Gamboa Vs Teves (2012)

G.R. No.
176579 October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners,

vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P.
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST
PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS
INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE COMMISSION, and
PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
Legal Terms:
1. Capital Stock- Under the Corporation Code, capital stock consists of all classes of shares
35
issued to stockholders, that is, common shares as well as preferred shares, which may have
different rights, privileges or restrictions as stated in the articles of incorporation
2. Voting rights of preferred shares- , preferred shares, even if denied the right to vote in the
election of directors, are entitled to vote on the following corporate matters: (1) amendment
of articles of incorporation; (2) increase and decrease of capital stock; (3) incurring, creating
or increasing bonded indebtedness; (4) sale, lease, mortgage or other disposition of
substantially all corporate assets; (5) investment of funds in another business or corporation
or for a purpose other than the primary purpose for which the corporation was organized; (6)
adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8)
dissolution of corporation
3. When stock is deemed owned by Philippine Citizen- 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."
4. When the owner of stock has only legal title- Mere legal title is insufficient to meet the 60
percent Filipino-owned "capital" required in the Constitution
5. Power of the Court- This Court has no power to amend the Constitution for its power and
duty is only to faithfully apply and interpret the Constitution.
Facts:
Movants 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:
What constitutes the 60 percent Filipino ownership requirement in public utilities?
Held:
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the
Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. To repeat, we held:
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]."
(Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is
held by "a trustee of funds for pension or other employee retirement or separation benefits," the
trustee is a Philippine national if "at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of the FIA provides that "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."
Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to
voting control of the corporation but also to the beneficial ownership of the corporation, it is therefore
imperative that such requirement apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a corporation. Under the
Corporation Code, capital stock consists of all classes of shares issued to stockholders, that is,
35
common shares as well as preferred shares, which may have different rights, privileges or
restrictions as stated in the articles of incorporation.36
The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific corporate matters. Thus, common shares have the
right to vote in the election of directors, while preferred shares may be denied such right.
Nonetheless, preferred shares, even if denied the right to vote in the election of directors, are
entitled to vote on the following corporate matters: (1) amendment of articles of incorporation; (2)
increase and decrease of capital stock; (3) incurring, creating or increasing bonded indebtedness;
(4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investment of
funds in another business or corporation or for a purpose other than the primary purpose for which
the corporation was organized; (6) adoption, amendment and repeal of by-laws; (7) merger and
consolidation; and (8) dissolution of corporation. 37
Since a specific class of shares may have rights and privileges or restrictions different from the rest
of the shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution must apply not only to shares with voting rights but also to
shares without voting rights. Preferred shares, denied the right to vote in the election of directors, are
anyway still entitled to vote on the eight specific corporate matters mentioned above. Thus, if a
corporation, engaged in a partially nationalized industry, issues a mixture of common and
preferred non-voting shares, at least 60 percent of the common shares and at least 60
percent of the preferred non-voting shares must be owned by Filipinos. Of course, if a
corporation issues only a single class of shares, at least 60 percent of such shares must necessarily
be owned by Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens
must apply separately to each class of shares, whether common, preferred non-voting,
preferred voting or any other class of shares. This uniform application of the 60-40 ownership
requirement in favor of Filipino citizens clearly breathes life to the constitutional command that the
ownership and operation of public utilities shall be reserved exclusively to corporations at least 60
percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership requirement in
favor of Filipino citizens to each class of shares, regardless of differences in voting rights, privileges
and restrictions, guarantees effective Filipino control of public utilities, as mandated by the
Constitution.
Moreover, such uniform application to each class of shares insures that the "controlling interest" in
public utilities always lies in the hands of Filipino citizens. This addresses and extinguishes
Pangilinan’s worry that foreigners, owning most of the non-voting shares, will exercise greater
control over fundamental corporate matters requiring two-thirds or majority vote of all shareholders.

Gamboa Vs Teves (2012)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Gamboa Vs Teves (2012)

Uploaded by

Copyright:

Available Formats

G.R. No.

176579 October 9, 2012

HEIRS OF WILSON P. GAMBOA,* Petitioners,

PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.

You might also like