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G.R. No.

L-23004

June 30, 1965

MAKATI STOCK EXCHANGE, INC., petitioner,


vs.
SECURITIES AND EXCHANGE COMMISSION and MANILA STOCK EXCHANGE, respondents.
Hermenegildo B. Reyes for petitioner.
Office of the Solicitor General for respondent Securities and Exchange Commission.
Norberto J. Quisumbing and Emma Quisumbing-Fernando for respondent Manila Stock Exchange.
BENGZON, C.J.:
This is a review of the resolution of the Securities and Exchange Commission which would deny the
Makati Stock Exchange, Inc., permission to operate a stock exchange unless it agreed not to list for
trading on its board, securities already listed in the Manila Stock Exchange.
Objecting to the requirement, Makati Stock Exchange, Inc. contends that the Commission has no
power to impose it and that, anyway, it is illegal, discriminatory and unjust.
Under the law, no stock exchange may do business in the Philippines unless it is previously
registered with the Commission by filing a statement containing the information described in Sec. 17
of the Securities Act (Commonwealth Act 83, as amended).
It is assumed that the Commission may permit registration if the section is complied with; if not, it
may refuse. And there is now no question that the section has been complied with, or would be
complied with, except that the Makati Stock Exchange, upon challenging this particular requirement
of the Commission (rule against double listing) may be deemed to have shown inability or refusal to
abide by its rules, and thereby to have given ground for denying registration. [Sec. 17 (a) (1) and
(d)].
Such rule provides: "... nor shall a security already listed in any securities exchange be listed anew
in any other securities exchange ... ."
The objection of Makati Stock Exchange, Inc., to this rule is understandable. There is actually only
one securities exchange The Manila Stock Exchange that has been operating alone for the
past 25 years; and all or presumably all available or worthwhile securities for trading in the
market are now listed there. In effect, the Commission permits the Makati Stock Exchange, Inc., to
deal only with other securities. Which is tantamount to permitting a store to open provided it sells
only those goods not sold in other stores. And if there's only one existing store, 1 the result is a
monopoly.
It is not farfetched to assert as petitioner does 2 that for all practical purposes, the Commission's
order or resolution would make it impossible for the Makati Stock Exchange to operate. So, its
"permission" amounted to a "prohibition."

Apparently, the Commission acted "in the public interest." 3 Hence, it is pertinent to inquire whether
the Commission may "in the public interest" prohibit (or make impossible) the establishment of
another stock exchange (besides the Manila Stock Exchange), on the ground that the operation of
two or more exchanges adversely affects the public interest.
At first glance, the answer should be in the negative, because the law itself contemplated, and,
therefore, tacitly permitted or tolerated at least, the operation of two or more exchanges.
Wherever two or more exchanges exist, the Commission, by order, shall require and enforce
uniformity of trading regulations in and/or between said exchanges. [Emphasis Ours] (Sec.
28b-13, Securities Act.)
In fact, as admitted by respondents, there were five stock exchanges in Manila, before the Pacific
War (p. 10, brief), when the Securities Act was approved or amended. (Respondent Commission
even admits that dual listing was practiced then.) So if the existence of more than one exchange
were contrary to public interest, it is strange that the Congress having from time to time enacted
legislation amending the Securities Act, 4 has not barred multiplicity of exchanges.
Forgetting for the moment the monopolistic aspect of the Commission's resolution, let us examine
the authority of the Commission to promulgate and implement the rule in question.
It is fundamental that an administrative officer has only such powers as are expressly granted to him
by the statute, and those necessarily implied in the exercise thereof.
In its brief and its resolution now subject to review, the Commission cites no provision expressly
supporting its rule. Nevertheless, it suggests that the power is "necessary for the execution of the
functions vested in it"; but it makes no explanation, perhaps relying on the reasons advanced in
support of its position that trading of the same securities in two or more stock exchanges, fails to
give protection to the investors, besides contravening public interest. (Of this, we shall treat later) .
On the legality of its rule, the Commission's argument is that: (a) it was approved by the Department
Head before the War; and (b) it is not in conflict with the provisions of the Securities Act. In our
opinion, the approval of the Department, 5 by itself, adds no weight in a judicial litigation; and the test
is not whether the Act forbids the Commission from imposing a prohibition, but whether
it empowers the Commission to prohibit. No specific portion of the statute has been cited to uphold
this power. It is not found in sec. 28 (of the Securities Act), which is entitled "Powers (of the
Commission) with Respect to Exchanges and Securities." 6
According to many court precedents, the general power to "regulate" which the Commission has
(Sec. 33) does not imply authority to prohibit." 7
The Manila Stock Exchange, obviously the beneficiary of the disputed rule, contends that the power
may be inferred from the express power of the Commission to suspend trading in a security, under
said sec. 28 which reads partly:

And if in its opinion, the public interest so requires, summarily to suspend trading in any
registered security on any securities exchange ... . (Sec. 28[3], Securities Act.)
However, the Commission has not acted nor claimed to have acted in pursuance of such
authority, for the simple reason that suspension under it may only be for ten days. Indeed, this
section, if applicable, precisely argues against the position of the Commission because the
"suspension," if it is, and as applied to Makati Stock Exchange, continues for an indefinite period, if
not forever; whereas this Section 28 authorizes suspension for ten days only. Besides, the
suspension of trading in the security should not be on one exchange only, but on allexchanges;
bearing in mind that suspension should be ordered "for the protection of investors" (first par., sec.
28) in all exchanges, naturally, and if "the public interest so requires" [sec. 28(3)].
This brings up the Commission's principal conclusions underlying its determination viz.: (a) that the
establishment of another exchange in the environs of Manila would be inimical to the public interest;
and (b) that double or multiple listing of securities should be prohibited for the "protection of the
investors."
(a) Public Interest Having already adverted to this aspect of the matter, and the emerging
monopoly of the Manila Stock Exchange, we may, at this juncture, emphasize that by restricting free
competition in the marketing of stocks, and depriving the public of the advantages thereof the
Commission all but permits what the lawpunishes as monopolies as "crimes against public
interest." 8
"A stock exchange is essentially monopolistic," the Commission states in its resolution (p. 14-a,
Appendix, Brief for Petitioner). This reveals the basic foundation of the Commission's process of
reasoning. And yet, a few pages afterwards, it recalls the benefits to be derived "from the existence
of two or more exchanges," and the desirability of "a healthy and fair competition in the securities
market," even as it expresses the belief that "a fair field of competition among stock exchanges
should be encouraged only to resolve, paradoxically enough, that Manila Stock Exchange shall, in
effect, continue to be the only stock exchange in Manila or in the Philippines.
"Double listing of a security," explains the Commission, "divides the sellers and the buyers, thus
destroying the essence of a stock exchange as a two-way auction market for the securities, where
all the buyers and sellers in one geographical area converge in one defined place, and the bidders
compete with each other to purchase the security at the lowest possible price and those seeking to
sell it compete with each other to get the highest price therefor. In this sense, a stock exchange is
essentially monopolistic."
Inconclusive premises, for sure. For it is debatable whether the buyer of stock may get the lowest
price where all the sellers assemble in only one place. The price there, in one sale, will tend to fix the
price for the succeeding, sales, and he has no chance to get a lower price except at another stock
exchange. Therefore, the arrangement desired by the Commission may, at most, be beneficial to
sellers of stock not to buyers although what applies to buyers should obtain equally as to
sellers (looking for higher prices). Besides, there is the brokerage fee which must be considered. Not
to mention the personality of the broker.

(b) Protection of investors. At any rate, supposing the arrangement contemplated is beneficial to
investors (as the Commission says), it is to be doubted whether it is "necessary" for their "protection"
within the purview of the Securities Act. As the purpose of the Act is to give adequate and effective
protection to the investing publicagainst fraudulent representations, or false promises and the
imposition of worthless ventures, 9 it is hard to see how the proposed concentration of the market has
a necessary bearing to the prevention of deceptive devices or unlawful practices. For it is not mere
semantics to declare that acts for the protection of investors are necessarily beneficial to them; but
not everything beneficial to them is necessary for their protection.
And yet, the Commission realizes that if there were two or more exchanges "the same security may
sell for more in one exchange and sell for less in the other. Variance in price of the same security
would be the rule ... ." Needless to add, the brokerage rates will also differ.
This, precisely, strengthens the objection to the Commission's ruling. Such difference in prices and
rates gives the buyer of shares alternative options, with the opportunity to invest at lower expense;
and the seller, to dispose at higher prices. Consequently, for the investors' benefit (protection is not
the word), quality of listing 10 should be permitted, nay, encouraged, and other exchanges allowed to
operate. The circumstance that some people "made a lot of money due to the difference in prices of
securities traded in the stock exchanges of Manila before the war" as the Commission noted,
furnishes no sufficient reason to let one exchange corner the market. If there was undue
manipulation or unfair advantage in exchange trading the Commission should have other means to
correct the specific abuses.
Granted that, as the Commission observes, "what the country needs is not another" market for
securities already listed on the Manila Stock Exchange, but "one that would focus its attention and
energies on the listing of new securities and thus effectively help in raising capital sorely needed by
our ... unlisted industries and enterprises."
Nonetheless, we discover no legal authority for it to shore up (and stifle) free enterprise and
individual liberty along channels leading to that economic desideratum. 11
The Legislature has specified the conditions under which a stock exchange may legally obtain a
permit (sec. 17, Securities Act); it is not for the Commission to impose others. If the existence of two
competing exchanges jeopardizes public interest which is doubtful let the Congress
speak. 12 Undoubtedly, the opinion and recommendation of the Commission will be given weight by
the Legislature, in judging whether or not to restrict individual enterprise and business opportunities.
But until otherwise directed by law, the operation of exchanges should not be so regulated as
practically to create a monopoly by preventing the establishment of other stock exchanges and
thereby contravening:
(a) the organizers' (Makati's) Constitutional right to equality before the law;
(b) their guaranteed civil liberty to pursue any lawful employment or trade; and
(c) the investor's right to choose where to buy or to sell, and his privilege to select the
brokers in his employment. 13

And no extended elucidation is needed to conclude that for a licensing officer to deny license solely
on the basis of what he believes is best for the economy of the country may amount to regimentation
or, in this instance, the exercise of undelegated legislative powers and discretion.
Thus, it has been held that where the licensing statute does not expressly or impliedly authorize the
officer in charge, he may not refuse to grant a license simply on the ground that a sufficient number
of licenses to serve the needs of the public have already been issued. (53 C.J.S. p. 636.)
Concerning res judicata. Calling attention to the Commission's order of May 27, 1963, which
Makati Stock did not appeal, the Manila Stock Exchange pleads the doctrine of res judicata. 14 (The
order now reviewed is dated May 7, 1964.)
It appears that when Makati Stock Exchange, Inc. presented its articles of incorporation to the
Commission, the latter, after making some inquiries, issued on May 27, 1963, an order reading as
follows.
Let the certificate of incorporation of the MAKATI STOCK EXCHANGE be issued, and if the
organizers thereof are willing to abide by the foregoing conditions, they may file the proper
application for the registration and licensing of the said Exchange.
In that order, the Commission advanced the opinion that "it would permit the establishment and
operation of the proposed Makati Stock Exchange, provided ... it shall not list for trading on its board,
securities already listed in the Manila Stock Exchange ... ."
Admittedly, Makati Stock Exchange, Inc. has not appealed from that order of May 27, 1963. Now,
Manila Stock insists on res judicata.
Why should Makati have appealed? It got the certificate of incorporation which it wanted. The
condition or proviso mentioned would only apply if and when it subsequently filed the application for
registration as stock exchange. It had not yet applied. It was not the time to question the
condition; 15 Makati was still exploring the convenience of soliciting the permit to operate subject to
that condition. And it could have logically thought that, since the condition did not affect its articles of
incorporation, it should not appeal the order (of May 27, 1963) which after all, granted the certificate
of incorporation (corporate existence) it wanted at that time.
And when the Makati Stock Exchange finally found that it could not successfully operate with the
condition attached, it took the issue by the horns, and expressing its desire for registration and
license, it requested that the condition (against double listing) be dispensed with. The order of the
Commission denying, such request is dated May 7, 1964, and is now under, review.
Indeed, there can be no valid objection to the discussion of this issue of double listing
now, 16 because even if the Makati Stock Exchange, Inc. may be held to have accepted the
permission to operate with the condition against double listing (for having failed to appeal the order
of May 27, 1963), still it was not precluded from afterwards contesting 17 the validity of such condition
or rule:

(1) An agreement (which shall not be construed as a waiver of any constitutional right or any right to
contest the validity of any rule or regulation) to comply and to enforce so far as is within its powers,
compliance by its members, with the provisions of this Act, and any amendment thereto, and any
rule or regulation made or to be made thereunder. (See. 17-a-1, Securities Act [Emphasis Ours].)
Surely, this petition for review has suitably been coursed. And making reasonable allowances for the
presumption of regularity and validity of administrative action, we feel constrained to reach the
conclusion that the respondent Commission possesses no power to impose the condition of the rule,
which, additionally, results in discrimination and violation of constitutional rights.
ACCORDINGLY, the license of the petition to operate a stock exchange is approved without such
condition. Costs shall be paid by the Manila Stock Exchange. So ordered.

G.R. No. L-45655

June 15, 1938

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,


vs.
VICENTE T. FERNANDEZ and JOAQUIN TRINIDAD, defendants-appellants.
Feria and La O and Pastor L. de Guzman for appellants.
Office of the Solicitor-General Tuason for appellee.
CONCEPCION, J.:
This case involves the meaning and interpretation of "speculative securities" under the provisions of
Act No. 2581. The defendants were charged with a violation of said statute and were tried and
convicted in the Court of First Instance of Manila from whose judgment they appealed.
It was established by the prosecution and admitted by the appellants that they, together with other
persons, organized a corporation which was registered in the Bureau of Commerce on January 7,
1936 under the name of Philippine Mutual Cooperative Society, Inc. The purposes of this
association, according to its articles of incorporation and by-laws, are to promote the social, moral
and economic well-being of its members by extending to them aid in the form of benefit payments or
in any other form allowed by the laws of the Philippines. An attempt has been made to show that the
object is purely cooperative by relieving and helping the unemployed, the needy, and people of
moderate means in particular and all those who need material aid in general.
In order to carry out these purposes, the corporation has established and admitted two classes of
members, namely, class O and class S. Each member in O must pay a due of P5 which entitled him
to a regular benefit aid of P40. The payment of all and each of these benefit aids should be made
whenever 16 new members had been admitted. The second member would receive said aid of after
12 new members had been admitted. The third member and each of those following would receive
their respective benefit aids of P40 after the admission of each group of eleven new members.
Those of class S had to pay a due of P2 each, which was later increased to P2.50, and they would

be entitled to a benefit aid of P12, which was subsequently increased to P20 as soon as sixteen new
members were admitted. The second member and each of those following would receive their
corresponding benefit aids after the admission of every group of ten new members. The members of
both classes, who may have received the benefit aids of the corporation, were bound to renew their
subscriptions by paying every time they received said aid the amount of p5 or P2.50, according to
the class to which they belonged. The corporation would and did issue to each member a certificate
of membership which specified the class to which he belonged. The benefit aids were due and
payable to the members strictly by turns according to the respective dates of their enrollment. If after
two years from the date of his admission, no benefit aid had been paid a member, the corporation
promised to refund him, on demand, the dues paid by him plus 25 per cent of the same. In order to
obtain more members and carry out its purpose, the corporation offered to each member, who
secured new members, a commission of 10 per cent for each new member, which was payable from
the dues collected from the new members. Said commission was later reduced to 5 per cent, but an
additional 5 per cent for traveling expenses was allowed.
To prevent a shortage in the funds of the corporation due to its expenditures and the fact that the
benefit aids paid by it were larger than the membership dues, it would hold public literary contests,
etc., and other benefit performances, the net proceeds of which would be exclusively devoted to the
payment of benefit aids. The cost of holding these performances would be paid from the allotment of
the association for expenses in order not to disturb the reserve funds devoted to the payment of
benefit aids.
From November 28, 1935, or prior to its incorporation, up to January 11, 1936, the corporation,
without having previously obtained a license from the Insular Treasurer as required by law and
through the distribution of 20,000 prospectuses, known as Exhibit V, to the public, secured and
admitted 477 members of class O and 278 members of class S. Of these 32 and 29, respectively,
received benefit aids, and from January 12, 1936 to the date of trial, the corporation admitted 18,294
members of class O and 4,351 members of class S, of whom 1,399 and 323, respectively, received
benefit aids. Between November 28, 1935 and May 31, 1936, the corporation received dues from its
members in the amount of P103,514; and after deducting commissions (P4,765), traveling expenses
(P4,765), operating and general expenses (P7,066.66), administrative and management fees
(P4,400), sundry accounts (P1,002.94), and benefit aids (P63,052), there only remained as cash
account the sum of P18,461.45 (Exhibit W-1); and on May 12, 1936, the receipts amounted to
P97,780.23, and deducting therefrom the disbursements amounting to P77,628.25, there was a cash
balance of P20,151.98 (Exhibit W).
The lower court having found the certificates of membership issued by the corporation as
speculative securities, convicted Vicente T. Fernandez and Joaquin Trinidad, president and general
manager, respectively, of the Philippine Mutual Cooperative Society, Inc., of a violation of section 2
of Act No. 2581, and sentenced each to pay a fine of P5,000, with the corresponding subsidiary
imprisonment in case of insolvency, and the costs.
Appellants assign in their brief five errors which the trial court is alleged to have committed: First, in
declaring that the membership certificates issued by the Philippine Mutual Cooperative Society, Inc.,
are securities with the meaning of Act No. 2581; second, in holding that they are speculative; third, in
not holding Act No. 2581 unconstitutional because it is vague and because it confers legislative and

judicial powers upon the Insular Treasurer; fourth and fifth, in not interpreting the law strictly in favor
of the accused and dismissing the charge against them.
Act No. 2581, better known as the Blue Sky Law, is patterned after similar laws enacted in various
states of the Union, one of the oldest of which, if not the oldest, is that of the State of Kansas, which
was amended in 1913 and 1915 (Fletcher, vol. 7 [1919], p. 7714). The purpose of these laws, as
was said by Justice Mckenna, is to protect the public against the imposition of unsubstantial
schemes and the securities based thereon. It is said that the name given the law indicates the evil
against which it is directed, namely, speculative schemes which have no more basis than a few feet
of the blue sky (Fletcher, supra).
Section 1 of Act No. 2581, as amended by Act No. 2817 (which amendment does not affect the
present case), provides:
SECTION 1. Terms defined. The term "securities" as used in this Act shall be taken to
mean stock certificates, shares, bonds, debentures, certificates of participation, contracts,
contracts or bonds for the sale and conveyance of lands on deferred payments or on the
installment plan, or other instruments in the nature thereof, by whatsoever name known or
called. The term "speculative securities" as used in this Act shall be deemed to mean and
include:
(a) All securities to promote or induce the sale of which profit, gain, or advantage unusual in
the ordinary course of legitimate business is in any way advertized or promised;
(b) All securities the value of which materially depends upon proposed or promised future
promotion or development rather than on present tangible assets and conditions;
(c) All securities for promoting the sale of which a commission of more than five per cent is
offered or paid;
(d) The securities of any enterprise or corporation which has included, or proposes to include
in its assets as a material part thereof patents, formulae, good-will, promotion or other
intangible assets, or which has issued or proposes to issue a material part of its securities in
payment for patents, formulae, good-will, promotion or other intangible assets.
The certificates of membership issued by the Philippine Mutual Cooperative Society, Inc., are truly
speculative securities within the meaning of Act No. 2581.
First. In order to encourage and induce their sale, profit unusual in the ordinary course of business
has been advertised or promised, for through the payment of the sum of P5 by a member
appertaining to class O, or that of P2.50 by a member belonging to class S, each will receive profits
of P40 and P20, respectively, which represent the fabulous and extraordinary gain of 800 per cent.
Second. The speculative character of said certificates is also shown by the fact that such profit or
advantage of 800 per cent does not depend upon the actual tangible assets or conditions of the
corporation, but upon its growth and development which would be attained through the admission of

new groups of 16 or 12 members so that each original member could receive the benefit aids of P40
or P20, as the case may be. Therefore, if there were no enrollment of 16 or 12 new members,
according to the class, a member of class O or class S would not receive the corresponding benefit
aid of P40 or P20, respectively.
Third. Another proof of their speculative nature is that even if a member of class O or class S should
be able to secure a group of 16 or 12 new members, as the case may be, this fact would not
necessarily entitle him to receive immediately the benefit aid of P40 or P20, respectively, for
according to the by-laws of the corporation, he would have to wait for his turn before he could
receive his benefit aid. And it is possible that his turn may never come because notwithstanding the
admission of 16 or 12 members, according to the class, there may be no funds with which to pay his
benefit aid, for before the coming of his turn, the funds of the corporation might have been
exhausted by the payment of the dues of the old members in accordance with the strict rotation,
while no new members may have been admitted in the meantime.
Fourth. The certificates of membership in question also come within the purview of paragraph (c) of
section 1 of Act No. 2581 because to promote their sale, the corporation has offered and paid a
commission of 10 per cent which, though later on reduced to 5 per cent, was in fact more than 5 per
cent because the corporation has paid another 5 per cent for traveling expenses.
Fifth. The speculative character of the member certificates issued by the corporation is also shown
by the fact that when a member, whether belonging to class O or to class S, had not received his
benefit aid after two years from the date of his enrollment, he cannot expect anything more than the
refund of the dues paid by him plus 25 per cent of the same. But it is possible, as they by-laws of the
corporation themselves provide, that there are no funds with which to reimburse the member or
members, who have not been able to collect any benefit aid, the dues paid by them. To avoid such
an eventuality, it is provided that the corporation hold public contests and benefit performances, the
net proceeds of which will be applied to the payment of benefit aids. It may, however, happen that,
even by these means, the corporation will not be able to raise the necessary funds to pay the
members, who ask for reimbursement of their dues, as would undoubtedly occur should no new
members enroll in the corporation.
The following decisions show the various and distinguishing features which may be found in the
membership certificates in question:
In re Lamb ([1923]), 61 Cal. App., 321; 215 Pac., 109), the court said: 'The "securities" which
may not be issued or sold without the permission of the corporation commissioner are . . .
"any instrument issued or offered to the public by any company", evidencing any right to
participate in the profits or earnings or the distributions of assets of any business carried on
for profit by the company . . .
"Certificates" providing "that, in consideration of the certificate holder's promise to render
such assistance and in further consideration of $50 paid by him, defendant will divide pro
rata among all the holders of like certificates who reside at a specified place, 10 per cent of
the net price of such tires and tubes as may be sold by defendant's representative at such
place, such division to be made quarterly for the period of twenty years; that the holder is

entitled to a discount of 10 per cent on all its goods which he may purchase for defendant for
his personal use, and that defendant will annually set aside as a bonus to certificate holders
all of its excess earning after paying operating expenses, fixed charges, and dividends to
stockholders, the same to be distributed at its option in the form of preferred stock," have
been held to be security within the meaning of the Minnesota Blue Sky Law, where the
certificates were transferable on notice to the company, although they contained a clause
stating that they were not to be construed to be certificates of stock, or security or investment
contracts. (State vs. Gopher Tire & Rubber Co. [1920], 146 Minn., 52; 177 N.W., 937.)
Speculative securities include those the value of which materially depends on proposed or
promised future promotion or development, rather than on present tangible assets or
conditions. (Moos vs. Landowners Oil Asso. [1932], 136 Kan., 424; 15 Pac. [2d], 1073.)
"Investment contract", within the meaning of the Blue Sky Law, includes certificates issue in
consideration of cash and services entitling the holder to share in the profits of the business.
(State vs. Gopher Tire & Rubber Co., supra.)
Certificate of membership in corporation selling sick and death benefit insurance is a
"security" within the meaning of Blue Sky Law. (Stevens vs. Atlantic & Security Mut. Ass'ns.,
116 N. J. Eq., 584; 174 Atl., 744.)
The appellants contends that the Philippine Mutual Cooperative Society, Inc., is purely a civic
association and does not engage in business. The truth is that the members pay dues and the
association gives them benefit aids which represent a profit of 800 per cent. Do ut des.
They further point out that the membership certificates issued by the corporation are not contracts,
nor certificates of participation, bonds, debentures, etc. The fact, however, is that said certificates
represent obligations to pay a sum of money or securities of payment so that they are in reality
investment contracts. It is not true that one becomes a member without any expectation of gain. In
fact, the contrary is evident, and the association itself admits members with a like intention to gain.
The appellants argue that the Blue Sky Law is unconstitutional on two grounds: First, because it is
vague and indefinite: and second, because it delegates legislative and judicial powers to the Insular
Treasurer. The ambiguity of the statute the appellants insist is shown by the inability of both the
City Fiscal's and Insular Treasurer's office to determine within a reasonable time whether the
scheme of the corporation comes under Act No. 2581. We find no merit in this contention.
The argument that the statute delegates legislative and judicial powers to the Insular Treasurer is
founded on the fact that, according to the appellants, the law vests authority in the Insular Treasurer
to cancel a permit granted a person or corporation to enter into transactions without establishing any
fixed rule or guide in the exercise of such discretion. In the first place, the question involved herein is
whether or not the Philippine Mutual Cooperative Society, Inc., should have applied for a permit from
the Insular Treasurer to issue and sell certificates of its membership. It is, therefore, immaterial
whether the Insular Treasurer can withdraw a permit which he may have already given. In the
second place, the purpose of the law being to avoid ruinous speculations, it is obvious that the public
interest is and should be the reason on which the Insular Treasurer should base his decisions.

It has, nevertheless, been proved that Attorney Jose Moreno, on behalf of the Philippine Mutual
Cooperative Society, Inc., consulted the offices of the City Fiscal and the Insular Treasurer for the
purpose of obtaining a statement as to the legality of the schemes of the association and whether
they came within the scope of Act No. 2581. He began his inquiry in November, 1935, and it was
while expecting the decision of said offices that the information in this case was filed in May, 1936
without any previous notice or answer to said inquiry. Good faith and lack of intention to violate the
law may, in this case, be considered as mitigating circumstances in the imposition of the penalty; but
they do not constitute a valid defense. (People vs. McCalla [1923], 63 Cal. App., 783; 220 Pac.,
436.) The same may be said of the argument that the members, who had the right to the benefit aids
of P40 or P20, as the case may be, did receive such aids, and that it has not been proved that the
association has committed any fraud, or is in imminent danger of insolvency.
Wherefore, the appealed judgment is modified and the accused are sentenced each to pay a fine of
P100 or suffer the corresponding subsidiary imprisonment prescribed by law, in case of insolvency,
and to pay the costs. So ordered.
Avancea, C.J., Villa-Real, Abad Santos, Imperial, Diaz and Laurel, JJ., concur.

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 P50,000.00.
To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as his
own down-lines. These second tier of buyers could in turn build up their own down-lines. For each
pair of down-lines, the buyer-sponsor received a US$92.00 commission. But referrals in a day by the

buyer-sponsor should not exceed 16 since the commissions due from excess referrals inure to PCI,
not to the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company
stopped operations after the Securities and Exchange Commission (SEC) issued a cease and desist
order (CDO) against it. As it later on turned out, the same persons who ran the affairs of GVI directed
PCIs actual operations.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the
latter had taken over GVIs operations. After hearing,1 the SEC, through its Compliance and
Enforcement unit, issued a CDO against PCI. The SEC ruled that PCIs 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 PCIs 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 PCIs 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 PCIs petition and setting aside
the SEC-issued CDO.7The CA ruled that, following the Howey test, PCIs 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 PCIs 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 courts rulings, while not binding in the Philippines, enjoy some degree of
persuasiveness insofar as they are logical and consistent with the countrys best interests. 9
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey
Co.10 that, for an investment contract to exist, the following elements, referred to as the Howey test
must concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is
made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the
efforts of others. 11 Thus, to sustain the SEC position in this case, PCIs 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.
1wphi1

Here, PCIs 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 stores shelf. Under this scheme, adopted by most health product distributors, the buyer can
become a down-line seller. The latter earns commissions from purchases made by new buyers
whom he refers to the person who sold the product to him. The network goes down the line where
the orders to buy come.
The commissions, interest in real estate, and insurance coverage worth P50,000.00 are incentives to
down-line sellers to bring in other customers. These can hardly be regarded as profits from
investment of money under the Howey test.
The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing scheme
that PCI has adopted. Evidently, it is PCI that expects profit from the network marketing of its
products. PCI is correct in saying that the US$234 it gets from its clients is merely a consideration for
the sale of the websites that it provides.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision dated July 31, 2003 and
the resolution dated June 18, 2004 of the Court of Appeals in CA-G.R. SP 62890.
SO ORDERED.

G.R. No. 195542, March 19, 2014


SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. OUDINE SANTOS, Respondent.
DECISION
PEREZ, J.:
Before us is another cautionary tale of an investment arrangement which, at the outset, appeared good,
unraveling unhappily as a deal toogoodtobetrue.
This petition for review on certiorari under Rule 45 of the Rules of Court assails the Decision 1 of the Court of
Appeals in CAG.R. SP No. 112781 affirming the Resolutions2 of the Secretary of Justice in I.S. No. 2007
1054 which, among others, dismissed the criminal complaint for violation of Section 28 of Republic Act No.
8799, the Securities Regulation Code, filed by petitioner Securities and Exchange Commission (SEC) against
respondent Oudine Santos (Santos).
Sometime in 2007, yet another investment scam was exposed with the disappearance of its primary
perpetrator, Michael H.K. Liew (Liew), a selfstyled financial guru and Chairman of the Board of Directors of
Performance Investment Products Corporation (PIPCBVI), a foreign corporation registered in the British
Virgin Islands.
To do business in the Philippines, PIPCBVI incorporated herein as Philippine International Planning Center
Corporation (PIPC Corporation).
Because the head of PIPC Corporation had gone missing and with it the monies and investment of a
significant number of investors, the SEC was flooded with complaints from thirtyone (31) individuals
against PIPC Corporation, its directors, officers, employees, agents and brokers for alleged violation of
certain provisions of the Securities Regulation Code, including Section 28 thereof. Santos was charged in
the complaints in her capacity as investment consultant of PIPC Corporation, who supposedly induced
private complainants Luisa Mercedes P. Lorenzo (Lorenzo) and Ricky Albino P. Sy (Sy), to invest their monies
in PIPC Corporation.
The common recital in the 31 complaints is that:

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x x x [D]ue to the inducements and solicitations of the PIPC corporations directors, officers and
employees/agents/brokers, the former were enticed to invest their hardearned money, the minimum
amount of which must be US$40,000.00, with PIPCBVI, with a promise of higher income potential of an
interest of 12 to 18 percentum (%) per annum at relatively lowrisk investment program. The private
complainants also claimed that they were made to believe that PIPC Corporation refers to Performance
Investment Product Corporation, the Philippine office or branch of PIPCBVI, which is an entity engaged in
foreign currency trading, and not Philippine International Planning Center Corporation. 3
Soon thereafter, the SEC, through its Compliance and Endorsement Division, filed a complaintaffidavit for
violation of Sections 8,4 265 and 286 of the Securities Regulation Code before the Department of Justice
which was docketed as I.S. No. 20071054. Among the respondents in the complaintaffidavit were the
principal officers of PIPC: Liew, Chairman and President; Cristina GonzalezTuason, Director and General
Manager; Ma. Cristina BautistaJurado, Director; and herein respondent Santos.
Private complainants, Lorenzo and Sy, in their affidavits annexed to SECs complaintaffidavit, respectively
narrated Santos participation in how they came to invest their monies in PIPC Corporation:
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1. Lorenzos affidavit
xxxx
2. I heard about PIPC Corporation from my friend Derrick Santos during an informal gathering sometime in
March 2006. He said that the investments in PIPC Corporation generated a return of 1820% p.a. every two

(2) months. He then gave me the number of his sister, Oudine Santos who worked for PIPC Philippines to
discuss the investment further.
3. I then met with Oudine Santos sometime during the first week of April 2006 at PIPC Philippines lounge x
x x. Oudine Santos conducted for my personal benefit a presentation of the characteristics of their
investment product called Performance Managed Portfolio (PMP). The main points of her presentation are
indicated in a summary she gave me, x x x:
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xxxx
4. I asked Oudine Santos who were the traders, she said their names were confidential.
5. Oudine Santos also emphasized in that same meeting that I should keep this transaction to myself
because they were not allowed to conduct foreign currency trading. However, she assured me that I should
not worry because they have a lot of big people backing them up. She also mentioned that they were
applying for a seat in the stock exchange.
6. I ultimately agreed to put in FORTY THOUSAND US DOLLARS (US$40,000.00) in their investment
product.
7. Oudine Santos then gave me instructions on how to place my money in PMP and made me sign a
Partnership Agreement. x x x.
xxxx
8. Soon thereafter, pursuant to the instructions Oudine Santos gave me, I remitted US$40,000.00 to ABN
AMRO Hong Kong.
9. Afterwards, I received a letter dated 17 April 2006, signed by Michael H.K. Liew, welcoming my
investment.
xxxx
10. Sometime on May 2006, I added another US$ 60,000.00 to my then subsisting account #181372, thus
totaling US$100,000.00. This amount, pursuant to the instructions of Oudine Santos, was remitted to
Standard Chartered Bank.
xxxx
14. Then sometime on May 2007, I planned to pull out my remaining US$100,000.00 investment in PIPC
Philippines. On 22 May 2007, I met with Oudine Santos at the 15th Floor of Citibank Tower in Makati City. I
told her I wanted to terminate all my investments.
15. Oudine Santos instead said that PIPC Philippines has a new product I might be interested in. x x x She
explained that this product had the following characteristics:
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xxxx
16. Oudine Santos reiterated these claims in an email she sent me on 22 May 2007. x x x.
17. Enticed by these assurances and promises of large earnings, I put in FOUR HUNDRED THOUSAND US
DOLLARS (US$400,000.00) in PMP (RZB), which became account # R149432.
18. Pursuant to the instructions Oudine Santos gave me, I remitted the amount of US$ 400,000.00 to RZB
Austria, Singapore Branch.
xxxx
22. I tried calling Oudine Santos and was finally able to reach her at around 7 in the morning. She
confirmed what Leah Caringal told me. I told her then that I want full recovery of my investment in
accordance with their 100% principal guarantee. To this day[,] I have not received my principal investment. 7

5. Sys affidavit
2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo branch for the past 15
years. Sometime in the last quarter of 2006, I was at BPI Pasong Tamo to accomplish certain routine
transactions. Being a client of long standing, the bank manager[,] as a matter of courtesy, allowed me to
wait in her cubicle. It was there that the bank manager introduced me to another bank client, Ms. Oudine
Santos. After exchanging pleasantries, and in the course of a brief conversation, Ms. Santos told me that she
is a resident of Damarias Village and was working as an investment consultant for a certain company,
Performance Investment Products Corporation [PIPC]. She told me that she wanted to invite me to her office
at the Citibank Tower in Makati so that she could explain the investment products that they are offering. I
gave her my contact number and finished my transaction with the bank for that day;
3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the business lounge of
[PIPC] located at the 15th Floor of Citibank Tower, Makati. During the meeting, Ms. Santos enticed me to
invest in their Performance Managed Portfolio which she explained was a risk controlled investment program
designed for individuals like me who are looking for higher investment returns than bank deposits while still
having the advantage of security and liquidity. She told me that they were engaged in foreign currency
trading abroad and that they only employ professional and experienced foreign exchange traders who
specialize in trading the Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told
her that I did not have any experience in foreign currency trading and was quite conservative in handling my
money;
4. Ms. Santos quickly allayed my fears by emphasizing that the capital for any investment with [PIPC] is
secure. She then trumpeted [PIPCs] track record in the Philippines, having successfully solicited investments
from many wealthy and wellknown individuals since 2001;
5. Ms. Santos convinced me to invest in Performance Management Portfolio I x x x [which] features full
protection for the principal investment and a 60%40% sharing of the profit between the client and [PIPC]
respectively;
6. In November of 2006, I decided to invest USD 40,000 specifically in Performance Management Portfolio I
x x x. After signing the Partnership Agreement, x x x, I was instructed by Ms. Santos to deposit the amount
by telegraphic transfer to [PIPCs] account in ABN AMRO Bank Hong Kong. I did as instructed;
xxxx
8. Sometime January to March of 2007, [Santos] was convincing me to make an additional investment
under a second product, Performance Management Portfolio II [PMP II] which provides a more limited
guarantee for the principal investment of USD 100,000 and a 80%20% sharing of the profit between the
client and [PIPC] respectively. In both schemes, the clients participation will be limited to choosing two
currencies which will in turn be traded by professional traders abroad. Profit earned from the transaction will
then be remitted to the clients account every 8 weeks;
xxxx
10. After I made my USD 40,000 PMP I investment, Ms. Santos invited me to meet Mr. Michael Liew in the
business lounge some time during the first quarter of this year. My impression was that he was quite
unassuming considering that he was the head of an international investment firm. x x x.8
On the whole, Lorenzo and Sy charge Santos in her capacity as investment consultant of PIPC Corporation
who actively engaged in the solicitation and recruitment of investors. Private complainants maintain that
Santos, apart from being PIPC Corporations employee, acted as PIPC Corporations agent and made
representations regarding its investment products and that of the supposed global corporation PIPCBVI.
Facilitating Lorenzos and Sys investment with PIPC Corporation, Santos represented to the two that
investing with PIPC Corporation, an affiliate of PIPCBVI, would be safe and fullproof.
In SECs complaintaffidavit, it charged the following:

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xxxx
12. This case stems from the act of fraud and chicanery masterfully orchestrated and executed by the

officers and agents of PIPC Corp. against their unsuspecting investors.The deception is founded on the basic
fact that neither PIPC Corp. nor its officers, employees and agents are registered brokers/dealers, making
their numerous transactions of buying and selling securities to the public a blatant violation of the provisions
of the SRC, specifically Sections 8 and 28 thereof. Their illegal offer/sale of securities in the form of the
Performance Management Partnership Agreement to the public was perpetrated for about nine (9) years
and would have continued were it not for the alleged, and most probably, contrived and deliberate
withdrawal of the entire funds of the corporation by Michael H.K. Liew. The [scam] was masked by a
supposed offshore foreign currency trading scheme promising that the principal or capital infused will be
guaranteed or fully protected. Coupled with this [full] guarantee for the principal is the prospect of profits at
an annual rate of 12 to 18%. [One of] the other enticements provided by the subject company were free
use of its business either for personal or business purposes, free subscription of imported magazines, [trips]
abroad, and insurance coverage, just to name a few. Fully convinced and enamored [by the] thought of
earning higher rates of interest along with the promise of a guaranteed [capital] the investors placed and
entrusted their money to PIPC Corp., only to find out later [that they] had been deceived and taken for a
ride.
xxxx
17. Sometime in 2006, an investigation was undertaken by the [Compliance and Enforcement Division of
the SEC] on the [account] of PIPC Corp. Per its Articles of Incorporation, PIPC Corp. was authorized to
engage [in the] dissemination of information on the current flow of foreign exchange (forex) as x x x
precious metals such as gold, silver, and oil, and items traded in stock and securities/commodities
exchanges around the world. To be more specific, PIPC Corp. [was] authorized to act only as a research
arm of their foreign clients.
xxxx
22. x x x.

Name of Broker Bank/Locatio Date


Account
Investor
/
n
Number
s
Agent
to which
funds were
transferred
xxxx
23. Luisa Oudin RZB Austria, June
R149432
Mercede
e
Singapore
2007
s P.
Santos
Branch
Lorenzo
xxxx
32.
Oudin ABNAMRO
9
080028776
Ricky
e
Bank
Octobe
9
Albino P. Santos Hongkong r 2006
Sy

Amount of Bank/Location
Investment
xxx

US$500,00 Not provided


0

US$40,000

BPI Pasong
Tamo B9

23. A careful perusal of the complaintaffidavits revealed that for every completed investment transaction,
a company brochure, depending on the type of investment portfolio chosen, was provided to each investor
containing the following information on Performance BVI and its investment product called Performance
Managed Portfolio or PMP, the points of which are as follows:
a.

8 calendar week maturity period[,]

b.

principal investment (minimum of USD 40,000) is protected[,]

c.

investments maintained in strict confidentiality[,]

d.

features: security, liquidity, short term commitment,

e.

taxexemption status for offshore investments.

24. The investment flow is described as follows:


a.

Investors funds will be placed into a fixed deposit account with a PIPC designated bank and shall
not be exposed for trading purposes. The PIPC designated bank shall then extend a margin line
request for trading based on the deposit;

b.

PIPC shall open a separate account which will contain an amount of not more than 30% of its own
funds to serve as a profit and loss account;

c.

Trading will commence with PIPC designated bank closely monitoring the performance to ensure
that if losses are incurred trading will cease immediately should the 20% stop limit be hit;

d.

Profits will be credited into the Profit and Loss account with PIPC designated bank account. Losses
will be debited from the same account up to the controlled 20% limit;

e.

Notice of withdrawals must be submitted two weeks prior to schedule of maturity otherwise
investment is automatically rolled over to the next batch;

f.

At maturity, profits accumulated in the settlement account shall be distributed and deposited into
each investors dollar bank account within fourteen (14) banking days;

g.

The funds of various investors are pooled, batched and deposited with PIPC designated bank
account acting as custodian bank, to form a massive asset base. This account is separate and
distinct from the Profit and Loss Account. The line from this pooled fund is then entrusted to full
time professional and experienced foreign traders who each specialize in the following currencies:
Japanes Yen, Euro, British Pound, Swiss Francs and Australian Dollar. Profits generated from trading
these major currencies is credited into the Profit and Loss Account, which at the end of the eight
calendar week lockin period, will be distributed among the investors. Investors are informed of
their account status thru trading statements issued by PIPC every time there is a trade made in
their respective accounts.

xxxx
25. Furthermore, it was relayed by the officers and agents to complainantsinvestors that PIPC Corp. is the
Philippine office of the Performance Group of Companies affiliates situated in different parts of the world,
particularly China, Indonesia, Hong Kong, Japan, Korea, Singapore, and the British Virgin Islands (BVI),
even reaching Switzerland. With such basic depiction of the legitimacy and stability of PIPC Corp.,
complainantsinvestors deduced that it was clothed with the authority to solicit, offer [and] sell securities.
As regards the officers and agents of [PIPC Corp.], they secured proper individual licenses with the SEC as
brokers/dealers of securities to enable to solicit, offer and/or sell the same.
26. Official SEC documents would show that while PIPC Corp. is indeed registered with the SEC, it having
engaged in the solicitation and sale of securities was contrary to the purpose for which it was established
which is only to act as a financial research. Corollarily, PIPC Corp.s officers, agents, and brokers were not
licensed to solicit, offer and sell securities to the public, a glaring violation of Sections 8 and 28 of the SRC. 10
In refutation, Santos denied intentionally defrauding complainants Lorenzo and Sy:

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12. I cannot understand how I can be charged of forming, or even of being a part of, a syndicate formed
with the intention of carrying an unlawful or illegal act, transaction, enterprise or scheme. If this charge has
reference to PIPC Corp. then I certainly cannot be held liable therefore. As I mentioned above, I joined PIPC
Corp. only inApril 2005 and, by that time, the company was already in existence for over four years. I had

no participation whatsoever in its creation or formation, as I was not even connected with PIPC Corp. at the
time of its incorporation. In fact, I have never been a stockholder, director, general manager or officer of
PIPC Corp. Further, PIPC Corp. was duly registered with the Securities and Exchange Commission and was
organized for a legitimate purpose, and certainly not for the purpose of perpetrating a fraud against the
public.
13. That I was an employee and, later on, an independent information provider of PIPC Corp. is of little
consequence. My duties as such were limited to providing information about the corporate clients of PIPC
Corp. that had been expressly requested by interested individuals. I performed my assigned job without any
criminal intent or malice. In this regard, I have been advised that offenses penalized under the RPC are
intentional felonies for which criminal liability attaches only when it is shown that the malefactors acted with
criminal intent or malice. There can be no crime when the criminal mind is wanting. In this case, I
performed my task of providing requested information about the clients of PIPC Corp. without any intent to
violate the law. Thus, there can be no criminal liability.
[14]. I have also been advised that under the law, the directors and officers of a corporation who act for and
in behalf of the corporation, who keep within the lawful scope of their authority, and act in good faith, do not
become liable, whether civilly or otherwise, for the consequences of their acts, as these acts are properly
attributed to the corporation alone. The same principle should apply to individual, like myself, who was only
acting within the bounds of her assigned tasks and had absolutely no decisionmaking power in the
management and supervision of the company.
[15]. Neither can I be liable of forming a syndicate with respect to PIPCBVI. To reiterate, at no time was I
ever a stockholder, director, employee, officer or agent of PIPCBVI. Said company is simply one of many
companies serviced by PIPC Corp. I had no participation whatsoever in its creation and/or in the direction of
its daytoday affairs.
xxxx
19. Further, I have been advised by counsel that conspiracy must be established by positive and conclusive
evidence. It cannot be based on mere conjecture but must be established as a fact. In this case, no proof of
conspiracy was presented against me. In fact, it appears that I have been dragged in to this allegation based
on the hearsay statement of Felicia Tirona that I was one of the inhouse account executives or work
force of PIPCBVI and PIPC Corp. There was no allegation whatsoever of any illegal act done by me to
warrant the institution of criminal charges against me. If at all, only Michael Liew should be held criminally
liable, as he was clearly the one who absconded with the money of the investors of PIPCBVI. Mr. Liew has
since disappeared and efforts to locate him have apparently proved to be futile to date.
xxxx
23. In the first place, I did not receive any money or property from any of the complainants. As clearly
shown by the documents submitted to this Honorable Office, particularly, the Portfolio Management
Partnership Agreement, Security Agreement, Declaration of Trust, bank statements and acknowledgement
receipts, complainants delivered their money to PIPCBVI, not to PIPC Corp. Complainants deposited their
investment in PIPCBVIs bank account, and PIPCBVI would subsequently issue an acknowledgement
receipt. No part of the said money was ever delivered to PIPC Corp. or to me.
24. Indeed, complainants own evidence show that the Portfolio Management Partnership Agreement,
Security Agreement and Declaration of Trust were executed between PIPCBVI and the individual
complainants. Further, paragraph 2 of the Declaration of Trust explicitly stated that PIPCBVI hold the said
amount of money UPON TRUST for the Beneficiary Owner. The complainants cannot, therefore, hold PIPC
Corp., or any of its officers or employees, with misappropriating their money or property when they were
fully aware that they delivered their money to, and transacted solely with, PIPCBVI, and not PIPC Corp.
25. It also bears stressing that of the twentyone (21) complainants in this case, only complainant Ricky
Albino Sy alleged that he had actually dealt with me. Complainant Sy himself never alleged that he
delivered or entrusted any money or property to me. On the contrary, complainant Sy admitted that he
deposited his investment of U.S.$40,000.00 by bank transfer to PIPCBVIs account in the ABN Amro Bank.
That the money was delivered to PIPCBVI, and not to me, is shown by the fact that the receipt was issued
by PIPCBVI. I never signed or issued any acknowledgement receipt, as I never received any such money.
Neither did I ever gain physical or juridical possession of the said money.11 (Emphasis and underscoring
supplied).

Santos defense consisted in: (1) denying participation in the conspiracy and fraud perpetrated against the
investorcomplainants of PIPC Corporation, specifically Sy and Lorenzo; (2) claiming that she was initially
and merely an employee of, and subsequently an independent information provider for, PIPC Corporation;
(3) PIPC Corporation being a separate entity from PIPCBVI of which Santos has never been a part of in any
capacity; (4) her not having received any money from Sy and Lorenzo, the two having, in actuality, directly
invested their money in PIPCBVI; (5) Santos having dealt only with Sy and the latter, in fact, deposited
money directly into PIPCBVIs account; and (6) on the whole, PIPCBVI as the other party in the
investment contracts signed by Sy and Lorenzo, thus the only corporation liable to Sy and Lorenzo and the
other complainants.
On 18 April 2008, the DOJ, in I.S. No. 20071054, issued a Resolution signed by a panel of three (3)
prosecutors, with recommendation for approval of the Assistant Chief State Prosecutor, and ultimately
approved by Chief State Prosecutor Jovencito R. Zuo, indicting: (a) Liew and GonzalezTuason for violation
of Sections 8 and 26 of the Securities Regulation Code; and (b) herein respondent Santos, along with
Cristina GonzalezTuason and 12 others for violation of Section 28 of the Securities Regulation Code. The
same Resolution likewise dismissed the complaint against 8 of the respondents therein for insufficiency of
evidence. In the 18 April 2008 Resolution, the DOJ discussed at length the liability of PIPC Corporation and
its officers, employees, agents and all those acting on PIPC Corporations behalf, to wit:
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Firstly, complainant SEC filed the instant case for alleged violation by respondents [therein, including herein
respondent, Santos,] of Section 8 of the SRC.
Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, without a registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
Based on the above provision of the law, complainant SEC is now accusing all respondents [therein,
including Santos,] for violating the same when they allegedly sold and/or offered for sale unregistered
securities.
However, Section 8.5 thereof provides that The Commission may audit the financial statements, assets and
other information of a firm applying for registration of its securities whenever it deems the same necessary
to insure full disclosure or to protect the interest of the investors and the public in general.
The abovequoted provision is loud and clear and needs no further interpretation. It is the firm through its
authorized officers that is required to register its securities with the SEC and not the individual persons
allegedly selling and/or offering for sale said unregistered securities. To do otherwise would open the
floodgates to numerous complaints against innocent individuals who have no hand in the control, decision
making and operations of said investment company.
Clearly, it is only the PIPC Corp. and respondents Michael H. Liew and Cristina GonzalezTuason being the
President and the General Manager respectively, of PIPC Corp. who violated Section 8 of the SRC.
xxxx
Respondents Liew and Tuason are directors and officers of PIPC Corp. who exercise power of control and
supervision in the management of said corporation. Surely they cannot claim having no knowledge of the
operations of PIPC Corp. visvis its scope of authority since they are the ones who actually created and
manage the same. They are well aware that PIPC Corp. is a mere financial research facility and has nothing
to do with selling or offering for sale securities to the general public. But despite knowledge, they continue
to recruit and deceive the general public by making it appear that PIPC Corp. is a legitimate investment
company.
Moreover, they cannot evade liability by hiding behind the veil of a corporate fiction. x x x.
xxxx
In the case at bar, the investors were made to believe that PIPC Corp. and PIPCBVI is one and the same
corporation. There is nothing on record that would show that private complainants were informed that PIPC
Corp. and PIPCBVI are two entities distinct and separate from one another. In fact, when they invested

their money, they dealt with PIPC Corp. and the people acting on its behalf but when they signed documents
they were provided with ones bearing the name of PIPCBVI. Clearly, this obvious and intentional confusion
of names of the two entities is designed to defraud and later to avoid liabilities from their victims. Therefore,
the defense of a corporate fiction is unavailing in the instant case.
xxxx
Buying and selling of securities is an indispensable element that makes one a broker or dealer. So if one is
not engaged in the business of buying and selling of securities, naturally he or she cannot be considered as
a broker or dealer. However, a person may be considered as an agent of another, juridical or natural person,
if it can be inferred that he or she acts as an agent of his or her principal as abovedefined. One can also be
an investor and agent at the same time.
An examination of the records and the evidence submitted by the parties, we have observed that all
respondents are investors of PIPCBVI, same with the private complainants, they also lost thousands of
dollars. We also noted the fact that most of the private complainants and alleged brokers or agents are long
time friends if not blood related individuals. Notably also is the fact that most of them are highly educated
businessmen/businesswomen who are financially welloff. Hence, they are regarded to be wiser and more
prudent and expected to exercise due diligence of a good father of a family in managing their finances as
compared to those who are less fortunate in life.
However, we still need to delve deeper into the facts and the [evidence] on record to determine the degree
of respondents participations and if on the basis of their actions, it can be inferred that they acted as
employeesagents or investoragents of PIPC Corp. or PIPCBVI then are liable under Section 28 of the SRC
otherwise, they cannot be [blamed] for being mere employees or investors thereof.
xxxx
Oudine Santos. Investment Consultant of PIPC Corp. who allegedly invited, convinced and assured private
complainants Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy to invest in PIPC Corp. To prove their
allegations, respondents attached email exchanges with respondent Santos regarding the details in investing
with PIPCBVI. Respondent Santos failed to submit counteraffidavit despite subpoena.
xxxx
After painstakingly going over the record and the supporting documents attached thereto and after carefully
evaluating the respective claims and defenses raised by all the parties, the undersigned panel of prosecutors
has a reason to believe that Section 28 of the SRC has been violated and that the following respondents are
probably guilty thereof and should, therefore, be held for trial:
1.

Cristina GonzalezTuason

2.

x x x.

xxxx
13. Oudine Santos
The abovenamed respondents, aside from being officers, employees or investors, clearly acted as agents of
PIPC Corp. who made representations regarding PIPC Corp. and PIPCBVI investment products. They
assured their clients that investing with PIPCBVI will be 100% guaranteed. In addition, they also facilitated
their clients investments with PIPCBVI and some, if not all, even received money investors as evidenced by
the acknowledgement receipts they signed and on behalf of PIPCBVI. The documentary evidence submitted
by witnesses and their categorical and positive assertion of facts which, taken together corroborate one
another, prevails over the defense of denial raised by the abovenamed respondents which are mostly self
serving in nature.
A formal or written contract of agency between two or more persons is not necessary for one to become an
agent of the other for as long as it can be inferred from their actions that there exists a principalagent
relationship between them on the one hand and the PIPC Corp. or PIPCBVI on the other hand, then, it is
implied that a contract of agency is created.
As to their contention that they are not officers or employees of PIPC Corp., the Supreme Court ruled that

one may be an agent of a domestic corporation although he or she is not an officer thereto. x x x. The basis
of agency is representation; the question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by direct or substantial evidence;
though that fact or extent of authority of the agents may not, as a general rule, be established from the
declarations of the agents alone, if one professes to act as agent for another, he or she is estopped to deny
her agency both as against the asserted principal and third persons interested in the transaction in which he
or she is engaged.
Further, they cannot raise the defense of good faith for the simple reason that the SRC is a special law
where criminal intent is not an essential element. Mere violation of which is punishable except in some
provisions thereof where fraud is a condition sine qua non such as Section 26 of the said law.
xxxx
WHEREFORE, the foregoing considered, it is respectfully recommended that this resolution be APPROVED
and that:
1.

An information for violation of Section 8 of the SRC be filed against respondent PIPC Corp.,
MICHAEL H. LIEW and CRISTINA GONZALEZTUASON;

2.

An information for violation of Section 26 thereof be also filed against respondents MICHAEL H.
LIEW and CRISTINA GONZALEZTUASON; and

3.

An information for violation of Section 28 thereof be filed against respondents CRISTINA


GONZALEZTUASON, MA. CRISTINA BAUTISTAJURADO, BARBARA GARCIA, ANTHONY KIERULF,
EUGENE GO, MICHAEL MELCHOR NUBLA, MA. PAMELA MORRIS, LUIS JIMBO ARAGON, RENATO
SARMIENTO, JR., VICTOR JOSE VERGEL DE DIOS, NICOLINE AMORANTO MENDOZA, JOSE JAY
TENGCO III, [respondent] OUDINE SANTOS AND HERLEY JESUITAS; and

4.

