[14] ROY v. HERBOSA ○ Section 2.

All covered corporations shall, at all times, observe the

G.R. No. 162839 | October 12, 2006 | Panganiban, J. constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of
TOPIC: Public Utilities -> Constitutional Provisions -> Ownership Filipino ownership shall be applied to BOTH (a) the total number of
outstanding shares of stock entitled to vote in the election of
PROVISIONS: directors; AND (b) the total number of outstanding shares of stock,
● Sec. 11, Art. XII, CONST. No franchise, certificate, or any other form of whether or not entitled to vote in the election of directors.
authorization for the operation of a public utility shall be granted except to ● On June 10, 2013, petitioner ROY, as a lawyer and taxpayer, filed the Petition,
citizens of the Philippines or to corporations or associations organized assailing the validity of SEC-MC No. 8 for not conforming to the letter and
under the laws of the Philippines at least sixty per centum of whose capital spirit of the Gamboa Decision and Resolution and for having been issued by
is owned by such citizens the SEC with grave abuse of discretion.
○ Also questions the ruling of the SEC that respondent Philippine
SUMMARY: Petitioner ROY, as a lawyer and taxpayer, filed the Petition, assailing the Long Distance Telephone Company ("PLDT") is compliant with the
validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa constitutional rule on foreign ownership.
Decision, which he claims is tantamount to grave abuse of discretion. Basically, the ● Petitioner Jose M. Roy III sought the reversal and setting aside of the
Gamboa decision construed “capital” in Sec. 11, Art. XII, CONST as referring only to Decision dated November 22, 2016, which denied his petition, and declared
“shares of stock entitled to vote”, while the SEC memorandum requires that the 60% that the Securities and Exchange Commission (SEC) did not commit grave
requirement apply to both stocks entitled to vote and the total shares of stock abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013
whether or not entitled to vote. (SEC-MC No. 8) as the same was in compliance with, and in fealty to, the
decision of the Court in Gamboa v. Finance Secretary Teves and the
DOCTRINE: Applying these rules, Section 2 of SEC-MC No. 8 clearly incorporates the resolution denying the Motion for Reconsideration therein.
Voting Control Test or the controlling interest requirement. In fact, Section 2 goes ● The grounds raised by movant are:
beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it ○ He has the requisite standing because this case is one of
moreover requires the 60-40 percentage ownership in the total number of outstanding transcendental importance;
shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere ○ The Court has the constitutional duty to exercise judicial review
to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 over any grave abuse of discretion by any instrumentality of
percent of the outstanding capital stock, coupled with 60 percent of the voting rights government;
is required."[79] Clearly, SEC-MC No. 8 cannot be said to have been issued with grave ○ He did not rely on an obiter dictum; and
abuse of discretion ○ The Court should have treated the petition as the appropriate
device to explain the Gamboa Decision.
FACTS: ● The heart of the controversy is the interpretation of Section 11, Article XII of
● On June 28, 2011, the Court issued the Gamboa Decision,... that the term the Constitution, which provides: "No franchise, certificate, or any other form
"capital" in Section 11, Article XII of the 1987 Constitution refers only to of authorization for the operation of a public utility shall be granted except to
shares of stock entitled to vote in the election of directors, and thus in the citizens of the Philippines or to corporations or associations organized
present case only to common shares, and not to the total outstanding capital under the laws of the Philippines at least sixty per centum of whose capital
stock (common and non-voting preferred shares). is owned by such citizens xxx."
○ The Gamboa Decision attained finality on October 18, 2012, and
Entry of Judgment was thereafter issued on December 11, 2012.
ISSUE w/ HOLDING & RATIO:
This was affirmed in the Gamboa Resolution as well.
W/N SEC MC No. 8 was issued in Grave Abuse of Discretion, not being in
● On May 20, 2013, the SEC, through respondent Chairperson Teresita J.
consonance with the Court’s Decision & Resolution in Gamboa v. Tevez. — NO.
