SPECI

ALSECONDDI
VISI
ON

G.
R.No.144476 Apr
il8,
2003

ONGYONG,JUANI
TATANONG, WI
LSONT.ONG,
ANNAL.ONG,
WILLI
AM T.ONG,
WILLI
ET.
ONG,
andJULIEONGALONZO,
peti
ti
oner
s,

v
s.

DAVIDS.TI U,CELYY.TI
U,MOLYYUGAW, BELENSEEYU,D.TERENCEY.TI
U,JOHNYU,
LOURDESC.TI U,I
NTRALANDRESOURCESDEVELOPMENTCORP. ,
MASAGANATELAMART,
INC.,REGISTEROFDEEDSOFPASAYCI TY,andt
heSECURI
TIESANDEXCHANGECOMMI SSI
ON,
respondents.

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x

G.
R.No.144629 Apr
il8,
2003

DAVIDS.TI
U,CELYY.TIU,
MOLYYUGAW, BELENSEEYU,D.TERENCEY.TIU,JOHNYU,
LOURDESC.TIU,andI
NTRALANDRESOURCESDEVELOPMENTCORP.,peti
ti
oners,

v
s.

ONGYONG,JUANI
TATANONG,WI LSONT.ONG,
ANNAL.ONG,
WILLI
AM T.ONG,
WILLI
ET.
ONG,
andJULIAONGALONZO,
respondent
s.

RESOLUTION

CORONA,
J.:

Beforeusarethe(1)mot
ionforreconsi
derat
ion,datedMar ch15,
2002,ofpeti
ti
onermov ant
s
OngYong, Juani
taTanOng,Wil
sonOng, AnnaOng, Wi l
l
iam Ong,Wil
li
eOngandJul i
aOng
Alonzo(t
heOngs) ;(
2)moti
onforparti
alr
econsiderati
on,datedMarch15,2002,ofpet
it
ioner
mov antWi l
li
eOngseekingar eversalofthisCour t'
sDeci si
on,
1dat edFebruar
y1, 2002,i
nG.R.
Nos.144476and144629af fi
rmi ngwithmodi fi
cationthedecisi
on2oft heCourtofAppeals,
datedOct ober5,1999,whichint urnuphel d,l
ikewisewi thmodif
icati
on,thedeci
sionoftheSEC
enbanc, datedSeptember11, 1998;and( 3)mot ionforissuanceofwr i
tofexecutionof
peti
tioner
sDav idS.Tiu,CelyY.Ti u,
Mol yYuGow, BelenSeeYu, D.TerenceY.Tiu,JohnYuand
LourdesC.Ti u(theTi
us)ofourFebr uary1, 2002Deci sion.

Abr
iefr
ecapi
tul
ati
onoft
hef
act
sshowst
hat
:

In1994, theconstructi
onoft heMasaganaCi ti
mal li
nPasayCi tywast hreatenedwi thst oppage
andincompl et
ionwheni tsowner , t
heFi r
stLandl inkAsi aDev elopmentCor por ation( FLADC) ,
whichwasownedbyt heTius, encount er
eddi refinancial di
fficult
ies.Itwasheav i
lyindebt edt o
thePhi l
ippi neNationalBank(PNB)f orP190mi l
li
on.Tost aveof ff or
ecl osureoft hemor tgageon
thetwol otswher ethemal lwasbei ngbui l
t,t
heTi usi nvi
tedOngYong, Juani taTanOng, Wi lson
T.Ong, AnnaL.Ong, Will
i
am T.OngandJul iaOngAl onzo( theOngs) ,toi nvesti nFLADC.Under
thePr e-Subscr i
pti
onAgr eementt heyent er
edi nto,theOngsandt heTi usagr eedt omai nt ain
equal shar eholdi
ngsinFLADC: t
heOngswer et osubscr ibet o1,000,000shar esataparv al
ueof
P100.00eachwhi letheTiuswer etosubscr i
bet oanaddi ti
onal 549,800shar esatP100. 00each
i
naddi t
iont ot
heiralr
eadyexist i
ngsubscr i
ptionof450, 200shar es.Fur thermor e,theyagr eed
thattheTi uswereent i
tl
edtonomi natetheVi ce-Presidentandt heTr easur erpl usf i
vedi rectors
whiletheOngswer eenti
tl
edt onomi natethePr esident,theSecr etar
yandsi xdi r
ector s
(i
ncludingt hechairman)totheboar dofdi rectorsofFLADC.Mor eover ,theOngswer egiv enthe
ri
ghttomanageandoper at
et hemal l.

Accor di
ngly
,theOngspai dP100mi l
li
onincashf orthei
rsubscript
ionto1, 000,
000sharesof
stockwhi l
etheTiuscommi tt
edtocont r
ibutetoFLADCaf our-
stor
eybui l
dingandt woparcel
sof
l
andr especti
velyvaluedatP20mi l
l
ion(for200,000shares),P30mi l
l
ion( f
or300,000shares)
andP49. 8mi l
li
on(for49,800shares)tocov erthei
raddi
tional549,
800st ocksubscr i
pti
on
therei
n.TheOngspai dinanotherP70mi ll
ion3toFLADCandP20mi ll
iontot heTiusoverand
abov ethei
rP100mi lli
oninvestment,t
het otalsum ofwhich(P190mi ll
ion)wasusedt osettl
e
theP190mi l
li
onmor t
gageindebtednessofFLADCt oPNB.

ThebusinessharmonybetweentheOngsandt heTi
usinFLADC, howev er,
wasshor tl
i
ved
becausetheTius,
onFebruary23,1996,r
esci
ndedthePre-
Subscript
ionAgr eement.TheTi
us
accusedtheOngsof(1)ref
usingtocredi
ttot
hem theFLADCshar escov er
ingthei
rrealpr
oper
ty
contr
ibut
ions;
(2)prev
ent
ingDav i
dS.TiuandCelyY.Ti
uf r
om assumi ngthepositi
onsofand
perf
ormingt
heirdut
iesasVice-
Presi
dentandTr
easur
er,
respect
ivel
y,and(
3)r
efusi
ngt
ogi
ve
them t
heoff
icespacesagr
eedupon.

Accor dingtot heTius,theagr eementwasf orDav idS.TiuandCel yS.Tiutoassumet he

positi
onsandper f
ormt hedut iesofVi ce-Presi
dentandTr easurer
,respect
ivel
y,buttheOngs
prevent edthem from doingso.Fur thermor e,t
heOngsr efusedtoprovidethem thespacef or
theirexecut i
veofficesasVi ce-PresidentandTr easurer
.Finall
y,andmostser i
ousofal l
,the
Ongsr efusedt ogi
v ethem theshar escor respondi ngtotheirpr
opertycontri
buti
onsofaf our
-
storybui ldi
ng,a1,902.30squar e-
met erlotanda151squar e-meterlot
.Hence,theyfel
tthey
wer ejustifi
edinset t
ingasidet heirPre-SubscriptionAgreementwi ththeOngswhoal l
egedly
refusedt ocompl ywi ththei
runder t
akings.

