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Gamboa Vs Teves Doctrines

The case involves a petition filed by the heirs of Wilson P. Gamboa challenging the interpretation of the term "capital" in Section 11, Article XII of the Philippine Constitution regarding foreign ownership limitations. The Supreme Court was asked to determine whether "capital" refers only to voting stock or includes both voting and non-voting stock. The resolution of this issue has far-reaching implications for national economy and whether Filipinos will have effective control over the Philippine economy. While some government agencies and officials claim the issue has been settled, the Supreme Court has never definitively interpreted the term until this case.

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160 views6 pages

Gamboa Vs Teves Doctrines

The case involves a petition filed by the heirs of Wilson P. Gamboa challenging the interpretation of the term "capital" in Section 11, Article XII of the Philippine Constitution regarding foreign ownership limitations. The Supreme Court was asked to determine whether "capital" refers only to voting stock or includes both voting and non-voting stock. The resolution of this issue has far-reaching implications for national economy and whether Filipinos will have effective control over the Philippine economy. While some government agencies and officials claim the issue has been settled, the Supreme Court has never definitively interpreted the term until this case.

Uploaded by

aj salazar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CASE 2012-0072: HEIRS OF WILSON P. GAMBOA, PETITIONERS, VS.

FINANCE
SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN 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. (G.R. NO.
176579, 09 OCTOBER 2012, CARPIO, J.) SUBJECT/S: DEFINITION OF CAPITAL IN
CORPORATION LAW; THE GODFATHER RULE (BRIEF TITLE: HEIRS OF GAMBOA
VS. TEVES)
CASE 2012-0072: HEIRS OF WILSON P. GAMBOA, PETITIONERS, VS. FINANCE
SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN 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. (G.R. NO.
176579, 09 OCTOBER 2012, CARPIO, J.) SUBJECT/S: DEFINITION OF CAPITAL IN
CORPORATION LAW; THE GODFATHER RULE (BRIEF TITLE: HEIRS OF GAMBOA
VS. TEVES)

=====================

DISPOSITIVE:

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No


further pleadings shall be entertained.
SO ORDERED.

=====================
SUBJECTS/DOCTRINES/DIGEST:

SUPPOSE A PETITION FOR REVIEW IS PROCEDURALLY DEFECTIVE. WILL THE


SUPREME STILL ENTERTAIN THE PETITION?

YES, IF THE MAIN ISSUE IN THE CASE IS OF TRANSCENDENTAL IMPORTANCE.


In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise
and expedient to resolve the case although the petition for declaratory relief
could be outrightly dismissed for being procedurally defective. There,
appellant admittedly had already committed a breach of the Public Service Act
in relation to the Anti-Dummy Law since it had been employing non-American
aliens long before the decision in a prior similar case. However, the main issue
in Luzon Stevedoring was of transcendental importance, involving the
exercise or enjoyment of rights, franchises, privileges, properties and
businesses which only Filipinos and qualified corporations could exercise or
enjoy under the Constitution and the statutes.

XXXXXXXXXXXXXXXXXXXXXXX

WHAT IS TRANSCENDENTAL IN THE CASE AT HAND AND WHY?

THE INTERPRETATION OF THE TERM CAPITAL IN SECTION 11, ARTICLE XII OF


THE CONSTITUTION HAS FAR-REACHING IMPLICATIONS TO THE
NATIONAL ECONOMY. IN FACT, A RESOLUTION OF THIS ISSUE WILL
DETERMINE WHETHER FILIPINOS ARE MASTERS, OR SECOND-CLASS CITIZENS,
IN THEIR OWN COUNTRY. WHAT IS AT STAKE HERE IS WHETHER FILIPINOS OR
FOREIGNERS WILL HAVE EFFECTIVE CONTROL OF THE PHILIPPINE NATIONAL
ECONOMY.
XXXXXXXXXXXXXXXXXXXXXXX

PANGILINAN ET AL 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. IS THEIR CONTENTION CORRECT?

