NECTARINA S. RANIEL and MA. VICTORIA R.

PAG-ONG, Petitioners,
vs.
PAUL JOCHICO, JOHN STEFFENS and SURYA VIRIYA, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Assailed in the present Petition for Review on Certiorari is the Decision1 of the Court of Appeals
(CA) dated April 30, 2002, affirming with modification the Decision dated October 27, 2000
rendered by the Securities and Exchange Commission (SEC) which held as valid the removal of
petitioners Ma. Victoria R. Pag-ong (Pag-ong) as director and Nectarina S. Raniel (Raniel) as
director and corporate officer of Nephro Systems Dialysis Center (Nephro).

Petitioners first questioned their removal in SEC Case No. 02-98-5902 for Declaration of Nullity
of the Illegal Acts of Respondents, Damages and Injunction. Petitioners, together with
respondents Paul Jochico (Jochico), John Steffens and Surya Viriya, were incorporators and
directors of Nephro, with Raniel acting as Corporate Secretary and Administrator. The conflict
started when petitioners questioned respondents' plan to enter into a joint venture with the
Butuan Doctors' Hospital and College, Inc. sometime in December 1997. Because of this,
petitioners claim that respondents tried to compel them to waive and assign their shares with
Nephro but they refused. Thereafter, Raniel sought an indefinite leave of absence due to stress,
but this was denied by Jochico, as Nephro President. Raniel, nevertheless, did not report for
work, causing Jochico to demand an explanation from her why she should not be removed as
Administrator and Corporate Secretary. Raniel replied, expressing her sentiments over the
disapproval of her request for leave and respondents' decision with regard to the Butuan
venture.

On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2, 1998.
Despite receipt of the notice, petitioners did not attend the board meeting. In said meeting, the
Board passed several resolutions ratifying the disapproval of Raniel's request for leave,
dismissing her as Administrator of Nephro, declaring the position of Corporate Secretary vacant,
appointing Otelio Jochico as the new Corporate Secretary and authorizing the call of a Special
Stockholders' Meeting on February 16, 1998 for the purpose of the removal of petitioners as
directors of Nephro.

Otelio Jochico issued the corresponding notices for the Special Stockholders' Meeting to be
held on February 16, 1998 which were received by petitioners on February 2, 1998. Again, they
did not attend the meeting. The stockholders who were present removed the petitioners as
directors of Nephro. Thus, petitioners filed SEC Case No. 02-98-5902.

On October 27, 2000, the SEC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the Commission so holds that complainants cannot be awarded the reliefs
prayed for in reinstating Nectarina S. Raniel as secretary and administrator.

The corporation acting thru its Board of Directors can validly remove its corporate officers,
particularly complainant Nectarina S. Raniel as corporate secretary, treasurer and administrator
of the Dialysis Clinic.
Also, the Commission cannot grant the relief prayed for by complainants in restraining the
respondents from interfering in the administration of the Dialysis Clinic owned by the corporation
and the use of corporate funds.

The administration of the Dialysis Clinic of the corporation and the use of corporate funds,
rightfully belong to the officers of the corporation, which in this case are the respondents.

The counterclaim of respondents to return or assign back the complainants' shares in favor of
respondent Paul Jochico or his nominee is hereby denied for lack of merit.

The respondents failed to show any clear and convincing evidence to rebut the presumption of
the validity and truthfulness of documents submitted to the Commission in the grant of corporate
license.

The claim for attorney's fees and damages of both parties are likewise denied for lack of merit,
as neither party should be punished for vindicating a right, which he/she believes should be
protected or enforced.

SO ORDERED.2

Dissatisfied, petitioners filed a petition for review with the CA.

On April 30, 2002, the CA rendered the assailed Decision, with the following dispositive portion:

WHEREFORE, in light of the foregoing discussions, the appealed decision of the Securities and
Exchange Commission is hereby AFFIRMED with the MODIFICATION that the renewal of
petitioners as directors of Nephro is declared valid.

SO ORDERED.3

Respondents filed a Manifestation and Motion to Correct Typographical Error, stating that the
term "renewal" as provided in the CA Decision should be "removal."4 Petitioners, on the other
hand, filed the present petition for review on certiorari.

On November 20, 2002, the CA issued a Resolution resolving to refrain from acting on all
pending incidents before it in view of the filing of the petition with the Court.5

In the present petition, petitioners raised basically the same argument they had before the SEC
and the CA, i.e., their removal from Nephro was not valid.

