SECURITIES AND REGULATION CODE

NATURE:
Section 2. Declaration of State Policy. – The State shall establish
a socially conscious, free market that regulates itself, encourage
the widest participation of ownership in enterprises, enhance
the democratization of wealth, promote the development of
the capital market, protect investors, ensure full and fair
disclosure about securities, minimize if not totally eliminate
insider trading and other fraudulent or manipulative devices
and practices which create distortions in the free market. To
achieve these ends, this Securities Regulation Code is hereby
enacted.

JURISDICTION:

5.2. The Commission’s jurisdiction over all cases enumerated

under section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over the
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 payment/rehabilitation
cases filed as of 30 June 2000 until finally disposed.

CASES:

ROMAN JR V. SEC

FACTS:
A Special Board of Directors Meeting was held and, thereafter,
a resolution was passed by the Board of Directors, authorizing
its president ROMAN to acquire certain parcels of land on
behalf of the corporation and to enter a joint venture
agreement with AYALA Corporation concerning the purchasing
of a land.
Notably, it was discovered that even before the corporation
had given ROMAN the authority to enter a joint agreement with
AYALA, ROMAN had already made a pre-arrangement with
AYALA. Allegedly, ROMAN prematurely made cash
advancements without even informing the Board of Directors.
Because of this, a complaint was filed before the SEC against
ROMAN, and to conduct an investigation on such ANOMALIES.

ROMAN questioned the complaint filed with the SEC, arguing

that it is the RTC which has jurisdiction over the same pursuant
to sec 5.2 of R.A 8799 and not the SEC.

ISSUE:
Who has jurisdiction to take over the letter complaint?

HELD:
The SEC has jurisdiction.

The law grants 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.

ORENDAIN V. BF HOMES

DOCTRINE:
The SEC has no jurisdiction over matter which are purely civil in
nature. The rule that the SEC may take cognizance of a case,
involving civil aspects, applies only if the same controversy, also
includes with it intra corporate matters, but not when the issue is
purely civil in character.

FACTS:
BF Homes is a domestic corporation involved in developing and
selling residential lots filed a petition for rehabilitation and
suspension of payments as it incurred liabilities in the course of
its operations. SEC ordered the appointment of a rehabilitation
receiver with herein petitioner Orendain as its Chairman.
Sometime later, BF Homes represented by Orendain sold a
parcel of land to the Local Superior of the Franciscan Sisters of
the Immaculate Phils. Inc (LSFSIPI). SEC ordered a new
committee of receivers and relieved Orendain of his duties.

BF Homes then filed before the court, an action for

reconveyance of the property sold by Orendain to LSFSIPI
alleging Orendain acted in his individual capacity and therefore
had no title over the property. Orendain argues that the, RTC
had no jurisdiction over the case since BF Homes’ suit involves
intra corporate matters.

ISSUE:
a. What is an intra corporate dispute, if so, did it exist in this
case?
b. Which has jurisdiction over the action for reconveyance the
RTC or SEC?

HELD:
a. An intra-corporate dispute is understood as a suit arising
from intra-corporate relations or between or among
stockholders or between any or all of them and the
corporation.

No. There is no intra corporate dispute in this case, Section 5

of PD No. 902-A does not apply in this instant case. The
LSFSIPI is neither an officer nor a stockholder of BF Homes,
and this case does not involve intra-corporate proceedings.
In addition, the seller, petitioner Orendain, is being sued in
his individual capacity for the unauthorized sale of the
property in controversy.

b. The RTC has jurisdiction over this case. Jurisdiction over the
case for reconveyance is clearly vested in the RTC as
provided in paragraph (2), Section 19, and B.P. Blg. 129.
 GO V. DISTINCTION PROPERTIES DEVELOPMENT AND
CONSTRUCTION (DPDCI)

FACTS:
PHIL, PACIFICO, AND ANDREW, are registered individual owners
of condominium units in PHOENIX HEIGHT CONDOMINIUM.
DPDCI was the real estate developer of PHOENIX HEIGHT
CONDOMINIUM.

On feb 1996, PACIFICO entered a MASTER DEED AND

DECLARATION OF RESTRICTIONS (MDRR) concerning some
alterations on said PHOENIX HEIGHT CONDOMINIUM, which
prohibits the conversion of the condominium to a common
area. However, on 2000 DPDCI assigned its rights over the
condominium units to PHCC. PHCC in turn filed an application
for the alteration of plan with respect to PHOENIX HEIGHT
CONDOMINIUM, and turn the same into a common area. The
same was approved by the HOUSE AND LAND USE
REGULATORY BOARD (HLURB).

