G.R. No. 207246 - Concurring Opinion

G.R. No. 207246, November 22, 2016,
♦ Decision, Caguioa, [J]
♦ Concurring Opinion, Sereno, [CJ]
♦ Concurring Opinion, Velasco, [J]
♦ Concurring Opinion, Bersamin, [J]
♦ Separate and Dissenting Opinion, Carpio, [J]
♦ Dissenting Opinion, Mendoza, [J]
♦ Dissenting Opinion, Leonen, [J]

JOSE M. ROY III, PETITIONER, VS. CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, AND PHILILIPPINE LONG DISTANCE TELEPHONE COMPANY, RESPONDENTS.

WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P. GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y. MAMON III, AND GERARDO C. EREBAREN, PETITIONERS-IN-INTERVENTION,

Before the Court is a petition for Certiorari under Rule 65 of the Rules of Court assailing the constitutionality and validity of Memorandum Circular (MC) No. 8, entitled "Guidelines on Compliance with the Filipino-Foreign Ownership Requirements prescribed by the Constitution and/or Existing Laws by Corporations Engaged in Nationalized Activities," issued by the Securities and Exchange Commission (SEC).

On June 28, 2011, the Court issued a Decision in Gamboa v. Teves1 on the matter of "whether the term 'capital' in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of voting and non-voting shares) of PLDT, a public utility."

Resolving the issue, the majority of the Court held that: "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."2 The Court then directed the SEC to apply this definition of the term "capital" in determining the extent of allowable foreign ownership in PLDT.

Several motions for reconsideration assailing the Decision in Gamboa were filed but, eventually, denied by the Court in its October 9, 2012 Resolution.

Pursuant to the Court's directive in Gamboa, the SEC prepared a draft memorandum circular on the guidelines to be followed in determining compliance with the constitutional and statutory limitations on foreign ownership in nationalized and partly nationalized industries. The SEC then invited the public to a dialogue and submit comments on the draft of the memorandum circular.3

Representatives from various organizations, government agencies, the academe and the private sector attended the public dialogue and submitted position papers and written comments on the draft to the SEC.

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 Filipino 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.

Corporations covered by special laws which provide specific citizenship requirements shall comply with the provisions of said law.

Petitioner Jose Roy III takes exception to the foregoing provision alleging that it is not in accord with the ruling of the Court in Gamboa. He contends that the SEC committed grave abuse of discretion since Section 2 of MC No. 8 "fails to differentiate the varying classes of shares and does not require the application of the foreign equity limits to each class of shares issued by a corporation." Petitioner relies on a portion of the October 9, 2012 Resolution in Gamboa providing that "the 60-40 ownership requirement must apply to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares." He, thus, prays for this Court to declare MC No. 8 unconstitutional and to direct the SEC to issue new guidelines regarding the determination of compliance with Section 11, Article XII of the Constitution in accordance with Gamboa.

Petitioner further maintains that the SEC gravely abused its discretion in ruling that PLDT is compliant with the Constitutional rule on Foreign Ownership.

William Gamboa, Jr., Daniel Cartagena, John Wilson Gabinete, Antonio V. Pesina, Jr., Modesto Martin Y. Mamon III, Gerardo C. Erebaren and the Philippine Stock Exchange (PSE) sought, and were granted, intervention.

Considering that the Court is not a trier of facts and is not in a position to make a factual determination of PLDT's compliance with Section 11, Article XII of the Constitution, the Court can only address the pure question of law presented by the petitioner and petitioners-in-intervention: whether or not the SEC gravely abused its discretion in issuing MC No. 8.

It is elementary that the power of judicial review is subject to certain limitations, which must be complied with by the petitioner before this Court may take cognizance of the case.4 The Court held, thus:

When questions of constitutional significance are raised, the Court can exercise its power of judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the constitutional question; (3) recourse to judicial review is made at the earliest opportunity; and (4) the constitutional question is the lis mota of the case.5

The petitioner's failure to sufficiently allege, much less prove the existence of the first two requisites, warrants the outright dismissal of the petition.

To satisfy legal standing in assailing the constitutionality of a governmental act, the petitioner must prove the direct and personal injury that he might suffer if the act is permitted to stand. Petitioner Roy, however, merely glossed over this requisite, simply claiming that the law firm he represents is "a subscriber of PLDT." It is not even clear whether the law firm is a "subscriber" of PLDT's shares or purely of its various communication services.

