ROY III vs. Herbosa

7/31/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 810
CASES REPORTED
SUPREME COURT REPORTS ANNOTATED
____________________
G.R. No. 207246. November 22, 2016.*
JOSE M. ROY III, petitioner, vs. CHAIRPERSON TERESITA

HERBOSA, THE SECURITIES AND EXCHANGE
COMMISSION, and PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, respondents.
WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN

WARREN P. GABINETE, ANTONIO V. PESINA, JR., MODESTO
MARTIN Y. MAMON III, and GERARDO C. EREBAREN,
petitioners-in-intervention,
_______________
* EN BANC.
2 SUPREME COURT REPORTS ANNOTATED

Roy III vs. Herbosa
www.central.com.ph/sfsreader/session/0000016c45e4804e68b07864003600fb002c009e/t/?o=False 1/161
PHILIPPINE STOCK EXCHANGE, INC., respondent-in-

intervention,
SHAREHOLDERS’ ASSOCIATION OF THE PHILIPPINES, INC.,

respondent-in-intervention.
Judiciary; Judicial Review; Requisites for the exercise of the Supreme

Court’s (SC’s) power of judicial review.—The Court may exercise its power
of judicial review and take cognizance of a case when the following specific
requisites are met: (1) there is an actual case or controversy calling for the
exercise of judicial power; (2) the petitioner has standing to question the
validity of the subject act or issuance, i.e., he has a personal and substantial
interest in the case that he has sustained, or will sustain, direct injury as a
result of the enforcement of the act or issuance; (3) the question of
constitutionality is raised at the earliest opportunity; and (4) the
constitutional question is the very lis mota of the case.
Actual Controversy; An actual case or controversy is one which
involves a conflict of legal rights, an assertion of opposite legal claims,
susceptible of judicial resolution as distinguished from a hypothetical or
abstract difference or dispute.—The Court in Belgica v. Ochoa, Jr., 710
SCRA 1 (2013), stressed anew that an actual case or controversy is one
which involves a conflict of legal rights, an assertion of opposite legal
claims, susceptible of judicial resolution as distinguished from a
hypothetical or abstract difference or dispute since the courts will decline to
pass upon constitutional issues through advisory opinions, bereft as they are
of authority to resolve hypothetical or moot questions. Related to the
requirement of an actual case or controversy is the requirement of
“ripeness,” and a question is ripe for adjudication when the act being
challenged has a direct adverse effect on the individual challenging it.
Locus Standi; The personal and substantial interest that enables a
party to have legal standing is one that is both material and real.—The
personal and substantial interest that enables a party to have legal standing
is one that is both material, an interest in issue and to be affected by the
government action, as distinguished from mere interest in the issue
involved, or a mere incidental interest, and real, which means a present
substantial interest, as distin-
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Roy III vs. Herbosa
guished from a mere expectancy or a future, contingent, subordinate, or

consequential interest.
Same; As to injury, the party must show that (1) he will personally
suffer some actual or threatened injury because of the allegedly illegal
conduct of the government; (2) the injury is fairly traceable to the
challenged action; and (3) the injury is likely to be redressed by a favorable
action.—As to injury, the party must show that (1) he will personally suffer
some actual or threatened injury because of the allegedly illegal conduct of
the government; (2) the injury is fairly traceable to the challenged action;
and (3) the injury is likely to be redressed by a favorable action. If the
asserted injury is more imagined than real, or is merely superficial and
insubstantial, an excursion into constitutional adjudication by the courts is
not warranted.
Same; The locus standi requisite is not met by the expedient invocation
of one’s citizenship or membership in the bar who has an interest in
ensuring that laws and orders of the Philippine government are legally and
validly issued as these supposed interests are too general, which are shared
by other groups and by the whole citizenry.—The locus standi requisite is
not met by the expedient invocation of one’s citizenship or membership in
the bar who has an interest in ensuring that laws and orders of the Philippine
government are legally and validly issued as these supposed interests are too
general, which are shared by other groups and by the whole citizenry. Per
their allegations, the personal interest invoked by petitioners as citizens and
members of the bar in the validity or invalidity of SEC-MC No. 8 is at best
equivocal, and totally insufficient.
Same; Taxpayer’s Suit; A taxpayer’s suit is allowed only when the
petitioner has demonstrated the direct correlation of the act complained of
and the disbursement of public funds in contravention of law or the
Constitution, or has shown that the case involves the exercise of the
spending or taxing power of Congress.—As often reiterated by the Court, a
taxpayer’s suit is allowed only when the petitioner has demonstrated the
direct correlation of the act complained of and the disbursement of public
funds in contravention of law or the Constitution, or has shown that the case
involves the exercise of the spending or taxing power of Congress. SEC-MC
No. 8 does not involve an additional expenditure of public funds and the
taxing or spending power of Congress.

Roy III vs. Herbosa
Courts; Hierarchy of Courts; There being no special, important or

compelling reason that justified the direct filing of the petitions in the Court
in violation of the policy on hierarchy of courts, their outright dismissal on
this ground is further warranted.—Petitioners’ invocation of
“transcendental importance” is hollow and does not merit the relaxation of

the rule on hierarchy of courts. There being no special, important or
compelling reason that justified the direct filing of the petitions in the Court
in violation of the policy on hierarchy of courts, their outright dismissal on
this ground is further warranted.
Indispensable Parties; Indispensable parties are those with such a
material and direct interest in the controversy that a final decree would
necessarily affect their rights, so that the court cannot proceed without their
presence.—Under Section 3, Rule 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. Indispensable parties are those with such a material and direct
interest in the controversy that a final decree would necessarily affect their
rights, so that the court cannot proceed without their presence. The interests
of such indispensable parties in the subject matter of the suit and the relief
are so bound with those of the other parties that their legal presence as
parties to the proceeding is an absolute necessity and a complete and
efficient determination of the equities and rights of the parties is not possible
if they are not joined.
Corporation Law; Public Utility Corporation; As defined in the
Implementing Rules and Regulations of the Securities Regulation Code
(SRC-IRR), 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 and/or
investment returns or power.—As defined in the SRC-IRR, “[b]eneficial
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).”
Same; Same; The term “full beneficial ownership” found in the
Foreign Investment Act-Implementing Rules and Regulations (FIA-
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Roy III vs. Herbosa
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.—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.
Same; Same; 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.—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.
Same; Same; If the Filipino has the “specific stock’s” voting power, or
the Filipino has the investment power over the “specific stock,” or he has
both, then such Filipino is the “beneficial owner” of that “specific stock”
and that “specific stock” is considered as part of the sixty percent (60%)
Filipino ownership of the corporation.—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 dis-

Roy III vs. Herbosa
pose 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.
Same; Same; The “beneficial owner or beneficial ownership”
definition in the Implementing Rules and Regulations of the Securities
Regulation Code (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.—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.
Same; Same; The application of the sixty-forty (60-40) Filipino-foreign
ownership requirement separately to each class of shares, whether common,
preferred nonvoting, preferred voting or any other class of shares fails to
understand and appreciate the nature and features of stocks as financial
instruments.—To be sure, the application of the 60-40 Filipino-foreign
ownership requirement separately to each class of shares, whether common,
preferred nonvoting, preferred voting or any other class of shares fails to
understand and appreciate the nature and features of stocks as financial
instruments.
Same; Same; Stock Corporations; 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.—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
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Roy III vs. Herbosa
(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.
Same; Same; Constitutional Law; 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 eight (8) corporate actions in Section
6 of the Corporation Code will be to the best interest of the company.—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.
Same; Same; Allowing stockholders holding preferred shares without
voting rights to vote in the eight (8) corporate matters enumerated in
Section 6 of the Corporation Code is an acknowledgment of their right of
ownership.—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 of the Corporation Code in the event that they
dissent in the corporate act.
Same; Same; A too restrictive definition of “capital” 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.—As
acknowledged in the Gamboa v. Teves, 652 SCRA 690 (2011) (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

Roy III vs. Herbosa
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.
Courts; It is an elementary principle in procedure that the resolution of
the court in a given issue as embodied in the dispositive portion or fallo of a
decision controls the settlement of rights of the parties.—It is an elementary
principle in procedure that the resolution of the court in a given issue as
embodied in the dispositive portion or fallo of a decision controls the
settlement of rights of the parties and the questions, notwithstanding

statement in the body of the decision which may be somewhat confusing,
inasmuch as the dispositive part of a final decision is definite, clear and
unequivocal and can be wholly given effect without need of interpretation or
construction.
Doctrine of Finality of Judgments; 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.—Petitioners cannot, after
Gamboa v. Teves, 652 SCRA 690 (2011), 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. Indeed, the definition of the term “capital” in the fallo
of the Gamboa Decision has acquired finality.
Same; 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.—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.
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Roy III vs. Herbosa
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.
SERENO, CJ., Concurring Opinion:
Corporation Law; Public Utility Corporation; View that the number

and the par value of the permutation of shares definitely affect the issue of
the stockholding of a corporation.—The number and the par value of the

permutation of shares definitely affect the issue of the stockholding of a
corporation. As illustrated by Justice Antonio T. Carpio, preferred shares
having higher par values and higher dividend declarations result in higher
earnings than those of common shares. In his example, even if Filipinos
own 120 shares (100 common, 20 preferred), which outnumber the 80
preferred shares of foreigners, it is possible that the latter would have higher
earnings.
Same; Same; View that compliance on the basis of the number of
shares alone, does not necessarily result in keeping the required degree of
beneficial ownership in favor of Filipinos.—Thus, compliance on the basis
of the number of shares alone, does not necessarily result in keeping the
required degree of beneficial ownership in favor of Filipinos. The different
combinations of shares with respect to the number, par value, and dividend
earnings must also be taken into account.
Same; Same; View that in the case of a company where sixty percent
(60%) of stocks are voting and forty percent (40%) are preferred, with each
stock having the same par value, the minority formula that would impose
upon such companies another layer of nationality requirement by
demanding that at least 60% of each category of shares be in Filipino hands
would effectively drive up the nationality requirement to at least eighty-four
percent (84%). That this was not the intention of the Constitution is obvious.
—I would even venture that in the case of a company where 60% of stocks
are voting and 40% are preferred, with each stock having the same par
value, and which complies with the 60% Filipino voting share rule by
requiring that all voting stocks be purely in the hands of Filipinos,
10

Roy III vs. Herbosa
the minority formula that would impose upon such companies another
layer of nationality requirement by demanding that at least 60% of each
category of shares be in Filipino hands would effectively drive up the
nationality requirement to at least 84%. That this was not the intention of
the Constitution is quite obvious.
CARPIO, J., Separate Dissenting Opinion:
Corporation Law; Securities and Exchange Commission; View that

Securities and Exchange Commission (SEC) Memorandum Circular No. 8 is
valid and constitutional provided that the par values of the shares with
voting rights and the shares without voting rights are equal.—SEC
Memorandum Circular No. 8 is valid and constitutional provided that the

par values of the shares with voting rights and the shares without voting
rights are equal. If the par values vary, then the 60 percent Filipino
ownership requirement must be applied to each class of shares in order that
the “legal and beneficial ownership of 60 percent of the outstanding
capital stock x x x rests in the hands of Filipino nationals in accordance
with the constitutional mandate,” as expressly stated in the Gamboa v.
Teves, 652 SCRA 690 (2011) (Gamboa Decision), and as reiterated and
amplified in the Heirs of Wilson P. Gamboa v. Teves, 682 SCRA 397 (2012)
(Gamboa Resolution).
Same; Same; Constitutional Law; View that Section 11, Article XII of
the Constitution does not distinguish between voting or nonvoting, common
or preferred shares of stock. Thus, the term “capital” refers to all shares of
stock that are subscribed, which constitute the “capital” of a corporation.—
Section 11, Article XII of the Constitution is clear: “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, x x x.”
The term “capital” in this constitutional provision does not refer to a
specific class of share, as the Constitution does not distinguish between
voting or nonvoting, common or preferred shares of stock. Thus, the term
“capital” refers to all shares of stock that are subscribed, which constitute
the “capital” of a corporation.
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Roy III vs. Herbosa
Same; Same; Same; View that Securities and Exchange Commission

(SEC) Memorandum Circular No. 8, Series of 2013, is valid and
constitutional if all the shares of stock have the same par values. However, if
the shares of stock have different par values, the sixty percent (60%)
Filipino ownership requirement must be applied to each class of shares.—
ACCORDINGLY, I vote to GRANT the petition IN PART. SEC
Memorandum Circular No. 8, Series of 2013, is valid and constitutional if
all the shares of stock have the same par values. However, if the shares of
stock have different par values, the 60 percent Filipino ownership
requirement must be applied to each class of shares.
VELASCO, JR., J., Concurring Opinion:
Locus Standi; View that 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.—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.
Same; Courts; Hierarchy of Courts; View that 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.—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.
12

Roy III vs. Herbosa
Same; Corporation Law; Public Utility Corporation; View that the

Supreme Court (SC) cannot 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 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.
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.
Same; Public Utility Corporation; Securities and Exchange
Commission; View that requiring the Securities and Exchange Commission
(SEC) to impose the sixty-forty (60-40) requirement to “each and every
class of shares” in a public utility is not only unsupported by Section 11,
Article XII, 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.—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 XII, 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.
Same; Corporation Law; Public Utility Corporation; View that
petitioners cannot rely on the concept of “beneficial ownership” to sustain
their position because said phrase is nowhere found in Section 11, Article
XII of the Constitution.—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.
Corporation Law; Public Utility Corporation; View that in issuing
Memorandum Circular (MC) No. 8, the Securities and Exchange
Commission (SEC) abided by the Court’s decision and deferred to the
Court’s definition of the term “capital” in Section 11, Article XII of the
Constitution.—Thus, I join the majority in ruling that there is no need to
clarify the ruling in Heirs of Wilson P. Gamboa v. Teves, 682
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Roy III vs. Herbosa
SCRA 397 (2012), nor hold the Commission liable for grave abuse of
discretion. As it has manifested in Gamboa, in issuing MC No. 8, the SEC
abided by the Court’s decision and deferred to the Court’s definition of the
term “capital” in Section 11, Article XII of the Constitution.
BERSAMIN, J., Concurring Opinion:
Grave Abuse of Discretion; View that grave abuse of discretion means

either that the judicial or quasi-judicial power was exercised in an arbitrary
or despotic manner by reason of passion or personal hostility, or that the
respondent judge, tribunal or board evaded a positive duty, or virtually
refused to perform the duty enjoined or to act in contemplation of law, such
as when such judge, tribunal or board exercising judicial or quasi-judicial
powers acted in a capricious or whimsical manner as to be equivalent to
lack of jurisdiction.—Grave abuse of discretion means either that the
judicial or quasi-judicial power was exercised in an arbitrary or despotic
manner by reason of passion or personal hostility, or that the respondent
judge, tribunal or board evaded a positive duty, or virtually refused to
perform the duty enjoined or to act in contemplation of law, such as when

such judge, tribunal or board exercising judicial or quasi-judicial powers
acted in a capricious or whimsical manner as to be equivalent to lack of
jurisdiction. Mere abuse of discretion is not enough to warrant the issuance
of the writ.
Same; Certiorari; Prohibition; View that the remedies of certiorari and
prohibition respectively provided for in Section 1 and Section 2 of Rule 65 of
the Rules of Court are limited to the exercise of judicial or quasi-judicial
functions by the respondent tribunal, board or officer that acts without or in
excess of jurisdiction, or with grave abuse of discretion amounting to lack
or excess of jurisdiction.—The remedies of certiorari and prohibition
respectively provided for in Section 1 and Section 2 of Rule 65 of the Rules
of Court are limited to the exercise of judicial or quasi-judicial functions
(except that prohibition also applies to ministerial functions) by the
respondent tribunal, board or officer that acts without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction.
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Roy III vs. Herbosa
Constitutional Law; Jurisdiction; Judicial Review; Supreme Court;

View that the expanded jurisdiction of the Supreme Court (SC) was
introduced in the 1987 Constitution precisely to impose the duty of judicial
review as the means to neutralize the avoidance or noninterference
approach based on the doctrine of political question whenever a
controversy came before the Court.—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
noninterference approach based on the doctrine of political question
whenever a controversy came before the Court.
Same; Securities and Exchange Commission; View that the Securities
and Exchange Commission (SEC), albeit under the administrative
supervision of the Department of Finance, did not come under the terms any
branch or instrumentality of the Government used in Section 1, Article VIII
of the 1987 Constitution.—The SEC, albeit under the administrative
supervision of the Department of Finance, did not come under the terms any
branch or instrumentality of the Government used in Section 1, Article VIII
of the 1987 Constitution. Although it is an agency vested with adjudicatory
as well as regulatory powers, its issuance of MC No. 8 cannot be
categorized as an act of either an executive or a legislative character within
the context of the phrase any branch or instrumentality of the Government

used in Section 1, Article VIII of the 1987 Constitution.
Corporation Law; Public Utility Corporation; View that sixty percent
(60%) of the outstanding capital stock (whether or not entitled to vote in the
election of directors), coupled with 60% of the voting rights, must rest in the
hands of Filipinos.—The objective of the Court in defining the term capital
as used in Section 11, Article XII of the Constitution was to ensure that both
controlling interest and beneficial ownership were vested in Filipinos. The
decision of June 28, 2011 pronounced that capital refers only to shares of
stock that can vote in the election of directors (controlling interest) and
owned by Filipinos (beneficial ownership). Put differently, 60 percent of the
outstanding capital stock (whether or not entitled to vote in the election of
directors), coupled with 60 percent of the voting rights, must rest in the
hands of Filipinos.
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Roy III vs. Herbosa
Doctrine of Finality of Judgment; View that any attempt on the part of

Roy and the intervenors to hereby redefine the concept of capital will
unavoidably disregard the immutability of the final judgment in Gamboa v.
Teves, 652 SCRA 690 (2011). That is not permissible.—Any attempt on the
part of Roy and the intervenors to hereby redefine the concept of capital
will unavoidably disregard the immutability of the final judgment in
Gamboa v. Teves, 652 SCRA 690 (2011). That is not permissible. If the
main role of the courts of justice is to assist in the enforcement of the law
and in the maintenance of peace and order by putting an end to judiciable
controversies with finality, nothing serves this role better than the long
established doctrine of immutability of judgments.
Same; View that 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.—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 this principle must be
immediately struck down. This is because the doctrine of immutability of a
final judgment serves a two-fold purpose, namely: (1) to avoid delay in the
administration of justice and thus, procedurally, to make orderly the

discharge of judicial business; and (2) to put an end to judicial
controversies, at the risk of occasional errors, which is precisely why courts
exist.
Same; View that 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.—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)
when-
16

Roy III vs. Herbosa
ever circumstances transpire after the finality of the decision rendering

its execution unjust and inequitable.
Courts; View that 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.—
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.
Indeed, the dispositive part or fallo is the final order, while the opinion is
but a mere statement, ordering nothing.
Same; View that 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.—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. 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.
MENDOZA, J., Dissenting Opinion:
Certiorari; Prohibition; View that 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.—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.
17
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Roy III vs. Herbosa
Aquino, 728 SCRA 1 (2014), 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.”
Declaratory Relief; View that an action for declaratory relief
presupposes that there has been no actual breach of the instruments
involved or of the rights arising thereunder.—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.
Courts; Hierarchy of Courts; View that the invocation of the Supreme
Court’s (SC’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.—
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.
18

