1. G.R. No.
L-64013 November 28, 1983 Thus, with respect to said first cause of action, respondent Hofileña prayed
UNION GLASS & CONTAINER CORPORATION and CARLOS PALANCA,
JR., in his capacity as President of Union Glass & Container
Corporation, petitioners,
vs.
THE SECURITIES AND EXCHANGE COMMISSION and CAROLINA
HOFILEÑA, respondents.
Carolina Hofileña, a stockholder of Pioneer Glass Manufacturing Corporation
(a domestic corporation engaged in the operation of silica mines and the
manufacture of glass and glassware.) Since 1967, Pioneer Glass had obtained
various loan accommodations from the Development Bank of the Philippines
[DBP], and also from other local and foreign sources which DBP guaranteed.
As security for said loan accommodations, Pioneer Glass mortgaged its assets
to the DBP.The proceeds of said financial exposure of the DBP were used in
the construction of a glass plant in Rosario, Cavite, and the operation of seven
silica mining claims owned by the corporation.
Because of the accumulated unpaid interests, DBP was able to gain control of
the outstanding shares of common stocks of Pioneer Glass and three regular
seats in the corporation's board of directors.
When Pioneer Glass suffered serious liquidity problems such that it could no
longer meet its financial obligations with DBP, it entered into a dacion en pago
agreement with the latter, whereby all its assets mortgaged to DBP were ceded
to the latter in full satisfaction of the corporation's obligations in the total
amount of P59,000,000.00. Part of the assets transferred to the DBP was the
glass plant in Rosario, Cavite, which DBP leased and subsequently sold to
Union Glass.
Carolina Hofileña filed a complaint before the Securities and Exchange
Commission against the DBP, Union Glass and Pioneer Glass,
Of the five causes of action pleaded therein, only the first cause of action
concerned petitioner Union Glass as transferee and possessor of the glass
plant. Said first cause of action was based on the alleged illegality of the
aforesaid dacion en pago resulting from: [1] the supposed unilateral and
unsupported undervaluation of the assets of Pioneer Glass covered by the
agreement; [2] the self-dealing indulged in by DBP, having acted both as
stockholder/director and secured creditor of Pioneer Glass; and [3] the
wrongful inclusion by DBP in its statement of account of P26M as due from
Pioneer Glass when the same had already been converted into equity.
that the SEC issue an order:têñ.£îhqwâ£
1. Holding that the so called dacion en pago conveying all the
assets of Pioneer Glass and the Hofileña personal properties
to Union Glass be declared null and void on the ground that
the said conveyance was tainted with.têñ.£îhqwâ£
A. Self-dealing on the part of DBP which was
acting both as a controlling
stockholder/director and as secured creditor
of the Pioneer Glass, all to its advantage and
to that of Union Glass, and to the gross
prejudice of the Pioneer Glass,
B. That the dacion en pago is void because
there was gross undervaluation of the assets
included in the so-called dacion en pago by
more than 100% to the prejudice of Pioneer
Glass and to the undue advantage of DBP
and Union Glass;
C. That the DBP unduly favored Union Glass
over another buyer, San Miguel Corporation,
notwithstanding the clearly advantageous
terms offered by the latter to the prejudice of
Pioneer Glass, its other creditors and so-
called 'Minority stockholders.'
2. Holding that the assets of the Pioneer Glass taken over by
DBP and part of which was delivered to Union Glass
particularly the glass plant to be returned accordingly.
3. That the DBP be ordered to accept and recognize the
appraisal conducted by the Asian Appraisal Inc. in 1975 and
again in t978 of the asset of Pioneer Glass. 1
ANSWER: (Pioneer Glass)
Pioneer Glass moved for dismissal of the case on the ground that the SEC
had no jurisdiction over the subject matter or nature of the suit.
1
On July 23, 1981, SEC Hearing Officer Eugenio E. Reyes, to whom the case
was assigned, granted the motion to dismiss for lack of jurisdiction. However,
on September 25, 1981, upon motion for reconsideration filed by respondent
Hofileña, Hearing Officer Reyes reversed his original order by upholding the
SEC's jurisdiction over the subject matter and over the persons of petitioners.

ISSUE:

WON SEC has jurisdiction

RULING:
None, reversed.

Union Glass dropped from case w/o prejudice to a separate suit before a
regular court. In the ordinary course of things, Union Glass, should be joined
as party-defendant under the general rule which requires the joinder of every
party who has an interest in or lien on the property subject matter of the
dispute. Such joinder of parties avoids multiplicity of suits.

The fact that the controversy at bar involves the rights of petitioner Union Glass
who has no intra-corporate relation either with complainant or the DBP, places
the suit beyond the jurisdiction of the respondent SEC. The case should be
tried and decided by the court of general jurisdiction, the Regional Trial Court.
This view is in accord with the rudimentary principle that administrative
agencies, like the SEC, are tribunals of limited jurisdiction 6 and, as such, could
wield only such powers as are specifically granted to them by their enabling
statutes.

2
 2. G.R. No. L-63558 May 19, 1987
SPOUSES JOSE ABEJO AND AURORA ABEJO, TELEC. TRONIC
SYSTEMS, INC., petitioners,
vs.
HON. RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT
(NATIONAL CAPITAL JUDICIAL REGION, BRANCH CLX-PASIG),
SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA, VIRGILIO BRAGA
AND NORBERTO BRAGA, respondents.
No. L-68450-51 May 19, 1987
POCKET BELL PHILIPPINES, INC., AGAPITO T. BRAGA, VIRGILIO T.
BRAGA, NORBERTO BRAGA, and VIRGINIA BRAGA, petitioners,
vs.
THE HONORABLE SECURITIES AND EXCHANGE COMMISSION,
TELECTRONIC SYSTEMS, INC., JOSE ABEJO, JOSE LUIS SANTIAGO,
SIMEON A. MIRAVITE, SR., ANDRES T. VELARDE AND L. QUIDATO
BANDOLINO, respondents.
These two cases, jointly heard, are jointly herein decided. They involve the
question of who, between the Regional Trial Court and the Securities and
Exchange Commission (SEC), has original and exclusive jurisdiction over the
dispute between the principal stockholders of the corporation Pocket Bell
Philippines, Inc. (Pocket Bell), a "tone and voice paging corporation," namely,
the spouses Jose Abejo and Aurora Abejo (hereinafter referred to as the
Abejos) and the purchaser, Telectronic Systems, Inc. (hereinafter referred to
as Telectronics) of their 133,000 minority shareholdings (for P5 million) and of
63,000 shares registered in the name of Virginia Braga and covered by five
stock certificates endorsed in blank by her (for P1,674,450.00), and the
spouses Agapito Braga and Virginia Braga (hereinafter referred to as the
Bragas), erstwhile majority stockholders. With the said purchases,
Telectronics would become the majority stockholder, holding 56% of the
outstanding stock and voting power of the corporation Pocket Bell.
With the said purchases in 1982, Telectronics requested the corporate
secretary of the corporation, Norberto Braga, to register and transfer to its
name, and those of its nominees the total 196,000 Pocket Bell shares in the
corporation's transfer book, cancel the surrendered certificates of stock and
issue the corresponding new certificates of stock in its name and those of its
nominees.
Norberto Braga, the corporate secretary and son of the Bragas, refused to
register the aforesaid transfer of shares in t e corporate oo s, asserting that
the Bragas claim preemptive rights over the 133,000 Abejo shares and that
Virginia Braga never transferred her 63,000 shares to Telectronics but had lost
the five stock certificates representing those shares.
This triggered off the series of intertwined actions between the protagonists,
all centered on the question of jurisdiction over the dispute, which were to
culminate in the filing of the two cases at bar.
The Bragas assert that the regular civil court has original and exclusive
jurisdiction as against the Securities and Exchange Commission, while the
Abejos claim the contrary. A summary of the actions resorted to by the parties
follows:
A. ABEJOS ACTIONS IN SEC
1. The Abejos and Telectronics and the latter's nominees, as new majority
shareholders, filed SEC Cases Nos. 02379 and 02395 against the Bragas on
December 17, 1982 and February 14, 1983, respectively.
2. In SEC Case No. 02379, they prayed for mandamus from the SEC ordering
Norberto Braga, as corporate secretary of Pocket Bell to register in their names
the transfer and sale of the aforesaid 196,000 Pocket Bell shares (of the
Abejos 1 and Virginia Braga 2, cancel the surrendered certificates as duly
endorsed and to issue new certificates in their names.
3. In SEC Case No.02395, they prayed for injunction and a temporary
restraining order that the SEC enjoin the Bragas from disbursing or disposing
funds and assets of Pocket Bell and from performing such other acts pertaining
to the functions of corporate officers.
4. Pocket Bell's corporate secretary, Norberto Braga, filed a Motion to Dismiss
the mandamus case (SEC Case No. 02379) contending that the SEC has no
jurisdiction over the nature of the action since it does not involve an
intracorporate controversy between stockholders, the principal petitioners
therein, Telectronics, not being a stockholder of record of Pocket Bell.
5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the
motion. On January 14, 1983, the corporate secretary filed a Motion for
Reconsideration. On March 21, 1983, SEC Hearing Officer Joaquin Garaygay
issued an order granting Braga's motion for reconsideration and dismissed
SEC Case No. 02379.
3
6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction
case, SEC Case No. 02395. On April 8, 1985, the SEC Director, Eugenio
Reyes, acting upon the Abejos'ex-parte motion, created a three-man
committee composed of Atty. Emmanuel Sison as Chairman and Attys. Alfredo
Oca and Joaquin Garaygay as members, to hear and decide the two SEC
cases (Nos. 02379 and 02395).
7. On April 13, 1983, the SEC three-man committee issued an order
reconsidering the aforesaid order of March 21, 1983 of the SEC Hearing
Officer Garaygay (dismissing the mandamus petition SEC Case No. 02379)
and directing corporate secretary Norberto Braga to file his answer to the
petitioner therein.
B. BRAGAS' ACTION IN SEC
8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition
and mandamus with the SEC en banc, SEC Case No. EB #049, seeking the
dismissal of SEC Cases Nos.' 02379 and 02395 for lack of jurisdiction of the
Comn-iission and the setting aside of the various orders issued by the SEC
three-man committee in the course of the proceedings in the two SEC cases.
9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas'
petition in SEC Case No. EB#049 for lack of merit and at the same time
ordering the SEC Hearing Committee to continue with the hearings of the
Abejos and Telectronics SEC Cases Nos. 02379 and 02395, ruhng that the
"issue is not the ownership of shares but rather the nonperformance by the
Corporate Secretary of the ministerial duty of recording transfers of shares of
stock of the corporation of which he is secretary."
10. On May 15, 1984 the Bragas filed a motion for reconsideration but the
SEC en banc denied the same on August 9, 1984.
C. BRAGAS' ACTION IN CFI (NOWRTC)
11. On November 25, 1982, following the corporate secretary's refusal to
register the transfer of the shares in question, the Bragas filed a complaint
against the Abejos and Telectronics in the Court of First Instance of Pasig,
Branch 21 (now the Regional Trial Court, Branch 160) docketed as Civil Case
No. 48746 for: (a) rescission and annulment of the sale of the shares of stock
in Pocket Bell made by the Abejos in favor of Telectronics on the ground that
it violated the Bragas' alleged pre-emptive right over the Abej os'
shareholdings and an alleged perfected contract with the Abejos to sell the
same shares in their (Bragas) favor, (Ist cause of action); plus damages for
bad faith; and (b) declaration ofnullity of any transfer, assignment or
endorsement of Virginia Bragas' stock certificates for 63,000 shares in Pocket
Ben to Telectronics for want of consent and consideration, alleging that said
stock certificates, which were intended as security for a loan application and
were thus endorsed by her in blank, had been lost (2nd cause of action).
12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on
the ground that it is the SEC that is vested under PD 902-A with original and
exclusive jurisdiction to hear and decide cases involving, among others,
controversies "between and among stockholders" and that the Bragas' suit is
such a controversy as the issues involved therein are the stockholders' alleged
pre-emptive rights, the validity of the transfer and endorsement of certificates
of stock, the election of corporate officers and the management and control of
the corporation's operations. The dismissal motion was granted by Presiding
Judge G. Pineda on January 14, 1983.
13. On January 24, 1983, the Bragas filed a motion for reconsideration. The
Abejos opposed. Meanwhile, respondent Judge Rafael de la Cruz was
appointed presiding judge of the court (renamed Regional Trial Court) in place
of Judge G. Pineda.
14. On February 14, 1983, respondent Judge de la Cruz issued an order
rescinding the January 14, 1983 order and reviving the temporary restraining
order previously issued on December 23, 1982 restraining Telectronics' agents
or representatives from enforcing their resolution constituting themselves as
the new set of officers of Pocket Bell and from assuming control of the
corporation and discharging their functions.
15. On March 2, 1983, the Abejos filed a motion for reconsideration, which
motion was duly opposed by the Bragas. On March 11, 1983, respondent
Judge denied the motion for reconsideration.
D. ABEJOS' PETITION AT BAR
16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge
in refusing to dismiss the complaint despite clear lack of jurisdiction over the
action and in refusing to reconsider his erroneous position were performed
without jurisdiction and with grave abuse of discretion, filed their herein Petition
for certiorari and Prohibition with Preliminary Injunction. They prayed that the
challenged orders of respondent Judge dated February 14, 1983 and March
11, 1983 be set aside for lack of jurisdiction and that he be ordered to
permanently desist from further proceedings in Civil Case No. 48746.
Respondent judge desisted from further proceedings in the case, dispensing
with the need of issuing any restraining order.
4
E. BRAGAS' PETITION AT BAR SEC. 3. The Commission shall have absolute jurisdiction,
supervision and control ouer all corporations, partnerships or
17. On August 29, 1984, the Bragas, alleging in turn that the SEC has no associations, who are the grantees of primary franchise
jurisdiction over SEC Cases Nos. 02379 and 02395 and that it acted arbitrarily, and/or a license or permit issued by the government to
whimsically and capriciously in dismissing their petition (in SEC Case No. EB operate in the Philippines; ...
#049) for dismissal of the said cases, filed their herein Petition for certiorari
and Prohibition with Preliminary Injunction or TRO. The petitioner seeks the SEC. 5. In addition to the regulatory and adjudicative
reversal and/or setting aside of the SEC Order dated May 15, 1984 dismissing functions of the Securities and Exchange Commission over
their petition in said SEC Case No. EB #049 and sustaining its jurisdiction over corporations, partnerships and other forms of associations
SEC Cases Nos. 02379 and 02395, filed by the Abejos. On September 24, registered with it as expressly granted under existing laws and
1984, this Court issued a temporary restraining order to maintain the status decrees, it shall have original and exclusive jurisdiction to
quo and restrained the SEC and/or any of its officers or hearing committees hear and decide cases involving:
from further proceeding with the hearings in SEC Cases Nos. 02379 and
02395 and from enforcing any and all orders and/or resolutions issued in a) Devices or schemes employed by or any
connection with the said cases. acts, of the board of directors, business
associations, its officers or partners,
The cases, having been given due course, were jointly heard by the Court on amounting to fruud and
March 27, 1985 and the parties thereafter filed on April 16, 1985 their misrepresentation which may be detrimental
respective memoranda in amplification of oral argument on the points of law to the interest of the public andlor of the
that were crystalled during the hearing, stockholder, partners, members of
associations or organizations registered with
The Court rules that the SEC has original and exclusive jurisdiction over the the Commission.
dispute between the principal stockholders of the corporation Pocket Bell,
namely, the Abejos and b) Controversies arising out of intracorporate
or partnership relations, between and among
Telectronics, the purchasers of the 56% majority stock (supra, at page 2) on stockholders, members, or associates;
the one hand, and the Bragas, erstwhile majority stockholders, on the other, between any andlor all of them and the
and that the SEC, through its en banc Resolution of May 15, 1984 co"ectly corporation, partnership or association of
ruled in dismissing the Bragas' Petition questioning its jurisdiction, that "the which they are stockholders, members or
issue is not the ownership of shares but rather the nonperformance by the assmiates, respectively; and between such
Corporate Secretary of the ministerial duty of recording transfers of shares of corporation, partnership or assmiation and
stock of the Corporation of which he is secretary." the state insofar as it concems their individual
franchise or right to exist as such entity;
1. The SEC ruling upholding its primary and exclusive jurisdiction over the
dispute is correctly premised on, and fully supported by, the applicable c) Controversies in
provisions of P.D. No. 902-A which reorganized the SEC with additional the election or appointments of
powers "in line with the government's policy of encouraging investments, both directors, trustees, officers or managers of
domestic and foreign, and more active publicParticipation in the affairs of such corporations, partnerships or
private corporations and enterprises through which desirable activities may be associations. 3
pursued for the promotion of economic development; and, to promote a wider
and more meaningful equitable distribution of wealth," and accordingly Section 6 further grants the SEC "in order to effectively exercise such
provided that: jurisdiction," the power, inter alia, "to issue preliminary or permanent
injunctions, whether prohibitory or mandatory, in all cases in which it has