Both the SEC and the CA held that Pag-ong's removal as director and Raniel's removal as
director and officer of Nephro were valid. For its part, the SEC ruled that the Board of Directors
had sufficient ground to remove Raniel as officer due to loss of trust and confidence, as her
abrupt and unauthorized leave of absence exhibited her disregard of her responsibilities as an
officer of the corporation and disrupted the operations of Nephro. The SEC also held that the
Special Board Meeting held on February 2, 1998 was valid and the resolutions adopted therein
are binding on petitioners.6
The CA upheld the SEC's conclusions, adding further that the special stockholders' meeting on
February 16, 1998 was likewise validly held. The CA also ruled that Pag-ong's removal as
director of Nephro was justified as it was due to her "undenied delay in the release of Nephro's
medical supplies from the warehouse of the Fly-High Brokerage where she was an officer, on
top of her and her co-petitioner Raniel's absence from the aforementioned directors' and
stockholders' meetings of Nephro despite due notice."7

It is well to stress the settled rule that the findings of fact of administrative bodies, such as the
SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on the
part of said agencies, or unless the aforementioned findings are not supported by substantial
evidence. They carry even more weight when affirmed by the CA.8 Such findings are accorded
not only great respect but even finality, and are binding upon this Court, unless it is shown that it
had arbitrarily disregarded or misapprehended evidence before it to such an extent as to compel
a contrary conclusion had such evidence been properly appreciated.9 This rule is rooted in the
doctrine that this Court is not a trier of facts, as well as in the respect to be accorded the
determinations made by administrative bodies in general on matters falling within their
respective fields of specialization or expertise.10

A review of the petition failed to demonstrate any reversible error committed by the two
tribunals, hence, the petition must be denied. It does not present any argument which convinces
the Court that the SEC and the CA made any misappreciation of the facts and the applicable
laws such that their decisions should be overturned.

A corporation exercises its powers through its board of directors and/or its duly authorized
officers and agents, except in instances where the Corporation Code requires stockholders’
approval for certain specific acts.11

Based on Section 23 of the Corporation Code which provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees x x x.

a corporation’s board of directors is understood to be that body which (1) exercises all powers
provided for under the Corporation Code; (2) conducts all business of the corporation; and (3)
controls and holds all property of the corporation. Its members have been characterized as
trustees or directors clothed with a fiduciary character. 12Moreover, the directors may appoint
officers and agents and as incident to this power of appointment, they may discharge
those appointed.13

In this case, petitioner Raniel was removed as a corporate officer through the resolution of
Nephro's Board of Directors adopted in a special meeting on February 2, 1998. As correctly
ruled by the SEC, petitioners' removal was a valid exercise of the powers of Nephro's Board of
Directors, viz.:

In the instant complaint, do respondents have sufficient grounds to cause the removal of Raniel
from her positions as Corporate Secretary, Treasurer and Administrator of the Dialysis Clinic?
Based on the facts proven during the hearing of this case, the answer is in the affirmative.
Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite leave,
immediately effective yet without prior notice, reveals a disregard of the critical responsibilities
pertaining to the sensitive positions she held in the corporation. Prior to her hasty departure,
Raniel did not make a proper turn-over of her duties and had to be expressly requested to hand
over documents and records, including keys to the office and the cabinets (Exh. 15).

xxxx

Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the disruption
that her immediate and indefinite absence can inflict on the operations of the company. By
leaving abruptly, Raniel abandoned the positions she is now trying to reclaim. Raniel's actuation
has been sufficiently proven to warrant loss of the Board's confidence.14

The SEC also correctly concluded that petitioner Raniel was removed as an officer of Nephro in
compliance with established procedure, thus:

The resolutions of the Board dismissing complainant Raniel from her various positions in
Nephro are valid. Notwithstanding the absence of complainants from the meeting, a quorum
was validly constituted. x x x.

xxxx

Based on its articles of incorporation, Nephro has five directors – two of the positions were
occupied by complainants and the remaining three are held by respondents. This being the
case, the presence of all three respondents in the Special Meeting of the Board on February 2,
1998 established a quorum for the conduct of business. The unanimous resolutions carried by
the Board during such meeting are therefore valid and binding against complainants.

It bears emphasis that Raniel was given sufficient opportunity to be heard. Jochico's letters of
January 26, 1998 and January 27, 1998, albeit adversarial, recognized her right to explain
herself and gave her the chance to do so. In fact, Raniel did respond to Jochico's letter on
January 28, 1998 and took the occasion to voice her opinions about Jochico's alleged "practice
of using others for your own benefit, without cost." (Exh. 14). Moreover, the Special Meeting of
the Board could have been the appropriate venue for Raniel to air her side. Had Raniel decided
to grace the meeting with her presence, she could have explained herself before the board and
tried to convince them to allow her to keep her posts.15

Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was
likewise valid.