Inthei rdef ense, theOngssai dt hatDav i

dS.Ti uandCel yY.Ti uhadi nf actassumedt he
posi tionsofVi ce- Presi dentandTr easur erofFLADCbutt hatitwast heywhor efusedt ocompl y
witht hecor porat edut iesassi gnedt ot hem.I twast hecont entionoft heOngst hatt heywant ed
theTi ust osi gnt hechecksoft hecor por ationandunder taket heirmanagementdut iesbutt hat
theTi usshi edawayf rom hel pingt hem managet hecor por at
ion.Ont hei ssueofof ficespace,
theOngspoi ntedoutt hatt heTi usdi di nf actal readyhav eexi stingexecut i
v eofficesi nt hemal l
sincet heyownedi t100%bef or et heOngscamei n.Whatt heTi usr eallywant edwer enew
officeswhi chwer eany waysubsequent l
ypr ov idedt ot hem.Ont hemosti mpor t
anti ssueoft heir
all
egedf ail
ur et ocr editt heTi uswi ththeFLADCshar escommensur atet otheTi us' proper t
y
cont ributions, theOngsasser t edt hat ,althought heTi usexecut edadeedofassi gnmentf orthe
1,902. 30squar e-met erl oti nf av orofFLADC, they( theTi us)r efusedt opayP570, 690f orcapi tal
gainst axanddocument aryst ampt ax .Wi thoutt hepay mentt her eof,theSECwoul dnotappr ove
thev aluationoft heTi us' proper tycont ri
but ion( asopposedt ocashcont ri
bution).Thi s,inturn,
woul dmakei timpossi blet osecur eanewTr ansf erCer ti
ficateofTi tle( TCT)ov ert hepr opertyi n
FLADC' sname.I nanyev ent ,i
twaseasyf ort heTi ust osi mpl ypayt hesai dtransf ertaxesand,
aftert henewTCTwasi ssuedi nFLADC' sname, theycoul dthenbegi v enthecor respondi ng
shar esofst ocks.Ont he151squar e-
met erpr oper ty,theTi usnev erexecut edadeedof
assi gnmenti nf av orofFLADC.TheTi usi ni t
iallycl aimedt hatt heycoul dnotasy etsur r
endert he
TCTbecausei twas" stillbeingr econst it
ut ed"byt heLi chaucosf rom whom t heTi usboughti t.
TheOngsl at erondi scov er
edt hatFLADChadi nr eal i
tyownedt hepr oper tyallalong, even
befor et heirPr e- Subscr ipt i
onAgr eementwasexecut edi n1994.Thi smeantt hatt he151squar e-
met erpr oper tywasatt hatt i
meal readyt hecor por atepr oper tyofFLADCf orwhi cht heTi us
wer enotent i
tl
edt ot hei ssuanceofnewshar esofst ock.

Thecontr
oversyf
inal
l
ycamet oaheadwhent hiscasewascommenced4bytheTi
uson
Febr
uary27,1996attheSecur
it
iesandExchangeCommi ssi
on(
SEC)
,seeki
ngconf
ir
mati
onof
thei
rresci
ssionoft
hePre-Subscri
pti
onAgr
eement.Af
terheari
ng,t
heSEC,thr
oughthenHeari
ng
Offi
cerRolandoG.Andaya,Jr
.,i
ssuedadeci
siononMay19, 1997conf
ir
mingther
escissi
on
soughtbytheTius,
asfol
lows:

WHEREFORE,j
udgmentisherebyrender
edconf
ir
mingt
her
esci
ssi
onoft
hePr
e-Subscr
ipt
ion
Agr
eement
,andconsequent
lyorderi
ng:

(
a)Thecancel
l
ati
onoft
he1,
000,
000shar
essubscr
ipt
ionoft
hei
ndi
vi
dual
def
endant
sinFLADC;

(
b)FLADCtopaytheamountofP170,
000,
000.
00tothei
ndi
vi
dual
def
endant
srepr
esent
ingt
he
r
etur
nofthei
rcont
ri
but
ionfor1,
000,
000shar
esofFLADC;

(c)Theplai
nti
ff
st osubmitwit
h(si
c)t
heSecuri
ti
esandExchangeCommi
ssi
onamended
arti
clesofi
ncorporat
ionofFLADCtoconf
orm wi
ththi
sdeci
sion;

(d)Thedefendant
stosurr
endert
othepl
aint
if
fsTCTNos.132493,
132494,
134066(f
ormer
ly
15587),135325and134204andanyot
herti
tl
eordeedi
nthenameofFLADC,fai
li
nginwhi
ch
saidti
tl
esaredeclar
edvoi
d;

(e)TheRegi
sterofDeedstoi
ssuenewcertif
icat
esofti
tl
esinfav
oroft
heplai
nti
ff
sandt
o
cancelt
heannotati
onofthePr
e-Subscr
ipt
ionAgreementdat
ed15August1994onTCTNo.
134066(for
merly15587)
;

(f
)Thei ndi
vi
dualdefendant
s,indi
vidual
lyandcol
lect
ivel
y,t
heiragent
sandrepr
esentati
ves,
to
desistf
rom exer
cisi
ngorperforminganyandallactspert
aini
ngt ost
ockhol
der
,di
rectoror
off
icerofFLADCorinanymanneri nter
veneint
hemanagementandaf f
air
sofFLADC;

(g)Theindivi
dualdefendants,j
ointl
yandsev eral
ly
, t
oretur
ntoFLADCinterestpaymentinthe
amountofP8, 866,669.
00andal linter
estpayment saswellasanypay
ment sonpr i
ncipal
recei
vedfrom theP70,000,000.
00i nexi
stentloan,pl
usthelegal
rat
eofinterestt
hereonfrom t
he
dateoftheirr
eceiptofsuchpay mentunt i
lful
lypaid;
(h)Thepl
aint
iffDavi
dTiutopayindi
vidualdefendantst
hesum ofP20,
000,
000.00r
epr
esent
ing
hisloanf
rom saiddef
endant
spluslegalint
erestfrom t
hedat
eofrecei
ptofsuchamount
.

SOORDERED.
5

Onmotionofbothparti
es,theabovedeci
sionwaspart
ial
l
yreconsi
deredbutonl
yinsof
arasthe
Ongs'
P70mi l
li
onwasdecl arednotasapremium oncapi
tal
stockbutanadvance(l
oan)byt
he
OngstoFLADCandt hattheimposit
ionofi
nter
estonitwascorr
ect.
6

Bothpar t
iesappealed7totheSECenbancwhi chrenderedadeci si
ononSeptember11,1998,
affi
rmingt heMay19, 1997decisionoftheHeari
ngOf f
icer.TheSECenbancconf i
rmedthe
resci
ssionoft hePre-
Subscri
pti
onAgr eementbutrevertedtoclassi
fyi
ngtheP70mill
i
onpaidby
theOngsaspr emium oncapit
al andnotasaloanoradv ancet
oFLADC, hence,
notenti
tl
edto
earninter
est .
8

Onappeal
,theCour
tofAppeal
s(CA)r
ender
edadeci
siononOct
ober5,
1999,
thus:

WHEREFORE, theOrderdat
edSeptember11,
1998i
ssuedbytheSecuri
ti
esandExchange
Commi ssi
onEnBanci nSECACCASENOS.598and601conf i
rmingtheresci
ssi
onofthePr
e-
Subscri
pti
onAgreementdatedAugust15,
1994i
sherebyAFFI
RMED, subj
ecttot
hefol
lowi
ng
MODI FI
CATIONS:

1.TheOngandTiuGroupsar
eorderedt
oli
qui
dat
eFirstLandl
inkAsi
aDevel
opmentCorpor
ati
on
i
naccordancewi
tht
hef ol
l
owingcashandpr
oper
tycontri
buti
onsoft
hepart
iest
her
ein.