Herbosa, issued SEC-MC No. 8, Sec. 2 which provides:
● The Court ruled that:
 1. petitioners (movant and petitioners-in-intervention) failed to ● So long as Filipinos have controlling interest of a public utility corporation,
sufficiently allege and establish the existence of a case or their decision to declare more dividends for a particular stock over other
controversy and locus standi on their part to warrant the Court's kinds of stock is their sole prerogative - an act of ownership that would
exercise of judicial review; presumably be for the benefit of the public utility corporation itself. Thus, as
2. the rule on the hierarchy of courts was violated; and explained in the Decision:
3. petitioners failed to implead indispensable parties such as the ○ In this regard, it would be apropos to state that since Filipinos own
Philippine Stock Exchange, Inc. and Shareholders' Association of at least 60% of the outstanding shares of stock entitled to vote
the Philippines, Inc. directors, which is what the Constitution precisely requires, then the
a. Other than PLDT, the petitions failed to join or implead Filipino stockholders control the corporation, i.e., they dictate
other public utility corporations subject to the same corporate actions and decisions, and they have all the rights of
restriction imposed by Section 11, Article XII of the ownership including, but not limited to, offering certain preferred
Constitution. They should be afforded due notice and shares that may have greater economic interest to foreign
opportunity to be heard, lest they be deprived of their investors  as the need for capital for corporate pursuits (such as
property without due process. expansion), may be good for the corporation that they own. Surely,
● The COURT disposed of the issue on whether the SEC gravely abused its these "true owners" will not allow any dilution of their ownership
discretion in ruling that respondent PLDT is compliant with the limitation on and control if such move will not be beneficial to them.
foreign ownership under the Constitution and other relevant laws as without ● Applying these rules, Section 2 of SEC-MC No. 8 clearly incorporates the
merit. Voting Control Test or the controlling interest requirement. In fact, Section
○ The Court reasoned that what the Constitution requires is "[f]ull 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the
[and legal] beneficial ownership of 60 percent of the outstanding voting stocks; it moreover requires the 60-40 percentage ownership in the
capital stock, coupled with 60 percent of the voting rights xxx must total number of outstanding shares of stock, whether voting or not. The SEC
rest in the hands of Filipino nationals xxx."And, precisely that is formulated SEC-MC No. 8 to adhere to the Court's unambiguous
what SEC-MC No. 8 provides, viz.: "xxx pronouncement that "[f]ull beneficial ownership of 60 percent of the
○ For purposes of determining compliance [with the constitutional or outstanding capital stock, coupled with 60 percent of the voting rights is
statutory ownership], the required percentage of Filipino ownership required."[79] Clearly, SEC-MC No. 8 cannot be said to have been issued with
shall be applied to BOTH (a) the total number of outstanding shares grave abuse of discretion
of stock entitled to vote in the election of directors; AND (b) the ○ [Basically the SEC did not only comply with the minimum
total number of outstanding shares of stock, whether or not entitled requirement in Gamboa but increased it, which is ok according to
to vote xxx." the Court]
● In construing "full beneficial ownership, the Implementing Rules and ● While SEC-MC No. 8 does not expressly mention the Beneficial Ownership
Regulations of the Foreign Investments Act of 1991 (FIA-IRR) provides: For Test or full beneficial ownership of stocks requirement in the FIA, this will
stocks to be deemed owned and held by Philippine citizens or Philippine not, as it does not, render it invalid meaning, it does not follow that the SEC
nationals, mere legal title is not enough to meet the required Filipino equity. will not apply this test in determining whether the shares claimed to be
○ Full beneficial ownership of the stocks, coupled with appropriate owned by Philippine nationals are Filipino, i.e., are held by them by mere title
voting rights is essential. or in full beneficial ownership. To be sure, the SEC takes its guiding lights
● It bears repeating here that the Court in the Gamboa Decision adopted the also from the FIA and its implementing rules, the Securities Regulation Code.
foregoing definition of the term "capital" in Section 11, Article XII of the 1987
Constitution in express recognition of the sensitive and vital position of
RULING: WHEREFORE, the subject Motion for Reconsideration is hereby DENIED
public utilities both in the national economy and for national security, so that
WITH FINALITY. No further pleadings or motions shall be entertained in this case. Let
the evident purpose of the citizenship requirement is to prevent aliens from
entry of final judgment be issued immediately.
assuming control of public utilities, which may be inimical to the national
interest.