FIRST DIVISION
[ G.R. No. 197624, July 23, 2018 ] Principal
ABACUS CAPITAL AND INVESTMENT CORPORATION,
PETITIONER, VS. DR. ERNESTO G. TABUJARA, RESPONDENT.
DECISION
TIJAM, J.:
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]
Loan Agreement No. 0003
Borrower CIPI Leasing & Finance Corporation
Value Date 07/06/00
Maturity Date 08/07/00
Term 32 days
Amount
Interest Rate
Interest
Amount
Maturity
Amount
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
Page 1 of 94
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.
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.
[17]
SO ORDERED.
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 annum from 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.
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 non-proprietary membership certificates
Page 2 of 94
in corporations; and (g) Other instruments as may m 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.
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]
Page 3 of 94
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.

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.

Leonardo-De Castro,* (Acting Chairperson), Del Castillo, Jardeleza,

and Gesmundo,** JJ., concur.

Page 4 of 94
 SECOND DIVISION
G.R. No. 196329, June 01, 2016
PABLO B. ROMAN, JR., AND ATTY. MATIAS V. DEFENSOR, AS
OFFICERS OF THE CAPITOL HILLS GOLF AND COUNTRY
CLUB, INC., Petitioners, v. 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.:
This petition1 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:chanRoblesvirtualLawlibrary
(a) To acquire for and in behalf of the corporation four (4) parcels of
land located at Montalban, Rizal xxx for a consideration of ONE
HUNDRED FIFTY PESOS (P150.00) per sq. m. xxx;
(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;
(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.6cralawred
Page 5 of 94
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.10ChanRoblesVirtualawlibrary
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 letter11 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:chanRoblesvirtualLawlibrary
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:chanRoblesvirtualLawlibrary
Atty. Franklin I. Cueto - Chairman
Atty. Noel Y. Artiza  - Member
Mr. Manuel Baldeo, Jr. - Membercralawred
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:chanRoblesvirtualLawlibrary
(a) Oversee and supervise the activities of the
Committee;
(b) Take custody of all the assets and propertie
management;
Page 6 of 94

(c) Oversee the performance of the duties and statingresponsibilities
that while the letter-complaint filedmanagement
board of directors of the Club, in order to raised
preserve
intra-corporate
(d) To perform or discharge the powers
under Sec. 5 of Rule 9 of the Interim
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.14cralawred
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
of the
by private respondentsand
its assets
and
matters, the caseproperties; and
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
andregulations.
functions Thus,of
thethe Management Committee
16
CA concluded that private respondents were
merely seeking the administrative intervention of the SEC on a matter
Rules
withinof Procedure Governing Intra-Corporate
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."17ChanRoblesVirtualawlibrary
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.18ChanRoblesVirtualawlibrary
The petitioners moved for reconsideration, but their motion was
denied by the CA in its March 15, 2011 resolution.
Hence, this petition.
ISSUE/S
Page 7 of 94
 other communication after Capitol was taken over by ALI sometime in
(1) WAS TAKING COGNIZANCE OF THEtheLETTER-
middle of 2011. COMPLAINT FILED BY THE
PRIVATE RESPONDENTS BEYOND THE JURISDICTION OF THE SEC?
The Court's Ruling

The CA ruled in the negative on both scores and this Court agrees
for the reasons discussed hereinafter.

On SEC's authority to take cognizance of the letter-complaint

(2) WAS THE SEC ORDER CREATING THE MANCOM ISSUED IN EXCESS OF ITS
JURISDICTION? 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
In its Comment,19 the SEC submitted that it correctly took cognizance
justify its assumption of jurisdiction over matters concerning its
of the subject letter-complaint and appointed the MANCOM to
supervisory, administrative and regulatory functions. In SEC v. Subic
temporarily oversee Capitol. It asserted that Section 5 of the SRC
Bay Golf and Country Club, Inc. (SBGCCI) and Universal
authorized the SEC to assume jurisdiction over the subject matter to
International Group Development Corporation (UIGDC),24 for
determine whether the petitioners, who were officers of Capitol,
instance, the Court affirmed the SEC's assumption of jurisdiction over
violated the SRC and its implementing rules and regulations. Lastly,
a complaint, which alleged that SBGCCI and UIGDC committed
the SEC justified its act in creating the MANCOM on the basis of
misrepresentations in the sale of their shares. The Court held in the
SEC-MC No. 11, Series of 2003, which included the constitution of
said case that nothing prevented the SEC from assuming jurisdiction
such a committee as one of its powers.
to determine if SBGCCI and UIGDC committed administrative
violations and were liable under the SRC despite the complaint
Private respondents, in their Comment/Opposition,20 stated that the
having raised intra-corporate issues. It also ruled that the SEC may
SEC had retained its administrative, regulatory and oversight powers
investigate activities of corporations to ensure compliance with the
over corporations citing Orendain v. BF Homes, Inc.;21 that in the
law.
exercise of such powers, the SEC was justified in entertaining their
letter-complaint; and that as correctly appreciated by the CA, the
In ruling that way, the Court cited Sections 5 and 53 of the SRC as
letter-complaint readily showed that it was an invocation for the SEC
justifications, to wit:chanRoblesvirtualLawlibrary
to exercise its mandated power/authority by conducting an
SECTION 5. Powers and Functions of the Commission. — 5.1. The
investigation on the perceived irregularities and fraudulent
Commission shall act with transparency and shall have the powers
transactions allegedly committed by the petitioners which, if found to
and functions provided by this Code, Presidential Decree No. 902-A,
be true, would constitute serious violations of the SRC and its rules
the Corporation Code, the Investment Houses Law, the Financing
and regulations. Private respondents further argued that the creation
Company Act and other existing laws. Pursuant thereto the
of the MANCOM was justified under SEC-MC No. 11, Series of 2003.
Commission shall have, among others, the following powers and
functions:chanRoblesvirtualLawlibrary
The petitioners failed to file a reply despite the Court's several
(a) Have jurisdiction and supervision over all corporations,
notices. In the Manifestation,22 dated April 20, 2015, their lawyer23
partnerships or associations who are the grantees of primary
explained that the petitioners had not been responding to calls or
franchises and/or a license or permit issued by the Government;