5
jurisdiction, and in which cases the pertinent provisions of the Rules of Court
shall apply."
2. Basically and indubitably, the dispute at bar, as held by the SEC, is an
intracorporate dispute that has arisen between and among the principal
stockholders of the corporation Pocket Bell due to the refusal of the corporate
secretary, backed up by his parents as erstwhile majority shareholders, to
perform his "ministerial duty" to record the transfers of the corporation's
controlling (56%) shares of stock, covered by duly endorsed certificates of
stock, in favor of Telectronics as the purchaser thereof. mandamus in the SEC
to compel the corporate secretary to register the transfers and issue new
certificates in favor of Telectronics and its nominees was properly resorted to
under Rule XXI, Section 1 of the SEC's New Rules of Procedure, 4 which
provides for the filing of such petitions with the SEC. Section 3 of said Rules
further authorizes the SEC to "issue orders expediting the proceedings ... and
also [to] grant a preliminary injunction for the preservation of the rights of the
parties pending such proceedings, "
The claims of the Bragas, which they assert in their complaint in the Regional
Trial Court, praying for rescission and annulment of the sale made by the
Abejos in favor of Telectronics on the ground that they had an alleged
perfected preemptive right over the Abejos' shares as well as for annulment of
sale to Telectronics of Virginia Braga's shares covered by street certificates
duly endorsed by her in blank, may in no way deprive the SEC of its primary
and exclusive jurisdiction to grant or not the writ of mandamus ordering the
registration of the shares so transferred. The Bragas' contention that the
question of ordering the recording of the transfers ultimately hinges on the
question of ownership or right thereto over the shares notwithstanding, the
jurisdiction over the dispute is clearly vested in the SEC.
3. The very complaint of the Bragas for annulment of the sales and transfers
as filed by them in the regular court questions the validity of the transfer and
endorsement of the certificates of stock, claiming alleged pre-emptive rights in
the case of the Abejos' shares and alleged loss of thio certificates and lack of
consent and consideration in the case of Virginia Braga's shares. Such dispute
c learly involve's controversies "between and among stockholders, " as to the
Abej os' right to sell and dispose of their shares to Telectronics, the validity of
the latter's acquisition of Virginia Braga's shares, who between the Bragas and
the Abejos' transferee should be recognized as the controlling shareholders of
the corporation, with the right to elect the corporate officers and the
management and control of its operations. Such a dispute and case clearly fag
within the original and exclusive jurisdiction of the SEC to decide, under
Section 5 of P.D. 902-A, above-quoted. The restraining order issued by the
Regional Trial Court restraining Telectronics agents and representatives from
enforcing their resolution constituting themselves as the new set of officers of
Pocket Bell and from assuming control of the corporation and discharging their
functions patently encroached upon the SEC's exclusive jurisdiction over such
specialized corporate controversies calling for its special competence. As
stressed by the Solicitor General on behalf of the SEC, the Court has held that
"Nowhere does the law [PD 902-A] empower any Court of First Instance [now
Regional Trial Court] to interfere with the orders of the Commission," 5 and
consequently "any ruling by the trial court on the issue of ownership of the
shares of stock is not binding on the Commission 6 for want of jurisdiction.
4. The dispute therefore clearly falls within the general classification of cases
within the SEC's original and exclusive jurisdiction to hear and decide, under
the aforequoted governing section 5 of the law. Insofar as the Bragas and their
corporate secretary's refusal on behalf of the corporation Pocket Bell to record
the transfer of the 56% majority shares to Telectronics may be deemed a
device or scheme amounting to fraud and misrepresentation emplolyed by
them to keep themselves in control of the corporation to the detriment of
Telectronics (as buyer and substantial investor in the corporate stock) and the
Abejos (as substantial stockholders-sellers), the case falls under paragraph
(a). The dispute is likewise an intra-corporate controversy between and among
the majority and minority stockholders as to the transfer and disposition of the
controlling shares of the corporation, failing under paragraph (b). As stressed
by the Court in DMRC Enterprises v. Este del Sol Mountain
Reserve, Inc, 7 Considering the announced policy of PD 902-A, the expanded
jurisdiction of the respondent Securities and Exchange Commission under
said decree extends exclusively to matters arising from contracts involving
investments in private corporations, partnerships and associations." The
dispute also concerns the fundamental issue ofwhether the Bragas or
Telectronics have the right to elect the corporate directors and officers and
manage its business and operations, which falls under paragraph (c).
5. Most of the cases that have come to this Court involve those under
paragraph (b), i.e. whether the controversy is an intra-corporate one, arising
"between and among stockholders" or "between any or allof them and the
corporation." The parties have focused their arguments on this question. The
Bragas' contention in his field must likewise fail. In Philex Mining Corp. v.
Reyes, 8 the Court spelled out that"'an intra-corporate controversy is one
which arises between a stockholder and the corporation. There is no
distinction, qualification, nor any exemption whatsoever. The provision is
broad and covers all kinds of controversies between stockholders and
corporations. The issue of whether or not a corporation is bound to replace a
stockholder's lost certificate of stock is a matter purely between a stockholder
and the corporation. It is a typical intra-corporate dispute. The quqsjion of
damage's raised is merely incidental to that main issue. The Court rejected the
stockholders' theory of excluding his complaint (for replacement of a lost stock
[dividend] certificate which he claimed to have never received) from the
6
classification of intra-corporate controversies as one that "does not square with
the intent of the law, which is to segregate from the general jurisdiction of
regular Courts controversies involving corporations and their stockholders and
to bring them to the SEC for exclusive resolution, in much the same way that
labor disputes are now brought to the Ministry-of Labor and Employment
(MOLE) and the National Labor Relations Commission (NLRC), and not to the
Courts."
(a) The Bragas contend that Telectronics, as buyertransferee
of the 56% majority shares is not a registered stockholder,
because they, through their son the corporate secretary,
appear to have refused to perform "the ministerial duty of
recording transfers of shares of stock of the corporation of
which he is the secretary," and that the dispute is therefore,
not an intracorporate one. This contention begs the question
which must properly be resolved by the SEC, but which they
would prevent by their own act, through their son, of blocking
the due recording of the transfer and cannot be sanctioned. It
can be seen from their very complaint in the regular courts
that they with their two sons constituting the plaintiffs are all
stockholders while the defendants are the Abejos who are
also stockholders whose sale of the shares to Telectronics
they would annul.
(b) There can be no question that the dispute between the
Abejos and the Bragas as to the sale and transfer of the
former's shares to Telectronics for P5 million is an
intracorporate one under section 5 (b), prescinding from the
applicability of section 5 (a) and (c), (supra, par. 4) lt is the
SEC which must resolve the Bragas' claim in their own
complaint in the court case filed by them of an alleged pre-
emptive right to buy the Abejos' shares by virtue of "on-going
negotiations," which they may submit as their defense to the
mandamus petition to register the sale of the shares to
Telectronics. But asserting such preemptive rights and asking
that the same be enforced is a far cry from the Bragas' claim
that "the case relates to questions of ownership" over the
shares in question. 9 (Not to mention, as pointed out by the
Abejos, that the corporation is not a close corporation, and no
restriction over the free transferability of the shares appears
in the Articles of Incorporation, as well as in the by-
laws 10 and the certificates of stock themselves, as required
by law for the enforcement of such restriction. See Go Soc &
Sons, etc. v. IAC, G.R. No. 72342, Resolution of February 19,
1987.)
(c) The dispute between the Bragas and Telectronics as to the
sale and transfer for P1,674,450.00 of Virginia Braga's 63.000
shares covered by Street certificates duly endorsed in blank
by her is within the special competence and jurisdiction of the
SEC, dealing as it does with the free transferability of
corporate shares, particularly street certificates," as
guaranteed by the Corporation Code and its proclaimed policy
of encouraging foreign and domestic investments in Philippine
private corpora. tions and more active public participation
therein for the Promotion of economic development. Here
again, Virginia Braga's claim of loss of her street
certificates 11 or theft thereof (denounced by Telectronics as
11 perjurious" 12 ) must be pleaded by her as a defense
against Telectronics'petition for mandamus and recognition
now as the controlling stockholder of the corporation in the
light of the joint affidavit of Geneml Cerefino S. Carreon of the
National Telecommunications Commission and private
respondent Jose Luis Santiago of Telectronics narrating the
facts and circumstances of how the former sold and delivered
to Telectronics on behalf of his compadres, the Bragas,
Virginia Braga's street certificates for 63,000 shares
equivalent to 18% of the corporation's outstanding stock and
received the cash price thereof. 13 But as to the sale and
transfer of the Abejos' shares, the Bragas cannot oust the
SEC of its original and exclusive jurisdiction to hear and
decide the case, by blocking through the corporate secretary,
their son, the due recording of the transfer and sale of the
shares in question and claiming that Telectronics is not a
stockholder of the corporation – which is the very issue that
the SEC is called upon to resolve. As the SEC maintains,
"There is no requirement that a stockholder of a corporation
must be a registered one in order that,the Securities and
Exchange Commission may take cognizance of a suit seeking
to enforce his rights as such stockholder." 14 This is because
the SEC by express mandate has "absolute jurisdiction,
supervision and control over all corporations" and is called
upon to enforce the provisions of the Corporation Code,
among which is the stock purchaser's right to secure the
corresponding certificate in his name under the provisions of
Section 63 of the Code. Needless to say, any problem
encountered in securing the certificates of stock representing
the investment made by the buyer must be expeditiously dealt
with through administrative mandamus proceedings with the
SEC, rather than through the usual tedious regular court
procedure. Furthermore, as stated in the SEC order of April
7
 13, 1983, notice given to the corporation of the sale of the
shares and presentation of the certificates for transfer is
,equivalent to registration: "Whether the refusal of the
(corporation) to effect the same is ivalid or not is still subject
to the outcome of the hearing on the merits of the case. 15
6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in
administrative commissions and boards the power to resolve specialized
disputes in the field of labor (as in corporations, public transportation and
public utilities) ruled that Congress in requiring the Industrial Court's
intervention in the resolution of labor-management controversies likely to
cause strikes or lockouts meant such jurisdiction to be exclusive, although it
did not so expressly state in the law. The Court held that under the "sense-
making and expeditious doctrine of primary jurisdiction ... the courts cannot or
will n6t determine a controversy involving a question which is within the
jurisdiction of an administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the special knowledge,
experience, and seruices of the administratiue tribunal to determine technical
and intricate matters of fact, and a uniformity of ruling is essential to comply
uith the purposes of the regulatory statute administered " 16
In this era of clogged court dockets, the need for specialized administrative
boards or commissions with the special knowledge, experience and capability
to hear and determine promptly disputes on technical matters or essentially
factual matters, subject to judicial review in case of grave abuse of discretion,
has become well nigh indispensable. Thus, in 1984, the Court noted that
"between the power lodged in an administrative body and a court, the
unmistakable trend has been to refer it to the former. 'Increasingly, this Court
has been committed to the view that unless the law speaks clearly and
unequivocably, the choice should fall on [an administrative agency.]' " 17 The
Court in the earlier case of Ebon vs. De Guzman 18 noted that the lawmaking
authority, in restoring to the labor arbiters and the NLRC their jurisdiction to
award all kinds of damages in labor cases, as against the previous P.D.
amendment splitting their jurisdiction with the regular courts, "evidently ... had
second thoughts about depriving the Labor Arbiters and the NLRC of the
jurisdiction to award damages in labor cases because that setup would mean
duplicity of suits, splitting the cause of action and possible conflicting findings
and conclusions by two tribunals on one and the same claim."
7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980
specifically vests the SEC with the Rule-making power in the discharge of its
task of implementing the provisions of the Code and particularly charges it with
the duty of preventing fraud and abuses on the part of controlling stockholders,
directors and officers, as follows:
SEC. 143. Rule-making power of the Securities and
Exchange Commission. — The Securities and Exchange
Commission shall have the power and authority to implement
the provisions of this Code, and to promulgate rules and
regulations reasonably necessary to enable it to perform its
duties hereunder, particularly in the prevention of fraud and
abuses on the part of the controlling stockholders, members,
directors, trustees or officers. (Emphasis supplied)
The dispute between the contending parties for control of thecorporation
manifestly fans within the primary and exclusive jurisdiction of the SEC in
whom the law has reserved such jurisdiction as an administrative agency of
special competence to deal promptly and expeditiously therewith.
As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant
of jurisdiction [in Section 51 must be viewed in the light of the nature and
functions of the SEC under the law. Section 3 of PD No. 902-A confers upon
the latter 'absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are grantees of primary franchise and/or
license or permit issued by the government to operate in the Philippines ... The
principal function of the SEC is the supervision and control over corporations,
partnerships and associations with the end in view that investment in these
entities may be encouraged and protected, and their activities pursued for the
promotion of economic development.
"It is in aid of this office that the adjudicative power of the SEC must be
exercised. Thus the law explicitly specified and delin-dted its jurisdiction to
matters intrinsically connected with the regulation of corporations, partnerships
and associations and those dealing with the internal affairs of such
corporations, partnerships or associations.
"Otherwise stated, in order that the SEC can take cognizance of a case, the
controversy must pertain to any of the following relationships: [al between the
corporation, partnership or association and the public; [b] between the
corporation, partnership or association and its stockholders, partners,
members, or officers; [c] between the corporation, partnership or association
and the state in so far as its franchise, permit or license to operate is
concerned; and Id] among the stockholders, partners or associates
themselves." 20
Parenthetically, the cited case of Union Glass illustrates by way of contrast
what disputes do not fall within the special jurisdiction of the SEC. In this case,
the SEC had properly assumed jurisdiction over the dissenting stockholders'
com. Plaint against the corporation Pioneer Glass questioning its dacion en
8
pago of its glass plant and all its assets in favor of the DBP which was clearly
an intra-corporate controversy dealing with its internal affairs. But the Court
held that the SEC had no jurisdiction over petitioner Union Glass Corp.,
imPle,aded as third party purchaser of the plant from DBP in the action to annul
the dacion en pago. The Court held that such action for recovery of the glass
plant could be brought by the dissenting stockholder to the regular courts only
if and when the SE C rendered final judgment annulling the dacion en
pago and furthermore subject to Union Glass' defenses as a third party buyer
in good faith. Similarly, in the DMRC case, therein petitioner's,tomplaint for
collection of the amounts due to it as payment of rentals for the lease of its
heavy equipment in the form mainly of cash and part in shares of stock of the
debtor-defendant corporation was held to be not covered by the SEC's
exclusive jurisdiction over intracorporate disputes, since "to pass upon a
money claim under a lease contract would be beyond the competence Of the
Securities and Exchange Commission and to separate the claim for money
from the claim for shares of stock would be splitting a single cause of action
resulting in a multiplicity of suitS." 21 Such an action for collection of a debt
does not involve enforcement Of rights and obligations under the Corporation
Code nor the in. temal or intracorporate affairs of the debtor corporation. But
in aR disputes affecting and dealing With the interests of the corporation and
its stockholders, following the trend and clear legislative intent of entmsting all
disputes of a specialized nature to administrative agencies possessing. the
requisite competence, special knowledge, experience and services and
facilities to expeditiously resolve them and determine the essential facts
including technical and intricate matters, as in labor and public utilities rates
disputes, the SEC has been given "the original and exclusive jurisdiction to
hear anddecide" them (under section 5 of P.D. 902-A) "in addition to [its]
regulatory and adjudicative functions" (under Section 3, vesting in it "absolute
jurisdiction, supervision and control over all corporations" and the Rule-making
power granted it in Section 143 of the Corporation Code, supra). As stressed
by the Court in the Philex case, supra, "(T)here is no distinction, qualification,
nor any exemption whatsoever. The provision is broad and covers all kinds of
controversies between stockholders and corporations."
It only remains now to deal with the Order dated April 15, 1983 (Annex H,
Petition) 22 of the SEC's three-member Hearing Conunittee granting
Telectronics' motion for creation of a receivership or management committee
with the ample powers therein enumerated for the preservation pendente
lite of the corporation's assets and in discharge of its "power and duty to
preserve the rights of the parties, the stockholders, the public availing of the
corporation's services and the rights of creditors," as well as "for reasons of
equity and justice ... (and) to prevent possible paralization of corporate
business." The said Order has not been implemented notwithstanding its
having been upheld per the SEC en banc's Order of May 15, 1984 (Annex "V",
Petition) dismissing for lack of merit the petition for certiorari, prohibition and
mandamus with prayer for restraining order or injunction filed by the Bragas
seeking the disbandment of the Hearing Committee and the setting aside of
its Orders, and its Resolution of August 9, 1984, denying reconsideration
(Annex "X", Petition), due to the Bragas' filing of the petition at bar.
Prescinding from the great concern of damage and prejudice expressed by
Telectronics due to the Bragas having remained in control of the corporation
and having allegedly committed acts of gross mismanagement and
misapplication of funds, the Court finds that under the facts and circumstances
of record, it is but fair and just that the SEC's order creating a receivership
committee be implemented forthwith, in accordance with its terms, as follows:
The three-man receivership committee shall be composed of
a representative from the commission, in the person of the
Director, Examiners and Appraisers Department or his
designated representative, and a representative from the
petitioners and a representative of the respondent.
The petitioners and respondent are therefore directed to sub.
mit to the Commission the name of their designated
representative within three (3) days from receipt of this order.
The Conunission shall appoint the other representatives if
either or both parties fafl to comply with the requirement within
the stated time.
ACCORDINGLY, judgment is hereby rendered:
(a) Granting the petition in G.R. No. 63558, annulling the
challenged Orders of respondent Judge clated February 14,
1983 and March i 1, 1983 (Annexes "L" and "P" of the Abejos'
petition) and prohibiting respondent Judge from further
proceeding in Civil Case No. 48746 filed in his Court other
than to dismiss the same for lack or jurisdiction over the
subject-matter;
(b) Dismissing the petition in G.R. Nos. 68450-51 and lifting
the temporary restraining order issued on September 24,
1984, effective immediately upon promulgation hereof,
(c) Directing the SEC through its Hearing Committee to
proceed immediately with hearing and resolving the
pending mandamus petition for recording in the corporate
books the transfer to Telectronics and its nominees of the
majority (56%) shares of stock of the corporation Pocket Bell
9
 pertaining to the Abejos and Virginia Braga and all related
issues, taking into consideration, without need of resubmittal
to it, the pleadings, annexes and exhibits filed by the
contending parties in the cases at bar; and