Roy III vs. Herbosa
Judicial Review; View that the Court’s authority to take cognizance of

the kind of questions presented in this case is not absolute. The Constitution
prescribes that before the Court accepts a challenge to a governmental act,
there must be first an actual case or controversy.—The Court’s authority to
take cognizance of the kind of questions presented in this case is not
absolute. The Constitution prescribes that before the Court accepts a
challenge to a governmental act, there must be first an actual case or
controversy.
Actual Controversy; View that an actual case is one that is appropriate
or ripe for determination, not conjectural or anticipatory.—As ingrained in
our jurisprudence, an actual case is one that is appropriate or ripe for
determination, not conjectural or anticipatory. “[C]ourts do not sit to
adjudicate mere academic questions to satisfy scholarly interest, however
intellectually challenging.” It has been said that any attempt at abstraction
could only lead to dialectics and barren legal questions and to sterile
conclusions unrelated to actualities.
Locus Standi; View that locus standi or legal standing is the personal
and substantial interest in a case such that the party has sustained or will
sustain direct injury as a result of the governmental act that is being
challenged.—As defined, locus standi or legal standing is the personal and
substantial interest in a case such that the party has sustained or will sustain
direct injury as a result of the governmental act that is being challenged. The
party must also demonstrate that the injury is likely to be redressed by a
favorable action of the courts. Absent this, the Court cannot consider a case.
Same; View that the collective interest of the Filipino in the compliance
of the Securities and Exchange Commission (SEC), being the statutory
regulator in-charge of enforcing and monitoring observance with the
Court’s interpretation of the constitutional limits on foreign participation in
public utilities, is a matter of public right.—The collective interest of the

Filipino in the compliance of the SEC, being the statutory regulator in
charge of enforcing and monitoring observance with the Court’s
interpretation of the constitutional limits on foreign participation in public
utilities, is a matter of public right. A manifest error in the implementation
of what the Constitution demands, specifically in the crafting of a legal
framework for corporate observance on nationality limits, lies grave abuse
of discre-
19
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Roy III vs. Herbosa
tion in its heart. This transcendentally important question requires the

Court to determine whether MC No. 8 conforms to the final ruling in
Gamboa.
Corporation Law; Public Utility Corporation; View that in the event
that a public utility corporation restructures and eventually concentrates all
foreign shareholdings solely to a preferred class of shares with high yielding
investment power, foreigners would, in effect, have economic interests
exceeding those of the Filipinos with less economically valuable common
shares.—In the event that a public utility corporation restructures and
eventually concentrates all foreign shareholdings solely to a preferred class
of shares with high yielding investment power, foreigners would, in effect,
have economic interests exceeding those of the Filipinos with less
economically valuable common shares. Evidently, this was not envisioned
by the framers of the Constitution. And for the reasons that follow, the Court
considers such a situation as an affront to the Constitution.
Same; Same; View that if Filipino controlling stockholders have
dominance over both economic ownership and control rights, their
decisions on corporate matters will mean independence from external
forces.—Economic rights effectively encourage the controlling stockholders
to exercise their control rights in accordance with their own interest.
Necessarily, if Filipino controlling stockholders have dominance over both
economic ownership and control rights, their decisions on corporate matters
will mean independence from external forces.
Same; Same; View that if Filipino controlling stockholders do not have
commensurate level of interest in the economic gains of a public utility, the
disparity would allow foreigners to intervene in the management, operation,
administration or control of the corporation through means that circumvent
the limitations imposed by the Constitution.—If Filipino controlling
stockholders do not have commensurate level of interest in the economic
gains of a public utility, the disparity would allow foreigners to intervene in
the management, operation, administration or control of the corporation

through means that circumvent the limitations imposed by the Constitution.
It would foster the creation of falsely simulated existence of the required
Filipino equity participation, an act prohibited under Sec-
20

Roy III vs. Herbosa
tion 2 of Commonwealth Act No. 108, commonly known as the Anti-

Dummy Law, effectively circumventing the rationale behind the
constitutional limitations on foreign equity participation.
Same; Same; View that the only way to minimize, if not totally prevent
disparity of control and economic rights given to Filipinos, and to obstruct
consequences not envisioned by the Constitution, is to apply the sixty-forty
(60-40) rule separately to each class of shares of a public utility
corporation.—Clearly the only way to minimize, if not totally prevent
disparity of control and economic rights given to Filipinos, and to obstruct
consequences not envisioned by the Constitution, is to apply the 60-40 rule
separately to each class of shares of a public utility corporation. It
results in the equalization of Filipino interests, both in terms of control and
economic rights, in each and every class of shares. By making the economic
rights and controlling rights of Filipinos in a public utility paramount,
directors and managers would be persuaded to act in the interest of the
Filipino stockholders.
Courts; View that a decision should be taken as a whole and
considered in its entirety to get the true meaning and intent of any particular
portion thereof.—Jurisprudence is replete with the doctrine “that a final and
executory judgment may nonetheless be ‘clarified’ by reference to other
portions of the decision of which it forms a part; that a judgment must not
be read separately but in connection with the other portions of the decision
of which it forms a part. Otherwise stated, a decision should be taken as a
whole and considered in its entirety to get the true meaning and intent of
any particular portion thereof.” It “must be construed as a whole so as to
bring all of its parts into harmony as far as this can be done by fair and
reasonable interpretation and so as to give effect to every word and part, if
possible, and to effectuate the obvious intention and purpose of the Court,
consistent with the provisions of the organic law.”
Constitutional Law; Corporation Law; Public Utility Corporation;
View that 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.—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
21
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Roy III vs. Herbosa
doubts in favor of upholding the spirit and intent of the 1987

Constitution.
Corporation Law; Public Utility Corporation; Securities and Exchange
Commission; View that the Securities and Exchange Commission (SEC)
should have been directed to strictly comply with the final Gamboa v. Teves,
652 SCRA 690 (2011) ruling, by including in the assailed circular the rule
on the application of the sixty-forty (60-40) nationality requirement to each
class of shares regardless of restrictions or privileges in accordance with
the foregoing disquisition.—Accordingly, the Security and Exchange
Commission should have been directed to strictly comply with the final
Gamboa v. Teves, 652 SCRA 690 (2011) 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 Opinion:
Securities and Exchange Commission; Corporation Law; View that

Securities and Exchange Commission’s (SEC’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.—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 as further illuminated in its October 9, 2012
Resolution in Gamboa v. Finance Secretary Teves, 652 SCRA 690 (2011).
Thus, the Securities and Exchange Commission gravely abused its
discretion.
Courts; View that 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.—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
22

Roy III vs. Herbosa
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.”
Same; View that 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.—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 recalibration, 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.
Constitutional Law; Public Utility Corporation; View that 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” of the 1987 Constitution.—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” 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.”
Corporation Law; Same; View that full beneficial ownership vis-à-vis
capacity to control a corporation is self-evident in ownership of voting
stocks: the investiture of the capacity to vote evinces involvement in the
running of the corporation.—Full beneficial ownership vis-à-vis capacity to
control a corporation is self-evident in ownership of voting stocks: the
investiture of the capacity to vote evinces involvement in the running of the
corporation. Through it, a
23
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Roy III vs. Herbosa
stockholder participates in corporate decision-making, or otherwise

participates in the designation of directors — those individuals tasked with
overseeing the corporation’s activities.
Same; Same; View that it is in the spirit of ensuring that effective
control is lodged in Filipinos that the dynamics of applying the Control Test
and the Grandfather Rule must be considered.—It is in the spirit of ensuring
that effective control is lodged in Filipinos that the dynamics of applying the
Control Test and the Grandfather Rule must be considered.
Same; Same; View that the Control Test serves the purposes of
ensuring effective control and full beneficial ownership of corporations by
Filipinos, even as several corporations may be involved in the equity
structure of another.—The Control Test serves the purposes of ensuring
effective control and full beneficial ownership of corporations by Filipinos,
even as several corporations may be involved in the equity structure of
another.
Same; Same; View that ostensible equity ownership does not preclude
unscrupulous parties’ resort to devices that undermine the constitutional
objective of full beneficial ownership of and effective control by Filipinos.—
Nevertheless, ostensible equity ownership does not preclude unscrupulous
parties’ resort to devices that undermine the constitutional objective of full
beneficial ownership of and effective control by Filipinos. It is at this
juncture that the Grandfather Rule finds application.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.
Wilson C. Gamboa, Jr., et al. for petitioners-in-intervention.
Angelo Patrick F. Advincula, et al. for Philippine Stock
Exchange, Inc.
Rogelio A. Vinluan, et al. for PLDT.
24

Roy III vs. Herbosa
CAGUIOA, J.:
The petitions1 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 Decision2 (“Gamboa
Decision”) and Resolution3 (“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 nonvoting 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.
_______________
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.”
2 Gamboa v. Teves, 668 Phil. 1; 652 SCRA 690 (2011).
3 Heirs of Wilson P. Gamboa v. Teves, 696 Phil. 276; 682 SCRA 397 (2012).
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Roy III vs. Herbosa
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
Judgment9 from the Court certifying that on October 18, 2012, the
Gamboa Decision had become final and executory.10
_______________
4 Supra note 2 at pp. 69-70; p. 744.

5 Supra note 3 at p. 363; p. 470.
6 Rollo (Vol. II), pp. 605-609.
7 Id., at p. 547.
8 Id., at p. 548.
9 Id., at pp. 605-609.
10 Id., at p. 548.
26

Roy III vs. Herbosa
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
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
_______________
11 Id.
12 Id. (Vol. I), pp. 31-33.
13 Id. (Vol. II), pp. 549, 587-588.
14 Id., at p. 588.
15 Id. (Vol. I), pp. 3-206 (with annexes).
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Roy III vs. Herbosa
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 nonvoting, 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-Intervention17 on July 30, 2013, which
the Court granted. The Petition-in-Intervention18 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 consti-
_______________
16 Son of deceased petitioner Wilson P. Gamboa in Gamboa.

17 Rollo (Vol. I), pp. 222-230 (with annex).
18 Id., at pp. 231-446 (with annexes).
19 Id., at pp. 466-530.
28

Roy III vs. Herbosa
tutional 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 Peti-
_______________
20 Id. (Vol. II), pp. 544-615 (with annexes).

21 Id., at pp. 633-654.
22 Petitioner Roy and intervenors Gamboa, et al. will be collectively referred to
as the “petitioners.”
23 Rollo (Vol. II), pp. 723-762 (with annex).
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Roy III vs. Herbosa
tioners-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 Court25 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 Memorandum28 on February 10,
2015.
On June 1, 2016, Shareholders’ Association of the Philippines,
Inc.29 (“SHAREPHIL”) filed an Omnibus Motion [1] For Leave to
Intervene; and [2] To Admit Attached Comment-in-
_______________
24 Id., at pp. 765-828.

25 Id., at pp. 839-847.
26 Id., at pp. 848-879.
27 Id., at p. 880.
28 Id., at pp. 964-1077.
29 A non-stock and nonprofit association composed of shareholders of Philippine
companies, which aims to advocate changes in the legal and regulatory framework
that will help improve the rights of minority shareholders and to promote and protect
all types of shareholders’ rights under existing laws, rules and regulations. Id., at p.
1081.
30

Roy III vs. Herbosa
Intervention.30 The Court granted the Omnibus Motion of

SHAREPHIL.31
On June 30, 2016, petitioner Roy filed his Opposition and Reply
to Interventions of Philippine Stock Exchange and Sharephil.32
Intervenors Gamboa, et al. then filed on September 14, 2016, their
Reply (to Interventions by Philippine Stock Exchange and
Sharephil).33
The Issues
The twin issues of the Petition and the Petition-in-Intervention

are: (1) whether the SEC gravely abused its discretion in issuing
SEC-MC No. 8 in light of the Gamboa Decision and Gamboa
Resolution, and (2) whether the SEC gravely abused its discretion in
ruling that PLDT is compliant with the constitutional limitation on
foreign ownership.
The Court’s Ruling
At the outset, the Court disposes of the second issue for being
without merit. In its Consolidated Comment dated September 13,
2013,34 the SEC already clarified that it “has not yet issued a
definitive ruling anent PLDT’s compliance with the limitation on
foreign ownership imposed under the Constitution and relevant laws
[and i]n fact, a careful perusal of x x x SEC-MC No. 8 readily
reveals that all existing covered corporations which are
noncompliant with Section 2 thereof were given a period of one (1)
year from the effectivity of the same within which to comply with
said ownership requirement. x x x.”35 Thus, in the absence of a
definitive ruling by
_______________
30 Id., at pp. 1080-1114.

31 Resolution dated June 14, 2016, id., at pp. 1115-1116.
32 Id., at pp. 1117-1133.
33 Id., at pp. 1134-1138.
34 Id., at pp. 544-615 (with annex).
35 Id., at p. 580.
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Roy III vs. Herbosa
the SEC on PLDT’s compliance with the capital requirement

pursuant to the Gamboa Decision and Resolution, any question
relative to the inexistent ruling is premature.
Also, considering that the Court is not a trier of facts and is in no
position to make a factual determination of PLDT’s compliance with
the constitutional provision under review, the Court can only resolve
the first issue, which is a pure question of law. However, before the
Court tackles the first issue, it has to rule on certain procedural
challenges that have been raised.
The Procedural Issues
The Court may exercise its power of judicial review and take
cognizance of a case when the following specific requisites are met:
(1) there is an actual case or controversy calling for the exercise of
judicial power; (2) the petitioner has standing to question the
validity of the subject act or issuance, i.e., he has a personal and
substantial interest in the case that he has sustained, or will sustain,

direct injury as a result of the enforcement of the act or issuance; (3)
the question of constitutionality is raised at the earliest opportunity;
and (4) the constitutional question is the very lis mota of the case.36
The first two requisites of

judicial review are not met.
Petitioners’ failure to sufficiently allege, much less establish, the

existence of the first two requisites for the exercise of
_______________
36 Belgica v. Ochoa, Jr., 721 Phil. 416, 518-519; 710 SCRA 1, 89 (2013), citing
Joya v. Presidential Commission on Good Government, 296-A Phil. 595, 602; 225
SCRA 568, 575-576 (1993) and Biraogo v. Philippine Truth Commission of 2010, 651
Phil. 374, 438; 637 SCRA 78, 148 (2010); General v. Urro, 662 Phil. 132, 144; 646
SCRA 567, 577 (2011), citing Integrated Bar of the Philippines v. Zamora, 392 Phil.
618, 632; 338 SCRA 81, 100 (2000).
32

Roy III vs. Herbosa
judicial review warrants the perfunctory dismissal of the petitions.
a. No actual controversy.
Regarding the first requisite, the Court in Belgica v. Ochoa37

stressed anew that an actual case or controversy is one which
involves a conflict of legal rights, an assertion of opposite legal
claims, susceptible of judicial resolution as distinguished from a
hypothetical or abstract difference or dispute since the courts will
decline to pass upon constitutional issues through advisory opinions,
bereft as they are of authority to resolve hypothetical or moot
questions. Related to the requirement of an actual case or
controversy is the requirement of “ripeness,” and a question is ripe
for adjudication when the act being challenged has a direct adverse
effect on the individual challenging it.
Petitioners have failed to show that there is an actual case or
controversy which is ripe for adjudication.
The Petition and the Petition-in-Intervention identically allege:
3. The standing interpretation of the SEC found in MC8 practically

encourages circumvention of the 60-40 ownership rule by impliedly
allowing the creation of several classes of voting shares with different
degrees of beneficial ownership over the same, but at the same time, not
imposing a 40% limit on foreign ownership of the higher yielding stocks.38
4. For instance, a situation may arise where a corporation may issue
several classes of shares of stock, one of which are common shares with
rights to elect directors, another are preferred shares with rights to elect
directors but with much lesser entitlement to dividends,
_______________
37 Id., at pp. 519-520; pp. 89-90. Citations omitted.

38 “;” instead of “.” in the Petition-in-Intervention.
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Roy III vs. Herbosa
and still another class of preferred shares with no rights to elect the directors
and even less dividends. In this situation, the corporation may issue
common shares to foreigners amounting to forty percent (40%) of the
outstanding capital stock and issue preferred shares entitled to vote the
directors of the corporation to Filipinos consisting of 60%39 percent (sic) of
the outstanding capital stock entitled to vote. Although it may appear that
the 60-40 rule has been complied with, the beneficial ownership of the
corporation remains with the foreign stockholder since the Filipino owners
of the preferred shares have only a miniscule share in the dividends and
profit of the corporation. Plainly, this situation runs contrary to the
Constitution and the ruling of this x x x Court.40
Petitioners’ hypothetical illustration as to how SEC-MC No. 8

“practically encourages circumvention of the 60-40 ownership rule”
is evidently speculative and fraught with conjectures and
assumptions. There is clearly wanting specific facts against which
the veracity of the conclusions purportedly following from the
speculations and assumptions can be validated. The lack of a
specific factual milieu from which the petitions originated renders
any pronouncement from the Court as a purely advisory opinion and
not a decision binding on identified and definite parties and on a
known set of facts.
Firstly, unlike in Gamboa, the identity of the public utility
corporation, the capital of which is at issue, is unknown. Its
outstanding capital stock and the actual composition thereof in terms

of numbers, classes, preferences and features are all theoretical. The
description “preferred shares with rights to elect directors but with
much lesser entitlement to dividends, and still another class of
preferred shares with no rights to elect the directors and even less
dividends” is ambiguous. What are the specific dividend policies or
entitlements of the
_______________
39 “%” is omitted in the Petition-in-Intervention.

