not contrary
to the Court's definition and interpretation of the term "capital." Accordingly, the petitions
must be denied for failing to show grave abuse of discretion in the issuance of SEC-MC
No. 8.
The petitions are second motions for
Reconsideration, which are
proscribed.
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 non-inclusion 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 CAac TH
Closing
Ultimately, the key to nationalism is in the individual. Particularly for a public
utility corporation or association, whether stock or non-stock, it starts with the Filipino
shareholder or member who, together with other Filipino shareholders or members
wielding 60% voting power, elects the Filipino director who, in turn, together with other
Filipino directors comprising a majority of the board of directors or trustees, appoints
and employs the all Filipino management team. This is what is envisioned by the
Constitution to assure effective control by Filipinos. If the safeguards, which are
already stringent, fail, i.e., a public utility corporation whose voting stocks are
beneficially owned by Filipinos, the majority of its directors are Filipinos, and all its
managing officers are Filipinos, is pro-alien (or worse, dummies), then that is not the
fault or failure of the Constitution. It is the breakdown of nationalism in each of the
Filipino shareholders, Filipino directors and Filipino officers of that corporation. No
Constitution, no decision of the Court, no legislation, no matter how ultra-nationalistic
they are, can guarantee nationalism.
WHEREFORE, premises considered, the Court DENIES the Petition and Petition-
in-Intervention.
SO ORDERED.
Del Castillo, Perez and Reyes, JJ. , concur.
Sereno, C.J., see concurring opinion.
Carpio and Mendoza, JJ., see dissenting opinion.
Velasco, Jr., J., please see concurring opinion.
Leonardo-de Castro, J., I join the dissent of Justice Carpio.
Brion, J., I join J. Carpio's dissent.
Peralta, * J., is on leave but left vote.
Bersamin, J., with concurring opinion.
Perlas-Bernabe, ** J., took no part and on official leave.
Leonen, J., I dissent. See separate opinion.
Jardeleza, *** J., took no part.
Separate Opinions
Factual Antecedents
On June 28, 2011, the Court issued a Decision in Gamboa v. Teves 1 on the
matter of "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
voting and non-voting shares) of PLDT, a public utility."
Resolving the issue, the majority of the Court held that: "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." 2 The Court then directed the SEC to apply this definition of the term
"capital" in determining the extent of allowable foreign ownership in PLDT.
Several motions for reconsideration assailing the Decision in Gamboa were filed
but, eventually, denied by the Court in its October 9, 2012 Resolution.
Pursuant to the Court's directive in Gamboa, the SEC prepared a draft
memorandum circular on the guidelines to be followed in determining compliance with
the constitutional and statutory limitations on foreign ownership in nationalized and
partly nationalized industries. The SEC then invited the public to a dialogue and submit
comments on the draft of the memorandum circular. 3
Representatives from various organizations, government agencies, the academe
and the private sector attended the public dialogue and submitted position papers and
written comments on the draft to the SEC.
On May 20, 2013, the SEC issued MC No. 8. Section 2 of the circular 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 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.
Corporations covered by special laws which provide specific citizenship
requirements shall comply with the provisions of said law.
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 differentiate
the varying classes of shares and does not require the application of the foreign equity
limits to each class of shares issued by a corporation." Petitioner relies on a portion of
the October 9, 2012 Resolution in Gamboa providing that "the 60-40 ownership
requirement must apply to each class of shares, whether common, preferred non-voting,
preferred voting or any other class of shares." He, thus, prays for this Court to declare
MC No. 8 unconstitutional and to direct the SEC to issue new guidelines regarding the
determination of compliance with Section 11, Article XII of the Constitution in
accordance with Gamboa.
Petitioner further maintains that the SEC gravely abused its discretion in ruling
that PLDT is compliant with the Constitutional rule on Foreign Ownership.
William Gamboa, Jr., Daniel Cartagena, John Wilson Gabinete, Antonio V.
Pesina, Jr., Modesto Martin Y. Mamon III, Gerardo C. Erebaren and the Philippine Stock
Exchange (PSE) sought, and were granted, intervention.
Issue
Considering that the Court is not a trier of facts and is not in a position to make a
factual determination of PLDT's compliance with Section 11, Article XII of the
Constitution, the Court can only address the pure question of law presented by the
petitioner and petitioners-in-intervention: whether or not the SEC gravely abused its
discretion in issuing MC No. 8.
I concur with the ruling in the ponencia.
The petition has not met the requisites
for the exercise of judicial review
It is elementary that the power of judicial review is subject to certain limitations,
which must be complied with by the petitioner before this Court may take cognizance of
the case. 4 The Court held, thus:
When questions of constitutional significance are raised, the Court can
exercise its power of judicial review only if the following requisites are present:
(1) the existence of an actual and appropriate case; (2) the existence of
personal and substantial interest on the part of the party raising the
constitutional question; (3) recourse to judicial review is made at the earliest
opportunity; and (4) the constitutional question is the lis mota of the case. 5
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 a shareholder in PLDT will not be affected or altered. There is simply no rational
connection between his law firm's rights as an alleged shareholder with the legality of
MC No. 8. SaCIDT
The locus standi requisite is likewise not satisfied by the mere fact that petitioner
Roy is a "concerned citizen, an officer of this Court and. . . a taxpayer." We have
previously emphasized that the locus standi requisite is not overcome by one's
citizenship or membership in the bar. These supposed interests are too general, shared
as they are by other groups and by the whole citizenry. 6
The only "injury" attributable to petitioner Roy is that the position paper he
submitted to the SEC was not adopted by the Commission in issuing MC No. 8. This
injury, however, is not sufficient to clothe him with the requisite standing to invoke the
Court's exercise of judicial power to review and declare unconstitutional the issuance of
a governmental body.
Neither can petitioner Roy take refuge in his status as a taxpayer. Lest it is
forgotten, a taxpayer's suit is proper only when the petitioner has established that the
act complained of directly involves the illegal disbursement of public funds derived from
taxation. 7 MC No. 8 does not involve an expenditure of public funds. It does not even
concern the taxing and spending power of the Congress. Hence, justifying the recourse
as a taxpayer's suit is far-fetched and implausible, with petitioner ignoring the basic
requirements of the concept.
In like manner, the petitioners-intervenors suffer the same infirmity as petitioner
Roy. None of them alleged, let alone proved, even a remote link to the implementation of
MC No. 8. Certainly, there is nothing by which this Court can ascertain their personality
to challenge the validity of the SEC issuance.
The casual invocation of the supposed "transcendental importance" of the
questions posed by the petitioner and petitioners-in-intervention does not automatically
justify the disregard of the stringent requirements for this Court's exercise of judicial
power. Otherwise, the Court would be allowing the dilution of the settled doctrine of
locus standi as every worthy cause is an interest shared by the general public. 8
Indeed, while this Court has previously allowed the expansion of the boundaries
of the rule on legal standing in matters of far-reaching implications, the Court cannot
condone the trivial treatment of the element of locus standi as a mere technical
requirement. The requirement of legal standing goes into the very essence of jurisdiction
and the competence of this Court to intrude into matters falling within the executive
realm. In Galicto v. Aquino III , 9 the Court explained the importance of the rule, viz.:
. . . The rationale for this constitutional requirement of locus standi is by
no means trifle. Not only does it assure the vigorous adversary presentation of
the case; more importantly, it must suffice to warrant the Judiciary's
overruling the determination of a coordinate, democratically elected organ
of government, such as the President, and the clear approval by Congress, in
this case. Indeed, the rationale goes to the very essence of representative
democracies. 10 (emphasis supplied)
The liberality of the Court in bypassing the locus standi rule cannot, therefore, be
abused. If the Court is to maintain the respect demanded by the concept of separation of
governmental powers, it must subject applications for exemptions from the requirements
of judicial review to the highest possible judicial inquiry. In the present case, the anemic
allegations of the petitioner and petitioners-in-intervention do not warrant the application
of the exceptions rather than the rule on locus standi .
