[14] ROY v. HERBOSA ● On May 20, 2013, the SEC, through respondent Chairperson Teresita J.

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

RULING: WHEREFORE, the subject Motion for Reconsideration is hereby DENIED