NO. THE SUPREME COURT HAS NEVER YET INTERPRETED THE MEANING OF
CAPITAL IN THE CONTEXT OF SECTION 11, ARTICLE XII OF THE
CONSTITUTION.
For more than 75 years since the 1935 Constitution, the Court has not
interpreted or defined the term capital found in various economic provisions
of the 1935, 1973 and 1987 Constitutions. There has never been a judicial
precedent interpreting the term capital in the 1935, 1973 and 1987
Constitutions, until now. Hence, it is patently wrong and utterly baseless to
claim that the Court in defining the term capital in its 28 June 2011 Decision
modified, reversed, or set aside the purported long-standing definition of the
term capital, which supposedly refers to the total outstanding shares of
stock, whether voting or non-voting.

To repeat, until the present case there has never been a Court ruling
categorically defining the term capital found in the various economic
provisions of the 1935, 1973 and 1987 Philippine Constitutions.
XXXXXXXXXXXXXXXXXX

PANGILINAN ET AL CONTENDS THAT SEC AND DOJ HAVE ALWAYS INTERPRETED


CAPITAL TO REFER TO THE TOTAL OUTSTANDING SHARES OF STOCK
WHETHER VOTING OR NOT. IS THEIR CONTENTION CORRECT?

NO. DOJ AND SEC HAVE ISSUED CONFLICTING INTERPRETATIONS.


.....
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the
definition of the term capital as referring to both voting and non-voting
shares (combined total of common and preferred shares) are, in the first
place, conflicting and inconsistent.
XXXXXXXXXXXXXXX
IS THERE ANY DOJ OPINION WHICH IS CONSISTENT WITH THE SC RULING,
BEING NOW CONTESTED, ON THE MATTER?

YES IN DOJ OPINION NO. 130 DATED 07 OCTOBER 1985, DOJ RULED
THAT THE RESULTING OWNERSHIP STRUCTURE OF THE SUBJECT
CORPORATION WOULD BE UNCONSTITUTIONAL BECAUSE 60% OF THE
VOTING STOCK WOULD BE OWNED BY JAPANESE WHILE FILIPINOS
WOULD OWN ONLY 40% OF THE VOTING STOCK, ALTHOUGH WHEN THE
NON-VOTING STOCK IS ADDED, FILIPINOS WOULD OWN 60% OF THE
COMBINED VOTING AND NON-VOTING STOCK.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the
term capital in Section 9, Article XIV of the 1973 Constitution was raised,
that is, whether the term capital includes both preferred and
common stocks. The issue was raised in relation to a stock-swap
transaction between a Filipino and a Japanese corporation, both stockholders
of a domestic corporation that owned lands in the Philippines. Then Minister of
Justice Estelito P. Mendoza ruled that the resulting ownership structure of the
corporation would be unconstitutional because 60% of the voting stock would
be owned by Japanese while Filipinos would own only 40% of the voting stock,
although when the non-voting stock is added, Filipinos would own 60% of the
combined voting and non-voting stock.

In short, Minister Mendoza categorically rejected the theory that the term
capital in Section 9, Article XIV of the 1973 Constitution includes both
preferred and common stocks treated as the same class of shares regardless
of differences in voting rights and privileges. Minister Mendoza stressed that
the 60-40 ownership requirement in favor of Filipino citizens in the
Constitution is not complied with unless the corporation satisfies the criterion
of beneficial ownership and that in applying the same the primordial
consideration is situs of control.
XXXXXXXXXXXXX

IS THERE ANY SEC OPINION WHICH IS CONSISTENT WITH THE SC RULING,


BEING NOW CONTESTED, ON THE MATTER?