The Rule on the Hierarchy of Courts
has been violated
In like manner, a hollow invocation of "transcendental importance" does not
warrant the immediate relaxation of the rule on hierarchy of courts. That hierarchy is
determinative of the venue of appeals, and also serves as a general determinant of the
appropriate forum for petitions for the extraordinary writs. 11 Indeed, "the Supreme Court
is a court of last resort and must so remain if it is to satisfactorily perform the functions
assigned to it by the fundamental charter and immemorial tradition." 12 This Court has
explained that the rationale for this strict policy is to prevent the following: (1) inordinate
demands upon its time and attention, which is better devoted to those matters within its
exclusive jurisdiction; and (2) further overcrowding of the Court's docket. 13
While direct recourse to the court has previously been allowed on exceptional
grounds, the circumstances set forth in the petition and petition-in-intervention do not
justify the disregard of the established policy. Worse, petitioner's allegation that there is
little value in presenting the petition to another court is demeaning and less than fair to
the lower courts. There is no reason to doubt our trial court's ability and competence to
determine the existence of grave abuse of discretion.
Section 4, Rule 65 of the Rules of Court itself provides that the RTC and the CA
have concurrent jurisdiction to issue the writ of certiorari . For certainly, the issue of
abuse of discretion is not so complex as to disqualify every court, except this Court,
from deciding it. Thus, due deference to the competence of these courts and a
becoming regard of the time-honored principle of the hierarchy of courts bars the
present direct recourse to this Court.
Indispensable Parties are Being
Denied their Rights to Due Process
Even assuming that the issue involved in the present recourse is of vital
importance, it is dismissible for its failure to implead the indispensable parties.
Under Rule 3, Section 7 of the Rules of Court, an indispensable party is a party-
in-interest, without whom there can be no final determination of an action. The interests
of such indispensable party in the subject matter of the suit and the relief are so bound
with those of the other parties that his legal presence as a party to the proceeding is an
absolute necessity. 14 As a rule, an indispensable party's interest in the subject matter
is such that a complete and efficient determination of the equities and rights of the
parties is not possible if he is not joined. 15
c HECAS
In the case at bar, it is alleged that the propriety of the SEC's enforcement of this
Court's interpretation of "capital" is important as it affects corporations in nationalized
and partly-nationalized industries. And yet, besides respondent PLDT, no other
corporation subject to the same restriction imposed by Section 11, Article XII of the
Constitution has been joined or impleaded by the present recourse. These corporations
are in danger of losing their franchises and property holdings if they are found not
compliant with a revised interpretation of the nationality requirement. Nonetheless, they
have not been afforded due notice, much less the opportunity to be heard, in the present
case.
Worse, petitioner and petitioners-in-intervention failed to acknowledge that their
restrictive interpretation of the Court's ruling in Gamboa affects not only the public utility
corporations but, more so, the shareholders who will likely be divested of their stocks.
The sheer number of foreign shareholders and the affected shareholdings have been
illustrated by the Shareholder's Association of the Philippines, Inc. (SHAREPHIL) when
it explained that, in five companies alone, more than One Hundred Fifty Billion Pesos
(P150,000,000,000.00) worth of shares have to be forcibly taken from foreign
shareholders (and absorbed by Filipino investors).
The rights of these other corporations and numerous shareholders cannot simply
be ignored in making a final determination on the constitutionality of MC No. 8. The
petitioner's failure to implead is not just a simple procedural misstep but a patent denial
of due process rights. 16
The Constitution is clear as it is categorical. The State cannot proceed with
depriving persons their property without first ensuring that compliance with due process
requirements is duly observed. 17 This Court cannot, thus, sanction a restrictive
interpretation of the nationality requirement without first affording the other public utility
corporations and their shareholders an opportunity to participate in the present
proceedings.
The SEC did not abuse its discretion
in issuing MC No. 8
Even if the Court takes the lenient stance and turns a blind eye on all the
numerous procedural infirmities of the petition, the petition still fails on the merits.
The petition is anchored on the contention that the SEC committed grave abuse of
discretion in issuing MC No. 8. By grave abuse of discretion, the petitioners must prove
that the Commission's act was tainted with the quality of whim and caprice. 18 Abuse of
discretion is not enough. It must be shown that the Commission exercised its power in
an arbitrary or despotic manner because of passion or personal hostility that is so
patent and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform a duty enjoined or to act at all in contemplation of law. 19
With this standard in mind, the petitioner and petitioners-in-intervention failed to
demonstrate that the SEC's issuance of MC No. 8 was attended with grave abuse of
discretion. On the contrary, the assailed circular sufficiently applied the Court's
definitive ruling in Gamboa.
To recall, Gamboa construed the word "capital" and the nationality requirement in
Section 11, Article XII of the Constitution, which states:
SECTION 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be
citizens of the Philippines. (emphasis supplied)
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:
Considering that common shares have voting rights which translate to control,
as opposed to preferred shares which usually have no voting rights, the term
'capital' in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the
election of directors, then the term "capital" shall include such preferred shares
because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of
directors. In short, the term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of
directors. AHDac C
This interpretation is consistent with the intent of the framers of the Constitution
to place in the hands of Filipino citizens the control and management of public
utilities. As revealed in the deliberations of the Constitutional Commission,
"capital" refers to the voting stock or controlling interest of a corporation . . . .
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.:
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. (emphasis supplied)
The motions for reconsideration of the June 28, 2011 Decision filed by the
movants in Gamboa argued against the application of the term "capital" to the voting
shares alone and in favor of applying the term to the total outstanding capital stock
(combined total of voting and non-voting shares). Notably, none of them contended or
moved for the application of the capital or the 60-40 requirement to "each and every
class of shares" of a public utility, as it was never an issue in the case.
In resolving the motions for reconsideration in Gamboa, it is relevant to stress
that the majority did not modify the June 28, 2011 Decision. The fallo of the October 9,
2012 Resolution simply stated:
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No
further pleadings shall be entertained.
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 Court 20 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:
An obiter dictum has been defined as an opinion expressed by a court
upon some question of law that is not necessary in the determination of the case
before the court. It is a remark made, or opinion expressed, by a judge, in his
decision upon a cause by the way, that is, incidentally or collaterally , and not
directly upon the question before him, or upon a point not necessarily involved
in the determination of the cause, or introduced by way of illustration, or analogy
or argument. It does not embody the resolution or determination of the
court, and is made without argument, or full consideration of the point. It
lacks the force of an adjudication, being a mere expression of an opinion with
no binding force for purposes of res judicata. 21 (emphasis and underscoring
supplied)
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
XXI, 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, while some stocks may be
"puttable" or offered by the stockholder at a certain time, at a certain price.
Without a doubt, the classes and variety of shares that may be issued by a
corporation are limited only by the bounds of the corporate directors' imagination.
Worse, they can be classified and re-classified, ad nauseam , from time to time.
Thus, to require the SEC and other government agencies to keep track of the
ever-changing capital classes of corporations would be impractical, if not downright
impossible. Perhaps it is best to be reminded that the law does not require the
impossible. (Lex non cogit ad impossibilia.) 22
Neither can the petitioners rely on the concept of "beneficial ownership" to sustain
their position. The phrase, "beneficial ownership," is nowhere found in Section 11,
Article XII of the Constitution. Rather "beneficial ownership" was introduced in the
Implementing Rules and Regulations of the Foreign Investment Act of 1991 (FIA), not
even in the law itself. Suggesting that the phrase can expand, qualify and amend the
intent of the Constitution is, bluntly, preposterous.
In defining a "Philippine National," the FIA stated, viz.: IDSEAH
It is hardly a matter to be disputed that the issuance by the SEC of MC No. 8 was
in the exercise of its regulatory functions. 5 In such exercise, the SEC's quasi-judicial
functions were not involved. A quasi-judicial function relates to the action, discretion,
etc. of public administrative officers or bodies required to investigate facts, or to
ascertain the existence of facts, to hold hearings, and to draw conclusions from the
facts as the basis for official actions and for the exercise of discretion of a judicial
nature. 6 Indeed, the quasi-judicial or adjudicatory functions of the SEC under its original
and exclusive jurisdiction related only to the hearing and determination of controversies
and cases involving: (a) intra-corporate and partnership relations between or among the
corporation, officers and stockholders and partners, including their elections or
appointments; (b) state and corporate affairs in relation to the legal existence of
corporations, partnerships and associations or to their franchises; and (c) investors and
corporate affairs, particularly in respect of devices and schemes, such as fraudulent
practices, employed by directors, officers, business associates, and/or other
stockholders, partners, or members of registered firms. They did not relate to the
issuance of the regulatory measures like MC No. 8.
In the context of the limitations on the remedies of certiorari and prohibition, Roy
improperly challenged MC No. 8 by petition for certiorari and prohibition.
2.