Page 8 of 94

xxx
(d) Regulate, investigate or supervise the activities of persons to
ensure compliance;
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
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. xxxcralawred
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] xxx 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.
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:chanRoblesvirtualLawlibrary
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.cralawred
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.
Page 9 of 94
Indeed, Section 5.2. of the SRC has transferred jurisdiction over b) Controversies arising out of intra-corporate or
intra-corporate controversies to the RTC. It among stockholders, members, or associates;
provides:chanRoblesvirtualLawlibrary
The Commission's jurisdiction over all cases enumerated under corporation, partnership or association of whic
Section 5 of Presidential Decree No. 902-A is hereby transferred to associates, respectively; and between such co
the Courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, that the Supreme Court in the exercise of its and the state insofar as it concerns their individ
authority may designate the Regional Trial Court branches that shall entity; and
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 (l)
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.cralawred
Relative thereto, Section 5 of P.D. No. 902-A
states:chanRoblesvirtualLawlibrary
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
c)
Controversies in the election or appointment
original and exclusive jurisdiction to hear and decide cases involving
managers of such corporations, partnerships or
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
Clearly, any dispute with the issues
concerning intra-corporate Commission;
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

Page 10 of 94
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.
WHEREFORE, the petition is DENIED.
SO ORDERED.chanroblesvirtuallawlibrary
SECOND DIVISION
G.R. No. 179047, March 11, 2015
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. SUBIC
BAY GOLF AND COUNTRY CLUB, INC. AND UNIVERSAL
INTERNATIONAL GROUP DEVELOPMENT CORPORATION,
Respondents.
DECISION
LEONEN, J.:
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 Order3 to refund payments for Subic Bay Golf and
Country Club, Inc.'s shares of stock.4cralawrednad
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.6cralawrednad
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. 9cralawrednad
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.10cralawrednad
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."12cralawrednad
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
Page 11 of 94
proceeds of the sale of securities to pay UIGDC for the development accepted "as a formal complaint against Universal International
of the golf course.13cralawrednad Group Development Corporation for breach of promise/contract with
its investors who put in hard-earned money believing that they would
In the letter14 dated November 4, 2002 addressed to Atty. Justina deliver what their brochures promised to deliver." 20cralawrednad
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 In their Comment,21 SBGCCI and UIGDC averred that they had
refund of their payment for their SBGCCI shares. UIGDC did not act already substantially complied with their commitment to provide the
on their requests.15 They alleged that they purchased the shares in members a world-class golf and country club.22 The construction of
1996 based on the promise of SBGCCI and UIGDC to deliver the the golf course substantially met international standards. 23 Other
following:cralawlawlibrary proposed project developments such as the construction of villas and
a an 18 hole golf course that would meet the highest USGA residential condominium-hotels were not included in the rights
and PGA standards. purchased with member shares.24 They also denied that they failed to
b send monthly billing statements to Filart and
c A 9 hole executive course which would be completely Villareal.25cralawredcralawrednad
illuminated to allow members to play after dark
d SBGCCI and UIGDC also stressed that SBMA, under its Contract of
e A swimming pool and tennis courts Lease, was the one duty-bound to complete the golf course and
f amenities. It would be in breach of contract if it failed to complete the
g Golf Villas and Residential Condominium-Hotel golf course and the amenities. Insofar as SBGCCI's commitments
h were concerned, it was able to fully comply with its
i Driving range of 30 berths provided with a roof and obligations.26cralawrednad
illuminated to afford nighttime driving.
j
k Club facilities with a restaurant which will offer French,
Filipino and Chinese cuisine and 7 well-furnished VIP rooms In January 2003, the Securities and Exchange Commission's
which are equipped with the latest toilet and bath facilities Corporation Finance Department conducted an ocular inspection of
and are available for private meetings and conferences. 16 the project. Based on the Memorandum Report prepared by Julius H.
However, these promises were not delivered.17cralawrednad Baltazar, Specialist I, SBGCCI and UIGDC failed to comply
substantially with their commitment to complete the project. 27
Villareal and Filart also claimed that despite SBGCCI's and UIGDC's According to the Report:cralawlawlibrary
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