40 “;” instead of “.” in the Petition-in-Intervention. Petition for Certiorari, Rollo
(Vol. I), p. 12; Petition-in-Intervention, id., at p. 243.
34

Roy III vs. Herbosa
purported preferred shares? How are the preferred shares’ dividend

policies different from those of the common shares? Why and how
did the fictional public utility corporation issue those preferred
shares intended to be owned by Filipinos? What are the actual
features of the foreign-owned common shares which make them
superior over those owned by Filipinos? How did it come to be that
Filipino holders of preferred shares ended up with “only a miniscule
share in the dividends and profit of the [hypothetical] corporation”?
Any answer to any of these questions will, at best, be contingent,
conjectural, indefinite or anticipatory.
Secondly, preferred shares usually have preference over the
common shares in the payment of dividends. If most of the
“preferred shares with rights to elect directors but with much lesser
entitlement to dividends” and the other “class of preferred shares
with no rights to elect the directors and even less dividends” are
owned by Filipinos, they stand to receive their dividend entitlement
ahead of the foreigners, who are common shareholders. For the
common shareholders to have “bigger dividends” as compared to the
dividends paid to the preferred shareholders, which are supposedly
predominantly owned by Filipinos, there must still be unrestricted
retained earnings of the fictional corporation left after payment of
the dividends declared in favor of the preferred shareholders. The
fictional illustration does not even intimate how this situation can be
possible. No permutation of unrestricted retained earnings of the
hypothetical corporation is shown that makes the present conclusion
of the petitioners achievable. Also, no concrete meaning to the
petitioners’ claim of the Filipinos’ “miniscule share in the dividends

and profit of the [fictional] corporation” is demonstrated.
Thirdly, petitioners fail to allege or show how their hypothetical
illustration will directly and adversely affect them. That is
impossible since their relationship to the fictional corporation is a
matter of guesswork.
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From the foregoing, it is evident that the Court can only surmise
or speculate on the situation or controversy that the petitioners
contemplate to present for judicial determination. Petitioners are
likewise conspicuously silent on the direct adverse impact to them of
the implementation of SEC-MC No. 8. Thus, the petitions must fail
because the Court is barred from rendering a decision based on
assumptions, speculations, conjectures and hypothetical or fictional
illustrations, more so in the present case which is not even ripe for
decision.
b. No locus standi.
The personal and substantial interest that enables a party to have

legal standing is one that is both material, an interest in issue and to
be affected by the government action, as distinguished from mere
interest in the issue involved, or a mere incidental interest, and real,
which means a present substantial interest, as distinguished from a
mere expectancy or a future, contingent, subordinate, or
consequential interest.41
As to injury, the party must show that (1) he will personally
suffer some actual or threatened injury because of the allegedly
illegal conduct of the government; (2) the injury is fairly traceable to
the challenged action; and (3) the injury is likely to be redressed by
a favorable action.42 If the asserted injury is more imagined than
real, or is merely superficial and insubstantial, an excursion into
constitutional adjudication by the courts is not warranted.43
Petitioners have no legal standing to question the
constitutionality of SEC-MC No. 8.
_______________
41 Galicto v. Aquino III, 683 Phil. 141, 170-171; 667 SCRA 150, 170 (2012),
citing Miñoza v. Lopez, 664 Phil. 115, 123; 648 SCRA 684, 692 (2011).
42 Id., at p. 170, citing Tolentino v. Commission on Elections, 465 Phil. 385, 402;
420 SCRA 438, 452 (2004).
43 Id., at p. 172. Citations omitted.
36

Roy III vs. Herbosa
To establish his standing, petitioner Roy merely claimed that he

has standing to question SEC-MC No. 8 “as a concerned citizen, an
officer of the Court and as a taxpayer” as well as “the senior law
partner of his own law firm[, which] x x x is a subscriber of
PLDT.”44 On the other hand, intervenors Gamboa, et al. allege, as
basis of their locus standi, their “[b]eing lawyers and officers of the
Court” and “citizens x x x and taxpayers.”45
The Court has previously emphasized that the locus standi
requisite is not met by the expedient invocation of one’s citizenship
or membership in the bar who has an interest in ensuring that laws
and orders of the Philippine government are legally and validly
issued as these supposed interests are too general, which are shared
by other groups and by the whole citizenry.46 Per their allegations,
the personal interest invoked by petitioners as citizens and members
of the bar in the validity or invalidity of SEC-MC No. 8 is at best
equivocal, and totally insufficient.
Petitioners’ status as taxpayers is also of no moment. As often
reiterated by the Court, a taxpayer’s suit is allowed only when the
petitioner has demonstrated the direct correlation of the act
complained of and the disbursement of public funds in contravention
of law or the Constitution, or has shown that the case involves the
exercise of the spending or taxing power of Congress.47 SEC-MC
No. 8 does not involve an additional expenditure of public funds and
the taxing or spending power of Congress.
_______________
44 Rollo (Vol. I), p. 7.

45 Motion for Leave to file Petition-in-Intervention, id., at pp. 224-225.
46 Supra note 41 at pp. 172-173, citing Integrated Bar of the Philippines v.
Zamora, supra note 36 at p. 633; p. 100.
47 Automotive Industry Workers Alliance (AIWA) v. Romulo, 489 Phil. 710, 719;
449 SCRA 1, 11 (2005). Citations omitted.
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The allegation that petitioner Roy’s law firm is a “subscriber of

PLDT” is ambiguous. It is unclear whether his law firm is a
“subscriber” of PLDT’s shares of stock or of its various
telecommunication services. Petitioner Roy has not identified the
specific direct and substantial injury he or his law firm stands to
suffer as “subscriber of PLDT” as a result of the issuance of SEC-
MC No. 8 and its enforcement.
As correctly observed by respondent PLDT, “[w]hether or not the
constitutionality of SEC-MC No. 8 is upheld, the rights and
privileges of all PLDT subscribers, as with all the rest of subscribers
of other corporations, are necessarily and equally preserved and
protected. Nothing is added [to] or removed from a PLDT subscriber
in terms of the extent of his or her participation, relative to what he
or she had originally enjoyed from the beginning. In the most
practical sense, a PLDT subscriber loses or gains nothing in the
event that SEC-MC No. 8 is either sustained or struck down by [the
Court].”48
More importantly, the issue regarding PLDT’s compliance with
Section 11, Article XII of the Constitution has been earlier ruled as
premature and beyond the Court’s jurisdiction. Thus, petitioner
Roy’s allegation that his law firm is a “subscriber of PLDT” is
insufficient to clothe him with locus standi.
Petitioners’ cursory incantation of “transcendental importance
x x x of the rules on foreign ownership of corporations or entities
vested with public interest”49 does not automatically justify the
brushing aside of the strict observance of the requisites for the
Court’s exercise of judicial review. An indiscriminate disregard of
the requisites every time “transcendental or paramount importance
or significance” is invoked would result in an unacceptable
corruption of the settled doctrine of
_______________
48 PLDT’s Consolidated Memorandum, Rollo (Vol. II), p. 992.

49 Petition for Certiorari, Rollo (Vol. I), p. 10, and Petition-in-Intervention (For
Certiorari), Rollo (Vol. I), p. 240.
38

Roy III vs. Herbosa
locus standi, as every worthy cause is an interest shared by the

general public.50
In the present case, the general and equivocal allegations of
petitioners on their legal standing do not justify the relaxation of the
locus standi rule. While the Court has taken an increasingly liberal
approach to the rule of locus standi, evolving from the stringent
requirements of personal injury to the broader transcendental
importance doctrine, such liberality is not to be abused.51
The Rule on the Hierarchy

of Courts has been violated.
The Court in Bañez, Jr. v. Concepcion52 stressed that:
The Court must enjoin the observance of the policy on the hierarchy of
courts, and now affirms that the policy is not to be ignored without serious
consequences. The strictness of the policy is designed to shield the Court
from having to deal with causes that are also well within the competence of
the lower courts, and thus leave time to the Court to deal with the more
fundamental and more essential tasks that the Constitution has assigned to
it. The Court may act on petitions for the extraordinary writs of certiorari,
prohibition and mandamus only when absolutely necessary or when serious
and important reasons exist to justify an exception to the policy. x x x
x x x Where the issuance of an extraordinary writ is also within

the competence of the Court of Appeals or a Regional Trial Court, it
is in either of these courts that the specific
_______________
50 Republic v. Roque, 718 Phil. 294, 307; 706 SCRA 273, 285-286 (2013), citing
Southern Hemisphere Engagement Network, Inc. v. Anti-Terrorism Council, 646 Phil.
452, 478; 632 SCRA 146, 174 (2010).
51 Supra note 41 at p. 170; pp. 173-174, citing Lozano v. Nograles, 607 Phil. 334,
344; 589 SCRA 354, 362 (2009).
52 693 Phil. 399; 679 SCRA 237 (2012).
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Roy III vs. Herbosa
action for the writ’s procurement must be presented. This is and

should continue to be the policy in this regard, a policy that courts
and lawyers must strictly observe. x x x53
Petitioners’ invocation of “transcendental importance” is hollow

and does not merit the relaxation of the rule on hierarchy of courts.
There being no special, important or compelling reason that justified
the direct filing of the petitions in the Court in violation of the policy
on hierarchy of courts, their outright dismissal on this ground is
further warranted.54
The petitioners failed to

implead indispensable
parties.
The cogent submissions of the PSE in its Comment-in-

Intervention dated June 16, 201455 and SHAREPHIL in its Omnibus
Motion [1] For Leave to Intervene; and [2] To Admit Attached
Comment-in-Intervention dated May 30, 201656 demonstrate how
petitioners should have impleaded not only PLDT but all other
corporations in nationalized and partlynationalized industries —
because the propriety of the SEC’s enforcement of the Court’s
interpretation of “capital” through SEC-MC No. 8 affects them as
well.
Under Section 3, Rule 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. Indispensable parties are those with such
a material and direct interest in the controversy that a final decree
would necessarily affect their rights,
_______________
53 Id., at p. 412; pp. 250-251.

54 Id., at p. 414; p. 252.
55 Rollo (Vol. II), pp. 848-879.
56 Id., at pp. 1080-1114.
40

Roy III vs. Herbosa
so that the court cannot proceed without their presence.57 The

interests of such indispensable parties in the subject matter of the
suit and the relief are so bound with those of the other parties that
their legal presence as parties to the proceeding is an absolute
necessity and a complete and efficient determination of the equities
and rights of the parties is not possible if they are not joined.58
Other than PLDT, the petitions failed to join or implead other
public utility corporations subject to the same restriction imposed by
Section 11, Article XII of the Constitution. These corporations are in
danger of losing their franchise and property if they are found not
compliant with the restrictive interpretation of the constitutional
provision under review which is being espoused by petitioners. They
should be afforded due notice and opportunity to be heard, lest they
be deprived of their property without due process.
Not only are public utility corporations other than PLDT directly
and materially affected by the outcome of the petitions, their
shareholders also stand to suffer in case they will be forced to divest
their shareholdings to ensure compliance with the said restrictive
interpretation of the term “capital.” As explained by SHAREPHIL,
in five corporations alone, more than Php158 Billion-worth of shares
must be divested by foreign shareholders and absorbed by Filipino
investors if petitioners’ position is upheld.59
Petitioners’ disregard of the rights of these other corporations and
numerous shareholders constitutes another fatal procedural flaw,
justifying the dismissal of their petitions. Without giving all of
them their day in court, they will
_______________
57 See Cua, Jr. v. Tan, 622 Phil. 661, 720; 607 SCRA 645, 708 (2009).
58 De Galicia v. Mercado, 519 Phil. 122, 127; 484 SCRA 131, 136-137 (2006).
59 Rollo (Vol. II), p. 1107.
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Roy III vs. Herbosa
definitely be deprived of their property without due process of

law.
During the deliberations, Justice Velasco stressed on the
foregoing procedural objections to the granting of the petitions; and
Justice Bersamin added that the special civil action for certiorari
and prohibition is not the proper remedy to assail SEC-MC No. 8
because it was not issued under the adjudicatory or quasi-judicial
functions of the SEC.
The Substantive Issue
The only substantive issue that the petitions assert is whether the
SEC’s issuance of SEC-MC No. 8 is tainted with grave abuse of
discretion.
The Court holds that, even if the resolution of the procedural
issues were conceded in favor of petitioners, the petitions, being
anchored on Rule 65, must nonetheless fail because the SEC did not
commit grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC-MC No. 8. To the contrary, the
Court finds SEC-MC No. 8 to have been issued in fealty to the
Gamboa Decision and Resolution.
The ratio in the Gamboa

Decision and Gamboa
Resolution.
To determine what the Court directed the SEC to do — and

therefore resolve whether what the SEC did amounted to grave
abuse of discretion — the Court resorts to the decretal portion of the
Gamboa Decision, as this is the portion of the decision that a party
relies upon to determine his or her rights and duties,60 viz.:
_______________
60 See Suntay v. Cojuangco-Suntay, 360 Phil. 932; 300 SCRA 760 (1998).
42

Roy III vs. Herbosa
Constitution, to impose the appropriate sanctions under the law.61
In turn, the Gamboa Resolution stated:
In any event, the SEC has expressly manifested62 that it will abide by the
Court’s decision and defer to the Court’s definition of the term “capital” in
Section 11, Article XII of the Constitution. Further, the SEC entered its
special appearance in this case and argued during the Oral Arguments,
indicating its submission to the Court’s jurisdiction. It is clear, therefore,
that there exists no legal impediment against the proper and immediate
implementation of the Court’s directive to the SEC.
xxxx
x x x The dispositive portion of the Court’s ruling is addressed not to
PLDT but solely to the
_______________
61 Supra note 2.
62 In its Manifestation and Omnibus Motion dated July 29, 2011, the SEC stated:
“x x x 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. Teves, supra note 3 at pp.
356-357; p. 462. (emphasis omitted)
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Roy III vs. Herbosa
SEC, which is the administrative agency tasked to enforce the 60-40

ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution.63
To recall, the sole issue in the Gamboa case was: “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 common and nonvoting preferred shares) of
PLDT, a public utility.”64
The Court directly answered the issue and consistently defined
the term “capital” as follows:
x x x 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 nonvoting preferred
shares.
xxxx
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
_______________
63 Heirs of Wilson P. Gamboa v. Teves, id., at pp. 356, 358; pp. 463-464.
64 Supra note 2 at p. 35; p. 705.
65 Id., at pp. 51-53; pp. 723-726.
44

Roy III vs. Herbosa
The decretal portion of the Gamboa Decision follows the

definition of the term “capital” in the body of the decision, to wit:
“x x x we x x x 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 nonvoting 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
_______________
66 Id., at pp. 69-70; p. 744.

67 Id., at p. 58; p. 731.
68 Id., at p. 44; pp. 715-716.
69 Id., at pp. 53-54; p. 726.
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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 out-
46

Roy III vs. Herbosa
standing 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].”
xxxx
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. x x x71
Was the definition of the term “capital” in Section 11, Article XII
of the 1987 Constitution declared for the first time by
_______________
70 Id., at pp. 55-57; p. 730.

71 Id., at pp. 57, 63; pp. 730-737.
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the Court in the Gamboa Decision modified in the Gamboa

Resolution?
The Court is convinced that it was not. The Gamboa Resolution
consists of 51 pages (excluding the dissenting opinions of Associate
Justices Velasco and Abad). For the most part of the Gamboa
Resolution, the Court, after reviewing SEC and DOJ72 Opinions as
well as the provisions of the FIA and its predecessor statutes,73
reiterated that both the Voting Control Test and the Beneficial
Ownership Test must be applied to determine whether a corporation
is a “Philippine national”74 and that a “Philippine national,” as
defined in the FIA and all its predecessor statutes, is “a Filipino
citizen, or a domestic corporation “at least sixty percent (60%) of
the capital stock outstanding and entitled to vote,” is owned by
Filipino citizens. A domestic corporation is a “Philippine national”
only if at least 60% of its voting stock is owned by Filipino
citizens.”75 The Court also reiterated that, from the deliberations of
the Constitutional Commission, it is evident that the term “capital”
refers to controlling interest of a corporation,76 and the framers of
the Constitution intended public utilities to be majority Filipino-
owned and -controlled.
The “Final Word” of the Gamboa Resolution put to rest the
Court’s interpretation of the term “capital,” and this is quoted
verbatim, to wit:
_______________
72 Department of Justice.
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 Supra note 3 at p. 321; p. 424.
75 Id., at p. 331; p. 435.
76 Id., at p. 342; p. 446.
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XII.
Final Word
The Constitution expressly declares as State policy the development of

an economy “effectively controlled” by Filipinos. Consistent with such
State policy, the Constitution explicitly reserves the ownership and
operation of public utilities to Philippine nationals, who are defined in the
Foreign Investments Act of 1991 as Filipino citizens, or corporations or
associations at least 60 percent of whose capital with voting rights belongs
to Filipinos. The FIA’s implementing rules explain that “[f]or stocks to be
deemed owned and held by Philippine citizens or Philippine nationals, mere
legal title is not enough to meet the required Filipino equity. Full beneficial
ownership of stocks, coupled with appropriate voting rights is
essential.” In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term “capital” in Section 11, Article XII of the 1987
Constitution refers to shares with voting rights, as well as with full
beneficial ownership. This is precisely because the right to vote in the
election of directors, coupled with full beneficial ownership of stocks,
translates to effective control of a corporation.77
Everything told, the Court, in both the Gamboa Decision and

Gamboa Resolution, finally settled with the FIA’s definition of
“Philippine national” as expounded in the FIA-IRR in construing the
term “capital” in Section 11, Article XII of the 1987 Constitution.
The assailed SEC-MC No. 8.
The relevant provision in the assailed SEC-MC No. 8 is Section

2, which provides:
_______________
77 Id., at pp. 361-362; pp. 467-468.
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election of directors.78
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)
_______________
78 Rollo (Vol. I), p. 35.

79 Supra note 2 at p. 57; pp. 730-737.
50

Roy III vs. Herbosa
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.
GAMBOA
SEC-MC No. 8
DECISION/RESOLUTION
(2) 60% (required percentage of Filipino) “Full beneficial ownership of
applied to BOTH (a) the total number of 60 percent of the outstanding
outstanding shares of stock, entitled to vote capital stock, coupled with 60
in the election of directors; AND (b) the total percent of the voting rights”81
number of outstanding shares of stock,
whether or not entitled to vote in the election
of directors. or “Full beneficial ownership
of the stocks, coupled with
appropriate voting rights
x x x shares with voting
rights, as well as with full
beneficial ownership”82
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
_______________
80 Id., at pp. 69-70; pp. 723-724.

