Name: Santhea Bernadette G.

Trozo

Title: OSCAR C. REYES, vs. HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142,
ZENITH INSURANCE CORPORATION, and RODRIGO C. REYES
Citation: G.R. No. 165744; August 11, 2008

FACTS:
Petitioner and private respondent were siblings together with two others, namely Pedro
and Anastacia, in a family business established as Zenith Insurance Corporation (Zenith), from
which they owned shares of stocks. The Pedro and Anastacia subsequently died. The former had
his estate judicially partitioned among his heirs, but the latter had not made the same in her
shareholding in Zenith. Zenith and Rodrigo filed a complaint with the Securities and Exchange
Commission (SEC) against petitioner (1) a derivative suit to obtain accounting of funds and
assets of Zenith, and (2) to determine the shares of stock of deceased Pedro and Anastacia that
were arbitrarily and fraudulently appropriated [by Oscar, and were unaccounted for].
In his answer with counterclaim, petitioner denied the illegality of the acquisition of
shares of Anastacia and questioned the jurisdiction of SEC to entertain the complaint because it
pertains to settlement of [Anastacia’s] estate. The case was transferred to. Petitioner filed Motion
to Declare Complaint as Nuisance or Harassment Suit and must be dismissed. RTC denied the
motion. The motion was elevated to the Court of Appeals by way of petition for certiorari,
prohibition and mandamus, but was again denied.

ISSUES:
(1) Whether or not Rodrigo may be considered a stockholder of Zenith with respect to the
shareholdings originally belonging to Anastacia.
(2) Whether or not there is an intra-corporate relationship between the parties that would
characterize the case as an intra-corporate dispute.

RULINGS:
(1) No. Rodrigo must, hurdle two obstacles before he can be considered a stockholder of Zenith
with respect to the shareholdings originally belonging to Anastacia. First, he must prove that
there are shareholdings that will be left to him and his co-heirs, and this can be determined only
in a settlement of the decedent’s estate. No such proceeding has been commenced to date.
Second, he must register the transfer of the shares allotted to him to make it binding against the
corporation. He cannot demand that this be done unless and until he has established his specific
allotment (and prima facie ownership) of the shares. Without the settlement of Anastacia’s
estate, there can be no definite partition and distribution of the estate to the heirs. Without the
partition and distribution, there can be no registration of the transfer. And without the
registration, we cannot consider the transferee-heir a stockholder who may invoke the existence
of an intra-corporate relationship as premise for an intra-corporate controversy within the
jurisdiction of a special commercial court. The subject shares of stock (i.e., Anastacia’s shares)
are concerned – Rodrigo cannot be considered a stockholder of Zenith.

(2) No. Court cannot declare that an intra-corporate relationship exists that would serve as basis
to bring this case within the special commercial court’s jurisdiction under Section 5(b) of PD
902-A, as amended because Rodrigo’s complaint failed the relationship test above.
Name: Santhea Bernadette G. Trozo
Title: POWER HOMES UNLIMITED CORPORATION, vs. SECURITIES AND EXCHANGE
COMMISSION AND NOEL MANERO
Citation: G.R. No. 164182; February 26, 2008

FACTS:

Petitioner filed this petition for review after the Court of Appeals denied its petition for
lack of merit and affirmed in toto Public Respondent’s Cease and Desist Order.
Petitioner is a domestic corporation duly registered with Public Respondent SEC, and is
engaged in the transaction of promoting, acquiring, managing, leasing, obtaining options on,
development, and improvement of real estate properties for subdivision and allied purposes, and
in the purchase, sale and/or exchange of said subdivision and properties through network
marketing.

Public Respondent SEC acted on the letters of Respondent Noel Manero and a certain
Romulo Munsayac, Jr. Manero alleged that in a seminar he attended, Petitioner claimed that it
sells properties that were inexistent and without any broker’s license. Munsayac on the other
hand, inquired whether Petitioner’s business is legitimate or not.
After investigation, Public Respondent SEC found out that Petitioner is engaged in the
sale or offer for sale or distribution of investment contracts, which are considered securities
under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation Code), but failed
to register them in violation of Sec. 8.1 of the same Act, Public Respondent SEC issued a Cease
and Desist Order against Petitioner.