Page 12 of 94
 Completion
Project Description based
date/cost per
on Work Program
Prospectus

Page 13 of 94
Reconstruction/rehabilitation
of the 18-hole golf course.
This includes the construction
of the following:   

1. greens
2. fairways Before
3. road/cart paths November
4. bridges 1996
5. drainage & irrigation system P301,600[,]00
6. driving range 0.
7. tee houses

Construction of additional 9-
hole course.

After
November
1996
P156,000,000

Page 14 of 94
Construction/renovation ofBefore In the July 1, 2003 Order, the Securities and Exchange Commission's
Clubhouse with the followingNovember Corporation Finance Department gave due course to Villareal and
Filart's letter-complaint:29
facilities: 1996 WHEREFORE, upon consideration of the foregoing, the complaint of
    P192,400,000 REGINA S. FILART and MARGARITA G. VILLAREAL is hereby
1. dining areas given DUE COURSE.

2. function rooms Respondents SUBIC BAY GOLF AND COUNTRY CLUB, INC. and
3. indoor and outdoor tennis UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT
CORPORATION, are hereby ordered to refund to REGINA S.
courts FILART and MARGARITA G. VILLAREAL, within ten (10) days from
4. 25-meter swimming pool 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
5. gyms P740,000.00 each, or a total of P1,480,000.00.
6. saunas and massage room
SUBIC BAY GOLF and COUNTRY CLUB, INC. is likewise hereby
7. sport shops 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.
Condominiums, Residential
Villas, 250-bedroom hotel and Furthermore, due to its failure to comply with its undertakings in its
Registration Statement and Prospectus, tantamount to
a conference center misrepresentation, and in violation of the provisions of the Securities
Regulation Code, and its implementing rules and regulation, 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

Page 15 of 94
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.32cralawrednad
The Corporation Finance Department ordered the return of the
purchase price of shares pursuant to Rule 1433 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.34cralawrednad
SBGCCI and UIGDC filed a Petition for Review35 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.36cralawrednad
On February 10, 2004, the Securities and Exchange Commission
rendered the Decision37 affirming the July 1, 2003 Order of the
Corporation Finance Department:cralawlawlibrary
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.39cralawrednad
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.40cralawrednad
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,
2003.41cralawrednad
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.42cralawrednad
Page 16 of 94

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, 2004.44cralawrednad
SBGCCI and UIGDC filed a Petition for Review45 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.48cralawrednad
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:cralawlawlibrary
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
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.51cralawrednad
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.55cralawrednad
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 Ru|es 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 l(c) is necessary to implement the
Securities Regulation Code's mandate "to protect the investing public
from unscrupulous corporations taking advantage of every
situation[.]"61cralawrednad
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.62cralawrednad
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
Page 17 of 94
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.66cralawrednad
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.
stockholder, partners, members of associations or
organizations registered with the Commission;
b
c 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;
d
e

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:cralawlawlibrary
WHEREAS, in line with the government's policy of encouraging f Controversies in the election or appointments of directors,
investments, both domestic and foreign, and more active public trustees, officers or managers of such corporations,
participation in the affairs of private corporations and enterprises partnerships or associations.
through which desirable activities may be pursued for the promotion However, jurisdiction over intra-corporate disputes and all other
of economic development; and, to promote a wider and more cases enumerated in Section 5 of Presidential Decree No. 902-A had
meaningful equitable distribution of wealth, there is a need for an already been transferred to designated Regional Trial Courts. Section
agency of the government to be invested with ample powers to 5.2 of Republic Act No. 8799 provides:cralawlawlibrary
protect such investment and the public;

....

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

Page 18 of 94
 5.2 The Commission's jurisdiction over all casesentity's
enumerated under
franchise, permit, Section
or license 5 aof Presidential
to operate;
corporation/partnership/association and its stockholders, partners,
. Decree No. 902-A is hereby transferred tomembers, the Courts of among
or officers; and general jurisdiction
stockholders, partners, or or the
appropriate Regional Trial Court: Provided
70
associates of the entity. cralawrednad

its authority may designate the RegionalTheTrial Court

nature of branches
the controversy that
test requires shall
that the action exercise
involves
jurisdiction over these cases. The Commission shall retain jurisdiction over pending
the enforcement of corporate rights and obligations.

cases involving intra-corporate disputes submitted for final

resolved within one (1) year from the enactment
retain jurisdiction over pending suspension Condominium
30 June 2000 until fully disposed.
Courts and tribunals resolution
must consider whichrelationship
both the parties' shouldandbe
the nature ofof this Code.
the controversy The whether
to determine Commissionthey should shall
assume jurisdiction over a case. In Medical Plaza Makati
of payments/rehabilitation
Corporation v. Cullen:71 cases filed as of
[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.