The Court cannot take cognizance
of the petitions for certiorari and prohibition
in the exercise of its expanded jurisdiction
The Court cannot take cognizance of Roy's petition for certiorari and prohibition
under its expanded jurisdiction provided in Section 1, paragraph 2, 7 of Article VIII of the
Constitution. Such expanded jurisdiction of the Court is confined to reviewing whether or
not another branch of the Government (that is, the Executive or the Legislature),
including the responsible officials of such other branch, acted without or in excess of
jurisdiction, or gravely abused its discretion amounting to lack or excess of jurisdiction.
The expanded jurisdiction of the Court was introduced in the 1987 Constitution
precisely to impose on the Court the duty of judicial review as the means to neutralize
the avoidance or non-interference approach based on the doctrine of political question
whenever a controversy came before the Court. As explained in Araullo v. Aquino III : 8
The background and rationale of the expansion of judicial power under
the 1987 Constitution were laid out during the deliberations of the 1986
Constitutional Commission by Commissioner Roberto R. Concepcion (a former
Chief Justice of the Philippines) in his sponsorship of the proposed provisions
on the Judiciary, where he said: —
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 husband. There are some rights
guaranteed by law, but they are so personal that to enforce them
by actual compulsion would be highly derogatory to human
dignity."
This is why the first part of the second paragraph of Section
1 provides that:
Judicial power includes the duty of courts to settle
actual controversies involving rights which are legally
demandable or enforceable. . .
The courts, therefore, cannot entertain, much less decide,
hypothetical questions. In a presidential system of government,
the Supreme Court has, also, another important function. The
powers of government are generally considered divided into
three branches: the Legislative, the Executive and the
Judiciary. Each one is supreme within its own sphere and
independent of the others. Because of that supremacy power
to determine whether a given law is valid or not is vested in
courts of justice.
Briefly stated, courts of justice determine the limits of
power of the agencies and offices of the government as well
as those of its officers. In other words, the judiciary is the final
arbiter on the question whether or not a branch of
government or any of its officials has acted without
jurisdiction or in excess of jurisdiction, or so capriciously as
to constitute an abuse of discretion amounting to excess of
jurisdiction or lack of jurisdiction. This is not only a judicial
power but a duty to pass judgment on matters of this nature.
IDTSEH
The only time when the immutable and final judgment may be corrected or
modified is when the correction or modification concerns: (1) merely clerical errors; (2)
the so-called nunc pro tunc entries that cause no prejudice to any party; (3) void
judgments; and (4) whenever circumstances transpire after the finality of the decision
rendering its execution unjust and inequitable. 20
The supposed conflict between the dispositive portion or fallo of the resolution
promulgated on October 9, 2012 and the body of the resolution was not a sufficient
cause to disregard the doctrine of immutability. To begin with, the dispositive portion or
fallo prevails over body of the resolution. It is really fundamental that the dispositive part
or fallo of a judgment that actually settles and declares the rights and obligations of the
parties finally, definitively, and authoritatively controls, regardless of the presence of
inconsistent statements in the body that may tend to confuse. 21 Indeed, the
dispositive part or fallo is the final order, while the opinion is but a mere statement,
ordering nothing. 22 As pointed out in Contreras and Gingco v. Felix and China Banking
Corp.: 23
. . . More to the point is another well-recognized doctrine, that the final
judgment as rendered is the judgment of the court irrespective of all seemingly
contrary statements in the decision. "A judgment must be distinguished from an
opinion. The latter is the informal expression of the views of the court and
cannot prevail against its final order or decision. While the two may be
combined in one instrument, the opinion forms no part of the judgment. So, . . .
there is a distinction between the findings and conclusions of a court and its
judgment. While they may constitute its decision and amount to the rendition of
a judgment, they are not the judgment itself. They amount to nothing more than
an order for judgment, which must, of course, be distinguished from the
judgment." (1 Freeman on Judgments, p. 6) At the root of the doctrine that the
premises must yield to the conclusion is perhaps, side by side with the needs of
writing finis to litigations, the recognition of the truth that "the trained intuition of
the judge continually leads him to right results for which he is puzzled to give
[tmu] [un]impeachable legal reasons." "It is an everyday experience of those
who study judicial decisions that the results are usually sound, whether the
reasoning from which the results purport to flow is sound or not." (The Theory of
Judicial Decision, Pound, 36 Harv. Law Review, pp. 9, 51.) It is not infrequent
that the grounds of a 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. c DSAEI
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 October 12, 2012 are controlling.
4.
The petition is actually a disguised circumvention
of the ban against a second motion for reconsideration
To me, the petition of Roy is an attempt to correct the failure of the dispositive
portion of the resolution of October 9, 2012 to echo what was stated in the body of the
resolution. In that sense, the petition is actually a second motion for reconsideration
disguise as an original petition for certiorari and prohibition designed to accomplish
something that the intervenors, who were the petitioners in Gamboa v. Teves, did not
accomplish directly thereat. Hence, the dismissal of the petition and the petition in
intervention is fully warranted, for what the intervenors could not do directly should not
now be allowed to be done by them indirectly.
In this regard, we reiterate the rule that a second motion for reconsideration is
prohibited from being filed in this Court. Section 3, Rule 15 of the Internal Rules of the
Supreme Court expressly state so, to wit:
Section 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.
xxx xxx xxx
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
It is a settled rule is that a judgment which has acquired finality becomes
immutable and unalterable; hence, it may no longer be modified in any respect
except only to correct clerical errors or mistakes. Clarification after final
judgment is, however, allowed when what is involved is a clerical error, not
a correction of an erroneous judgment, or dispositive portion of the
Decision. Where there is an ambiguity caused by an omission or mistake in the
dispositive portion, the court may clarify such ambiguity, mistake, or omission by
an amendment; and in so doing, it may resort to the pleadings filed by the
parties, the court's findings of facts and conclusions of law as expressed in the
body of the decision. (Bold emphasis supplied.)
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 presented an unadulterated inquiry arising upon an ambiguity in
the decision. 27
In the Gamboa Decision, the Court defined the term "capital" as referring to
shares of stock that can vote in the election of directors. Voting rights translate to
control. Otherwise stated, "the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors." 3
In the same decision, the Court pointed out that "[m]ere legal title is insufficient to
meet the 60 percent Filipino-owned 'capital' required in the Constitution." 4 Full beneficial
ownership of 60 percent of the total outstanding capital stock, coupled with 60 percent of
the voting rights, is the minimum constitutional requirement for a corporation to operate
a public utility, thus:
. . . . 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]." 5 (Emphasis supplied)
Significantly, in the 9 October 2012 Resolution in Gamboa (Gamboa Resolution) 6
denying the motion for reconsideration, the Court reiterated the twin requirement of full
beneficial ownership of at least 60 percent of the outstanding capital stock and at least
60 percent of the voting rights. This is consistent with the Foreign Investments Act, as
well as its Implementing Rules, thus:
This is consistent with Section 3 of the 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."
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." 7 (Emphasis in the original)
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:
Since the constitutional requirement of at least 60 percent Filipino
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. 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.
xxx xxx xxx
. . . 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.
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. . . . .
As we held in our 28 June 2011 Decision, to construe broadly the term
"capital" as the total outstanding capital stock, treated as a single class
regardless of the actual classification of shares, grossly contravenes the intent
and letter of the Constitution that the "State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos." We
illustrated the glaring anomaly which would result in defining the term "capital"
as the total outstanding capital stock of a corporation, treated as a single class
of shares regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares
owned by Filipinos, with both classes of share having a par value
of one peso (P1.00) per share. Under the broad definition of the
term "capital," such corporation would be considered compliant
with the 40 percent constitutional limit on foreign equity of public
utilities since the overwhelming majority, or more than 99.999
percent, of the total outstanding capital stock is Filipino owned.
This is obviously absurd. ISHaCD
Petitioners' Reply
On May 7, 2014, the petitioners filed their Joint Consolidated Reply with Motion
for Issuance of Temporary Restraining Order 14 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 finding that a case possessed transcendental
importance, the locus standi requirement should be relaxed.
On May 22, 2014, PLDT filed its Rejoinder and Opposition.
Comment in Intervention by Philippine Stock Exchange
On June 18, 2014, the Philippine Stock Exchange, Inc. (PSEI) filed its Motion to
Intervene with Leave of Court 15 attaching thereto its Comment-in-Intervention. The
PSEI took the same position as the SEC as to how capital in Section 11, Article XII of
the 1987 Constitution was defined in Gamboa. It agreed with the SEC that the
dispositive portion or the fallo of a decision should be the controlling factor.
