[G.R. No. 197032. July 26, 2017.

]
SECURITIES AND EXCHANGE COMMISSION,petitioner, vs. PRICE RICHARDSON
CORPORATION, CONSUELO VELARDE-ALBERT, and GORDON
RESNICK,respondents.
DECISION
LEONEN, J p:
The determination of probable cause for purposes of filing an information is lodged with the public
prosecutor. It is not reviewable by courts unless it is attended by grave abuse of discretion.
This is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court, praying that the Court
of Appeals Decision 2 dated May 26, 2011 and the Department of Justice Resolutions dated April 12, 2005 3 and
July 5, 2006 4 be reversed and set aside. 5 The Court of Appeals affirmed the assailed Resolutions of the
Department of Justice, which denied the Petition for Review filed by the Securities and Exchange Commission
(petitioner).6 Petitioner prays for the filing of an information against Price Richardson Corporation, Consuelo
Velarde-Albert, and Gordon Resnick (respondents) for violating Sections 26.3 and 28 of the Securities Regulation
Code. 7
Respondent Price Richardson Corporation (Price Richardson) is a Philippine corporation duly
incorporated under Philippine laws on December 7, 2000. 8 Its primary purpose is "[t]o provide administrative
services which includes but is not limited to furnishing all necessary and incidental clerical, bookkeeping, mailing
and billing services." 9
On October 17, 2001, its former employee, Michelle S. Avelino, (Avelino) executed a sworn affidavit at
the National Bureau of Investigation's Interpol Division, 10alleging that Price Richardson was "engaged in boiler
room operations, wherein the company sells non[-]existent stocks to investors using high pressure sales
tactics." 11 Whenever this activity was discovered, the company would close and emerge under a new company
name. 12 Pertinent portions of her sworn statement read:
Q03: State your reason why you are here at the NBI Interpol? 
A: I am here to give a statement about the "boiler room" operation of PRICE RICHARDSON
CORPORATION. 
Q04: What do you mean by "boiler room"? 
A: A boiler room is a company which sells non-existent stocks to investors by using high pressure
sales tactics. They had no intention of paying the duped investors and when their operation
ha[s] been discovered this company would close and would spring up under a new name. I
know this for a fact because I used to work before with New Millennium Market Research,
Inc. which was shut down after the duped victims reported to authorities [its] illegal
activities. New Millennium Market Research, Inc. eventually became Price Richardson.
Boiler Room operation is an illegal activity considering that the company has no license
from the Securities and Exchange Commission to deal on securities or stocks. 
Q05: Why do you know that Price Richardson is a "boiler room"? 
A: I used to work there as a telemarketer from September 3, 2001 to October 15, 2001. 
Q06: As telemarketer at Price Richardson what do you do? 
A: Our supervisor would give "leads" for me to call. "Leads" are names of prospective investors.
Upon contracting a prospective investor, I would read a prepared "script" or presentation of
the company's profile and the services it offers. If the prospect is interested, I will write all
the information about this person and would forward the same to our supervisor JOVY
AGUDO. All our leads or prospects are foreigners. 
Q07: As a telemarketer, how many calls do you make in a day and how many investors do you
qualify? 
[A:] I average 100 calls a day and I can qualify an average of six (6) would[-]be investors daily. 
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Q10: After you qualify a prospective investor, what happens next? 
A: The company will send him a newsletter and then the salesman would contact him and [use]
high-pressure sales tactics to make a sale of non-existent stocks. The salesmen would use
 the data and information gathered by the telemarketers and would make reference to the
calls or initial contact made by telemarketers. If the investor agreed, the salesman would
give him instructions on how to send the money to the company. Usually, the payment is
made through telegraphic transfers. After the payment has been received, a confirmation
receipt would then be sen[t] by the courier to the investor indicating therein the name of the
company where the alleged investment was made, the number of shares, the amount per
share, the tax and commissions paid. However, no hard copy of the stocks or certificates
will be issued for in truth and in fact there was no actual sale or transfer of stocks or
certificates for they are non-existent. In the event that the investor would then sell his
certificates or stocks, the salesman would try to convince the investor not to sell in order not
to release the money. Eventually, the company would disappear and would spring up under
a new name. 
Q11: Who are these salesmen? 
A: The salesmen are all foreigners of various nationalities. They used also a prepared script to
induce the prospective client to invest. 
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Q13: Do you know if these salesmen are licensed stockbrokers duly authorized by the Securities
and Exchange Commission? 
A: They are not licensed by the Securities and Exchange Commission. They are tourists here in the
country and they used aliases to hide their identities.  13
Janet C. Rillo corroborated Avelino's claims. 14 She was a former employee of Capital International
Consultants, Inc. (Capital International),a corporation that allegedly merged with Price Richardson. 15 She
claimed that their calls to prospective investors should be in Price Richardson's name. 16 Pertinent portions of her
sworn statement read:
07. Q: You said that  CAPITAL INTERNATIONAL CONSULTANTS CORP.has just merged
with Price Richardson, Inc.,can you elaborate on this?
A: Yes, just this September, we have been informed of the [merge].In fact we have been instructed
to use the name of Price Richardson in our calls starting September 2001. 
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09. Q: Can you describe the process in, as you said — "qualify clients as possible investors"? 
A: I make overseas calls to individuals listed in our Client Leads.  The "Client Leads" contains a
list of the names of the top-level personnel of international companies, it includes their
address and telephone numbers. From these leads, we select clients to call and offer them a
free subscription of our "Financial News Letter".
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11. Q: What does these "Financial News Letter" contain? 
A: It contains the current status of the worldwide stock market. 
12. Q: So what happens when a client agrees to subscribe in your news letter? 
A: We then check from our list if the information we have regarding their address and telephone
numbers [is] correct. This is to check their mail preference — where they would like us to
send the news letter. 
13. Q: What happens after that? 
A: Those who agree to receive the subscription are considered as qualified clients. We then fill out a
"SALES LEAD" card, which reflects the information of the client. We then forward these
cards to the marketing department, consisting of the encoders and other telemarketers.
These people are the ones who send the newsletters and transaction receipts to clients. Their
office is located at the Price Richardson Office, 31st Floor Citibank Tower, Paseo De
Roxas, Makati. It is from these cards that our foreigner salesmen could get possible
investors. These possible investors would then be sold with non-existent stocks. 
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 15. Q: So are you saying that CAPITAL INTERNATIONAL CONSULTANTS CORP. and/or
PRICE RICHARDSON, Inc. is engaged in the illegal trading of stocks to clients? 
A: Yes. When I applied for the job, I was briefed by ANNE BENWICK, the Operations Manager,
about the nature of their [b]usiness. She said that the company is engaged in trading stocks,
and my job as a Telemarketer would be to "qualify clients" who might become possible
investors. I am also aware of the nature of their business since I have been employed in a
similar company.  17
Upon application of the National Bureau of Investigation Interpol Division 18 and the Securities and
Exchange Commission 19 on November 15, 2001, Branch 143, Regional Trial Court, Makati City issued three (3)
search warrants against Capital International and Price Richardson for violation of Section 28 20 of the Securities
Regulation Code. 21 The Regional Trial Court ordered the seizure of Price Richardson's and Capital
International's office equipment, documents, and other items that were connected with the alleged violation. 22
On November 16, 2001, the search warrants were served and Price Richardson's office equipment and
documents were seized. 23
On December 4, 2001, the Securities and Exchange Commission filed before the Department of Justice its
complaint against Price Richardson, Clara Arlene Baybay (Baybay),Armina A. La Torre (La Torre),Manuel Luis
Limpin (Limpin),Editha C. Rupido (Rupido),Jose C. Taopo (Taopo),Consuelo Velarde-Albert (Velarde-
Albert),and Gordon Resnick (Resnick) for violation of Article 315 (1) (b) 24 of the Revised Penal Code and
Sections 26.3 25 and 28 of the Securities Regulation Code. 26Baybay, La Torre, Limpin, Rupido, and Taopo (the
incorporators and directors) were Price Richardson's incorporators and directors. 27 Velarde-Albert was its
Director for Operations and Resnick was its Associated Person. 28
The Securities and Exchange Commission alleged that Price Richardson was neither licensed nor
registered "to engage in the business of buying and selling securities within the Philippines or act as salesman, or
an associated person of any broker or dealer." 29 As shown by the seized documents and equipment, Price
Richardson engaged in seeking clients for the buying and selling of securities, thereby violating Sections 26.3 and
28 of the Securities Regulation Code. 30
The Securities and Exchange Commission claimed that Velarde-Albert and Resnick should be liable for
acting as brokers or salesmen despite not being registered. 31 Meanwhile, the incorporators and directors' liability
was based on being responsible "for the corporate management with the obligation to ensure that [Price
Richardson] operate[d] within the bounds of law." 32
Price Richardson, Velarde-Albert, Resnick, and the incorporators and directors were also charged with
Estafa under Article 315 (1) (b) of the Revised Penal Code. The Securities and Exchange Commission averred
that they obtained their investors' confidence by comporting themselves as legitimate stock brokers. 33 Thus,
when they failed to return the investments they received, their act "constitute[d] misappropriation with abuse of
confidence." 34
In defense, the incorporators and directors denied knowing or agreeing to the offenses charged. They
countered that they already transferred their respective shares to various individuals in December 2000, as shown
by their registered Deeds of Absolute Sale of Shares of Stock. 35 Velarde-Albert denied the Securities and
Exchange Commission's allegations against her while Resnick did not submit any evidence refuting the
charges. 36
On March 13, 2002, State Prosecutor Aristotle M. Reyes (State Prosecutor Reyes) issued a
Resolution, 37 dismissing the Securities and Exchange Commission's complaint "for lack of probable
cause." 38 He found that:
[C]omplainant SEC failed to adduce evidence showing respondent Price's alleged unauthorized
trading. While it is true that based on the certification issued by the SEC, respondent-corporation
has no license to buy or sell securities, it does not, however, follow, that said corporation had
indeed engaged in such business. It is imperative for complainant to prove the respondent-
corporation's affirmative act of buying and selling securities to constitute the offense charged. It
cannot be established on the expedient reason that a corporation is not license[d] or authorize[d]
to trade securities. He who alleges a positive statement has the burden of proving the same.
The various "confirmation of trade" receipts . . . taken singly, does not prove violation of
Sections 26.3 and 28 of the Securities Regulation Code. Far from proving the offense charged,
those confirmation of trade could very well mean that indeed respondent Price was merely
"providing administrative services of furnishing all necessary and incidental clerical,
bookkeeping, mailing and billing services" pursuant to its primary purpose as embodied in its
 articles of incorporation. There is no evidence that indeed anyone transacted business much less
purchased or sold securities with any of the respondents acting as broker or dealer in securities. In
other words, the burden of proving that respondents made various offers to sell unregistered
securities; that the offers were accepted; and, that agreements of sale were reached and
consummated, has not been dislodged by the complainant. Independent proof of the various
stages of a sale transaction is necessary to show violation of Sections 26.3 and 28 of the  Securities
Regulation Code. 39
State Prosecutor Reyes absolved the incorporators and directors from any liability considering that they
already relinquished their positions as directors of Price Richardson when they transferred their shares to third
parties. 40 He also found Velarde-Albert and Resnick not liable for lack of sufficient proof that they engaged in
the trading of securities. 41
On the allegation of conspiracy, State Prosecutor Reyes held that because the facts failed "to establish the
alleged unauthorized trading, or the fraudulent investments that constitute the crime charged, there can be no basis
in determining collective criminal responsibility." 42 Finally, State Prosecutor Reyes ruled that there was no
sufficient evidence to show that Price Richardson, Velarde-Albert, Resnick, and the incorporators and directors
deceived investors that would constitute the crime of estafa with abuse of confidence. 43
In the meantime, individuals claiming to have agreed to purchase securities from Price Richardson and
have been defrauded surfaced and executed sworn statements against it. 44 They claimed that Price Richardson
engaged in illegal trade of securities. 45 They filed complaints against Price Richardson before the Department of
Justice for violation of Article 315 (1) (b) of the Revised Penal Code and Sections 26.3 and 28 of the Securities
Regulation Code. 46
The Securities and Exchange Commission moved for reconsideration 47 of the March 13, 2002
Resolution, which was denied by State Prosecutor Reyes in a Resolution 48 dated May 31, 2002.
The Securities and Exchange Commission filed before the Department of Justice a Petition for
Review 49 of State Prosecutor Reyes' March 13, 2002 and May 31, 2002 Resolutions. This was denied in the
April 12, 2005 Resolution 50 of Department of Justice Secretary Raul M. Gonzalez (Secretary Gonzalez).The
Securities and Exchange Commission filed a Motion for Reconsideration 51 of the April 12, 2005 Resolution but
this was denied by Secretary Gonzalez in his July 5, 2006 Resolution. 52
The Securities and Exchange Commission filed a Petition for Certiorari 53 against Secretary Gonzalez,
Price Richardson, Velarde-Albert, and Resnick before the Court of Appeals for the annulment of Secretary
Gonzalez's April 12, 2005 and July 5, 2006 Resolutions. 54
On May 26, 2011, the Court of Appeals promulgated a Decision 55 affirming the assailed
Resolutions. 56 The Court of Appeals held that there was no grave abuse of discretion on the part of Secretary
Gonzalez when he affirmed State Prosecutor Reyes' Resolutions, which found no probable cause to file an
information. 57
The Court of Appeals found that the affidavits executed by Price Richardson's employees were merely
surmises. 58 They did not have personal knowledge of the security trading since their jobs were limited to
persuading people to get newsletter subscriptions. 59 Indeed, the documents seized from Price Richardson's office
showed a transaction between it and an investor. 60 However, "no clear and specific acts of buying or selling of
securities were alleged and substantiated by the SEC [.]" 61
The alleged investors' affidavits were not sufficient to find probable cause because the alleged
transactions transpired over the phone and while these investors were not in the Philippines. 62 Moreover, since
the traded stocks were not of domestic corporations or from corporations doing business in the Philippines,
Philippine penal laws could not be applied. 63
Lastly, there was no basis for the complaints against Velarde-Albert and Resnick because they were
neither board members nor stockholders of the corporation. The complaint did not allege any particular act that
can be interpreted as their direct participation in the purported illegal stock trading. 64
Hence, on July 26, 2011, the Securities and Exchange Commission filed a Petition for Review 65 before
this Court against Price Richardson, Velarde-Albert, and Resnick. It assailed the May 26, 2011 Decision of the
Court of Appeals and the April 12, 2005 and July 5, 2006 Resolutions of Secretary Gonzalez and prayed for the
filing of an information against respondents for violation of Sections 26.3 and 28 of the Securities Regulation
Code. 66
Petitioner claims that Secretary Gonzalez committed grave abuse of discretion in not finding probable
cause to indict respondents. 67 The complainants who claimed to have been defrauded by respondents and the
documents and equipment seized show that respondent Price Richardson was engaged in buying and selling
securities without license or authority. 68 On the liability of respondents Velarde-Albert and Resnick, petitioner
asserts that the seized documents sufficiently show that they acted as salesmen or associated persons under
Section 28 of the Securities Regulation Code. 69
On December 7, 2011, respondent Price Richardson filed its Comment, 70 arguing that the determination
of probable cause is an executive function and is reviewable by courts only upon showing of grave abuse of
discretion. 71 The Department of Justice did not gravely abuse its discretion when it found that there was no
probable cause to indict respondents for violation of the Securities Regulation Code. 72 Respondent Price
Richardson's former employees' sworn statements contained factual claims that were outside their personal
knowledge or conclusions of law that were beyond their capacity to make. 73
Respondent Price Richardson insists that Section 28 of the Securities Regulation Code prohibits anyone
from engaging in the business of buying and selling securities without registration from the Securities and
Exchange Commission if those transactions are offered "to the public within the Philippines[.]" 74 This provision
does not apply in this case because the alleged buyers of securities were not citizens of or resided in the
Philippines. Additionally, the allegedly sold or offered securities were registered outside the Philippines, where
the alleged sales also transpired. Hence, these sales are not under the Philippine jurisdiction. 75
Respondent Resnick filed his Comment 76 on January 11, 2012 while respondent Velarde-Albert filed her
Comment 77 on April 23, 2013. Both respondents argue that the complaints did not allege any act attributable to
them or related to the alleged transactions involved. 78 Respondent Velarde-Albert also contends that there was
no question of law raised in the Petition, which is required in a Rule 45 petition. 79
On November 4, 2013, petitioner filed its Consolidated Reply. 80 Petitioner posits that direct invocation
of this Court's original jurisdiction is allowed as its petition is an exception to the rule that only questions of law
may be raised in a Rule 45 petition. 81 Petitioner alleges that the Court of Appeals' grave abuse of discretion and
its Decision, which was based on a misapprehension of facts and was contradicted by evidence on
record, 82 make its Petition an exception to the rule.83
On December 2, 2013, this Court issued a Resolution, 84 giving due course to the Petition and required
the parties to file their respective memoranda.
Petitioner filed its Memorandum 85 on March 21, 2014. Respondents Velarde-Albert, Resnick, and Price
Richardson submitted their Memoranda on February 24, 2014, 86 April 3, 2014, 87 and May 8,
2014, 88 respectively.
This Court resolves the following issues:
First, whether courts may pass upon the prosecutor's determination of probable cause; and
Finally, whether there is probable cause to indict respondents for violation of Sections 26.3 and 28 of
the Securities Regulation Code and Article 315 (1) (b) of theRevised Penal Code.
I
Courts may pass upon the prosecutor's determination of probable cause only upon a showing of grave
abuse of discretion.
Probable cause, in relation to the filing of an information, was explained by this Court in Villanueva v.
Secretary of Justice:89
Probable cause, for purposes of filing a criminal information, has been defined as such
facts as are sufficient to engender a well-founded belief that a crime has been committed and that
the private respondent is probably guilty thereof. It is such a state of facts in the mind of the
prosecutor as would lead a person of ordinary caution and prudence to believe or entertain an
honest or strong suspicion that a thing is so. The term does not mean "actual or positive cause;"
nor does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus, a
finding of probable cause does not require an inquiry into whether there is sufficient evidence to
procure a conviction. It is enough that it is believed that the act or omission complained of
constitutes the offense charged. 90
The definition of probable cause was lifted from Rule 112, Section 1, paragraph 1 of the Revised Rules of
Criminal Procedure, which states:
RULE 112
Preliminary Investigation
Section 1. Preliminary Investigation Defined; When Required. — Preliminary investigation is an
inquiry or proceeding to determine whether there is sufficient ground to engender a well-founded
 belief that a crime has been committed and the respondent is probably guilty thereof, and should
be held for trial.
Under Rule 112, preliminary investigation must be conducted to determine the existence of probable
cause. 91 In Andres v. Justice Secretary Cuevas,92 this Court stressed that:
[Preliminary investigation] is not the occasion for the full and exhaustive display of their
evidence. The presence or absence of the elements of the crime is evidentiary in nature and is a
matter of defense that may be passed upon after a full-blown trial on the merits.
In fine, the validity and merits of a party's defense or accusation, as well as admissibility
of testimonies and evidence, are better ventilated during trial proper than at the preliminary
investigation level. 93 (Citations omitted)
It has long been established that the determination of probable cause to charge a person of a crime is an
executive function, 94 which pertains to and lies within the discretion of the public prosecutor and the justice
secretary. 95
If the public prosecutor finds probable cause to charge a person with a crime, he or she causes the filing of
an information before the court. 96 The court may not pass upon or interfere with the prosecutor's determination
of the existence of probable cause to file an information regardless of its correctness.  97 It does not review the
determination of probable cause made by the prosecutor. It does not function as the prosecutor's appellate
court. 98 Thus, it is also the public prosecutor who decides "what constitutes sufficient evidence to establish
probable cause." 99
However, if the public prosecutor erred in its determination of probable cause, an appeal can be made
before the Department of Justice Secretary. Simultaneously, the accused may move for the suspension of
proceedings until resolution of the appeal. 100
Upon filing of the information before the court, judicial determination of probable cause is initiated. The
court shall make a personal evaluation of the prosecutor's resolution and its supporting evidence.  101 Unlike the
executive determination of probable cause, the purpose of judicial determination of probable cause is "to ascertain
whether a warrant of arrest should be issued against the accused." 102 This determination is independent of the
prosecutor's determination of probable cause and is a function of courts for purposes of issuance of a warrant of
arrest.
Judicial determination of probable cause is in consonance with Article III, Section 2 of the Constitution:
ARTICLE III
Bill of Rights
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Section 2. The right of the people to be secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable,
and no search warrant or warrant of arrest shall issue except upon probable cause to be
determined personally by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized. (Emphasis supplied)
Accordingly, a judge may immediately dismiss the case if he or she finds that there is no probable cause
to issue a warrant of arrest based on the records. 103 To protect the accused's right to liberty, 104 the trial court
may dismiss an information based on "its own independent finding of lack of probable cause" 105 when an
information has already been filed and the court is already set to determine probable cause to issue a warrant of
arrest.
Thus, the general rule is that the determination of probable cause is an executive function which courts
cannot pass upon. As an exception, courts may interfere with the prosecutor's determination of probable cause
only when there is grave abuse of discretion. 106 Grave abuse of discretion constitutes "a refusal to act in
contemplation of law or a gross disregard of the Constitution, law, or existing jurisprudence, [accompanied by] a
whimsical and capricious exercise of judgment amounting to lack of jurisdiction." 107
A prosecutor gravely abuses his or her discretion in not finding probable cause by disregarding or
overlooking evidence that "are sufficient to form a reasonable ground to believe that the crime ...was committed
and that the respondent was its author." 108 Further, "what is material to a finding of probable cause is the
commission of acts constituting [the offense],the presence of all its elements and the reasonable belief, based on
evidence, that the respondent had committed it." 109
 In this case, grave abuse of discretion exists, which warrants this Court's interference in the conduct of the
executive determination of probable cause.
II
Petitioner provided sufficient bases to form a belief that a crime was possibly committed by respondent
Price Richardson.
The complaint alleged that respondents committed violations of the following:
SECURITIES REGULATION CODE
Section 26. Fraudulent Transactions. — It shall be unlawful for any person, directly or indirectly,
in connection with the purchase or sale of any securities to:
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26.3. Engage in any act, transaction, practice or course of business which operates or would
operate as a fraud or deceit upon any person.
xxx xxx xxx
Section 28. Registration of Brokers, Dealers, Salesmen and Associated Persons. — 28.1. No
person shall engage in the business of buying or selling securities in the Philippines as a broker or
dealer, or act as a salesman, or an associated person of any broker or dealer unless registered as
such with the Commission.
REVISED PENAL CODE
ARTICLE 315. Swindling (Estafa).— Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
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4th.By arresto mayor in its medium and maximum periods, if such amount does not exceed 200
pesos, provided that in the four cases mentioned, the fraud be committed by any of the following
means:
1. With unfaithfulness or abuse of confidence, namely:
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(b) By misappropriating or converting, to the prejudice of another, money, goods,
or any other personal property received by the offender in trust or on commission,
or for administration, or under any other obligation involving the duty to make
delivery of or to return the same, even though such obligation be totally or
partially guaranteed by a bond; or by denying having received such money,
goods, or other property.
An examination of the records reveals that probable cause exists to file an information against respondent
Price Richardson for violating the laws.
Based on the Certification 110 dated October 11, 2001 issued by the Market Regulation Department of the
Securities and Exchange Commission, respondent Price Richardson "has never been issued any secondary license
to act as broker/dealer in securities, investment house and dealer in government securities." 111Petitioner also
certified that respondent Price Richardson "is not, under any circumstances, authorized or licensed to engage
and/or solicit investments from clients."112
However, the documents seized from respondent Price Richardson's office show possible sales of
securities. These documents include:
a) A company brochure consisting of 8 pages which declares that it is a financial consultant geared
towards portfolio investment advice and other financial services to investors ...
b) Detailed Quotes of OWTNF Otis-Winston Ltd. shares downloaded from the Bloomberg.com
website which indicates its price, return, fundamentals and other matters ...
c) Confirmation of Trade issued by the respondent to its client MR. PETER VAN DER HAEGEN
which indicates that he bought on Oc[to]ber 16, 2001 750 Otis-[W]inston Ltd at $4.15 price
per share for $3,112.50 ...
 d) Confirmation of Trade issued by the respondent to MR. RENNY NAIR who bought 500 shares
of Hugo International (HGOI) at $5.75 per share for which he paid $2,932.50 ...and
Telegraphic Transfer from Oman U.A.E. Exchange Centre & Co. LLC made by Mr. Nair to
PRICE RICHARDSON to the latter's bank account No. 103-719221-0 in China Banking
Corporation in the amount of $2932.50 ...
e) Confirmation of Trade issued by the respondent to MR. JOHANNES DE KORTE who bought
500 shares of Otis-Winston Ltd (OWTNF) at $5.05 per share for which he paid
$2,575.50 ...
f) Confirmation of Trade issued by the respondent to MR. JUERGEN GEIGER who bought 2500
shares of Hugo International at $4.65 per share for which he paid $11,857.50 ...
g) Confirmation of Trade issued by the respondent to MR. ZULKEPLI HAMID who bought 2000
shares of OWTNF at $5.05 per share for which he paid $10,302 ...
h) Telegraphic Transfers issued by China Banking Corporation to Union Bank of California
International NY with Price Richardson as the Order Party and M.L. Vitale as the
beneficiary in the amount of $2000 and Citibank Belgium as the Beneficiary Bank ...
i) Confirmation of Trade issued by the respondent to MR. Junzo Watanabe who bought 2500 shares
of OWTNF at $3.90 per share and sold 1500 Geoalert (GEOA) shares for which he paid
$3,525 ...
j) First Hawaiian Bank check issued by Junzo Watanabe payable to the Order of Price
Richardson[.] 113
Petitioner further supports its charges by submitting the complaint-affidavits and letters of individuals
who transacted with Price Richardson:
The SEC has submitted the complaint of Mr. Don Sextus Nilantha, a citizen of Sri Lanka
who clearly named Price Richardson as selling him 1000 shares of Hugo Intl. Telecom, Inc.
sometime in April 2001. At such time, and until today, Price Richardson was not authorized to act
as traders or brokers o[f] securities in the Philippines.
Furthermore, there are other complainants against Price Richardson who deserve to have
their complaints aired and tried before the proper court. Mr. Johannes Jacob Van Prooyen filed a
complaint against Price Richardson with the National Bureau of Investigation ...In the said
complaint, Mr. Van Prooyen clearly pointed to Price Richardson as the ones who contacted him
on June 12, 2001 to buy 2000 shares of Hugo Intl. Telecom, Inc. and on July 10, 2001 to buy
2000 shares of GeoAlert. At no time at such relevant dates was Price Richardson licensed to act as
traders or brokers of securities in the Philippines.
Mr. Bjorn L. Nymann of Oslo, Norway wrote about Price Richardson to this very same
Department of Justice, which letter was received on July 9, 2002. In his letter Mr. Nymann
admitted dealing with Price Richardson. He admitted to having bought 3000 shares of Hugo Intl.
Telecom, Inc. ...Although Mr. Nymann is not a complaining witness against Price Richardson, his
letter is relevant as at no time at such relevant date was Price Richardson licensed to act as traders
or brokers of securities in the Philippines.114
In addition, respondent Price Richardson stated in its Memorandum:
If this Honorable Court were to consider the set-up of Price Richardson, it was as if it
engaged in outsourced operations wherein persons located in the Philippines called up persons
located in foreign locations to inform them of certain securities available in certain locations, and
to determine if they wanted to buy these securities which are offered in a different country. 115
The evidence gathered by petitioner and the statement of respondent Price Richardson are facts sufficient
enough to support a reasonable belief that respondent is probably guilty of the offense charged.
III
However, respondents Velarde-Albert and Resnick cannot be indicted for violations of the Securities
Regulation Code and the Revised Penal Code.
Petitioner failed to allege the specific acts of respondents Velarde-Albert and Resnick that could be
interpreted as participation in the alleged violations. There was also no showing, based on the complaints, that
they were deemed responsible for Price Richardson's violations. As found by State Prosecutor Reyes in his March
13, 2002 Resolution:
 [T]here is no sufficient evidence to substantiate SEC's allegation that individual respondents,
Connie Albert and Gordon Resnick, acted as broker, salesman or associated person without prior
registration with the Commission. The evidence at hand merely proves that the above-named
respondents were not licensed to act as broker, salesman or associated person. No further proof,
however, was presented showing that said respondents have indeed acted as such in trading
securities. Although complainant SEC presented several confirmation of trade receipts and
documents intended to establish respondents Albert and Resnick illegal activities, the said
documents, standing alone as heretofore stated, could not warrant the indictment of the two
respondents for the offense charged. 116
A corporation's personality is separate and distinct from its officers, directors, and shareholders. To be
held criminally liable for the acts of a corporation, there must be a showing that its officers, directors, and
shareholders actively participated in or had the power to prevent the wrongful act. 117
WHEREFORE,premises considered, the Petition is PARTIALLY GRANTED.The Court of Appeals
Decision dated May 26, 2011 and Department of Justice Secretary Raul M. Gonzalez's Resolutions dated April 12,
2005 and July 5, 2006 are AFFIRMED in so far as they find no grave abuse of discretion in the dismissal of the
complaints for lack of probable cause against Consuelo Velarde-Albert and Gordon Resnick for: a) committing
Estafa under Article 315 (1) (b) of the Revised Penal Code and b) violating Sections 26.3 and 28 of the Securities
Regulation Code.
This Court, however, finds that the dismissal of the complaint for lack of probable cause against Price
Richardson Corporation for violation of Sections 26.3 and 28 of the Securities Regulation Code was rendered with
grave abuse of discretion amounting to lack or excess of jurisdiction and is, thus, ANNULLED and SET ASIDE.
SO ORDERED.
||| (Securities and Exchange Commission v. Price Richardson Corp., G.R. No. 197032, [July 26, 2017], 814 PHIL
589-616)

[G.R. No. 135808. October 6, 2008.]

SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. INTERPORT RESOURCES
CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO RICALDE,
 ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN,
JR., respondents.
DECISION
CHICO-NAZARIO, J p:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Decision, 1 dated 20 August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining
petitioner Securities and Exchange Commission (SEC) from taking cognizance of or initiating any action against
the respondent corporation Interport Resources Corporation (IRC) and members of its board of directors,
respondents Manuel S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy
and Santiago Tanchan, Jr., with respect to Sections 8, 30 and 36 of the  Revised Securities Act. In the same
Decision of the appellate court, all the proceedings taken against the respondents, including the assailed SEC
Omnibus Orders of 25 January 1995 and 30 March 1995, were declared void. HDCAaS
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda
Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of
Ganda Energy Holdings, Inc. (GEHI), 2 which would own and operate a 102 megawatt (MW) gas turbine power-
generating barge. The agreement also stipulates that GEHI would assume a five-year power purchase contract
with National Power Corporation. At that time, GEHI's power-generating barge was 97% complete and would go
on-line by mid-September of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC
amounting to 40.88 billion shares which had a total par value of P488.44 million. 3
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI).
PRCI owns 25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a member of the
Westmont Group of Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed
acquisition by IRC of PRCI. 4
IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent
through facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile machine of
the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9
August 1994. 5
The SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares utilizing this
material insider information. On 16 August 1994, the SEC Chairman issued a directive requiring IRC to submit to
the SEC a copy of its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed all
principal officers of IRC to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC
to explain IRC's failure to immediately disclose the information as required by the Rules on Disclosure of Material
Facts. 6
In compliance with the SEC Chairman's directive, the IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of Agreement. Its directors, Manuel Recto, Rene Villarica and
Pelagio Ricalde, also appeared before the SEC on 22 August 1994 to explain IRC's alleged failure to immediately
disclose material information as required under the Rules on Disclosure of Material Facts. 7 SCaIcA
On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on
Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed to make timely
disclosure of its negotiations with GHB. In addition, the SEC pronounced that some of the officers and directors
of IRC entered into transactions involving IRC shares in violation of Section 30, in relation to Section 36, of
the Revised Securities Act. 8
Respondents filed an Omnibus Motion, dated 21 September 1994, which was superseded by an Amended
Omnibus Motion, filed on 18 October 1994, alleging that the SEC had no authority to investigate the subject
matter, since under Section 8 of Presidential Decree No. 902-A, 9 as amended by Presidential Decree No. 1758,
jurisdiction was conferred upon the Prosecution and Enforcement Department (PED) of the SEC. Respondents
also claimed that the SEC violated their right to due process when it ordered that the respondents appear before
the SEC and "show cause why no administrative, civil or criminal sanctions should be imposed on them", and,
thus, shifted the burden of proof to the respondents. Lastly, they sought to have their cases tried jointly given the
identical factual situations surrounding the alleged violation committed by the respondents. 10
Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994, wherein they
moved for discontinuance of the investigations and the proceedings before the SEC until the undue publicity had
abated and the investigating officials had become reasonably free from prejudice and public pressure. 11
 No formal hearings were conducted in connection with the aforementioned motions, but on 25 January
1995, the SEC issued an Omnibus Order which thus disposed of the same in this wise: 12
WHEREFORE, premised on the foregoing considerations, the Commission resolves and
hereby rules:
1. To create a special investigating panel to hear and decide the instant case in accordance
with the Rules of Practice and Procedure Before the Prosecution and Enforcement Department
(PED), Securities and Exchange Commission, to be composed of Attys. James K. Abugan,
Medardo Devera (Prosecution and Enforcement Department), and Jose Aquino (Brokers and
Exchanges Department), which is hereby directed to expeditiously resolve the case by conducting
continuous hearings, if possible. EIcTAD
2. To recall the show cause orders dated September 19, 1994 requiring the respondents to
appear and show cause why no administrative, civil or criminal sanctions should be imposed on
them.
3. To deny the Motion for Continuance for lack of merit.
Respondents filed an Omnibus Motion for Partial Reconsideration, 13 questioning the creation of the
special investigating panel to hear the case and the denial of the Motion for Continuance. The SEC denied
reconsideration in its Omnibus Order dated 30 March 1995. 14
The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. SP No. 37036,
questioning the Omnibus Orders dated 25 January 1995 and 30 March 1995. 15 During the proceedings before the
Court of Appeals, respondents filed a Supplemental Motion 16 dated 16 May 1995, wherein they prayed for the
issuance of a writ of preliminary injunction enjoining the SEC and its agents from investigating and proceeding
with the hearing of the case against respondents herein. On 5 May 1995, the Court of Appeals granted their
motion and issued a writ of preliminary injunction, which effectively enjoined the SEC from filing any criminal,
civil or administrative case against the respondents herein. 17
On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus Orders so that the case
may be investigated by the PED in accordance with the SEC Rules and Presidential Decree No. 902-A, and not by
the special body whose creation the SEC had earlier ordered. 18 EaTCSA
The Court of Appeals promulgated a Decision 19 on 20 August 1998. It determined that there were no
implementing rules and regulations regarding disclosure, insider trading, or any of the provisions of the Revised
Securities Acts which the respondents allegedly violated. The Court of Appeals likewise noted that it found no
statutory authority for the SEC to initiate and file any suit for civil liability under Sections 8, 30 and 36 of
the Revised Securities Act. Thus, it ruled that no civil, criminal or administrative proceedings may possibly be
held against the respondents without violating their rights to due process and equal protection. It further resolved
that absent any implementing rules, the SEC cannot be allowed to quash the assailed Omnibus Orders for the sole
purpose of re-filing the same case against the respondents. 20
The Court of Appeals further decided that the Rules of Practice and Procedure Before the PED, which
took effect on 14 April 1990, did not comply with the statutory requirements contained in the Administrative
Code of 1997. Section 8, Rule V of the Rules of Practice and Procedure Before the PED affords a party the right
to be present but without the right to cross-examine witnesses presented against him, in violation of Section 12
(3), Chapter 3, Book VII of the Administrative Code. 21
In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals ruled that: 22
WHEREFORE, [herein petitioner SEC's] Motion for Leave to Quash SEC Omnibus
Orders is hereby DENIED. The petition for certiorari, prohibition and mandamus is GRANTED.
Consequently, all proceedings taken against [herein respondents] in this case, including the
Omnibus Orders of January 25, 1995 and March 30, 1995 are declared null and void. The writ of
preliminary injunction is hereby made permanent and, accordingly, [SEC] is hereby
prohibited from taking cognizance or initiating any action, be they civil, criminal, or
administrative against [respondents] with respect to Sections 8 (Procedure for Registration), 30
(Insider's duty to disclose when trading) and 36 (Directors, Officers and Principal Stockholders)
in relation to Sections 46 (Administrative sanctions) 56 (Penalties) 44 (Liabilities of Controlling
persons) and 45 (Investigations, injunctions and prosecution of offenses) of the Revised Securities
Act and Section 144 (Violations of the Code) of the Corporation Code. (Emphasis
provided.)DSHcTC
The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution 23 issued
on 30 September 1998.
 Hence, the present petition, which relies on the following grounds: 24
I
THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONER'S MOTION FOR
LEAVE TO QUASH THE ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25 AND
MARCH 30, 1995.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO STATUTORY
AUTHORITY WHATSOEVER FOR PETITIONER SEC TO INITIATE AND FILE ANY SUIT
BE THEY CIVIL, CRIMINAL OR ADMINISTRATIVE AGAINST RESPONDENT
CORPORATION AND ITS DIRECTORS WITH RESPECT TO SECTION 30 (INSIDER'S
DUTY TO DISCLOSED [sic] WHEN TRADING) AND 36 (DIRECTORS OFFICERS AND
PRINCIPAL STOCKHOLDERS) OF THE REVISED SECURITIES ACT; AND
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE AND
PROSECUTION BEFORE THE PED AND THE SICD RULES OF PROCEDURE ON
ADMINISTRATIVE ACTIONS/PROCEEDINGS 25 ARE INVALID AS THEY FAIL TO
COMPLY WITH THE STATUTORY REQUIREMENTS CONTAINED IN THE
ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.
Before discussing the merits of this case, it should be noted that while this case was pending in this
Court, Republic Act No. 8799, otherwise known as theSecurities Regulation Code, took effect on 8 August 2000.
Section 8 of Presidential Decree No. 902-A, as amended, which created the PED, was already repealed as
provided for in Section 76 of the Securities Regulation Code: cSIADH
SEC. 76. Repealing Clause. — The Revised Securities Act (Batas Pambansa Blg. 178), as
amended, in its entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A, as amended, are
hereby repealed. All other laws, orders, rules and regulations, or parts thereof, inconsistent with
any provision of this Code are hereby repealed or modified accordingly.
Thus, under the new law, the PED has been abolished, and the Securities Regulation Code has taken the
place of the Revised Securities Act.
The Court now proceeds with a discussion of the present case.
I. Sections 8, 30 and 36 of the Revised
Securities Act do not require the
enactment of implementing rules to
make them binding and effective.
The Court of Appeals ruled that absent any implementing rules for Sections 8, 30 and 36 of the  Revised
Securities Act, no civil, criminal or administrative actions can possibly be had against the respondents without
violating their right to due process and equal protection, citing as its basis the case  Yick Wo v. Hopkins. 26 This is
untenable.
In the absence of any constitutional or statutory infirmity, which may concern Sections 30 and 36 of
the Revised Securities Act, this Court upholds these provisions as legal and binding. It is well settled that every
law has in its favor the presumption of validity. Unless and until a specific provision of the law is declared invalid
and unconstitutional, the same is valid and binding for all intents and purposes. 27 The mere absence of
implementing rules cannot effectively invalidate provisions of law, where a reasonable construction that will
support the law may be given. In People v. Rosenthal, 28 this Court ruled that:
In this connection we cannot pretermit reference to the rule that "legislation should not be
held invalid on the ground of uncertainty if susceptible of any reasonable construction that will
support and give it effect. An Act will not be declared inoperative and ineffectual on the ground
that it furnishes no adequate means to secure the purpose for which it is passed, if men of
common sense and reason can devise and provide the means, and all the instrumentalities
necessary for its execution are within the reach of those intrusted therewith." (25 R.C.L., pp. 810,
811) HDTSIE
In Garcia v. Executive Secretary, 29 the Court underlined the importance of the presumption of validity
of laws and the careful consideration with which the judiciary strikes down as invalid acts of the legislature:
 The policy of the courts is to avoid ruling on constitutional questions and to presume that
the acts of the political departments are valid in the absence of a clear and unmistakable showing
to the contrary. To doubt is to sustain. This presumption is based on the doctrine of separation of
powers which enjoins upon each department a becoming respect for the acts of the other
departments. The theory is that as the joint act of Congress and the President of the Philippines, a
law has been carefully studied and determined to be in accordance with the fundamental law
before it was finally enacted.
The necessity for vesting administrative authorities with power to make rules and regulations is based on
the impracticability of lawmakers' providing general regulations for various and varying details of
management. 30 To rule that the absence of implementing rules can render ineffective an act of Congress, such as
theRevised Securities Act, would empower the administrative bodies to defeat the legislative will by delaying the
implementing rules. To assert that a law is less than a law, because it is made to depend on a future event or act, is
to rob the Legislature of the power to act wisely for the public welfare whenever a law is passed relating to a state
of affairs not yet developed, or to things future and impossible to fully know. 31 It is well established that
administrative authorities have the power to promulgate rules and regulations to implement a given statute and to
effectuate its policies, provided such rules and regulations conform to the terms and standards prescribed by the
statute as well as purport to carry into effect its general policies. Nevertheless, it is undisputable that the rules and
regulations cannot assert for themselves a more extensive prerogative or deviate from the mandate of the
statute. 32 Moreover, where the statute contains sufficient standards and an unmistakable intent, as in the case of
Sections 30 and 36 of the Revised Securities Act, there should be no impediment to its implementation. cHSIDa
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins 33 shows a glaring error. In the cited
case, this Court found unconstitutional an ordinance which gave the board of supervisors authority to refuse
permission to carry on laundries located in buildings that were not made of brick and stone, because it violated the
equal protection clause and was highly discriminatory and hostile to Chinese residents and not because the
standards provided therein were vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised Securities
Act, such that the acts proscribed and/or required would not be understood by a person of ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insider's duty to disclose when trading. — (a) It shall be unlawful for an
insider to sell or buy a security of the issuer, if he knows a fact of special significance with respect
to the issuer or the security that is not generally available, unless (1) the insider proves that the
fact is generally available or (2) if the other party to the transaction (or his agent) is identified, (a)
the insider proves that the other party knows it, or (b) that other party in fact knows it from the
insider or otherwise.
(b) "Insider" means (1) the issuer, (2) a director or officer of, or a person controlling,
controlled by, or under common control with, the issuer, (3) a person whose relationship or
former relationship to the issuer gives or gave him access to a fact of special significance about
the issuer or the security that is not generally available, or (4) a person who learns such a fact
from any of the foregoing insiders as defined in this subsection, with knowledge that the person
from whom he learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being material it would be likely,
on being made generally available, to affect the market price of a security to a significant extent,
or (b) a reasonable person would consider it especially important under the circumstances in
determining his course of action in the light of such factors as the degree of its specificity, the
extent of its difference from information generally available previously, and its nature and
reliability.
(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the
extent that he knows of a fact of special significance by virtue of his being an insider.
The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information
is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed
when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to
disclose material information to the other party or abstain from trading the shares of his corporation. This duty to
disclose or abstain is based on two factors: first, the existence of a relationship giving access, directly or
indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of
anyone; and second, the inherent unfairness involved when a party takes advantage of such information knowing
it is unavailable to those with whom he is dealing. 34 CSEHcT
In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on
corporate "insiders", particularly officers, directors, or controlling stockholders, but that definition has since been
expanded. 35 The term "insiders" now includes persons whose relationship or former relationship to the issuer
gives or gave them access to a fact of special significance about the issuer or the security that is not generally
available, and one who learns such a fact from an insider knowing that the person from whom he learns the fact is
such an insider. Insiders have the duty to disclose material facts which are known to them by virtue of their
position but which are not known to persons with whom they deal and which, if known, would affect their
investment judgment. In some cases, however, there may be valid corporate reasons for the nondisclosure of
material information. Where such reasons exist, an issuer's decision not to make any public disclosures is not
ordinarily considered as a violation of insider trading. At the same time, the undisclosed information should not be
improperly used for non-corporate purposes, particularly to disadvantage other persons with whom an insider
might transact, and therefore the insider must abstain from entering into transactions involving such securities. 36
Respondents further aver that under Section 30 of the Revised Securities Act, the SEC still needed to
define the following terms: "material fact", "reasonable person", "nature and reliability" and "generally
available". 37 In determining whether or not these terms are vague, these terms must be evaluated in the context
of Section 30 of the Revised Securities Act. To fully understand how the terms were used in the aforementioned
provision, a discussion of what the law recognizes as a fact of special significance is required, since the duty to
disclose such fact or to abstain from any transaction is imposed on the insider only in connection with a fact of
special significance.
Under the law, what is required to be disclosed is a fact of "special significance" which may be (a) a
material fact which would be likely, on being made generally available, to affect the market price of a security to a
significant extent, or (b) one which a reasonable person would consider especially important in determining his
course of action with regard to the shares of stock. TCDHaE
(a) Material Fact — The concept of a "material fact" is not a new one. As early as 1973, the Rules
Requiring Disclosure of Material Facts by Corporations Whose Securities Are Listed In Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by the SEC on 29 January 1973, explained that "[a] fact is
material if it induces or tends to induce or otherwise affect the sale or purchase of its securities." Thus, Section 30
of the Revised Securities Act provides that if a fact affects the sale or purchase of securities, as well as its price,
then the insider would be required to disclose such information to the other party to the transaction involving the
securities. This is the first definition given to a "fact of special significance".
(b.1) Reasonable Person — The second definition given to a fact of special significance involves the
judgment of a "reasonable person". Contrary to the allegations of the respondents, a "reasonable person" is not a
problematic legal concept that needs to be clarified for the purpose of giving effect to a statute; rather, it is the
standard on which most of our legal doctrines stand. The doctrine on negligence uses the discretion of the
"reasonable man" as the standard. 38 A purchaser in good faith must also take into account facts which put a
"reasonable man" on his guard. 39 In addition, it is the belief of the reasonable and prudent man that an offense
was committed that sets the criteria for probable cause for a warrant of arrest. 40 This Court, in such cases,
differentiated the reasonable and prudent man from "a person with training in the law such as a prosecutor or a
judge", and identified him as "the average man on the street", who weighs facts and circumstances without
resorting to the calibrations of our technical rules of evidence of which his knowledge is nil. Rather, he relies on
the calculus of common sense of which all reasonable men have in abundance. 41 In the same vein, the U.S.
Supreme Court similarly determined its standards by the actual significance in the deliberations of a "reasonable
investor", when it ruled in TSC Industries, Inc. v. Northway, Inc., 42 that the determination of materiality
"requires delicate assessments of the inferences a 'reasonable shareholder' would draw from a given set of facts
and the significance of those inferences to him." EcTDCI
(b.2) Nature and Reliability — The factors affecting the second definition of a "fact of special
significance", which is of such importance that it is expected to affect the judgment of a reasonable man, were
substantially lifted from a test of materiality pronounced in the case In the Matter of Investors Management Co.,
Inc.: 43
Among the factors to be considered in determining whether information is material under
this test are the degree of its specificity, the extent to which it differs from information previously
publicly disseminated, and its reliability in light of its nature and source and the circumstances
under which it was received.
It can be deduced from the foregoing that the "nature and reliability" of a significant fact in determining the course
of action a reasonable person takes regarding securities must be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances that would render the "nature and reliability" of a fact to
be of special significance is close to impossible. Nevertheless, the proper adjudicative body would undoubtedly be
able to determine if facts of a certain "nature and reliability" can influence a reasonable person's decision to retain,
sell or buy securities, and thereafter explain and justify its factual findings in its decision.
(c) Materiality Concept — A discussion of the "materiality concept" would be relevant to both a material
fact which would affect the market price of a security to a significant extent and/or a fact which a reasonable
person would consider in determining his or her cause of action with regard to the shares of stock. Significantly,
what is referred to in our laws as a fact of special significance is referred to in the U.S. as the "materiality
concept" and the latter is similarly not provided with a precise definition. In Basic v. Levinson, 44 the U.S.
Supreme Court cautioned against confining materiality to a rigid formula, stating thus:
A bright-line rule indeed is easier to follow than a standard that requires the exercise of
judgment in the light of all the circumstances. But ease of application alone is not an excuse for
ignoring the purposes of the Securities Act and Congress' policy decisions. Any approach that
designates a single fact or occurrence as always determinative of an inherently fact-specific
finding such as materiality, must necessarily be overinclusive or underinclusive. DIEACH
Moreover, materiality "will depend at any given time upon a balancing of both the indicated probability that the
event will occur and the anticipated magnitude of the event in light of the totality of the company activity." 45 In
drafting the Securities Act of 1934, the U.S. Congress put emphasis on the limitations to the definition of
materiality:
Although the Committee believes that ideally it would be desirable to have absolute
certainty in the application of the materiality concept, it is its view that such a goal is illusory and
unrealistic. The materiality concept is judgmental in nature and it is not possible to translate
this into a numerical formula. The Committee's advice to the [SEC] is to avoid this quest for
certainty and to continue consideration of materiality on a case-by-case basis as disclosure
problems are identified. House Committee on Interstate and Foreign Commerce, Report of the
Advisory Committee on Corporate Disclosure to the Securities and Exchange Commission, 95th
Cong., 1st Sess., 327 (Comm.Print 1977). (Emphasis provided.) 46
(d) Generally Available — Section 30 of the Revised Securities Act allows the insider the defense that in
a transaction of securities, where the insider is in possession of facts of special significance, such information is
"generally available" to the public. Whether information found in a newspaper, a specialized magazine, or any
cyberspace media be sufficient for the term "generally available" is a matter which may be adjudged given the
particular circumstances of the case. The standards cannot remain at a standstill. A medium, which is widely used
today was, at some previous point in time, inaccessible to most. Furthermore, it would be difficult to approximate
how the rules may be applied to the instant case, where investigation has not even been started. Respondents
failed to allege that the negotiations of their agreement with GHB were made known to the public through any
form of media for there to be a proper appreciation of the issue presented.
Section 36 (a) of the Revised Securities Act
As regards Section 36 (a) of the Revised Securities Act, respondents claim that the term "beneficial
ownership" is vague and that it requires implementing rules to give effect to the law. Section 36 (a) of the  Revised
Securities Act is a straightforward provision that imposes upon (1) a beneficial owner of more than ten percent of
any class of any equity security or (2) a director or any officer of the issuer of such security, the obligation to
submit a statement indicating his or her ownership of the issuer's securities and such changes in his or her
ownership thereof. The said provision reads: EICSDT
Sec. 36. Directors, officers and principal stockholders. — (a) Every person who is
directly or indirectly the beneficial owner of more than ten per centum of any [class] of any equity
security which is registered pursuant to this Act, or who is [a] director or an officer of the issuer
of such security, shall file, at the time of the registration of such security on a securities exchange
or by the effective date of a registration statement or within ten days after he becomes such a
beneficial owner, director or officer, a statement with the Commission and, if such security is
registered on a securities exchange, also with the exchange, of the amount of all equity securities
of such issuer of which he is the beneficial owner, and within ten days after the close of each
calendar month thereafter, if there has been a change in such ownership during such month, shall
file with the Commission, and if such security is registered on a securities exchange, shall also file
with the exchange, a statement indicating his ownership at the close of the calendar month and
such changes in his ownership as have occurred during such calendar month. (Emphasis
provided.)
Section 36 (a) refers to the "beneficial owner". Beneficial owner has been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust property (also called "equitable
ownership"); and second, to refer to the power of a corporate shareholder to buy or sell the shares,
though the shareholder is not registered in the corporation's books as the owner. Usually,
beneficial ownership is distinguished from naked ownership, which is the enjoyment of all the
benefits and privileges of ownership, as against possession of the bare title to property. 47
Even assuming that the term "beneficial ownership" was vague, it would not affect respondents' case, where the
respondents are directors and/or officers of the corporation, who are specifically required to comply with the
reportorial requirements under Section 36 (a) of the Revised Securities Act. The validity of a statute may be
contested only by one who will sustain a direct injury as a result of its enforcement. 48 IaEHSD
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities
market and prevent unscrupulous individuals, who by their positions obtain non-public information, from taking
advantage of an uninformed public. No individual would invest in a market which can be manipulated by a limited
number of corporate insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert
the occurrence of such an event, Section 30 of the Revised Securities Act prevented the unfair use of non-public
information in securities transactions, while Section 36 allowed the SEC to monitor the transactions entered into
by corporate officers and directors as regards the securities of their companies.
In the case In the Matter of Investor's Management Co., 49 it was cautioned that "the broad language of
the anti-fraud provisions", which include the provisions on insider trading, should not be "circumscribed by fine
distinctions and rigid classifications." The ambit of anti-fraud provisions is necessarily broad so as to embrace the
infinite variety of deceptive conduct. 50
In Tatad v. Secretary of Department of Energy, 51 this Court brushed aside a contention, similar to that
made by the respondents in this case, that certain words or phrases used in a statute do not set determinate
standards, declaring that:
Petitioners contend that the words "as far as practicable", "declining" and "stable" should
have been defined in R.A. No. 8180 as they do not set determinate and determinable standards.
This stubborn submission deserves scant consideration. The dictionary meanings of these words
are well settled and cannot confuse men of reasonable intelligence. . . . . The fear of petitioners
that these words will result in the exercise of executive discretion that will run riot is thus
groundless. To be sure, the Court has sustained the validity of similar, if not more general
standards in other cases.
Among the words or phrases that this Court upheld as valid standards were "simplicity and dignity", 52 "public
interest", 53 and "interests of law and order". 54
The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure Rules
were promulgated by the SEC only on 24 July 1996 does not render ineffective in the meantime Section 36 of
the Revised Securities Act. It is already unequivocal that the Revised Securities Act requires full disclosure and
the Full Disclosure Rules were issued to make the enforcement of the law more consistent, efficient and effective.
It is equally reasonable to state that the disclosure forms later provided by the SEC, do not, in any way imply that
no compliance was required before the forms were provided. The effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of specified forms, especially where compliance therewith may
be made even without such forms. The forms merely made more efficient the processing of requirements already
identified by the statute. cEAIHa
For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the respondents in connection with Sections 8, 30 and 36 of
the Revised Securities Act due to the absence of implementing rules. These provisions are sufficiently clear and
complete by themselves. Their requirements are specifically set out, and the acts which are enjoined are
determinable. In particular, Section 8 55 of theRevised Securities Act is a straightforward enumeration of the
procedure for the registration of securities and the particular matters which need to be reported in the registration
statement thereof. The Decision, dated 20 August 1998, provides no valid reason to exempt the respondent IRC
from such requirements. The lack of implementing rules cannot suspend the effectivity of these provisions. Thus,
this Court cannot find any cogent reason to prevent the SEC from exercising its authority to investigate
respondents for violation of Section 8 of the Revised Securities Act.
II. The right to cross-examination is not
absolute and cannot be demanded
during investigative proceedings
before the PED.
 In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that the PED Rules of
Practice and Procedure was invalid since Section 8, Rule V56 thereof failed to provide for the parties' right to
cross-examination, in violation of the Administrative Code of 1987 particularly Section 12 (3), Chapter 3, Book
VII thereof. This ruling is incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically stated that the
proceedings before the PED are summary in nature:
Section 4. Nature of Proceedings. — Subject to the requirements of due process,
proceedings before the "PED" shall be summary in nature not necessarily adhering to or following
the technical rules of evidence obtaining in the courts of law. The Rules of Court may apply in
said proceedings in suppletory character whenever practicable. DSEaHT
Rule V of the PED Rules of Practice and Procedure further specified that:
Section 5. Submission of Documents. — During the preliminary conference/hearing, or
immediately thereafter, the Hearing Officer may require the parties to simultaneously submit their
respective verified position papers accompanied by all supporting documents and the affidavits of
their witnesses, if any which shall take the place of their direct testimony. The parties shall furnish
each other with copies of the position papers together with the supporting affidavits and
documents submitted by them.
Section 6. Determination of necessity of hearing. — Immediately after the submission by
the parties of their position papers and supporting documents, the Hearing Officer shall determine
whether there is a need for a formal hearing. At this stage, he may, in his discretion, and for the
purpose of making such determination, elicit pertinent facts or information, including
documentary evidence, if any, from any party or witness to complete, as far as possible, the facts
of the case. Facts or information so elicited may serve as basis for his clarification or
simplifications of the issues in the case. Admissions and stipulation of facts to abbreviate the
proceedings shall be encouraged.
Section 7. Disposition of Case. — If the Hearing Officer finds no necessity of further
hearing after the parties have submitted their position papers and supporting documents, he shall
so inform the parties stating the reasons therefor and shall ask them to acknowledge the fact that
they were so informed by signing the minutes of the hearing and the case shall be deemed
submitted for resolution.
As such, the PED Rules provided that the Hearing Officer may require the parties to submit their respective
verified position papers, together with all supporting documents and affidavits of witnesses. A formal hearing was
not mandatory; it was within the discretion of the Hearing Officer to determine whether there was a need for a
formal hearing. Since, according to the foregoing rules, the holding of a hearing before the PED is discretionary,
then the right to cross-examination could not have been demanded by either party.
Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative Code, entitled
"Adjudication", does not affect the investigatory functions of the agencies. The law creating the PED, Section 8
of Presidential Decree No. 902-A, as amended, defines the authority granted to the PED, thus: caIDSH
SEC. 8. The Prosecution and Enforcement Department shall have, subject to the
Commission's control and supervision, the exclusive authority to investigate, on complaint
or motu proprio, any act or omission of the Board of Directors/Trustees of corporations, or of
partnerships, or of other associations, or of their stockholders, officers or partners, including any
fraudulent devices, schemes or representations, in violation of any law or rules and regulations
administered and enforced by the Commission; to file and prosecute in accordance with law and
rules and regulations issued by the Commission and in appropriate cases, the corresponding
criminal or civil case before the Commission or the proper court or body upon prima
facie finding of violation of any laws or rules and regulations administered and enforced by the
Commission; and to perform such other powers and functions as may be provided by law or duly
delegated to it by the Commission. (Emphasis provided.)
The law creating PED empowers it to investigate violations of the rules and regulations promulgated by the SEC
and to file and prosecute such cases. It fails to mention any adjudicatory functions insofar as the PED is
concerned. Thus, the PED Rules of Practice and Procedure need not comply with the provisions of the
Administrative Code on adjudication, particularly Section 12 (3), Chapter 3, Book VII.
In Cariño v. Commission on Human Rights, 57 this Court sets out the distinction between investigative
and adjudicative functions, thus:
 "Investigate", commonly understood, means to examine, explore, inquire or delve or
probe into, research on, study. The dictionary definition of "investigate" is "to observe or study
closely; inquire into systematically: "to search or inquire into" xx to subject to an official probe
xx: to conduct an official inquiry." The purpose of an investigation, of course is to discover, to
find out, to learn, obtain information. Nowhere included or intimated is the notion of settling,
deciding or resolving a controversy involved in the facts inquired into by application of the law to
the facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "(t)o follow up step by step by
patient inquiry or observation. To trace or track; to search into; to examine and inquire into with
care and accuracy; to find out by careful inquisition; examination; the taking of evidence; a legal
inquiry"; "to inquire; to make an investigation", "investigation" being in turn described as "(a)n
administrative function, the exercise of which ordinarily does not require a hearing. 2 Am J2d
Adm L Sec. 257; xx an inquiry, judicial or otherwise, for the discovery and collection of facts
concerning a certain matter or matters."
"Adjudicate", commonly or popularly understood, means to adjudge, arbitrate, judge,
decide, determine, resolve, rule on, settle. The dictionary defines the term as "to settle finally (the
rights and duties of parties to a court case) on the merits of issues raised: xx to pass judgment on:
settle judicially: xx act as judge." And "adjudge" means "to decide or rule upon as a judge or with
judicial or quasi-judicial powers: xx to award or grant judicially in a case of controversy . . . ."
In a legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To
determine finally. Synonymous with adjudge in its strictest sense"; and "adjudge" means: "To
pass on judicially, to decide, settle, or decree, or to sentence or condemn. . . . Implies a judicial
determination of a fact, and the entry of a judgment."
There is no merit to the respondent's averment that the sections under Chapter 3, Book VII of the
Administrative Code, do not distinguish between investigative and adjudicatory functions. Chapter 3, Book VII of
the Administrative Code, is unequivocally entitled "Adjudication".
Respondents insist that the PED performs adjudicative functions, as enumerated under Section 1 (h) and
(j), Rule II; and Section 2 (4), Rule VII of the PED Rules of Practice and Procedure:
Section 1. Authority of the Prosecution and Enforcement Department. — Pursuant
to Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily charged with the following:
xxx xxx xxx
(h) Suspends or revokes, after proper notice and hearing in accordance with these Rules,
the franchise or certificate of registration of corporations, partnerships or associations, upon any
of the following grounds:
1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the corporation can do or is doing to the
great prejudice of or damage to the general public; TAaEIc
3. Refusal to comply or defiance of any lawful order of the Commission restraining
commission of acts which would amount to a grave violation of its franchise;
xxx xxx xxx
(j) Imposes charges, fines and fees, which by law, it is authorized to collect;
xxx xxx xxx
Section 2. Powers of the Hearing Officer. — The Hearing Officer shall have the
following powers:
xxx xxx xxx
4. To cite and/or declare any person in direct or indirect contempt in accordance with
pertinent provisions of the Rules of Court. ACaTIc
Even assuming that these are adjudicative functions, the PED, in the instant case, exercised its
investigative powers; thus, respondents do not have the requisite standing to assail the validity of the rules on
adjudication. A valid source of a statute or a rule can only be contested by one who will sustain a direct injury as a
result of its enforcement. 58 In the instant case, respondents are only being investigated by the PED for their
alleged failure to disclose their negotiations with GHB and the transactions entered into by its directors involving
IRC shares. The respondents have not shown themselves to be under any imminent danger of sustaining any
personal injury attributable to the exercise of adjudicative functions by the SEC. They are not being or about to be
subjected by the PED to charges, fees or fines; to citations for contempt; or to the cancellation of their certificate
of registration under Section 1 (h), Rule II of the PED Rules of Practice and Procedure.
To repeat, the only powers which the PED was likely to exercise over the respondents were investigative
in nature, to wit:
Section 1. Authority of the Prosecution and Enforcement Department. — Pursuant
to Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily charged with the following:
xxx xxx xxx
b. Initiates proper investigation of corporations and partnerships or persons, their books, records and
other properties and assets, involving their business transactions, in coordination with the
operating department involved;
xxx xxx xxx
e. Files and prosecutes civil or criminal cases before the Commission and other courts of justice
involving violations of laws and decrees enforced by the Commission and the rules and
regulations promulgated thereunder; caAICE
f. Prosecutes erring directors, officers and stockholders of corporations and partnerships,
commercial paper issuers or persons in accordance with the pertinent rules on procedures;
The authority granted to the PED under Section 1 (b), (e), and (f), Rule II of the PED Rules of Practice
and Procedure, need not comply with Section 12, Chapter 3, Rule VII of the Administrative Code, which affects
only the adjudicatory functions of administrative bodies. Thus, the PED would still be able to investigate the
respondents under its rules for their alleged failure to disclose their negotiations with GHB and the transactions
entered into by its directors involving IRC shares.
This is not to say that administrative bodies performing adjudicative functions are required to strictly
comply with the requirements of Chapter 3, Rule VII of the Administrative Code, particularly, the right to cross-
examination. It should be noted that under Section 2.2 of Executive Order No. 26, issued on 7 October 1992,
abbreviated proceedings are prescribed in the disposition of administrative cases:
2. Abbreviation of Proceedings. All administrative agencies are hereby directed to adopt
and include in their respective Rules of Procedure the following provisions:
xxx xxx xxx
2.2 Rules adopting, unless otherwise provided by special laws and without prejudice to
Section 12, Chapter 3, Book VII of the Administrative Code of 1987, the mandatory use of
affidavits in lieu of direct testimonies and the preferred use of depositions whenever practicable
and convenient.
As a consequence, in proceedings before administrative or quasi-judicial bodies, such as the National
Labor Relations Commission and the Philippine Overseas Employment Agency, created under laws which
authorize summary proceedings, decisions may be reached on the basis of position papers or other documentary
evidence only. They are not bound by technical rules of procedure and evidence. 59 In fact, the hearings before
such agencies do not connote full adversarial proceedings. 60 Thus, it is not necessary for the rules to require
affiants to appear and testify and to be cross-examined by the counsel of the adverse party. To require otherwise
would negate the summary nature of the administrative or quasi-judicial proceedings. 61 In Atlas Consolidated
Mining and Development Corporation v. Factoran, Jr., 62 this Court stated that: ASTcEa
[I]t is sufficient that administrative findings of fact are supported by evidence, or
negatively stated, it is sufficient that findings of fact are not shown to be unsupported by
evidence. Substantial evidence is all that is needed to support an administrative finding of fact,
and substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate
to support a conclusion."
In order to comply with the requirements of due process, what is required, among other things, is that
every litigant be given reasonable opportunity to appear and defend his right and to introduce relevant evidence in
his favor. 63
III. The Securities Regulations Code did
not repeal Sections 8, 30 and 36 of
the Revised Securities Act since said
provisions were reenacted in the new
law.
The Securities Regulations Code absolutely repealed the Revised Securities Act. While the absolute repeal
of a law generally deprives a court of its authority to penalize the person charged with the violation of the old law
prior to its appeal, an exception to this rule comes about when the repealing law punishes the act previously
penalized under the old law. The Court, in Benedicto v. Court of Appeals, sets down the rules in such
instances: 64 IaDcTC
As a rule, an absolute repeal of a penal law has the effect of depriving the court of its
authority to punish a person charged with violation of the old law prior to its repeal. This is
because an unqualified repeal of a penal law constitutes a legislative act of rendering legal what
had been previously declared as illegal, such that the offense no longer exists and it is as if the
person who committed it never did so. There are, however, exceptions to the rule. One is the
inclusion of a saving clause in the repealing statute that provides that the repeal shall have no
effect on pending actions. Another exception is where the repealing act reenacts the former
statute and punishes the act previously penalized under the old law. In such instance, the act
committed before the reenactment continues to be an offense in the statute books and pending
cases are not affected, regardless of whether the new penalty to be imposed is more favorable to
the accused. (Emphasis provided.)
In the present case, a criminal case may still be filed against the respondents despite the repeal, since
Sections 8, 65 12, 66 26, 67 27 68 and 23 69 of the Securities Regulations Code impose duties that are
substantially similar to Sections 8, 30 and 36 of the repealed Revised Securities Act.
Section 8 of the Revised Securities Act, which previously provided for the registration of securities and
the information that needs to be included in the registration statements, was expanded under Section 12, in
connection with Section 8 of the Securities Regulations Code. Further details of the information required to be
disclosed by the registrant are explained in the Amended Implementing Rules and Regulations of the Securities
Regulations Code, issued on 30 December 2003, particularly Sections 8 and 12 thereof.
Section 30 of the Revised Securities Act has been reenacted as Section 27 of the Securities Regulations
Code, still penalizing an insider's misuse of material and non-public information about the issuer, for the purpose
of protecting public investors. Section 26 of the Securities Regulations Code even widens the coverage of
punishable acts, which intend to defraud public investors through various devices, misinformation and omissions.
Section 23 of the Securities Regulations Code was practically lifted from Section 36 (a) of the Revised
Securities Act. Both provisions impose upon (1) a beneficial owner of more than ten percent of any class of any
equity security or (2) a director or any officer of the issuer of such security, the obligation to submit a statement
indicating his or her ownership of the issuer's securities and such changes in his or her ownership
thereof. HDATCc
Clearly, the legislature had not intended to deprive the courts of their authority to punish a person charged
with violation of the old law that was repealed; in this case, the Revised Securities Act.
IV. The SEC retained the jurisdiction to
investigate violations of the Revised
Securities Act, reenacted in the
Securities Regulations Code, despite
the abolition of the PED.
Section 53 of the Securities Regulations Code clearly provides that criminal complaints for violations of
rules and regulations enforced or administered by the SEC shall be referred to the Department of Justice (DOJ) for
preliminary investigation, while the SEC nevertheless retains limited investigatory powers. 70 Additionally, the
SEC may still impose the appropriate administrative sanctions under Section 54 of the aforementioned law. 71
In Morato v. Court of Appeals, 72 the cases therein were still pending before the PED for investigation
and the SEC for resolution when the Securities Regulations Code was enacted. The case before the SEC involved
an intra-corporate dispute, while the subject matter of the other case investigated by the PED involved the
schemes, devices, and violations of pertinent rules and laws of the company's board of directors. The enactment of
the Securities Regulations Code did not result in the dismissal of the cases; rather, this Court ordered the transfer
of one case to the proper regional trial court and the SEC to continue with the investigation of the other case.
 The case at bar is comparable to the aforecited case. In this case, the SEC already commenced the
investigative proceedings against respondents as early as 1994. Respondents were called to appear before the SEC
and explain their failure to disclose pertinent information on 14 August 1994. Thereafter, the SEC Chairman,
having already made initial findings that respondents failed to make timely disclosures of their negotiations with
GHB, ordered a special investigating panel to hear the case. The investigative proceedings were interrupted only
by the writ of preliminary injunction issued by the Court of Appeals, which became permanent by virtue of the
Decision, dated 20 August 1998, in C.A.-G.R. SP No. 37036. During the pendency of this case, the Securities
Regulations Code repealed the Revised Securities Act. As in Morato v. Court of Appeals, the repeal cannot
deprive SEC of its jurisdiction to continue investigating the case; or the regional trial court, to hear any case which
may later be filed against the respondents. AcDaEH
V. The instant case has not yet prescribed.
Respondents have taken the position that this case is moot and academic, since any criminal complaint
that may be filed against them resulting from the SEC's investigation of this case has already prescribed.  73 They
point out that the prescription period applicable to offenses punished under special laws, such as violations of
the Revised Securities Act, is twelve years under Section 1 of Act No. 3326, as amended by Act No. 3585 and Act
No. 3763, entitled "An Act to Establish Periods of Prescription for Violations Penalized by Special Acts and
Municipal Ordinances and to Provide When Prescription Shall Begin to Act." 74 Since the offense was committed
in 1994, they reasoned that prescription set in as early as 2006 and rendered this case moot. Such position,
however, is incongruent with the factual circumstances of this case, as well as the applicable laws and
jurisprudence.
It is an established doctrine that a preliminary investigation interrupts the prescription period. 75 A
preliminary investigation is essentially a determination whether an offense has been committed, and whether there
is probable cause for the accused to have committed an offense:
A preliminary investigation is merely inquisitorial, and it is often the only means of
discovering the persons who may be reasonably charged with a crime, to enable the fiscal to
prepare the complaint or information. It is not a trial of the case on the merits and has no purpose
except that of determining whether a crime has been committed or whether there is probable
cause to believe that the accused is guilty thereof. 76
Under Section 45 of the Revised Securities Act, which is entitled Investigations, Injunctions and
Prosecution of Offenses, the Securities Exchange Commission (SEC) has the authority to "make such
investigations as it deems necessary to determine whether any person has violated or is about to violate any
provision of this Act XXX." After a finding that a person has violated the Revised Securities Act, the SEC may
refer the case to the DOJ for preliminary investigation and prosecution. HTAIcD
While the SEC investigation serves the same purpose and entails substantially similar duties as the
preliminary investigation conducted by the DOJ, this process cannot simply be disregarded. In Baviera v.
Paglinawan, 77 this Court enunciated that a criminal complaint is first filed with the SEC, which determines the
existence ofprobable cause, before a preliminary investigation can be commenced by the DOJ. In the aforecited
case, the complaint filed directly with the DOJ was dismissed on the ground that it should have been filed first
with the SEC. Similarly, the offense was a violation of the Securities Regulations Code, wherein the procedure for
criminal prosecution was reproduced from Section 45 of the Revised Securities Act. 78 This Court affirmed the
dismissal, which it explained thus:
The Court of Appeals held that under the above provision, a criminal complaint for
violation of any law or rule administered by the SEC must first be filed with the latter. If the
Commission finds that there is probable cause, then it should refer the case to the DOJ. Since
petitioner failed to comply with the foregoing procedural requirement, the DOJ did not gravely
abuse its discretion in dismissing his complaint in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation Code is a specialized dispute.
Hence, it must first be referred to an administrative agency of special competence, i.e., the SEC.
Under the doctrine of primary jurisdiction, courts will not determine a controversy involving a
question within the jurisdiction of the administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the specialized knowledge and expertise of
said administrative tribunal to determine technical and intricate matters of fact. The Securities
Regulation Code is a special law. Its enforcement is particularly vested in the SEC. Hence, all
complaints for any violation of the Code and its implementing rules and regulations should be
filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the
complaint to the DOJ for preliminary investigation and prosecution as provided in Section 53.1
earlier quoted.
 We thus agree with the Court of Appeals that petitioner committed a fatal procedural
lapse when he filed his criminal complaint directly with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in dismissing petitioner's complaint. aIAHcE
The said case puts in perspective the nature of the investigation undertaken by the SEC, which is a
requisite before a criminal case may be referred to the DOJ. The Court declared that it is imperative that the
criminal prosecution be initiated before the SEC, the administrative agency with the special competence.
It should be noted that the SEC started investigative proceedings against the respondents as early as 1994.
This investigation effectively interrupted the prescription period. However, said proceedings were disrupted by a
preliminary injunction issued by the Court of Appeals on 5 May 1995, which effectively enjoined the SEC from
filing any criminal, civil, or administrative case against the respondents herein. 79 Thereafter, on 20 August 1998,
the appellate court issued the assailed Decision in C.A. G.R. SP. No. 37036 ordering that the writ of injunction be
made permanent and prohibiting the SEC from taking cognizance of and initiating any action against herein
respondents. The SEC was bound to comply with the aforementioned writ of preliminary injunction and writ of
injunction issued by the Court of Appeals enjoining it from continuing with the investigation of respondents for 12
years. Any deviation by the SEC from the injunctive writs would be sufficient ground for contempt. Moreover,
any step the SEC takes in defiance of such orders will be considered void for having been taken against an order
issued by a court of competent jurisdiction.
An investigation of the case by any other administrative or judicial body would likewise be impossible
pending the injunctive writs issued by the Court of Appeals. Given the ruling of this Court in Baviera v.
Paglinawan, 80 the DOJ itself could not have taken cognizance of the case and conducted its preliminary
investigation without a prior determination of probable cause by the SEC. Thus, even presuming that the DOJ was
not enjoined by the Court of Appeals from conducting a preliminary investigation, any preliminary investigation
conducted by the DOJ would have been a futile effort since the SEC had only started with its investigation when
respondents themselves applied for and were granted an injunction by the Court of Appeals.
Moreover, the DOJ could not have conducted a preliminary investigation or filed a criminal case against
the respondents during the time that issues on the effectivity of Sections 8, 30 and 36 of the Revised Securities
Act and the PED Rules of Practice and Procedure were still pending before the Court of Appeals. After the Court
of Appeals declared the aforementioned statutory and regulatory provisions invalid and, thus, no civil, criminal or
administrative case may be filed against the respondents for violations thereof, the DOJ would have been at a loss,
as there was no statutory provision which respondents could be accused of violating. DcCEHI
Accordingly, it is only after this Court corrects the erroneous ruling of the Court of Appeals in its
Decision dated 20 August 1998 that either the SEC or DOJ may properly conduct any kind of investigation
against the respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act. Until then, the
prescription period is deemed interrupted.
To reiterate, the SEC must first conduct its investigations and make a finding of probable cause in
accordance with the doctrine pronounced in Baviera v. Paglinawan. 81 In this case, the DOJ was precluded from
initiating a preliminary investigation since the SEC was halted by the Court of Appeals from continuing with its
investigation. Such a situation leaves the prosecution of the case at a standstill, and neither the SEC nor the DOJ
can conduct any investigation against the respondents, who, in the first place, sought the injunction to prevent
their prosecution. All that the SEC could do in order to break the impasse was to have the Decision of the Court of
Appeals overturned, as it had done at the earliest opportunity in this case. Therefore, the period during which the
SEC was prevented from continuing with its investigation should not be counted against it. The law on the
prescription period was never intended to put the prosecuting bodies in an impossible bind in which the
prosecution of a case would be placed way beyond their control; for even if they avail themselves of the proper
remedy, they would still be barred from investigating and prosecuting the case.
Indubitably, the prescription period is interrupted by commencing the proceedings for the prosecution of
the accused. In criminal cases, this is accomplished by initiating the preliminary investigation. The prosecution of
offenses punishable under the Revised Securities Act and the Securities Regulations Code is initiated by the filing
of a complaint with the SEC or by an investigation conducted by the SEC motu proprio. Only after a finding of
probable cause is made by the SEC can the DOJ instigate a preliminary investigation. Thus, the investigation that
was commenced by the SEC in 1995, soon after it discovered the questionable acts of the respondents, effectively
interrupted the prescription period. Given the nature and purpose of the investigation conducted by the SEC,
which is equivalent to the preliminary investigation conducted by the DOJ in criminal cases, such investigation
would surely interrupt the prescription period. ECSHAD
VI. The Court of Appeals was justified in
denying SEC's Motion for Leave to
 Quash SEC Omnibus Orders dated
23 October 1995.
The SEC avers that the Court of Appeals erred when it denied its Motion for Leave to Quash SEC
Omnibus Orders, dated 23 October 1995, in the light of its admission that the PED had the sole authority to
investigate the present case. On this matter, this Court cannot agree with the SEC.
In the assailed decision, the Court of Appeals denied the SEC's Motion for Leave to Quash SEC Omnibus
Orders, since it found other issues that were more important than whether or not the PED was the proper body to
investigate the matter. Its refusal was premised on its earlier finding that no criminal, civil, or administrative case
may be filed against the respondents under Sections 8, 30 and 36 of the Revised Securities Act, due to the absence
of any implementing rules and regulations. Moreover, the validity of the PED Rules on Practice and Procedure
was also raised as an issue. The Court of Appeals, thus, reasoned that if the quashal of the orders was granted,
then it would be deprived of the opportunity to determine the validity of the aforementioned rules and statutory
provisions. In addition, the SEC would merely pursue the same case without the Court of Appeals having
determined whether or not it may do so in accordance with due process requirements. Absent a determination of
whether the SEC may file a case against the respondents based on the assailed provisions of the  Revised Securities
Act, it would have been improper for the Court of Appeals to grant the SEC's Motion for Leave to Quash SEC
Omnibus Orders.
IN ALL, this Court rules that no implementing rules were needed to render effective Sections 8, 30 and 36
of the Revised Securities Act; nor was the PED Rules of Practice and Procedure invalid, prior to the enactment of
the Securities Regulations Code, for failure to provide parties with the right to cross-examine the witnesses
presented against them. Thus, the respondents may be investigated by the appropriate authority under the proper
rules of procedure of the Securities Regulations Code for violations of Sections 8, 30, and 36 of the Revised
Securities Act. 82
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court hereby REVERSES the
assailed Decision of the Court of Appeals promulgated on 20 August 1998 in CA-G.R. SP No. 37036 and LIFTS
the permanent injunction issued pursuant thereto. This Court further DECLARES that the investigation of the
respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act may be undertaken by the proper
authorities in accordance with the Securities Regulations Code. No costs.
SO ORDERED.
||| (Securities and Exchange Commission v. Interport Resources Corp. , G.R. No. 135808, [October 6, 2008], 588
PHIL 651-731)
[G.R. No. 168380. February 8, 2007.]
MANUEL V. BAVIERA, petitioner, vs. ESPERANZA PAGLINAWAN, in her capacity as
Department of Justice State Prosecutor; LEAH C. TANODRA-ARMAMENTO, In her
capacity as Assistant Chief State Prosecutor and Chairwoman of Task Force on Business
Scam; JOVENCITO R. ZUÑO, in his capacity as Department of Justice Chief State
Prosecutor; STANDARD CHARTERED BANK, PAUL SIMON MORRIS, AJAY KANWAL,
SRIDHAR RAMAN, MARIVEL GONZALES, CHONA REYES, MARIA ELLEN VICTOR,
and ZENAIDA IGLESIAS, respondents.
[G.R. No. 170602. February 8, 2007.]
MANUEL V. BAVIERA, petitioner, vs. STANDARD CHARTERED BANK, BRYAN K.
SANDERSON, THE RIGHT HONORABLE LORD STEWARTBY, EVAN MERVYN
DAVIES, MICHAEL BERNARD DENOMA, CHRISTOPHER AVEDIS KELJIK,
RICHARD HENRY MEDDINGS, KAI NARGOLWALA, PETER ALEXANDER SANDS,
RONNIE CHI CHUNG CHAN, SIR CK CHOW, BARRY CLARE, HO KWON PING,
RUDOLPH HAROLD PETER ARKHAM, DAVID GEORGE MOIR, HIGH EDWARD
NORTON, SIR RALPH HARRY ROBINS, ANTHONY WILLIAM PAUL STENHAM
(Standard Chartered Bank Chairman, Deputy Chairman, and Members of the Board),
SHERAZAM MAZARI (Group Regional Head for Consumer Banking), PAUL SIMON
MORRIS, AJAY KANWAL, SRIDHAR RAMAN, MARIVEL GONZALES, CHONA
REYES, ELLEN VICTOR, RAMONA H. BERNAD, DOMINGO CARBONELL, JR., and
ZENAIDA IGLESIAS (Standard Chartered Bank-Philippines Branch
Heads/Officers), respondents.
DECISION
SANDOVAL-GUTIERREZ, J p:
 Before us are two consolidated Petitions for Review on Certiorari assailing the Decisions of the Court of
Appeals in CA-G.R. SP No. 87328 1 and in CA-G.R. SP No. 85078. 2
The common factual antecedents of these cases as shown by the records are:
Manuel Baviera, petitioner in these cases, was the former head of the HR Service Delivery and Industrial
Relations of Standard Chartered Bank-Philippines (SCB), one of herein respondents. SCB is a foreign banking
corporation duly licensed to engage in banking, trust, and other fiduciary business in the Philippines. Pursuant to
Resolution No. 1142 dated December 3, 1992 of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP),
the conduct of SCB's business in this jurisdiction is subject to the following conditions:
1. At the end of a one-year period from the date the SCB starts its trust functions, at least 25% of its
trust accounts must be for the account of non-residents of the Philippines and that actual
foreign exchange had been remitted into the Philippines to fund such accounts or that the
establishment of such accounts had reduced the indebtedness of residents (individuals or
corporations or government agencies) of the Philippines to non-residents. At the end of the
second year, the above ratio shall be 50%, which ratio must be observed continuously
thereafter;
2. The trust operations of SCB shall be subject to all existing laws, rules and regulations applicable
to trust services, particularly the creation of a Trust Committee; and
3. The bank shall inform the appropriate supervising and examining department of the BSP at the
start of its operations.
Apparently, SCB did not comply with the above conditions. Instead, as early as 1996, it acted as a stock
broker, soliciting from local residents foreign securities called "GLOBAL THIRD PARTY MUTUAL FUNDS"
(GTPMF), denominated in US dollars. These securities were not registered with the Securities and Exchange
Commission (SEC). These were then remitted outwardly to SCB-Hong Kong and SCB-Singapore.
SCB's counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, advised the bank to
proceed with the selling of the foreign securities although unregistered with the SEC, under the guise of a
"custodianship agreement;" and should it be questioned, it shall invoke Section 72 3 of the General Banking
Act (Republic Act No. 337). 4 In sum, SCB was able to sell GTPMF securities worth around P6 billion to some
645 investors.
However, SCB's operations did not remain unchallenged. On July 18, 1997, the Investment Capital
Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the Revised
Securities Act, 5 particularly the provision prohibiting the selling of securities without prior registration with the
SEC; and that its actions are potentially damaging to the local mutual fund industry. EHTADa
In its answer, SCB denied offering and selling securities, contending that it has been performing a "purely
informational function" without solicitations for any of its investment outlets abroad; that it has a trust license and
the services it renders under the "Custodianship Agreement" for offshore investments are authorized by Section
72 6 of the General Banking Act; that its clients were the ones who took the initiative to invest in securities; and it
has been acting merely as an agent or "passive order taker" for them.
On September 2, 1997, the SEC issued a Cease and Desist Order against SCB, holding that its services
violated Sections 4 (a) 7 and 19 8 of the Revised Securities Act.
Meantime, the SEC indorsed ICAP's complaint and its supporting documents to the BSP.
On October 31, 1997, the SEC informed the Secretary of Finance that it withdrew GTPMF securities from
the market and that it will not sell the same without the necessary clearances from the regulatory authorities.
Meanwhile, on August 17, 1998, the BSP directed SCB not to include investments in global mutual funds
issued abroad in its trust investments portfolio without prior registration with the SEC.
On August 31, 1998, SCB sent a letter to the BSP confirming that it will withdraw third-party fund
products which could be directly purchased by investors.
However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell
GTPMF securities in this country. This prompted petitioner to enter into an Investment Trust Agreement with
SCB wherein he purchased US$8,000.00 worth of securities upon the bank's promise of 40% return on his
investment and a guarantee that his money is safe. After six (6) months, however, petitioner learned that the value
of his investment went down to US$7,000.00. He tried to withdraw his investment but was persuaded by
Antonette de los Reyes of SCB to hold on to it for another six (6) months in view of the possibility that the market
would pick up.
 Meanwhile, on November 27, 2000, the BSP found that SCB failed to comply with its directive of August
17, 1998. Consequently, it was fined in the amount of P30,000.00.
The trend in the securities market, however, was bearish and the worth of petitioner's investment went
down further to only US$3,000.00.
On October 26, 2001, petitioner learned from Marivel Gonzales, head of the SCB Legal and Compliance
Department, that the latter had been prohibited by the BSP to sell GPTMF securities. Petitioner then filed with the
BSP a letter-complaint demanding compensation for his lost investment. But SCB denied his demand on the
ground that his investment is "regular."
On July 15, 2003, petitioner filed with the Department of Justice (DOJ), represented herein by its
prosecutors, public respondents, a complaint charging the above-named officers and members of the SCB Board
of Directors and other SCB officials, private respondents, with syndicated estafa, docketed as I.S. No. 2003-1059.
For their part, private respondents filed the following as counter-charges against petitioner: (1) blackmail
and extortion, docketed as I.S. No. 2003-1059-A; and blackmail and perjury, docketed as I.S. No. 2003-1278.
On September 29, 2003, petitioner also filed a complaint for perjury against private respondents Paul
Simon Morris and Marivel Gonzales, docketed as I.S. No. 2003-1278-A.
On December 4, 2003, the SEC issued a Cease and Desist Order against SCB restraining it from further
offering, soliciting, or otherwise selling its securities to the public until these have been registered with the
SEC. IDcAHT
Subsequently, the SEC and SCB reached an amicable settlement.
On January 20, 2004, the SEC lifted its Cease and Desist Order and approved the P7 million settlement
offered by SCB. Thereupon, SCB made a commitment not to offer or sell securities without prior compliance with
the requirements of the SEC.
On February 7, 2004, petitioner filed with the DOJ a complaint for violation of Section 8.1 9 of
the Securities Regulation Code against private respondents, docketed as I.S. No. 2004-229.
On February 23, 2004, the DOJ rendered its Joint Resolution 10 dismissing petitioner's complaint for
syndicated estafa in I.S. No. 2003-1059; private respondents' complaint for blackmail and extortion in I.S. No.
2003-1059-A; private respondents' complaint for blackmail and perjury in I.S. No. 2003-1278; and petitioner's
complaint for perjury against private respondents Morris and Gonzales in I.S. No. 2003-1278-A.
Meanwhile, in a Resolution 11 dated April 4, 2004, the DOJ dismissed petitioner's complaint in I.S. No.
2004-229 (violation of Securities Regulation Code), holding that it should have been filed with the SEC.
Petitioner's motions to dismiss his complaints were denied by the DOJ. Thus, he filed with the Court of
Appeals a petition for certiorari, docketed as CA-G.R. SP No. 85078. He alleged that the DOJ acted with grave
abuse of discretion amounting to lack or excess of jurisdiction in dismissing his complaint for syndicated estafa.
He also filed with the Court of Appeals a separate petition for certiorari assailing the DOJ Resolution
dismissing I.S. No. 2004-229 for violation of the Securities Regulation Code. This petition was docketed as CA-
G.R. SP No. 87328. Petitioner claimed that the DOJ acted with grave abuse of discretion tantamount to lack or
excess of jurisdiction in holding that the complaint should have been filed with the SEC.
On January 7, 2005, the Court of Appeals promulgated its Decision dismissing the petition. It sustained
the ruling of the DOJ that the case should have been filed initially with the SEC.
Petitioner filed a motion for reconsideration but it was denied in a Resolution dated May 27, 2005.
Meanwhile, on February 21, 2005, the Court of Appeals rendered its Decision in CA-G.R. SP No. 85078
(involving petitioner's charges and respondents' counter charges) dismissing the petition on the ground that the
purpose of a petition for certiorari is not to evaluate and weigh the parties' evidence but to determine whether the
assailed Resolution of the DOJ was issued with grave abuse of discretion tantamount to lack of jurisdiction.
Again, petitioner moved for a reconsideration but it was denied in a Resolution of November 22, 2005.
Hence, the instant petitions for review on certiorari.
For our resolution is the fundamental issue of whether the Court of Appeals erred in concluding that the
DOJ did not commit grave abuse of discretion in dismissing petitioner's complaint in I.S. 2004-229 for violation
of Securities Regulation Code and his complaint in I.S. No. 2003-1059 for syndicated estafa.
 G.R. No 168380
Re: I.S. No. 2004-229
For violation of the Securities Regulation Code
Section 53.1 of the Securities Regulation Code provides:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses. —
53. 1. The Commission may, in its discretion, make such investigation as it deems
necessary to determine whether any person has violated or is about to violate any provision of this
Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory organization, and may require or permit any
person to file with it a statement in writing, under oath or otherwise, as the Commission shall
determine, as to all facts and circumstances concerning the matter to be investigated. The
Commission may publish information concerning any such violations and to investigate any fact,
condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing
information to serve as a basis for recommending further legislation concerning the matters to
which this Code relates: Provided, however, That any person requested or subpoenaed to produce
documents or testify in any investigation shall simultaneously be notified in writing of the purpose
of such investigation: Provided, further, That all criminal complaints for violations of this Code
and the implementing rules and regulations enforced or administered by the Commission
shall be referred to the Department of Justice for preliminary investigation and prosecution
before the proper court: Provided, furthermore, That in instances where the law allows
independent civil or criminal proceedings of violations arising from the act, the Commission shall
take appropriate action to implement the same: Provided, finally; That the investigation,
prosecution, and trial of such cases shall be given priority. IcADSE
The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or
rule administered by the SEC must first be filed with the latter. If the Commission finds that there is probable
cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the foregoing procedural
requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must
first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of primary
jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the
specialized knowledge and expertise of said administrative tribunal to determine technical and intricate matters of
fact. 12 The Securities Regulation Code is a special law. Its enforcement is particularly vested in the SEC. Hence,
all complaints for any violation of the Code and its implementing rules and regulations should be filed with the
SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary
investigation and prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed
his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to the DOJ in
dismissing petitioner's complaint.
G.R. No. 170602
Re: I.S. No. 2003-1059 for
Syndicated Estafa
Section 5, Rule 110 of the 2000 Rules of Criminal Procedure, as amended, provides that all criminal
actions, commenced by either a complaint or an information, shall be prosecuted under the direction and control
of a public prosecutor. This mandate is founded on the theory that a crime is a breach of the security and peace of
the people at large, an outrage against the very sovereignty of the State. It follows that a representative of the State
shall direct and control the prosecution of the offense. 13 This representative of the State is the public prosecutor,
whom this Court described in the old case of Suarez v. Platon, 14 as:
[T]he representative not of an ordinary party to a controversy, but of a sovereignty whose
obligation to govern impartially is as compelling as its obligation to govern at all; and whose
interest, therefore, in a criminal prosecution is not that it shall win a case, but that justice shall be
done. As such, he is in a peculiar and very definite sense a servant of the law, the twofold aim of
which is that guilt shall not escape or innocence suffers.
Concomitant with his authority and power to control the prosecution of criminal offenses, the public
prosecutor is vested with the discretionary power to determine whether a prima facie case exists or not. 15 This is
 done through a preliminary investigation designed to secure the respondent from hasty, malicious and oppressive
prosecution. A preliminary investigation is essentially an inquiry to determine whether (a) a crime has been
committed; and (b) whether there is probable cause that the accused is guilty thereof.  16 In Pontejos v. Office of
the Ombudsman, 17 probable cause is defined as such facts and circumstances that would engender a well-
founded belief that a crime has been committed and that the respondent is probably guilty thereof and should be
held for trial. It is the public prosecutor who determines during the preliminary investigation whether probable
cause exists. Thus, the decision whether or not to dismiss the criminal complaint against the accused depends on
the sound discretion of the prosecutor. CHDaAE
Given this latitude and authority granted by law to the investigating prosecutor,  the rule in this
jurisdiction is that courts will not interfere with the conduct of preliminary investigations or
reinvestigations or in the determination of what constitutes sufficient probable cause for the filing of the
corresponding information against an offender. 18 Courts are not empowered to substitute their own judgment
for that of the executive branch. 19 Differently stated, as the matter of whether to prosecute or not is purely
discretionary on his part, courts cannot compel a public prosecutor to file the corresponding information, upon a
complaint, where he finds the evidence before him insufficient to warrant the filing of an action in court. In
sum, the prosecutor's findings on the existence of probable cause are not subject to review by the courts,
unless these are patently shown to have been made with grave abuse of discretion.20
Grave abuse of discretion is such capricious and whimsical exercise of judgment on the part of the public
officer concerned which is equivalent to an excess or lack of jurisdiction. The abuse of discretion must be as
patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner
by reason of passion or hostility. 21
In determining whether the DOJ committed grave abuse of discretion, it is expedient to know if
the findings of fact of herein public prosecutors were reached in an arbitrary or despotic manner.
The Court of Appeals held that petitioner's evidence is insufficient to establish probable cause for
syndicated estafa. There is no showing from the record that private respondents herein did induce petitioner by
false representations to invest in the GTPMF securities. Nor did they act as a syndicate to misappropriate his
money for their own benefit. Rather, they invested it in accordance with his written instructions. That he lost his
investment is not their fault since it was highly speculative.
Records show that public respondents examined petitioner's evidence with care, well aware of their duty
to prevent material damage to his constitutional right to liberty and fair play. In Suarez previously cited, this Court
made it clear that a public prosecutor's duty is two-fold. On one hand, he is bound by his oath of office to
prosecute persons where the complainant's evidence is ample and sufficient to show prima facie guilt of a crime.
Yet, on the other hand, he is likewise duty-bound to protect innocent persons from groundless, false, or malicious
prosecution. 22
Hence, we hold that the Court of Appeals was correct in dismissing the petition for review against private
respondents and in concluding that the DOJ did not act with grave abuse of discretion tantamount to lack or excess
of jurisdiction.
On petitioner's complaint for violation of the Securities Regulation Code, suffice it to state that, as aptly
declared by the Court of Appeals, he should have filed it with the SEC, not the DOJ. Again, there is no indication
here that in dismissing petitioner's complaint, the DOJ acted capriciously or arbitrarily.
WHEREFORE, we DENY the petitions and AFFIRM the assailed Decisions of the Court of Appeals in
CA-G.R. SP No. 87328 and in CA-G.R. SP No. 85078.
Costs against petitioner.
SO ORDERED.
||| (Baviera v. Paglinawan, G.R. Nos. 168380 & 170602, [February 8, 2007], 544 PHIL 107-122)

