160. Roy V.

Herbosa to vote in the election of directors; AND (b) the total number of
G.R. 207246 outstanding shares of stock, whether or not entitled to vote in the
November 22, 2016 election of directors.
Topic: Foreign Corporations
Petitioners: Jose Roy III HOW THE CASE STARTED:
Respondents: PSE and Shareholders Assosciation of the Philippines - Here enters Roy: (his contentions were mirrorer by the other
Ponente: J.Caguioa petitioners)
FACTS - Roy, as a lawyer and taxpayer, filed the Petition assailing the
PRIOR TO THE CASE: validity of SEC-MC No. 8 for not conforming to the letter and
- The Court issued the Gamboa Decision, which reads: spirit of the Gamboa Decision and Resolution and for having been
WHEREFORE, we PARTLY GRANT the petition and rule that issued by the SEC with grave abuse of discretion.
the term "capital" in Section 11, Article XII of the 1987 - He seeks to apply the 60-40 Filipino ownership requirement
Constitution refers only to shares of stock entitled to vote in the separately to each class of shares of a public utility corporation,
election of directors, and thus in the present case only to common whether common, preferred nonvoting, preferred voting or any
shares, and not to the total outstanding capital stock (common and other class of shares.
non-voting preferred shares). Respondent Chairperson of the - Petitioner Roy also questions the ruling of the SEC that PLDT is
Securities and Exchange Commission is DIRECTED to apply this compliant with the constitutional rule on foreign ownership.
definition of the term "capital" in determining the extent of - He prays that the Court declare SEC-MC No. 8 unconstitutional
allowable foreign ownership in respondent PLDT, and if there is a and direct the SEC to issue new guidelines regarding the
violation of Section 11, Article XII of the Constitution, to impose determination of compliance with Section 11, Article XII of the
the appropriate sanctions under the law. Constitution in accordance with Gamboa.
- The Gamboa Decision attained finality on October 18, 2012, and - SEC’s sought the dismissal of the petitions on the following
Entry of Judgment was thereafter issued on December 11, 2012. grounds: (this was also PLDT’s contention when it filed its
- Subsequently SEC posted a Notice in its website inviting the Rejoinder) the petitioners do not possess locus standi to assail the
public to attend a public dialogue and to submit comments on the constitutionality of SEC-MC No. 8; a petition for certiorari under
draft memorandum circular on the guidelines to be followed in Rule 65 is not the appropriate and proper remedy to assail the
determining compliance with the Filipino ownership requirement validity and constitutionality of the SEC-MC No. 8; the direct
in public utilities under Section 11, Article XII of the Constitution resort to the Court violates the doctrine of hierarchy of courts; the
pursuant to the Court's directive in the Gamboa Decision (this SEC did not abuse its discretion; on PLDT's compliance with the
happened twice!) capital requirement as stated in the Gamboa ruling, the petitioners'
- The SEC, through respondent Chairperson Teresita J. Herbosa, challenge is premature considering that the SEC has not yet issued
issued SEC-MC No. 8 entitled "Guidelines on Compliance with a definitive ruling thereon.
the Filipino-Foreign Ownership Requirements Prescribed in - Philippine Stock Exchange, Inc. ("PSE") filed its Motion
the Constitution and/or Existing Laws by Corporations toIntervene: (LAHAT NALANG SUMALI) PSE alleged that it
Engaged in Nationalized and Partly Nationalized Activities." has standing to intervene as the primary regulator of the stock
SEC-MC No. 8 Section 2. All covered corporations shall, at all exchange and will sustain direct injury should the petitions be
times, observe the constitutional or statutory ownership granted.
requirement. For purposes of determining compliance therewith, - The PSE argued that in the Gamboa ruling, "capital" refers only to
the required percentage of Filipino ownership shall be applied to shares entitled to vote in the election of directors, and excludes
BOTH (a) the total number of outstanding shares of stock entitled those not so entitled; and the dispositive portion of the decision is
 the controlling factor that determines and settles the questions attained finality
presented in the case and adopting a new definition of "capital"
will prove disastrous for the Philippine stock market. The Substantive Issues: SEC did not commit grave abuse of discretion
amounting to lack or excess of jurisdiction when it issued SEC- MC No.
ISSUE 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued
(1) Whether the SEC gravely abused its discretion in ruling that PLDT is in fealty to the Gamboa Decision and Resolution. Discussion on the
compliant with the constitutional limitation on foreign ownership: NO “CAPITAL”
Considering that common shares have voting rights, which translate to
(2) Whether the SEC gravely abused its discretion in issuing SECMC No. 8 control, as opposed to, preferred shares which usually have no voting rights,
in light of the Gamboa Decision and Gamboa the term "capital" in Section 11, Article XII of the Constitution refers only
Resolution: NO 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
HELD/RATIO such preferred shares because the right to participate in the control or
(1) AS TO THE PLDT CASE: management of the corporation is exercised through the right to vote in
The SEC did not GAD in issuing the MC No. 8 as it already clarified that it the election of directors. In short, the term "capital" in Section 11,
"has not yet issued a definitive ruling anent PLDT's compliance with the Article XII of the Constitution refers only to shares of stock that can
limitation on foreign ownership imposed under the Constitution and vote in the election of directors. This interpretation is consistent with the
relevant laws and the same MC readily reveals that all existing covered intent of the framers of the Constitution to place in the hands of Filipino
corporations which are non-compliant with Section 2 thereof were given a citizens the control and management of public utilities. Even if the 60-40
period of one (1) year from the effectivity of the same within which to ownership in favor of Filipinos rule is applied separately to each class of
comply with said ownership requirement. Thus, in the absence of a shares of a public utility corporation, as the petitioners insist, the rule can
definitive ruling by the SEC on PLDT's compliance with the capital easily be sidestepped by a dummy relationship. In other words, even
requirement pursuant to the Gamboa Decision and Resolution, any question applying the 60-40 Filipino foreign ownership rule to each class of shares
relative to the inexistent ruling is premature. will not assure the lofty purpose enunciated by petitioners.

