1. WILSON P. GAMBOA versus FINANCE SECRETARY MARGARITO B. TEVES et al.

ISSUE:
Whether or not the term “capital” in Section 11, Article XII of the Constitution refer to common shares or to the total outstanding
capital stock (combined total of common and non-voting preferred shares)

SC Ruling (DECISION):
The Court agreed with the Petitioner as the term “capital” in section 11, Article XII of the Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding
capital stock comprising both common and non-voting preferred shares. In short, the term “capital” in section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors, said interpretation is consistent with the intent of the
framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities.
Only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares who have no voting rights in the election of directors, do not have any control over PLDT. In
fact, under PLDT’s Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred shares
have no voting right for any purpose whatsoever, In other words, foreigners holds 64.27% of the total number of PLDT’s common shares,
while Filipinos holds only 35.73%. Since holding a majority of the common shares equates to control, it is clear that the foreigners’ exercises
control over PLDT. This kind of ownership and control of a public utility is a mockery of the Constitution. Such amount of control
unmistakably exceeds the allowable 40% limit on foreign ownership if public utilities expressly mandated in Section 11, Article XII of the
Constitution.
Undisputably, construing the term “capital” in Section 11, Article XII of the Constitution to include both voting and non-voting
shares will result in the abject surrender of our telecommunications industry to foreigners. Amounting to a clear abdication of the State’s
constitutional duty to limit control of public utilities to Filipino citizens.

SC Ruling (RESOLUTION):
No. It does not include both voting and non-voting shares.
The use of the term “capital” was intended to replace the word “stock” because associations without stocks can operate public
utilities as long as they meet the 60-40 ownership requirement in favor of Filipino citizens prescribed in Section 11, Article XII of the
Constitution. However, this did not change the intent of the framers of the Constitution to reserve exclusively to Philippine Nationals the
“controlling interest” in public utilities. The framers’ omission of the phrase “controlling interest” did not mean the inclusion of all shares of
stock, whether voting or non-voting.
Consistent with such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine
Nationals. The FIA’s implementing rules explain 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. In effect, the FIA clarifies, reiterates and confirms the interpretation that the term “capital” in section 11, Article XII of the
1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership. This is precisely because the right to vote in
the election of directors, coupled with beneficial ownership of stocks, translates to effective control of a corporation.
2. JOSE M. ROY III versus CHAIRPERSON TERESITA HERBOSA, THE SECUROTUES AND EXCHANGE COMMISSION (SEC), AND PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY (PLDT)

ISSUE:
Whether or not SEC gravely abused its discretion in issuing SEC Memorandum Circular No. 8 in light of the Gamboa Decision and
Resolution

SC ruling “DECISION”:
No. Supreme Court finds Sec Memorandum Circular No. 8 have been issued in fealty to the Gamboa Decision and Resolution.
Preferred shares be regarded differently from their unambiguous treatment in the Gamboa Decision is enough proof that the Gamboa
Decision, which had attained finality more than 4 years ago is being drastically changed or expanded. The definition of the term “capital” as
referring “only to shares of stock entitled to vote in the election of directors” and apply the 60% Filipino ownership requirement to each
class of share is effectively and unwarrantedly amending or changing the Gamboa Decision and Resolution. The latter did not make any
definitive ruling that the 60% Filipino ownership requirement was intended to apply to each class of share.
The clear and unequivocal definition of “capital” in Gamboa has attained finality. Because the SEC acted pursuant to the Court’s
pronouncements in both the Gamboa Decision and Resolution, then it could not have gravely abused its discretion. That portion found in
the body of the Gamboa Resolution which the petitioners rely upon is nothing more than an obiter dictum and the SEC could not be
expected to apply it as it was not- is not- a binding pronouncement of the Court. Section 2 of SEC MC No. 8 clearly incorporates the Voting
Control Test or the Controlling interest requirement.
The SEC formulated Sec MC No. 8 to adhere to the court’s unambiguous pronouncement that full beneficial ownership of 60% of
the outstanding capital stock, coupled with 60% of the voting rights is required. Hence, the Court ruled that SEC Memorandum Circular No.
8 is not contrary to the Court’s definition and interpretation of the term “capital”, so the petitions must be denied for failing to show grave
abuse of discretion in the issuance of SEC-MC No. 8.

NOTE: SEC Memo Circular No. 8 (Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the
Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Party-Nationalized Activities) –May 22, 2013 published

Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes
of determining compliance therewith, the required percentage of Filipinp ownership shall be applied to BOTH a) the total number
of outstanding shares of stock entitled to vote in the election of directors; AND b) the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors.