(d) Likewise directing the SEC through its Hearing Committee

to proceed immediately with the implementation of its
receivership or management committee Order of April 15,
1983 in SEC Case No. 2379 and for the purpose, the
contending parties are ordered to submit to said Hearing
Committee the name of their designated representatives in
the receivership/management committee within three (3) days
from receipt of this decision, on pain of forfeiture of such right
in case of failure to comply herewith, as provided in the said
Order; and ordering theBragas to perform only caretaker acts
in the corporation pending the organization of such
receivership/management committee and assumption of its
functions.

This decision shall be immediately executory upon its promulgation.

SO ORDERED.

10
 3. G.R. No. 87135 May 22, 1992 Magalad filed an opposition to the motion for reconsideration on January 8,
1985 alleging among others that the regular court has jurisdiction over the case
ALMA MAGALAD, petitioner, to the exclusion of the SEC.
vs.
PREMIERE FINANCING CORP., respondent. LOWER COURT: denied the recon

Premiere is a financing company engaged in soliciting and accepting money ISSUE:. WON lower court has jurisdiction to try the case.
market placements or deposit. With expired permit to issue commercial
papers, it induced and misled Magalad into making a money market placement NO.
of 50k. It likewise issued two post-dated checks in the total sum of P51,079.00
and assigned to Magalad its receivable from a certain David Saman for the PD 902-A provides that SEC has absolute jurisdiction over all corporations +
same amount. over schemes by Board of corporations amounting to fraud or
misrepresentation which may be detrimental to
When the said checks were presented for payment on their due dates, the public/stockholders/partners etc
drawee bank dishonored the checks for lack of sufficient funds to cover the
amount. Despite demands by Magalad for the replacement of said checks with
cash, Premiere, for no valid reason, failed and refused to honor such demands Considering that Magalad’s complaint sufficiently alleges acts amounting to
and due to fraudulent acts of Premiere, Magalad suffered sleepless nights, fraud and misrepresentation committed by Premiere, SEC has exclusive
mental anguish, fright, serious anxiety, considering the fact that the money she jurisdiction over the case despite the suit involving collection of sums of money
invested is blood money and is the only source of support for her family. paid to said corporation

Magalad filed a complaint for damages with prayer for writ of preliminary
attachment with the RTC against Premiere.

Premiere having failed to file an answer and acting on Magalad's motion, the
lower court declared Premiere in default.

On May 22, 1984 the lower court rendered a default judgment against
Premiere, the dispositive portion of which reads:

From the foregoing evidence, the court finds that plaintiff has
fully established her claim that defendant had indeed acted
fraudulently in incurring the obligation and considering that no
evidence has been adduced by the defendant to contradict
the same, judgment is hereby rendered ordering the
defendant to pay plaintiff as follows:

Premiere filed a motion for reconsideration of the foregoing decision, based

principally on a question of law alleging that the Securities and Exchange
Commission (SEC) has exclusive and original jurisdiction over a corporation
under a state of suspension of payments.

11
 4. G.R. No. 118088 November 23, 1995
MAINLAND CONSTRUCTION, CO., INC., and/or LUCITA LU
CARABUENA, ROBERT L. CARABUENA, ELLEN LU CARABUENA, and
MARTIN LU, petitioners,
vs.
MILA MOVILLA, ERNESTO MOVILLA, JR., MILA JUDITH C. MOVILLA,
JUDE BRIX C. MOVILLA, JONARD ELLERY C. MOVILLA, AND MAILA
JONAH M. QUIMBO, surviving heirs of ERNESTO MOVILLA, and THE
HONORABLE COMMISSIONER of the NATIONAL LABOR RELATIONS
COMMISSION-5TH DIVISION, respondents.
Mainland Construction Co., Inc. is a domestic corporation. Its principal line of
business is the general construction of roads and bridges and the operation of
a service shop for the maintenance of equipment. Respondents on the other
hand, are the surviving heirs of complainant, Ernesto Movilla, who died during
the pendency of the action with the Labor Arbiter.
Ernesto Movilla, who was a Certified Public Accountant during his lifetime, was
hired as such by Mainland in 1977. Thereafter, he was promoted to the position
of Administrative Officer with a monthly salary of P4,700.00.1
Ernesto Movilla, recorded as receiving a fixed salary of P4,700.00 a month,
was registered with the Social Security System (SSS) as an employee of
Mainland Construction Corporation. His contributions to the SSS, Medicare
and Employees Compensation Commission (ECC) were deducted from his
monthly earnings by his said employer. 2
An organizational meeting was held and the Board of Directors elected
Ernesto Movilla as Administrative Manager.3 He occupied the said position up
to the time of his death.
On April 2, 1991, the Department of Labor and Employment (DOLE) conducted
a routine inspection on petitioner corporation and found that it committed such
irregularities in the conduct of its business as:
1. Underpayment of wages under R.A. 6727 and RTWPB-XI-
01;
2. Non-implementation of Wage Order No. RTWPB-XI-02;
3. Unpaid wages for 1989 and 1990;
4. Non-payment of holiday pay and service incentive leave
pay; and
5. Unpaid 13th month pay (remaining balance for 1990).4
Thus, Mainland was ordered by DOLE to pay its 13 employees ((P309,435.89,
)) representing their salaries, holiday pay, service incentive leave pay
differentials, 13 month pay and unpaid wages
All the employees listed in the DOLE's order were paid by petitioner
corporation, except Ernesto Movilla. Thus, he filed a case against
Mainlandfor unpaid wages, separation pay and attorney's fees, with the
Department of Labor and Employment, Regional Arbitration, Branch XI, Davao
City.
Ernesto Movilla died while the case was being tried by the Labor Arbiter and
was promptly substituted by his heirs,
The Labor Arbiter rendered judgment dismissing the complaint on the ground
of lack of jurisdiction
It is clear that in the case at bar, the controversy presented by
complainant is intra-corporate in nature and is within the
jurisdiction of the Securities and Exchange Commission,
pursuant to P.D. 902-A (Phil. School of Business
Administration, et al. v. Leano, G.R. No. L-58468, February
24, 1984; Dy et al. v. NLRC, et al., G.R. No. L-68544, October
27, 1986). What Movilla is claiming against respondents are
his alleged unpaid salaries and separation pay as
Administrative Manager of the corporation for which position
he was appointed by the Board of Directors. His claims
therefore fall under the jurisdiction of the Securities and
Exchange Commission because this is not a simple labor
problem; but a matter that comes within the area of corporate
affairs and management, and is in fact a corporate
controversy in contemplation of the Corporation Code.
(Fortune Cement Corporation v. NLRC, et al., G.R. No. 79762,
January 24, 1991).5
Aggrieved by this decision, respondents appealed to the National Labor
Relations Commission (NLRC).
The NLRC ruled that the issue in the case was one which
involved a labor dispute between an employee and petitioner
12
 corporation and, thus, the NLRC had jurisdiction to resolve the case.
The dispositive portion of the NLRC decision reads:

ISSUE:

Which of the two agencies of the government — the NLRC or the SEC — has
jurisdiction over the controversy.

