G.R. No.

171815

August 7, 2007

CEMCO HOLDINGS, INC., Petitioner, vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent. DECISION CHICO-NAZARIO, J.: This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set aside the 24 October 2005 Decision1 and the 6 March 2006 Resolution2 of the Court of Appeals in CA-G.R. SP No. 88758 which affirmed the judgment3 dated 14 February 2005 of the Securities and Exchange Commission (SEC) finding that the acquisition of petitioner Cemco Holdings, Inc. (Cemco) of the shares of stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas Cement Corporation (ACC) in Union Cement Holdings Corporation (UCHC) was covered by the Mandatory Offer Rule under Section 19 of Republic Act No. 8799, otherwise known as the Securities Regulation Code. The Facts Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders – UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC’s stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to 29.69%. In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result of petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC, petitioner’s total beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the shares of UCC, to wit4 : Particulars Existing shares of Cemco in UCHC Acquisition by Cemco of BCI’s and ACC’s shares in UCHC Total stocks of Cemco in UCHC Percentage of UCHC ownership in UCC Indirect ownership of Cemco in UCC Direct ownership of Cemco in UCC Total ownership of Cemco in UCC Percentage 9% 51% 60% 60% 36% 17% 53%

As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC. In a letter dated 16 July 2004, Director Justina Callangan of the SEC’s Corporate Finance Department responded to the query of the PSE that while it was the stance of the department that the tender offer rule was not applicable, the matter must still have to be confirmed by the SEC en banc. Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en banc had resolved that the Cemco transaction was not covered by the tender offer rule.

WHETHER OR NOT THE SEC DECISION. and arguing that the tender offer rule does not apply. WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED RETROACTIVELY TO CEMCO’S PREJUDICE. On 19 August 2004. petitioner Cemco raises the following issues: I.6 . or that the SEC’s re-interpretation of the rule could not be made to retroactively apply to Cemco’s purchase of UCHC shares. which were then required by the SEC to file their respective comment on the complaint. II. IV. and the preliminary injunction issued by the Court LIFTED.On 28 July 2004. III. It. however. Rule 19 of the Securities Regulation Code. sent a letter to Cemco demanding the latter to comply with the rule on mandatory tender offer. ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONAL LIFE’S COMPLAINT AND THAT THE SEC’S RE-INTERPRETATION OF THE TENDER OFFER RULE IS CORRECT. In its memorandum. It ruled that the SEC has jurisdiction to render the questioned decision and. The Court of Appeals rendered a decision affirming the ruling of the SEC. BCI and ACC. respondent National Life Insurance Company of the Philippines. a minority stockholder of UCC. Impleaded in the complaint were Cemco. in any event. refused. WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE DISPUTE BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO TO MAKE A TENDER OFFER FOR UCC SHARES. a Share Purchase Agreement was executed by ACC and BCI. the instant petition. AS AFFIRMED BY THE CA DECISION. as buyer. WHETHER OR NOT CEMCO’S PURCHASE OF UCHC SHARES IS SUBJECT TO THE TENDER OFFER REQUIREMENT. respondent National Life Insurance Company of the Philippines.5 Cemco filed a motion for reconsideration which was denied by the Court of Appeals. the assailed decision of the SEC is AFFIRMED. they were uniform in arguing that the tender offer rule applied only to a direct acquisition of the shares of the listed company and did not extend to an indirect acquisition arising from the purchase of the shares of a holding company of the listed firm. UCC. Inc. On 12 August 2004. filed a complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares. the SEC ruled in favor of the respondent by reversing and setting aside its 27 July 2004 Resolution and directed petitioner Cemco to make a tender offer for UCC shares to respondent and other holders of UCC shares similar to the class held by UCHC in accordance with Section 9(E). Cemco was barred by estoppel from questioning the SEC’s jurisdiction. Cemco. feeling aggrieved by the transaction. IS AN INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT. UCHC. On 5 August 2004. the transaction was consummated and closed. In their comments. likewise. and Cemco. held that the tender offer requirement under the Securities Regulation Code and its Implementing Rules applies to Cemco’s purchase of UCHC stocks. The decretal portion of the said Decision reads: IN VIEW OF THE FOREGOING. as sellers. Inc.. In a Decision dated 14 February 2005. Petitioner filed a petition with the Court of Appeals challenging the SEC’s jurisdiction to take cognizance of respondent’s complaint and its authority to require Cemco to make a tender offer for UCC shares. Hence.

On the first issue. viz: [T]he Commission shall have. through its purchase of the shares in UCHC. or reasonably necessary to carry out. Since the SEC’s order commanding it to make a tender offer is an affirmative relief fixing the respective rights and obligations of parties. the following powers and functions: xxxx (n) Exercise such other powers as may be provided by law as well as those which may be implied from. the same statute does not vest the SEC with jurisdiction to adjudicate and determine the rights and obligations of the parties since. the SEC cannot. confer on itself that jurisdiction. the SEC was acting pursuant to Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code. or which are necessary or incidental to the carrying out of. Petitioner’s stance fails to persuade. it has the incidental power to conduct hearings and render decisions fixing the rights and obligations of the parties. the performance of the administrative duties entrusted to it. The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the express powers of the Commission or which is incidental to. and the like. Petitioner stresses that there is nothing in the statute which authorizes the SEC to issue orders granting affirmative reliefs.7 Another provision of the statute. petitioner Cemco contends that while the SEC can take cognizance of respondent’s complaint on the alleged violation by petitioner Cemco of the mandatory tender offer requirement under Section 19 of Republic Act No. in this case. to deprive the SEC of this power would . the Commission. the indirect acquisition by Cemco of 36% of UCC. 8799. which provides the basis of Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code. under the same statute. by mere administrative regulation. Petitioner further contends that in the absence of any specific grant of jurisdiction by Congress. Whether or not the SEC has jurisdiction over respondent’s complaint and to require Cemco to make a tender offer for respondent’s UCC shares.Simply stated. to wit: 13. the following are the issues: 1. more specifically the provision on mandatory tender offer under Section 19 thereof. In fact. is Section 5. In taking cognizance of respondent’s complaint against petitioner and eventually rendering a judgment which ordered the latter to make a tender offer. the SEC’s authority is purely administrative. upon complaint. may nullify the said acquisition and direct the holding of a tender offer. among others. Having been vested with purely administrative authority. investigate or supervise the activities of persons to ensure compliance with the Securities Regulation Code. such order is void. the SEC can only impose administrative sanctions such as the imposition of administrative fines. The foregoing rule emanates from the SEC’s power and authority to regulate. the suspension or revocation of registrations with the SEC. Violation If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company at threshold amounts without the required tender offer. a publicly-listed company. the express powers granted the Commission to achieve the objectives and purposes of these laws. Whether or not the questioned ruling of the SEC can be applied retroactively to Cemco’s transaction which was consummated under the authority of the SEC’s prior resolution. As a regulatory agency.1(n). a non-listed company. 2. 3. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company. This shall be without prejudice to the imposition of other sanctions under the Code.