(a)OngGroup–P100,
000,000.
00cashcont
ri
but
ionforone(1)mil
li
onshar
esi
nFi
rstLandl
i
nk
AsiaDevel
opmentCor
porati
onataparval
ueofP100.00pershar
e;

(
b)Ti
uGr
oup:
1)P45,
020,
000.
00origi
nal
cashcontr
ibut
ionf
or450,
200sharesi
nFi
rstLandl
i
nkAsi
a
Devel
opmentCorpor
ati
onataparval
ueofP100.
00pershare;

2)Afour-st
oreybui
ldi
ngdescr
ibedinTransf
erCerti
fi
cat
eofTit
leNo.15587inthenameof
I
ntr
alandResourcesandDevelopmentCorporat
ionval
uedatP20,
000,
000.00for200,
000shar
es
i
nFirstLandli
nkAsi
aDevelopmentCorporat
ionataparval
ueofP100.00pershare;

3)A1,902.
30squar
e-met
erpar
celoflandcov
eredbyTr ansferCer
ti
fi
cateofTitl
eNo.15587i
n
thenameofMasaganaTel
amart,
Inc.val
uedatP30,000,000.00f
or300,000sharesi
nFir
st
Landl
inkAsi
aDevel
opmentCor
porati
onataparvalueofP100. 00pershare.

2)Whatev
erremainsoft
heassetsoft
heFir
stLandl
inkAsiaDevel
opmentCor
por
ati
onandt
he
managementther
eofis(
sic)her
ebyor
der
edtransf
erredt
ot heTi
uGroup.

3)FirstLandli
nkAsi aDevel
opmentCorporat
ionisherebyor
deredtopaytheamountof
P70,000,000.00thatwasadv ancedtoi
tbytheOngGr oupuponthefinal
it
yofthisdecisi
on.
Shouldthef ormerincuri
ndel ayi
nthepaymentther
eof,i
tshal
lpaythelegal
interestt
hereon
pursuanttoAr t
icl
e2209oft heNewCi vi
lCode.

4)TheTiusar
eherebyorder
edtopayt heamountofP20,000,
000.
00loanedt
hem bytheOngs
uponthefi
nal
it
yofthi
sdecisi
on.Shouldthefor
merincurindel
ayi
nthepaymentt
hereof,
itshal
l
paythel
egali
nter
estther
eonpursuanttoArt
icl
e2209oft heNewCiv
ilCode.

SOORDERED.
9

Aninteresti
ngsidel
ightoftheCAdeci si
onwasi tsdescr
ipti
onoft herescissionmadebythe
Tiusast he"hei
ghtofingrati
tude"andas"pull
ingafastone"ont heOngs.TheCAmor eov
er
foundtheTi usgui
lt
yofwi thholdi
ngFLADCf undsfrom t
heOngsanddi v
ertingcorpor
atei
ncome
tothei
rownMATTERCOaccount .10Thesewer efi
ndi
ngslateronaf f
ir
medi nourownFebruar
y
1,2002Deci si
onwhi chi
st hesubjectoft
heinstantmotionforreconsideration.
11
Buttherewasalsoast rangeaspectoft heCAdeci si
on.TheCAconcl udedt hatboththeOngs
andt heTiuswereinpar idelicto(whichwoul dnothavelegall
yentit
ledthem torescissi
on)but,
"forpract
ical
considerations,"thatis,theirinabil
it
yt oworktogether
, i
twasbestt oseparatethe
twogr oupsbyrescindingt hePr e-Subscr i
ptionAgreement ,
retur
ningtheoriginali
nvestmentof
theOngsandawar dingpr acticall
yev ery
t hi
ngel setotheTius.

Theirmot
ionsforr
econsi
der
ati
onhav
ingbeendeni
ed,
bot
hpar
ti
esf
il
edsepar
atepet
it
ionsf
or
rev
iewbeforet
hisCourt
.

Int heirpetit
iondocket edasG. R.No.144476, Ongetal .v s.Tiuetal .
,theOngsar guedt hatt he
Tiusmaynotpr operlyav ailofr escissionunderAr t
icl
e1191oft heCi vilCodeconsi deringt hat
thePr e-Subscr i
pt i
onAgr eementdi dnotpr ov idef orreciprocityofobl i
gat i
ons; thatther ight s
ov erthesubj ectmat teroft her escission( capi talassetsandpr oper ti
es)hadbeenacqui redbya
thirdpar ty(FLADC) ;
thatt heydi dnotcommi tasubst ant i
al andf undament albreachoft hei r
agr eementsi ncet heydi dnotpr eventt heTi usf rom assumi ngt heposi ti
onsofVi ce-Presi dent
andTr easurerofFLADC, andt hatt hef ail
uret ocr editthe300, 000shar escor respondi ngt othe
1,902. 30squar e-met erpr opertycov eredbyTCTNo.134066( former l
y15587)wasduet ot he
refusal oftheTi ust opayt her equiredt ransf ertaxest osecur etheappr ovaloft heSECf orthe
proper t
ycont ributionand, thereafter,thei ssuanceoft itl
ei nFLADC' sname.Theyal soar gued
thatt hel i
quidat i
onofFLADCmaynotl egallybeor deredbyt heappel latecour tevenf orso
called" practical consi derati
ons"orev ent opr ev ent"f
urthersquabbl esandnumer ous
l
itigations,"sincet hesamear enotv alidgr oundsundert heCor por ati
onCode.Mor eov er ,the
Ongsbewai ledt hef ailureoft heCAt ogr anti nterestont heirP70mi ll
ionandP20mi l
l
ion
adv ancest oFLADCandDav i
dS.Ti u,respect i
vel y,
andt oawar dcost sanddamages.

Intheirpet i
ti
ondocket edasG. R.No.144629, Tiuetal.vs.Ongetal .
,theTi us,ont heot herhand,
contendedt hatther escissi
onshoul dhav ebeenl imit
edt otheresti
tut
ionoft hepar t
ies'
respecti
v einv estment sandnott heli
quidat
ionofFLADCbasedont heerroneousper cept i
onby
thecour tthat: t
heMasaganaCi t
imallwasthreatenedwi thincompleti
onsi nceFLADCwasi n
fi
nancial distr
ess; thattheTiusi nvit
edtheOngst oinvestinFLADCt osettlei tsP190mi ll
ion
l
oanf rom PNB; t
hatt heyv i
olatedthePre-Subscripti
onAgr eementwheni twast heLi chaucos
andnott heTi uswhoexecut edt hedeedofassi gnmentov erthe151squar e-met erpr operty
commensur ateto49, 800shar esi nFLADCt herebyfail
ingt opaythepricef orthesai dshar es;
thattheydi dnott ur novertot heOngst heentireamountofFLADCf unds;thatt heywer e
diver
tingr entalsfrom leasecont ractsduetoFLADCt otheirownMATTERCOaccount ;t
hatthe
P70mi l
li
onpai dbyt heOngswasanadv anceandnotapr emium oncapital;andt hat, by
resci
ndi
ngthePre-
Subscr
ipt
ionAgr
eement,t
heywant
edtowrest
leawaythemanagementof
themallandpr
eventt
heOngsf r
om enj
oyi
ngthepr
ofi
tsoft
hei
rP190mill
i
oninvest
mentin
FLADC.

OnFebruar
y1,2002,t
hisCourtpr
omulgat
editsDeci
sion(
thesubj
ectofthei
nst
antmoti
ons),
af
fi
rmingtheassai
l
eddecisi
onoftheCourtofAppeal
sbutwit
hthefoll
owingmodi
fi
cat
ions:

1.theP20mi l
l
ionl
oanext
endedbytheOngstot
heTiusshall
earni
nter
estattwel
vepercent
(12%)perannum t
obecomputedfr
om thet
imeofj
udici
aldemandwhichisfr
om Apr
il23,1996;

2.theP70mill
i
onadv
ancedbytheOngstotheFLADCshal
learni
nter
estatt
enpercent(
10%)
perannum t
obecomputedf
rom t
hedateoftheFLADCBoardResol
uti
onwhichi
sJune19,
1996;and

3.theTiusshall
becredi
tedwi
th49,800shar
esi
nFLADCf
ort
hei
rpr
oper
tycont
ri
but
ion,
specif
ical
l
y,the151sq.m.par
celofland.