Consequently, PACIFICO filed a complaint against DPDCI, with

the HLURB, for breach of contract, which violated the MDRR.
The HLURB rendered a decision in favor of PACIFICO, making
the assignment of rights by DPDCI to PHCC void.

ISSUE:
a. Does the HLRUB have jurisdiction to decide this case?
b. What is an intra corporate dispute?
c. Who has jurisdiction to try this case?

HELD:
a. No. PD. 1344, SEC 1 provides:

SECTION 1. In the exercise of its functions to regulate the real

estate trade and business and in addition to its powers provided
for in Presidential Decree No. 957, the National Housing
Authority shall have exclusive jurisdiction to hear and decide
cases of the following nature:

(a) Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by
subdivision lot or condominium unit buyer against the
project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and

statutory obligations filed by buyers of subdivision lot or
condominium unit against the owner, developer, dealer,
broker or salesman.

However, not all claims involving subdivision lots or

condominium buyers against the project owner falls within the
jurisdiction of the HLURB, the same must be in the nature of a
regulation of an real estate trade and business and not a claim
questioning the legality of a contract or the enforcement of civil
right as in this case.

b. 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.

c. In the recent case of Chateau De Baie Condominium

Corporation v. Sps. Moreno, an action involving the legality of
assessment dues against the condominium
owner/developer, the Court held that, the matter being an
intra-corporate dispute, the RTC had jurisdiction to hear the
same pursuant to R.A. No. 8799.

AGUIRRE II V. FQB +7

FACTS:
Vitaliano filed, in his individual capacity and on behalf of FQB+7,
Inc. (FQB+7), a Complaint for intra-corporate dispute,
injunction, inspection of corporate books and records, and
damages, against respondents, Nathaniel, Priscila, and Antonio,
with the RTC of manila.

According to Vitaliano the meeting held between respondents,

which was recorded in the GENERAL INFORMATION SHEET, was
fake. Also Vitaliano assails, an action for recovery of ownership
over a parcel of land in Quezon province.

Meanwhile, the respondents alleged that the corporation was

already dissolved and as a rule the RTC has no jurisdiction to try
and hear an intra corporate dispute, when the corporation is
already dissolved.

ISSUE:
a. May the RTC continue to hear cases involving an intro
corporate dispute, notwithstanding the fact that the
corporation had already been dissolved?

b. What is the expanded definition of intra corporate dispute?

c. What is the controversy test for determining an intra

corporate dispute?

HELD:
a. Yes. As long as the nature of the controversy is intra-
corporate, the designated RTCs have the authority to
exercise jurisdiction over such cases, notwithstanding the
dissolution of the corporation.

b. The Court reproduced the above jurisdiction in Rule 1 of the

Interim Rules of Procedure Governing Intra-corporate
Controversies under R.A. No. 8799:

SECTION 1. (a) Cases covered. – These Rules shall govern the

procedure to be observed in civil cases involving the
following:

1. Devices or schemes employed by, or any act of, the board of

directors, business associates, officers or partners,
amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholders, partners, or members of any corporation,
partnership, or association;

2. Controversies arising out of intra-corporate, partnership, or

association relations, between and among stockholders,
members, or associates; and between, any or all of them
 and the corporation, partnership, 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;

4. Derivative suits; and

5. Inspection of corporate books.

c. Under the nature of the controversy test, the incidents of

that relationship must also be considered for the purpose of
ascertaining whether the controversy itself is intra-
corporate. The controversy must not only be rooted in the
existence of an intra-corporate relationship, but must as
well pertain to the enforcement of the parties' correlative
rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the
corporation. If the relationship and its incidents are merely
incidental to the controversy or if there will still be conflict
even if the relationship does not exist, then no intra-
corporate controversy exists.

