PHILIPPINE ASSOCIATION OF STOCK TRANSFER AND REGISTRY AGENCIES,

INC. VS. COURT OF APPEALS,

G.R. No. 137321 October 15, 2007

FACTS:
Petitioner Philippine Association of Stock Transfer and Registry Agencies, Inc. is an
association of stock transfer agents principally engaged in the registration of stock transfers in
the stock-and-transfer book of corporations. Petitioner’s Board of Directors unanimously
approved a resolution allowing its members to increase the transfer processing fee. The
resolution also authorized the imposition of a processing fee for the cancellation of stock
certificates. According to petitioner, the rates had to be increased since it had been over five
years since the old rates were fixed and an increase of its fees was needed to sustain the financial
viability of the association and upgrade facilities and services. After a dialogue with petitioner,
public respondent Securities and Exchange Commission (SEC) allowed petitioner to impose the
increase of fees. But, approval of the additional increase of the transfer fees to was withheld until
after a public hearing. Thereafter, the Philippine Association of Securities Brokers and Dealers,
Inc. registered its objection to the measure advanced by petitioner and requested the SEC to defer
its implementation. SEC advised petitioner to hold in abeyance the implementation of the
increases until the matter was cleared with all the parties concerned. The SEC stated that it was
reconsidering its earlier approval in light of the opposition and required petitioner to file
comment. Petitioner nonetheless proceeded with the implementation of the increased fees. The
SEC wrote petitioner reiterating the directive of holding the increase. Following a complaint
from the Philippine Stock Exchange, the SEC again sent petitioner a second letter strongly
urging petitioner to desist from implementing the new rates in the interest of all participants in
the security market. Petitioner replied that it had no intention of defying the orders but stated that
it could no longer hold in abeyance the implementation of the new fees because its members had
already put in place the procedures necessary for their implementation. Petitioner also argued
that the imposition of the processing fee was a management prerogative, which was beyond the
SEC’s authority to regulate absent an express rule or regulation. The SEC then an issued order
enjoining petitioner from imposing the new fees.

ISSUE:
Did SEC acted with grave abuse of discretion or lack or excess of jurisdiction in issuing
the controverted Orders?

RULING:
No. Before its repeal, Section 47 of the Revised Securities Act gave the Securities and
Exchange Commission (SEC) the power to enjoin the acts or practices of the securities-related
organizations without even first conducting a hearing if, upon investigation or verification, the
Securities and Exchange Commission (SEC) is of the opinion that there exists the possibility that
the act or practice may cause grave or irreparable injury to the investing public. We find the
instant petition bereft of merit. The Court notes that before its repeal, Section 47 of The Revised
Securities Act clearly gave the SEC the power to enjoin the acts or practices of securities-related
organizations even without first conducting a hearing if, upon proper investigation or
verification, the SEC is of the opinion that there exists the possibility that the act or practice may
cause grave or irreparable injury to the investing public, if left unrestrained. Section 47 enforces
the power of general supervision of the SEC under Section 40 of the then Revised Securities Act.
Securities and Exchange Commission is without authority to substitute judgment for the
corporation’s board of directors on business matters so long as the board of directors acts in good
faith but has the power to cases where there is involved an act which if pursued may cause grave
or irreparable injury or prejudice to the investing public. The Court held that the SEC is without
authority to substitute its judgment for that of the corporation’s board of directors on business
matters so long as the board of directors acts in good faith. This Court notes, however, that this
case involves, not whether petitioner’s actions pertained to management prerogatives or whether
petitioner acted in good faith. Rather, this case involves the question of whether the SEC had the
power to enjoin petitioner’s planned increase in fees after the SEC had determined that said act if
pursued may cause grave or irreparable injury or prejudice to the investing public. Petitioner was
fined for violating the SEC’s cease-and-desist order which the SEC had issued to protect the
interest of the investing public, and not simply for exercising its judgment in the manner it deems
appropriate for its business. The regulatory and supervisory powers of the Commission under
Section 40 of the then Revised Securities Act were broad enough to include the power to regulate
the fees imposed by an association of stock transfer agents. The regulatory and supervisory
powers of the Commission under Section 40 of the then Revised Securities Act, in our view,
were broad enough to include the power to regulate petitioner’s fees. Indeed, Section 47 gave the
Commission the power to enjoin motu proprio any act or practice of petitioner which could cause
grave or irreparable injury or prejudice to the investing public. The intentional omission in the
law of any qualification as to what acts or practices are subject to the control and supervision of
the SEC under Section 47 confirms the broad extent of the SEC’s regulatory powers over the
operations of securities-related organizations like petitioner.
 SECURITIES AND EXCHANGE COMMISSION VS. COURT OF APPEALS