[G.R. No. 171815. August 7, 2007.]

 CEMCO HOLDINGS, INC., petitioner, vs. NATIONAL LIFE INSURANCE COMPANY OF
THE PHILIPPINES, INC., respondent.
DECISION
CHICO-NAZARIO, J p:
This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set aside the 24 October
2005 Decision 1 and the 6 March 2006 Resolution 2 of the Court of Appeals in CA-G.R. SP No. 88758 which
affirmed the judgment 3 dated 14 February 2005 of the Securities and Exchange Commission (SEC) finding that
the acquisition of petitioner Cemco Holdings, Inc. (Cemco) of the shares of stock of Bacnotan Consolidated
Industries, Inc. (BCI) and Atlas Cement Corporation (ACC) in Union Cement Holdings Corporation (UCHC) was
covered by the Mandatory Offer Rule under Section 19 of Republic Act No. 8799, otherwise known as
the Securities Regulation Code. AaEDcS
The Facts
Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders — UCHC,
a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC's
stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC
stocks.
In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its
subsidiary ACC had passed resolutions to sell to Cemco BCI's stocks in UCHC equivalent to 21.31% and ACC's
stocks in UCHC equivalent to 29.69%.
In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result of
petitioner Cemco's acquisition of BCI and ACC's shares in UCHC, petitioner's total beneficial ownership, direct
and indirect, in UCC has increased by 36% and amounted to at least 53% of the shares of UCC, to wit: 4
Particulars Percentage
   
Existing shares of Cemco in UCHC 9%
Acquisition by Cemco of BCI's and ACC's shares in UCHC 51%
Total stocks of Cemco in UCHC 60%
Percentage of UCHC ownership in UCC 60%
Indirect ownership of Cemco in UCC 36%
Direct ownership of Cemco in UCC 17%
Total ownership of Cemco in UCC 53%
As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired as to
whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is not
applicable to the purchase by petitioner of the majority of shares of UCC.
In a letter dated 16 July 2004, Director Justina Callangan of the SEC's Corporate Finance Department
responded to the query of the PSE that while it was the stance of the department that the tender offer rule was not
applicable, the matter must still have to be confirmed by the SEC en banc. caHASI
Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC  en
banc had resolved that the Cemco transaction was not covered by the tender offer rule.
On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company of
the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with
the rule on mandatory tender offer. Cemco, however, refused.
On 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco, as
buyer.
On 12 August 2004, the transaction was consummated and closed.
On 19 August 2004, respondent National Life Insurance Company of the Philippines, Inc. filed a
complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase agreement of
Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares. Impleaded in the
complaint were Cemco, UCC, UCHC, BCI and ACC, which were then required by the SEC to file their respective
comment on the complaint. In their comments, they were uniform in arguing that the tender offer rule applied only
to a direct acquisition of the shares of the listed company and did not extend to an indirect acquisition arising from
the purchase of the shares of a holding company of the listed firm.
In a Decision dated 14 February 2005, the SEC ruled in favor of the respondent by reversing and setting
aside its 27 July 2004 Resolution and directed petitioner Cemco to make a tender offer for UCC shares to
respondent and other holders of UCC shares similar to the class held by UCHC in accordance with Section 9 (E),
Rule 19 of the Securities Regulation Code.
Petitioner filed a petition with the Court of Appeals challenging the SEC's jurisdiction to take cognizance
of respondent's complaint and its authority to require Cemco to make a tender offer for UCC shares, and arguing
that the tender offer rule does not apply, or that the SEC's re-interpretation of the rule could not be made to
retroactively apply to Cemco's purchase of UCHC shares.
The Court of Appeals rendered a decision affirming the ruling of the SEC. It ruled that the SEC has
jurisdiction to render the questioned decision and, in any event, Cemco was barred by estoppel from questioning
the SEC's jurisdiction. It, likewise, held that the tender offer requirement under the Securities Regulation Codeand
its Implementing Rules applies to Cemco's purchase of UCHC stocks. The decretal portion of the said Decision
reads:
IN VIEW OF THE FOREGOING, the assailed decision of the SEC is AFFIRMED, and the
preliminary injunction issued by the Court LIFTED. 5 IHcSCA
Cemco filed a motion for reconsideration which was denied by the Court of Appeals.
Hence, the instant petition.
In its memorandum, petitioner Cemco raises the following issues:
I.
ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONAL LIFE'S
COMPLAINT AND THAT THE SEC'S RE-INTERPRETATION OF THE TENDER OFFER
RULE IS CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED
RETROACTIVELY TO CEMCO'S PREJUDICE.
II.
WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE DISPUTE
BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO TO
MAKE A TENDER OFFER FOR UCC SHARES.
III.
WHETHER OR NOT CEMCO'S PURCHASE OF UCHC SHARES IS SUBJECT TO THE
TENDER OFFER REQUIREMENT.
IV.
WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA DECISION, IS AN
INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT. 6
Simply stated, the following are the issues:
1. Whether or not the SEC has jurisdiction over respondent's complaint and to require Cemco to
make a tender offer for respondent's UCC shares.
2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a
listed company, in this case, the indirect acquisition by Cemco of 36% of UCC, a publicly-
listed company, through its purchase of the shares in UCHC, a non-listed company.
3. Whether or not the questioned ruling of the SEC can be applied retroactively to Cemco's
transaction which was consummated under the authority of the SEC's prior resolution.
On the first issue, petitioner Cemco contends that while the SEC can take cognizance of respondent's
complaint on the alleged violation by petitioner Cemco of the mandatory tender offer requirement under Section
19 of Republic Act No. 8799, the same statute does not vest the SEC with jurisdiction to adjudicate and determine
the rights and obligations of the parties since, under the same statute, the SEC's authority is purely administrative.
Having been vested with purely administrative authority, the SEC can only impose administrative sanctions such
as the imposition of administrative fines, the suspension or revocation of registrations with the SEC, and the like.
Petitioner stresses that there is nothing in the statute which authorizes the SEC to issue orders granting affirmative
reliefs. Since the SEC's order commanding it to make a tender offer is an affirmative relief fixing the respective
rights and obligations of parties, such order is void. AHTICD
Petitioner further contends that in the absence of any specific grant of jurisdiction by Congress, the SEC
cannot, by mere administrative regulation, confer on itself that jurisdiction.
Petitioner's stance fails to persuade.
In taking cognizance of respondent's complaint against petitioner and eventually rendering a judgment
which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule 19 (13) of the  Amended
Implementing Rules and Regulations of the Securities Regulation Code, to wit:
13. Violation
If there shall be violation of this Rule by pursuing a purchase of equity shares of a public
company at threshold amounts without the required tender offer, the Commission, upon complaint,
may nullify the said acquisition and direct the holding of a tender offer. This shall be without
prejudice to the imposition of other sanctions under the Code.
The foregoing rule emanates from the SEC's power and authority to regulate, investigate or supervise the
activities of persons to ensure compliance with theSecurities Regulation Code, more specifically the provision on
mandatory tender offer under Section 19 thereof. 7
Another provision of the statute, which provides the basis of Rule 19 (13) of the Amended Implementing
Rules and Regulations of the Securities Regulation Code, is Section 5.1 (n), viz:
[T]he Commission shall have, among others, the following powers and functions:
xxx xxx xxx
(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express powers
granted the Commission to achieve the objectives and purposes of these laws.
The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the
express powers of the Commission or which is incidental to, or reasonably necessary to carry out, the performance
of the administrative duties entrusted to it. As a regulatory agency, it has the incidental power to conduct hearings
and render decisions fixing the rights and obligations of the parties. In fact, to deprive the SEC of this power
would render the agency inutile, because it would become powerless to regulate and implement the law. As
correctly held by the Court of Appeals: aTSEcA
We are nonetheless convinced that the SEC has the competence to render the particular
decision it made in this case. A definite inference may be drawn from the provisions of the SRC that
the SEC has the authority not only to investigate complaints of violations of the tender offer rule,
but to adjudicate certain rights and obligations of the contending parties and grant appropriate
reliefs in the exercise of its regulatory functions under the SRC. Section 5.1 of the SRC allows a
general grant of adjudicative powers to the SEC which may be implied from or are necessary or
incidental to the carrying out of its express powers to achieve the objectives and purposes of the
SRC. We must bear in mind in interpreting the powers and functions of the SEC that the law has
made the SEC primarily a regulatory body with the incidental power to conduct administrative
hearings and make decisions. A regulatory body like the SEC may conduct hearings in the exercise
of its regulatory powers, and if the case involves violations or conflicts in connection with the
performance of its regulatory functions, it will have the duty and authority to resolve the dispute for
the best interests of the public. 8
For sure, the SEC has the authority to promulgate rules and regulations, subject to the limitation that the
same are consistent with the declared policy of the Code. Among them is the protection of the investors and the
minimization, if not total elimination, of fraudulent and manipulative devises. Thus, Subsection 5.1 (g) of the law
provides:
Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders.
Also, Section 72 of the Securities Regulation Code reads:
72.1.  . . . To effect the provisions and purposes of this Code, the Commission may issue,
amend, and rescind such rules and regulations and orders necessary or appropriate, . . . .
 72.2.  The Commission shall promulgate rules and regulations providing for reporting,
disclosure and the prevention of fraudulent, deceptive or manipulative practices in connection with
the purchase by an issuer, by tender offer or otherwise, of and equity security of a class issued by it
that satisfies the requirements of Subsection 17.2. Such rules and regulations may require such
issuer to provide holders of equity securities of such dates with such information relating to the
reasons for such purchase, the source of funds, the number of shares to be purchased, the price to be
paid for such securities, the method of purchase and such additional information as the Commission
deems necessary or appropriate in the public interest or for the protection of investors, or which the
Commission deems to be material to a determination by holders whether such security should be
sold. SAHIaD
The power conferred upon the SEC to promulgate rules and regulations is a legislative recognition of the
complexity and the constantly-fluctuating nature of the market and the impossibility of foreseeing all the possible
contingencies that cannot be addressed in advance. As enunciated in Victorias Milling Co., Inc. v. Social Security
Commission: 9
Rules and regulations when promulgated in pursuance of the procedure or authority
conferred upon the administrative agency by law, partake of the nature of a statute, and compliance
therewith may be enforced by a penal sanction provided in the law. This is so because statutes are
usually couched in general terms, after expressing the policy, purposes, objectives, remedies and
sanctions intended by the legislature. The details and the manner of carrying out the law are often
times left to the administrative agency entrusted with its enforcement. In this sense, it has been said
that rules and regulations are the product of a delegated power to create new or additional legal
provisions that have the effect of law.
Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It must be pointed out that
petitioner had participated in all the proceedings before the SEC and had prayed for affirmative relief. In fact,
petitioner defended the jurisdiction of the SEC in its Comment dated 15 September 2004, filed with the SEC
wherein it asserted:
This Honorable Commission is a highly specialized body created for the purpose of
administering, overseeing, and managing the corporate industry, share investment and securities
market in the Philippines. By the very nature of its functions, it dedicated to the study and
administration of the corporate and securities laws and has necessarily developed an expertise on
the subject. Based on said functions, the Honorable Commission is necessarily tasked to issue
rulings with respect to matters involving corporate matters and share acquisitions. Verily when this
Honorable Commission rendered the Ruling that " . . . the acquisition of Cemco Holdings of the
majority shares of Union Cement Holdings, Inc., a substantial stockholder of a listed company,
Union Cement Corporation, is not covered by the mandatory tender offer requirement of the SRC
Rule 19," it was well within its powers and expertise to do so. Such ruling shall be respected, unless
there has been an abuse or improvident exercise of authority. 10
Petitioner did not question the jurisdiction of the SEC when it rendered an opinion favorable to it, such as
the 27 July 2004 Resolution, where the SEC opined that the Cemco transaction was not covered by the mandatory
tender offer rule. It was only when the case was before the Court of Appeals and after the SEC rendered an
unfavorable judgment against it that petitioner challenged the SEC's competence. As articulated in  Ceroferr
Realty Corporation v. Court of Appeals: 11 ESHAIC
While the lack of jurisdiction of a court may be raised at any stage of an action,
nevertheless, the party raising such question may be estopped if he has actively taken part in the
very proceedings which he questions and he only objects to the court's jurisdiction because the
judgment or the order subsequently rendered is adverse to him.
On the second issue, petitioner asserts that the mandatory tender offer rule applies only to direct
acquisition of shares in the public company.
This contention is not meritorious.
Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to
acquire equity securities of a public company. 12 A public company is defined as a corporation which is listed on
an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least
200 of them holding not less than 100 shares of such company. 13 Stated differently, a tender offer is an offer by
the acquiring person to stockholders of a public company for them to tender their shares therein on the terms
specified in the offer. 14 Tender offer is in place to protect minority shareholders against any scheme that dilutes
the share value of their investments. It gives the minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority
shareholders. 15
Under Section 19 of Republic Act No. 8799, it is stated:
Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to
acquire at least fifteen percent (15%) of any class of any equity security of a listed corporation or of
any class of any equity security of a corporation with assets of at least Fifty million pesos
(P50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred
(100) shares each or who intends to acquire at least thirty percent (30%) of such equity over a
period of twelve (12) months shall make a tender offer to stockholders by filing with the
Commission a declaration to that effect; and furnish the issuer, a statement containing such of the
information required in Section 17 of this Code as the Commission may prescribe. Such person or
group of persons shall publish all requests or invitations for tender, or materials making a tender
offer or requesting or inviting letters of such a security. Copies of any additional material soliciting
or requesting such tender offers subsequent to the initial solicitation or request shall contain such
information as the Commission may prescribe, and shall be filed with the Commission and sent to
the issuer not later than the time copies of such materials are first published or sent or given to
security holders.
Under existing SEC Rules, 16 the 15% and 30% threshold acquisition of shares under the foregoing
provision was increased to thirty-five percent (35%). It is further provided therein that mandatory tender offer is
still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51%
of the total outstanding equity securities of the public company. 17 THaAEC
The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares
through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule.
This interpretation given by the SEC and the Court of Appeals must be sustained.
The rule in this jurisdiction is that the construction given to a statute by an administrative agency charged
with the interpretation and application of that statute is entitled to great weight by the courts, unless such
construction is clearly shown to be in sharp contrast with the governing law or statute. 18 The rationale for this
rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to
accumulation of experience and growth of specialized capabilities by the administrative agency charged with
implementing a particular statute. 19
The SEC and the Court of Appeals accurately pointed out that the coverage of the mandatory tender offer
rule covers not only direct acquisition but also indirect acquisition or "any type of acquisition". This is clear from
the discussions of the Bicameral Conference Committee on the Securities Act of 2000, on 17 July 2000.
SEN. S. OSMEÑA.
Eto ang mangyayari diyan, eh. Somebody controls 67% of the Company. Of course, he will
pay a premium for the first 67%. Control yan, eh. Eh, kawawa yung mga maiiwan, ang 33%
because the value of the stock market could go down, could go down after that, because
there will (p. 41) be no more market. Wala nang gustong bumenta. Wala nang . . . I mean
maraming gustong bumenta, walang gustong bumili kung hindi yung majority owner. And
they will not buy. They already have 67%. They already have control. And this protects the
minority. And we have had a case in Cebu wherein Ayala A who already owned 40% of
Ayala B made an offer for another 40% of Ayala B without offering the 20%. Kawawa
naman yung nakahawak ngayon ng 20%. Ang baba ng share sa market. But we did not have
a law protecting them at that time.
CHAIRMAN ROCO.
So what is it that you want to achieve?
SEN. S. OSMEÑA.
That if a certain group achieves a certain amount of ownership in a corporation, yeah, he is
obligated to buy anybody who wants to sell.
CHAIRMAN ROCO.
Pro-rata lang. (p. 42).
xxx xxx xxx
 REP. TEODORO.
As long as it reaches 30, ayan na. Any type of acquisition just as long as it will result in
30 . . . (p. 50) . . . reaches 30, ayan na. Any type of acquisition just as long as it will
result in 30, general tender, pro-rata. 20 (Emphasis supplied.) cHSTEA
Petitioner counters that the legislator's reference to "any type of acquisition" during the deliberations on
the Securities Regulation Code does not indicate that congress meant to include the "indirect" acquisition of shares
of a public corporation to be covered by the tender offer rule. Petitioner also avers that it did not directly acquire
the shares in UCC and the incidental benefit of having acquired the control of the said public company must not
be taken against it.
These arguments are not convincing. The legislative intent of Section 19 of the Code is to regulate
activities relating to acquisition of control of the listed company and for the purpose of protecting the minority
stockholders of a listed corporation. Whatever may be the method by which control of a public company is
obtained, either through the direct purchase of its stocks or through an indirect means, mandatory tender offer
applies. As appropriately held by the Court of Appeals:
The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as
a result of the transaction, it became an indirect owner of UCC. We are constrained, however, to
construe ownership acquisition to mean both direct and indirect. What is decisive is the
determination of the power of control. The legislative intent behind the tender offer rule makes clear
that the type of activity intended to be regulated is the acquisition of control of the listed company
through the purchase of shares. Control may [be] effected through a direct and indirect acquisition
of stock, and when this takes place, irrespective of the means, a tender offer must occur. The
bottomline of the law is to give the shareholder of the listed company the opportunity to decide
whether or not to sell in connection with a transfer of control. . . . . 21
As to the third issue, petitioner stresses that the ruling on mandatory tender offer rule by the SEC and the
Court of Appeals should not have retroactive effect or be made to apply to its purchase of the UCHC shares as it
relied in good faith on the letter dated 27 July 2004 of the SEC which opined that the proposed acquisition of the
UCHC shares was not covered by the mandatory offer rule.
The argument is not persuasive.
The action of the SEC on the PSE request for opinion on the Cemco transaction cannot be construed as
passing merits or giving approval to the questioned transaction. As aptly pointed out by the respondent, the letter
dated 27 July 2004 of the SEC was nothing but an approval of the draft letter prepared by Director Callanga.
There was no public hearing where interested parties could have been heard. Hence, it was not issued upon a
definite and concrete controversy affecting the legal relations of parties thereby making it a judgment conclusive
on all the parties. Said letter was merely advisory. Jurisprudence has it that an advisory opinion of an agency may
be stricken down if it deviates from the provision of the statute. 22 Since the letter dated 27 July 2004 runs
counter to the Securities Regulation Code, the same may be disregarded as what the SEC has done in its decision
dated 14 February 2005. TEDaAc
Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the same cannot be utilized to
determine the rights of the parties. What is to be applied in the present case is the subsequent ruling of the SEC
dated 14 February 2005 abandoning the opinion embodied in the letter dated 27 July 2004. In Serrano v. National
Labor Relations Commission, 23 an argument was raised similar to the case under consideration. Private
respondent therein argued that the new doctrine pronounced by the Court should only be applied prospectively.
Said postulation was ignored by the Court when it ruled:
While a judicial interpretation becomes a part of the law as of the date that law was
originally passed, this is subject to the qualification that when a doctrine of this Court is overruled
and a different view is adopted, and more so when there is a reversal thereof, the new doctrine
should be applied prospectively and should not apply to parties who relied on the old doctrine and
acted in good faith. To hold otherwise would be to deprive the law of its quality of fairness and
justice then, if there is no recognition of what had transpired prior to such adjudication.
It is apparent that private respondent misconceived the import of the ruling. The decision in
Columbia Pictures does not mean that if a new rule is laid down in a case, it should not be applied
in that case but that said rule should apply prospectively to cases arising afterwards. Private
respondent's view of the principle of prospective application of new judicial doctrines would turn
the judicial function into a mere academic exercise with the result that the doctrine laid down would
be no more than a dictum and would deprive the holding in the case of any force.
 Indeed, when the Court formulated the Wenphil doctrine, which we reversed in this case,
the Court did not defer application of the rule laid down imposing a fine on the employer for failure
to give notice in a case of dismissal for cause. To the contrary, the new rule was applied right then
and there. . . . .
Lastly, petitioner alleges that the decision of the SEC dated 14 February 2005 is "incomplete and produces
no effect".
This contention is baseless.
The decretal portion of the SEC decision states:
In view of the foregoing, the letter of the Commission, signed by Director Justina F.
Callangan, dated July 27, 2004, addressed to the Philippine Stock Exchange is hereby REVERSED
and SET ASIDE. Respondent Cemco is hereby directed to make a tender offer for UCC shares to
complainant and other holders of UCC shares similar to the class held by respondent UCHC, at the
highest price it paid for the beneficial ownership in respondent UCC, strictly in accordance with
SRC Rule 19, Section 9 (E). 24
A reading of the above ruling of the SEC reveals that the same is complete. It orders the conduct of a
mandatory tender offer pursuant to the procedure provided for under Rule 19 (E) of the Amended Implementing
Rules and Regulations of the Securities Regulation Code for the highest price paid for the beneficial ownership of
UCC shares. The price, on the basis of the SEC decision, is determinable. Moreover, the implementing rules and
regulations of the Code are sufficient to inform and guide the parties on how to proceed with the mandatory tender
offer.
WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6 March
2006, respectively, affirming the Decision dated 14 February 2005 of the Securities and Exchange
Commission En Banc, are hereby AFFIRMED. Costs against petitioner. ASICDH
SO ORDERED.
||| (Cemco Holdings, Inc. v. National Life Insurance Co. of the Philippines, Inc., G.R. No. 171815, [August 7, 2007],
556 PHIL 198-217)