CHATEAU DE BAIE CONDOMINIUM V. SPS MORENO

FACTS:
ISSUE:
HELD:

INTESTATE ESTATE OF ALEXANDER TY V. CA

FACTS:
ISSUE:
HELD:

GSIS v. CA

FACTS:
Meralco held its annual stockholders’ meeting on May 27, 2008.
It held its proxy validation proceeding in May 22. The GSIS, as
majority stockholder of Meralco, was distressed over the result
of the proxy validation proceeding. It filed a complaint with the
RTC to have certain proxies be declared invalid. The complaint
was dismissed, so they went to the SEC to annul the proxies.
The SEC dismissed the case for lack of jurisdcition. GSIS
contends that the SEC has jurisdiction to investigate violations
on proxy solicitations. The acting corporate secretary, on the
other hand, contends that issues of proxy validations has been
transferred to the SEC under SRC’s provisions.

ISSUE:
Which tribunal has jurisdiction over the issue of proxy
solication?

HELD:
RTC has jurisdiction. Although GSIS is questioning proxy
solicitation specifically, the issue is actually an election
controversy properly cognizable by the RTC. An election
contest includes 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 non-
stock corporation; 2) validation of proxies; 3) manner and
validity of elections; or 4) qualifications of candidates, including
proclamations of winners.

The controversy on proxy solicitation rules and proxy validation

were caused by the looming annual election of directors. The
action to invalidate proxies is intimately tied to an election
controversy, hence it is cognizable by the RTC.

SEC v. CA, GR No. 187702 & 189014

FACTS:
Astra Securities Corp is one of the stockholders of Omico
Corporation, owning 18% of its OCS. In connection with the
upcoming stockholders’ meeting, Astra objected to the
validation of proxies issued in favor of Tommy Kin Hing Tia.
Astra alleged that the proxy issuers who were brokers, did not
obtain the required express written authorization of their
clients, when they issued the proxies in favor of Tia, thereby
violating the SRC Rules. The proxies were issued in excess,
thereby giving rise to presumption of solicitation. Astra filed a
complaint with a prayer to enjoin the holding of the meeting
with the SEC because the matter is just the validation of proxies
for the determination of quorum, and no actual voting for the
members of the board of directors was conducted.
ISSUE:
Does the SEC have jurisidiction over the validation of Proxies?
HELD:
No. An election contest includes 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 non-stock corporation; 2) validation of
proxies; 3) manner and validity of elections; or 4) qualifications
of candidates, including proclamations of winners. When
proxies are solicited in relation to the election of corporate
directors, the resulting controversy, even if ostensibly raised
the violation of the SEC rules, should be properly seen as an
election controversy.
The test used in this case is whether the controversy relates to
the election of directors, thus:
(a)The power to regulate proxies remains in the SEC in
instances when stockholders vote on matters other than the
election of directors.
(b)All matters affecting the manner and conduct of the election
of directors are properly cognizable by the regular courts.
Otherwise, these matters may be brought before the SEC for
resolution based on the regulatory powers it exercises over
corporations.
Validation of proxies serves a number of purpose, including the
existence of a quorum and ascertaining the authenticity of
proxies to be used for election of directors at the stockholders’
meeting. Disputes of Intra-corporate disputes provides that an
election contest covers any controversy or dispute involving the
validation of proxies.

PRIMANILA PLANS, INC. v. SEC, GR No. 193791

FACTS:
Primanila is a corporation that sells pre-need pension plans. It
renewed its dealer’s license in 2008. SEC issued a letter to it in
January 2008 to enjoin it Primanila from selling or offering to
sell pre-need plans to the public. The physical office was closed
but its website continued to offer plans. The bank account was
also active and it continued to accept deposits for premiums.
SEC declared that it violated Sec. 16 of SRC, and issued a CDO in
April 2008 to prevent further violations and protect the interest
of the plan holders and the public.
Primanila filed an MR to lift the CDO, contending that it was
denied due process because there was no formal or notice so it
may have the chance to be heard.
ISSUE:
Was the CDO violative of due process?
HELD:
No. Primanila was accorded a chance to be heard
notwithstanding the issuance of the CDO. Sec. 64 of the SRC
provides that the SEC may issue a CDO after proper
investigation or verification, motu proprio or upon verified
complaint by any aggrieved party, without the necessity of a
prior hearing, if in its judgment, the act or practice will operate
as fraud on investors, or is likely to cause grave or irreparable
injury or prejudice to the investing public. The delay in restrain
of acts can only generate further injury to the public who SEC is
obliged to protect.
There are defined limits in the issuance of CDO:
1. CDO may only be issued after proper investigation or
verification;
2. It may only be issued if the acts sought to be restrained could
result in injury or fraud to the investing public.
SEC had duly satisfied with the requisites. Primanila failed to
renew its license as held by the Securities and Instruments
Department. An ocular inspection was properly conducted in
the office, website, and metrobank account. It showed that
Primanila failed to file a registration statement, remit premium
collections and truthfully declare collections in 2007. SEC was
not mandated to allow Primanila to participate in the
investigation. To satisfy due process, it was amply apprised of
the results of the investigation, and then given the reasonable
opportunity to present its defense.