81 Id., at p. 57; pp. 730-737.
82 Supra note 3 at p. 361; pp. 467-468.
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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:
x x x 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
_______________
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.
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Roy III vs. Herbosa
60% of the controlling interest, must also own 60% of the economic
interest in a public utility.
x x x In mixed class or dual structured corporations, however, there is
variance in the proportion of stockholders’ controlling interest vis-à-vis their
economic ownership rights. This resulting variation is recognized by 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. 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.
The definition of “beneficial owner” or “beneficial ownership” in

the Implementing Rules and Regulations of the Securities
Regulation Code (“SRC-IRR”) is consistent with the concept of full
beneficial ownership” in the FIA-IRR.
As defined in the SRC-IRR, “[b]eneficial 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) x x x.”84
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
_______________
84 2015 Implementing Rules and Regulations of the Securities Regulations Code,

Sec. 3.1.2.
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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.
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 acces
_______________
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.
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Roy III vs. Herbosa
sions 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.:

“capital” required in the Constitution. Full beneficial ownership of 60
voting rights, is required. x x x
xxxx
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 (or the State’s grant of authority to operate a
public utility. x x x.86
And the “Final Word” of the Gamboa Resolution is in full accord

with the foregoing pronouncement of the Court, to wit:
XII.
Final Word
x x x 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
_______________
86 Supra note 2 at pp. 57, 63; pp. 730-737. Emphasis and underscoring supplied.
87 Supra note 3 at p. 361; pp. 467-468.
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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.
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Roy III vs. Herbosa
The restrictive reinterpretation

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 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 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.
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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.
To be sure, the application of the 60-40 Filipino-foreign
ownership requirement separately to each class of shares, whether
common, preferred nonvoting, preferred voting or any other class of
shares fails to understand and appreciate the nature and features of
stocks as financial instruments.88
There are basically only two types of shares or stocks, i.e.,
common stock and preferred stock. However, the classes and variety
of shares that a corporation may issue are dictated by the confluence
of the corporation’s financial position and needs, business
opportunities, short-term and long term targets, risks involved, to
name a few; and they can be classified and re-classified from time to
time. With respect to preferred
_______________
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
<http://www.iasplus.com/en/standards/ias/ias39>, last accessed on November 28,
2016].
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Roy III vs. Herbosa
shares, there are cumulative preferred shares, noncumulative

preferred shares, convertible preferred shares, participating preferred
shares.
Because of the different features of preferred shares, it is required
that the presentation and disclosure of these financial instruments in
financial statements should be in accordance with the substance of
the contractual arrangement and the definitions of a financial
liability, a financial asset and an equity instrument.89
Under IAS90 32.16, a financial instrument is an equity instrument
only if (a) the instrument includes no contractual obligation to
deliver cash or another financial asset to another entity, and (b) if the
instrument will or may be settled in the issuer’s own equity
instruments, it is either: (i) a nonderivative that includes no
contractual obligation for the issuer to deliver a variable number of
its own equity instruments; or (ii) a derivative that will be settled
only by the issuer exchanging a fixed amount of cash or another
financial asset for a fixed number of its own equity instruments.91
The following are illustrations of how preferred shares should be
presented and disclosed:
Illustration – preference shares
If an entity issues preference (preferred) shares that pay a fixed rate of

dividend and that have a mandatory redemption feature at a future date, the
substance is that they are a contractual obligation to deliver cash and,
therefore, should be recognized as a liability. [IAS 32.18(a)] In contrast,
preference shares that do not have a fixed maturity, and where the issuer
does not have a
_______________
89 IAS 32 Financial Instruments: Presentation, <http://www.ifrs.

org/Documents/IAS32.pdf>, last accessed on November 28, 2016.
90 International Accounting Standards.
91 <http://www.iasplus.com/en/standards/ias/ias32>, last accessed on November
28, 2016.
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contractual obligation to make any payment are equity. In this example even
though both instruments are legally termed preference shares they have
different contractual terms and one is a financial liability while the other is
equity.
Illustration – issuance of fixed monetary amount of equity instruments
A contractual right or obligation to receive or deliver a number of its own

shares or other equity instruments that varies so that the fair value of the
entity’s own equity instruments to be received or delivered equals the fixed
monetary amount of the contractual right or obligation is a financial
liability. [IAS 32.20]
Illustration – one party has a choice over how an instrument is settled
When a derivative financial instrument gives one party a choice over how it
is settled (for instance, the issuer or the holder can choose settlement net in
cash or by exchanging shares for cash), it is a financial asset or a financial
liability unless all of the settlement alternatives would result in it being an
equity instrument. [IAS 32.26]92
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.
_______________
92 Id.
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Roy III vs. Herbosa
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
_______________
93 Biraogo v. Philippine Truth Commission of 2010, supra note 36 at p. 463; p.

172.
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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
reinterpretation 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
62

Roy III vs. Herbosa
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.
xxxx
A corporation may, furthermore, classify its shares for the purpose

of insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and
stated in the certificate of stock, each share shall be equal in all
respects to every other share.
Where the articles of incorporation provide for nonvoting shares
in the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of bylaws;
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;
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7. Investment of corporate funds in another corporation or

business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the
vote necessary to approve a particular corporate act as provided in
this Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate

in the control or management of the corporation. This is exercised through
his vote in the election of directors because it is the board of directors that
controls or manages the corporation. In the absence of provisions in the
articles of incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the
right to vote in the election of directors and on other matters, on the theory
that the preferred shareholders are merely investors in the corporation for
income in the same manner as bondholders. In fact, under the Corporation
Code only preferred or redeemable shares can be deprived of the right to
vote. Common shares cannot be deprived of the right to vote in any
corporate meeting, and any provision in the articles of incorporation
restricting the right of common shareholders to vote is invalid.
vote in the election of directors, then the term “capital” shall include such
election of directors. In short, the term “capital” in Section 11, Article
XII of the Constitu-
64

Roy III vs. Herbosa
tion refers only to shares of stock that can vote in the election of
directors.
This interpretation is consistent with the intent of the framers of the
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. x x x94
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 nonvoting 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
_______________
94 Supra note 2 at pp. 51-54; pp. 723-726. Underscoring supplied.
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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
_______________
95 Sec. 16 (Amendment of Articles of Incorporation); Sec. 37 (Power to extend

or shorten corporate term); Sec. 38 (Power to increase or decrease capital stock;
create or increase bonded indebtedness); Sec. 40 (Sale or other dispositions of [all or
substantially all] assets); Sec. 42 (Power to invest corporate funds in another
corporation or business or for any other purpose); Sec. 48 (Amendments to bylaws);
Sec. 77 (Stockholder’s or member’s approval [of plan of merger or consolidation]);
Sec. 118 (Voluntary dissolution where no creditors are affected); and Sec. 119
(Voluntary dissolution where creditors are affected).
66

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provided under Section 8196 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
_______________
96 Sec. 81. Instances of appraisal right.—Any stockholder of a corporation

shall have the right to dissent and demand payment of the fair value of his shares in
the following instances:
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.
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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.
Moreover, the restrictive interpretation of the term “capital”
would have a tremendous impact on the country as a whole — and
to all Filipinos.
The PSE’s Comment-in-Intervention dated June 16, 201497 warns
that:
80. [R]edefining “capital” as used in Section 11, Article XII of the

1987 Constitution and adopting the supposed “Effective Control Test” will
lead to disastrous consequences to the Philippine stock market.
81. Current data of the PSE show that, if the “Effective Control Test”
were applied, the total value of shares that would be deemed in excess of the
foreign-ownership limits based on stock prices as of 30 April 2014 is One
Hundred Fifty-Nine Billion Six Hundred Thirty-Eight Million Eight
Hundred Forty-Five Thousand Two Hundred Six Pesos and Eighty-
Nine Cents (Php159,638,845,206.89).
82. The aforementioned value of investments would have to be
discharged by foreign holders, and consequently must be absorbed by
Filipino investors. Needless to state, the lack of investments may lead to
shutdown of the affected enterprises and to immeasurable consequences to
the Philippine economy.98
In its Omnibus Motion [1] For Leave to Intervene; and [2] To

Admit Attached Comment-in-Intervention dated May 30, 2016,99
SHAREPHIL further warns that “[t]he restrictive re-
_______________
97 Rollo (Vol. II), pp. 848-879.

98 Id., at p. 870. Emphasis supplied.
99 Id., at pp. 1080-1114.
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interpretation of the term “capital” will result in massive forced

divestment of foreign stockholdings in Philippine corporations.”100
SHAREPHIL explains:
4.51. On 16 October 2012, Deutsche Bank released a Market Research

Study, which analyzed the implications of the ruling in Gamboa. The
Market Research Study stated that:
“If this thinking is applied and becomes established precedent, it

would significantly expand on the rules for determining nationality in
partially nationalized industries. If that were to happen, not only will
PLDT’s move to issue the 150m voting prefs be inadequate to
address the issue, a large number of listed companies with similar
capital structures could also be affected.”
4.52. In five (5) companies alone, One Hundred Fifty-Eight Billion

Pesos (Php158,000,000,000.00) worth of shares will have to be sold by
foreign shareholders in a forced divestment, if the obiter in Gamboa were to
be implemented. Foreign shareholders of PLDT will have to divest One
Hundred Three Billion Eight Hundred Sixty Million Pesos
(Php103,860,000,000.00) worth of shares.
a. Foreign shareholders of Globe Telecom will have to divest Thirty-
Eight Billion Two Hundred Fifty Million Pesos
(Php38,250,000,000.00) worth of shares.
b. Foreign shareholders of Ayala Land will have to divest Seventeen
Billion Five Hundred Fifty Million Pesos (Php17,550,000,000.00)
worth of shares.
c. Foreign shareholders of ICTSI will have to divest Six Billion Four
Hundred Ninety Million Pesos (Php6,490,000,000.00) worth of
shares.
_______________
100 Id., at p. 1105.
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d. Foreign shareholders of MWC will have to divest Seven Billion

Seven Hundred Fourteen Million Pesos (Php7,714,000,000.00) worth
of shares.
4.53. Clearly, the local stock market which has an average value turn
over of Seven Billion Pesos cannot adequately absorb the influx of shares
caused by the forced divestment. As a result, foreign stockholders will have
to sell these shares at bargain prices just to comply with the Obiter.
4.54. These shares being part of the Philippine index, their forced

divestment vis-à-vis the inability of the local stock market to absorb these
shares will necessarily bring immense downward pressure on the index. A
domino-effect implosion of the Philippine stock market and the Philippine
economy, in general is not remote. x x x.101
Petitioners have failed to counter or refute these submissions of

the PSE and SHAREPHIL. These unrefuted observations indicate to
the Court that a restrictive interpretation — or rather,
reinterpretation, of “capital,” as already defined with finality in the
Gamboa Decision and Resolution — directly affects the well-being
of the country and cannot be labelled as “irrelevant and impertinent
concerns x x x add[ing] burden [to] the Court.”102 These
observations by the PSE103 and SHAREPHIL,104 unless refuted,
must be considered by the Court to be valid and sound.
_______________
101 Id., at pp. 1106-1107.

102 Petitioner Roy’s Opposition and Reply to Interventions of Philippine Stock
Exchange and SHAREPHIL dated June 30, 2016, id., at p. 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
70

Roy III vs. Herbosa
The Court in Abacus Securities Corp. v. Ampil105 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 x x x.”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
107
corporation — 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
_______________
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 p. 849.
104 SHAREPHIL, as an association forwarding the rights and welfare of
shareholders, alleges that it aims to protect shareholders who have direct and
substantial interest in this case and will no doubt be adversely affected by the
restrictive reinterpretation of the Gamboa ruling forwarded by the petitioners.
SHAREPHIL’s Omnibus Motion [1] For Leave to Intervene; and [2] To Admit
Attached Comment-in-Intervention, par. 5, p. 3, id., at p. 1082.
105 518 Phil. 478; 483 SCRA 315 (2006).
106 Id., at p. 482; p. 322.
107 Supra note 3 at p. 339; p. 443.
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intimate or suggest the need for a clarification or reinterpretation.

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 ex-
_______________
108 716 Phil. 500, 515-516; 704 SCRA 24, 38-39 (2013). Emphasis supplied;
citations omitted.
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ercised 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. x x x.
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.
The clear and unequivocal

definition of “capital” in Gam-
boa has attained finality.
It is an elementary principle in procedure that the resolution of

the court in a given issue as embodied in the dispositive portion or
fallo of a decision controls the settlement of rights of the parties and
the questions, notwithstanding statement in the body of the decision
which may be somewhat confusing, inasmuch as the dispositive part
of a final decision is definite, clear and unequivocal and can be
wholly given effect without need of interpretation or construction.109
_______________
109 Supra note 60 at pp. 944-945; p. 772.
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As explained above, the fallo or decretal/dispositive portions of

both the Gamboa Decision and Resolution are definite, clear and
unequivocal. While there is a passage in the body of the Gamboa
Resolution that might have appeared contrary to the fallo of the
Gamboa Decision — capitalized upon by petitioners to espouse a
restrictive reinterpretation of “capital” — the definiteness and clarity
of the fallo of the Gamboa Decision must control over the obiter
dictum in the Gamboa Resolution regarding the application of the
60-40 Filipino-foreign ownership requirement to “each class of
shares, regardless of differences in voting rights, privileges and
restrictions.”
The final judgment as rendered is the judgment of the court
irrespective of all seemingly contrary statements in the decision
because at the root of the doctrine that the premises must yield to the
conclusion is, side by side with the need 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 unimpeachable legal reasons.”110
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 Reso-
_______________
110 Contreras and Gingco v. Felix and China Banking Corp., 78 Phil. 570, 577-
578 (1947). Citations omitted.
111 Id., at p. 575.
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lution, 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 reexamining 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.
_______________
112 See Land Bank of the Philippines v. Suntay, 678 Phil. 879, 913-914; 662
SCRA 614, 647 (2011).
113 FGU Insurance Corporation v. Regional Trial Court of Makati City, Branch
66, 659 Phil. 117, 123; 644 SCRA 50, 56 (2011).
114 Id.
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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 noninclusion 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
Closing
Ultimately, the key to nationalism is in the individual.

Particularly for a public utility corporation or association, whether
stock or nonstock, it starts with the Filipino share-
_______________
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.
xxxx
116 See Mahusay v. B.E. San Diego, Inc., 666 Phil. 528, 536; 651 SCRA 533,
537-538 (2011).
117 See Commissioner on Higher Education v. Mercado, 519 Phil. 399, 406; 484
SCRA 424, 431 (2006).
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holder 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
ultranationalistic 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, CJ., See Concurring Opinion.
Carpio, J., 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., On Leave but left vote.
Bersamin, J., with Concurring Opinion.
Mendoza, J., See Dissenting Opinion.
Perlas-Bernabe, J., No part and on Official Leave.
Leonen, J., I Dissent. See Separate Opinion.
Jardeleza, J., No part.
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CONCURRING OPINION
SERENO, CJ.:
The Petition for Certiorari before this Court assails the validity
of Memorandum Circular No. 8, Series of 2013, issued by
respondent Securities and Exchange Commission (SEC).
The SEC circular provides for the 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. The specific provision
that operationalizes the ownership requirements reads:

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. (Emphasis supplied)
Evidently, the circular limits the application of the ownership

requirement only to the number of stocks in a corporation. It does
not take into consideration the par value, which, in turn, affects the
dividends or earnings of the shares.
The par value of shares is not always equal. The par value of
common shares may be lower than that of preferred shares. The
latter take any of a variety of forms — they may be cumulative,
noncumulative, participating, nonparticipating, or convertible. Their
par values tend to differ depending on their features and entitlement
to dividends.
The number and the par value of the permutation of shares
definitely affect the issue of the stockholding of a corporation. As
illustrated by Justice Antonio T. Carpio, pre-
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Roy III vs. Herbosa
ferred shares having higher par values and higher dividend

declarations result in higher earnings than those of common shares.
In his example, even if Filipinos own 120 shares (100 common, 20
preferred), which outnumber the 80 preferred shares of foreigners, it
is possible that the latter would have higher earnings. This
possibility would arise if preferred shares — although less in
number — have greater par values and dividend earnings.
Thus, compliance on the basis of the number of shares alone,
does not necessarily result in keeping the required degree of
beneficial ownership in favor of Filipinos. The different
combinations of shares with respect to the number, par value, and
dividend earnings must also be taken into account.
For this reason, I reiterate our directive in Gamboa for the SEC
to comply with its duty to ascertain the factual issues surrounding
the ownership of the PLDT shares. The dispositive portion of our
ruling in that case reads:
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 in the original)
From that determination, the SEC may be able to gather the

necessary information to correctly classify various kinds of shares in
different combinations of numbers, par values, and dividends.
However, with the SEC considering only the matter of the number of
shares under the assailed circular, and absent any deeper analysis of
PLDT equity structure, any disposition in this case would be
premature.
I would even venture that in the case of a company where 60% of
stocks are voting and 40% are preferred, with each stock having the
same par value, and which complies with the 60% Filipino voting
share rule by requiring that all voting
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stocks be purely in the hands of Filipinos, the minority formula that

would impose upon such companies another layer of nationality
requirement by demanding that at least 60% of each category of
shares be in Filipino hands would effectively drive up the nationality
requirement to at least 84%. That this was not the intention of the
Constitution is quite obvious.
The parties have pleaded with this Court to settle what is or is not
doctrine in Gamboa v. Teves.1 The discussion on the various
permutations possible not only in this case but in many other cases
drives home my point that the present case as pleaded by petitioners
has prematurely attempted to make out a case of grave abuse of
discretion by the SEC. Moreover, should we decide to grant a
petition that could have such far-reaching consequences as this case
appears to have, it is a threshold requirement that the shareholders
be allowed to plead their cause.
WHEREFORE, I vote to DENY the petition.
SEPARATE DISSENTING OPINION
CARPIO, J.:
On 28 June 2011, the Court rendered a ruling in Gamboa v.

Tevez1 (Gamboa Decision) by defining for the first time for over 75
years the term “capital” which appears not only in Section 11,
Article XII of the 1987 Constitution, prescribing the minimum
nationality requirement for public utilities, but likewise in several
provisions thereof, such as Section 2, Article XII; Section 10,
Article XII; Section 11, Article XII; Section 4(2), Article XIV, and
Section 11(2), Article XVI.
In the Gamboa Decision, the Court held that “[a]ny citizen or
juridical entity desiring to operate a public utility must
_______________
1 Gamboa v. Teves, 668 Phil. 1; 652 SCRA 690 (2011) and Heirs of Wilson P.
Gamboa v. Teves, 696 Phil. 276, 485; 682 SCRA 397, 416 (2012).
1 668 Phil. 1; 652 SCRA 690 (2011).
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x x x meet the minimum nationality requirement prescribed in

Section 11, Article XII of the Constitution. Hence, for a corporation
to be granted authority to operate a public utility, at least 60 percent
of its “capital” must be owned by Filipino citizens.”2 The 60 percent
Filipino ownership of the “capital” assumes, or should result in,
“controlling interest” in the corporation.
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:
x x x. 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,
_______________
2 Id., at p. 45; p. 716.