Comment in Intervention by Sharephil
On June 1, 2016, Shareholders' Association of the Philippines, Inc. (Sharephil)
filed an Omnibus Motion for Leave to Intervene and Admit attached Comment-in-
Intervention. It sought intervention under Rule 19 of the Rules of Court 16 to protect the
rights of shareholders against the effects of unlawful and unreasonable regulations.
As an association composed of shareholders of Philippine companies, Sharephil
questions the propriety of the remedy availed of by the petitioners. It asserts that the
proper remedy should have been a petition for declaratory relief, which is well within the
jurisdiction of the Regional Trial Courts. 17
On the merits, Sharephil rejects petitioners' contention that MC No. 8 deviated
from the ruling of this Court in Gamboa. It argues that the SEC, in issuing the assailed
circular, merely followed what the Court stated in the dispositive portion of the Gamboa
Resolution 18 affirming the Gamboa Decision. 19
On practical considerations, Sharephil seeks to bring to the attention of the Court
the effects of declaring MC No. 8 as unconstitutional. It cites a market research study
released by Deutsche Bank on October 16, 2012 which opined that if the Court would
adopt an overly strict interpretation of the meaning of capital, not only PLDT but also a
large number of listed companies with similar structures could also be affected. It
cautions that in five (5) companies alone, 150 billion pesos worth of shares would have
to be sold by foreign shareholders in a forced divestment, if the obiter in Gamboa were
to be implemented.
Petitioners' Reply to the Comment-in-Intervention
In their Opposition and Reply to Intervention of Philippine Stock Exchange and
Sharephil, 20 petitioners essentially argue that PSE and Sharephil have no legal standing
to intervene. They submit that both intervenors have failed to establish sufficient legal
interest in the petition; that while it is true that intervention is permissive, it should not
be so lax as to admit of any whimsical or a mere passing interest in the issues at hand;
that in the instances where interventions were allowed by this Court, the most cited
reason was that the parties seeking intervention were indispensable in the case; and
that in this case, PSEI and Sharephil are not indispensable parties as they will not
sustain direct injury capable or deserving judicial protection.
Moreover, petitioners assert that Sharephil's claims were broad and speculative
as they were based solely on a perceived inconvenience that would be brought by this
proceedings to their members; and that there was no showing of any direct injury or
damage on the part of Sharephil considering that it is not involved in a constitutionally
restricted economic activity.
As to the claim that a ruling in favor of the petitioners will result in an injury to
PSE by reason of a sudden selling of shares in the market, they point out that the
depreciation and fluctuation of the market and share prices are not an injury capable of
legal protection in a proceeding involving the interpretation of the Constitution. At any
rate, such movement in prices is normal.
Finally, in upholding the correct interpretation and implementation of the
Constitution, the Philippines commits no breach against other states or their nationals
under international law particularly in cases where no general or particular specific
obligations limiting judicial interpretation of municipal law exists.
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.
A. THE PLDT BENEFICIAL TRUST FUND DOES NOT SATISFY
THE EFFECTIVE CONTROL TEST FOR PURPOSES OF
INCORPORATING BTF HOLDINGS WHICH ACQUIRED THE 150
MILLION PREFERRED VOTING SHARES OF PLDT.
B. WHETHER PLDT, THROUGH ITS ALTER-EGOS MEDIAQUEST
AND BTF HOLDINGS, INC., IS CIRCUMVENTING THE FOREIGN
OWNERSHIP RESTRICTIONS PROVIDED FOR IN THE 1987
CONSTITUTION.
3. WHETHER RECOURSE TO THIS HONORABLE COURT IS JUSTIFIED
BY THE TRANSCENDENTAL IMPORTANCE OF THE ISSUE RAISED
BY THE PETITIONER. 21
A reading of the contending pleadings discloses that the issues primarily raised
are (1) whether the SEC gravely abused its discretion when it omitted in SEC MC No. 8
the uniform and separate application of the 60:40 rule in favor of Filipinos to each and
every class of shares of a corporation; and (2) whether the constitutional prescription
has been complied with in the case of PLDT.
Considering that this Court is not a trier of facts, questions pertaining to whether
there was violation of the constitutional limits on foreign ownership by PLDT requires
the reception and examination of evidence. As this is beyond the Court's jurisdiction, it
will just confine itself to the first question.
Procedural Issues
Propriety of the Remedy
The SEC and PLDT raise two procedural issues that should bar the assumption of
jurisdiction by this Court.
According to the SEC, a Rule 65 petition is not the appropriate remedy to assail
the validity and constitutionality of MC No. 8. It posits that it may be invoked only
against a tribunal, board or officer exercising judicial or quasi-judicial functions.
Considering that the assailed circular was not issued in the exercise of quasi-judicial
functions and was more of a quasi-legislative act, the SEC opines that the filing of a
Rule 65 petition is not proper. Citing Southern Hemisphere Engagement Network, Inc.
v. Anti-Terrorism Council , 22 where the Court dismissed the petition for certiorari and
prohibition assailing the constitutionality of Republic Act (R.A.) No. 9372 and Executive
Order (E.O.) No. 7 for being an improper remedy as the said issuances did not involve a
quasi-judicial or judicial act, the SEC argues that the appropriate remedy should have
been a petition for declaratory relief under Rule 63 of the Rules of Court filed before a
regional trial court. 23
I cannot entirely agree. aHSTID
Ordinarily, the remedies of special civil actions for certiorari and prohibition are
used in cases where the inferior court or tribunal is said to be exceeding its jurisdiction
or was not proceeding according to essential requirements of law and would lie only to
review judicial or quasi-judicial acts. 24 Still, with the constitutionally expanded powers
of judicial review, particularly the authority and duty to determine the existence of grave
abuse of discretion on the part of the legislative and executive branches of government,
it cannot be denied that the scope of the said remedies, as traditionally known, has
changed.
The special civil actions for certiorari and prohibition under Rule 65 have been
held by this Court as proper remedies through which the question of grave abuse of
discretion can be heard regardless of how the assailed act has been exercised. In
Araullo v. Aquino, 25 this Court stated that "the remedies of certiorari and prohibition are
necessarily broader in scope and reach, and the writ of certiorari or prohibition may be
issued to correct errors of jurisdiction committed not only by a tribunal, corporation,
board or officer exercising judicial, quasi-judicial or ministerial functions but also to set
right, undo and restrain any act of grave abuse of discretion amounting to lack or
excess of jurisdiction by any branch or instrumentality of the Government, even if the
latter does not exercise judicial, quasi-judicial or ministerial functions." It was
further stated that in discharging the duty "to set right and undo any act of grave abuse
of discretion amounting to lack or excess of jurisdiction by any branch or instrumentality
of the Government, the Court is not at all precluded from making the inquiry provided
the challenge was properly brought by interested or affected parties." 26
Hence, petitions for certiorari , as in this case, and prohibition are undeniably
appropriate remedies to raise constitutional issues and to review and/or prohibit or
nullify the acts of legislative and executive officials.
As to PLDT's position that a petition for declaratory relief should have been the
appropriate remedy, I find it to be without basis.
An action for declaratory relief presupposes that there has been no actual breach
of the instruments involved or of the rights arising thereunder. It gives a practical
remedy to end controversies that have not reached the state where another relief is
immediately available; and supplies the need for a form of action that will set
controversies at rest before they lead to a repudiation of obligations, an invasion of
rights, and a commission of wrongs. The purpose of an action for declaratory relief is to
secure an authoritative statement of the rights and obligations of the parties under a
statute, deed, or contract for their guidance in the enforcement thereof, or compliance
therewith, and not to settle issues arising from an alleged breach thereof, it may be
entertained before the breach or violation of the statute, deed or contract to which it
refers. 27
In this case, declaratory relief can no longer be availed of because the mere
issuance of MC No. 8 is being viewed by the petitioners as a violation by itself of the
Constitution and this Court's final directive in Gamboa. As it appears, the purpose of
this petition is not to determine rights or obligations under the assailed circular for
enforcement purposes, but to settle the very question on whether the issuance was
made within the bounds of the Constitution which, if otherwise, would certainly amount
to grave abuse of discretion. By that standard alone, a petition for declaratory relief
clearly would not lie.
Hierarchy of Courts
The SEC and PLDT also contend that the Court should not assume jurisdiction
over this case because the petitioners failed to observe the principle of hierarchy of
courts. Under that principle, direct recourse to this Court is improper because the Court
must remain the court of last resort to satisfactorily perform its constitutional functions.