NLRC.

In the case at bench, the claim for unpaid wages and separation pay filed by
the complainant against petitioner corporation involves a labor dispute. It does
not involve an intra-corporate matter, even when it is between a stockholder
and a corporation. It relates to an employer-employee relationship which is
distinct from the corporate relationship of one with the other. Moreover, there
was no showing of any change in the duties being performed by complainant
as an Administrative Officer and as an Administrative Manager after his
election by the Board of Directors.

As correctly ruled by the NLRC:

The claims for unpaid salaries/monetary benefits and

separation pay, are not a corporate conflict as respondents
presented them to be. If complainant is not an employee,
respondent should have contested the DOLE inspection
report, What they did was to exclude complainant from the
order of payment . . . and worse, he was not both given
responsibilities and paid his salaries for the succeeding
months . . . . This is a clear case of constructive dismissal
without due process . . .12

Since Ernesto Movilla's complaint involves a labor dispute, it is the NLRC,

under Article 217 of the Labor Code of the Philippines, which has jurisdiction
over the case at bench.

13
 5. G.R. No. 121143 January 21, 1997
PURIFICACION G. TABANG, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and PAMANA GOLDEN
CARE MEDICAL CENTER FOUNDATION, INC., respondents.
Purificacion Tabang was a founding member, a member of the Board of
Trustees, and the corporate secretary of Pamana Golden Care Medical Center
Foundation, Inc., a non-stock corporation engaged in extending medical and
surgical services.
The Board of Trustees issued a memorandum appointing Tabang Medical
Director and Hospital Administrator of Pamana Golden Care Medical Center
in Calamba, Laguna.
Although the memorandum was silent as to the amount of remuneration for
the position, Tabang claims that she received a monthly retainer fee of five
thousand pesos (P5,000.00) from Pamana, but the payment thereof was
allegedly stopped in November, 1991.
As medical director and hospital administrator, Tabang was tasked to run the
affairs of the aforesaid medical center and perform all acts of administration
relative to its daily operations.
Afterwards, Tabang was allegedly informed personally by Dr. Ernesto Naval
that in a special meeting, the Board of Trustees passed a resolution relieving
her of her position as Medical Director and Hospital Administrator, and
appointing Dr. Benjamin Donasco as acting Medical Director and acting
Hospital Administrator, respectively.
Thus, Tabang filled a complaint for illegal dismissal and non-payment of
wages, allowances and 13th month pay before the labor arbiter.
Pamana moved for the dismissal of the complaint on the ground of lack of
jurisdiction over the subject matter. It argued that petitioner's position as
Medical Director and Hospital Administrator was interlinked with her position
as member of the Board of Trustees, hence, her dismissal is an intra-corporate
controversy which falls within the exclusive jurisdiction of the Securities and
Exchange Commission (SEC).
Petitioner opposed the motion to dismiss, contending that her position as
Medical Director and Hospital Administrator was separate and distinct from her
position as member of the Board of Trustees. She claimed that there is no
intra-corporate controversy involved since she filed the complaint in her
capacity as Medical Director and Hospital Administrator, or as an employee of
private respondent.
LABOR ARTBITER: issued an order dismissing the complaint for lack of
jurisdiction. He ruled that the case falls within the jurisdiction of the SEC,
pursuant to Section 5 of Presidential Decree No.
902-A. 1
On appeal, respondent NLRC affirmed the dismissal of the case on the
additional ground that "the position of a Medical Director and Hospital
Administrator is akin to that of an executive position in a corporate ladder
structure." hence, petitioner's removal from the said position was an intra-
corporate controversy within the original and exclusive jurisdiction of the SEC.
ISSUE:
WON THE SEC HAS JURISDICTION?
YES.
We agree with the findings of the NLRC that it is the SEC which has jurisdiction
over the case at bar. The charges against herein private respondent partake
of the nature of an intra-corporate controversy. Similarly, the determination of
the rights of petitioner and the concomitant liability of private respondent
arising from her ouster as a medical director and/or hospital administrator,
which are corporate offices, is an intra-corporate controversy subject to the
jurisdiction of the SEC.
Contrary to the contention of petitioner, a medical director and a hospital
administrator are considered as corporate officers under the by-laws of
respondent corporation. Section 2(i), Article I thereof states that one of the
powers of the Board of Trustees is "(t)o appoint a Medical Director,
Comptroller/Administrator, Chiefs of Services and such other officers as it may
deem necessary and prescribe their powers and duties."4
In the case at bar, considering that herein petitioner, was appointed by
respondent corporation's Board of Trustees in its memorandum of October 30,
1990, 9 she is deemed an officer of the corporation. Perforce, Section 5(c) of
Presidential Decree No. 902-A, which provides that the SEC exercises
exclusive jurisdiction over controversies in the election appointment of
directors, trustees, officers or managers of corporations, partnerships or
14
associations, applies in the present dispute. Accordingly, jurisdiction over the
same is vested in the SEC, and not in the Labor Arbiter or the NLRC.

A corporate officer's dismissal is always a corporate act, or an intra-corporate

controversy, and the nature is not altered by the reason or wisdom with which
the Board of Directors may have in taking such action. 11 Also, an intra-
corporate controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exemption
whatsoever. The provision is broad and covers all kinds of controversies
between stockholders and corporations. 12

15
 6. G.R. No. 125221 June 19, 1997
REYNALDO M. LOZANO, petitioner,
vs.
HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58,
Angeles City; and ANTONIO ANDA, respondents.
Reynaldo M. Lozano filed a case for damages against Antonio Anda before
the Municipal Circuit Trial Court (MCTC), alleging that he was the president of
the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc.
(KAMAJDA) while Anda was the president of the Samahang Angeles-
Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA);
in August 1995, upon the request of the Sangguniang Bayan of Mabalacat,
Pampanga, they agreed to consolidate their respective associations and form
the Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association,
Inc. (UMAJODA);
They also agreed to elect one set of officers who shall be given the sole
authority to collect the daily dues from the members of the consolidated
association;
They both ran for president during the election however, Lozano won. Anda
protested alleging fraud, refused to recognize the results of the election; he
also refused to abide by their agreement and continued collecting the dues
from the members of his association despite several demands to desist.
Thus, Lozano filed a complaint to restrain Anda from collecting the dues and
to order him to pay damages in the amount of P25,000.00 and attorney's fees
of P500.00. 1
Anda moved to dismiss the complaint for lack of jurisdiction, claiming that
jurisdiction was lodged with the Securities and Exchange Commission (SEC).
ISSUE:
WHETHER OR NOT THE SEC HAS JURISDICTION OVER THE CASE
RULING:
NO.
The first element requires that the controversy must arise out of intracorporate
or partnership relations between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and
the State in so far as it concerns their individual franchises. 10 The second
element requires that the dispute among the parties be intrinsically connected
with the regulation of the corporation, partnership or association or deal with
the internal affairs of the corporation, partnership or association. 11 After all,
the principal function of the SEC is the supervision and control of corporations,
partnership and associations with the end in view that investments in these
entities may be encouraged and protected, and their entities may be
encouraged and protected, and their activities pursued for the promotion of
economic development. 12
There is no intracorporate nor partnership relation between petitioner
and private respondent. The controversy between them arose out of their
plan to consolidate their respective jeepney drivers' and operators'
associations into a single common association. This unified association was,
however, still a proposal. It had not been approved by the SEC, neither had its
officers and members submitted their articles of consolidation is accordance
with Sections 78 and 79 of the Corporation Code. Consolidation becomes
effective not upon mere agreement of the members but only upon issuance of
the certificate of consolidation by the SEC. 13 When the SEC, upon processing
and examining the articles of consolidation, is satisfied that the consolidation
of the corporations is not inconsistent with the provisions of the Corporation
Code and existing laws, it issues a certificate of consolidation which makes
the reorganization official. 14 The new consolidated corporation comes into
existence and the constituent corporations dissolve and cease to exist. 15
The KAMAJDA and SAMAJODA to which petitioner and private respondent
belong are duly registered with the SEC, but these associations are two
separate entities. The dispute between petitioner and private respondent is not
within the KAMAJDA nor the SAMAJODA. It is between members of separate
and distinct associations. Petitioner and private respondent have no
intracorporate relation much less do they have an intracorporate dispute. The
SEC therefore has no jurisdiction over the complaint.
The doctrine of corporation by estoppel 16 advanced by private respondent
cannot override jurisdictional requirements. Jurisdiction is fixed by law and is
not subject to the agreement of the parties. 17 It cannot be acquired through or
16
waived, enlarged or diminished by, any act or omission of the parties, neither
can it be conferred by the acquiescence of the court. 18

Corporation by estoppel is founded on principles of equity and is designed to

prevent injustice and unfairness. 19 It applies when persons assume to form a
corporation and exercise corporate functions and enter into business relations
with third person. Where there is no third person involved and the conflict
arises only among those assuming the form of a corporation, who therefore
know that it has not been registered, there is no corporation by estoppel. 20

IN VIEW WHEREOF, the petition is granted and the decision dated April 18,
1996 and the order dated May 31, 1996 of the Regional Trial Court, Branch
58, Angeles City are set aside. The Municipal Circuit Trial Court of Mabalacat
and Magalang, Pampanga is ordered to proceed with dispatch in resolving
Civil Case No. 1214. No costs.

SO ORDERED.

17
 7. G.R. No. 165744 August 11, 2008
OSCAR C. REYES, petitioner,
vs.
HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142, ZENITH
INSURANCE CORPORATION, and RODRIGO C. REYES, respondents.
BACKGROUND FACTS
Oscar and Rodrigo are two of the four children of the spouses Reyes. Pedro,
Anastacia, Oscar, and Rodrigo each owned shares of stock of Zenith
Insurance Corporation (Zenith), a domestic corporation established by their
family.
Pedro died in 1964, while Anastacia died in 1993. Although Pedro’s estate was
judicially partitioned among his heirs, no similar settlement and partition
appear to have been made with Anastacia’s estate, which included her
shareholdings in Zenith. (As of June 30, 1990, Anastacia owned 136,598
shares of Zenith; Oscar and Rodrigo owned 8,715,637 and 4,250 shares,
respectively)
Zenith and Rodrigo filed a complaint with the Securities and Exchange
Commission (SEC) against Oscar. The complaint stated that it is "a derivative
suit initiated and filed by the complainant Rodrigo C. Reyes to obtain an
accounting of the funds and assets of ZENITH INSURANCE
CORPORATION which are now or formerly in the control, custody, and/or
possession of Oscar] and to determine the shares of stock of deceased
spouses Pedro and Anastacia Reyes that were arbitrarily and fraudulently
appropriated by Oscar.
ANSWER: (OSCAR) Oscar denied the charge that he illegally acquired the
shares of Anastacia Reyes. He asserted, as a defense, that he purchased the
subject shares with his own funds from the unissued stocks of Zenith, and that
the suit is not a bona fide derivative suit because the requisites therefor have
not been complied with. He thus questioned the SEC’s jurisdiction to entertain
the complaint because it pertains to the settlement of the estate of Anastacia
Reyes.
Oscar filed a Motion to Declare Complaint as Nuisance or Harassment
Suit.9 He claimed that the complaint is a mere nuisance or harassment suit
and should, according to the Interim Rules of Procedure for Intra-Corporate
Controversies, be dismissed; and that it is not a bona fide derivative suit as it
partakes of the nature of a petition for the settlement of estate of the deceased
Anastacia that is outside the jurisdiction of a special commercial court. The
RTC, denied the motion in part and declared:
A close reading of the Complaint disclosed the presence of two (2)
causes of action, namely: a) a derivative suit for accounting of the
funds and assets of the corporation which are in the control,
custody, and/or possession of OSCAR with prayer to appoint a
management committee; and b) an action for determination of the
shares of stock of deceased spouses Pedro and Anastacia Reyes
allegedly taken by respondent, its accounting and the
corresponding delivery of these shares to the parties’ brothers
and sisters. The latter is not a derivative suit and should properly
be threshed out in a petition for settlement of estate.
ISSUE:(1) Whether or not Rodrigo may be considered a stockholder of Zenith
with respect to the shareholdings originally belonging to Anastacia.
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) Whether or not there is an intra-corporate relationship between the parties
that would characterize the case as an intra-corporate dispute?
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.
18
 8. G.R. No. 203023 June 17, 2015 In November 2007, then President Gloria Macapagal-Arroyo appointed new
government nominees to the POTC and PHILCOMSAT boards to replace
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION and Enrique Locsin, Manuel Andal, Julio Jalandoni and Guy de Leon. POTC owns
PHILCOMSAT HOLDINGS CORPORATION, Petitioners, 100% of PHILCOMSAT.
vs.
SANDIGANBAYAN 5th DIVISION and PRESIDENTIAL COMMISSION ON On 19 November 2007, in a special stockholders’ meeting attended by POTC’s
GOOD GOVERNMENT, Respondents. private stockholders and Presidential Management Staff Undersecretary
Enrique D. Perez, as representative and proxy of the Republic of the
PHC is a domestic corporation listed in the Philippine Stock Exchange (PSE). Philippines, and observed by Securities and Exchange Commission (SEC)
It was previously known as Liberty Mines, Inc. (LMI) and had been previously representatives, the following were elected directors:
engaged in the discovery, exploitation, development and exploration of oils. 3
Daniel C. Gutierrez (government)
Laperal, then Chairman of the Board and President of LMI, and Honorio
Poblador III, then President of PHILCOMSAT, signed a Memorandum of Santiago J. Ranada (government)
Agreement4 for the latter to gain controlling interest in LMI through an increase
in its authorized capital stock.5 Erlinda I. Bildner (private)

Laperal and PHILCOMSAT executed a Supplemental Memorandum of Katrina C. Ponce-Enrile (private)