Only stockholders or members have the power to remove the directors or trustees elected by
them, as laid down in Section 28 of the Corporation Code,16 which provides in part:

SEC. 28. Removal of directors or trustees. -- Any director or trustee of a corporation may be
removed from office by a vote of the stockholders holding or representing at least two-
thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation,
by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, that such
removal shall take place either at a regular meeting of the corporation or at a special meeting
called for the purpose, and in either case, after previous notice to stockholders or members of
the corporation of the intention to propose such removal at the meeting. A special meeting of
 the stockholders or members of a corporation for the purpose of removal of directors or trustees
or any of them, must be called by the secretary on order of the president or on the written
demand of the stockholders representing or holding at least a majority of the outstanding capital
stock, or if it be a non-stock corporation, on the written demand of a majority of the members
entitled to vote. x x x Notice of the time and place of such meeting, as well as of the intention to
propose such removal, must be given by publication or by written notice as prescribed in this
Code. x x x Removal may be with or without cause: Provided, That removal without cause
may not be used to deprive minority stockholders or members of the right of representation to
which they may be entitled under Section 24 of this Code. (Emphasis supplied)

Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's
By-Laws. The ownership of Nephro's outstanding capital stock is distributed as follows: Jochico
- 200 shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75 shares; and Pag-ong - 25
shares,17 or a total of 500 shares. A two-thirds vote of Nephro's outstanding capital stock would
be 333.33 shares, and during the Stockholders' Special Meeting held on February 16, 1998,
400 shares voted for petitioners' removal. Said number of votes is more than enough to oust
petitioners from their respective positions as members of the board, with or without cause.

Verily therefore, there is no cogent reason to grant the present petition.

WHEREFORE, the petition is DENIED for lack of merit.

WILSON P. GAMBOA vs. FINANCE SECRETARY TEVES

CARPIO, J.:

I. THE FACTS

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted
PLDT a franchise and the right to engage in telecommunications business. In 1969, General
Telephone and Electronics Corporation (GTE), an American company and a major PLDT
stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977,
Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and
Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by
virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and
Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered
by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines. Since PTIC is a
stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common
shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT increased from
30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT
to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution
which limits foreign ownership of the capital of a public utility to not more than 40 percent.

The issue started when petitioner Gamboa questioned the indirect sale of shares
involving almost 12 million shares of the Philippine Long Distance Telephone Company (PLDT)
owned by PTIC to First Pacific. Thus, First Pacific’s common shareholdings in PLDT increased
from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of
 foreigners in PLDT to about 81.47%. The petitioner contends that it violates the Constitutional
provision on filipinazation of public utility, stated in Section 11, Article XII of the 1987 Philippine
Constitution, which limits foreign ownership of the capital of a public utility to not more than
40%. Then, in 2011, the court ruled the case in favor of the petitioner, hence this new case,
resolving the motion for reconsideration for the 2011 decision filed by the respondents.

Movants Philippine Stock Exchange’s (PSE) President, Manuel V. Pangilinan, Napoleon

L. Nazareno, and the Securities and Exchange Commission (SEC) contend that the term
“capital” in Section 11, Article XII of the Constitution has long been settled and defined to refer
to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that
the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement
in favor of Filipino citizens in the Constitution and various statutes, has consistently adopted this
particular definition in its numerous opinions. Movants point out that with the 28 June 2011
Decision, the Court in effect introduced a “new” definition or “midstream redefinition” of the term
“capital” in Section 11, Article XII of the Constitution.

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications

Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting
through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long
Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of
12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by
PTIC to First Pacific. With the this sale, First Pacific’s common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings
of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a
public utility to not more than 40%.

II. THE ISSUE

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total
common shares only, or to the total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility?

III. THE RULING

[The Court partly granted the petition and 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 of a public utility, or in the instant case, to the total common shares of PLDT.]

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution
mandates the Filipinization of public utilities, to wit:

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 term “capital” in Section 11, Article XII of the Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both common and non-voting
preferred shares [of PLDT].

xxx xxx xxx

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. xxx.

Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term “capital” in Section
11, Article XII of the Constitution refers only to common shares. However, if the preferred
shares also have the right to vote in the election of directors, then the term “capital” shall include
such preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the term
“capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote
in the election of directors.

xxx xxx xxx

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].”

xxx xxx xxx

To construe broadly the term “capital” as the total outstanding capital stock, including
both common and non-voting preferred 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.” A broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to control of the public utility.
 We shall illustrate the glaring anomaly in giving a broad definition to the term “capital.”
Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000
non-voting preferred shares owned by Filipinos, with both classes of share having a par value of
one peso (P1.00) per share. Under the broad definition of the term “capital,” such corporation
would be considered compliant with the 40 percent constitutional limit on foreign equity of public
utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding
capital stock is Filipino owned. This is obviously absurd.

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. It also renders illusory the State policy of an
independent national economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists
in the present case.

xxx xxx xxx

[O]nly holders of common shares can vote in the election of directors [of PLDT],
meaning only common shareholders exercise control over PLDT. Conversely, holders of
preferred shares, who have no voting rights in the election of directors, do not have any control
over PLDT. In fact, under PLDT’s Articles of Incorporation, holders of common shares have
voting rights for all purposes, while holders of preferred shares have no voting right for any
purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of
the common shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet
(GIS), which is a document required to be submitted annually to the Securities and Exchange
Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only
66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of
PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that foreigners exercise control over PLDT. Such
amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of
public utilities expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common
shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In
other words, preferred shares have twice the par value of common shares but cannot elect
directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the
preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the
preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of
PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with the common shares,
blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.
 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. The
undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and
earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a
public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
percent of the dividends, of PLDT. This directly contravenes the express command in Section
11, Article XII of the Constitution that “[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to x x x corporations x x
x organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens x x x.”

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of
shares exercises the sole right to vote in the election of directors, and thus exercise control over
PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the
voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned
by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn; (5) preferred shares have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares
only 22.15%. This kind of ownership and control of a public utility is a mockery of the
Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current
stock market value of P2,328.00 per share, while PLDT preferred shares with a par value
of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per
share, is a glaring confirmation by the market that control and beneficial ownership of PLDT rest
with the common shares, not with the preferred shares.

WHEREFORE, we PARTLY GRANT the petition and rule that the term “capital” in
Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to common shares, and not to the
total outstanding capital stock (common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition
of the term “capital” in determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article
XII of the Constitution, to impose the appropriate sanctions under the law.

JOSE M. ROY III, Petitioner

vs.
CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION,
and PHILIPPINE LONG DISTANCE TELEPHONE COMP ANY,, Respondents

x-----------------------x
WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P. GABINETE,
ANTONIO V. PESINA, JR., MODESTO MARTINY. MAMON III, and GERARDO C.
EREBAREN, Petitioners-in-Intervention,

RESOLUTION

CAGUIOA, J.:

Before the Court is the Motion for Reconsideration dated January 19, 20171 (the Motion) filed by
petitioner Jose M. Roy III (movant) seeking the reversal and setting aside of the Decision dated
November 22, 20162 (the Decision) which denied the movant's petition, and declared that the
Securities and Exchange Commission (SEC) did not commit grave abuse of discretion in issuing
Memorandum Circular No. 8, Series of 2013 (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,3(Gamboa Decision) and the resolution4 denying the Motion for Reconsideration
therein (Gamboa Resolution).

The Motion presents no compelling and new arguments to justify the reconsideration of the
Decision.

The grounds raised by movant are: (1) He has the requisite standing because this case is one
of transcendental importance; (2) The Court has the constitutional duty to exercise judicial
review over any grave abuse of discretion by any instrumentality of government; (3) He did not
rely on an obiter dictum; and (4) The Court should have treated the petition as the appropriate
device to explain the Gamboa Decision.

The Decision has already exhaustively discussed and directly passed upon these grounds.
Movant's petition was dismissed based on both procedural and substantive grounds.

Regarding the procedural grounds, the Court ruled that petitioners (movant and petitioners-in-
intervention) failed to sufficiently allege and establish the existence of a case or controversy
and locus standi on their part to warrant the Court's exercise of judicial review; the rule on the
hierarchy of courts was violated; and petitioners failed to implead indispensable parties such as
the Philippine Stock Exchange, Inc. and Shareholders' Association of the Philippines, Inc. 5

In connection with the failure to implead indispensable parties, the Court's Decision held:

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.

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.