The complaint against MAYENNE CARMONA, YEYE SAN PEDROCHOA, MIA LEGARDA, NICOLE
ORTEGA, DAVID CHUAUNSU, STANLEY CHUAUNSU, DEBORAH V. YABUT, CHRISTINE YU and
JONATHAN OCAMPO be dismissed for insufficiency of evidence. 12 (Emphasis supplied)

In sum, the DOJ panel based its finding of probable cause on the collective acts of the majority of the
respondents therein, including herein respondent Santos, which consisted in their acting as employees
agent and/or investoragents of PIPC Corporation and/or PIPCBVI. Specifically alluding to Santos as
Investment Consultant of PIPC Corporation, the DOJ found probable cause to indict her for violation of
Section 28 of the Securities Regulation Code for engaging in the business of selling or offering for sale
securities, on behalf of PIPC Corporation and/or PIPCBVI (which were found to be an issuer13 of securities
without the necessary registration from the SEC) without Santos being registered as a broker, dealer,
salesman or an associated person.
On separate motions for reconsideration of the respondents therein, including herein respondent Santos, the
DOJ panel issued a Resolution dated 2 September 2008 modifying its previous ruling and excluding
respondent Victor Jose Vergel de Dios from prosecution for violation of Section 28 of the Securities
Regulation Code, thus:
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After an assiduous reevaluation of the facts and the evidence submitted by the parties in support of their
respective positions, the undersigned panel finds x x x [that the] rest of the respondents mainly rehashed
their earlier arguments except for a few respondents who, in one way or another, failed to participate in the
preliminary investigation; hence raising their respective defenses for the first time in their motions for
reconsideration.
xxxx
With respect to respondents Luis Jimbo Aragon and Oudine Santos who also claimed to have not received
subpoenas, this panel, after thoroughly evaluating their respective defenses, finds them to be similarly
situated with the other respondents who acted as agents for and in behalf of PIPC Corp. and/or PIPCBVI;
hence, their inclusion in the information is affirmed.

xxxx
x x x As to the issue on whether or not PMPA is a security contract, we rule in the affirmative, as supported
by the herein below provisions of the SRC, particularly:
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Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, without registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
Securities have been defined as shares, participation or interest in a corporation or in a commercial
enterprise or profit making venture and evidenced by a certificate, contract, instrument, whether written or
electronic in character. It includes among others, investment contracts, certificates of interest or
participation in a profit sharing agreement, certificates of deposit for a future subscription.
Under the SRCs Amended Implementing Rules and Regulations, specifically Rule 3, par. 1 subpar. G, an
investment contract has been defined as a contract, transaction or scheme (collectively contract), whereby
a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of
others. It is likewise provided in the said provision that an investment contract is presumed to exist
whenever a person seeks to use the money or property of others on the promise of profits and a common
enterprise is deemed created when two (2) or more investors pool their resources creating a common
enterprise, even if the promoter receives nothing more than a brokers commission. Undoubtedly, the PMPA
is an investment contract falling within the purview of the term securities as defined by law.
xxxx
It bears to emphasize that the purpose of a preliminary investigation and/or confrontation between the
partylitigants is for them to lay down all their cards on the table to properly inform and apprise the other of
the charges against him/her, to avoid suprises and to afford the adverse party all the opportunity to defend
himself/herself based on the evidence submitted against him/her. Thus, failure on the part of the defaulting
party to submit evidence that was then available to him is deemed a waiver on his part to submit it in the
same proceedings against the same party for the same issue.
WHEREFORE, the foregoing premises considered, the undersigned panel of prosecutors respectfully
recommends that the assailed resolution be modified by dismissing the complaint against Victor Jose Vergel
De Dios and that the Information filed with the appropriate court for violation of Section 28 of the SRC be
amended accordingly.14
Respondent Santos filed a petition for review before the Office of the Secretary of the DOJ assailing the
Resolutions dated 18 April 2008 and 2 September 2008 and claiming that she was a mere clerical
employee/information provider who never solicited nor recruited investors, in particular complainants Sy and
Lorenzo, for PIPC Corporation or PIPCBVI. Santos also claimed dearth of evidence indicating she was a
salesman/agent or an associated person of a broker or dealer, as defined under the Securities Regulation
Code.
The SEC filed its Comment opposing Santos petition for review. Thereafter, the Office of the Secretary of the
DOJ, through its then Undersecretary Ricardo R. Blancaflor, issued a Resolution dated 1 October 2009 which,
as previously adverted to, excluded respondent Santos from prosecution for violation of Section 28 of the
Securities Regulation Code. For a complete picture, we quote in full the disquisition of the Secretary of the
DOJ:
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[Santos] argues that while Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy mentioned two (2) instances
wherein she allegedly enticed them to invest, their own pieces of evidence, particularly the Annex E series
(several Details of Profit distribution & Renewal of Partnership Agreement bearing different dates
addressed to Ricky Albino P. Sy with stamped signature for PIPCBVI), indicate that they invested and
reinvested their money with PIPCBVI repeatedly and even earned profits from these transactions through
direct dealing with PIPCBVI and without her participation. In addition, she maintains that Luisa Mercedes P.
Lorenzo and Ricky Albino P. Sy had several opportunities to divest or withdraw their respective investments
but opted not to do so at their own volitions.
xxxx

The sole issue in this case is whether or not respondent Santos acted as agent of PIPC Corp. or had enticed
Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPCBVIs investment products.
We resolve in the negative.
Section 28 of the Securities Regulation Code (SRC) reads:
SEC. [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 unless
registered as such with the Commission.
28.2. No registered broker or dealer shall employ any salesman or any associated person, and no issuer
shall employ any salesman, who is not registered as such with the Commission.
Jurisprudence defines an agent as a business representative, whose function is to bring about, modify,
affect, accept performance of, or terminate contractual obligations between principal and third persons. x x
x On the other hand, the Implementing Rules of the SRC simply provides that an agent or a salesman is a
person employed as such or as an agent, by the dealer, issuer or broker to buy and sell securities x x x.
A judicious examination of the records indicates the lack of evidence that respondent Santos violated
Section 28 of the SRC, or that she had acted as an agent for PIPC Corp. or enticed Luisa Mercedes P.
Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPCBVIs investment products.
The annex D (Welcome to PMP Letter dated [17 April 2006] addressed to Luisa Mercedes P. Lorenzo
signed by Michael Liew as president of PIPCBVI), Annex E (Fixed Deposit Advice Letter dated [26 June
2006] addressed to Luisa Mercedes P. Lorenzo and stamped signature for PIPCBVI), and Annex H
(Welcome to PMP Letter dated [30 May 2007] addressed to Luisa Mercedes P. Lorenzo signed by Michael
Liew as President of PIPCBVI) of the complaintaffidavit dated [11 September 2007] of Luisa Mercedes P.
Lorenzo show that she directly dealt with PIPCBVI in placing her investment. The same is true with regard
to Annex A series (Portfolio Management Partnership Agreement between Ricky Albino P. Sy and PIPCBVI,
Security Agreement between Ricky Albino P. Sy and PIPCBVI, and Declaration of Trust between Ricky Albino
P. Sy and PIPCBVI), Annex B (Official Receipt dated 09 November 2006 issued by PIPCBVI), Annex C
(Welcome to PMP Letter dated [10 November 2006] addressed to Ricky Albino P. Sy and signed by Michael
[Liew] as President of PIPCBVI), and Annex D (Fixed Deposit Advice Letter dated [29 January 2007]
addressed to Ricky Albino P. Sy with stamped signature for PIPCBVI) of the complaintaffidavit dated [26
September 2007] of Ricky Albino P. Sy. These documents categorically show that the parties therein, i.e.,
Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy and PIPCBVI, transacted with each other directly without
any participation from respondent Santos. These documents speak for themselves. Moreover, it bears
stressing that Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy admit in their respective affidavits that they
directly deposited their investments by bank transfer to PIPCBVIs offshore bank account.
Annex B (Printed background of the PMP of [PIPC]BVI enumerating the features of said product) and
Annex C (Printed Procedures in PMP Account Opening instructing the client what to do in placing his/her
investment) of the complaintaffidavit of Luisa Mercedes P. Lorenzo actually supports the allegations of
respondent Santos that there were printed forms/brochures for distribution to persons requesting the same.
These printed/prepared handouts contain the assurances or guarantees of PIPCBVI and the instructions on
where and how to deposit the investors money.
Likewise, Luisa Mercedes P. Lorenzos Annex A (2006 GIS of PIPC Corp. listing the stockholders, board of
directors an[d] officers thereof), Annex F (Deposit Confirmation dated [14 June 2006] from Standard
Chartered Bank) and Annexes I to L (SEC Certifications stating that PIPC Corp., PIPC, PIPCBVI and
Performance Investment Products Ltd., respectively, are not registered issuer of securities nor licensed to
offer or sell securities to the public) are not evidence against respondent Santos. Her name is not even
mentioned in any of these documents. If at all, these documents are evidence against PIPC Corp. and its
officers named therein.
Further, it is important to note that in the Request Form, one of the documents being distributed by
respondent Santos x x x, it is categorically stated therein that said request shall not be taken as an
investment solicitation x x x, but is mainly for the purpose of providing me with information. Clearly, this
document proves that respondent Santos did not or was not involved in the solicitation of investments but
merely shows that she is an employee of PIPC Corp. In addition, the Information Dissemination Agreement

between her employer PIPC Corp. and PIPCBVI readably and understandably provides that she is prohibited
from soliciting investments in behalf of PIPCBVI and her authority is limited only to providing interested
persons with thenecessary information regarding how to communicate directly with PIPC.Parenthetically,
the decision to sign the partnership Agreement with PIPCBVI to invest and repeatedly reinvest their monies
with PIPCBVI were made by Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy themselves without any
inducement or undue influence from respondent Santos.
xxxx
WHEREFORE, the assailed resolution is hereby MODIFIED, the Chief State Prosecutor is directed to EXCLUDE
respondent Oudine Santos from the Information for violation of Section 28 of the Securities and Regulation
Code, if any has been filed, and report the action taken thereon within ten (10) days from receipt hereof.15
Expectedly, after the denial of the SECs motion for reconsideration before the Secretary of the DOJ, the SEC
filed a petition for certiorari before the Court of Appeals seeking to annul the 1 October 2009 Resolution of
the DOJ.
The Court of Appeals dismissed the SECs petition for certiorari and affirmed the 1 October 2009 Resolution
of the Secretary of the DOJ:
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Prescinding from the foregoing, a person must first and foremost be engaged in the business of buying and
selling securities in the Philippines before he can be considered as a broker, a dealer or salesman within the
coverage of the Securities Regulation Code. The record in this case however is bereft of any showing that
[Santos] was engaged in the business of buying and selling securities in the Philippines, whether for herself
or in behalf of another person or entity. Apart from [SECs] sweeping allegation that [Santos] enticed Sy and
Lorenzo and solicited from them investments for PIPCBVI without first being registered as broker, dealer or
salesman with SEC, no evidence had been adduced that shows [Santos] actual participation in the alleged
offer and sale of securities to the public, particularly to Sy and Lorenzo, within the Philippines. There was
likewise no exchange of funds between Sy and Lorenzo, on one hand, and [Santos], on the other hand, as
the price of certain securities offered by PIPCBVI. There was even no specific proof that [Santos]
misrepresented to Sy and Lorenzo that she was a licensed broker, dealer or salesperson of securities,
thereby inducing them to invest and deliver their hardearned money with PIPCBVI. In fact, the
Information Dissemination Agreement between PIPC Corporation, [Santos employer], and PIPCBVI clearly
provides that [Santos] was prohibited from soliciting investments in behalf of PIPCBVI and that her
authority is limited only to providing prospective client with the necessary information on how to
communicate directly with PIPC. Thus, it is obvious that the final decision of investing and reinvesting their
money with PIPCBVI was made solely by Sy and Lorenzo themselves.
xxxx
WHEREFORE, in view of the foregoing premises, the petition filed in this case is herebyDENIED and,
consequently, DISMISSED. The assailed Resolutions dated [1 October 2009] and [23 November 2009] of
the Secretary of Justice in I.S. No. 20071054 are hereby AFFIRMED.16
Hence, this appeal by certiorari raising the sole error of Santos exclusion from the Information for violation
of Section 28 of the Securities Regulation Code.
Generally, at the preliminary investigation proper, the investigating prosecutor, and ultimately, the Secretary
of the DOJ, is afforded wide latitude of discretion in the exercise of its power to determine probable cause to
warrant criminal prosecution. The determination of probable cause is an executive function where the
prosecutor determines merely that a crime has been committed and that the accused has committed the
same.17 The rules do not require that a prosecutor has moral certainty of the guilt of a person simply for
preliminary investigation purposes.
However, the authority of the prosecutor and the DOJ is not absolute; it cannot be exercised arbitrarily or
capriciously. Where the findings of the investigating prosecutor or the Secretary of the DOJ as to the
existence of probable cause are equivalent to a gross misapprehension of facts,certiorari will lie to correct
these errors.18
While it is our policy not to interfere in the conduct of preliminary investigations, we have, on more than one
occasion, adhered to some exceptions to the general rule:
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1.

when necessary to afford adequate protection to the constitutional rights of the accused;

2.

when necessary for the orderly administration of justice or to avoid oppression or multiplicity of
actions;

3.

when there is a prejudicial question which is sub judice;

4.

when the acts of the officer are without or in excess of authority;

5.

where the prosecution is under an invalid law, ordinance or regulation;

6.

when double jeopardy is clearly apparent;

7.

where the court has no jurisdiction over the offense;

8.

where it is a case of persecution rather than prosecution;

9.

where the charges are manifestly false and motivated by the lust for vengeance;

10. when there is clearly no prima facie case against the accused and a motion to quash on that ground
has been denied.19 (Italics supplied).

In excluding Santos from the prosecution of the supposed violation of Section 28 of the Securities Regulation
Code, the Secretary of the DOJ, as affirmed by the appellate court, debunked the DOJ panels finding that
Santos was prima facie liable for either: (1) selling securities in the Philippines as a broker or dealer, or (2)
acting as a salesman, or an associated person of any broker or dealer on behalf of PIPC Corporation and/or
PIPCBVI without being registered as such with the SEC.
To get to that conclusion, the Secretary of the DOJ and the appellate court ruled that no evidence was
adduced showing Santos actual participation in the final sale by PIPC Corporation and/or PIPCBVI of
unregistered securities since the very affidavits of complainants Lorenzo and Sy proved that Santos had
never signed, neither was she mentioned in, any of the investment documents between Lorenzo and Sy, on
one hand, and PIPC Corporation and/or PIPCBVI, on the other hand.
The conclusions made by the Secretary of the DOJ and the appellate court are a myopic view of the
investment solicitations made by Santos on behalf of PIPC Corporation and/or PIPCBVI while she was not
licensed as a broker or dealer, or registered as a salesman, or an associated person of a broker or dealer.
We sustain the DOJ panels findings which were not overruled by the Secretary of the DOJ and the appellate
court, that PIPC Corporation and/or PIPCBVI was: (1) an issuer of securities without the necessary
registration or license from the SEC, and (2) engaged in the business of buying and selling securities. In
connection therewith, we look to Section 3 of the Securities Regulation Code for pertinent definitions of
terms:
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Sec. 3. Definition of Terms. x x x.


xxxx
3.3. Broker is a person engaged in the business of buying and selling securities for the account of others.
3.4. Dealer means [any] person who buys [and] sells securities for his/her own account in the ordinary
course of business.
3.5. Associated person of a broker or dealer is an employee thereof whom, directly exercises control of
supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely
clerical or ministerial.

xxxx
3.13. Salesman is a natural person, employed as such [or] as an agent, by a dealer, issuer or broker to
buy and sell securities.
To determine whether the DOJ Secretarys Resolution was tainted with grave abuse of discretion, we pass
upon the elements for violation of Section 28 of the Securities Regulation Code: (a) engaging in the business
of buying or selling securities in the Philippines as a broker or dealer; or (b) acting as a salesman; or (c)
acting as an associated person of any broker or dealer, unless registered as such with the SEC.
Tying it all in, there is no quarrel that Santos was in the employ of PIPC Corporation and/or PIPCBVI, a
corporation which sold or offered for sale unregistered securities in the Philippines. To escape probable
culpability, Santos claims that she was a mere clerical employee of PIPC Corporation and/or PIPCBVI and
was never an agent or salesman who actually solicited the sale of or sold unregistered securities issued by
PIPC Corporation and/or PIPCBVI.
Solicitation is the act of seeking or asking for business or information; it is not a commitment to an
agreement.20
Santos, by the very nature of her function as what she now unaffectedly calls an information provider,
brought about the sale of securities made by PIPC Corporation and/or PIPCBVI to certain individuals,
specifically private complainants Sy and Lorenzo by providing information on the investment products of
PIPC Corporation and/or PIPCBVI with the end in view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts on Sys or Lorenzos investments, Santos procured the
sale of these unregistered securities to the two (2) complainants by providing information on the investment
products being offered for sale by PIPC Corporation and/or PIPCBVI and convincing them to invest therein.
No matter Santos strenuous objections, it is apparent that she connected the probable investors, Sy and
Lorenzo, to PIPC Corporation and/or PIPCBVI, acting as an ostensible agent of the latter on the viability of
PIPC Corporation as an investment company. At each point of Sys and Lorenzos investment, Santos
participation thereon, even if not shown strictly on paper, was prima facieestablished.
In all of the documents presented by Santos, she never alleged or pointed out that she did not receive extra
consideration for her simply providing information to Sy and Lorenzo about PIPC Corporation and/or PIPC
BVI. Santos only claims that the monies invested by Sy and Lorenzo did not pass through her hands. In
short, Santos did not present in evidence her salaries as a supposed mere clerical employee or information
provider of PIPCBVI. Such presentation would have foreclosed all questions on her status within PIPC
Corporation and/or PIPCBVI at the lowest rung of the ladder who only provided information and who did
not use her discretion in any capacity.
We cannot overemphasize that the very information provided by Santos locked the deal on unregistered
securities with Sy and Lorenzo.
In fact, Sy alleged in his affidavit, which allegation was not refuted by Santos, that he was introduced to
Santos while he performed routine transactions at his bank:
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2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo branch for the past 15
years. Sometime in the last quarter of 2006, I was at BPI Pasong Tamo to accomplish certain routine
transactions. Being a client of long standing, the bank manager[,] as a matter of courtesy, allowed me to
wait in her cubicle. It was there that the bank manager introduced me to another bank client, Ms. Oudine
Santos. After exchanging pleasantries, and in the course of a brief conversation, Ms. Santos told me that she
is a resident of Damarias Village and was working as an investment consultant for a certain company,
Performance Investment Products Corporation [PIPC]. She told me that she wanted to invite me to her office
at the Citibank Tower in Makati so that she could explain the investment products that they are offering. I
gave her my contact number and finished my transaction with the bank for that day;
3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the business lounge of
[PIPC] located at the 15th Floor of Citibank Tower, Makati. During the meeting, Ms. Santos enticed me to
invest in their Performance Managed Portfolio which she explained was a risk controlled investment program
designed for individuals like me who are looking for higher investment returns than bank deposits while still
having the advantage of security and liquidity. She told me that they were engaged in foreign currency

trading abroad and that they only employ professional and experienced foreign exchange traders who
specialize in trading the Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told
her that I did not have any experience in foreign currency trading and was quite conservative in handling my
money;21
Santos countered that:

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28. I also categorically deny complainant Sys allegation that I enticed him to enter into a Partnership
Agreement with PIPCBVI. In the first place, I came to know complainant Sy only when he was referred to
me by a mutual acquaintance, Ms. Ana Liliosa Santos, who was then the Manager of the Bank of the
Philippine Islands, Pasong Tamo Branch. Ms. Ana Santos set up a meeting between complainant Sy and me
because complainant Sy wanted to know more about PIPCBVI. As with the other individuals who expressed
interest in PIPC Corp.s client companies, I then provided complainant Sy with additional information about
PIPCBVI. The decision to enter into the aforementioned Partnership Agreement with PIPCBVI was made
by complainant Sy alone without any inducement or undue influence from me, as in fact I only met him
twice the first one was on the meeting set up by Ms. Ana Santos and the second one was to introduce him
to Michael Liew. Indeed, complainant Sy appears to be a welleducated person with years of experience as
a businessman. It is reasonable to assume that before entering into the said Partnership Agreement with
PIPCBVI, complainant Sy had fully understood the nature of the agreement and that in entering thereto, he
had been motivated by a desire to earn a profit and had believed, as I myself have been led to believe, that
PIPCBVI was a legitimate business concern which offered a reasonable return on investment, Moreover,
complainant Sy could have withdrawn his initial investment of US$40,000.00 on its date of maturity, i.e., 26
January 2007, as indicated in the PIPCBVIs letter dated 10 November 2006, a copy of which is attached to
complainant Sys Sworn Statement. Complainant Sy, however, obviously decided on his own volition to keep
his investment with PIPCBVI presumably because he wanted to gain more profit therefrom. Complainant Sy
in fact admitted that he received monetary returns from PIPCBVI in the total amount of US$2,439.12. 22
What is palpable from the foregoing is that Sy and Lorenzo did not go directly to Liew or any of PIPC
Corporations and/or PIPCBVIs principal officers before making their investment or renewing their prior
investment. However, undeniably, Santos actively recruited and referred possible investors to PIPC
Corporation and/or PIPCBVI and acted as the gobetween on behalf of PIPC Corporation and/or PIPCBVI.
The DOJs and Court of Appeals reasoning that Santos did not sign the investment contracts of Sy and
Lorenzo is specious. The contracts merely document the act performed by Santos.
Individual complainants and the SEC have categorically alleged that Liew and PIPC Corporation and/or PIPC
BVI is not a legitimate investment company but a company which perpetrated a scam on 31 individuals
where the president, a foreign national, Liew, ran away with their money. Liews absconding with the monies
of 31 individuals and that PIPC Corporation and/or PIPCBVI were not licensed by the SEC to sell securities
are uncontroverted facts.
The transaction initiated by Santos with Sy and Lorenzo, respectively, is an investment contract or
participation in a profit sharing agreement that falls within the definition of the law. When the investor is
relatively uninformed and turns over his money to others, essentially depending upon their representations
and their honesty and skill in managing it, the transaction generally is considered to be an investment
contract.23 The touchstone is the presence of an investment in a common venture premised on a reasonable
expectation of profits to be derived from the entrepreneurial or managerial efforts of others. 24
At bottom, the exculpation of Santos cannot be preliminarily established simply by asserting that she did not
sign the investment contracts, as the facts alleged in this case constitute fraud perpetrated on the public.
Specially so because the absence of Santos signature in the contract is, likewise, indicative of a scheme to
circumvent and evade liability should the pyramid fall apart.
Lastly, we clarify that we are only dealing herein with the preliminary investigation aspect of this case. We
do not adjudge respondents guilt or the lack thereof. Santos defense of being a mere employee or simply
an information provider is best raised and threshed out during trial of the case.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CAG.R. No. SP No.
112781 and the Resolutions of the Department of Justice dated 1 October 2009 and 23 November 2009
are ANNULLED and SET ASIDE. The Resolution of the Department of Justice dated 18 April 2008 and 2
September 2008 are REINSTATED. The Department of Justice is directed to include respondent Oudine
Santos in the Information for violation of Section 28 of the Securities and Regulation Code.

SO ORDERED.

G.R. No. 125469 October 27, 1997


PHILIPPINE STOCK EXCHANGE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
PUERTO AZUL LAND, INC., respondents.

TORRES, JR., J.:


The Securities and Exchange Commission is the government agency, under the direct general
supervision of the Office of the President, 1 with the immense task of enforcing the Revised Securities
Act, and all other duties assigned to it by pertinent laws. Among its inumerable functions, and one of the
most important, is the supervision of all corporations, partnerships or associations, who are grantees of
primary franchise and/or a license or permit issued by the government to operate in the Philippines. 2 Just
how far this regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock
Exchange, Inc. is the issue in the case at bar.
In this Petition for Review on Certiorari, petitioner assails the resolution of the respondent Court of
Appeals, dated June 27, 1996, which affirmed the decision of the Securities and Exchange
Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the private respondent
Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way for the public offering of
PALI's shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares
to the public in order to raise funds allegedly to develop its properties and pay its loans with several
banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by
the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among
investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange,
Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its shares,
with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application,
recommended to the PSE's Board of Governors the approval of PALI's listing application.
On February 14, 1996, before it could act upon PALI's application, the Board of Governors of the
PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos
was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel

and Resort Complex which PALI claims to be among its assets and that the Ternate Development
Corporation, which is among the stockholders of PALI, likewise appears to have been held and
continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively
for his estate, and requested PALI's application to be deferred. PALI was requested to comment
upon the said letter.
PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort
Complex were not claimed by PALI as its assets. On the contrary, the resort is actually owned by
Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI.
Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses
responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and
Resort Complex, thereby implying that they are also asserting legal and beneficial ownership of
other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential
Commission on Good Government (PCGG) requesting for comments on the letters of the PALI and
the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a Temporary
Restraining Order on the same date, enjoining the Marcoses from, among others, "further impeding,
obstructing, delaying or interfering in any manner by or any means with the consideration,
processing and approval by the PSE of the initial public offering of PALI." The TRO was issued by
Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561,
pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its
decision to reject PALI's application, citing the existence of serious claims, issues and circumstances
surrounding PALI's ownership over its assets that adversely affect the suitability of listing PALI's
shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto
R. Yasay, Jr., bringing to the SEC's attention the action taken by the PSE in the application of PALI
for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of its
supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A,
review the PSE's action on PALI's listing application and institute such measures as are just and
proper under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of
PALI and directing the PSE to file its comments thereto within five days from its receipt and for its
authorized representative to appear for an "inquiry" on the matter. On April 22, 1996, the PSE
submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision. The dispositive portion
of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioner's authority and
jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section
3, 6(j) and 6(m) of Presidential Decree No. 902-A, the decision of the Board of

Governors of the Philippine Stock Exchange denying the listing of shares of Puerto
Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to immediately
cause the listing of the PALI shares in the Exchange, without prejudice to its authority
to require PALI to disclose such other material information it deems necessary for the
protection of the investigating public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however
denied by the Commission in its May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to
reconsider its order dated April 24, 1996, and in the light of recent developments on
the adverse claim against the PALI properties, PSE should require PALI to submit full
disclosure of material facts and information to protect the investing public. In this
regard, PALI is hereby ordered to amend its registration statements filed with the
Commission to incorporate the full disclosure of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for
Review (with Application for Writ of Preliminary Injunction and Temporary Restraining Order),
assailing the above mentioned orders of the SEC, submitting the following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT
POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER
TO ORDER THE LISTING AND SALE OF SHARES OF PALI
WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND
SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY
AND ABUSIVE MANNER IN DISAPPROVING PALI'S LISTING
APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID
FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN
CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY
RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY
PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION
IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE
CONSTITUTION.

On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment
and Motion to Dismiss. On June 10, 1996, PSE fled its Reply to Comment and Opposition to Motion
to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSE's Petition for
Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look into the
decision of the petitioner PSE, pursuant to Section 3 3 of the Revised Securities Act in relation to
Section 6(j) and 6(m) 4 of P.D. No. 902-A, and Section 38(b) 5 of the Revised Securities Act, and for the
purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange,
the petitioner is subject to public respondent's jurisdiction, regulation and control. Accepting the argument
that the public respondent has the authority merely to supervise or regulate, would amount to serious
consequences, considering that the petitioner is a stock exchange whose business is impressed with
public interest. Abuse is not remote if the public respondent is left without any system of control. If the
securities act vested the public respondent with jurisdiction and control over all corporations; the power to
authorize the establishment of stock exchanges; the right to supervise and regulate the same; and the
power to alter and supplement rules of the exchange in the listing or delisting of securities, then the law
certainly granted to the public respondent the plenary authority over the petitioner; and the power of
review necessarily comes within its authority.
All in all, the court held that PALI complied with all the requirements for public listing, affirming the
SEC's ruling to the effect that:
. . . the Philippine Stock Exchange has acted in an arbitrary and abusive manner in
disapproving the application of PALI for listing of its shares in the face of the following
considerations:
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure
requirements of the Exchange;
2. In applying its clear and reasonable standards on the suitability for listing of
shares, PSE has failed to justify why it acted differently on the application of PALI, as
compared to the IPOs of other companies similarly situated that were allowed listing
in the Exchange;
3. It appears that the claims and issues on the title to PALI's properties were even
less serious than the claims against the assets of the other companies in that, the
assertions of the Marcoses that they are owners of the disputed properties were not
substantiated enough to overcome the strength of a title to properties issued under
the Torrens System as evidence of ownership thereof;
4. No action has been filed in any court of competent jurisdiction seeking to nullify
PALI's ownership over the disputed properties, neither has the government instituted
recovery proceedings against these properties. Yet the import of PSE's decision in
denying PALI's application is that it would be PALI, not the Marcoses, that must go to

court to prove the legality of its ownership on these properties before its shares can
be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not
inspire belief. The point is, the PALI properties are now titled. A property losses its public character
the moment it is covered by a title. As a matter of fact, the titles have long been settled by a final
judgment; and the final decree having been registered, they can no longer be re-opened considering
that the one year period has already passed. Lastly, the determination of what standard to apply in
allowing PALI's application for listing, whether the discretion method or the system of public
disclosure adhered to by the SEC, should be addressed to the Securities Commission, it being the
government agency that exercises both supervisory and regulatory authority over all corporations.
On August 15, 19961 the PSE, after it was granted an extension, filed the instant Petition for Review
on Certiorari, taking exception to the rulings of the SEC and the Court of Appeals. Respondent PALI
filed its Comment to the petition on October 17, 1996. On the same date, the PCGG filed a Motion
for Leave to file a Petition for Intervention. This was followed up by the PCGG's Petition for
Intervention on October 21, 1996. A supplemental Comment was filed by PALI on October 25, 1997.
The Office of the Solicitor General, representing the SEC and the Court of Appeals, likewise filed its
Comment on December 26, 1996. In answer to the PCGG's motion for leave to file petition for
intervention, PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed its own
Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI
(October 17, 1996) and the Solicitor General (December 26, 1996). On May 16, 1997, PALI filed its
Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to
list the shares of PALI in the stock exchange. Under presidential decree No. 902-A, the powers of
the SEC over stock exchanges are more limited as compared to its authority over ordinary
corporations. In connection with this, the powers of the SEC over stock exchanges under the
Revised Securities Act are specifically enumerated, and these do not include the power to reverse
the decisions of the stock exchange. Authorities are in abundance even in the United States, from
which the country's security policies are patterned, to the effect of giving the Securities Commission
less control over stock exchanges, which in turn are given more lee-way in making the decision
whether or not to allow corporations to offer their stock to the public through the stock exchange.
This is in accord with the "business judgment rule" whereby the SEC and the courts are barred from
intruding into business judgments of corporations, when the same are made in good faith. the said
rule precludes the reversal of the decision of the PSE to deny PALI's listing application, absent a
showing of bad faith on the part of the PSE. Under the listing rules of the PSE, to which PALI had
previously agreed to comply, the PSE retains the discretion to accept or reject applications for listing.
Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuer's listing application if the PSE determines that the listing shall
not serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with
corporations whose properties are under sequestration. A reading of Republic of the Philippines

vs. Sadiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the properties of PALI, which
were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development
Corporation (MSDC). are under sequestration by the PCGG, and subject of forfeiture proceedings in
the Sandiganbayan. This ruling of the Court is the "law of the case" between the Republic and TDC
and MSDC. It categorically declares that the assets of these corporations were sequestered by the
PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimated that the Court of Appeals' sanction that PALI's ownership over its properties
can no longer be questioned, since certificates of title have been issued to PALI and more than one
year has since lapsed, is erroneous and ignores well settled jurisprudence on land titles. That a
certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an
absolute rule and admits certain exceptions. It is fundamental that forest lands or military
reservations are non-alienable. Thus, when a title covers a forest reserve or a government
reservation, such title is void.
PSE, likewise, assails the SEC's and the Court of Appeals reliance on the alleged policy of "full
disclosure" to uphold the listing of PALI's shares with the PSE, in the absence of a clear mandate for
the effectivity of such policy. As it is, the case records reveal the truth that PALI did not comply with
the listing rules and disclosure requirements. In fact, PALI's documents supporting its application
contained misrepresentations and misleading statements, and concealed material information. The
matter of sequestration of PALI's properties and the fact that the same form part of
military/naval/forest reservations were not reflected in PALI's application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed
with the markings of a corporate entity, it functions as the primary channel through which the vessels
of capital trade ply. The PSE's relevance to the continued operation and filtration of the securities
transactions in the country gives it a distinct color of importance such that government intervention in
its affairs becomes justified, if not necessarily. Indeed, as the only operational stock exchange in the
country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an
immense influence upon the country's economy.
Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to give
special treatment to the administration and regulation of stock exchanges. 6
These provisions, read together with the general grant of jurisdiction, and right of supervision and
control over all corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be
vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing
public may be fully safeguard.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SEC's
challenged control authority over the petitioner PSE even as it provides that "the Commission shall
have absolute jurisdiction, supervision, and control over all corporations, partnerships or
associations, who are the grantees of primary franchises and/or a license or permit issued by the
government to operate in the Philippines. . ." The SEC's regulatory authority over private
corporations encompasses a wide margin of areas, touching nearly all of a corporation's concerns.

This authority springs from the fact that a corporation owes its existence to the concession of its
corporate franchise from the state.
The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SEC's express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such
exchange. 7 It is, likewise, observed that the principal function of the SEC is the supervision and control
over corporations, partnerships and associations with the end in view that investment in these entities
may be encouraged and protected, and their activities for the promotion of economic development. 8
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to
deny the application for listing in the stock exchange of the private respondent PALI. The SEC's
action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities, including
shares of stock of a corporation, may be traded or not in the stock exchange. This is in line with the
SEC's mission to ensure proper compliance with the laws, such as the Revised Securities Act and to
regulate the sale and disposition of securities in the country. 9 As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review
petitioner's denial of the listing. Being a stock exchange, the petitioner performs a
function that is vital to the national economy, as the business is affected with public
interest. As a matter of fact, it has often been said that the economy moves on the
basis of the rise and fall of stocks being traded. By its economic power, the petitioner
certainly can dictate which and how many users are allowed to sell securities thru the
facilities of a stock exchange, if allowed to interpret its own rules liberally as it may
please. Petitioner can either allow or deny the entry to the market of securities. To
repeat, the monopoly, unless accompanied by control, becomes subject to abuse;
hence, considering public interest, then it should be subject to government
regulation.
The role of the SEC in our national economy cannot be minimized. The legislature, through the
Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it
the serious responsibility of enforcing all laws affecting corporations and other forms of associations
not otherwise vested in some other government office. 10
This is not to say, however, that the PSE's management prerogatives are under the absolute control
of the SEC. The PSE is, alter all, a corporation authorized by its corporate franchise to engage in its
proposed and duly approved business. One of the PSE's main concerns, as such, is still the
generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to
corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not
to enter) into contracts with third persons, and to perform all other legal acts within its allocated
express or implied powers.
A corporation is but an association of individuals, allowed to transact under an assumed corporate
name, and with a distinct legal personality. In organizing itself as a collective body, it waives no

constitutional immunities and perquisites appropriate to such a body. 11 As to its corporate and
management decisions, therefore, the state will generally not interfere with the same. Questions of policy
and of management are left to the honest decision of the officers and directors of a corporation, and the
courts are without authority to substitute their judgment for the judgment of the board of directors. The
board is the business manager of the corporation, and so long as it acts in good faith, its orders are not
reviewable by the courts. 12
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to
reverse the PSE's decision in matters of application for listing in the market, the SEC may exercise
such power only if the PSE's judgment is attended by bad faith. In Board of Liquidators vs. Kalaw, 13 it
was held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty
through some motive or interest of ill will, partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered important
facts, which, in the general scheme, brings to serious question the qualification of PALI to sell its
shares to the public through the stock exchange. During the time for receiving objections to the
application, the PSE heard from the representative of the late President Ferdinand E. Marcos and
his family who claim the properties of the private respondent to be part of the Marcos estate. In time,
the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering the
properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan
Court. How the properties were effectively transferred, despite the sequestration order, from the TDC
and MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a short span of time, are
not yet explained to the Court, but it is clear that such circumstances give rise to serious doubt as to
the integrity of PALI as a stock issuer. The petitioner was in the right when it refused application of
PALI, for a contrary ruling was not to the best interest of the general public. The purpose of the
Revised Securities Act, after all, is to give adequate and effective protection to the investing public
against fraudulent representations, or false promises, and the imposition of worthless ventures. 14
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental
to legitimate business, thus:
The Securities Act, often referred to as the "truth in securities" Act, was designed not
only to provide investors with adequate information upon which to base their
decisions to buy and sell securities, but also to protect legitimate business seeking to
obtain capital through honest presentation against competition from crooked
promoters and to prevent fraud in the sale of securities. (Tenth Annual Report, U.S.
Securities & Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of
excesses and fraudulent transactions, merely by requirement of that their details be
revealed; (2) placing the market during the early stages of the offering of a security a
body of information, which operating indirectly through investment services and
expert investors, will tend to produce a more accurate appraisal of a security, . . .
Thus, the Commission may refuse to permit a registration statement to become
effective if it appears on its face to be incomplete or inaccurate in any material
respect, and empower the Commission to issue a stop order suspending the

effectiveness of any registration statement which is found to include any untrue


statement of a material fact or to omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name and goodwill, and it has
the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities
who choose to transact through its facilities. It was reasonable for the PSE, therefore, to exercise its
judgment in the manner it deems appropriate for its business identity, as long as no rights are
trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of government absolutism is a thing of the
past, and should remain so.
The observation that the title of PALI over its properties is absolute and can no longer be assailed is
of no moment. At this juncture, there is the claim that the properties were owned by TDC and MSDC
and were transferred in violation of sequestration orders, to Rebecco Panlilio and later on to PALI,
besides the claim of the Marcoses that such properties belong to the Marcos estate, and were held
only in trust by Rebecco Panlilio. It is also alleged by the petitioner that these properties belong to
naval and forest reserves, and therefore beyond private dominion. If any of these claims is
established to be true, the certificates of title over the subject properties now held by PALI map be
disregarded, as it is an established rule that a registration of a certificate of title does not confer
ownership over the properties described therein to the person named as owner. The inscription in
the registry, to be effective, must be made in good faith. The defense of indefeasibility of a Torrens
Title does not extend to a transferee who takes the certificate of title with notice of a flaw.
In any case, for the purpose of determining whether PSE acted correctly in refusing the application
of PALI, the true ownership of the properties of PALI need not be determined as an absolute fact.
What is material is that the uncertainty of the properties' ownership and alienability exists, and this
puts to question the qualification of PALI's public offering. In sum, the Court finds that the SEC had
acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the
PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the
PSE, a corporation entity, whose business judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in approving the registration and sale of
securities in the SEC is not for the Court to determine, but is left to the sound discretion of the
Securities and Exchange Commission. In mandating the SEC to administer the Revised Securities
Act, and in performing its other functions under pertinent laws, the Revised Securities Act, under
Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as it may
consider appropriate in the public interest for the enforcement of the said laws. The second
paragraph of Section 4 of the said law, on the other hand, provides that no security, unless exempt
by law, shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public,
unless registered in accordance with the rules and regulations that shall be promulgated in the public
interest and for the protection of investors by the Commission. Presidential Decree No. 902-A, on
the other hand, provides that the SEC, as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as such, is given ample authority in
determining appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that it

has adopted the policy of "full material disclosure" where all companies, listed or applying for listing,
are required to divulge truthfully and accurately, all material information about themselves and the
securities they sell, for the protection of the investing public, and under pain of administrative,
criminal and civil sanctions. In connection with this, a fact is deemed material if it tends to induce or
otherwise effect the sale or purchase of its securities. 15 While the employment of this policy is
recognized and sanctioned by the laws, nonetheless, the Revised Securities Act sets substantial and
procedural standards which a proposed issuer of securities must satisfy. 16 Pertinently, Section 9 of the
Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security:
The Commission may reject a registration statement and refuse to issue a permit
to sell the securities included in such registration statement if it finds that
(1) 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
(2) The issuer or registrant
(i) is not solvent or not in sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or
the rules promulgated pursuant thereto, or any order of the
Commission;
(iii) has failed to comply with any of the applicable requirements and
conditions that the Commission may, in the public interest and for the
protection of investors, impose before the security can be registered;
(iv) has been engaged or is engaged or is about to engage in
fraudulent transaction;
(v) is in any way dishonest or is not of good repute; or
(vi) does not conduct its business in accordance with law or is
engaged in a business that is illegal or contrary to government rules
and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be
based on sound business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer
is disqualified to be such officer, director or principal stockholder; or

(5) The issuer or registrant has not shown to the satisfaction of the Commission that
the sale of its security would not work to the prejudice of the public interest or as a
fraud upon the purchasers or investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration
and issuance of securities dependent, to a certain extent, on the merits of the securities themselves,
and of the issuer, to be determined by the Securities and Exchange Commission. This measure was
meant to protect the interests of the investing public against fraudulent and worthless securities, and
the SEC is mandated by law to safeguard these interests, following the policies and rules therefore
provided. The absolute reliance on the full disclosure method in the registration of securities is,
therefore, untenable. As it is, the Court finds that the private respondent PALI, on at least two points
(nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity,
thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI
in its stock exchange. This does not discount the effectivity of whatever method the SEC, in the
exercise of its vested authority, chooses in setting the standard for public offerings of corporations
wishing to do so. However, the SEC must recognize and implement the mandate of the law,
particularly the Revised Securities Act, the provisions of which cannot be amended or supplanted by
mere administrative issuance.
In resume, the Court finds that the PSE has acted with justified circumspection, discounting,
therefore, any imputation of arbitrariness and whimsical animation on its part. Its action in refusing to
allow the listing of PALI in the stock exchange is justified by the law and by the circumstances
attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for
Review onCertiorari. The Decisions of the Court of Appeals and the Securities and Exchange
Commission dated July 27, 1996 and April 24, 1996 respectively, are hereby REVERSED and SET
ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of the Philippine Stock
Exchange to deny the application for listing of the private respondent Puerto Azul Land, Inc.
SO ORDERED.

G.R. No. 171815

August 7, 2007

CEMCO HOLDINGS, INC., Petitioner,


vs.
NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent.
DECISION
CHICO-NAZARIO, J.:
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 UCHCs 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 BCIs stocks in UCHC equivalent to
21.31% and ACCs 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 Cemcos acquisition of BCI and ACCs shares in UCHC, petitioners 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 BCIs and ACCs 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 SECs 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 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 SECs jurisdiction to take
cognizance of respondents 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 SECs re-interpretation
of the rule could not be made to retroactively apply to Cemcos 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 SECs jurisdiction. It, likewise, held that the tender offer requirement under the
Securities Regulation Code and its Implementing Rules applies to Cemcos 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 LIFES
COMPLAINT AND THAT THE SECS RE-INTERPRETATION OF THE TENDER OFFER
RULE IS CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED
RETROACTIVELY TO CEMCOS 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 CEMCOS 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 respondents complaint and to require
Cemco to make a tender offer for respondents 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 Cemcos
transaction which was consummated under the authority of the SECs prior resolution.
On the first issue, petitioner Cemco contends that while the SEC can take cognizance of
respondents 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 SECs 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 SECs 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.
Petitioners stance fails to persuade.
In taking cognizance of respondents 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 SECs 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:
xxxx
(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.
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 SECs competence. As articulated in Ceroferr Realty Corporation v. Court of Appeals 11 :
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 courts jurisdiction because the judgment or the order
subsequently rendered is adverse to him.
On the second issue, petitioner asserts that the mandatory tender offer rule applies only to direct
acquisition of shares in the public company.

This contention is not meritorious.


Tender offer is a publicly announced intention by a person acting alone or in concert with other
persons to acquire equity securities of a public company.12 A public company is defined as a
corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00
and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such
company.13 Stated differently, a tender offer is an offer by the acquiring person to stockholders of a
public company for them to tender their shares therein on the terms specified in the offer.14 Tender
offer is in place to protect minority shareholders against any scheme that dilutes the share value of
their investments. It gives the minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at the same price as those of the
majority shareholders.15
Under Section 19 of Republic Act No. 8799, it is stated:
Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at
least fifteen percent (15%) of any class of any equity security of a listed corporation or of any class
of any equity security of a corporation with assets of at least Fifty million pesos (P50,000,000.00)
and having two hundred (200) or more stockholders with at least one hundred (100) shares each or
who intends to acquire at least thirty percent (30%) of such equity over a period of twelve (12)
months shall make a tender offer to stockholders by filing with the Commission a declaration to that
effect; and furnish the issuer, a statement containing such of the information required in Section 17
of this Code as the Commission may prescribe. Such person or group of persons shall publish all
requests or invitations for tender, or materials making a tender offer or requesting or inviting letters of
such a security. Copies of any additional material soliciting or requesting such tender offers
subsequent to the initial solicitation or request shall contain such information as the Commission
may prescribe, and shall be filed with the Commission and sent to the issuer not later than the time
copies of such materials are first published or sent or given to security holders.
Under existing SEC Rules,16 the 15% and 30% threshold acquisition of shares under the foregoing
provision was increased to thirty-five percent (35%). It is further provided therein that mandatory
tender offer is still applicable even if the acquisition is less than 35% when the purchase would result
in ownership of over 51% of the total outstanding equity securities of the public company.17
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. OSMEA. Eto ang mangyayari diyan, eh. Somebody controls 67% of the Company. Of
course, he will pay a premium for the first 67%. Control yan, eh. Eh, kawawa yung mga maiiwan,
ang 33% because the value of the stock market could go down, could go down after that, because
there will (p. 41) be no more market. Wala nang gustong bumenta. Wala nang I mean maraming
gustong bumenta, walang gustong bumili kung hindi yung majority owner. And they will not buy. They
already have 67%. They already have control. And this protects the minority. And we have had a
case in Cebu wherein Ayala A who already owned 40% of Ayala B made an offer for another 40% of
Ayala B without offering the 20%. Kawawa naman yung nakahawak ngayon ng 20%. Ang baba ng
share sa market. But we did not have a law protecting them at that time.
CHAIRMAN ROCO. So what is it that you want to achieve?
SEN. S. OSMEA. 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).
xxxx
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 legislators reference to "any type of acquisition" during the deliberations
on the Securities Regulation Code does not indicate that congress meant to include the "indirect"
acquisition of shares of a public corporation to be covered by the tender offer rule. Petitioner also
avers that it did not directly acquire the shares in UCC and the incidental benefit of having acquired
the control of the said public company must not be taken against it.
These arguments are not convincing. The legislative intent of Section 19 of the Code is to regulate
activities relating to acquisition of control of the listed company and for the purpose of protecting the
minority stockholders of a listed corporation. Whatever may be the method by which control of a
public company is obtained, either through the direct purchase of its stocks or through an indirect
means, mandatory tender offer applies. As appropriately held by the Court of Appeals:
The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as
a result of the transaction, it became an indirect owner of UCC. We are constrained, however, to
construe ownership acquisition to mean both direct and indirect. What is decisive is the
determination of the power of control. The legislative intent behind the tender offer rule makes clear
that the type of activity intended to be regulated is the acquisition of control of the listed company
through the purchase of shares. Control may [be] effected through a direct and indirect acquisition of
stock, and when this takes place, irrespective of the means, a tender offer must occur. The
bottomline of the law is to give the shareholder of the listed company the opportunity to decide
whether or not to sell in connection with a transfer of control. 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
respondents 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 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.

PHILIPPINE ASSOCIATION OF G.R. No. 137321


STOCK TRANSFER AND REGISTRY
Present:
AGENCIES, INC.,
Petitioner,
QUISUMBING, J., Chairperson,
CARPIO,
- versus CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
THE HONORABLE COURT OF
APPEALS;
THE
HONORABLE Promulgated:
SECURITIES
AND
EXCHANGE
COMMISSION; AND SEC CHAIRMAN October 15, 2007
PERFECTO R. YASAY, JR.,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
QUISUMBING, J.:

This is a petition for review on certiorari seeking to reverse the


Decision[1] dated June 17, 1998 of the Court of Appeals in CA-G.R. SP No. 41320,
as well as its Resolution[2]dated January 13, 1999, denying the motion for
reconsideration.
The facts are as follows.
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.
On May 10, 1996, petitioners Board of Directors unanimously approved a
resolution allowing its members to increase the transfer processing fee they charge
their clients fromP45 per certificate to P75 per certificate, effective July 1, 1996;
and eventually to P100 per certificate, effective October 1, 1996. The resolution
also authorized the imposition of a processing fee for the cancellation of stock
certificates at P20 per certificate effective July 1, 1996. 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 P75 per certificate transfer fee
and P20 per certificate cancellation fee effective July 1, 1996. But, approval of the
additional increase of the transfer fees to P100 per certificate
effective October 1, 1996, was withheld until after a public hearing. The SEC
issued a letter-authorization to this effect on June 20, 1996.
Thereafter, on June 24, 1996, 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. On June 27, 1996, the 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 on July 1, 1996, reiterating the directive


of June 27, 1996. On July 2, 1996, 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 on July 3, 1996 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 SECs authority to regulate
absent an express rule or regulation.
On July 8, 1996, the SEC issued Order No. 104, series of 1996, enjoining
petitioner from imposing the new fees:
WHEREFORE, pursuant to the powers vested in the Commission under
Sec. 40 of the Revised Securities Act, PASTRA is hereby enjoined to defer
the implementation of the new rates. Further, the members of its Board of
Directors and officers are hereby directed to appear before the Commission
on Thursday, July 11, 1996 at 2:00 oclock in the afternoon at the
Commission Room, 5th Flr., SEC Bldg., EDSA, Mandaluyong City to show
cause why no administrative sanctions should be imposed upon them.[3]

During the hearing, petitioner admitted that it had started imposing the fees. It
further admitted that aside from the questioned fees, it had likewise started
imposing fees ranging from P50 to P500 for report of shareholdings or list of
certificates; certification of shareholdings or other stockholder information
requested by external auditors and validation of status of certificates, all without
prior approval of the Commission. Thus, for violating its orders, the SEC ordered
petitioner to pay a basic fine of P5,000 and a daily fine of P500for continuing
violations:
In view of the foregoing, PASTRA is hereby declared as having defied a
lawful Order of the Commission for which it is imposed a basic fine of
P5,000.00 plus a daily fine of P500.00 for continuing violations payable
to the Commission within five days from actual receipt of this Order and
it is hereby ordered to immediately cease and desist from imposing the

new rates for issuance and cancellation of stock certificates, until further
orders from this Commission.
SO ORDERED.[4]

Aggrieved, petitioner went to the Court of Appeals on certiorari contending that the
SEC acted with grave abuse of discretion or lack or excess of jurisdiction in
issuing the above orders. The appellate court issued a temporary restraining order
on July 26, 1996, and a writ of preliminary injunction on August 26, 1996.
On June 17, 1998, the appellate court dismissed the petition. It ruled that the power
to regulate petitioners fees was included in the general power given to the SEC
under Section40[5] of The Revised Securities Act to regulate, supervise, examine,
suspend or otherwise discontinue, the operation of securities-related organizations
like petitioner.
The appellate court likewise denied petitioners motion for reconsideration. Hence,
this appeal.
While this case was pending, The Revised Securities Act by authority of which the
assailed orders were issued was repealed by Republic Act No. 8799 or The Securities
Regulation Code,[6] which became effective on August 8, 2000. Nonetheless, we find
it pertinent to rule on the parties submissions considering that the effects of the
July 11, 1996 Order had not been obliterated by the repeal of The Revised Securities
Act and there is still present a need to rule on whether petitioner was liable for the fees
imposed upon it.
Petitioner submits that the Court of Appeals committed reversible error:
I.
WHEN [IT] FAILED TO RULE THAT THE SEC AND CHAIRMAN
YASAY, IN ISSUING THE COMMISSIONS CONTROVERTED
ORDERS DATED JULY 8 AND JULY 11, 1996, VIOLATED
PASTRAS CONSTITUTIONAL RIGHT TO DUE PROCESS OF LAW;
II.
WHEN [IT] FAILED TO RULE THAT THE SEC AND CHAIRMAN
YASAY COMMITTED GRAVE ABUSE OF DISCRETION AND IN
EXCESS OF THEIR JURISDICTION WHEN THEY ISSUED THE

COMMISSIONS CONTROVERTED ORDERS DATED JULY 8 AND


JULY 11, 1996; AND,
III.
WHEN [IT] RULED THAT THE SEC AND CHAIRMAN YASAY
HAVE LEGAL BASIS IN ISSUING THE COMMISSIONS
CONTROVERTED ORDERS DATED JULY 8 AND JULY11, 1996.[7]

Essentially, the issue for our resolution is whether the SEC acted with grave abuse
of discretion or lack or excess of jurisdiction in issuing the controverted Orders of
July 8 and11, 1996.
Petitioner argues that the SEC violated petitioners right to due process because it
issued the July 8, 1996 cease-and-desist order without first conducting a
hearing. Petitioner likewise laments that while said order required petitioners board
of directors to appear before the SEC to show cause why no administrative
sanctions should be imposed on them, petitioners board of directors attended the
hearing without the assistance of counsel because the Director of the SEC Brokers
and Exchanges Department had allegedly assured them that the order was only a
standard order and nothing to worry about. Petitioner also contends that even if its
board did attend with counsel or present evidence, its evidence would not have
been considered anyway because the Order of July 11, 1996 had allegedly been
prepared as early as July 8, 1996. In support of this suspicion, petitioner points out
that the date July 8, 1996 was replaced with the date July 11, 1996 before it was
signed by Chairman Perfecto R. Yasay, Jr., who did not attend the meeting.
Petitioner adds that the SEC cannot restrict petitioners members from increasing
the transfer and processing fees they charge their clients because there is no
specific law, rule or regulation authorizing it. Section 40 of the then Revised
Securities Act, according to petitioner, only lays down the general powers of the
SEC to regulate and supervise the corporate activities of organizations related to or
connected with the securities market like petitioner. It could not be interpreted to
justify the SECs unjustified interference with petitioners decision to increase its
transfer fees and impose processing fees, especially since the decision involved a
management prerogative and was intended to protect the viability of petitioners
members.[8]

For its part, the Office of the Solicitor General (OSG) counters that petitioners
allegations of denial of due process are baseless. The OSG cites that petitioner was
given ample opportunity to present its case at the July 11, 1996 hearing and was
adequately heard through the series of letters it sent to the SEC to explain its refusal
to obey the latters directives.Also, there is no evidence to support its allegation that
the July 11, 1996 Order was prepared in advance or that it was issued without
considering the evidence for the parties.
As regards the SECs power over petitioners stock transfer fees, the OSG argues
that the power to determine said fees was necessarily implied in the SECs general
power under Section 40 of The Revised Securities Act to regulate and supervise the
operations of transfer agents such as petitioners member-corporations. The OSG
adds that petitioners discretion to increase its fees was not purely a management
prerogative and was properly the subject of regulation considering that it
significantly affects the market for securities.[9]
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 clearly
provided,
SEC. 47. Cease and desist order.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 may cause grave or irreparable injury or prejudice to the
investing public or may amount to fraud or violation of the disclosure
requirements of this Act and the rules and regulations of the
Commission. (Emphasis supplied.)
xxxx

Said section enforces the power of general supervision of the SEC under
Section 40 of the then Revised Securities Act.

As a securities-related organization under the jurisdiction and supervision of the


SEC by virtue of Section 40 of The Revised Securities Act and Section 3 of
Presidential Decree No. 902-A,[10] petitioner was under the obligation to comply
with the July 8, 1996 Order. Defiance of the order was subject to administrative
sanctions provided in Section46[11] of The Revised Securities Act.
Petitioner failed to show that the SEC, which undoubtedly possessed the necessary
expertise in matters relating to the regulation of the securities market, gravely
abused its discretion in finding that there was a possibility that the increase in fees
and imposition of cancellation fees will cause grave or irreparable injury or
prejudice to the investing public. Indeed, petitioner did not advance any argument
to counter the SECs finding. Thus, there appears to be no substantial reason to
nullify the July 8, 1996 Order. This is true, especially considering that, as pointed
out by the OSG, petitioners fee increases have far-reaching effects on the capital
market. Charging exorbitant processing fees could discourage many small
prospective investors and curtail the infusion of money into the capital market and
hamper its growth.
Furthermore, there is no merit in petitioners contention that even if it had appeared
at the hearing of July 11, 1996 with counsel and presented its evidence, the SEC
would not have considered it because the Order of July 11, 1996 was in fact
prepared earlier on July 8, 1996. It is clear from the order itself that the
July 11, 1996 Order was edited from the computer file of the July 8, 1996 Order,
and that the error in the date was merely an oversight in editing the softcopy before
it was printed.
Similarly, there is no merit to petitioners claim that it was misled into
attending the July 11, 1996 hearing without counsel. Whether the Director of the
SEC Brokers and Exchanges Department assured petitioners board that the July 8,
1996 Order was only a standard order and nothing to worry about, is a question of
fact which this Court cannot entertain considering that this Court is not a trier of
facts.[12] Needless to stress, the assurance could not be interpreted as outright
prohibition to bring in petitioners counsel.
Moreover, it devolved upon petitioner to protect its interests adequately
considering the clear implications of the Order of July 8, 1996. Petitioner had only

itself to blame for


the July 11, 1996 hearing.

its

failure

to

present

its

evidence

during

In Philippine Stock Exchange, Inc. v. Court of Appeals, [13] the Court held that the
SEC is without authority to substitute its judgment for that of the corporations
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 petitioners
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 petitioners 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 SECs 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, in our view, were broad enough to include the power
to regulate petitioners 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
SECs regulatory powers over the operations of securities-related organizations like
petitioner.
The SECs authority to issue the cease-and-desist order being indubitable under
Section 47 in relation to Section 40 of the then Revised Securities Act, and there
being no showing that the SEC committed grave abuse of discretion in finding
basis to issue said order, we rule that the Court of Appeals committed no reversible
error in affirming the assailed orders. For its open and admitted defiance of a
lawful cease-and-desist order, petitioner was held appropriately liable for the
payment of the penalty imposed on it in the SECsJuly 11, 1996 Order.
WHEREFORE, the instant petition for review on certiorari is DENIED for lack
of merit. The Decision dated June 17, 1998 and Resolution dated January 13, 1999,
of the Court of Appeals in CA-G.R. SP No. 41320 are AFFIRMED. Costs against
petitioner.