[G.R. No. 191995. August 3, 2011.]

PHILIPPINE VETERANS BANK, petitioner, vs. JUSTINA CALLANGAN, in her capacity as
Director of the Corporation Finance Department of the Securities and Exchange Commission
and/or the SECURITIES AND EXCHANGE COMMISSION, respondent.
RESOLUTION
BRION, J p:
We resolve the motion for reconsideration 1 filed by petitioner Philippine Veterans Bank (the Bank) dated
August 5, 2010, addressing our June 16, 2010 Resolution that denied the Bank's petition for review on certiorari.
Factual Antecedents
On March 17, 2004, respondent Justina F. Callangan, the Director of the Corporation Finance Department
of the Securities and Exchange Commission (SEC), sent the Bank a letter, informing it that it qualifies as a "public
company" under Section 17.2 of the Securities Regulation Code (SRC) in relation with Rule 3 (1) (m) of
theAmended Implementing Rules and Regulations of the SRC. The Bank is thus required to comply with the
reportorial requirements set forth in Section 17.1 of the SRC.2
The Bank responded by explaining that it should not be considered a "public company" because it is a
private company whose shares of stock are available only to a limited class or sector, i.e., to World War II
veterans, and not to the general public. 3
In a letter dated April 20, 2004, Director Callangan rejected the Bank's explanation and assessed it a total
penalty of One Million Nine Hundred Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos
(P1,937,262.80) for failing to comply with the SRC reportorial requirements from 2001 to 2003. The Bank moved
for the reconsideration of the assessment, but Director Callangan denied the motion in SEC-CFD Order No. 085,
Series of 2005 dated July 26, 2005. 4 When the SEC En Banc also dismissed the Bank's appeal for lack of merit
in its Order dated August 31, 2006, prompting the Bank to file a petition for review with the Court of
Appeals(CA). 5 AaSTIH
On March 6, 2008, the CA dismissed the petition and affirmed the assailed SEC ruling, with the
modification that the assessment of the penalty be recomputed from May 31, 2004. 6
The CA also denied the Bank's motion for reconsideration, 7 opening the way for the Bank's petition for
review on certiorari filed with this Court. 8
On June 16, 2010, the Court denied the Bank's petition for failure to show any reversible error in the
assailed CA decision and resolution. 9
The Motion for Reconsideration
The Bank reiterates that it is not a "public company" subject to the reportorial requirements under Section
17.1 of the SRC because its shares can be owned only by a specific group of people, namely, World War II
veterans and their widows, orphans and compulsory heirs, and is not open to the investing public in general. The
Bank also asks the Court to take into consideration the financial impact to the cause of "veteranism"; compliance
with the reportorial requirements under the SRC, if the Bank would be considered a "public company," would
compel the Bank to spend approximately P40 million just to reproduce and mail the "Information Statement" to its
400,000 shareholders nationwide.
The Court's Ruling
We DENY the motion for reconsideration for lack of merit.
To determine whether the Bank is a "public company" burdened with the reportorial requirements ordered
by the SEC, we look to Subsections 17.1 and 17.2 of the SRC, which provide:
Section 17. Periodic and Other Reports of Issuers. —
17.1. Every issuer satisfying the requirements in Subsection 17.2 hereof shall file with the
Commission:
a) Within one hundred thirty-five (135) days, after the end of the issuer's fiscal year, or such
other time as the Commission may prescribe, an annual report which shall include, among others, a
balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year,
certified by an independent certified public accountant, and a management discussion and analysis
of results of operations; and
b) Such other periodical reports for interim fiscal periods and current reports on significant
developments of the issuer as the Commission may prescribe as necessary to keep current
information on the operation of the business and financial condition of the issuer. CcHDSA
17.2.The reportorial requirements of Subsection 17.1 shall apply to the following:
xxx xxx xxx
c) An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such other
amount as the Commission shall prescribe, and having two hundred (200) or more holders each
holding at least one hundred (100) shares of a class of its equity securities: Provided, however,
That the obligation of such issuer to file reports shall be terminated ninety (90) days after
notification to the Commission by the issuer that the number of its holders holding at least one
hundred (100) shares is reduced to less than one hundred (100). (emphases supplied)
We also cite Rule 3 (1) (m) of the Amended Implementing Rules and Regulations of the SRC, which
defines a "public company" as "any corporation with a class of equity securities listed on an
Exchange or with assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or
 more holders, at least two hundred (200) of which are holding at least one hundred (100)  shares of a class of
its equity securities."
From these provisions, it is clear that a "public company," as contemplated by the SRC, is not limited to a
company whose shares of stock are publicly listed; even companies like the Bank, whose shares are offered only
to a specific group of people, are considered a public company, provided they meet the requirements enumerated
above.
The records establish, and the Bank does not dispute, that the Bank has assets exceeding P50,000,000.00
and has 395,998 shareholders. 10 It is thus considered a public company that must comply with the reportorial
requirements set forth in Section 17.1 of the SRC.
The Bank also argues that even assuming it is considered a "public company" pursuant to Section 17 of
the SRC, the Court should interpret the pertinent SRCprovisions in such a way that no financial prejudice is done
to the thousands of veterans who are stockholders of the Bank. Given that the legislature intended the SRC to
apply only to publicly traded companies, the Court should exempt the Bank from complying with the reportorial
requirements. ATICcS
On this point, the Bank is apparently referring to the obligation set forth in Subsections 17.5 and 17.6 of
the SRC, which provide:
Section 17.5. Every issuer which has a class of equity securities satisfying any of the
requirements in Subsection 17.2 shall furnish to each holder of such equity security an annual
report in such form and containing such information as the Commission shall prescribe.
Section 17.6. Within such period as the Commission may prescribe preceding the annual
meeting of the holders of any equity security of a class entitled to vote at such meeting, the issuer
shall transmit to such holders an annual report in conformity with Subsection 17.5. (emphases
supplied)
In making this argument, the Bank ignores the fact that the first and fundamental duty of the Court is to
apply the law. 11 Construction and interpretation come only after a demonstration that the application of the law is
impossible or inadequate unless interpretation is resorted to. 12 In this case, we see the law to be very clear and
free from any doubt or ambiguity; thus, no room exists for construction or interpretation.
Additionally, and contrary to the Bank's claim, the Bank's obligation to provide its stockholders with
copies of its annual report is actually for the benefit of the veterans-stockholders, as it gives these stockholders
access to information on the Bank's financial status and operations, resulting in greater transparency on the part of
the Bank. While compliance with this requirement will undoubtedly cost the Bank money, the benefit provided to
the shareholders clearly outweighs the expense. For many stockholders, these annual reports are the only means of
keeping in touch with the state of health of their investments; to them, these are invaluable and continuing links
with the Bank that immeasurably contribute to the transparency in public companies that the law
envisions. THIECD
WHEREFORE, premises considered, petitioner Philippine Veterans Bank's motion for reconsideration is
hereby DENIED with finality.
SO ORDERED.
||| (Philippine Veterans Bank v. Callangan, G.R. No. 191995 (Resolution), [August 3, 2011], 670 PHIL 570-576)

[G.R. No. 164197. January 25, 2012.]

SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. PROSPERITY.COM,
INC., respondent.
DECISION
ABAD, J p:
This case involves the application of the Howey test in order to determine if a particular transaction is an
investment contract.
The Facts and the Case
Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet
service. To make a profit, PCI devised a scheme in which, for the price of US$234.00 (subsequently increased to
US$294), a buyer could acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same time,
by referring to PCI his own down-line buyers, a first-time buyer could earn commissions, interest in real estate in
the Philippines and in the United States, and insurance coverage worth P50,000.00.
To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as his own
down-lines. These second tier of buyers could in turn build up their own down-lines. For each pair of down-lines,
the buyer-sponsor received a US$92.00 commission. But referrals in a day by the buyer-sponsor should not
exceed 16 since the commissions due from excess referrals inure to PCI, not to the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company
stopped operations after the Securities and Exchange Commission (SEC) issued a cease and desist order (CDO)
against it. As it later on turned out, the same persons who ran the affairs of GVI directed PCI's actual operations.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter
had taken over GVI's operations. After hearing, 1 the SEC, through its Compliance and Enforcement unit, issued a
CDO against PCI. The SEC ruled that PCI's scheme constitutes an Investment contract and, following
theSecurities Regulations Code, 2 it should have first registered such contract or securities with the SEC.
Instead of asking the SEC to lift its CDO in accordance with Section 64.3 of Republic Act (R.A.) 8799,
PCI filed with the Court of Appeals (CA) a petition for certiorariagainst the SEC with an application for a
temporary restraining order (TRO) and preliminary injunction in CA-G.R. SP 62890. Because the CA did not act
promptly on this application for TRO, on January 31, 2001 PCI returned to the SEC and filed with it before the
lapse of the five-day period a request to lift the CDO. On the following day, February 1, 2001, PCI moved to
withdraw its petition before the CA to avoid possible forum shopping violation. SHacCD
During the pendency of PCI's action before the SEC, however, the CA issued a TRO, enjoining the
enforcement of the CDO. 3 In response, the SEC filed with the CA a motion to dismiss the petition on ground of
forum shopping. In a Resolution, 4 the CA initially dismissed the petition, finding PCI guilty of forum shopping.
But on PCI's motion, the CA reversed itself and reinstated the petition. 5
In a joint resolution, 6 CA-G.R. SP 62890 was consolidated with CA-G.R. SP 64487 that raised the same
issues. On July 31, 2003 the CA rendered a decision, granting PCI's petition and setting aside the SEC-issued
CDO. 7 The CA ruled that, following the Howey test, PCI's scheme did not constitute an investment contract that
needs registration pursuant to R.A. 8799, hence, this petition.
The Issue Presented
The sole issue presented before the Court is whether or not PCI's scheme constitutes an investment
contract that requires registration under R.A. 8799.
The Ruling of the Court
The Securities Regulation Code treats investment contracts as "securities" that have to be registered with
the SEC before they can be distributed and sold. An investment contract is a contract, transaction, or scheme
where a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of
others. 8
Apart from the definition, which the Implementing Rules and Regulations provide, Philippine
jurisprudence has so far not done more to add to the same. Of course, the United States Supreme Court, grappling
with the problem, has on several occasions discussed the nature of investment contracts. That court's rulings,
while not binding in the Philippines, enjoy some degree of persuasiveness insofar as they are logical and
consistent with the country's best interests. 9
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey
Co. 10 that, for an investment contract to exist, the following elements, referred to as the Howey test must concur:
(1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common
enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others.  11 Thus, to
sustain the SEC position in this case, PCI's scheme or contract with its buyers must have all these elements.
 An example that comes to mind would be the long-term commercial papers that large companies, like San
Miguel Corporation (SMC), offer to the public for raising funds that it needs for expansion. When an investor
buys these papers or securities, he invests his money, together with others, in SMC with an expectation of profits
arising from the efforts of those who manage and operate that company. SMC has to register these commercial
papers with the SEC before offering them to investors.
Here, PCI's clients do not make such investments. They buy a product of some value to them: an Internet
website of a 15-MB capacity. The client can use this website to enable people to have internet access to what he
has to offer to them, say, some skin cream. The buyers of the website do not invest money in PCI that it could use
for running some business that would generate profits for the investors. The price of US$234.00 is what the buyer
pays for the use of the website, a tangible asset that PCI creates, using its computer facilities and technical skills.
Actually, PCI appears to be engaged in network marketing, a scheme adopted by companies for getting
people to buy their products outside the usual retail system where products are bought from the store's shelf.
Under this scheme, adopted by most health product distributors, the buyer can become a down-line seller. The
latter earns commissions from purchases made by new buyers whom he refers to the person who sold the product
to him. The network goes down the line where the orders to buy come.
The commissions, interest in real estate, and insurance coverage worth P50,000.00 are incentives to down-
line sellers to bring in other customers. These can hardly be regarded as profits from investment of money under
the Howey test.
The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing scheme that
PCI has adopted. Evidently, it is PCI that expects profit from the network marketing of its products. PCI is correct
in saying that the US$234 it gets from its clients is merely a consideration for the sale of the websites that it
provides. aSHAIC
WHEREFORE, the Court DENIES the petition and AFFIRMSthe decision dated July 31, 2003 and the
resolution dated June 18, 2004 of the Court of Appeals in CA-G.R. SP 62890.
SO ORDERED.
||| (Securities and Exchange Commission v. Prosperity.com, Inc., G.R. No. 164197, [January 25, 2012], 680 PHIL 28-
32)
[G.R. No. 112872. April 19, 2001.]
THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the Administratrix,
SYLVIA S. TY, petitioner, vs. COURT OF APPEALS, HON. ILDEFONSO E. GASCON, and
ALEJANDRO B. TY, respondents.
[G.R. No. 114672. April 19, 2001.]
SYLVIA S. TY, in her capacity as Administratrix of the Intestate Estate of Alexander T.
Ty, petitioner, vs. COURT OF APPEALS and ALEJANDRO B. TY,respondents.
DECISION
MELO, J p:
Before the Court are two separate petitions for certiorari, G.R. 112872 under Rule 65 alleging grave abuse of
discretion amounting to lack or excess of jurisdiction, and G.R. No. 114672 under Rule 45 on purely questions of law.
As these two cases involved the same parties and basically the same issues, including the main question of
jurisdiction, the Court resolved to consolidate them.
On February 27, 2001, the Court issued its resolution in A.M. 00-9-03 directing the re-distribution of old
cases such as the ones on hand. Thus, the presentponencia.
The antecedent facts are as follows:
Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent Alejandro B. Ty, on
January 11, 1981. Alexander died of leukemia on May 19, 1988 and was survived by his wife, petitioner Sylvia, and
only child, Krizia Katrina. In the settlement of his estate, petitioner was appointed administratrix of her late husband's
intestate estate.
On November 4, 1992, petitioner filed a motion for leave to sell or mortgage estate property in order to
generate funds for the payment of deficiency estate taxes in the sum of P4,714,560.00. Included in the inventory of
property were the following: DHcSIT
1) 142,285 shares of stock in ABT Enterprises valued at P14,228,500.00;
 2) 5,000 shares of stock in Intercontinental Paper Industries valued at P500,000.00;
3) 15,873 shares of stock in Philippine Crystal Manufacturing, Inc. valued at P1,587,300.00;
4) 800 shares of stock in Polymart Paper Industries, Inc. valued at P80,000.00;
5) 1,880 shares of stock in A.T. Car Care Center, Inc. valued at P188,000.00;
6) 360 shares of stock in Union Emporium, Inc. valued at P36,000.00;
7) 380 shares of stock in Lexty, Inc. valued at P38,000.00; and
8) a parcel of land in Biak-na-Bato, Matalahib, Sta. Mesa, with an area of 823 square meters and
covered by Transfer Certificate of Title Number 214087.
Private respondent Alejandro Ty then filed two complaints for the recovery of the above-mentioned property,
which was docketed as Civil Case Q-91-10833 in Branch 105 Regional Trial Court of Quezon City (now herein G.R.
No. 112872), praying for the declaration of nullity of the deed of absolute sale of the shares of stock executed by
private respondent in favor of the deceased Alexander, and Civil Case Q-92-14352 in Branch 90 Regional Trial Court
of Quezon City (now G.R. No. 114672), praying for the recovery of the pieces of property that were placed in the
name of deceased Alexander by private respondent, the same property being sought to be sold out, mortgaged, or
disposed of by petitioner. Private respondent claimed in both cases that even if said property were placed in the name
of deceased Alexander, they were acquired through private respondent's money, without any cause or consideration
from deceased Alexander.
Motions to dismiss were filed by petitioner. Both motions alleged lack of jurisdiction of the trial court,
claiming that the cases involved intra-corporate disputes cognizable by the Securities and Exchange Commission
(SEC). Other grounds raised in G.R. No. 114672 were:
1) An express trust between private respondent Alejandro and his deceased son Alexander;
2) Bar by the statute of limitations;
3) Private respondent's violation of Supreme Court Circular 28-91 for failure to include a
certification of non-forum shopping in his complaints; and
4) Bar by laches.
The motions to dismiss were denied. Petitioner then filed petitions for certiorari in the Court of Appeals,
which were also dismissed for lack of merit. Thus, the present petitions now before the Court. CSIcHA
Petitioner raises the issue of jurisdiction of the trial court. She alleges that an intra-corporate dispute is
involved. Hence, under Section 5(b) of Presidential Decree 902-A, the SEC has jurisdiction over the case. The Court
cannot agree with petitioner.
Jurisdiction over the subject matter is conferred by law (Union Bank of the Philippines vs. Court of Appeal,
290 SCRA 198 [1998]). The nature of an action, as well as which court or body has jurisdiction over it, is determined
based on the allegations contained in the complaint of the plaintiff (Serdoncillo vs. Benolirao, 297 SCRA 448
[1998]; Tamano vs. Ortiz, 291 SCRA 584 [1998]), irrespective of whether or not plaintiff is entitled to recover upon
all or some of the claims asserted therein (Citibank, N.A.vs. Court of Appeals, 299 SCRA 390 [1998]). Jurisdiction
cannot depend on the defenses set forth in the answer, in a motion to dismiss, or in a motion for reconsideration by the
defendant (Dio vs. Concepcion, 296 SCRA 579 [1998]).
Petitioner argues that the present case involves a suit between two stockholders of the same corporation which
thus places it beyond the jurisdictional periphery of regular trial courts and more within the exclusive competence of
the SEC by reason of Section 5(b) of Presidential Decree 902-A, since repealed. However, it does not necessarily
follow that when both parties of a dispute are stockholders of a corporation, the dispute is automatically considered
intra-corporate in nature and jurisdiction consequently falls with the SEC. Presidential Decree 902-A did not confer
upon the SEC absolute jurisdiction and control over all matters affecting corporations, regardless of the nature of the
transaction which gave rise to such disputes (Jose Peneyra, et al. vs. Intermediate Appellate Court, et al., 181 SCRA
245 [1990] citing DMRC Enterprises vs. Este del Sol Mountain Reserve, Inc., 132 SCRA 293 [1984]). The better
policy in determining which body has jurisdiction over this case would be to consider, not merely the status of the
parties involved, but likewise the nature of the question that is the subject of the controversy ( Viray vs. Court of
Appeals, 191 SCRA 309 [1990]). When the nature of the controversy involves matters that are purely civil in
character, it is beyond the ambit of the limited jurisdiction of the SEC (Saura vs. Saura, Jr., 313 SCRA 465 [1999]).
In the cases at bar, the relationship of private respondent when he sold his shares of stock to his son was one
of vendor and vendee, nothing else. The question raised in the complaints is whether or not there was indeed a sale in
the absence of cause or consideration. The proper forum for such a dispute is a regular trial court. The Court agrees
with the ruling of the Court of Appeals that no special corporate skill is necessary in resolving the issue of the validity
of the transfer of shares from one stockholder to another of the same corporation. Both actions, although involving
different property, sought to declare the nullity of the transfers of said property to the decedent on the ground that they
were not supported by any cause or consideration, and thus, are considered void ab initio for being absolutely
simulated or fictitious. The determination whether a contract is simulated or not is an issue that could be resolved by
applying pertinent provisions of the Civil Code, particularly those relative to obligations and contracts. Disputes
concerning the application of the Civil Code are properly cognizable by courts of general jurisdiction. No special skill
is necessary that would require the technical expertise of the SEC.
It should also be noted that under the newly enacted Securities Regulation Code (Republic Act No. 8799), this
issue is now moot and academic because whether or not the issue is intra-corporate, it is the regional trial court and no
longer the SEC that takes cognizance of the controversy. Under Section 5.2 of Republic Act No. 8799, original and
exclusive jurisdiction to hear and decide cases involving intra-corporate controversies have been transferred to courts
of general jurisdiction or the appropriate regional trial court.
Other issues raised by the petitioner in G.R. No. 114672 are equally not impressed with merit.
Petitioner contends that private respondent is attempting to enforce an unenforceable express trust over the
disputed real property. Petitioner is in error when she contends that an express trust was created by private respondent
when he transferred the property to his son. Judge Abraham P. Vera, in his order dated March 31, 1993 in Civil Case
No. Q-92-14352, declared:
. . . [e]xpress trusts are those that are created by the direct and positive acts of the parties, by
some writing or deed or will or by words evidencing an intention to create a trust. On the other
hand, implied trusts are those which, without being expressed, are deducible from the nature of the
transaction by operation of law as matters of equity, independently of the particular intention of the
parties. Thus, if the intention to establish a trust is clear, the trust is express; if the intent to establish
a trust is to be taken from circumstances or other matters indicative of such intent, then the trust is
implied (Cuaycong vs. Cuaycong, 21 SCRA 1191 [1967].
In the cases at hand, private respondent contends that the pieces of property were transferred in the name of
the deceased Alexander for the purpose of taking care of the property for him and his siblings. Such transfer having
been effected without cause of consideration, a resulting trust was created.
A resulting trust arises in favor of one who pays the purchase money of an estate and places
the title in the name of another, because of the presumption that he who pays for a thing intends a
beneficial interest therein for himself. The trust is said to result in law from the acts of the parties.
Such a trust is implied in fact (Tolentino, Civil Code of the Philippines, Vol. 4, p. 678).
If a trust was then created, it was an implied, not an express trust, which may be proven by oral evidence
(Article 1457, Civil Code), and it matters not whether property is real or personal (Paras, Civil Code of the
Philippines, Annotated, Vol. 4, p. 814).
Petitioner's assertion that private respondent's action is barred by the statute of limitations is erroneous. The
statute of limitations cannot apply in this case. Resulting trusts generally do not prescribe (Caladiao vs. Vda. de Blas,
10 SCRA 691 [1964]), except when the trustee repudiates the trust. Further, an action to reconvey will not prescribe so
long as the property stands in the name of the trustee (Manalang, et. al. vs. Canlas, et. al., 94 Phil. 776 [1954]). To
allow prescription would be to permit a trustee to acquire title against his principal and the true owner. acCTIS
Petitioner is also mistaken in her contention that private respondent violated Supreme Court Circular 28-91,
dated September 17, 1991 and which took effect on January 1, 1992. Although Section 5, Rule 7 of the 1997 Rules on
Civil Procedure makes the requirement of filing a verification and certificate of non-forum-shopping applicable to all
courts, this cannot be applied in the case at bar. At the time the original complaint was first filed on December 10 (for
G.R. 112872) and 28 (for G.R.114672), 1992, such certification requirement only pertained to cases in the Court of
Appeals and the Supreme Court. The Revised Circular 28-91, which covered the certification requirement against
non-forum shopping in all courts, only took effect April 1, 1994. Further, the subject heading of the original circular
alone informs us of its topic: that of additional requisites for petitions filed with the Supreme Court and the Court of
Appeals to prevent forum shopping or multiple filing of petitions and complaints. Section 1 of the Circular makes it
mandatory to include the docket number of the case in the lower court or quasi-judicial agency whose order or
judgment is sought to be reviewed. Such a requirement clearly indicates that the Circular only applies to actions filed
with the Court of Appeals and the Supreme Court.
Contrary to what petitioner contends, there could be no laches in this case. Private respondent filed his
complaint in G.R. No. 112872 on December 10, 1992 (later amended on December 23, 1992) and in G.R.
No. 114672 on December 28, 1992, only over a month after petitioner filed in the probate proceedings a petition to
mortgage or sell the property in dispute. Private respondent's actions were in fact very timely. As stated in the
complaints, private respondent instituted the above actions as the property were in danger of being sold to a third
party. If there were no pending cases to stop their sale, he would no longer be able to recover the same from an
innocent purchaser for value.
Withal, the Court need not go into any further discussion on whether the trial court erred in issuing a writ of
preliminary injunction.
WHEREFORE, the petition for certiorari in G.R. No. 112872 is DISMISSED, having failed to show that
grave abuse of discretion was committed in declaring that the regional trial court had jurisdiction over the case. The
petition for review on certiorari in G.R. 114672 is DENIED, having found no reversible error was committed.
SO ORDERED. CTSAaH
||| (The Intestate Estate of Ty v. Court of Appeals, G.R. Nos. 112872 & 114672, [April 19, 2001], 408 PHIL 792-802)

[G.R. No. 168639. January 29, 2007.]