3 Id., at p. 53; p. 726.
4 Id., at p. 57; p. 730.
5 Id.
6 696 Phil. 276; 682 SCRA 397 (2012).
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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
_______________
7 Id., at pp. 338-339; pp. 442-443.
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rights, privileges or restrictions as stated in the articles of incorporation.
xxxx
x x x In short, the 60-40 ownership requirement in favor of Filipino

citizens must apply separately to each class of shares, whether common,
preferred nonvoting, 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. x x x.
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 nonvoting 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 “capi-
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tal,” 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.
In the example given, only the foreigners holding the common
shares have voting rights in the election of directors, even if they
hold only 100 shares. The foreigners, with a minuscule equity of less
than 0.001 percent, exercise control over the public utility. On the
other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the election of directors and hence, have no
control over the public utility. This starkly circumvents the intent of
the framers of the Constitution, as well as the clear language of the
Constitution, to place the control of public utilities in the hands of
Filipinos. x x x.8 (Emphasis supplied)
Clearly, in both Gamboa Decision and Resolution, the Court

categorically declared that the 60 percent minimum Filipino
ownership refers not only to voting rights but likewise to full
beneficial ownership of the stocks. Likewise, the 60 percent Filipino
ownership applies uniformly to each class of shares. Such
interpretation ensures effective control by Filipinos of public
utilities, as expressly mandated by the Constitution.
On 20 May 2013, the Securities and Exchange Commission
(SEC), through respondent Chairperson Teresita J. Herbosa, issued
Memorandum Circular No. 8, Series of 2013, to implement the
Court’s directive in the Gamboa Decision and Resolution. Section 2
thereof pertinently provides:
_______________
8 Id., at pp. 339, 341, 345; pp. 443-450.
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Roy III vs. Herbosa

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. (Emphasis supplied)
SEC Memorandum Circular No. 8 provides for two conditions in

determining whether a corporation intending to operate or operating
a public utility complies with the mandatory 60 percent Filipino
ownership requirement. It expressly states that the 60 percent
Filipino ownership requirement “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.” Section 2 of SEC Memorandum Circular No. 8 therefore
mandates that the 60 percent Filipino ownership requirement shall
be applied separately to both the total number of stocks with voting
rights, and to the entire outstanding stock with and without voting
rights. If the 60 percent Filipino ownership requirement is not met
either by the outstanding voting stock or by the total outstanding
voting and nonvoting stock, then the Constitutional requirement is

violated.
SEC Memorandum Circular No. 8 can be sustained as valid and
fully compliant with the Gamboa Decision and Resolution only if
(1) the stocks with voting rights and (2) the stocks without voting
rights, which comprise the capital of a corporation operating a
public utility, have equal par values. If the shares of stock have
different par values, then applying SEC Memorandum Circular No.
8 would contravene the Gamboa Decision that the “legal and
beneficial ownership of 60 percent of the outstanding capital
stock x x x rests in
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the hands of Filipino nationals in accordance with the

constitutional mandate.”
For example, assume that class “A” voting shares have a par
value of P1.00, and class “B” nonvoting preferred shares have a par
value of P100.00. If 100 outstanding class “A” shares are all owned
by Filipino citizens, and 80 outstanding class “B” shares are owned
by foreigners and 20 class “B” shares are owned by Filipino citizens,
the 60-40 percent ownership requirement in favor of Filipino
citizens for voting shares, as well as for the total voting and
nonvoting shares, will be complied with. If dividends are declared
equivalent to the par value per share for all classes of shares, only
20.8 percent of the dividends will go to Filipino citizens while 79.2
percent of the dividends will go to foreigners, an absurdity or
anomaly that the framers of the Constitution certainly did not intend.
Such absurdity or anomaly will also be contrary to the Gamboa
Decision that the “legal and beneficial ownership of 60 percent of
the outstanding capital stock x x x rests in the hands of Filipino
nationals in accordance with the constitutional mandate.”
Thus, SEC Memorandum Circular No. 8 is valid and
constitutional provided that the par values of the shares with voting
rights and the shares without voting rights are equal. If the par
values vary, then the 60 percent Filipino ownership requirement
must be applied to each class of shares in order that the “legal and
beneficial ownership of 60 percent of the outstanding capital
stock x x x rests in the hands of Filipino nationals in accordance
with the constitutional mandate,” as expressly stated in the
Gamboa Decision and as reiterated and amplified in the Gamboa
Resolution.
Finally, Section 11, Article XII of the Constitution is clear: “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. x x x.”
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The term “capital” in this constitutional provision does not refer to a

specific class of share, as the Constitution does not distinguish
between voting or nonvoting, common or preferred shares of stock.
Thus, the term “capital” refers to all shares of stock that are
subscribed, which constitute the “capital” of a corporation.
Consequently, the 60 percent Filipino ownership requirement
applies uniformly to all classes of shares that are subscribed. A
simple application of the 60 percent Filipino ownership requirement
is to apply the same to the total capital, taken together regardless of
different classes of shares, as what SEC Memorandum Circular No.
8 does. However, if the shares of stock have different par values,
such a simple application will result in an absurdity or anomaly as
explained in the example discussed above. It is hornbook doctrine
that if a provision of the Constitution or the law is susceptible of
more than one meaning, one resulting in an absurdity or anomaly
and the other in a sensible meaning, the meaning that results in an
absurdity or anomaly must be avoided,9 particularly an absurdity or
anomaly that frustrates the intent of the Constitution or the law.
Thus, to avoid such an absurdity or anomaly, the 60 percent Filipino
ownership requirement should be applied to each class of shares if
their par values are different.
ACCORDINGLY, I vote to GRANT the petition IN PART.
SEC Memorandum Circular No. 8, Series of 2013, is valid and
constitutional if all the shares of stock have the same par values.
However, if the shares of stock have different par values, the 60
percent Filipino ownership requirement must be applied to each
class of shares.
_______________
9 Belo v. Philippine National Bank, 405 Phil. 851; 353 SCRA 359 (2001);
Soriano v. Offshore Shipping and Manning Corporation, 258 Phil. 309; 177 SCRA
513 (1989).
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CONCURRING OPINION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a petition for Certiorari under Rule 65 of the

Rules of Court assailing the constitutionality and validity of
Memorandum Circular (MC) No. 8, entitled “Guidelines on
Compliance with the Filipino-Foreign Ownership Requirements
prescribed by the Constitution and/or Existing Laws by
Corporations Engaged in Nationalized Activities,” issued by the
Securities and Exchange Commission (SEC).
Factual Antecedents
On June 28, 2011, the Court issued a Decision in Gamboa v.

Teves1 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 nonvoting 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 nonvoting 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.
_______________
1 G.R. No. 176579, June 28, 2011, 652 SCRA 690 and Heirs of Wilson P.
Gamboa v. Teves, G.R. No. 176579, October 9, 2012, 682 SCRA 397.
2 Emphasis supplied.
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Roy III vs. Herbosa
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:

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
_______________
3 PLDT’s Consolidated Memorandum, pp. 2-3, citing SEC Notice dated 6

November 2012.
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Roy III vs. Herbosa
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 nonvoting, 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
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Roy III vs. Herbosa
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
_______________
4 In the Matter of: Save the Supreme Court Judicial Independence and Fiscal
Autonomy Movement v. Abolition of Judiciary Development Fund (JDF) and
Reduction of Fiscal Autonomy, UDK-15143, January 21, 2015, 746 SCRA 352.
5 General v. Urro, G.R. No. 191560, March 29, 2011, 646 SCRA 567, 577, citing
Integrated Bar of the Philippines v. Zamora, 392 Phil. 618, 632; 338 SCRA 81, 99
(2000).
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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.
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 ascer-
_______________
6 Galicto v. Aquino III, G.R. No. 193978, February 28, 2012, 667 SCRA 150,
172-173, citing Integrated Bar of the Philippines v. Zamora, id.
7 Automotive Industry Workers Alliance (AIWA) v. Romulo, 489 Phil. 710, 719;
449 SCRA 1, 11 (2005); Gonzales v. Narvasa, 392 Phil. 518, 525; 337 SCRA 733,
742 (2000).
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Roy III vs. Herbosa
tain 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
_______________
8 Republic v. Roque, G.R. No. 204603, September 24, 2013, 706 SCRA 273,
285-286.
9 Supra note 6.
10 Emphasis supplied.
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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 allega-
_______________
11 Liga ng mga Barangay National v. Atienza, Jr., G.R. No. 154599, January 21,
2004, 420 SCRA 562, 572.
12 Vergara, Sr. v. Suelto, 240 Phil. 719, 732; 156 SCRA 753, 766 (1987); De
Castro v. Santos, G.R. No. 194994, April 16, 2013, 696 SCRA 400, 407.
13 De Castro v. Santos, id., citing Santiago v. Vasquez, G.R. Nos. 99289-90,
January 27, 1993, 217 SCRA 633; and People v. Cuaresma, 254 Phil. 418, 427; 172
SCRA 415, 422-424 (1989).
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Roy III vs. Herbosa
tion 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
_______________
14 Cua, Jr. v. Tan, G.R. Nos. 181455-56, December 4, 2009, 607 SCRA 645, 695.
15 Id., citing De Galicia v. Mercado, G.R. No. 146744, March 6, 2006, 484
SCRA 131, 136-137.
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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
_______________
16 See David v. Paragas, Jr., G.R. No. 176973, February 25, 2015, 751 SCRA
648, 663 and Sy v. Court of Appeals, G.R. No. 94285, August 31, 1999, 313 SCRA
328, 353-354.
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Roy III vs. Herbosa
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
_______________
17 Id.
18 OKS DesignTech, Inc. v. Caccam, G.R. No. 211263, August 5, 2015, 765
SCRA 433, 442-443.
19 Gold City Integrated Services, Inc. (INPORT) v. Intermediate Appellate Court,
G.R. Nos. 71771-73, March 31, 1989, 171 SCRA 579, 585, citing Arguelles v. Young,
No. L-59880, September 11, 1987, 153 SCRA 690; Republic v. Heirs of Spouses
Florentino and Pacencia Molinyawe, G.R. No. 217120, April 18, 2016, 790 SCRA
107, 116-117; Olaño v. Lim Eng Co, G.R. No. 195835, March 14, 2016, 787 SCRA
272, 285; City of Iloilo v. Honrado, G.R. No. 160399, December 9, 2015, 777 SCRA
23, 34; OKS DesignTech, Inc. v. Caccam, id.
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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:
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Roy III vs. Herbosa

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
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.

Constitutional Commission, “capital” refers to the voting stock or
controlling interest of a corporation x x x.
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.:
Constitution, to impose the appropriate sanctions under the law. (Emphasis
supplied)
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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 nonvoting 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:

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 Court20 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
_______________
20 Ocean East Agency Corporation v. Lopez, G.R. No. 194410, October 14, 2015,
772 SCRA 414, 428-429.
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Roy III vs. Herbosa
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 XII, 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,
_______________
21 Land Bank of the Philippines v. Suntay, G.R. No. 188376, December 14, 2011,
662 SCRA 614, 648.
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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
reclassified, 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.:
a) The term “Philippine national” shall mean a citizen of the

Philippines or a domestic partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement
or separation benefits, where the trustee is a Philippine national and at least
sixty percent (60%) of the fund will accrue to the benefit of the Philippine
nationals: Provided, That where a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange Commission (SEC)
registered
_______________
22 Biraogo v. Philippine Truth Commission of 2010, G.R. Nos. 192935 and

193036, December 7, 2010, 637 SCRA 78, 172.
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Roy III vs. Herbosa
enterprise, at least sixty percent (60%) of the capital stocks outstanding and
entitled to vote of both corporations must be owned and held by citizens of
the Philippines and at least sixty percent (60%) of the members of the Board
of Directors of both corporations must be citizens of the Philippines, in
order that the corporations shall be considered a Philippine national.
The definition was taken a step further in the Implementing Rules

and Regulations of the law where the phrase “beneficial ownership”
was used, as follows:
b. Philippine national shall mean a citizen of the Philippines or a

domestic partnership or association wholly owned by the citizens of the
Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a trustee
of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent (60%) of
the fund will accrue to the benefit of the Philippine nationals; Provided, that
where a corporation its non-Filipino stockholders own stocks in a Securities
and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at
least sixty percent (60%) of the members of the Board of Directors of both
corporation must be citizens of the Philippines, in order that the corporation
shall be considered a Philippine national. The control test shall be applied
for this purpose.
The term Philippine national shall not include juridical entities organized
and existing under the laws of any other country even if wholly owned by
Philippine citizens.
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.
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which have been assigned or transferred to aliens cannot be considered
held by Philippine citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned

qualifications are considered as non-Philippine nationals. (Emphasis and
While the foregoing provisions were cited in Gamboa in

identifying the “capital stock outstanding and entitled to vote” as
equivalent to “capital” in Section 11, Article XII of the Constitution,
nothing in either provision requires the application of the 60%
threshold to “each and every class of shares” of public utilities.
At most, as pointed out by the majority, “beneficial ownership”
must be understood in the context in which it is used. Thusly, the
phrase simply means that the name and full rights of ownership
over the 60% of the voting shares in public utilities must belong to
Filipinos. If either the voting rights or the right to dividends, among
others, of voting shares registered in the name Filipino citizens or
nationals are assigned or transferred to an alien, these shares shall
not be included in the computation of the 60% threshold.
The Commission even went above and beyond the duty levied by
the court and imposed the 60-40 requirement not only on the voting
shares but also on the totality of the corporation’s shareholding, thus
ensuring that the public utilities are, in fact, “effectively controlled”
by Filipinos given the added layers of protection given to ensure that
Filipino stockholders have the full beneficial ownership and control
of public utility corporations in accordance with the Constitution,
thus:
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Roy III vs. Herbosa
1. Forty percent (40%) ceiling on foreign ownership in the capital

stock that ensures sixty percent (60%) Filipino control over the capital stock
which covers both voting and nonvoting shares. As a consequence, Filipino
control over the stockholders is assured. Thus, foreigners can own only up
to 40% of the capital stock.
2. Forty percent (40%) ceiling on the right of foreigners to own and
hold voting shares and elect board directors that guarantees sixty percent
(60%) Filipino control over the Board of Directors.
3. Reservation to Filipino citizens of the executive and managing
officers, regardless of the level of alien equity ownership to secure total
Filipino control over the management of the public utility enterprise. Thus,
all executive and managing officers must be Filipinos.
In my opinion in Heirs of Gamboa v. Teves,23 I pointed out the

dire consequences of not imposing the 40% limit on foreign
ownership on the totality of the shareholdings, viz.:
[L]et us suppose that the authorized capital stock of a public utility

corporation is divided into 100 common shares and 1,000,000 nonvoting
preferred shares. Since, according to the Court’s June 28, 2011 Decision, the
word “capital” in Sec. 11, Art. XII refers only to the voting shares, then the
40% cap on foreign ownership applies only to the 100 common shares.
Foreigners can, therefore, own 100% of the 1,000,000 nonvoting preferred
shares. But then again, the ponencia continues, at least, the “control” rests
with the Filipinos because the 60% Filipino-owned common shares will
necessarily ordain the majority in the governing body of the public utility
corporation, the board of directors/trustees. Hence, Filipinos are assured of
control over the day-to-day activities of the public utility corporation.
_______________
23 Heirs of Wilson P. Gamboa v. Teves, supra note 1.
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Let us, however, take this corporate scenario a little bit farther and
consider the irresistible implications of changes and circumstances that are
inevitable and common in the business world. Consider the simple matter of
a possible investment of corporate funds in another corporation or business,
or a merger of the public utility corporation, or a possible dissolution of the
public utility corporation. Who has the “control” over these vital and
important corporate matters? The last paragraph of Sec. 6 of the
Corporation Code provides:
Where the articles of incorporation provide for nonvoting shares
in the cases allowed by this Code, the holders of such (nonvoting)
shares shall nevertheless be entitled to vote on the following
matters:
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
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. (Emphasis and underscoring supplied)
In our hypothetical case, all 1,000,100 (voting and nonvoting) shares are
entitled to vote in cases involving fundamental and major changes in the
corporate structure, such as those listed in Sec. 6 of the Corporation Code.
Hence, with only 60 out of the 1,000,100 shares in the hands of the Filipino
shareholders, control is definitely in the hands of the foreigners. The
foreigners can opt to invest in other businesses and corporations, increase its
bonded indebtedness, and even dissolve the public utility corporation
against the interest of the Fili-
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Roy III vs. Herbosa
pino holders of the majority voting shares. This cannot plausibly be the
constitutional intent.
Consider further a situation where the majority holders of the total
outstanding capital stock, both voting and nonvoting, decide to dissolve our
hypothetical public utility corporation. Who will eventually acquire the
beneficial ownership of the corporate assets upon dissolution and
liquidation? Note that Sec. 122 of the Corporation Code states:
Section 122. Corporate liquidation.—Every corporation whose

charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be continued as a
body corporate for three (3) years . . . to dispose of and convey its
property and to distribute its assets, but not for the purpose of
continuing the business for which it was established.
At any time during said three (3) years, the corporation is
authorized and empowered to convey all of its property to trustees for
the benefit of stockholders, members, creditors, and other persons in
interest. From and after any such conveyance by the corporation of
its property in trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which the corporation had
in the property terminates, the legal interest vests in the trustees, and
the beneficial interest in the stockholders, members, creditors or
other persons in interest. (Emphasis and underscoring supplied)
Clearly then, the bulk of the assets of our imaginary public utility
corporation, which may include private lands, will go to the beneficial
ownership of the foreigners who can hold up to 40 out of the 100 common
shares and the entire 1,000,000 preferred nonvoting shares of the
corporation. These foreign shareholders will enjoy the bulk of the proceeds
of the sale of the corporate
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lands, or worse, exercise control over these lands behind the façade of
corporations nominally owned by Filipino shareholders. Bluntly, while the
Constitution expressly prohibits the transfer of land to aliens, foreign
stockholders may resort to schemes or arrangements where such land will be
conveyed to their dummies or nominees. Is this not circumvention, if not an
outright violation, of the fundamental Constitutional tenet that only
Filipinos can own Philippine land?
A construction of “capital” as referring to the total shareholdings of the
company is an acknowledgment of the existence of numerous corporate
control-enhancing mechanisms, besides ownership of voting rights, that
limits the proportion between the separate and distinct concepts of
economic right to the cash flow of the corporation and the right to
corporate control (hence, they are also referred to as proportionality —
limiting measures). This corporate reality is reflected in SRC Rule 3(E) of
the Amended Implementing Rules and Regulations (IRR) of the SRC and
Sec. 3(g) of The Real Estate Investment Trust Act (REIT) of 2009, 72 which
both provide that control can exist regardless of ownership of voting
shares. The SRC-IRR states:
Control is the power to govern the financial and operating

policies of an enterprise so as to obtain benefits from its activities.
Control is presumed to exist when the parent owns, directly or
indirectly through subsidiaries, more than one half of the voting
power of an enterprise unless, in exceptional circumstances, it can be
clearly demonstrated that such ownership does not constitute control.
Control also exists even when the parent owns one half or less of
the voting power of an enterprise when there is:
i. Power over more than one half of the voting rights by
virtue of an agreement with other investors;
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Roy III vs. Herbosa
ii. Power to govern the financial and operating policies of the

enterprise under a statute or an agreement;
iii. Power to appoint or remove the majority of the members
of the board of directors or equivalent governing body;
iv. Power to cast the majority of votes at meetings of the
board of directors or equivalent governing body. (Emphasis and
As shown above, ownership of voting shares or power alone without

economic control of the company does not necessarily equate to
corporate control. A shareholder’s agreement can effectively clip the
voting power of a shareholder holding voting shares. In the same way, a
voting right ceiling, which is “a restriction prohibiting shareholders to vote
above a certain threshold irrespective of the number of voting shares they
hold,” 73 can limit the control that may be exerted by a person who owns
voting stocks but who does not have a substantial economic interest over the
company. So also does the use of financial derivatives with attached
conditions to ensure the acquisition of corporate control separately from the
ownership of voting shares, or the use of supermajority provisions in the
bylaws and articles of incorporation or association. Indeed, there are
innumerable ways and means, both explicit and implicit, by which the
control of a corporation can be attained and retained even with very limited
voting shares, i.e., there are a number of ways by which control can be
disproportionately increased compared to ownership 74 so long as economic
rights over the majority of the assets and equity of the corporation are
maintained.
Hence, if We follow the construction of “capital” in Sec. 11, Art. XII
stated in the ponencia of June 28, 2011 and turn a blind eye to these realities
of the business world, this Court may have veritably put a limit on the
foreign ownership of common shares but have indirectly allowed
foreigners to acquire greater economic right to the cash flow of public
utility corporations, which is a leverage to bargain for far
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greater control through the various enhancing mechanisms or

proportionality-limiting measures available in the business world.
In our extremely hypothetical public utility corporation with the equity
structure as thus described, since the majority recognized only the 100
common shares as the “capital” referred to in the Constitution, the entire
economic right to the cash flow arising from the 1,000,000 nonvoting
preferred shares can be acquired by foreigners. With this economic power,
the foreign holders of the minority common shares will, as they easily can,
bargain with the holders of the majority common shares for more corporate
control in order to protect their economic interest and reduce their economic
risk in the public utility corporation. For instance, they can easily demand
the right to cast the majority of votes during the meeting of the board of
directors. After all, money commands control.
The court cannot, and ought not, accept as correct a holding that
routinely disregards legal and practical considerations as significant as
above indicated. Committing an error is bad enough, persisting in it is
worse.
Thus, the zealous watchfulness demonstrated by the SEC in

imposing another tier of protection for Filipino stockholders
cannot, therefore, be penalized on a misreading of the October 9,
2012 Resolution in Gamboa, which neither added nor subtracted
anything from the June 28, 2011 Decision defining capital as “shares
of stock entitled to vote in the election of directors.”
Thus, I join the majority in ruling that there is no need to clarify
the ruling in Gamboa nor hold the Commission liable for grave
abuse of discretion. As it has manifested in Gamboa,24 in issuing
MC No. 8, the SEC abided by the Court’s decision and deferred to
the Court’s definition of the term “capital” in Section 11, Article XII
of the Constitution.
In view of all the foregoing, I vote to DISMISS the petition.
_______________
24 Id., at p. 414; p. 462.
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CONCURRING OPINION
BERSAMIN, J.:
Petitioner Jose M. Roy III (Roy) initiated this special civil action
for certiorari and prohibition to seek the declaration of
Memorandum Circular No. 8, Series of 2013 (MC No. 8),
particularly Section 2 thereof issued by the Securities and Exchange
Commission (SEC) unconstitutional. Allegedly, MC No. 8 was in
contravention of the rule on the nationality of the shareholdings in a

public utility pronounced in Gamboa v. Teves.1
According to Roy, MC No. 8 effectively limited the application
of the 60-40 nationality rule to voting and other shares alone; and
the SEC thereby gravely abused its discretion amounting to lack or
excess of jurisdiction.
Section 2 of MC No. 8 reads:

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. (Bold underscoring supplied for emphasis)
I CONCUR.
I VOTE TO DISMISS the petition for certiorari and prohibition
of Roy and the petition in intervention. The SEC did
_______________
1 G.R. No 176579, June 28, 2011, 652 SCRA 690; Heirs of Wilson P. Gamboa v.
Teves, G.R. No. 176579, October 9, 2012, 682 SCRA 397 (resolution).
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not abuse its discretion, least of all gravely, but, on the contrary,
strictly complied with the language and tenor of the decision
promulgated on June 28, 2011 in Gamboa v. Teves and of the
resolution promulgated on October 9, 2012 in the same case.
Grave abuse of discretion means either that the judicial or quasi-
judicial power was exercised in an arbitrary or despotic manner by
reason of passion or personal hostility, or that the respondent judge,
tribunal or board evaded a positive duty, or virtually refused to
perform the duty enjoined or to act in contemplation of law, such as
when such judge, tribunal or board exercising judicial or quasi-
judicial powers acted in a capricious or whimsical manner as to be
equivalent to lack of jurisdiction. Mere abuse of discretion is not
enough to warrant the issuance of the writ. The abuse of discretion
must be grave.2 The SEC’s strict compliance with the interpretation
in Gamboa v. Teves of the term capital as used in Section 11, Article
XII of the 1987 Constitution is an indication that it acted without

arbitrariness, whimsicality or capriciousness.
In addition, I hereby respectfully give other reasons that compel
my vote to dismiss Roy’s petition for certiorari and prohibition as
well as the petition in intervention.
1.
Neither certiorari nor prohibition is
the proper remedy to assail MC No. 8
The remedies of certiorari and prohibition respectively provided

for in Section 13 and Section 24 of Rule 65 of the Rules of
_______________
2 Delos Santos v. Metropolitan Bank and Trust Company, 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
112

Roy III vs. Herbosa
Court are limited to the exercise of judicial or quasi-judicial

functions (except that prohibition also applies to ministerial
functions) by the respondent tribunal, board or officer that acts
without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction.
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
_______________
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)
4 Section 2. Petition for prohibition.—When the proceedings of any tribunal,
corporation, board, officer or person, whether exercising judicial, quasi-judicial or
ministerial functions, are 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 other 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 commanding the
respondent to desist from further proceedings in the action or matter specified therein,
or otherwise granting such incidental reliefs as law and justice may require.
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. Nos.
106425 & 106431-32, July 21, 1995, 246 SCRA 738, 740.
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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 Consti-
_______________
6 Securities and Exchange Commission v. Universal Rightfield Property

Holdings, Inc., G.R. No. 181381, July 20, 2015, 763 SCRA 197, 218.
7 Section 1. x x x x
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demand-
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Roy III vs. Herbosa
tution. 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
noninterference 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
_______________
able 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.
8 G.R. No. 209287, July 1, 2014, 728 SCRA 1, 68-69.
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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.
This is the background of paragraph 2 of Section 1, which means that

the courts cannot hereafter evade the duty to settle matters of this
nature, by claiming that such matters constitute a political question.
(Bold emphasis supplied)
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Roy III vs. Herbosa
Araullo did not stop there, however, and went on to discourse on

the procedural aspect of enabling the exercise of the expanded
jurisdiction in this wise:
What are the remedies by which the grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of any branch or instrumentality
of the Government may be determined under the Constitution?
The present Rules of Court uses two special civil actions for determining
and correcting grave abuse of discretion amounting to lack or excess of
jurisdiction. These are the special civil actions for certiorari and
prohibition, and both are governed by Rule 65. A similar remedy of
certiorari exists under Rule 64, but the remedy is expressly applicable only
to the judgments and final orders or resolutions of the Commission on
Elections and the Commission on Audit.
The ordinary nature and function of the writ of certiorari in our present
system are aptly explained in Delos Santos v. Metropolitan Bank and Trust
Company:
In the common law, from which the remedy of certiorari evolved,

the writ of certiorari was issued out of Chancery, or the King’s
Bench, commanding agents or officers of the inferior courts to return
the record of a cause pending before them, so as to give the party
more sure and speedy justice, for the writ would enable the superior
court to determine from an inspection of the record whether the
inferior court’s judgment was rendered without authority. The errors
were of such a nature that, if allowed to stand, they would result in a
substantial injury to the petitioner to whom no other remedy was
available. If the inferior court acted without authority, the record was
then revised and corrected in matters of law. The writ of certiorari
was limited to cases in which the inferior court was said to be
exceeding its jurisdiction or was not proceeding according to es-
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sential requirements of law and would lie only to review judicial or

quasi-judicial acts.
The concept of the remedy of certiorari in our judicial system
remains much the same as it has been in the common law. In this
jurisdiction, however, the exercise of the power to issue the writ of
certiorari is largely regulated by laying down the instances or
situations in the Rules of Court in which a superior court may issue
the writ of certiorari to an inferior court or officer. Section 1, Rule 65
of the Rules of Court compellingly provides the requirements for that
purpose, viz.:
xxxx
The sole office of the writ of certiorari is the correction of errors
of jurisdiction, which includes the commission of grave abuse of
discretion amounting to lack of jurisdiction. In this regard, mere
abuse of discretion is not enough to warrant the issuance of the writ.
The abuse of discretion must be grave, which means either that the
judicial or quasi-judicial power was exercised in an arbitrary or
despotic manner by reason of passion or personal hostility, or that the
respondent judge, tribunal or board evaded a positive duty, or
virtually refused to perform the duty enjoined or to act in
contemplation of law, such as when such judge, tribunal or board
exercising judicial or quasi-judicial powers acted in a capricious or
whimsical manner as to be equivalent to lack of jurisdiction.
Although similar to prohibition in that it will lie for want or excess of

jurisdiction, certiorari is to be distinguished from prohibition by the fact
that it is a corrective remedy used for the reexamination of some action of
an inferior tribunal, and is directed to the cause or proceeding in the lower
court and not to the court itself, while
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Roy III vs. Herbosa
prohibition is a preventative remedy issuing to restrain future action, and is

directed to the court itself. x x x
With respect to the Court, however, 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. This application is expressly authorized by the
text of the second paragraph of Section 1, supra.
Thus, petitions for certiorari and prohibition are appropriate
remedies to raise constitutional issues and to review and/or prohibit or
nullify the acts of legislative and executive officials.
Necessarily, in discharging its duty under Section 1, supra, 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. The Court has been thereby entrusted expressly or by
necessary implication with both the duty and the obligation of
determining, in appropriate cases, the validity of any assailed legislative
or executive action. This entrustment is consistent with the republican
system of checks and balances.9
_______________
9 Id., at pp. 71-75.
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The SEC, albeit under the administrative supervision of the

Department of Finance,10 did not come under the terms any branch
or instrumentality of the Government used in Section 1, Article VIII
of the 1987 Constitution. Although it is an agency vested with
adjudicatory as well as regulatory powers, its issuance of MC No. 8
cannot be categorized as an act of either an executive or a legislative
character within the context of the phrase any branch or
instrumentality of the Government used in Section 1, Article VIII of
the 1987 Constitution.
Accordingly, the expanded jurisdiction of the Court under
Section 1, paragraph 2, Article VIII of the 1987 Constitution was not
properly invoked to decide whether or not the SEC had acted with
grave abuse of discretion in issuing MC No. 8.
3.
The doctrine of immutability of judgment precludes the Court
from reevaluating the definition of capital under Section 11,
Article XII of the 1987 Constitution
In focus is the term capital as used in Section 11, Article XII of

the Constitution, which provides:
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
_______________
10 Section 1, Executive Order No. 37 dated April 19, 2011.
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Roy III vs. Herbosa
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.
In the decision promulgated on June 28, 2011 in Gamboa v.

Teves, the Court explicitly defined the term capital as referring only
to shares of stock entitled to vote in the election of directors.11 In the
case of Philippine Long Distance Telephone Company (PLDT), its
capital — for purposes of complying with the constitutional
requirement on nationality — should include only its common
shares, not its total outstanding capital stock comprising both
common and nonvoting preferred shares.12
The Court clarified, however, that —

vote in the election of directors, then the term capital shall include such
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
Constitu-
_______________
11 Gamboa v. Teves, supra note 1 at p. 723.

12 Id.
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Roy III vs. Herbosa
tional Commission, capital refers to the voting stock or controlling interest

of a corporation. x x x
xxxx
Thus, 60 percent of the capital assumes, or should result in, controlling

interest in the corporation. x x x
xxxx

capital required in the Constitution. Full beneficial ownership of 60
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].13
In the June 28, 2011 decision, the Court disposed as follows:
WHEREFORE we PARTLY GRANT the petition and rule that the term

Constitution, to impose the appropriate sanctions under the law.
SO ORDERED.14
_______________
13 Id., at pp. 726-730.

14 Id., at p. 744.
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Roy III vs. Herbosa
Acting subsequently on the motion for reconsideration, the Court

promulgated its resolution of October 9, 2012 affirming the
foregoing pronouncement of June 28, 2011, holding and disposing:

shares, regardless of nomenclature and category, comprising the capital of a
corporation. Under the Corporation Code, capital stock consists of all
preferred shares, which may have different rights, privileges or restrictions
as stated in the articles of incorporation.
xxxx
x x x Thus, if a corporation, engaged in a partially nationalized

industry, issues a mixture of common and preferred nonvoting shares,
at least 60 percent of the common shares and at least 60 percent of the
preferred nonvoting 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
nonvoting, 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, privi-
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Roy III vs. Herbosa
leges 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. x x x
xxxx

SO ORDERED.15
The SEC issued MC No. 8 to conform with the Court’s

pronouncement in its decision of June 28, 2011. As stated, Section 2
of MC No. 8 declared that “[f]or purposes of determining
compliance therewith, the required percentage of Filipino 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.”
Roy and the intervenors submit herein, however, that MC No. 8
thereby defied the pronouncement in Gamboa v. Teves on the
determination of foreign ownership of a public utility by failing “to
make a distinction between different classes of shares, and instead
offers only a general distinction between voting and all other
shares.”
I disagree with the submission of Roy and the intervenors.
The objective of the Court in defining the term capital as used in
Section 11, Article XII of the Constitution was to ensure that both
controlling interest and beneficial ownership were vested in
Filipinos. The decision of June 28, 2011 pronounced that capital
refers only to shares of stock that can vote in the election of
directors (controlling interest) and owned by Filipinos (beneficial
ownership). Put differently, 60
_______________
15 Heirs of Wilson P. Gamboa v. Teves, supra note 1 at pp. 443-470.
124

Roy III vs. Herbosa
percent of the outstanding capital stock (whether or not entitled to

vote in the election of directors), coupled with 60 percent of the
voting rights, must rest in the hands of Filipinos.
The language and tenor of the assailed Section 2 of MC No. 8
strictly follow the definition of the term capital in Gamboa v. Teves.
Such definition already attained finality at the time Roy filed his
petition. The resolution of October 9, 2012 did not in the least
modify such definition. Hence, the SEC did not abuse its discretion
in issuing MC No. 8.
What Roy and the intervenors actually would have the Court do
herein is to redefine capital so that the 60-40 ownership requirement
would apply separately to each class of shares, as discussed in the
body of the resolution promulgated on October 9, 2012.16 Such a
redefinition, because it would contravene the June 28, 2011 decision
or the resolution of October 9, 2012, would actually reopen and
relitigate Gamboa v. Teves.
Any attempt on the part of Roy and the intervenors to hereby
redefine the concept of capital will unavoidably disregard the
immutability of the final judgment in Gamboa v. Teves. That is not
permissible. If the main role of the courts of justice is to assist in the
enforcement of the law and in the maintenance of peace and order
by putting an end to judiciable controversies with finality, nothing
serves this role better than the long established doctrine of
immutability of judgments.17 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
_______________
16 Id., at p. 445; pp. 445-446, where the Court said:
x x x [T]he 60-40 ownership requirement in favor of Filipino citizens must apply separately
to each class of shares, whether common, preferred nonvoting, 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.
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Roy III vs. Herbosa
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 this principle must be immediately struck down.18
This is because the doctrine of immutability of a final judgment
serves a two-fold purpose, namely: (1) to avoid delay in the
administration of justice and thus, procedurally, to make orderly the
discharge of judicial business; and (2) to put an end to judicial
controversies, at the risk of occasional errors, which is precisely why
courts exist. Verily, controversies cannot drag on indefinitely. The
doctrine is not a mere technicality to be easily brushed aside, but a
matter of public policy as well as a time-honored principle of
procedural law.19 Otherwise the rights and obligations of every
litigant could hang in suspense for an indefinite period of time.
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
_______________

66, G.R. No. 161282, February 23, 2011, 644 SCRA 50, 56.
19 Supra note 17 at pp. 213-214.
66, supra at p. 56.
126

Roy III vs. Herbosa
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
x x x 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
_______________
21 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.
23 78 Phil. 570, 577-578 (1947).
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Roy III vs. Herbosa
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.
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
_______________
24 Cobarrubias v. People, G.R. No. 160610, August 14, 2009, 596 SCRA 77, 89-
90.
128

Roy III vs. Herbosa
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.
xxxx
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
_______________
25 G.R. No. 179675, June 8, 2011, 651 SCRA 533, 539-540.
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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
_______________
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, 431.
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Roy III vs. Herbosa
DISSENTING OPINION
MENDOZA, J.:
The final ruling in a case includes not only the decision but also
the clarifications and amplifications contained in subsequent
resolutions before its finality. A party cannot isolate the decision and
ignore the elucidations contained in the resolutions. It is only after
the decision becomes final that it becomes immutable and
unalterable.1
Accordingly, the June 28, 2011 Decision in Gamboa v. Teves2
(Gamboa Decision) is not the final ruling in said case but includes
the clarification and amplifications of the Court in its October 9,
2012 Resolution (Gamboa Resolution). Therefore, any regulation
which ignores the Court’s final ruling is not compliant with it. Hence
—
I dissent.
My position is that SEC MC No. 8 is noncompliant with the final
Gamboa ruling and must be amended to conform thereto.
The Antecedents
The case of Gamboa was filed by the late Wilson Gamboa,

questioning the sale of 111,415 shares of Philippine
Telecommunications Investment Corporation (PTIC) to First Pacific,
a foreign corporation, as it was violative of Section 11, Article
_______________
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 Corporation v. Court
of Appeals, G.R. No. 202531, August 17, 2016, 800 SCRA 658.
2 668 Phil. 1; 652 SCRA 690 (2011) (Decision).
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XII of the Constitution.3 It was averred therein that PITC owned

6.3% of the Philippine Long Distance Telephone Company (PLDT),
a public utility enterprise, and the acquisition by First Pacific of its
entire shareholding would amount to the foreign ownership of the
6.3% common shares of PLDT. This would effectively increase the
foreign ownership of common shares in PLDT to 81.47%.
On June 28, 2011, the Court rendered the Gamboa Decision,
holding that for there to be compliance with the constitutional
mandate, full beneficial ownership over sixty percent (60%) of the
total outstanding capital stock, coupled by sixty percent (60%)
control over shares with the right to vote in the election of directors,
must be held by Filipinos. Thus, the decretal portion of the Gamboa
Decision 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

_______________
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.
132

Roy III vs. Herbosa

Constitution, to impose the appropriate sanctions under the law.4
Thereafter, motions for reconsideration were filed. In its

Resolution5 dated October 9, 2012 (Gamboa Resolution), the Court
stressed that the 60-40 ownership requirement in favor of Filipino
citizens in the Constitution to engage in certain economic activities
applied not only to voting control, but also to the beneficial
ownership of the corporation. The Court wrote that the same limits
must apply uniformly and separately to each class of shares,
without regard to their restrictions or privileges. Specifically, the
Court explained:
Since a specific class of shares may have rights and privileges or

restrictions different from the rest of the shares in a corporation, the 60-40
ownership requirement in favor of Filipino citizens in Section 11, Article
XII of the Constitution must apply not only to shares with voting rights
but also to shares without voting rights. 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 nonvoting shares, at least 60 percent of the common shares
and at least 60 percent of the preferred nonvoting 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-
_______________
4 Gamboa v. Teves, supra note 2.