ISSUES:

1. Whether or not Public Respondent SEC followed due process in the issuance of the
assailed Cease and Desist Order;
2. Whether or not 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.

RULING:
1. The Court held that Petitioner was not denied of due process. The records reveal that
Public Respondent SEC properly examined petitioners business operations when it (1)
called into conference three of petitioners incorporators, (2) requested information from
the incorporators regarding the nature of petitioners business operations, (3) asked them
to submit documents pertinent thereto, and (4) visited petitioners business premises and
gathered information thereat. All these were done before the CDO was issued by the
Public Respondent SEC.

2. The Court ruled that Petitioner’s business constitutes an investment contract, thus, should
be registered with Public Respondent SEC before its sale or offer for sale of distribution
to the public.

To determine whether a transaction falls within the scope of an investment contract, the
Court made use of the Howey Test which provides that an investment contract requires a
transaction, contract, or scheme whereby a person: (1) makes an investment of money, (2)
in a common enterprise, (3) with the expectation of profits, (4) to be derived solely from
the efforts of others.

Ciiting SEC v. Glenn W. Turner Enterprises, Inc. et al., the Court therefore ruled that the
business operation or the scheme of Petitioner constitutes an investment contract that is a
security under R.A. No. 8799. Thus, it must be registered with Public Respondent SEC
before its sale or offer for sale or distribution to the public. As petitioner failed to register
the same, its offering to the public was rightfully enjoined by Public Respondent
SEC. The CDO was proper even without a finding of fraud.
Name: Santhea Bernadette G. Trozo
Title: CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE COMPANY OF THE
PHILIPPINES, INC
Citation: GR No. 171815; August 7, 2007

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, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had
passed resolutions to sell to Cemco BCI’sstocks in UCHC equivalent to 21.31% and ACC’s
stocks in UCHC equivalent to 29.69%.

As a consequence of this disclosure, the PSE 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. The SEC en banc had
resolved that the Cemco transaction was not covered by the tender offer rule. Feeling aggrieved
by the transaction, respondent National Life Insurance Company of the Philippines, Inc., a
minority stockholder of UCC, sent a letter toCemco demanding the latter to comply with the rule
on mandatory tender offer. Cemco, however, refused.

Respondent National Life Insurance Company of the Philippines, Inc. 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. On petition to the Court of Appeals, the CA
rendered a decision affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to
render the questioned decision and, in any event, Cemcowas barred by estoppel from questioning
the SEC’s jurisdiction.

ISSUES:
1. 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.
 2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of
shares in a listed company, in this case, the indirect acquisition by Cemco of 36% of UCC,
a publicly-listed company, through its purchase of the shares in UCHC, a non-listed
company.

HELD:

1. YES. 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 was acting
pursuant to Rule 19(13) of the Amended Implementing Rules and Regulations of the
Securities Regulation Code, to wit:
“13. 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, the Commission, upon complaint, may nullify the said acquisition
and direct the holding of a tender offer. This shall be without prejudice to the
imposition of other sanctions under the Code.”

The foregoing rule emanates from the SEC’s power and authority to regulate, investigate
or supervise the activities of persons to ensure compliance with the Securities Regulation
Code, more specifically the provision on mandatory tender offer under Section 19 thereof.
Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It must be
pointed out that petitioner had participated in all the proceedings before the SEC and had
prayed for affirmative relief.

2. YES. 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. [12] A public company is
defined as a corporation which is listed on an exchange, or a corporation with assets
exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding
not less than 100 shares of such company. [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. [14] Tender offer is in place to protect minority
shareholders against any scheme that dilutes the share value of their investments. It gives the
minority shareholders the chance to exit the company under reasonable terms, giving them the
opportunity to sell their shares at the same price as those of the majority shareholders.