ALDERITO Z. YUJUICO, BONIFACIO C. SUMBILLA, and DOLNEY S.
SUMBILLA, petitioners, vs. CEZAR T. QUIAMBAO, JOSE M. MAGNO III, MA.
CHRISTINA F. FERREROS, ANTHONY K. QUIAMBAO, SIMPLICIO T. QUIAMBAO,
JR., ERIC C. PILAPIL, ALBERT M. RASALAN, and REGIONAL TRIAL COURT,
BRANCH 48, URDANETA CITY, respondents.
DECISION
SANDOVAL-GUTIERREZ, J p:
Before us for resolution is the Petition for Review on Certiorari 1 challenging the Decision dated March
31, 2005 rendered by the Court of Appeals in CA-G.R. SP No. 87785, as well as its Resolution dated June 29,
2006.
The facts are:
 Strategic Alliance Development Corporation (STRADEC) is a domestic corporation engaged in the
business of providing financial and investment advisory services and investing in projects through consortium or
joint venture information. 2 From its inception, STRADEC's principal place of business was located at the 24th
Floor, One Magnificent Mile-Citra Building, San Miguel Avenue, Ortigas Center, Pasig City. On July 27, 1998,
the Securities and Exchange Commission (SEC) approved the amendment of STRADEC's Articles of
Incorporation authorizing the change of its principal office from Pasig City to Bayambang, Pangasinan. 3
On March 1, 2004, STRADEC held its annual stockholders' meeting in its Pasig City office as indicated in
the notices sent to the stockholders. 4 At the said meeting, the following were elected members of the Board of
Directors: Alderito Z. Yujuico, Bonifacio C. Sumbilla, Dolney S. Sumbilla (petitioners herein), Cesar T.
Quiambao, Jose M. Magno III and Ma. Christina Ferreros (respondents herein). Petitioners Alderito Yujuico was
elected Chairman and President, while Bonifacio Sumbilla was elected Treasurer. All of them then discharged the
duties of their office.
After five (5) months, or on August 16, 2004, respondents filed with the Regional Trial Court (RTC),
San Carlos City, Pangasinan a Complaint against STRADEC (represented by herein petitioners as members of its
Board of Directors), docketed as Civil Case No. SCC-2874 and raffled off to Branch 56. The complaint prays that:
(1) the March 1, 2004 election be nullified on the ground of improper venue, pursuant to Section 51 of
the Corporation Code; (2) all ensuing transactions conducted by the elected directors be likewise nullified; and (3)
a special stockholders' meeting be held anew.
Subsequently, respondents filed an Amended Complaint dated September 2, 2004 further praying for the
issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction to enjoin petitioners from
discharging their functions as directors and officers of STRADEC. On September 22, 2004, they filed a
Supplemental Complaint praying that the court (1) direct Export Industry Bank, Cezar T. Quiambao and Bonifacio
G. Sumbilla to surrender to them the original and reconstituted Stock and Transfer Book and other corporate
documents of STRADEC; and (2) nullify the reconstituted Stock and Transfer Book and all transactions of the
corporation. Both pleadings were admitted by the trial court. TDCAHE
As the controversy involves an intra-corporate dispute, the trial court, on October 4, 2004, issued an Order
transferring Civil Case No. SCC-2874 to RTC, Branch 48, Urdaneta City, being a designated Special Commercial
Court. 5 The case was then re-docketed as Civil (SEC) Case No. U-14.
Since Branch 48 of RTC, Urdaneta City had no presiding judge then, Judge Meliton G. Emuslan acted as
pairing judge of that branch to take cognizance of the cases therein until the appointment and assumption to duty
of a regular judge. 6
On November 2, 2004, petitioners filed their Answer with Counterclaim 7 in Civil (SEC) Case No. U-14.
They prayed for the dismissal of the complaint on the following grounds, among others: (a) the complaint  does
not state a cause of action; (b) the action is barred by prescription for it was filed beyond the 15-day
prescriptive period provided by Section 2, Rule 6 of the Interim Rules and Procedure Governing Intra-Corporate
Controversies under Republic Act (R.A.) No. 8799; (c) respondents' prayer that a special stockholders' meeting be
held in Bayambang, Pangasinan "is premature pending the establishment of a principal office of STRADEC in
said municipality;" and (d) respondents waived their right to object to the venue as they attended and
participated in the said March 1, 2004 meeting and election without any protest." 8 Petitioners likewise opposed
the application for a writ of preliminary injunction as respondents have no right that was violated, hence, are not
entitled to be protected by law. They further prayed for damages by way of counterclaim.
Meanwhile, Judge Aurelio R. Ralar, Jr. was appointed presiding judge of RTC, Branch 48, Urdaneta
City. Significantly, on November 9, 2004, he took his oath of office before Associate Justice Diosdado M.
Peralta of the Sandiganbayan, and on November 12, 2004, he assumed his duties. 9 Subsequently, or
on November 25, 2004, pairing Judge Meliton Emuslan still issued an Order 10 granting respondents'
application for preliminary injunction ordering (1) the holding of a special stockholders' meeting of
STRADEC on December 10, 2004 "in the principal office of the corporation in Bayambang,
Pangasinan;" and (2) the turn-over by petitioner Bonifacio Sumbilla to the court of the duplicate key of the
safety deposit box in Export Industry Bank, Shaw Boulevard, Pasig City where the original Stock and
Transfer Book of STRADEC was deposited. The pertinent portions of the Order read:
ORDER
This resolves the application of plaintiffs for the issuance of writ of preliminary prohibitory
injunction.
During the hearing on the application for Temporary Restraining Order/Injunction on
October 20, 2004, plaintiffs presented as witnesses: Cezar T. Quiambao, Jose M. Magno III and
Eric Gene Pilapil who testified in support of the material averments of the plaintiffs in their
 Amended Complaint and Supplemental Complaint. Specifically, plaintiff Quiambao testified,
among other things, on the fact of the unlawful denial by defendant Yujuico of his request for the
holding of a special stockholders' meeting, the location of the principal place of office of the
corporation, the deposit by him and defendant Sumbilla of the Stock and Transfer Book of the
corporation in the Export Industry Bank in Pasig City, the illegal and unjustified reconstitution of
said stock and transfer book, and the damages which he and the corporation sustained as a result of
defendants' unlawful acts including the unauthorized sale of corporate shares of stock.
Plaintiff Magno III testified that he did not attend the Annual Stockholders' meeting held
last March 1, 2004 and that he did not authorize anybody to appear for and in his behalf.
Lastly, witness Pilapil testified on the principal place of business of defendant corporation,
the holding of the Annual Stockholders' Meeting in a place outside the principal place of business of
the corporation, and the fact that two (2) other stockholders, namely, Jose Magno III and Angel
Umali were neither present nor represented in said meeting, contrary to what was alleged in
defendants' Answer with Counterclaim (see par. 50, Answer with Counterclaim).
xxx xxx xxx
After a careful evaluation of the records and all the pleadings extant in this case as well as
the testimonies of the witnesses for the plaintiffs, this court is inclined to grant the plaintiffs'
application for the writs of preliminary prohibitory injunction in order to restrain the defendants
from acting as officers of the corporation and committing further acts inimical to the corporation
and to the rest of the stockholders thereof. It is also evident from the pleadings that defendants
would not yield to the demand of plaintiffs for the maintenance of the status quo until after the
resolution of the merits of the instant controversy.
xxx xxx xxx
The effect of the issuance of this Order would create a hiatus in the action of the board of
directors of STRADEC, pending the determination of the merits of the case and after trial on the
merits.
It would thus be for the best interest of the corporation as well as its stockholders that an
election be undertaken of the members of the board and officers pursuant to STRADEC'S Articles
of the corporation (sic) and the Corporation Code of the Philippines, under the supervision of the
court.
This is to avoid discontinuity of the operations of the corporation, which may result to its
damage and prejudice.
WHEREFORE, premises considered, let the Writ of Preliminary Injunction issue, upon
posting of the requisite bond in the amount of Five Hundred Thousand Pesos (P500,000.00) to
answer for whatever damages that the defendants would suffer on account of the issuance of the
injunction writ, restraining defendants from acting as officers of the Corporation and committing
further acts inimical to the corporation.
It is likewise ordered that a special stockholders' meeting in the principal place of office of
the corporation in Bayambang, Pangasinan on December 10, 2004 be held. The Branch Clerk of
this court shall attend the said meeting to observe the proceedings and report his observations to this
court. For this purpose, the defendant Bonifacio Sumbilla is ordered to surrender to the court, not
later than December 3, 2004, the duplicate key given to him by Export Industry Bank, Shaw Blvd.,
Pasig City, of the safety deposit box where he and plaintiff Cezar T. Quiambao deposited the
Original Stock and Transfer Book of STRADEC which shall be the basis in the determination of the
corporate stockholding during the meeting scheduled on the above-mentioned date.
SO ORDERED.
In compliance with the above Order, the court sheriff (and respondent Cezar Quiambao, as claimed by
petitioners) caused the opening of the safety deposit box of STRADEC in the Export Industry Bank, Shaw
Boulevard Branch, Pasig City and took custody of its contents.
On December 10, 2004, petitioners, claiming that a motion for reconsideration is a prohibited pleading
under Section 8 (3), Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies under
R.A. No. 8799, filed with the Court of Appeals a Petition for Certiorari with Prayer for the Issuance of a TRO
and/or Preliminary Injunction, 11 assailing Judge Emuslan's November 25, 2004 Order. The petition was docketed
as CA-G.R. SP No. 87785. In the proceedings before the appellate court, petitioners raised the following issues:
 A. Only the SEC, not the RTC, has jurisdiction to order the holding of a special
stockholders' meeting involving an intra-corporate controversy;
B. Judge Meliton Emuslan had no authority to issue the assailed Order dated November 25,
2004 as Judge Aurelio Ralar, Jr. was already the presiding judge of RTC, Branch 48, Urdaneta
City; 12 and
C. Assuming Judge Emuslan had authority to issue the assailed Order, he nonetheless acted
with grave abuse of discretion amounting to lack or excess of jurisdiction.
Meanwhile, on the same day (December 10), as directed in the November 25, 2004 Order of Judge
Emuslan, a special stockholders' meeting of STRADEC was held in Bayambang, Pangasinan wherein a new set of
directors were elected for the term 2004-2005, namely: Cezar T. Quiambao, Anthony K. Quiambao, and Simplicio
T. Quiambao, Jr. Immediately thereafter, the new directors elected the following officers: Cezar T. Quiambao as
Chairman and President; Eric C. Pilapil as Corporate Secretary; Anthony K. Quiambao as Corporate Treasurer;
and Albert M. Rasalan as Assistant Corporate Secretary. TSADaI
On March 31, 2005, the Court of Appeals rendered a Decision 13 in CA-G.R. SP No. 87785, dismissing
the Petition for Certiorari. It upheld the jurisdiction of the RTC over the controversy and sustained the validity of
Judge Emuslan's Order of November 25, 2004. Petitioners' motion for reconsideration was denied in a Resolution
dated June 29, 2005. 14
Hence, the instant Petition for Review on Certiorari.
FIRST, petitioners contend that the Court of Appeals erred in ruling that the RTC has the power to call a
special stockholders' meeting involving an intra-corporate controversy. They maintain that it is only the SEC
that may do so to be held under its supervision.
The respondents, in their comment, counter that the appellate court correctly ruled that the power to hear
and decide controversies involving intra-corporate disputes, as well as to act on matters incidental and
necessary thereto, have been transferred from the SEC to the RTCs designated as Special Commercial Courts. It
would be the height of absurdity, they argue, to require the filing of a separate case with the SEC for the sole
purpose of asking the said agency to order the holding of a special stockholders' meeting where there is already a
pending case involving the same matter before the proper court.
We agree with respondents.
An intra-corporate controversy is one which "pertains to any of the following relationships: (1) between
the corporation, partnership or association and the public; (2) between the corporation, partnership or association
and the State in so far 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."15 There is thus no dispute that respondents' complaint in Civil (SEC) Case
No. U-14 before the RTC, Branch 48, Urdaneta City involves an intra-corporate controversy, the contending
parties being stockholders and officers of a corporation.
Originally, Section 5 of Presidential Decree (P.D.) No. 902-A bestowed the SEC original and exclusive
jurisdiction over cases involving the following:
(a) Devices or schemes employed by, or any act of, the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, or members of
associations registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members or associates; between any or all of them and the corporation,
partnership or association and the State insofar as it concerns their individual franchise or right as
such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or
managers of such corporations, partnership or associations;
(d) Petitioners of corporations, partnerships or associations to be declared in the state of
suspension of payment in cases where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the impossibility of meeting them when they
fall due or in cases where the corporation, partnership or association has no sufficient assets to
cover its liabilities but is under the management of a rehabilitation receiver or management
committee created pursuant to this Decree. 16 (Underscoring supplied)
 Upon the enactment of R.A. No. 8799, otherwise known as "The Securities Regulation Code" which took
effect on August 8, 2000, 17 the jurisdiction of the SEC over intra-corporate controversies and other cases
enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction, or the
appropriate RTC. Section 5.2 of R.A. No. 8799 provides:
5.2. The Commission's jurisdiction over all cases enumerated in Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court, Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the enactment of
this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Underscoring
supplied)
Pursuant to R.A. No. 8799, the Court issued a Resolution dated November 21, 2000 in A.M. No. 00-11-
03-SC designating certain branches of the RTC to try and decide cases enumerated in Section 5 of  P.D. No. 902-
A. Branch 48 of RTC, Urdaneta City, the court a quo, is among those designated as a Special Commercial Court.
On March 13, 2001, the Court approved the Interim Rules of Procedure Governing Intra-Corporate Controversies
under R.A. No. 8799 which took effect on April 1, 2001. 18 Sections 1 and 2, Rule 6 of the said Rules provide:
SEC. 1. Cases covered. — The provisions of this rule shall apply to election contests in
stock and non-stock corporations.
SEC. 2. Definition. — An election contest refers to any controversy or dispute
involving title or claim to any elective office in a stock or non-stock corporation, the validation of
proxies, the manner and validity of elections, and the qualifications of candidates, including the
proclamation of winners, to the office of director, trustee or other officer directly elected by the
stockholders in a close corporation or by members of a non-stock corporation where the articles of
incorporation or by-laws so provide. (Underscoring supplied)
In Morato v. Court of Appeals, 19 we held that pursuant to R.A. No. 8799 and the Interim Rules of
Procedure Governing Intra-Corporate Controversies, "among the powers and functions of the SEC which were
transferred to the RTC include the following: (a) jurisdiction and supervision over all corporations, partnerships or
associations which are the grantees of primary franchises and/or a license or permit issued by the Government; (b)
the approval, rejection, suspension, revocation or requirement for registration statements, and registration and
licensing applications; (c) the regulation, investigation, or supervision of the activities of persons to ensure
compliance; (d) the supervision, monitoring, suspension or take over the activities of exchanges, clearing
agencies, and other SROs; (e) the imposition of sanctions for the violation of laws and the rules, regulations and
orders issued pursuant thereto; (f) the issuance of cease-and-desist orders to prevent fraud or injury to the
investing public; (g) the compulsion of the officers of any registered corporation or association to call
meetings of stockholders or members thereof under its supervision; and (h) the exercise of such other powers
as may be provided by law as well as those which may be implied from, or which are necessary or incidental
to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of
these laws."
Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the parties
herein. Concomitant to said power is the authority to issue orders necessary or incidental to the carrying
out of the powers expressly granted to it. Thus, the RTC may, in appropriate cases, order the holding of a
special meeting of stockholders or members of a corporation involving an intra-corporate dispute under its
supervision.
SECOND, petitioners assert that Judge Emuslan did not have the authority to issue the assailed Order
of November 25, 2004 upon the appointment and assumption on "November 2, 2004" (should be November 12)
by Judge Aurelio R. Ralar, Jr. as the regular presiding judge of RTC, Branch 48, Urdaneta City.
Significantly, respondents never refuted petitioners' assertion. The Court of Appeals, for its part,
dismissed petitioners' allegation by merely ruling that "this is the first time they are raising this issue — which is
much too late in the day. In any event, one cannot question the authority of the court when it does not suit him and
accepts such authority when it favors him." 20 The ruling suggests that petitioners are barred by laches and/or
estoppel from raising that issue. The appellate court likewise denied petitioners' motion to set the case for oral
arguments.
 The Court of Appeals should have resolved the issue of whether Judge Emuslan had the authority to issue
the assailed Order, a jurisdictional question crucial to the resolution of the petition. It is elementary that a
jurisdictional controversy may be raised at any time. 21
Indeed, as early as November 12, 2004, Judge Aurelio Ralar, Jr. assumed his duties as presiding judge
of RTC, Branch 48, Urdaneta City. Evidently, Judge Emuslan's authority, as pairing judge of Branch 48, to act on
Civil (SEC) Case No. U-14 automatically ceased on that date. Therefore, he no longer had the authority to issue
the Order of November 25, 2004, or thirteen (13) days after Judge Ralar, Jr. had assumed office. This is clear from
this Court's Circular No. 19-98 dated February 18, 1998 which mandates:
TO : ALL JUDGES OF THE REGIONAL TRIAL COURTS, METROPOLITAN TRIAL
COURTS, MUNICIPAL TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS, AND
MUNICIPAL CIRCUIT TRIAL COURTS
SUBJECT : EXPANDED AUTHORITY OF PAIRING COURTS
In the interest of efficient administration of justice, the authority of the pairing judge under
Circular No. 7 dated September 23, 1974 (Pairing System for Multiple Sala Stations) to act on
incidental or interlocutory matters and those urgent matters requiring immediate action on cases
pertaining to the paired court shall henceforth be expanded to include all other matters. Thus,
whenever a vacancy occurs by reason of resignation, dismissal, suspension, retirement, death, or
prolonged absence of the presiding judge in a multi-sala station, the judge of the paired court
shall take cognizance of all cases thereat as acting judge therein UNTIL the APPOINTMENT
and ASSUMPTION TO DUTY OF THE REGULAR JUDGE or the designation of an acting
presiding judge or the return of the regular incumbent judge, or until further orders from this Court.
For this purpose, the provisions of Circular No. 7, dated September 23, 1974, inconsistent
with this Circular are hereby amended.
xxx xxx xxx (Underscoring supplied)
Thus, although the RTC, Branch 48, Urdaneta City is clothed with power to take cognizance of Civil
(SEC) Case No. U-14, the exercise of such power is entirely a different matter. Verily, in Tolentino v.
Leviste, 22 this Court, speaking through Justice (now Chief Justice) Reynato S. Puno, held:
. . . . Jurisdiction is not the same as the exercise of jurisdiction. As distinguished from
the exercise of jurisdiction, jurisdiction is the authority to decide a cause, not the decision rendered
therein. Where there is jurisdiction over the person and the subject matter, the decision on all other
questions arising in the case is but an exercise of the jurisdiction. . . . . (Underscoring supplied)
There are instances where a judge may commit errors. He may issue an order without authority. And if
clothed with power, he may exercise it in excess of his authority or with grave abuse of discretion amounting to
lack or excess of jurisdiction. Any of these acts may be struck down as a nullity through a petition
forcertiorari, 23 as what petitioners did before the Court of Appeals. It bears stressing that any act or order
rendered by a judge without authority, such as the questioned November 25, 2004 Order, is no order at all. It is
void. As such, it cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to
it and all claims emanating from it have no legal force and effect. 24
THIRD, petitioners further contend that even if Judge Emuslan had the authority to issue the challenged
Order, still he issued it with grave abuse of discretionamounting to lack or excess of jurisdiction. They lament
that the Order effectively disposed of the merits of the main case [Civil (SEC) Case No. U-14].
Unfortunately, despite the significance of this issue, the Court of Appeals totally ignored it by failing to
render a ruling thereon. Respondents, for their part, merely aver that Judge Emuslan "only had the best interest of
STRADEC in mind" when he issued the questioned Order. 25
We find for petitioners.
The duty of the court taking cognizance of an application for a writ of preliminary injunction is to
determine whether the requisites necessary for the grant of such writ are present. The requisites for the issuance of
a writ of preliminary injunction are: (1) the applicant for such writ must show that he has a clear and
unmistakable right that must be protected; and (2) there exists an urgent and paramount necessity for the writ
to prevent serious damage. 26
In this case, Judge Emuslan's November 25, 2004 Order, quoted earlier, is hazy and too unsubstantial to
justify the issuance of a writ of preliminary injunction. The Order does not contain specific findings of fact and
conclusion of law showing that the requirements for the grant of the injunctive writ are present. It merely
mentions the names of witnesses presented by respondents during the hearing on the application for the issuance
of the writ, but there is no specific and substantial narration of the witnesses' testimonies to establish the
existence of a clear and unmistakable right on their part that must be protected, as well as the serious
damage or irreparable loss that they would suffer if the writ is not granted. It does not also disclose the
specific evidence formally offered by the applicants. Obviously, the basis of the judge's conclusion is too
uncertain. Thus, in issuing the questioned November 25, 2004 Order granting a writ of preliminary injunction, he
committed grave abuse of discretion. In Manila International Airport Authority v. Court of Appeals, 27 we held:
In the instant case, however, the trial court's order of January 20, 1993 was, on its face,
bereft of basis for the issuance of a writ of preliminary injunction. There were no findings of fact or
law in the assailed order indicating that any of the elements essential for the grant of a preliminary
injunction existed. The trial court alluded to hearings during which the parties marked their
respective exhibits and the trial court heard the oral arguments of opposing counsels. However, it
cannot be ascertained what evidence was formally offered and presented by the parties and given
weight and credence by the trial court. The basis for the trial court's conclusion that K Services was
entitled to a writ of preliminary injunction is unclear.
In its order of August 5, 1993, the trial court stated that it issued the injunction to prevent
irreparable loss that might be caused to K Services. Once more, however, the trial court neglected to
mention what right in esse of K Services, if any, was in danger of being violated and required the
protection of a preliminary injunction.
xxx xxx xxx.
. . . the possibility of irreparable damage without proof of actual existing right is not a
ground for an injunction (Heirs of Asuncion v. Gervacio, Jr., 304 SCRA 322 [1999]). Where the
complainant's right is doubtful or disputed, injunction is not proper. Absent a clear legal right, the
issuance of the injunctive relief constitutes grave abuse of discretion (Id.). 28
Furthermore, Judge Emuslan's November 25, 2004 Order goes against the concept and objective of a writ
of preliminary injunction. A writ of preliminary injunction is a provisional remedy, an adjunct to a main suit. It is
also a preservative remedy, issued to preserve the status quo of the things subject of the action or the relations
between the parties during the pendency of the suit. In Selegna Management and Development Corporation v.
United Coconut Planters Bank, 29 we held:
. . . . Injunction is not designed to protect contingent or future rights. It is not proper
when the complainant's right is doubtful or disputed.
. . ., courts should avoid issuing this writ which in effect disposes of the main case
without trial (F. Regalado, Remedial Law Compendium, Vol. I, 639 (7th revised ed., 1999). . . . .
(Underscoring supplied)
In the same case of Manila International Airport Authority v. Court of Appeals, 30 we urged the courts to
exercise extreme caution in issuing the writ, thus:
. . . . We remind trial courts that while generally the grant of a writ of preliminary
injunction rests on the sound discretion of the court taking cognizance of the case,extreme caution
must be observed in the exercise of such discretion. The discretion of the court a quo to grant an
injunctive writ must be exercised based on the grounds and in the manner provided by law. Thus,
the Court declared in Garcia v. Burgos:
It has been consistently held that there is no power the exercise of which is
more delicate, which requires greater caution, deliberation and sound discretion, or
more dangerous in a doubtful case, than the issuance of an injunction. It is the strong
arm of equity that should never be extended unless to cases of great injury, where
courts of law cannot afford an adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the
freedom of action of the defendant and should not be granted lightly or precipitately.
It should be granted only when the court is fully satisfied that the law permits it and the
emergency demands it [citations omitted]. (Underscoring supplied)
To repeat, the purpose of the writ of preliminary injunction is to preserve the status quo until the court
could hear the merits of the case. 31 The status quo is the last actual peaceable uncontested status that preceded
the controversy 32 which, in the instant case, is the holding of the annual stockholders' meeting on March 1, 2004
and the ensuing election of the directors and officers of STRADEC. But instead of preserving the status quo,
Judge Emuslan's Order messed it up when, in compliance therewith, a special stockholders' meeting was held
anew and a new set of directors and officers of STRADEC was elected. That effectively resolved respondents'
principal action without even a full-blown trial on the merits since the Order impliedly ruled that the March 1,
2004 annual stockholders' meeting and election are void. Verily, the issuance of the questioned Order violates the
established principle that courts should avoid granting a writ of preliminary injunction that would in effect dispose
of the main case without trial. 33
Equally important is the fact that the Order was issued even though respondents' right to an injunctive
relief is doubtful or has been vehemently disputed. We note that petitioners, in their answer with counterclaim,
raised serious and valid defenses, among which is that the action is premature since the principal office of
STRADEC in Bayambang, Pangasinan is yet to be established, as authorized by the SEC. 34 Obviously, pending
the establishment of a principal office in Bayambang, Pangasinan, all the stockholders' meetings of STRADEC
have been properly held in their principal office in Pasig City.
Another weighty defense raised by petitioners is that the action has prescribed. One of the reliefs sought
by respondents in the complaint is the nullification of the election of the Board of Directors and corporate officers
held during the March 1, 2004 annual stockholders' meeting on the ground of improper venue, in violation of
the Corporation Code. Hence, the action involves an election contest, falling squarely under the Interim Rules of
Procedure Governing Intra-Corporate Controversies under R.A. No. 8799. Sections 1 and 2, Rule 6 of the Interim
Rules provide:
SEC. 1. Cases covered. — The provisions of this rule shall apply to election contests in
stock and non-stock corporations. TESDcA
SEC. 2. Definition. — An election contest refers to any controversy or dispute
involving title or claim to any elective office in a stock or non-stock corporation, the validation of
proxies, the manner and validity of elections, and the qualifications of candidates, including the
proclamation of winners, to the office of director, trustee or other officer directly elected by the
stockholders in a close corporation or by members of a non-stock corporation where the articles of
incorporation or by-laws so provide. (Underscoring supplied)
It is important to note that the Court of Appeals itself ruled that respondents' action before the RTC,
Branch 48, Urdaneta City is an election contest, thus:
Likewise, as clearly provided in Section 1, Rule 1 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies under R.A. No. 8799, among the intra-corporate
controversies transferred to the special courts are:
xxx xxx xxx
(3) Controversies in the election or appointment of directors, trustees, officers, or
managers of corporation, partnerships or associations;
xxx xxx xxx
Undoubtedly, therefore, the instant case is an intra-corporate controversy among the
stockholders themselves relative to the election of directors or officers of STRADEC,
specifically between respondents . . . on one hand and petitioners . . . on the other. . . . .  If there is
still any doubt that the Special Corporate Court can call for a stockholders' meeting, Rule 6
(citing Sections 1 and 2) of the Interim Rules completely puts to rest said issue.
xxx xxx xxx
Clearly, therefore, said Rule empowers the special corporate courts to decide election
cases . . . . 35 (Underscoring supplied)
As pointed out by petitioners in their answer with counterclaim, under Section 3, Rule 6 of the Interim
Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, an election contest must be
"filed within 15 days from the date of the election." 36 It was only on August 16, 2004 that respondents instituted
an action questioning the validity of the March 1, 2004 stockholders' election, clearly beyond the 15-day
prescriptive period.
In sum, Judge Emuslan, in granting the writ of preliminary injunction, acted with grave abuse of
discretion amounting to lack or excess of jurisdiction.
WHEREFORE, we GRANT the instant petition and reverse the assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 87785.
The Order dated November 25, 2004 of Judge Meliton G. Emuslan, RTC, Branch 48, Urdaneta City in
Civil (SEC) Case No. U-14 and the special stockholders' meeting and election held on December 10, 2004 in
Bayambang, Pangasinan are SET ASIDE.
 The last actual peaceable uncontested status of the parties prior to the filing by respondents herein of Civil
(SEC) Case No. U-14 is RESTORED.
This case is REMANDED to the RTC, Branch 48, Urdaneta City for further proceedings with
dispatch. aCTcDH
SO ORDERED.
||| (Yujuico v. Quiambao, G.R. No. 168639, [January 29, 2007], 542 PHIL 236-259)

[G.R. No. 183905. April 16, 2009.]