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.73cralawrednad

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.68cralawrednad
For a dispute to be "intra-corporate," it must satisfy the relationship
and nature of controversy tests.69cralawrednad
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
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.

Page 19 of 94
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 powers77 and "absolute jurisdiction, supervision
and control over all corporations, partnerships' or
associations. . . ."78cralawrednad
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
securities79 for, among others, violations of the law, fraud, and
misrepresentations. Thus:cralawlawlibrary
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
iii 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;
iv
v Has been engaged or is about to engage in
fraudulent transactions;
vi
vii Has made any false or misleading representation of
material facts in any prospectus concerning the
issuer or its securities;
viii
ix 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
c 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
d
e 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.
....
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.
....
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
Page 20 of 94
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 f. Impose sanctions for the violation of laws and the
such action, and by notifying the issuer, underwriter, dealer or broker pursuant thereto;
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.chanrobleslaw
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 i. Issue cease and desist orders to prevent fraud or in
Company Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the following powers and
functions:ChanRoblesvirtualLawlibrary

. .
. .
.
.

m Suspend, or revoke, after proper notice and he

d. Regulate, investigate or supervise the activities of persons to ensure compliance;
. registration of corporations, partnerships or ass
provided by law; and

Page 21 of 94
 n. Exercise such other powers as may be provided
However, bythelaw as and
Securities well as those
Exchange which
Commission's may be
regulatory
power does not include the authority to order the refund of the
implied from, or which are necessary or incidental
purchase pricetoof the carrying
Villareal's and Filart'sout
sharesof,
in thethe express
golf club. The
powers granted the Commission to achieve the objectives and purposes of these laws.
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.
The Securities and Exchange Commission's approval of securities
registrations signals to the public that the securities are valid. It The Securities and Exchange Commission argues that the power to
provides the public with basis for relying on the representations of order a refund is in accordance with the implementing rules of the
corporations that issue securities or financial instruments. Securities Regulation Code. Despite orders from the Securities and
Exchange Commission to amend their prospectus, SBGCCI and
Any fraud or misrepresentation in the issuance of securities injures UIGDC failed to comply. Thus, Villareal and Filart were entitled to the
the public. The Securities and Exchange Commission's power to refund of the purchase price of their shares. They cite Section 14 of
suspend or revoke registrations and to impose fines and other the Implementing Rules and Regulations of the Securities Regulation
penalties provides the public with a certain level of assurance that the Code:ChanRoblesvirtualLawlibrary
securities contain representations that are true, and that
misrepresentations if later found, would be detrimental to the erring SRC Rule 14 - Amendments to the Registration Statement
corporation. It creates risks to corporations that issue securities and
adds cost to errors, misrepresentations, and violations related to the 1If a prospectus filed with the Commission unde
issuance of those securities. This protects the public who will rely on
representations of corporations and partnerships regarding financial
inaccurate in any material respect or if the iss
instruments that they issue. The Securities and Exchange information therein, the issuer shall:
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 a file an amendment to the registration statement
their shares, nothing prevented the Securities and Exchange
Commission from taking cognizance of it to determine if SBGCCI and . proposed changes which shall be reviewed by the C
UIGDC committed administrative violations and were liable under the 14 of the Code;
Securities Regulation Code. The Securities and Exchange
Commission may investigate activities of corporations under its
jurisdiction to ensure compliance with the law.

Page 22 of 94
 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
c where material amendments have been made to theproviding
statements, prospectus after
for the terms the effective
and conditions date
for registration,
. thereof, purchasers may, within thirty (30) days from the date of such notification,
and imposing fines and penalties.

renounce their purchase of securities, whereupon the issuer,

The implementing rules cannotor any person
be interpreted to give theacting
Securitieson
behalf of the issuer in connection with the distribution of said securities, shall, within
and Exchange Commission the power that is more than what is ten
provided under the Securities Regulation Code. Implementing rules
(10) days from receipt of notification of suchareelection, return
limited by the laws the contributions
they implement. The rules cannot bepaidused toby
such purchasers without making any deductions. amend,Purchasers
expand, or modifywhothe lawdecide not to The
being implemented. renounce
law shall
prevail in case of inconsistency between the law and the rules.
their purchase of securities shall be subject to the terms of the amended offering.
(Emphasis supplied) 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.

....