5 Heirs of Wilson P. Gamboa v. Teves, G.R. No. 176579, October 9, 2012, 682
SCRA 397, 443. (Resolution)
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Roy III vs. Herbosa
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. [Emphases supplied]
Hence, the Court finally decreed:

SO ORDERED.6
Eventually, the definition of “capital,” as finally amplified and

elucidated by the Court in the Gamboa Resolution, became final and
executory.
On March 25, 2013, the SEC issued a notice to the public,
soliciting comments on, and suggestions to, the draft guidelines in
compliance with the Filipino ownership requirement in public
utilities prescribed in Section 11, Article XII of the Constitution.
On April 22, 2013, petitioner Atty. Jose M. Roy III (Roy)

submitted his written comments7 pursuant to the SEC Notice of
March 25, 2013. He pointed out that the said guidelines (specifically
Section 2 thereof) did not comply with the letter and spirit of the
Court’s final ruling in Gamboa. Roy claimed that he never received
a reply from the SEC.
_______________
6 Id.
7 Rollo, pp. 270-272.
134

Roy III vs. Herbosa
On May 20, 2013, the SEC, through Chairperson Teresita J.

Herbosa, issued MC No. 8. Section 2 thereof reads:

determining compliance therewith, the required percentage of Filipino 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.8 [Emphasis supplied]
The Subject Petition
Contending that the issuance of the assailed circular contradicted

the intent and spirit of Gamboa, Roy, as a lawyer and taxpayer, filed
the subject petition, contending that the assailed circular
contradicted the intent and spirit of the final Gamboa ruling. He
feared that the assailed circular would encourage circumvention of
the constitutional limitation for it would allow the creation of several
classes of voting shares with different degrees of beneficial
ownership over the same, but at the same time, not imposing a forty
percent (40%) limit on foreign ownership of the higher yielding
stocks; and that permitting foreigners to benefit from equity
structures with Filipinos being given merely voting rights, but not
the full economic benefits, thwarts the constitutional directive of
guaranteeing a self-reliant and independent national economy
effectively controlled by Filipinos. The effect would be, as he wrote,
that while Filipinos are given voting rights, they would be denied of
the full economic benefits produced by the public utility company.
_______________
8 <https://.sec.gov.ph/.../memorandumcircular/.../sec%20%memo%20no.%208>
(last visited, April 21, 2015).
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Roy III vs. Herbosa
Petition-in-Intervention
Following the filing of the said petition by Roy, the Court granted
the Motion to Leave to File Petition-in-Intervention filed by Wilson
C. Gamboa, Jr., the son of the petitioner in Gamboa, together with
lawyers Daniel V. Cartagena, John Warren P. Gabinete, Antonio V.
Pesina, Jr., Modesto Martin Y. Manon, and Gerardo C. Erebaren
(Gamboa, et al.). In their Petition-in-Intervention (For Certiorari),9
dated July 16, 2013, Gamboa, et al. merely adopted the issues,
arguments and prayer of Roy.
Both Roy and Gamboa, et al. (petitioners) claimed that by
issuing MC No. 8, the SEC defied the final Gamboa ruling as to the
determination of foreign ownership in a public utility corporation.
They argued that MC No. 8 did not conform to the letter and spirit of
the final Court ruling as the Gamboa Resolution clearly stated that
the 60-40 ownership requirement must apply separately to each class
of shares. MC No. 8, they asserted, failed “to make a distinction
between different claims of shares, and instead offers only a general
distinction between voting and all other shares.”10 They further
pointed out that, as an effect of this faulty interpretation by the SEC,
PLDT would be in direct violation of the Constitution as it did not
comply with the 60-40 rule and, therefore, could not be considered a
Filipino corporation.
Respondents’ Position
The SEC, in its Consolidated Comment,11 dated September 13,

2013, and PLDT, in its Comment (on the Petition dated 10 June
2013),12 dated September 5, 2013, and Comment (on The
_______________
9 Rollo, pp. 231-263.

10 Id., at p. 11.
11 Id., at pp. 544-584.
12 Id., at pp. 466-524.
136

Roy III vs. Herbosa
Petition-in-Intervention, dated July 16, 2013)13 submitted basically

the same arguments to support their prayer for the dismissal of the
petition and the petition-in-intervention. They both questioned the
jurisdiction of the Court over the petitions and invoked the doctrine
of hierarchy of courts to show that direct resort to this Court by the
petitioners could not be justified, and that they failed to exhaust
administrative remedies. The SEC and PLDT also agreed that the
petitioners did not possess the locus standi to question the
constitutionality of MC No. 8, and that they could not invoke
“transcendental importance” as a protective cloak. With regard to
PLDT’s compliance with the foreign ownership requirement laid
down in Gamboa, the SEC and PLDT both argued that this requires
the determination of facts, in effect, categorizing the petitions
premature and improper.
The SEC also pointed out that the tenor of the decretal portion of
the decision of the Court in Gamboa, as well as that of its October 9,
2012 resolution, was that the term “capital” should pertain to shares
of stocks entitled to vote in the election of directors, and that there
was nothing in there that mentioned about the 60-40 ownership
requirement for each class of shares. It also argued that the omitted
rule was a mere obiter dictum or one without any binding precedent.
The SEC emphasized that the fallos of the said decision and
resolution must control.
Petitioners’ Reply
On May 7, 2014, the petitioners filed their Joint Consolidated

Reply with Motion for Issuance of Temporary Restraining Order14
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
_______________
13 Id., at pp. 633-653.
14 Id., at pp. 723-756.
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Roy III vs. Herbosa
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 Court15 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 Court16 to protect the rights of
shareholders against the effects of unlawful and unreasonable
regulations.
_______________
15 Id., at pp. 839-847.

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)
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Roy III vs. Herbosa
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
Resolution18 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.
_______________
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.
17 Galicto v. Aquino III, 683 Phil. 141; 667 SCRA 150 (2012).
19 Gamboa v. Teves, supra note 2.
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Roy III vs. Herbosa
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
_______________
20 Rollo.
140

Roy III vs. Herbosa
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
_______________
21 Rollo (Volume I), pp. 10-11.
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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
_______________
22 646 Phil. 452; 632 SCRA 146 (2010).
142

Roy III vs. Herbosa
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.
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 III,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
_______________
23 Rollo (Volume II), pp. 564-566.

24 People v. Sandiganbayan, First Division & Third Division, G.R. No. 188165,
December 11, 2013, 712 SCRA 359.
25 G.R. No. 209287, July 1, 2014, 728 SCRA 1.
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Roy III vs. Herbosa
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 stan-
_______________
26 Id.
27 Malana v. Tappa, 616 Phil. 177; 600 SCRA 189 (2009).
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Roy III vs. Herbosa
dard 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
_______________
28 Dy v. Bibat-Palamos, G.R. No. 196200, September 11, 2013, 705 SCRA 613.
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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.
Justiciability of the Controversy
The Court’s authority to take cognizance of the kind of questions

presented in this case is not absolute. The Constitution prescribes
that before the Court accepts a challenge to a governmental act,
there must be first an actual case or controversy. In the words of the
US Supreme Court, this is an “essential limit on our power [as] [i]t
ensures that we act as judges, and do not engage in policymaking
properly left to elected representatives.”29 For if the Court would
rule in all cases despite lacking the requirement of an actual case,
the Court might tread on forbidden grounds or matters on which it
had no constitutional competence, these matters being reserved to a
more appropriate branch of government pursuant to the established
principle of separation of powers.
As ingrained in our jurisprudence, an actual case is one that is
appropriate or ripe for determination, not conjectural or
anticipatory.30 “[C]ourts do not sit to adjudicate mere academic
questions to satisfy scholarly interest, however intellectually

challenging.”31 It has been said that any attempt at abstraction could
only lead to dialectics and barren legal questions and to sterile
conclusions unrelated to actualities.32
_______________
29 Hollingsworth v. Perry, 133 S. Ct. 2652 (U.S. 2013).

30 Southern Hemisphere Engagement Network. Inc. v. Anti-Terrorism Council,
supra note 22 at p. 479; p. 176, citing Republic Telecommunications Holding, Inc. v.
Santiago, 556 Phil. 83, 91-92; 529 SCRA 232, 243 (2007).
31 Abdul v. Sandiganbayan (Fifth Division), G.R. No. 184496, December 2, 2013,
711 SCRA 246, citing Mattel, Inc. v. Francisco, 582 Phil. 492, 501; 560 SCRA 504,
514 (2008).
32 Lozano v. Nograles, 607 Phil. 334; 589 SCRA 354 (2009), citing Angara v.
Electoral Commission, 63 Phil. 139 (1936).
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Roy III vs. Herbosa
For said reasons, courts have no business issuing advisory opinions.

Traditionally, a justiciable controversy must involve
countervailing interests pertaining to enforceable and demandable
rights of adverse parties. But with the constitutionally granted
expansion of the power of judicial review brought about to reflect
the people’s desire to have a proactive Judiciary that is ever vigilant
with its duty to maintain the supremacy of the Constitution,33
justiciable questions took an expanded form. As held in Imbong v.
Ochoa, Jr.,34 the Judiciary would now have the constitutional
authority to determine whether there had been grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government.35
A cursory reading of the petition and petition-in-intervention
reflects that this case falls within that category as grave abuse of
discretion is being ascribed against the SEC in issuing MC No. 8.
Section 2 of the said circular is being challenged for being in
violation of the Constitution and of the letter and spirit of the final
ruling in Gamboa. Considering the fact that MC No. 8 had already
been issued by the SEC and such circular, although called merely as
guidelines, carried with it a warning that failure to comply with it
shall subject the juridical entity, any person, and the corporate
officers responsible to sanctions provided in Section 14 of the
Foreign Investments Act of 1991 (FIA), as amended, it is beyond
doubt that the question before the Court qualifies as a justiciable

controversy.
_______________
33 Imbong v. Ochoa, Jr., G.R. No. 204819, April 8, 2014, 721 SCRA 146, 282.
34 Id.
35 Id.
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Legal Standing
As defined, locus standi or legal standing is the personal and

substantial interest in a case such that the party has sustained or will
sustain direct injury as a result of the governmental act that is being
challenged.36 The party must also demonstrate that the injury is
likely to be redressed by a favorable action of the courts.37 Absent
this, the Court cannot consider a case. In every situation, the Court
must scrutinize first whether a petitioner is suited to challenge a
particular governmental act.
The petitioners’ invocation of standing is based on being a
citizen, lawyer, taxpayer, and additionally for petitioner Roy, a
partner of a firm that patronizes PLDT for its telecommunication
needs.
The SEC and PLDT claim that such justification is not enough to
clothe the petitioners with legal standing because they failed to show
that the implementation of the circular would cause them any direct
or substantial injury. Citing IBP v. Zamora,38 they also argue that
standing cannot be based merely on being a lawyer, as membership
in the Bar is too general an interest to satisfy the requirement of
locus standi.
I find, however, that the petitioners as properly suited in their
capacities as citizens.
In many cases, the legal standing of a citizen in the context of
issues concerning constitutional questions was permitted by the
Court. In Imbong v. Ochoa, Jr.,39 the Court stated that the citizen’s
standing to question the constitutionality of a law could be allowed
even if they had only an indirect and
_______________
36 Galicto v. Aquino III, supra note 17, citing Lozano v. Nograles, supra note 32.
37 Anak Mindanao Party-List Group v. The Executive Secretary, 558 Phil. 338,
351; 531 SCRA 583, 592 (2007).
38 392 Phil. 618; 338 SCRA 81 (2000).
39 Supra note 33.
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Roy III vs. Herbosa
general interest shared in common with the public, provided that it

involved the assertion of a public right specifically in cases where
the people themselves were regarded as the real parties-in-interest.
The assertion of a public right as a predicate for challenging a
supposedly illegal or unconstitutional executive or legislative action
rests on the theory that a citizen represents the public in general.
Although such citizen may not be as adversely affected by the action
complained against as are others, it is enough that there is
demonstration of entitlement to protection or relief from the Court in
the vindication of a public right.40
The collective interest of the Filipino in the compliance of the
SEC, being the statutory regulator in charge of enforcing and
monitoring observance with the Court’s interpretation of the
constitutional limits on foreign participation in public utilities, is a
matter of public right. A manifest error in the implementation of
what the Constitution demands, specifically in the crafting of a legal
framework for corporate observance on nationality limits, lies grave
abuse of discretion in its heart. This transcendentally important
question requires the Court to determine whether MC No. 8
conforms to the final ruling in Gamboa. Thus, as citizens, petitioners
have the proper standing to challenge the validity and
constitutionality of the assailed circular.
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.
_______________
40 Araullo v. Aquino III, supra note 25.
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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 test41 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, stock-
_______________
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
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Roy III vs. Herbosa
holders, 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.
Nonstockholders 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
_______________
Code: Provided, further, that there shall always be a class or series of shares which
have complete voting rights.
x x x x x x x x x
Where the articles of incorporation provide for nonvoting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all
of the corporation property;
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
“Except as provided in the immediately preceding paragraph, the vote necessary to approve
a particular corporate act as provided in this Code shall be deemed to refer only to stocks with
voting rights.”
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title of the property given to another.43 Thus, in the Gamboa

Resolution it was clarified and stressed that:

shares, regardless of nomenclature and category, comprising the capital
of a corporation. Under the Corporation Code, capital stock consists of all
preferred shares, which may have different rights, privileges or restrictions
as stated in the articles of incorporation.44 [Emphases supplied]
The Court then went on to explain that “[f]ull beneficial

ownership of 60 percent of the outstanding capital stock, coupled
with 60% of the voting rights, is also required.” In other words, not
only should the 60% of the total outstanding capital stock and the
shares with the right to elect the directors be registered in the names
of Filipinos, but also the beneficial or equitable title to such shares
must be reasonably45 traced to Filipinos.
_______________
43 Black’s Law Dictionary (2nd Pocket ed., 2001, p. 508).

45 Resolution, Narra Nickel Mining and Development Corp. v. Redmont
Consolidated Mines Corp., G.R. No. 195580, January 28, 2015, 748 SCRA 455.
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.
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Roy III vs. Herbosa
Thus, in Narra Nickel Mining and Development Corp. v.

Redmont Consolidated Mines Corp.,46 the Court stated that if doubt
exists as to the extent of control and beneficial ownership in a public
utility, the grandfather rule can be applied to supplement the
control test. The purpose of the test is to make further inquiry on the
ownership of the corporate stockholders.47 By satisfying beneficial

ownership test through the employment of the grandfather rule,
devious yet imaginative legal strategies used to circumvent the
constitutional and statutory limits on foreign equity participation can
be determined.48
_______________
46 Id.
47 Id.
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 Class 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.
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The Assailed Circular as it

relates to Gamboa Resolution
The petitioners strongly assert that the SEC gravely abused its
discretion when it issued MC No. 8, with specific reference to
Section 2, which is again quoted as follows:

determining compliance therewith, the required percentage of Filipino 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
Roy points out that the SEC did not include in the assailed
circular the requirement of applying the 60-40 rule to each and every
class of shares. He fears that although Filipinos
_______________
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.
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Roy III vs. Herbosa
will have voting rights, they may remain deprived of the full
economic benefits if the rule is not applied to all classes of shares.
I agree with the petitioners.
The Basis of the Uniform

and Separate Application
of 60:40 Rule to Each and
Every Class of Shares
It has been said that economic rights give meaning to control.

The general assumption is that control rights are always coupled
with proportionate economic interest in a corporation. This

proportionality gives stockholders theoretically an incentive to
exercise voting power well, makes possible the market for corporate
control and legitimates managerial property the managers do not
own.49
The same theory is adhered to by the Constitution. 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.
In a single class structured corporation, the proportionality
required can easily be determined. In mixed class or dual structured
corporations, however, there is variance in the proportion of
stockholders’ controlling interest vis-à-vis their economic ownership
rights. This resulting variation is recog-
_______________
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).
155
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nized by the Implementing Rules and Regulations (IRR) of the

Securities Regulation Code,50 which defined beneficial ownership as
that may exist either through voting power and/or through
investment returns. 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.
Disparity in privileges accorded to different classes of shares was
best illustrated in the Gamboa Resolution. By operation of Section 6
of the Corporation Code,51 preferred class of shares may be created
with superior economic rights as compared to the other classes.
Dissimilar shares, although similar in terms of number, can differ in
terms of benefits. In such cases, holders of preferred shares,
although constituting only a smaller portion of the total outstanding
capital stock of the corporation, can have greater economic interest

over those of common stockholders.
In the event that a public utility corporation restructures and
eventually concentrates all foreign shareholdings solely to a
preferred class of shares with high yielding investment power,
foreigners would, in effect, have economic interests
_______________
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. x x x x x x
x x x.
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. x x x x x x x x x.
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Roy III vs. Herbosa
exceeding those of the Filipinos with less economically valuable

common shares. Evidently, this was not envisioned by the framers of
the Constitution. And for the reasons that follow, the Court considers
such a situation as an affront to the Constitution.
To begin with, it dilutes the potency of Filipino control in a
public utility.
Economic rights effectively encourage the controlling
stockholders to exercise their control rights in accordance with their
own interest. Necessarily, if Filipino controlling stockholders have
dominance over both economic ownership and control rights, their
decisions on corporate matters will mean independence from
external forces.
Conversely, if Filipino controlling stockholders do not have
commensurate level of interest in the economic gains of a public
utility, the disparity would allow foreigners to intervene in the
management, operation, administration or control of the corporation
through means that circumvent the limitations imposed by the
Constitution. It would foster the creation of falsely simulated

existence of the required Filipino equity participation, an act
prohibited under Section 2 of Commonwealth Act No. 108,
commonly known as the Anti-Dummy Law,52 effectively
circumventing the rationale behind the constitutional limitations on
foreign equity participation.
_______________
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
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Moreover, the variation in the classes of shares would allow

foreigners to acquire preferential interest and advantage in the
remaining assets of the corporation after its dissolution or
termination. This runs counter to the intent of the present
constitution — the conservation and development of the national
patrimony. Filipino stockholders should not only be entitled to the
benefits generated by a public utility, they should equally have the
right to receive the greater share in whatever asset that would be left
should the corporation face its end.
Clearly the only way to minimize, if not totally prevent disparity
of control and economic rights given to Filipinos, and to obstruct
consequences not envisioned by the Constitution, is to apply the 60-
40 rule separately to each class of shares of a public utility
corporation. It results in the equalization of Filipino interests, both
in terms of control and economic rights, in each and every class of
shares. By making the economic rights and controlling rights of
Filipinos in a public utility paramount, directors and managers
would be persuaded to act in the interest of the Filipino
stockholders. In turn, the Filipino stockholders would exercise their
corporate ownership rights in ways that would benefit the entire
Filipino people cognizant of the trust and preference accorded to

them by the Constitution.
Neither an Obiter Dictum

or a Treaty Violation
The respondents claim that the statement that the 60-40 rule
applies to each type of shares was a mere obiter dictum. As
reference, they point to the dispositive portions of the Gamboa
Decision and Gamboa Resolution, where there is no directive that
the 60-40 rule should apply to each class of
_______________
right, franchise or privilege, enjoyed or acquired in violation of the provisions hereof

but in no case less than five thousand pesos.”
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Roy III vs. Herbosa
shares. They insisted that the controlling rule should be what was
stated in the fallo of the decision in Gamboa that the 60-40 rule
applied only to shares with the right to vote in the election of
directors. PSEI also cautions this Court in upholding the application
of the 60-40 rule to each type of shares because it would redefine
what was stated in the Gamboa Decision. It would also affect the
obligation of the State under different treaties and executive
agreements, and could disastrously affect the stock exchange market
and the state of foreign investments in the country.
Again, on this point, I differ. The majority disregarded the final
ruling in Gamboa.
Jurisprudence is replete with the doctrine that a final and
executory judgment may nonetheless be “clarified” by reference to
other portions of the decision of which it forms a part; that a
judgment must not be read separately but in connection with the
other portions of the decision of which it forms a part. Otherwise
stated, a decision should be taken as a whole and considered in its
entirety to get the true meaning and intent of any particular portion
thereof.53 It “must be construed as a whole so as to bring all of its
parts into harmony as far as this can be done by fair and reasonable
interpretation and so as to give effect to every word and part, if
possible, and to effectuate the obvious intention and purpose of the
Court, consistent with the provisions of the organic law.”54 A final
ruling in Gamboa, therefore, includes the clarification and

elucidation in the subsequent Gamboa Resolution, which was
unquestioned until it lapsed into finality.
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
_______________
53 La Campana Development Corporation v. Development Bank of the

