G.R. No. 207246 , November 22, 2016
Jose M. Roy III, Petitioner, vs. Chairperson Teresita Herbosa, the Securities and Exchange Commission, and Philippine Long Distance Telephone Company, Respondents.

FACTS

This case involves a challenge to the constitutionality of SEC Memorandum Circular No. 8, series of 2013, which implemented the Court’s ruling in Gamboa v. Teves. The Gamboa decision interpreted the constitutional requirement under Article XII, Section 11 that at least sixty percent of the “capital” of a public utility must be owned by Filipino citizens. The Court in Gamboa defined “capital” as shares of stock entitled to vote in the election of directors, emphasizing the necessity of both legal and beneficial ownership of 60% of the outstanding capital stock coupled with 60% of the voting rights to ensure effective Filipino control.
The SEC Circular adopted a “full beneficial ownership” test but applied the 60% Filipino ownership requirement to the total outstanding capital stock of a corporation, aggregated and treated as a single class, rather than separately to each class of shares (e.g., common and preferred). Petitioners argued this aggregation method contravened the Gamboa ruling, as it could allow de facto foreign control even if the aggregated numerical majority of shares were Filipino-owned, if foreigners owned a majority of the voting shares.

ISSUE

Whether SEC Memorandum Circular No. 8, series of 2013, is constitutional in applying the 60% Filipino ownership requirement to the total outstanding capital stock aggregated as a single class, irrespective of the different classes of shares and their varying par values and voting rights.

RULING

In his Separate Dissenting Opinion, Justice Carpio voted to grant the petition in part. He held that the SEC Circular is valid and constitutional only if all shares of stock, regardless of class, have the same par value. In such a scenario, applying the 60% requirement to the total capital stock would be a proper and simple application of the constitutional rule. However, if the shares have different par values, the Circular’s aggregated approach becomes constitutionally infirm.
The legal logic is rooted in preventing an absurdity that would frustrate the constitutional intent of Filipino control over public utilities. If shares have different par values, simply aggregating total shares can create a scenario where foreigners own 60% of the voting power (through shares with higher par value per share) while Filipinos own a majority of the numerically counted shares (with lower par value). This would violate the Gamboa doctrine’s core principle that the 60% Filipino ownership must equate to “controlling interest.” To avoid this anomaly and give faithful effect to the Constitution, the 60% Filipino ownership requirement must be applied separately to each class of shares when their par values differ. This ensures that beneficial ownership and voting control are both in Filipino hands for every component of the corporation’s capital, thereby guaranteeing the effective Filipino control mandated by the fundamental law.