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. THE HON. COURT OF
APPEALS, (8TH DIVISION), ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B.
ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAÑEZ, and
FRANCIS GILES PUNO, respondents.
[G.R. No. 184275. April 16, 2009.]
SECURITIES AND EXCHANGE COMMISSION, COMMISSIONER JESUS ENRIQUE
G. MARTINEZ IN HIS CAPACITY AS OFFICER-IN-CHARGE OF THE SECURITIES
AND EXCHANGE COMMISSION and HUBERT G. GUEVARA IN HIS CAPACITY AS
DIRECTOR OF THE COMPLIANCE AND ENFORCEMENT DEPT. OF SECURITIES,
petitioners, vs. ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO,
JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAÑEZ, and FRANCIS
GILES PUNO, respondents.
DECISION
TINGA, J p:
These are the undisputed facts.
The annual stockholders' meeting (annual meeting) of the Manila Electric Company (Meralco) was
scheduled on 27 May 2008. 1 In connection with the annual meeting, proxies 2 were required to be submitted on
or before 17 May 2008, and the proxy validation was slated for five days later, or 22 May. 3
In view of the resignation of Camilo Quiason, 4 the position of corporate secretary of Meralco became
vacant. 5 On 15 May 2008, the board of directors of Meralco designated Jose Vitug 6 to act as corporate secretary
for the annual meeting. 7 However, when the proxy validation began on 22 May, the proceedings were presided
over by respondent Anthony Rosete (Rosete), assistant corporate secretary and in-house chief legal counsel of
Meralco. 8 Private respondents nonetheless argue that Rosete was the acting corporate secretary of
Meralco. 9 Petitioner Government Service Insurance System (GSIS), a major shareholder in Meralco, was
distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco
management. 10
On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as
R-PSY-08-05777-C4 seeking the declaration of certain proxies as invalid. 11 Three days later, on 26 May, GSIS
filed a Notice with the RTC manifesting the dismissal of the complaint. 12 On the same day, GSIS filed an Urgent
Petition 13 with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from "recognizing,
counting and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or means,
or otherwise honoring the shares covered by" the proxies in favor of respondents Manuel Lopez, 14 Felipe
Alfonso, 15 Jesus Francisco, 16 Oscar Lopez, Christian Monsod, 17 Elpidio Ibañez, 18 Francisco Giles-
Puno 19 "or any officer representing MERALCO Management", and to annul and declare invalid said
proxies. 20 GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said
proxies during the annual meeting scheduled for the following day. 21 A CDO 22 to that effect signed by SEC
Commissioner Jesus Martinez was issued on 26 May 2008, the same day the complaint was filed. During the
annual meeting held on the following day, Rosete announced that the meeting would push through, expressing the
opinion that theCDO is null and void. 23
On 28 May 2008, the SEC issued a Show Cause Order (SCO) 24 against private respondents, ordering
them to appear before the Commission on 30 May 2008 and explain why they should not be cited in contempt. On
29 May 2008, respondents filed a petition for certiorari with prohibition 25 with the Court of Appeals, praying
that the CDO and the SCO be annulled. The petition was docketed as CA-G.R. SP No. 103692.
Many developments involving the Court of Appeals' handling of CA-G.R. SP No. 103692 and the conduct
of several of its individual justices are recounted in our Resolution dated 9 September 2008 in A.M. No. 08-8-11-
CA (Re: Letter Of Presiding Justice Conrado M. Vasquez, Jr. On CA-G.R. SP No. 103692). 26 On 23 July 2008,
the Court of Appeals Eighth Division promulgated a decision in the case with the following dispositive portion:
WHEREFORE, premises considered, the May 26, 2008 complaint filed by GSIS in the
SEC is hereby DISMISSED due to SEC's lack of jurisdiction, due to forum shopping by respondent
GSIS, and due to splitting of causes of action by respondent GSIS. Consequently, the SEC's undated
cease and desist order and the SEC's May 28, 2008 show cause order are hereby DECLARED
VOID AB INITIO and without legal effect and their implementation are hereby permanently
restrained. IcAaEH
The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being
considered, out of equitable considerations, as an election contest in the RTC, because the
prescriptive period of 15 days from the May 27, 2008 Meralco election to file an election contest in
the RTC had already run its course, pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure
Governing Intra-Corporate Controversies under R.A. No. 8799, due to deliberate act of GSIS in
filing a complaint in the SEC instead of the RTC.
Let seventeen (17) copies of this decision be officially TRANSMITTED to the Office of the
Chief Justice and three (3) copies to the Office of the Court Administrator:
(1) for sanction by the Supreme Court against the "GSIS LAW OFFICE" for unauthorized practice
of law,
(2) for sanction and discipline by the Supreme Court of GSIS lawyers led by Atty. Estrella
Elamparo-Tayag, Atty. Marcial C. Pimentel, Atty. Enrique L. Tandan III, and other GSIS
lawyers for violation of Sec. 27 of Rule 138 of the Revised Rules of Court, pursuant
to Santayana v. Alampay, A.C. No. 5878, March 21, 2005 454 SCRA 1, and pursuant
to Land Bank of the Philippines v. Raymunda Martinez, G.R. No. 169008, August 14,
2007:
(a) for violating express provisions of law and defying public policy in deliberately
displacing the Office of the Government Corporate Counsel (OGCC) from its duty
as the exclusive lawyer of GSIS, a government owned and controlled corporation
(GOCC), by admittedly filing and defending cases as well as appearing as counsel
for GSIS, without authority to do so, the authority belonging exclusively to the
OGCC;
(b) for violating the lawyer's oath for failing in their duty to act as faithful officers of the
court by engaging in forum shopping;
 (c) for violating express provisions of law most especially those on jurisdiction which are
mandatory; and
(d) for violating Sec. 3, Rule 2 of the 1997 Rules of Civil Procedure by deliberately
splitting causes of action in order to file multiple complaints: (i) in the RTC of
Pasay City and (ii) in the SEC, in order to ensure a favorable order. 27
The promulgation of the said decision provoked a searing controversy, as detailed in our Resolution in
A.M. No. 08-8-11-CA. Nonetheless, the appellate court's decision spawned three different actions docketed with
their own case numbers before this Court. One of them, G.R. No. 183933, was initiated by a Motion for Extension
of Time to File Petition for Review filed by the Office of the Solicitor General (OSG) in behalf of the SEC,
Commissioner Martinez in his capacity as officer-in-charge of the SEC, and Hubert Guevarra in his capacity as
Director of the Compliance and Enforcement Department of the SEC. 28 However, the OSG did not follow
through with the filing of the petition for review adverted to; thus, on 19 January 2009, the Court resolved to
declare G.R. No. 183933 closed and terminated. 29
The two remaining cases before us are docketed as G.R. No. 183905 and 184275. G.R.
No. 183905 pertains to a petition for certiorari and prohibition filed by GSIS, against the Court of Appeals, and
respondents Rosete, Lopez, Alfonso, Francisco, Monsod, Ibañez and Puno, all of whom serve in different
corporate capacities with Meralco or First Philippines Holdings Corporation, a major stockholder of Meralco and
an affiliate of the Lopez Group of Companies. This petition seeks of the Court to declare the 23 July 2008
decision of the Court of Appeals null and void, affirm the SEC's jurisdiction over the petition filed before it by
GSIS, and pronounce that the CDO and the SCO orders are valid. This petition was filed in behalf of GSIS by the
"GSIS Law Office'; it was signed by the Chief Legal Counsel and Assistant Legal Counsel of GSIS, and three
self-identified "Attorney[s]", presumably holding lawyer positions in GSIS. 30 aTEHCc
The OSG also filed the other petition, docketed as G.R. No. 184275. It identifies as its petitioners the
SEC, Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his capacity as Director
of the Compliance and Enforcement Department of the SEC — the same petitioners in the aborted petition for
review initially docketed as G.R. No. 183933. Unlike what was adverted to in the motion for extension filed by
the same petitioners in G.R. No. 183933, the petition in G.R. No. 184275 is one for certiorari under Rule 65 as
indicated on page 3 thereof, 31 and not a petition for review. Interestingly, save for the first page which leaves the
docket number blank, all 86 pages of this petition for certiorari carry a header wrongly identifying the pleading
as the non-existent petition for review under G.R. No. 183933. This petition seeks the "reversal" of the assailed
decision of the Court of Appeals, the recognition of the jurisdiction of the SEC over the petition of GSIS, and the
affirmation of the CDO and SCO.
I.
Private respondents seek the expunction of the petition filed by the SEC in G.R. No. 184275. We agree
that the petitioners therein, namely: the SEC, Commissioner Marquez and Guevarra, are not real parties-in-interest
to the dispute and thus bereft of capacity to file the petition. By way of simple illustration, to argue otherwise is to
say that the trial court judge, the National Labor Relations Commission, or any quasi-judicial agency has the right
to seek the review of an appellate court decision reversing any of their rulings. That prospect, as any serious
student of remedial law knows, is zero.
The Court, through the Resolution of the Third Division dated 2 September 2008, had resolved to treat the
petition in G.R. No. 184275 as a petition for review oncertiorari, but withheld giving due course to it. 32 Under
Section 1 of Rule 45, which governs appeals by certiorari, the right to file the appeal is restricted to "a party",
meaning that only the real parties-in-interest who litigated the petition for certiorari before the Court of Appeals
are entitled to appeal the same under Rule 45. The SEC and its two officers may have been designated as
respondents in the petition for certiorari filed with the Court of Appeals, but under Section 5 of Rule 65 they are
not entitled to be classified as real parties-in-interest. Under the provision, the judge, court, quasi-judicial agency,
tribunal, corporation, board, officer or person to whom grave abuse of discretion is imputed (the SEC and its two
officers in this case) are denominated only as public respondents. The provision further states that "public
respondents shall not appear in or file an answer or comment to the petition or any pleading therein".  33 Justice
Regalado explains:
[R]ule 65 involves an original special civil action specifically directed against the person,
court, agency or party a quo which had committed not only a mistake of judgment but an error of
jurisdiction, hence should be made public respondents in that action brought to nullify their invalid
acts. It shall, however be the duty of the party litigant, whether in an appeal under Rule 45 or in a
special civil action in Rule 65, to defend in his behalf and the party whose adjudication is assailed,
as he is the one interested in sustaining the correctness of the disposition or the validity of the
proceedings.
 . . . The party interested in sustaining the proceedings in the lower court must be joined as a
co-respondent and he has the duty to defend in his own behalf and in behalf of the court which
rendered the questioned order. While there is nothing in the Rules that prohibit the presiding judge
of the court involved from filing his own answer and defending his questioned order, the Supreme
Court has reminded judges of the lower courts to refrain from doing so unless ordered by the
Supreme Court.34 The judicial norm or mode of conduct to be observed in trial and appellate
courts is now prescribed in the second paragraph of this section.
xxx xxx xxx
A person not a party to the proceedings in the trial court or in the Court of Appeals
cannot maintain an action for certiorari in the Supreme Court to have the judgment
reviewed. 35
Rule 65 does recognize that the SEC and its officers should have been designated as public respondents in
the petition for certiorari filed with the Court of Appeals. Yet their involvement in the instant petition is not as
original party-litigants, but as the quasi-judicial agency and officers exercising the adjudicative functions over the
dispute between the two contending factions within Meralco. From the onset, neither the SEC nor  Martinez or
Guevarra has been considered as a real party-in-interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that every action must be prosecuted or defended in the name of the real party in interest, that is "the
party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit". It would be facetious to assume that the SEC had any real interest or stake in the intra-corporate dispute
within Meralco.
We find our ruling in Hon. Santiago v. Court of Appeals 36 quite apposite to the question at hand.
Petitioner therein, a trial court judge, had presided over an expropriation case. The litigants had arrived at an
amicable settlement, but the judge refused to approve the same, even declaring it invalid. The matter was elevated
to the Court of Appeals, which promptly reversed the trial court and approved the amicable settlement. The judge
took the extraordinary step of filing in his own behalf a petition for review on certiorari with this Court, assailing
the decision of the Court of Appeals which had reversed him. In disallowing the judge's petition, the Court
explained:
While the issue in the Court of Appeals and that raised by petitioner now is whether the
latter abused his discretion in nullifying the deeds of sale and in proceeding with the expropriation
proceeding, that question is eclipsed by the concern of whether Judge Pedro T. Santiago may file
this petition at all.
And the answer must be in the negative, Section 1 of Rule 45 allows a party to appeal
by certiorari from a judgment of the Court of Appeals by filing with this Court a petition for
review on certiorari. But petitioner judge was not a party either in the expropriation
proceeding or in the certiorari proceeding in the Court of Appeals. His being named as
respondent in the Court of Appeals was merely to comply with the rule that in original
petitions for certiorari, the court or the judge, in his capacity as such, should be named as
party respondent because the question in such a proceeding is the jurisdiction of the court
itself (See Mayol v. Blanco, 61 Phil. 547 [19351, cited in Comments on the Rules of Court, Moran,
Vol. II, 1979 ed., p. 471). "In special proceedings, the judge whose order is under attack is
merely a nominal party; wherefore, a judge in his official capacity, should not be made to
appear as a party seeking reversal of a decision that is unfavorable to the action taken by him.
A decent regard for the judicial hierarchy bars a judge from suing against the adverse opinion
of a higher court,. . . ." (Alcasid v. Samson, 102 Phil. 785, 740 [1957]) EcHTCD
ACCORDINGLY, this petition is DENIED for lack of legal capacity to sue by the
petitioner. 37
Justice Isagani Cruz added, in a Concurring Opinion in Santiago: "The judge is not an active combatant in
such proceeding and must leave it to the parties themselves to argue their respective positions and for the appellate
court to rule on the matter without his participation". 38
Note that in Santiago, the Court recognized the good faith of the judge, who perceived the amicable
settlement "as a manifestly iniquitous and illegal contract".39 The SEC could have similarly felt in good faith that
the assailed Court of Appeals decision had unduly impaired its prerogatives or caused some degree of hurt to it.
Yet assuming that there are rights or prerogatives peculiar to the SEC itself that the appellate court had
countermanded, these can be vindicated in the petition forcertiorari filed by GSIS, whose legal capacity to
challenge the Court of Appeals decision is without question. There simply is no plausible reason for this Court to
deviate from a time-honored rule that preserves the purity of our judicial and quasi-judicial offices to
accommodate the SEC's distrust and resentment of the appellate court's decision. The expunction of the petition in
G.R. No. 184275 is accordingly in order.
At this point, only one petition remains — the petition for certiorari filed by GSIS in G.R. No. 183905.
Casting off the uncritical and unimportant aspects, the two main issues for adjudication are as follows: (1) whether
the SEC has jurisdiction over the petition filed by GSIS against private respondents; and (2) whether
the CDOand SCO issued by the SEC are valid.
II.
It is our resolute inclination that this case, which raises interesting questions of law, be decided solely on
the merits, without regard to the personalities involved or the well-reported drama preceding the petition. To that
end, the Court has taken note of reports in the media that GSIS and the Lopez group have taken positive steps to
divest or significantly reduce their respective interests in Meralco. 40 These are developments that certainly ease
the tension surrounding this case, not to mention reason enough for the two groups to make an internal
reassessment of their respective positions and interests in relation to this case. Still, the key legal questions raised
in the petition do not depend at all on the identity of any of the parties, and would obtain the same denouement
even if this case was lodged by unknowns as petitioners against similarly obscure respondents.
With the objective to resolve the key questions of law raised in the petition, some of the issues raised
diminish as peripheral. For example, petitioners raise arguments tied to the behavior of individual justices of the
Court of Appeals, particularly former Justice Vicente Roxas, in relation to this case as it was pending before the
appellate court. The Court takes cognizance of our Resolution in A.M. No. 08-8-11-CA dated 9 September 2008,
which duly recited the various anomalous or unbecoming acts in relation to this case performed by two of the
justices who decided the case in behalf of the Court of Appeals — former Justice Roxas (theponente) and Justice
Bienvenido L. Reyes (the Chairman of the 8th Division) — as well as three other members of the Court of
Appeals. At the same time, the consensus of the Court as it deliberated on A.M. No. 08-8-11-CA was to reserve
comment or conclusion on the assailed decision of the Court of Appeals, in recognition of the reality that however
stigmatized the actions and motivations of Justice Roxas are, the decision is still the product of the Court of
Appeals as a collegial judicial body, and not of one or some rogue justices. The penalties levied by the Court on
these appellate court justices, in our estimation, redress the unwholesome acts which they had committed. At the
same time, given the jurisprudential importance of the questions of law raised in the petition, any result reached
without squarely addressing such questions would be unsatisfactory, perhaps derelict even.
III.
We now examine whether the SEC has jurisdiction over the petition filed by GSIS. To recall, SEC has
sought to enjoin the use and annul the validation, of the proxies issued in favor of several of the private
respondents, particularly in connection with the annual meeting.
A.
Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act
No. 8799, otherwise known as the Securities Regulation Code (SRC), its implementing rules (Amended
Implementing Rules or AIRR-SRC), and other related rules to support their competing contentions that either the
SEC or the trial courts has exclusive original jurisdiction over the dispute.
GSIS primarily anchors its argument on two correlated provisions of the SRC. These are Section 53.1 and
Section 20.1, which we cite:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses. — 53.1. The Commission
may, in its discretion, make such investigations as it deems necessary to determine whether any
person has violated or is about to violate any provision of this Code, any rule, regulation or
order thereunder, or any rule of an Exchange, registered securities association, clearing
agency, other self-regulatory organization, and may require or permit any person to file with it a
statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and
circumstances concerning the matter to be investigated. The Commission may publish information
concerning any such violations, and to investigate any fact, condition, practice or matter which
it may deem necessary or proper to aid in the enforcement of the provisions of this Code, in
the prescribing of rules and regulations thereunder, or in securing information to serve as a
basis for recommending further legislation concerning the matters to which
this Code relates: . . . (emphasis supplied)
SEC. 20. Proxy Solicitations. — 20.1. Proxies must be issued and proxy solicitation must
be made in accordance with rules and regulations to be issued by the Commission;
 The argument, stripped of extravagance, is that since proxy solicitations following Section 20.1 have to be
made in accordance with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that has the
jurisdiction to investigate alleged violations of the rules on proxy solicitations. The GSIS petition invoked AIRR-
AIRR-SRC Rule 20, otherwise known as "The Proxy Rule", which enumerates the requirements as to form of
proxy and delivery of information to security holders. According to GSIS, the information statement Meralco had
filed with the SEC in connection with the annual meeting did not contain any proxy form as required under AIRR-
SRC Rule 20.
On the other hand, private respondents argue before us that under Section 5.2 of the SRC, the SEC's
jurisdiction over all cases enumerated in Section 5 ofPresidential Decree No. 902-A was transferred to the courts
of general jurisdiction or the appropriate regional trial court. The two particular classes of cases in the
enumeration under Section 5 of Presidential Decree No. 902-A which private respondents especially refer to are as
follows: TaCSAD
xxx xxx xxx
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and
among stockholders, members, or associates; or association of which they are stockholders,
members, or associates, respectively;
3) Controversies in the election or appointment of directors, trustees, officers or managers of
corporations, partnerships, or associations;
xxx xxx xxx
In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules)
promulgated by this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which defines
"election contests" as follows:
SEC. 2. Definition. — An election contest refers to any controversy or dispute involving
title or claim to any elective office in a stock or nonstock corporation, the validation of proxies, the
manner and validity of elections and the qualifications of candidates, including the proclamation of
winners, to the office of director, trustee or other officer directly elected by the stockholders in a
close corporation or by members of a nonstock corporation where the articles of incorporation or
bylaws so provide. (emphasis supplied)
The correct answer is not clear-cut, but there is one. In private respondents' favor, the provisions of law
they cite pertain directly and exclusively to the statutory jurisdiction of trial courts acquired by virtue of the
transfer of jurisdiction following the passage of the SRC. In contrast, the SRC provisions relied upon by GSIS do
not immediately or directly establish that body's jurisdiction over the petition, since it necessitates the linkage of
Section 20 to Section 53.1 of the SRC before the point can bear on us.
On the other hand, the distinction between "proxy solicitation" and "proxy validation" cannot be
dismissed offhand. The right of a stockholder to vote by proxy is generally established by the  Corporation
Code, 41 but it is the SRC which specifically regulates the form and use of proxies, more particularly the
procedure of proxy solicitation, primarily through Section 20. 42 AIRR-SRC Rule 20 defines the
terms solicit and solicitation:
The terms solicit and solicitation include:
A. any request for a proxy whether or not accompanied by or included in a form of proxy
B. any request to execute or not to execute, or to revoke, a proxy; or
C. the furnishing of a form of proxy or other communication to security holders under circumstance
reasonably calculated to result in the procurement, withholding or revocation of a proxy.
It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former involves the
securing and submission of proxies, while the latter concerns the validation of such secured and submitted
proxies. GSIS raises the sensible point that there was no election yet at the time it filed its petition with the SEC,
hence no proper election contest or controversy yet over which the regular courts may have jurisdiction. And the
point ties its cause of action to alleged irregularities in the proxy solicitation procedure, a process that precedes
either the validation of proxies or the annual meeting itself.
Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations issued by
the SEC, such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion "to make such
investigations as it deems necessary to determine whether any person has violated" any rule issued by it, such
as AIRR-SRC Rule 4. The investigatory power of the SEC established by Section 53.1 is central to its regulatory
authority, most crucial to the public interest especially as it may pertain to corporations with publicly traded
shares. For that reason, we are not keen on pursuing private respondents' insistence that the GSIS complaint be
viewed as rooted in an intra-corporate controversy solely within the jurisdiction of the trial courts to decide. It is
possible that an intra-corporate controversy may animate a disgruntled shareholder to complain to the SEC a
corporation's violations of SEC rules and regulations, but that motive alone should not be sufficient to deprive the
SEC of its investigatory and regulatory powers, especially so since such powers are exercisable on a  motu
proprio basis.
At the same time, Meralco raises the substantial point that nothing in the SRC empowers the SEC to annul
or invalidate improper proxies issued in contravention of Section 20. It cites that the penalties defined by the SEC
itself for violation of Section 20 or AIRR-SRC Rule 20 are limited to a reprimand/warning for the first offense,
and pecuniary fines for succeeding offenses. 43 Indeed, if the SEC does not have the power to invalidate proxies
solicited in violation of its promulgated rules, serious questions may be raised whether it has the power to
adjudicate claims of violation in the first place, since the relief it may extend does not directly redress the cause of
action of the complainant seeking the exclusion of the proxies.
There is an interesting point, which neither party raises, and it concerns Section 6 (g) of Presidential
Decree No. 902-A, which states:
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:
xxx xxx xxx
(g) To pass upon the validity of the issuance and use of proxies and voting trust agreements
for absent stockholders or members;
xxx xxx xxx
As promulgated then, the provision would confer on the SEC the power to adjudicate controversies
relating not only to proxy solicitation, but also to proxy validation. Should the proposition hold true up to the
present, the position of GSIS would have merit, especially since Section 6 of Presidential Decree No. 902-A was
not expressly repealed or abrogated by the SRC. 44
Yet a closer reading of the provision indicates that such power of the SEC then was incidental or ancillary
to the "exercise of such jurisdiction". Note that Section 6 is immediately preceded by Section 5, which originally
conferred on the SEC "original and exclusive jurisdiction to hear and decide cases" involving "controversies in the
election or appointments of directors, trustees, officers or managers of such corporations, partnerships or
associations". The cases referred to in Section 5 were transferred from the jurisdiction of the SEC to the regular
courts with the passage of the SRC, specifically Section 5.2. Thus, the SEC's power to pass upon the validity of
proxies in relation to election controversies has effectively been withdrawn, tied as it is to its abrogated
jurisdictional powers.
Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the cause
of action of GSIS before the SEC is intimately tied to an election controversy, as defined under Section 5 (c)
of Presidential Decree No. 902-A. To answer that, we need to properly ascertain the scope of the power of trial
courts to resolve controversies in corporate elections. THDIaC
B.
Shares of stock in corporations may be divided into voting shares and non-voting shares, which are
generally issued as "preferred" or "redeemable" shares. 45Voting rights are exercised during regular or special
meetings of stockholders; regular meetings to be held annually on a fixed date, while special meetings may be
held at any time necessary or as provided in the by-laws, upon due notice. 46 The Corporation Code provides for a
whole range of matters which can be voted upon by stockholders, including a limited set on which even non-
voting stockholders are entitled to vote on. 47 On any of these matters which may be voted upon by stockholders,
the proxy device is generally available. 48
Under Section 5 (c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the
regular trial courts with respect to election-related controversies is specifically confined to "controversies in the
election or appointment of directors, trustees, officers or managers of corporations, partnerships, or
associations". Evidently, the jurisdiction of the regular courts over so-called election contests or
controversies under Section 5 (c) does not extend to every potential subject that may be voted on by
shareholders, but only to the election of directors or trustees, in which stockholders are authorized to
participate under Section 24 of the Corporation Code. 49
 This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to
regulate proxy solicitation, and the statutory jurisdiction of regular courts over election contests or controversies.
The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are
obtained to vote on matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-
A. However, when proxies are solicited in relation to the election of corporate directors, the resulting
controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be
properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts by
virtue of Section 5.2 of the SRC in relation to Section 5 (c) of Presidential Decree No. 902-A.
The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the
election of corporate directors must be seen as intended to confine to one body the adjudication of all related
claims and controversy arising from the election of such directors. For that reason, the aforequoted Section 2, Rule
6 of the Interim Rules broadly defines the term "election contest" as encompassing all plausible incidents arising
from the election of corporate directors, including: (1) any controversy or dispute involving title or claim to any
elective office in a stock or nonstock corporation, (2) the validation of proxies, (3) the manner and validity of
elections and (4) the qualifications of candidates, including the proclamation of winners. If all matters anteceding
the holding of such election which affect its manner and conduct, such as the proxy solicitation process, are
deemed within the original and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing
jurisdictions between that body and the regular courts becomes frighteningly real. From the language of Section 5
(c) ofPresidential Decree No. 902-A, it is indubitable that controversies as to the qualification of voting shares, or
the validity of votes cast in favor of a candidate for election to the board of directors are properly cognizable and
adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases. Questions
relating to the proper solicitation of proxies used in such election are indisputably related to such issues, yet if the
position of GSIS were to be upheld, they would be resolved by the SEC and not the regular courts, even if they
fall within "controversies in the election" of directors.
The Court recognizes that GSIS's position flirts with the abhorrent evil of split jurisdiction, 50 allowing as
it does both the SEC and the regular courts to assert jurisdiction over the same controversies surrounding an
election contest. Should the argument of GSIS be sustained, we would be perpetually confronted with the
spectacle of election controversies being heard and adjudicated by both the SEC and the regular courts, made
possible through a mere allegation that the anteceding proxy solicitation process was errant, but the competing
cases filed with one objective in mind — to affect the outcome of the election of the board of directors. There is
no definitive statutory provision that expressly mandates so untidy a framework, and we are disinclined to
construe the SRC in such a manner as to pave the way for the splitting of jurisdiction.
Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory
power of the SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly
granting as it does "original and exclusive jurisdiction" first to the SEC, and now to the regular courts. The fact
that the jurisdiction of the regular courts under Section 5 (c) is confined to the voting on election of officers, and
not on all matters which may be voted upon by stockholders, elucidates that the power of the SEC to regulate
proxies remains extant and could very well be exercised when stockholders vote on matters other than the election
of directors.
That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed.
The controversy was engendered by the looming annual meeting, during which the stockholders of Meralco were
to elect the directors of the corporation. GSIS very well knew of that fact. On 17 March 2008, the Meralco board
of directors adopted a board resolution stating:
RESOLVED that the board of directors of the Manila Electric Company (MERALCO)
delegate, as it hereby delegates to the Nomination & Governance Committee the authority to
approve and adopt appropriate rules on: (1) nomination of candidates for election to the board of
directors; (2) appreciation of ballots during the election of members of the board of directors ;
and (3) validation of proxies for regular or special meetings of the stockholders. 51
In addition, the Information Statement/Proxy form filed by First Philippine Holdings Corporation with the
SEC pursuant to Section 20 of the SRC, states:
REASON FOR SOLICITATION OF VOTES
The Solicitor is soliciting proxies from stockholders of the Company for the purpose of
electing the directors named under the subject headed 'Directors' in this Statement as well as
to vote the matters in the agenda of the meeting as provided for in the Information Statement of the
Company. All of the nominees are current directors of the Company. 52
 Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation or
validation of proxies bore no relation at all to the scheduled election of the board of directors of Meralco during
the annual meeting. GSIS very well knew that the controversy falls within the contemplation of an election
controversy properly within the jurisdiction of the regular courts. Otherwise, it would have never filed its original
petition with the RTC of Pasay. GSIS may have withdrawn its petition with the RTC on a new assessment made in
good faith that the controversy falls within the jurisdiction of the SEC, yet the reality is that the reassessment is
precisely wrong as a matter of law. ICAcHE
IV.
The lack of jurisdiction of the SEC over the subject matter of GSIS's petition necessarily invalidates
the CDO and SDO issued by that body. However, especially with respect to the CDO, there is need for this Court
to squarely rule on the question pertaining to its validity, if only for jurisprudential value and for the guidance of
the SEC.
To recount the facts surrounding the issuance of the CDO, GSIS filed its petition with the SEC on 26 May
2008. The CDO, six (6) pages in all with three (3) pages devoted to the tenability of granting the injunctive relief,
was issued on the very same day, 26 May 2008, without notice or hearing. The CDO bore the signature of
Commissioner Jesus Martinez, identified therein as "Officer-in-Charge", and nobody else's.
The provisions of the SRC relevant to the issuance of a CDO are as follows:
SEC. 5. Powers and Functions of the Commission. — 5.1. The Commission shall act with
transparency and shall have the powers and functions provided by this Code, Presidential Decree
No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and
other existing laws. Pursuant thereto the Commission shall have, among others, the following
powers and functions:
xxx xxx xxx
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
xxx xxx xxx
[SEC.] 53.3. Whenever it shall appear to the Commission that any person has engaged or is
about to engage in any act or practice constituting a violation of any provision of this  Code, any
rule, regulation or order thereunder, or any rule of an Exchange, registered securities association,
clearing agency or other self-regulatory organization, it may issue an order to such person to desist
from committing such act or practice: Provided, however, That the Commission shall not charge
any person with violation of the rules of an Exchange or other self regulatory organization unless it
appears to the Commission that such Exchange or other self-regulatory organization is unable or
unwilling to take action against such person. After finding that such person has engaged in any such
act or practice and that there is a reasonable likelihood of continuing, further or future violations by
such person, the Commission may issue ex-parte a cease and desist order for a maximum period of
ten (10) days, enjoining the violation and compelling compliance with such provision. The
Commission may transmit such evidence as may be available concerning any violation of any
provision of thisCode, or any rule, regulation or order thereunder, to the Department of Justice,
which may institute the appropriate criminal proceedings under this Code.
SEC. 64. Cease and Desist Order. — 64.1. The Commission, after proper investigation or
verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease
and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable
injury or prejudice to the investing public.
64.2. Until the Commission issues a cease and desist order, the fact that an investigation has
been initiated or that a complaint has been filed, including the contents of the complaint, shall be
confidential. Upon issuance of a cease and desist order, the Commission shall make public such
order and a copy thereof shall be immediately furnished to each person subject to the order.
64.3. Any person against whom a cease and desist order was issued may, within five (5)
days from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for
hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof
shall be made not later than ten (10) days from the termination of the hearing. If the Commission
fails to resolve the request within the time herein prescribed, the cease and desist order shall
automatically be lifted.
 There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5 (i),
is predicated on a necessity "to prevent fraud or injury to the investing public". No other requisite or detail is tied
to this CDO authorized under Section 5 (i).
The second basis, found in Section 53.3, involves a determination by the SEC that "any person has
engaged or is about to engage in any act or practice constituting a violation of any provision of this  Code, any
rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency
or other self-regulatory organization". The provision additionally requires a finding that "there is a reasonable
likelihood of continuing [or engaging in] further or future violations by such person". The maximum duration of
the CDO issued under Section 53.3 is ten (10) days.
The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act
or practice, which unless restrained, "will operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public”. Section 64.1 plainly provides three segregate instances
upon which the SEC may issue the CDO under this provision: (1) after proper investigation or verification,
(2) motu proprio, or (3) upon verified complaint by any aggrieved party. While no lifetime is expressly specified
for the CDO under Section 64, the respondent to the CDO may file a formal request for the lifting thereof, which
the SEC must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing.
It appears that the CDO under Section 5 (i) is similar to the CDO under Section 64.1. Both require a
common finding of a need to prevent fraud or injury to the investing public. At the same time, no mention is made
whether the CDO defined under Section 5 (i) may be issued ex-parte, while the CDO under Section 64.1 requires
"grave and irreparable" injury, language absent in Section 5 (i). Notwithstanding the similarities between Section
5 (i) and Section 64.1, it remains clear that the CDO issued under Section 53.3 is a distinct creation from that
under Section 64.
The Court of Appeals cited the CDO as having been issued in violation of the constitutional provision on
due process, which requires both prior notice and prior hearing. 53 Yet interestingly, the CDO as contemplated in
Section 53.3 or in Section 64, may be issued "ex-parte" (under Section 53.3) or "without necessity of hearing"
(under Section 64.1). Nothing in these provisions impose a requisite hearing before the CDO may be issued
thereunder. Nonetheless, there are identifiable requisite actions on the part of the SEC that must be undertaken
before the CDO may be issued either under Section 53.3 or Section 64. In the case of Section 53.3, the SEC must
make two findings: (1) that such person has engaged in any such act or practice, and (2) that there is a reasonable
likelihood of continuing, (or engaging in) further or future violations by such person. In the case of Section 64, the
SEC must adjudge that the act, unless restrained, will operate as a fraud on investors or is otherwise likely to
cause grave or irreparable injury or prejudice to the investing public." cdasiajur
Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3
or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a
singular CDO could not be founded on Section 5.1, Section 53.3 and Section 64 collectively. At the very least,
the CDOunder Section 53.3 and under Section 64 have their respective requisites and terms.
GSIS was similarly cagey in its petition before the SEC, it demurring to state whether it was seeking
the CDO under Section 5.1, Section 53.3, or Section 64. Considering that injunctive relief generally avails upon
the showing of a clear legal right to such relief, the inability or unwillingness to lay bare the precise statutory basis
for the prayer for injunction is an obvious impediment to a successful application. Nonetheless, the error of the
SEC in granting the CDO without stating which kind of CDO it was issuing is more unpardonable, as it is an act
that contravenes due process of law.
We have particularly required, in administrative proceedings, that the body or tribunal "in all controversial
questions, render its decision in such a manner that the parties to the proceeding can know the various issues
involved, and the reason for the decision rendered". 54 This requirement is vital, as its fulfillment would afford the
adverse party the opportunity to interpose a reasoned and intelligent appeal that is responsive to the grounds cited
against it. The CDO extended by the SEC fails to provide the needed reasonable clarity of the rationale behind its
issuance.
The subject CDO first refers to Section 64, citing its provisions, then stating: "[p]rescinding from the
aforequoted, there can be no doubt whatsoever that the Commission is in fact mandated to take up, if
expeditiously, any verified complaint praying for the provisional remedy of a cease and desist
order." 55 The CDO then discusses the nature of the right of GSIS to obtain the CDO, as well as "the urgent and
paramount necessity to prevent serious damage because the stockholders' meeting is scheduled on May 28,
2008 . . ." Had the CDO stopped there, the unequivocal impression would have been that the order is based on
Section 64.
 But the CDO goes on to cite Section 5.1, quoting paragraphs (i) and (n) in full, ratiocinating that under
these provisions, the SEC had "the power to issue cease and desist orders to prevent fraud or injury to the public
and such other measures necessary to carry out the Commission's role as regulator". 56 Immediately thence,
the CDO cites Section 53.3 as providing "that whenever it shall appear to the Commission that any person has
engaged or is about to engage in any act or practice constituting a violation of any provision, any rule, regulation
or order thereunder, the Commission may issue ex-parte a cease and desist order for a maximum period of ten
(10) days, enjoining the violation and compelling compliance therewith". 57
The citation in the CDO of Section 5.1, Section 53.3 and Section 64 together may leave the impression
that it is grounded on all three provisions, and that may very well have been the intention of the SEC. Assuming
that is so, it is legally impermissible for the SEC to have utilized both Section 53.3 and Section 64 as basis for
the CDO at the same time. The CDO under Section 53.3 is premised on distinctly different requisites than
the CDO under Section 64. Even more crucially, the lifetime of the CDO under Section 53.3 is confined to a
definite span of ten (10) days, which is not the case with the CDO under Section 64. This CDO under Section 64
may be the object of a formal request for lifting within five (5) days from its issuance, a remedy not expressly
afforded to the CDO under Section 53.3.
Any respondent to a CDO which cites both Section 53.3 and Section 64 would not have an intelligent or
adequate basis to respond to the same. Such respondent would not know whether the CDO would have a
determinate lifespan of ten (10) days, as in Section 53.3, or would necessitate a formal request for lifting within
five (5) days, as required under Section 64.1. This lack of clarity is to the obvious prejudice of the respondent, and
is in clear defiance of the constitutional right to due process of law. Indeed, the veritable mélange that the
assailed CDO is, with its jumbled mixture of premises and conclusions, the antithesis of due process.
Had the CDO issued by the SEC expressed the length of its term, perhaps greater clarity would have been
offered on what Section of the SRC it is based. However, the CDO is precisely silent as to its lifetime, thereby
precluding much needed clarification. In view of the statutory differences among the three  CDOs under the SRC,
it is essential that the SEC, in issuing such injunctive relief, identify the exact provision of the  SRC on which
the CDO is founded. Only by doing so could the adversely affected party be able to properly evaluate whatever
his responses under the law.
To make matters worse for the SEC, the fact that the CDO was signed, much less apparently deliberated
upon, by only by one commissioner likewise renders the order fatally infirm.
The SEC is a collegial body composed of a Chairperson and four (4) Commissioners. 58 In order to
constitute a quorum to conduct business, the presence of at least three (3) Commissioners is required. 59 In the
leading case of GMCR v. Bell, 60 we definitively explained the nature of a collegial body, and how the act of one
member of such body, even if the head, could not be considered as that of the entire body itself. Thus:
We hereby declare that the NTC is a collegial body requiring a majority vote out of the
three members of the commission in order to validly decide a case or any incident therein.
Corollarily, the vote alone of the chairman of the commission, as in this case, the vote of
Commissioner Kintanar, absent the required concurring vote coming from the rest of the
membership of the commission to at least arrive at a majority decision, is not sufficient to legally
render an NTC order, resolution or decision.
Simply put, Commissioner Kintanar is not the National Telecommunications Commission.
He alone does not speak for and in behalf of the NTC. The NTC acts through a three-man body, and
the three members of the commission each has one vote to cast in every deliberation concerning a
case or any incident therein that is subject to the jurisdiction of the NTC. When we consider the
historical milieu in which the NTC evolved into the quasi-judicial agency it is now under Executive
Order No. 146 which organized the NTC as a three-man commission and expose the illegality of all
memorandum circulars negating the collegial nature of the NTC under Executive Order No. 146, we
are left with only one logical conclusion: the NTC is a collegial body and was a collegial body even
during the time when it was acting as a one-man regime. 61
We can adopt a virtually word-for-word observation with respect to former Commissioner Martinez and
the SEC. Simply put, Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of the
SEC. The SEC acts through a five-person body, and the five members of the commission each has one vote to cast
in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the
SEC. CaDATc
GSIS attempts to defend former Commissioner Martinez's action, but its argument is without merit. It
cites SEC Order No. 169, Series of 2008, whereby Martinezwas designated as "Officer-in-Charge of the
Commission for the duration of the official travel of the Chairperson to Paris, France, to attend the 33rd Annual
Conference of the [IOSCO] from May 26-30, 2008". 62 As officer-in-charge (OIC), Martinez was "authorized to
sign all documents and papers and perform all other acts and deeds as may be necessary in the day-to-day
operation of the Commission".
It is clear that Martinez was designated as OIC because of the official travel of only one member,
Chairperson Fe Barin. Martinez was not commissioned to act as the SEC itself. At most, he was to act in place of
Chairperson Barin in the exercise of her duties as Chairperson of the SEC. Under Section 4.3 of the  SRC, the
Chairperson is the chief executive officer of the SEC, and thus empowered to "execute and administer the policies,
decisions, orders and resolutions approved by the Commission", as well as to "have the general executive
direction and supervision of the work and operation of the Commission". 63 It is in relation to the exercise of
these duties of the Chairperson, and not to the functions of the Commission, that Martinez was "authorized to sign
all documents and papers and perform all other acts and deeds as may be necessary in the day-to-day operation of
the Commission".
GSIS likewise cites, as authority for Martinez's unilateral issuance of the CDO, Section 4.6 of the SRC,
which states that the SEC "may, for purposes of efficiency, delegate any of its functions to any department or
office of the Commission, an individual Commissioner or staff member of the Commission except its review or
appellate authority and its power to adopt, alter and supplement any rule or regulation". Reliance on this provision
is inappropriate. First, there is no convincing demonstration that the SEC had delegated to Martinez the authority
to issue the CDO. The SEC Order designating Martinez as OIC only authorized him to exercise the functions of
the absent Chairperson, and not of the Commission. If the Order is read as enabling Martinez to issue the CDO in
behalf of the Commission, it would be akin to conceding that the SEC Chairperson, acting alone, can issue
the CDO in behalf of the SEC itself. That again contravenes our holding in GMCR v. Bell.
In addition, it is clear under Section 4.6 that the ability to delegate functions to a single commissioner
does not extend to the exercise of the review or appellate authority of the SEC. The issuance of the  CDO is an act
of the SEC itself done in the exercise of its original jurisdiction to review actual cases or controversies. If it has
not been clear to the SEC before, it should be clear now that its power to issue a CDO can not, under the SRC, be
delegated to an individual commissioner.
V.
In the end, even assuming that the events narrated in our Resolution in A.M. No. 08-8-11-CA constitute
sufficient basis to nullify the assailed decision of the Court of Appeals, still it remains clear that the reliefs GSIS
seeks of this Court have no basis in law. Notwithstanding the black mark that stains the appellate court's decision,
the first paragraph of its fallo, to the extent that it dismissed the complaint of GSIS with the SEC for lack of
jurisdiction and consequently nullified the CDOand SDO, defies unbiased scrutiny and deserves affirmation.
A.
In its dispositive portion, the Court of Appeals likewise pronounced that the complaint filed by GSIS with
the SEC should be barred from being considered "as an election contest in the RTC", given that the fifteen (15)
day prescriptive period to file an election contest with the RTC, under Section 3, Rule 6 of the Interim Rules, had
already run its course. 64 Yet no such relief was requested by private respondents in their petition
for certiorari filed with the Court of Appeals 65 . Without disputing the legal predicates surrounding this
pronouncement, we note that its tenor, if not the text, unduly suggests an unwholesome pre-emptive strike. Given
our observations in A.M. No. 08-8-11-CA of the "undue interest" exhibited by the author of the appellate court
decision, such declaration is best deleted. Nonetheless, we do trust that any court or tribunal that may be
confronted with that premise adverted to by the Court of Appeals would know how to properly treat the same.
B.
Finally, we turn to the sanction on the lawyers of GSIS imposed by the Court of Appeals.
Nonetheless, we find that as a matter of law the sanctions are unwarranted. The charter of GSIS  66 is
unique among government owned or controlled corporations with original charter in that it allocates a role for its
internal legal counsel that is in conjunction with or complementary to the Office of the Government Corporate
Counsel (OGCC), which is the statutory legal counsel for GOCCs. Section 47 of GSIS charter reads:
SEC. 47. Legal Counsel. — The Government Corporate Counsel shall be the legal adviser
and consultant of GSIS, but GSIS may assign to the Office of the Government Corporate Counsel
(OGCC) cases for legal action or trial, issues for legal opinions, preparation and review of
contracts/agreements and others, as GSIS may decide or determine from time to time: Provided,
however, That the present legal services group in GSIS shall serve as its in-house legal counsel.
 The GSIS may, subject to approval by the proper court, deputize any personnel of the legal
service group to act as special sheriff in the enforcement of writs and processes issued by the court,
quasi-judicial agencies or administrative bodies in cases involving GSIS. 67
The designation of the OGCC as the legal counsel for GOCCs is set forth by statute, initially by Rep. Act
No. 3838, then reiterated by the Administrative Code of 1987. 68 Given that the designation is statutory in nature,
there is no impediment for Congress to impose a different role for the OGCC with respect to particular GOCCs it
may charter. Congress appears to have done so with respect to GSIS, designating the OGCC as a "legal adviser
and consultant", rather than as counsel to GSIS. Further, the law clearly vests unto GSIS the discretion, rather than
the duty, to assign cases to the OGCC for legal action, while designating the present legal services group of GSIS
as "in-house legal counsel". This situates GSIS differently from the Land Bank of the Philippines, whose own in-
house lawyers have persistently argued before this Court to no avail on their alleged right to file petitions before
us instead of the OGCC. 69 Nothing in the Land Bank charter 70 vested it with the discretion to choose when to
assign cases to the OGCC, notwithstanding the establishment of its own Legal Department. 71
Congress is not bound to retain the OGCC as the primary or exclusive legal counsel of GSIS even if it
performs such a role for other GOCCs. To bind Congress to perform in that manner would be akin to elevating the
OGCC's statutory role to irrepealable status, and it is basic that Congress is barred from passing irrepealable
laws. 72 cEaCTS
C.
We close by acknowledging that the surrounding circumstances behind these petitions are unfortunate,
given the events as narrated in A.M. No. 08-8-11-CA. While due punishment has been meted on the errant
magistrates, the corporate world may very well be reminded that the members of the judiciary are not to be
viewed or treated as mere pawns or puppets in the internecine fights businessmen and their associates wage
against other businessmen in the quest for corporate dominance. In the end, the petitions did afford this Court to
clarify consequential points of law, points rooted in principles which will endure long after the names of the
participants in these cases have been forgotten.
WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the petitioner to
bring forth the suit.
The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third
paragraphs of the fallo of the assailed decision dated 23 July 2008 of the Court of Appeals, including
subparagraphs (1), (2), 2 (a), 2 (b), 2 (c) and 2 (d) under the second paragraph, are hereby DELETED.
No pronouncements as to costs.
SO ORDERED.
||| (Government Service Insurance System v. Court of Appeals, G.R. Nos. 183905 & 184275, [April 16, 2009], 603
PHIL 676-722)
 [G.R. No. 154131. July 20, 2006.]
SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. PERFORMANCE
FOREIGN EXCHANGE CORPORATION, respondent.
DECISION
SANDOVAL-GUTIERREZ, J p:
For our resolution is the Petition for Review on Certiorari 1 assailing the Decision 2 dated February 11,
2002 and Resolution dated July 3, 2002 of the Court of Appeals in CA-G.R. SP No. 65217, entitled "Performance
Foreign Exchange Corporation, petitioner, versus Securities and Exchange Commission, respondent."
The pertinent facts as found by the Court of Appeals are:
Performance Foreign Exchange Corporation, herein respondent, is a domestic corporation duly registered
on June 23, 1998 under Securities and Exchange Commission (SEC) Registration No. A199808910, with the
following purposes:
Primary Purpose
To operate as a broker/agent between market participants in transactions involving, but not
limited to, foreign exchange, deposits, interest rate instruments, fixed income securities, bonds/bills,
repurchased agreements of fixed income securities, certificate of deposits, bankers acceptances,
bills of exchange, over-the-counter option of the aforementioned instruments, Lesser Developed
Country's (L.D.C.) debt, energy and stock indexes and all related, similar or derivative products,
other than acting as a broker for the trading of securities pursuant to the Revised Securities Act of
the Philippines.
Secondary Purpose
To engage in money changer or exchanging foreign currencies into domestic currency,
Philippine currency or other foreign currencies into another currencies.
After two years of operation, respondent received a letter dated November 28, 2000 from the SEC, herein
petitioner, requiring it to appear before the Compliance and Enforcement Department (CED) on December 14,
2000 for a clarificatory conference regarding its business operations. Respondent's officers complied and
explained before the CED the nature of their business. IcHEaA
On January 16, 2001, Emilio B. Aquino, Director of CED, issued a Cease and Desist Order, 3 in CED
Case No. 99-2297, stating that his department conducted an inquiry on respondent's business operations
for possible violation of Republic Act (R.A.) No. 8799 (otherwise known as The Securities Regulation Code);
that the outcome of the inquiry shows that respondent is engaged in the trading of foreign currency futures
contracts in behalf of its clients without the necessary license; that such transaction can be deemed as a direct
violation of Section 11 of R.A. No. 8799 4 and the related provisions of its Implementing Rules and Regulations;
and that it is imperative to enjoin respondent from further operating as such to protect the interest of the public.
The dispositive portion of the said Order reads:
WHEREFORE, pursuant to the authority vested in the Commission, PERFORMANCE
FOREIGN EXCHANGE CORPORATION, its officers, directors, agents, representatives, and any
and all persons claiming and acting under their authority, are hereby ordered to immediately
CEASE AND DESIST from further engaging in the solicitation of funds for foreign currency
trading and operating as a foreign currency futures merchant/broker, upon receipt of this
Order.
In accordance with the provisions of Section 64.3 5 of Republic Act 8799, otherwise known
as the Securities Regulation Code, the parties subject of this Cease and Desist Order may file a
request for the lifting thereof within five (5) days from receipt hereof.
SO ORDERED.
 On January 25, 2001, respondent filed with petitioner SEC a motion 6 praying for the lifting of the Cease
and Desist Order, alleging that: (a) it has not violated any law or regulation in the conduct of its business; (b) it
has been operating in accordance with the purposes for which it was organized, which purposes were duly
approved by petitioner; (c) it has not engaged in currency futures contracts trading; and (d) its business involves
"spot currency trading which is not a form ofcurrency futures transaction."
On February 8, 2001, then SEC Chairman Lilia R. Bautista, in her desire to know with certainty the
nature of respondent's business, sent a letter 7 to the Bangko Sentral ng Pilipinas (BSP), requesting a definitive
statement that respondent's business transactions are a form of financial derivatives and, therefore, can only be
undertaken by banks or non-bank financial intermediaries performing quasi-banking functions.
Without waiting for BSP's determination of the matter, petitioner, the following day (February 9,
2001), issued an Order 8 denying respondent's motion for the lifting of the Cease and Desist Order and directing
that the same stays until respondent shall have submitted the appropriate "endorsement" from the BSP that
it can engage in financial derivative transactions. The Order states that the contracts entered into, offered and
sold by respondent are in the nature ofcommodity futures contracts; 9 and that such contracts may be considered a
form of financial derivatives instruments, the trading of which is regulated by BSP. IcEaST
On February 16, 2001, respondent filed a Manifestation With Urgent Motion 10 praying that, pending
determination by the BSP of the real nature of its business, the implementation of the February 9, 2001 Order be
temporarily suspended to allow it to continue its operations.
On March 15, 2001, respondent, in compliance with petitioner's February 9, 2001 Order requiring it to
submit the appropriate BSP "endorsement," presented before the BSP panel of officers a summary of its
operations and its foreign exchange spot product.
On April 23, 2001, petitioner issued an Order 11 making the Cease and Desist Order permanent, thus:
WHEREAS, on February 19, 2001, PFEC filed with the Commission its "Manifestation
with Urgent Motion to Temporarily Suspend Implementation of Order dated 09 February 2001,"
which Manifestation was denied by the Commission en banc during its meeting on February 22,
2001, and the said denial was conveyed verbally to the corporation;
WHEREFORE, premises considered, and pursuant to the authority vested in the
Commission, the Cease and Desist Order is now made permanent, and Performance Foreign
Exchange Corporation is hereby directed to show cause within thirty (30) days from receipt of this
Order why its certificate of registration should not be revoked for violation of the Securities
Regulation Code, and/or PD 902-A specifically on the ground of serious misrepresentation as
to what the corporation can do or is doing, to the great prejudice or damage to the general
public. (Underscoring supplied)
On May 4, 2001, respondent filed a motion 12 praying that the said Order be set aside. Petitioner,
however, did not act on the motion. This prompted respondent to file with petitioner a notice  13 dated June 14,
2001 that it is withdrawing its motion in order to seek a more appropriate and speedy remedy. DcSEHT
Feeling the injurious effects of petitioner's acts to its business operations, respondent, on June 20, 2001,
filed with the Court of Appeals a Petition for Certiorari14 with prayer for a temporary restraining order and
preliminary injunction, docketed as CA-G.R. SP No. 65217. Respondent alleged, among others, that petitioner
SEC acted without or in excess of its jurisdiction or with grave abuse of discretion when it issued the Cease and
Desist Order and its subsequent Order making the same permanent without waiting for the BSP's determination of
the real nature of its business operations; and that petitioner's Orders, issued without any factual basis, violated its
(respondent's) fundamental right to due process.
Meanwhile, on August 13, 2001, Amado M. Tetangco, Jr., then Officer-in-Charge, Office of the
Governor, BSP, in answer to SEC Chairman Lilia Bautista's letter-request of February 8, 2001, stated that
respondent's business activity "does not fall under the category of futures trading" and "can not be classified
as financial derivatives transactions," thus:
Dear Ms. Bautista,
This refers to your letter dated February 8, 2001 requesting for a definitive statement that
the foreign currency leverage trading engage in by private corporations, particularly, Performance
Foreign Exchange Corporation (PFEC), is a financial derivatives transaction and that it can only be
undertaken by banks or non-bank financial intermediaries performing quasi-banking functions
and/or its subsidiaries/affiliates.
 As indicated in your description of the transactions and the documents submitted, the
foreign currency leverage trading, subject of your query, is essentially similar in mechanics to
currency future trading, particularly with respect to the margin requirements, standard contract size,
and daily market-to-market of open position. However, it does not fall under the category of
futures trading because it is not exchange-traded. Further, we can not classify it as being
financial derivatives transactions as we consider the transaction as plain currency margin trading,
which by its mechanics, involve the set-up of margin and non-delivery of the currencies
involved. CEDScA
In view of the foregoing facts, the activities of the aforesaid corporation are not covered by
BSP guidelines on derivative licensing.
We hope we have satisfactorily clarified your concerns.
 Very truly yours,
 (Sgd.)
 AMANDO M. TETANGCO, JR. 15
On February 11, 2002, the Court of Appeals rendered a Decision 16 in favor of respondent, thus:
WHEREFORE, premises considered, the instant petition is GRANTED and accordingly,
the assailed Orders dated January 16, 2001, February 9, 2001, February 22, 2001and April 23,
2001 of the Securities and Exchange Commission are SET ASIDE.
SO ORDERED.
The Court of Appeals ruled that petitioner acted with grave abuse of discretion when it issued its
challenged Orders without a positive factual finding that respondent violated the Securities Regulation Code.
Petitioner filed a motion for reconsideration but it was denied by the appellate court in a
Resolution 17 dated July 3, 2002.
Hence, the instant Petition for Review on Certiorari.
Petitioner, through the Solicitor General, contends that the Court of Appeals erred in not applying the rule
that factual findings of quasi-judicial bodies, like the SEC, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect but even finality if such
findings are supported by substantial evidence. 18
In its Comment, 19 respondent counters that the instant petition utterly lacks merit and should be
dismissed. CTcSAE
The issue for our resolution is whether petitioner SEC acted with grave abuse of discretion in issuing the
Cease and Desist Order and its subsequent Order making it permanent.
Section 64 of R.A. No. 8799, provides:
Sec. 64. Cease and Desist Order. — 64.1. The Commission, after proper investigation or
verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease
and desist order without the necessity of a prior hearing if in its judgment the act or practice,
unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public.
xxx xxx xxx (Underscoring supplied)
Under the above provision, there are two essential requirements that must be complied with by the SEC
before it may issue a cease and desist order: First, it must conduct proper investigation or verification;
and Second, there must be a finding that the act or practice, unless restrained, will operate as a fraud on investors
or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.
Here, the first requirement is not present. Petitioner did not conduct proper investigation or verification
before it issued the challenged orders. The clarificatory conference undertaken by petitioner regarding
respondent's business operations cannot be considered a proper investigation or verification process to justify the
issuance of the Cease and Desist Order. It was merely an initial stage of such process, considering that after it
issued the said order following the clarificatory conference, petitioner still sought verification from the BSP on
the nature of respondent's business activity. Its letter to the BSP dated February 8, 2001 states in part:
The Securities and Exchange Commission has been investigating corporations which
engage in foreign currency trading abroad. The following illustrates their operations:
 xxx xxx xxx
Enclosed are pertinent documents which were submitted by a corporation showing how its
transactions operate. It is claimed by the corporation in question that theirs are all spot transactions
and are not covered by the Bangko Sentral ng Pilipinas. We understand, however, that in other
jurisdiction, this type of activity can only be done by banks.
Previous inquiries from the Bangko Sentral ng Pilipinas, specifically Department of
Commercial Banks II, and your department, Commercial Banks I, lead to conclude that this kind of
trading in foreign currencies may be a form of financial derivatives.
May we, therefore, request a definitive statement that the above-described
transactions, and as illustrated in the attached documents, are a form of financial derivatives
and, therefore, can only be undertaken by banks, or non-bank financial intermediaries
performing quasi-banking functions and/or its subsidiaries/affiliates.20 (Underscoring
supplied)
Petitioner's act of referring the matter to the BSP is an essential part of the investigation and
verification process. In fact, such referral indicates that petitioner concedes to the BSP's expertise in determining
the nature of respondent's business. It bears stressing, however, that such investigation and verification, to be
proper, must be conducted by petitioner before, not after, issuing the Cease and Desist Order in question. This,
petitioner utterly failed to do. The issuance of such order even before it could finish its investigation and
verification on respondent's business activity obviously contravenes Section 64 of R.A. No. 8799 earlier
quoted. HTCAED
Worse, when respondent filed a motion praying that the same order be lifted for being premature,
petitioner, in its Order dated February 9, 2001, even denied the motion despite its  admission therein that it cannot
determine certain material facts involving respondent's transactions and, as such, the matter must be referred to
the BSP for determination, thus:
In the light of the above circumstances, and the fact that the Commission cannot
determine whether such transactions are actually executed in Singapore or Hongkong as
alleged, and whether the foreign currency rates used in the transactions are verifiable, it is our
position that the same be endorsed to the BSP.
In view of the foregoing, the cease and desist order stays against the corporation until the
latter shall be able to submit the appropriate endorsement from the Bangko Sentral ng Pilipinas that
it can engage in financial derivative transactions.
SO ORDERED. 21 (Underscoring supplied)
And worst, without waiting for BSP's action, petitioner proceeded to issue its Order dated April 23, 2001
making the Cease and Desist Order permanent. In the same Order, petitioner further directed respondent "to show
cause . . . why its certificate of registration should not be revoked for alleged violation of the  Securities Regulation
Code and/or Presidential Decree No. 902-A, specifically on the ground of serious misrepresentation as to what
the corporation can do or is doing to the great prejudice or damage to the general public." Obviously,
without BSP's determination of the nature of respondent's business, there was no factual and legal basis to justify
the issuance of such order.
Which brings us to the second requirement. Before a cease and desist order may be issued by the SEC,
there must be a showing that the act or practice sought to be restrained will operate as a fraud on investors or is
likely to cause grave, irreparable injury or prejudice to the investing public. Such requirement implies that the act
to be restrained has been determined after conducting the proper investigation/verification. In this case, the
nature of the act to be restrained can only be determined after the BSP shall have submitted its findings to
petitioner. However, there is nothing in the questioned Orders that shows how the public is greatly prejudiced or
damaged by respondent's business operation. cDCaHA
In sum, we find no reversible error committed by the Court of Appeals in rendering its assailed Decision
and Resolution.
WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of Appeals
in CA-G.R. SP No. 65217 are AFFIRMED.
SO ORDERED.
||| (Securities and Exchange Commission v. Performance Foreign Exchange Corp., G.R. No. 154131, [July 20, 2006],
528 PHIL 169-181)
 [G.R. No. 179047. March 11, 2015.]
SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. SUBIC BAY GOLF AND
COUNTRY CLUB, INC. AND UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT
CORPORATION, respondents.
DECISION
LEONEN, J p:
Intra-corporate controversies, previously under the Securities and Exchange Commission's jurisdiction,
are now under the jurisdiction of Regional Trial Courts designated as commercial courts. However, the transfer of
jurisdiction to the trial courts does not oust the Securities and Exchange Commission of its jurisdiction to
determine if administrative rules and regulations were violated.
In this Petition for Review 1 on Certiorari under Rule 45 of the Rules of Court, petitioner Securities and
Exchange Commission prays for the reversal of the Court of Appeals' July 31, 2007 Decision. 2 The Court of
Appeals declared void the Securities and Exchange Commission's February 10, 2004 Decision affirming its
Corporation Finance Department's Order 3 to refund payments for Subic Bay Golf and Country Club, Inc.'s shares
of stock. 4
Subic Bay Golf Course, also known as Binictican Valley Golf Course, was operated by Subic Bay
Metropolitan Authority (SBMA) under the Bases Conversion Development Authority (BCDA). 5 Universal
International Group of Taiwan (UIG), a Taiwanese corporation, was chosen to implement the plan to privatize the
golf course. 6
On May 25, 1995, SBMA and UIG entered into a Lease and Development Agreement. Under the
agreement, SBMA agreed to lease the golf course to UIG for 50 years, renewable for another 25 years.  7 UIG
agreed to "develop, manage and maintain the golf course and other related facilities within the
complex[.]" 8 Later, Universal International Group Development Corporation (UIGDC) succeeded to the interests
of UIG on the golf course development. 9
On April 1, 1996, UIGDC executed a Deed of Assignment in favor of Subic Bay Golf and Country Club,
Inc. (SBGCCI). Under the Deed of Assignment, UIGDC assigned all its rights and interests in the golf course's
development, operations, and marketing to SBGCCI. 10
On April 25, 1996, SBGCCI and UIGDC entered into a Development Agreement. 11 UIGDC agreed to
"finance, construct and develop the [golf course], for and in consideration of the payment by [SBGCCI] of its
1,530 (SBGCCI) shares of stock." 12
 Upon SBGCCI's application, the Securities and Exchange Commission issued an Order for the
Registration of 3,000 no par value shares of SBGCCI on July 8, 1996. SBGCCI was issued a Certificate of Permit
to Offer Securities for Sale to the Public of its 1,530 no par value proprietary shares on August 9, 1996. The
shares were sold at P425,000.00 per share. SBGCCI would use the proceeds of the sale of securities to pay
UIGDC for the development of the golf course. 13
In the letter 14 dated November 4, 2002 addressed to Atty. Justina Callangan, Director of Securities and
Exchange Commission's Corporation Finance Department, complainants Regina Filart (Filart) and Margarita
Villareal (Villareal) informed the Securities and Exchange Commission that they had been asking UIGDC for the
refund of their payment for their SBGCCI shares. UIGDC did not act on their requests. 15 They alleged that they
purchased the shares in 1996 based on the promise of SBGCCI and UIGDC to deliver the following:
a. an 18 hole golf course that would meet the highest USGA and PGA standards.
b. A 9 hole executive course which would be completely illuminated to allow members to play after
dark.
c. A swimming pool and tennis courts.
d. Golf Villas and Residential Condominium-Hotel. AaCTcI
e. Driving range of 30 berths provided with a roof and illuminated to afford nighttime driving.
f. Club facilities with a restaurant which will offer French, Filipino and Chinese cuisine and 7 well-
furnished VIP rooms which are equipped with the latest toilet and bath facilities and are
available for private meetings and conferences. 16
However, these promises were not delivered. 17
Villareal and Filart also claimed that despite SBGCCI's and UIGDC's failure to deliver the promised
amenities, they started to charge them monthly dues. They also never received any billing statement from them
until they were sent a demand notice to pay the alleged back dues of P39,000.00 within five (5) days. They were
threatened that their shares amounting to P740,000.00 and paid off in December 1996 would be auctioned off if
their alleged back dues would not be paid. 18 Villareal and Filart prayed for relief from the "terrible situation
[they found themselves] in. 19 They also prayed that their letter be accepted "as a formal complaint against
Universal International Group Development Corporation for breach of promise/contract with its investors who put
in hard-earned money believing that they would deliver what their brochures promised to deliver." 20
In their Comment, 21 SBGCCI and UIGDC averred that they had already substantially complied with
their commitment to provide the members a world-class golf and country club. 22 The construction of the golf
course substantially met international standards. 23 Other proposed project developments such as the construction
of villas and residential condominium-hotels were not included in the rights purchased with member
shares. 24 They also denied that they failed to send monthly billing statements to Filart and Villareal. 25
SBGCCI and UIGDC also stressed that SBMA, under its Contract of Lease, was the one duty-bound to
complete the golf course and amenities. It would be in breach of contract if it failed to complete the golf course
and the amenities. Insofar as SBGCCI's commitments were concerned, it was able to fully comply with its
obligations. 26
In January 2003, the Securities and Exchange Commission's Corporation Finance Department conducted
an ocular inspection of the project. Based on the Memorandum Report prepared by Julius H. Baltazar, Specialist I,
SBGCCI and UIGDC failed to comply substantially with their commitment to complete the project. 27According
to the Report:
Project Description based Completion date/cost per Findings per ocular
on Work Program Prospectus inspection as of January
      3, 2003
     