G.R. Nos. 106425 & 106431-32 July 21, 1995

FACTS:
Cualoping Securities Corporation (CUALOPING for brevity) is a stockbroker, Fidelity
Stock Transfer, Inc. (FIDELITY for brevity), on the other hand, is the stock transfer agent of
Philex Mining Corporation (PHILEX for brevity). On or about the first half of 1988, certificates
of stock of PHILEX representing one million four hundred [thousand] (1,400,000) shares were
stolen from the premises of FIDELITY. These stock certificates consisting of stock dividends of
certain PHILEX shareholders had been returned to FIDELITY for lack of forwarding addresses
of the shareholders concerned. Later, the stolen stock certificates ended in the hands of a certain
Agustin Lopez, a messenger of New World Security Inc., an entirely different stock brokerage
firm. In the first half of 1989, Agustin Lopez brought the stolen stock certificates to
CUALOPING for trading and sale with the stock exchange. When the said stocks were brought
to CUALOPING, all of the said stock certificates bore the "apparent" indorsement (signature) in
blank of the owners (the stockholders to whom the stocks were issued by PHILEX) thereof.
Agustin Lopez on the other hand was paid by CUALOPING with several checks for the value of
the stocks. After acquiring knowledge of the pilferage, FIDELITY conducted an investigation
and found that two of its employees were involved and signed the certificates. After two (2)
months from receipt of said stock certificates, FIDELITY rejected the issuance of new
certificates in favor of the buyers for reasons that the signatures of the owners of the certificates
were allegedly forged and thus the cancellation and new issuance thereof cannot be effected.
FIDELITY sought an opinion on the matter from SEC, which summoned FIDELITY and
CUALOPING to a conference. In this meeting, the parties made some stipulations.

ISSUE:
Was there negligence or fraud akin to bad faith in this case?

RULING:
Yes. To constitute a violation of the Revised Securities Act that can warrant an
imposition of a fine under Section 29 (3) in relation to Section 46 of the Act, fraud or deceit, not
mere negligence, on the part of the offender must be established. There is, to our mind, no
question that both FIDELITY and CUALOPING have been guilty of negligence in the conduct
of their affairs involving the questioned certificates of stock. To constitute, however, a violation
of the Revised Securities Act that can warrant an imposition of a fine under Section 29(3), in
relation to Section 46 of the Act, fraud or deceit, not mere negligence, on the part of the offender
must be established. Fraud here is akin to bad faith which implies a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity; it is unlike that of the
negative idea of negligence in that fraud or bad faith contemplates a state of mind affirmatively
operating with furtive objectives. Given the factual circumstances found by the appellate court,
neither FIDELITY nor CUALOPING, albeit indeed remiss in the observance of due diligence,
can be held liable under the above provisions of the Revised Securities Act. We do not imply,
however, that the negligence committed by private respondents would not at all be actionable;
upon the other hand, as we have earlier intimated, such an action belongs not to the SEC but to
those whose rights have been injured. The Revised Securities Act is designed to protect public
investors from fraudulent schemes by regulating the sale and disposition of securities, creating
for this purpose a Securities and Exchange Commission to ensure proper compliance with law.
The Revised Securities Act (Batas Pambansa Blg. 178) is designed, in main, to protect public
investors from fraudulent schemes by regulating the sale and disposition of securities, creating,
for this purpose, a Securities and Exchange Commission to ensure proper compliance with the
law. Here, the SEC has aptly invoked the provisions of Section 29, in relation to Section 46, of
the Revised Securities Act.
 ONAPAL PHILIPPINES COMMODITIES, INC. VS. COURT OF APPEALS