and managing the corporate industry. because it would become powerless to regulate and implement the law. Subsection 5. Moreover. subject to the limitation that the same are consistent with the declared policy of the Code. the source of funds. approve. It must be pointed out that petitioner had participated in all the proceedings before the SEC and had prayed for affirmative relief. Section 72 of the Securities Regulation Code reads: 72. The power conferred upon the SEC to promulgate rules and regulations is a legislative recognition of the complexity and the constantly-fluctuating nature of the market and the impossibility of foreseeing all the possible contingencies that cannot be addressed in advance. and if the case involves violations or conflicts in connection with the performance of its regulatory functions. partake of the nature of a statute. regulations and orders. but to adjudicate certain rights and obligations of the contending parties and grant appropriate reliefs in the exercise of its regulatory functions under the SRC. remedies and sanctions intended by the legislature. overseeing. The Commission shall promulgate rules and regulations providing for reporting. the Commission may issue. or which the Commission deems to be material to a determination by holders whether such security should be sold. it will have the duty and authority to resolve the dispute for the best interests of the public. This is so because statutes are usually couched in general terms. As correctly held by the Court of Appeals: We are nonetheless convinced that the SEC has the competence to render the particular decision it made in this case.2.1(g) of the law provides: Prepare. x x x. By the very nature of its functions. and compliance therewith may be enforced by a penal sanction provided in the law. objectives. A definite inference may be drawn from the provisions of the SRC that the SEC has the authority not only to investigate complaints of violations of the tender offer rule. petitioner defended the jurisdiction of the SEC in its Comment dated 15 September 2004. As enunciated in Victorias Milling Co. disclosure and the prevention of fraudulent. purposes. of and equity security of a class issued by it that satisfies the requirements of Subsection 17. by tender offer or otherwise. the method of purchase and such additional information as the Commission deems necessary or appropriate in the public interest or for the protection of investors. amend.. it has been said that rules and regulations are the product of a delegated power to create new or additional legal provisions that have the effect of law. the Honorable Commission is necessarily tasked to issue rulings with respect to matters involving corporate matters and share acquisitions. and issue opinions and provide guidance on and supervise compliance with such rules. Based on said functions. the number of shares to be purchased. share investment and securities market in the Philippines. Section 5. Verily when this Honorable . Among them is the protection of the investors and the minimization. Thus. amend or repeal rules. and rescind such rules and regulations and orders necessary or appropriate. x x x To effect the provisions and purposes of this Code. In this sense. the price to be paid for such securities.render the agency inutile. Inc. The details and the manner of carrying out the law are often times left to the administrative agency entrusted with its enforcement. regulations and orders. 72.1. the SEC has the authority to promulgate rules and regulations. filed with the SEC wherein it asserted: This Honorable Commission is a highly specialized body created for the purpose of administering. Such rules and regulations may require such issuer to provide holders of equity securities of such dates with such information relating to the reasons for such purchase. Social Security Commission9 : Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law.2. v.1 of the SRC allows a general grant of adjudicative powers to the SEC which may be implied from or are necessary or incidental to the carrying out of its express powers to achieve the objectives and purposes of the SRC. In fact. We must bear in mind in interpreting the powers and functions of the SEC that the law has made the SEC primarily a regulatory body with the incidental power to conduct administrative hearings and make decisions. deceptive or manipulative practices in connection with the purchase by an issuer.8 For sure. it dedicated to the study and administration of the corporate and securities laws and has necessarily developed an expertise on the subject. of fraudulent and manipulative devises. if not total elimination. A regulatory body like the SEC may conduct hearings in the exercise of its regulatory powers. petitioner is barred from questioning the jurisdiction of the SEC. after expressing the policy. Also.

8799. Such person or group of persons shall publish all requests or invitations for tender.12 A public company is defined as a corporation which is listed on an exchange. 19. Copies of any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request shall contain such information as the Commission may prescribe. Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. It is further provided therein that mandatory tender offer is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company. This interpretation given by the SEC and the Court of Appeals must be sustained. Court of Appeals11 : While the lack of jurisdiction of a court may be raised at any stage of an action." it was well within its powers and expertise to do so.000.13 Stated differently. a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. It gives the minority shareholders the chance to exit the company under reasonable terms. This contention is not meritorious. (a) Any person or group of persons acting in concert who intends to acquire at least fifteen percent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty million pesos (P50. it is stated: Tender Offers. It was only when the case was before the Court of Appeals and after the SEC rendered an unfavorable judgment against it that petitioner challenged the SEC’s competence.1. Such ruling shall be respected.000. The rule in this jurisdiction is that the construction given to a statute by an administrative agency charged with the interpretation and application of that statute is entitled to great weight by the courts.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty percent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders by filing with the Commission a declaration to that effect. Under existing SEC Rules.18 The rationale for this rule relates not only to . a statement containing such of the information required in Section 17 of this Code as the Commission may prescribe. unless such construction is clearly shown to be in sharp contrast with the governing law or statute. and furnish the issuer.00 and with 200 or more stockholders.10 Petitioner did not question the jurisdiction of the SEC when it rendered an opinion favorable to it. a substantial stockholder of a listed company. at least 200 of them holding not less than 100 shares of such company. or materials making a tender offer or requesting or inviting letters of such a security. such as the 27 July 2004 Resolution. Inc.17 The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule.15 Under Section 19 of Republic Act No. or a corporation with assets exceeding P50. On the second issue.000. where the SEC opined that the Cemco transaction was not covered by the mandatory tender offer rule. giving them the opportunity to sell their shares at the same price as those of the majority shareholders.000. nevertheless.16 the 15% and 30% threshold acquisition of shares under the foregoing provision was increased to thirty-five percent (35%). and shall be filed with the Commission and sent to the issuer not later than the time copies of such materials are first published or sent or given to security holders. the party raising such question may be estopped if he has actively taken part in the very proceedings which he questions and he only objects to the court’s jurisdiction because the judgment or the order subsequently rendered is adverse to him. petitioner asserts that the mandatory tender offer rule applies only to direct acquisition of shares in the public company. Union Cement Corporation..Commission rendered the Ruling that " … the acquisition of Cemco Holdings of the majority shares of Union Cement Holdings. unless there has been an abuse or improvident exercise of authority. As articulated in Ceroferr Realty Corporation v.14 Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. is not covered by the mandatory tender offer requirement of the SRC Rule 19.

