G.R. No. 207246, 18 April 2017


When Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was thereafter issued on December 11, 2012.

On November 6, 2012, the SEC posted a Notice in its website inviting the public to attend a public dialogue and to submit comments on the draft memorandum circular (attached thereto) on the guidelines to be followed in determining compliance with the Filipino ownership requirement in public utilities under Section.

Petitioner Atty. Jose M. Roy III (“Roy”) filed a 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 seeks to apply the 60-40 Filipino ownership requirement separately to each class of shares of a public utility corporation, whether common, preferred non¬voting, preferred voting or any other class of shares. Petitioner Roy also questions the ruling of the SEC that respondent Philippine Long Distance Telephone Company (“PLDT”) is compliant with the constitutional rule on foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional and direct the SEC to issue new guidelines regarding the determination of compliance with Section 11, Article XII of the Constitution in accordance with Gamboa.


Whether or not the SEC gravely abused its discretion in ruling that PLDT is compliant with the constitutional limitation on foreign ownership.


If 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.

As owners of the corporation, the economic benefits will necessarily accrue to them. It is illogical to speculate that they will create shares which have features that will give greater economic interests or benefits than they are holding and not benefit from such offering, or that they will allow foreigners to profit more than them from their own corporation — unless they are dummies.Commonwealth Act No. 108, the Anti-Dummy Law deals with that possibility.

Notably, even if the shares of a particular public utility were owned 100% Filipino, that does not discount the possibility of a dummy situation from arising. Hence, even if the 60-40 ownership in favor of Filipinos rule is applied separately to each class of shares of a public utility corporation, as the petitioners insist, the rule can easily be side-stepped by a dummy relationship.

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.

Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a “Philippine national” and that a “Philippine national,” as defined in the FIA and all its predecessor statutes, is “a Filipino citizen, or a domestic corporation “at least sixty percent (60%) of the capital stock outstanding and entitled to vote,” is owned by Filipino citizens. A domestic corporation is a “Philippine national” only if at least 60% of its voting stock is owned by Filipino citizens.”

These FIA-IRR’s provisions were echoed in the Gamboa Decision.

The assailed SEC-MC No. 8.

Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires the 60-40 percentage ownership in the total number of outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to the Court’s unambiguous pronouncement that “[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights is required.” Clearly, SEC-MC No. 8 cannot be said to have been issued with grave abuse of discretion.

While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial ownership of stocks requirement in the FIA, this will not, render it invalid — meaning, it does not follow that the SEC will not apply this test in determining whether the shares claimed to be owned by Philippine nationals are Filipino. SEC takes its guiding lights also from the FIA and its implementing rules, as well as the Securities Regulation Code (Republic Act No. 8799; “SRC”) and its implementing rules. As defined in the SRC-IRR, “[b]eneficial owner or beneficial ownership means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the power to vote or direct the voting of such security) and/or investment returns or power (which includes the power to dispose of, or direct the disposition of such security) . . . .”

The term “full beneficial ownership” found in the FIA-IRR is to be understood in the context of the entire paragraph defining the term “Philippine national.” Mere legal title is not enough to meet the required Filipino equity, which means that it is not sufficient that a share is registered in the name of a Filipino citizen or national, i.e., he should also have full beneficial ownership of the share. If the voting right of a share held in the name of a Filipino citizenor nationalis assigned or transferred to an alien, that share is not to be counted in the determination of the required Filipino equity. In the same vein, if the dividends and other fruits and accessions of the share do not accrue to a Filipino citizen or national, then that share is also to be excluded or not counted. Thus, if a “specific stock” is owned by a Filipino in the books of the corporation, but the stock’s voting power or disposing power belongs to a foreigner, then that “specific stock” will not be deemed as “beneficially owned” by a Filipino.

Petitioners’ insistence that the 60% Filipino equity requirement must be applied to each class of shares is simply beyond the literal text and contemplation of Section 11, Article XII of the 1987 Constitution.

Given the innumerable permutations that the types and classes of stocks may take, requiring the SEC and other government agencies to keep track of the ever-changing capital classes of corporations will be impracticable, if not downright impossible. And the law does not require the impossible. (Lex non cogit ad impossibilia.)

Moreover, the restrictive interpretation of the term “capital” would have a tremendous impact on the country as a whole — and to all Filipinos. Current data of the PSE show that, if the “Effective Control Test” were applied, the total value of shares that would be deemed in excess of the foreign-ownership limits based on stock prices as of 30 April 2014 is One Hundred Fifty Nine Billion (Php159,638,845,206.89). This value of investments would have to be discharged by foreign holders, and consequently must be absorbed by Filipino investors. Needless to state, the lack of investments may lead to shutdown of the affected enterprises and to immeasurable consequences to the Philippine economy.

Court rules that SEC-MC No. 8 is not contrary to the Court’s definition and interpretation of the term “capital.” Accordingly, the petitions must be denied for failing to show grave abuse of discretion in the issuance of SEC-MC No. 8.

*Case Digest by JAY MARK P. BALBOSA JD – IV, Andres Bonifacio College, SY 2019 – 2020