It allows the Court to devote its time and attention to matters within its exclusive
jurisdiction and to prevent the overcrowding of its docket. Be that as it may, the
invocation of this Court's original jurisdiction or plea for the dispensation of recourse to
inferior courts having concurrent jurisdiction to issue writs of certiorari has been
allowed in certain instances for special and important reasons clearly stated in the
petition, such as, (1) when dictated by the public welfare and the advancement of public
policy; (2) when demanded by the broader interest of justice; (3) when the challenged
orders were patent nullities; or (4) when analogous exceptional and compelling
circumstances called for and justified the immediate and direct handling of the case. 28
Exigent and compelling circumstances demand that this Court take cognizance of
this case to put an end to the controversy and resolve the matter that could have
pervasive effect on this nation's economy and security. Surely, this case is a litmus test
for a regulatory framework that must conform to the final Gamboa ruling and, above all,
the Constitution. Not to be disregarded is the opportunity that this case seeks to clarify
the dynamics of how to properly apply the nationality limits on public utilities. As Roy
puts it, the fact that this case relates to, and involves, an interpretation of the final
Gamboa ruling, makes it more necessary to immediately and finally settle the issues
being raised. This provides the Court an adequate and compelling reason to justify
direct recourse to this Court.CDHaET
Substantive Issues
For the reason that Filipinos must remain in effective control of a public utility
company, I am of the strong view that the Court should have partly granted the petition
and declared SEC MC No. 8 as non-compliant with the final Gamboa ruling.
The Gamboa Decision and Resolution
Mindful of the constitutional objective of ensuring that Filipinos remain in effective
control of our national economy, the Court in Gamboa seized the opportunity to define
the term capital as read in the context of the 1987 Constitution. In deciding the issue,
the Court fundamentally recognized and employed the control test 41 as a primary
method of determining compliance with the restrictions imposed by the Constitution on
foreign equity participation. Under such test, one has to first look into the nationality of
each stockholder as it appears in the books of the corporation because for a
stockholder to have control over the shares, he must hold them as the duly registered
owner in the stock and transfer book of a corporation. Thus, in Gamboa, the Court
declared that the required Filipino control over the "capital" of a public utility meant 60%
control over all shares with the right to elect the members of the board coupled with
60% control over the total outstanding capital stock. This would ensure that effective
control over a public utility would remain in the hands of Filipinos.
The Court, however, further stated that even stockholders, deprived of the right to
participate in the elections of directors, could still exert effective control through the
power of their vote on fundamental corporate transactions as outlined under Section 6 of
the Corporation Code. 42 For instance, stockholders, holding preferred shares, though
not generally entitled to elect directors, can still exercise their undeniable right to
approve or disapprove an amendment in the articles of incorporation.
Foreigners can greatly control and influence corporate decision-making
processes even if they do not have legal title to the shares. Non-stockholders or
persons or entities that do not have shares of a subject corporation registered under
their names can remain in effective control, albeit indirectly, of those with controlling
interest by just having specific property rights ("use and title") in equity given to them
while the legal title of the property given to another. 43 Thus, in the Gamboa Resolution
it was clarified and stressed that: EDCTIa
The claimed inconsistency in the definition of capital in the Gamboa Decision and
Gamboa Resolution and on how the Court uses them in this case is more apparent than
real. A deeper understanding of the Court's philosophical underpinning on the issue of
capital is that capital must be construed in relation to the constitutional goal of securing
the controlling interest in favor of Filipinos.
Plain from the Court's previous discussions is the conclusion that controlling
interest in a public utility cannot be achieved by applying the 60-40 rule solely to shares
with the right to vote in the election of directors; it must be applied to all classes of
shares. Although applying the rule only to such shares gives an assurance that Filipinos
will have control over the choice on who will manage the corporation, it does not mean
that they also control the decisions that are fundamentally important to the corporation.
If they would own 60% of all the shares of whatever class, they cannot be denied the
right to vote on important corporate matters. To the Court, the only way by which
Filipinos can be assured of having the controlling interest is to apply the 60:40 rule to
each class of shares regardless of restrictions or privileges present, with each
class, being considered as a distinct but indispensable and integral part of the
entire capital of a public utility for the purpose of determining the nationality
restrictions under the Constitution.
On the point of PSEI that a ruling in favor of the petitioners would lead to a
violation of the obligation of the Philippines to provide fair and equitable treatment to
foreign investors who have relied on the FIA and its IRR, as well as predecessor
statutes, the Court believes otherwise. Basic is the rule that the Constitution is
paramount above all else. It prevails not only over domestic laws, but also against
treaties and executive agreements. It cannot be said either that due process and equal
protection were violated. These constitutional limitations on foreign equity participation
have been there all along.
Need for a Constitutional Amendment
Until the people decide, through a new constitution, to ease the restrictions on
foreign participation in the public utility sector, the Court should resolve all doubts in
favor of upholding the spirit and intent of the 1987 Constitution.
As the SEC Memorandum Circular No. 8 is non-compliant with the final Gamboa
ruling, the omission by the SEC of the 60-40 rule application in favor of Filipinos to each
and every class of shares of a public utility constituted, and should have been declared,
a grave abuse of discretion.
In view of all the foregoing, the petition should have been granted and SEC
Memorandum Circular No. 8 should have been declared as non-compliant with the final
Gamboa ruling.
Accordingly, the Security and Exchange Commission should n have been directed
to strictly comply with the final Gamboa ruling, by including in the assailed circular the
rule on the application of the 60-40 nationality requirement to each class of shares
regardless of restrictions or privileges in accordance with the foregoing disquisition.
LEONEN, J., dissenting:
I dissent from the Decision denying the Petition. Respondent Securities and
Exchange Commission's Memorandum Circular No. 8, series of 2013 is inadequate as it
fails to encompass each and every class of shares in a corporation engaged in
nationalized economic activities. This is in violation of the constitutional provisions
limiting foreign ownership in certain economic activities, and is in patent disregard of
this Court's statements in its June 28, 2011 Decision 1 as further illuminated in its
October 9, 2012 Resolution 2 in Gamboa v. Finance Secretary Teves . Thus, the
Securities and Exchange Commission gravely abused its discretion.
A better considered reading of both the 2011 Decision and 2012 Resolution in
Gamboa demonstrates this Court's adherence to the rule on which the present Decision
turns: that the 60 per centum (or higher, in the case of Article XII, Section 10) Filipino
ownership requirement in corporations engaged in nationalized economic activities, as
articulated in Article XII and Article XIV 3 of the 1987 Constitution, must apply "to each
class of shares, regardless of differences in voting rights, privileges and restrictions[.]"
4
The 2011 Decision and 2012 Resolution in Gamboa concededly lend themselves
to some degree of confusion. The dispositive portion in the 2011 Decision explicitly
stated 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[.]" 5 The 2012
Resolution, for its part, fine-tuned this. Thus, it clarified that each class of shares, not
only those entitled to vote in the election of directors, is subject to the Filipino ownership
requirement. 6 However, the 2012 Resolution did not recalibrate the 2011 Decision's
dispositive portion — inclusive of its definition of "capital." Rather, it merely stated that
the motions for reconsideration were denied with finality and that no further pleadings
shall be allowed. 7
Nevertheless, a judgment must be read in its entirety; in such a manner as to
bring harmony to all of its parts and to facilitate an interpretation that gives effect to its
entire text. The brief statement in the dispositive portion of the 2012 Resolution that the
motions for reconsideration were denied was not inconsistent with the jurisprudential
fine-tuning of the concept of "capital." Neither was it inadequate; it succinctly stated the
action taken by the court on the pending incidents of the case. The dispositive portion
no longer needed to pontificate on the concept of "capital," for all that it needed to state
— to dispose of the case, at that specific instance — was that the motions for
reconsideration had been denied.
The brevity of the 2012 Resolution's dispositive portion was certainly not all that
there was to that Resolution. The Court's having promulgated an extended resolution (as
opposed to the more commonplace minute resolutions issued when motions for
reconsideration raise no substantial arguments or when the Court's prior decision or
resolution on the main petition had already passed upon all the basic issues) is telling. It
reveals that the Court felt it necessary to engage anew in an extended discussion
because matters not yet covered, needing greater illumination, warranting re-calibration,
or impelling fine-tuning, were then expounded on. This, even if the ultimate juridical
result would have merely been the denial of the motions for reconsideration. It would be
a disservice to the Court's own wisdom then, if attention was to be drawn solely to the
disposition denying the motions for reconsideration, while failing to consider the
rationale for that denial.