OSMEÑA. But we did not have a law protecting them at that time. yeah. mandatory tender offer applies. ayan na. They already have control. And this protects the minority. Eh. 42).50)… reaches 30. The legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase of shares. S. to construe ownership acquisition to mean both direct and indirect.19 The SEC and the Court of Appeals accurately pointed out that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or "any type of acquisition. We are constrained. prorata. Control yan. Somebody controls 67% of the Company. The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed corporation. Wala nang gustong bumenta. S. eh. on 17 July 2000. Ang baba ng share sa market.21 As to the third issue. Any type of acquisition just as long as it will result in 30. TEODORO. x x x. The argument is not persuasive. Whatever may be the method by which control of a public company is obtained. They already have 67%. These arguments are not convincing. OSMEÑA. 41) be no more market. What is decisive is the determination of the power of control. either through the direct purchase of its stocks or through an indirect means. it became an indirect owner of UCC. he is obligated to buy anybody who wants to sell. he will pay a premium for the first 67%. could go down after that. it also relates to accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. By happenstance. And we have had a case in Cebu wherein Ayala A who already owned 40% of Ayala B made an offer for another 40% of Ayala B without offering the 20%. Control may [be] effected through a direct and indirect acquisition of stock. Any type of acquisition just as long as it will result in 30… (p. and when this takes place. Eto ang mangyayari diyan. walang gustong bumili kung hindi yung majority owner. As long as it reaches 30. eh. Pro-rata lang.20(Emphasis supplied." This is clear from the discussions of the Bicameral Conference Committee on the Securities Act of 2000. ang 33% because the value of the stock market could go down. a tender offer must occur. CHAIRMAN ROCO. kawawa yung mga maiiwan. That if a certain group achieves a certain amount of ownership in a corporation. As appropriately held by the Court of Appeals: The petitioner posits that what it acquired were stocks of UCHC and not UCC. Kawawa naman yung nakahawak ngayon ng 20%. because there will (p. Wala nang… I mean maraming gustong bumenta. general tender. Petitioner also avers that it did not directly acquire the shares in UCC and the incidental benefit of having acquired the control of the said public company must not be taken against it. ayan na. irrespective of the means. .) Petitioner counters that the legislator’s reference to "any type of acquisition" during the deliberations on the Securities Regulation Code does not indicate that congress meant to include the "indirect" acquisition of shares of a public corporation to be covered by the tender offer rule. And they will not buy. xxxx REP. SEN. So what is it that you want to achieve? SEN. The bottomline of the law is to give the shareholder of the listed company the opportunity to decide whether or not to sell in connection with a transfer of control. as a result of the transaction.the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs. (p. Of course. petitioner stresses that the ruling on mandatory tender offer rule by the SEC and the Court of Appeals should not have retroactive effect or be made to apply to its purchase of the UCHC shares as it relied in good faith on the letter dated 27 July 2004 of the SEC which opined that the proposed acquisition of the UCHC shares was not covered by the mandatory offer rule. CHAIRMAN ROCO. however.

it should not be applied in that case but that said rule should apply prospectively to cases arising afterwards.22 Since the letter dated 27 July 2004 runs counter to the Securities Regulation Code. addressed to the Philippine Stock Exchange is hereby REVERSED and SET ASIDE. Section 9(E). In Serrano v. Costs against petitioner. What is to be applied in the present case is the subsequent ruling of the SEC dated 14 February 2005 abandoning the opinion embodied in the letter dated 27 July 2004. . 2004. Private respondent’s view of the principle of prospective application of new judicial doctrines would turn the judicial function into a mere academic exercise with the result that the doctrine laid down would be no more than a dictum and would deprive the holding in the case of any force.23 an argument was raised similar to the case under consideration. Private respondent therein argued that the new doctrine pronounced by the Court should only be applied prospectively. Moreover. affirming the Decision dated 14 February 2005 of the Securities and Exchange Commission En Banc. the letter of the Commission. is determinable. Jurisprudence has it that an advisory opinion of an agency may be stricken down if it deviates from the provision of the statute. It orders the conduct of a mandatory tender offer pursuant to the procedure provided for under Rule 19(E) of the Amended Implementing Rules and Regulations of the Securities Regulation Code for the highest price paid for the beneficial ownership of UCC shares. this is subject to the qualification that when a doctrine of this Court is overruled and a different view is adopted. respectively. the implementing rules and regulations of the Code are sufficient to inform and guide the parties on how to proceed with the mandatory tender offer. are hereby AFFIRMED. To the contrary. National Labor Relations Commission. which we reversed in this case. petitioner alleges that the decision of the SEC dated 14 February 2005 is "incomplete and produces no effect. the new rule was applied right then and there. the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine and acted in good faith. the same may be disregarded as what the SEC has done in its decision dated 14 February 2005. Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling. the Court did not defer application of the rule laid down imposing a fine on the employer for failure to give notice in a case of dismissal for cause. the letter dated 27 July 2004 of the SEC was nothing but an approval of the draft letter prepared by Director Callanga. on the basis of the SEC decision. There was no public hearing where interested parties could have been heard. To hold otherwise would be to deprive the law of its quality of fairness and justice then. the same cannot be utilized to determine the rights of the parties. if there is no recognition of what had transpired prior to such adjudication. signed by Director Justina F. Indeed." This contention is baseless. dated July 27.24 A reading of the above ruling of the SEC reveals that the same is complete.The action of the SEC on the PSE request for opinion on the Cemco transaction cannot be construed as passing merits or giving approval to the questioned transaction. Lastly. Said letter was merely advisory. The price. Hence. Respondent Cemco is hereby directed to make a tender offer for UCC shares to complainant and other holders of UCC shares similar to the class held by respondent UCHC. the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6 March 2006. SO ORDERED. at the highest price it paid for the beneficial ownership in respondent UCC. It is apparent that private respondent misconceived the import of the ruling. it was not issued upon a definite and concrete controversy affecting the legal relations of parties thereby making it a judgment conclusive on all the parties. WHEREFORE. As aptly pointed out by the respondent. strictly in accordance with SRC Rule 19. x x x. The decretal portion of the SEC decision states: In view of the foregoing. and more so when there is a reversal thereof. when the Court formulated the Wenphil doctrine. Callangan. Said postulation was ignored by the Court when it ruled: While a judicial interpretation becomes a part of the law as of the date that law was originally passed. The decision in Columbia Pictures does not mean that if a new rule is laid down in a case.