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
. . . 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

Page 23 of 94
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.

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-nrnking 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.chanrobles virtuallawlibrary

Carpio, (Chairperson), Brion, Del Castillo, and Perez,*JJ.,

concur.ChanRoblesVirtualawlibrary

Page 24 of 94
 SECOND DIVISION
G.R. No. 197032, July 26, 2017 Q03: State your reason why you are here at the NB
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. PRICE
RICHARDSON CORPORATION, CONSUELO VELARDE-ALBERT,
AND GORDON RESNICK, Respondents.
DECISION
LEONEN, J.:
The determination of probable cause for purposes of filing an A: I am here to give a statement about the
information is lodged with the public prosecutor. It is not reviewable RICHARDSON CORPORATION.
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,
20053 and July 5, 20064 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
Q04: What do you mean by "boiler room"?
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, 10 alleging 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:

Page 25 of 94
A: A boiler room is a company which sells non-existent
A: I used stocks
to work
to there
investors
as aby
telemarketer
using from
high pressure sales tactics. They had no intention2001.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 Q06: As telemarketer
Richardson. Boiler Roomat Price Richardson
operation is an what do y
illegal activity considering that the company has no license from the Securities and
Exchange Commission to deal on securities or stocks.

A: Our supervisor would give "leads" for me to c

investors. Upon contracting a prospective inve
or presentation of the company's profile and t
interested, I will write all the information abo
same to our supervisor JOVY AGUDO. All our l

Q05: Why do you know that Price Richardson is a "boiler room"?

Page 26 of 94
Q07: As a telemarketer, how many calls do you
A:makeThe
in a
company
day andwill
howsend
many him
investors
a newsletter and
do you qualify? and [use] high-pressure sales tactics to mak
salesmen would use the data and information
would make reference to the calls or initial c
[A:] I average 100 calls a day and I can qualify investor agreed,
an average of sixthe(6)
salesman would give h
would[-]be
investors daily. money to the company. Usually, the pay
transfers. After the payment has been receive
be sen[t] by the courier to the investor indicat
where the alleged investment was made, the
share, the tax and commissions paid. Howe
certificates will be issued for in truth and
.... transfer of stocks or certificates for they are
investor would then sell his certificates or
convince the investor not to sell in order not t
company would disappear and would spring up
Q10: After you qualify a prospective investor, what happens next?

Page 27 of 94

Q11: Who are these salesmen?
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].
A: The salesmen are all foreigners of various nationalities.
In fact They
we have been instructed used
to use alsoof a
the name prepared
Price Richardson
in our calls starting September 2001.
script to induce the prospective client to invest.
....

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".

....

11. Q: What does these "Financial News Letter" contain?

A: It contains the current status of the worldwide stock market.
Q13: Do you know if these salesmen are licensed stockbrokers duly authorized by the
Securities and Exchange Commission? 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
A: They are not licensed by the Securities
letter. and Exchange Commission. They are
tourists here in the country and they used aliases to hide their identities.
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

Page 28 of 94
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.
....
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
Division18 and the Securities and Exchange Commission19 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 2820 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 26.325 and 28 of the Securities
Regulation Code.26 Baybay, 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
Page 29 of 94
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
reconsideration47 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 Review49 of State Prosecutor
Reyes' March 13, 2002 and May 31, 2002 Resolutions. This was
denied in the April 12, 2005 Resolution50 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
Certiorari53 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
Page 30 of 94
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 Review65 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 Comment76 on January 11, 2012 while
respondent Velarde-Albert filed her Comment77 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
Page 31 of 94
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 Memorandum85 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 the Revised Penal Code.
I [Preliminary investigation] is not the occasion for the full and
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:
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
Page 32 of 94
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
....
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.
Page 33 of 94
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:
....
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.
....
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:
....
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:
(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 Certification110 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." 111 Petitioner
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 w
consultant geared towards portfolio investment
investors . . .
b) Detailed Quotes of OWTNF Otis-Winston L
Bloomberg.com website which indicates its pr
matters . . .
Page 34 of 94
c) Confirmation of Trade issued by the respondent
g) Confirmation
to its client
of Trade
MR. PETER
issuedVAN
by the
DERrespondent
HAEGEN which indicates that he bought on Oc[to]ber
2000 shares
16, 2001
of OWTNF
750 Otis-[W]inston
at $5.05 per share for wh
Ltd at $4.15 price per share for $3,112.50. . .

h) Telegraphic Transfers issued by China Bank

d) Confirmation of Trade issued by the respondentCalifornia
to MR. RENNY
International
NAIR whoNY bought
with Price
500Richardson
shares of Hugo International (HGOI) at $5.75 per
theshare
beneficiary
for whichinhe
the
paid
amount
$2,932.50
of $2000
. and
. . and Telegraphic Transfer from Oman U.A.E. Bank
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 . . .

i) Confirmation of Trade issued by the respondent

2500 shares of OWTNF at $3.90 per share and s
which he paid $3,525 . . .