Clearly, the very limited information provided by the petitioner does not sufficiently demonstrate how he is left to sustain or is in immediate danger of sustaining some direct injury as a result of the SEC's issuance of MC No. 8. As correctly argued by the respondents, assuming that his law firm is indeed a subscriber of PLDT shares of stocks, whether or not the constitutionality of MC No. 8 is upheld, his law firm's rights as a shareholder in PLDT will not be affected or altered. There is simply no rational connection between his law firm's rights as an alleged shareholder with the legality of MC No. 8.

The locus standi requisite is likewise not satisfied by the mere fact that petitioner Roy is a "concerned citizen, an officer of this Court and ... a taxpayer." We have previously emphasized that the locus standi requisite is not overcome by one's citizenship or membership in the bar. These supposed interests are too general, shared as they are by other groups and by the whole citizenry.6

The only "injury" attributable to petitioner Roy is that the position paper he submitted to the SEC was not adopted by the Commission in issuing MC No. 8. This injury, however, is not sufficient to clothe him with the requisite standing to invoke the Court's exercise of judicial power to review and declare unconstitutional the issuance of a governmental body.

Neither can petitioner Roy take refuge in his status as a taxpayer. Lest it is forgotten, a taxpayer's suit is proper only when the petitioner has established that the act complained of directly involves the illegal disbursement of public funds derived from taxation.7 MC No. 8 does not involve an expenditure of public funds. It does not even concern the taxing and spending power of the Congress. Hence, justifying the recourse as a taxpayer's suit is far-fetched and implausible, with petitioner ignoring the basic requirements of the concept.

In like manner, the petitioners-intervenors suffer the same infirmity as petitioner Roy. None of them alleged, let alone proved, even a remote link to the implementation of MC No. 8. Certainly, there is nothing by which this Court can ascertain their personality to challenge the validity of the SEC Issuance.

The casual invocation of the supposed "transcendental importance" of the questions posed by the petitioner and petitioners-in-intervention does not automatically justify the disregard of the stringent requirements for this Court's exercise of judicial power. Otherwise, the Court would be allowing the dilution of the settled doctrine of locus standi as every worthy cause is an interest shared by the general public.8

Indeed, while this Court has previously allowed the expansion of the boundaries of the rule on legal standing in matters of far-reaching implications, the Court cannot condone the trivial treatment of the element of locus standi as a mere technical requirement. The requirement of legal standing goes into the very essence of jurisdiction and the competence of this Court to intrude into matters falling within the executive realm. In Galicto v. Aquino III,9 the Court explained the importance of the rule, viz:

... The rationale for this constitutional requirement of locus standi is by no means trifle. Not only does it assure the vigorous adversary presentation of the case; more importantly, it must suffice to warrant the Judiciary's overruling the determination of a coordinate, democratically elected organ of government, such as the President, and the clear approval by Congress, in this case. Indeed, the rationale goes to the very essence of representative democracies.10 (emphasis supplied)

The liberality of the Court in bypassing the locus standi rule cannot, therefore, be abused. If the Court is to maintain the respect demanded by the concept of separation of governmental powers, it must subject applications for exemptions from the requirements of judicial review to the highest possible judicial inquiry. In the present case, the anemic allegations of the petitioner and petitioners-in-intervention do not warrant the application of the exceptions rather than the rule on locus standi.

In like manner, a hollow invocation of "transcendental importance" does not warrant the immediate relaxation of the rule on hierarchy of courts. That hierarchy is determinative of the venue of appeals, and also serves as a general determinant of the appropriate forum for petitions for the extraordinary writs.11 Indeed, "the Supreme Court is a court of last resort and must so remain if it is to satisfactorily perform the functions assigned to it by the fundamental charter and immemorial tradition."12 This Court has explained that the rationale for this strict policy is to prevent the following: (1) inordinate demands upon its time and attention, which is better devoted to those matters within its exclusive jurisdiction; and (2) further overcrowding of the Court's docket.13

While direct recourse to the court has previously been allowed on exceptional grounds, the circumstances set forth in the petition and petition-in-intervention do not justify the disregard of the established policy. Worse, petitioner's allegation that there is little value in presenting the petition to another court is demeaning and less than fair to the lower courts. There is no reason to doubt our trial court's ability and competence to determine the existence of grave abuse of discretion.

Section 4, Rule 65 of the Rules of Court itself provides that the RTC and the CA have concurrent jurisdiction to issue the writ of certiorari. For certainly, the issue of abuse of discretion is not so complex as to disqualify every court, except this Court, from deciding it. Thus, due deference to the competence of these courts and a becoming regard of the time-honored principle of the hierarchy of courts bars the present direct recourse to this Court.

Even assuming that the issue involved in the present recourse is of vital importance, it is dismissible for its failure to implead the indispensable parties.