7 . 2003 Decision1 of the Court of Appeals that affirmed the January 26. representatives and any and all persons claiming and acting under their authority. pursuant to the authority vested in the Commission. one Romulo E. CORP..6 public respondent SEC issued a CDO that reads: WHEREFORE. 2008 POWER HOMES UNLIMITED CORPORATION. agents. webpages of two (2) members. 2004 Resolution3 which denied petitioner’s motion for reconsideration. otherwise known as the Securities Regulation Code. representatives and any and all persons claiming and acting under their authority. 164182 February 26.5 but failed to register them in violation of Sec.1 (b) of Republic Act (R. The following day or on December 14.R. public respondent SEC held a conference on December 13. On January 26. Paul Nicolas and Leonito Nicolas. C. from further engaging in the sale. public respondent SEC visited the business premises of petitioner wherein it gathered documents such as certificates of accreditation to several real estate companies. Munsayac. 2000 that was attended by petitioner’s incorporators John Lim. petitioner submitted to public respondent SEC copies of its marketing course module and letters of accreditation/authority or confirmation from Crown Asia. 2001 Cease and Desist Order (CDO)2 of public respondent Securities and Exchange Commission (SEC) enjoining petitioner Power Homes Unlimited Corporation’s (petitioner) officers. Jr.J. directors. offer or distribution of the securities upon the receipt of this order. SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO. obtaining options on. On the same day. respondent Noel Manero requested public respondent SEC to investigate petitioner’s business. The facts: Petitioner is a domestic corporation duly registered with public respondent SEC on October 13. 2000. are hereby ordered to immediately CEASE AND DESIST from further engaging in the sale. 8. POWER HOMES UNLIMITED. 3. after finding petitioner to be engaged in the sale or offer for sale or distribution of investment contracts. its officers. Fil-Estate Network and Pioneer 29 Realty Corporation. offer for sale or distribution of securities. sale and/or exchange of said subdivision and properties through network marketing. DECISION PUNO. which are considered securities under Sec. directors." On the bases of the letters of respondent Manero and Munsayac. list of members with web sites. inquired from public respondent SEC whether petitioner’s business involves "legitimate network marketing. and its June 18.G. leasing. 2000 under SEC Reg. petitioner. the parties subject of this Cease and Desist Order may file a request for the lifting thereof within five (5) days from receipt. development.) No. Its primary purpose is: To engage in the transaction of promoting.3 of Republic Act No. and in the purchase. In accordance with the provisions of Section 64. A200016113. He claimed that he attended a seminar conducted by petitioner where the latter claimed to sell properties that were inexistent and without any broker’s license. 8799. The attendees were requested to submit copies of petitioner’s marketing scheme and list of its members with addresses. and improvement of real estate properties for subdivision and allied purposes. managing. No. 2000. 2001. and lists of Business Center Owners who are qualified to acquire real estate properties and materials on computer tutorials. vs. 2000.1 of the same Act.: This petition for review seeks the reversal and setting aside of the July 31. No. agents.4 On October 27. sample of member mail box. respondents.A. 8799 (The Securities Regulation Code). acquiring. On November 21.

On June 18. [SP] No. which the appellate court granted. 2003. unless restrained. We hold that petitioner was not denied due process. this petition for review. . Sec. On May 23. petitioner went to the Court of Appeals imputing grave abuse of discretion amounting to lack or excess of jurisdiction on public respondent SEC for issuing the order. 64 of R. Incorporated v. 2001.A. the appellate court granted petitioner’s motion. and (2) whether petitioner’s business constitutes an investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public. Securities and Exchange Commission (Compliance and Enforcement Department). All these were done before the CDO was issued by the public respondent SEC. public respondent SEC moved for reconsideration. may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice. 2001. the Court of Appeals consolidated petitioner’s case with CA-G. The records reveal that public respondent SEC properly examined petitioner’s business operations when it (1) called into conference three of petitioner’s incorporators. motu proprio or upon verified complaint by any aggrieved party. the Court of Appeals denied petitioner’s motion for reconsideration. Cease and Desist Order. 2001. De La Cruz. (2) requested information from the incorporators regarding the nature of petitioner’s business operations. (3) asked them to submit documents pertinent thereto. On July 12. which public respondent SEC denied for lack of merit on February 22. the motion was heard. 2001. On the first issue. 64. et al. 2001.On February 5. On July 31. a formal trial or hearing is not necessary to comply with the requirements of due process.Com. 8799 provides: Sec. petitioner filed in the Court of Appeals a Motion for the Issuance of a Writ of Preliminary Injunction. Aggrieved. Cristina T. after proper investigation or verification.R. we hereby resolve to grant the preliminary injunction. Its essence is simply the opportunity to explain one’s position. after posting a bond in the amount of P500. thus: Considering that the Temporary Restraining Order will expire tomorrow or on July 14. 62890 entitledProsperity. On July 6. Trite to state. and considering further that with the continuous implementation of the CDO by the SEC would eventually result to the sudden demise of the petitioner’s business to their prejudice and an irreparable damage that may possibly arise.1. Public respondent SEC abundantly allowed petitioner to prove its side. It also applied for a temporary restraining order. On July 13. 2001. The issues for determination are: (1) whether public respondent SEC followed due process in the issuance of the assailed CDO. petitioner moved for the lifting of the CDO. public respondent SEC filed its opposition. 2001. – 64. will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. 2001. and it appearing that this Court cannot resolve the petition immediately because of the issues involved which require a further study on the matter.000. which was not resolved by the Court of Appeals.10 hence. On June 19. the Court of Appeals issued its Consolidated Decision. No. The disposition pertinent to petitioner reads:9 WHEREFORE. 2001. x x x x the petition for certiorari and prohibition filed by the other petitioner Powerhomes Unlimited Corporation is hereby DENIED for lack of merit and the questioned Cease and Desist Order issued by public respondent against it is accordingly AFFIRMED IN TOTO.8 On August 8.00 to answer whatever damages the respondents may suffer should petitioner be adjudged not entitled to the injunctive relief herein granted. 2004. and (4) visited petitioner’s business premises and gathered information thereat. The Commission. let a writ of preliminary injunction be issued in favor of petitioner. WHEREFORE.