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
j) First per share
Hawaiian Bank for which
check he paid
issued by Junzo Wat
$2,575.50 . . . Richardson[.] 113

f) Confirmation of Trade issued by the respondent

Petitionerto MR.
further JUERGEN
supports its chargesGEIGER
by submittingwho bought
the complaint-
affidavits and letters of individuals who transacted with Price
2500 shares of Hugo International atRichardson:
$4.65 per share for which he paid
$11,857.50 . . .
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.

Page 35 of 94
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.
Page 36 of 94
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.

Page 37 of 94
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.:
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.
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
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
Page 38 of 94
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.
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 Motion16 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
The Court of Appeals promulgated a Decision19 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 that22:
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
Page 39 of 94
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.)
The SEC filed a Motion for Reconsideration, which the Court of
Appeals denied in a Resolution23 issued on 30 September 1998.
Hence, the present petition, which relies on the following grounds 24:
I binding and effective.
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 DISCOLSED [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/PROCEEDINGS25 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 the Securities 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:
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. Sctions 8, 30 and 36 of the Revised Securities Act do not
require the enactment of implementing rules to make them
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)
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
Page 40 of 94
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 the Revised
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.
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins33
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
Page 41 of 94
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
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 Securties 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.
(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."
(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
Page 42 of 94
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.
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:
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
Page 43 of 94
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
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. x x x. 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.
For the same reason, the Court of Appeals made an evident mistake
when it ruled that no civil, criminal or administrative actions can
Page 44 of 94
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 855 of the Revised 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.
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:
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
Page 45 of 94
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 x x x."
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. x x x 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:
xxxx
(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;
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;
xxxx
(j) Imposes charges, fines and fees, which by law, it is authorized to
collect;
xxxx
Section 2. Powers of the Hearing Officer. The Hearing Officer shall
have the following powers:
xxxx
4. To cite and/or declare any person in direct or indirect contempt in
accordance with pertinent provisions of the Rules of Court.
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
Page 46 of 94
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:
xxxx
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;
xxxx
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;
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:
xxxx
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:
[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
Page 47 of 94
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
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 2768
and 2369 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.
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,
Page 48 of 94
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.
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.
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 of probable
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.
Page 49 of 94
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.
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.
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
Page 50 of 94
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.
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.
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.
ZUNO, 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.
x-----------------------------x
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
Page 51 of 94
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.:
Before us are two consolidated Petitions for Review on Certiorari
assailing the Decisions of the Court of Appeals in CA-G.R. SP No.
873281 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 723 of the General Banking Act (Republic Act
No.337).4 In sum, SCB was able to sell GTPMF securities worth
around ₱6 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.
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 198
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.
Page 52 of 94
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 ₱30,000.00.
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.
Subsequently, the SEC and SCB reached an amicable
settlement.1awphi1.net
On January 20, 2004, the SEC lifted its Cease and Desist Order and
approved the ₱7 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 8.19 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 Resolution11 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.1avvphi1.net 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
Page 53 of 94
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.
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
Page 54 of 94
 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.
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.
Page 55 of 94
SO ORDERED.
THIRD DIVISION
[G.R. NO. 171815 : August 7, 2007]
CEMCO HOLDINGS, INC., Petitioner, v. NATIONAL LIFE
INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent.
DECISION
CHICO-NAZARIO, J.:
This Petition for Review under Rule 45 of the Rules of Court seeks to
reverse and set aside the 24 October 2005 Decision1 and the 6
March 2006 Resolution2 of the Court of Appeals in CA-G.R. SP No.
88758 which affirmed the judgment3 dated 14 February 2005 of the
Securities and Exchange Commission (SEC) finding that the
acquisition of petitioner Cemco Holdings, Inc. (Cemco) of the shares
of stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas
Cement Corporation (ACC) in Union Cement Holdings Corporation
(UCHC) was covered by the Mandatory Offer Rule under Section 19
of Republic Act No. 8799, otherwise known as the Securities
Regulation Code.
The Facts
Union Cement Corporation (UCC), a publicly-listed company, has two
principal stockholders - UCHC, a non-listed company, with shares
amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of
UCHC's stocks were owned by BCI with 21.31% and ACC with
29.69%. Cemco, on the other hand, owned 9% of UCHC stocks.
In a disclosure letter dated 5 July 2004, BCI informed the Philippine
Stock Exchange (PSE) that it and its subsidiary ACC had passed
resolutions to sell to Cemco BCI's stocks in UCHC equivalent to
21.31% and ACC's stocks in UCHC equivalent to 29.69%.
In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it
was stated that as a result of petitioner Cemco's acquisition of BCI
and ACC's shares in UCHC, petitioner's total beneficial ownership,
direct and indirect, in UCC has increased by 36% and amounted to at
least 53% of the shares of UCC, to wit4 :
Particulars
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.
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
Page 56 of 94
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 Code and its
Implementing Rules applies to Cemco's purchase of UCHC stocks.
The decretal portion of the said Decision reads:
IN VIEW OF THE FOREGOING, the assailed decision of the SEC is
AFFIRMED, and the preliminary injunction issued by the Court
LIFTED.5
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.
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.
Page 57 of 94
In taking cognizance of respondent's complaint against petitioner and
eventually rendering a judgment which ordered the latter to make a
tender offer, the SEC was acting pursuant to Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities
Regulation Code, to wit:
13. Violation
If there shall be violation of this Rule by pursuing a purchase of
equity shares of a public company at threshold amounts without the
required tender offer, the Commission, upon complaint, may nullify
the said acquisition and direct the holding of a tender offer. This shall
be without prejudice to the imposition of other sanctions under the
Code.
The foregoing rule emanates from the SEC's power and authority to
regulate, investigate or supervise the activities of persons to ensure
compliance with the Securities Regulation Code, more specifically
the provision on mandatory tender offer under Section 19 thereof. 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
(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:
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. x x x 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, x x x.
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.
Page 58 of 94
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 Commission9 :
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
Appeals11 :
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
Page 59 of 94
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
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?cralaw
library
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
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.)
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
Page 60 of 94
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. x x x.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.
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. x x x.
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
Page 61 of 94
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.
SO ORDERED.
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.:
We resolve the motion for reconsideration1 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 the Amended
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 (₱1,937,262.80) 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
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
₱40 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:
Page 62 of 94
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.
17.2. The reportorial requirements of Subsection 17.1 shall apply to
the following:
xxxx
c) An issuer with assets of at least Fifty million pesos
(₱50,000,000.00) 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 (₱50,000,000.00) 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 ₱50,000,000.00 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 SRC provisions 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.
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.
Page 63 of 94
WHEREFORE, premises considered, petitioner Philippine Veterans
Bank’s motion for reconsideration is hereby DENIED with finality.
SO ORDERED.