Agreement6 reiterating the increase in capital stock of LMI from six billion
shares to100 billion shares. Sometime in 1997, LMI changed its name to PHC.
Marietta K. Ilusorio (private)
It declassified its shares and amended its primary purpose to become a
holding company.
Pablo L. Lobregat (private)
PHC then filed its application with the PSE for listing the shares representing
the increase in its capital stock. Included in this application were the PHC Honorio A. Poblador III (private)
shares owned by PHILCOMSAT.8
Allan S. Montaño (government)
Pending the PSE’s final approval of PHC’s application for listing of the shares,
the PCGG, through its then Chairman Sabio, made a written request to Francisca Benedicto-Paulino (private)
suspend the listing of the increase in PHC’s capital stock citing as reason the
need to settle the conflicting claims of the two sets of board of directors of the Immediately thereafter, the new directors elected POTC’s new set of officers:
Philippine Overseas Telecommunication Corporation (POTC) and
PHILCOMSAT.9 Daniel C. Gutierrez – Chairman

In a letter the PSE informed the PCGG that the PSE Listing Committee Erlinda I. Bildner – Vice-Chairman
deferred action on the company’s listing application and instead referred the
matter to the PSE General Counsel to ascertain the applicability of the
Katrina C. Ponce-Enrile – President
provisions on disqualifications for listing as provided under the PSE Revised
Listing Rules.
Marietta K. Ilusorio – Treasurer
The PCGG sent another letter to the PSE reiterating its request to defer the
listing of PHC shares. Rafael A. Poblador – Asst. Treasurer

Victoria C. delos Reyes – Secretary

19
On the same day, PHILCOMSAT held a special stockholders’ meeting
attended by Erlinda I. Bildner as proxy for POTC. At the request of the Republic
of the Philippines, the three government representatives were nominated to
the PHILCOMSAT Board of Directors. The following were elected:
Abraham R. Abesamis (government)
Ramon P. Jacinto (government)
Rodolfo G. Serrano, Jr. (government)
Erlinda I. Bildner (private)
On 7 May 2008, the PCGG issued En Banc Resolution No. 2008-
00912 recognizing the validity of the POTC’s and PHILCOMSAT’s respective
stockholders’ meetings and elections, both held on 19 November 2007:
NOW, THEREFORE, be it RESOLVED, as it is hereby RESOLVED, that:
1. The PCGG recognize[s] the validity of the 19 November 2007,
POTC/PHILCOMSAT stockholders’ meeting and confirm[s] as valid the
election of the following government nominees: Atty. Daniel C. Gutierrez,
Justice Santiago J. Ranada and Atty. Allan S. Montano to the Board of
Directors of POTC and Radm. Abraham R. Abesamis, Mr. Ramon P. Jacinto
and Mr. Rodolfo G. Serrano,Jr. to the Board of Directors of PHILCOMSAT;

x x x x13
Katrina C. Ponce-Enrile (private)

Pablo L. Lobregat (private) In a letter14 dated 25 July 2011, Katrina C. Ponce-Enrile (Ponce-Enrile), then
President of POTC, wrote to then PCGG Chairman Andres D. Bautista
(Chairman Bautista) demanding that the PCGG rescind its objection to the
Honorio A. Poblador III (private) listing of the increase in PHC’s capital stock.

Marietta K. Ilusorio (private) When PCGG failed to reply, PHILCOMSAT sent a final demand
Letter15 reiterating its demand for PCGG to withdraw its objection to the listing
Lorna P. Kapunan (private) of the increase in PHC’s capital stock.

Immediately after, at the meeting of the new and unified Board of Directors of On 11 January 2012, Ponce-Enrile received a letter16 from Chairman Bautista,
PHILCOMSAT, the following were elected officers: informing her that, among others, the agency was discussing the matter with
the Department of Finance and that the two would give a joint recommendation
Abraham R. Abesamis – Chairman thereafter. However, the PCGG never communicated said recommendation to
PHILCOMSAT.
Pablo L. Lobregat – Vice-Chairman
On 1 February 2012, PHILCOMSAT filed a complaint17 before the
Erlinda I. Bildner – President Sandiganbayan against PCGGto compel the latter to withdraw its opposition
to the listing of the increase in PHC’s capital stock. PHILCOMSAT argued that
PCGG had already recognized the validity of the stockholders’ meetings in the
Marietta K. Ilusorio – Vice-President
two corporations, which "practically erased" the alleged conflict between the
two sets of directors.18
Katrina C. Ponce-Enrile – Treasurer
The PCGG filed a motion to dismiss the complaint, which PHILCOMSAT
Rafael A. Poblador – Asst. Treasurer subsequently opposed. The Sandiganbayan’s Ruling

John Benedict B. Sioson – Secretary On 3 May 2012, the Sandiganbayan issued the assailed Resolution, the
dispositive portion of which reads:

20
WHEREFORE, premises considered, defendant Presidential Commission on
Good Government (PCGG)’s Motion to Dismiss dated 8 March 2012 is hereby
GRANTED for lack of jurisdiction over the subject matter.
SO ORDERED.19
The Sandiganbayan held that, based on the allegations in the complaint, the
action was one for specific performance since it sought to have PCGG
withdraw its objection to the listing of the increase in PHC’s capital stock at the
PSE. Following Section 1920 of Batas Pambansa Blg.129 (B.P. 129), as
amended by Republic Act No. 7691 (R.A. 7691), the Regional Trial Court
(RTC) has exclusive jurisdiction over the case. It said:
In our considered view, the allegations in the complaint show that it is primarily
one for specific performance as it prays that the PCGG be directed to withdraw
its objection to the listing of PHILCOMSAT’s shares in PHC, hence, incapable
of pecuniary estimation and within the RTC’s jurisdiction.21
The Sandiganbayan also ruled that the case was a "dispute among its
directors," and thus, was an intra-corporate dispute, viz:22
The determination of whether or not the PCGG should withdraw its request to
defer the listing of the PHILCOMSAT shares until the conflicting claims
between the two sets of board of directors of POTC and PHILCOMSAT is
settled, is an intra-corporate controversy. (Emphasis in the original) On 14
August 2012, the Sandiganbayan denied petitioners’ motion for
reconsideration. It reiterated its earlier ruling that it did not have jurisdiction
over the controversy since it was an intra-corporate dispute.
In plaintiffs’ complaint, it was stated that: "The Republic of the Philippines is
the 34.9% owner of POTC, which wholly owns PHILCOMSAT, which in turn,
owns 81% of PHC. As such, the Republic of the Philippines, with 28.7%
indirect ownership in PHC, also its largest single beneficial owner, continues
to sustain the incalculable loss of holding illiquid or unmarketable shares in a
publicly listed company." Evidently, while the PCGG may not be a stockholder,
director, officer, member or even associate of the plaintiff corporations, it bears
emphasis that the Commission has an interest in the PHC shares prompting
the PCGG to request the PSE to suspend the listing of the SEC approved
increase in capital stock of PHC. The Commission’s interest in the aforesaid
shares determines the "nature of the question under controversy" in the instant
case and consequently, the reiteration of this Court’s pronouncement in the
assailed Resolution of having no jurisdiction over the subject matter of the
instant case.23
The Issue
Petitioners are now before the Court on a petition for review on certiorari under
Rule 45 raising this sole assignment of error:
The Sandiganbayan erred in dismissing the case a quo for lack of jurisdiction
on [the] ground that the action allegedly involves an intra-corporate
controversy.24
Petitioners’ arguments
Petitioners argue that the allegations in the complaint do not qualify as an intra-
corporate controversy because "not a single element of an intra-corporate
controversy exists in this case."25
Petitioners claim that, first, the cause of action in this case – to compel PCGG
to withdraw its objection to the listing of PHILCOMSAT’s shares in PHC – is
not an intra-corporate dispute,26 since PCGG is not a stockholder, director,
officer, member or even associate of the plaintiff corporation.27
Second, petitioners insist that the "subject matter of the case a quo, that is, to
have respondent PCGG withdraw its objections to the listing of
[PHILCOMSAT’s] shares in PHC, does not fall in any of the cases that may be
considered intra-corporate controversy, as enumerated in Section 5 of PD
902-A."28 It argues that "the issue in this case does not even involve POTC
and/or the shares that the Republic owns therein to the extent of thirty five
percent (35%). The issue specifically pertains to petitioner [PHILCOMSAT’s]
shares in petitioner PHC where the respondent PCGG, through abuse of
authority, objected to the listing in the Philippine Stock Exchange. While the
government (Republic of the Philippines) owns 35% of POTC, the latter has a
separate and distinct legal personality with petitioner PHILCOMSAT and PHC.
x x x. Respondent PCGG, which is not even the registered owner of a single
PHILCOMSAT share has no personality to meddle in PHC’s affairs and block
the listing of PHILCOMSAT’s share in the stock exchange. The twin element
of corporate relationship and intra-corporate issues were never met in the
complaint."29
Third, petitioners state that PCGG has ceased to have a valid and justifiable
reason for blocking the listing of the increase in PHC’s capital stock because
"the appointment of new government nominees and the stockholders’
meetings of POTC, PHILCOMSAT and PHC in 2007 paved the way for unified
boards and erased whatever alleged uncertainty that existed previously on
who has control over these corporations."30
21
More importantly, with its 7 May 2008 En Banc Resolution No. 2008-009, the
PCGG itself has recognized the valid election of the POTC, PHILCOMSAT
and PHC boards and, therefore, the basis for its objection is no longer
obtaining.31
Lastly, petitioners argue that the PCGGis a co-equal body with the RTC and
since co-equal bodies have no power to control the other, the RTC cannot
compel the PCGG to follow its order.32
The PCGG’s arguments
On the other hand, the PCGG, through the Office of the Solicitor General,
raised the following arguments in its Comment:33
I. THE RESPONDENT COURT IS BEREFT OF JURISDICTION
OVER PETITIONERS’ COMPLAINT.
II. PETITIONERS’ PROTESTATIONS NOTWITHSTANDING, THE
COMPLAINT DESERVES OUTRIGHT DISMISSAL BECAUSE:
A. PETITIONERS HAVE NOT ALLEGED ANY CAUSE OF
ACTION TO ENTITLE THEM TO THE RELIEF DEMANDED.
B. PETITIONERS FAILED TO IMPLEAD THE REPUBLIC AS
INDISPENSABLE PARTY.
C. ASSUMING THAT THE STATE HAS BEEN IMPLEADED
THROUGH THE PCGG, THIS CASE SHOULD
NONETHELESS BE DISMISSED ON THE GROUND THAT
THE STATE MAY NOT BE SUED WITHOUT ITS CONSENT.
D. THE PRESENT SUIT IS BARRED BY LITIS PENDENTIA.
E. PETITIONERS’ COUNSEL FAILED TO COMPLY WITH
BAR MATTER NO. 1922 DATED JUNE 3, 2008.
The PCGG contends that "the controversy does not emanate from, nor does
it relate to any functions of the PCGG of recovering ill-gotten wealth, or any
incident arising from, or incidental to such duty."34 Rather, the PCGG posits
that the acts complained of are in the nature of an intra-corporate controversy.
It avers that "the nature of petitioners’ claim refers to the enforcement of the
parties’ rights under the Corporation Code and internal rules of the corporation,
particularly affecting the propriety of publicly listing in the Philippine Stock
Exchange (PSE) of the 790 million shares of PHILCOMSAT with PHC."35 The
PCGG emphasized that "the matter of compelling the PCGG x x x to withdraw
its objection regarding the listing of shares in PHC, which objection is an
exercise of ownership rights, is an intra-corporate controversy and outside the
jurisdiction of the respondent court."36
The Court's Ruling
The petition has no merit and is, therefore, denied.
The Complaint involves an Intra-corporate Controversy
Intra-corporate controversy
To determine if a case involves an intra-corporate controversy, the courts have
applied two tests: the relationship test and the nature of the controversy test.
Under the relationship test, the existence of any of the following relationships
makes the conflict intra-corporate: (1) between the corporation, partnership or
association and the public; (2) between the corporation, partnership or
association and the State insofar as its franchise, permit or license to operate
is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders,
partners or associates themselves.37
On the other hand, the nature of the controversy test dictates that "the
controversy must not only be rooted in the existence of an intra-corporate
relationship, but must as well pertain to the enforcement of the parties’
correlative rights and obligations under the Corporation Code and the internal
and intra-corporate regulatory rules of the corporation."38
A combined application of the relationship test and the nature of the
controversy test has become the norm in determining whether a case is an
intra-corporate controversy,39 to be "heard and decided by the [b]ranches of
the RTC specifically designated by the Court to try and decide such cases."40
Relationship test
Under the relationship test, an intra-corporate controversy arises when the
conflict is "between the corporation, partnership or association and its
stockholders, partners, members or officers." Petitioners insist that the PCGG
is not a stockholder, partner, member or officer of the corporation. This is
misleading and inaccurate.
22
The PCGG was created under Executive Order No. 1 (E.O. 1) to assist the
President in:
(a) The recovery of all ill-gotten wealth accumulated by former
President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, whether located in the Philippines
or abroad, including the takeover or sequestration of all business
enterprises and entities owned or controlled by them, during his
administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority,
influence, connections or relationship.
(b) The investigation of such cases of graft and corruption as the
President may assign to the Commission from time to time.
(c) The adoption of safeguards to ensure that the above practices shall
not be repeated in any manner under the new government, and the
institution of adequate measures to prevent the occurrence of
corruption.41
This Court, in PCGG v. Peña,42 further explained:
In the discharge of its vital task "to recover the tremendous wealth plundered
from the people by the past regime in the most execrable thievery perpetrated
in all history," or "organized pillage" (to borrow a phrase from the articulate Mr.
Blas Ople), the Commission was vested with the ample power and authority
(a) x x x
(b) to sequester or place or cause to be placed under its control or
possession any building or office wherein any ill-gotten wealth or
properties may be found, and any records pertaining thereto, in order
to prevent their destruction, concealment or disappearance which
would frustrate or hamper the investigation or otherwise prevent the
Commission from accomplishing its task.
(c) to provisionally takeover in the public interest or to prevent the
disposal or dissipation of business enterprises and properties taken
over by the government of the Marcos Administration or by entities or
persons close to former President Marcos, until the transactions
leading to such acquisition by the latter can be disposed of by the
appropriate authorities.
(d) to enjoin or restrain any actual or threatened commission of acts
by any person or entity that may render moot and academic, or
frustrate or otherwise make ineffectual the efforts of the Commission
to carry out its task under this Order. x x x.43
In Republic v. Sandiganbayan,44 the Court settled that, due to the Compromise
Agreement validly entered into by the Republic through the PCGG, the
Republic of the Philippines now owns 4,727 shares of POTC.
As it stands today, the Republic of the Philippines owns 34.9% of POTC, which
wholly owns PHILCOMSAT, which in turn owns 81% of PHC. 45 The Republic,
then, has an interest in the proper operations of the PHC, however indirect this
interest may seem to be.
Chairman Sabio, while himself not a stockholder of the subject corporations,
was acting as head of the PCGG, which is the agency tasked to adopt
safeguards so that incidents of graft and corruption, as well as cases of abuse
of "powers, authority, influence, connections or relationship" in these
corporations are eliminated.46
The Republic acts through its lawfully designated representatives or
nominees. Thus, PCGG nominees and directors sit in the boards of directors
of sequestered corporations not for themselves but on behalf of the Republic.
It is their duty to protect and advance the interests of the Republic of the
Philippines.
Nature of the controversy test
The nature of the controversy test examines the controversy in relation to the
"enforcement of the parties’ correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the
corporation."47
The controversy in the present case stems from the act of Chairman Sabio in
requesting the PSE to suspend the listing of PHC’s increase in capital stock
because of still unresolved issues on the election of the POTC’s and
PHILCOMSAT’s respective boards of directors.1âwphi1
The act of Chairman Sabio in asking the SEC to suspend the listing of PHC’s
shares was done in pursuit of protecting the interest of the Republic of the
Philippines, a legitimate stockholder in PHC’s controlling parent company,
POTC. The character of the shares held by the PCGG/Republic, on whose
behalf the PCGG Chairman is presumed to be acting, is irrelevant to Chairman
Sabio’s actions. Any shareholder, harboring any apprehensions or concerns,
23
could have done the same or posed the same objection. It was an act that had
no relation to any proceeding or question of ill-gotten wealth or sequestration.
The PCGG was merely protecting the rights and interest of the Republic of the
Philippines.
From the foregoing, it is clear that the dispute in the present case is an intra-
corporate controversy.
The Sandiganbayan has no Jurisdiction
As such, it is clear that the jurisdiction lies with the regular courts and not with
the Sandiganbayan.
Section 5 of Presidential Decree No. 902-A conferred original and exclusive
jurisdiction over intra-corporate disputes on the SEC. However, Section 5.2of
R.A. 8799, transferred the jurisdiction over such cases to courts of general
jurisdiction, or the appropriate RTC.48
Petitioners, however, further argue that the case must be decided by the
Sandiganbayan because the RTC is co-equal to the PCGG and therefore
would have no authority to issue an order to the latter.49
The following pronouncements of this Court are instructive:
Under Section 2 of Executive Order No. 14, the Sandiganbayan has exclusive
and original jurisdiction over all cases regarding "the funds, moneys, assets
and properties illegally acquired by Former President Ferdinand E. Marcos,
Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees," civil or criminal, including
incidents arising from such cases. The Decision of the Sandiganbayan is
subject to review on certiorari exclusively by the Supreme Court.
In the exercise of its functions, the PCGG is a co-equal body with the regional
trial courts and co-equal bodies have no power to control the other. The
regional trial courts and the Court of Appeals have no jurisdiction over the
PCGG in the exercise of its powers under the applicable Executive Orders and
Section 26, Article XVIII of the 1987 Constitution and, therefore, may not
interfere with and restrain or set aside the orders and actions of the PCGG. 50
Further:
The issue of whether or not the Regional Trial Courts have jurisdiction over
the Presidential Commission on Good Government in the exercise of the
latter’s powers and functions under the applicable Executive Orders and
Section 26, Article XVIII of the 1987 Constitution has been laid to rest in PCGG
vs. Hon. Emmanuel G. Peña, et al., G.R. No. 77663, April 12, 1988 where Mr.
Chief Justice Claudio Teehankee articulated the opinion of an almost
unanimous court as follows:
On the issue of jurisdiction squarely raised, as above indicated, the Court
sustains petitioner’s stand and holds that regional trial courts and the Court
of Appears for that matter have no jurisdiction over the Presidential
Commission on Good Government in the exercise of its powers under
the applicable Executive Orders and Article XVIII, Section 26 of the
Constitution and therefore may not interfere with and restrain or set
aside the orders and actions of the Commission. Under Section 2 of the
President’s Executive Order No. 14 issued on May 7, 1986, all cases of the
Commission regarding "the Funds, Moneys, Assets and Properties Illegally
Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs.
Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business
Associates, Dummies, Agents or Nominees" whether civil or criminal, are
lodged within the "exclusive and original jurisdiction of the Sandiganbayan"
and all incidents arising from, incidental to, or related to, such cases
necessarily fall likewise under the Sandiganbayan’s exclusive and original
jurisdiction subject to review on certiorari exclusively by the Supreme
Court.51 (Emphasis supplied)
As the Court has already conclusively ruled, the RTC is co-equal to the PCGG
only in relation to cases falling under the latter’s function under the applicable
Executive Orders, specifically Section 2 of E.O. 14, and Section 26, Article
XVIII of the 1987 Constitution.
Note that in this case, the acts complained of do not pertain to the PCGG’s
function under the aforementioned provisions of law and the Constitution, i.e.,
it is not a case involving "the Funds, Moneys, Assets and Properties Illegally
Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs.
Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business
Associates, Dummies, Agents or Nominees, whether civil or criminal, x x x"
nor can it be considered an "[incident] arising from, incidental to, or related
to"52 such cases.
Rather, the PCGG, acting as representative of the Republic, was exercising a
duty of a stockholder to ensure the proper and lawful exercise of corporate
acts. Based on the foregoing, the Sandiganbayan correctly dismissed the
complaint for lack of jurisdiction.
24
9. G.R. No. 185894, August 30, 2017
BELO MEDICAL GROUP, INC., Petitioner, v. JOSE L. SANTOS
AND VICTORIA G. BELO, Respondents.
A controversy began when Belo Medical Group received a request
from Santos for the inspection of corporate records.6 Santos claimed
that he was a registered shareholder and a co-owner of Belo's
shares, as these were acquired while they cohabited as husband and
wife.7
Santos sought advice on his probable removal as director of the
corporation considering that he was not notified of meetings where
he could have been removed. He he sought explanation on the
corporation's failure to inform him of the annual meetings held.
Santos' concern over the corporate operations arose from the
alleged death of a patient in one (1) of its clinics. 9
Santos was unsuccessful in inspecting the corporate books as
Henares, the officer-in-charge of corporate records, was travelling.
Belo Medical Group asked for time in order for Henares to
accommodate Santos' request.10
After the first attempt to inspect, Belo wrote Belo Medical Group on
to repudiate Santos' co-ownership of her shares and his interest in
the corporation. She claimed that Santos held the 25 shares in his
name merely in trust for her, as she paid for these shares.
She informed Belo Medical Group that Santos already had a pending
petition with the Regional Trial Court to be declared as co-owner of
her properties. She asserted that unless a decision was rendered in
Santos' favor, he could not exercise ownership rights over her
properties.11
Belo also informed Belo Medical Group that Santos had a business in
direct competition with it. She suspected that Santos' request to
inspect the records of Belo Medical Group was a means to obtain a
competitor's business information, and was, therefore, in bad faith. 12
A second inspection was attempted through a written demand by
Santos however, he was unsuccessful
Belo wrote to Belo Medical Group to reiterate her objections to
Santos' attempts at inspecting corporate books and his inquiry
regarding a patient. Belo further manifested that she was exercising
her right as a shareholder to inspect the books herself to establish
that the 25 shares were not owned by Santos, and that he did not
pay for these shares.14
Thus, Belo Medical Group filed a Complaint for Interpleader alleging
that while Santos appeared to be a registered stockholder, there was
nothing on the record to show that he had paid for the shares under
his name.
Santos, for the third time, sent a letter to schedule an inspection of
the corporate books and warned that continued rejection of his
request exposed the corporation to criminal liability.20 Nothing came
out of this last attempt as well.
Belo and Belo Medical Group wrote to Santos to inform him that he
was barred from accessing corporate records because doing so
would be inimical to Belo Medical Group's interests.21
(((Through another letter on May 28, 2008, Santos was reminded of
his majority share in The Obagi Skin Health, Inc. the owner and
operator of the House of Obagi (House of Obagi) clinics. He was
likewise reminded of the service of a notice of the 2007 special
meeting of stockholders to his address at Valero Street, Makati City,
contrary to his claim)))
Belo Medical Group filed a Supplemental to deny Santos' request for
inspection. It prayed that Santos be perpetually barred from
inspecting its books due to his business interest in a competitor. 25
BELO: filed her Answer with Cross-Claim to put on record her
defenses that Santos had no right to inspect the books as he was
not the owner of the 25 shares of stock in his name and that he was
acting in bad faith because he was a majority owner of House of
Obagi.
Belo further argued that the proceedings should not have been
classified as intra-corporate because while their right of inspection
25
as shareholders may be considered intra-corporate, "it ceases to be
that and becomes a full-blown civil law question if competing rights
of ownership are asserted as the basis for the right of inspection."30
Belo Medical Group filed Motion praying that the case be tried as a
civil case and not as an intra-corporate controversy. It argued that
the Interim Rules of Procedure Governing Intra-Corporate
Controversies35 did not include special civil actions for interpleader
and declaratory relief found under the Rules of Court. Belo Medical
Group clarified that the issue on ownership of the shares of stock
must first be resolved before the issue on inspection could even be
considered ripe for determination.36
SANTOS:
1)argued that the filing of the complaints was an afterthought to
take attention away from Belo Medical Group's criminal liability when
it refused Santos' demand to inspect the records of the corporation.
2)Santos also invoked the doctrine of piercing the corporate veil as
Belo owned 90% of Belo Medical Group. Her claim over the 25 shares
was a ploy to defeat Santos' right to inspect corporate records. He
asserts that the Complaint for interpleader was an anticipatory move
by the company to evade criminal liability upon its denial of Santos'
requests.42
3)Santos denied any conflict of interest because Belo Medical
Group's products and services differed from House of Obagi's44 Belo
Medical Group's primary purpose was the management and
operation of skin clinics45 while the House of Obagi's main purpose
was the sale and distribution of high-end facial products.46
Santos filed his Reply to the Oppositions. He agreed that the
controversy was not intra-corporate but civil in nature, as it involved
ownership.53 However, he stood firm on his arguments that the case
should be dismissed due to the Complaints' failure to state a cause
of action54 and the trial court's failure to acquire jurisdiction over his
person.55
RTC: declared the case as an intra-corporate controversy but
dismissed the Complaints.57
The trial court characterized the dispute as "intrinsically connected
with the regulation of the corporation as it involves the right of
inspection of corporate records."58 Included in Santos and Belo's
conflict was a shareholder's exclusive right to inspect corporate
records. In addition, the issue on the ownership of shares requires
the application of laws and principles regarding corporations.59
However, the Complaint could not flourish as Belo Medical Group
"failed to sufficiently allege conflicting claims of ownership over the
subject shares."60
Belo filed her Comment71 and manifested that she agrees with the
arguments raised by Belo Medical Group.
Santos filed his Comment. He argues that the Petition filed by Belo
Medical Group should be dismissed as the wrong mode of appeal. It
should have filed an appeal under Rule 43, pursuant to the Interim
Rules on Intra-Corporate Disputes.73 He alleges that Belo Medical
Group committed forum shopping.
CA: dismissed Belo’s Petition for Review
ISSUE:
whether or not the present controversy is intra-corporate;
Yes.
Applying the relationship test, this Court notes that both Belo and
Santos are named shareholders in Belo Medical Group's Articles of
Incorporation94 and General Information Sheet for 2007. 95 The
conflict is clearly intra-corporate as it involves two (2) shareholders
although the ownership of stocks of one stockholder is questioned.
Unless Santos is adjudged as a stranger to the corporation because
he holds his shares only in trust for Belo, then both he and Belo,
based on official records, are stockholders of the corporation.
26
To determine whether an intra-corporate dispute exists and whether
this case requires the application of these rules of procedure, this
Court evaluated the relationship of the parties. The types of intra-
corporate relationships were reviewed in Union Glass & Container
Corporation v. Securities and Exchange Commission:88
[a] between the corporation, partnership or association and the
public; [b] between the corporation, partnership or association and
its stockholders, partners, members, or officers; [c] between the
corporation, partnership or association and the state in so far as its
franchise, permit or license to operate is concerned; and [d] among
the stockholders, partners or associates themselves.89
For as long as any of these intra-corporate relationships exist
between the parties, the controversy would be characterized as
intra-corporate.90 This is known as the "relationship test."