ThisCourtaffirmedthef actthatboththeOngsandt heTiusv i

olat
edt heirrespect i
veobli
gat ions
underthePre-Subscripti
onAgr eement .TheOngspr eventedtheTiusf rom assumi ngthe
positi
onsofVi ce-
PresidentandTr easureroft hecor porati
on.Ont heot herhand, theDecision
establi
shedthattheTi usfail
edt oturnov erFLADCf undst otheOngsandt hattheTi usdiverted
rental
sduetoFLADCt otheirMATTERCOaccount .Consequent l
y ,
itheldt hatrescissionwasnot
possibl
esincebot hpar t
ieswer einparidelicto.Howev er,thi
sCour tagr eedwi t
ht heCourtof
Appealsthatther emedyofspeci ficperformance, asespousedbyt heOngs, wasnotpr actical
andsoundei therandwoul donl yleadtof urther"squabblesandnumer ousl it
igati
ons"bet ween
theparti
es.

OnMar ch15,2002, t
heTi usfi
ledbef oret hisCour taMot i
onforIssuanceofaWr itofExecuti
on
onthegr oundsthat :
( a)t
heSECor derhadbecomeex ecutor
yasear lyasSept ember11,1998
pursuanttoSect i
ons1and12, Rule43oft heRulesofCour t
;(b)anyfurtherdelaywouldbe
i
njurioustotherightsoft heTiussi ncet hecasehadbeenpendi ngformor ethansixyears;and
(c)theSECnol ongerhadquasi -judicialj
ur i
sdicti
onunderRA8799( Securit
iesRegulat
ionCode) .
TheOngsf i
ledtheiroppositi
on, cont endingt hattheDecisiondatedFebr uary1,2002wasnoty et
fi
nal andexecutory;thatnogoodr easonexi stedtoissueawar r
antofexecut i
on;andthat,
pur
suanttoSect
ion5.
2ofRA8799, t
heSECret
ainedjuri
sdi
cti
onoverpendingcasesi
nvol
vi
ng
i
ntr
a-cor
porat
edisput
esal
readysubmit
tedf
orf
inalresol
uti
onupontheeffect
ivi
tyoft
hesaid
l
aw.

Asidefrom t hei
roppositi
ontotheTi us'Mot i
onforIssuanceofWr i
tofExecuti
on,theOngsf iled
thei
rown" Mot i
onforReconsider
ation;Al t
ernat
ivel
y,MotionforModifi
cati
on(oft
heFebr uary1,
2002Deci sion)"onMar ch15,2002,r ai
singtwomai npoints:(
a)thatspeci
fi
cperformanceand
notrescissionwast heproperremedyundert hepremises;and(b)that,
assumingr esci
ssiont o
beproper ,t
hesubj ectdeci
sionofthisCour tshouldbemodi f
iedtoentit
lemovantst otheir
proport
ionat eshareinthemall.

Ont heirfi
rstpoint(speci fi
cper formanceandnotr escissionwast hepr operr emedy ),mov ants
Ongar guet hattheirallegedbr eachoft hePr e-
Subscr i
ptionAgr eementwas, atmost ,casual
whichdi dnotjust i
fyther escissionoft hecontract.Theyst r esst hatprovidingappr opr i
ate
offi
cesf orDav i
dS.Ti uandCel yY.Ti uasVi ce-PresidentandTr easurer,respect i
vely
, hadno
bear i
ngont heirobligationsundert hePr e-
Subscr iptionAgr eementsi ncet hesai dobligati
on( t
o
prov i
deexecut i
veof fi
ces)per tainedtoFLADCi tself.Suchobl igati
onar osef rom ther el
ations
betweent hesai doff i
cersandt hecorporati
onandnotanyoft heindivi
dual par t
iessuchast he
Ongs.Li kewise,theal l
egedf ail
ur eoftheOngst ocr editshar esofst ockinf av oroftheTi usf or
theirpropertycontri
but ionsalsoper tai
nedt othecor porationandnott ot heOngs.Justt he
same, itcouldnotbedonei nv iewoft heTius'refusal topayt henecessar ytransfertaxeswhi ch
i
nt urnresultedinthei nabili
tytosecur eSECappr ov alfort hepr opertycont r
ibutionsandt he
i
ssuanceofanewTCTi nthenameofFLADC.

Besides, accordingtotheOngs, t
hepri
ncipal objecti
veofbot hparti
esinent eri
ngi ntothePr e-
Subscr ipt
ionAgr eementin1994wast oraiset heP190mi ll
i
ondesper atelyneededf orthe
paymentofFLADC' sloantoPNB.Hence, inthislight,theal
legedfail
uret oprovi
deof fi
cespace
forthet wocor porat
eof f
icer
swasnomor et hanani nconsequent i
alinf
ringement .For
rescissiontobej usti
fi
ed,thelawrequi
resthatt hebr eachofcont r
actshoul dbeso" substanti
al
orfundament al"astodefeatthepri
maryobj ecti
v eofthepar t
iesinmaki ngtheagr eement .At
anyr ate,theOngscl ai
mt hati
twast heTiuswhower eguilt
yoff undament alvi
olationsinf ai
li
ng
toremi tfundsduet oFLADCanddi ver
ti
ngt hesamet othei
rMATTERCOaccount .

TheOngsal soal
leget hat,
invi
ewoft hefi
ndingsoftheCour tt
hatbot
hparti
esweregui
lt
yof
vi
olat
ingthePre-Subscript
ionAgreement,
neitherofthem coul
dresor
ttoresci
ssi
onundert
he
pri
nci
pleofparideli
cto.Inaddit
ion,si
ncethecashandot hercont
ri
buti
onsnowsoughttobe
ret
urnedalr
eadybel
ongt
oFLADC,
ani
nnocentt
hir
dpar
ty,
sai
dremedymaynol
ongerbeav
ail
ed
ofunderthelaw.

Ont heirsecondpoi nt( assumi ngrescissiontobepr oper,theOngsshoul dbegi v

ent hei
r
propor ti
onat eshar eoft hemal l)
,mov ant sOngv ehement lytakeexcept i
ont othesecondi tem in
thedi spositi
v epor t
ionoft hequest i
onedDeci sioni nsofarasi tdecr eedt hatwhat ev erremai ns
oftheasset sofFLADCandt hemanagementt her eof(afterl
iqui dati
on)shal lbet ransferredt o
theTi us.Theypoi ntoutt hatthemal lit
sel f
,whichwoul dhavebeenf oreclosedbyPNBi fnotf or
theirtimelyinv estmentofP190mi l
l
ioni n1994andwhi chisnowwor thaboutP1bi l
li
onmai nly
becauseoft heireffort
s, shouldbeincludedi nanypar titi
onanddi stributi
on.They( theOngs)
shoul dnotmer el
ybegi v eninter
estont hei
rcapi talinvestment s.Thesai dpor t
ionofour
Deci si
on, accor di
ngt ot hem, amount edt otheunj ustenr i
chmentoft heTi usandr ancont raryto
ourownpr onouncementt hattheactoft heTiusi nuni l
ateral
lyr escindingt heagr eementwas
"thehei ghtofi ngratit
ude"andanat tempt" topul laf astone"asi twoul dpr eventt heOngsf r
om
enjoy i
ngt hef r
ui t
soft heirP190mi l
li
oni nvestmenti nFLADC.I talsocont ravenest hi
sCour t
's
assur ancei nthequest i
onedDeci siont hattheOngsandTi us" willhav eabount iful r
eturnof
theirrespect iv
ei nvestment sderivedf r
om t hepr ofit
soft hecor porati
on. "

Wil
li
eOngf il
edaseparate"Moti
onforPar tialReconsi
derat i
on"datedMar ch8,2002,poi
nti
ng
outthattherewasnov i
olati
onofthePr e-Subscript
ionAgreementont hepartoftheOngs;that
,
aft
ermor ethanseveny ear
ssincethemal l beganitsoperations,r
esci
ssionhadbecomenot
onl
yi mpracti
calbutwouldalsoadverselyaf f
ecttheri
ghtsofi nnocentparti
es;
andt hati
twould
behighlyinequi
tabl
eandunf ai
rtosimplyr eturntheP100mi ll
i
oninvestmentoftheOngsand
gi
vet heremaini
ngasset snowamount ingt oaboutP1bi l
liont ot
heTius.