Page 64 of 94
G.R. No. 164197               January 25, 2012
SECURITIES AND EXCHANGE COMMISSION, Petitioner,
vs.
PROSPERITY.COM, INC., Respondent.
DECISION
ABAD, J.:
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 ₱50,000.00.
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 the Securities
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 certiorari against 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.
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
Page 65 of 94
concur: (1) a contract, transaction, or scheme; (2) an investment of WHEREFORE, the Court DENIES the petition and AFFIRMS the
money; (3) investment is made in a common enterprise; (4) decision dated July 31, 2003 and the resolution dated June 18, 2004
expectation of profits; and (5) profits arising primarily from the efforts of the Court of Appeals in CA-G.R. SP 62890.
of others. 11 Thus, to sustain the SEC position in this case, PCI’s SO ORDERED.
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.1âwphi1
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 ₱50,000.00 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.

Page 66 of 94

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.
MELO, J.:
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 present ponencia.
The antecedent facts are as follows:lawphil.net
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:
1) 142,285 shares of stock in ABT Enterprises valued at
P14,228,500.00;itc-alf
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;itc-alf
5) 1,800 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;lawphil.net
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 dispute 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:itc-alf
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.lawphil.net
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.
Page 67 of 94
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 Appeals, 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. Conception, 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 not 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
Page 68 of 94
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.
Petitioner is also mistaken in her contention that private respondent
violated Supreme Court Circular 28-91, dated September 17, 1991
and 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).1âwphi1.nêt
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.
Petitioner is also mistaken in her contention that private respondent
violated Supreme Court Circular 28-91, dated September 17, 1991
and transfer having been affected 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.
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
Page 69 of 94
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.1âwphi1.nêt
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.lawphil.net