On Procedural Issues Mere legal title is INSUFFICIENT to meet the 60% Filipino ownership
There was no actual controversy as the petitioners’ concern is evidently capital as required by the Constitution
only speculative and fraight with conjectures and assumption. The The Court observed further in the Gamboa Decision that reinforcing this
petitioners have no locus standi as their invocation of one’s interpretation of the term "capital", as referring to interests or shares entitled
citizenship/membership in the bar is far too general which are too, shared to vote, is the definition of a Philippine national in the Foreign Investments
with the whole citizenry. Also their contention tat they are taxpayers is also The FIA-IRR provides: Compliance with the required Filipino ownership of
of no moment. a taxpayer's suit is allowed only when the petitioner has a corporation shall be determined on the basis of outstanding capital stock
demonstrated the direct correlation of the act complained of and the whether fully paid or not, but only such stocks which are generally
disbursement of public funds in contravention of law or the Constitution, or entitled to vote are considered. Full beneficial ownership of the stocks,
has shown that the case involves the exercise of the spending or taxing coupled with appropriate voting rights is essential. Thus, stocks, the
power of Congress. Rule on the hierarchy of courts: petitioner’s invocation voting rights of which have been assigned or transferred to aliens
of transcendental importance is hallow and does not merit the relaxation of cannot be considered held by Philippine citizens or Philippine
the rule on hierarchy of court plus the petitioners did not implead nationals. The assailed SEC-MC No. 8, Section 2 of SEC-MC No. 8
indispensable parties such as other corporations that may be prejudiced in clearly incorporates the Voting Control Test or the controlling interest
this ruling. The clear and unequivocal definition of "capital" in Gamboa has 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 "full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights is required."

The full beneficial ownership test

There is variance in the proportion of stockholders' controlling interest visa-
vis their economic ownership rights. The Implementing Rules and
Regulations (IRR) of the Securities Regulation Code, which defined
beneficial ownership, as that may exist either through voting power and/or
through investment returns, recognize this resulting variation. By using
and/or in defining beneficial ownership, the IRR, in effect, recognizes a
possible situation where voting power is not commensurate to investment
power. If a Filipino in the books of the corporation owns a “specific stock”,
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.

The restrictive interpretation of the term "capital" would have a

tremendous impact on the country as a whole and to all Filipinos-
- Lack of investments may lead to the shutdown of the affected
- Enterprises and immeasurable consequences to the PH economy
- Local stock market cannot adequately absorb the influx of shares
caused by the forced divestment
- Stock 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