22Although the proponents must establish all four elements. in such form and with such substance as the Commission may prescribe. It reasoned out that its flexible reading is in accord with the statutory policy of affording broad protection to . the 9thCircuit of the US Court of Appeals ruled that the element that profits must come "solely" from the efforts of others should not be given a strict interpretation."23Needless to state. Glenn W. the BCO who receives a total amount of US$11. After Howey came the 1973 US case of SEC v. The Terms and Conditions printed at the back of the application form indicate that the BCO shall mean an independent representative of Power Homes. (4) to be derived solely from the efforts of others." It also described the conduct of petitioner’s business as follows: The scheme of the [petitioner] corporation requires an investor to become a Business Center Owner (BCO) who must fill-up and sign its application form. Our definition of an investment contract traces its roots from the 1946 United States (US) case of SEC v. the US Supreme Court stressed that the Howey Test "embodies a flexible rather than a static principle.A.1 of R.700 constituting as his Property Fund placed in a Property Fund account with the Chinabank.19 Thus. – 8. contract. any investment contract covered by the Howey Test must be registered under the Securities Act. or scheme whereby a person (1) makes an investment of money."15 The US Supreme Court. recognizing that the term "investment contract" was not defined by the Act or illumined by any legislative report. Turner Enterprises.16 held that "Congress was using a term whose meaning had been crystallized"17 under the state’s "blue sky" laws18 in existence prior to the adoption of the Securities Act. shall be made available to each prospective purchaser.412. 8799. Requirement of Registration of Securities."21 Known as the Howey Test. without a registration statement duly filed with and approved by the Commission. the BCO will receive a total amount of US$147. viz: Section 8.20 It established a test to determine whether a transaction falls within the scope of an "investment contract.80 as property fund from the gross amount of US$184. it requires a transaction.A. (3) with the expectation of profits. His enrollment entitles him to recruit two investors who should pay US$234 each and out of which amount he shall receive US$92. (2) in a common enterprise. No. Paragraph 5 of the same indicates that there exists no employer/employee relationship between the BCO and the Power Homes Unlimited. has now an accumulated amount of US$2. No. must be registered prior to sale or offer for sale or distribution to the public pursuant to Section 8. 8799 as a "contract. Howey Co. Securities shall not be sold or offered for sale or distribution within the Philippines. information on the securities.20 after deducting the amount of US$36. No.776.12 An investment contract is defined in the Amended Implementing Rules and Regulations of R.20 as property fund from the gross amount of US$11. the US Supreme Court was confronted with the issue of whether the Howey transaction constituted an "investment contract" under the Securities Act’s definition of "security. 8799. et al. In case the two referrals/enrollees would recruit a minimum of four (4) persons each recruiting two (2) persons who become his/her own down lines. W.J. After recruiting 128 persons in a period of eight (8) months for each Left and Right business groups or a total of 256 enrollees whether directly referred by the BCO or through his down lines. Inc. This accumulated amount of US$2.The second issue is whether the business of petitioner involves an investment contract that is considered security11 and thus. Corp. Prior to such sale.80 after deducting the amount of US$363. who is enrolled in the company’s referral program and who will ultimately purchase real property from any accredited real estate developers and as such he is entitled to a referral bonus/commission.24 In this case. The BCO is required to pay US$234 as his enrollment fee.1. Public respondent SEC found the petitioner "as a marketing company that promotes and facilitates sales of real properties and other related products of real estate developers through effective leverage marketing. one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.700 is used as partial/full down payment for the real property chosen by the BCO from any of [petitioner’s] accredited real estate developers. It held that a literal reading of the requirement "solely" would lead to unrealistic results. it ruled that the use of the catch-all term "investment contract" indicated a congressional intent to cover a wide range of investment transactions."13 It behooves us to trace the history of the concept of an investment contract under R. regardless of whether its issuer was engaged in fraudulent practices. transaction or scheme (collectively ‘contract’) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.A.14 In this case.

otherwise the SEC cannot protect the investing public from fraudulent securities. Interestingly. The strict regulation of securities is founded on the premise that the capital markets depend on the investing public’s level of confidence in the system. and records. it must be registered with public respondent SEC. 8799. On appeal from a grant of preliminary injunction. 2004 Resolution denying petitioner’s Motion for Reconsideration are AFFIRMED. films. Under the scheme. SO ORDERED. 8799 appears to follow this flexible concept for it defines an investment contract as a contract. We therefore rule that the business operation or the scheme of petitioner constitutes an investment contract that is a security under R. Our R. minimal. the facts of SEC v. to be a security subject to regulation by the SEC. 2003 Decision of the Court of Appeals. (3) with expectation of profits. Once an individual has purchased a Plan.the public. in addition to investing money needed to purchase the contract. the SEC brought a suit to enjoin the violation of federal securities laws by a company offering to sell to the public contracts characterized as self-improvement courses." The business scheme of petitioner in the case at bar is essentially similar. Their value for any other purpose is. affirming the January 26. (4) primarily from efforts of others. 2001 Cease and Desist Order issued by public respondent Securities and Exchange Commission against petitioner Power Homes Unlimited Corporation. No costs. to put it mildly.A. The CDO was proper even without a finding of fraud. The July 31. the US Court of Appeals of the 9th Circuit held that self-improvement contracts which primarily offered the buyer the opportunity of earning commissions on the sale of contracts to others were "investment contracts" and thus were "securities" within the meaning of the federal securities laws.A. for which he will receive a part of what they pay. who then recruit at least two (2) each. Clearly. As an investment contract that is security under R. Thus. we affirm the ruling of the public respondent SEC and the Court of Appeals that the petitioner was engaged in the sale or distribution of an investment contract. Rather. he turns his efforts toward bringing others into the organization. were obliged to contribute their own efforts in finding prospects and bringing them to sales meetings. This is regardless of the fact that buyers. . No. We reject petitioner’s claim that the payment of US$234 is for the seminars on leverage marketing and not for any product. The promotional aspects of the plan.A. the trainings or seminars are merely designed to enhance petitioner’s business of teaching its investors the know-how of its multi-level marketing business. No. such as seminars. An investor enrolls under the scheme of petitioner to be entitled to recruit other investors and to receive commissions from the investments of those directly recruited by him. the accumulated amount received by the investor comes primarily from the efforts of his recruits. His task is to bring prospective purchasers to "Adventure Meetings. An investor enrolls in petitioner’s program by paying US$234. (2) in a common enterprise. No. 8799. Prescinding from these premises. are aimed at interesting others in the Plans. In Turner. Turner25 are similar to the case at bar. the petition is DENIED. A minimum recruitment of four (4) investors by these two (2) recruits. The appellate court held: It is apparent from the record that what is sold is not of the usual "business motivation" type of courses. As petitioner failed to register the same. its offering to the public was rightfully enjoined by public respondent SEC. transaction or scheme (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits not solely but primarily from the efforts of others. IN VIEW WHEREOF. Thus. the purchaser is really buying the possibility of deriving money from the sale of the plans by Dare to individuals whom the purchaser has brought to Dare. an investment contract in our jurisdiction must be proved to be: (1) an investment of money. This entitles him to recruit two (2) investors who pay US$234 each and out of which amount he receives US$92. and its June 18. entitles the principal investor to US$184 and the pyramid goes on. it must be registered with public respondent SEC before its sale or offer for sale or distribution to the public.