TheTi us,i
nt hei
ropposi
tiontotheOngs'moti
onf orreconsiderat
ion,countert
hatthear gument
s
thereinar eamer ere-
hashoft hecont
enti
onsint heOngs' peti
ti
onf orr
eviewandpr evi
ous
mot ionf orreconsi
derat
ionoftheCourtofAppeal s'
decisi
on.TheTi uscompar ethearguments
i
nsai dpleadingstoprovethattheOngsdonotr aisenewi ssues,and,basedonwel l
-settl
ed
j
urispr udence,12theOngs'presentmoti
onisthereforepro-for
maanddi dnotpreventthe
Decisionoft hi
sCourtfr
om attaini
ngf
inal
it
y.

OnJanuary29,
2003, t
heSpecialSecondDivi
sionoft
hisCourthel
doralar
gumentsonthe
r
espect
iveposi
tionsofthepart
ies.OnFebruar
y27,2003,Dr.Wil
li
eOngandtherestofthe
movant
sOngf i
ledthei
rrespect
ivememor anda.OnFebruar
y28,2003,t
heTiussubmitt
edthei
r
memorandum.
Wegr
antt
heOngs'
mot
ionsf
orr
econsi
der
ati
on.

Thisisnott hef i
rsttimet hatthisCourthasr eversedi tselfonamot i
onf orreconsi
derat
ion.I
n
Phili
ppineConsumer sFoundat ion,
Inc.vs.Nat i
onal Telecommuni cati
onsCommi ssion,
13this
Cour t
,throught henChi efJusticeFelixV.Makasi ar,sai dthatitsmember smayanddochange
theirminds, aft
erar e-studyoft hefactsandt helaw, ill
umi natedbyamut ualexchangeof
views.14Af terat horoughr e-
exami nati
onoft hecase, wef indthatourDecisionofFebruary1,
2002ov erl
ookedcer tainaspect swhich,ifnotcor r
ect ed,wi l
lcauseextremeandi r
repar
able
damageandpr ejudicetot heOngs, FLADCandi tscr editors.

Thepr ocedur al ruleonpr o-formamot ionspoi ntedoutbyt heTi usshoul dnotbebl i

ndlyappl ied
tomer itoriousmot ionsf orr econsi derat i
on.Asl ongast hesameadequat el
yraisesav alid
ground15( i
.e.,thedeci si
onorf inal orderi scont rarytolaw) ,thisCour thast oev aluatethe
mer i
tsoft hear gument stopr ev entanunj ustdeci si
onf r
om at tainingfinalit
y.InSecur ityBank
andTr ustCompanyv s.Cuenca, 16wer uledt hatamot i
onf orreconsi derat i
onisnotpr o-forma
forther easonal onet hatitr eit
er atest hear gument searlierpasseduponandr ejectedbyt he
appellatecour t.Weexpl ainedt her ethatamov antmayr aisethesamear gument s,i
fonl yto
conv i
ncet hi
sCour tthati t
sr ulingwaser roneous.Mor eov er,ther ule(thatamot i
oni spr o-forma
i
fitonl yrepeat st hear gument si nt hepr ev i
ouspl eadings)wi llnotappl yifsaidar gument swer e
notsquar elypasseduponandanswer edi nthedeci sionsoughtt ober econsi dered.Int hecase
atbar, nor ulingwasmadeonsomeoft hepet iti
onerOngs' argument s.Fori nstance, nocl ear
rul
ingwasmadeonwhyanor derdi stributingcor porateasset sandpr oper t
ytot hest ockhol ders
wouldnotv i
ol atet hest atutorypr econdi ti
onsf orcor poratedi ssol uti
onordecr easeof
authorizedcapi tal stock.Thus, i
twoul dser vet heendsofj usticet oent ertainthesubj ectmot ion
forreconsi der ationsi ncesomei mpor tanti ssuest herei
n, althoughmer er epeti
tions,wer enot
consider edorcl ear l
yr esolvedbyt hisCour t.

Goi
ngnowtot
hemerit
s,weresol
vewhet
hert
heTi
uscoul
dlegal
l
yresci
ndt
hePr
e-Subscr
ipt
ion
Agr
eement
.Werul
ethatt
heycoul
dnot.

FLADCwasor igi
nall
yincorporatedwi thanaut hori
zedcapi talstockof500,000shareswitht
he
Tiusowni ng450,200sharesrepr esentingthepaid-upcapi t
al.Whent heTiusinv
itedtheOngsto
i
nv estinFLADCasst ockholders, anincreaseoftheaut horizedcapital
stockbecamenecessary
togi veeachgroupequal(50-50)shar eholdingsasagr eeduponi nthePre-
Subscript
ion
Agr eement.Theauthori
zedcapi talstockwast husi ncreasedf r
om 500,000sharesto2,000,
000
shareswithaparv al
ueofP100each, wi
tht
heOngssubscr i
bingt o1,
000,
000sharesandt he
Tiusto549,800mor eshar esi
nadditi
ontotheir450,
200shar est ocomplete1,
000,000shares.
Thus,thesubjectmatterofthecontr
actwast he1,000,000uni ssuedshar
esofFLADCst ock
al
locatedtotheOngs.Si ncethesewereuni
ssuedshar es,thepar ti
es'
Pre-
Subscri
ption
Agreementwasi nfactasubscr i
pti
oncontr
actasdef inedunderSect i
on60, Ti
tl
eVIIofthe
Corporat
ionCode:

Anycontr
actfort
heacqui
sit
ionofuni
ssuedstocki
nanexisti
ngcorpor
ationoracorporat
ion
sti
l
ltobeformedshal
lbedeemedasubscr i
pti
onwit
hint
hemeani ngofthisTi
tl
e,
notwi
thst
andingt
hefactt
hatthepart
iesr
efert
oitasapurchaseorsomeot hercont
ract(
Ital
i
cs
suppl
ied)
.

Asubscr i
ptioncont r
actnecessaril
yinvolvesthecorporat
ionasoneoft hecontract
ingparties
sincethesubj ectmat t
eroft het
ransactionispropert
yownedbyt hecorporati
on–i tssharesof
stock.Thus, thesubscripti
oncontract(denominatedbythepar t
iesasaPr e-Subscr
ipti
on
Agreement )wher ebytheOngsi nvestedP100mi l
li
onfor1,000,
000shar esofstockwas, fr
om
thev i
ewpointoft helaw, onebetweentheOngsandFLADC, notbetweent heOngsandt heTi us.
Otherwisest ated,t
heTiusdi dnotcontractinthei
rpersonalcapaciti
eswiththeOngssi ncet hey
wer enotsellinganyoft heirownsharest othem.ItwasFLADCt hatdid.