SO ORDERED.
G.R. No. 180064

September 16, 2013

JOSE U. PUA and BENJAMIN HANBEN U. PUA, Petitioners,


vs.
CITIBANK, N. A., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 21, 2007 and
Resolution3 dated October 16, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 79297, which
reversed and set aside the Orders dated May 14, 2003 4 and July 16, 20035 of the Regional Trial
Court of Cauayan City, Isabela, Branch 19 (RTC), dismissing petitioners Jose(Jose) and Benjamin
Hanben U. Pua's (petitioners) complaint against respondent Citibank, N. A. (respondent).
The Facts
On December 2, 2002, petitioners filed before the RTC a Complaint6 for declaration of nullity of
contract and sums of money with damages against respondent, 7 docketed as Civil Case No. 191159.8 In their complaint, petitioners alleged that they had been depositors of Citibank Binondo
Branch (Citibank Binondo) since 1996. Sometime in 1999, Guada Ang, Citibank Binondos Branch
Manager, invited Jose to a dinner party at the Manila Hotel where he was introduced to several
officers and employees of Citibank Hongkong Branch (Citibank Hongkong). 9 A few months after,
Chingyee Yau (Yau), Vice-President of Citibank Hongkong, came to the Philippines to sell securities
to Jose. They averred that Yau required Jose to open an account with Citibank Hongkong as it is one
of the conditions for the sale of the aforementioned securities.10 After opening such account, Yau
offered and sold to petitioners numerous securities11 issued by various public limited companies
established in Jersey, Channel I sands. The offer, sale, and signing of the subscription agreements
of said securities were all made and perfected at Citibank Binondo in the presence of its officers and
employees.12 Later on, petitioners discovered that the securities sold to them were not registered
with the Securities and Exchange Commission (SEC)and that the terms and conditions covering the
subscription were not likewise submitted to the SEC for evaluation, approval, and
registration.13 Asserting that respondents actions are in violation of Republic Act No.8799, entitled
the "Securities Regulation Code" (SRC), they assailed the validity of the subscription agreements
and the terms and conditions thereof for being contrary to law and/or public policy.14
For its part, respondent filed a motion to dismiss15 alleging, inter alia, that petitioners complaint
should be dismissed outright for violation of the doctrine of primary jurisdiction. It pointed out that the
merits of the case would largely depend on the issue of whether or not there was a violation of the
SRC, in particular, whether or not there was a sale of unregistered securities. In this regard,
respondent contended that the SRC conferred upon the SEC jurisdiction to investigate compliance

with its provisions and thus, petitioners complaint should be first filed with the SEC and not directly
before the RTC.16
Petitioners opposed17 respondents motion to dismiss, maintaining that the RTC has jurisdiction over
their complaint. They asserted that Section 63of the SRC expressly provides that the RTC has
exclusive jurisdiction to hear and decide all suits to recover damages pursuant to Sections 56 to 61
of the same law.18
The RTC Ruling
In an Order19 dated May 14, 2003, the RTC denied respondents motion to dismiss. It noted that
petitioners complaint is for declaration of nullity of contract and sums of money with damages and,
as such, it has jurisdiction to hear and decide upon the case even if it involves the alleged sale of
securities. It ratiocinated that the legal questions or issues arising from petitioners causes of action
against respondent are more appropriate for the judiciary than for an administrative agency to
resolve.20
Respondent filed an omnibus motion21 praying, among others, for there consideration of the
aforesaid ruling, which petitioners, in turn, opposed. 22 In an Order23 dated July 16, 2003, the RTC
denied respondents omnibus motion with respect to its prayer for reconsideration. Dissatisfied,
respondent filed a petition for certiorari before the CA.24
The CA Ruling
In a Decision25 dated May 21, 2007, the CA reversed and set aside the RTCs Orders and dismissed
petitioners complaint for violation of the doctrine of primary jurisdiction. The CA agreed with
respondents contention that since the case would largely depend on the issue of whether or not the
latter violated the provisions of the SRC, the matter is within the special competence or knowledge
of the SEC. Citing the case of Baviera v. Paglinawan26(Baviera), the CA opined that all complaints
involving violations of the SRC should be first filed before the SEC.27
Aggrieved, petitioners moved for reconsideration,28 which was, however, denied by the CA in a
Resolution29dated October 16, 2007.Hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not petitioners action falls within the primary
jurisdiction of the SEC.
Petitioners reiterate their original position that the SRC itself provides that civil cases for damages
arising from violations of the same law fall within the exclusive jurisdiction of the regional trial
courts.30
On the contrary, respondent maintains that since petitioners complaint would necessarily touch on
the issue of whether or not the former violated certain provisions of the SRC, then the said complaint

should have been first filed with the SEC which has the technical competence to resolve such
dispute.31
The Courts Ruling
The petition is meritorious.
At the outset, the Court observes that respondent erroneously relied on the Baviera ruling to support
its position that all complaints involving purported violations of the SRC should be first referred to the
SEC. A careful reading of the Baviera case would reveal that the same involves a criminal
prosecution of a purported violator of the SRC, and not a civil suit such as the case at bar. The
pertinent portions of the Baviera ruling thus read:
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it
must first be referred to an administrative agency of special competence, i.e., the SEC. Under the
doctrine of primary jurisdiction, courts will not determine a controversy involving a question within the
jurisdiction of the administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the specialized knowledge and expertise of said administrative
tribunal to determine technical and intricate matters of fact. The Securities Regulation Code is a
special law. Its enforcement is particularly vested in the SEC.
Hence, all complaints for any violation of the Code and its implementing rules and regulations should
be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint
to the DOJ for preliminary investigation and prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he
filed his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed
to the DOJ in dismissing petitioners complaint.32 (Emphases and underscoring supplied)
Records show that petitioners complaint constitutes a civil suit for declaration of nullity of contract
and sums of money with damages, which stemmed from respondents alleged sale of unregistered
securities, in violation of the various provisions of the SRC and not a criminal case such as that
involved in Baviera.
In this light, when the Court ruled in Baviera that "all complaints for any violation of the [SRC] x x x
should be filed with the SEC,"33 it should be construed as to apply only to criminal and not to civil
suits such as petitioners complaint.
Moreover, it is a fundamental rule in procedural law that jurisdiction is conferred by law; 34 it cannot be
inferred but must be explicitly stated therein. Thus, when Congress confers exclusive jurisdiction to a
judicial or quasi-judicial entity over certain matters by law, this, absent any other indication to the
contrary, evinces its intent to exclude other bodies from exercising the same.
It is apparent that the SRC provisions governing criminal suits are separate and distinct from those
which pertain to civil suits. On the one hand, Section 53 of the SRC governs criminal suits involving
violations of the said law, viz.:

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: 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 same 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.
On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC pertain to civil suits
involving violations of the same law. Among these, the applicable provisions to this case are
Sections 57.1 and 63.1 of the SRC which provide:
SEC. 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports.
57.1. Any person who:
(a) Offers to sell or sells a security in violation of Chapter III;
or
(b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code,
by the use of any means or instruments of transportation or communication, by means of a
prospectus or other written or oral communication, which includes an untrue statement of a
material fact or omits to state a material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading (the purchaser
not knowing of such untruth or omission), and who shall fail in the burden of proof that he did
not know, and in the exercise of reasonable care could not have known, of such untruth or
omission, shall be liable to the person purchasing such security from him, who may sue to
recover the consideration paid for such security with interest thereon, less the amount of any
income received thereon, upon the tender of such security, or for damages if he no longer
owns the security.

xxxx
SEC. 63. Amount of Damages to be Awarded. 63.1. All suits to recover damages pursuant to
Sections 56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court which shall have
exclusive jurisdiction to hear and decide such suits. The Court is hereby authorized to award
damages in an amount not exceeding triple the amount of the transaction plus actual damages.
x x x x (Emphases and underscoring supplied)
Based on the foregoing, it is clear that cases falling under Section 57of the SRC, which pertain to
civil liabilities arising from violations of the requirements for offers to sell or the sale of securities, as
well as other civil suits under Sections 56, 58, 59, 60, and 61 of the SRC shall be exclusively brought
before the regional trial courts. It is a well-settled rule in statutory construction that the term "shall" is
a word of command, and one which has always or which must be given a compulsory meaning, and
it is generally imperative or mandatory.35 Likewise, it is equally revelatory that no SRC provision of
similar import is found in its sections governing criminal suits; quite the contrary, the SRC states that
criminal cases arising from violations of its provisions should be first referred to the SEC.
1wphi1

Therefore, based on these considerations, it stands to reason that civil suits falling under the SRC
are under the exclusive original jurisdiction of the regional trial courts and hence, need not be first
filed before the SEC, unlike criminal cases wherein the latter body exercises primary jurisdiction.
All told, petitioners' filing of a civil suit against respondent for purported violations of the SRC was
properly filed directly before the RTC.
WHEREFORE, the petition is GRANTED. Accordingly, the Court of Appeals' Decision dated May 21,
2007 and Resolution dated October 16,2007 in CA-G.R. SP No. 79297 are hereby REVERSED and
SET ASIDE. Let Civil Case No. 19-1159 be REINSTATED and REMANDED to the Regional Trial
Court of Cauayan City, Isabela, Branch 19 for further proceedings.
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 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 SCBs 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.
SCBs counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, advised the
bank to proceed with the selling of the foreign securities although unregistered with the SEC, under
the guise of a "custodianship agreement;" and should it be questioned, it shall invoke Section 72 3 of
the General Banking Act (Republic Act No.337).4 In sum, SCB was able to sell GTPMF securities
worth around P6 billion to some 645 investors.
However, SCBs 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,5particularly 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 726 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 ICAPs complaint and its supporting documents to the BSP.
On October 31, 1997, the SEC informed the Secretary of Finance that it withdrew GTPMF securities
from the market and that it will not sell the same without the necessary clearances from the
regulatory authorities.
Meanwhile, on August 17, 1998, the BSP directed SCB not to include investments in global mutual
funds issued abroad in its trust investments portfolio without prior registration with the SEC.
On August 31, 1998, SCB sent a letter to the BSP confirming that it will withdraw third-party fund
products which could be directly purchased by investors.
However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell
GTPMF securities in this country. This prompted petitioner to enter into an Investment Trust
Agreement with SCB wherein he purchased US$8,000.00 worth of securities upon the banks
promise of 40% return on his investment and a guarantee that his money is safe. After six (6)
months, however, petitioner learned that the value of his investment went down to US$7,000.00. He

tried to withdraw his investment but was persuaded by Antonette de los Reyes of SCB to hold on to
it for another six (6) months in view of the possibility that the market would pick up.
Meanwhile, on November 27, 2000, the BSP found that SCB failed to comply with its directive of
August 17, 1998. Consequently, it was fined in the amount of P30,000.00.
The trend in the securities market, however, was bearish and the worth of petitioners 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 P7 million
settlement offered by SCB. Thereupon, SCB made a commitment not to offer or sell securities
without prior compliance with the requirements of the SEC.
On February 7, 2004, petitioner filed with the DOJ a complaint for violation of Section 8.1 9 of the
Securities Regulation Code against private respondents, docketed as I.S. No. 2004-229.
On February 23, 2004, the DOJ rendered its Joint Resolution 10 dismissing petitioners 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. 20031278; and petitioners 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 petitioners complaint in I.S. No.
2004-229 (violation of Securities Regulation Code), holding that it should have been filed with the
SEC.
Petitioners motions to dismiss his complaints were denied by the DOJ. Thus, he filed with the Court
of Appeals a petition for certiorari, docketed as CA-G.R. SP No. 85078. He alleged that the DOJ
acted with grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing his
complaint for syndicated estafa.
He also filed with the Court of Appeals a separate petition for certiorari assailing the DOJ Resolution
dismissing I.S. No. 2004-229 for violation of the Securities Regulation Code. This petition was
docketed as CA-G.R. SP No. 87328. Petitioner claimed that the DOJ acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in holding that the complaint should have been
filed with the SEC.
On January 7, 2005, the Court of Appeals promulgated its Decision dismissing the petition. It
sustained the ruling of the DOJ that the case should have been filed initially with the SEC.
1avvphi1.net

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 petitioners charges and respondents counter charges) dismissing the petition on
the ground that the purpose of a petition for certiorari is not to evaluate and weigh the parties
evidence but to determine whether the assailed Resolution of the DOJ was issued with grave abuse
of discretion tantamount to lack of jurisdiction. Again, petitioner moved for a reconsideration but it
was denied in a Resolution of November 22, 2005.
Hence, the instant petitions for review on certiorari.
For our resolution is the fundamental issue of whether the Court of Appeals erred in concluding that
the DOJ did not commit grave abuse of discretion in dismissing petitioners complaint in I.S. 2004229 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 petitioners complaint.
G.R. No. 170602
Re: I.S. No. 2003-1059 for
Syndicated Estafa

Section 5, Rule 110 of the 2000 Rules of Criminal Procedure, as amended, provides that all criminal
actions, commenced by either a complaint or an information, shall be prosecuted under the direction
and control of a public prosecutor. This mandate is founded on the theory that a crime is a breach of
the security and peace of the people at large, an outrage against the very sovereignty of the State. It
follows that a representative of the State shall direct and control the prosecution of the offense. 13 This
representative of the State is the public prosecutor, whom this Court described in the old case
of Suarez v. Platon,14 as:
[T]he representative not of an ordinary party to a controversy, but of a sovereignty whose obligation
to govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore,
in a criminal prosecution is not that it shall win a case, but that justice shall be done. As such, he is in
a peculiar and very definite sense a servant of the law, the twofold aim of which is that guilt shall not
escape or innocence suffers.
Concomitant with his authority and power to control the prosecution of criminal offenses, the public
prosecutor is vested with the discretionary power to determine whether a prima facie case exists or
not.15 This is done through a preliminary investigation designed to secure the respondent from hasty,
malicious and oppressive prosecution. A preliminary investigation is essentially an inquiry to
determine whether (a) a crime has been committed; and (b) whether there is probable cause that the
accused is guilty thereof.16 In Pontejos v. Office of the Ombudsman,17probable 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 prosecutors 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 petitioners evidence is insufficient to establish probable cause for
syndicatedestafa. 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 petitioners 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 prosecutors duty is two-fold. On one
hand, he is bound by his oath of office to prosecute persons where the complainants evidence is
ample and sufficient to show prima facie guilt of a crime. Yet, on the other hand, he is likewise dutybound 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 petitioners 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 petitioners complaint, the DOJ acted capriciously or
arbitrarily.
WHEREFORE, we DENY the petitions and AFFIRM the assailed Decisions of the Court of Appeals
in CA-G.R. SP No. 87328 and in CA-G.R. SP No. 85078.
Costs against petitioner.
SO ORDERED.

G.R. No. 112872. April 19, 2001]

THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the


Administratrix, SYLVIA S. TY, petitioner, vs. COURT OF APPEALS,
HON. ILDEFONSO E. GASCON, and ALEJANDRO B.
TY, respondents.
[G.R. No. 114672. April 19, 2001]

SYLVIA S. TY, in her capacity as Administratrix of the Intestate Estate of


Alexander T. Ty, petitioner, vs. COURT OF APPEALS and
ALEJANDRO B. TY,respondents.

DECISION
MELO, J.:

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
involve the same parties and basically the same issues, including the main question of
jurisdiction, the Court resolves 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 ones on hand. Thus, the present ponencia.
The antecedent facts are as follows:
Petitioner Sylvia S. Ty was married to Alexander T. Ty. Son of private respondent
Alejandro B. Ty, on January 11, 1981. Alexander died of leukemia on May 19, 1988
and was survived by his wife, petitioner Sylvia, and only child, Krizia Katrina. In the
settlement of his estate, petitioner was appointed administratrix of her late husbands
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;
2) 5,000 shares of stock in Intercontinental Paper Industries valued at P500,000.00;
3) 15,873 shares of stock in Philippine Crystal Manufacturing, Inc. valued at P1,587,300.00;
4) 800 shares of stock in Polymart Paper Industries, Inc. valued at P80,000.00;
5) 1,880 shares of stock in A.T. Car Care Center, Inc. valued at P188,000.00;
6) 360 shares of stock in Union Emporium, Inc. valued at P36,000.00;
7) 380 shares of stock in Lexty, Inc. valued at P38,000.00; and
8) a parcel of land in Biak-na-Bato, Matalahib, Sta. Mesa, with an area of 823 square meters
and covered by Transfer Certificate of Title Number 214087.

Private respondent Alejandro Ty then filed two complaints for the recovery of the
above-mentioned property, which was docketed as Civil Case Q-91-10833 in Branch
105 Regional Trial Court of Quezon City (now herein G.R. No. 112872), praying for
the declaration for 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 respondents money, without any cause or consideration from
deceased Alexander.
Motions to dismiss were filed by petitioner. Both motions alleged lack of
jurisdiction for the trial court, claiming that the cases involved intra-corporate disputes
cognizable by the Securities and Exchange Commission (SEC). Other grounds raised
in G.R. NO. 114672 were:
1) An express trust between private respondent Alejandro and his deceased son Alexander;
2) Bar by the statute of limitations;
3) Private respondents violation of Supreme Court Circular 28-91 for failure to include a
certification of non-forum shopping in his complaints; and
4) Bar by laches.

The motions to dismiss were denied. Petitioner then filed petitions for certiorari in
the Court of Appeals, which were also dismissed for lack of merit. Thus, the present
petitions now before the Court.
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. Concepcion, 296 SCRA 579 [1998]).
Petitioner argues that the present case involves a suit between two stockholders of
the same corporation which thus places it beyond the jurisdictional periphery of
regular trial courts and more within the exclusive competence of the SEC by reason of
Section 5(b) of Presidential Decree 902-A, since repealed. However, it does not
necessarily follow that when both parties of a dispute are stockholders of a
corporation, the dispute is automatically considered intra-corporate in nature and
jurisdiction consequently falls within the SEC. Presidential Decree 902-A did not
confer upon the SEC absolute jurisdiction and control over all matters affecting
corporations, regardless of the nature of the transaction which gave rise to such
disputes (Jose Peneyra, et.al. vs. Intermediate Appellate Court, et. al., 181 SCRA 245
[1990] citing DMRC Enterprises vs. Este del Sol Mountain Reserve, Inc., 132 SCRA
293 [1984]). The better policy in determining which body has jurisdiction over this
case would be to consider, not merely the status of the parties involved, but likewise
the nature of the question that is the subject of the controversy (Viray vs. Court of
Appeals, 191 SCRA 309 [1990]). When the nature of the controversy involves matters
that are purely civil in character, it is beyond the ambit of the limited jurisdiction of
the SEC (Saura vs. Saura, Jr., 313 SCRA 465 [1999]).
In the cases at bar, the relationship of private respondent when he sold his shares
of stock to his son was one of vendor and vendee, nothing else. The question raised in
the complaints is whether or not there was indeed a sale in the absence of cause or
consideration. The proper forum for such a dispute is a regular trial court. The Court
agrees with the ruling of the Court of appeals that no special corporate skill is
necessary in resolving the issue of the validity of the transfer of shares from one
stockholder to another of the same corporation. Both actions, although involving
different property, sought to declare the nullity of the transfers of said property to the
decedent on the ground that they were not supported by any cause or consideration,
and thus, are considered void ab initio for being absolutely simulated or fictitious. The
determination whether a contract is simulated or not is an issue that could be resolved
by applying pertinent provisions of the Civil Code particularly those relative to

obligations and contracts.Disputes concerning the application of the Civil Code are
properly cognizable by courts of general jurisdiction. No special skill is necessary that
would require the technical expertise of the SEC.
It should also be noted that under the newly enacted Securities Regulation Code
(Republic Act No. 8799), this issue is now moot and academic because whether or not
the issue is intra-corporate, it is the regional trial court and no longer the SEC that
takes cognizance of the controversy. Under Section 5.2 of Republic Act No. 8799,
original and exclusive jurisdiction to hear and decide cases involving intra-corporate
controversies have been transferred to courts of general jurisdiction or the appropriate
regional trial court.
Other issues raised by the petitioner in G.R. No. 114672 are equally not impressed
with merit.
Petitioner contends that private respondent is attempting to enforce an
unenforceable express trust over the disputed real property. Petitioner is in error when
she contends that an express trust was created by private respondent when he
transferred the property to his son. Judge Abraham P. Vera, in his order dated March
31, 1993 in Civil Case No. Q-92-14352, declared:
[e]xpress trust are those that are created by the direct and positive acts of the
parties, by some writing or deed or will or by words evidencing an intention to
create a trust. On the other hand, implied trusts are those which, without being
expressed, are deducible from the nature of the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. Thus, if
the intention to establish a trust is clear, the trust is express; if the intent to
establish a trust is to be taken from circumstances or other matters indicative of
such intent, then the trust is implied (Cuaycong vs. Cuaycong, 21 SCRA 1191
[1967].
In the cases at hand, private respondent contends that the pieces of property were
transferred in the name of the deceased Alexander for the purpose of taking care of the
property for him and his siblings.Such transfer having been effected without cause of
consideration, a resulting trust was created.

A resulting trust arises in favor of one who pays the purchase money of an estate
and places the title in the name of another, because of the presumption that he who
pays for a thing intends a beneficial interest therein for himself. The trust is said to
result in law from the acts of the parties. Such a trust is implied in fact
(Tolentino, Civil Code of the Philippines, Vol. 4, p. 678).
If a trust was then created, it was an implied, not an express trust, which may be
proven by oral evidence (Article 1457, Civil code), and it matters not whether
property is real or personal (Paras, Civil Code of the Philippines, Annotated, Vol. 4, p.
814).
Petitioners assertion that private respondents action is barred by the statute of
limitations is erroneous. The statue 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 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 respondents actions were in fact very
timely. As stated in the complaints, private respondent instituted the above actions as
the property were in danger of being sold to a third party. If there were no pending
cases to stop their sale, he would no longer be able to recover the same from an
innocent purchaser for value.
Withal, the Court need not go into any further discussion on whether the trial
court erred in issuing a writ of preliminary injunction.
WHEREFORE, the petition for certiorari in G.R. No. 112872 is DISMISSED,
having failed to show that grave abuse of discretion was committed in declaring that
the regional trial court had jurisdiction over the case. The petition for review on
certiorari in G.R. 114672 is DENIED, having found no reversible error was
committed.
SO ORDERED.

G.R. No. 194024

April 25, 2012

PHILIP L. GO, PACIFICO Q. LIM and ANDREW Q. LIM Petitioners,


vs.
DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC. Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure assailing the March 17, 2010 Decision1 and October 7, 2010 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 110013 entitled "Distinction Properties Development &
Construction, Inc. v. Housing Land Use Regulatory Board (NCR), Philip L. Go, Pacifico Q. Lim and
Andrew Q. Lim."
Factual and Procedural Antecedents:

Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered individual owners of
condominium units in Phoenix Heights Condominium located at H. Javier/Canley Road, Bo. Bagong
Ilog, Pasig City, Metro Manila.
Respondent Distinction Properties Development and Construction, Inc. (DPDCI) is a corporation
existing under the laws of the Philippines with principal office at No. 1020 Soler Street, Binondo,
Manila. It was incorporated as a real estate developer, engaged in the development of condominium
projects, among which was the Phoenix Heights Condominium.
In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of DPDCI,
executed aMaster Deed and Declaration of Restrictions (MDDR)3 of Phoenix Heights Condominium,
which was filed with the Registry of Deeds. As the developer, DPDCI undertook, among others, the
marketing aspect of the project, the sale of the units and the release of flyers and brochures.
Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized and
incorporated. Sometime in 2000, DPDCI turned over to PHCC the ownership and possession of the
condominium units, except for the two saleable commercial units/spaces:
1. G/F Level BAS covered by Condominium Certificate of Title (CCT) No. 21030 utilized as
the PHCCs administration office, and
2. G/F Level 4-A covered by CCT No. PT-27396/C-136-II used as living quarters by the
building administrator.
Although used by PHCC, DPDCI was assessed association dues for these two units.
Meanwhile, in March 1999, petitioner Pacifico Lim, as president of DPDCI, filed an Application for
Alteration of Plan4 pertaining to the construction of 22 storage units in the spaces adjunct to the
parking area of the building. The application, however, was disapproved as the proposed alteration
would obstruct light and ventilation.
In August 2004, through its Board,5 PHCC approved a settlement offer from DPDCI for the set-off of
the latters association dues arrears with the assignment of title over CCT Nos. 21030 and PT27396/C-136-II and their conversion into common areas. Thus, CCT Nos. PT-43400 and PT-43399
were issued by the Registrar of Deeds of Pasig City in favor of PHCC in lieu of the old titles. The
said settlement between the two corporations likewise included the reversion of the 22 storage
spaces into common areas. With the conformity of PHCC, DPDCIs application for alteration
(conversion of unconstructed 22 storage units and units GF4-A and BAS from saleable to common
areas) was granted by the Housing and Land Use Regulatory Board (HLURB). 6
In August 2008, petitioners, as condominium unit-owners, filed a complaint 7 before the HLURB
against DPDCI for unsound business practices and violation of the MDDR. The case was docketed
as REM- 080508-13906. They alleged that DPDCI committed misrepresentation in their circulated
flyers and brochures as to the facilities or amenities that would be available in the condominium and
failed to perform its obligation to comply with the MDDR.

In defense, DPDCI denied that it had breached its promises and representations to the public
concerning the facilities in the condominium. It alleged that the brochure attached to the complaint
was "a mere preparatory draft" and not the official one actually distributed to the public, and that the
said brochure contained a disclaimer as to the binding effect of the supposed offers therein. Also,
DPDCI questioned the petitioners personality to sue as the action was a derivative suit.
After due hearing, the HLURB rendered its decision8 in favor of petitioners. It held as invalid the
agreement entered into between DPDCI and PHCC, as to the alteration or conversion of the subject
units into common areas, which it previously approved, for the reason that it was not approved by
the majority of the members of PHCC as required under Section 13 of the MDDR. It stated that
DPDCIs defense, that the brochure was a mere draft, was against human experience and a
convenient excuse to avoid its obligation to provide the facility of the project. The HLURB further
stated that the case was not a derivative suit but one which involved contracts of sale of the
respective units between the complainants and DPDCI, hence, within its jurisdiction pursuant to
Section 1, Presidential Decree (P.D.) No. 957 (The Subdivision and Condominium Buyers Protective
Decree), as amended. The decretal portion of the HLURB decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering respondent to restore/provide proper gym facilities, to restore the hallway at the
mezzanine floor.
2. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as
illegal, and consequently, and ordering respondent to continue paying the condominium dues
for these units, with interest and surcharge.
3. Ordering the Respondent to pay the sum of Php998,190.70, plus interests and
surcharges, as condominium dues in arrears and turnover the administration office to PHCC
without any charges pursuant to the representation of the respondent in the brochures it
circulated to the public with a corresponding credit to complainants individual shares as
members of PHCC entitled to such refund or reimbursements.
4. Ordering the Respondent to refund to the PHCC the amount of Php1,277,500.00,
representing the cost of the deep well, with interests and surcharges with a corresponding
credit to complainants individual shares as members of PHCC entitled to such refund or
reimbursements.
5. Ordering the Respondent to pay the complainants moral and exemplary damages in the
amount of P10,000.00 and attorneys fees in the amount of P 10,000.00.
All other claims and counterclaims are hereby dismissed accordingly.
IT IS SO ORDERED.9

Aggrieved, DPDCI filed with the CA its Petition for Certiorari and Prohibition 10 dated August 11, 2009,
on the ground that the HLURB decision was a patent nullity constituting an act without or beyond its
jurisdiction and that it had no other plain, speedy and adequate remedy in the course of law.
On March 17, 2010, the CA rendered the assailed decision which disposed of the case in favor of
DPDCI as follows:
WHEREFORE, in view of the foregoing, the petition is GRANTED. Accordingly, the
assailed Decision of the HLURB in Case No. REM-0800508-13906 is ANNULLED and SET ASIDE
and a new one is entered DISMISSING the Complaint a quo.
IT IS SO ORDERED.11
The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the
controversy did not fall within the scope of the administrative agencys authority under P.D. No. 957.
The HLURB not only relied heavily on the brochures which, according to the CA, did not set out an
enforceable obligation on the part of DPDCI, but also erroneously cited Section 13 of the MDDR to
support its finding of contractual violation.
The CA held that jurisdiction over PHCC, an indispensable party, was neither acquired nor waived by
estoppel. Citing Carandang v. Heirs of De Guzman,12 it held that, in any event, the action should be
dismissed because the absence of PHCC, an indispensable party, rendered all subsequent
actuations of the court void, for want of authority to act, not only as to the absent parties but even as
to those present.
Finally, the CA held that the rule on exhaustion of administrative remedies could be relaxed. Appeal
was not a speedy and adequate remedy as jurisdictional questions were continuously raised but
ignored by the HLURB. In the present case, however, "[t]he bottom line is that the challenged
decision is one that had been rendered in excess of jurisdiction, if not with grave abuse of discretion
amounting to lack or excess of jurisdiction."13
Petitioners filed a motion for reconsideration14 of the said decision. The motion, however, was denied
by the CA in its Resolution dated October 7, 2010.
Hence, petitioners interpose the present petition before this Court anchored on the following
GROUNDS
(1)
THE COURT OF APPEALS ERRED IN HOLDING THAT THE HLURB HAS NO
JURISDICTION OVER THE INSTANT CASE;
(2)

THE COURT OF APPEALS ALSO ERRED IN FINDING THAT PHCC IS AN


INDISPENSABLE PARTY WHICH WARRANTED THE DISMISSAL OF THE CASE BY
REASON OF IT NOT HAVING BEEN IMPLEADED IN THE CASE;
(3)
THE COURT OF APPEALS HAS LIKEWISE ERRED IN RELAXING THE RULE ON NONEXHAUSTION OF ADMINISTRATIVE REMEDIES BY DECLARING THAT THE APPEAL
MAY NOT BE A SPEEDY AND ADEQUATE REMEDY WHEN JURISDICTIONAL
QUESTIONS WERE CONTINUOUSLY RAISED BUT IGNORED BY THE HLURB; and
(4)
THAT FINALLY, THE COURT A QUO ALSO ERRED IN NOT GIVING DUE RESPECT OR
EVEN FINALITY TO THE FINDINGS OF THE HLURB.15
Petitioners contend that the HLURB has jurisdiction over the subject matter of this case. Their
complaint with the HLURB clearly alleged and demanded specific performance upon DPDCI of the
latters contractual obligation under their individual contracts to provide a back-up water system as
part of the amenities provided for in the brochure, together with an administration office, proper gym
facilities, restoration of a hallway, among others. They point out that the violation by DPDCI of its
obligations enumerated in the said complaint squarely put their case within the ambit of Section 1,
P.D. No. 957, as amended, enumerating the cases that are within the exclusive jurisdiction of the
HLURB. Likewise, petitioners argue that the case was not a derivative suit as they were not suing for
and in behalf of PHCC. They were suing, in their individual capacities as condominium unit buyers,
their developer for breach of contract. In support of their view that PHCC was not an indispensable
party, petitioners even quoted the dispositive portion of the HLURB decision to show that complete
relief between or among the existing parties may be obtained without the presence of PHCC as a
party to this case. Petitioners further argue that DPDCIs petition before the CA should have been
dismissed outright for failure to comply with Section 1, Rule XVI of the 2004 Rules of Procedure of
the HLURB providing for an appeal to the Board of Commissioners by a party aggrieved by a
decision of a regional officer.
DPDCI, in its Comment,16 strongly objects to the arguments of petitioners and insists that the CA did
not err in granting its petition. It posits that the HLURB has no jurisdiction over the complaint filed by
petitioners because the controversies raised therein are in the nature of "intra-corporate disputes."
Thus, the case does not fall within the jurisdiction of the HLURB under Section 1, P.D. No. 957 and
P.D. No. 1344. According to DPDCI, petitioners sought to address the invalidation of the corporate
acts duly entered and executed by PHCC as a corporation of which petitioners are admittedly
members of, and not the acts pertaining to their ownership of the units. Such being the case, PHCC
should have been impleaded as a party to the complaint. Its non-inclusion as an indispensable party
warrants the dismissal of the case. DPDCI further avers that the doctrine of exhaustion is
inapplicable inasmuch as the issues raised in the petition with the CA are purely legal; that the
challenged administrative act is patently illegal; and that the procedure of the HLURB does not
provide a plain, speedy and adequate remedy and its application may cause great and irreparable

damage. Finally, it claims that the decision of the HLURB Arbiter has not attained finality, the same
having been issued without jurisdiction.
Essentially, the issues to be resolved are: (1) whether the HLURB has jurisdiction over the complaint
filed by the petitioners; (2) whether PHCC is an indispensable party; and (3) whether the rule on
exhaustion of administrative remedies applies in this case.
The petition fails.
Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law
and determined by the allegations in the complaint which comprise a concise statement of the
ultimate facts constituting the plaintiff's cause of action. 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, irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein. The averments in the complaint and the character of the relief
sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction
also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some
of the claims asserted therein.17 Thus, it was ruled that the jurisdiction of the HLURB to hear and
decide cases is determined by the nature of the cause of action, the subject matter or property
involved and the parties.18
Generally, the extent to which an administrative agency may exercise its powers depends largely, if
not wholly, on the provisions of the statute creating or empowering such agency.19 With respect to the
HLURB, to determine if said agency has jurisdiction over petitioners cause of action, an examination
of the laws defining the HLURBs jurisdiction and authority becomes imperative. P.D. No.
957,20 specifically Section 3, granted the National Housing Authority (NHA) the "exclusive jurisdiction
to regulate the real estate trade and business." Then came P.D. No. 134421 expanding the jurisdiction
of the NHA (now HLURB), as follows:
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.
This provision must be read in light of the laws preamble, which explains the reasons for enactment
of the law or the contextual basis for its interpretation. 22 A statute derives its vitality from the purpose
for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to

nullify or destroy the law.23 P.D. No. 957, as amended, aims to protect innocent subdivision lot and
condominium unit buyers against fraudulent real estate practices.24
The HLURB is given a wide latitude in characterizing or categorizing acts which may constitute
unsound business practice or breach of contractual obligations in the real estate trade. This grant of
expansive jurisdiction to the HLURB does not mean, however, that all cases involving subdivision
lots or condominium units automatically fall under its jurisdiction. The CA aptly quoted the case
of Christian General Assembly, Inc. v. Ignacio,25 wherein the Court held that:
The mere relationship between the parties, i.e., that of being subdivision owner/developer and
subdivision lot buyer, does not automatically vest jurisdiction in the HLURB. For an action to fall
within the exclusive jurisdiction of the HLURB, the decisive element is the nature of the action as
enumerated in Section 1 of P.D. 1344. On this matter, we have consistently held that the concerned
administrative agency, the National Housing Authority (NHA) before and now the HLURB, has
jurisdiction over complaints aimed at compelling the subdivision developer to comply with its
contractual and statutory obligations.26 [Emphases supplied]
In this case, the complaint filed by petitioners alleged causes of action that apparently are not
cognizable by the HLURB considering the nature of the action and the reliefs sought. A perusal of
the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly
constituted acts of PHCC - the April 29, 2005 Agreement27 entered into by PHCC with DPDCI and its
Board Resolution28 which authorized the acceptance of the proposed offsetting/settlement of
DPDCIs indebtedness and approval of the conversion of certain units from saleable to common
areas. All these were approved by the HLURB. Specifically, the reliefs sought or prayers are the
following:
1. Ordering the respondent to restore the gym to its original location;
2. Ordering the respondent to restore the hallway at the second floor;
3. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as
illegal, and consequently, ordering respondent to continue paying the condominium dues for
these units, with interest and surcharge;
4. Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges,
as condominium dues in arrears and turnover the administration office to PHCC without any
charges pursuant to the representation of the respondent in the brochures it circulated to the
public;
5. Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00,
representing the cost of the deep well, with interests and surcharges;
6. Ordering the respondent to pay the complainants moral/exemplary damages in the
amount of PHP100,000.00; and

7. Ordering the respondent to pay the complainant attorneys fees in the amount of
PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office. 29
As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to
implead the proper party, PHCC.
An indispensable party is defined as one who has such an interest in the controversy or subject
matter that a final adjudication cannot be made, in his absence, without injuring or affecting that
interest.30 In the recent case ofNagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIAKMU) v. Keihin Philippines Corporation,31 the Court had the occasion to state that:
Under Section 7, Rule 3 of the Rules of Court, "parties in interest without whom no final
determination can be had of an action shall be joined as plaintiffs or defendants." If there is a failure
to implead an indispensable party, any judgment rendered would have no effectiveness. It is
"precisely when an indispensable party is not before the court (that) an action should be dismissed.
The absence of an indispensable party renders all subsequent actions of the court null and void for
want of authority to act, not only as to the absent parties but even to those present." The purpose of
the rules on joinder of indispensable parties is a complete determination of all issues not only
between the parties themselves, but also as regards other persons who may be affected by the
judgment. A decision valid on its face cannot attain real finality where there is want of indispensable
parties.32 (Underscoring supplied)
Similarly, in the case of Plasabas v. Court of Appeals,33 the Court held that a final decree would
necessarily affect the rights of indispensable parties so that the Court could not proceed without their
presence. In support thereof, the Court in Plasabas cited the following authorities, thus:
"The general rule with reference to the making of parties in a civil action requires the joinder of all
indispensable parties under any and all conditions, their presence being a sine qua non of the
exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme
Court has held that when it appears of record that there are other persons interested in the subject
matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend
the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil.
156). x x x Where the petition failed to join as party defendant the person interested in sustaining the
proceeding in the court, the same should be dismissed. x x x When an indispensable party is not
before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L14059-62, September 30, 1959) (sic)
"Parties in interest without whom no final determination can be had of an action shall be joined either
as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of
all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to
prevent the multiplicity of suits by requiring the person arresting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same
position, so that the whole matter in dispute may be determined once and for all in one litigation.
(Palarca v. Baginsi, 38 Phil. 177, 178).

From all indications, PHCC is an indispensable party and should have been impleaded, either as a
plaintiff or as a defendant,34 in the complaint filed before the HLURB as it would be directly and
adversely affected by any determination therein. To belabor the point, the causes of action, or the
acts complained of, were the acts of PHCC as a corporate body. Note that in the judgment rendered
by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay P 998,190.70,
plus interests and surcharges, as condominium dues in arrears and turnover the administration
office to PHCC; and (2) to refund to PHCC P 1,277,500.00, representing the cost of the deep well,
with interests and surcharges. Also, the HLURB declared as illegal the agreement regarding the
conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a
party.
Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same
except through a derivative suit. In the complaint, however, there was no allegation that the action
was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative
suit.35 In the cited case of Chua v. Court of Appeals,36 the Court ruled:
For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of
the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf
of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It
is a condition sine qua non that the corporation be impleaded as a party because not only is the
corporation an indispensable party, but it is also the present rule that it must be served with process.
The judgment must be made binding upon the corporation in order that the corporation may get the
benefit of the suit and may not bring subsequent suit against the same defendants for the same
cause of action. In other words, the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res adjudicata against it.
(Underscoring supplied)
Without PHCC as a party, there can be no final adjudication of the HLURBs judgment. The CA was,
thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.
To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:
Section 13. Amendment. After the corporation shall have been created, organized and operating, this
MDDR may be amended, in whole or in part, by the affirmative vote of Unit owners constituting at
least fifty one (51%) percent of the Unit shares in the Project at a meeting duly called pursuant to the
Corporation By Laws and subject to the provisions of the Condominium Act.
This citation, however, is misplaced as the above-quoted provision pertains to the amendment of the
MDDR. It should be stressed that petitioners are not asking for any change or modification in the
terms of the MDDR. What they are really praying for is a declaration that the agreement regarding
the alteration/conversion is illegal. Thus, the Court sustains the CAs finding that:
There was nothing in the records to suggest that DPDCI sought the amendment of a part or the
whole of such MDDR. The cited section is somewhat consistent only with the principle that an
amendment of a corporationsArticles of Incorporation must be assented to by the stockholders

holding more than 50% of the shares. The MDDR does not contemplate, by such provision, that all
corporate acts ought to be with the concurrence of a majority of the unit owners. 37
Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the
agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCCs acts as a body
corporate. This action, therefore, partakes the nature of an "intra-corporate controversy," the
jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but
transferred to the courts of general jurisdiction or the appropriate Regional Trial
Court (RTC), pursuant to Section 5b of P.D. No. 902-A,38 as amended by Section 5.2 of Republic
Act (R.A.) No. 8799.39
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." 40
Based on the foregoing definition, there is no doubt that the controversy in this case is essentially
intra-corporate in character, for being between a condominium corporation and its members-unit
owners. In the recent case ofChateau De Baie Condominium Corporation v. Sps. Moreno,41 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.
As to the alleged failure to comply with the rule on exhaustion of administrative remedies, the Court
again agrees with the position of the CA that the circumstances prevailing in this case warranted a
relaxation of the rule.
The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The
thrust of the rule is that courts must allow administrative agencies to carry out their functions and
discharge their responsibilities within the specialized areas of their respective competence. 42 It has
been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of
primary jurisdiction are not ironclad rules. In the case of Republic of the Philippines v. Lacap,43 the
Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on
the part of the party invoking the doctrine; (b) where the challenged administrative act is patently
illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that
will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to
make the rule impractical and oppressive; (e) where the question involved is purely legal and will
ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g)
where the application of the doctrine may cause great and irreparable damage; (h) where the
controverted acts violate due process; (i) where the issue of non-exhaustion of administrative
remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy;
(k) where strong public interest is involved; and (l) in quo warranto proceedings. 44 [Underscoring
supplied]
1wphi1

The situations (b) and (e) in the foregoing enumeration obtain in this case.

The challenged decision of the HLURB is patently illegal having been rendered in excess of
jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction. Also, the
issue on jurisdiction is purely legal which will have to be decided ultimately by a regular court of law.
As the Court wrote in Vigilar v. Aquino:45
It does not involve an examination of the probative value of the evidence presented by the parties.
There is a question of law when the doubt or difference arises as to what the law is on a certain state
of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be
resolved only tentatively by the administrative authorities. The final decision on the matter rests not
with them but with the courts of justice. Exhaustion of administrative remedies does not apply,
because nothing of an administrative nature is to be or can be done. The issue does not require
technical knowledge and experience but one that would involve the interpretation and application of
law.
Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the
HLURB. Their reliance on the case of Dangan v. NLRC,46 reiterating the well-settled principles
involving decisions of administrative agencies, deserves scant consideration as the decision of the
HLURB in this case is manifestly not supported by law and jurisprudence.
Petitioners, therefore, cannot validly invoke DPDCIs failure to fulfill its obligation on the basis of a
plain draft leaflet which petitioners were able to obtain, specifically Pacifico Lim, having been a
president of DPDCI. To accord petitioners the right to demand compliance with the commitment
under the said brochure is to allow them to profit by their own act. This, the Court cannot tolerate.
In sum, inasmuch as the HLURB has no jurisdiction over petitioners complaint, the Court sustains
the subject decision of the CA that the HLURB decision is null and void ab initio. This disposition,
however, is without prejudice to any action that the parties may rightfully file in the proper forum.
WHEREFORE, the petition is DENIED.
SO ORDERED.

G.R. No. 160146

December 11, 2009

LESLIE OKOL, Petitioner,


vs.
SLIMMERS WORLD INTERNATIONAL, BEHAVIOR MODIFICATIONS, INC., and RONALD
JOSEPH MOY,Respondents.
DECISION
CARPIO, J.:
The Case

Before the Court is a petition for review on certiorari 1 assailing the Decision2 dated 18 October 2002
and Resolution dated 22 September 2003 of the Court of Appeals in CA-G.R. SP No. 69893, which
set aside the Resolutions dated 29 May 2001 and 21 December 2001 of the National Labor
Relations Commission (NLRC).
The Facts
Respondent Slimmers World International operating under the name Behavior Modifications, Inc.
(Slimmers World) employed petitioner Leslie Okol (Okol) as a management trainee on 15 June
1992. She rose up the ranks to become Head Office Manager and then Director and Vice President
from 1996 until her dismissal on 22 September 1999.
On 28 July 1999, prior to Okols dismissal, Slimmers World preventively suspended Okol. The
suspension arose from the seizure by the Bureau of Customs of seven Precor elliptical machines
and seven Precor treadmills belonging to or consigned to Slimmers World. The shipment of the
equipment was placed under the names of Okol and two customs brokers for a value less than
US$500. For being undervalued, the equipment were seized.
On 2 September 1999, Okol received a memorandum that her suspension had been extended from
2 September until 1 October 1999 pending the outcome of the investigation on the Precor equipment
importation.
On 17 September 1999, Okol received another memorandum from Slimmers World requiring her to
explain why no disciplinary action should be taken against her in connection with the equipment
seized by the Bureau of Customs.
On 19 September 1999, Okol filed her written explanation. However, Slimmers World found Okols
explanation to be unsatisfactory. Through a letter dated 22 September 1999 signed by its president
Ronald Joseph Moy (Moy), Slimmers World terminated Okols employment.
Okol filed a complaint3 with the Arbitration branch of the NLRC against Slimmers World, Behavior
Modifications, Inc. and Moy (collectively called respondents) for illegal suspension, illegal dismissal,
unpaid commissions, damages and attorneys fees, with prayer for reinstatement and payment of
backwages.
On 22 February 2000, respondents filed a Motion to Dismiss4 the case with a reservation of their
right to file a Position Paper at the proper time. Respondents asserted that the NLRC had no
jurisdiction over the subject matter of the complaint.
In an Order,5 dated 20 March 2000, the labor arbiter granted the motion to dismiss. The labor arbiter
ruled that Okol was the vice-president of Slimmers World at the time of her dismissal. Since it
involved a corporate officer, the dispute was an intra-corporate controversy falling outside the
jurisdiction of the Arbitration branch.
Okol filed an appeal with the NLRC. In a Resolution6 dated 29 May 2001, the NLRC reversed and
set aside the labor arbiters order. The dispositive portion of the resolution states:

WHEREFORE, the Order appealed from is SET ASIDE and REVERSED. A new one is hereby
ENTERED ordering respondent Behavior Modification, Inc./Slimmers World International to reinstate
complainant Leslie F. Okol to her former position with full back wages which to date stood in the
amount of P10,000,000.00 computed from July 28, 1999 to November 28, 2000 until fully reinstated;
and the further sum of P1,250,000.00 as indemnity pay plus attorneys fee equivalent to ten (10%) of
the total monetary award. However, should reinstatement be not feasible separation pay equivalent
to one month pay per year of service is awarded, a fraction of at least six months considered one
whole year.
All other claims are dismissed for lack of factual or legal basis.
SO ORDERED.7
Respondents filed a Motion for Reconsideration with the NLRC. Respondents contended that the
relief prayed for was confined only to the question of jurisdiction. However, the NLRC not only
decided the case on the merits but did so in the absence of position papers from both parties. In a
Resolution8 dated 21 December 2001, the NLRC denied the motion for lack of merit.
Respondents then filed an appeal with the Court of Appeals, docketed as CA-G.R. SP No. 69893.
The Ruling of the Court of Appeals
In a Decision9 dated 18 October 2002, the appellate court set aside the NLRCs Resolution dated 29
May 2001 and affirmed the labor arbiters Order dated 20 March 2000. The Court of Appeals ruled
that the case, being an intra-corporate dispute, falls within the jurisdiction of the regular courts
pursuant to Republic Act No. 8799.10 The appellate court added that the NLRC had acted without
jurisdiction in giving due course to the complaint and deprived respondents of their right to due
process in deciding the case on the merits.
Okol filed a Motion for Reconsideration which was denied in a Resolution 11 dated 22 September
2003.
Hence, the instant petition.
The Issue
The issue is whether or not the NLRC has jurisdiction over the illegal dismissal case filed by
petitioner.
The Courts Ruling
The petition lacks merit.
Petitioner insists that the Court of Appeals erred in ruling that she was a corporate officer and that
the case is an intra-corporate dispute falling within the jurisdiction of the regular courts. Petitioner
asserts that even as vice-president, the work that she performed conforms to that of an employee

rather than a corporate officer. Mere title or designation in a corporation will not, by itself, determine
the existence of an employer-employee relationship. It is the "four-fold" test, namely (1) the power to
hire, (2) the payment of wages, (3) the power to dismiss, and (4) the power to control, which must be
applied.
Petitioner enumerated the instances that she was under the power and control of Moy, Slimmers
Worlds president: (1) petitioner received salary evidenced by pay slips, (2) Moy deducted Medicare
and SSS benefits from petitioners salary, and (3) petitioner was dismissed from employment not
through a board resolution but by virtue of a letter from Moy. Thus, having shown that an employeremployee relationship exists, the jurisdiction to hear and decide the case is vested with the labor
arbiter and the NLRC.
Respondents, on the other hand, maintain that petitioner was a corporate officer at the time of her
dismissal from Slimmers World as supported by the General Information Sheet and Directors
Affidavit attesting that petitioner was an officer. Also, the factors cited by petitioner that she was a
mere employee do not prove that she was not an officer of Slimmers World. Even the alleged
absence of any resolution of the Board of Directors approving petitioners termination does not
constitute proof that petitioner was not an officer. Respondents assert that petitioner was not only an
officer but also a stockholder and director; which facts provide further basis that petitioners
separation from Slimmers World does not come under the NLRCs jurisdiction.
The issue revolves mainly on whether petitioner was an employee or a corporate officer of Slimmers
World. Section 25 of the Corporation Code enumerates corporate officers as the president,
secretary, treasurer and such other officers as may be provided for in the by-laws. In Tabang v.
NLRC,12 we held that an "office" is created by the charter of the corporation and the officer is elected
by the directors or stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to such employee.
In the present case, the respondents, in their motion to dismiss filed before the labor arbiter,
questioned the jurisdiction of the NLRC in taking cognizance of petitioners complaint. In the motion,
respondents attached the General Information Sheet 13 (GIS) dated 14 April 1998, Minutes14 of the
meeting of the Board of Directors dated 14 April 1997 and Secretarys Certificate, 15 and the Amended
By-Laws16 dated 1 August 1994 of Slimmers World as submitted to the SEC to show that petitioner
was a corporate officer whose rights do not fall within the NLRCs jurisdiction. The GIS and minutes
of the meeting of the board of directors indicated that petitioner was a member of the board of
directors, holding one subscribed share of the capital stock, and an elected corporate officer.
The relevant portions of the Amended By-Laws of Slimmers World which enumerate the power of the
board of directors as well as the officers of the corporation state:
Article II
The Board of Directors

1. Qualifications and Election The general management of the corporation shall be vested in a
board of five directors who shall be stockholders and who shall be elected annually by the
stockholders and who shall serve until the election and qualification of their successors.
xxx
Article III
Officers
xxx
4. Vice-President Like the Chairman of the Board and the President, the Vice-President shall be
elected by the Board of Directors from [its] own members.
The Vice-President shall be vested with all the powers and authority and is required to perform all
the duties of the President during the absence of the latter for any cause.
The Vice-President will perform such duties as the Board of Directors may impose upon him from
time to time.
xxx
Clearly, from the documents submitted by respondents, petitioner was a director and officer of
Slimmers World. The charges of illegal suspension, illegal dismissal, unpaid commissions,
reinstatement and back wages imputed by petitioner against respondents fall squarely within the
ambit of intra-corporate disputes. In a number of cases,17 we have held that a corporate officers
dismissal is always a corporate act, or an intra-corporate controversy which arises between a
stockholder and a corporation. The question of remuneration involving a stockholder and officer, not
a mere employee, is not a simple labor problem but a matter that comes within the area of corporate
affairs and management and is a corporate controversy in contemplation of the Corporation Code. 18
Prior to its amendment, Section 5(c) of Presidential Decree No. 902-A 19 (PD 902-A) provided that
intra-corporate disputes fall within the jurisdiction of the Securities and Exchange Commission
(SEC):
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:
xxx
c) Controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations.

Subsection 5.2, Section 5 of Republic Act No. 8799, which took effect on 8 August 2000, transferred
to regional trial courts the SECs jurisdiction over all cases listed in Section 5 of PD 902-A:
5.2. The Commissions 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.
xxx
It is a settled rule that jurisdiction over the subject matter is conferred by law.20 The determination of
the rights of a director and corporate officer dismissed from his employment as well as the
corresponding liability of a corporation, if any, is an intra-corporate dispute subject to the jurisdiction
of the regular courts. Thus, the appellate court correctly ruled that it is not the NLRC but the regular
courts which have jurisdiction over the present case.
WHEREFORE, we DENY the petition. We AFFIRM the 18 October 2002 Decision and 22 September
2003 Resolution of the Court of Appeals in CA-G.R. SP No. 69893. This Decision is without
prejudice to petitioner Leslie Okols taking recourse to and seeking relief through the appropriate
remedy in the proper forum.
SO ORDERED.

G.R. No. 186271

February 23, 2011

CHATEAU DE BAIE CONDOMINIUM CORPORATION, Petitioner,


vs.
SPS. RAYMOND and MA. ROSARIO MORENO, Respondents.
DECISION
BRION, J.:
Before us is the petition for review on certiorari with prayer for a temporary restraining order filed by
Chateau de Baie Condominium Corporation (petitioner) challenging the decision 1 of the Court of
Appeals (CA) that dismissed its petition for certiorari, prohibition and mandamus. The petition, the
CA ruled upon, questioned the ruling2 of the Regional Trial Court (RTC), Branch 258, Paraaque
City, that denied the petitioners motion to dismiss the complaint filed by respondent spouses
Raymond and Ma. Rosario Moreno.
This case is the second of two related cases submitted to us involving the condominium unit of Ma.
Rosario Moreno. We had decided the first case Oscar S. Salvacion v. Chateau de Baie
Condominium Corporation, G.R. No. 1785493 and our ruling has attained finality.
The Facts

Mrs. Moreno is the registered owner of a penthouse unit and two parking slots in Chateau de Baie
Condominium (Chateau Condominium) in Roxas Boulevard, Manila. These properties are covered
by Condominium Certificates of Title (CCT) Nos. 4153, 4154, and 4155 (Moreno properties). As a
registered owner in Chateau Condominium, Mrs. Moreno is a member/stockholder of the
condominium corporation.
Mrs. Moreno obtained a loan of P16,600,000.00 from Oscar Salvacion, and she mortgaged the
Moreno properties as security; the mortgage was annotated on the CCTs.
Under Section 20 of Republic Act (R.A.) No. 4726 (the Condominium Act),4 when a unit owner fails to
pay the association dues, the condominium corporation can enforce a lien on the condominium unit
by selling the unit in an extrajudicial foreclosure sale.
On November 23, 2001, the petitioner caused the annotation of a Notice of Assessment on the CCTs
of the Moreno properties for unpaid association dues amounting to P323,870.85. It also sent a
demand letter to the Moreno spouses who offered to settle their obligation, but the petitioner
declined the offer.
Subsequently, to enforce its lien, the president of the petitioner wrote the Clerk of Court/ExOfficio Sheriff of Paraaque City for the extrajudicial public auction sale of the Moreno properties.
The extrajudicial sale was scheduled on February 10, 2005.5
The first case - the Salvacion Case (Civil Case No. 05-0061;
CA-G.R. SP No. 90339; and G.R. No. 178549)
To stop the extrajudicial sale, Salvacion, as mortgagee, filed, on February 3, 2005, a petition
for certiorari and prohibition with prayer for the issuance of a temporary restraining order and/or writ
of preliminary injunction before the RTC, Branch 196, Paraaque City. The case was docketed as
Civil Case No. 05-0061.6 The petition sought to prohibit the scheduled extrajudicial sale for lack of a
special power to sell from the registered owner as mandated by Act No. 3135, 7 and to declare the
lien to be excessive.
On February 9, 2005, the RTC dismissed Salvacions petition and denied the injunctive relief for lack
of merit. The extrajudicial sale proceeded as scheduled, and the Moreno properties were sold to the
petitioner, the lone bidder, for P1,328,967.12. The RTC denied Salvacions motion for
reconsideration.
Salvacion went to the CA via a petition for certiorari and prohibition (CA-G.R. SP No. 90339) and,
among others, submitted the issue of whether the RTC erred in finding Section 5, Article 4 of the ByLaws of the petitioner as blanket authority to institute an extrajudicial foreclosure, contrary to Section
20 of R.A. No. 4726 and Section 1 of Act No. 3135.
On February 27, 2007, the CAs Third Division ruled that Act No. 3135 covers only real estate
mortgages and is intended merely to regulate the extrajudicial sale of mortgaged properties. It held
that R.A. No. 4726 is the applicable law because it is a special law that exclusively applies to
condominiums. Thus, the CA upheld the validity of the extrajudicial sale. 8 It ruled that R.A. No. 4726

does not require a special authority from the condominium owner before a condominium corporation
can initiate a foreclosure proceeding. It additionally observed that Section 5 of the By-Laws of the
petitioner provides that it has the authority to avail of the remedies provided by law, whether judicial
or extrajudicial, to collect unpaid dues and other charges against a condominium owner. The CAs
Third Division also denied Salvacions motion for reconsideration.9
Salvacion appealed to this Court through a petition for review on certiorari.10 The Courts Third
Division denied the petition for technical infirmities and for failing to show that the CA committed any
reversible error. An entry of judgment was made on January 24, 2008. 11
The present case the Moreno Case
(Civil Case No. 05-0183 and CA-G.R. SP No. 93217)
While the Salvacion case was pending before the CA, the Moreno spouses filed before the RTC,
Paraaque City, a complaint for intra-corporate dispute against the petitioner 12 to question how it
calculated the dues assessed against them, and to ask an accounting of the association dues. They
asked for damages and the annulment of the foreclosure proceedings, and prayed for the issuance
of a writ of preliminary injunction. The case was raffled to Branch 258 and was docketed as Civil
Case No. 05-0183.
The petitioner moved to dismiss the complaint on the ground of lack of jurisdiction, alleging that
since the complaint was against the owner/developer of a condominium whose condominium project
was registered with and licensed by the Housing and Land Use Regulatory Board (HLURB), the
HLURB has the exclusive jurisdiction.
In an order dated October 15, 2005,13 the RTC denied the motion to dismiss because it was a
prohibited pleading under the Interim Rules of Procedure Governing Intra-Corporate
Controversies.14 It likewise ordered the motion to dismiss expunged from the records, and declared
the petitioner in default for failing to answer within the reglementary period. The RTC denied the
petitioners motion for reconsideration in its order of January 20, 2006. 15
The petitioner went to the CA via a petition for certiorari, prohibition and mandamus under Rule 65 of
the Rules of Court. It alleged grave abuse of discretion on the part of the RTC for not dismissing the
Moreno spouses complaint because (1) the Moreno spouses are guilty of forum shopping, (2) of litis
pendencia, and (3) the appeal pending before the CA (CA-G.R. SP No. 90339 [SPL CV No. 050061]).
The CAs First Division denied the petition in its decision of August 29, 2008. 16 It found no grave
abuse of discretion on the part of the RTC because the complaint involved an intra-corporate
dispute. It ruled:
Since the instant civil case involves an intra-corporate controversy, it is the RTC which has
jurisdiction over the same pursuant to R.A. 8799 otherwise known as the Securities Regulation Code
and Section 9 of the Interim Rules. The public respondent indeed correctly applied the provisions of
the Interim Rules. And under Section 8(1), Rule 1 thereof, it is expressly stated that a Motion to
Dismiss is a prohibited pleading. Thus, the motion to dismiss on the ground of lack of jurisdiction

filed by petitioner must necessarily be denied and expunged from the record. Petitioner should have
instead averred its defense of lack of jurisdiction and even the issue of forum shopping in its Answer.
Section 6, par. (4), Rule 2 of the Interim Rules, explicitly provides that in the Answer, the defendant
can state the defenses, including the grounds for a motion to dismiss under the Rules of Court.
Considering that the motion to dismiss filed by private respondent is a prohibited pleading, hence, it
did not toll the running of the period for filing an Answer, the public respondent properly declared the
petitioner in default for its failure to file its Answer within fifteen (15) days from its receipt of
summons.17
The CAs First Division also denied the petitioners motion for reconsideration; 18 hence, this appeal
by way of a Rule 45 petition.
The Issue
The petitioner submits this sole issue for our consideration:
WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT
IN VIEW OF THE DECISION RENDERED BY ANOTHER DIVISION OF THE COURT OF APPEALS
IN CA-G.R. SP. NO. 90339 ENTITLED OSCAR S. SALVACION VS. ATTY. CLEMENTE E. BOLOY,
IN HIS CAPACITY AS EX-OFFICIO SHERIFF, OFFICE OF THE CLERK OF COURT, REGIONAL
TRIAL COURT, PARAAQUE CITY, BRANCH 196 AND CHATEAU DE BAIE CONDOMINIUM
CORPORATION SUSTAINING THE VALIDITY OF THE [EXTRAJUDICIAL] PUBLIC AUCTION OF
THE CONDOMINIUM UNIT AND PARKING SLOTS OWNED BY RESPONDENT MA. ROSARIO
MORENO, WHICH DECISION BECAME FINAL AND EXECUTORY ON JANUARY 24, 2008. 19
The Courts Ruling
We deny the petition for lack of merit. The CA did not err when it did not dismiss the Moreno
spouses complaint despite the full completion of the extrajudicial sale.
The case before the RTC involved an intra-corporate dispute the Moreno spouses were asking for
an accounting of the association dues and were questioning the manner the petitioner calculated the
dues assessed against them. These issues are alien to the first case that was initiated by Salvacion
a third party to the petitioner-Moreno relationship to stop the extrajudicial sale on the basis of the
lack of the requirements for a valid foreclosure sale. Although the extrajudicial sale of the Moreno
properties to the petitioner has been fully effected and the Salvacion petition has been dismissed
with finality, the completion of the sale does not bar the Moreno spouses from questioning the
amount of the unpaid dues that gave rise to the foreclosure and to the subsequent sale of their
properties. The propriety and legality of the sale of the condominium unit and the parking spaces
questioned by Salvacion are different from the propriety and legality of the unpaid assessment dues
that the Moreno spouses are questioning in the present case.
1avvphi1

The facts of this case are similar to the facts in Wack Wack Condominium Corporation, et al. v. Court
of Appeals, et al.,20 where we held that the dispute as to the validity of the assessments is purely an
intra-corporate matter between Wack Wack Condominium Corporation and its stockholder, Bayot,

and is, thus, within the exclusive original jurisdiction of the Securities and Exchange Commission
(SEC).21 We ruled in that case that since the extrajudicial sale was authorized by Wack Wack
Condominium Corporations by-laws and was the result of the nonpayment of the assessments, the
legality of the foreclosure was necessarily an issue within the exclusive original jurisdiction of the
SEC. We added that:
Just because the property has already been sold extrajudicially does not mean that the questioned
assessments have now become legal and valid or that they have become immaterial. In fact, the
validity of the foreclosure depends on the legality of the assessments and the issue must be
determined by the SEC if only to insure that the private respondent was not deprived of her property
without having been heard. If there were no valid assessments, then there was no lien on the
property, and if there was no lien, what was there to foreclose? Thus, SEC Case No. 2675 has not
become moot and academic and the SEC retains its jurisdiction to hear and decide the case despite
the extrajudicial sale.22
Based on the foregoing, we affirm the decision of the CAs First Division dismissing the petitioners
petition. The way is now clear for the RTC to continue its proceedings on the Moreno case.
WHEREFORE, premises considered, we DENY the petition for review on certiorari and AFFIRM the
Decision, dated August 29, 2008, and the Resolution, dated February 5, 2009, of the Court of
Appeals in CA-G.R. SP No. 93217. The Regional Trial Court, Branch 258, Paraaque City is directed
to continue its proceedings in Civil Case No. 05-0183. Costs against the petitioner.
SO ORDERED.