Branch 11. Lao to be recognized as stockholders and directors of Pacific Foundry Shop Corporation. on the other hand. The case was consolidated with another intra-corporate dispute. LAO. J. president of Pacific Foundry Shop Corporation (PFSC). 170585 October 6. filed by the Heirs of Uy Lam Tiong against respondent Dionisio Lao. the parties agreed to submit the case for resolution based on the evidence on record. or transfer. which shares were previously purchased from a certain Hipolito Lao.5 On June 19. Petitioners prayed for a declaration as stockholders and directors of PFSC. 2001. CEB-25916-SRC. the RTC rendered a Joint Decision8 with the following pertinent disposition. DECISION REYES. CEB-25910-SRC. DIONISIO C. purchase. was enacted. thus: WHEREFORE.6 During pre-trial. LAO. Petitioner Jose Lao.7 RTC Disposition On December 19. Since they were neither stockholders nor directors of PFSC. He also claimed that petitioners did not acquire any shares in PFSC by any of the modes recognized by law. petitioners David and Jose Lao filed a petition with the Securities and Exchange Commission (SEC) against respondent Dionisio Lao. otherwise known as the Securities Regulation Code.4 Respondent denied petitioners' claim. 2008 DAVID C. Cebu City in CEB-25916SRC. Lao and Jose C. He alleged that the inclusion of their names in the corporation's General Information Sheet was inadvertently made. Civil Case No. No.3 Petitioners claimed that they are stockholders of PFSC based on the General Information Sheet filed with the SEC. LAO and JOSE C.: IS the mere inclusion as shareholder in the General Information Sheet of a corporation sufficient proof that one is a shareholder in such corporation? This is the main question for resolution in this petition for review on certiorari of the Amended Decision1 of the Court of Appeals (CA) affirming the Decision2 of the Regional Trial Court (RTC).G. Petitioner David Lao alleged that he acquired 446 shares in PFSC from his father. 1998.T. in view of the foregoing premises. the RTC ratiocinated: . Lao Pong Bao. in which they are named as stockholders and directors of the corporation.. the petition with the SEC was transferred to the RTC in Cebu City and docketed as Civil Case No. transferring jurisdiction over all intra-corporate disputes from the SEC to the RTC. to be issued certificates of stock of said corporation and to be allowed to exercise rights of stockholders of the same corporation.R. The Facts On October 15. Pursuant to the law. petitioners. alleged that he acquired 333 shares from respondent Dionisio Lao himself. issuance of certificates of shares in their name and to be allowed to examine the corporate books of PFSC. R. 2000.9 In denying the petition. vs. judgment is hereby rendered by the Court in these cases: (a) Denying the petition of David C. Republic Act 8799. namely subscription. petitioners had no right to be issued certificates or stocks or to inspect its corporate books. respondents.

(d) Ordering respondent-appellee to call a stockholders meeting every fourth Saturday of January in accordance with the By-Laws of Pacific Foundry shop Corporation. An unrecorded transferee can not enjoy the status of a stockholder. 1986). judgment is hereby rendered modifying the Joint Decision dated December 19. a person who has acquired or purchased shares of stock of a corporation. 707). Until the transfer is registered. must secure such a standing by having the acquisition or transfer recorded in the corporate books (Price & Sulu development Corp. 535). It is also indicated therein that David C. before the transferee can acquire any right as against the corporation other than the right to have the transfer registered (12 Fletcher 339). Lao own 446 and 333 shares. 2001 of the trial court in so far as it relates to Civil Case No. 58 Phil. Martin. Lao is wanting in merit because they have no stock certificates in their names. CEB-25916-SRC by: (a) Declaring that petitioners have owned since 1987 shares of stock in Pacific Foundry Shop Corporation. The Sworn Statements of Uy Lam Tiong. October 8. in PFSC. Lao did not secure such a standing. the petitioners David C. No.12 The CA decision was penned by Justice Arsenio Magpale and concurred in by Justices Sesinando Villon and Enrico Lanzanas. he can not vote nor he voted for (Price & Sulu Development Corp. disposing as follows: WHEREFORE. 61 Phil. or at least notice thereof given to the corporation for the purpose of registration. An unregistered transfer is not valid as against the corporation (Uson vs. Registration is necessary to entitle a person to exercise the rights of a stockholder and to hold office as director or other offices (12 Fletcher 343). thus: The General Information Sheet of PFSC for the years 1987-1998 state that petitioners-appellants David C. G. respectively. 2005. If ever the said petitioners acquired shares of stock of the corporation. premises considered. as we very well know. vs. So. there is a need for their acquisition of said shares to be registered in the Stock and Transfer Book of the corporation. Consequently. as President of Pacific Foundry Shop Corporation. L-57586. also state that . (c) Ordering respondent-appellee. xxxx Secondly. A stock certificate. the claim or contention of the petitioners David C. former corporate secretary of the PFSC. in the cases at bench. Lao and 333 for petitioner-appellant Jose C. Lao occupied various key positions in PFSC from 1987-1998 and Jose C. Lao and Jose C. the transferee is not a stockholder but an outsider (Rivera vs. That is why it is explicitly provided in Section 63 of the Corporation Code of the Philippines that no transfer of shares of stock shall be valid until the transfer is recorded in the books of the corporation. In modifying the RTC decision. CA Disposition On May 27. Lao and Jose C. supra). Lao and Jose C Lao do not appear to have become registered stockholders of Pacific Foundry Shop corporation. the petitioners David C. numbering 446 for petitioner-appellant David C. vs.x x x Thus. to allow petitionersappellants to exercise their rights as stock holders. the appellate court gave credence to the General Information Sheet submitted by petitioners that names them as stockholders of PFSC. Unfortunately. their petition to be recognized as stockholders of Pacific Foundry Shop Corporation must fail. and who desires to be recognized as stockholder for the purpose of voting and exercising other rights of a stockholder. the CA rendered a Decision11 modifying that of the RTC. A transfer must be registered. Lao served as Director in PFSC from 19901998. (b) Ordering respondent-appellee through the corporate secretary to issue to petitioners-appellants the certificates of stock for the aforementioned number of shares. Lao. Florendo.10 Petitioners appealed to the CA. Lao and Jose C. Diosomito.R. Martin. is the evidence of ownership of corporate stock. as they do not appear to have acquired shares of stock of the corporation either as subscribers or by purchase from a holder of outstanding shares or by purchase from the corporation of additionally issued shares.