CaSAc H
This position does not violate the doctrine on immutability of judgments. The
Gamboa ruling is not being revisited or re-evaluated 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 judicial
review were official enactments which supposedly had yet to occasion an actual
violation of a party's rights. Province of North Cotabato is on point:
The Solicitor General argues that there is no justiciable controversy that
is ripe for judicial review in the present petitions, reasoning that:
The unsigned MOA-AD is simply a list of consensus points
subject to further negotiations and legislative enactments as well
as constitutional processes aimed at attaining a final peaceful
agreement. Simply put, the MOA-AD remains to be a proposal that
does not automatically create legally demandable rights and
obligations until the list of operative acts required have been duly
complied with. . . .
xxx xxx xxx
In the cases at bar, it is respectfully submitted that this
Honorable Court has no authority to pass upon issues based on
hypothetical or feigned constitutional problems or interests with no
concrete bases. Considering the preliminary character of the
MOA-AD, there are no concrete acts that could possibly violate
petitioners' and intervenors' rights since the acts complained of
are mere contemplated steps toward the formulation of a final
peace agreement. Plainly, petitioners and intervenors' perceived
injury, if at all, is merely imaginary and illusory apart from being
unfounded and based on mere conjectures. . . .
xxx xxx xxx
The Solicitor General's arguments fail to persuade.
Concrete acts under the MOA-AD are not necessary to render the
present controversy ripe. In Pimentel, Jr. v. Aguirre, this Court held:
. . . [B]y the mere enactment of the questioned law or the
approval of the challenged action, the dispute is said to have
ripened into a judicial controversy even without any other overt
act. Indeed, even a singular violation of the Constitution and/or the
law is enough to awaken judicial duty.
xxx xxx xxx
By the same token, when an act of the President, who in
our constitutional scheme is a coequal of Congress, is seriously
alleged to have infringed the Constitution and the laws . . . settling
the dispute becomes the duty and the responsibility of the courts.
In Santa Fe Independent School District v. Doe , the United States
Supreme Court held that the challenge to the constitutionality of the school's
policy allowing student-led prayers and speeches before games was ripe for
adjudication, even if no public prayer had yet been led under the policy,
because the policy was being challenged as unconstitutional on its face.
That the law or act in question is not yet effective does not negate
ripeness. For example, in New York v. United States , decided in 1992, the
United States Supreme Court held that the action by the State of New York
challenging the provisions of the Low-Level Radioactive Waste Policy Act was
ripe for adjudication even if the questioned provision was not to take effect until
January 1, 1996, because the parties agreed that New York had to take
immediate action to avoid the provision's consequences. 11 (Underscoring and
citations omitted)Cc STHI
The Court, here, is called to examine an official enactment that supposedly runs
afoul of the Constitution's injunction to "conserve and develop our patrimony," 12 and to
"develop a self-reliant and independent national economy effectively controlled by
Filipinos." 13 This allegation of a serious infringement of the Constitution compels us to
exercise our power of judicial review.
A consideration of the constitutional equity requirement as applying to each and
every single class of shares, not just to those entitled to vote for directors in a
corporation, is more in keeping with the "philosophical underpinning" 14 of the 1987
Constitution, i.e., "that capital must be construed in relation to the constitutional goal of
securing the controlling interest in favor of Filipinos." 15
No class of shares is ever truly bereft of a measure of control of a corporation. It
is true, as Section 6 16 of the Corporation Code permits, that preferred and/or
redeemable shares may be denied the right to vote extended to other classes of shares.
For this reason, they are also often referred to as 'non-voting shares.' However, the
absolutist connotation of the description "non-voting" is misleading. The same Section 6
provides that these "non-voting shares" are still entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
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;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
In the most crucial corporate actions — those that go into the very constitution of
the corporation — even so-called non-voting 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 by-laws), 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. "Non-voting" preferred and
redeemable shares are hardly irrelevant in controlling a corporation.
It is in this light that I emphasize the necessity, not only of legal title, but more so
of full beneficial ownership by Filipinos of the required percentage of capital in certain
corporations engaged in nationalized economic activities. This has been underscored in
Gamboa. This too, is a matter, which I emphasized in my Dissenting Opinion in the
Narra Nickel and Development Corp. v. Redmont Consolidated Mines Corp. 17 April
21, 2014 Decision. SDTIaE
Footnotes
* On official leave.
*** No Part.
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."
3. Heirs of Wilson P. Gamboa v. Finance Sec. Teves , 696 Phil. 276 (2012).
7. Id. at 547.
8. Id. at 548.
9. Id. at 605-609.
11. Id.
2 2 . Petitioner Roy and intervenors Gamboa, et al. will be collectively referred to as the
"petitioners."
36. Belgica v. Ochoa, 721 Phil. 416, 518-519 (2013), citing Joya v. Presidential Commission
on Good Government (PCGG), 296-A Phil. 595, 602 (1993) and Biraogo v. The
Philippine Truth Commission of 2010, 651 Phil. 374, 438 (2010); Hon. General v.
Hon. Urro, 662 Phil. 132, 144 (2011), citing Integrated Bar of the Philippines v.
Zamora, 392 Phil. 618, 632 (2000).
40. ";" instead of "." in the Petition-in-Intervention. Petition for Certiorari, rollo (Vol. I), p. 12;
Petition-in-intervention, id. at 243.
41. Galicto v. Aquino III, 683 Phil. 141, 170-171 (2012), citing Miñoza v. Lopez, 664 Phil. 115,
123 (2011).
42. Id. at 170, citing Tolentino v. Commission on Elections, 465 Phil. 385, 402 (2004).
46. Galicto v. Aquino III, supra note 41, at 172-173, citing Integrated Bar of the Philippines v.
Zamora, supra note 36, at 633.
47. Automotive Industry Workers Alliance v. Romulo , 489 Phil. 710, 719 (2005). Citations
omitted.
48. PLDT's Consolidated Memorandum, rollo (Vol. II), p. 992.
49. Petition for Certiorari, rollo (Vol. 1), p. 10, and Petition-in-intervention (For Certiorari), rollo
(Vol. I), p. 240.
50. Republic v. Roque, 718 Phil. 294, 307 (2013), citing Southern Hemisphere Engagement
Network, Inc. v. Anti-Terrorism Council, 646 Phil. 452, 478 (2010).
51. See Galicto v. Aquino III, supra note 41, at 170, citing Lozano v. Nograles, 607 Phil. 334,
344 (2009).
57. See Cua, Jr. v. Tan, 622 Phil. 661, 720 (2009).
62. In its Manifestation and Omnibus Motion dated July 29, 2011, the SEC stated: ". . . 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. Finance Sec. Teves, supra note 3, at
356-357, footnote 54; emphasis omitted.)
63. Heirs of Wilson P. Gamboa v. Finance Sec. Teves, id. at 356, 358.
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. Heirs of Wilson P. Gamboa v. Finance Secretary Teves, supra note 3, at 321.
83. For definition of "Beneficial owner or beneficial ownership" and "Control," please refer to
Sections 3.1.2 and 3.1.8, respectively of the 2015 Implementing Rules and
Regulations of the Securities Regulation Code.
8 4 . 2015 Implementing Rules and Regulations of the Securities Regulations Code, Sec.
3.1.2.
85. Implementing Rules and Regulations of Republic Act No. 7042 (Foreign Investment Act of
1991) as Amended by Republic Act No. 8179, Sec. 1, b; underscoring and emphasis
supplied.
86. Gamboa v. Finance Secretary Teves, supra note 2, at 57, 63. Emphasis and underscoring
supplied.
88. A financial instrument is a contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity. [IAS 32 — Financial
Instruments: Presentation, Key definitions [IAS 32.11, available at
<http://www.iasplus.com/en/standards/ias/ias32>, last accessed on November 28,
2016]. The common examples of financial instruments within the scope of
International Auditing Standards (IAS) 39 are as follows: cash; demand and time
deposit; commercial paper; accounts, notes, and loans receivable and payable; debt
and equity securities which includes investments in subsidiaries, associates, and
joint ventures; asset backed securities such as collateralised mortgage obligations,
repurchase agreements, and securitised packages of receivables; and derivatives,
including options, rights, warrants, futures contracts, forward contracts, and swaps.
[IAS 39 — Financial Instruments: Recognition and Measurement , available at
[IAS 39 — Financial Instruments: Recognition and Measurement , available at
<http://www.iasplus.com/en/standards/ias/ias39>, last accessed on November 28,
2016].