Reconstruction/rehabilitation   The 18-hole golf course is
of the 18-hole golf course.   already existing and
This includes the   playable. It was observed
construction of the   that the grass in some parts
following:   of the 18-hole course is dry
 1. greens   and withered
2. fairways Before November 1996  
3. road/cart paths P301,600[,]000. The road/cart paths are
4. bridges   fully concrete and passable,
5. drainage & irrigation   bridges, drainage and
  system   irrigation systems are in
6. driving range   place.
7. tee houses    
      There is a driving range
      with roof and 7 berths and
      one (1) tee house in hole #
      3.
     
Construction of additional 9- After November 1996 The construction of the
hole course. P156,000,000 additional 9-hole course has
      not yet started.
     
Construction/renovation of Before November 1996 The clubhouse has a dining,
Clubhouse with the P192,400,000 area, function room, 6 VIP
following facilities:   rooms, sport shop, one (1)
      restaurant and men & ladies
1. dining areas   locker rooms. It has no
2. function rooms   sauna and massage rooms.
3. indoor and outdoor    
  tennis courts   Beside the clubhouse is a
4. 25-meter swimming pool   swimming pool with no
5. gyms   water and one (1) tennis
6. saunas and massage   court, [sic] that are both
  room   poorly maintained.
7. sport shops    
      There is [sic] none. 28 
Condominiums, Residential    
Villas, 250-bedroom hotel    
and a conference center    
 
In the July 1, 2003 Order, the Securities and Exchange Commission's Corporation Finance Department
gave due course to Villareal and Filart's letter-complaint:29
WHEREFORE, upon consideration of the foregoing, the complaint of REGINA S.
FILART and MARGARITA G. VILLAREAL is hereby given DUE COURSE.
Respondents SUBIC BAY GOLF AND COUNTRY CLUB, INC. and UNIVERSAL
INTERNATIONAL GROUP DEVELOPMENT CORPORATION, are hereby ordered
to refund to REGINA S. FILART and MARGARITA G. VILLAREAL, within ten (10) days from
 receipt of this Order, the total purchase price of their shares of stock issued by Subic Bay Golf
and Country Club, Inc., in the amount of P740,000.00 each, or a total of P1,480,000.00.
SUBIC BAY GOLF and COUNTRY CLUB, INC. is likewise hereby ordered to amend
its Prospectus, reflecting therein the actual status of the facilities of the club, and to comply with
the requirements of SRC Rule 14. EcTCAD
Furthermore, due to its failure to comply with its undertakings in its Registration
Statement and Prospectus, tantamount to misrepresentation, and in violation of the provisions of
the Securities Regulation Code, and its implementing rules and regulations, the Certificate of
Registration and Permit to Sell Securities to the Public issued to respondent Subic Bay Golf and
Country Club, Inc., are hereby SUSPENDED until the aforementioned misrepresentations are
rectified and the requirements of this Order are complied with. The Commission shall make a
determination, within thirty (30) days, whether or not such registration should be revoked.
And, pursuant to Section 54 of the Code, respondent corporations, SUBIC BAY GOLF
AND COUNTRY CLUB, INC. and UNIVERSAL INTERNATIONAL GROUP
DEVELOPMENT CORPORATION, are hereby fined the amount of P100,000.00.
SO ORDERED. 30 (Emphasis in the original)
The Corporation Finance Department found that Filart and Villareal invested in the golf course because of
SBGCCI and UIGDC's representation that a 27-hole, world-class golf course would be developed. 31 It also found
that SBGCCI and UIGDC failed to comply with their commitments and representations as stated in their
prospectus. 32
The Corporation Finance Department ordered the return of the purchase price of shares pursuant to Rule
14 33 of the Implementing Rules and Regulations of Republic Act No. 8799  or the Securities Regulation Code. It
explained that the non-completion of the golf course constituted a material amendment in the prospectus. The
prospectus had become misleading, tending to work a fraud. This gave the purchasers the right to a refund of their
contributions. 34
SBGCCI and UIGDC filed a Petition for Review 35 of the Corporation Finance Department's Order
before the Securities and Exchange Commission. SBGCCI and UIGDC assailed the Corporation Finance
Department's and the Securities and Exchange Commission's authority to order a refund of investments. They also
assailed its jurisdiction over the case, which according to SBGCCI and UIGDC involved an intra-corporate
dispute. They argued that the Corporation Finance Department's Order was issued without due process. 36
On February 10, 2004, the Securities and Exchange Commission rendered the Decision 37 affirming the
July 1, 2003 Order of the Corporation Finance Department:
WHEREFORE, in view of the foregoing, the PETITION is hereby DENIED. The July
1, 2003 ORDER of the Corporate Finance Department is hereby AFFIRMED.
SO ORDERED. 38
The Securities and Exchange Commission ruled that the Corporation Finance Department's proceedings
were administrative in nature. It was only conducted to determine if SBGCCI and UIGDC violated the Securities
and Exchange Commission's rules and regulations. While Villareal and Filart's letter-complaint alleged intra-
corporate matters, it also alleged matters pertaining to SBGCCI and UIGDC's compliance with the prospectus and
registration statements. The Securities and Exchange Commission has the authority to investigate possible acts of
abuse of franchise and violations of its rules and regulations. It also has the power to impose appropriate
administrative sanctions. The Corporation Finance Department only exercised these powers. 39
The Corporation Finance Department, tasked to oversee securities registration, has the implied power to
suspend or revoke registration upon showing of violations of the Securities and Exchange Commission's rules and
regulations. Based on Section 4.6 of the Securities Regulation Code, the Securities and Exchange Commission has
the power to delegate some of its functions to any of its departments. 40
On SBGCCI and UIGDC's allegation that they were not given due process, the Securities and Exchange
Commission ruled that suspension of permit to sell securities does not require a full-blown hearing. In any case,
SBGCCI and UIGDC were served notice and given an opportunity to present their case. They were even able to
file their Comment on the letter-complaint on January 6, 2003. 41
The Securities and Exchange Commission added that the Corporation Finance Department's directive to
return the purchasers' investments was in accordance with the rules. Rule 14 of the Securities Regulation
Code allows purchasers to renounce their securities. 42
 SBGCCI and UIGDC filed a Motion for Reconsideration of the February 10, 2004 Securities and
Exchange Commission Decision, but this was denied in the Order43 dated April 6, 2004. 44
SBGCCI and UIGDC filed a Petition for Review 45 of the Securities and Exchange Commission's
February 10, 2004 Decision before the Court of Appeals. 46 They argued that the letter-complaint filed by
Villareal and Filart involved an intra-corporate dispute that was under the jurisdiction of the Regional Trial Court
and not the Securities and Exchange Commission. 47 They also argued that the Securities Regulation Code does
not grant the Securities and Exchange Commission the power to order the refund of payment for shares of
stock. 48
On July 31, 2007, the Court of Appeals declared void the February 10, 2004 Decision of the Securities
and Exchange Commission insofar as it ordered the refund of the purchase price of Filart's and Villareal's
investments. 49 Thus:
WHEREFORE, the February 10, 2004 Decision of the Securities and Exchange
Commission in CFD-AA-Case No. 08-03-36, affirming the July 1, 2003 Order of the Corporate
Finance Department, insofar as it ordered the refund of the purchase price of the shares of stock of
petitioner SBGCCI, is hereby declared NULL and VOID for lack of jurisdiction.
SO ORDERED. 50 HSAcaE
The Court of Appeals found that the case involved an intra-corporate controversy. The Securities and
Exchange Commission acted in excess of its jurisdiction when it ordered UIGDC and SBGCCI to refund Villareal
and Filart the amount they paid for SBGCCI shares of stock. The authority to exercise powers necessary to carry
out the objectives of the Securities and Exchange Commission does not include the authority to refund
investments. This power has been transferred to the Regional Trial Court. The Securities and Exchange
Commission should have limited its exercise of power to issuing an order imposing a fine, to amend the
prospectus, and to suspend the Certificate of Registration and Permit to Sell Securities to the Public. 51
Hence, this petition was filed.
The Securities and Exchange Commission argues that Villareal and Filart's letter-complaint of November
4, 2002 did not only raise matters involving intra-corporate relations. Their letter-complaint also stated serious
violations of the Securities Regulation Code, which may require the Securities and Exchange Commission's
intervention. 52 The Commission did not adjudicate private rights or awarded damages. 53 It only determined
whether SBGCCI and UIGDC committed misrepresentations, 54 in violation of the Securities Regulation
Code and its implementing rules. 55
The Securities and Exchange Commission contends that its Order to return the stock purchasers'
contributions is in accordance with Rule 14, Section 1 (c) 56 of the Implementing Rules and Regulations of the
Securities Regulation Code. 57 This provision is within the Securities and Exchange Commission's rule-making
power under Section 143 58 of the Corporation Code and Section 5 (g) and (n) 59 of the Securities Regulation
Code. 60 Section 1 (c) is necessary to implement the Securities Regulation Code's mandate "to protect the
investing public from unscrupulous corporations taking advantage of every situation[.]" 61
The Securities and Exchange Commission points out that Villareal and Filart had been demanding from
SBGCCI and UIGDC the return of their investments. Its Corporation Finance Department already directed
SBGCCI and UIGDC to amend their prospectus and registration statements to comply with the  Securities
Regulation Code. However, SBGCCI and UIGDC failed to comply. 62
In their Comment, 63 SBGDCC and UIGDC insist that the case involved an intra-corporate dispute over
which only the Regional Trial Court has jurisdiction. 64 The Securities and Exchange Commission has no
authority to order the return of payments made by Villareal and Filart. 65 Even assuming that the Securities and
Exchange Commission has jurisdiction over intra-corporate cases, there should first be a disagreement over
prospectus amendments before paid contributions can be refunded. 66
We determine which between the Securities and Exchange Commission and the Regional Trial Court has
jurisdiction over this case. We also determine whether the Securities and Exchange Commission has the authority
to order the return of purchase price of securities upon finding that there were fraudulent representations in the
prospectus.
We rule for SBGCCI and UIGDC.
Under Presidential Decree No. 902-A, 67 the Securities and Exchange Commission has jurisdiction over
acts amounting to fraud and misrepresentation by a corporation's board of directors, business associates, and
officers. It also provides that it has jurisdiction over intra-corporate disputes. Thus:
 WHEREAS, in line with the government's policy of encouraging investments, both
domestic and foreign, and more active public participation in the affairs of private corporations
and enterprises through which desirable activities may be pursued for the promotion of economic
development; and, to promote a wider and more meaningful equitable distribution of wealth, there
is a need for an agency of the government to be invested with ample powers to protect such
investment and the public;
xxx xxx xxx
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations registered
with it as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
a. Devices or schemes employed by or any acts, of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholder, partners,
members of associations or organizations registered with the Commission;
b. Controversies arising out of intra-corporate 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 insofar as it concerns their individual franchise or right to exist as such
entity;
c. Controversies in the election or appointments of directors, trustees, officers or managers
of such corporations, partnerships or associations.
However, jurisdiction over intra-corporate disputes and all other cases enumerated in Section 5
of Presidential Decree No. 902-A had already been transferred to designated Regional Trial Courts. Section 5.2
of Republic Act No. 8799 provides:
5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over pending cases involving
intra-corporate disputes submitted for final resolution which should be resolved within one
(1) year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until fully
disposed.
Hence, actions pertaining to intra-corporate disputes should be filed directly before designated Regional
Trial Courts. Intra-corporate disputes brought before other courts or tribunals are dismissible for lack of
jurisdiction. 68
For a dispute to be "intra-corporate," it must satisfy the relationship and nature of controversy tests. 69
The relationship test requires that the dispute be between a corporation/partnership/association and the
public; a corporation/partnership/association and the state regarding the entity's franchise, permit, or license to
operate; a corporation/partnership/association and its stockholders, partners, members, or officers; and among
stockholders, partners, or associates of the entity. 70
The nature of the controversy test requires that the action involves the enforcement of corporate rights and
obligations.
Courts and tribunals must consider both the parties' relationship and the nature of the controversy to
determine whether they should assume jurisdiction over a case. In Medical Plaza Makati Condominium
Corporation v. Cullen: 71
[T]he 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." In other words, jurisdiction should be determined by considering both the
relationship of the parties as well as the nature of the question involved. 72 (Citations omitted)
 This case is an intra-corporate dispute, over which the Regional Trial Court has jurisdiction. It involves a
dispute between the corporation, SBGCCI, and its shareholders, Villareal and Filart. HESIcT
This case also involves corporate rights and obligations. The nature of the action — whether it involves
corporate rights and obligations — is determined by the allegations and reliefs in the complaint. 73
Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI and UIGDC's
alleged failure to abide by their representations in their prospectus. Specifically, Villareal and Filart alleged in
their letter-complaint that the world-class golf course that was promised to them when they purchased shares did
not materialize. This is an intra-corporate matter that is under the designated Regional Trial Court's jurisdiction. It
involves the determination of a shareholder's rights under the Corporation Code or other intra-corporate rules
when the corporation or association fails to fulfill its obligations.
However, even though the Complaint filed before the Securities and Exchange Commission contains
allegations that are intra-corporate in nature, it does not necessarily oust the Securities and Exchange Commission
of its regulatory and administrative jurisdiction to determine and act if there were administrative violations
committed.
The Securities and Exchange Commission is organized in line with the policy of encouraging and
protecting investments. 74 It also administers the Securities Regulation Code, 75 which was enacted to "promote
the development of the capital market, protect investors, ensure full and fair disclosure about securities, [and]
minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which
create distortions in the free market." 76 Pursuant to these policies, the Securities and Exchange Commission is
given regulatory powers 77 and "absolute jurisdiction, supervision and control over all corporations, partnerships
or associations. . . ." 78
In relation to securities, the Securities and Exchange Commission's regulatory power pertains to the
approval and rejection, and suspension or revocation, of applications for registration of securities 79 for, among
others, violations of the law, fraud, and misrepresentations. Thus:
SEC. 13. Rejection and Revocation of Registration of Securities. — 13.1. The
Commission may reject a registration statement and refuse registration of the security thereunder,
or revoke the effectivity of a registration statement and the registration of the security thereunder
after due notice and hearing by issuing an order to such effect, setting forth its findings in respect
thereto, if it finds that:
a. The issuer:
i. Has been judicially declared insolvent;
ii. Has violated any of the provisions of this Code, the rules promulgated pursuant
thereto, or any order of the Commission of which the issuer has notice in
connection with the offering for which a registration statement has been
filed;
iii. Has been engaged or is about to engage in fraudulent transactions;
iv. Has made any false or misleading representation of material facts in any
prospectus concerning the issuer or its securities;
v. Has failed to comply with any requirement that the Commission may impose as a
condition for registration of the security for which the registration
statement has been filed; or
b. The registration statement is on its face incomplete or inaccurate in any material respect
or includes any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or
c. The issuer, any officer, director or controlling person of the issuer, or person performing
similar functions, or any underwriter has been convicted, by a competent judicial or
administrative body, upon plea of guilty, or otherwise, of an offense involving
moral turpitude and/or fraud or is enjoined or restrained by the Commission or
other competent judicial or administrative body for violations of securities,
commodities, and other related laws.
xxx xxx xxx
 13.4. If the Commission deems it necessary, it may issue an order suspending the offer
and sale of the securities pending any investigation. The order shall state the grounds for taking
such action, but such order of suspension although binding upon the persons notified thereof, shall
be deemed confidential, and shall not be published. Upon the issuance of the suspension order, no
further offer or sale of such security shall be made until the same is lifted or set aside by the
Commission. Otherwise, such sale shall be void. caITAC
xxx xxx xxx
SEC. 15. Suspension of Registration. — 15.1. If, at any time, the information contained in
the registration statement filed is or has become misleading, incorrect, inadequate or incomplete
in any material respect, or the sale or offering for sale of the security registered thereunder may
work or tend to work a fraud, the Commission may require from the issuer such further
information as may in its judgment be necessary to enable the Commission to ascertain whether
the registration of such security should be revoked on any ground specified in this Code. The
Commission may also suspend the right to sell and offer for sale such security pending further
investigation, by entering an order specifying the grounds for such action, and by notifying the
issuer, underwriter, dealer or broker known as participating in such offering. 80
To ensure compliance with the law and the rules, the Securities and Exchange Commission is also given
the power to impose fines and penalties. It may also investigate motu proprio whether corporations comply with
the Corporation Code, Securities Regulation Code, and rules implemented by the Securities and Exchange
Commission.
SEC. 5. Powers and Functions of the Commission. — 5.1. The Commission shall act with
transparency and shall have the powers and functions provided by this Code,Presidential Decree
No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and
other existing laws. Pursuant thereto the Commission shall have, among others, the following
powers and functions:
xxx xxx xxx
d. Regulate, investigate or supervise the activities of persons to ensure compliance;
xxx xxx xxx
f. Impose sanctions for the violation of laws and the rules, regulations and orders issued
pursuant thereto;
xxx xxx xxx
i. Issue cease and desist orders to prevent fraud or injury to the investing public;
xxx xxx xxx
m. Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds
provided by law; and
n. Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the
express powers granted the Commission to achieve the objectives and purposes of
these laws. 81
The Securities and Exchange Commission's approval of securities registrations signals to the public that
the securities are valid. It provides the public with basis for relying on the representations of corporations that
issue securities or financial instruments.
Any fraud or misrepresentation in the issuance of securities injures the public. The Securities and
Exchange Commission's power to suspend or revoke registrations and to impose fines and other penalties provides
the public with a certain level of assurance that the securities contain representations that are true, and that
misrepresentations if later found, would be detrimental to the erring corporation. It creates risks to corporations
that issue securities and adds cost to errors, misrepresentations, and violations related to the issuance of those
securities. This protects the public who will rely on representations of corporations and partnerships regarding
financial instruments that they issue. The Securities and Exchange Commission's regulatory power over securities-
related activities is tied to the government's duty to protect the investing public from illegal and fraudulent
instruments.
 Thus, when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC committed
misrepresentations in the sale of their shares, nothing prevented the Securities and Exchange Commission from
taking cognizance of it to determine if SBGCCI and UIGDC committed administrative violations and were liable
under the Securities Regulation Code. The Securities and Exchange Commission may investigate activities of
corporations under its jurisdiction to ensure compliance with the law.
However, the Securities and Exchange Commission's regulatory power does not include the authority to
order the refund of the purchase price of Villareal's and Filart's shares in the golf club. The issue of refund is intra-
corporate or civil in nature. Similar to issues such as the existence or inexistence of appraisal rights, pre-emptive
rights, and the right to inspect books and corporate records, the issue of refund is an intra-corporate dispute that
requires the court to determine and adjudicate the parties' rights based on law or contract. Injuries, rights, and
obligations involved in intra-corporate disputes are specific to the parties involved. They do not affect the
Securities and Exchange Commission or the public directly. ICHDca
The Securities and Exchange Commission argues that the power to order a refund is in accordance with
the implementing rules of the Securities Regulation Code. Despite orders from the Securities and Exchange
Commission to amend their prospectus, SBGCCI and UIGDC failed to comply. Thus, Villareal and Filart were
entitled to the refund of the purchase price of their shares. They cite Section 14 of the Implementing Rules and
Regulations of the Securities Regulation Code:
SRC Rule 14 — Amendments to the Registration Statement
l. If a prospectus filed with the Commission under the Code becomes incomplete or inaccurate in
any material respect or if the issuer wants to change any material information therein, the
issuer shall:
a. file an amendment to the registration statement with the Commission explaining all proposed
changes which shall be reviewed by the Commission in accordance with Section 14 of the
Code;
xxx xxx xxx
c. where material amendments have been made to the prospectus after the effective date
thereof, purchasers may, within thirty (30) days from the date of such notification,
renounce their purchase of securities, whereupon the issuer, or any person acting on behalf
of the issuer in connection with the distribution of said securities, shall, within ten (10) days
from receipt of notification of such election, return the contributions paid by such
purchasers without making any deductions. Purchasers who decide not to renounce their
purchase of securities shall be subject to the terms of the amended offering. (Emphasis
supplied)
Based on these provisions, Villareal and Filart may be entitled to a refund of the purchase price of their
shares. Provisions giving shareholders rights, however, are not to be interpreted as sources of authority or
jurisdiction when there is none. The provisions in the law or in the rules giving Villareal and Filart the right to be
refunded the value of their shares are not equivalent to authority for the Securities and Exchange Commission to
issue an order for the refund. Such order may not come from the Securities and Exchange Commission.
Neither the provisions of the implementing rules nor the provisions of the Securities Regulation
Code, 82 the law being implemented, give the Securities and Exchange Commission the power to order a refund.
The Securities and Exchange Commission's power when violations of the Securities Regulation Code are found is
limited to issuing regulatory orders such as suspending or revoking registration statements, providing for the terms
and conditions for registration, and imposing fines and penalties.
The implementing rules cannot be interpreted to give the Securities and Exchange Commission the power
that is more than what is provided under theSecurities Regulation Code. Implementing rules are limited by the
laws they implement. The rules cannot be used to amend, expand, or modify the law being implemented. The law
shall prevail in case of inconsistency between the law and the rules.
In United BF Homeowner's Association v. BF Homes, Inc.: 83
As early as 1970, in the case of Teoxon vs. Members of the Board of Administrators
(PVA), we ruled that the power to promulgate rules in the implementation of a statute is
necessarily limited to what is provided for in the legislative enactment. Its terms must be followed
for an administrative agency cannot amend an Act of Congress. "The rule-making power must be
confined to details for regulating the mode or proceedings to carry into effect the law as it has
been enacted, and it cannot be extended to amend or expand the statutory requirements or to
 embrace matters not covered by the statute." If a discrepancy occurs between the basic law and an
implementing rule or regulation, it is the former that prevails.
xxx xxx xxx
. . . The rule-making power of a public administrative body is a delegated legislative
power, which it may not use either to abridge the authority given it by Congress or the
Constitution or to enlarge its power beyond the scope intended. Constitutional and statutory
provisions control what rules and regulations may be promulgated by such a body, as well as with
respect to what fields are subject to regulation by it. It may not make rules and regulations which
are inconsistent with the provisions of the Constitution or a statute, particularly the statute it is
administering or which created it, or which are in derogation of, or defeat, the purpose of a
statute. TCAScE
Moreover, where the legislature has delegated to an executive or administrative officers
and boards authority to promulgate rules to carry out an express legislative purpose, the rules of
administrative officers and boards, which have the effect of extending, or which conflict with the
authority-granting statute, do not represent a valid exercise of the rule-making power but
constitute an attempt by an administrative body to legislate. "A statutory grant of powers should
not be extended by implication beyond what may be necessary for their just and reasonable
execution." It is axiomatic that a rule or regulation must bear upon, and be consistent with, the
provisions of the enabling statute if such rule or regulation is to be valid. 84 (Citations omitted)
Hence, the issue of refund should be litigated in the appropriate Regional Trial Court. This issue is both
intra-corporate and civil in nature, which is under the jurisdiction of the designated Regional Trial Courts.
WHEREFORE, the Court of Appeals Decision dated July 31, 2007 is AFFIRMED.
SO ORDERED.
||| (Securities and Exchange Commission v. Subic Bay Golf and Country Club, Inc., G.R. No. 179047 , [March 11,
2015], 755 PHIL 553-583)