Under Rule 3, Section 7 of the Rules of Court, an indispensable party is a party-in-interest, without whom there can be no final determination of an action. The interests of such indispensable party in the subject matter of the suit and the relief are so bound with those of the other parties that his legal presence as a party to the proceeding is an absolute necessity.14 As a rule, an indispensable party's interest in the subject matter is such that a complete and efficient determination of the equities and rights of the parties is not possible if he is not joined.15

In the case at bar, it is alleged that the propriety of the SEC's enforcement of this Court's interpretation of "capital" is important as it affects corporations in nationalized and partly-nationalized industries. And yet, besides respondent PLDT, no other corporation subject to the same restriction imposed by Section 11, Article XII of the Constitution has been joined or impleaded by the present recourse. These corporations are in danger of losing their franchises and property holdings if they are found not compliant with a revised interpretation of the nationality requirement. Nonetheless, they have not been afforded due notice, much less the opportunity to be heard, in the present case.

Worse, petitioner and petitioners-in-intervention failed to acknowledge that their restrictive interpretation of the Court's ruling in Gamboa affects not only the public utility corporations but, more so, the shareholders who will likely be divested of their stocks. The sheer number of foreign shareholders and the affected shareholdings have been illustrated by the Shareholder's Association of the Philippines, Inc. (SHAREPHIL) when it explained that, in five companies alone, more than One Hundred Fifty Billion Pesos (₱150,000,000,000.00) worth of shares have to be forcibly taken from foreign shareholders (and absorbed by Filipino investors).

The rights of these other corporations and numerous shareholders cannot simply be ignored in making a final determination on the constitutionality of MC No. 8. The petitioner's failure to implead is not just a simple procedural misstep but a patent denial of due process rights.16

The Constitution is clear as it is categorical. The State cannot proceed with depriving persons their property without first ensuring that compliance with due process requirements is duly observed.17 This Court cannot, thus, sanction a restrictive interpretation of the nationality requirement without first affording the other public utility corporations and their shareholders an opportunity to participate in the present proceedings.

Even if the Court takes the lenient stance and turns a blind eye on all the numerous procedural infirmities of the petition, the petition still fails on the merits.

The petition is anchored on the contention that the SEC committed grave abuse of discretion in issuing MC No. 8. By grave abuse of discretion, the petitioners must prove that the Commission's act was tainted with the quality of whim and caprice.18 Abuse of discretion is not enough. It must be shown that the Commission exercised its power in an arbitrary or despotic manner because of passion or personal hostility that is so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined or to act at all in contemplation of law.19

With this standard in mind, the petitioner and petitioners-in-intervention failed to demonstrate that the SEC's issuance of MC No. 8 was attended with grave abuse of discretion. On the contrary, the assailed circular sufficiently applied the Court's definitive ruling in Gamboa.

To recall, Gamboa construed the word "capital" and the nationality requirement in Section 11, Article XII of the Constitution, which states:

SECTION 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (emphasis supplied)

The Court explained in the June 28, 2011 Decision in Gamboa that the term "capital" in Section 11, Article XII refers "only to shares of stock entitled to vote in the election of directors." The rationale provided by the majority was that this interpretation ensures that control of the Board of Directors stays in the hands of Filipinos, since foreigners can only own a maximum of 40% of said shares and, accordingly, can only elect the equivalent percentage of directors. As a necessary corollary, Filipino stockholders can always elect 60% of the Board of Directors which, to the majority of the Court, translates to control over the corporation. The June 28, 2011 Decision, thus, reads:

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term 'capital' in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term "capital" shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. 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.

This 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. As revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling interest of a corporation x x x.

The dispositive portion of the June 28, 2011 Decision in Gamboa clearly spelled out the doctrinal declaration of the Court on the meaning of "capital" in Section 11, Article XII of the Constitution, viz:

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the 1987 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 (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law. (emphasis supplied)

The motions for reconsideration of the June 28, 2011 Decision filed by the movants in Gamboa argued against the application of the term "capital" to the voting shares alone and in favor of applying the term to the total outstanding capital stock (combined total of voting and non-voting shares). Notably, none of them contended or moved for the application of the capital or the 60-40 requirement to "each and every class of shares" of a public utility, as it was never an issue in the case.

In resolving the motions for reconsideration in Gamboa, it is relevant to stress that the majority did not modify the June 28, 2011 Decision. The fallo of the October 9, 2012 Resolution simply stated:

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be entertained.

Clearly, the Court had no intention, express or otherwise, to amend the construction of the term "capital" in the June 28, 2011 Decision in Gamboa, much less in the manner proposed by petitioner Roy. Hence, no grave abuse of discretion can be attributed to the SEC in applying the term "capital" to the "voting shares" of a corporation.