G.R. No. 78490 November 23, 1992


WACK WACK CONDOMINIUM CORPORATION, WELBILT CONSTRUCTION CORPORATION
and EUGENIO JUAN GONZALES, petitioners,
vs.
TEH CORT OF APPEALS, HON. JUANITO ALMOSA, JR., in his capacity as Securities and
Exchange Commission Hearing Officer, and JOSEFINA M. BAYOT, respondents.

CAMPOS, JR. J.:


This is a Petition for Review on certiorari questioning the two Resolutions * of the Court of Appeals
affirming the orders of respondent Securities and Exchange Commission (SEC) Hearing Officer
denying petitioner's Motion to Dismiss SEC Case No. 2675. ** Briefly, the undisputed facts are as
follows:
Private respondent Josefina Bayot (Bayot, for brevity) bought and fully paid for a condominium unit
in the Wack Wack Building. Petitioner Welbilt Construction Corporation (Welbilt, for brevity) is the

developer of said condominium building, while the petitioner Wack Wack Condominium Corporation
(Wack Wack, for brevity) owns the common areas of said building and is the manager of the
condominium project. Petitioner Eugenio Gonzales is the President of both Welbilt and Wack Wack
and, with Welbilt, holds the controlling interests in Wack Wack. Bayot, having fully paid for her unit,
was issued Condominium Certificate of Title 727, and such became a stockholder of Wack Wack.
Sometime in July, 1984, the latter issued an undated Statement of Account in Bayot's name listing
specified assessments against her and her unit, most of which assessments were assailed by her as
unreasonable, arbitrary and/or unauthorized in their contract of sale. The total amount of said
assessments was P112,367.72. On July 17, 1984, Wack Wack filed with the Sheriff of Pasig, a
petition for extrajudicial sale of Bayot's unit to answer for the outstanding assessments which had
remained unpaid. The required notices and publication were made, the sale being set for August 24,
1984. On August 23, 1984, Bayot, through counsel, filed a petition before the SEC for Injunction and
Damages with a prayer for a preliminary injunction to restrain the sheriff of Pasig from going on with
the sale. On that same date, and on motion of private respondent, the SEC Hearing Officer issued a
temporary restraining order addressed to the said Sheriff.
On September 10, 1984, petitioners herein filed a petition for mandamus before the Regional Trial
Court (RTC) of Pasig to compel Pasig Sheriff to go on with the extrajudicial sale. On October 5,
1984, said court issued an order to the effect that since the 20-day period of the restraining order
had already lapsed, the "same may now be disregarded and the extrajudicial foreclosure given due
course". Bayot was completely unaware of the petition formandamus and the consequent order of
the RTC because she was not made a party thereto and thus received no notice thereof.
In the meantime, hearing on the preliminary injunction were going on, with several postponement
granted at the instance of herein petitioners. On October 23, 1984, when Bayot finished presentation
of her evidence and both parties were present before the SEC, counsel for petitioner herein again
asked for postponement on the ground that there main witness, petitioner Eugenio Gonzales, was
abroad. After granting the postponement, the hearing officer reset the hearing for November 16,
1984 at 9:30 o'clock in the morning. At that hearing of October 23, 1984, counsel for petitioners said
nothing about the petition for mandamus although it had already been granted, and the writ issued,
on October 5, 1984. At this stage, the SEC Hearing Officer and Bayot still had no knowledge of
said mandamus.
Sometime after this last hearing, counsel for private respondent received a second notice of
extrajudicial foreclosure, and immediately filed a motion with the SEC for another order to restrain
the Pasig Sheriff from proceeding with the extrajudicial sale. Notice of said motion was sent to
petitioner with the statement that a restraining order would be issued immediately upon receipt of
said notice by said petitioner, which date fell on November 15,1984.
On November 16, 1984, at 9:30 o'clock in the morning, the date set for the next SEC hearing,
counsel for petitioner did not appear but instead sent a motion for postponement on the ground that
their witness, petitioner Eugenio Gonzalez, was still abroad. Over the strong objection of private
respondents's counsel, postponement was granted on the condition that this would be the last.
Hearing was reset for December 3, 1984. At 10:00 o'clock of the same day (November 16), in spite
of the Pasig Sheriff's receipt of the second restraining order, the extrajudicial sale took place with the
petitioners as the highest bidders.

On December 3, 1984, petitioners filed with the SEC a Motion to Dismiss SEC Case No. 2675 on the
ground that the same had become moot and academic because of the foreclosure sale and that the
SEC lacked jurisdiction. On March 22, 1985, the SEC denied the Motion to Dismiss and, after their
Motion for Reconsideration was also denied, the petitioner filed a Petition for certiorari with the
Intermediate Appellate Court (now the Court of Appeals).
Through two Resolutions, dated May 13, 1987 and November 25, 1986, the Court of Appeals upheld
the SEC's denial of petitioners' Motion to Dismiss SEC Case No. 2675. Now, this Petition for Review
on certiorari. In the meantime, Bayot died, her counsel withdrew and new counsel has entered
appearance on behalf of her heirs.
The main issues before Us are whether the extrajudicial sale of the condominium unit in question
has rendered moot and academic SEC Case No. 2675, and whether the foreclosure proceedings is
within the SEC jurisdiction.
The dispute before the SEC arose due to the assessments which the petitioner made against
Bayot's unit and which the latter refused to pay on the ground that they were unreasonable, arbitrary
and/or unauthorized by their contract of sale. Under the Condominium Act 1 and by-laws 2 of the Wack
Wack, assessments upon a condominium constitute a lien on such condominium and may be enforced by
judicial or extrajudicial foreclosure. The said Act and by-laws were made part of the contract of sale
between the parties. When Bayot refused to pay said assessments, the petitioner sought to enforce the
lien on Bayot's condominium by extrajudical foreclosure. It was at this point that Bayot brought the matter
before the SEC which issued the two restraining orders under the circumstances previously described.
The SEC has so far been prevented from deciding the issue of the validity of the assessments due to the
extrajudical sale of the unit in question. And the dispute was aggravated and the proceedings became
protracted because of the various legal proceedings/motions which the parties subsequently resorted to in
order to resolve their dispute.
We agree with the Court of Appeals and the SEC that the dispute as to the validity of the
assessments is purely an intra-corporate matter between Wack Wack and its stockholder, Bayot, and
is thus within the exclusive original jurisdiction of the SEC. 3 And since the extrajudicial sale was
authorized by Wack Wack's by-laws and was the result of the non-payment of said assessment, the
legality of such foreclosure is necessarily an issue also within the exclusive original jurisdiction of the
SEC, contrary to petitioner's contention that the SEC has no jurisdiction over such foreclosure it being an
action quasi-in-rem. Just because the property has already been sold extrajudicially does not mean that
the questioned assessment have now become legal and valid or that they have become immaterial. In
fact, the validity of the foreclosure depends on the legality of the assessments and the issue must
determined by the SEC if only to insure that the private respondent was not deprived of her property
without having been heard. If there were no valid assessments, then there was no lein on the property,
and if there was no lien, what was there to foreclosure? Thus, SEC Case No. 2675 has not become moot
and academic and the SEC retains its jurisdiction to hear and decide the case despite the extrajudicial
sale.
The private respondents assails the validity of the foreclosure on the ground that it was in violation of
the second restraining order issued by the SEC. On the other hand, petitioners claim that the second
restraining order was beyond the authority of the SEC to issue, and this contention was upheld by

the Court of Appeals. We do not agree with the Court of Appeals. Said Court based its opinion on the
following provisions:
8. Preliminary injunction not granted without notice; issuance of restraining order.
No Preliminary injunction shall be granted without notice to the defendant. If it shall
appear from the facts shown by the affidavit or by the verified complaint that great or
irreparable injury would result to the applicant before the matter can be heard on
notice, the Court to which the application for preliminary injunction was made, may
issue a restraining order to be effective only for a period of twenty days from date of
its issuance. Within the said twenty-day period, the court must cause an order to be
served on the defendant, requiring him to show cause, at a specified time and place,
why the injunction should not be granted, and determine within the same period
whether or not the preliminary injunction shall be granted and shall accordingly issue
the corresponding order. In the event that the application for preliminary injunction is
denied, the restraining order is deemed automatically vacated.
xxx xxx xxx 4
The above provisions is silent as to a second restraining order. However, the reason behind the law
is to prevent the preliminary injunction from becoming an instrument of injustice, when it is issued
without a hearing and is allowed to continue for an indefinite period. Only in case of probable
irreparable injury to the petitioner may such a restraint without hearing be granted, and only for a
period of twenty days, at which time it automatically terminates. Thus, this Court has previously held
that under the above provision, a temporary restraining order cannot exists indefinitely. 5 On the other
hand, the circumstances of the present case are unusual. To repeat, due to postponements at the
instance of Wack Wack, it was only on October 23, 1984 that counsel for the private respondent was able
to finish presenting his evidence in support of the preliminary injunction. On said date, when petitioners
were supposed to present their evidence in opposition to the preliminarry injunction, their counsel again
asked for postponement alleging that their main witness was in the United States. It should be
remembered that at that time, petitioners' counsel said nothing about the mandamus which it had
obtained previously, i.e., on October 5, 1984. Both the SEC and the private respondent's counsel were
completely unaware of said mandamus, and were thus led to believe that the petitioner were willing to go
on with the hearings and to present their evidence in opposition to the preliminary injunction. To top it all,
at the hearing on November 16, 1984, the same day of the extrajudicial sale, counsel for petitioners,
without personally appearing before the SEC sent a motion for another postponement on the ground that
their witness was still abroad. All these circumstances strongly suggest a premediated plan to effect the
extrajudicial sale with the least possible opportunity on the part of Bayot to stop it by legal means.
It is not surprising therefore that Bayot, taken aback by the second notice of foreclosure, had no
choice but to ask the SEC for a second restraining order. Notice of the motion for such order
reached petitioners on November 15, 1984, a day before the date set for the extrajudicial sale on
November 16, 1984. In this connection, petitioners claim that the 3-day notice required by law for
motions was not complied with and that such lack of notice rendered the second restraining order
ineffective. Under the circumstances, We believe that the petitioners, by their own objectionable
conduct, had forfeited any right they may have had with respect to the 3-day notice requirement. On
the other hand, the Sheriff, despite having received the restraining order, went ahead with the sale
perhaps feeling secure in his position because of the order of the RTC giving due course to the

extrajudicial sale. Parenthetically, We should point out that this Court has previously held that a court
has no power to interfere with a judgment or order of another co-equal court as this may lead to
confusion and may seriously hinder the administration of justice. 6 And as far as its judicial functions
are concerned, the SEC is a co-equal body with the Regional Trial Court. Thus, the Pasig RTC should not
have entertained the petition for mandamus.
Lastly, this Court cannot allow one of the parties in a case to use the provisions of law and
jurisprudence on the matter to shield him from the effects of his objectionable acts intended to
deceive the other party and deprive the latter of his day in court. We therefore hold that under the
peculiar circumstances of this case, the second restraining order issued by the SEC Hearing Officer
on November 15, 1984 was valid and effective.
WHEREFORE, the SEC order denying the Motion to Dismiss SEC Case No. 2675 entitled "Josefina
Bayot vs. Wack Wack Condominium Corporation, Welbilt Construction Corporation and Eugenio
Juan Gonzales", is AFFIRMED, and the case is remanded to the SEC for further proceedings.
SO ORDERED.

G.R. No. 184622

July 3, 2013

PHILIPPINE OVERSEAS TELECOMMUNICATIONS CORPORATION (POTC) AND PHILIPPINE


COMMUNICATIONS SATELLITE CORPORATION (PHILCOMSAT), Petitioners,
vs.
VICTOR AFRICA, ERLINDA I. BILDNER, SYLVIA K. ILUSORIO, HONORIO POBLADOR III,
VICTORIA C. DELOS REYES, JOHN BENEDICT SIOSON, AND JOHN/JANE
DOES. Respondents.
x-----------------------x
G.R. Nos. 184712-14
PHILIPPINE OVERSEAS TELECOMMUNICATIONS CORPORATION (POTC) AND PHILIPPINE
COMMUNICATIONS SATELLITE CORPORATION (PHILCOMSAT), Petitioners,
vs.
HON. JENNY LIN ALDECOA-DELORINO, PAIRING JUDGE OF THE REGIONAL TRIAL COURT
OF MAKATI CITY-BRANCH 138, VICTOR AFRICA, purportedly representing PHILCOMSAT,
AND JOHN/JANE DOES.Respondents.
x-----------------------x
G.R. No. 186066
PHILCOMSAT HOLDINGS CORPORATION, represented by CONCEPCION
POBLADOR, Petitioner,
vs.
PHILIPPINE COMMUNlCATIONS SATELLITE CORPORATION (PHILCOMSAT), represented by
VICTOR AFRICA, Respondent.

x-----------------------x
G.R. No. 186590
PHILCOMSAT HOLDINGS CORPORATION, represented by ERLINDA I. BILDNER, Petitioner,
vs.
PHILCOMSAT HOLDINGS CORPORATION, represented by ENRIQUE L. LOCSIN, Respondent.
DECISION
BERSAMIN, J.:
An intra-corporate dispute involving a corporation under sequestration of the Presidential
Commission on Good Government (PCGG) falls under the jurisdiction of the Regional Trial Court
(RTC), not the Sandiganbayan.
The Cases
These consolidated appeals via petitions for review on certiorari include the following:
(a) G.R. No.184622 - the appeal from the dismissal by the Sandiganbayan of the petitioners
complaint for injunction docketed as Civil Case No. 0198 on the ground that the
Sandiganbayan had no jurisdiction over the issue due to its being an intra-corporate dispute;
(b) G.R. No.184712-14 and G.R. No. 186066 - the appeals of the Locsin Group (in
representation of Philippine Overseas Telecommunications Corporation (POTC), Philippine
Communications Satellite Corporation (PHILCOMSAT), and Philcomsat Holdings
Corporation (PHC) from the consolidated decision the Court of Appeals (CA) promulgated on
September 30, 2008 in C.A.-G.R. SP No. 101225, C.A.-G.R. SP No. 98097 and C.A.-G.R.
SP No. 98399; and
(c) G.R. No. 186590 - the appeal of the Ilusorio Group seeking the reversal of the decision
promulgated by the CA on July 16, 2008 in C.A.-G.R. SP No. 102437.
Common Antecedents
POTC is a domestic corporation organized for the purpose of, among others, constructing, installing,
maintaining, and operating communications satellite systems, satellite terminal stations and
associated equipments and facilities in the Philippines.1
PHILCOMSAT is also a domestic corporation. Its purposes include providing telecommunications
services through space relay and repeater stations throughout the Philippines.
PHC is likewise a domestic corporation, previously known as Liberty Mines, Inc., and is engaged in
the discovery, exploitation, development and exploration of oil. In 1997, Liberty Mines, Inc. changed
its name to PHC, declassified its shares, and amended its primary purpose to become a holding
company.2
The ownership structure of these corporations implies that whoever had control of POTC necessarily
held 100% control of PHILCOMSAT, and in turn whoever controlled PHILCOMSAT wielded 81%
majority control of PHC. Records reveal that POTC has been owned by seven families through their

individual members or their corporations, namely: (a) the Ilusorio Family; (b) the Nieto Family; (c) the
Poblador Family; (d) the Africa Family; (e) the Benedicto Family; (f) the Ponce Enrile Family; and (g)
the Elizalde Family.3
Atty. Potenciano Ilusorio, the patriarch of the Ilusorio Family, owned shares of stock in POTC. A
block consisting of 5,400 POTC shares of stock has become the bone of contention in a prolonged
controversy among the parties. Atty. Ilusorio claimed that he had incurred the ire of Imelda Marcos
during the regime of President Marcos, leading to the Marcos spouses grabbing from him the POTC
shares of stock through threats and intimidation and without any valuable consideration, and placing
such shares under the names of their alter egos, namely: 3,644 shares in the name of Independent
Realty Corporation (IRC); 1,755 shares in the name of MidPasig Land Development (Mid-Pasig);
and one share in the name of Ferdinand Marcos, Jr.4
On February 25, 1986, the EDSA People Power Revolution deposed President Marcos from power
and forced him and his family to flee the country. On February 28, 1986, newly-installed President
Corazon C. Aquino issued Executive Order No. 1 to create the PCGG whose task was to assist the
President in the recovery of all ill-gotten wealth amassed by President Marcos, his immediate family,
relatives, subordinates and close associates, whether located in the Philippines or abroad, through
the takeover or sequestration of all business enterprises and entities owned or controlled by them
during President Marcos administration, directly or through nominees, by taking undue advantage of
their public office and/or using their powers, authority, influence, connections or relationships. 5
Subsequently, Jose Y. Campos, a self-confessed crony of President Marcos, voluntarily surrendered
to the PCGG the properties, assets, and corporations he had held in trust for the deposed President.
Among the corporations surrendered were IRC (which, in the books of POTC, held 3,644 POTC
shares) and Mid-Pasig (which, in the books of POTC, owned 1,755 POTC shares). Also turned over
was one POTC share in the name of Ferdinand Marcos, Jr.6
With Campos surrender of IRC and Mid-Pasig to the PCGG, the ownership structure of POTC
became as follows:

Owner

% of Shareholdings

Ilusorio, Africa, Poblador,


Benedicto and Ponce Enrile

46.39%

Families
PCGG (IRC and Mid-Pasig)

39.92%

Nieto Family

13.12%

Elizalde Family

0.57%
Total

100.00%

With 39.92% of the POTC shareholdings under its control, the PCGG obtained three out of the
seven seats in the POTC Board of Directors. At the time, Manuel Nieto, Jr. was the President of both
POTC and PHILCOMSAT. However, Nieto, Jr. had a falling out with other stockholders. To keep
control of the POTC and PHILCOMSAT, Nieto, Jr. aligned with the PCGG nominees to enable him to
wrest four out of seven seats in the POTC Board of Directors and five out of the nine seats in the
PHILCOMSAT Board of Directors. Thus, Nieto, Jr. remained as the President of POTC and
PHILCOMSAT.7
On July 22, 1987, the Government, represented by the PCGG, filed in the Sandiganbayan a
Complaint for reconveyance, reversion, accounting, restitution and damages against Jose L. Africa,
Manuel H. Nieto, Jr., President Marcos, Imelda R. Marcos, Ferdinand R. Marcos, Jr., Roberto S.
Benedicto, Juan Ponce Enrile and Atty. Potenciano Ilusorio. 8 The Complaint, docketed as SB Civil
Case No. 009, alleged that the defendants "acted in collaboration with each other as dummies,
nominees and/or agents of defendants Ferdinand E. Marcos, Imelda R. Marcos and Ferdinand R.
Marcos, Jr. in several corporations, such as the Mid-Pasig Land Development Corporation and the
Independent Realty Corporation which, through manipulations by said defendants, appropriated a
substantial portion of the shareholdings in Philippine Overseas Telecommunications Corporation and
Philippine Communications Satellite Corporation held by the late Honorio Poblador, Jr., Jose Valdez
and Francisco Reyes, thereby further advancing defendants scheme to monopolize the
telecommunications industry;" that through their illegal acts, they acquired ill-gotten wealth; that their
acts constituted "breach of public trust and the law, abuse of rights and power, and unjust
enrichment;" and that their illgotten wealth, real and personal, "are deemed to have been acquired
(by them) for the benefit of the plaintiff (Republic) and are, therefore, impressed with constructive
trust in favor of (the latter) and the Filipino people."9
The Complaint prayed that all the funds, properties and assets illegally acquired by the defendants,
or their equivalent value, be reconveyed or reverted to the Government; and that the defendants be
ordered to render an accounting and to pay damages.10
In his Amended Answer with Cross-Claim (against the Marcoses) and Third-Party Complaint against
Mid-Pasig and IRC, Atty. Ilusorio denied having acquired ill-gotten wealth and having unjustly
enriched himself by conspiring with any of the defendants in committing a breach of public trust or
abuse of right or of power, stating that "he has never held any public office nor has he been a
government employee;" and that he was never a dummy or agent of the Marcoses. He interposed
the affirmative defense that he owned 5,400 POTC shares of stock, having acquired them through
his honest toil, but the Marcoses had taken the shares from him through threats and intimidation and
without valuable consideration and then placed the shares in the names of their alter egos; and that
he thus became "the hapless victim of injustice," with the right to recover the shares and their
corresponding dividends.11
On June 28, 1996, after a decade of litigation, the Republic, IRC and Mid-Pasig, and the PCGG
(acting through PCGG Commissioner Hermilo Rosal) entered into a compromise agreement with
Atty. Ilusorio, whereby Atty. Ilusorio recognized the ownership of the Republic over 4,727 of the
POTC shares of stock in the names of IRC and Mid-Pasig, and, in turn, the Republic acknowledged
his ownership of 673 of the POTC shares of stock and undertook to dismiss Civil Case No. 009 as
against him.
The compromise agreement relevantly stated:
WHEREAS, this Compromise Agreement covers the full, comprehensive and final settlement of the
claims of the GOVERNMENT against ILUSORIO in Civil Case No. SB-009, pending before the Third
Division of the Sandiganbayan; the Cross-Claim involving several properties located in Paraaque,

Metro Manila; and the Third-Party Complaint filed by ILUSORIO, in the same case, involving the Five
Thousand Four Hundred (5,400) shares of stocks registered in the names of Mid-Pasig Land
Development Corporation (MLDC) and Independent Realty Corporation (IRC), respectively, in the
Philippine Overseas Telecommunications Corporation (POTC);
xxxx
President Ramos approved the compromise agreement, and directed its submission to the
Sandiganbayan for approval through his marginal note dated October 5, 1996. 12
It was not until June 8, 1998, or nearly two years from its execution, however, that the
Sandiganbayan approved the compromise agreement, the resolution for which reads:
WHEREFORE, and as prayed for in the Motion dated June 3, 1998, which is hereby granted.
1. The foregoing Compromise Agreement dated June 28, 1996 executed by and between the
plaintiff and defendant Potenciano T. Ilusorio is hereby approved, the same not being
contrary to law, good morals and public policy. The parties thereto are hereby enjoined to
strictly abide by and comply with the terms and conditions of the said Compromise
Agreement.
2. The complaint as against defendant Potenciano T. Ilusorio only in the above-entitled case
No. 0009 is hereby dismissed.
3. The Motions for Injunction and Contempt, respectively, filed by defendant Potenciano T.
Ilusorio against the Government/PCGG, its officers and agents, in Civil Case No. 0009 are
hereby withdrawn;
4. The Third-Party Complaint and the Cross-Claim of defendant Potenciano T. Ilusorio are
hereby dismissed; and
5. The Board of Directors, President and Corporate Secretary of the Philippine Overseas
Telecommunications Corporation are hereby ordered to issue the corresponding stock
certificates to, and in the names of Potenciano T. Ilusorio, Mid-Pasig Land Development
Corporation, and Independent Realty Corporation, respectively.13
The result was the redistribution of the POTC shareholdings as follows:
1wphi1

Owner

% of Shareholdings

Ilusorio, Africa, Poblador,


Benedicto and Ponce Enrile
Families

51.37%

PCGG (IRC and Mid-Pasig)

34.94%

Nieto Family

13.12%

Elizalde Family
Total

0.57%
100.00%

The Ilusorio Familys shareholding became 18.12%, while that of the PCGG (through IRC and MidPasig) was reduced to 34.94%. With its reduced shareholdings, the PCGGs number of seats in the
POTC Board settled at only two. The Ilusorio Family continued its alliance with the Africa, Poblador,
Benedicto and Ponce Enrile Families. In effect, the compromise agreement tilted the control in
POTC, PHILCOMSAT and PHC, such that the alliance between the Nieto Family and the PCGG,
theretofore dominant, became the minority.14
After assuming the Presidency in mid-1998, President Estrada nominated through the PCGG
Ronaldo Salonga and Benito Araneta, the latter a nephew of Nieto, Jr., to the POTC Board of
Directors to represent the IRC and Mid-Pasig shareholdings.15
As to the PHILCOMSAT Board of Directors, however, President Estrada through the PCGG
nominated four nominees, namely: Salonga, Araneta, Carmelo Africa and Edgardo Villanueva. The
nomination of the four ignored the reduction of the IRC and Mid-Pasig shareholdings in POTC that
should have correspondingly reduced the board seats in PHILCOMSAT that the PCGG was entitled
to from four to only three.16
On August 16, 1998, Mid-Pasig, represented by Salonga, filed in the Sandiganbayan in Civil Case
No. 009 a Motion to Vacate the order dated June 8, 1998 approving the compromise agreement. On
October 2, 1998, IRC, also represented by Salonga, filed a similar motion. Both motions insisted that
the compromise agreement did not bind Mid-Pasig and IRC for not being parties thereto, although
they held substantial interests in the POTC shareholdings subject of the compromise agreement;
and that the compromise agreement was void because its terms were contrary to law, good morals
and public policy for being grossly and manifestly disadvantageous to the Government. 17
Aside from supporting the position taken by Mid-Pasig and IRC, PCGG added that the compromise
agreement was fatally defective for lack of any PCGG resolution authorizing Commissioner Rosal to
enter into the compromise agreement in behalf of the Government. 18
On his part, Atty. Ilusorio vigorously opposed the motions.19
On August 28, 1998, PHILCOMSAT stockholders held an informal gathering at the Manila Golf Club
for the apparent purpose of introducing the new PCGG nominees to the stockholders. During the
proceedings, however, Atty. Luis Lokin, Jr. announced that the gathering was being considered as a
Special PHILCOMSAT Stockholders Meeting. Those in attendance then proceeded to elect as
Directors and Officers of PHILCOMSAT Nieto, Jr., Lourdes Africa, Honorio Poblador III, Salvador
Hizon, Salonga, Araneta, Carmelo Africa, and Edgardo Villanueva (Nieto Group-PCGG). 20
As a consequence, other PHILCOMSAT stockholders (namely, Ilusorio, Katrina Ponce Enrile,
Fidelity Farms, Inc., Great Asia Enterprises and JAKA Investments Corporation) instituted a
Complaint with application for the issuance of temporary restraining order (TRO) and writ of
preliminary injunction (WPI) in the Securities and Exchange Commission (SEC) assailing the
election of the Directors and Officers on several grounds, such as the lack of sufficient notice of the
meeting, the lack of quorum, and the lack of qualifying shares of those who were elected. They
maintained that by reason of POTCs 100% beneficial ownership of PHILCOMSAT, there should
have been a notice to POTC, which, upon a proper board meeting, should have appointed proxies to
attend the PHILCOMSAT Stockholders Meeting. The case was docketed as SEC Case No. 09-986086.21
The SEC issued a TRO, and, later on, a WPI enjoining the Nieto Group-PCGG from acting as
Directors and Officers of PHILCOMSAT and from representing themselves as such. 22

Salonga, Araneta, Africa and Villanueva commenced in the CA a special civil action for certiorari to
nullify the WPI issued by the SEC (C.A.-G.R. SP NO. 49205). On October 15, 1998, however, the
CA dismissed the petition for certiorari because of the petitioners failure to furnish a copy of the
petition to the SEC. The dismissal became final and executory.23
Still, Salonga, Araneta, Africa and Villanueva brought in the CA another petition assailing the WPI
issued by the SEC (C.A.-G.R. SP No. 49328). The CA also dismissed their petition on October 26,
1999.24
For their part, Nieto, Jr. and Lourdes Africa likewise went to the CA to assail the WPI issued by the
SEC (C.A.-G.R. SP No. 49770), but on April 19, 2001, the CA dismissed the petition. Nieto, Jr.
initially intended to appeal the dismissal, but the Court denied his motion for extension of time to file
petition for review on certiorari.25
Following the enactment of Republic Act No. 8799 (Securities Regulation Code), 26 SEC Case No. 0998-6086 was transferred to the RTC in Makati City, which re-docketed it as Civil Case No. 01-840
and raffled it to Branch 138.27
Meanwhile, on January 18, 1999, POTC held a Special Stockholders Meeting, at which the following
were elected as Directors of POTC, namely: Roberto S. Benedicto, Atty. Victor Africa, Sylvia Ilusorio,
Honorio Poblador III, Cristina Agcaoili, Katrina Ponce Enrile, and Nieto, Jr. The elected Directors,
except Nieto, Jr., eventually formed the Africa-Ilusorio Group. Thereafter, the Board of Directors held
an organizational meeting during which they elected the following as the Officers of POTC, namely:
Roberto S. Benedicto (Chairman); Atty. Victor Africa (Vice-Chairman); Sylvia Ilusorio (President);
Katrina Ponce Enrile (Vice President); Rafael Poblador (Treasurer); Kitchie Benedicto (Assistant
Treasurer); and Atty. Victoria de los Reyes (Corporate Secretary). 28
On December 20, 1999, the Sandiganbayan promulgated a resolution in SB Civil Case No. 009
denying IRC and Mid-Pasigs motions to vacate the order approving the compromise agreement, viz:
WHEREFORE, premises considered, third-party defendant Mid-Pasigs Motion to Vacate Resolution
Approving Compromise Agreement dated August 16, 1998 and third party defendant Independent
Realty Corporation's Manifestation and Motion dated October 2, 1998 and the redundant and
inappropriate concurrence of the PCGG and the OSG are hereby denied for lack of merit.
The Court also declares all POTC shares in the name of Mid-Pasig and IRC as null and void.
Accordingly, out of the 5,400 POTC shares, six hundred seventy three (673) is hereby directed to be
issued in the name of Potenciano Ilusorio and four thousand seven hundred twenty seven (4,727) in
the name of the Republic of the Philippines. The Board of Directors, President and Corporate
Secretary of the POTC are hereby ordered to comply with this requirement within ten (10) days from
receipt of this Resolution.29
In compliance with the resolution, POTC Corporate Secretary Victoria de los Reyes effected the
cancellation of the shares registered in the names of IRC and Mid-Pasig and issued Certificate of
Stocks No. 131 covering the 4,727 POTC shares in the name of the Republic. Thereafter, Certificate
of Stocks No. 131 was transmitted to then Chief Presidential Legal Counsel and PCGG Chairman
Magdangal Elma, who acknowledged receipt. Through its resolution dated January 12, 2000, the
Sandiganbayan noted the POTC Corporate Secretarys compliance. 30
As earlier mentioned, the implementation of the Sandiganbayans resolution dated December 20,
1999 resulted in the re-distribution of the shareholdings in POTC in the manner earlier shown.

On March 16, 2000, the PCGG filed in this Court its petition assailing the resolution of the
Sandiganbayan dated December 20, 1999 (G.R. No. 141796 entitled Republic of the Philippines,
represented by the Presidential Commission on Good Government v. Sandiganbayan and
Potenciano T. Ilusorio, substituted by Ma. Erlinda Ilusorio Bildner).
IRC and Mid-Pasig also filed in this Court their own petition to assail the resolution dated December
20, 1999 (G.R. No. 141804 entitled Independent Realty Corporation and Mid-Pasig Land
Development Corporation v. Sandiganbayan and Potenciano T. Ilusorio, substituted by Ma. Erlinda
Ilusorio Bildner).
On March 29, 2000, this Court issued a TRO to enjoin the Sandiganbayan from executing its
assailed resolution.31
On September 6, 2000, President Estrada nominated another set to the PHILCOMSAT Board of
Directors, namely: Carmelo Africa, Federico Agcaoili, Pacifico Marcelo and Edgardo Villanueva.
Thereby, Africa and Villanueva were retained as PHILCOMSAT Directors, while Agcaoili and Marcelo
replaced Araneta and Salonga.32
Subsequently, POTC, through the Africa-Bildner Group, decided to hold a Special Stockholders
Meeting on September 22, 2000. POTC Corporate Secretary de los Reyes issued a Notice of
Meeting. Attempting to stop the Stockholders Meeting, Nieto, Jr., Araneta and Salonga filed in this
Court in G.R. No. 141796 and G.R. No.141804 a Motion for Leave to Intervene with urgent
manifestation for contempt of court, praying, among others, that POTC Corporate Secretary de los
Reyes be cited in contempt and/or disbarred for issuing the Notice of Meeting. 33
The Special Stockholders Meeting on September 22, 2000 was attended by stockholders
representing 81.32% of the outstanding capital stock of POTC (including PCGG). During the
meeting, a new set of POTC Board of Directors were elected, namely: Nieto, Jr., Katrina Ponce
Enrile, Victor V. Africa, Sylvia K. Ilusorio, Honorio A. Poblador III, Carmelo Africa and PCGG
Commissioner Jorge Sarmiento (the latter two being nominated by PCGG). 34
POTC then convened a Special Stockholders Meeting of PHILCOMSAT, at which the following were
elected as Directors: Nieto, Jr., Francisca Benedicto, Katrina Ponce Enrile, Sylvia Ilusorio, Honorio
Poblador III, and government representatives Africa, Marcelo, Villanueva and Agcaoili (the latter four
being nominated by PCGG).35
In line with existing corporate policy requiring the elected Directors to accept their election before
assuming their positions, all the elected Directors (including Nieto, Jr.) were requested to sign
acceptance letters to be submitted to POTC Corporate Secretary de los Reyes. A few days later,
however, Nieto, Jr. refused to accept and instead opted to assail the validity of the September 22,
2000 POTC Special Stockholders Meeting.36
By virtue of the September 22, 2000 elections, the Africa-Bildner Group, together with the PCGG
nominees, took control of the management and operations of POTC and PHILCOMSAT.37
In March 2002, President Gloria Macapagal-Arroyo named Enrique L. Locsin and Manuel D. Andal
as new PCGG nominees to sit in the POTC and PHILCOMSAT Boards of Directors. Julio Jalandoni
was named as the third new PCGG nominee to the PHILCOMSAT Board of Directors. 38
On April 29, 2002, POTC, through the Africa-Ilusorio Group, decided to hold a stockholders meeting.
Notices for the meeting were dispatched to all stockholders of record, including the Republic.

However, the meeting was adjourned for failure to obtain a quorum because of the absence of
several stockholders, including the proxy for the Republic. 39
On December 3, 2003, Atty. Jose Ma. Ozamiz, a stockholder of PHC, sent a letter-complaint
informing the SEC that PHC had not conducted its annual stockholders meetings since 2001. His
letter-complaint was docketed as SEC Case No. 12-03-03. 40
On December 29, 2003, the SEC issued the following Order in SEC Case No. 12-03-03, to wit:
PREMISES CONSIDERED, the Commission in the exercise of its regulatory authority over
corporations and associations registered with it hereby issues the following directives:
1. The board of directors, responsible officers of Philcomsat Holdings, Inc (PHI) (sic) shall organize a
COMELEC composed of three members within ten (10) days from date of actual receipt of this
Order. One member to be nominated by the group of Atty. Jose Ma. Ozamiz, the second member to
be nominated by the group of either Mr. Manuel H. Nieto or Mr. Carmelo P. Africa, Jr. and the third
member a neutral party, to be jointly nominated by both groups. Failure on the part of the contending
parties to designate their common nominee, the SEC shall be constrained to designate the neutral
party.
x x x x.41
By letter dated January 8, 2004, Philip Brodett and Locsin communicated to the SEC that:
1. PHC and its directors and officers are not averse to the holding of meetings of its stockholders
annually. PHC's inability to hold its annual stockholders meeting in the past years can be attributed
to the following: previous attempts of the group of Mesdames Cristina Ilusorio and Sylvia Ilusorio and
Mr. Carmelo Africa (for brevity the "Ilusorio Group") to control PHC without legal basis; delay in the
completion of PHC's audited financial statements for the years 2001, 2002 and 2003 was caused by
the Ilusorio Group and the pending dispute as to who between the Ilusorio Group, on one hand, and
the group of Ambassador Manuel Nieto, Jr. Philippine Government, on the other, properly constitutes
the governing board of directors and officers of the parent companies of PHC's, namely the
Philcomsat and POTC;
Considering the aforesaid pending dispute as to who really controls the mother companies of PHC, it
would be advisable and practicable that the annual meetings of the stockholders and the election of
the directors and officers of Philcomsat and POTC should precede those of PHC. In view thereof,
and for practical reasons and good order's sake, it was suggested that perhaps the Commission
should direct the holding of the annual stockholders' meetings and election of directors and officers
of both Philcomsat and POTC at a date or dates prior to those of PHC.
xxxx
4. x x x. Considering the foregoing, it is believed and humbly submitted that the 'COMELEC' directed
to be organized under the Order is unnecessary considering that its would-be functions (we note that
the Order did not state what are the functions of said COMELEC) can and will be performed by the
Nomination Committee and the special committee of inspectors.
Considering the foregoing, it is respectfully requested and prayed that the said Order dated 5
January 2004 of the Commission be reconsidered and set aside. To enable PHC to hold an orderly
and controversy-free meeting of its stockholders and election of directors this year, it is likewise

requested that the Commission first direct and cause PHC's parent companies, namely Philcomsat
and POTC, to hold their respective stockholders' meeting and election and directors and officers
prior to those of PHC.42
On May 6, 2004, the SEC ruled as follows:
Based on the foregoing premises, the Commission, in the exercise of its regulatory authority as well
as supervision corporations and pursuant to its power under Section 5 (k) of the Securities
Regulation Code (SRC) which states: "Compel the officers of any registered corporation or
association to call meetings of stockholders or members thereof under its supervision," hereby
orders the following:
1. The board of directors, responsible officers of Philcomsat Holdings, Corporation ("PHC")
shall immediately convene the COMELEC to consider the proposed election and annual
meeting of subject corporation.
2. The board of directors and other responsible PHC officers are also enjoined to prepare
proper notices of the intended annual meeting and all the necessary documents required by
Section 20 of the SRC rules within the stated period provided thereunder in time for the
scheduled annual meeting set by the Commission.
3. For the purpose of the meeting, Attys. Myla Gloria C. Amboy and Nicanor Patricio are
hereby designated as the SEC representatives to observe the PHC meeting.
4. The PHC and all its responsible directors or officers are hereby directed to hold a meeting
for the purpose of conducting the election of the board of directors of the PHC on 28 May
2004 at 10:00 a.m. To be held at the principal office of the corporation.
5. Failure on the part of the authorized person to set/call the meeting within five (5) days
from date hereof, Atty. Ozamiz shall be authorized to call the meeting and to provide other
stockholders with notice required under the Corporation Code, the Securities Regulation
Code and By-laws of the corporation. In such event, Atty. Ozamiz shall preside in said
meeting until at least a majority of the PHC stockholders present shall have chosen one of
their members as the presiding officer in the meeting.
6. The board of directors and authorized officers of PHC are hereby directed for the last time
to submit the calendar of activities for the forthcoming meeting within five (5) days from date
of this Order. The petitioning stockholder, Atty. Ozamiz, is likewise directed to submit his
proposed calendar of activities which shall be used in case of failure on the part of PHC to
submit the aforesaid calendar.43
On June 7, 2004, the SEC received PCGGs comment through Commissioner Victoria A. Avena, to
wit:
1. For the sake of accuracy, we respectfully draw attention to the fact that Messrs. Enrique L.
Locsin and Manuel Andal are nominee-directors representing the Republic of the Philippines,
through the PCGG, in the board of directors of the Philippine Overseas Telecommunications
Corporation ("POTC") and the board of directors of Philippine Communications Satellite
Corporation ("Philcomsat"), but not of Philcomsat Holdings Corporation ("PHC"). The third
government nominee-director in Philcomsat is Mr. Julio Jalandoni. In February of 2004, Mr.

Guy de Leon was nominated by President Gloria Macapagal-Arroyo as a third director for
POTC in the event elections.
2. Based on the records of PCGG, it is true and correct that POTC has not held an
uncontested annual meeting since its last uncontested stockholders' meeting in the year
1999.
3. Based on records of PCGG, it is true and correct that Philcomsat has not had an
uncontested annual meeting since its special stockholders' meeting in the year 2000.
4. The Republic owns forty percent (40%) of the outstanding capital stock of POTC;
Philcomsat is a wholly-owned subsidiary of POTC; and Philcomsat owns approximately
eighty-five percent (85%) of the outstanding capital stock of PHC.
5. Because of the non-holding of elections for the board of directors of POTC, Philcomsat
and PHC, the incumbent respective boards thereof have been holding office as "hold-over"
directors, and opposing stockholders have contested their legitimacy.
6. The incumbent board of directors having actual corporate control of POTC and Philcomsat
have invited government nominee-directors Messrs. Locsin and Andal, and Mr. Julio
Jalandoni in respect of Philcomsat, to respectively occupy seats in said boards rendered
vacant by resignations.
7. However, Messrs. Locsin, Andal and Jalandoni have not physically and actually assumed
said positions, because of their request for assumption thereof on the basis of election for
the board of directors through stockholders' meetings for the purpose.
8. In view of the ownership structure of POTC, Philcomsat and PHC and the rump boards
that have resulted over the years, the more judicious mode towards a truly fair election of
directors based on an accurate identification of stockholder representation in PHC (including
in respect of government shares) would be to determine issues of representation in
Philcomsat and POTC.
9. Accordingly, annual stockholders' meetings and election of directors of the board must first
be held for POTC, and then for Philcomsat, then for PHC.44
On July 8, 2004, the SEC directed thuswise:
On the bases of the mandatory provision of Sec. 50 of the Corporation Code on calling of annual
meeting and the PCGG's comment/manifestation which should be given weight, the following are
hereby directed to:
1. POTC and Philcomsat, their respective board of directors or their duly authorized
representatives are hereby directed to constitute, within ten (10) days from the date of actual
receipt hereof, their COMELEC to be composed of the PCGG nominee/director to act as the
neutral party, a representative from the Africa Group and one representative from Nieto
Group to perform any and all acts necessary for the determination of the legitimate
stockholders of the corporation qualified to vote or be represented in the corporate meetings
and ensure a clean, orderly, and credible election of POTC and Philcomsat.

2. POTC is likewise directed to conduct its annual stockholders' meeting not later than 5
August 2004 while Philcomsat shall hold its annual stockholders' meeting on or before 12
August 2004. Thereafter, PHC shall call its annual stockholders' meeting not later than
August 31, 2004.
3. PHC, on the other hand, its board of directors or duly authorized representative are
ordered to submit a revised calendar of activities for the forthcoming 31 August 2004 annual
stockholders' meeting within five (5) days from actual receipt of this Order. The said date for
the Annual Stockholders' Meeting shall not be postponed unless with prior Order of the
Commission. A nomination's (sic) Committee (NOMELEC) shall be constituted pursuant to
the corporation's Manual on Corporate Governance submitted to this Commission. This
Committee shall be composed of three (3) voting members and one (1) non-voting member
in the person of the HR Director/Manager pursuant to x x x section 2.2.2.1 of the said
Manual. One representative each from the Africa Group and the Nieto Group and a
nominee/representative of the PCGG (to act as an independent member) shall comprise
three (3) voting members. The committee shall perform the functions outlined in Sections
2.2.2.1.1, 2.2.2.1.2, 2.2.2.1.3 and 2.2.2.1.4 of the Manual in connection with the forthcoming
election. Failure to submit the names of the representative of each group within ten (10) days
from receipt of this Order shall authorize the Commission to appoint persons to represent
each group. Failure or refusal on the part of the corporation to hold the stockholders' meeting
on the scheduled date shall authorize the petitioning shareholder to call and preside in the
said meeting pursuant to Section 50 of the Corporation Code. All previous orders
inconsistent herewith are hereby revoked.
1wphi1

4. Let the Corporate Finance Department (CFD) of this Commission be furnished with a copy
of this Order for its appropriate action on the matter.
5. To ensure protection of the interest of all outstanding capital stocks, including minority
shareholders, Attys. Nicanor P. Patricio Jr. and Myla Gloria A. Amboy are hereby designated
as SEC representatives to attend and supervise the said Annual Stockholders' Meeting. 45
On July 26, 2004, the SEC clarified its immediately preceding order, as follows:
Pending consideration by the Commission is the letter dated 22 July 2004 of Mr. Enrique Locsin,
Nominees/Director of the Presidential Commission on Good Government To POTC and Philcomsat,
seeking to enjoin the holding of any and all meetings of POTC, Philcomsat and/or PHC, contrary to
the 8 July 2004 SEC Order and requesting the correction of the date of the Order cited in the 22 July
2004 Stay Order.
In order to clarify the Order issued by the Commission on July 8, 2004 and 22 July 2004, the
following explications are hereby made:
First. The SEC Order of 8 July 2004 which states in part:
POTC is likewise directed to conduct its annual stockholders' meeting not later than 5 August 2004
while Philcomsat shall hold its annual stockholders' meeting on or before 12 August 2004.
Thereafter, PHC shall call its annual stockholders' meeting not later than August 31, 2004, should be
interpreted to mean that the stockholders' meeting of POTC, Philcomsat and PHC should be held
successively, in the order mentioned, that is, POTC first, then Philcomsat, and lastly, PHC. This was
the intention of the Commission in issuing the said Order (July 8, 2004).

To further clarify and ensure that the meetings shall be conducted on specific dates, the Order of
July 8, 2004 is hereby modified and the dates of the meetings are hereby scheduled as follows:
1. For POTC July 28, 2004
2. For Philcomsat August 12, 2004
3. For PHC August 31, 2004
Second. One of the relevant orders was inadvertently referred to in the Stay Order of 22 July 2004
as "June 8, 2004," which should have been actually written as "July 8, 2004." Hence, the same
should be properly corrected.
Accordingly, POTC, Philcomsat and Philcomsat Holdings Corporation (PHC) are hereby reminded to
strictly adhere to the schedule dates of meetings of the said corporations set forth in this Order.
POTC, Philcomsat and PHC are further reminded to also comply with the manner of the conduct of
their respective meetings as provided in the Order of the Commission dated July 8, 2004.
As requested, let the 22 July 2004 Stay Order, particularly paragraphs 1, 2, and 3 thereof, be
corrected to reflect the correct date of the Order cited therein as "July 8, 2004" not "June 8, 2004." 46
On July 28, 2004, the Africa-Bildner Group held successive stockholders meetings for POTC and
PHILCOMSAT. Elected as Directors during the POTC stockholders meeting were Katrina Ponce
Enrile, Victor Africa, Erlinda Bildner and Honorio Poblador III, all from the Africa-Bilder Group.
Although absent from the meeting, Nieto, Jr., Locsin and Andal of the NietoPCGG Group were also
elected as Directors. Resultantly, the groups were represented on a 4:3 ratio. Victor Africa was
designated as the POTC proxy to the PHILCOMSAT stockholders meeting.
Locsin and Andal were also elected as PHILCOMSAT Directors. However, Nieto, Jr., Locsin and
Andal did not accept their election as POTC and PHILCOMSAT Directors.47
On August 5, 2004, the Nieto-PCGG Group conducted the annual stockholders meeting for POTC at
the Manila Golf Club. Elected were Nieto, Jr. as President and Guy de Leon, a government nominee
to POTC, as Chairman. At the same meeting, the Nieto-PCGG Group, through its elected Board of
Directors, issued a proxy in favor of Nieto, Jr. and/or Locsin authorizing them to represent POTC and
vote the POTC shares in the PHILCOMSAT stockholders meeting scheduled on August 9, 2004. 48
On August 9, 2004, the Nieto-PCGG Group held the stockholders meeting for PHILCOMSAT at the
Manila Golf Club. Immediately after the stockholders meeting, an organizational meeting was held,
and Nieto, Jr. and Locsin were respectively elected as Chairman and President of PHILCOMSAT. At
the same meeting, PHILCOMSAT (Nieto-PCGG Group) issued a proxy in favor of Nieto, Jr. and/or
Locsin authorizing them to represent PHILCOMSAT and vote the PHILCOMSAT shares in the
stockholders meeting of PHC scheduled on August 31, 2004.49
On August 11, 2004, POTC (Africa-Bildner Group), Victor Africa, Honorio Poblador III and Katrina
Ponce Enrile filed a Complaint for injunction with prayer for TRO and WPI in the RTC in Makati City
(Branch 133) against Nieto, Jr., Luis Lokin, Jr., and Alma Kristina O. Alobba seeking to enjoin the
latter from acting as Directors and Officers of POTC (Civil Case No. 04-935).
On August 27, 2004, the RTC (Branch 133) dismissed Civil Case No. 04-935 for lack of jurisdiction
over the subject matter, explaining its action thusly:

xxxx
After a perusal of the complaint and of the memoranda filed, with particular attention on the
authorities cited, the Court is of the opinion that it has no jurisdiction over the case but the
Sandiganbayan.50
xxxx
Thereafter, the Africa-Bildner Group filed a motion for reconsideration.
Earlier, on August 18, 2004, PHC (Nieto-PCGG Group) submitted to the SEC a final list of
candidates for Independent Directors of PHC for the 2004-2005 term, to wit:
Please be informed that in connection with the annual stockholders' meeting of PHILCOMSAT
HOLDINGS CORPORATION (PHC) to be held on August 31, 2004, and in compliance with the
Order dated 8 July 2004 of the Securities and Exchange Commission in SEC Case No. 12-03-03
entitled "In the matter of Philcomsat Holdings Corporation, For: Calling of Meeting," the Board of
Directors of PHC, at its meeting today constituted the Nomination Committee with the following
persons as its members:
Voting Members:
1. Luis K. Lokin, Jr. (representative of the Nieto Group)
2. Enrique L. Locsin (representative of the PCGG)
3. Vacant (to be designated by the Securities and Exchange Commission in default of the
designation of representative by the Africa group)
Non-voting member:
1. Philip G. Brodett
The said Nomination Committee which shall act upon the affirmative vote of at least two (2) of its
voting members, shall have the following powers, duties and functions:
(1) To pre-screen and shortlist all candidates nominated to become members of the board of
directors in accordance with the qualifications and disqualifications and the procedures
prescribed in the Corporation's Manual on Corporate Governance and the Securities
Regulation Code (SRC) and its Implementing Rules and Regulations (SRC Rules);
(2) To submit to the Securities and Exchange Commission and the Philippine Stock
Exchange the Final List of candidates for Independent Directors as required under the SEC
Rules;
(3) To act as the committee of inspectors with powers to pass upon the validity of proxies, to
canvass and tally the votes for the election of directors and to certify the winning directors
based on the votes garnered;
(4) To do such acts or things as may from time to time be directed or delegated by the
Board.51

On August 20, 2004, the SEC issued an order, pertinently stating:


On separate dates, the group of Atty. Victor Africa ("Africa Group) and the group of Ambassador
Nieto ("Nieto group") conducted their respective annual stockholders meetings. The Africa group
held successive meetings for POTC and Philcomsat on July 28, 2004, while the Nieto group held
similar meetings for POTC and Philcomsat on August 5 and August 9, respectively. On all these
meetings, where the SEC representative was present (except the Philcomsat meeting of the Africa
group), the Commission noted the following observations:
xxxx
In light of the foregoing, the Commission hereby upholds the validity of the stockholders' meetings
conducted by the Nieto Group in view of the clear compliance by the said group with the condition
set forth by the Commission in its Orders of July 8 and 26, 2004.
Meanwhile, the PHC meeting shall proceed as scheduled on August 31, 2004. The Officers and
Directors of PHC are hereby reminded to strictly conform to the conditions stated in the July 8 and
26 Orders.
The President and the Corporate Secretary of PHC and its Stock and Transfer Agent are hereby
ordered to submit to the Commission the certified list of stockholders and the stock and transfer
book of PHC on or before August 25, 2004.
Due to the failure of the Africa group to nominate their representative to the PHC NOMELEC, Atty.
Victoria De Los Reyes is hereby designated as the representative of the Africa group in the
forthcoming August 31, 2004 PHC meeting.
The Corporation Finance Department is hereby directed to monitor PHC's compliance with the laws,
rules and regulations relative to the calling of the stockholders' meeting and to make the necessary
action to ensure such compliance.
The Orders of 8 July 2004 and 26 July 2004 insofar as not inconsistent with this Order shall remain
in full force and effect.52
On August 23, 2004, the Africa Group commenced Civil Case No. 01-555 in the RTC in Makati City
(Branch 61), praying for the issuance of a TRO or WPI to "enjoin Philcomsat Holdings Corporation
from recognizing defendants Nieto, Jr. and Lokin as the representatives of PHILCOMSAT," and to
prevent Nieto, Jr. and Lokin from acting as Directors and Officers for and on behalf of POTC and
PHILCOMSAT.
On August 30, 2004, the RTC denied the motion for the issuance of TRO and WPI. 53
On August 26, 2004, the Nomination Committee (NOMELEC) of PHC (Nieto Group) met to conduct
the validation of the proxies and the evaluation and prequalification of the nominees for election as
Independent Directors. After a majority vote of its voting members, the NOMELEC recognized and
validated the proxy submitted by Locsin.
On August 27, 2004, the Nieto Group submitted to the SEC the final list of candidates for
Independent Directors of PHC for the term 2004-2005. The list contained the names of Benito
Araneta and Roberto Abad, both nominated by Brodett. The list was submitted by NOMELEC
members Lokin, Jr., Locsin and Brodett.