Lao was nominated and elected Director of PFSC. Hipolito Lao and Dionisio Lao. Lao claims that he acquired his 446 shares through his father. They did not adduce evidence that would indubitably show that there was indeed a valid transfer of stocks. own shares of stock numbering 446 and 333. The CA stated: Petitioners-appellants maintain that they acquired their shares of stocks through transfer .petitioners-appellants David C. the Minutes of the Meeting of the Board of Directors of PFSC at its Office at Hipodromo. Cebu City with respect to Civil Case No. Withal. when the latter purchased said shares from Hipolito Lao. Jose C. disclose that petitioner-appellant David C. Branch 11. Thus. respectively. 2005 Decision of this Court is hereby SET ASIDE and the Decision of the Regional Trial Court. 1988.the third mode mentioned by the trial court. Lao and as such is reflected in PFSC's Stock and Transfer Book x x x. nonetheless the ponente voluntarily inhibits himself from further handling this case in order to free the entire court of the slightest suspicion of bias and prejudice against the respondent-appellee. Lao. Justice Magpale stated: Although the undersigned ponente does not agree with the imputations of respondent-appellee and that the same are not any of those grounds mentioned in Rule 137 of the Revised Rules of Court. with a fallo reading: IN VIEW OF THE FOREGOING. they merely relied on the General Information Sheets submitted to the Securities and Exchange Commission for the year 1987 to 1998. Lao was able to show conformity with the aforementioned requirements. endorsement and delivery. from resolving his pending motion for reconsideration. respondent moved to inhibit15 the ponente of the CA decision. Lao and Jose C. Justice Magpale issued a Resolution16 voluntarily inhibiting himself from further participating in the resolution of the pending motion for reconsideration. The minutes of the Annual Stockholders Meeting of PFSC on January 28. the transfer made by Hipolito Lao of the 446 shares of stocks to Dionisio C. 1988 at 3:00 o'clock p. Lao asserts that he acquired his 333 shares through Dionisio C. 2005. On July 11. the May 27. Both minutes were signed by the officers of PFSC including respondent-appellee. Neither was the transfer registered in PFSC's Stock and Transfer Book. David C. No proof was ever shown that there was endorsement and delivery to him of the stock certificates representing the 446 shares of Hipolito Lao.m. Lao was elected vice-president of PFSC. Lao himself from the original 1. David C. shows that among those present were petitioners-appellants David C. petitioner-appellant David C. 2005. David C. On July 22. Lao and Jose C. on January 28.m. 25916-SRC is hereby AFIRMED in toto. Conversely. from the transferors. as well as on the Minutes of the Stockholders Meeting and Board of Directors Meeting held on January 28. During the said meeting. Dionisio C. Lao utterly failed to confute the argument posited by respondent-appellee or demonstrate compliance with any of the statutory requirements as to warrant a favorable ruling on his part. Justice Magpale.19 The Amended Decision was penned by Justice Enrico Lanzanas and concurred in by Justices Sesinando Villon and Vicente Yap. it is a rule that private transactions are presumed to have been faire and regular and that the regular course of business is presumed to have been followed. Petitioner-appellants asseverations are unavailing.13 Respondent filed a motion for reconsideration14 of the CA decision. the CA rendered an Amended Decision18 affirming that of the RTC. Lao is deemed to have been valid and well-founded unless proven otherwise. Lao. i. per corporate records of PFSC. Accordingly. In fact. 1988 at 4:00 p. Lao Pong Bao. it is but logical to conclude that the certificate of stock covering 446 shares of Hipolito Lao was in fact endorsed and delivered to Dionisio C.e. to them as transferees. To substantiate their statements. xxxx To our mind.333 shares of stocks of the latter.17 Amended Decision On August 31. 2005. On the other hand. Lao's mere allegation that Dionisio Lao illegally appropriated upon himself the 446 shares failed to hurdle such . Cebu City.

in effect. as amended. the presumption remains that private transactions have been fair and regular.presumption. mentioned by Justice Magpale in his ponencia. There is also no evidence on record that would clearly establish how he acquired said shares of PFSC. the Minutes of the Annual Stockholders Meeting of PFSC on January 28. as basis for disqualification. Voluntary inhibition is within the sound discretion of a judge. respectively. Lao. bad faith. and that (c) petitioners had been directors and officers of the corporation. former Corporate Secretary. et al. The General Information Sheets and the Minutes of the Meetings adduced by petitionersappellants do not prove such allegation of fraud or deceit. and decisions of this Honorable Court.22 Essentially. 1988. 4. . Lao was reflected by the Certificate of Stock as well as in PFSC's Stock and Transfer Book. Lao failed to show that there was endorsement and delivery to him of the stock certificates or any documents showing such transfer or assignment. 5. Whether or not respondent is stopped from questioning petitioners' ownership of stocks in the corporation in view of his admissions and representations in the General Information Sheets he submitted to the Securities and Exchange Commission from 1987 to 1998 that petitioners were stockholders and officers of the corporation. v. The party alleging the same has the burden of proof to present evidence necessary to establish his claim. Lao could not be considered a stockholder of PFSC in the absence of support reflecting his right to the 333 shares other than the inclusion of his name in the General Information Sheets from 1987 to 1998 and the Minutes of the Stockholder's Meeting and Board of Director's Meeting. 2. 1988. as well as the Sworn Statement of Uy Lam Tiong. Whether or not the admissions and representations of respondent in the General Information Sheets submitted by him to the Securities and Exchange Commission during the years 1987 to 1998 that (a) petitioners were stockholders of Pacific Foundry Shop Corporation. and the Minutes of Meeting of the Board of Directors on January 28. thus: 1. Whether or not determination of ownership of shares of stock in a corporation shall be based on the Stock and Transfer Book alone. Securities and Exchange Commission. Issues Petitioners raise five (5) issues for Our consideration.20 Petitioners moved for reconsideration but their motion was denied. are sufficient proof of petitioners ownership of stocks in the corporation. the 333 shares being claimed by him is still under the name of Dionisio C. In this jurisdiction. only two (2) issues are raised in this petition. 3. People of the Philippines. Whether or not the inhibition of Justice Arsenio J. Whether or not the inhibition of Justice Magpale constitutes. the present petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure. Our Ruling We deny the petition. We find his position identically situated with David C. or other evidence can be considered pursuant to the decision of thisHonorable Court in Tan v.21 Hence. Lao and Jose C. The first concerns the voluntary inhibition of Justice Magpale. Magpale is proper when there is no "extrinsic evidence of bias. In the absence thereof. malice. Jose C. 276 SCRA 243 [1997]. Rule 7 of the Rules of Court. Corollary. or corrupt purpose" on the part of Justice Magpale. As for the alleged shares of Jose C. Lao owned 446 and 333 shares in the corporation. forum shopping. Lao. which is required by this Honorable Court in its decision in Webb. Jose C. In fact. that (b) petitioner David C. which is proscribed under Section 5. while the second involves the substantive issue of whether or not petitioners are indeed stockholders of PFSC. neither fraud nor evil is presumed and the record does not show either as to establish by clear and sufficient evidence that may lead Us to believe such allegation. unfortunately however petitioners failed to do so. 206 SCRA 740.