27
 10 G.R. No. 119002 October 19, 2000
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL
FEDERATION, respondents.
International Express Travel and Tour Services, Inc., through its managing
director, wrote a letter to the Philippine Football Federation (Federation),
through its president private respondent Henri Kahn, wherein the former
offered its services as a travel agency to the latter.1 The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of
the Federation to the South East Asian Games in Kuala Lumpur as well as
various other trips to the People's Republic of China and Brisbane. The total
cost of the tickets amounted to P449,654.83. For the tickets received, the
Federation made two partial payments, both in September of 1989, in the total
amount of P176,467.50.2
petitioner wrote the Federation a demand letter requesting for the amount of
P265,894.33.3 On 30 October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00.4
Henri Kahn issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance of the Federation. 5 Thereafter, no further
payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court
suing Henri Kahn in his personal capacity and as President of the Federation
and impleaded the Federation as an alternative defendant. Petitioner sought
to hold Henri Kahn liable for the unpaid balance for the tickets purchased by
the Federation on the ground that Henri Kahn allegedly guaranteed the said
obligation.6
Henri Kahn filed his answer. While not denying the allegation that the
Federation owed the amount P207,524.20, representing the unpaid balance
for the plane tickets, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official capacity as
president of the Federation. He maintained that he did not guarantee payment
but merely acted as an agent of the Federation which has a separate and
distinct juridical personality.7
On the other hand, the Federation failed to file its answer, hence, was declared
in default by the trial court.8
RTC: ruled in favor of International Express Travel and Tour Services and
declared Henri Kahn personally liable for the unpaid obligation of the
Federation.
Defendant Henri Kahn would have been correct in his contentions had it been
duly established that defendant Federation is a corporation. The trouble,
however, is that neither the plaintiff nor the defendant Henri Kahn has adduced
any evidence proving the corporate existence of the defendant Federation. In
paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine
Football Federation is a sports association xxx." This has not been denied by
defendant Henri Kahn in his Answer. Being the President of defendant
Federation, its corporate existence is within the personal knowledge of
defendant Henri Kahn. He could have easily denied specifically the assertion
of the plaintiff that it is a mere sports association, if it were a domestic
corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no
power to enter into, or to ratify, a contract. The contract entered into by its
officers or agents on behalf of such association is not binding on, or
enforceable against it. The officers or agents are themselves personally liable.
x x x9
CA: reversed the RTC and ruled in favor of Henri Kahn
In finding for Henri Kahn, the Court of Appeals recognized the juridical
existence of the Federation. It rationalized that since petitioner failed to prove
that Henri Kahn guaranteed the obligation of the Federation, he should not be
held liable for the same as said entity has a separate and distinct personality
from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer
pleaded that the Federation be held liable for the unpaid obligation. The same
was denied by the appellate court in its resolution of 8 February 1995, where
it stated that:
ISSUE:
Whether or not HENRI KAHN is personally liable for the obligation of
the Federation.
28
HELD: the doctrine applies to a third party only when he
tries to escape liability on a contract from which
Yes. he has benefited on the irrelevant ground of
defective incorporation. In the case at bar, the
Failure of Henri Kahn to substantiate that the Federation was recognized
by the accrediting organization, the Philippine Amateur Athletic
petitioner is not trying to escape liability from the
Federation under R.A. 3135, and the Department of Youth and Sports contract but rather is the one claiming from the contract.
Development under P.D. 604 thus the Philippine Football Federation is
not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own.

Thus being said, it follows that private respondent Henry Kahn should
be held liable for the unpaid obligations of the unincorporated
Philippine Football Federation. It is a settled principal in corporation
law that any person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and becomes
personally liable for contract entered into or for other acts performed as
such agent. WHEREFORE, the decision of the Regional Trial Court is
REINSTATED.

2. WON THE DOCTRINE OF CORPORATION BY ESTOPPEL APPLIES

No. The application of such doctrine applies only to a third party only when he
tries to escape liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation. In the case at bar, the petitioner
is not trying to escape liability from the contract but rather the one claiming
from the contract.

We do not agree with the position taken by the CA that

even assuming that the Federation was defectively
incorporated, the petitioner cannot deny the corporate
existence of the Federation because it had contracted and
dealt with the Federation in such a manner as to
recognize and in effect admit its existence. The doctrine
of corporation by estoppel is mistakenly applied by the
respondent court to the petitioner. The application of
29
11. G.R. No. 91889 August 27, 1993
MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND
NEPOMUCENO REDOVAN, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN,
MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND
CASTRENSE C. VELOSO, respondents.
Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as
members of its Board of Directors:
a) Manuel R. Dulay with 19,960 shares and designated as president,
treasurer and general manager
b) Atty. Virgilio E. Dulay with 10 shares and designated as vice-president;
c) Linda E. Dulay with 10 shares;
d) Celia Dulay-Mendoza with 10 shares; and
e) Atty. Plaridel C. Jose with 10 shares and designated as secretary,
owned a property covered by TCT No. 17880 4 and known as Dulay
Apartment consisting of sixteen (16) apartment units on a six hundred
eighty-nine (689) square meters lot, more or less, located at Seventh
Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various
loans for the construction of its hotel project, Dulay Continental Hotel (now
Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to
be able to continue the hotel project.
As a result of said loan, petitioner Virgilio Dulay occupied one of the unit
apartments of the subject property while at the same time managing the Dulay
Apartment at his shareholdings in the corporation was subsequently increased
by his father. 5
Manuel Dulay by virtue of Board Resolution
No 186 of petitioner corporation sold the subject property to private
respondents spouses Maria Theresa and Castrense Veloso in the amount of
P300,000.00 as evidenced by the Deed of Absolute Sale.7
Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject
property to Manuel A. Torres for a loan of P250,000.00
Upon the failure of Maria Veloso to pay Torres, the subject property was sold
to Torres as the highest bidder in an extrajudicial foreclosure sale.
As neither Maria Veloso nor her assignee Manuel Dulay was able to redeem
the subject property within the one year statutory period for redemption, Torres
filed an Affidavit of Consolidation of Ownership and petition for issuance of a
writ of possession13
.Torres and Edgardo Pabalan, real estate administrator of Torres, filed an
action against petitioner corporation, Virgilio Dulay and Nepomuceno
Redovan, for the recovery of possession, sum of money and damages.
On July 21, 1980, petitioner corporation filed an action against private
respondents spouses Veloso and Torres for the cancellation of the Certificate
of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then
Court of First Instance of Rizal.
On January 29, 1981, private respondents Pabalan and Torres filed an action
against spouses Florentino and Elvira Manalastas, a tenant of Dulay
Apartment Unit No. 7-B, with petitioner corporation as intervenor for ejectment
in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which
rendered a decision on April 25, 1985, dispositive portion of which reads, as
follows:
Wherefore, judgment is hereby rendered in favor of the
plaintiff (herein private respondents) and against the
defendants:
1. Ordering the defendants and all persons claiming
possession under them to vacate the premises.
2. Ordering the defendants to pay the rents in the sum of
P500.000 a month from May, 1979 until they shall have
vacated the premises with interest at the legal rate;
3. Ordering the defendants to pay attorney's fees in the sum
of P2,000.00 and P1,000.00 as other expenses of litigation
and for them to pay the costs of the suit.15
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed
an action against the presiding judge of the Metropolitan Trial Court of Pasay
City, private respondents Pabalan and Torres for the annulment of said
decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a
decision in favor of private respondents.
30
Not satisfied with said decision, petitioners appealed to the Court of Appeals corporation after having knowledge of the meeting which, in this case, Virgilio
which rendered a decision on October 23, 1989, the dispositive portion of Dulay failed to do.
which reads, as follows:
The corporation's claim that the sale of the subject property by its president,
PREMISES CONSIDERED, the decision being appealed Manuel Dulay, to spouses Veloso is null and void as the alleged Board
should be as it is hereby AFFIRMED in full. 16 Resolution 18 was passed without the knowledge and consent of the other
members of the board of directors cannot be sustained.
On November 8, 1989, petitioners filed a Motion for Reconsideration which
was denied on January 26, 1990. Virgilio E. Dulay's protestations of complete innocence to the effect that he
never participated nor was even aware of any meeting or resolution
authorizing the mortgage or sale of the subject premises is difficult to believe.
On the contrary, he is very much privy to the transactions involved. To begin
with, he is an incorporator and one of the board of directors designated at the
ISSUE: time of the organization of Manuel R. Dulay Enterprises, Inc. In ordinary
parlance, the said entity is loosely referred to as a "family corporation."
Whether the sale of the subject property between spouses Veloso and Manuel
Dulay has no binding effect on the corporation as Board Resolution 18 which The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a
authorized the sale of the subject property was resolved without the approval group and the parochial instincts of the individual members of such an
of all the members of the board of directors and said Board Resolution was aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of
prepared by a person not designated by the corporation to be its secretary its incorporators being close relatives namely, 3 children and their father
whose name identifies their corporation. Besides, the fact that Virgilio Dulay
RULING: on 24 June 1975 executed an affidavit that he was a signatory witness to the
execution of the post-dated Deed of Absolute Sale of the subject property in
favor of Torres indicates that he was aware of the transaction executed
Section 101 of the Corporation Code of the Philippines provides that "When
between his father and Torres and had, therefore, adequate knowledge about
board meeting is unnecessary or improperly held. Unless the by-laws provide
the sale of the subject property to Torres. Consequently, the corporation is
otherwise, any action by the directors of a close corporation without a meeting
liable for the act of Manuel Dulay and the sale of the subject property to Torres
shall nevertheless be deemed valid if: (1) Before or after such action is taken,
by Manuel Dulay is valid and binding.
written consent thereto is signed by all the directors; or (2) All the stockholders
have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or (3) The directors are accustomed to take informal action
with the express or implied acquiesce of all the stockholders; or (4) All the
directors have express or implied knowledge of the action in question and none
of them makes prompt objection thereto in writing. If a directors' meeting is
held without proper call or notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to attend, unless he promptly
files his written objection with the secretary of the corporation after having
knowledge thereof." Herein, the corporation is classified as a close corporation
and consequently a board resolution authorizing the sale or mortgage of the
subject property is not necessary to bind the corporation for the action of its
president.

At any rate, a corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent director unless
the latter promptly files his written objection with the secretary of the

31
12 G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
"Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation organized
under the laws of the Philippines with an original authorized capital stock of
P22,000.00, which was subsequently increased to P200,000.00, among
others, to it "proporcionar, operar, y mantener un campo de golf, tenis,
gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y
pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas
generales; y desarollar y cultivar deportes de toda clase y denominacion
cualquiera para el recreo y entrenamiento saludable de sus miembros y
accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A).
Neither in the articles or by-laws is there a provision relative to dividends and
their distribution, although it is covenanted that upon its dissolution, the Club's
remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).
The Club owns and operates a club house, a bowling alley, a golf course (on
a lot leased from the government), and a bar-restaurant where it sells wines
and liquors, soft drinks, meals and short orders to its members and their
guests. The bar-restaurant was a necessary incident to the operation of the
club and its golf-course. The club is operated mainly with funds derived from
membership fees and dues. Whatever profits it had, were used to defray its
overhead expenses and to improve its golf-course. In 1951. as a result of a
capital surplus, arising from the re-valuation of its real properties, the value or
price of which increased, the Club declared stock dividends; but no actual cash
dividends were distributed to the stockholders. In 1952, a BIR agent
discovered that the Club has never paid percentage tax on the gross receipts
of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In
a letter dated December 22, 1852, the Collector of Internal Revenue assessed
against and demanded from the Club, the following sums: —
As percentage tax on its gross receipts
during the tax years 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the cancellation of the
assessment. The request having been denied, the Club filed the instant
petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of
12,068.84, as fixed and percentage taxes and surcharges prescribed in
sections 182, 183 and 191 of the Tax Code, under which the assessment was
made, in connection with the operation of its bar and restaurant, during the
periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise
penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every person
engaging in a business on which the percentage tax is imposed shall pay in
full a fixed annual tax of ten pesos for each calendar year or fraction thereof in
which such person shall engage in said business." Section 183 provides in
general that "the percentage taxes on business shall be payable at the end of
each calendar quarter in the amount lawfully due on the business transacted
during each quarter; etc." And section 191, same Tax Code, provides
"Percentage tax . . . Keepers of restaurants, refreshment parlors and other
eating places shall pay a tax three per centum, and keepers of bar and cafes
where wines or liquors are served five per centum of their gross receipts . . .".
It has been held that the liability for fixed and percentage taxes, as provided
by these sections, does not ipso facto attach by mere reason of the operation
of a bar and restaurant. For the liability to attach, the operator thereof must be
engaged in the business as a barkeeper and restaurateur. The plain and
ordinary meaning of business is restricted to activities or affairs where profit is
the purpose or livelihood is the motive, and the term business when used
without qualification, should be construed in its plain and ordinary meaning,
restricted to activities for profit or livelihood (The Coll. of Int. Rev. v. Manila
Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R.
No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll.
of Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-
12178, Aug. 21, 1959, the facts of which are similar to the ones at bar; Manila
Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate
sports of all class and denomination, for the healthful recreation and
entertainment of its stockholders and members; that upon its dissolution, its
remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu; that it is operated mainly with funds derived from
32
membership fees and dues; that the Club's bar and restaurant catered only to
its members and their guests; that there was in fact no cash dividend
distribution to its stockholders and that whatever was derived on retail from its
bar and restaurant was used to defray its overall overhead expenses and to
improve its golf-course (cost-plus-expenses-basis), it stands to reason that the
Club is not engaged in the business of an operator of bar and restaurant (same
authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-making
enterprise. The bar and restaurant are necessary adjuncts of the Club to foster
its purposes and the profits derived therefrom are necessarily incidental to the
primary object of developing and cultivating sports for the healthful recreation
and entertainment of the stockholders and members. That a Club makes some
profit, does not make it a profit-making Club. As has been remarked a club
should always strive, whenever possible, to have surplus (Jesus Sacred Heart
College v. Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of
Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23,
1956).1äwphï1.ñët
It is claimed that unlike the two cases just cited (supra), which are non-stock,
the appellee Club is a stock corporation. This is unmeritorious. The facts that
the capital stock of the respondent Club is divided into shares, does not detract
from the finding of the trial court that it is not engaged in the business of
operator of bar and restaurant. What is determinative of whether or not the
Club is engaged in such business is its object or purpose, as stated in its
articles and by-laws. It is a familiar rule that the actual purpose is not controlled
by the corporate form or by the commercial aspect of the business prosecuted,
but may be shown by extrinsic evidence, including the by-laws and the method
of operation. From the extrinsic evidence adduced, the Tax Court concluded
that the Club is not engaged in the business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied
with, to wit: (1) a capital stock divided into shares and (2) an authority to
distribute to the holders of such shares, dividends or allotments of the surplus
profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at
bar, nowhere in its articles of incorporation or by-laws could be found an
authority for the distribution of its dividends or surplus profits. Strictly speaking,
it cannot, therefore, be considered a stock corporation, within the
contemplation of the corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon
fraternal, civic, non-profit, nonstock organizations, unless the intent to the
contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra),
which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the
business as an operator of a bar and restaurant, and therefore, not liable for
fixed and percentage taxes, it follows that it is not liable for any penalty, much
less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.
THE COLLECTOR OF INTERNAL
REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
FACTS: The Club owns and operates a club house, a bowling
alley, a golf course (on a lot leased from the government), and
a bar-restaurant where it sells wines and liquors, soft drinks,
meals and short orders to its members and their guests. The bar-
restaurant was a necessary incident to the operation of the club
and its golf-course. The club is operated mainly with funds
derived from membership fees and dues. Whatever profits it
had, were used to defray its overhead expenses and to improve
its golf-course. In 1951. as a result of a capital surplus, arising
from the re-valuation of its real properties, the value or price of
which increased, the Club declared stock dividends; but no
actual cash dividends were distributed to the stockholders. In
1952, a BIR agent discovered that the Club has never paid
percentage tax on the gross receipts of its bar and restaurant.
CIR assessed against and demanded from the Club taxes
allegedly due.
ISSUE: WON Club Filipino is liable for the taxes (WON it is
a stock corporation)
33
 necessary adjuncts of the Club to foster its purposes and the
HELD: No (it is non-stock) profits derived therefrom are necessarily incidental to the
The Club was organized to develop and cultivate sports of all primary object of developing and cultivating sports for the
class and denomination for the healthful recreation and healthful recreation and entertainment of the stockholders and
entertainment of its stockholders and members. There was in members. That a Club makes some profit, does not make it a
fact, no cash dividend distribution to its stockholders and profit-making Club. As has been remarked a club should always
whatever was derived on retail from its bar and restaurants used strive, whenever possible, to have surplus
were to defray its overhead expenses and to improve its golf
course.
For a stock corporation to exist, 2 requisites must be
complied with:
(1) A capital stock divided into shares
(2) An authority to distribute to the holders of such shares,
dividends or allotments of the surplus profits on the basis of
shares held.
In the case at bar, nowhere in the AOI or by-laws of Club
Filipino could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot,
therefore, be considered a stock corporation, within the
contemplation of the corporation law.
The fact that the capital stock of the respondent Club is divided
into shares, does not detract from the finding of the trial court
that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is
engaged in such business is its object or purpose, as stated in its
articles and by-laws. It is a familiar rule that the actual purpose
is not controlled by the corporate form or by the commercial
aspect of the business prosecuted, but may be shown by
extrinsic evidence, including the by-laws and the method of
operation.
It is conceded that the Club derived profit from the operation of
its bar and restaurant, but such fact does not necessarily convert
it into a profit-making enterprise. The bar and restaurant are