SC ruling “RESOLUTION”:
The Court has conclusively found no grave abuse of discretion on the part of SEC in issuing SEC MC No. 8, thus it resolves to deny
the motion with finality. To the Court’s mind and as exhaustively demonstrated in the Decision, the dispositive portion of the Gamboa
portion of the Gamboa Decision wa sin no way modified by the Gamboa Resolution.
The Gamboa Decision already held, in no certain terms, that what the Constitution requires is full and legal beneficial ownership
of 60% of the outstanding capital stock, coupled with 60% of the voting rights must rest in the hands of Filipino nationals. And precisely that
is what SEC Memo Circular No. 8 provides that for purposes of determining compliance with the constitutional and statutory ownership,
the required percentage of Filipino ownership shall be applied to BOTH a) the total number of outstanding shares of stock entitled to vote
in the election of officers; b) the total number of outstanding shares of stock, whether or not entitled to vote.
The Court must likewise awaits the SEC’s determination applying SEC MC No. 8 in prior determination of the citizenship of specific
shares of stock held in trust- based on proven facts before the court proceeds to pass upon the legality of such determination, as to
whether PLDT is currently in compliance with the constitutional provision regarding public utility entiteies
3. NARRA NICKEL MINING AND DEVELOPMENT CORP, TESORO MINING AND DEVELOPMENT, INC. AND McARTHUR MINING CORP. versus
REDMONT CONSOLIDATED MINES CORP.

ISSUE:
Whether or not petitioners are Filipinos or foreigners?
Whether or not Grandfather Rule is applicable in this case?

SC ruling “DECISION”:
1. Supreme Court held that the petitioners are not Filipino since MBMI, 100 % Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioner’s corporate owners, namely: MMI, SMMI and PLMDC.
Also, through looking at the capital structure or the underlying relationships between and among the corporations, petitioners are
NOT FILIPINO nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by
MBMI.

2. Based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40
Filipino-foreign equity ownership is in doubt (doubt exists in cases where the joint venture corporation with Filipino and foreign
stockholders with LESS THAN 60% Filipino stockholdings or 59% invest in their joint venture corporation which is either 60-40%
Filipino-alien or the 50% less Filipino).

The court finds that this case calls for the application of the grandfather rule since, as ruled by the POA and affirmed by the OP,
doubt prevails and persists in the corporate ownership of petitioners. Also. As found by the CA, doubt is present in the 60-40
Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian
corporation- MBMI, funded them. On the other hand, if the 60-40 Filipino-foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.

Also, it is obvious that the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the
law, creating a cloud of doubt in the Court’s mind. To determine, therefore the actual participation, direct or indirect, of MBMI,
the grandfather rule must be used.

NOTE ONLY: (page 5 of full text) There are two cases in determining the nationality of the Investee Corporation. Fist case is the
Liberal Rule/Liberal Control Test- pertains to the portion of par 7 of 1967 SEC Rules which states: shares belonging to corporations
or partnerships at least 60% of the capital of which is owned by Filipino Citizens shall be considered as of Philippine Nationality;
“there is no need to further trace the ownership of the 60% (or more) Filipino Stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered as Filipino”. Second case is the Strict Rule/Grandfather Rule Proper
and pertains to the portion of par 7 of 1967 SEC Rules which states: but if the percentage of Filipino ownership in the corporation
or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
ownership; “the combined totals in the Investing Corporation and the Investee Corporation must be traced/grandfathered to
determine the total percentage of Filipino ownership.

SC ruling “RESOLUTION”:
1. Petitioners as sustained by the court as foreign corporations are not entitled to Mineral Production Sharing Agreements (MPSAs),
thus SC denied their Motion for Reconsideration with Finality. Further, the Court concluded that there was doubt as to petitioners’
nationality since a 100% Canadian-owned firm, MBMI Resources, Inc. (MBMI), effectively owns 60% of the common stocks of the
petitioners by owning equity interest of petitioners’ other majority corporate shareholders.

2. Petitioners contended that the application of the Grandfather Rule to determine their nationality is erroneous and allegedly
without basis in the Constitution. Thus, SC ruled that the Grandfather rule as a supplement to the Control Test. In the Decision
subject of this recourse, the Court applied the Grandfather Rule to determine the matter of true ownership and control over the
petitioners as doubt exists as to the actual extent of the participation of MBMI in the equity of the petitioners and their investing
corporations.

It is also noted that even if at first glance the petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt exists in the
present case that gives rise to a reasonable suspicion that the Filipino shareholders do not actually have the requisite number of
control and beneficial ownership in petitioners Narra, Tesoro and McArthur. Hence, a further investigation and dissection of the
extent of the ownership of the corporate shareholders through the Grandfather Rule is justified.

DEFINITION OF “PHILIPPINE NATIONAL” UNDER THE FIA:

In accordance with the Section 3(a) of RA 7042, also known as the “Foreign Investments Act of 1991” (An Act to Promote Foreign
Investments, Prescribe the procedures for Registering Enterprises Doing Business in the Philippines, and for other Purposes), The term
"Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty (60%) of the fund will accrue to the benefit of
the Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stocks outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of
Directors of both corporations must be citizens of the Philippines, in order that the corporations shall be considered a Philippine national;
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a
“Philippine National” and that the latter as defined in the FIA and all its predecessor statues is a “Filipino Citizen” or a domestic corporation,
“at least sixty percent 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 (full text, Herbosa Decision p. 6)