On the same date, POTC and PHILCOMSAT (Africa Group), through Atty. Victor Africa, filed in the
CA a petition for certiorari and prohibition (with prayer for TRO and WPI) seeking to annul and set
aside the orders issued on July 8, 2004, July 26, 2004 and August 20, 2004 issued in SEC Case No.
12-03-03 (C.A.-G.R. SP No. 85959).54
On August 31, 2004, the CA promulgated in C.A.-G.R. SP No. 85959 a resolution granting a TRO,
pertinently stating:
In the meantime, since the petition questions the jurisdiction of public respondents in issuing the
assailed Orders dated July 8, 2004, July 26, 2004 and August 20, 2004, and the implementation of
the same will render moot and academic any and all orders, resolutions and decisions of this Court,
this Court hereby TEMPORARILY RESTRAINS respondents, their officers, agents and other
persons acting for and in their behalf, from enforcing, implementing and executing the aforesaid
assailed Orders within a period of sixty (60) days or until sooner revoked. 55
The CA later granted the application for WPI, and enjoined the respondents therein, their agents,
officers, representatives and other persons acting for and in their behalf from executing, enforcing
and implementing the assailed SEC orders issued on July 8, 2004, July 26, 2004 and August 20,
2004 pending final resolution of the petition, or unless the WPI was sooner lifted. 56
Also on August 31, 2004, the PHC (Nieto Group) conducted its annual stockholders meeting. The
Officers elected were Locsin as Director and Acting Chairman; Oliverio Laperal as Director and Vice
Chairman; Nieto, Jr. as Director, President and Chief Executive Officer; Brodett as Director and Vice
President; Manuel D. Andal as Director, Treasurer and Chief Financial Officer; Roberto San Jose as
Director and Corporate Secretary; Julio Jalandoni, Lokin, Jr., Prudencio Somera, Roberto Abad, and
Benito Araneta as Directors.57
On September 10, 2004, PHILCOMSAT (Africa Group), represented by Victor Africa, filed in the RTC
in Makati City (Branch 138) a complaint against PHC, Lokin, Jr., Locsin and Brodett (Civil Case No.
04-1049) seeking the following reliefs, to wit:
1. The proceedings of the Nomination Committee be invalidated for having been in violation
of the Manual of Corporate Governance of defendant PHC;
2. The act of the Nomination Committee in validating the proxy issued in favor of Manuel
Nieto and/or defendant Enrique Locsin and in invalidating the proxy issued in favor of Victor
Africa be annulled;
3. The elections held and the proclamation of winners during the Annual Stockholders'
Meeting of defendant PHC held on 31 August 2004 be annulled;
4. Defendant PHC be directed to recognize Atty. Victor Africa as the proxy of plaintiff and that
he be allowed to vote the shares standing in the name of plaintiff at subsequent elections for
the members of the board of directors of defendant PHC.58
On October 21, 2004, PHILCOMSAT (Nieto Group) and Lokin, Jr. filed their Answer with
Grounds for Dismissal and Compulsory Counterclaims, averring therein, among others, as
follows:

37. The instant complaint must be DISMISSED for lack of capacity and/or authority of the
alleged representative, Victor V. Africa, to file the same and sue the defendants on behalf of
Philcomsat.
38. While the Complaint names Philcomsat as the plaintiff, allegedly represented by Victor
Africa, at no time did [P]hilcomsat, through its duly constituted Board of Directors, authorize
him to file the same.
39. Victor Africa bases his authority upon the Secretary Certificate, alleging that the
Philcomsat Board of Directors, during its meeting held on 28 July 2004, authorized him to file
legal actions on behalf of the corporation.
40. It is respectfully averred, however, that Philcomsat, through its duly constituted Board of
Directors DID NOT HOLD any meeting on 28 July 2004, and DID NOT AUTHORIZE Africa to
file any action or to do any act or deed on its behalf. The Secretary's Certificate he
represented is not signed by Atty. Luis K. Lokin, Jr., the duly-elected Corporate Secretary of
Philcomsat.
xxxx
50. There was no Philcomsat Board meeting held or authorized to be held on 28 July 2004.
Neither was there any authority vested upon Victor Africa to file this nuisance suit, which is
only aimed at needlessly harassing defendants and the other lawful stockholders of
Philcomsat and PHC and the public at large.
51. For lack of any factual and legal basis of the alleged authority of the person instituting
and verifying the instant complaint, it must be declared as a NUISANCE SUIT and
immediately DISMISSED by the Honorable Court, pursuant to Section 1 (b) of the Interim
Rules.
52. Furthermore, not only does Africa lack any authority to file the instant action, the
complaint itself is devoid of any meritorious legal basis.
53. The relevant facts are as follows: In 2003, a stockholder of PHC filed a letter-complaint
(later docketed as SEC Case No. 12-03-03) with the SEC, alleging the non-holding of the
annual stockholders' meeting since 2002. Hearings were conducted wherein the officers and
directors of POTC and Philcomsat were required to be present and to file their comments.
Victor Africa actively participated in the proceedings before the SEC, in his alleged capacity
as officer of POTC, Philcomsat and PHC.
54. In view of the government interest in POTC which is the sole beneficial owner of
Philcomsat, which in turn, is the 80% stockholder of PHC, and the fact that POTC and
Philcomsat are under sequestration, the PCGG was likewise directed to file their comments
on the matters raised by the parties. PCGG, through then Commissioner Victoria Avena,
asserted that the government holds 40% interest in POTC. x x x.
55. Thereafter, the SEC issued the aforestated Order on 08 July 2004, directing the officers
of POTC and Philcomsat to conduct their respective stockholders' meetings. Before the
rendition of the 08 July 2004 Order, the Africa group did not conduct any stockholders'
meeting of POTC or Philcomsat, but they would later claim that they had agreed, as early as
02 July 2004, to hold the meetings on 08 July 2004. Given the timing of the meeting,

however, which was held after the 08 July 2004 SEC Order, no credence could be given to
such self-serving claim. The timing and dates are more than mere convenient coincidences.
56. After POTC and Philcomsat duly held their respective stockholders' meetings on 05
August 2004 and 09 August 2004, the SEC upheld the validity of their meetings in its Order
dated 20 August 2004.
57. Thereafter, Africa initiated a series of actions in different tribunals in an attempt to
basically prevent the POTC and Philcomsat Directors and Officers from acting in their
capacity as such.59
On November 18, 2004, PCGG expressly adopted the Answer of PHILCOMSAT (Nieto Group) as its
own Answer in Civil Case No. 04-1049.60
On December 7, 2004, the RTC denied the Africa Groups Motion for Reconsideration assailing the
order issued on August 27, 2004 in Civil Case No. 04-935.
Whereupon, POTC (Africa Group) went to the CA on certiorari to annul and set aside the orders
issued on August 27, 2004 and December 7, 2004 in Civil Case No. 04-935 by the RTC (Branch
133). The suit, docketed as C.A.-G.R. SP NO. 88664, was dismissed by the CA on July 5, 2005, the
decision pertinently stating:
x x x We thus have to address one crucial issue: Was the lower court correct in ruling that the
Sandiganbayan had jurisdiction over the instant case?
It was.
It must be stressed that the petitioners' complaint essentially questions the legality by which the
private respondents are exercising control over the assets and operations of a sequestered
corporation. They posit that the private respondents are usurpers and have no right to sit in the
board of directors or act as corporate officers of the POTC. Evidently, these issues are "arising from,
incidental to, or related to" the sequestration case against POTC which, under the law, should be
addressed by the Sandiganbayan.
xxxx
All told, the lower court did not commit grave abuse of discretion amounting to lack of or in excess of
jurisdiction in dismissing the instant complaint for lack of jurisdiction, the same being vested in the
Sandiganbayan.61
On June 15, 2005, this Court rendered its decision in G.R. No. 141796 and G.R. No. 141804 by
affirming the validity of the compromise agreement dated June 28, 1996 between the PCGG and
Atty. Ilusorio, holding:
With the imprimatur of no less than the former President Fidel V. Ramos and the approval of the
Sandiganbayan, the Compromise Agreement must be accorded utmost respect. Such amicable
settlement is not only allowed but even encouraged. x x x.
Having been sealed with court approval, the Compromise Agreement has the force of res judicata
between the parties and should be complied with in accordance with its terms. Pursuant thereto,
Victoria C. de los Reyes, Corporate Secretary of the POTC, transmitted to Mr. Magdangal B. Elma,

then Chief Presidential Legal Counsel and Chairman of PCGG, Stock Certificate No. 131 dated
January 10, 2000, issued in the name of the Republic of the Philippines, for 4,727 POTC shares.
Thus, the Compromise Agreement was partly implemented. 62
On July 5, 2005, the Africa Group, citing the decision in G.R. No.141796 and G.R. No. 141804, filed
a Manifestation with Ex-Parte Motion to Resolve in Civil Case No. 04-1049. 63
Also on July 5, 2005, the CA promulgated its decision in C.A.-G.R. SP No. 88664, dismissing the
petition for certiorari (brought to assail the dismissal by the RTC (Branch 133) of the complaint in
Civil Case No. 04-935).64
On August 18, 2005, PHILCOMSAT (Nieto Group), through Locsin, submitted a CounterManifestation, contending that the decision in G.R. No. 141796 and G.R. No. 141804 did not operate
to automatically nullify the proceedings during the stockholders meeting of PHC on August 31,
2004.65
On August 19, 2005, the RTC (Branch 138), apprised of the pendency of motions for reconsideration
in G.R. No. 141796 and G.R. No. 141804, held in abeyance its action upon the parties respective
manifestations until after the resolution of the pending motions for reconsideration. 66
On September 7, 2005, the Court denied the motions for reconsideration in G.R. No. 141796 and
G.R. No. 141804, stating:
Obviously, petitioners motions for reconsideration are devoid of merit. The matters they raise are
mere reiterations of the previous arguments in their petitions already considered and exhaustively
passed upon in our July 27, 2005 (sic) Decision. Indeed, we find no cogent reason to deviate from
our Decision.
As regards the second incident, respondent Bildner seeks a clarification on the effect of the TRO,
issued by this Court on March 29, 2000, restraining the implementation of the challenged
Sandiganbayan Resolution dated December 20, 1999 in Civil Case No. 0009.
It may be recalled that in our June 15, 2005 Decision, we dismissed these consolidated petitions
assailing the Sandiganbayan Resolution of December 20, 1999. This Resolution (1) denied
petitioners' separate motions to vacate the Sandiganbayan Order dated June 8, 1998 approving the
Compromise Agreement; (2) declared the 5,400 POTC shares registered in the names of petitioners
IRC and MLDC null and void as they categorically admitted that such shares are ill-gotten wealth of
deposed President Marcos and his Family, and that the same were surrendered to the Government
which now owns the same; and (3) ordered the Corporate Secretary of POTC, within 10 days from
receipt of the Resolution, to issue 4,727 POTC shares in the name of the Republic, and 673 POTC
shares in the name of Potenciano Ilusorio, pursuant to the approved Compromise Agreement. In
compliance with the Sandiganbayan Resolution, Atty. Victoria C. de los Reyes, Corporate Secretary
of the POTC, on January 10, 2000, transmitted to Mr. Justice Magdangal B. Elma, then Chief
Presidential Legal Counsel and Chairman of Philippine Commission on Good Government (PCGG),
Stock Certificate No. 131 (of even date) issued in the name of the Republic of the Philippines, for
4,727 POTC shares. Thus, the Compromise Agreement was partly implemented.
In her present motion for clarification, respondent Bildner alleges inter alia that, on March 29, 2000
or more than two (2) months after the Compromise Agreement had been implemented on January
10, 2000, this Court issued a TRO restraining its implementation.

There is no need for us to make a clarification being sought by respondent Bildner in her motion.
Suffice it to say that when the TRO was issued on March 29, 2000, the Sandiganbayan Resolution of
December 20, 1999 directing the issuance of POTC shares in the names of the Republic and
Potenciano Ilusorio in accordance with the Compromise Agreement had been partially implemented
on January 10, 2000 or more than two (2) months earlier by POTC Corporate Secretary Victoria C.
de los Reyes. She already transmitted to then PCGG Chairman Magdangal B. Elma Stock
Certificate No. 131 issued in the name of the Republic of the Philippines, for 4,727 POTC shares.
This was never mentioned by petitioners in their petitions. In fact, even before the petitions in these
cases were filed, the implementation of the Compromise Judgment had been partially effected. We
were thus misled in issuing the TRO. In any case, the TRO has become moot and academic, the
same having no more legal force as the act sought to be restrained had been partially implemented
and considering our Decision in this case.
WHEREFORE, petitioners instant motions for reconsideration are DENIED with FINALITY. On
respondent Bildner's motion for clarification, the same is considered moot and academic. 67
In the meantime, the RTC (Branch 138) required the parties to submit their respective memoranda in
Civil Case No. 04-1049. Both parties complied.68
On September 14, 2005, the Africa Group brought a special civil action for certiorari and prohibition
in this Court assailing the decision promulgated on July 5, 2005 in C.A.-G.R. SP No. 88664 (G.R.
No. 171799).69
On September 22, 2005, POTC and PHILCOMSAT (Africa-Ilusorio Group) elected a new set of
Directors and Officers. Ma. Erlinda I. Bildner was elected as the Chairman of the Boards of Directors
of both POTC and PHILCOMSAT.70
On September 26, 2005, POTC and PHILCOMSAT (Nieto Group) initiated a Complaint for injunction
and damages with prayer for TRO and WPI in the Sandiganbayan (SB Civil Case No. 0198). 71
The Sandiganbayan issued a TRO in SB Civil Case No. 0198, enjoining the Africa-Ilusorio Group
from acting as Officers and Directors of POTC and PHILCOMSAT.72
On June 5, 2006, the Court dismissed G.R. No. 171799, viz:
Considering the allegations, issues and arguments adduced in the petition for certiorari and
prohibition with prayer for writ of preliminary injunction and/or temporary restraining order dated 14
September 2005, the Court Resolves to DISMISS the petition for failure to sufficiently show that the
questioned judgment of the Court of Appeals is tainted with grave abuse of discretion. 73
On October 14, 2006, the RTC (Branch 138) rendered its decision in Civil Case No. 04-1049, thus:
In the case at bar, the Nieto Group did not specifically deny plaintiff's allegation that their votes
during the 2004 annual stockholders' meeting for POTC and Philcomsat mainly relied on the IRC
and Mid-Pasig shares. Upon the promulgation of the above-cited Supreme Court Decision dated 15
June 2005, even as early as 1986, both IRC and Mid-Pasig corporations have no more right or
interest over the subject POTC shares which was already surrendered by Jose Y. Campos to the
Government. Mid-Pasig and IRC themselves were sequestered, and then voluntarily surrendered as
part of the res covered by the Campos Compromise Agreement. Insofar as Mid-Pasig and IRC are
concerned, they have already relinquished all rights or interest over all POTC shares registered in
their names in favor of the Republic represented by PCGG, even as early as 1986. Hence, the

Supreme Court Decision, in effect, invalidates the elections held by the Nieto Group in the annual
stockholders' meeting of POTC and Philcomsat on 5 August 2004 and 9 August 2004, for not having
the majority control of the said corporation. In turn, the defendant Nieto Group could not have,
therefore, issued a valid proxy nor could they have appointed defendant Locsin as Philcomsats
representative to the PHC annual stockholders meeting.
WHEREFORE, judgment is hereby rendered invalidating the proxy issued in favor Manuel Nieto
and/or defendant Locsin for purposes of the Annual Stockholders' Meeting for the year 2004 and
declaring the proxy issued in favor of Victor V. Africa for the said purpose, valid. Corollarily, the
elections held and the proclamation of winners during the annual stockholders' meeting of defendant
PHC held on 31 August 2004 is hereby annulled.74
On October 23, 2006, the RTC (Branch 138) dismissed Civil Case No. 01-840 for lack of jurisdiction.
Subsequently, the RTC (Branch 138) denied the petitioners Motion for Reconsideration, and treated
it instead as a notice of appeal.75
On March 1, 2007, PHC (Nieto Group) and Brodett appealed the decision dated October 14, 2006
rendered in Civil Case No. 04-1049 to the CA via a petition for review (CA-G.R. SP NO. 98097). On
March 27, 2007, the Africa-Ilusorio Groups submitted their comment (with opposition to the
application for TRO and WPI).76
On March 21, 2007, POTC and PHILCOMSAT (Nieto Group) brought to the CA a petition for
certiorari (with prayer for TRO and WPI), similarly assailing the decision rendered on October 14,
2006 in Civil Case No. 04-1049 (C.A.-G.R. SP No. 98399).77
On March 27, 2007, PHILCOMSAT (Africa Group) sought the execution of the decision rendered on
October 14, 2006 in Civil Case No. 04-1049 by the RTC (Branch 138). Although on April 4, 2007,
PHC (Nieto Group), Locsin and Brodett opposed the motion for execution, the RTC (Branch 138)
granted the motion on April 12, 2007, to wit:
WHEREFORE, premises considered, the Court hereby grants the plaintiff's Motion. Let a writ of
execution be issued directing the implementation of the following orders:
1) the individuals elected by defendant Locsin in the 2004 PHC ASM, and so proclaimed to
be PHCs board of directors, namely: Enrique Locsin, Julio Jalandoni, Manuel Andal, Luis
Lokin, Jr., Prudencio Somera, Jr., Manuel H. Nieto, Jr., Roberto V. San Jose, Philip Brodett,
Oliverio Laperal, Benito Araneta and Roberto Abad and all their representatives or agents
are enjoined from continuing to act as PHC board of directors;
2) the proxy of plaintiff issued to Victor V. Africa is declared valid and thus, the individuals
elected by plaintiff's proxy in the 2004 PHC ASM namely: Victor V. Africa, Erlinda I. Bildner,
Katrina Ponce Enrile, Honorio Poblador III, Federico Agcaoili, Sylvia K. Ilusorio and Jose Ma.
Ozamiz are declared as the valid board of directors of PHC; and
3) the defendants are directed to render an accounting of funds of PHC since 2004 up to the
present within 15 days from the finality of this Order.78
On April 18, 2007, PHC (Nieto Group) and Brodett filed their Reply with Reiteration of the Urgent
Application for Temporary Restraining Order and Preliminary Injunction in C.A.-G.R. SP NO. 98097.
On April 20, 2007, they filed a Supplemental Petition with Urgent Application for Temporary
Restraining Order and Preliminary Injunction, alleging that, upon motion of respondent (Africa

Group), the RTC had issued an order dated April 12, 2007 directing the issuance of a writ of
execution to implement the decision dated October 14, 2006. 79
On April 18, 2007, the RTC (Branch 138) issued a writ of execution of the decision dated October 14,
2006.80
On April 24, 2007, the PHC (Africa Group) held an organizational meeting of its Board of Directors
pursuant to the decision dated October 14, 2006 as well as the order dated April 12, 2007 and the
writ of execution dated April 20, 2007, all issued in Civil Case No. 04-1049. At that organizational
meeting, Victor V. Africa, Federico R. Agcaoili, Erlinda I. Bildner, Katrina C. Ponce Enrile, Sylvia K.
Ilusorio, Honorio Poblador III, Jose Ozamiz, Prudencio Somera, Pablo Lobregat and Oliverio Laperal
were elected as Directors. On the same occasion, the following were elected as Officers of PHC,
namely: Honorio Poblador III as Chairman; Oliverio Laperal as Vice-Chairman; Erlinda I. Bildner as
President; Lorna P. Kapunan as Vice President; Pablo Lobregat as Vice-President; Katrina Ponce
Enrile as Treasurer; Rafael Poblador as Assistant Treasurer; John Benedict Sioson as Corporate
Secretary; and Dennis R. Manzanal as Assistant Corporate Secretary.81
On April 30, 2007, PHILCOMSAT (Africa Group) filed an Urgent Motion to Lift the TRO in C.A.-G.R.
SP No. 98399.82
On May 2, 2007, PHC (Nieto Group) presented a Manifestation in C.A.-G.R. SP NO. 98097, alleging
that they were informed that POTC and PHILCOMSAT had filed a petition dated March 14, 2007 in
this Court which involved substantially the same issues raised in C.A.-G.R. SP No. 98097. 83
On May 10, 2007, the CA directed POTC and PHILCOMSAT (Nieto Group) to comment on the
Urgent Motion to Lift the TRO filed in C.A.-G.R. SP NO. 98399.84
On May 17, 2007, the CA issued a resolution in C.A.-G.R. SP No. 98097, to wit:
WHEREFORE, petitioners application for a temporary restraining order/writ of preliminary injunction
to enjoin the execution of the Decision dated October 14, 2006 of the court a quo in Civil Case No.
04-1049 is merely NOTED as the same has been rendered moot and academic.
The issues having been joined with the filing of the comment and reply, the petition for review is
considered submitted for decision.85
On June 8, 2007, the CA dismissed the petition in C.A.-G.R. CV NO. 88360 for being an improper
mode of appeal.86
On June 12, 2007, POTC and PHILCOMSAT (Nieto Group) filed their Reply with Urgent Motion to
Resolve the Application for Preliminary Injunction in CA-G.R. SP No. 98399. The CA granted the
Urgent Motion to Resolve on June 25, 2007, and issued the WPI on the same date. 87
On August 17, 2007, POTC and PHILCOMSAT (Africa-Ilusorio Group) brought a petition for certiorari
to annul and set aside the CAs resolution dated June 25, 2007 in C.A.-G.R. SP No. 98399. 88
Earlier, on August 15, 2007, the Sandiganbayan issued its resolution dismissing the Complaint of
POTC and PHILCOMSAT (Nieto Group) in SB Civil Case No. 0198, to wit:
WHEREFORE, in view of the foregoing, the Court hereby resolves as follows:

1) The Urgent Motion to Dismiss dated September 29, 2005 of the defendant is hereby
GRANTED. Accordingly, the plaintiffs' Complaint dated September 20, 2005 is hereby
ordered DISMISSED.
2) The following motions and pleadings are considered MOOT AND ACADEMIC in view of
the dismissal of the case.
a. Motion to Consider and Declare Defendants in Default dated October 21, 2005 of
the plaintiffs;
b. Motion for Consolidation with SB Civil Case No. 0009 dated September 24, 2006
of the plaintiffs;
c. Petition to Show Cause dated April 25, 2007 filed by the plaintiffs; and
d. Motion for Leave to Intervene and to Admit Complaint-In-Intervention dated May
16, 2007 filed by the PCGG.
3) The Court hereby REPRIMANDS Enrique L. Locsin and Atty. Sikini C. Labastilla for
omitting material facts in their Complaint and Urgent Motion for Special Raffle and WARNS
that a repetition of the same or similar acts in the future shall be dealt with more severely.89
POTC and PHILCOMSAT (Nieto Group) moved for reconsideration on September 5, 2007, and later
supplemented the motion.90
On November 5, 2007, Atty. Sikini C. Labastilla filed in the CA a petition to cite Erlinda I. Bildner and
her lawyer Atty. Dennis R. Manzanal for indirect contempt of court (C.A.-G.R. SP No. 101225), and
prayed that the petition be consolidated with C.A.-G.R. SP No. 98399. The consolidation was
allowed on December 12, 2007.91
On November 13, 2007, President Arroyo named new nominees to the POTC Board of Directors,
namely: Daniel C. Gutierrez, Allan S. Montao, and Retired Justice Santiago J. Ranada; and to the
PHILCOMSAT Board of Directors, namely: Ramon P. Jacinto, Abraham R. Abesamis, and Rodolfo
G. Serrano, Jr.92
On November 19, 2007, POTC held its Annual Stockholders Meeting and Organizational Meeting of
the Board of Directors. Elected were Daniel C. Gutierrez as Director and Chairman; Erlinda I. Bildner
as Director and Vice Chairman; Katrina Ponce Enrile as Director and President/CEO;
Marietta K. Ilusorio as Director and Treasurer; Francisca Benedicto Paulino, Pablo L. Lobregat, Allan
Montao, Honario A. Poblador III and Justice Ranada as Directors; Rafael A. Poblador as Assistant
Treasurer; and Victoria C. de los Reyes as Corporate Secretary.93
On the same date, PHILCOMSAT held its Annual Stockholders Meeting and Organizational Meeting
of the Board of Directors. Elected were: Abraham R. Abesamis as Director and Chairman; Pablo L.
Lobregat as Director and Vice-Chairman; Ramon Jacinto as Director and Chairman of the Executive
Committee; Erlinda I. Bildner as Director and President/CEO; Marietta K. Ilusorio as Director and
Vice President; Katrina Ponce Enrile as Director and Treasurer; Lorna P. Kapunan, Honorio A.
Poblador III and Rodolfo G. Serrano, Jr. as Directors; Rafael A. Poblador as Assistant Treasurer; and
John Benedict L. Sioson as Corporate Secretary.94

Thereafter, Concepcion A. Poblador of the Nieto Group filed a Complaint for injunction and
declaration of nullity (with prayer for TRO and WPI) with the Sandiganbayan, seeking to enjoin the
PCGG from recognizing the stockholders meeting held on November 19, 2007 (Civil Case No. 070001).
Meanwhile, PHC (Africa Group), through Erlinda I. Bildner, filed a Complaint for injunction against
the Bank of the Philippine Islands (BPI) with the RTC (Branch 62) in Makati City, seeking to enjoin
BPI from allowing further disbursements of PHC funds to unauthorized persons comprising those
who were no longer members of the PHC Board of Directors due to the nullification of their election.
On the basis of the Complaint, the RTC (Branch 62) issued an order on December 13, 2007, as
follows:
FOREGOING CONSIDERED, pending final adjudication on the principal action raised herein and
subject to the posting of the indemnity bond in the sum of Three Million Pesos (Php 3,000,000.00)
issued in favor of the defendant Bank of the Philippine Islands and defendant intervener PHC
represented by Enrique M. Locsin, let a writ of preliminary injunction issue, enjoining the said
defendant bank, its employees, officers, and representatives from allowing the defendant intervener,
Locsin Group, their officers, employees, agents, and/or representatives to inquire, withdraw, and/or
in any manner transact relative to any and all Philcomsat Holdings Corporation accounts maintained
with Bank of the Philippine Islands until further orders from this Court.
Finally, the defendant bank is hereby ordered to submit to this Court the latest (as of receipt of this
Order) bank statements and/or certificates of all PHC accounts deposited with its bank within ten
(10) days from notice thereof.95
On December 14, 2007, POTC and PHILCOMSAT (Africa Group) filed in C.A.-G.R. SP NO. 98399 a
Manifestation and Urgent Motion to Withdraw Petition, praying that the petition be considered
withdrawn, and that the WPI issued on June 25, 2007 be immediately lifted. In support of the motion,
POTC and PHILCOMSAT (Africa Group) averred:
(1) On 21 March 2007, Mr. Enrique Locsin (Locsin) purportedly representing POTC and
PHILCOMSAT filed the instant petition, assailing the decision issued by the Regional Trial
Court (RTC) of Makati Branch 138 in Civil Case No. 04-1049 x x x.
xxxx
(3) What Mr. Locsin has deliberately failed and/or refused to divulge to this Honorable Court
upon filing the instant petition are the following facts: (1) Mr. Locsin and his group are exactly
the same set of individuals who comprise the respondents in Civil Case No. 04-1049, the
decision which is now herein assailed; and that (2) Mr. Locsin and his group, purportedly,
representing earlier or two weeks prior to the filing of the instant petition, already filed an
appeal also with this Honorable Court, albeit pending in a different division, docketed as CAG.R. SP No. 98097, raising exactly the same issues and seeking identical reliefs as they are
now pending in the case at bar.
xxxx
(5) The difficulty in resolving the present controversy lodged before this Honorable Court
stems from the fact that even the legitimate POTC and PHILCOMSAT representatives
become apparently undeterminable.

xxxx
(9) Nonetheless, the conflicting claims over POTC and PHILCOMSAT have finally come to
resolution with the recent developments.
(10) On 13 November 2007, the government appointed its new nominees to POTC and
PHILCOMSAT. For POTC, the government, through Undersecretary Enrique D. Perez with
the directive of President Gloria Macapagal Arroyo, appointed Atty. Daniel C. Gutierrez, Atty.
Allan S. Montao and Justice Santiago J. Ranada (Ret.) to the POTC board and represent
the government's 34.9% shareholdings in the board of directors of POTC. In the same
manner and for an akin purpose, the government appointed Mr. Ramon P. Jacinto, Mr.
Rodolfo G. Serrano, Jr. and Radm. Abraham R. Abesamis (Ret.) to represent the
government's 34.9% shareholdings on the board of directors of PHILCOMSAT. Although this
Honorable Court may take judicial notice of these appointments, to evidence such new
appointments, copies of the proxy issued by the Republic of the Philippines to
Undersecretary Perez and the "I desire" letter of the Office of the President for the
government's nominees to PHILCOMSAT, both dated 13 November 2007, and the list of
nominees of Undersecretary Perez for POTC and his letter to PCGG Chairman Camilo
Sabio, both dated 19 November 2007, are attached and made integral parts hereof as
Annexes "B", "B", "C" and "D", respectively.
(11) Needless to state, with the designation and their selection of the new government
nominees to POTC and PHILCOMSAT, the old nominees, namely: Mr. Locsin, Mr. Manuel
Andal, Mr. Julio Jalandoni and Mr. Guy de Leon are automatically replaced. This is an
undeniable fact and had always been the procedure in the appointment and replacement of
government nominees to the board of companies where the government has a substantial
interest.
(12) Following the said appointment of new nominees, necessarily, annual stockholders
meetings of both POTC and PHILCOMSAT were conducted and held on 19 November 2007
in order to elect the new directors of the respective boards of the two companies. During the
said meetings, where over 90% of the shareholders were present and/or duly represented,
the stockholders elected the new board of directors of POTC and PHILCOMSAT. These
elections are evidenced by the Secretary's Certificates duly executed by the Corporate
Secretaries of POTC and PHILCOMSAT, copies of which are attached and made integral
parts hereof as Annexes "E" and "F", respectively.
(13) Thus, the new government nominees, together with the private shareholders of POTC
and Philcomsat are joined together in a unified board of directors for the two companies. In
fact, after the new sets of directors had been elected, both companies conducted their
respective organizational and board meetings.
(14) At the board meetings of POTC and Philcomsat held on 4 December 2007, POTC and
PHILCOMSAT have decided, as the new, unassailably legitimate and only board of directors
of POTC and PHILCOMSAT, to authorize the withdrawal of the instant petition filed in the
name of POTC and PHILCOMSAT. The boards likewise in their resolutions, disallowed other
persons to represent their companies. Copies of these resolutions issued by POTC and
PHILCOMSAT are attached and made integral parts hereof as Annexes "G" and "H",
respectively.

(15) Thus, based on the foregoing, POTC and PHILCOMSAT, who are supposedly the
petitioners in this case, move for the immediate withdrawal of the petition dated 14 March
2007 and the immediate lifting of the Writ of Preliminary Injunction dated 25 June 2007. 96
The Urgent Motion to Withdraw Petition was opposed in a Comment and Opposition filed on
February 13, 2008 that averred as follows:
xxxx
4. Through the malicious motion to withdraw, there is a veiled attempt, to have this
Honorable Court uphold and recognize the validity of the supposed meetings held by rump
boards on November 19, 2007.This is a matter that is properly cognizable only by the
Sandiganbayan.
5. In fact, there is already a pending complaint before the Sandiganbayan that assails the
supposed November 19, 2007 meetings stated in the motion to withdraw.
6. The Sandiganbayan, acting through the Fifth Division, granted the issuance of a
Temporary Restraining Order on December 21, 2007, to prevent and prohibit any recognition
of these November 19, 2007 meetings. x x x.
12. Petitioners, however, are compelled to address the misleading allegations and
conclusions in the motion to withdraw. It is respectfully manifested that these alleged
November 19, 2007 meetings were not called by the legitimate boards of petitioners POTC
and Philcomsat. Only the legitimate boards, here represented by Mr. Locsin, can properly act
upon any change in the government nominees, and it is only the legitimate boards that can
install them. As manifested by petitioners to this Honorable Court, since there are no more
legal challenges to the respective Boards of Directors of petitioners originally led by Ronaldo
Salonga and Manuel Nieto, Jr., since 1998, only the successors of these boards, here
represented by Mr. Locsin, can properly represent petitioners POTC and PHILCOMSAT.
12.1. The issue was settled with the dismissal of the appeal in CA G.R. CV No.
88360, which stemmed from the original petition filed in 1998 by Potenciano Ilusorio,
Katrina Ponce-Enrile, and their family owned corporations, to question the election of
the Nieto-Salonga board. The appeal was dismissed by the Honorable Court of
Appeals in its Resolution dated June 8, 2007, a copy of which is hereto attached as
Annex B.
13. It is significant that the manifestation and motion to withdraw made admissions that
recognize the validity of the boards represented by Mr. Locsin. While petitioners do not admit
to the genuineness or due execution of the Secretary's Certificates which were not signed by
the duly-elected Corporate Secretary x x x, it must be noted that the authority of Mr. Locsin to
file the instant petition was recognized and admitted therein. It was only claimed that such
authority "was lost" when he was allegedly replaced, which replacement, as discussed
above, is still disputed. Thus, even the rump boards admit that the filing of this petition by Mr.
Locsin was duly authorized by POTC and PHILCOMSAT.97
xxxx
On December 21, 2007, the Sandiganbayan (Fifth Division) issued an order in Civil Case No. 070001, to wit:

xxxx
Wherefore, finding the complaint to be sufficient in form and substance and considering the
necessity to maintain the status quo lest grave and irreparable injury would result to plaintiff pending
the hearing of the main incident (Injunction and Declaration of Nullity), let a TEMPORARY
RESTRAINING ORDER issue ordering the defendants, their agents, executives and other persons
acting upon their instructions, from recognizing or acting pursuant to the 19 November 2007
stockholders meetings of POTC and PHILCOMSAT. The restraining order is good for twenty (20)
days from notice to defendants or any of their representatives. 98
xxxx
On May 7, 2008, the PCGG passed Resolution No. 2008-009, viz:
NOW, THEREFORE, be it RESOLVED, as it is hereby RESOLVED, that:
1. The PCGG recognize the validity of the 19 November 2007 POTC/Philcomsat
stockholders' meeting and confirm as valid the election of the following government
nominees: Atty. Daniel C. Gutierrez, Justice Santiago J. Ranada and Atty. Allan S. Montano
to the Board of Directors of POTC and Radm. Abraham R. Abesamis, Mr. Ramon P. Jacinto
and Mr. Rodolfo G. Serrano, Jr. to the Board of Directors of Philcomsat;
2. The PCGG recognize the validity of the 11 December 2007 and 18 January 2008 special
stockholders' meetings of Philcomsat subsidiaries, PHC and TCI, at which the new
government nominees were also elected as members of their respective Board of Directors
subject to the "I Desire" letter of the President requiring the nomination and installation of Mr.
Enrique Locsin in PHC vice Mr. Rodolfo Serrano;
3. The PCGG direct the old government nominees and their appointed Corporate Secretaries
under pain of contempt to submit to the Commission within ten (10) days from their receipt of
the Resolution:
a. A complete set of Minutes of the Meetings of the Boards of Directors, Executive
Committee, Legal Committee, Audit Committee and all other committees with a
Certification under oath of the completeness thereof from 1998 up to the present;
b. A complete and updated list of stockholders of the corporations with their last
known addresses and number of shares duly certified by the Corporate Secretary
and/or Stock Transfer Agent;
c. Copies of all audited and interim financial statements of these corporations; and
d. The stock transfer book and stock certificate booklet of PHC and TCI.
4. The PCGG request the Securities and Exchange Commission ("SEC") and the Philippine
Stock Exchange ("PSE") to regulate and monitor POTC, Philcomsat, PHC and TCI, to
cooperate with the new government nominees and assist them in complying with the
reportorial requirements of these corporations, including, but not limited to, compelling the
old government nominees and their appointed officers to submit copies of the documents
referred to above;

RESOLVED, FURTHER, that the Commission Secretary be directed to furnish copies of this
Resolution to the old government nominees/directors of POTC, Philcomsat, PHC and TCI namely
Enrique Locsin, Manuel Andal, Julio Jalandoni, Guy De Leon, Benito Araneta and Ronaldo Salonga,
to the new government nominees Daniel Gutierrez, Santiago Ranada, Allan Montano, Abraham
Abesamis, Ramon Jacinto, Rodolfo Serrano, Jr. Enrique Locsin and to the SEC, PSE and BSP for
their guidance, observation and compliance.99
On July 16, 2008, the CA rendered its assailed decision in C.A.-G.R. SP No. 102437, annulling and
setting aside the order dated December 13, 2007 and the WPI issued on December 17, 2007 by the
RTC (Branch 62).100
On February 13, 2009, the CA denied the motion for reconsideration. 101
On September 30, 2008, the CA promulgated its assailed consolidated decision in C.A.-G.R. SP No.
98097, C.A.-G.R. SP No. 98399 and C.A.-G.R. SP No. 101225, dismissing the petitions. 102 The CA
held that the RTC acted within its jurisdiction in resolving the intra-corporate dispute; that the
conduct of pre-trial was not required in corporate election cases; that the RTC had the authority to
decide Civil Case No. 04-1049; that the decision of the RTC was valid and correct; and that the
petition for contempt filed against Atty. Sikini C. Labastilla was without basis. The CA lifted and
dissolved the WPI issued on June 25, 2007.103
On December 23, 2008, the CA denied the motion for reconsideration.104
Issues
G.R. No. 184622
WHETHER THE SANDIGANBAYANS REFUSAL TO TAKE COGNIZANCE OF THE
CONTROVERSY ON THE GROUND THAT THE SAME IS AN INTRA-CORPORATE
CONTROVERSY IS IMPROPER AND AGAINST JURISPRUDENCE. 105
G.R. No. 184712-14
WHETHER THE SANDIGANBAYAN HAS ORIGINAL AND EXCLUSIVE JURISDICTION OVER
SEQUESTERED CORPORATIONS, SEQUESTRATION-RELATED CASES, AND ANY AND OVER
ALL INCIDENTS ARISING FROM, INCIDENTAL TO, OR RELATED TO SUCH CASES. 106
WHETHER THE SEQUESTRATION OVER POTC AND PHILCOMSAT REMAINS DESPITE THE
APPROVAL OF THE PCGG-ILUSORIO COMPROMISE AGREEMENT IN G.R. NOS. 141796 AND
141804.107
WHETHER THE MAKATI RTC MAY RENDER JUDGMENT ON THE COMPLAINT PURSUANT TO
THE INTERIM RULES WHEN THE SAID COURT HAS NOT BEEN DESIGNATED AS A SPECIAL
COMMERCIAL COURT BY THE SUPREME COURT.108
WHETHER THE ORDER TO CONDUCT PRE-TRIAL AND THE SUBMISSION OF THE PRE-TRIAL
BRIEFS IS MANDATORYUNDER ALL CASES FILED UNDER THE INTERIM RULES. 109
G.R. No. 186590

WHETHER THE COURT OF APPEALS ERRED WHEN IT NULLIFIED THE WRIT OF


PRELIMINARY INJUNCTION ISSUED BY THE TRIAL COURT.110
G.R. No. 186066
WHETHER OR NOT THE CA ERRED IN RULING THAT THE REGIONAL TRIAL COURT OF
MAKATI HAD JURISDICTION OVER CIVIL CASE NO. 04-1049;
WHETHER OR NOT THE CA ERRED IN RULING THAT THE DECISION IN G.R. NOS. 141796
AND 141804 FINALLY SETTLED THE ISSUES IN CIVIL CASE NO. 04-1049 AND
CONSEQUENTLY ANNULLED THE POTC PROXY IN FAVOR OF MESSRS. NIETO AND LOCSIN;
WHETHER OR NOT THE CA ERRED IN RULING THAT BRANCH 138 COULD STILL ACT ON AND
DECIDE CIVIL CASE NO. 04-1049 DESPITE THIS HONORABLE COURTS REVOCATION OF ITS
DESIGNATION AS SPECIAL COMMERCIAL COURT OF RTC MAKATI CITY;
WHETHER OR NOT THE CA ERRED IN RULING THAT PRE-TRIAL AND TRIAL CAN BE
DISPENSED WITH IN CIVIL CASE NO. 01-1049;
WHETHER OR NOT THE CA ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT
WHICH WAS CONTRARY TO THE FACTS AND EXISTING JURISPRUDENCE.111
The Court reduces the issues for resolution to two main ones, namely:
(a) Did RTC (Branch 138) have jurisdiction over the intra-corporate controversy (election
contest)?
(b)Who among the contending parties or groups held the controlling interest in POTC and,
consequently, in PHILCOMSAT and PHC?
In G.R. No. 184712-14, the petitioners postulate that the Sandiganbayan had original and exclusive
jurisdiction over sequestered corporations, sequestration-related cases, and any and over all
incidents arising from, or incidental or related to such cases;112 that it was error on the part of the CA
to conclude that the Sandiganbayan was automatically ousted of jurisdiction over the sequestered
assets once the complaint alleged an intra-corporate dispute due to the sequestered assets being in
custodia legis of the Sandiganbayan;113 that the sequestration of POTC and PHILCOMSAT remained
despite the approval of the compromise agreement in G.R. No. 141796 and G.R. No. 141804; that
because the proceedings involving the shares of the Nieto, Africa and Ponce Enrile Families were
still pending and had not yet been finally resolved,114 the RTC could not render a valid judgment on
the dispute because it had not been designated as a Commercial Court; 115 and that the conduct of a
pre-trial and the submission of a pre-trial brief were mandatory under all cases filed under the Interim
Rules.116
In its Comment, PHILCOMSAT counters that the rulings in Olaguer and Del Moral were not
applicable because such cases arose from different factual settings;117 that the RTC had ample
authority to rule upon the intra-corporate dispute; 118 and that the conduct of pre-trial was not
mandatory in corporate election cases.119
In G.R. No. 184622, the petitioners claim that the Sandiganbayan committed an error in refusing to
take cognizance of the injunction suit they had filed on the ground that it was an intra-corporate
dispute; that the Sandiganbayan thereby went against the spirit and intent of the Courts rulings

stressing the importance of protecting sequestered assets and recovering ill-gotten wealth; 120 and
that the Courts pronouncement in G.R. No. 171799 affirming the status of POTC shares as
sequestered shares was more than enough reason for the Sandiganbayan to take cognizance of the
injunction suit.121
In its Comment,122 respondent Ilusorio-Africa Group counter that the injunction suit was not within the
jurisdiction of the Sandiganbayan; and that Locsin had no authority to institute the injunction suit due
to his election being a patent nullity considering that the proxies issued by IRC and Mid-Pasig could
not be given effect after the Court had affirmed the ruling of the Sandiganbayan on IRC and MidPasigs shareholdings in POTC.123
In G.R. No. 186590, PHILCOMSAT posits that the trial court properly issued the injunction against
PHC after receiving evidence of massive looting of corporate funds that led to PHCs external auditor
being suspended as found by Senate Committees and the SEC.124
In its Comment, PHC states that PHILCOMSAT failed to establish its right in esse or the existence of
a right to be protected so as to warrant the issuance of the injunctive writ in its favor.125
In G.R. No. 186066, PHC argues that the CA erred in ruling that the RTC (Branch 138) was clothed
with authority to decide Civil Case No. 04-1049 because POTC and PHILCOMSAT were under
sequestration of the PCGG; that, accordingly, all issues and controversies arising or related or
incidental to the sequestration fell under the sole and exclusive original jurisdiction of the
Sandiganbayan;126 that the CA erred in appreciating the nature of Civil Case No. 04-1049; that the
controversy, albeit involving an intra-corporate dispute, was still cognizable by the Sandiganbayan
because POTC and PHILCOMSAT shares were under sequestration;127 that the ruling in G.R. Nos.
141796 and 141804 does not constitute res judicata; that even assuming that the RTC (Branch 138)
had jurisdiction, its authority was revoked prior to the issuance of its assailed judgment; 128 and that
PHC was denied due process due to the RTCs open violation of the Interim Rules. 129
In its Comment, PHILCOMSAT counters that the insistence of PHC that the sequestration of
PHILCOMSAT automatically took away the jurisdiction of the RTC and conferred it to the
Sandiganbayan was misplaced;130 that the rulings in Olaguer and Del Moral are not on all fours with
this case;131 that the issue of the shares being ill-gotten was already settled in G.R. Nos. 141796 and
141804;132 that the RTC (Branch 138) had ample authority to decide the intra-corporate controversy
because the case, being already submitted for decision, remained cognizable by the same
branch;133 and that the conduct of the pre-trial was not required in election cases. 134
Ruling of the Court
We DENY the petitions in G.R. No. 184622, G.R. Nos.184712-14, and G.R. No.186066; but GRANT
the petition in G.R. No. 186590.
1.
RTC (Branch 138) had jurisdiction
over the election contest between the
Ilusorio-Africa Groups and Nieto-Locsin Groups
Both Civil Case No. 04-1049 of the RTC (Branch 138) in Makati City and SB Civil Case No. 0198 of
the Sandiganbayan involved intra-corporate controversies among the stockholders and officers of
the corporations. It is settled that there is an intra-corporate controversy when the dispute involves

any of the following relationships, to wit: (a) between the corporation, partnership or association and
the public; (b) between the corporation, partnership or association and the State in so far as its
franchise, permit or license to operate is concerned; (c) between the corporation, partnership or
association and its stockholders, partners, members or officers; and (d) among the stockholders,
partners or associates themselves.135
Consequently, we agree with the CAs consolidated decision promulgated on September 30, 2008
that the RTC (Branch 138), not the Sandiganbayan, had jurisdiction because Civil Case No. 04-1049
did not involve a sequestration-related incident but an intra-corporate controversy.
Originally, Section 5 of Presidential Decree (P.D.) No. 902-A vested the original and exclusive
jurisdiction over cases involving the following in the SEC, to wit:
xxxx
(a) Devices or schemes employed by, or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholder, partners, members of
associations or organization registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right as such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or managers of
such corporations, partnership or associations;
(d) Petitions 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 respective 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. 136
Upon the enactment of Republic Act No. 8799 (The Securities Regulation Code), effective on August
8, 2000, the jurisdiction of the SEC over intra-corporate controversies and the other cases
enumerated in Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court pursuant to
Section 5.2 of the law, which provides:
5.2. The Commissions 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.

To implement Republic Act No. 8799, the Court promulgated its resolution of November 21, 2000 in
A.M. No. 00-11-03-SC designating certain branches of the RTC to try and decide the cases
enumerated in Section 5 of P.D. No. 902-A. Among the RTCs designated as special commercial
courts was the RTC (Branch 138) in Makati City, the trial court for Civil Case No. 04-1049.
On March 13, 2001, the Court adopted and approved the Interim Rules of Procedure for IntraCorporate Controversies under Republic Act No. 8799 in A.M. No. 01-2-04-SC, effective on April 1,
2001, whose Section 1 and Section 2, Rule 6 state:
Section 1. Cases covered. The provisions of this rule shall apply to election contests in stock and
non-stock corporations.
Section 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. (bold underscoring supplied)
Conformably with Republic Act No. 8799, and with the ensuing resolutions of the Court on the
implementation of the transfer of jurisdiction to the Regional Trial Court, the RTC (Branch 138) in
Makati had the authority to hear and decide the election contest between the parties herein. There
should be no disagreement that jurisdiction over the subject matter of an action, being conferred by
law, could neither be altered nor conveniently set aside by the courts and the parties. 137
To buttress its position, however, the Nieto-Locsin Group relied on Section 2 of Executive Order No.
14,138 which expressly mandated that the PCGG "shall file all such cases, whether civil or criminal,
with the Sandiganbayan, which shall have exclusive and original jurisdiction thereof."
The reliance was unwarranted.
Section 2 of Executive Order No. 14 had no application herein simply because the subject matter
involved was an intra-corporate controversy, not any incidents arising from, incidental to, or related
to any case involving assets whose nature as ill-gotten wealth was yet to be determined. In San
Miguel Corporation v. Kahn,139 the Court held that:
The subject matter of his complaint in the SEC does not therefore fall within the ambit of this Courts
Resolution of August 10, 1988 on the cases just mentioned, to the effect that, citing PCGG v. Pena,
et al., all cases of the Commission regarding the funds, moneys, assets, and properties illegally
acquired or misappropriated by former President Ferdinand Marcos, Mrs. Imelda Romualdez
Marcos, their close relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees,
whether civil or criminal, are lodged within the exclusive and original jurisdiction of the
Sandiganbayan, and all incidents arising from, incidental to, or related to, such cases necessarily fall
likewise under the Sandiganbayan's exclusive and original jurisdiction, subject to review on certiorari
exclusively by the Supreme Court." His complaint does not involve any property illegally acquired or
misappropriated by Marcos, et al., or "any incidents arising from, incidental to, or related to" any
case involving such property, but assets indisputably belonging to San Miguel Corporation which
were, in his (de los Angeles') view, being illicitly committed by a majority of its board of directors to
answer for loans assumed by a sister corporation, Neptunia Co., Ltd.
De los Angeles complaint, in fine, is confined to the issue of the validity of the assumption by the
corporation of the indebtedness of Neptunia Co., Ltd., allegedly for the benefit of certain of its

officers and stockholders, an issue evidently distinct from, and not even remotely requiring inquiry
into the matter of whether or not the 33,133,266 SMC shares sequestered by the PCGG belong to
Marcos and his cronies or dummies (on which, issue, as already pointed out, de los Angeles, in
common with the PCGG, had in fact espoused the affirmative). De los Angeles dispute, as
stockholder and director of SMC, with other SMC directors, an intra-corporate one, to be sure, is of
no concern to the Sandiganbayan, having no relevance whatever to the ownership of the
sequestered stock. The contention, therefore, that in view of this Court's ruling as regards the
sequestered SMC stock above adverted to, the SEC has no jurisdiction over the de los Angeles
complaint, cannot be sustained and must be rejected. The dispute concerns acts of the board of
directors claimed to amount to fraud and misrepresentation which may be detrimental to the interest
of the stockholders, or is one arising out of intra-corporate relations between and among
stockholders, or between any or all of them and the corporation of which they are stockholders. 140
Moreover, the jurisdiction of the Sandiganbayan has been held not to extend even to a case
involving a sequestered company notwithstanding that the majority of the members of the board of
directors were PCGG nominees. The Court marked this distinction clearly in Holiday Inn (Phils.), Inc.
v. Sandiganbayan,141 holding thusly:
The subject-matter of petitioners proposed complaint-inintervention involves basically, an
interpretation of contract, i.e., whether or not the right of first refusal could and/or should have been
observed, based on the Addendum/Agreement of July 14, 1988, which extended the terms and
conditions of the original agreement of January 1, 1976. The question of whether or not the
sequestered property was lawfully acquired by Roberto S. Benedicto has no bearing on the legality
of the termination of the management contract by NRHDCs Board of Directors. The two are
independent and unrelated issues and resolution of either may proceed independently of each other.
Upholding the legality of Benedictos acquisition of the sequestered property is not a guarantee that
HIP's management contract would be upheld, for only the Board of Directors of NRHDC is qualified
to make such a determination.
Likewise, the Sandiganbayan correctly denied jurisdiction over the proposed complaint-inintervention. The original and exclusive jurisdiction given to the Sandiganbayan over PCGG cases
pertains to (a) cases filed by the PCGG, pursuant to the exercise of its powers under Executive
Order Nos. 1, 2 and 14. as amended by the Office of the President, and Article XVIII, Section 26 of
the Constitution, i.e., where the principal cause of action is the recovery of ill-gotten wealth, as well
as all incidents arising from, incidental to, or related to such cases and (b) cases filed by those who
wish to question or challenge the commissions acts or orders in such cases.
Evidently, petitioners proposed complaint-in-intervention is an ordinary civil case that does not
pertain to the Sandiganbayan. As the Solicitor General stated, the complaint is not directed against
PCGG as an entity, but against a private corporation, in which case it is not per se, a PCGG case.
In the cases now before the Court, what are sought to be determined are the propriety of the election
of a party as a Director, and his authority to act in that capacity. Such issues should be exclusively
determined only by the RTC pursuant to the pertinent law on jurisdiction because they did not
concern the recovery of ill-gotten wealth.
2.
Lack of pre-trial was not fatal
in intra-corporate election contests

Under Section 4 of Rule 6 (Election Contests) of the Interim Rules of Procedure for Intra-Corporate
Controversies, which took effect on April 1, 2001 (A.M. No. 01-2-04-SC), issued pursuant to Republic
Act No. 8799, the trial court, within two days from the filing of the complaint, may outrightly dismiss
the complaint upon a consideration of the allegations thereof if the complaint is not sufficient in form
and substance, or, if the complaint is sufficient, may order the issuance of summons which shall be
served, together with a copy of the complaint, on the defendant within two days from its issuance.
Should it find the need to hold a hearing to clarify specific factual matters, the trial court shall set the
case for hearing, and the hearing shall be completed not later than 15 days from the date of the first
hearing. The trial court is mandated to render a decision within 15 days from receipt of the last
pleading, or from the date of the last hearing, as the case may be.
The CA correctly pointed out that Rule 6 nowhere required that the RTC acting as a special
commercial court should first conduct a pre-trial conference before it could render its judgment in a
corporate election contest. Hence, the RTC (Branch 138) in Makati properly heard the case of
annulment of the election with dispatch in accordance with the guidelines set in the resolution in A.M.
No. 01-2-04-SC. With the requirements of due process having been served, no defect infirmed the
RTCs ruling to set aside the election, and to oust those illegally elected.
3.
RTC (Branch 138) retained its jurisdiction
over the case that was ripe for adjudication
While it is true that this Court meanwhile revoked on June 27, 2006 the designation of the RTC
(Branch 138) to act as a special commercial court, through the resolution in A.M. No. 03-3-03-SC,
the RTC (Branch 138) did not thereafter become bereft of the jurisdiction to decide the controversy
because of the exception expressly stated in the resolution in A.M. No. 03-3-03-SC itself, to wit:
xxxx
Upon the effectivity of this designation, all commercial cases pending before Branches 138 and 61
shall be transferred to RTC, Branch 149, Makati City, except those which are already submitted for
decision, which cases shall be decided by the acting presiding judges thereat. x x x.
Contrary to the assertion of the Nieto-PCGG group, the foregoing provision did not require the
issuance of any special order stating that the case was already submitted for decision. It was
sufficient, given the summary nature of intra-corporate controversies, especially election contests,
that the trial court was done collating all the evidence from the pleadings (i.e., pleadings, affidavits,
documentary and other evidence attached thereto, and the answers of the witnesses to the
clarificatory questions of the court given during the hearings), if deemed sufficient, or from the
clarificatory hearings, if conducted. The purpose of the exception is to obviate the repetition of the
gathering of evidence. It is clear from Section 9 of Rule 6 that after the collation of evidence, the only
thing that remains is for the RTC to render its decision without issuing a special order declaring the
case submitted for decision, viz:
Section 9. Decision. The Court shall render a decision within fifteen (15) days from receipt of the
last pleading, or from the date of the last hearing, as the case may be. The decision shall be based
on the pleadings, affidavits, documentary and other evidence attached thereto and the answers of
the witnesses to the clarificatory questions of the court given during the hearings.
4.

Ruling in G.R. No. 141796 and


G.R. No. 141804 was properly applied
to Civil Case No. 04-1049
It was not the principle of res judicata, as claimed by the Nieto-PCGG Group, that justified the
application to Civil Case No. 04-1049 of the Courts ruling in G.R. No. 141796 and G.R. No. 141804
invalidating the PHC elections conducted by the Nieto-PCGG Group, but rather the doctrine of stare
decisis et non quieta movere, which means "to adhere to precedents, and not to unsettle things
which are established."142
Under the doctrine of stare decisis, when the Court has once laid down a principle of law as
applicable to a certain state of facts, the courts will adhere to that principle, and apply it to all future
cases in which the facts are substantially similar, regardless of whether the parties and property
involved are the same.143 The doctrine of stare decisis is based upon the legal principle or rule
involved, not upon the judgment that results therefrom. It is in this particular sense that stare decisis
differs from res judicata, because res judicata is based upon the judgment. 144
The doctrine of stare decisis is grounded on the necessity for securing certainty and stability in
judicial decisions, thus:
Time and again, the Court has held that it is a very desirable and necessary judicial practice that
when a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to
that principle and apply it to all future cases in which the facts are substantially the same. Stare
decisis et non quieta movere. Stand by the decisions and disturb not what is settled. Stare decisis
simply means that for the sake of certainty, a conclusion reached in one case should be applied to
those that follow if the facts are substantially the same, even though the parties may be different. It
proceeds from the first principle of justice that, absent any powerful countervailing considerations,
like cases ought to be decided alike. Thus, where the same questions relating to the same event
have been put forward by the parties similarly situated as in a previous case litigated and decided by
a competent court, the rule of stare decisis is a bar to any attempt to relitigate the same issue. 145
The question of who held the majority shareholdings in POTC and PHILCOMSAT was definitively
laid to rest in G.R. No. 141796 and G.R. No. 141804, whereby the Court upheld the validity of the
compromise agreement the Government had concluded with Atty. Ilusorio. Said the Court:
With the imprimatur of no less than the former President Fidel V. Ramos and the approval of the
Sandiganbayan, the Compromise Agreement must be accorded utmost respect. Such amicable
settlement is not only allowed but even encouraged. Thus, in Republic vs. Sandiganbayan, we held:
It is advocated by the PCGG that respondent Benedicto retaining a portion of the assets is
anathema to, and incongruous with, the zero-retention policy of the government in the pursuit for the
recovery of all ill-gotten wealth pursuant to Section 2(a) of Executive Order No. 1. While full recovery
is ideal, the PCGG is not precluded from entering into a Compromise Agreement which entails
reciprocal concessions if only to expedite recovery so that the remaining funds, assets and other
properties may be used to hasten national economic recovery (3rd WHEREAS clause, Executive
Order No. 14-A). To be sure, the so-called zero retention mentioned in Section 2(a) of Executive
Order No. 1 had been modified to read:
WHEREAS, the Presidential Commission on Good Government was created on February 28, 1986
by Executive Order No. 1 to assist the President in the recovery of ill-gotten wealth accumulated by
former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates;

which undoubtedly suggests a departure from the former goal of total restitution.
xxxx
The authority of the PCGG to enter into Compromise Agreements in civil cases and to grant
immunity, under certain circumstances, in criminal cases is now settled and established. In Republic
of the Philippines and Jose O. Campos, Jr. vs. Sandiganbayan, et al. (173 SCRA 72 [1989]), this
Court categorically stated that amicable settlements and compromises are not only allowed but
actually encouraged in civil cases. A specific grant of immunity from criminal prosecutions was also
sustained. In Benedicto vs. Board of Administrators of Television Stations RPN, BBC, and IBC (207
SCRA 659 [1992]), the Court ruled that the authority of the PCGG to validly enter into Compromise
Agreement for thepurpose of avoiding litigation or putting an end to one already commenced was
indisputable. x x x (italics supplied)
Having been sealed with court approval, the Compromise Agreement has the force of res judicata
between the parties and should be complied with in accordance with its terms. Pursuant thereto,
Victoria C. de los Reyes, Corporate Secretary of the POTC, transmitted to Mr. Magdangal B. Elma,
then Chief Presidential Legal Counsel and Chairman of PCGG, Stock Certificate No. 131 dated
January 10, 2000, issued in the name of the Republic of the Philippines, for 4,727 POTC shares.
Thus, the Compromise Agreement was partly implemented. 146
As a result of the Government having expressly recognized that 673 POTC shares belonged to Atty.
Ilusorio, Atty. Ilusorio and his group gained the majority control of POTC.
Applying the ruling in G.R. No. 141796 and G.R. No. 141804 to Civil Case No. 04-1049, the RTC
(Branch 138) correctly concluded that the Nieto-PCGG Group, because it did not have the majority
control of POTC, could not have validly convened and held the stockholders meeting and election of
POTC officers on August 5, 2004 during which Nieto, Jr. and PCGG representative Guy De Leon
were respectively elected as President and Chairman; and that there could not be a valid authority
for Nieto, Jr. and/or Locsin to vote the proxies of the group in the PHILCOMSAT meeting.
For the same reason, the POTC proxies used by Nieto, Jr. and Locsin to elect themselves
respectively as Chairman and President of PHILCOMSAT; and the PHILCOMSAT proxies used by
Nieto, Jr. and Locsin in the August 31, 2004 PHC elections to elect themselves respectively as
President and Acting Chairman of PHC, were all invalid for not having the support of the majority
shareholders of said corporations.
While it is true that judicial decisions should be given a prospective effect, such prospectivity did not
apply to the June 15, 2005 ruling in G.R. No. 141796 and G.R. No. 141804 because the ruling did
not enunciate a new legal doctrine or change the interpretation of the law as to prejudice the parties
and undo their situations established under an old doctrine or prior interpretation. Indeed, the ruling
only affirmed the compromise agreement consummated on June 28, 1996 and approved by the
Sandiganbayan on June 8, 1998, and accordingly implemented through the cancellation of the
shares in the names of IRC and MLDC and their registration in the names of Atty. Ilusorio to the
extent of 673 shares, and of the Republic to the extent of 4,727 shares. In a manner of speaking, the
decision of the Court in G.R. No. 141796 and G.R. No. 141804 promulgated on June 15, 2005
declared the compromise agreement valid, and such validation properly retroacted to the date of the
judicial approval of the compromise agreement on June 8, 1998.
Consequently, although the assailed elections were conducted by the Nieto-PCGG group on August
31, 2004 but the ruling in G.R. No. 141796 and G.R. No. 141804 was promulgated only on June 15,

2005, the ruling was the legal standard by which the issues raised in Civil Case No. 04-1049 should
be resolved.
5.
Proper mode of appeal in intra-corporate cases
is by petition for review under Rule 43
In Dee Ping Wee v. Lee Hiong Wee,147 the Court has expounded that the appropriate mode of appeal
for an aggrieved party in an intra-corporate dispute is a petition for review under Rule 43 of the
Rules of Court, to wit:
Verily, the first part of Section 4, Rule 1 of the Interim Rules is categorical. Save for the exceptions
clearly stated therein, the provision enunciates that a decision and order issued under the Interim
Rules shall be enforceable immediately after the rendition thereof. In order to assail the decision or
order, however, the second part of the provision speaks of an appeal or petition that needs to be filed
by the party concerned. In this appeal or petition, a restraining order must be sought from the
appellate court to enjoin the enforcement or implementation of the decision or order. Unless a
restraining order is so issued, the decision or order rendered under the Interim Rules shall remain to
be immediately executory.
On September 14, 2004, the Court issued a Resolution in A.M. No. 04-9-07-SC to rectify the
situation wherein "lawyers and litigants are in a quandary on how to prevent under appropriate
circumstances the execution of decisions and orders in cases involving corporate rehabilitation and
intra-corporate controversies." To address the "need to clarify the proper mode of appeal in [cases
involving corporate rehabilitation and intra-corporate controversies] in order to prevent cluttering the
dockets of the courts with appeals and/or petitions for certiorari," the Court thereby resolved that:
1. All decisions and final orders in cases falling under the Interim Rules of Corporate
Rehabilitation and the Interim Rules of Procedure Governing Intra-Corporate Controversies
under Republic Act No. 8799 shall be appealable to the Court of Appeals through a petition
for review under Rule 43 of the Rules of Court.
2. The petition for review shall be taken within fifteen (15) days from notice of the decision or
final order of the Regional Trial Court. Upon proper motion and the payment of the full
amount of the legal fee prescribed in Rule 141 as amended before the expiration of the
reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days
within which to file the petition for review. No further extension shall be granted except for the
most compelling reasons and in no case to exceed fifteen (15) days. (Emphases ours.)
xxxx
The issue that needs to be resolved at this point is whether or not petitioners pursued the correct
remedy in questioning the RTC Decisions in Civil Case Nos. Q-04-091, Q-04-092 and Q-04-093.
Corollary to this is whether or not the petitions for certiorari filed by petitioners could have been
treated as petitions for review under Rule 43 of the Rules of Court, in accordance with the provisions
of the Resolution in A.M. No. 04-9-07-SC, such that petitioners can be considered to have availed
themselves of the proper remedy in assailing the rulings of the RTC.
We answer in the negative.