GSIS v. CA, GR No. 189305

FACTS:
In connection with the annulment of certain proxies, the GSIS
also prayed for the issuance of a CDO to restrain the use of
proxies during the stockholders’ meeting.
ISSUE:
If the matter is under the jurisdiction of the RTC, what would be
the effect on the issuance of the CDO by the SEC?
HELD:
It invalidates the issuance of the CDO following the invalidation
of the petition of the GSIS. In this case, the SEC must adjudge
the act, unless restrained, will operate as fraud on investors or
is otherwise likely to cause grave or irreparable injury or
prejudice to the public. The CDO was not precisely clear in the
specific grounds of issuing the CDO. A singular CDO could not
be founded on all three grounds collectively because they have
their respective requisites and terms. The CDO was also signed
by only one Commissioner, thus not constituting a quorum.

SEC v. Prosperity, GR No. 164197

FACTS:
Prosperity is a computer software and hosted websites without
providing internet service. To make a profit, Prosperity devised
a scheme where the buyer could acquire from it internet
website of a 15MG capacity. At the same time, by referring PCI
his own downline buyers, a first-time buyer could earn
commissions, interest in real estate and insurance coverage.
Apparently, PCI patterned its scheme from that of Golconda
Ventures, which stopped its operations after SEC issued a CDO
against it. The same persons from Golconda were also those
who ran the affairs of PCI in the SEC. The SEC issued a CDO
against PCI, ruling that the scheme was an investment contract
and such should have been registered with the SEC.
ISSUE:
Is the scheme an investment contract required to be registered
with the SRC?
HELD:
No. The Howey Test provides that an investment contract exist
when the following elements concur:
1. Contract, transaction, or scheme;
2. An investment of money
3. Investment is made in a common enterprise;
4. Expectation of profits; and
5. profits arising primarily from the efforts of others.
PCI’s clients do not make such investment. The buyers do not
invest money but pays for the use of the website, a tangible
asset that PCI creates, using the computer facilities and
technical skills. The PCI appears to be engaged in network
marketing, a scheme adopted by companies for getting people
to buy their products outside the retail system. The down-line
seller earns commissions by the purchases made by the new
buyers whom he refers to the person who sold the product to
him, under this scheme. The network goes down-line where the
orders to buy come. The commissions are incentives to down-
line sellers to bring in other customers. These hardly regard as
profits under the Howey Test.

POWER HOMES UNLIMITED CORP. V. SEC, AND NOEL

MANERO, GR NO. 164182

FACTS:
Power Homes is a marketing company that promotes and
facilitates sales of real properties and other related products of
real estate developers. Its scheme requires an investor to
become a Business Center Owner (BCO) or an independent
representative of Power Homes, who is enrolled in the
company’s referral program and who will ultimately purchase
real property from any accredited real estate developers, and as
such he is entitled to a referral bonus/commission. The
agreement also provided that no ER-EE relationship exists.
The BCO is required to pay US $234 as his enrollment fee which
entitles him to recruit two investors who should pay US $234
each and out of which, he shall receive US$94. For those
recruiting a minimum of 4 persons, each recruiting two persons
shall be his/her downlines, the BCO will receive a total amount
of US$147.20 after deducting property fund from the gross
amount. After recruiting a total of 256 enrollees, the BCO now
has an accumulated US$2,700 that would be his property fund
and is used as partial or full down payment for the real property
chosen by the BCO from any Power House’s accredited real
estate developers.
ISSUE:
Is the business an investment contract?
HELD:
Yes. An investment contract is a contract, transaction, or
scheme whereby a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts
of others.

The Howey Test was met in this case. Although the proponents
must establish all four elements, the US SC stressed that the
Howey Test embodies a flexible, rather than a static principle,
one that is capable of adaptation to meet the countless and
variable schemes devised by those who seek the use of money
of others on the promise of profits. The 4th element in the
Howey Test may be changed to “primarily from efforts of
others.”