92. Id.
93. Biraogo v. The Philippine Truth Commission of 2010, supra note 36, at 463.
94. Gamboa v. Finance Secretary Teves, supra note 2, at 51-54. Underscoring supplied.
1. In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding shares of any class, or of
extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or substantially all of the corporate property and assets as provided in the Code; and
3. In case of merger or consolidation.
102. Petitioner Roy's Opposition and Reply to Interventions of Philippine Stock Exchange
and SHAREPHIL dated June 30, 2016, id. at 1128.
103. The PSE is an entity mandated to provide and maintain a convenient, economical, and
suitable market for the exchange of stocks, to formulate and implement rules and
regulations to ensure that the interests of all market participants are protected, and to
provide an efficient and fair market for buyers and sellers alike. The PSE alleges that,
in case the petitions are granted, it stands to be injured and there will be damaging
consequences on the market, as it will force the reduction of foreign investment and
restrict capital outflow. PSE's Comment-in-Intervention, p. 2, id. at 849.
107. Heirs of Wilson P. Gamboa v. Finance Secretary Teves, supra note 3, at 339.
108. 716 Phil. 500, 515-516 (2013). Emphasis supplied; citations omitted.
110. Contreras and Gingco v. Felix and China Banking Corp. , 78 Phil. 570, 577-578 (1947).
Citations omitted.
112. See Land Bank of the Philippines v. Suntay , 678 Phil. 879, 913-914 (2011).
113. FGU Insurance Corp. v. RTC of Makati City, Branch 66, 659 Phil. 117, 123 (2011).
114. Id.
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.
116. See Spouses Mahusay v. B.E. San Diego, Inc., 666 Phil. 528, 536 (2011).
117. See Commissioner on Higher Education v. Mercado , 519 Phil. 399, 406 (2006).
1. Gamboa v. Teves, 668 Phil. 1 (2011) and Heirs of Gamboa v. Teves , 696 Phil. 276-485
(2012).
VELASCO, JR., J., concurring:
1. G.R. No. 176579, June 28, 2011, 652 SCRA 690 and October 9, 2012, 682 SCRA 397.
2. Emphasis supplied.
3. PLDT's Consolidated Memorandum, pp. 2-3, citing SEC Notice dated 6 November 2012.
4. In Re Save the Supreme Court Judicial Independence and Fiscal Autonomy Movement ,
UDK-15143, January 21, 2015.
5. Hon. Luis Mario M. General v. Hon. Alejandro S. Urro, G.R. No. 191560, March 29, 2011,
citing Integrated Bar of the Philippines v. Zamora , 392 Phil. 618, 632 (2000).
6. Galicto v. Aquino III, G.R. No. 193978, February 28, 2012, citing Integrated Bar of the
Philippines (IBP) v. Hon. Zamora, 392 Phil. 618 (2000).
7. Automotive Industry Workers Alliance v. Romulo , 489 Phil. 710, 719 (2005); Gonzales v.
Narvasa, 392 Phil. 518, 525 (2000).
11. The Liga ng mga Barangay National v. The City Mayor of Manila , G.R. No. 154599,
January 21, 2004.
12. Vergara Sr. v. Suelto, 240 Phil. 719, 732 (1987); De Castro v. Santos, G.R. No. 194994,
April 16, 2013.
13. De Castro v. Santos, supra note 12, citing Santiago v. Vasquez, G.R. Nos. 99289-90,
January 27, 1993, 217 SCRA 633; and People v. Cuaresma, 254 Phil. 418, 427
(1989).
15. Id.; citing Galicia v. Mercado, G.R. No. 146744, March 6, 2006, 484 SCRA 131, 136-137.
16. See David v. Paragas, G.R. No. 176973, February 25, 2015 and Sy v. Court of Appeals ,
G.R. No. 94285, August 31, 1999.
17. Id.
18. OKS Designtech, Inc. v. Caccam, G.R. No. 211263, August 5, 2015.
19. Gold City Integrated Services, Inc. v. Intermediate Appellate Court , G.R. Nos. 71771-73,
March 31, 1989, citing Arguelles v. Young, G.R. No. L-59880, September 11, 1987,
153 SCRA 690; Republic v. Heirs of Spouses Molinyawe , G.R. No. 217120, April 18,
2016; Olaño v. Lim Eng Co, G.R. No. 195835, March 14, 2016; City of Iloilo v.
Honrado, G.R. No. 160399, December 9, 2015; OKS Designtech, Inc. v. Caccam,
G.R. No. 211263, August 5, 2015.
20. Ocean East Agency, Corp. v. Lopez , G.R. No. 194410, October 14, 2015.
21. Landbank of the Philippines v. Suntay , G.R. No. 188376, December 14, 2011.
22. Biraogo v. The Philippine Truth Commission, G.R. Nos. 192935 and 193036, December
7, 2010.
1. G.R. No. 176579, June 28, 2011, 652 SCRA 690; October 9, 2012 (resolution), 682 SCRA
397.
2. De los Santos v. Metropolitan Bank and Trust Corporation , G.R. No. 153852, October 24,
2012, 684 SCRA 410, 422-423.
3. Section 1. Petition for certiorari. — When any tribunal, board or officer exercising judicial or
quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such incidental reliefs as
law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certification of non-forum shopping as provided in the
third paragraph of section 3, Rule 46. (1a)
The petition shall likewise be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certification of non-forum shopping as provided in the
third paragraph of section 3, Rule 46. (2a)
5. See Securities and Exchange Commission v. Court of Appeals , G.R. No. 106425 &
106431-32, July 21, 1995, 246 SCRA 738, 740-741.
6. Securities and Exchange Commission v. Universal Rightfield Property Holdings, Inc. , G.R.
No. 181381, July 20, 2015.
7. Section 1. . . .
Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable 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.
9. Id. at 71-75.
12. Id.
. . . [T]he 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.
17. Apo Fruits Corporation v. Court of Appeals , G.R. No. 164195, December 4, 2009, 607
SCRA 200, 212-213.
18. FGU Insurance Corporation v. Regional Trial Court of Makati City, Branch 66 , G.R. No.
161282, February 23, 2011, 644 SCRA 50, 56.
20. FGU Insurance Corporation v. Regional Trial Court of Makati City, Br. 66, supra , at 56.
2 1 . Light Rail Transit Authority v. Court of Appeals , G.R. Nos. 139275-76 and 140949,
November 25, 2004, 444 SCRA 125, 136.
22. PH Credit Corporation v. Court of Appeals , G.R. No. 109648, November 22, 2001, 370
SCRA 155, 166.
24. Cobarrubias v. People, G.R. No. 160610, August 14, 2009, 596 SCRA 77, 89-90.
25. G.R. No. 179675, June 8, 2011, 651 SCRA 533, 539-540.
26. See Republic v. Unimex Micro Electronics GmBH , G.R. Nos. 166309-10, November 25,
2008, 571 SCRA 537, 540.
27. See Commissioner on Higher Education v. Mercado , G.R. No. 157877, March 10, 2006,
484 SCRA 424, 430-431.
2. Id. at 45.
3. Id. at 53.
4. Id. at 57.
5. Id.
7. Id. at 338-339.
9 . Spouses Belo v. Philippine National Bank , 405 Phil. 851 (2001); Soriano v. Offshore
Shipping and Manning Corp., 258 Phil. 309 (1989).
1. Under the doctrine of finality of judgment or immutability of judgment, a decision that has
acquired finality becomes immutable and unalterable, and may no longer be
modified in any respect, even if the modification is meant to correct erroneous
conclusions of fact and law, and whether it be made by the court that rendered it or by
the Highest Court of the land. (Gomeco Metal Corp. v. Court of Appeals , G.R. No.
202531, August 17, 2016.
3. Section 11. No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty
per centum of whose capital is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
16. Section 1. Who may intervene. — A person who has a legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both, or is so
situated as to be adversely affected by a distribution or other disposition of property in
the custody of the court or of an officer thereof may, with leave of court, be allowed to
intervene in the action. The court shall consider whether or not the intervention will
unduly delay or prejudice the adjudication of the rights of the original parties, and
whether or not the intervenor's rights may be fully protected in a separate proceeding.
