Heirs of Gamboa v. Teves, et al., G.R. No.

176579, 09 October 2012

18
APR
[CARPIO, J.]

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.