G.R. No. 90707 February 1, 1993

FACTS:
The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly organized
and existing corporation, was licensed as commission merchant/broker by the SEC, to engage in
commodity futures trading in Cebu City under Certificate of Registration No. CEB-182. On
April 27, 1983, petitioner and private respondent concluded a "Trading Contract". Like all
customers of the petitioner, private respondent was furnished regularly with "Commodities Daily
Quotations" showing daily movements of prices of commodity futures traded and of market
reports indicating the volume of trade in different future exchanges in Hongkong, Tokyo and
other centers. Every time a customer enters into a trading transaction with petitioner as broker,
the trading order is communicated by telex to its principal, Frankwell Enterprises of Hongkong.
If the transaction, either buying or selling commodity futures, is consummated by the principal,
the petitioner issues a document known as "Confirmation of Contract and Balance Sheet" to the
customer. An order of a customer of the petitioner is supposed to be transmitted from Cebu to
petitioner's office in Manila. From Manila, it should be forwarded to Hongkong and from there,
transmitted to the Commodity Futures Exchange in Japan.

There were only two parties involved as far as the transactions covered by the Trading Contract
are concerned — the petitioner and the private respondents. A commodity futures contract is a
specie of securities included in the broad definition of what constitutes securities under Section 2
of the Revised Securities Act. Petitioner now contends that commodity futures trading is a
legitimate business practiced in the United States, recognized by the SEC and permitted under
the Civil Code, specifically Article 1462 thereof. Petitioner further argues that the SEC, in the
exercise of its powers, authorized the operation of commodity exchanges to supervise and
regulate commodity futures trading. The contract between the parties falls under the kind
commonly called "futures". The facts as disclosed by the evidence on record show that private
respondent made arrangements with Elizabeth Diaz, Account Executive of petitioner for her to
see Mr. Albert Chiam, petitioner's Branch Manager. The contract signed by private respondent
purports to be for the delivery of goods with the intention that the difference between the price
stipulated and the exchange or market price at the time of the pretended delivery shall be paid by
the loser to the winner.

ISSUE:
Is the written trading contract in question is illegal?

RULING:
No. The written trading contract in question is not illegal but the transaction between the
petitioner and the private respondent purportedly to implement the contract is in the nature of a
gambling agreement. Commodity Futures Trading contract is not illegal but transaction between
parties to implement contract is in the nature of a gambling agreement. The trading contract
signed by private respondent and Albert Chiam, representing petitioner, is a contract for the sale
of products for future delivery, in which either seller or buyer may elect to make or demand
delivery of goods agreed to be bought and sold, but where no such delivery is actually made. By
delivery is meant the act by which the res or subject is placed in the actual or constructive
possession or control of another. It may be actual as when physical possession is given to the
vendee or his representative; or constructive which takes place without actual transfer of goods,
but includes symbolic delivery or substituted delivery as when the evidence of title to the goods,
the key to the warehouse or bill of lading/warehouse receipt is delivered. As a contract in printed
form, prepared by petitioner and served on private respondent, for the latter's signature, the
trading contract bears all the indicia of a valid trading contract because it complies with the
Rules and Regulations on Commodity Futures Trading as prescribed by the SEC. But when the
transaction which was carried out to implement the written contract deviates from the true import
of the agreement as when no such delivery, actual or constructive, of the commodity or goods is
made, and final settlement is made by payment and receipt of only the difference in prices at the
time of delivery from that prevailing at the time the sale is made, the dealings in futures become
mere speculative contracts in which the parties merely gamble on the rise or fall in prices. A
contract for the sale or purchase of goods/commodity to be delivered at future time, if entered
into without the intention of having any goods/commodity pass from one party to another, but
with an understanding that at the appointed time, the purchaser is merely to receive or pay the
difference between the contract and the market prices, is a transaction which the law will not
sanction, for being illegal. The written trading contract in question is not illegal but the
transaction between the petitioner and the private respondent purportedly to implement the
contract is in the nature of a gambling agreement and falls within the ambit of Article 2018 of the
New Civil Code. x x x