Consideri
ngthereforethatt hereal contracti
ngparti
est othesubscr i
ptionagr eementwer e
FLADCandt heOngsal one, aciv i
lcasef orresci
ssi
onont hegr oundofbr eachofcont ractf i
l
ed
bytheTiusintheirpersonal capaci ti
eswi ll
notprosper.Assumi ngi
thadv al
idreasonst odoso,
onlyFLADC( andcertainlynott heTi us)hadt hel
egal personali
tytofi
lesui trescindi
ngt he
subscri
pti
onagr eementwi tht heOngsi nasmuchasi twast herealpartyininteresttherein.
Arti
cle1311oftheCi vi
l Codepr ovi
dest hat"contr
actst akeeffectonl
ybet weent heparties,t
heir
assignsandheirs…"Ther efore,apar tywhohasnott akenpar tinthetransact i
oncannotsueor
besuedf orperf
or manceorf orcancel l
ationther
eof,unlessheshowst hathehasar eal i
nterest
aff
ectedthereby.17

IntheirFebruary28,2003Memor andum,t
heTiusclaimt hatt
herearetwocont ractsembodi ed
i
nt hePr e-
Subscr i
pti
onAgreement:ashar
ehol
der'sagreementbet weentheTiusandt heOngs
defini
ngandgov erni
ngthei
rrel
ati
onshi
pandasubscr ipt
ioncontractbetweentheTi us,theOngs
andFLADCr egardingthesubscr
ipt
ionoft
hepar t
iestothecorporati
on.Theypoi ntoutthat
theset wocomponentpar tsfor
m onewholeagreementandt hattheirt
ermsandcondi ti
onsare
i
ntrinsi
call
yr el
atedanddependentoneachother.Thus,thebreachofthesharehol der
s'
agreement
,whichwasal
l
egedl
ytheconsi
der
ati
onf
ort
hesubscr
ipt
ioncont
ract
,wasal
soa
breachoft
helatt
er.

Asidef rom t hef actt hatt hisisanent irelynewangl enev erraisedi nanyoft heirprevious
pleadingsunt ilaftertheor alar gument sonJanuar y29, 2003, wef i
ndt hisar gumentt oost rained
forcomf ort.Itisobv iousl yintendedt or emedyandcov eruptheTi us' l
ackofl egalper sonalityto
rescindanagr eementi nwhi cht heywer eper sonallynotpar ti
es-in-interest.Assumi ngar guendo
thatther ewer etwo" sub- agreement s"embodi edint hePr e-
Subscr i
pt i
onAgr eement ,t
hisCour t
fail
st oseehowt heshar ehol dersagr eementbet weent heOngsandTi uscan, withinthebounds
ofreason, bei nterpret edast heconsi der ati
onoft hesubscr i
pt i
oncont ractbet weenFLADCand
theOngs.Ther ewasnot hingi nthePr e-Subscripti
onAgr eementev enr emot elysuggest i
ngsuch
all
egedi nter dependence.Bet hatasi tmay ,howev er,theTiusar enev erthelessnott hepr oper
parti
est or aiset hispoi ntbecauset heywer enotpar ti
est othesubscr i
ptioncont ractbet ween
FLADCandt heOngs.Thus, t
heyar enoti naposi t
iont oclaimt hatt heshar eholdersagr eement
betweent hem andt heOngswaswhati nducedFLADCandt heOngst oent erintothe
subscr i
pt i
oncont ract .ItistheOngsal onewhocansayt hat.ThoughFLADCwasr epresent edby
theTi usint hesubscr ipti
oncont ract,FLADChadasepar atejuridicalper sonal i
tyfrom t heTi us.
Thecasebef oreusdoesnotwar r
antpi erci
ngt hev eil
ofcor poratef i
cti
onsi ncether eisnopr oof
thatthecor por ati
oni sbei ngused" asacl oakorcov erforfraudori ll
egality,ortowor k
i
njust i
ce."18

TheTiusalsoarguet
hat,
sincetheOngsrepr
esentFLADCasitsmanagement,br
eachbythe
OngsisbreachbyFLADC.Thismustalsofai
lbecausesuchanar
gumentdisr
egardsthe
separ
atejuri
dical
per
sonal
ityofFLADC.

TheTi usal l
eget hatt heywer epr eventedfrom part
icipati
nginthemanagementoft he
corporation.Ther ei sevidencet hattheOngsdi dprev enttheri
ghtfullyelectedTr easurer,
Cely
Tiu,fr
om exer cisingherf unct
ionassuch.Ther ecordsshowt hatthePr esident,Wi l
sonOng,
supervisedt hecol lecti
onandr eceiptofrental
sintheMasaganaCi timall;
19t hatheor deredt
he
samet obedeposi tedint hebank; 20andt hathehel dont othecashandpr opertiesofthe
corporation.21Sect i
on25oft heCor porati
onCodepr ohibit
sthePr esidentf r
om act i
ng
concur r
entlyasTr easurerofthecor porat
ion.Therationalebehindt hepr ovi
sioni stoensurethe
effect
ivemoni t
or i
ngofeachof ficer'
sseparatefunctions.

However
,alt
houghtheTi
uswereadver
sel
yaffect
edbytheOngs'unwil
li
ngnesstolett
hem
assumethei
rposi
ti
ons,r
esci
ssi
onduetobreachofcont
racti
sdefi
nit
elythewrongremedyf
or
thei
rpersonal gri
evances.TheCor porati
onCode, SECr ulesandev entheRul esofCour tprovide
forappropri
ateandadequat eintr
a-cor
porateremedies, otherthanr esci
ssion,insi
tuationslike
thi
s.Rescissioniscertai
nlynotoneoft hem, special
lyifthepar tyaskingforithasnol egal
personali
tytodosoandt her equir
ementsoft helawt hereforhav enotbeenmet .Acont rar
y
doctri
newi l
ltreadonext r
emel ydangerousgroundbecausei twi ll
allowjustanystockhol der,for
j
ustaboutanyr ealori
magi nedof f
ense,todemandr escissi
onofhi ssubscri
ptionandcal lfor
thedist
ribut
ionofsomepar tofthecorporat
easset stohi m withoutcompl yi
ngwi t
ht he
requi
rement soft heCorporati
onCode.

Hence, theTius,
inthei
rpersonalcapaci
ti
es,cannotseektheulti
mat eandextr
aor
dinar
yremedy
ofrescissionofthesubj
ectagreementbasedonal essthansubstanti
albr
eachofsubscr
ipt
ion
contract.Notonlyaret
heynotpar t
iestothesubscript
ioncont
ractbetweentheOngsand
FLADC; theyalsohaveotheravai
lableandeffect
iveremediesunderthelaw.

All
thisnotwit
hstanding,granti
ngbutnotconcedingthattheTi
uspossessthelegalstandingt
o
sueforresci
ssionbasedonbr eachofcontract
,sai
dactionwil
lnever
thel
esssti
llnotprosper
si
ncer esci
ssi
onwi ll
v i
olat
et heTrustFundDoctri
neandt hepr
oceduresf
orthevaliddist
ri
buti
on
ofassetsandpr opert
yundert heCorporat
ionCode.