34
EN BANC
[G.R. Nos. 84132-33 : December 10, 1990.]
192 SCRA 257
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC.,
Petitioners, vs. PHILIPPINE VETERANS BANK, THE EX-
OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity
as Deputy Sheriff of Calamba, Laguna, Respondents.
DECISION
CRUZ, J.:
This case involves the constitutionality of a presidential decree
which, like all other issuances of President Marcos during his regime,
was at that time regarded as sacrosanct. It is only now, in a freer
atmosphere, that his acts are being tested by the touchstone of the
fundamental law that even then was supposed to limit presidential
action.: rd
The particular enactment in question is Pres. Decree No. 1717, which
ordered the rehabilitation of the Agrix Group of Companies to be
administered mainly by the National Development Company. The
law outlined the procedure for filing claims against the Agrix
companies and created a Claims Committee to process these claims.
Especially relevant to this case, and noted at the outset, is Sec. 4(1)
thereof providing that "all mortgages and other liens presently
attaching to any of the assets of the dissolved corporations are
hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of
private respondent Philippine Veterans Bank a real estate mortgage
dated July 7, 1978, over three (3) parcels of land situated in Los
Baños, Laguna. During the existence of the mortgage, AGRIX went
bankrupt. It was for the expressed purpose of salvaging this and the
other Agrix companies that the aforementioned decree was issued
by President Marcos.
Pursuant thereto, the private respondent filed a claim with the
AGRIX Claims Committee for the payment of its loan credit. In the
meantime, the New Agrix, Inc. and the National Development
Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed
a petition with the Regional Trial Court of Calamba, Laguna, for the
cancellation of the mortgage lien in favor of the private respondent.
For its part, the private respondent took steps to extrajudicially
foreclose the mortgage, prompting the petitioners to file a second
case with the same court to stop the foreclosure. The two cases were
consolidated.
After the submission by the parties of their respective pleadings, the
trial court rendered the impugned decision. Judge Francisco Ma.
Guerrero annulled not only the challenged provision, viz., Sec. 4 (1),
but the entire Pres. Decree No. 1717 on the grounds that: (1) the
presidential exercise of legislative power was a violation of the
principle of separation of powers; (2) the law impaired the obligation
of contracts; and (3) the decree violated the equal protection clause.
The motion for reconsideration of this decision having been denied,
the present petition was filed.: rd
The petition was originally assigned to the Third Division of this Court
but because of the constitutional questions involved it was
transferred to the Court en banc. On August 30, 1988, the Court
granted the petitioner's prayer for a temporary restraining order and
instructed the respondents to cease and desist from conducting a
public auction sale of the lands in question. After the Solicitor
General and the private respondent had filed their comments and
the petitioners their reply, the Court gave due course to the petition
and ordered the parties to file simultaneous memoranda. Upon
compliance by the parties, the case was deemed submitted.
The petitioners contend that the private respondent is now estopped
from contesting the validity of the decree. In support of this
contention, it cites the recent case of Mendoza v. Agrix Marketing,
Inc., 1 where the constitutionality of Pres. Decree No. 1717 was also
raised but not resolved. The Court, after noting that the petitioners
had already filed their claims with the AGRIX Claims Committee
created by the decree, had simply dismissed the petition on the
ground of estoppel.
The petitioners stress that in the case at bar the private respondent
also invoked the provisions of Pres. Decree No. 1717 by filing a claim
with the AGRIX Claims Committee. Failing to get results, it sought
to foreclose the real estate mortgage executed by AGRIX in its favor,
which had been extinguished by the decree. It was only when the
petitioners challenged the foreclosure on the basis of Sec. 4 (1) of
the decree, that the private respondent attacked the validity of the
35
provision. At that stage, however, consistent with Mendoza, the
private respondent was already estopped from questioning the
constitutionality of the decree.
The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the
AGRIX Claims Committee pursuant to this decree. It must be noted,
however, that this was done in 1980, when President Marcos was
the absolute ruler of this country and his decrees were the absolute
law. Any judicial challenge to them would have been futile, not to
say foolhardy. The private respondent, no less than the rest of the
nation, was aware of that reality and knew it had no choice under
the circumstances but to conform.: nad
It is true that there were a few venturesome souls who dared to
question the dictator's decisions before the courts of justice then.
The record will show, however, that not a single act or issuance of
President Marcos was ever declared unconstitutional, not even by
the highest court, as long as he was in power. To rule now that the
private respondent is estopped for having abided with the decree
instead of boldly assailing it is to close our eyes to a cynical fact of
life during that repressive time.
This case must be distinguished from Mendoza, where the
petitioners, after filing their claims with the AGRIX Claims
Committee, received in settlement thereof shares of stock valued at
P40,000.00 without protest or reservation. The herein private
respondent has not been paid a single centavo on its claim, which
was kept pending for more than seven years for alleged lack of
supporting papers. Significantly, the validity of that claim was not
questioned by the petitioner when it sought to restrain the
extrajudicial foreclosure of the mortgage by the private respondent.
The petitioner limited itself to the argument that the private
respondent was estopped from questioning the decree because of its
earlier compliance with its provisions.
Independently of these observations, there is the consideration that
an affront to the Constitution cannot be allowed to continue existing
simply because of procedural inhibitions that exalt form over
substance.
The Court is especially disturbed by Section 4(1) of the decree,
quoted above, extinguishing all mortgages and other liens attaching
to the assets of AGRIX. It also notes, with equal concern, the
restriction in Subsection (ii) thereof that all "unsecured obligations
shall not bear interest" and in Subsection (iii) that "all accrued
interests, penalties or charges as of date hereof pertaining to the
obligations, whether secured or unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is
clearly provided in Section 1 that "no person shall be deprived of life,
liberty or property without due course of law nor shall any person be
denied the equal protection of the law" and in Section 10 that "no
law impairing the obligation of contracts shall be passed."
In defending the decree, the petitioners argue that property rights,
like all rights, are subject to regulation under the police power for
the promotion of the common welfare. The contention is that this
inherent power of the state may be exercised at any time for this
purpose so long as the taking of the property right, even if based on
contract, is done with due process of law.
This argument is an over-simplification of the problem before us.
The police power is not a panacea for all constitutional maladies.
Neither does its mere invocation conjure an instant and automatic
justification for every act of the government depriving a person of
his life, liberty or property.
A legislative act based on the police power requires the concurrence
of a lawful subject and a lawful method. In more familiar words, a)
the interests of the public generally, as distinguished from those of
a particular class, should justify the interference of the state; and b)
the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon
individuals. 2
Applying these criteria to the case at bar, the Court finds first of all
that the interests of the public are not sufficiently involved to warrant
the interference of the government with the private contracts of
AGRIX. The decree speaks vaguely of the "public, particularly the
small investors," who would be prejudiced if the corporation were
not to be assisted. However, the record does not state how many
there are of such investors, and who they are, and why they are
being preferred to the private respondent and other creditors of
AGRIX with vested property rights.:-cralaw
The public interest supposedly involved is not identified or explained.
It has not been shown that by the creation of the New Agrix, Inc.
and the extinction of the property rights of the creditors of AGRIX,
the interests of the public as a whole, as distinguished from those of
a particular class, would be promoted or protected. The
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indispensable link to the welfare of the greater number has not been
established. On the contrary, it would appear that the decree was
issued only to favor a special group of investors who, for reasons not
given, have been preferred to the legitimate creditors of AGRIX.
Assuming there is a valid public interest involved, the Court still finds
that the means employed to rehabilitate AGRIX fall far short of the
requirement that they shall not be unduly oppressive. The
oppressiveness is patent on the face of the decree. The right to
property in all mortgages, liens, interests, penalties and charges
owing to the creditors of AGRIX is arbitrarily destroyed. No
consideration is paid for the extinction of the mortgage rights. The
accrued interests and other charges are simply rejected by the
decree. The right to property is dissolved by legislative fiat without
regard to the private interest violated and, worse, in favor of another
private interest.
A mortgage lien is a property right derived from contract and so
comes under the protection of the Bill of Rights. So do interests on
loans, as well as penalties and charges, which are also vested rights
once they accrue. Private property cannot simply be taken by law
from one person and given to another without compensation and
any known public purpose. This is plain arbitrariness and is not
permitted under the Constitution.
And not only is there arbitrary taking, there is discrimination as well.
In extinguishing the mortgage and other liens, the decree lumps the
secured creditors with the unsecured creditors and places them on
the same level in the prosecution of their respective claims. In this
respect, all of them are considered unsecured creditors. The only
concession given to the secured creditors is that their loans are
allowed to earn interest from the date of the decree, but that still
does not justify the cancellation of the interests earned before that
date. Such interests, whether due to the secured or the unsecured
creditors, are all extinguished by the decree. Even assuming such
cancellation to be valid, we still cannot see why all kinds of creditors,
regardless of security, are treated alike.
Under the equal protection clause, all persons or things similarly
situated must be treated alike, both in the privileges conferred and
the obligations imposed. Conversely, all persons or things differently
situated should be treated differently. In the case at bar, persons
differently situated are similarly treated, in disregard of the principle
that there should be equality only among equals.- nad
One may also well wonder why AGRIX was singled out for
government help, among other corporations where the stockholders
or investors were also swindled. It is not clear why other companies
entitled to similar concern were not similarly treated. And surely, the
stockholders of the private respondent, whose mortgage lien had
been cancelled and legitimate claims to accrued interests rejected,
were no less deserving of protection, which they did not get. The
decree operated, to use the words of a celebrated case, 3 "with an
evil eye and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree
notwithstanding the provision of Article XIV, Section 4 of the 1973
Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law,
provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by
the Government or any subdivision or instrumentality thereof. 4
The new corporation is neither owned nor controlled by the
government. The National Development Corporation was merely
required to extend a loan of not more than P10,000,000.00 to New
Agrix, Inc. Pending payment thereof, NDC would undertake the
management of the corporation, but with the obligation of making
periodic reports to the Agrix board of directors. After payment of the
loan, the said board can then appoint its own management. The
stocks of the new corporation are to be issued to the old investors
and stockholders of AGRIX upon proof of their claims against the
abolished corporation. They shall then be the owners of the new
corporation. New Agrix, Inc. is entirely private and so should have
been organized under the Corporation Law in accordance with the
above-cited constitutional provision.
The Court also feels that the decree impairs the obligation of the
contract between AGRIX and the private respondent without
justification. While it is true that the police power is superior to the
impairment clause, the principle will apply only where the contract
is so related to the public welfare that it will be considered
congenitally susceptible to change by the legislature in the interest
of the greater number. 5 Most present-day contracts are of that
nature. But as already observed, the contracts of loan and mortgage
executed by AGRIX are purely private transactions and have not
been shown to be affected with public interest. There was therefore
no warrant to amend their provisions and deprive the private
respondent of its vested property rights.
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It is worth noting that only recently in the case of the Development
Bank of the Philippines v. NLRC, 6 we sustained the preference in
payment of a mortgage creditor as against the argument that the
claims of laborers should take precedence over all other claims,
including those of the government. In arriving at this ruling, the
Court recognized the mortgage lien as a property right protected by
the due process and contract clauses notwithstanding the argument
that the amendment in Section 110 of the Labor Code was a proper
exercise of the police power.: nad
The Court reaffirms and applies that ruling in the case at bar.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid
exercise of the police power, not being in conformity with the
traditional requirements of a lawful subject and a lawful method. The
extinction of the mortgage and other liens and of the interest and
other charges pertaining to the legitimate creditors of AGRIX
constitutes taking without due process of law, and this is
compounded by the reduction of the secured creditors to the
category of unsecured creditors in violation of the equal protection
clause. Moreover, the new corporation, being neither owned nor
controlled by the Government, should have been created only by
general and not special law. And insofar as the decree also interferes
with purely private agreements without any demonstrated
connection with the public interest, there is likewise an impairment
of the obligation of the contract.
With the above pronouncements, we feel there is no more need to
rule on the authority of President Marcos to promulgate Pres. Decree
No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if
he had such authority, the decree must fall just the same because
of its violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is
declared UNCONSTITUTIONAL. The temporary restraining order
dated August 30, 1988, is LIFTED. Costs against the petitioners.-
nad
SO ORDERED.

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