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. Whatever may be the method by which control of a
public company is obtained, either through the direct purchase of its stocks or through an
indirect means, mandatory tender offer applies.
Name: Santhea Bernadette G. Trozo
Title: SECURITIES AND EXCHANGE COMMISSION, vs. INTERPORT RESOURCES
CORPORATION
Citation: G.R. No. 135808; October 6, 2008

FACTS:

On 6 August 1994, the Board of Directors of IRC approved a Memorandum of

Agreement with Ganda Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC
acquired 100% or the entire capital stock of Ganda Energy Holdings, Inc. (GEHI), which would
own and operate a 102 megawatt (MW) gas turbine power-generating barge. The agreement also
stipulates that GEHI would assume a five-year power purchase contract with National Power
Corporation. At that time, GEHI's power-generating barge was 97% complete and would go on-
line by mid-September of 1994. In exchange, IRC will issue to GHB 55% of the expanded
capital stock of IRC amounting to 40.88 billion shares which had a total par value of P488.44
million.

On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing
Club, Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in Makati. Under the
Agreement, GHB, a member of the Westmont Group of Companies in Malaysia, shall extend or
arrange a loan required to pay for the proposed acquisition by IRC of PRCI.

IRC alleged that on 8 August 1994, a press release announcing the approval of the
agreement was sent through facsimile transmission to the Philippine Stock Exchange and the
SEC, but that the facsimile machine of the SEC could not receive it. Upon the advice of the SEC,
the IRC sent the press release on the morning of 9 August 1994.

The SEC averred that it received reports that IRC failed to make timely public disclosures
of its negotiations with GHB and that some of its directors, respondents herein, heavily traded
IRC shares utilizing this material insider information. On 16 August 1994, the SEC Chairman
issued a directive requiring IRC to submit to the SEC a copy of its aforesaid Memorandum of
Agreement with GHB. The SEC Chairman further directed all principal officers of IRC to appear
at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain IRC's
failure to immediately disclose the information as required by the Rules on Disclosure of
Material Facts.

ISSUES:
1. Do sections 8, 30, and 36 of the Revised Securities Act require the enactment of implementing
rules to make them binding and effective? No.
2. Does the right to cross-examination be demanded during investigative proceedings before the
PED? No.

3. May a criminal case still be filed against the respondents despite the repeal of Sections 8, 30,
and 36 of the Revised Securities Act? Yes.

4. Did SEC retain the jurisdiction to investigate violations of the Revised Securities Act, re-
enacted in the Securities Regulations Code, despite the abolition of the PED? Yes.

5. Does the instant case prescribed already? No.

6. Is CA justified in denying SEC’s Motion for Leave to Quash SEC Omnibus Orders? Yes.

RULING:
The petition is impressed with merit.
1) Sections 8, 30, and 36 of the Revised Securities Act (RSA) do not require the enactment of
implementing rules to make them binding and effective.
 The mere absence of implementing rules cannot effectively invalidate provisions of law,
where a reasonable construction that will support the law may be given.
 Absence of any constitutional or statutory infirmity, which may concern Secs 30 and 36
of RSA, the provisions are legal and binding.
 Every law has in its favor the presumption of validity. Unless and until a specific
provision of the law is declared invalid and unconstitutional, the same is valid and
binding for all intents and purposes.
 The Court does not discern any vagueness or ambiguity in Sec 30 and 36 of RSA
o Sec 30 – Insider’s duty to disclose when trading
 Insiders are obligated to disclose material information to the other party or
abstain from trading the shares of his corporation. This duty to disclose or
abstain is based on two factors:
1. the existence of a relationship giving access, directly or indirectly, to
information intended to be available only for a corporate purpose and
not for the personal benefit of anyone
2. the inherent unfairness involved when a party takes advantage of such
information knowing it is unavailable to those with whom he is
dealing.
 The intent of the law is the protection of investors against fraud,
committed when an insider, using secret information, takes advantage of
an uninformed investor.
 In some cases, however, there may be valid corporate reasons for
nondisclosure of material information. Where such reasons exist, an
issuer’s decision not to make any public disclosures is not ordinarily
considered as a violation of insider trading. At the same time, the
undisclosed information should not be improperly used for non-corporate
purposes, particularly to disadvantage other persons with whom an insider
 might transact, and therefore the insider must abstain from entering into
transactions involving such securities.
o Sec 36 – Directors, officers and principal stockholders
 A straightforward provision that imposes upon:
1. a beneficial owner of more than 10 percent of any class of any equity
security or
2. a director or any officer of the issuer of such security
the obligation to submit a statement indicating his or her ownership of the
issuer’s securities and such changes in his or her ownership.
 Sections 30 and 36 of the RSA were enacted to promote full disclosure in the securities
market and prevent unscrupulous individuals, who by their positions obtain non-public
information, from taking advantage of an uninformed public.
 Sec 30 prevented the unfair use of non-public information in securities transactions,
while Sec 36 allowed the Sec to monitor the transactions entered into by corporate
officers and directors as regards the securities of their companies.
 The lack of implementing rules cannot suspend the effectivity of these provisions.