Philippines, 598 Phil. 612, 634; 579 SCRA 137, 156 (2009).
54 49 C.J.S. 436, cited in Republic v. De los Angeles, 150-A Phil. 25, 85; 41
SCRA 422, 443 (1971).
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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.
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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 noncompliant 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 noncompliant with the final Gamboa ruling.
Accordingly, the Security and Exchange Commission should
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.
DISSENTING OPINION
LEONEN, J.:
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 Decision1 as further
_______________
1 Gamboa v. Teves, 668 Phil. 1; 652 SCRA 690 (2011) [Per J. Carpio, En Banc].
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illuminated in its October 9, 2012 Resolution2 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 XIV3 of the 1987
Constitution, must apply “to
_______________
2 Heirs of Wilson P. Gamboa v. Teves, 696 Phil. 276; 682 SCRA 397 (2012) [Per
J. Carpio, En Banc].
3 CONST., Art. XII, Secs. 2, 10, 11, and Art. XIV, Sec. 4(2) provide:
ARTICLE XII. National Economy and Patrimony
....
SECTION 2. All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife,
flora and fauna, and other natural resources are owned by the State. With the
exception of agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such activities,
or it may enter into coproduction, joint venture, or production-sharing agreements
with Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or industrial uses other than the development of
water power, beneficial use may be the measure and limit of the grant.
....
SECTION 10. The Congress shall, upon recommendation of the economic and
planning agency, when the national interest dictates, reserve to citizens of the
Philippines or to corporations or associations at least sixty per centum of whose
capital is owned by such
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Roy III vs. Herbosa
each class of shares, regardless of differences in voting rights,

privileges and restrictions[.]”4
_______________
citizens, or such higher percentage as Congress may prescribe, certain areas of

investments. The Congress shall enact measures that will encourage the formation
and operation of enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its
national jurisdiction and in accordance with its national goals and priorities.
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.
....
ARTICLE XIV. Education, Science and Technology, Arts, Culture, and Sports
....
SECTION 4. . . .
(2) Educational institutions, other than those established by religious groups and
mission boards, shall be owned solely by citizens of the Philippines or corporations
or associations at least sixty per centum of the capital of which is owned by such
citizens. The Congress may, however, require increased Filipino equity participation
in all educational institutions[.] (Emphasis supplied)
4 Heirs of Wilson P. Gamboa v. Teves, supra note 2 at p. 341; p. 470.
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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
_______________
5 Gamboa v. Teves, supra note 1 at pp. 69-70; p. 273. This definition, stated in a
fallo, was noted in my April 21, 2014 Dissent in Narra Nickel Mining and
Development Corp. v. Redmont Consolidated Mines Corp., 733 Phil. 365, 420; 722
SCRA 382, 485 (2014) [Per J. Velasco, Jr., Third Division]. This, however, was not
the pivotal point in that Opinion.
6 Heirs of Wilson P Gamboa v. Teves, supra note 2 at p. 341; p. 470. 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 nonvoting shares, at least 60 percent of the common shares and at least 60
percent of the preferred nonvoting 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 nonvoting, 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
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Roy III vs. Herbosa
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
recalibration, 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
_______________
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 p. 363; p. 470.
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drawn solely to the disposition denying the motions for

reconsideration, while failing to consider the rationale for that
denial.
This position does not violate the doctrine on immutability of

judgments. The Gamboa ruling is not being revisited or reevaluated
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
_______________
8 589 Phil. 387; 568 SCRA 402 (2008) [Per J. Carpio-Morales, En Banc].
9 G.R. No. 204819, April 8, 2014, 721 SCRA 146 [Per J. Mendoza, En Banc].
10 727 Phil. 28; 716 SCRA 237 (2014) [Per J. Abad, En Banc].
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Roy III vs. Herbosa
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. x x x
x x x x x x x x x
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. . . .
....
The Solicitor General’s arguments fail to persuade.
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Concrete acts under the MOA-AD are not necessary to render the present
controversy ripe. In Pimentel, Jr. v. Aguirre, this Court held:
x x x [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.
x x x x x x x x x
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 x x x settling the dispute
becomes the duty and the responsibility of the courts.
In Santa 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)
_______________
11 Province of North Cotabato v. Government of the Republic of the Philippines

Peace Panel on Ancestral Domain (GRP), supra note 8.
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Roy III vs. Herbosa
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 616 of the Corporation Code
permits, that preferred and/or redeemable shares may be denied the
right to vote extended to other classes of
_______________
12 CONST., Preamble.
13 CONST., Art. II, Sec. 19.
14 J. Mendoza, Dissenting Opinion, p. 159.

15 Id.
16 CORP. CODE, Sec. 6, par. 1 provides:
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. Any or all of the shares or
series of shares may have a par value or have no par value as may he 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. (Emphasis supplied)
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shares. For this reason, they are also often referred to as ‘nonvoting
shares.’ However, the absolutist connotation of the description
“nonvoting” is misleading. The same Section 6 provides that these
“nonvoting shares” are still entitled to vote on the following matters:

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
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
In the most crucial corporate actions — those that go into the

very constitution of the corporation — even so-called nonvoting
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 bylaws), 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. “Nonvoting” preferred and redeemable shares
are hardly irrelevant in controlling a corporation.
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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.
I likewise emphasize “the [C]ontrol [T]est as a primary method
of determining compliance with the restrictions imposed by the
Constitution on foreign equity participation,”18 along with a
recognition of the Grandfather Rule as a “supplement”19 to the
Control Test.
My Dissent from the April 21, 2014 Decision in Narra Nickel,
noted that “there are two (2) ways through which one may be a
beneficial owner of securities, such as shares of stock: first, by
having or sharing voting power; and second, by having or sharing
investment returns or power.”20 This is gleaned from the definition
of “beneficial owner or beneficial ownership” provided for in the
Implementing Rules and Regulations of the Securities Regulation
Code.21
_______________
17 J. Leonen, Dissenting Opinion in Narra Nickel Mining and Development

Corp. v. Redmont Consolidated Mines Corp., supra note 5 at p. 475; p. 502.
18 J. Mendoza, Dissenting Opinion, p. 149.
19 Id., at p. 152.
20 J. Leonen, Dissenting Opinion in Narra Nickel and Development Corp. v.
Redmont Consolidated Mines Corp., supra note 5 at p. 475; p. 502.
21 SECURITIES CODE, Revised Implementing Rules and Regulations (2011), Rule
3(1)(A) provides:
Rule 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
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Full beneficial ownership vis-à-vis capacity to control a

corporation is self-evident in ownership of voting stocks: the
investiture of the capacity to vote evinces involvement in the
running of the corporation. Through it, a stockholder participates in
corporate decision-making, or otherwise participates in the
designation of directors — those individuals tasked with overseeing
the corporation’s activities.
Appreciating full beneficial ownership and control in a
corporation may require a more nuanced approach when the subject
of inquiry is investment returns or power. Control through the
capacity to vote can be countervailed, if not totally negated, by
reducing voting shares to empty shells that represent nominal
ownership even as the corporation’s economic gains actually
redound to the holders of other classes of shares. There exist
practices such as corporate layering which, can be used to
undermine the Constitution’s equity requirements.
It is in the spirit of ensuring that effective control is lodged in
Filipinos that the dynamics of applying the Control Test and the
Grandfather Rule must be considered.
As I emphasized in my twin dissents in the Narra Nickel April
21, 2014 Decision and January 28, 2015 Resolution,22 with the 1987
Constitution’s silence on the specific mechanism for reckoning
Filipino and foreign equity ownership in corporations, the Control
Test — statutorily established through Republic Act No. 8179, the
Foreign Investments Act — “must govern in reckoning foreign
equity ownership in corporations engaged in nationalized economic
activities.”23
_______________
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)[.]
Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, January 28, 2015,
748 SCRA 455.

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Nevertheless, “the Grandfather Rule may be used . . . as a further

check to ensure that control and beneficial ownership of a
corporation is in fact lodged in Filipinos.”24
The Control Test was established by legislative fiat. The Foreign
Investments Act “is the basic law governing foreign investments in
the Philippines, irrespective of the nature of business and area of
investment.”25 Its Section 3(a) defines a “Philippine national” as
including “a corporation organized under the laws of the Philippines
of which at least sixty percent (60%) of the capital stock outstanding
and entitled to vote is owned and held by citizens of the
Philippines[.]” In my Dissent in the Narra Nickel April 21, 2014
Decision:
This is a definition that is consistent with the first part of paragraph 7 of the
1967 SEC Rules, which [originally articulated] the Control Test: “[s]hares
belonging to corporations or partnerships at least 60 percent of the capital of
which is owned by Filipino citizens shall be considered as of Philippine
nationality.”26
The Control Test serves the purposes of ensuring effective

control and full beneficial ownership of corporations by Filipinos,
even as several corporations may be involved in the equity structure
of another. As I explained in my Dissent from the April 21, 2014
Decision in Narra Nickel:
It is a matter of transitivity that if Filipino stockholders control a

corporation which, in turn, controls another corporation, then the Filipino
stockholders control the latter corporation, albeit indirectly or through the
former corporation.
_______________
24 Id., at p. 478; p. 506.

25 Heirs of Wilson P. Gamboa v. Teves, supra note 2 at p. 332; p. 435.
173
VOL. 810, NOVEMBER 22, 2016 173

Roy III vs. Herbosa
An illustration is apt.
Suppose that a corporation, “C,” is engaged in a nationalized activity
requiring that 60% of its capital be owned by Filipinos and that this 60% is
owned by another corporation, “B,” while the remaining 40% is owned by
stockholders, collectively referred to as “Y.” Y is composed entirely of
foreign nationals. As for B, 60% of its capital is owned by stockholders
collectively referred to as “A,” while the remaining 40% is owned by
stockholders collectively referred to as “X.” The collective A, is composed
entirely of Philippine nationals, while the collective X is composed entirely
of foreign nationals. (N.b., in this illustration, “capital” is understood to
mean “shares of stock entitled to vote in the election of directors,” per the
definition in Gamboa). Thus:
By owning 60% of B’s capital, A controls B. Likewise, by owning 60%

of C’s capital, B controls C. From this, it follows, as a matter of transitivity,
that A controls C; albeit indirectly, that is, through B.
This “control” holds true regardless of the aggregate foreign capital in B
and C. As explained in Gamboa, control by stockholders is a matter resting
on the ability to vote in the election of directors:
Indisputably, one of the rights of a stockholder is the right to

participate in the control or management of the corporation. This is
exercised through his vote in the election of directors because it is the
board of directors that controls or manages the corporation.
174

Roy III vs. Herbosa
B will not be outvoted by Y in matters relating to C, while A will not be

outvoted by X in matters relating to B. Since all actions taken by B must
necessarily be in conformity with the will of A, anything that B does in
relation to C is, in effect, in conformity with the will of A. No amount of
aggregating the foreign capital in B and C will enable X to outvote A, nor Y
to outvote B.
In effect, A controls C, through B. Stated otherwise, the collective
Filipinos in A, effectively control C, through their control of B.27 (Emphasis
in the original)
Full beneficial ownership is addressed both with respect to voting

power and investment returns or power.
As I explained, on voting power:
Voting power, as discussed previously, ultimately rests on the controlling

stockholders of the controlling investor corporation. To go back to the
previous illustration, voting power ultimately rests on A, it having the
voting power in B which, in turn, has the voting power in C.28
As I also explained, on investment returns or power:
As to investment returns or power, it is ultimately A which enjoys

investment power. It controls B’s investment decisions — including the
disposition of securities held by B — and (again, through B) controls C’s
investment decisions.
Similarly, it is ultimately A which benefits from investment returns
generated through C. Any income generated by C redounds to B’s benefit,
that is, through income obtained from C, B gains funds or assets which it
can use either to finance itself in respect of capital and/or operations. This is
a direct benefit to B, itself a Philip-
_______________
27 Id., at pp. 469-471; p. 498, citing Gamboa v. Teves, supra note 1 at pp. 51, 53
and 69-71; pp. 730, 760.
28 Id., at p. 475; p. 502.
175
VOL. 810, NOVEMBER 22, 2016 175

Roy III vs. Herbosa
pine national. This is also an indirect benefit to A, a collectivity of

Philippine nationals, as then, its business — B — not only becomes more
viable as a going concern but also becomes equipped to funnel income to A.
Moreover, beneficial ownership need not be direct. A controlling
shareholder is deemed the indirect beneficial owner of securities (e.g.,
shares) held by a corporation of which he or she is a controlling shareholder.
Thus, in the previous illustration, A, the controlling shareholder of B, is the
indirect beneficial owner of the shares in C to the extent that they are held
by B.29
Nevertheless, ostensible equity ownership does not preclude

unscrupulous parties’ resort to devices that undermine the
constitutional objective of full beneficial ownership of and effective
control by Filipinos. It is at this juncture that the Grandfather Rule
finds application:
Bare ownership of 60% of a corporation’s shares would not suffice. What is

necessary is such ownership as will ensure control of a corporation.
. . . [T]he Grandfather Rule may be used as a supplement to the
Control Test, that is, as a further check to ensure that control and
beneficial ownership of a corporation is in fact lodged in Filipinos.
For instance, Department of Justice Opinion No. 165, Series of 1984,
identified the following “significant indicators” or badges of “dummy
status”:
1. That the foreign investor provides practically all the funds for the
joint investment undertaken by Filipino businessmen and their
foreign partner[;]
2. That the foreign investors undertake to provide practically all the
technological support for the joint venture[; and]
_______________
29 Id., at pp. 475-476; pp. 502-503.
176

Roy III vs. Herbosa
3. That the foreign investors, while being minority stockholders,

manage the company and prepare all economic viability studies.
In instances where methods are employed to disable Filipinos from

exercising control and reaping the economic benefits of an enterprise, the
ostensible control vested by ownership of 60% of a corporation’s capital

may be pierced. Then, the Grandfather Rule allows for a further, more
exacting examination of who actually controls and benefits from holding
such capital.30
It is opportune that the present Petition has enabled this Court to

clarify both the conception of capital, for purposes of compliance
with the 1987 Constitution, and the mechanisms — primarily the
Control Test, and suppletorily, the Grandfather Rule — through
which such compliance may be assessed.
ACCORDINGLY, I vote to grant the Petition.
Petition and petition-in-intervention denied.
Note.—As a rule, corporations are prohibited from entering into

partnership agreements; consequently, corporations enter into joint
venture agreements with other corporations or partnerships for
certain transactions in order to form “pseudo partnerships.” (Narra
Nickel Mining and Development Corp. vs. Redmont Consolidated
Mines Corp., 722 SCRA 382 [2014])
——o0o——
_______________
30 Id., at pp. 478-479; pp. 506-507, citing DOJ Opinion No. 165, Series of 1984,
p. 5.
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7/31/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 810

G.R. No. 207246. November 22, 2016.*

JOSE M. ROY III, petitioner, vs. CHAIRPERSON TERESITA

WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN

2 SUPREME COURT REPORTS ANNOTATED

PHILIPPINE STOCK EXCHANGE, INC., respondent-in-

SHAREHOLDERS’ ASSOCIATION OF THE PHILIPPINES, INC.,

Judiciary; Judicial Review; Requisites for the exercise of the Supreme

VOL. 810, NOVEMBER 22, 2016 3

guished from a mere expectancy or a future, contingent, subordinate, or

4 SUPREME COURT REPORTS ANNOTATED

Courts; Hierarchy of Courts; There being no special, important or

“transcendental importance” is hollow and does not merit the relaxation of

VOL. 810, NOVEMBER 22, 2016 5

IRR) is to be understood in the context of the entire paragraph defining

6 SUPREME COURT REPORTS ANNOTATED

pose of the “specific stock” or direct another to vote or dispose it for

VOL. 810, NOVEMBER 22, 2016 7

utility company must be Filipinos. Thus, the all-Filipino management team

8 SUPREME COURT REPORTS ANNOTATED

definition of “capital,” one which was never contemplated in the

settlement of rights of the parties and the questions, notwithstanding

VOL. 810, NOVEMBER 22, 2016 9

Under the doctrine of finality and immutability of judgment, a decision

SERENO, CJ., Concurring Opinion:

Corporation Law; Public Utility Corporation; View that the number

the stockholding of a corporation.—The number and the par value of the

10 SUPREME COURT REPORTS ANNOTATED

CARPIO, J., Separate Dissenting Opinion:

Corporation Law; Securities and Exchange Commission; View that

Memorandum Circular No. 8 is valid and constitutional provided that the

VOL. 810, NOVEMBER 22, 2016 11

Same; Same; Same; View that Securities and Exchange Commission

VELASCO, JR., J., Concurring Opinion:

Locus Standi; View that if the Court is to maintain the respect

subject applications for exemptions from the requirements of judicial review

12 SUPREME COURT REPORTS ANNOTATED

Same; Corporation Law; Public Utility Corporation; View that the

VOL. 810, NOVEMBER 22, 2016 13

BERSAMIN, J., Concurring Opinion:

Grave Abuse of Discretion; View that grave abuse of discretion means

perform the duty enjoined or to act in contemplation of law, such as when

14 SUPREME COURT REPORTS ANNOTATED

Constitutional Law; Jurisdiction; Judicial Review; Supreme Court;

the context of the phrase any branch or instrumentality of the Government

VOL. 810, NOVEMBER 22, 2016 15

Doctrine of Finality of Judgment; View that any attempt on the part of

administration of justice and thus, procedurally, to make orderly the

16 SUPREME COURT REPORTS ANNOTATED

ever circumstances transpire after the finality of the decision rendering

MENDOZA, J., Dissenting Opinion:

Certiorari; Prohibition; View that the special civil actions for

VOL. 810, NOVEMBER 22, 2016 17

to matters within its exclusive jurisdiction and to prevent the overcrowding

18 SUPREME COURT REPORTS ANNOTATED

Judicial Review; View that the Court’s authority to take cognizance of

public utilities, is a matter of public right.—The collective interest of the

VOL. 810, NOVEMBER 22, 2016 19

tion in its heart. This transcendentally important question requires the

the management, operation, administration or control of the corporation