It does not follow that petitioners would be better off were it not for the voluntary inhibition. or otherwise. impartial. or in which he is related to either party within the sixth degree of consanguinity or affinity. they failed to prove possession. water under the bridge. petitioners must prove. or in which he has presided in any inferior court when his ruling or decision is the subject of review. Here. They claim purchasing shares in PFSC. instead of voluntarily inhibiting himself from the case. or to counsel within the fourth degree.24 It is prima facie evidence that the holder is a shareholder of a corporation. is pecuniarily interested as heir. at the very least. and independent. legatee. Again. Petitioners failed to prove that they are shareholders of PSFC. between Lao Pong Bao and Hipolito Lao. The Amended Decision is too far removed from the issue of voluntary inhibition. It is highly specious to assume that Justice Magpale would have ruled in favor of petitioners on the pending motion for reconsideration if he took a different course and opted to stay on with the case. Petitioner David Lao alleges that he acquired 446 shares in the corporation from his father. or any similar instrument. We agree with petitioners that it may seem unpalatable and even revolting when a losing party seeks the disqualification of a judge who had previously ruled against him in the hope that a new judge might be more favorable to him. possession of the certificates of shares in the name of the alleged seller. Nor is there any written document that there was a sale of shares. It is also illogical to presume that the Amended Decision would not have been issued with or without the participation of Justice Magpale."23 We certainly cannot nullify the decision of Justice Magpale recusing himself from the case because that is a matter left entirely to his discretion. without the written consent of all parties in interest. or counsel. in the exercise of his sound discretion.Petitioners claim that the motion to inhibit Justice Magpale from resolving the pending motion for reconsideration was improper and unethical. worse. Petitioners insist that they are shareholders of PFSC. as claimed by petitioners. alleges that he acquired 333 shares from respondent Dionisio Lao. Section 63 of the Corporation Code provides: . disclose that petitioners have no certificates of shares in their name. which shares were previously purchased from a certain Hipolito Lao. guardian. That Justice Magpale opted to voluntarily recuse himself from the appealed case is already fait accompli. Petitioners did not present any deed of assignment. on the other hand. Justice Magpale voluntarily inhibited himself "in order to free the entire court [CA] of the slightest suspicion of bias and prejudice x x x. in popular idiom. It is. constituted proscribed forum shopping. the law leaves to the sound discretion of the judge the decision to decide for himself the question of whether or not he will inhibit himself from the case. creditor. Absent a written document. . Records. A certificate of stock is the evidence of a holder's interest and status in a corporation. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. But We cannot take that basic proposition too far. disinterested. however. No judge should preside in a case in which he feels that he is not wholly free. administrator. Rule 137 of the Rules of Court provides: Section 1. They argue that Justice Magpale should have resolved the pending motion. They failed to prove the due delivery of the certificates of shares of the sellers to them. signed by them and entered upon the record.No judge or judicial officer shall sit in any case in which he. In cases of voluntary inhibition. or in which he has been executor. or his wife or child. Petitioner Jose Lao. computed according to the rules of the civil law. There is likewise no deed of assignment between petitioner Jose Lao and private respondent Dionisio Lao. Petitioners cannot bank on his voluntary inhibition to nullify the Amended Decision later issued by the appellate court. A judge may. Lao Pong Bao. Nor can We fault him for doing so. Disqualification of judges. for just or valid reasons other than those mentioned above. Section 1. They assert that the "bias and prejudice" grounds alleged by private respondent were unsubstantiated and. disqualify himself from sitting in a case. or between Lao Pong Bao and petitioner David Lao. trustee.

that document alone does not conclusively prove that they are shareholders of PFSC. their petition should be denied. the burden would have been with PFSC to prove that they are not shareholders of the corporation. the petition is DENIED and the appealed Amended Decision AFFIRMED IN FULL. and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. shall be valid. cannot give rise to any vested right. no matter how long continued. until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction. They claim that respondent is now estopped from contesting the General Information Sheet.The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president.26 It should be stressed that the burden of proof is on petitioners to show that they are shareholders of PFSC. These circumstances are more in accord with the valid transfer contemplated by Section 63 of the Corporation Code. The certificates of stocks were also properly endorsed to him.25 The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that they are shareholders of the company. Hence. This is so because they do not have any certificates of shares in their name. We note that petitioners agreed to submit their case for decision based merely on the documents on record. As between the General Information Sheet and the corporate books. Absent any documentary or testimonial evidence. countersigned by the secretary or assistant secretary. Dionisio C. the transfer was duly registered in the stock and transfer book of the corporation. All told. Petitioners bank heavily on the General Information Sheet submitted by PFSC to the SEC in which they were named as shareholders of PFSC. respondent was able to prove that he is the owner of the disputed shares. respondent has proven his right over the disputed shares. it was Hipolito Lao who properly endorsed said certificates to herein Dionisio Lao and that such transfer was registered in PFSC's Stock and Transfer Book. Certificate of stock and transfer of shares. As correctly ruled by the CA: We agree with the trial court that mere inclusion in the General Information Sheets as stockholders and officers does not make one a stockholder of a corporation. . While it may be true that petitioners were named as shareholders in the General Information Sheet submitted to the SEC. Petitioners-appellants never secured such a standing as stockholders of PFSC and consequently. He had in his possession the certificates of stocks of Hipolito Lao. they do not appear in the corporate books as registered shareholders." If a transferee of shares of stock who failed to register such transfer in the Stock and Transfer Book of the Corporation could not exercise the rights granted unto him by law as stockholder. WHEREFORE. as between the parties. No transfer. The information in the document will still have to be correlated with the corporate books of PFSC. If they had certificates of shares. As discussed. Thus. expediency or negligence. Lao. it is the latter that is controlling. the number of the certificate or certificates and the number of shares transferred.Sec. As professed by respondent-appellee. with more reason that such rights be denied to a person who is not a stockholder of a corporation. . As correctly ruled by the CA: Au contraire. 63. This maybe against the law but "practice. this was done merely to comply with the reportorial requirements with the SEC. for this may have come to pass by mistake. We agree with the RTC and CA decision that petitioners are not shareholders of PFSC. Notably. Lao was able to show through competent evidence that he is undeniably the owner of the disputed shares of stocks being claimed by David C. More importantly. He was able to validate that he has the physical possession of the certificates covering the shares of Hipolito Lao. petitioners failed to hurdle their burden. There is no written document evidencing their claimed purchase of shares. Moreover. the date of the transfer. however. no testimonial evidence was presented to prove the alleged purchase of shares. SO ORDERED. the bare assertion of petitioners that they are shareholders cannot prevail. In contrast. except as between the parties.

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