The term "petition" in the third and fourth paragraphs of A.M. No. 04-9-07-SC, cannot be construed
as to include a petition for certiorari under Rule 65 of the Rules of Court. The rationale for this lies in
the essential difference between a petition for review under Rule 43 and a petition for certiorari
under Rule 65 of the Rules of Court.
xxxx
The RTC Decisions in Civil Case Nos. Q-04-091, Q-04-092 and Q-04-093 are final orders that
disposed of the whole subject matter or terminated the particular proceedings or action, leaving
nothing to be done but to enforce by execution what has been determined. As the RTC was
unquestionably acting within its jurisdiction, all errors that it might have committed in the exercise of
such jurisdiction are errors of judgment, which are reviewable by a timely appeal.
xxxx
The Court of Appeals (12th Division) was, therefore, correct in dismissing the petition for certiorari in
CA-G.R. SP No. 85878, which assailed the RTC Decision in Civil Case No. Q-04-091. x x x 148
The rule providing that a petition for review under Rule 43 of the Rules of Court is the proper mode
of appeal in intra-corporate controversies, as embodied in A. M. No. 04-9-07-SC, has been in effect
since October 15, 2004. Hence, the filing by POTC and PHC (Nieto Group) of the petition for
certiorari on March 21, 2007 (C.A.-G.R. SP No. 98399) was inexcusably improper and ineffectual. By
virtue of its being an extraordinary remedy, certiorari could neither replace nor substitute an
adequate remedy in the ordinary course of law, like appeal in due course. 149 Indeed, the appeal
under Rule 43 of the Rules of Court would have been adequate to review and correct even the grave
abuse of discretion imputed to the RTC.150
As a consequence of the impropriety and ineffectuality of the remedy chosen by POTC and PHC
(Nieto Group), the TRO and the WPI initially issued by the CA in C.A.-G.R. SP No. 98399 did not
prevent the immediately executory character of the decision in Civil Case No. 04-1049.
6.
Petition for contempt against Bildner had no basis
The filing by Bildner and her counsel Atty. Manzanal of the complaint for perjury against Locsin and
his counsel Atty. Labastilla in the Office of the City Prosecutor of Manila did not amount to unlawful
interference with the processes of the CA. There is no denying that Bildner was within her right as a
party in interest in the proceedings then pending in the CA to bring the perjury charge against Locsin
and his counsel for their failure to aver in the certification against forum shopping attached to the
petition for certiorari in C.A.-G.R. SP No. 98399 of the pendency of another petition in C.A.-G.R. SP
No. 98087 despite their knowledge thereof. Her complaint for perjury could really be dealt with by the
Office of the City Prosecutor of Manila independently from any action the CA would take on the issue
of forum shopping. As such, the filing of the complaint did not interfere with the CAs authority over
the petition in C.A.-G.R. SP No. 98399.
In this regard, we deem to be appropriate to reiterate what the Court said on the nature of contempt
of court in Lorenzo Shipping Corporation v. Distribution Management Association of the
Philippines,151 viz:

Misbehavior means something more than adverse comment or disrespect. There is no question that
in contempt the intent goes to the gravamen of the offense. Thus, the good faith, or lack of it, of the
alleged contemnor should be considered. Where the act complained of is ambiguous or does not
clearly show on its face that it is contempt, and is one which, if the party is acting in good faith, is
within his rights, the presence or absence of a contumacious intent is, in some instances, held to be
determinative of its character. A person should not be condemned for contempt where he contends
for what he believes to be right and in good faith institutes proceedings for the purpose, however
erroneous may be his conclusion as to his rights. To constitute contempt, the act must be done
willfully and for an illegitimate or improper purpose.
Nonetheless, the Court states that the power to punish for contempt is inherent in all courts, and is
essential to the preservation of order in judicial proceedings and to the enforcement of judgments,
orders, and mandates of the court, and ultimately, to the due administration of justice. But such
power should be exercised on the preservative, not on the vindictive, principle. Only in cases of clear
and contumacious refusal to obey should the power be exercised. Such power, being drastic and
extraordinary in its nature, should not be resorted to unless necessary in the interest of justice. 152
7.
Bildner Group entitled to injunctive relief
Concerning the propriety of the issuance of the WPI to enjoin BPI from letting the Locsin Group
withdraw funds or transact with BPI on PHCs deposits, the Court finds that the Bildner Group as the
applicant had a right in esse to be protected by the injunctive relief. A right that is in esse is a clear
and unmistakable right to be protected, and is one founded on or granted by law or is enforceable as
a matter of law.153 The Bildner Group, because of the indubitability of its standing as a party in
interest, showed a clear and unmistakable right to be protected.
In granting the Bildner Groups application for the WPI, the RTC (Branch 62) emphasized the
peculiarities of the case. Apparently, the Bildner Group relied on the fact that their election to the
PHC Board of Directors was implemented and executed even prior to the WPI issued by the CA to
stop the RTC (Branch 138) from implementing its decision in Civil Case No. 04-1049. The right that
the Bildner Group relied on in seeking the execution of the decision was enforceable as a matter of
law, for it emanated from the validly issued decision that was immediately executory under the
pertinent rule. On the other hand, the TRO and WPI the CA issued in C.A.-G. R. SP No. 98399 could
not and did not have any restraining effect on the immediately executory nature of the decision
rendered in Civil Case No. 04-1049, because the matter had been brought to the CA through the
wrong remedy.
Considering that the Bildner Groups clear right to an injunctive relief was established, coupled with
the affirmance of the consolidated decision of the CA upholding the validity of the July 28, 2004
election of the Bildner Group as Directors and Officers of PHC, the decision promulgated in C.A.G.R. SP No. 102437 to the effect that Bildners standing as a party-ininterest was unclear, and that
she failed to show a clear and unmistakable right to be protected by the writ of injunction, lost its
ground.
Accordingly, the reversal of the decision promulgated in C.A.-G.R. SP No. 102437, and the
reinstatement of the WPI issued against BPI by the RTC (Branch 62) in Civil Case No. 07-840 are in
order.
8.

Supreme Court, not being a trier of facts,


will not reexamine the evidence
The insistence by POTC and PHC (Nieto Group) that the RTCs decision in Civil Case No. 04-1049
was contrary to the facts and the evidence lacks merit.
The Court is not a trier of facts, and thus should not reexamine the evidence in order to determine
whether the facts were as POTC and PHC (Nieto Group) now insist they were. The Court must
respect the findings of the CA sustaining the factual findings of the RTC in Civil Case No. 04-1049.
As a rule, the findings of fact by the CA are not reviewed on appeal, but are binding and
conclusive.154 The reason for this has been well stated in J.R. Blanco v. Quasha:155
To begin with, this Court is not a trier of facts. It is not its function to examine and determine the
weight of the evidence supporting the assailed decision. In Philippine Airlines, Inc. vs. Court of
Appeals (275 SCRA 621 [1997]), the Court held that factual findings of the Court of Appeals which
are supported by substantial evidence are binding, final and conclusive upon the Supreme Court. So
also, well-established is the rule that "factual findings of the Court of Appeals are conclusive on the
parties and carry even more weight when the said court affirms the factual findings of the trial court."
Moreover, well entrenched is the prevailing jurisprudence that only errors of law and not of facts are
reviewable by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of
Court, which applies with greater force to the Petition under consideration because the factual
findings by the Court of Appeals are in full agreement with what the trial court found.
1wphi1

We affirm, therefore, the appealed consolidated decision promulgated in C.A.-G.R. SP No. 101225,
C.A.-G.R. SP No. 98097 and C.A.-G.R. SP No. 98399, and dismiss the petitions of the Locsin/NietoPCGG Group filed in G.R. No. 184712-14 and G.R. No. 186066.
WHEREFORE, the Court DENIES the petitions for review on certiorari in G.R. No. 184622, G.R. No.
184712-14, and G.R. No. 186066; AFFIRMS the resolution promulgated on August 15, 2007 by the
Sandiganbayan in Civil Case No. 0198 and the consolidated decision promulgated on September
30, 2008 in C.A.-G.R. SP No. 101225, C.A.-G.R. SP No. 98097 and C.A.-G.R. SP No. 98399;
GRANTS the petition for review on certiorari in G.R. No. 186590, and, accordingly, ANNULS and
SETS ASIDE the decision promulgated on July 16, 2008 in C.A.-G.R. SP No. 102437; AFFIRMS the
order issued on December 13, 2007 by the Regional Trial Court, Branch 62, in Makati City; and
REINSTATES the writ of injunction issued on December 17, 2007 against Bank of Philippine Islands.
The Court DIRECTS the Locsin/Nieto-PCGG Group to render an accounting of all the funds and
other assets received from the PHILIPPINE OVERSEAS TELECOMMUNICATIONS
CORPORATION, PHILIPPINE HOLDINGS CORPORATION and PHILIPPINE COMMUNICATIONS
SATELLITE CORPORATION since September 1, 2004, and to return such funds to the respective
corporations within thirty days from the finality of this decision.
Costs of suit to be paid by the Group of Enrique L. Locsin and Manuel H. Nieto, Jr.
SO ORDERED.

G.R. No. 169345

August 25, 2010

DEE PING WEE, ARACELI WEE and MARINA U. TAN, Petitioners,


vs.
LEE HIONG WEE and ROSALIND WEE, Respondents.
DECISION
LEONARDODE CASTRO, J.:
The case before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court, which seeks to reverse the Resolutions dated June 29, 2005 2 and August 18, 20053 of the
Court of Appeals (First Division) in CA-G.R. SP No. 90024. In the Resolution dated June 29, 2005,
the appellate court denied due course to the Petition for Certiorari and Prohibition with prayer for
issuance of a Writ of Preliminary Injunction and/or a Temporary Restraining Order (TRO) 4 filed by
herein petitioners, which assailed the Order5 dated April 21, 2005 of the Regional Trial Court (RTC)
of Quezon City, Branch 93, in Civil Case No. Q-04-091, denying petitioners Omnibus Motion (to
Quash Writ of Execution and/or Suspend Execution).6 The petitioners Motion for Reconsideration7 of
the Resolution dated June 29, 2005 was denied by the Court of Appeals in the Resolution dated
August 18, 2005.
The factual and procedural antecedents of the case are as follows:
Petitioners Dee Ping Wee and Marina U. Tan are the brother and sister of respondent Lee Hiong
Wee. Petitioner Araceli Wee is the spouse of Dee Ping Wee, while respondent Rosalind Wee is the
spouse of Lee Hiong Wee.
At the commencement of the controversy, petitioners Dee Ping Wee, Araceli Wee and Marina U. Tan
were the majority stockholders of: (1) Marcel Trading Corporation, a domestic corporation that is
primarily engaged in the business of cultivating, buying, selling at wholesale, exporting and
manufacturing of seaweeds;8 (2) Marine Resources Development Corporation, a domestic
corporation that is primarily engaged in the business of cultivating, buying, selling and exporting on a
wholesale basis seaweeds, seashells and other marine products;9and (3) First Marcel Properties,
Inc., a domestic corporation that is primarily engaged in the business of acquisition, development
and disposition of real estate and other kinds of structures.10 On the other hand, respondents Lee
Hiong Wee and Rosalind Wee were minority stockholders in the said corporations.
On April 16, 2004, respondents, through their counsel, sent a letter to petitioner Dee Ping Wee,
demanding the inspection of the corporate records of the above corporations. The letter stated thus:
April 16, 2004
Mr. Dee Ping Wee
Marcel Tower
Araneta Avenue, Quezon City
Metro Manila

Re: Demand for Inspection and Reproduction of Corporate records and to be Furnished Financial
Statements of [Marine Resources Development Corporation, First Marcel Properties, Inc. and Marcel
Trading Corporation]
Dear Mr. Wee:
We write in behalf of our clients, Lee Hiong Wee and Rosalind L. Wee who as per records on file
with the Securities and Exchange Commission are stockholders of Marine Resources and
Development Corporation, First Marcel Properties Inc. and Marcel Trading Corporation.
Since all of these records are in the same premises which are located in Marcel Tower, our clients
request that the same be made available for their (or their representatives) inspection and
reproduction at the fifth floor of the said building on April 26, 2004 at 10:00 am.
Likewise, we request you to furnish our clients with financial statements of said companies for the
years ending 2002 and 2003.
We shall appreciate receiving a reply from you on this matter before the said date. Otherwise, we
shall take the same to mean as your refusal to comply with this request. In which case, we shall be
constrained to file the necessary legal suits to enforce the rights of our clients.
Thank you,
Very truly yours,
For the Firm
(Signed)
PONCEVIC M. CEBALLOS11
On April 22, 2004, petitioner Dee Ping Wee replied to the above letter in the following manner, viz:
April 22, 2004
Atty. Poncevic Ceballos
Unit 3-E AGCOR Bldg., 335 Katipunan Ave.
Loyola Heights, Quezon City
Atty. Ceballos,
In connection with you[r] letter dated April 16, 2004, I wish to inform you that the Board of Directors
of Marcel Trading Corporation and Marine Resources Development Corporation will only accede to
the demand of your clients if the following conditions are fully satisfied:
1. Wee Lee Hiong and Rosalind Wee will furnish complete and true financial reports of Rico
Philippines Industrial Corporation to include:

1.1 Balance Sheet, Income Statement and Cash Flow Statements for the year 2003;
1.2 Detailed Statement on how he disbursed the deposits he withdrew from the
PBCOM, METROBANK and other depositary banks;
2. Pay back to Marcel Trading Corporation, the cash advances he obtained in 2003.
Documents reveal that Marcel Trading Corporation availed of bank loan the proceeds of
which was obtained by Wee Lee Hiong for the operation of Rico Philippines Industrial
Corporation, aside from the own funds of Marcel Trading Corporation that was likewise
loaned to RPIC. Marcel Trading Corporation had paid substantial sum of interest for the Loan
and greatly affected the operations of Marcel Trading Corporation.
3. Account for the export sales made by Wee Lee Hiong of all RPICs finished products but
foreign customers were instructed/directed to make payments/remittances to his companys
bank account/deposit in Hongkong.
The directors of [Marcel Trading Corporation and Marine Resources Development Corporation] have
equal or even better rights to make such demands from your clients.
Once your client is ready to fulfill the foregoing conditions, please inform us.
Very truly,
(Signed)
DEE PING WEE12
As their demand letter met an unfavorable reply, respondents filed before the RTC of Quezon City,
on May 12, 2004, three separate Complaints against petitioners for the inspection of the corporate
books of the above-mentioned corporations. The complaint involving Marcel Trading Corporation
was docketed as Civil Case No. Q-04-091,13 while those pertaining to Marine Resources
Development Corporation and First Marcel Properties, Inc. were docketed, respectively, as Civil
Case No. Q-04-09214 and Civil Case No. Q-04-093.15
Invoking similar causes of action in each of the complaints, respondents claimed that petitioners
violated their rights to gain access to and inspect the corporate books, records and financial
statements of the above corporations, which rights are guaranteed by Sections 74 and 75 of the
Corporation Code.16 In view of the allegedly illegal and baseless acts of the petitioners, respondents
sought payment for moral and exemplary damages, as well as attorneys fees and costs of suit.
On May 31, 2004, petitioners filed separate Answers,17 praying for the dismissal of the complaints for
lack of merit. Petitioners asserted, among others, that the letter dated April 16, 2004 of respondents
counsel failed to specify the particular records or documents they wished to inspect and the purpose
for such inspection. Petitioners countered that respondents complaints for inspection of corporate
records were ill-motivated, merely contrived to harass petitioners and the controlling stockholders,
sought for vexatious purposes and, therefore, not germane to respondents rights as stockholders.
The obvious purpose of respondents in demanding inspection of the corporate records was,

allegedly, to fish for evidence that they could use against petitioners to regain management control
of the aforementioned corporations or to find technical defects in the corporate transactions so that
they can file harassment suits against petitioners. 18
On June 23, 2004, the RTC of Quezon City, Branch 93, sitting as a special commercial court,
rendered three separate, but similarly worded, Decisions in Civil Case Nos. Q-04-091, 19 Q-0409220 and Q-04-093.21 Except for the names of the corporations involved, the decisions of the trial
court uniformly read:
Based on the pleadings submitted and the pieces of documentary evidence attached thereto, the
court is satisfied that the [respondents] Lee Hiong Wee and Rosalind L. Wee are stockholders of the
corporation [Marcel Trading Corporation/Marine Resources Development Corporation/First Marcel
Properties, Inc.]. Upon the other hand, the [petitioners] have not advanced any valid ground to
warrant a denial of the stockholders right to inspect corporate books and records as well as to
copies of financial statements of the corporation.
The rights of inspection and to copies of financial statements under Sections 74 and 75 are inherent
in the ownership of shares of a corporation. These rights enable stockholders to know how the
corporation is being managed.
The stockholders right of inspection of the corporations books and records is based upon their
ownership of the assets and property of the corporation. It is therefore, an incident of ownership of
the corporate property whether this ownership or interest be termed an equitable ownership, a
beneficial ownership or a quasi-ownership. This right is predicated upon the necessity of selfprotection.
The exercise of these rights may be denied, however, if it is shown that the stockholders have
improperly used any information secured through a previous examination or that the demand is
purely speculative or merely to satisfy curiosity. These grounds have not been shown to be present
in this case.
WHEREFORE, the foregoing premises considered, the court rules in favor of the [respondents]. The
[petitioners] are accordingly directed to allow the [respondents] to exercise their right to inspect
corporate books and records during business hours of any working day subject to the following
conditions:
1. Written notice of when the right is to be exercised be given the [petitioners]/other
appropriate officers of the corporation to allow for facility; the deployment of necessary
manpower and ready availability of records to be inspected/copied and, insofar as the instant
action is concerned, the following corporate records/documents spanning the period from
January 2003 up to the present are to be made available:
a. Check vouchers and checks;
b. Debit and credit memoranda;

c. Monthly bank statements from Metrobank, BPI, Banco de Oro, China Bank,
Philippine Bank of Communications and other banks where the corporation currently
maintains accounts;
d. Records of accounts receivables and payables;
e. Monthly inventory list;
f. Purchase and sales books;
g. Sales invoices;
h. General ledgers;
i. Worksheet;
j. Monthly cash flow statements;
k. Financial statements both internal and external
2. Payment of the reasonable costs of inspection and photocopying be deposited with the
treasurer of the corporation which is fixed, for the purpose of the inspection herein allowed,
at P10,000.00 initially, subject to liquidation;
3. If there be other books and records to be inspected, a schedule of these items, the
desired date of inspection which must be during business hours of any working day, and the
purpose thereof, be communicated seasonably to the [petitioners]/appropriate officers of the
corporation together with the payment of reasonable cost of inspection/photocopying;
4. All inspection and photocopying activities shall be carried out at the principal office and/or
premises of the corporation where the corporate books, records and documents are kept.
The court fails to find any sufficient basis to award damages to the [respondents].
Costs against [petitioners]. (Citations omitted, emphasis ours.)
The records of the cases reveal that petitioners received copies of the RTC Decisions on July 7,
2004, while respondents received the same on July 8, 2004.22
On August 23, 2004, petitioners filed before the Court of Appeals three separate Petitions for
Certiorari under Rule 65 of the Rules of Court, which contained the same arguments in impugning
the judgments of the RTC. The petition challenging the decision in Civil Case No. Q-04-091 was
docketed as CA-G.R. SP No. 85878,23 while the petitions contesting the judgments in Civil Case Nos.
Q-04-092 and Q-04-093 were docketed as CA-G.R. SP Nos. 8588024 and 85879,25 respectively.

Petitioners argued that they resorted to the extraordinary remedy of certiorari given that there was
no plain, speedy and adequate remedy in the ordinary course of law and that a decision rendered in
an intra-corporate controversy was immediately executory. Petitioners likewise claimed that the RTC
erred when it adjudged that "the exercise of [a stockholders right to inspect and to receive copies of
financial statements] may be denied x x x if it is shown that the stockholders have improperly used
any information secured through a previous examination or that the demand is purely speculative or
merely to satisfy curiosity" and that said grounds "have not been shown to be present in this case."
Petitioners submitted that, other than the aforementioned grounds, a stockholders right to inspect
corporate records may also be denied (1) if the stockholder is not acting in good faith and (2) the
inspection is not for a legitimate purpose. Said grounds were allegedly the very defenses relied upon
by petitioners in their Answers, but the trial court ignored the same. In so doing, petitioners
concluded that the RTC acted capriciously, whimsically, arbitrarily and in a despotic manner, thus
committing grave abuse of discretion amounting to lack of jurisdiction. Petitioners prayed that a
preliminary injunction and/or a TRO be issued, enjoining the enforcement or implementation of the
Decisions of the RTC dated June 23, 2004, to prevent grave and irreparable damage to petitioners.
On August 31, 2004, petitioners filed a Motion for Consolidation 26 of the three petitions with CA-G.R.
SP No. 85878, in the interest of "judicial economy and coherence and the fact that the three (3)
cases involve the same parties and affecting closely related subject matters and thus involving
common questions of law or facts."
CA-G.R. SP No. 85878
In a Resolution27 dated September 2, 2004, the Court of Appeals (12th Division) dismissed the
petition in CA-G.R. SP No. 85878, ratiocinating in this wise:
While petitioners admit that appeal was an available remedy, they claim that it is not adequate,
speedy and sufficient. However, other than said bare allegation, petitioners have not explained why
appeal is not an adequate remedy.
Admittedly, petitioners received a copy of the assailed Decision on July 7, 2004, hence, they
had fifteen (15) days therefrom, or until July 22, 2004, within which to appeal the same.
However, it was only on August 23, 2004 that petitioners filed the instant petition for certiorari
with this Court. The fact that the assailed Decision is immediately executory, pursuant to Section 4
of the Interim Rules of Procedure Governing Intra-Corporate Controversies under Republic Act No.
8799, does not necessarily mean that appeal is not an adequate remedy. Under Section 10, Rule 41
of the 1997 Rules of Civil Procedure, the clerk of court of the Regional Trial Court is required to
transmit to this Court the records of the appealed case within thirty (30) days after the perfection of
the appeal. Likewise, Section 3, Rule 44 of the same Rules provides that if the original record is not
transmitted to this Court within thirty (30) days after the perfection of the appeal, either party may file
a motion with the trial court, with notice to the other, for the transmittal of such record or record on
appeal. Thus, had petitioners immediately filed a notice of appeal with respondent court, the
records of Civil Case No. Q-04-091 could have been transmitted to this Court within thirty (30)
days from said filing, i.e., even before the instant petition was filed on August 23, 2004, and
petitioners could have sought a temporary restraining order in the appealed case to stay the
enforcement of the assailed Decision.

As pointed out in Manila Electric Company vs. Court of Appeals, 187 SCRA 200, 205:
"While the special civil action of certiorari may be availed of in the alternative situation where an
appeal would not constitute a plain, speedy and adequate remedy, this is on the theoretical
assumption that the right to appeal is still available in the case. If, however, the remedy by appeal
had already been lost and the loss was occasioned by petitioners own neglect or error in the choice
of remedies, certiorari cannot lie as a substitute or a tool to shield the petitioner from the adverse
consequences of such neglect or error. The two remedies are mutually exclusive and not alternative
or successive."
WHEREFORE, the instant petition is DISMISSED. (Emphases ours.)
Subsequently, on September 22, 2004, the Court of Appeals (12th Division) issued a
Resolution,28 which merely noted the petitioners Motion for Consolidation, inasmuch as the petition
in CA-G.R. SP No. 85878 was already dismissed.
Petitioners filed a Motion for Reconsideration29 of the Resolution dated September 2, 2004, but the
same was denied in a Resolution30 dated November 17, 2004.
Afterward, petitioners no longer challenged before this Court the Resolutions of the Court of Appeals
(12th Division) in CA-G.R. SP No. 85878.
CA-G.R. SP No. 85880
On March 11, 2005, the Court of Appeals (Fourth Division) promulgated its Decision 31 in CA-G.R. SP
No. 85880, annulling the RTC Decision dated June 23, 2004 in Civil Case No. Q-04-092. The
appellate court explained thus:
As [respondents] failed to allege their motive, purpose or reason for the inspection, the trial court, in
its assailed decision, did not make any finding that the inspection sought was for a legitimate
purpose. Neither can we discern, on the basis of the records of this case, that indeed the
[respondents] were properly motivated in seeking an inspection of the records and books of Marine
Resources Development Corporation.
Consequently, in the absence of any showing of proper motive on the part of the [respondents] in
seeking an inspection of the books and records of Marine Resources Development Corporation, in
line with the ruling of the Supreme Court in the aforecited case of Gonzales vs. Philippine National
Bank, we hold that the trial court patently erred and as a result thereof, gravely abused its discretion
when, in its assailed decision, it ruled in favor of the [respondents], allowing them to inspect the
records and books of Marine Resources Development Corporation.
WHEREFORE, the instant petition for certiorari is hereby GRANTED. The assailed decision of the
Regional Trial Court, National Capital Judicial Region, Branch 93, Quezon City, in Civil Case No. Q04-092 is ANNULLED andSET ASIDE. Judgment is hereby rendered dismissing [respondents]
complaint for lack of merit.32

Respondents sought the reconsideration33 of the above decision, but the Court of Appeals (Fourth
Division) denied the same in a Resolution34 dated February 7, 2006. Thereafter, the Decision dated
March 11, 2005 in CA-G.R. SP No. 85880 became final and executory on March 2, 2006. 35
CA-G.R. SP No. 85879
On April 28, 2005, the Court of Appeals (Eighth Division) rendered a Decision 36 in CA-G.R. SP No.
85879, adopting the Decision dated March 11, 2005 in CA-G.R. SP No. 85880. After quoting the
relevant portions of the latter decision, the Court of Appeals (Eighth Division) adjudged that:
This Division agrees with the x x x findings of the Fourth Division, the same having been reached
after a thorough discussion of the merits of the case. The only difference between CA-G.R. SP No.
85880 and the present case is that the said case involves Marine Resources Development
Corporation while this case concerns First Marcel Properties, Inc.
WHEREFORE, the Decision dated March 11, 2005 rendered in CA-G.R. SP No. 85880 is hereby
adopted by this Division.37
Respondents filed a Motion for Reconsideration38 of the above Decision, but the same was denied in
a Resolution39 dated May 19, 2006. Subsequently, the Decision dated April 28, 2005 in CA-G.R. SP
No. 85879 became final and executory on June 27, 2006. 40
Motion for Execution
In the interregnum, after the RTC of Quezon City promulgated the Decisions dated June 23, 2004 in
Civil Case Nos. Q-04-091, Q-04-092 and Q-04-093, respondents filed a Motion for Execution 41 of the
said decisions on September 15, 2004. Respondents averred that said motion was consistent with
Rule 1, Section 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies:
SEC. 4. Executory nature of decisions and orders. All decisions and orders issued under these
Rules shall immediately be executory. No appeal or petition taken therefrom shall stay the
enforcement or implementation of the decision or order, unless restrained by an appellate court.
Interlocutory orders shall not be subject to appeal.
As there was no restraining order issued by an appellate court, enjoining the execution of the RTC
decisions, respondents argued that the said execution should proceed as a matter of course.
In an Order42 dated February 21, 2005, the RTC denied the Motion for Execution of the decisions in
Civil Case Nos. Q-04-092 and Q-04-093, stating that "the Motion for Writ of Execution cannot be
granted at this time in view of the pendency of incidents with the appellate court [CA-G.R. SP No.
85879 and CA-G.R. SP No. 85880], which incidents stand to be affected by a precipitate execution
of the judgments in these cases. To rule otherwise may render moot the proceedings that are
pending with the higher court."
On the other hand, the RTC granted the Motion for Execution of the decision in Civil Case No. Q-04091 in an Order43 likewise dated February 21, 2005. The trial court based its ruling on the fact that

the petition in CA-G.R. SP No. 85878, which assailed the decision in Civil Case No. Q-04-091, had
already been dismissed and the Motion for Reconsideration thereof was also denied.
On March 9, 2005, the Branch Clerk of Court of the RTC of Quezon City issued the Writ of
Execution44 in Civil Case No. Q-04-091.
On March 22, 2005, petitioners filed an Omnibus Motion (To Quash Writ of Execution and/or
Suspend Execution)45 in Civil Case No. Q-04-091. Petitioners observed that the Motion for Execution
was based on the Court of Appeals (12th Division) Resolution dated September 2, 2004 in CA-G.R.
SP No. 85878, which dismissed the petition assailing the RTC Decision dated June 23, 2004 in Civil
Case No. Q-04-091. Petitioners pointed out that they subsequently received a copy of the Decision
dated March 11, 2005 in CA-G.R. SP No. 85880, wherein the Court of Appeals (Fourth Division) set
aside the ruling of the RTC in Civil Case No. Q-04-092 and thereby disallowed the respondents from
inspecting the corporate records of Marine Resources Development Corporation. Petitioners also
noted that the dismissal of the petition for certiorari in CA-G.R. SP No. 85878 was merely based on a
technicality, i.e., that petitioners should have instead filed an appeal, and that the Resolution of the
Court of Appeals (12th Division) did not delve on the merits of the case. Except for the identity of the
corporations concerned, petitioners posited that the Decision dated March 11, 2005 in CA-G.R. SP
No. 85880 supplemented what was lacking in the Resolution dated September 2, 2004 in CA-G.R.
SP No. 85878 by resolving the issue of the propriety of the intended inspection of corporate records.
Thus, petitioners asserted that the Decision dated March 11, 2005 in CA-G.R. SP No. 85880 was a
supervening event, which warranted the suspension of the execution of the RTC Decision dated
June 23, 2004 in Civil Case No. Q-04-091.
In an Order46 dated April 21, 2005, the RTC denied the petitioners Omnibus Motion (To Quash Writ
of Execution and/or Suspend Execution), elucidating thus:
On [petitioners] "Omnibus Motion (to Quash Writ of Execution and/or Suspend Execution)" and
subsequent related pleadings, the court resolves to deny the motion as the arguments raised therein
do not sufficiently persuade the court that legal basis exists to justify the quashal of the Writ of
Execution and/or suspension of its execution.
It bears to note that the Resolution of the Court of Appeals [in CA-G.R. SP No. 85880], granting
[petitioners] Petition for [Certiorari] with the Court of Appeals in a similar case (Q-04-092) and the
setting aside of the order of inspection which was ordered by this court, has no relevance to this
case. Worthy of emphasis is that the corporation involved herein is Marcel Trading Corporation
which is separate from Marine Resources Development Corporation, the corporation involved in Q04-092.
The Omnibus Motion is accordingly denied.
CA-G.R. SP No. 90024
Discontented with the above order, petitioners filed with the Court of Appeals a Petition for Certiorari
and Prohibition with prayer for issuance of a Writ of Preliminary Injunction and/or a Temporary
Restraining Order,47which petition was docketed as CA-G.R. SP No. 90024 and raffled to the First

Division. Petitioners imputed grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of the RTC when the latter denied the petitioners Omnibus Motion (To Quash Writ of
Execution and/or Suspend Execution) and failed to consider as a supervening event the Court of
Appeals (Fourth Division) Decision dated March 11, 2005 in CA-G.R. SP No. 85880, which should
have warranted the suspension of the execution of the RTC Decision dated June 23, 2004 in Civil
Case No. Q-04-091.
In the assailed Resolution48 dated June 29, 2005, the Court of Appeals (First Division) denied due
course to the petition, thus:
After a study of the petitions and its annexes, the Court perceived no grave abuse of discretion
committed by the [RTC]. The decision was rendered on the basis of the existing law and prevailing
jurisprudence. As to its execution, there is no subsequent event justifying a quashal of the writ of
execution or suspension of its implementation. The [RTC] was correct when [it] stated that the
corporation involved, Marcel Trading Corporation, is different, or separate from, Marine Resources
Development Corporation, the corporation involved in Q-04-092.
xxxx
The burden of proof in this regard lies with the corporation who refuses a stockholder from
exercising his right. It is not the other way around. A stockholder need not prove that he is in good
faith and his request or demand is for a legitimate purpose. The right is there. The burden is on the
corporation to show that he really has other motives not legitimate.
This issue is not novel. In the case of Republic (PCGG) v. Sandiganbayan and Cojuangco, G.R. No.
88809, July 10, 1991, it was ruled that the corporation has the burden "to show that private
respondents action in seeking examination of the corporate records was moved by unlawful or illmotivated designs which could appropriately call for a judicial protection against the exercise of such
right." x x x
xxxx
WHEREFORE, there being no prima facie showing of a grave abuse of discretion, the petition is
DENIED due course.
Petitioners filed a Motion for Reconsideration49 of the above Resolution, but the Court of Appeals
(First Division) likewise denied the same in the Resolution 50 dated August 18, 2005.
Thus, petitioners came to this Court via the instant petition, praying for the issuance of a writ of
preliminary injunction and/or a TRO to enjoin the enforcement of the Writ of Execution dated March
9, 2005, pending the consideration of the petition and, ultimately, the permanent suspension of the
implementation of the said Writ of Execution in view of the finality of the Court of Appeals (Fourth
Division) Decision dated March 11, 2005 in CA-G.R. SP No. 85880.
On October 17, 2005, the Court issued a TRO,51 which enjoined the RTC from enforcing or
implementing the Writ of Execution dated March 9, 2005 in Civil Case No. Q-04-091.

The sole issue put forward for our consideration is:


WHETHER OR NOT THE DECISIONS IN SP NO. 85880 AND 85879 RENDERED BY SEPARATE
DIVISIONS OF THE COURT OF APPEALS[,] DECLARING AS IMPROPER THE INTENDED
INSPECTION OF CORPORATE RECORDS OF MARINE RESOURCE DEVELOPMENT
CORPORATION AND FIRST MARCEL PROPERTIES CORPORATION, CONSTITUTE A
SUPERVENING EVENT WHICH WOULD WARRANT THE SUSPENSION OF EXECUTION OF
THE DECISION OF THE REGIONAL TRIAL COURT GRANTING INSPECTION OF CORPORATE
RECORDS OF MARCEL TRADING CORPORATION?
Petitioners reiterate their position that the Decision dated March 11, 2005 of the Court of Appeals
(Fourth Division) in CA-G.R. SP No. 85880, which set aside the ruling of the RTC in Civil Case No.
Q-04-092 should have been considered as a supervening event that justified the suspension of the
execution of the RTC Decision dated June 23, 2004 in Civil Case No. Q-04-091. Notwithstanding the
lack of identity of the corporations involved, petitioners aver that Civil Case No. Q-04-091 was
factually similar to Civil Case No. Q-04-092. Thus, they claim that the RTC should have taken judicial
notice of the Decision dated March 11, 2005 of the Court of Appeals (Fourth Division) in CA-G.R. SP
No. 85880. Once more, petitioners highlight the fact that the dismissal of the petition in CA-G.R. SP
No. 85878 was allegedly based on a mere technicality sans a discussion on the merits of the case.
As such, the Decision in CA-G.R. SP No. 85880 only supplemented what was lacking in the Decision
in CA-G.R. SP No. 85878. To the mind of petitioners, the RTC should have at least awaited the
finality of the judgments in CA-G.R. SP Nos. 85880 and 85879 before it ordered the execution of the
Decision dated June 23, 2004 in Civil Case No. Q-04-091.
The instant petition is devoid of merit.
After a careful review of the facts and arguments in this case, the Court finds that petitioners have
already lost their right to question the RTC Decision dated June 23, 2004 in Civil Case No. Q-04091, much less to seek the suspension of the execution thereof.
In Natalia Realty, Inc. v. Court of Appeals,52 the Court had the occasion to discuss the nature of
supervening events, thus:
One of the exceptions to the principle of immutability of final judgments is the existence of
supervening events. Supervening events refer to facts which transpire after judgment has become
final and executory or to new circumstances which developed after the judgment has acquired
finality, including matters which the parties were not aware of prior to or during the trial as they were
not yet in existence at that time.
A supervening event affects or changes the substance of the judgment and renders the execution
thereof inequitable.53 Should such an event occur after a judgment becomes final and executory,
which event may render the execution of the judgment impossible or unjust, Ramirez v. Court of
Appeals54 dictates that a stay or preclusion of execution may properly be sought.
Doubtless, the RTC Decisions dated June 23, 2004 in Civil Case Nos. Q-04-091, Q-04-092 and Q04-093 have since become final and executory.

Civil cases involving the inspection of corporate books are governed by the rules of procedure set
forth in A.M. No. 01-2-04-SC,55 otherwise known as the Interim Rules of Procedure for IntraCorporate Controversies under Republic Act No. 879956 (Interim Rules). Section 4, Rule 157 of the
Interim Rules defines the nature of the judgments rendered thereunder as follows:
SEC. 4. Executory nature of decisions and orders. - All decisions and orders issued under these
Rules shall immediately be executory, except the awards for moral damages, exemplary damages
and attorneys fees, if any. No appeal or petition taken therefrom shall stay the enforcement or
implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders
shall not be subject to appeal. (Emphases ours.)
Verily, the first part of Section 4, Rule 1 of the Interim Rules is categorical. Save for the exceptions
clearly stated therein, the provision enunciates that a decision and order issued under the Interim
Rules shall be enforceable immediately after the rendition thereof. In order to assail the decision or
order, however, the second part of the provision speaks of an appeal or petition that needs to be filed
by the party concerned. In this appeal or petition, a restraining order must be sought from the
appellate court to enjoin the enforcement or implementation of the decision or order. Unless a
restraining order is so issued, the decision or order rendered under the Interim Rules shall remain to
be immediately executory.
On September 14, 2004, the Court issued a Resolution in A.M. No. 04-9-07-SC 58 to rectify the
situation wherein "lawyers and litigants are in a quandary on how to prevent under appropriate
circumstances the execution of decisions and orders in cases involving corporate rehabilitation and
intra-corporate controversies."59 To address the "need to clarify the proper mode of appeal in [cases
involving corporate rehabilitation and intra-corporate controversies] in order to prevent cluttering the
dockets of the courts with appeals and/or petitions for certiorari," 60 the Court thereby resolved that:
1. All decisions and final orders in cases falling under the Interim Rules of Corporate
Rehabilitation and the Interim Rules of Procedure Governing Intra-Corporate Controversies
under Republic Act No. 8799 shall be appealable to the Court of Appeals through a petition
for review under Rule 43 of the Rules of Court.
2. The petition for review shall be taken within fifteen (15) days from notice of the decision or
final order of the Regional Trial Court. Upon proper motion and the payment of the full
amount of the legal fee prescribed in Rule 141 as amended before the expiration of the
reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days
within which to file the petition for review. No further extension shall be granted except for the
most compelling reasons and in no case to exceed fifteen (15) days. (Emphases ours.)
In the instant case, petitioners received the RTC Decisions dated June 23, 2004 in Civil
Case Nos. Q-04-091, Q-04-092 and Q-04-093 on July 7, 2004. Thereafter, petitioners filed
with the Court of Appeals three separate petitions for certiorari on August 23, 2004. On
September 2, 2004, the Court of Appeals (12th Division) resolved to dismiss the petition for
certiorari in CA-G.R. SP No. 85878, holding that the same was a mere substitute for the lost
remedy of appeal. Petitioners then filed a Motion for Reconsideration on the said resolution.
Thereafter, during the pendency of the Motion for Reconsideration in CA-G.R. SP No. 85878,

as well as the petitions for certiorari in CA-G.R. SP Nos. 85880 and 85879, the Resolution in
A.M. No. 04-9-07-SC took effect on October 15, 2004.
As regards the applicability of the Resolution to pending appeals or petitions, the same
pertinently provided that:
3. This Resolution shall apply to all pending appeals filed within the reglementary period from
decisions and final orders in cases falling under the Interim Rules of Corporate Rehabilitation
and the Interim Rules of Procedure Governing Intra-Corporate Controversies under Republic
Act No. 8799, regardless of the mode of appeal or petition resorted to by the appellant or
petitioner.
4. These pending appeals or petitions shall be treated in the following manner:
xxxx
c. In case a petition appealing or assailing the decision and/or final order is filed directly with the
Court of Appeals within the reglementary period, such petition shall be considered a petition for
review under Rule 43.
The issue that needs to be resolved at this point is whether or not petitioners pursued the correct
remedy in questioning the RTC Decisions in Civil Case Nos. Q-04-091, Q-04-092 and Q-04-093.
Corollary to this is whether or not the petitions for certiorari filed by petitioners could have been
treated as petitions for review under Rule 43 of the Rules of Court, in accordance with the provisions
of the Resolution in A.M. No. 04-9-07-SC, such that petitioners can be considered to have availed
themselves of the proper remedy in assailing the rulings of the RTC.
We answer in the negative.
The term "petition" in the third and fourth paragraphs of A.M. No. 04-9-07-SC, cannot be construed
as to include a petition for certiorari under Rule 65 of the Rules of Court. The rationale for this lies in
the essential difference between a petition for review under Rule 43 and a petition for certiorari
under Rule 65 of the Rules of Court. In Sebastian v. Morales, 61 the Court underscored, thus:
That a petition for certiorari under Rule 65 should pro forma satisfy the requirements for the contents
of a petition for review under Rule 43 does not necessarily mean that one is the same as the other.
Or that one may be treated as the other, for that matter. A petition for review is a mode of appeal,
while a special civil action for certiorari is an extraordinary process for the correction of errors of
jurisdiction. It is basic remedial law that the two remedies are distinct, mutually exclusive, and
antithetical. The extraordinary remedy of certiorari is proper if the tribunal, board, or officer exercising
judicial or quasi-judicial functions acted without or in grave abuse of discretion amounting to lack or
excess of jurisdiction and there is no appeal or any plain, speedy, and adequate remedy in law. A
petition for review, on the other hand, seeks to correct errors of judgment committed by the court,
tribunal, or officer. x x x When a court, tribunal, or officer has jurisdiction over the person and the
subject matter of the dispute, the decision on all other questions arising in the case is an exercise of
that jurisdiction. Consequently, all errors committed in the exercise of said jurisdiction are merely

errors of judgment. Under prevailing procedural rules and jurisprudence, errors of judgment are not
proper subjects of a special civil action for certiorari. For if every error committed by the trial court or
quasi-judicial agency were to be the proper subject of review by certiorari, then trial would never end
and the dockets of appellate courts would be clogged beyond measure. x x x.
The RTC Decisions in Civil Case Nos. Q-04-091, Q-04-092 and Q-04-093 are final orders that
disposed of the whole subject matter or terminated the particular proceedings or action, leaving
nothing to be done but to enforce by execution what has been determined. 62 As the RTC was
unquestionably acting within its jurisdiction, all errors that it might have committed in the exercise of
such jurisdiction are errors of judgment, which are reviewable by a timely appeal.
The petitioners erroneous choice of remedy was further aggravated by the fact that the same was
apparently resorted to after they lost the remedy of appeal. In their petitions for certiorari before the
Court of Appeals, petitioners pointedly stated that "while it may be true that appeal was an available
remedy, the same is not adequate or equally beneficial, speedy and sufficient." 63 This is plainly
inaccurate. As previously discussed, petitioners received the RTC Decisions in Civil Case Nos. Q04-091, Q-04-092 and Q-04-093 on July 7, 2004. From then on, petitioners filed the three separate
petitions for certiorari with the Court of Appeals on August 23, 2004, or forty-seven (47) days after
receipt of the RTC Decisions. In Federation of Free Workers v. Inciong,64 we reiterated the basic
remedial law principle that:
While the special civil action of certiorari may be availed of in the alternative situation where an
appeal would not constitute a plain, speedy, and adequate remedy, this is on the theoretical
assumption that the right to appeal is still available in the case. If, however, the remedy by appeal
had already been lost and the loss was occasioned by petitioners own neglect or error in the choice
of remedies, certiorari cannot lie as a substitute or a tool to shield the petitioner from the adverse
consequences of such neglect or error. The two remedies are mutually exclusive and not alternative
or successive.
Although the above doctrine admits of certain exceptions,65 none of them was sufficiently proven to
apply in the instant case.
The Court of Appeals (12th Division) was, therefore, correct in dismissing the petition for certiorari in
CA-G.R. SP No. 85878, which assailed the RTC Decision in Civil Case No. Q-04-091. Contrariwise,
the Fourth and Eighth Divisions of the Court of Appeals should not have assumed jurisdiction over
the petitions for certiorari in CA-G.R. SP Nos. 85880 and 85879, respectively. The Court likewise
notes that after taking cognizance of the petitions filed before them on August 23, 2004, the latter
two divisions of the Court of Appeals even failed to issue a preliminary injunction and/or a TRO,
enjoining the enforcement or implementation of the RTC Decisions in Civil Case Nos. Q-04-092 and
Q-04-093. Thus, in view of the foregoing, the RTC Decisions dated June 23, 2004 in Civil Case Nos.
Q-04-091, Q-04-092 and Q-04-093 remained to be immediately executory.
Nevertheless, it did not escape our attention that the RTC granted only the respondents motion for
execution in Civil Case No. Q-04-091 and denied the similar motions in Civil Case Nos. Q-04-092
and Q-04-093. Significantly, respondents no longer questioned the RTC Order denying the motions
for execution in the latter two cases. The ultimate issue that petitioners elevated to this Court

pertained to the propriety of the issuance of the writ of execution of the RTC Decision in Civil Case
No. Q-04-091. Thus, we accordingly limit our discussion thereto.
Petitioners contend that the supervening event which developed after the finality of the judgment in
Civil Case No. Q-04-091 is the Decision dated March 11, 2005 of the Court of Appeals (Fourth
Division) in CA-G.R. SP No. 85880.
We disagree.
There is nothing in the Decision in CA-G.R. SP No. 85880 that affects or changes the substance of
the judgment in Civil Case No. Q-04-091 and renders the execution of the same inequitable.
The petition for certiorari in CA-G.R. SP No. 85880 was filed in order to dispute the judgment in the
RTC Decision in Civil Case No. Q-04-092. In the said case, respondents sought to gain access to
and inspect the corporate books and records of Marine Resources Development Corporation. On the
other hand, in Civil Case No. Q-04-091, respondents entreated that they be allowed to inspect the
corporate books and records of Marcel Trading Corporation. Despite the fact that the parties to this
case are all stockholders in the said corporations and the respondents invoked the same provisions
of law, the cases filed before the RTC were entirely distinct from and independent of each other. The
two corporations involved are primarily engaged in different businesses and do not share exactly the
same set of stockholders. The records of the case are also silent with respect to the consolidation of
the cases before the trial court. Thus, any ruling on Civil Case No. Q-04-092 would not materially
alter the substance of the judgment in Civil Case No. Q-04-091, which would render the execution of
the latter case inequitable.
Additionally, the Court of Appeals (Fourth Division) in CA-G.R. SP No. 85880 adjudged that the RTC
patently erred in deciding in favor of respondents since the latter failed to show that they were
impelled by proper motives in seeking to inspect the corporate records of Marine Resources
Development Corporation.
However, as correctly held by the Court of Appeals (First Division) in the assailed Resolution dated
June 29, 2005 in CA-G.R. SP No. 90024, Republic v. Sandiganbayan 66 has already settled that the
burden of proof lies with the corporation who refuses to grant to the stockholder the right to inspect
corporate records. In said case, Eduardo Cojuangco, Jr. sought the inspection and examination of
the corporate records of San Miguel Corporation (SMC) and United Coconut Planters Bank (UCPB).
As the shares of Cojuangco in the aforementioned corporations had previously been sequestered by
the Presidential Commission on Good Government (PCGG), the requests for inspection were
coursed through the said government agency. The PCGG, thereafter, denied Cojuangcos requests,
arguing that the purpose of the latter was merely to satisfy his curiosity regarding the performance of
SMC and UCPB. In rejecting PCGGs line of reasoning, the Court ruled that:
[T]he argument is devoid of merit. Records indicate that [Cojuangco] is the ostensible owner of a
substantial number of shares and is a stockholder of record in SMC and UCPB. Being a stockholder
beyond doubt, there is therefore no reason why [Cojuangco] may not exercise his statutory right of
inspection in accordance with Sec. 74 of the Corporation Code, the only express limitation being that
the right of inspection should be exercised at reasonable hours on business days; 2) the person

demanding to examine and copy excerpts from the corporation's records and minutes has not
improperly used any information secured through any previous examination of the records of such
corporation; and 3) the demand is made in good faith or for a legitimate purpose. The latter two
limitations, however, must be set up as a defense by the corporation if it is to merit judicial
cognizance. As such, and in the absence of evidence, the PCGG cannot unilaterally deny a
stockholder from exercising his statutory right of inspection based on an unsupported and naked
assertion that private respondent's motive is improper or merely for curiosity or on the ground that
the stockholder is not in friendly terms with the corporation's officers.
xxxx
In the case at bar, [PCGG] failed to discharge the burden of proof to show that [Cojuangcos] action
in seeking examination of the corporate records was moved by unlawful or ill-motivated designs
which could appropriately call for a judicial protection against the exercise of such right. Save for its
unsubstantiated allegations, [PCGG] could offer no proof, nay, not even a scintilla of evidence that
respondent Cojuangco, Jr., was motivated by bad faith; that the demand was for an illegitimate
purpose or that the demand was impelled by speculation or idle curiosity. Surely, [Cojuangcos]
substantial shareholdings in the SMC and UCPB cannot be an object of mere curiosity. (Emphasis
ours.)
The Court is fully aware that the Decision dated March 11, 2005 of the Court of Appeals (Fourth
Division) in CA-G.R. SP No. 85880 and the Decision dated April 28, 2005 of the Court of Appeals
(Eighth Division) in CA-G.R. SP No. 85879, which adopted the ruling of the Fourth Division, had
already become final and executory for failure of respondents to appeal therefrom. The Court may
no longer disturb the same in these proceedings. In any event, the applicability of the said decisions
of the Court of Appeals (Fourth and Eighth Divisions) is limited to the letter-demand for the
inspection of corporate records of Marine Resources Development Corporation (Civil Case No. Q04-092) and First Marine Properties, Inc. (Civil Case No. Q-04-093) made by respondents on April
16, 2004.
1wphi1

In light of the foregoing, the Court declares that petitioners cannot rely on the Decision dated March
11, 2005 in CA-G.R. SP No. 85880 nor the Decision dated April 28, 2005 in CA-G.R. SP No. 85879
in order to pray for the permanent suspension of the writ of execution in Civil Case No. Q-04-091.
The execution of the Decision dated June 23, 2004 in Civil Case No. Q-04-091 should now proceed
as a matter of course.
WHEREFORE, the Court hereby:
(1) DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court;
(2) AFFIRMS the Resolutions dated June 29, 2005 and August 18, 2005 of the Court of
Appeals in CA-G.R. SP No. 90024;
(3) REMANDS the records of this case to the Regional Trial Court of Quezon City, Branch
93, for the immediate execution of the Decision dated June 23, 2004 in Civil Case No. Q-04091; and

(4) LIFTS the Temporary Restraining Order issued on October 17, 2005.
Costs against petitioners.
SO ORDERED.