[G.R. No. 196329. June 1, 2016.]

PABLO B. ROMAN, JR., and ATTY. MATIAS V. DEFENSOR, as Officers of the Capitol
Hills Golf and Country Club, Inc., petitioners, vs. SECURITIES AND EXCHANGE
COMMISSION, ATTY. FRANKLIN I. CUETO, ATTY. EMMANUEL Y. ARTIZA and
MANUEL C. BALDEO, as members of the Management Committee; JUSTINA F.
CALLANGAN, as Director of the Corporation Finance Department; ATTY. NARCISO T.
ATIENZA, EUSEBIO A. ABAQUIN, ATTY. CLODUALDO C. DE JESUS, SR., ATTY.
CLODUALDO ANTONIO R. DE JESUS, JR., ATTY. IRENEO T. AGUIRRE, JR., SUNDAY
O. PINEDA, PORFIRIO M. FLORES, and ATTY. ZOSIMO PADRO, JR., respondents.
DECISION
MENDOZA, J p:
This petition 1 for review on certiorari under Rule 45 of the Rules of Court seeks to review and reverse
the November 30, 2010 Decision 2 and the March 15, 2011 Resolution 3 of the Court of Appeals (CA) in CA-G.R.
SP No. 101613, which dismissed the petition for prohibition filed by petitioners Pablo B. Roman, Jr.  (Roman) and
Atty. Matias V. Defensor (Defensor), President and Corporate Secretary, respectively, of Capitol Hills Golf and
Country Club, Inc., (Capitol). The said petition before the CA questioned the jurisdiction of respondent Securities
and Exchange Commission (SEC) for acting upon the letter-complaint, 4 dated May 8, 2007, filed by the minority
shareholders of Capitol and for issuing its December 5, 2007 Order 5 creating the Management
Committee (MANCOM) tasked to oversee the affairs of the said company.
Factual Antecedents
 On June 6, 2007, private respondents Atty. Narciso T. Atienza, Eusebio A. Abaquin, Atty. Clodualdo C.
De Jesus, Sr., Atty. Clodualdo Antonio R. De Jesus, Jr., Atty. Ireneo T. Aguirre, Jr., Sunday O. Pineda, Porfirio
M. Florez, and Atty. Zosimo Padro, Jr. (private respondents) filed a verified letter-complaint against the
petitioners before the SEC.
In their letter-complaint, private respondents alleged that on April 23, 1996, a Special Board of Directors
Meeting was held and, thereafter, a resolution was passed by the Board of Directors of
Capitol (Board) authorizing Roman, as its President:
(a) To acquire for and in behalf of the corporation four (4) parcels of land located at
Montalban, Rizal . . . for a consideration of ONE HUNDRED FIFTY PESOS (P150.00) per sq.m.
. . .;
(b) To enter for and in behalf of the corporation [Capitol] into a Joint Venture Agreement
with ALI [Ayala Land, Inc.] for the purpose of (1) having ALI develop and market the area
occupied by the first nine (9) holes of the existing golf course of the corporation into saleable lots
in consideration of the payment to the corporation of a forty percent (40%) share in the proceeds
of the sale of such lots (NET OF TAXES AND DISCOUNTS); and (2) granting to ALI the right
to develop the Properties into a first class golf course;
(c) For the purpose of acquiring the Properties, to obtain loans from ALI for the purpose
of acquiring the Montalban properties up to an aggregate amount of One Hundred Fifty Million
(P150,000,000.00) to be secured by (a) real estate mortgage on the properties; and (b) assignment
of the proceeds to be paid in connection with the Joint Venture for the development of the first
nine (9) holes of the existing golf course of the corporation and under the Deed of Absolute Sale,
dated April 10, 1992, between ALI and the Corporation covering the sale of the former driving
range of the corporation to ALI under such terms, payment scheme and conditions as the
President may deem reasonable and necessary under the circumstances; CAIHTE
(d) To (1) negotiate, agree to terms of, execute, sign and deliver the following
agreements: (a) A letter-agreement with ALI embodying the foregoing terms; (b) A deed of sale
for the purchase of the Properties; (c) Joint Venture Agreement with ALI covering the first nine
(9) holes of the existing golf course of the corporation; (d) Promissory Notes, real estate
mortgages and assignment agreements in favor of ALI; and (e) such other documents and
agreements related to or in connection with the transactions contemplated in this resolution and
(2) to do any and all acts necessary and appropriate to carry this resolution into effect. 6
It was further alleged that Roman also asked the Board to pass a resolution authorizing a third-party,
Pacific Asia Capital Corporation (Pacific Asia), to receive from Ayala Land, Inc. (ALI) the proceeds of the loan,
or any portion thereof, and ALI to cause the release of the proceeds of the aforesaid loan, or any portion thereof,
to Pacific Asia, and that any release by ALI and receipt by Pacific Asia be deemed a valid release and receipt of
such amount; 7 that the issued resolutions were erroneously made; 8 that in evident bad faith, Roman, as President
of Capitol, never informed the Board that, at the time he made the proposals and before the resolutions were
issued, ALI had already made substantial initial cash advance in favor of Capitol but directly payable to Pacific
Asia; 9 that ALI had no legal basis to make cash advances as Roman had no authority yet to enter into any
agreement with ALI; that part of the representations made by Roman was that ALI would not commence the
conversion of the area occupied by the first nine (9) holes of the existing golf course of Capitol in Old Balara,
Quezon City, until such time that one (1) 18 hole golf course of the promised two (2) championship golf courses
in Macabud, Montalban, Rizal, would have been finished and playable; and that after more than ten (10) long
years, no golf course existed or was even under construction in Macabud, Montalban, Rizal, and yet the Old
Balara property had already been converted and developed into a residential subdivision called the Ayala Hillside
Estate. 10 aScITE
To private respondents, all these were irregularities and anomalies amounting to fraud and
misrepresentation that prompted them to ask the SEC to investigate the Board and to order the constitution of the
MANCOM to temporarily oversee the affairs of Capitol.
The said complaint was then docketed as SEC Case No. 169, series of 2007.
In its letter 11 to Roman, dated July 3, 2007, the SEC informed him of the verified complaint and gave
him 15 days upon receipt to file his answer to the said complaint.
In their Answer, 12 the petitioners invoked the SEC's lack of jurisdiction claiming that the complaint of
private respondents involved an intra-corporate controversy. Accordingly, they argued that under the  Securities
Regulation Code (SRC), jurisdiction over such intra-corporate controversies should be with the Regional Trial
Court (RTC) acting as special commercial court.
 In its December 5, 2007 Order, 13 the SEC, after finding merit in the arguments presented in the
complaint, composed the membership of the MANCOM pursuant to its authority under Section 5 of the  SRC and
Presidential Decree (P.D.) No. 902-A. Thus:
Pursuant to Section 5 of the Securities Regulation Code and Presidential Decree No. 902-
A, as amended, and finding merit in the arguments presented for the creation of a Management
Committee (Mancom) for Capitol Hills Golf and Country Club, as prayed for by the Petitioners in
their letter dated May 08, 2007, the following are hereby designated to compose the Mancom of
the aforenamed corporation:
Atty. Franklin I. Cueto - Chairman
Atty. Noel Y. Artiza - Member
Mr. Manuel Baldeo, Jr. - Member
to perform the following duties and functions, for a period of one (1) month from the date of
receipt of this Order, and until further Orders from the Commission, to prevent the paralyzation of
the operations of Capitol Hills Golf and Country Club, preserve its assets and protect the interests
of the minority stockholders and other stakeholders:DETACa
(a) Oversee and supervise the activities of the Club upon turn over thereof to the
Committee;
(b) Take custody of all the assets and properties owned or held by the Club under
management;
(c) Oversee the performance of the duties and responsibilities of the management and board
of directors of the Club, in order to preserve its assets and properties; and
(d) To perform or discharge the powers and functions of the Management Committee under
Sec. 5 of Rule 9 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies under R.A. 8799, insofar as may be applicable.
The above notwithstanding, the incumbent Board of Directors and Officers shall continue
to discharge their functions relative to the day to day operations of the Club and shall submit a
report to the Management Committee at such time and frequency as it may determine.
SO ORDERED. 14
The MANCOM, in turn, notified the petitioners of its assumption of duties. It also ordered that relevant
documents of Capitol be made available to it.
Subsequently, the petitioners questioned the December 5, 2007 SEC order before the CA via a petition
for prohibition under Rule 65 of the Rules of Court. It asked the CA to enjoin the SEC from conducting further
proceedings and to dismiss the case and, in addition, prayed for the issuance of a temporary restraining order
and/or writ of preliminary injunction.
The Ruling of the CA
In its November 30, 2010 decision, 15 the CA dismissed the petition stating that while the letter-
complaint filed by private respondents raised intra-corporate matters, the case did not necessarily involve a
controversy arising purely out of intra-corporate relations so as to deprive the SEC of its jurisdiction. The CA
pointed out that the said letter-complaint was seeking that the SEC investigate alleged irregularities committed by
the petitioners which, if found true, would constitute serious violations of the SRC and the pertinent rules and
regulations. 16 Thus, the CA concluded that private respondents were merely seeking the administrative
intervention of the SEC on a matter within its competence.
The CA agreed with the Office of the Solicitor General (OSG), representing the SEC, that the creation of
the MANCOM was authorized under SEC Memorandum Circular (MC) No. 11, Series of 2003. The said
memorandum stated that the SEC had the power "to do any and all acts to carry out the effective implementation
of the laws it is mandated to enforce, that is, constitute a management committee; appoint receivers, issue cease
and desist orders to prevent fraud or injury to the public; and such other measures to carry out its role as a
regulator." 17
In brief, the CA affirmed the power of the SEC to investigate and constitute the MANCOM because such
actions were pursuant to the administrative, supervisory and oversight powers of the SEC over Capitol. According
to the CA, no grave abuse of discretion could be attributed to the SEC. Hence, the petition was dismissed. 18
 The petitioners moved for reconsideration, but their motion was denied by the CA in its March 15, 2011
resolution.
Hence, this petition.
ISSUE/S
(1) WAS TAKING COGNIZANCE OF THE LETTER-COMPLAINT FILED BY THE
PRIVATE RESPONDENTS BEYOND THE JURISDICTION OF THE SEC?
(2) WAS THE SEC ORDER CREATING THE MANCOM ISSUED IN EXCESS OF ITS
JURISDICTION?
In its Comment, 19 the SEC submitted that it correctly took cognizance of the subject letter-complaint and
appointed the MANCOM to temporarily oversee Capitol. It asserted that Section 5 of the SRC authorized the SEC
to assume jurisdiction over the subject matter to determine whether the petitioners, who were officers of Capitol,
violated the SRC and its implementing rules and regulations. Lastly, the SEC justified its act in creating the
MANCOM on the basis of SEC-MC No. 11, Series of 2003, which included the constitution of such a committee
as one of its powers.
Private respondents, in their Comment/Opposition, 20 stated that the SEC had retained its administrative,
regulatory and oversight powers over corporations citing Orendain v. BF Homes, Inc.; 21 that in the exercise of
such powers, the SEC was justified in entertaining their letter-complaint; and that as correctly appreciated by the
CA, the letter-complaint readily showed that it was an invocation for the SEC to exercise its mandated
power/authority by conducting an investigation on the perceived irregularities and fraudulent transactions
allegedly committed by the petitioners which, if found to be true, would constitute serious violations of
the SRCand its rules and regulations. Private respondents further argued that the creation of the MANCOM was
justified under SEC-MC No. 11, Series of 2003.
The petitioners failed to file a reply despite the Court's several notices. In the Manifestation,  22 dated
April 20, 2015, their lawyer 23 explained that the petitioners had not been responding to calls or other
communication after Capitol was taken over by ALI sometime in the middle of 2011.
The Court's Ruling
The CA ruled in the negative on both scores and this Court agrees for the reasons discussed
hereinafter. ATICcS
On SEC's authority to take cognizance
of the letter-complaint
Under the SRC, jurisdiction on matters stated under Section 5 of P.D. No. 902-A, which was originally
vested in the SEC, has already been transferred to the RTC acting as a special commercial court. Despite the said
transfer, however, the SEC still retains sufficient powers to justify its assumption of jurisdiction over matters
concerning its supervisory, administrative and regulatory functions. In SEC v. Subic Bay Golf and Country Club,
Inc. (SBGCCI) and Universal International Group Development Corporation (UIGDC), 24 for instance, the Court
affirmed the SEC's assumption of jurisdiction over a complaint, which alleged that SBGCCI and UIGDC
committed misrepresentations in the sale of their shares. The Court held in the said case that nothing prevented the
SEC from assuming jurisdiction to determine if SBGCCI and UIGDC committed administrative violations and
were liable under the SRC despite the complaint having raised intra-corporate issues. It also ruled that the SEC
may investigate activities of corporations to ensure compliance with the law.
In ruling that way, the Court cited Sections 5 and 53 of the SRC as justifications, to wit:
SECTION 5. Powers and Functions of the Commission. — 5.1. The Commission shall act
with transparency and shall have the powers and functions provided by this Code, Presidential
Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company
Act and other existing laws. Pursuant thereto the Commission shall have, among others, the
following powers and functions:
(a) Have jurisdiction and supervision over all corporations,
partnerships or associations who are the grantees of primary franchises
and/or a license or permit issued by the Government;
xxx xxx xxx
(d) Regulate, investigate or supervise the activities of persons to
ensure compliance;
 xxx xxx xxx
(n) Exercise such other powers as may be provided by law as well as
those which may be implied from, or which are necessary or incidental to the
carrying out of, the express powers granted the Commission to achieve the
objectives and purposes of these laws.
xxx xxx xxx
SECTION 53. Investigations, Injunctions and Prosecution of Offenses. — 53.1. The
Commission may, in its discretion, make such investigations as it deems necessary to
determine whether any person has violated or is about to violate any provision of this Code ,
any rule, regulation or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory organization, and may require or permit any
person to file with it a statement in writing, under oath or otherwise, as the Commission shall
determine, as to all facts and circumstances concerning the matter to be investigated. . . .
Beyond doubt, therefore, is the authority of the SEC to hear cases regardless of whether an action involves
issues cognizable by the RTC, provided that the SEC could only act upon those which are merely administrative
and regulatory in character. In other words, the SEC was never dispossessed of the power to assume jurisdiction
over complaints, even if these are riddled with intra-corporate allegations, if their invocation of authority is
confined only to the extent of ensuring compliance with the law and the rules, as well as to impose fines and
penalties for violation thereof; and to investigate even motu proprio whether corporations comply with
the Corporation Code, the SRC and the implementing rules and regulations.
Thus, in this case, there is simply no doubt that the SEC acted properly in assuming jurisdiction over the
letter-complaint filed by private respondents. A perusal of their letter-complaint demonstrates that private
respondents sought the SEC's intervention in the interest of the minority stockholders by "conducting thorough
investigation" 25 on the actions of the petitioners over "the apparent anomalies and fraud over the agreement with
ALI," the growing labor unrest at [Capitol], the unpaid individual creditors some of whom have already gone into
courts to enforce collection, the continuing financial mismanagement and gross negligence and incompetence
shown by Mr. Pablo B. Roman, Jr., et al. in running the business affairs of [Capitol] . . . that resulted in losses,
wastages and dissipation of funds of the corporation." 26 Their prayer for the SEC to exercise its investigatory
powers in the end would adequately justify the assumption of jurisdiction over the letter-complaint regardless if,
indeed, intra-corporate allegations were raised. TIADCc
As the SEC is not ousted of its regulatory and administrative jurisdiction to determine and act if
administrative violations were committed, 27 no grave abuse of discretion can be attributed to it when it assumed
jurisdiction over the letter-complaint. Accordingly, the Court finds no error with what was held by the CA.
On the Constitution of
the MANCOM
The SEC submits that the power to constitute a management committee is based on its supervisory and
regulatory functions. It cites SEC-MC No. 11, Series of 2003 as authority, which provides in part:
4. Notwithstanding the foregoing, the Commission, as provided in Section 5 of
the SRC and the effective provisions of PD 902-A, shall have the power to do any and all acts to
carry out the effective implementation of the laws it is mandated to enforce, i.e.: constitute a
Management Committee; appoint receivers, issue Cease and Desist Orders to prevent fraud or
injury to the public; and such other measures to carry out its role as a regulator.
In effect, the authority of the SEC is viewed as one that is intimately related to its functions as a regulator.
The petitioners reject this and opine that constituting the MANCOM involves an intra-corporate
controversy, which is within the jurisdiction of the RTC. Invoking Section 5.2 of the SRC, they contend that the
authority to create the MANCOM is exclusive to the RTC and no longer with the SEC.
Indeed, Section 5.2. of the SRC has transferred jurisdiction over intra-corporate controversies to the RTC.
It provides:
The Commission's jurisdiction over all cases enumerated under Section 5
of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or
the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall exercise jurisdiction over
these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution which should be resolved within one (1) year from the
 enactment of this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
Relative thereto, Section 5 of P.D. No. 902-A states:
SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations registered
with it as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving
a) Devices or schemes employed by or any acts, of the board of directors, business
associates, its officers or partnership, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public and/or of the stockholder,
partners, members of associations or organizations registered with the Commission;
b) Controversies arising out of intra-corporate 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 insofar as it concerns their individual franchise or right to exist as such
entity; and
c) Controversies in the election or appointments of directors, trustees, officers or managers
of such corporations, partnerships or associations.
Clearly, any dispute concerning intra-corporate issues is now beyond the province of the SEC.
Yet, it must be stressed that under Section 5.1 (n) of the SRC, the SEC is permitted to exercise such other
powers as may be provided for by law as well as those which may be implied from, or which are necessary or
incidental to the carrying out, of the express powers granted the SEC to achieve the objectives and purposes of
these laws.
With such broad authority, it is beyond question that the SEC, as a regulator, has broad discretion to act
on matters that relate to its express power of supervision over all corporations, partnerships or associations who
are the grantees of primary franchises and/or a license or permit issued by the Government. Such grant of express
power of supervision, necessarily includes the power to create a management committee following the doctrine of
necessary implication.
The reason is simple. The creation of a management committee is one that is premised on the immediate
and speedy protection of the interest not only of minority stockholders, but also of the general public from
immediate danger of loss, wastage or destruction of assets or the paralyzation of business of a concerned
corporation or entity. 28 No body is more competent to provide such a temporary relief other than the regulatory
body of these companies — the SEC.
Thus, such authority is expressly sanctioned under SEC-MC No. 11, Series of 2003. Suffice it to state that
such circular enjoys the presumption of validity unless this Court declares otherwise. AIDSTE
WHEREFORE, the petition is DENIED.
SO ORDERED.
||| (Roman, Jr. v. Securities and Exchange Commission, G.R. No. 196329, [June 1, 2016])
 [G.R. No. 197624. July 23, 2018.]
ABACUS CAPITAL AND INVESTMENT CORPORATION, petitioner, vs. DR. ERNESTO
G. TABUJARA, respondent.
DECISION
TIJAM, J p:
This Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court assails the Decision 2 dated
July 19, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93250 which reversed the Decision 3 dated
January 16, 2009 of the Regional Trial Court (RTC) of Pasig City, Branch 153. Contrary to the RTC's findings,
the CA held petitioner Abacus Capital and Investment Corporation (Abacus) liable to respondent Dr. Ernesto G.
Tabujara (Tabujara) for the amount of his investment with interest and damages.
The Antecedents
Abacus is an investment house engaged in activities related to dealing in securities and other commercial
papers. 4 On July 6, 2000, Tabujara engaged Abacus as his lending agent for purposes of investing his money in
the principal amount of P3,000,000.00. Abacus, in turn, lent the P3,000,000.00 to Investors Financial Services
Corporation (IFSC, formerly CIPI Leasing and Finance Corporation) with a term of 32 days. 5 To confirm the
money placement, Abacus issued to Tabujara a "Confirmation of Investment" slip stating as follows: 6 ETHIDa
 
Loan Agreement No. 0003  
Borrower CIPI Leasing & Finance Corporation
Value Date 07/06/00
Maturity Date 08/07/00
Term 32 days
Principal Amount 3,000,000.00
Interest Rate 9.150000%
Interest Amount 24,400.00
Maturity Amount 3,024,400.00
 
However, on July 24, 2000 or shortly after Tabujara placed his investment, IFSC filed with the Securities
and Exchange Commission (SEC) a Petition for Declaration of Suspension of Payments. This petition was granted
by the SEC and consequently, all actions for claims against IFSC were immediately suspended. 7
Learning of this development, Tabujara gave notice to Abacus and IFSC that he is opting to pre-terminate
his money placement. Upon maturity of the loan on August 7, 2000, Tabujara did not receive either the interest
amount or the principal. 8
Meantime, IFSC's Petition for Declaration of Suspension of Payments was raffled to a regular court and
was subsequently treated as a petition for rehabilitation.9 Pursuant to IFSC's rehabilitation plan, Tabujara received
interest payments from Abacus for the period January 1, 2001 to December 31, 2001. 10 The interest due,
however, ceased to be paid come January 2002, prompting Tabujara to file his complaint a quo against Abacus
and IFSC for collection of sum of money with damages.11 In its Complaint, 12 Tabujara alleged, among others,
that his investment was co-mingled with the monies of other investors to support the credit line facility in the
amount of P700,000,000.00 which Abacus issued in favor of IFSC.
The complaint as against IFSC was dismissed on the ground of lack of jurisdiction while the same
proceeded against Abacus. TIADCc
By way of defense, Abacus insisted that Tabujara directly transacted with IFSC and that its involvement
therein was limited only to acting as collecting and paying agent for Tabujara. 13
 The RTC found that Abacus never guaranteed nor secured the obligations of IFSC which is the actual and
real borrower of Tabujara's money and against which the latter has a cause of action.  14 Nevertheless, since IFSC
is under rehabilitation, the RTC held that the latter's assets are held in trust for the equal benefit of the creditors
and Tabujara should not be paid ahead of the others. 15
In disposal, the RTC Decision 16 dated January 16, 2009 held:
WHEREFORE, foregoing premises considered, the instant case as against [Abacus] is
hereby DISMISSED.
SO ORDERED. 17
With the dismissal of its complaint, Tabujara interposed his appeal before the CA and argued that the
RTC erred in finding that sole liability for re-payment of his money placement belongs to IFSC.
In reversing the RTC's decision, the CA reasoned that the transaction in this case was a money market
transaction dealing with short-term credit instruments where lenders and borrowers do not deal directly with each
other but through a middle man. The CA found that Abacus did not only act as a middle man pursuant to is
function as an investment house, but as the "fund supplier" for the credit line facility it extended to IFSC. Further,
the CA held that Abacus is guilty of fraud in handling Tabujara's money placement, having loaned the same to
IFSC despite the latter's financial woes. 18
Thus, the CA Decision 19 dated July 19, 2011 held:
WHEREFORE, the instant appeal is GRANTED. The assailed Decision of the RTC,
Branch 153, Pasig City, dated January 16, 2009, is hereby ANNULLED and SET ASIDE, and a
new one entered ordering [ABACUS] to pay [TABUJARA] the principal amount of his
investment, P3,000,000.00, with interest at the stipulated rate of 9.15% per annumfrom January
29, 2002 until finality of judgment, and interest on interest at the legal rate of 12% from May 8,
2002 until finality of judgment. The total amount due shall earn interest at 12% per annum from
the finality of the judgment until full payment thereof. Further, [Abacus] is ordered to pay moral
damages in the amount of P100,000.00, as well as the costs of suit. cSEDTC
SO ORDERED. 20
The Issues
Abacus seeks a review of the CA's ruling through the instant petition arguing in the main that Tabujara
has no cause of action against it as the actual and real borrower is IFSC.
Ruling of the Court
We deny the petition.
An investment house is defined under Presidential Decree No. 129 21 as an entity engaged in
underwriting of securities of other corporations. In turn, "underwriting" is defined as the act or process of
guaranteeing the distribution and sale of securities of any kind issued by another corporation; while "securities" is
therein defined as written evidences of ownership, interest, or participation, in an enterprise, or written evidences
of indebtedness of a person or enterprise.Republic Act No. 8799 or the Securities Regulation Code defines
securities as shares, participation or interests in a corporation or in a commercial enterprise or profit-making
venture and evidenced by a certificate, contract, instruments, whether written or electronic in character. It
includes: (a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities; (b)
Investment contracts, certificates of interest or participation in a profit sharing agreement, certifies of deposit for a
future subscription; (c) Fractional undivided interests in oil, gas or other mineral rights; (d) Derivatives like option
and warrants; (e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates
or similar instruments; (f) Proprietary or nonproprietary membership certificates in corporations; and (g) Other
instruments as may in the future be determined by the Commission.
Purportedly in keeping with its nature as an investment house, Abacus claims to have facilitated
Tabujara's purchase of debt instruments issued by IFSC. According to Abacus, it merely purchased a unit of
participation in Loan Agreement No. 0003 issued by IFSC for Tabujara's account, using the latter's money in the
amount of P3,000,000.00. As it turns out, Abacus had an existing Loan Agreement with IFSC whereby it agreed
to grant the latter a credit line facility in the amount of P700,000,000.00. By testimonial evidence, it was
established that the moneys used to fund the P700,000,000.00 credit line facility were gathered from various
sources.22
That Tabujara's investment in the amount of P3,000,000.00 was used as part of the pool of funds made
available to IFSC is confirmed by the facts that it is Abacus, and not Tabujara, which was actually regarded as
 IFSC's creditor in the rehabilitation plan and that Abacus even proposed to assign all its rights and privileges in
accordance with the rehabilitation plan to its "funders" in proportion to their participation. As such, in a
letter 23 dated November 6, 2000, Abacus proposed passing on and assigning to Tabujara all the proceeds and
rights which it has under the rehabilitation plan in proportion to Tabujara's principal participation in the amount of
P3,000,000.00. In other words, it was really Abacus who was the creditor entitled to the proceeds of IFSC's
rehabilitation plan — thus necessitating the assignment by Abacus of said proceeds to the actual source of funds,
Tabujara included. AIDSTE
Further, as aptly observed by the CA, the transaction herein involved is akin to money market
placements. Perez v. CA, et al. 24 explains the nature of a money market transaction as follows:
As defined by Lawrence Smith, "the money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and borrowers do not deal directly
with each other but through a middle man or dealer in the open market." It involves "commercial
papers" which are instruments "evidencing indebtedness of any person or entity . . . which are
issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with
or without recourse." The fundamental function of the money market device in its operation is to
match and bring together in a most impersonal manner both the "fund users" and the "fund
suppliers." The money market is an "impersonal market," free from personal considerations. "The
market mechanism is intended to provide quick mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or
entities concerned. The issuer of a commercial paper in the money market necessarily knows in
advance that it would be expeditiously transacted and transferred to any investor/lender without
need of notice to said issuer. In practice, no notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the investor. 25
Stating that a money market placement partakes of the nature of loan, Sesbreno v. CA 26 elucidates:
In money market placement, the investor is a lender who loans his money to a borrower
through a middleman or dealer. Petitioner here loaned his money to a borrower through
Philfinance. When the latter failed to deliver back petitioner's placement with the corresponding
interest earned at the maturity date, the liability incurred by Philfinance was a civil one. As such,
petitioner could have instituted against Philfinance before the ordinary courts a simple action for
recovery of the amount he had invested and he could have prayed therein for damages. x x
x. 27 (Citations omitted)
In this case, Tabujara as the investor is the lender or the "funder" who loaned his P3,000,000.00 to IFSC
through Abacus. Thus, when the loaned amount was not paid together with the contracted interest, Tabajura may
recover from Abacus the amount so invested together with damages.
Finally, We find no reason to delete the CA's award for moral damages as it was established that
Tabujara, in his twilight years, suffered mental anguish and serious anxiety over the mishandling of his investment
which represented his savings and retirement benefits. Indeed, '[i]f there is any party that needs the equalizing
protection of the law in money market transactions, it is the members of the general public who place their savings
in such market for the purpose of generating interest revenues." 28
In accordance, however, with Nacar v. Gallery Frames, et al., 29 the legal rate of interest on the interest is
modified from 12% to 6% beginning July 1, 2013 until finality of this judgment and the total amount due shall
earn interest at the rate of six percent (6%) per annum from the finality of this judgment until full
payment. SDAaTC
WHEREFORE, the petition is DENIED. The Decision dated July 19, 2011 of the Court of Appeals in
CA-G.R. CV No. 93250 is AFFIRMED with MODIFICATION that petitioner Abacus Capital and Investment
Corporation is ordered to pay respondent Dr. Ernesto G. Tabujara the principal amount of his investment of
P3,000,000.00 with interest at the rate of 9.1500% per annum from date of demand, January 29, 2002 until finality
of this Decision, and interest on interest at the rate of twelve percent (12%) per annum from May 8, 2002 until
June 30, 2013 and thereafter, at the rate of six percent (6%) per annum until finality of this Decision. The total
amount due shall earn interest at the rate of six percent (6%) per annum from the finality of this Decision until full
payment.
SO ORDERED.
||| (Abacus Capital and Investment Corp. v. Tabujara, G.R. No. 197624, [July 23, 2018])