Power Homes was engaged in the sale or distribution of an

investment contract. The purchaser is really buying the
possibility of derving money from the referrals.

SEC VS. INTERPORT RESOURCES CORP., GR NO. 135808

“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.”
FACTS:
In 1994, an investigative proceeding was conducted by the SEC
against respondent Interport Resources Corporation for failure
to make timely disclosures of their negotiations with Ganda
Energy Holdings, a violation against the Revised Securities Act.
However, the proceeding was interrupted by a writ of
preliminary injunction issued by the Court of Appeals, which
became permanent in 1998.

During the pendency of this case, the Securities Regulations

Code repealed the Revised Securities Act, which give SEC of its
jurisdiction to continue investigating the case, or the Regional
Trial Court to hear any case which may later be filed against
herein respondent.

As a defense, respondents averred that the case is already

deemed moot and academic, since any criminal complaint that
may be filed against them resulting from the SEC investigation
has already prescribed. They point out the prescriptive period of
12 years from the time of the commission of the crime, under
Sec. 1 of Act No. 3326 (An Act to Establish Period of Prescription
for Violations Penalized by Special Acts). Since the offense was
committed in 1994, prescription has already set in as early as
2006.

ISSUE:
Whether or not the filing of complaint by SEC against
respondent has already prescribed, in pursuant to Sec. 1 Act
3326.

HELD:
No. It is an established doctrine that a preliminary investigation
interrupts the period of prescription.

As defined, 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 the offense.

Under Sec. 45 of the Revised Securities Act, the SEC has the
authority to make such investigations as may deem necessary
to determine whether a person has violated any provisions of
this Act. Thereafter, the SEC may refer the case to the DOJ for
preliminary investigation and prosecution.
Only after a finding of probable cause is made by the SEC can
the DOJ instigate a preliminary investigation. Thus, the
investigation that was commenced by the SEC in 1995, soon
after it discovered the questionable acts of the respondents,
effectively interrupted the prescription period. Given the nature
and purpose of the investigation conducted by the SEC, which is
equivalent to the preliminary investigation conducted by the
DOJ in criminal cases, such investigation would surely interrupt
the prescription period.

CEMCO HOLDINGS V. NATIONAL LIFE INSURANCE COMPANY

G.R. NO. 171815, 7 AUGUST 2007

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, BCI informed the 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%.

The SEC en banc had resolved that the Cemco transaction was
not covered by the tender offer rule. 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.
Respondent filed a complaint with the SEC asking it to reverse
its Resolution and to declare the purchase agreement of Cemco
void and praying that the mandatory tender offer rule be
applied to its UCC shares.
The SEC ruled in favor of the respondent by reversing and
setting aside its 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.
ISSUES:
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

RULING:
Yes. 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. A public company is defined as a
corporation which is listed on an exchange, or a corporation
with assets exceeding ₱50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than 100
shares of such company. 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. 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.

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.” The legislative intent of Section 19 of the SRC 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.

OSMENA v. SSS
FACTS:
SSS took steps to liquefy its long-term investments and diversify
them into higher yielding and less volatile investments. Among
its assets determined as needing to be liquefied were its
shareholdings in EPCIB. Albeit there were interested parties,
only Banco de Oro (BDO) and its investment subsidiary,
respondent BDO Capital, appeared in earnest to acquire the
shares in question. In the final draft of the Sale Purchase
Agreement (SPA), the parties mutually agreed to the purchase
by the BDO Capital and the sale by SSS of all the latter’s EPCIB
shares at the closing date at the specified price of 43.50 pesos
per share or a total of 8,171,383,258.50 pesos. COA and DOJ
approved the proposed SPA.

The records do not show whether any interested groups

submitted bids. The bottom line, however, is that even before
the bid envelopes, if any, could be opened, the herein
petitioners commenced the instant special civil action for
certiorari, setting their sights primarily on the legality of the
Swiss Challenge angle and a provision in the instruction to
Bidders under which the SSS undertakes to offer the Shares to
BDO should no bidder or prospective bidders qualifies. Under
the Swiss Challenge format, one of the bidders is given the
option or preferential “right to match” the winning bid.

SSS issued a resolution approving the proposed sale of the

entire equity stake of the SSS in the Equitable PCIBank, through
the Swiss Challenge bidding procedure. Petitioners filed a
petition for certiorari and prohibition of the resolution by SSC.