G.R. No. 187872

November 17, 2010

STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, Petitioner,


vs.
STAR INFRASTRUCTURE DEVELOPMENT CORPORATION ET AL., Respondents.
DECISION
PEREZ, J.:
The classification of causes of action as intra-corporate disputes is at the heart of this petition for
review on certiorari filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, assailing the 22
December 2008 Decision rendered by the Ninth Division of the Court of Appeals (CA) in CA-G.R.
No. 969451 as well as the 30 April 2009 resolution which denied the motion for reconsideration of the
same decision.2
The Facts
Petitioner Strategic Alliance Development Corporation (STRADEC) is a domestic corporation
primarily engaged in the business of a development company in all the elements and details thereof,
with principal place of business at Poblacion Sur, Bayambang, Pangasinan. 3 Along with five
individuals4 and three other corporations,5 STRADEC incorporated respondent Star Infrastructure
Development Corporation (SIDC) on 28 October 1997, for the purpose of engaging in the general
construction business. As such incorporator, STRADEC fully paid and owned 2,449,998 shares or
49% of the 5,000,000 shares of stock into which SIDCs authorized capital stock ofP5,000,000.00
were divided.6 Pursuant to an amendment of its Articles of Incorporation on 5 June 1998, SIDC
transferred its principal place of business from Pasig City to Poblacion Sur, Bayambang,
Pangasinan7 and, later, to Lipa, Batangas.8
On 8 October 2004, respondents Aderito Z. Yujuico and Bonifacio C. Sumbilla, in their respective
capacities as then President and Treasurer of STRADEC, executed a Promissory Note for and in
consideration of a loan in the sum of P10,000,000.00 ostensibly extended in favor of said
corporation by respondent Robert L. Wong, one of the incorporators of SIDC. 9 As security for the
payment of the principal as well as the stipulated interests thereon, a pledge constituted over
STRADECs entire shareholdings in SIDC was executed by respondent Yujuico on 1 April 2005. 10 In
view of STRADECs repeated default on its obligations,11 however, the shares thus pledged were
sold by way of the 26 April 2005 notarial sale conducted in Makati City by respondent Raymond M.
Caraos. Having tendered the sole bid of P11,800,000.00,12 respondent Wong was issued the

corresponding certificates of stocks by respondent Bede S. Tabalingcos, SIDCs Corporate Secretary


for the years 2004 and 2005, after the transfer was recorded in the corporations stock and transfer
book.13
On 17 July 2006, Cezar T. Quiambao, in his capacity as President and Chairman of the Board of
Directors of STRADEC, commenced the instant suit with the filing of the petition which was docketed
as Civil Case No. 7956 before Branch 2 of the Regional Trial Court (RTC) of Batangas City, sitting as
a Special Commercial Court (SCC).14 In its 31 July 2006 amended petition, STRADEC alleged,
among other matters, that respondents Yujuico and Sumbilla were not authorized to enter into any
loan agreement with respondent Wong, much less pledge its SIDC shareholdings as security
therefor; that it did not receive the proceeds of the supposed loan and immediately apprised SIDC of
the irregularity of the transaction upon discovering the same; that it was only able to ascertain the
details of the transaction and transfer of the subject shares from a narration thereof in a Certification
dated 3 September 2005 issued by respondent Tabalingcos; and, that respondent Wong
subsequently sold the shares to respondent Cypress Tree Capital Investment, Inc. (CTCII), a
corporation he formed with members of his own family on 5 July 2005.15
STRADEC further averred that it already caused the National Bureau of Investigation (NBI) to
conduct an investigation of the unlawful transfer of its shares; that it was altogether eased out during
the 30 July 2005 SIDC annual stockholders meeting where respondent Wong was acknowledged as
the holder of the subject shares and the further transfer of the corporations principal place of
business to Lipa, Batangas was approved; and, that despite being left out in the notice sent by
respondent Cynthia Laureta, SIDCs new Corporate Secretary, it fielded a proxy to the 20 July 2006
SIDC stockholders special meeting where the increase of the corporations authorized capital stock
to P850,000,000.00 was discussed together with the decrease of the number of its directors from
nine to five. In addition to a temporary restraining order and/or writ of preliminary injunction to enjoin,
among other matters, CTCIIs exercise of proprietary rights over the subject shares, SIDCs
implementation of the resolutions passed during the 20 July 2006 stockholders meeting and any
action thereon by respondent Securities and Exchange Commission (SEC), STRADEC prayed for
the grant of the following reliefs: (a) the nullification of the loan and pledge respondents Yujuico and
Sumbilla contracted with respondent Wong; (b) the avoidance of the notarial sale conducted by
respondent Caraos; (c) the cancellation of the transfer of its shares in SIDCs books; (d) the
invalidation of the 30 July 2005 and 20 July 2006 SIDC stockholders meetings; and, (e) the grant of
its claims for attorneys fees and the costs.16
On 30 August 2006, the RTC issued a resolution denying STRADECs application for writ of
preliminary injunction on the ground that the grant thereof would effectively dispose of the main
action without trial; and, that the right to the relief sought was, as yet, uncertain in view of the
pendency of cases before the courts of Pasig and Urdaneta City involving, among other issues, the
ownership of STRADECs shares and the legitimacy of its two opposing sets of directors. 17 Anent
STRADECs amended petition as aforesaid, the RTC issued the following order on the same date:
The Amended Petition dated July 31, 2006 presents four (4) main causes of action.
The Court holds that as for the first and second causes of action, to wit: First declaration of nullity
of the supposed loan extended by respondent Wong to STRADEC and the Deed of Pledge covering

STRADECs entire shareholding in SIDC; Second declaration of nullity of the 26 April 2005 auction
sale of STRADECs entire shareholdings in SIDC in Makati City, this Court is the wrong venue; The
Rules of Court provides that all other actions (other than real) may be commenced and tried where
the plaintiff or any of the principal plaintiffs resides; or where the defendant or any of the principal
defendants resides, at the election of the plaintiff. By the foregoing, STRADEC should file the case,
under the first cause of action, either in Bayambang, Pangasinan, its principal place of business as
stated in the Articles of Incorporation or in any of the residences of Yujuico, Sumbilla or Wong. The
same holds true with respect to the second cause of action. The matter is between STRADEC and
its alleged erring officers over the alleged irregular auction sale of STRADECs shareholdings in
SIDC, hence, venue should be at the residences of the parties, as plaintiff may elect, as discussed
above.
Although this Court is not the correct venue, the Court will not dismiss the case but however will not
act thereon.
As for the third and fourth causes of action which are the cancellation of registration of fraudulent
transfers involving STRADECs shareholding in SIDC and the declaration of invalidity of the 30 July
2005 annual stockholders meeting and 20 July 2006 special stockholders meeting of SIDC, the
Court resolves to hold in abeyance any action thereon until after the Supreme Court shall have
rendered a ruling as to who between the conflicting two (2) sets of Board of Directors of STRADEC
should be recognized as legitimate, because it is only then that this Court could make a
determination on the issue raised by the respondents on the authority of Mr. Quiambao to represent
STRADEC in this suit.
SO ORDERED.18
Dissatisfied with the foregoing order, STRADEC, through its counsel of record, interposed an oral
motion for reconsideration on the ground that the solidary liability the individual respondents and
SIDC incurred for the tortious transfer of the subject shares justified the laying of venue at the latters
principal place of business in Batangas; that the pledge executed by respondent Yujuico violated the
18 October 2004 temporary restraining order issued by Branch 48 of the RTC of Urdaneta City in
Civil Case No. U-14 (SCC-2874), the intra-corporate dispute earlier filed to determine STRADECs
legitimate Directors and Officers; and, that pursuant to the 25 November 2004 order issued in the
same case, a writ of preliminary injunction had been issued enjoining respondent Yujuico and his
cohorts from acting as STRADECs Officers and committing acts inimical to its interests. 19 The
motion was, however, denied for lack of merit in the second 30 August 2006 order issued by the
RTC upon the finding that the theory of solidary liability foisted by STRADEC had no basis in its
pleadings and that the injunctive writ issued in Civil Case No. U-14 (SCC-2874) was not
determinative of the issue of ownership of its shares.20
Aggrieved, STRADEC filed the petition for certiorari docketed before the CA as CA-G.R. SP No.
96945, on the ground that the RTC acted without or in excess of jurisdiction or with grave abuse of
discretion in finding that venue was improperly laid, in holding in abeyance further proceedings in the
case and in denying its application for a writ of preliminary injunction. 21 In receipt of respondents
separate comments22 to the petition and the memoranda subsequently filed by the parties, 23 the Ninth
Division of the CA rendered the herein assailed 22 December 2008 decision, 24 discounting the grave

abuse of discretion STRADEC imputed against the RTC upon the following findings and conclusions,
to wit:
1. STRADECs first and second causes of action for nullification of the pledge constituted
over its shares and the subsequent notarial sale thereof are purely civil in nature and were,
therefore, erroneously joined with its third and fourth causes of action for invalidation of the
registration of the transfer in SIDCs books as well as its annual and special stockholders
meetings;
2. Aside from correctly applying the rule on venue in personal actions for STRADECs first
and second causes of action, the RTC cannot be faulted for not ordering the dismissal of the
same since misjoinder of causes of action does not involve a question of jurisdiction and the
discretionary authority to order separation of the misjoined causes of action necessarily
includes the authority to stay proceedings with respect thereto;
3. Further proceedings with respect to the third and fourth causes of action were also
correctly held in abeyance by the RTC in view of the pendency of cases in other courts
involving, among other issues, the ownership of STRADECs shares, its legitimate Directors
and Corporate Officers and the authority of Cezar T. Quiambao to act for and its behalf; and
4. The pendency of said cases discounts the existence of a clear and unmistakable right on
the part of STRADEC as would justify the grant of its application to an injunctive writ which
would, at any rate, effectively dispose of the main case without trial.25
STRADECs motion for reconsideration26 of the foregoing decision was denied in the 30 April 2009
resolution issued in the case,27 hence, this petition.
The Issues
STRADEC urges the reversal and setting aside of the assailed CA decision and resolution on the
following grounds:
THE COURT OF APPEALS HAS NOT ONLY DECIDED QUESTIONS OF SUBSTANCE IN A WAY
NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISIONS OF THIS HONORABLE
COURT, BUT HAS ALSO SO FAR SANCTIONED THE LOWER COURTS DEPARTURE FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN
EXERCISE OF THIS HONORABLE COURTS POWER OF SUPERVISION, IN THAT
A. THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CHARACTERIZING THE
FIRST AND SECOND CAUSES OF ACTION IN CIVIL CASE NO. 7956 AS INTRACORPORATE AND PLACE ITS VENUE AND JURISDICTION IN RTC BATANGAS CITY.
B. THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT ASCRIBING GRAVE ABUSE
OF DISCRETION TO RTC BATANGAS CITYS REFUSAL TO APPLY THE RULES OF
COURT AFTER RULING THAT IT WAS NOT THE PROPER VENUE FOR THE FIRST AND
SECOND CAUSES OF ACTION IN CIVIL CASE NO. 7956.

C. THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT ASCRIBING GRAVE ABUSE


OF DISCRETION TO RTC BATANGAS CITYS RULING TO HOLD IN ABEYANCE
FURTHER PROCEEDINGS WITH RESPECT TO THE THIRD AND FOURTH CAUSES OF
ACTION IN CIVIL CASE NO. 7956 BY REASON OF AN UNRELATED PENDING ACTION.
D. THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT ASCRIBING GRAVE ABUSE
TO RTC BATANGAS CITYS DENIAL OF PETITIONERS APPLICATION FOR A WRIT OF
PRELIMINARY INJUNCTION DESPITE A SHOWING OF A CLEAR AND POSITIVE RIGHT
AND A CONTINUING VIOLATION BY THE RESPONDENTS THEREOF.28
The Courts Ruling
We find merit in the petition.
An intra-corporate dispute is understood as a suit arising from intra-corporate relations 29 or between
or among stockholders or between any or all of them and the corporation. 30 Applying what has come
to be known as the relationship test, it has been held that the types of actions embraced by the
foregoing definition include the following suits: (a) between the corporation, partnership or
association and the public; (b) between the corporation, partnership or association and its
stockholders, partners, members, or officers; (c) between the corporation, partnership or association
and the State insofar as its franchise, permit or license to operate is concerned; and, (d) among the
stockholders, partners or associates themselves.31 As the definition is broad enough to cover all
kinds of controversies between stockholders and corporations, the traditional interpretation was to
the effect that the relationship test brooked no distinction, qualification or any exemption
whatsoever.32
However, the unqualified application of the relationship test has been modified on the ground that
the same effectively divests regular courts of jurisdiction over cases for the sole reason that the suit
is between the corporation and/or its corporators. It was held that the better policy in determining
which body has jurisdiction over a case would be to consider not only the status or relationship of the
parties but also the nature of the question that is the subject of their controversy.33 Under the nature
of the controversy test, the dispute must not only be rooted in the existence of an intra-corporate
relationship, but must also refer to the enforcement of the parties' correlative rights and obligations
under the Corporation Code as well as the internal and intra-corporate regulatory rules of the
corporation.34 The combined application of the relationship test and the nature of the controversy test
has, consequently, become the norm in determining whether a case is an intra-corporate
controversy or is purely civil in character.
In the case at bench, STRADECs first and second causes of action seek the nullification of the loan
and pledge over its SIDC shareholding contracted by respondents Yujuico, Sumbilla and Wong as
well the avoidance of the notarial sale of said shares conducted by respondent Caraos. STRADECs
31 July 2006 amended petition significantly set forth the following allegations common to its main
causes of action, to wit:
xxx

"4. Sometime in June 2005, STRADECs President and Chairman of the Board of Directors, Cezar T.
Quiambao, received information that STRADEC had been divested of its shareholdings in SIDC.
Apparently, all of STRADECs 49% shareholdings in SIDC were transferred and placed in the name
of respondent Wong, another incorporator of SIDC, upon the instance of respondents Yujuico and
Sumbilla, former officers of STRADEC.
5. However, respondents Yujuico and Sumbilla, despite being former officers of STRADEC, never
possessed authority to transact any business in behalf of STRADEC involving any of its corporate
assets and investments, including STRADECs shareholdings in SIDC.
6. Upon learning of this highly irregular development, STRADEC immediately called the attention of
SIDCs Board of Directors and officers and requested official confirmation of the recording of any
such sale in the books of SIDC cautioning that STRADEC had not authorized the sale or transfer of
its shares in SIDC.
xxxx
7. To date, however, STRADEC has not received any response from SIDCs Board of Directors and
officers.
8. Instead, STRADEC was able to secure from a secondary source a copy of the Certification dated
23 September 2005 issued by respondent Tabalingcos, SIDCs Corporate Secretary, narrating how
all of STRADECs shareholdings in SIDC, among others, were acquired by respondent Wong by
reason of respondents Yujuico and Sumbillas unauthorized acts.
The same Certification states that the shareholdings were in turn transferred by respondent Wong to
respondent CTCII, which as STRADEC would later learn was a newly-formed corporation of
respondent Wongs family;
xxxx
11. STRADEC was able to get hold of a document entitled Deed of Pledge dated 08 October 2004
purportedly signed by respondents Yujuico and Sumbilla in behalf of STRADEC as pledgor, and by
respondent Wong as pledgee.
xxxx
12. The Deed of Pledge made it appear, among others, that for and in partial consideration of a loan
from respondent Wong in the principal amount of only TEN MILLION PESOS (P10,000,000.00),
STRADEC pledged its 2,449,998 shares of stocks in SIDC worth TWO HUNDRED FORTY-FOUR
MILLION, NINE HUNDRED NINETY-NINE THOUSAND EIGHT HUNDRED PESOS
(P244,999,800.00).
13. STRADEC, however, had never authorized respondents Yuhuico and Sumbilla to enter into any
loan agreement with respondent Wong, much less pledge its shareholdings in SIDC.

14. Neither has STRADEC at any time received any amount of loan personally from Mr. Wong.
xxxx
15. Moreover, a subsequent examination of the Notarial Records of respondent Caraos for the year
2004 with the Office of the Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court of Makati
City revealed that the Deed of Pledge is not one of the documents notarized by Atty. Caraos during
the period of September 2003 to December 2004.
16. STRADEC was also able to get hold of a Certificate of Sale issued by respondent Caraos on 26
April 2005 stating that an auction sale was held on 26 April 2005 wherein all of STRADECs
2,449,998 shares of stock in SIDC, among others, were sold to respondent Wong to satisfy
STRADECs alleged outstanding obligation in the amount of ELEVEN MILLION EIGHT HUNDRED
THOUSAND PESOS (P11,800,000.00);
From the Certificate of Sale, it appears that respondent Caraos proceeded with the auction sale
without any notice to STRADEC as the supposed pledgor, and despite the fact that that respondent
Wong, the supposed pledgee, was the only bidder.
xxxx
17. Incidentally, respondent CARAOS and SIDCs Corporate Secretary, Atty. Tabalingcos, are
partners of the same law firm;
18. STRADEC has good reasons to believe that while it immediately informed the officers of SIDC of
the irregularities attending the divestment of its shareholdings in said respondent corporation, its
Corporate Secretary, respondent Tabalingcos, apparently went on to register the transfers in the
corporations stock and transfer book, as evidenced by SIDCs General Information Sheet for 2005,
wherein it was annotated that the shares of STRADEC or Strategic Alliance Development Corp. has
been acquired by Mr. Wong in view of the Notarial Sale conducted on April 26, 2005.
xxxx
19. Worse, it would appear now that respondent Wong had likewise unlawfully transferred
STRADECs 49% shareholdings in SIDC to his newly formed Corporation, respondent CTCII.
x x x x"35
Applying the relationship test, we find that STRADECs first and second causes of action qualify as
intra-corporate disputes since said corporation and respondent Wong are incorporators and/or
stockholders of SIDC. Having acquired STRADECs shares thru the impugned notarial sale
conducted by respondent Caraos, respondent Wong appears to have further transferred said shares
in favor of CTCII, a corporation he allegedly formed with members of his own family. By reason of
said transfer, CTCII became a stockholder of SIDC and was, in fact, alleged to have been
recognized as such by the latter and its corporate officers. To our mind, these relationships were
erroneously disregarded by the RTC when it ruled that venue was improperly laid for STRADECs

first and second causes of action which, applying Section 2, Rule 4 of the 1997 Rules of Civil
Procedure,36 should have been filed either at the place where it maintained its principal place of
business or where respondents Yujuico, Sumbilla and Wong resided.
Considering that they fundamentally relate to STRADECs status as a stockholder and the alleged
fraudulent divestment of its stockholding in SIDC, the same causes of action also qualify as intracorporate disputes under the nature of the controversy test. As part of the fraud which attended the
transfer of its shares, STRADEC distinctly averred, among other matters, that respondents Yujuico
and Sumbilla had no authority to contract a loan with respondent Wong; that the pledge executed by
respondent Yujuico was simulated since it did not receive the proceeds of the loan for which its
shares in SIDC were set up as security; that irregularities attended the notarial sale conducted by
respondent Caraos who sold said shares to respondent Wong; that the latter unlawfully transferred
the same shares in favor of CTCII; and, that SIDC and its officers recognized and validated said
transfers despite being alerted about their defects. Ultimately, the foregoing circumstances were
alleged to have combined to rid STRADEC of its shares in SIDC and its right as a stockholder to
participate in the latters corporate affairs.
In addition to being conferred by law,37 it bears emphasizing that the jurisdiction of a court or tribunal
over the case is determined by the allegations in the complaint38 and the character of the relief
sought,39 irrespective of whether or not the plaintiff is entitled to recover all or some of the claims
asserted therein.40 Moreover, pursuant to Section 5.2 of Republic Act No. 8799,41 otherwise known as
the Securities Regulation Code, the jurisdiction of the SEC over all cases enumerated under Section
5 of Presidential Decree No. 902-A has been transferred to RTCs designated by this Court as
SCCs42 pursuant to A.M. No. 00-11-03-SC promulgated on 21 November 2000. Thus, Section 1(a),
Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies (Interim Rules)
provides as follows:
"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." (Italics supplied)

In upholding the RTCs pronouncement that venue was improperly laid, the CA ruled that
STRADECs first and second causes of action were not intra-corporate disputes because the issues
pertaining thereto were civil in nature. In support of the foregoing conclusion, the CA cited Speed
Distributing Corporation vs. Court of Appeals43where this Court essentially ruled out the existence of
an intra-corporate dispute from an action instituted by the wife for the nullification of the transfer of a
property between corporations of which her deceased husband was a stockholder. The CA also
relied on this Courts pronouncement in Nautica Canning Corporation vs. Yumul 44 to the effect,
among others, that an action to determine the validity of the transfer of shares from one stockholder
to another is civil in nature and is, therefore, cognizable by regular courts and not the SEC. 45 In
addition to the fact that the first case involved a civil action instituted against corporations by one
who was not a stockholder thereof, however, STRADEC correctly points out that, unlike the second
case, the limited jurisdiction of the SEC is not in issue in the case at bench.
Even prescinding from the different factual and legal milieus of said cases, the CA also failed to take
into consideration the fact that, unlike the SEC which is a tribunal of limited jurisdiction, 46 SCCs like
the RTC are still competent to tackle civil law issues incidental to intra-corporate disputes filed before
them. In G.D. Express Worldwide N.V. vs. Court of Appeals,47 this Court ruled as follows:
It should be noted that the SCCs are still considered courts of general jurisdiction. Section 5.2 of
R.A. No. 8799 directs merely the Supreme Court's designation of RTC branches that shall exercise
jurisdiction over intra-corporate disputes. Nothing in the language of the law suggests the diminution
of jurisdiction of those RTCs to be designated as SCCs. The assignment of intra-corporate disputes
to SCCs is only for the purpose of streamlining the workload of the RTCs so that certain branches
thereof like the SCCs can focus only on a particular subject matter.
The designation of certain RTC branches to handle specific cases is nothing new. For instance,
pursuant to the provisions of R.A. No. 6657 or the Comprehensive Agrarian Reform Law, the
Supreme Court has assigned certain RTC branches to hear and decide cases under Sections 56
and 57 of R.A. No. 6657.
The RTC exercising jurisdiction over an intra-corporate dispute can be likened to an RTC exercising
its probate jurisdiction or sitting as a special agrarian court. The designation of the SCCs as such
has not in any way limited their jurisdiction to hear and decide cases of all nature, whether civil,
criminal or special proceedings.
Viewed in the foregoing light and the intra-corporate nature of STRADECs first and second causes
of action, the CA clearly erred in upholding the RTCs finding that venue therefor was improperly laid.
Given that the question of venue is decidedly not jurisdictional and may, in fact, be waived, 48 said
error was further compounded when the RTC handed down its first 30 August 2006 order even
before respondents were able to file pleadings squarely raising objections to the venue for said
causes of action.49 Pursuant to Section 5, Rule 1 of the Interim Rules,50 at any rate, it cannot be
gainsaid that STRADEC correctly commenced its petition before the RTC exercising jurisdiction over
SIDCs principal place of business which was alleged to have been transferred from Bayambang,
Pangasinan to Lipa, Batangas.51 It matters little that STRADEC, as pointed out by respondents, also
questions the validity of the 30 July 2005 SIDC stockholders annual meeting where the aforesaid
change in the address of its principal place of business was allegedly approved. Said matter should

be properly threshed out in the proceedings before the RTC alongside such issues as the validity of
the transfers of STRADECs shares to respondents Wong and CTCII, the propriety of the recording
of said transfers in SIDCs books, STRADECs status as a stockholder of SIDC, the legality of the 20
July 2006 SIDC stockholders special meeting or, for that matter, Cezar T. Quiambaos authority to
represent STRADEC in the case at bench.
1avvphi1

The rule is settled that rules of procedure ought not to be applied in a very rigid, technical
sense,52 for they have been adopted to help secure not override substantial justice. 53 Considering
that litigation is not a game of technicalities54 courts have been exhorted, time and again, to afford
every litigant the amplest opportunity for the proper and just determination of his case free from the
constraints of technicalities. Since rules of procedure are mere tools designed to facilitate the
attainment of justice, it is well recognized that courts are empowered to suspend its rules, when the
rigid application thereof tends to frustrate rather than promote the ends of justice. 55No less than
Section 3, Rule 1 of the Interim Rules provides that the provisions thereof are to "be liberally
construed in order to promote their objective of securing a just, summary, speedy and inexpensive
determination of every action or proceeding."
The CA also erred in upholding the RTCs suspension of proceedings for STRADECs third and
fourth causes of action assailing the registration of the transfers of its shares as well as the 30 July
2005 annual meeting and 20 July 2006 special meeting of SIDCs stockholders, in view of the
pendency of actions in other courts involving ownership of the shares into which STRADECs own
capital stock has been divided and its legitimate directors and officers. On the principle that a
corporation is a legal entity with a personality separate and distinct from its individual stockholders or
members and from that of its officers who manage and run its affairs,56 we find that said other actions
have little or no bearing to the issues set forth in STRADECs amended petition which, at bottom,
involve the transfer of its own shareholding in SIDC and its status and rights as such stockholder.
The record also shows that the impugned loan transaction was contracted by respondents Yujuico
and Sumbilla on 8 October 2004 or before the 10 December 2004 election of STRADECs Board of
Directors conducted pursuant to the 25 November 2004 order issued in Civil Case No. U-14 (SCC2874). Thus, even the restoration of status quo ante in said case pursuant to this Courts 29 January
2007 decision in G.R. No. 168639, entitled Alderito Yujuico, et al. vs. Cezar T. Quiambao, et al. 57 is
no hindrance to the determination of the issues of want of authority and consideration for the transfer
of STRADECs shares.
1avvphi1

Considering that the determination of the factual and legal issues presented in the case can proceed
independent of those being litigated in the other cases filed against each other by the members of
STRADEC's Board of Directors, we find that the CA finally erred in denying STRADEC's application
of a writ of preliminary injunction to restrain (a) CTCII from further exercising proprietary rights over
the subject shares; (b) SIDC and its officers from recognizing the transfer or further transfers of the
same; (c) the implementation of the resolutions passed during the 20 July 2006 SIDC stockholders
special meeting; and (d) the SEC from acting on any report submitted in respect thereto. A
provisional remedy which has, for its object, the preservation of the status quo,58 preliminary
injunction may be resorted to by a party in order to preserve and protect certain rights and interests
during the pendency of an action.59 By both law and jurisprudence, said provisional writ may be
issued upon the concurrence of the following essential requisites, to wit: (1) that the invasion of the

right is material and substantial; (2) that the right of complainant is clear and unmistakable; and, (3)
that there is an urgent and paramount necessity for the writ to prevent serious damage. 60
As the owner, STRADEC is undoubtedly possessed of clear and unmistakable rights over the
subject SIDC shares which respondent Yujuico pledged in favor of respondent Wong. Unless
collectively restrained, the aforesaid acts will completely divest STRADEC of its shares and unfairly
deprive it of participation in SIDC's corporate affairs pending the determination of the validity of the
impugned transfers. Given that the parties have already submitted their arguments for and against
the writ of preliminary injunction sought, STRADEC is, however, required to put up an injunction
bond pursuant to Section 1, Rule 10 of the Interim Rules.61 Conditioned to answer for damages
respondents may sustain as a consequence of the issuance of the writ, 62 the amount of the bond is
fixed atP10,000,000.00 which is equivalent to the supposed loan for which STRADEC's shares were
pledged by respondent Yujuico.
WHEREFORE, premises considered, the petition is GRANTED and the assailed decision and
resolution are, accordingly, REVERSED and SET ASIDE. In lieu thereof, another is entered
ORDERING the resumption of proceedings in Civil Case No. 7956 without further delay. Subject to
the posting of the requisite bond in the sum ofP10,000,000.00, STRADEC's application for a writ of
preliminary injunction is likewise GRANTED.
SO ORDERED.

G.R. No. 132358

April 12, 2002

MILA YAP SUMNDAD, petitioner,


vs.
JOHN WILLIAM HARRIGAN and BORACAY BEACH CLUB HOTEL, INC., (BBCHI), respondents.
QUISUMBING, J.:
This petition for review on certiorari seeks to annul and set aside the decision promulgated on
October 1, 1997, by the Court of Appeals, affirming the decision of the Regional Trial Court of
Makati, Branch 61, which ruled in favor of respondent John William Harrigan, ordering respondent
Boracay Beach Club Hotel Inc. to pay P8 million plus interest, attorneys fees and costs.
The facts of this case disclose that on February 6, 1995, Harrigan filed a complaint docketed as Civil
Case No. 95-223 for collection of a sum of money with prayer for preliminary attachment with the
RTC Makati against respondent BBCHI.1
Harrigan prayed for the issuance of a writ of preliminary attachment pending the hearing of the case,
which was granted by the trial court on March 2, 1995, after he posted an attachment bond of P2
million.2

On March 6, 1995, Harrigan filed an amended complaint 3 impleading the management committee of
BBCHI through its acting chairman, Corazon T. Tirol. The following material facts were alleged in the
complaint, as amended:4
xxx
3. Pursuant to a joint venture agreement between plaintiff and one Mila Yap-Sumndad, a
Filipino and alleged owner of a 3,000 sq. m. land in Boracay, Aklan, to establish and develop
a first-class tourist resort on said land which was assigned to defendant BBCHI, plaintiff
invested in, and paid P1 Million for 8,000 shares of defendant corporation corresponding to
40% of its authorized capital stock.
4. To finance the construction of new buildings and the acquisition of furniture, equipment
and other facilities of said resort, called Boracay Beach Club Hotel and owned by BBCHI,
plaintiff gave advances or loans to said defendant, which as of October 2, 1990, already
amounted to P1,000,000.00
5. Plaintiff continued to give advances to defendant BBCHI to complete the construction of
the buildings and facilities of the Boracay Beach Club Hotel resort, which advances or loans
was determined to be at least P8,000,000.00. Said loans, which are demandable in
character and subject to interest of 20% per annum accruing from September 1, 1990, are to
be serviced and paid by defendant BBCHI.
xxx
9. Considering that as of September 1994, defendant has failed to service and pay, not only
its above-mentioned demandable loans but even the accrued interests thereon which, as of
December 31, 1994, already amounted to P393,451.07, plaintiff through his counsel
demanded from defendant, through its officer and SEC-appointed manager, for settlement of
the latters said unpaid obligations.
10. Despite plaintiffs foregoing written demands for payment of its due obligations, the
defendant has refused and failed to do so.5
The trial court admitted the amended complaint and issued an amended order for the issuance of
writ of attachment.6
On March 29, 1995, petitioner Mila Yap Sumndad filed an "Urgent Motion for Leave to Intervene with
Prayer forStatus Quo Order and/or Suspension" praying that she be allowed to intervene either as
plaintiff or defendant.7The trial court granted said motion on June 8, 1995 and gave petitioner ten
days to file either a complaint or an answer in intervention.8
Instead of filing an answer, petitioner moved to dismiss the amended complaint based on the
following grounds: (1) forum shopping; (2) lack of jurisdiction; (3) failure to state a cause of action;
and (4) litis pendentia.9 This was denied by the RTC in its order dated October 17,
1995.10 Thereafter, Sumndad filed 6 motions for additional time to file an answer.11

Upon motion of Harrigan, petitioner was declared in default on March 21, 1996, for failure to answer
within the reglementary period and the trial court proceeded with the ex-parte presentation of
evidence.12
On April 18, 1996, Harrigan filed a Motion for Judgment on the Pleadings. 13
On several occasions, petitioner attempted to regain her standing in court by filing numerous
pleadings and motions. On October 1, 1996, the trial court resolved her motions in this wise:
A scrutiny of the entire records of this case show that Intervenor MILA YAP SUMNDAD, for
failure to file COMPLAINT or ANSWER IN INTERVENTION, was declared in default per
Order of 21 March 1996 and received by counsel for Intervenor on 10 May 1996, and
subsequent thereto Intervenor MILA YAP SUMNDAD filed the following pleadings, to wit:
1. Manifestation and Opposition to Motion for Judgment on the Pleadings filed on 20 May
1996;
2. Motion to Suspend Proceedings filed on 28 May 1996;
3. Supplement to the Opposition to Motion for Judgment on the Pleadings with Manifestation
to file Motion to Lift Order of Default filed on 17 June 1996;
4. Supplement to "Motion to Suspend Proceedings" on ground of Prejudicial Question and
Forum Shopping;
5. Motion to Consolidate Above-Entitled Case with Civil Case No. 4847 of the RTC, Branch
7, Kalibo, Aklan filed on 03 September 1996.
The records likewise show that Intervenor MILA YAP SUMNDAD despite its Supplement to
the Opposition to Motion for Judgment on the Pleadings with Manifestation to file Motion to
Lift Order of Default filed on 17 July 1996 (Underscoring ours) has not, until now, filed the
necessary motion to lift Order of Default, dated 21 March 1996.
In view of the foregoing, and the Order of 21 March 1996 declaring Intervenor MILA YAP
SUMNDAD [in default,] not having been lifted, Intervenor has no standing in court, or
considered out of court, and consequently can no longer appear herein, or expect her
pleadings to be acted upon. (citation omitted)14
On the same date, the trial court, acting on Harrigans motion for judgment on the pleadings,
decreed:
A perusal of the ANSWERS filed by the defendants in this case for a SUM OF MONEY evidently
failed to tender an issue and therefore, pursuant to Section 1, Rule 19, Rules of Court, JUDGMENT
ON THE PLEADINGS is hereby rendered in favor of plaintiff and as against defendant BORACAY
BEACH CLUB HOTEL, INC. (BBCHI), who is hereby ordered to:

1. PAY plaintiff the sum of EIGHT MILLION (P8,000,000.00) PESOS, Philippine Currency,
plus 12% interest per annum computed from 27 July 1993, until fully paid;
2. PAY attorneys fees in the amount of P200,000.00, plus appearance fee of P2,000.00 per
hearing attended by the counsel; and to
3. PAY the costs.15
Not satisfied with the decision, petitioner moved for reconsideration. 16 In the meantime, Harrigan
moved for the execution of judgment.17 By order dated March 11, 1997, the trial court denied
petitioners motion for reconsideration and granted Harrigans motion for execution of judgment. 18
Thereafter, a writ of execution was issued.19
On May 7, 1997, petitioner filed with the Court of Appeals, a petition for certiorari, prohibition and
mandamus, docketed as CA-G.R. SP No. 44088.20 On October 1, 1997, the CA dismissed the
petition for lack of merit.21
Petitioner again moved for reconsideration. This, too, was denied in a resolution dated January 21,
1998.22
Hence this petition for review on certiorari ascribing the following errors to the appellate court below:
I
THE COURT OF APPEALS, SIXTH DIVISION HAS SO FAR SANCTIONED THE
ERRONEOUS EXERCISE OF JURISDICTION BY THE REGIONAL TRIAL COURT, MAKATI
BRANCH 61 OVER CIVIL CASE NO. 95-223, FILED BY PRIVATE RESPONDENT JOHN
HARRIGAN, AGAINST BORACAY BEACH CLUB HOTEL INC., OF WHICH HE ALLEGES
TO BE A STOCKHOLDER (40%) FOR COLLECTION OF A SUM OF MONEY, BASED ON
ALLEGED FRAUD, WHICH IS A SUBJECT MATTER CLEARLY WITHIN THE ORIGINAL
AND EXCLUSIVE JURISDICTION OF THE SECURITIES AND EXCHANGE COMMISSION,
UNDER SEC. 5 PD 902-A. FOR SUCH CLEAR ERROR OF JURISDICTION CERTIORARI
NOT ORDINARY APPEAL IS THE CORRECT REMEDY.23
II
THE COURT OF APPEALS HAS CAPRICIOUSLY, GROSSLY AND PATENTLY ERRED IN
HOLDING THAT PETITIONERS REMEDY IS APPEAL AND NOT CERTIORARI, WHICH
REMEDY WAS LOST FOR FAILURE TO APPEAL WITHIN THE REGLEMENTARY PERIOD
OF APPEAL, INCONSISTENTLY CATEGORIZING THE ALLEGED ERRORS AS ONE OF
JUDGEMENT AND NOT OF JURISDICTION.24
III.

THE COURT OF APPEALS HAS ERRONEOUSLY RULED THAT THE PETITION FOR
CERTIORARI HAS BEEN FILED BELATEDLY COUNTING THE THREE (3) MONTHS
PERIOD NOT FROM APRIL 27, 1997 THE DATE OF RECEIPT OF THE DENIAL OF THE
MOTION FOR RECONSIDERATION OF THE JUDGMENT ON THE PLEADINGS DATED
OCTOBER 1, 1996 SUBJECT OF CERTIORARI BUT FROM MARCH 21, 1996, THE DATE
OF THE DENIAL OF THE MOTION FOR RECONSIDERATION OF THE ORDER DENYING
MOTION TO DISMISS.25
IV.
THE COURT OF APPEALS CLEARLY AND WHIMSICALLY ERRED IN HOLDING THAT
THE PETITIONER LACKS PERSONALITY TO QUESTION THE DECISION AGAINST
BORACAY BEACH CLUB HOTEL INC. WHICH DECISION DOES NOT CONCERN HER
ALLEGEDLY.26
The central issue raised in the petition is: Is it the regular court or the Securities and Exchange
Commission (SEC) that has jurisdiction over the subject matter of the case?
Petitioner insists that it is the SEC that has jurisdiction by virtue of Presidential Decree No. 902-A
(Reorganization of the Securities and Exchange Commission with Additional Powers) because the
complaint alludes to fraud committed by respondent corporation, and the complainant is a
stockholder of the respondent corporation.
Private respondent, on the other hand, maintains that jurisdiction is lodged with the regular courts, it
being a simple collection case.
The petition is unmeritorious.
First. The rule is that jurisdiction over the subject matter of the case is conferred by law and
determined by the allegations of the complaint.27 Therefore, to resolve the issue raised to us, an
interpretation and application of the law on jurisdiction, must be made vis--vis the averments of the
petitioners complaint.
The law on jurisdiction of the SEC, Section 5 of PD 902-A, states that in addition to the regulatory
and adjudicative functions of the SEC over corporations, partnerships and other forms of
associations registered with it as expressly granted under the existing laws and decrees, it shall
have original and exclusive jurisdiction to hear and decide cases involving devises or schemes
employed by or any acts of the Board of Directors, business associates, its officers and
partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the
public and/or to the stockholders, partners, members of associations or organizations registered with
the Commission.28
Now, from the averments of the amended complaint filed with the trial court as quoted above,
Harrigan seeks to collect from BBCHI his advances or loans in the amount of at least P8 million,
which are demandable in character pursuant to their agreement, 29 including interest at 20% per

annum accruing from September 1, 1990. The cause of action of the suit is, clearly, for the collection
of a sum of money.
However, petitioner interprets said collection complaint as one involving mainly the issue of fraud
committed by respondent corporation, which makes the controversy fall under the ambit of PD 902A. The particular portion of the amended complaint referred to by petitioner states:
14. In so allowing another person to have the absolute and uncontrolled possession,
management, and utilization of the buildings and facilities of the Boracay Beach Club Hotel
resort without any corresponding financial return or material benefit therefor, and the
misappropriation by said third party of the income from the operation of the resort business
therein, since July 28, 1994 and up to the present or for a period ofover seven (7)
months now, defendant has, in effect, disposed of and continues to ACTUALLY DISPOSE of
and/or wantonly waste/dissipate said corporate properties and funds, in fraud of its creditors,
which include herein plaintiff.30
To our mind, from the totality of the complaint filed by Harrigan, the main issue is whether or not he
is entitled to collect the loan and not whether or not he was defrauded by BBCHI. The mere use of
the phrase "in fraud of creditors" does not, ipso facto, throw the case within SECs jurisdiction. The
amended complaint filed by Harrigan does not sufficiently allege acts amounting to fraud and
misrepresentation committed by respondent corporation.
In Alleje vs. CA,31 "fraud" is defined as a generic term embracing all multifarious means which
human ingenuity can devise, and which are resorted to by one individual to secure an advantage
over another by false suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is cheated. Within the context of the complaint as
quoted above, the phrase "in fraud of creditors" can only mean, "to the prejudice of creditors" and
not to the use of devises or schemes tantamount to fraud and misrepresentation employed by the
Board of Directors, business associates or its officers and partners to divert corporate funds and
assets for personal use, as contemplated in Section 5 of PD 902-A.
Equally unavailing is petitioners contention that the case involves an intra-corporate controversy, or
one between the corporation and its stockholder transposing it within the domain of the SEC. It
should be noted that the issue has become moot and academic because with Republic Act No.
8799, Securities Regulation Code, it is now the Regional Trial Court and no longer the SEC that has
jurisdiction. Under Section 5.2 of Republic Act No. 8799, 32original and exclusive jurisdiction to hear
and decide cases involving intra-corporate controversies have been transferred to a court of general
jurisdiction or the appropriate Regional Trial Court.33
Foregoing given, Harrigans complaint against petitioner to recoup his financial exposure with BBCHI
was properly lodged with the regular court and not with the SEC. This view is in accord with the
rudimentary principle that administrative agencies, like the SEC, are tribunals of limited jurisdiction
and, as such, could wield only such powers as are specifically granted to them by their enabling
statutes.34

Given our disquisition that the complaint for sum of money was instituted with the proper court,
petitioners remedy before the appellate court should have been a timely appeal and not certiorari.
Therefore, the appellate court was correct in dismissing petitioners petition for certiorari for being
time-barred. Indeed, certiorari cannot be used as a substitute for lost or lapsed remedy of appeal,
especially if such loss was occasioned by ones own neglect or error in the choice of remedies. 35 As
long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment reviewable by timely appeal and not
by a special civil action of certiorari.36
It is now moot and academic to delve into the third assigned error raised by petitioner, i.e., that the
CA erred in ruling that three month reglementary period for filing a petition for certiorari has already
lapsed.
Neither does petitioners last assigned error merit our consideration, as any discussion on this issue
of "personality" is merely academic. As earlier stated, whether or not petitioner has the personality to
question the RTC order against BBCHI is a matter that should have been properly threshed out in an
appeal filed with the CA. By allowing said order to become final and executory without interposing an
appeal and by having incorrectly availed of the extraordinary remedy of certiorari, we can no longer,
at this late hour, deal on this issue. We hasten to add that this issue requires delving into the facts of
the case. Basic is the rule that this court is not a trier of facts.
WHEREFORE, the instant petition is DENIED for lack of merit and the challenged decision of the
Court of Appeals of October 1, 1997 in CA-G.R. SP No. 44088 is hereby AFFIRMED. Costs against
the petitioner.
SO ORDERED.

G.R. No. 149351

March 17, 2004

SPEED DISTRIBUTING CORP., LITA MARCELO, IRENEO MARCELO and PEDRO


AQUINO, petitioners,
vs.
COURT OF APPEALS and RUFINA LIM, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. No. 52214 (CV)
reversing the November 21, 1995 Order2 of the Regional Trial Court of Quezon City, Branch 222,
dismissing the complaint in Civil Case No. Q-95-24588, and its August 8, 2001 Resolution denying
the Motion for Reconsideration of the aforesaid decision.
The Antecedents
On September 20, 1953, Pastor Y. Lim married private respondent Rufina Luy Lim. 3 During the early
part of their marriage, Pastor organized some family corporations using their conjugal funds. Among
these corporations was Skyline International Corporation (Skyline, for brevity) which was engaged in
the importation and sale of Hankook Brand Korean Tires and the acquisition of real estate. The
couple were incorporators and major stockholders of the corporation and were also employed
therein.
Pastor and the private respondent did not have a child. They decided to "adopt" Leonard Lim and
petitioner Lita Lim Marcelo, who were children of their distant poor relatives in Zamboanga City.
There was, however, no formal court adoption. Sometime thereafter, marital problems arose, as a
result of which the private respondent stopped working at Skyline. As the domestic problems
remained unresolved, Pastor and the private respondent jointly filed on August 13, 1968 a Petition
before the Juvenile and Domestic Relations Court of Quezon City, for voluntary dissolution of
conjugal properties. As their differences worsened, the private respondent filed on January 27, 1971
a petition for legal separation against Pastor on the ground of infidelity before the then Juvenile and
Domestic Relations Court of Quezon City. The petition was amended into one for Support with
Alimony and the case was docketed as Civil Case No. QE-0030.
On February 17, 1972, the court rendered a decision, awarding P3,000 monthly support to the
private respondent and the children, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering defendant to pay plaintiff monthly support of P3,000.00 effective as of
February, 1971;
2. Ordering defendant to pay plaintiff attorneys fees in the sum of P2,000.00, plus
the cost of this suit. 4
On June 24, 1975, the private respondent filed a motion for execution. The court issued an order
granting the motion and the sheriff levied on the properties of Skyline. The latter filed, on December
19, 1975, a third-party claim, alleging that the properties levied were its personal properties and not
those of Pastor, who was only one of its stockholders. The private respondent filed a motion to
quash Skylines claim, which the court granted.
Skyline filed a petition for certiorari with prayer for temporary restraining order before the Court of
Appeals for the nullification of the order of the trial court quashing the third-party claim. The case
was docketed as CA-G.R. No. 05312 (SP). The appellate court issued a temporary restraining order
on April 27, 1976. On June 23, 1976, the Court of Appeals rendered a decision dismissing the
petition, thus, lifting the restraining order.5 The appellate court ruled as follows:
While it is recognized as "lawful to obtain a corporation charter, even with a single substantial
stockholder, to engage in a specific activity, and such activity may co-exist with other private
activities of the stockholder" (Liddel & Co., Inc. vs. Collector of Internal Revenue, L-9687,

June 30, 1961, 2 SCRA 632), the corporations distinct personality will be disregarded when
it is so "controlled and its affairs so conducted as to make it merely an instrumentality,
agency or conduit of another" (NAMARCO vs. Associated Finance Company, supra).
It is not disputed that petitioner Skyline International, Inc. was a conjugal enterprise (p. 2,
Decision) before its incorporation in December 1970 (p. 10, id.), when it was still a
proprietorship. Petitioner Skyline International, Inc. is still engaged in the sale of automotive
parts and dealership of Firestone Rubber and Tires which business it was already doing
when it was still a proprietorship. Respondent Court found that the only assets of petitioner
corporation are the conjugal properties. Thus, respondent Court concludes that "it is safe to
assume that Skyline International Corporation is another name for Mr. and Mrs. Pastor Y. Lim
in person." In fact, Pastor Y. Lim admitted that the other incorporators are their former
employees and their respective shares are nominal (Decision, pp. 14-15).
The above facts are more than enough justification for respondent Court to pierce the veil of
corporate fiction. Consequently, we find the questioned orders to be in order.6
Skyline, then, filed a petition for review before this Court, but the petition was dismissed in a
Resolution dated August 6, 1976.7
On August 21, 1987, the Speed Distributing Corporation (Speed, for brevity), was registered with the
Securities and Exchange Commission, with Pastor Lim as one of the incorporators. He owned ten
shares, valued at P100.00 per share. The following were the names of the incorporators, the number
of shares respectively subscribed to by them and the amount paid up:

Shares

Lita T. Lim

Subscribed

Paid

11,200

P 1,120,000.00

P 280,000.00

1,000

100,000.00

25,000.00

Lina S. Lim

150

15,000.00

3,750.00

Larry S. Lim

140

14,000.00

3,500.00

Pastor Y. Lim

10

1,000.00

250.00

12,500

P1,250,000.00

P 312,500.008

Leonard L. Lim

Petitioner Lita Lim-Marcelo was elected treasurer of the corporation.

On June 21, 1991, the Leslim Corporation (Leslim, for brevity), was registered with the Securities
and Exchange Commission with a capital stock of P12,000,000.00, divided into 120,000 shares at
par value of P100.00 per share. Pastor Lim subscribed to 95,700 shares valued at P9,570,000.00.
The incorporators, the number of shares they subscribed to and the amounts paid for were indicated
in the articles of incorporation as follows:

Name

Teresa T. Lim

No. of Share Amount Subscribed

24,000

P2,400,000.00

Leonard L. Lim

100

10,000.00

Larry S. Lim

100

10,000.00

Lina L. Lim

100

10,000.00

95,700

9,570,000.00

120,000

P12,000,000.00

Pastor Y. Lim

The following persons have paid on the shares of the capital stock for which they have subscribed
the amount set after their names respectively:

Name

Teresa T. Lim

Amount Paid

P600,000.00

Leonard L. Lim

2,500.00

Larry S. Lim

2,500.00

Lina L. Lim

Pastor Y. Lim

2,500.00

P2,392,500.00

P3,000,000.009

Under the articles of incorporation, Pastor Lim was the treasurer-in-trust of the corporation. 10 The
Vice-President and Treasurer of the corporation was petitioner Lita Lim-Marcelo, now married to
petitioner Ireneo Marcelo.
On August 26, 1994, Leslim Corporation executed a deed of absolute sale in favor of the Speed,
represented by its Vice-President, petitioner Ireneo Marcelo, over the parcel of lot located at Diliman
Quezon City, covered by TCT No. 36617 for the price of P3,900,000.00. 11 Petitioner Lita LimMarcelo, the Vice-President of Leslim12signed in the deed for and in behalf of the corporation. She
was authorized by the Board of Directors in a Resolution August 19, 1994 to sign the said deed and
to receive the purchase price for and in behalf of Leslim. The said Resolution was certified by
corporate secretary Pedro Aquino on August 22, 1994.13 Consequently, TCT No. 36617 which was in
the name of Leslim, was cancelled and a new one, TCT No. T-116716, was issued to and in the
name of Speed.14
On June 11, 1994, Pastor Lim died intestate and was survived by his wife, the private respondent.
On March 17, 1995, the private respondent, through her nephew and attorney-in-fact George Luy,
filed a petition for the administration of the estate of her deceased husband before the Regional Trial
Court of Quezon City, docketed as Special Proceedings No. Q-95-23334. 15 The case was raffled to
Branch 93. The private respondent filed a motion praying for the annotation of a notice of lis
pendens at the dorsal portion of all titles over the properties in the name of Pastor. Included in the
said properties were those registered in the name of other corporations of which Pastor was a
stockholder, including that parcel of land covered by TCT No. T-116717 registered under the name of
Speed. The court granted the motion. The affected corporations, including Speed, filed motions to
cancel the notices of lis pendens and motions for exclusion of certain properties from Pastors
estate. On June 8, 1995, the Court granted the motions and ordered the exclusion of certain
properties from the estate of Pastor and the cancellation of the notices of lis pendens on properties
registered in the name of the said corporations, including that covered by TCT No. T-116716 under
the name of Speed.
On June 27, 1995, the private respondent filed a verified amended petition in SP No. Q-95-23334
alleging, among others, that during his lifetime, Pastor substantially owned the following business
entities: Skyline Sales Corporation, Speed Distributing, Inc., and Leslim Corporation:
5. That the following real properties, although registered in the name of the above entities,
were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit:

CORPORATION

TITLE

LOCATION

b. Leslim Corp.

TCT No. 36617

Quezon City

but now illegally transferred to and registered in the name of Speed Distributing, Inc. under
TCT No. 116716.16
On July 4, 1995, the probate court issued an Order setting aside its June 8, 1995 Order and directed
the Register of Deeds to reinstate the notice of lis pendens on TCT No. T-116716. The court denied
the motion for the reconsideration of the said order.
Speed filed a petition for certiorari with the Court of Appeals for the nullification of the July 4, 1995
and September 12, 1995 Orders of the trial court, docketed as CA-G.R. No. 38617 (SP).
Meanwhile, on August 1, 1995, the private respondent filed a complaint against Speed, and the
petitioners with the RTC of Quezon City, for the nullification of the Deed of Absolute Sale executed
by Leslim in favor of Speed over the property covered by TCT No. T-36617, and the cancellation of
TCT No. T-11676, with damages before the RTC of Quezon City. The case was raffled to Branch
222, and was docketed as Q-95-24588. The private respondent alleged, inter alia, that:
...
6. Plaintiff is the surviving spouse of the late Pastor Y. Lim who died intestate on June 11,
1994, but leaving several properties, real and personal, situated in Quezon City, Makati City,
Rizal Province, Las Pias, Valenzuela, Manila, Cavite, Masbate and other parts of the
country.
7. During the existence of the marriage of plaintiff and Pastor Y. Lim, the latter formed,
among others, Leslim Corporation, and he actually owned the same as in fact he had in his
name 95,700 out of the 120,000 shares of the authorized capital stock. The remaining
shares of stocks were listed in the name of some persons who were actually his dummies,
and were made to appear as stockholders of Leslim Corporation only for purposes of
registration with the Securities and Exchange Commission.
8. Leslim Corporation, in turn, is a registered owner of a certain parcel of land located in
Diliman, Quezon City, as evidenced by TCT No. 36617, issued by defendant Register of
Deeds, copy of which is hereto attached as Annex "C."
9. Plaintiff initiated an intestate proceedings on the estate of her deceased husband in order
to lay claim on her conjugal share thereon. She then started to verify the various TCTs of the
real property in the name of her deceased husband, including those in the name of Leslim
Corporation, and she discovered that TCT No. 36617 had already been canceled and in lieu
thereof, TCT No. 116716 was issued by defendant Register of Deeds in the name of
defendant Corporation
10. Upon further verification, plaintiff discovered that the basis of the cancellation of TCT No.
36617 in favor of TCT No. 116716 is a Deed of Sale signed and executed by defendant Lita
Marcelo who misrepresented herself as Vice President of Leslim Corporation and as such
she was purportedly authorized to dispose of the property in question in favor of defendant
corporation, which latter corporation was allegedly represented in the transaction by her

husband, herein defendant Ireneo Marcelo who claimed himself as the Vice President of
defendant corporation.
11. To give a semblance of legality to the feigned transaction of sale, defendant Pedro
Aquino, misrepresenting himself as the corporate secretary of Leslim Corporation, executed
a simulated/falsified secretarys certificate, wherein he stated that in an alleged special
meeting of the Board of Directors of Leslim Corporation held on August 19, 1994 in its office
at 1006 Quezon Avenue, Quezon City, defendant Lita Marcelo was allegedly authorized by
the Board to enter into the transaction in question.
12. The transfer of the property from Leslim to defendant corporation is imaginary, the deed
of sale and the secretarys certificate are simulated, hence, null and void, as shown below:
13. First of all, there was no such special meeting of the board of directors of Leslim
Corporation on August 19, 1994, contrary to the allegation in the secretarys certificate. No
notices to that effect were ever sent to Pastor Lim, a director and owner of 79.75 per cent of
the capital stock of Leslim Corporation. Secondly, there was never a meeting of the
stockholders wherein more than two-thirds of the stocks were present in order to approve the
sale of all or substantially all of the assets consisting of real properties of Leslim Corporation.
Indeed, no such meeting could have been held because Pastor Lim, who owned practically
two-thirds of the total capital stock, had already died on June 11, 1994. The last meeting of
stockholders of Leslim Corporation was held in January, 1994. Since then up to the present,
no other stockholders meeting, special or otherwise, was ever held by Leslim Corporation.
14. Thirdly, the place of the alleged special stockholders meeting could not have occurred in
the place where it was purportedly held, namely, 1006 Quezon Avenue, Quezon City. This
place is the address of Accurate Distributing, Inc., which had been under the control of the
group of Estrelita Cabarles since August 1994 up to the present. On the other hand,
defendants Lita Marcelo, Ireneo Marcelo, and Pedro Aquino and their cohorts are the
adversaries of Estrelita Cabarles in several cases, civil and criminal, pending before various
courts in Metro Manila and suburbs. The control and possession by the group of Cabarles of
the premises ineluctably shows that no meeting was ever held thereon by their adversaries.
Fourthly, there was never any payment made to Leslim Corporation respecting the alleged
purchase price.
15. As a consequence of the above, defendant Lita Marcelo could not have been the Vice
President of Leslim Corporation at the time the simulated deed of sale in question was
executed, contrary to her claim thereon. Besides, defendant Lita Marcelo has never been a
stockholder, much less a director of Leslim Corporation. Hence, it follows that the subject
deed of absolute sale and the secretarys certificate are both simulated, and TCT No. 116716
of no force and effect, necessitating as it does its cancellation. The imaginary transaction of
sale was clearly resorted to by defendants after the August 19, 1994 special stockholders
meeting of Accurate Distributing Inc., where in the ground of Estrelita Cabarles were elected
as Board of Directors and corporate officers and in order to deprive plaintiff of her conjugal
share and the other heirs of Pastor Y. Lim of their shares in his estate. In fact, all the real
property registered in the name of Leslim Corporation and in Nellmart Corporation wherein
Pastor Lim is also the majority stockholder had been transferred by defendants and their
cohorts to themselves or to entities controlled by them, all at practically the same time. Thus:
a. TCT No. 36617 Deed of Sale dated August 22, 1994 from Leslim to defendant
Corporation. Amount P3,400,000.00.

b. TCT No. 66001 Deed of Sale dated August 26, 1994 from Leslim to Auto Truck
TBA. Amount P10,500,000.00.
c. TCT No. 101730 Deed of Sale dated August 26, 1994 from Leslim to Skyline
Sales Corporation. Amount P15,500,00.00.
d. TCT No. T-48028 in the name of Nellmart but illegally transferred to defendant
corporation under TCT No. 116718.
e. TCT No. 236236 in the name of Nellmart but illegally transferred to Alliance
Marketing, Inc., under TCT No. 285400.
f. TCT No. 236237 in the name of Nellmart but illegally transferred to Alliance
Marketing, Inc. under TCT No. 285399.
16. The same scheme was resorted to by defendants and their cohorts in divesting other
corporations of all real property, where Pastor Lim is the stockholder. Thus, the motives of
defendants in conspiracy with each other and with several other persons and entities are one
and the same, namely: to monopolize the control, possession, enjoyment and ownership of
all the estate of Pastor Lim, thereby depriving plaintiff of her conjugal share as well as her
own share in her husbands own estate.
17. By reason of these acts of defendants, plaintiff was constrained to hire the services of
counsel for a fee of P50,000.00 and appearance fee of P1,500.00 per hearing. She likewise
suffered sleepless nights and wounded feelings, which if converted into its monetary
equivalent would be P100,000.00, more or less.
18. In order to prevent defendants from repeating the unlawful acts, they should be
condemned by pay exemplary damages in the amount of P100,000.00. 17
The private respondent prayed that, after due proceedings, judgment be rendered in her favor, thus :
WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that
after notice and hearing, judgment be rendered:
a. declaring the secretarys certificate and the deed of sale under question null and void;
b. cancelling TCT No. 116716 issued in the name of defendant Speed Distributing
Corporation for being without basis in fact and in law;
c. ordering defendants to pay jointly and severally the amount of P100,000.00 exemplary
damages;
d. ordering defendants to play (sic) plaintiff jointly and severally the amount of P50,000.00
attorneys fees and P1,000.00 appearance fee per hearing.
e. Ordering defendants to pay the cost of suit.18
In their answer with compulsory counterclaim, the petitioners specifically denied the material
allegations of the complaint, and by way of special and affirmative defenses, alleged that the private
respondent (the plaintiff therein), was not privy to the deed of sale executed by Leslim and Speed.