TheTr ustFundDoct ri
ne, f
ir
stenunci at edbyt hi sCour ti nthe1923caseofPhi lippineTr ustCo.
vs.Rivera,22pr ovidesthatsubscr i
ptionst ot hecapi tal stockofacor porati
onconst i
tuteaf und
towhi chthecr editorshav ear i
ghttol ookf ort hesat isfactionoftheircl
aims. 23Thi sdoct rineis
theunder lyi
ngpr i
ncipl
ei nthepr ocedur ef ort hedi st
ributionofcapi t
alassets, embodi edi nt he
Corpor at
ionCode, whichal lowst hedi str
ibut ionofcor poratecapitalonl
yint hreei nstances: (
1)
amendmentoft heAr t
iclesofI ncorporationt or educet heaut hori
zedcapitalst ock,24( 2)
purchaseofr edeemabl eshar esbyt hecor por at i
on,regar dlessoftheexistenceofunr estricted
ret
ainedear ni
ngs,25and( 3)di ssol
ut i
onandev entual l
iquidationofthecorpor at i
on.
Furthermor e,thedoct ri
nei sar ti
cul
atedi nSect ion41ont hepowerofacor por at i
ont oacqui re
i
tsownshar es26andi nSect ion122ont hepr ohi bit
ionagai nstt
hedistr
ibuti
onofcor por ate
assetsandpr oper tyunlesst hestri
ngentr equi rement st hereforarecompliedwi th.
27

Thedi stri
buti
onofcor porateasset sandpropertycannotbemadet odependont hewhi msand
capricesofthest ockholders,of
ficersordi
rectorsofthecorporati
on,oreven,forthatmatt er,
on
theear nestdesi
reoft hecour taquo" topr
ev entfurt
hersquabblesandfutureli
ti
gat i
ons"unless
theindispensableconditionsandpr oceduresfortheprotect
ionofcorporatecredi
t or
sare
fol
lowed.Ot herwise,the"corporatepeace"laudablyhopedforbyt hecourtwil
lremai nnothing
butadream becauset
hist
ime,itwi
ll
bethecr
edit
ors'
turnt
oengagein"squabbl
esand
l
it
igat
ions"shoul
dthecour
torderanunl
awful
dist
ri
buti
oninbl
atantdi
sregar
doftheTr
ustFund
Doctr
ine.

Intheinst
antcase,t
her esci
ssi
onofthePr e-
Subscr
iptionAgreementwi l
leffect
ivel
yr esulti
nthe
unauthori
zeddist
ri
but i
onofthecapi
talasset
sandpr opertyofthecorporati
on,therebyv i
olat
ing
theTrustFundDoctrineandtheCorporat
ionCode,sinceresci
ssionofasubscr ipti
onagr eement
i
snotoneoft heinstanceswhendistr
ibuti
onofcapit
al asset
sandpr opertyofthecor porati
onis
all
owed.

Cont r
aryt otheTius'allegati
on, r
escissionwi l
l,inthef i
nalanalysis, r
esultint hepr emat ure
l
iquidationoft hecorpor ati
onwi t
houtt hebenef itofpr i
ordissol
ut ioninaccor dancewi t
h
Sect i
ons117, 118, 119and120oft heCor porationCode. 28TheTi usmai ntaint hatrescinding
thesubscr ipti
oncont ractisnotsy nonymoust ocor porateli
quidat i
onbecauseal lr
escissionwill
entailwoul dbethesi mpl erestor
ationoft hest atusquoant eandar etur
nt ot het wogr oupsof
theircashandpr opertycont r
ibut
ions.Wewi shi twer ethatsimpl e.Verynot iceabl eisthef act
thattheTi usdonotexpl ainwhyr escissioninthei nstantcasewi l
l noteffectivelyresultin
l
iquidation.TheTi usmer el
yreferincav ali
erfashiont otheend- resultofr escission( which
i
ncident al
lyis100%f avorabletothem)butt urnabl indey etoit
sunf air
,inequi tableand
disastrousef f
ectont hecor porati
on, i
tscreditorsandt heOngs.

IntheirMemor andum datedFebr uary28,2003, theTiusclai

mt hatr escissionoftheagreement
willnotr esultinanunaut horizedl i
quidati
onoft hecorporati
onbecauset heircaseisactual
lya
peti
tiont odecr easecapi t
al stockpur suanttoSect i
on38oft heCor por ati
onCode.Sect ion122
ofthel awpr ov idesthat"(
e)xceptbydecr easeofcapi tal
stock…, nocor porationshalldi
str
ibut
e
anyofi t
sasset sorpr opertyexceptuponl awfuldissolut
ionandaf terpay mentofal li
tsdebts
andl i
abi l
it
ies."TheTi usclai
mt hatt hei
rcaseforr esci
ssion,beingapet i
ti
ont odecreasecapit
al
stock, doesnotv iol
atetheliquidationproceduresunderourl aws.Al lthatneedst obedone,
accordi ngtot hem, isforthi
sCour ttoorder(1)FLADCt ofil
ewi tht
heSECapet i
ti
ontoissuea
certi
ficateofdecr easeofcapi talstockand( 2)theSECt oappr ovesai ddecr ease.Thi
snew
argumenthasnomer it
.

TheTi us'
caseforrescissi
oncannotvali
dlybedeemedapet it
iontodecreasecapital
stock
becausesuchactionnev ercompliedwi
ththeformalrequi
rementsfordecreaseofcapital
stock
underSection33oft heCorpor
ationCode.Nomaj or
it
yv oteoftheboar
dofdi rect
orswasev er
taken.Neit
herwast hereanystockhol
dersmeeti
ngatwhi chtheapprovalofstockhol
ders
owni ngatleasttwo-thi
rdsoft
heoutstandi
ngcapi
talst
ockwassecur ed.Therewasnor evised
treasurer
'saffi
davitandnoprooft
hatsaiddecr
easewillnotpr
ejudicethecredit
ors'
right
s.On
thecont r
ary,al
ltheirpl
eadi
ngscontai
nedwereall
egedactsofviolati
onsbyt heOngst ojusti
fy
anor derofrescissi
on.

Furthermor e,itisani mproperjudici

alintrusionintotheint
ernalaffai
rsoft hecor
porationt o
compel FLADCt of il
eattheSECapet iti
onf ortheissuanceofacer ti
fi
cateofdecreaseofst ock.
Decr easingacor porati
on'sauthori
zedcapi talstockisanamendmentoft heArti
clesof
Incorporation.Itisadeci siont
hatonl ythest ockholder
sandt hedirector
scanmake,
consi deri
ngt hatt heyarethecontractingpar ti
esthereto.I
nthiscase,theTi usar
eact uall
ynot
j
ustaski ngf orar ev i
ewoft helegali
tyandf airnessofacor poratedeci
sion.Theywantt hi
sCour t
tomakeacor poratedecisionforFLADC.Wedecl inetoint
erveneandor dercorporatest r
uctural
changesnotv oluntari
lyagreeduponbyi t
sst ockholdersanddi r
ector
s.

Trut
htot el
l
,aj udi
cial
ordertodecr
easecapit
alstockwi
thouttheassentofFLADC'sdi
rect
ors
andstockholdersi
sav iol
ati
onofthe"busi
nessjudgmentrul
e"whichstat
esthat:

xxxxxxxxx( C)
ontractsint
ravir
esent eredint
obyt heboardofdirectorsarebindi
nguponthe
corporat
ionandcour tswil
lnotinter
fereunlesssuchcont r
actsaresounconsci onabl
eand
oppressi
v eastoamountt owant ondest r
ucti
ontot heri
ghtsofthemi nori
ty,
aswhenpl ai
nti
ff
s
averthatthedefendants(member soft heboard)
,hav econcl
udedat ransact
ionamong
themselvesaswi l
lresul
tinseri
ousi nj
urytotheplaint
iff
sstockholders.
29

Ther
easonbehi
ndt her
ulei
sapt
lyexpl
ainedbyDeanCesarL.Vi
l
lanuev
a,anest
eemedaut
hor
i
ncorpor
atel
aw,thus:

Courtsandot hertr
ibunalsarewontt oov erri
dethebusi nessjudgmentoft heboar dmainly
because,courtsarenoti nthebusinessofbusi ness, andthelaissezf ai
reruleorthefree
enterpr
isesystem prevail
inginoursocial andeconomi cset-
updi ctatesthatiti
sbetterfort
he
Stateanditsorganst oleavebusinesst othebusi nessmen; especiall
yso, whencourtsar ei
ll
-
equippedtomakebusi nessdecisions.Mor eimpor tantl
y,t
hesoci alcontractinthecorporat
e
familytodecidethecour seofthecor poratebusinesshasbeenv estedintheboar dandnotwi t
h
courts.
30
Appar entl
y,theTiusdonotr eal
izetheil
legalconsequencesofseekingresci
ssionandcont r
olof
thecor porati
ont otheexclusionoftheOngs.Suchanacti nf
ri
ngesont helawonr educti
onof
capitalstock.Orderingthereturnanddistri
butionoftheOngs'capit
alcontri
buti
onwi t
hout
dissolvi
ngt hecor porati
onordecreasingitsauthori
zedcapit
alstockisnotonlyagainstthel
aw
butisal soprejudici
al t
ocorporatecredi
torswhoenj oyabsol
utepriori
tyofpaymentov erand
abov eanyi ndi
v i
dual st
ockholderther
eof.