Pending consideration of the petition, supervening events and

corporate movements transpired that radically altered the
factual complexion of the case. BDO made public its intent to
merge with the EPCIB. Under what BDO termed as “Merger of
Equals”, EPCIB shareholders would get 1.6 BDO shares for every
EPCIB share.

Owing to the foregoing developments, the court issued a

resolution requiring the parties to confirm the news reports
that price of subject shares has been agreed upon at 92 pesos,
and if so, to manifest whether this case has become moot. It
appears that BDO, has since issued BDO common shares to
respondents SSS corresponding to the number of its former
EPCIB shareholdings under the ratio and exchange procedure
prescribed in the plan of merger. In net effect, SSS, once the
owner of a block of EPCIB shares, is now a stockholder of BDO.

ISSUE:
Whether parties were released from the agreement due to
supervening events

RULING:
Yes, the petition has become moot. It cannot be
overemphasized, however, that the shares, as a necessary
consequence of the BDO- EPCIB merger which was EPCIB being
absorbed by the surviving BDO, have been transferred to BDO
common shares under the exchange ratio set forth in the BDO-
EPCIB Plan of Merger. As thus converted, the subject shares are
no longer equity security issuances of the now defunct EPCIB,
but those of BDO- EPCIB, which needles to stress, is a totally
separate and distinct entity from what used to be EPCIB. In net
effect, therefore, the 182.84 million EPCIB common shares are
now lost or inexistent. And, in this regard the court takes
judicial notice of the disappearance of EPCIB stocks from the
local bourse listing. Instead, BDO-EPCIB stocks are presently
listed and being traded in the PSE.
Under the law on Obligations and Contracts, the obligation to
give a determinate thing is extinguished if the object is lost
without the fault of the debtor. And the Article 1192 of Civil
Code provides that a thing is considered lost when it perishes or
disappears in such a way that it cannot be recovered. In a very
real sense, the interplay of ensuing factors:
A. BDO- EPCIB Merger;
B. The cancellation of subject shares and their replacement by
totally new common shares of BDO, has rendered erstwhile
187.84 million EPCIB shares of SSS “unrecoverable” in the
contemplation of the adverted Civil Code provision.
With the above consideration, SSS or SSC cannot cause the
implementation of the assailed resolutions, let alone proceed
with the planned disposition of the shares, be it via the
traditional competitive bidding or the challenged public bidding
with a swiss challenge feature. At any rate, the moot-and-
academic angle would still hold sway even if it were to be
assumed hypothetically that the subject shares are still existing.
This is so for the supervening BDO- EPCIB Merger has so
effected changes in the circumstances of SSS and BDO capital
as to render the fulfillment of any of the obligations that each
may have agreed to undertake under their letter agreement ,
the SPA or swiss challenge packed legally impossible. When the
service has become so difficult as to be manifestly beyond the
contemplation of the parties, total or partial release from a
prestation and from the counter prestation is allowed. Under
the theory of rebus sic stantibus, the parties stipulate in the
light of certain prevailing conditions, and once these conditions
cease to exist, the contact also cease to exist. Upon the facts
obtained in the case, it is clear that the conditions in which SSS
and BDO capital and/or BDO executed the letter- agreement
upon which the pricing component at 43.50 per share of the
invitation to bid was predicated, have ceased to exist.
Accordingly, the implementation of the letter- agreement
cannot plausibly push through, even if the central figures in this
case are so minded.

IN RELATION TO TENDER OFFER RULE

It shall be unlawful where a tender offer has commenced or is

about to commence for:

(i) Any person (other than the tender offeror) who is in

possession of material non-public information relating to such
tender offer, to buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if such person
knows or has reason to believe that the information is non-
public and has been acquired directly or indirectly from the
tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such tender offer, or any
insider of such issuer; and

(ii) Any tender offeror, those acting on its behalf, the issuer of
the securities sought or to be sought by such tender offer, and
any insider of such issuer to communicate material non-public
information relating to the tender offer to any other person
where such communication is likely to result in a violation of
Subsection 27.4 (a) (i).
(b) For purposes of this subsection the term "securities of the
issuer sought or to be sought by such tender offer" shall include
any securities convertible or exchangeable into such securities
or any options or rights in any of the foregoing securities.