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 definitely be deprived of their property
without due process of law. 6

This is highlighted to clear any misimpression that the Gamboa Decision

and Gamboa Resolution made a categorical ruling on the meaning of the word "capital" under
Section 11, Article XII of the Constitution only in respect of, or only confined to, respondent
Philippine Long Distance Telephone Company (PLDT). Nothing is further from the truth. Indeed,
a fair reading of the Gamboa Decision and Gamboa Resolution shows that the Court's
pronouncements therein would affect all public utilities, and not just respondent PLDT.

On the substantive grounds, the Court disposed of the issue on whether the SEC gravely
abused its discretion in ruling that respondent PLDT is compliant with the limitation on foreign
ownership under the Constitution and other relevant laws as without merit. The Court reasoned
that "in the absence of a definitive ruling by 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."7

In resolving the other substantive issue raised by petitioners, the Court held that:

[E]ven 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.8

To belabor the point, movant's petition is not a continuation of the Gamboa case as
the Gamboa Decision attained finality on October 18, 2012, and thereafter Entry of Judgment
was issued on December 11, 2012.9

As regards movant's repeated invocation of the transcendental importance of the Gamboa case,
this does not ipso facto accord locus standi to movant. Being a new petition, movant had the
burden to justify his locus standi in his own petition. The Court, however, was not persuaded by
his justification.

Pursuant to the Court's constitutional duty to exercise judicial review, the Court has conclusively
found no grave abuse of discretion on the part of SEC in issuing SEC-MC No. 8.
The Decision has painstakingly explained why it considered as obiter dictum that
pronouncement in the Gamboa Resolution that the constitutional requirement on Filipino
ownership should "apply uniformly and across the board to all classes of shares, regardless of
nomenclature and category, comprising the capital of a corporation."[[9-a]] The Court stated
that:

[T]he 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 x x x 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." 10

To the Court's mind and, as exhaustively demonstrated in the Decision, the dispositive portion
of the Gamboa Decision was in no way modified by the Gamboa Resolution.

The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution,
which provides: "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 Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is
"[fJull [and legal] beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights x x x must rest in the hands of Filipino nationals x x
x." 11 And, precisely that is what SEC-MC No. 8 provides, viz.: "x x x For purposes of
determining compliance [with the constitutional or statutory ownership], 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 x x x." 12

In construing "full beneficial ownership," the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 (FIA-IRR) provides:

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. 13

In turn, "beneficial owner" or "beneficial ownership" is defined in the Implementing Rules and
Regulations of the Securities Regulation Code (SRC-IRR) as:

[A]ny 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. 14
Thus, the definition of "beneficial owner or beneficial ownership" in the SRC-IRR, which is in
consonance with the concept of "full beneficial ownership" in the FIA-IRR, is, as stressed in the
Decision, relevant in resolving only the question of who is the beneficial owner or has beneficial
ownership of each "specific stock" of the public utility company whose stocks are under
review. If the Filipino has the voting power of the "specific stock", i.e., he can vote the stock or
direct another to vote for him, or the Filipino has the investment power over the "specific
stock", i.e., he can dispose of the stock or direct another to dispose of it for him, or both, i.e., he
can vote and dispose of that "specific stock" or direct another to vote or dispose it for
him, then such Filipino is the "beneficial owner" of that "specific stock." Being considered
Filipino, that "specific stock" is then to be counted as part of the 60% Filipino ownership
requirement under the Constitution. The right to the dividends, jus fruendi - a right emanating
from ownership of that "specific stock" necessarily accrues to its Filipino "beneficial owner."

Once more, this is emphasized anew to disabuse any notion that the dividends accruing to any
particular stock are determinative of that stock's "beneficial ownership." Dividend declaration is
dictated by the corporation's unrestricted retained earnings. On the other hand, the corporation's
need of capital for expansion programs and special reserve for probable contingencies may limit
retained earnings available for dividend declaration. 15 It bears repeating here that the Court in
the Gamboa Decision adopted the 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 public
utilities both in the national economy and for national security, so 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. 16 This purpose prescinds from the "benefits"/dividends that
are derived from or accorded to the particular stocks held by Filipinos vis-a-vis the stocks held
by aliens. So long as Filipinos have controlling interest of a public utility corporation, their
decision to declare more dividends for a particular stock over other kinds of stock is their sole
prerogative - an act of ownership that would presumably be for the benefit of the public utility
corporation itself. Thus, as explained in the Decision:

In this regard, it would be apropos to state that since Filipinos own at least 60% of the
outstanding shares of stock entitled to vote directors, which is what the Constitution precisely
requires, then the Filipino stockholders control the corporation, i.e., they dictate corporate
actions and decisions, and they have all the rights of ownership including, but not limited to,
offering certain preferred shares that may have greater economic interest to foreign investors -
as the need for capital for corporate pursuits (such as expansion), may be good for the
corporation that they own. Surely, these "true owners" will not allow any dilution of their
ownership and control if such move will not be beneficial to them. 17

Finally, as to how the SEC will classify or treat certain stocks with voting rights held by a trust
fund that is created by the public entity whose compliance with the limitation on foreign
ownership under the Constitution is under scrutiny, and how the SEC will determine if such
public utility does, in fact, control how the said stocks will be voted, and whether, resultantly, the
trust fund would be considered as Philippine national or not - lengthily discussed in the
dissenting opinion of Justice Carpio - is speculative at this juncture. The Court cannot engage in
guesswork. Thus, there is need of an actual case or controversy before the Court may exercise
its power of judicial review. The movant's petition is not that actual case or controversy.

Thus, the discussion of Justice Carpio' s dissenting opinion as to the voting preferred shares
created by respondent PLDT, their acquisition by BTF Holdings, Inc., which appears to be a
wholly-owned company of the PLDT Beneficial Trust Fund (BTF), and whether or not it is
respondent PLDT's management that controls BTF and BTF Holdings, Inc. - all these are factual
matters that are outside the ambit of this Court's review which, as stated in the beginning, is
confined to determining whether or not the SEC committed grave abuse of discretion in issuing
SEC-MC No. 8; that is, whether or not SEC-MC No. 8 violated the ruling of the Court in Gamboa
v. Finance Secretary Teves, 18 and the resolution in Heirs of Wilson P. Gamboa v. Finance Sec.
Teves19denying the Motion for Reconsideration therein as to the proper understanding of
"capital".

To be sure, it would be more prudent and advisable for the Court to await the SEC's prior
determination of the citizenship of specific shares of stock held in trust - based on proven
facts - before the Court proceeds to pass upon the legality of such determination.

As to whether respondent PLDT is currently in compliance with the Constitutional provision

regarding public utility entities, the Court must likewise await the SEC's determination thereof
applying SEC-MC No. 8. After all, as stated in the Decision, it is the SEC which is the
government agency with the competent expertise and the mandate of law to make such
determination.

In conclusion, the basic issues raised in the Motion having been duly considered and passed
upon by the Court in the Decision and no substantial argument having been adduced to warrant
the reconsideration sought, the Court resolves to DENY the Motion with FINALITY.

WHEREFORE, the subject Motion for Reconsideration is hereby DENIED WITH FINALITY. No
further pleadings or motions shall be entertained in this case. Let entry of final judgment be
issued immediately.

Narra Nickel Mining and Development Corp. vs Redmont Consolidated Mines

Corporation
G.R. No. 195580 April 21, 2014

Facts: Sometime in December 2006, respondent Redmont Consolidated Mines Corp.

(Redmont), a domestic corporation organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it learned that the areas where it
wanted to undertake exploration and mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares
in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and
EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006,
assigned to petitioner McArthur. Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & Development Corporation (PLMDC)
which previously filed an application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an
area of 3.277 hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests over the
MPSA application in favor of Narra. Another MPSA application of SMMI was filed with the
DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares
in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI
subsequently conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro. On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA)
of the DENR three (3) separate petitions for the denial of petitioners’ applications for MPSA
designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. In the petitions, Redmont
alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned
that since MBMI is a considerable stockholder of petitioners, it was the driving force behind
petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can
only participate in mining activities through corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are
reserved only for Filipino citizens.

Issue: Whether or not the petitioner corporations are Filipino and can validly be issued MPSA
and EP.

Held: No. The SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with nationality
requirements (the ‘Investee Corporation’). Such manner of computation is necessary since the
shares in the Investee Corporation may be owned both by individual stockholders (‘Investing
Individuals’) and by corporations and partnerships (‘Investing Corporation’). The said rules thus
provide for the determination of nationality depending on the ownership of the Investee
Corporation and, in certain instances, the Investing Corporation.

Under the SEC Rules, there are two cases in determining the nationality of the Investee
Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its
30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules
which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the
liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-
owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, “but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality.” Under the Strict
Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the
Investee Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of
Filipino ownership. Moreover, the ultimate Filipino ownership of the shares must first be traced
to the level of the Investing Corporation and added to the shares directly owned in the Investee
Corporation.

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in
doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders
with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation
which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-
40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.