2) The right to cross-examination is not absolute and cannot be demanded during investigative
proceedings before the PED.
 Sec 4, Rule 1 of the PED Rules of Practice and Procedure, categorically stated that the
proceedings before the PED are summary in nature, not necessarily adhering to or
following the technical rules of evidence obtaining in the courts of law
 Rule V – Submission of documents, determination of necessity of hearing and disposition
of case.
o A formal hearing was not mandatory, it was within the discretion of the Hearing
Officer whether there was a need for a formal hearing
o Since the holding of a hearing before the PED is discretionary, then the right to
cross-examination could not have been demanded by either party.
 Chapter 3, Book VII of the Administrative Code refers to “Adjudication” and does not
affect the investigatory functions of the agencies.
 The law creating PED empowers it to investigate violations of the rules and regulations
promulgated by the SEC and to file and prosecute such cases.
o It fails to mention any adjudicatory functions insofar as the PED is concerned.
Thus, PED Rules of Practice need not comply with the provisions of the
Administrative Code on adjudication.
o The only powers which the PED was likely to exercise over the respondents were
investigative in nature
 In proceedings before administrative or quasi-judicial bodies, such as NLRC and POEA,
created under laws which authorize summary proceedings, decisions may be reached on
the basis of position papers or other documentary evidence only. They are not bound by
technical rules of procedure and evidence. It is enough that every litigant be given
reasonable opportunity to appear and defend his right and to introduce relevant evidence
in his favour, to comply with the due process requirements.
3) The Securities Regulation Code (SRC) did not repeal Sections 8, 30, and 36 of the Revised
Securities Act since said provisions were re-enacted in the new law.
 when the repealing law punishes the act previously penalized under the old law, the act
committed before the re-enactment continues to be an offense and pending cases are not
affected.
o Sec 8 of RSA, which previously provided for the registration of securities and the
information that needs to be included in the registration statements, was expanded
under Sec 12 of the Securities Regulations Code. Further details of the
information required to be disclosed by the registrant are explained.
o Sec 30 of RSA has been re-enacted as Sec 27 of SRC, still penalizing an insider’s
misuse of material and non-public information about the issuer, for the purpose of
protecting public investors
o Sec 23 of SRC was practically lifted from Sec 36 of RSA.
 The legislature had not intended to deprive the courts of their authority to punish a person
charged with violation of the old law that was repealed

4) The SEC retained the jurisdiction to investigate violations of the Revised Securities Act, re-
enacted in the Securities Regulations Code, despite the abolition of the PED.
 Sec 53 of SRC clearly provides that criminal complaints for violations of rules and
regulations enforced or administered by SEC shall be referred to the DOJ for preliminary
investigation, while the SEC nevertheless retains limited investigatory powers. SEC may
still impose the appropriate administrative sanctions under Sec 54.

5) The instant case has not yet prescribed.

 Respondents point out that the prescription period applicable to offenses punished under
special laws is 12 years. Since the offense was committed in 1994, they reasoned that
prescription set in as early as 2006 and rendered this case moot.
 It is an established doctrine that a preliminary investigation interrupts the prescription
period. A preliminary investigation is essentially a determination whether an offense has
been committed, and whether there is probable cause for the accused to have committed
as offense.
6) The CA was justified in denying SEC’s Motion for Leave to Quash SEC Omnibus Orders
dated 23 October 1995.
 Since it found other issues that were more important than whether or not the PED was the
proper body to investigate the matter, CA denied SEC’s motion for leave to quash SEC
Omnibus Orders.