The portion quoted by the petitioners is nothing more than an obiter dictum that has never been discussed as an issue during the deliberations in Gamboa. As such, it is not a binding pronouncement of the Court20 that can be used as basis to declare the SEC's circular as unconstitutional.

An obiter dictum has been defined as an opinion expressed by a court upon some question of law that is not necessary in the determination of the case before the court. It is a remark made, or opinion expressed, by a judge, in his decision upon a cause by the way, that is, incidentally or collaterally, and not directly upon the question before him, or upon a point not necessarily involved in the determination of the cause, or introduced by way of illustration, or analogy or argument. It does not embody the resolution or determination of the court, and is made without argument, or full consideration of the point. It lacks the force of an adjudication, being a mere expression of an opinion with no binding force for purposes of res judicata.21 (emphasis and underscoring supplied)

What is more, requiring the SEC to impose the 60-40 requirement to "each and every class of shares" in a public utility is not only unsupported by Section 11, Article XXI, it is also administratively and technically infeasible to implement and enforce given the variety and number of classes that may be issued by public utility corporations.

Common and preferred are the usual forms of stock. However, it is also possible for companies to customize and issue different classes of stock in any way they want. Thus, while all issued common shares may be voting, their dividends may be "deferred" or subject to certain conditions. Corporations can also issue "cumulative preferred shares" that are issued with the stipulation that any scheduled dividends that cannot be paid when due are carried forward and must be paid before the company can pay out ordinary share dividends. A company can likewise issue "hybrid stocks" or preferred shares that can be converted to a fixed number of common stocks at a specified time. These stocks may or may not be given voting rights. Further, some stocks may be embedded with derivative options so that a type of stock may be "called" or redeemed by the company at a specified time at a fixed price, while some stocks may be "puttable" or offered by the stockholder at a certain time, at a certain price.

Without a doubt, the classes and variety of shares that may be issued by a corporation are limited only by the bounds of the corporate directors' imagination. Worse, they can be classified and re-classified, ad nauseam, from time to time.

Thus, to require the SEC and other government agencies to keep track of the ever-changing capital classes of corporations would be impractical, if not downright impossible. Perhaps it is best to be reminded that the law does not require the impossible. (Lex non cogit ad impossibilia.)22

Neither can the petitioners rely on the concept of "beneficial ownership" to sustain their position. The phrase, "beneficial ownership," is nowhere found in Section 11, Article XII of the Constitution. Rather "beneficial ownership" was introduced in the Implementing Rules and Regulations of the Foreign Investment Act of 1991 (FIA), not even in the law itself. Suggesting that the phrase can expand, qualify and amend the intent of the Constitution is, bluntly, preposterous.

a) 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.

The definition was taken a step further in the Implementing Rules and Regulations of the law where the phrase "beneficial ownership" was used, as follows:

While the foregoing provisions were cited in Gamboa in identifying the "capital stock outstanding and entitled to vote" as equivalent to "capital" in Section 11, Article XII of the Constitution, nothing in either provision requires the application of the 60% threshold to "each and every class of shares" of public utilities.

At most, as pointed out by the majority, "beneficial ownership" must be understood in the context in which it is used. Thusly, the phrase simply means that the name and full rights of ownership over the 60% of the voting shares in public utilities must belong to Filipinos. If either the voting rights or the right to dividends, among others, of voting shares registered in the name Filipino citizens or nationals are assigned or transferred to an alien, these shares shall not be included in the computation of the 60% threshold.

The Commission even went above and beyond the duty levied by the court and imposed the 60-40 requirement not only on the voting shares but also on the totality of the corporation's shareholding, thus ensuring that the public utilities are, in fact, "effectively controlled" by Filipinos given the added layers of protection given to ensure that Filipino stockholders have the full beneficial ownership and control of public utility corporations in accordance with the Constitution, thus:

In my opinion in Heirs of Gamboa v. Teves,23 I pointed out the dire consequences of not imposing the 40% limit on foreign ownership on the totality of the shareholdings, viz:

Thus, the zealous watchfulness demonstrated by the SEC in imposing another tier of protection for Filipino stockholders cannot, therefore, be penalized on a misreading of the October 9, 2012 Resolution in Gamboa, which neither added nor subtracted anything from the June 28, 2011 Decision defining capital as "shares of stock entitled to vote in the election of directors."

Thus, I join the majority in ruling that there is no need to clarify the ruling in Gamboa nor hold the Commission liable for grave abuse of discretion. As it has manifested in Gamboa,24 in issuing MC No. 8, the SEC abided by the Court's decision and deferred to the Court's definition of the term "capital" in Section 11, Article XII of the Constitution.