(2[a], [b]a, R12)
Section 2. Time to intervene. — The motion to intervene may be filed at any time
before rendition of judgment by the trial court. A copy of the pleading-in-intervention
shall be attached to the motion and served on the original parties. (n)
Section 3. Pleadings-in-intervention. — The intervenor shall file a complaint-in-
intervention if he asserts a claim against either or all of the original parties, or an
answer-in-intervention if he unites with the defending party in resisting a claim
against the latter. (2[c]a, R12)
Section 4. Answer to complaint-in-intervention. — The answer to the complaint-in-
intervention shall be filed within fifteen (15) days from notice of the order admitting
the same, unless a different period is fixed by the court.
20. Rollo.
24. People v. Sandiganbayan, G.R. No. 188165, December 11, 2013, 712 SCRA 359.
26. Id.
28. Dy v. Judge Bibat-Palamos , G.R. No. 196200, September 11, 2013, 705 SCRA 613.
31. Abdul v. Sandiganbayan, G.R. No. 184496, December 2, 2013, 711 SCRA 246 citing
Mattel, Inc. v. Francisco, 582 Phil. 492, 501 (2008).
32. Lozano v. Nograles, 607 Phil. 334 (2009), citing Angara v. Electoral Commission, 63 Phil.
139 (1936).
33. Imbong v. Ochoa, G.R. No. 204819, April 8, 2014, 721 SCRA 146.
36. Galicto v. Aquino III, G.R. No. 193978, February 28, 2012, 667 SCRA 150, citing Lozano
v. Nograles, 607 Phil. 334 (2009).
37. Anak Mindanao Party-List Group v. Exec. Sec. Ermita , 558 Phil. 338, 351 (2007).
40. Araullo v. Aquino III, G.R. No. 209287, July 1, 2014, 728 SCRA 1.
41. As embodied in Sec. 3 of R.A. No. 7042 or the Foreign Investments Act of 1991.
42. The Corporation Code, Section 6. "Classification of shares. — The shares of stock of
stock corporations may be divided into classes or series of shares, or both, any of
which classes or series of shares may have such rights, privileges or restrictions as
may be stated in the articles of incorporation: Provided, That no share may be
deprived of voting rights except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code: Provided, further, that
there shall always be a class or series of shares which have complete voting rights.
4 5 . Resolution, Narra Nickel Mining and Development Corp. v. Tesoro Mining and
Development Inc., et al., G.R. No. 195580, January 28, 2015,
<http://sc.judiciary.gov.ph/jurisprudence/2012october2012/176579.pdf> (Last visited,
April 21, 2015). Parenthetically, it is advanced that the application of the Grandfather
Rule is impractical as tracing the shareholdings to the point when natural persons
hold rights to the stocks may very well lead to an investigation ad infinitum. Suffice it
to say in this regard that, while the Grandfather Rule was originally intended to trace
the shareholdings to the point where natural persons hold the shares, the SEC had
already set up a limit as to the number of corporate layers the attribution of the
nationality of the corporate shareholders may be applied.
4 7 . Resolution, Narra Nickel Mining and Development Corp. v. Tesoro Mining and
Development, Inc., et al., G.R. No. 195580, January 28, 2015,
<http://sc.judiciary.gov.ph/jurisprudence/2012/october2012/176579.pdf> (Last visited,
April 21, 2015).
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 Cass 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.
Since Y is only sixty-percent (60%) controlled by Filipinos, the Filipino Equity in X through
Y would be as follows:
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.
In effect, the equity of Filipinos in X, after applying the grandfather rule, has been diluted to
forty-eight percent (48%) of the total outstanding capital stock and thirty-six percent
(36%) of all shares with the rights to vote in the election of directors. Clearly, it
violates the constitutional limitation on foreign equity participation.
49. Empty Voting and Hidden Ownership: Taxonomy, Implications, and Reforms , Henry T.C.
Hu, <www.law.yale.edu/documents/pdf/cbl/PM-6-Bus-Law-Hu-Black.pdf> (Last
visited, April 23, 2015).
50. Implementing Rules and Regulations of the Securities and Regulation Code, Rule III,
Sec. 1.d. Beneficial 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 to direct
the voting of, such security; and/or investment returns or power, which includes the
power to dispose of, or to direct, the disposition of such security; . . . .
51. The Corporation Code, Section 6. Classification of shares. — The shares of stock of stock
corporations may be divided into classes or series of shares, or both, any of which
classes or series of shares may have such rights, privileges or restrictions as may be
stated in the articles of incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code: . . . ."
52. The Anti-Dummy Law, Section 2. "In all cases in which a constitutional or legal provision
requires that, in order that a corporation or association may exercise or enjoy a right,
franchise or privilege, not less than a certain per centum of its capital must be owned
by citizens of the Philippines or of any other specific country, it shall be unlawful to
falsely simulate the existence of such minimum stock or capital as owned by such
citizens, for the purpose of evading said provision. The president or managers and
directors or trustees of corporations or associations convicted of a violation of this
section shall be punished by imprisonment of not less than five nor more than fifteen
years, and by a fine not less than the value of the right, franchise or privilege, enjoyed
or acquired in violation of the provisions hereof but in no case less than five thousand
pesos."
53. La Campana Development Corp. v. Development Bank of the Phils. , 598 Phil. 612-634
(2009).
54. 49 C.J.S. 436, cited in Republic v. De los Angeles, 150-A Phil. 25-85 (1972).
1. Gamboa v. Finance Secretary Teves, et al. , 668 Phil. 1 (2011) [Per J. Carpio, En Banc].
2. Heirs of Wilson P. Gamboa v. Finance Secretary Teves, et al. , 696 Phil. 276 (2012) [Per J.
Carpio, En Banc].
3. CONST., art. XII, secs. 2, 10, 11, and art. XIV, sec. 4 (2) provide:
4. Heirs of Wilson P. Gamboa v. Finance Secretary Teves, et al. , 696 Phil. 276, 341 (2012)
[Per J. Carpio, En Banc].
5. Gamboa v. Finance Secretary Teves, et al. , 668 Phil. 1, 69-70 (2011) [Per J. Carpio, En
Banc]. This definition, stated in a fallo, was noted in my April 21, 2014 Dissent in
Narra Nickel Mining and Development Corp., et al. v. Redmont Consolidated Mines
Corp., 733 Phil. 365, 420 (2014) [Per J. Velasco, Jr., Third Division]. This, however,
was not the pivotal point in that Opinion.
6. Heirs of Wilson P. Gamboa v. Finance Secretary Teves, et al. , 696 Phil. 276, 341 (2012)
[Per J. Carpio, En Banc]. The Court stated, "[s]ince 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. 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. 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."
7. Id. at 363.
9. G.R. No. 204819, April 8, 2014, 721 SCRA 146 [Per J. Mendoza, En Banc].
11. Province of North Cotabato, et al. v. Government of the Republic of the Philippines
Peace Panel on Ancestral Domain (GRP), et al., 589 Phil. 387 (2008) [Per J. Carpio-
Morales, En Banc].
15. Id.
17. J. Leonen, Dissenting Opinion in Narra Nickel Mining and Development Corp., et al. v.
Redmont Consolidated Mines Corp., 733 Phil. 365, 420 (2014) [Per J. Velasco, Jr.,
Third Division].
20. J. Leonen, Dissenting Opinion in Narra Nickel Mining and Development Corp., et al. v.
Redmont Consolidated Mines Corp., 733 Phil. 365, 475 (2014) [Per J. Velasco, Jr.,
Third Division].
21. SECURITIES CODE, Revised Implementing Rules and Regulations (2011), Rule 3 (1)
(A) provides:
Rules 3 — Definition of Terms
1....
A. Beneficial 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)[.]
23. J. Leonen, Dissenting Opinion in Narra Nickel Mining and Development Corp., et al. v.
Redmont Consolidated Mines Corp., 733 Phil. 365, 468 (2014) [Per J. Velasco, Jr.,
Third Division].
25. Heirs of Wilson P. Gamboa v. Finance Secretary Teves, et al. , 696 Phil. 276, 332 (2012)
[Per J. Carpio, En Banc].
26. J. Leonen, Dissenting Opinion in Narra Nickel Mining and Development Corp., et al. v.
Redmont Consolidated Mines Corp., 733 Phil. 365, 467 (2014) [Per J. Velasco, Jr.,
Third Division].
27. Id. at 469-471, citing Gamboa v. Finance Secretary Teves, et al. , 668 Phil. 1, 51, 53, and
69-71 (2011) [Per J. Carpio, En Banc].
30. Id. at 478-479, citing DOJ Opinion No. 165, series of 1984, p. 5.