Page 70 of 94
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.:
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.
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
Counterclaim7 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
Page 71 of 94
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
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
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
Page 72 of 94
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.
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
Page 73 of 94
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
Page 74 of 94
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.
x x x. (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:
x x x. 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. x x x. (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 for certiorari, 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 discretion amounting 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].
Page 75 of 94
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.
x x x.
x x x 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:
x x x. Injunction is not designed to protect contingent or future rights.
It is not proper when the complainant’s right is doubtful or disputed.
x x x, 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). x x x. (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:
x x x. 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
Page 76 of 94
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 controversy32 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.
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)1avvphi1.net
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
(3) Controversies in the election or appointment of directors, trustees,
officers, or managers of corporation, partnerships or associations;
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 x x x on one hand and petitioners x x x on the other. x x
x. 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
Clearly, therefore, said Rule empowers the special corporate courts
to decide election cases x x x.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
Page 77 of 94
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.
SO ORDERED.
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.
x - - - - - - - - - - - - - - - - - - - - - - -x
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 Respondents.
DECISION
TINGA, J.:
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, proxies2 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
Petition13 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-Puno19 "or any officer
representing MERALCO Management," and to annul and declare
invalid said proxies.20 GSIS also prayed for the issuance of a Cease
Page 78 of 94
and Desist Order (CDO) to restrain the use of said proxies during the
annual meeting scheduled for the following day.21 A CDO22 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 the CDO 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 prohibition25 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.
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
Page 79 of 94
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
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.
II.
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 on certiorari, 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.
xxx 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
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
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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])
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 for certiorari 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 CDO and
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
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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 (the ponente) 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: xxx (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 of Presidential 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:
Page 82 of 94
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
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
Page 83 of 94
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
(g) To pass upon the validity of the issuance and use of proxies and
voting trust agreements for absent stockholders or members;
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.
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.45 Voting 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
Page 84 of 94
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) of
Presidential 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.
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
Page 85 of 94
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
(i) Issue cease and desist orders to prevent fraud or injury to the
investing public;
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 this Code, 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
Page 86 of 94
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."
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 CDO under
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 x x x" 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 nay 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
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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.
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 Martinez was 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
Page 88 of 94
acts and deeds as may be necessary in the day-to-day operation of
the Commission".1avvphi1
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 CDO and 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 GSIS66 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
Page 89 of 94
of contracts/agreements and others, as GSIS may decide or clarify consequential points of law, points rooted in principles which
determine from time to time: Provided, however, That the present will endure long after the names of the participants in these cases
legal services group in GSIS shall serve as its in-house legal have been forgotten.
counsel. WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for
The GSIS may, subject to approval by the proper court, deputize any lack of capacity of the petitioner to bring forth the suit.
personnel of the legal service group to act as special sheriff in the The petition in G.R. No. 183905 is DISMISSED for lack of merit
enforcement of writs and processes issued by the court, quasi- except that the second and third paragraphs of the fallo of the
judicial agencies or administrative bodies in cases involving GSIS. 67 assailed decision dated 23 July 2008 of the Court of Appeals,
The designation of the OGCC as the legal counsel for GOCCs is set including subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the
forth by statute, initially by Rep. Act No. 3838, then reiterated by the second paragraph, are hereby DELETED.
Administrative Code of 1987.68 Given that the designation is statutory No pronouncements as to costs.
in nature, there is no impediment for Congress to impose a different SO ORDERED.
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 charter70 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
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

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G.R. No. 154131             July 20, 2006
SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs.
PERFORMANCE FOREIGN EXCHANGE CORPORATION,
respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the Petition for Review on Certiorari 1 assailing
the Decision2 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.
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 of
currency 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 letter7 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.
Page 91 of 94
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 of commodity futures contracts;9 and that such contracts
may be considered a form of financial derivatives instruments, the
trading of which is regulated by BSP.
On February 16, 2001, respondent filed a Manifestation With Urgent
Motion10 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.
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.
Page 92 of 94
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, 2001 and 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 Resolution17 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.
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.
x x x. (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
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,
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can only be undertaken by banks, or non-bank financial the nature of respondent’s business, there was no factual and legal
intermediaries performing quasi-banking functions and/or its basis to justify the issuance of such order.
subsidiaries/affiliates.20 (Underscoring supplied) Which brings us to the second requirement. Before a cease and
Petitioner’s act of referring the matter to the BSP is an essential part desist order may be issued by the SEC, there must be a showing that
of the investigation and verification process. In fact, such referral the act or practice sought to be restrained will operate as a fraud on
indicates that petitioner concedes to the BSP’s expertise in investors or is likely to cause grave, irreparable injury or prejudice to
determining the nature of respondent’s business. It bears stressing, the investing public. Such requirement implies that the act to be
however, that such investigation and verification, to be proper, must restrained has been determined after conducting the proper
be conducted by petitioner before, not after, issuing the Cease and investigation/verification. In this case, the nature of the act to be
Desist Order in question. This, petitioner utterly failed to do. The restrained can only be determined after the BSP shall have
issuance of such order even before it could finish its investigation submitted its findings to petitioner. However, there is nothing in the
and verification on respondent’s business activity obviously questioned Orders that shows how the public is greatly prejudiced or
contravenes Section 64 of R.A. No. 8799 earlier quoted. damaged by respondent’s business operation.
Worse, when respondent filed a motion praying that the same order In sum, we find no reversible error committed by the Court of Appeals
be lifted for being premature, petitioner, in its Order dated February in rendering its assailed Decision and Resolution.
9, 2001, even denied the motion despite its admission therein that it WHEREFORE, we DENY the petition. The challenged Decision and
cannot determine certain material facts involving respondent’s Resolution of the Court of Appeals in CA-G.R. SP No. 65217 are
transactions and, as such, the matter must be referred to the BSP for AFFIRMED.
determination, thus: SO ORDERED.
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 x x x 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

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