G.R. No.

176579, June 28, 2011

WILSON P. GAMBOA vs. FINANCE SECRETARY TEVES

I. THE FACTS

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

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

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

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.

xxx xxx xxx

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.

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R. No.

176579, June 28, 2011
DECISION
CARPIO, J.:

I. THE FACTS

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%, thus:

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)

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, i.e., to the total
common shares in PLDT.]

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.

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.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT’s
Articles of Incorporation expressly state that “the holders of Serial Preferred Stock shall not be entitled to vote
at any meeting of the stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of
stockholders.” On the other hand, holders of common shares are granted the exclusive right to vote in the election of
directors. PLDT’s Articles of Incorporation state that “each holder of Common Capital Stock shall have one vote in
respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of
Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other
purposes.”

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.

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.

[Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the
Court to apply the foregoing 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.]

Heirs of Gamboa v. Teves etal., GR No. 176579, October 9, 2012

Facts:

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.

Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011 decision?
Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an economy
‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want to achieve, that is – to
conserve and develop our patrimony , hence, the State should fortify a Filipino-controlled economy. In the 2011
decision, the Court finds no wrong in the construction of the term ‘capital’ which refers to the ‘shares with voting rights,
as well as with full beneficial ownership’ (Art. 12, sec. 10) which implies that the right to vote in the election of directors,
coupled with benefits, is tantamount to an effective control. Therefore, the Court’s interpretation of the term ‘capital’
was not erroneous. Thus, the motion for reconsideration is denied.

Heirs of Gamboa v. Teves, et al., G.R. No. 176579, 09 October 2012 ,18 APR

FACTS

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.

ISSUE

Whether the term “capital” includes both voting and non-voting shares.

RULING

No. 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 the 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.

ROY III vs Herbosa

Recent Developments

In a recent decision, Roy III v. Chairperson Teresita Herbosa, et. al. (Roy Case)[1], the Supreme Court affirmed that the
guidelines issued by the Philippine Securities and Exchange Commission (SEC) (SEC Guidelines) on determining
compliance with foreign equity restrictions of corporations engaged in nationalized activities are valid. The
pronouncements of the Supreme Court in the Roy Case should serve as a definite direction on how affected
corporations should structure its equity.

Implications for corporations engaged in activities subject to foreign equity restrictions

The SEC Guidelines[2] require corporations engaged in activities subject to foreign equity restrictions to, at all times,
observe the constitutional or statutory ownership requirements. For purposes of determining such compliance, the
required percentage of Filipino equity should 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. The Roy Case has affirmed that such method of determining compliance with
the required Filipino equity is in accordance with the pronouncements of the Supreme Court in an earlier case which
prompted the drafting of the SEC Guidelines.

What the Roy Case says

The SEC Guidelines were issued as a result of the Supreme Court's directive to the SEC to apply the Supreme Court's
interpretation of "capital" in the case of Gamboa v. Teves ("Gamboa Case")[3]. In the Gamboa Case, the Supreme Court
ruled that "capital," as used in the Constitution imposing a 60% minimum Filipino capital requirement on public utilities,
should refer to shares entitled to vote in the election of the directors. In a resolution denying the motions for
reconsideration filed in connection with the Gamboa Case ("Resolution")[4], the Supreme Court noted that in addition to
applying the required percentage of Filipino ownership on shares entitled to vote in the election of directors, such
Filipino ownership requirement must also apply separately to each class of shares in the public utility.

The Roy Case has clarified that the pronouncement of the Supreme Court on requiring the minimum percentage of
Filipino ownership to separately apply to each class of shares in the Resolution is a mere obiter dictum, and should not
be binding.

Aside from confirming that the SEC Guidelines reflect the proper application of the required Filipino ownership imposed
in the Constitution on public utilities, the Roy Case is notable on the following points, in relation to foreign equity
restrictions on such operators:

It clarified that for shares to be deemed owned and held by Philippine citizens or Philippine nationals, both egal title and
beneficial ownership must rest in the hands of Filipinos. "Beneficial ownership"[5] was defined as having the voting
power or the investment power (power to dispose of the stock or direct another to dispose the stock), or both, over a
'specific stock'. Based on such definition, the Supreme Court ruled that, "if a 'specific stock' is owned by a Filipino in the
books of the corporation, but such 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."

It explained that "the 'beneficial owner or beneficial ownership' definition, as above, 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."

It provided an example on how to determine the compliance of the required Filipino equity based on the number of
shares of the entity.

It recognized the flexibility granted to corporations to create shares of different classes, with varying features to attract
and generate capital (funds) from both local and foreign capital markets.

Actions to Consider

The Supreme Court’s ruling in the Roy Case on the validity of the SEC Guidelines and clarifying the requirement to satisfy
both the voting test and beneficial ownership test may bring about significant changes to the equity structures of
corporations engaged in nationalized activities. To ensure compliance with the Roy Case, the SEC Guidelines, and other
applicable jurisprudence, corporations with foreign equity and engaged in nationalized industries may wish to review its
equity structures, and take steps to ensure that these structures comply with the foregoing.