YES. IN OPINION NO. 23-10 DATED18 AUGUST 2012, SEC APPLIED THE
VOTING CONTROL TEST, THAT IS USING ONLY THE VOTING STOCK TO
DETERMINE WHETHER A CORPORATION IS A PHILIPPINE NATIONAL.
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to
Castillo Laman Tan Pantaleon & San Jose, then SEC General Counsel Vernette
G. Umali-Paco applied the Voting Control Test, that is, using only the voting
stock to determine whether a corporation is a Philippine national.
XXXXXXXXXXXXXXXXXXX

WILL THE OPINION ISSUED BY A SEC


COMMISSIONER ESTABLISH PRECEDENCE?

LEGAL

OFFICER

OR

SEC

NO. THEIR OPINION APPLIES ONLY TO A PARTICULAR CASE. IT IS THE


OPINION OF THE WHOLE COMMISSION THAT ESTABLISHES A
PRECEDENCE.

XXXXXXXXXXXXXX
The opinions issued by SEC legal officers do not have the force and effect of
SEC rules and regulations because only the SEC en banc can adopt rules
and regulations. As expressly provided in Section 4.6 of the Securities
Regulation Code,12 the SEC cannot delegate to any of its individual
Commissioner or staff the power to adopt any rule or regulation. Further,
under Section 5.1 of the same Code, it is the SEC as a collegial body, and
not any of its legal officers, that is empowered to issue opinions and
approve rules and regulations.
XXXXXXXXXXXXXXXXXXXX

IS THE GRANDFATHER RULE APPLICABLE TO THIS CASE?

YES. EVEN SEC APPLIED IT.

Significantly, the SEC en banc, which is the collegial body statutorily


empowered to issue rules and opinions on behalf of the SEC, has adopted the
60-40 ownership requirement in favor of Filipino citizens mandated by
the Constitution for certain economic activities. This prevailing SEC ruling,
which the SEC correctly adopted to thwart any circumvention of the required
Filipino ownership and control, is laid down in the 25 March 2010 SEC en
banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et
al.,15 to wit:
The avowed purpose of the Constitution is to place in the hands of Filipinos
the exploitation of our natural resources. Necessarily, therefore, the Rule
interpreting the constitutional provision should not diminish that right through
the legal fiction of corporate ownership and control. But the constitutional
provision, as interpreted and practiced via the 1967 SEC Rules, has favored
foreigners contrary to the command of the Constitution. Hence, the
Grandfather Rule must be applied to accurately determine the actual

participation, both direct and indirect, of foreigners in a corporation


engaged in a nationalized activity or business.

XXXXXXXXXXXXX

WHAT IS THE GRANDFATHER RULE?

COMPLIANCE WITH THE CONSTITUTIONAL LIMITATION(S) ON ENGAGING IN


NATIONALIZED ACTIVITIES MUST BE DETERMINED BY ASCERTAINING IF 60%
OF THE INVESTING CORPORATIONS OUTSTANDING CAPITAL STOCK IS OWNED
BY FILIPINO CITIZENS, OR AS INTERPRETED, BY NATURAL OR INDIVIDUAL
FILIPINO CITIZENS. IF SUCH INVESTING CORPORATION IS IN TURN OWNED TO
SOME EXTENT BY ANOTHER INVESTING CORPORATION, THE SAME PROCESS
MUST BE OBSERVED. ONE MUST NOT STOP UNTIL THE CITIZENSHIPS OF THE
INDIVIDUAL OR NATURAL STOCKHOLDERS OF LAYER AFTER LAYER OF
INVESTING CORPORATIONS HAVE BEEN ESTABLISHED.
xxxxxxxxxxxxxxxx

WHAT WAS THE MAIN RULING IN THE 28 JUNE 2011 DECISION OF THE SC
REGARDING THIS CASE?

THAT THE 60-40 OWNERSHIP REQUIREMENT IN FAVOR OF FILIPINO CITIZENS


IN 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. 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]. BOTH THE VOTING CONTROL TEST AND THE
BENEFICIAL OWNERSHIP TEST MUST BE APPLIED TO DETERMINE
WHETHER A CORPORATION IS A PHILIPPINE NATIONAL

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