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Briefly Basking in the Limelight

(Article published in the Jul 6,2011 issue of Manila Standard Today) 

The dissenting opinion, penned by Justice Presbiterio J. Velasco, Jr., in the case of Wilson F. Gamboa v. Finance Secretary Margarito B. Teves, et al, G.R. No. 176579, decided by the Supreme Court on 28 June 2011, (“PLDT case”) gave me and my colleague at our law office, Atty. Precilla B. Valer, undeserved mention.

The reason for our good fortune was that I was the addressee of a ruling by the Securities and Exchange Commission way back 21 November 1989 that was cited by Justice Velasco in his dissent.  That ruling was reiterated by the SEC almost fifteen years later, this time addressed to Precy Valer.  What made our mention being underserved, however, is the fact that the core issue in the SEC rulings addressed to us was not the same as point of law that had to be decided by the Supreme Court in the PLDT case. 

In the PLDT case, the legal question that had to be resolved was “Does 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)?  The Supreme Court answered that question in favor of “only to shares of stock entitled to vote in the election of directors”.  In the specific circumstance of PLDT, “capital” was thus construed to mean only common shares and not to the total outstanding capital stock (common and non-voting preferred shares).


The question we posed with the SEC, on the other hand, was whether the basis of computation of the 60-40 percentage national requirement in a corporation whose capital stock was divided into shares of different par values (but not divided into voting and non-voting shares), (a) the total outstanding capital stock regardless of the different amounts of the par value of the shares, or (b) whether those shares with the greater par value have greater voting weight than those with less.  The SEC answered that question upholding our position that by the same voting power accrues to all the shares (i.e. one share - one vote) regardless of the different par values of the shares. 

As a background, I elicited the SEC ruling in order to pave the way for foreigners to infuse capital in industries reserved for Filipino control but where Filipino capital was lacking.  The particular foreign interests I was then lawyering for were content with only the economic benefits rightly accruing to the capital they put at risk but were not interested in the control that ordinarily attached to the amount of capital invested.

Thus, I structured the corporation to have two classes of shares, 60% of which are “A” shares at P1.00 par value to be owned by Filipinos and 40% in “B” shares at P10.00 per share to be owned by Filipinos.  I persuaded the SEC to agree to the position that when those shares vote, the vote of the Filipino is to have the same weight as the vote of the Foreigner even if the latter had put in by way of capital per share ten times as much the former.

The Securities and Exchange Commission ruled:

“As to the basis of computation of the 60-40 percentage nationality requirement under existing laws (whether it should be based on the number of shares or the aggregate amount in pesos of the par value of the shares), the following definitions of corporate terms are worth mentioning.

“The term capital stock signifies the aggregate of the shares actually subscribed” (11 Fletcher, Cyc. Corps. (1971 Rev. Vol.) sec. 5082, citing Goodnow v. American Writing Paper Co., 73 NJ Eq. 692, 69 A 1014 aff’g 72 NJ Eq. 645, 66 A, 607).

Capital stock means the capital subscribed (the share capital).  (Ibid., emphasis supplied).

In its primary sense a share of stock is simply one of the proportionate integers or units, the sum of which constitutes the capital stock of corporation.  (Fletcher, sec. 5083).

The equitable interest of the shareholder in the property of the corporation is represented by the term stock, and the extent of his interest is described by the term shares.  The expression shares of stock when qualified by words indicating number and ownership expresses the extent of the owner’s interest in the corporate property (Ibid, Sec. 5083, emphasis supplied).

Likewise, in all provisions of the Corporation Code the stockholders’ right to vote and receive dividends is always determined and based on the “outstanding capital stock”, defined as follows:

“SECTION 137.  Outstanding capital stock defined.  – The term “outstanding capital stock” as used in this Code, means the total shares of stock issued to subscribers or stockholders, whether or not fully or partially paid (as long as there is a binding subscription agreement, except treasury shares.”  (emphasis supplied).

The computation, therefore, should be based on the total outstanding capital stock, irrespective of the amount of the par value of the shares.”

The SEC ruling is only tangential to the PLDT decision.  Still, it did feel good to have my name mentioned, for a change, in a positive context.