Philippine procedural rules allow a party to file a motion for reconsideration of a judgment or final resolution of the
Supreme Court within fifteen days from notice thereof. Should such motion relative to the Roy Case be filed before the
Supreme Court, affected corporations should also be watchful of any clarifications or pronouncements of the Supreme
Court in the potential resolution deciding such motion.

SC upholds PLDT’s 60-40 position

The Supreme Court on Wednesday junked a petition questioning the Securities and Exchange Commission (SEC)
guidelines applying the high tribunal’s 2011 ruling on how to determine the 60-40 ownership in Philippine Long Distance
Telephone Co. (PLDT).

The court denied, for “lack of merit both on procedural and substantive grounds,” the petition of Jose M. Roy III, a
private lawyer, against SEC Chair Teresita Herbosa, saying she did not commit grave abuse of discretion when she issued
Memorandum Circular (MC) No. 8 Series of 2013.

It warned that the “restrictive re-interpretation of the term ‘capital’ would result in massive forced divestment of
foreign stockholdings in Philippine corporations which was not refuted by the petitioners.”

In its Gamboa decision in 2011, the high court defined capital as referring only to common shares or stocks entitled to
vote in the election of directors and not to the total outstanding capital stock which would include common and
nonvoting preferred shares. The high court ruled that the Gamboa decision’s definition of capital has “long become
final” and that the SEC was only implementing its earlier ruling.

The decision was based on the complaint filed by assemblyman Wilson Gamboa Sr. who questioned the sale of PLDT
shares owned by Philippine Telephone Investment Corp. to First Pacific, a foreign firm owned and controlled by the
Salim group of Indonesia. Gamboa maintained that this would breach the 40 percent foreign equity limit on public
utilities.
The court, however, did not act on the second issue raised by Roy—whether the SEC committed grave abuse of its
discretion in declaring that PLDT was fully compliant with the 40 percent constitutional limitation on foreign ownership.

It said that the SC had not acted on PLDT’s foreign ownership status and it would be “premature” for the court to make
a ruling. It also noted that PLDT’s foreign ownership issue was a “question of fact best left to the SEC as the court is not
a trier of facts.”

The SC voted 8-5 with two abstentions. Those who voted in favor were Chief Justice Ma. Lourdes Sereno and Associate
Justices Diosdado Peralta, Lucas Bersamin, Mariano del Castillo, Jose Perez, Jose Mendoza, Bienvenido Reyes and
Alfred Benjamin Caguioa.

The dissenters were Associate Justices Antonio Carpio, Justice Teresita Leonardo-De Castro, Arturo Brion, Jose
Mendoza and Marvic Mario Victor Leonen.

Associate Justice Estela Perlas-Bernabe was on leave while Associate Justice Francis Jardeleza inhibited.

In June 10, 2013, Roy, a member of the impeachment defense team of the late Chief Justice Renato Corona, claimed
that Herbosa’s MC 8 was “tailor-made to accommodate the scheme of PLDT for conforming with the Constitution.”

The memorandum circular, issued after the Gamboa decision, allowed PLDT to amend its incorporation papers to issue
preferred voting shares and sell these stocks to PLDT Beneficial Trust Fund Holdings Inc. to comply with the 40-percent
ceiling on foreign ownership.

But the high court said the issue was still not ripe for adjudication because Roy’s petition was based on “hypotheticals
and were evidently speculative and fraught with conjectures and assumptions.” It said that any decision would be
merely advisory and not binding.

It also noted that Roy failed to show how he would be injured by the application of MC 8.

The court said that Roy and other petitioners should have included other public utility companies that would have been
affected by the case just like PLDT.

“These corporations ought to have been impleaded so as to be given their day in court as any outcome may result in a
deprivation of property without due process,” said the high tribunal.

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

JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, AND
PHILILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondents.

FACTS OF THE CASE:

This is a case of special civil action 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 SEC for allegedly being in violation of the
Court's Decision ("Gamboa Decision") and Resolution ("Gamboa Resolution") in Gamboa v. Finance Secretary Teves, G.R.
No. 176579 which jurisprudentially established the proper interpretation of Section 11, Article XII of the Constitution.

On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of which reads:

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

On May 20, 2013, the SEC, through Chairperson 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." 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.

On June 10, 2013, Roy, as a lawyer and taxpayer, filed the Petition, assailing the validity of SEC-MC No. 8 for not
conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with
grave abuse of discretion. Petitioner Roy 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.

ISSUE: Whether 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

RULING:

Petitioners have no legal standing to question the constitutionality of SEC-MC No. 8. 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.

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.

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."

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. 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. SEC-MC No. 8 does not involve an additional expenditure of public
funds and the taxing or spending power of Congress.

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. Moreover, 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].