Str
ippedt oitsbarestessent i
als,theissueofr escissi
oni nt hi
scasei snotdiffi
culttounderstand.
Ifr
esci ssi
onisdeni ed,wil
linj
usticebei nfl
ictedonanyoft heparti
es?Theansweri snobecause
thefinanciali
nterestsofbot htheTi usandt heOngswi llremainintactandsaf ewi t
hinFLADC.
Ont heot herhand,ifresci
ssionisgr anted,wi l
l anyofthepar t
iessufferaninjust
ice?Def i
nit
ely
yesbecauset heOngswi l
lfi
ndt hemsel vesouti nthestreet swithnothi
ngbutt hemoneyt hey
hadi n1994whi letheTi uswillnotonlyenjoyawi ndfal
l estimatedtobeany wher efrom P450
mill
iont oP900mi l
li
on31butwi l
lalsotakeov eranex t
remel yprofi
tablebusinesswi thoutmuch
eff
or tatall
.

Anotherv eryimpor tantpointfoll

ows.TheCour tofAppeal sand, lat eron, ourDecisiondat ed
February1, 2002, statedthatbothgroupswer einpar idelicto,meani ng, thatbot htheTi usand
theOngscommi t
tedbr eachesoft hePr e-Subscr i
ptionAgr eement .Thi smaybet r
uet oacer t
ain
extentbut, j
udgingf rom thecompar ativegr avit
yoft heact ssepar at elycommi t
tedbyeach
group,wef i
ndt hattheOngs' actswer er elati
velytamev i
s- à-vi
st hosecommi t
tedbyt heTi usin
notsurrender i
ngFLADCf undstot hecor porationanddi v ertingcor por atei ncomet ot heirown
MATTERCOaccount .TheOngswer erighti nnotissui ngt ot heTi ust heshar escorrespondi ngto
thefour-storybuildingandt he1,902.30squar e-met erlotbecausenot i
tl
ef oritcouldbei ssued
i
nFLADC' sname, owi ngtotheTius'refusal topayt het ransf ertaxes.Andasf arast he151
square-met erlotwasconcer ned,whyshoul dFLADCi ssueaddi tional sharest otheTi usf or
propertyalreadyownedbyt hecorporationandwhi ch, int hef i
nal anal ysi
s, wasal readyf actored
i
ntot heshar eholdingsoft heTiusbef oret heOngscamei n?

Wear eappal ledbyt heattemptbyt heTi us, i

nthewor dsoftheCour tofAppeal s,to" pullafast
one"ont heOngsbecauset hatwaswher et heproblem precisel
yst arted.Iti
scleart hat,when
thefinancesofFLADCi mpr ovedconsi derablyaftertheequityinfusionoft heOngs, theTius
start
edpl anningt otakeov erthecor porati
onagai nandexcl udet heOngsf rom it
.Itappear sthat
theTius' refusal topaytransfertaxesmi ghtnothav ereall
ybeenatal luni
ntent
ional because, by
fail
i
ngt opayt hatr el
ati
velysmal lamountwhi chtheycouldeasi l
yaf ford,t
heTiusshoul dhav e
expect edt hatt heywerenotgoi ngt obegi v enthecor r
espondingshar es.I
twas, from ev ery
angle,theper fectexcuseforbl ackball
ingt heOngs.I notherwor ds,theTi uscreatedapr oblem
thenusedt hatsamepr oblem ast heirpretextf orshowingtheirpartner sthedoor .Int heprocess,
theystoodtoberewardedwit
habonanzaofanywherebet
weenP450mi l
l
iont
oP900mil
li
oni
n
assets(fr
om aninv
estmentofonl
yP45mill
ionwhichwasnear
lyf
orecl
osedbyPNB)
,tot
he
extr
emeandi rr
eparabl
edamageoftheOngs,FLADCandit
scredi
tor
s.

Aft
erall
issai
danddone, noonecanclosehi
sey estot
hef
actt
hattheMasaganaCi
ti
mall
wouldnotbewhatithasbecometodaywereitnotfort
het
imel
yinf
usionofP190mi
ll
ionbyt
he
Ongsin1994.Ther
ear enoif
sorbutsabouti
t.

Wi t
houtt heOngs, t
heTi uswoul dhavelosteverythi
ngtheyori
ginall
yinvestedi
nsaidmal l.I
f
onlyf orthisandt hefactt hatthisResoluti
oncant rul
ypavethewayf orbothgroupst oenjoythe
frui
tsoft heiri
nv estment s—assumi nggoodf aithandhonestintenti
ons—wecannotal lowthe
rescissionoft hesubj ectsubscr i
pti
onagr eement.TheOngs'shor t
comingswer efarfrom
seri
ousandcer tai
nlylesst hansubstantial;
theywer ei
nfactremediableandcorrectableunder
thelaw.I twoul dbet otal
lyagai nstal
lrulesofjusti
ce,f
air
nessandequi tytodepri
vet heOngsof
theirinterest
sonpet tyandt enuousgr ounds.

WHEREFORE, t
hemot ionforreconsi derati
on,datedMar ch15,2002,ofpeti
tionersOngYong,
Juanit
aTanOng, Wi l
sonOng, AnnaOng, Will
i
am Ong, Will
ieOngandJul i
eOngAl onzoandt he
mot i
onf orpart
ial
reconsideration,datedMar ch15, 2002,ofpeti
ti
onerWi l
li
eOngar ehereby
GRANTED.ThePet iti
onf orConf i
rmat i
onoft heRescissionofthePre-Subscript
ionAgreement
docketedasSECCaseNo.02- 96-5269i sherebyDISMI SSEDforlackofmer i
t.Theuni l
ateral
resci
ssionbyt heTiusoft hesubj ectPre-Subscri
pti
onAgr eement,datedAugust15, 1994,is
herebydeclaredasnul landvoid.

Themot i
onfortheissuanceofawri
tofexecut
ion,dat
edMarch15,2002,
ofpet
it
ioner
sDavi
dS.
Tiu,Cel
yY.Tiu,
MolyYuGow, Bel
enSeeYu,D.TerenceY.Ti
u,JohnYuandLour
desC.Tiui
s
herebyDENIEDforbeingmoot.

Accordi
ngl
y,theDecisi
onofthi
sCourt,
dat
edFebruar
y1,2002,
aff
ir
mingwi
thmodi
fi
cat
ionthe
deci
sionoftheCourtofAppeal
s,dat
edOctober5,
1999,
andtheSECenbanc,
dat
edSeptember
11,1998,i
sherebyREVERSED.

Cost
sagai
nstt
hepet
it
ionerTi
us.