As such, she was not the real party-in-interest and had no cause of action against the defendants.
Pursuant to Presidential Decree No. 902-A, the SEC, not the RTC, had jurisdiction over the
complaint, as it was evident that the complaint involved an intra-corporate controversy.19
In her reply, the private respondent alleged that even if she was not privy to the deed of sale over the
subject property, she was entitled to its income, and her right accrued at the time of Pastors death
on June 11, 1994.
On September 4, 1995, the RTC issued an Order in Special Proceedings No. 95-2334 granting the
petition and appointed the private respondent as the co-administrator of Miguel Lim, with Atty.
Donald Lee as special administrator.20
The court held a hearing on the special and affirmative defenses of the defendants (the petitioners
herein) in Civil Case No. 95-24588. On November 25, 1995, the RTC issued an order dismissing the
complaint, real party-in-interest. According to the court, she had no cause of action against the
petitioners as she was not privy to the contract of sale between Leslim and Speed. Neither was she
a stockholder of the defendant corporation; as such, she could not sue for the corporation. According
to the court, the private respondent could not file the complaint in behalf of her deceased husband
Pastor as she was unable to show that she was the authorized representative of his estate; even if
she was so authorized, her claim was limited to the shares owned by Pastor, which could not extend
to the properties of Leslim. The court also ruled that the action involved intra-corporate controversies
over which the SEC had original and exclusive jurisdiction.
Aggrieved, the private respondent filed a motion for reconsideration of the order which was denied
on February 9, 1996.21 Dissatisfied, she appealed the order to the Court of Appeals, 22 docketed as
CA-G.R. CV No. 52214. She ascribed the following errors to the court a quo:
I
THE LOWER COURT ERRED IN RULING THAT THE PLAINTIFF-APPELLANT IS NOT A
REAL PARTY-IN-INTEREST TO FILE THE "COMPLAINT" BEFORE THE COURT A QUO.
II
THE LOWER COURT ERRED IN RULING THAT IT HAD NO JURISDICTION OVER THE
"COMPLAINT" IN CIVIL CASE NO. Q-95-24588.
III.
THE LOWER COURT ERRED IN DISMISSING THE PLAINTIFF-APPELLANTS
"COMPLAINANT" IN CIVIL CASE NO. Q-95-24588.23
On April 18, 1996, the Court of Appeals rendered judgment in CA-G.R. SP No. 38617 nullifying the
assailed orders. The CA ruled that the private respondent failed to prove that Pastor Lim, not Speed,
owned the property. It also ruled that the finding of the probate court that the property belonged to
Pastor Lim was only provisional in nature. The private respondent then filed a petition for review on
certiorari with this Court, docketed as G.R. No. 124715. On January 24, 2000, this Court rendered a
Decision dismissing the petition.
On September 15, 2000, the CA rendered a decision in CA-G.R. CV No. 52214 setting aside the
assailed orders and ordering the RTC to hear Civil Case No. Q-95-24588, thus:

WHEREFORE, premises considered, the Regional Trial Court, National Capital Judicial
Region, Quezon City, Branch 222 is hereby ORDERED to try Civil Case No. Q-95-24588
without costs to plaintiff-appellant.24
The CA ruled that, as gleaned from the pleadings of the parties, the action involved intra-corporate
controversies as defined in Section 5 of Presidential Decree (PD) No. 902-A; as such, the RTC had
no jurisdiction over the action. However, in light of Rep. Act No. 8799 which transferred to courts of
general jurisdiction or the appropriate RTC cases over which the SEC had jurisdiction, the CA
ordered the remand of the case to the RTC, for the determination, among others, of the resolution of
the issue of whether or not the private respondent was the real party-in-interest. The Court of
Appeals stated, thus:
However, viewed in the light of Republic Act No. 8799, otherwise known as the Securities
Regulation Code, approved on July 19, 2000 which has effectively divested the Securities
and Exchange Commission of its quasi-judicial functions and transferred them to the
Regional Trial Court, We rule that the latter may take cognizance of the instant case so as
not to roundabout the judicial process, without prejudiced (sic) to its being ventilated as to
whether or not appellant The private respondent Lim is a real party in interest to be
determined during the trial on the merits before the appropriate court who has now the
jurisdiction over the case at bar.25
The motion for reconsideration of the petitioners was denied by the CA, per its Resolution dated
August 8, 2001.
In their petition at bar, the petitioners argue that
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT
HAS JURISDICTION OVER THE SUBJECT CASE BY VIRTUE OF THE EFFECTIVITY OF
RA 8799 KNOWN AS SECURITIES REGULATION CODE.26
The petitioners contend that the RTC had no jurisdiction over the private respondents complaint
because the case involved intra-corporate controversies. Since Rep. Act No. 8799 took effect only
on August 8, 2000, while the private respondents appeal in the CA was pending, it should not be
given retroactive effect. Furthermore, Section 5.2 of RA 8799 proscribes the transfer of cases to the
RTC; as such, the CA should have dismissed the private respondents appeal without prejudice to
her right to refile her complaint in the RTC. The petitioners argue that the CA cannot order the case
remanded to the RTC for the sake of convenience.
For her part, the private respondent asserts that the complaint does not involve intra-corporate
controversies and the RTC had jurisdiction over the action and the issues raised by the parties in
their pleadings. The private respondent, likewise, opines that there is nothing wrong with the CAs
ruling directing the RTC to hear the case to avoid any consequent delay.
The sole issue in this case is whether or not the CA erred in remanding the case to the RTC and
directing it to decide and hear the complaint on its merits, in view of Rep. Act No. 8799 which took
effect on August 8, 2000, during the pendency of the case before it, effectively transferring
jurisdiction over cases involving intra-corporate controversies from the SEC to the RTC.
The Private Respondents Action in the RTC Does Not Involve an Intra- Corporate Dispute.

Jurisdiction over the subject matter is conferred by law.27 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, irrespective of whether or not plaintiff is entitled to recover upon all or some
of the claims asserted therein.28 It cannot depend on the defenses set forth in the answer, in a motion
to dismiss, or in a motion for reconsideration by the defendant. 29
Section 5 of P.D. No. 902-A provides that the SEC shall have original and exclusive jurisdiction over
complaints, to hear and decide cases involving the following:
(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 stockholders, partners, 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 assciation 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.30
However, Section 5.231 of Rep. Act No. 8799, transferred the erstwhile exclusive and original
jurisdiction of the SEC over actions involving intra-corporate controversies to the courts of general
jurisdiction, or the appropriate RTC. All intra-corporate cases pending in the SEC were to be
transferred to the appropriate RTC. Congress thereby recognized the expertise and competence of
the RTC to take cognizance of and resolve cases involving intra-corporate controversies. In
compliance with the law, the Court issued, on November 21, 2000 a Resolution designating certain
branches of the RTC in the National Capital Region to try and decide cases enumerated in Section 5
of P.D. No. 902-A. For Quezon City cases, the Court designated Branches 46 and 93 of the RTC.
Branch 222 of the Quezon City RTC, which dismissed the complaint of the private respondent, was
not so designated by the Court. On March 13, 2001, the Court approved the Interim Rules of
Procedure for Intra-Corporate Controversies, which took effect on April 1, 2001.
To determine whether a case involves an intra-corporate controversy, and is to be heard and
decided by the Branches of the RTC specifically designated by the Court to try and decide such
cases, two elements must concur: (a) the status or relationship of the parties; and (2) the nature of
the question that is the subject of their controversy.32
The first element requires that the controversy must arise out of intra-corporate or partnership
relations between any or all of the parties and the corporation, partnership or association of which
they are 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 franchises. The second element requires that the dispute among the parties be intrinsically

connected with the regulation of the corporation.33 If the nature of the controversy involves matters
that are purely civil in character, necessarily, the case does not involve an intra-corporate
controversy. The determination of whether a contract is simulated or not is an issue that could be
resolved by applying pertinent provisions of the Civil Code. 34
In the present recourse, it is clear that the private respondents complaint in the RTC is not an intracorporate case. For one thing, the private respondent has never been a stockholder of Leslim, or of
Speed for that matter. The complaint is one for the nullification of the deed of absolute sale executed
by Leslim in favor of Speed over the property covered by TCT No. T-36617 in the name of Leslim,
the cancellation of TCT No. T-116716 in the name of Speed, as well as the Secretarys Certificate
dated August 22, 1994. The private respondent alleged that since her deceased husband, Pastor
Lim, acquired the property during their marriage, the said property is conjugal in nature, although
registered under the name of Leslim under TCT No. T-36617. She asserted that the petitioners
connived to deprive the estate of Pastor Lim and his heirs of their possession and ownership over
the said property using a falsified Secretarys Certificate stating that the Board of Directors of Leslim
had a meeting on August 19, 1995, when, in fact, no such meeting was held. Petitioner Lita Lim was
never a stockholder of Leslim or a member of its Board of Directors; her husband, petitioner Ireneo
Marcelo was the Vice-President of Speed; and, petitioner Pedro Aquino was Leslims corporate
secretary. The private respondent further averred that the amount of P3,900,000.00, the purchase
price of the property under the deed of absolute sale, was not paid to Leslim, and that petitioners
Spouses Marcelo and petitioner Pedro Aquino contrived the said deed to consummate their devious
scheme and chicanery. The private respondent concluded that the Deed of Absolute Sale was
simulated; hence, null and void.
We are convinced that on the basis of the material allegations of the complaint, the court a quo had
jurisdiction over the case.
The Private Respondent is a Real Party-in-Interest as Plaintiff.
Rule 3, Section 2 of the Rules of Court, as amended, provides as follows:
SEC. 2. Parties in interest. A real party in interest 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. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.
The private respondent filed the complaint as one of the heirs of Pastor Lim, who died intestate on
June 11, 1994. She was, in fact, the surviving spouse of the deceased, a compulsory heir by
operation of law. The general rule under the law on succession is that successional rights are
transmitted from the moment of death of the decedent and compulsory heirs are called upon to
succeed by operation of law to the inheritance without the need of further proceedings. Under Article
776 of the New Civil Code, inheritance includes all the properties, rights and obligations of a party,
not extinguished by his death.35 Although the private respondent was appointed by the probate court
as a special administratrix of the estate of Pastor Lim, she had the right, apart from her being a
special administratrix, to file the complaint against the petitioners for the nullification of the deed of
absolute sale, and TCT Nos. T-36617 and T-116716. Indeed, in Emnace vs. Court of Appeals, et
al.,36 we held that:
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no
legal capacity to sue since she was never appointed as administratrix or executrix of his
estate. Petitioners objection in this regard is misplaced. The surviving spouse does not need
to be appointed as executrix or administratrix of the estate before she can file the action. She

and her children are complainants in their own right as successors of Vicente Tabanao. From
the very moment of Vicente Tabanaos death, his rights insofar as the partnership was
concerned were transmitted to his heirs, for rights to the succession are transmitted from the
moment of death of the decedent.
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more particularly by succession, which is a
mode of acquisition by virtue of which the property, rights and obligations to the extent of the
value of the inheritance of a person are transmitted. Moreover, respondents became owners
of their respective hereditary shares from the moment Vicente Tabanao died.
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix
or administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As
successors who stepped into the shoes of their decedent upon his death, they can
commence any action originally pertaining to the decedent. From the moment of his death,
his rights as a partner and to demand fulfillment of petitioners obligations as outlined in their
dissolution agreement were transmitted to respondents. They, therefore, had the capacity to
sue and seek the courts intervention to compel petitioner to fulfill his obligations. 37
All the Compulsory Heirs of the Decedent and Leslim Corporation are Indispensable Parties.
In her complaint, the private respondent sought the nullification of the Deed of Absolute Sale
executed by Leslim Corporation in favor of Speed, as well as TCT No. T-36617 under its name.
Thus, Leslim Corporation is an indispensable party, and should be impleaded as a party-defendant
conformably to Section 7, Rule 3 of the Rules of Court, as amended.
SEC. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no
final determination can be had of an action shall be joined either as plaintiffs or defendants.
As Leslim Corporation was a party to the deed, its interests in the subject of the action and the
outcome thereof is such that the trial court could not proceed without its presence. All actuations of
the trial court subsequent to the filing of the complaint are null and void, not only as to Leslim
Corporation, but also as to the present parties.38 All the compulsory heirs of the deceased must also
be impleaded as plaintiffs, being indispensable parties.39 Thus, the private respondent needs to
amend her complaint in the court a quo to include all indispensable parties; otherwise, her claim
would be dismissed.
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The records are remanded to the
Regional Trial Court of Quezon City, Branch 222, for further proceedings on the merits of the case.
SO ORDERED.

G.R. No. 142924

December 5, 2001

TEODORO B. VESAGAS, and WILFRED D. ASIS, petitioners,


vs.
The Honorable COURT OF APPEALS and DELFINO RANIEL and HELENDA
RANIEL, respondents.

PUNO, J.:
Before us is the instant Petition for Review on Certiorari assailing the Decision, dated July 30, 1999,
of the Court of Appeals in CA-G.R. SP No. 51189, as well as its Resolution, dated March 16, 2000,
which denied petitioner's Motion for Reconsideration.
The respondent spouses Delfino and Helenda Raniel are members in good standing of the Luz
Villaga Tennis Clud, Inc. (club). They alleged that petitioner Teodoro B. Vesagas, who claims to be
the club's duly elected president, in conspiracy with petitioner Wilfred D. Asis, who, in turn, claims to
be its duly elected vice-president and legal counsel, summarily stripped them of their lawful
membership, without due process of law. Thereafter, respondent spouses filed a Complaint with the
Securities and Exchange Commission (SEC) on March 26, 1997 against the petitioners. It was
docketed as SEC Case No. 03-97-5598.1 In this case, respondents asked the Commission to
declare as illegal their expulsion from the club as it was allegedly done in utter disregard of the
provisions of its by-laws as well as the requirements of due process. They likewise sought the
annulment of the amendments to the by-laws made on December 8, 1996, changing the annual
meeting of the club from the last Sunday of January to November and increasing the number of
trustees from nine to fifteen. Finally, they prayed for the issuance of a Temporary Restraining Order
and Writ of Preliminary Injunction. The application for TRO was denied by SEC Hearing Officer
Soller in an Order dated April 29, 1997.
1wphi1.nt

Before the hearing officer could start proceeding with the case, however, petitioners filed a motion to
dismiss on the ground that the SEC lacks jurisdiction over the subject matter of the case. The motion
was denied on August 5, 1997. Their subsequent move to have the ruling reconsidered was likewise
denied. Unperturbed, they filed a petition for certiorari with the SEC En Banc seeking a review of the
hearing officer's orders. The petition was again denied for lack of merit, and so was the motion for its
reconsideration in separate orders, dated July 14, 1998 and November 17, 1998, respectively.
Dissatisfied with the verdict, petitioners promptly sought relief with the Court of Appeals contesting
the ruling of the Commission en banc. The appellate court, however, dismissed the petition for lack
of merit in a Decision promulgated on July 30, 1999. Then, in a resolution rendered on March 16,
2000, it similarly denied their motion for reconsideration.
Hence, the present course of action where the petitioners raise the following grounds:
"C.1. The respondent Court of Appeals committed a reversible error when it determined that
the SEC has jurisdiction in 03-97-5598."2
"C.2. The respondent Court of Appeals committed a reversible error when it merely upheld
the theoretical power of the SEC Hearing Officer to issue a subpoena and to cite a person in
contempt (actually a non-issue of the petition) while it shunted away the issue of whether
that hearing officer may hold a person in contempt for not obeying a subpoena where his
residence is beyond fifty (500 kilometers from the place of hearing and no transportation
expense was tendered to him."3
In support of their first assignment of error, petitioners contend that since its inception in the 1970's,
the club in practice has not been a corporation. They add that it was only the respondent spouses,

motivated by their own personal agenda to make money from the club, who surreptitiously caused its
registration with the SEC. They then assert that, at any rate, the club has already ceased to be a
corporate body. Therefore, no intra-corporate relations can arise as between the respondent
spouses and the club or any of its members. Stretching their argument further, petitioners insist that
since the club, by their reckoning is not a corporation, the SEC does not have the power or authority
to inquire into the validity of the expulsion of the respondent spouses. Consequently, it is not the
correct forum to review the challenged act. In conclusion, petitioners put respondent spouses to task
for their failure to implead the club as a necessary or indispensable party to the case.
These arguments cannot pass judicial muster.
Petitioners' attempt to impress upon this court that the club has never been a corporation is devoid
of merit. It must fail in the face of the Commission's explicit finding that the club was duly registered
and a certificate of incorporation was issued in its favor, thus:
"We agree with the hearing officer that the grounds raised by petitioner in their motion to
dismiss are factual issues, the veracity of which can only be ascertained in a full blown
hearing. Records show that the association is duly registered with the association and
a certificate of incorporation was issued. Clearly, the Commission has jurisdiction
over the said association. As to petitioner's allegation that the registration of the club was
done without the knowledge of the members, this is a circumstance, which was not duly
proven by the petitioner (sic) in his (sic) motion to dismiss."4
It ought to be remembered that the question of whether the club was indeed registered and issued a
certification or not is one which necessitates a factual inquiry. On this score, the finding of the
Commission, as the administrative agency tasked with among others the function of registering and
administering corporations, is given great weight and accorded high respect. We therefore have no
reason to disturb this factual finding relating to the club's registration and incorporation.
Moreover, by their own admission contained in the various pleadings which they have filed in the
different stages of this case, petitioners themselves have considered the club as a corporation. This
admission, under the rules of evidence, binds them and may be taken or used against them. 5 Since
the admission was made in the course of the proceedings in the same case, it does not require
proof, and actually may be contradicted only by showing that it was made through palpable mistake
or that no such admission was made.6 Noteworthy is the "Minute of the First Board Meeting"7 held on
January 5, 1997, which contained the following pertinent portions:
"11. Unanimously approved by the Board a Resolution to Dissolve the corporate
structure of LVTC which is filed with the SEC. Such resolution will be formulated by Atty.
Fred Asis to be ready on or before the third week of January 1997. Meanwhile, the
operational structure of the LVTC will henceforth be reverted to its former status as an
ordinary club/Association."8
Similarly, petitioner's Motion to Dismiss9 alleged:

"1. This Commission has no jurisdiction over the Luz Village Tennis Club not only because it
was not impleaded but because since 5 January 1997, it had already rid itself, as it had
to in order to maintain respect and decency among its members, of the unfortunate
experience of being a corporate body. Thus at the time of the filing of the complaint,
the club had already dissolved its corporate existence and has functioned as a mere
association of respectable and respecting individual members who have associated
themselves since the 1970's xxx"10
The necessary implication of all these is that petitioners recognized and acknowledged the corporate
personality of the club. Otherwise, there is no cogency in spearheading the move for its dissolution.
Petitioners were therefore well aware of the incorporation of the club and even agreed to get elected
and serve as its responsible officers before they reconsidered dissolving its corporate form.
This brings us to petitioners' next point. They claim in gratia argumenti that while the club may have
been considered a corporation during a brief spell, still, at the time of the institution of this case with
the SEC, the club was already dissolved by virtue of a Board resolution.
Again, the argument will not carry the day for the petitioner. The Corporation Code establishes the
procedure and other formal requirements a corporation needs to follow in case it elects to dissolve
and terminate its structure voluntarily and where no rights of creditors may possibly be prejudiced,
thus:
"Sec. 118. Voluntary dissolution where no creditors are affected. - If dissolution of a
corporation does not prejudice the rights of any creditor having a claim against it, the
dissolution may be effected by majority vote of the board of directors or trustees and by a
resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds
(2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members at a meeting
to be held upon call of the directors or trustees after publication of the notice of time, place
and object of the meeting for three (3) consecutive weeks in a newspaper published in the
place where the principal office of said corporation is located; and if no newspaper is
published in such place, then in a newspaper of general circulation in the Philippines, after
sending such notice to each stockholder or member either by registered mail or by personal
delivery at least 30 days prior to said meeting. A copy of the resolution authorizing the
dissolution shall be certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation. The Securities and Exchange Commission
shall thereupon issue the certificate of dissolution."11
We note that to substantiate their claim of dissolution, petitioners submitted only two relevant
documents: the Minutes of the First Board Meeting held on January 5, 1997, and the board
resolution issued on April 14, 1997 which declared "to continue to consider the club as a nonregistered or a non-corporate entity and just a social association of respectable and respecting
individual members who have associated themselves, since the 1970's, for the purpose of playing
the sports of tennis x x x."12 Obviously, these two documents will not suffice. The requirements
mandated by the Corporation Code should have been strictly complied with by the members of the
club. The records reveal that no proof was offered by the petitioners with regard to the notice and

publication requirements. Similarly wanting is the proof of the board members' certification. Lastly,
and most important of all, the SEC Order of Dissolution was never submitted as evidence.
We now resolve whether the dispute between the respondents and petitioners is a corporate matter
within the exclusive competence of the SEC to decide. In order that the commission can take
cognizance of a case, the controversy must pertain to any of the following relationship: a) between
the corporation, partnership or association and its stockholders, partners, members, or officers; c)
between the corporation, partnership, or association and the state as far as its franchise, permit or
license to operate is concerned; and d) among the stockholders, partners or associates
themselves.13 The fact that the parties involved in the controversy are all stockholders or that the
parties involved are the stockholders and the corporation, does not necessarily place the dispute
within the loop of jurisdiction of the SEC.14 Jurisdiction should be determined by considering not only
the status or relationship of the parties but also the nature of the question that is the subject of their
controversy.15
We rule that the present dispute is intra-corporate in character. In the first place, the parties here
involved are officers and members of the club. Respondents claim to be members of good standing
of the club until they were purportedly stripped of their membership in illegal fashion. Petitioners, on
the other hand, are its President and Vice-President, respectively. More significantly, the present
conflict relates to, and in fact arose from, this relation between the parties. The subject of the
complaint, namely, the legality of the expulsion from membership of the respondents and the validity
of the amendments in the club's by-laws are, furthermore, within the Commission's jurisdiction.
Well to underscore is the date when the original complaint was filed at the SEC, which was March
26, 1997. On that date, the SEC still exercised quasi-judicial functions over this type of suits. It is
axiomatic that jurisdiction is conferred by the Constitution and by the laws in force at the time of the
commencement of the action..16 In particular, the Commission was thereupon empowered, under
Sec. 5 of P.D. 902-A, to hear and decide cases involving intra-corporate disputes, thus:
"SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of association
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
xxx
b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are the 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;
x x x."17

The enactment of R.A. 8799, otherwise known as the Securities Regulation Code, however,
transferred the jurisdiction to resolve intra-corporate controversies to courts of general jurisdiction or
the appropriate Regional Trial Courts, thus:
"5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Court 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."18
On August 22, 2000, we issued a resolution, in A.M. No. 00-8-10-SC, wherein we "DIRECT(ed) the
Court Administrator and the Securities and Exchange Commission to cause the actual transfer of the
records of such cases and all other SEC cases affected by R.A. No. 8799 to the appropriate
Regional trial Courts x x x."19 We also issued another resolution designating certain branches of the
Regional Trial Court to try and decide cases formerly cognizable by the SEC. 20 Consequently, the
case at bar should now be referred to the appropriate Regional Trial Court.
Before we finally write finis to the instant petition, however, we will dispose of the two other issues
raised by the petitioners.
First is the alleged failure of the respondents to implead the club as a necessary or indispensable
party. Petitioners contend that the original complaint should be dismissed for not including the club
as one of the respondents therein. Dismissal is not the remedy for non-joinder of parties. Under the
Rules, the remedy is to implead the non-party, claimed to be necessary or indispensable, in the
action, thus:
"SEC. 11. Misjoinder and non-joinder of parties. - Neither misjoinder nor non-joinder of
parties is a ground for dismissal of an action. Parties may be dropped or added by order of
the court on motion of any party or on its own initiative at any stage of the action and on such
terms as are just. Any claim against a misjoined party may be severed and proceeded with
separately."21
The other issue is with regard to the alleged oppressive subpoenas and orders issued by Hearing
Officer Soller, purportedly without or in excess of authority. In light of PD 902-A's repeal, the need to
rule on the question of the extent of the contempt powers of an SEC hearing officer relative to his
authority to issue subpoenas and orders to parties involved in intra-corporate cases, or potential
witnesses therein has been rendered academic. The enactment of RA 8799 mooted this issue as
SEC hearing officers, now bereft of any power to resolve disputes, are likewise stripped of their
power to issue subpoenas and contempt orders incidental to the exercise of their quasi-judicial
powers.

At any rate, it taxes our credulity why the petitioners insist in raising this issue in the case at bar. The
so-called oppressive subpoenas and orders were not directed to them. They were issued to the
club's secretary, Purita Escobar, directing her to appear before the Commission and bring certain
documents of the club, that were supposedly under her possession or control. It is obvious that the
petitioners are not the proper parties to assail the oppressiveness of the subpoenas or the orders,
and impugn their validity. Elementary is the principle that only those who expect to be adversely
affected by an order can complain against it. It is their addressee, Purita Escobar, who can assail
their alleged oppressiveness. Petitioners' protestation has therefore no legal leg to stand on.
IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision, the petition is
DENIED. In conformity with R.A. 8799, SEC Case No. 03-97-5598, entitled "Delfino Raniel and
Helenda Raniel v. Teodoro B. Vesagas and Wilfred D. Asis" is referred to the Regional Trial Court of
the Ninth Judicial region, Branch 3322located in Agusan del Norte (Butuan City), one of the
designated special commercial courts pursuant to A.M. No. 00-11-03-SC.
1wphi1.nt

SO ORDERED.

G.R. No. 201298

February 5, 2014

RAUL C. COSARE, Petitioner,


vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.
DECISION
REYES, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, which
assails the Decision dated November 24, 2011 and Resolution dated March 26, 2012 of the Court
of Appeals (CA) in CA-G.R. SP. No. 117356, wherein the CA ruled that the Regional Trial Court
(RTC), and not the Labor Arbiter (LA), had the jurisdiction over petitioner Raul C. Cosare's (Cosare)
complaint for illegal dismissal against Broadcom Asia, Inc. (Broadcom) and Dante Arevalo (Arevalo),
the President of Broadcom (respondents).
1

The Antecedents
The case stems from a complaint for constructive dismissal, illegal suspension and monetary claims
filed with the National Capital Region Arbitration Branch of the National Labor Relations Commission
(NLRC) by Cosare against the respondents.
4

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who was
then in the business of selling broadcast equipment needed by television networks and production
houses. In December 2000, Arevalo set up the company Broadcom, still to continue the business of
trading communication and broadcast equipment. Cosare was named an incorporator of Broadcom,

having been assigned 100 shares of stock with par value of P1.00 per share. In October 2001,
Cosare was promoted to the position of Assistant Vice President for Sales (AVP for Sales) and Head
of the Technical Coordination, having a monthly basic net salary and average commissions
of P18,000.00 and P37,000.00, respectively.
5

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcoms Vice President for Sales and
thus, became Cosares immediate superior. On March 23, 2009, Cosare sent a confidential memo to
Arevalo to inform him of the following anomalies which were allegedly being committed by Abiog
against the company: (a) he failed to report to work on time, and would immediately leave the office
on the pretext of client visits; (b) he advised the clients of Broadcom to purchase camera units from
its competitors, and received commissions therefor; (c) he shared in the "under the-table dealings"
or "confidential commissions" which Broadcom extended to its clients personnel and engineers; and
(d) he expressed his complaints and disgust over Broadcoms uncompetitive salaries and wages and
delay in the payment of other benefits, even in the presence of office staff. Cosare ended his memo
by clarifying that he was not interested in Abiogs position, but only wanted Arevalo to know of the
irregularities for the corporations sake.
7

Apparently, Arevalo failed to act on Cosares accusations. Cosare claimed that he was instead called
for a meeting by Arevalo on March 25, 2009, wherein he was asked to tender his resignation in
exchange for "financial assistance" in the amount of P300,000.00. Cosare refused to comply with
the directive, as signified in a letter dated March 26, 2009 which he sent to Arevalo.
8

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcoms Manager for
Finance and Administration, a memo signed by Arevalo, charging him of serious misconduct and
willful breach of trust, and providing in part:
10

1. A confidential memo was received from the VP for Sales informing me that you had
directed, or at the very least tried to persuade, a customer to purchase a camera from
another supplier. Clearly, this action is a gross and willful violation of the trust and confidence
this company has given to you being its AVP for Sales and is an attempt to deprive the
company of income from which you, along with the other employees of this company, derive
your salaries and other benefits. x x x.
2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in
another place outside of the office without proper turnover from you to this office which had
assigned said vehicle to you. The vehicle was found to be inoperable and in very bad
condition, which required that the vehicle be towed to a nearby auto repair shop for
extensive repairs.
3. You have repeatedly failed to submit regular sales reports informing the company of your
activities within and outside of company premises despite repeated reminders. However, it
has been observed that you have been both frequently absent and/or tardy without proper
information to this office or your direct supervisor, the VP for Sales Mr. Alex Abiog, of your
whereabouts.

4. You have been remiss in the performance of your duties as a Sales officer as evidenced
by the fact that you have not recorded any sales for the past immediate twelve (12) months.
This was inspite of the fact that my office decided to relieve you of your duties as technical
coordinator between Engineering and Sales since June last year so that you could focus and
concentrate [on] your activities in sales.
11

Cosare was given forty-eight (48) hours from the date of the memo within which to present his
explanation on the charges. He was also "suspended from having access to any and all company
files/records and use of company assets effective immediately." Thus, Cosare claimed that he was
precluded from reporting for work on March 31, 2009, and was instead instructed to wait at the
offices receiving section. Upon the specific instructions of Arevalo, he was also prevented by
Villareal from retrieving even his personal belongings from the office.
12

On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to
merely wait outside the office building for further instructions. When no such instructions were given
by 8:00 p.m., Cosare was impelled to seek the assistance of the officials of Barangay San Antonio,
Pasig City, and had the incident reported in the barangay blotter.
13

On April 2, 2009, Cosare attempted to furnish the company with a Memo by which he addressed
and denied the accusations cited in Arevalos memo dated March 30, 2009. The respondents
refused to receive the memo on the ground of late filing, prompting Cosare to serve a copy thereof
by registered mail. The following day, April 3, 2009, Cosare filed the subject labor complaint, claiming
that he was constructively dismissed from employment by the respondents. He further argued that
he was illegally suspended, as he placed no serious and imminent threat to the life or property of his
employer and co-employees.
14

15

In refuting Cosares complaint, the respondents argued that Cosare was neither illegally suspended
nor dismissed from employment. They also contended that Cosare committed the following acts
inimical to the interests of Broadcom: (a) he failed to sell any broadcast equipment since the year
2007; (b) he attempted to sell a Panasonic HMC 150 Camera which was to be sourced from a
competitor; and (c) he made an unauthorized request in Broadcoms name for its principal,
Panasonic USA, to issue an invitation for Cosares friend, one Alex Paredes, to attend the National
Association of Broadcasters Conference in Las Vegas, USA. Furthermore, they contended that
Cosare abandoned his job by continually failing to report for work beginning April 1, 2009,
prompting them to issue on April 14, 2009 a memorandum accusing Cosare of absence without
leave beginning April 1, 2009.
16

17

18

The Ruling of the LA


On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision dismissing the
complaint on the ground of Cosares failure to establish that he was dismissed, constructively or
otherwise, from his employment. For the LA, what transpired on March 30, 2009 was merely the
respondents issuance to Cosare of a show-cause memo, giving him a chance to present his side on
the charges against him. He explained:
19

It is obvious that [Cosare] DID NOT wait for respondents action regarding the charges leveled
against him in the show-cause memo. What he did was to pre-empt that action by filing this
complaint just a day after he submitted his written explanation. Moreover, by specifically seeking
payment of "Separation Pay" instead of reinstatement, [Cosares] motive for filing this case becomes
more evident.
20

It was also held that Cosare failed to substantiate by documentary evidence his allegations of illegal
suspension and non-payment of allowances and commissions.
Unyielding, Cosare appealed the LA decision to the NLRC.
The Ruling of the NLRC
On August 24, 2010, the NLRC rendered its Decision reversing the Decision of LA Menese. The
dispositive portion of the NLRC Decision reads:
21

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are found
guilty of Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and Dante Arevalo
are ordered to pay [Cosares] backwages, and separation pay, as well as damages, in the total
amount of P1,915,458.33, per attached Computation.
SO ORDERED.

22

In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to
[Cosares] contention that he was constructively dismissed by Respondent Arevalo when he was
asked to resign from his employment." The fact that Cosare was suspended from using the assets
of Broadcom was also inconsistent with the respondents claim that Cosare opted to abandon his
employment.
23

Exemplary damages in the amount of P100,000.00 was awarded, given the NLRCs finding that the
termination of Cosares employment was effected by the respondents in bad faith and in a wanton,
oppressive and malevolent manner. The claim for unpaid commissions was denied on the ground of
the failure to include it in the prayer of pleadings filed with the LA and in the appeal.
The respondents motion for reconsideration was denied. Dissatisfied, they filed a petition for
certiorari with the CA founded on the following arguments: (1) the respondents did not have to prove
just cause for terminating the employment of Cosare because the latters complaint was based on an
alleged constructive dismissal; (2) Cosare resigned and was thus not dismissed from employment;
(3) the respondents should not be declared liable for the payment of Cosares monetary claims; and
(4) Arevalo should not be held solidarily liable for the judgment award.
24

In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a new
argument, i.e., the case involved an intra-corporate controversy which was within the jurisdiction of
the RTC, instead of the LA. They argued that the case involved a complaint against a corporation
filed by a stockholder, who, at the same time, was a corporate officer.
25

The Ruling of the CA


On November 24, 2011, the CA rendered the assailed Decision granting the respondents petition. It
agreed with the respondents contention that the case involved an intra-corporate controversy which,
pursuant to Presidential Decree No. 902-A, as amended, was within the exclusive jurisdiction of the
RTC. It reasoned:
26

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as one
of its directors. Moreover, he held the position of [AVP] for Sales which is listed as a corporate office.
Generally, the president, vice-president, secretary or treasurer are commonly regarded as the
principal or executive officers of a corporation, and modern corporation statutes usually designate
them as the officers of the corporation. However, it bears mentioning that under Section 25 of the
Corporation Code, the Board of Directors of [Broadcom] is allowed to appoint such other officers as it
may deem necessary. Indeed, [Broadcoms] By-Laws provides:
Article IV
Officer
Section 1. Election / Appointment Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at
said meeting.
The Board, may, from time to time, appoint such other officers as it may determine to be necessary
or proper. x x x
We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed held
a corporate office, as evidenced by the General Information Sheet which was submitted to the
Securities and Exchange Commission (SEC) on October 22, 2009. (Citations omitted and emphasis
supplied)
27

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing
the labor complaint on the ground of lack of jurisdiction, finding it unnecessary to resolve the main
issues that were raised in the petition. Cosare filed a motion for reconsideration, but this was denied
by the CA via the Resolution dated March 26, 2012. Hence, this petition.
28

The Present Petition


The pivotal issues for the petitions full resolution are as follows: (1) whether or not the case
instituted by Cosare was an intra-corporate dispute that was within the original jurisdiction of the
RTC, and not of the LAs; and (2) whether or not Cosare was constructively and illegally dismissed
from employment by the respondents.
The Courts Ruling
The petition is impressed with merit.

Jurisdiction over the controversy


As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the CA, it
is the LA, and not the regular courts, which has the original jurisdiction over the subject controversy.
An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been regarded
in its broad sense to pertain to disputes that involve 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. Settled jurisprudence,
however, qualifies that when the dispute involves a charge of illegal dismissal, the action may fall
under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination disputes and
claims for damages arising from employer-employee relations as provided in Article 217 of the Labor
Code. Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an officer
of Broadcom at the time the subject controversy developed failed to necessarily make the case an
intra-corporate dispute.
29

In Matling Industrial and Commercial Corporation v. Coros, the Court distinguished between a
"regular employee" and a "corporate officer" for purposes of establishing the true nature of a dispute
or complaint for illegal dismissal and determining which body has jurisdiction over it. Succinctly, it
was explained that "[t]he determination of whether the dismissed officer was a regular employee or
corporate officer unravels the conundrum" of whether a complaint for illegal dismissal is cognizable
by the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the
RTC exercises the legal authority to adjudicate.
30

31

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was
not a "corporate officer" as the term is defined by law. We emphasized in Real v. Sangu Philippines,
Inc. the definition of corporate officers for the purpose of identifying an intra-corporate controversy.
Citing Garcia v. Eastern Telecommunications Philippines, Inc., we held:
32

33

" Corporate officers in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporations by-laws.
There are three specific officers whom a corporation must have under Section 25 of the Corporation
Code. These are the president, secretary and the treasurer. The number of officers is not limited to
these three. A corporation may have such other officers as may be provided for by its by-laws like,
but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporations by-laws." (Emphasis ours)
34

In Tabang v. NLRC, the Court also made the following pronouncement on the nature of corporate
offices:
35

It has been held that an "office" is created by the charter of the corporation and the officer is elected
by the directors and stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of

the corporation who also determines the compensation to be paid to such employee. (Citations
omitted)
36

As may be deduced from the foregoing, there are two circumstances which must concur in order for
an individual to be considered a corporate officer, as against an ordinary employee or officer,
namely: (1) the creation of the position is under the corporations charter or by-laws; and (2) the
election of the officer is by the directors or stockholders. It is only when the officer claiming to have
been illegally dismissed is classified as such corporate officer that the issue is deemed an intracorporate dispute which falls within the jurisdiction of the trial courts.
To support their argument that Cosare was a corporate officer, the respondents referred to Section 1,
Article IV of Broadcoms by-laws, which reads:
ARTICLE IV
OFFICER
Section 1. Election / Appointment Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at
said meeting.
The Board may, from time to time, appoint such other officers as it may determine to be necessary or
proper. Any two (2) or more compatible positions may be held concurrently by the same person,
except that no one shall act as President and Treasurer or Secretary at the same time. (Emphasis
ours)
37

This was also the CAs main basis in ruling that the matter was an intra-corporate dispute that was
within the trial courts jurisdiction.
The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted
provision, the only officers who are specifically listed, and thus with offices that are created under
Broadcoms by-laws are the following: the President, Vice-President, Treasurer and Secretary.
Although a blanket authority provides for the Boards appointment of such other officers as it may
deem necessary and proper, the respondents failed to sufficiently establish that the position of AVP
for Sales was created by virtue of an act of Broadcoms board, and that Cosare was specifically
elected or appointed to such position by the directors. No board resolutions to establish such facts
form part of the case records. Further, it was held in Marc II Marketing, Inc. v. Joson that an
enabling clause in a corporations by-laws empowering its board of directors to create additional
officers, even with the subsequent passage of a board resolution to that effect, cannot make such
position a corporate office. The board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created corporate
office. "To allow the creation of a corporate officer position by a simple inclusion in the corporate bylaws of an enabling clause empowering the board of directors to do so can result in the
circumvention of that constitutionally well-protected right [of every employee to security of tenure]."
38

39

40

The CAs heavy reliance on the contents of the General Information Sheets , which were submitted
by the respondents during the appeal proceedings and which plainly provided that Cosare was an
41

"officer" of Broadcom, was clearly misplaced. The said documents could neither govern nor establish
the nature of the office held by Cosare and his appointment thereto. Furthermore, although Cosare
could indeed be classified as an officer as provided in the General Information Sheets, his position
could only be deemed a regular office, and not a corporate office as it is defined under the
Corporation Code. Incidentally, the Court noticed that although the Corporate Secretary of
Broadcom, Atty. Efren L. Cordero, declared under oath the truth of the matters set forth in the
General Information Sheets, the respondents failed to explain why the General Information Sheet
officially filed with the Securities and Exchange Commission in 2011 and submitted to the CA by the
respondents still indicated Cosare as an AVP for Sales, when among their defenses in the charge of
illegal dismissal, they asserted that Cosare had severed his relationship with the corporation since
the year 2009.
Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the cases filing did
not necessarily make the action an intra- corporate controversy. "Not all conflicts between the
stockholders and the corporation are classified as intra-corporate. There are other facts to consider
in determining whether the dispute involves corporate matters as to consider them as intra-corporate
controversies." Time and again, the Court has ruled that in determining the existence of an intracorporate dispute, the status or relationship of the parties and the nature of the question that is the
subject of the controversy must be taken into account. Considering that the pending dispute
particularly relates to Cosares rights and obligations as a regular officer of Broadcom, instead of as
a stockholder of the corporation, the controversy cannot be deemed intra-corporate. This is
consistent with the "controversy test" explained by the Court in Reyes v. Hon. RTC, Br. 142, to wit:
42

43

44

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. (Citation omitted)
45

It bears mentioning that even the CAs finding that Cosare was a director of Broadcom when the
dispute commenced was unsupported by the case records, as even the General Information Sheet
of 2009 referred to in the CA decision to support such finding failed to provide such detail.
46

All told, it is then evident that the CA erred in reversing the NLRCs ruling that favored Cosare solely
on the ground that the dispute was an intra-corporate controversy within the jurisdiction of the
regular courts.
The charge of constructive dismissal
Towards a full resolution of the instant case, the Court finds it appropriate to rule on the correctness
of the NLRCs ruling finding Cosare to have been illegally dismissed from employment.
In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing among
other circumstances the charges that were hurled and the suspension that was imposed against him

via Arevalos memo dated March 30, 2009. Even prior to such charge, he claimed to have been
subjected to mental torture, having been locked out of his files and records and disallowed use of his
office computer and access to personal belongings. While Cosare attempted to furnish the
respondents with his reply to the charges, the latter refused to accept the same on the ground that it
was filed beyond the 48-hour period which they provided in the memo.
47

Cosare further referred to the circumstances that allegedly transpired subsequent to the service of
the memo, particularly the continued refusal of the respondents to allow Cosares entry into the
companys premises. These incidents were cited in the CA decision as follows:
On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve his
personal belongings, but the latter said that x x x Arevalo directed her to deny his request, so
[Cosare] again waited at the receiving section of the office. On April 1, 2009, [Cosare] was not
allowed to enter the office premises. He was asked to just wait outside of the Tektite (PSE) Towers,
where [Broadcom] had its offices, for further instructions on how and when he could get his personal
belongings. [Cosare] waited until 8 p.m. for instructions but none were given. Thus, [Cosare] sought
the assistance of the officials of Barangay San Antonio, Pasig who advised him to file a labor or
replevin case to recover his personal belongings. x x x. (Citation omitted)
48

It is also worth mentioning that a few days before the issuance of the memo dated March 30, 2009,
Cosare was allegedly summoned to Arevalos office and was asked to tender his immediate
resignation from the company, in exchange for a financial assistance of P300,000.00. The directive
was said to be founded on Arevalos choice to retain Abiogs employment with the company. The
respondents failed to refute these claims.
49

50

Given the circumstances, the Court agrees with Cosares claim of constructive and illegal dismissal.
"[C]onstructive dismissal occurs when there is cessation of work because continued employment is
rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in
pay or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to
the employee leaving the latter with no other option but to quit." In Dimagan v. Dacworks United,
Incorporated, it was explained:
51

52

The test of constructive dismissal is whether a reasonable person in the employees position would
have felt compelled to give up his position under the circumstances. It is an act amounting to
dismissal but is made to appear as if it were not. Constructive dismissal is therefore a dismissal in
disguise. The law recognizes and resolves this situation in favor of employees in order to protect
their rights and interests from the coercive acts of the employer. (Citation omitted)
53

It is clear from the cited circumstances that the respondents already rejected Cosares continued
involvement with the company. Even their refusal to accept the explanation which Cosare tried to
tender on April 2, 2009 further evidenced the resolve to deny Cosare of the opportunity to be heard
prior to any decision on the termination of his employment. The respondents allegedly refused
acceptance of the explanation as it was filed beyond the mere 48-hour period which they granted to
Cosare under the memo dated March 30, 2009. However, even this limitation was a flaw in the
memo or notice to explain which only further signified the respondents discrimination, disdain and
insensibility towards Cosare, apparently resorted to by the respondents in order to deny their

employee of the opportunity to fully explain his defenses and ultimately, retain his employment. The
Court emphasized in King of Kings Transport, Inc. v. Mamac the standards to be observed by
employers in complying with the service of notices prior to termination:
54

[T]he first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the opportunity to
submit their written explanation within a reasonable period. "Reasonable opportunity" under the
Omnibus Rules means every kind of assistance that management must accord to the employees to
enable them to prepare adequately for their defense. This should be construed as a period of at
least five (5) calendar days from receipt of the notice to give the employees an opportunity to study
the accusation against them, consult a union official or lawyer, gather data and evidence, and decide
on the defenses they will raise against the complaint. Moreover, in order to enable the employees to
intelligently prepare their explanation and defenses, the notice should contain a detailed narration of
the facts and circumstances that will serve as basis for the charge against the employees. A general
description of the charge will not suffice. Lastly, the notice should specifically mention which
company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged
against the employees. (Citation omitted, underscoring ours, and emphasis supplied)
55

In sum, the respondents were already resolute on a severance of their working relationship with
Cosare, notwithstanding the facts which could have been established by his explanations and the
respondents full investigation on the matter. In addition to this, the fact that no further investigation
and final disposition appeared to have been made by the respondents on Cosares case only
negated the claim that they actually intended to first look into the matter before making a final
determination as to the guilt or innocence of their employee. This also manifested from the fact that
even before Cosare was required to present his side on the charges of serious misconduct and
willful breach of trust, he was summoned to Arevalos office and was asked to tender his immediate
resignation in exchange for financial assistance.
The clear intent of the respondents to find fault in Cosare was also manifested by their persistent
accusation that Cosare abandoned his post, allegedly signified by his failure to report to work or file
a leave of absence beginning April 1, 2009. This was even the subject of a memo issued by Arevalo
to Cosare on April 14, 2009, asking him to explain his absence within 48 hours from the date of the
memo. As the records clearly indicated, however, Arevalo placed Cosare under suspension
beginning March 30, 2009. The suspension covered access to any and all company files/records
and the use of the assets of the company, with warning that his failure to comply with the memo
would be dealt with drastic management action. The charge of abandonment was inconsistent with
this imposed suspension. "Abandonment is the deliberate and unjustified refusal of an employee to
resume his employment. To constitute abandonment of work, two elements must concur: (1) the
employee must have failed to report for work or must have been absent without valid or justifiable
reason; and (2) there must have been a clear intention on the part of the employee to sever the
employer- employee relationship manifested by some overt act." Cosares failure to report to work
beginning April 1, 2009 was neither voluntary nor indicative of an intention to sever his employment
with Broadcom. It was illogical to be requiring him to report for work, and imputing fault when he
failed to do so after he was specifically denied access to all of the companys assets. As correctly
observed by the NLRC:
56

57

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1,
2009. However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended
[Cosare] from using not only the equipment but the "assets" of Respondent [Broadcom]. This insults
rational thinking because the Respondents tried to mislead us and make [it appear] that [Cosare]
failed to report for work when they had in fact had [sic] placed him on suspension. x x x.
58

Following a finding of constructive dismissal, the Court finds no cogent reason to modify the NLRC's
monetary awards in Cosare's favor. In Robinsons Galleria/Robinsons Supermarket Corporation v.
Ranchez, the Court reiterated that an illegally or constructively dismissed employee is entitled to:
(1) either reinstatement, if viable, or separation pay, if reinstatement is no longer viable; and (2)
backwages. The award of exemplary damages was also justified given the NLRC's finding that the
respondents acted in bad faith and in a wanton, oppressive and malevolent manner when they
dismissed Cosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily
liable for the monetary awards.
59

60

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution
dated March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The
Decision dated August 24, 2010 of the National Labor Relations Commission in favor of petitioner
Raul C. Cosare is AFFIRMED.
SO ORDERED.

G.R. No. 181416

November 11, 2013

MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,


vs.
ROBERT H. CULLEN, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of
Appeals (CA) Decision dated July 10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV
No. 86614. The assailed decision reversed and set aside the September 9, 2005 Order of the
Regional Trial Court (RTC) of Makati, Branch 58 in Civil Case No. 03-1018; while the assailed
resolution denied the separate motions for reconsideration filed by petitioner Medical Plaza Makati
Condominium Corporation (MPMCC) and Meridien Land Holding, Inc. (MLHI).
1

The factual and procedural antecedents are as follows:


Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of the Medical
Plaza Makati covered by Condominium Certificate of Title No. 45808 of the Register of Deeds of

Makati. Said title was later cancelled and Condominium Certificate of Title No. 64218 was issued in
the name of respondent.
On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni E. Dimayuga,
demanded from respondent payment for alleged unpaid association dues and assessments
amounting to P145,567.42. Respondent disputed this demand claiming that he had been religiously
paying his dues shown by the fact that he was previously elected president and director of
petitioner. Petitioner, on the other hand, claimed that respondents obligation was a carry-over of
that of MLHI. Consequently, respondent was prevented from exercising his right to vote and be
voted for during the 2002 election of petitioners Board of Directors. Respondent thus clarified from
MLHI the veracity of petitioners claim, but MLHI allegedly claimed that the same had already been
settled. This prompted respondent to demand from petitioner an explanation why he was considered
a delinquent payer despite the settlement of the obligation. Petitioner failed to make such
explanation. Hence, the Complaint for Damages filed by respondent against petitioner and MLHI,
the pertinent portions of which read:
4

xxxx
6. Thereafter, plaintiff occupied the said condominium unit no. 1201 and religiously paid all
the corresponding monthly contributions/association dues and other assessments imposed
on the same. For the years 2000 and 2001, plaintiff served as President and Director of the
Medical Plaza Makati Condominium Corporation;
7. Nonetheless, on September 19, 2002, plaintiff was shocked/surprised to receive a letter
from the incumbent Corporate Secretary of the defendant Medical Plaza Makati, demanding
payment of alleged unpaid association dues and assessments arising from plaintiffs
condominium unit no. 1201. The said letter further stressed that plaintiff is considered a
delinquent member of the defendant Medical Plaza Makati.
x x x;
8. As a consequence, plaintiff was not allowed to file his certificate of candidacy as director.
Being considered a delinquent, plaintiff was also barred from exercising his right to vote in
the election of new members of the Board of Directors x x x;
9. x x x Again, prior to the said election date, x x x counsel for the defendant [MPMCC] sent a
demand letter to plaintiff, anent the said delinquency, explaining that the said unpaid amount
is a carry-over from the obligation of defendant Meridien. x x x;
10. Verification with the defendant [MPMCC] resulted to the issuance of a certification stating
that Condominium Unit 1201 has an outstanding unpaid obligation in the total amount
of P145,567.42 as of November 30, 2002, which again, was attributed by defendant
[MPMCC] to defendant Meridien. x x x;
11. Due to the seriousness of the matter, and the feeling that defendant Meridien made false
representations considering that it fully warranted to plaintiff that condominium unit 1201 is

free and clear from all liens and encumbrances, the matter was referred to counsel, who
accordingly sent a letter to defendant Meridien, to demand for the payment of said unpaid
association dues and other assessments imposed on the condominium unit and being
claimed by defendant [MPMCC]. x x x;
12. x x x defendant Meridien claimed however, that the obligation does not exist considering
that the matter was already settled and paid by defendant Meridien to defendant [MPMCC]. x
x x;
13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x x x. The said letter x x x
sought an explanation on the fact that, as per the letter of defendant Meridien, the
delinquency of unit 1201 was already fully paid and settled, contrary to the claim of
defendant [MPMCC]. x x x;
14. Despite receipt of said letter on April 24, 2003, and to date however, no explanation was
given by defendant [MPMCC], to the damage and prejudice of plaintiff who is again obviously
being barred from voting/participating in the election of members of the board of directors for
the year 2003;
15. Clearly, defendant [MPMCC] acted maliciously by insisting that plaintiff is a delinquent
member when in fact, defendant Meridien had already paid the said delinquency, if any. The
branding of plaintiff as delinquent member was willfully and deceitfully employed so as to
prevent plaintiff from exercising his right to vote or be voted as director of the condominium
corporation; 16. Defendant [MPMCC]s ominous silence when confronted with claim of
payment made by defendant Meridien is tantamount to admission that indeed, plaintiff is not
really a delinquent member;
17. Accordingly, as a direct and proximate result of the said acts of defendant [MPMCC],
plaintiff experienced/suffered from mental anguish, moral shock, and serious anxiety.
Plaintiff, being a doctor of medicine and respected in the community further suffered from
social humiliation and besmirched reputation thereby warranting the grant of moral damages
in the amount of P500,000.00 and for which defendant [MPMCC] should be held liable;
18. By way of example or correction for the public good, and as a stern warning to all
similarly situated, defendant [MPMCC] should be ordered to pay plaintiff exemplary damages
in the amount of P200,000.00;
19. As a consequence, and so as to protect his rights and interests, plaintiff was constrained
to hire the services of counsel, for an acceptance fee of P100,000.00 plus P2,500.00 per
every court hearing attended by counsel;
20. In the event that the claim of defendant [MPMCC] turned out to be true, however, the
herein defendant Meridien should be held liable instead, by ordering the same to pay the
said delinquency of condominium unit 1201 in the amount of P145,567.42 as of November
30, 2002 as well as the above damages, considering that the non-payment thereof would be
the proximate cause of the damages suffered by plaintiff;
9

Petitioner and MLHI filed their separate motions to dismiss the complaint on the ground of lack of
jurisdiction. MLHI claims that it is the Housing and Land Use Regulatory Board (HLURB) which is
vested with the exclusive jurisdiction to hear and decide the case. Petitioner, on the other hand,
raises the following specific grounds for the dismissal of the complaint: (1) estoppel as respondent
himself approved the assessment when he was the president; (2) lack of jurisdiction as the case
involves an intra-corporate controversy; (3) prematurity for failure of respondent to exhaust all intracorporate remedies; and (4) the case is already moot and academic, the obligation having been
settled between petitioner and MLHI.
10

11

On September 9, 2005, the RTC rendered a Decision granting petitioners and MLHIs motions to
dismiss and, consequently, dismissing respondents complaint.
The trial court agreed with MLHI that the action for specific performance filed by respondent clearly
falls within the exclusive jurisdiction of the HLURB. As to petitioner, the court held that the complaint
states no cause of action, considering that respondents obligation had already been settled by
MLHI. It, likewise, ruled that the issues raised are intra-corporate between the corporation and
member.
12

13

On appeal, the CA reversed and set aside the trial courts decision and remanded the case to the
RTC for further proceedings. Contrary to the RTC conclusion, the CA held that the controversy is an
ordinary civil action for damages which falls within the jurisdiction of regular courts. It explained that
the case hinged on petitioners refusal to confirm MLHIs claim that the subject obligation had
already been settled as early as 1998 causing damage to respondent. Petitioners and MLHIs
motions for reconsideration had also been denied.
14

15

16

Aggrieved, petitioner comes before the Court based on the following grounds:
I.
THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT THERETOFORE
DETERMINED BY THE SUPREME COURT, OR HAS DECIDED IT IN A WAY NOT IN ACCORD
WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
DECLARED THE INSTANT CASE AN ORDINARY ACTION FOR DAMAGES INSTEAD OF AN
INTRA-CORPORATE CONTROVERSY COGNIZABLE BY A SPECIAL COMMERCIAL COURT.
II.
THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT IN ACCORD WITH LAW
OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT TOOK
COGNIZANCE OF THE APPEAL WHILE RAISING ONLY PURE QUESTIONS OF LAW.
17

The petition is meritorious.


It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the
complaint. It is not affected by the pleas or the theories set up by the defendant in an answer or a
motion to dismiss. Otherwise, jurisdiction would become dependent almost entirely upon the whims

of the defendant. Also illuminating is the Courts pronouncement in Go v. Distinction Properties


Development and Construction, Inc.:
18

19

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law
and determined by the allegations in the complaint which comprise a concise statement of the
ultimate facts constituting the plaintiffs cause of action. 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, irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein. The averments in the complaint and the character of the relief
sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction
also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some
of the claims asserted therein. x x x
20

Based on the allegations made by respondent in his complaint, does the controversy involve intracorporate issues as would fall within the jurisdiction of the RTC sitting as a special commercial court
or an ordinary action for damages within the jurisdiction of regular courts?
In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two
tests, namely, the relationship test and the nature of the controversy test.
21

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 insofar 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. Thus,
under the relationship test, the existence of any of the above intra-corporate relations makes the
case intra-corporate.
22

23

Under the nature of the controversy test, "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." In other words, jurisdiction should be determined by considering both the
relationship of the parties as well as the nature of the question involved.
24

25

Applying the two tests, we find and so hold that the case involves intra-corporate controversy. It
obviously arose from the intra-corporate relations between the parties, and the questions involved
pertain to their rights and obligations under the Corporation Code and matters relating to the
regulation of the corporation.
26

Admittedly, petitioner is a condominium corporation duly organized and existing under Philippine
laws, charged with the management of the Medical Plaza Makati. Respondent, on the other hand, is
the registered owner of Unit No. 1201 and is thus a stockholder/member of the condominium
corporation. Clearly, there is an intra-corporate relationship between the corporation and a
stockholder/member.

The nature of the action is determined by the body rather than the title of the complaint. Though
denominated as an action for damages, an examination of the allegations made by respondent in his
complaint shows that the case principally dwells on the propriety of the assessment made by
petitioner against respondent as well as the validity of petitioners act in preventing respondent from
participating in the election of the corporations Board of Directors. Respondent contested the
alleged unpaid dues and assessments demanded by petitioner.
1wphi1

The issue is not novel. The nature of an action involving any dispute as to the validity of the
assessment of association dues has been settled by the Court in Chateau de Baie Condominium
Corporation v. Moreno. In that case, respondents therein filed a complaint for intra-corporate
dispute against the petitioner therein to question how it calculated the dues assessed against them,
and to ask an accounting of association dues. Petitioner, however, moved for the dismissal of the
case on the ground of lack of jurisdiction alleging that since the complaint was against the
owner/developer of a condominium whose condominium project was registered with and licensed by
the HLURB, the latter has the exclusive jurisdiction. In sustaining the denial of the motion to dismiss,
the Court held that the dispute as to the validity of the assessments is purely an intra-corporate
matter between petitioner and respondent and is thus within the exclusive jurisdiction of the RTC
sitting as a special commercial court. More so in this case as respondent repeatedly questioned his
characterization as a delinquent member and, consequently, petitioners decision to bar him from
exercising his rights to vote and be voted for. These issues are clearly corporate and the demand for
damages is just incidental. Being corporate in nature, the issues should be threshed out before the
RTC sitting as a special commercial court. The issues on damages can still be resolved in the same
special commercial court just like a regular RTC which is still competent to tackle civil law issues
incidental to intra-corporate disputes filed before it.
27

28

Moreover, Presidential Decree No. 902-A enumerates the cases over which the Securities and
Exchange Commission (SEC) exercises exclusive jurisdiction:
xxxx
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity; and
c) Controversies in the election or appointment of directors, trustees, officers, or managers of
such corporations, partnerships, or associations.
29

To be sure, this action partakes of the nature of an intra-corporate controversy, the jurisdiction over
which pertains to the SEC. Pursuant to Section 5.2 of Republic Act No. 8799, otherwise known as
the Securities Regulation Code, the jurisdiction of the SEC over all cases enumerated under Section
5 of Presidential Decree No. 902-A has been transferred to RTCs designated by this Court as
Special Commercial Courts. While the CA may be correct that the RTC has jurisdiction, the case
should have been filed not with the regular court but with the branch of the RTC designated as a
special commercial court. Considering that the RTC of Makati City, Branch 58 was not designated as
30

a special commercial court, it was not vested with jurisdiction over cases previously cognizable by
the SEC. The CA, therefore, gravely erred in remanding the case to the RTC for further
proceedings.
31

Indeed, Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and Homeowners
Associations, approved on January 7, 2010 and became effective on July 10, 2010, empowers the
HLURB to hear and decide inter-association and/or intra-association controversies or conflicts
concerning homeowners associations. However, we cannot apply the same in the present case as it
involves a controversy between a condominium unit owner and a condominium corporation. While
the term association as defined in the law covers homeowners associations of other residential real
property which is broad enough to cover a condominium corporation, it does not seem to be the
legislative intent. A thorough review of the deliberations of the bicameral conference committee
would show that the lawmakers did not intend to extend the coverage of the law to such kind of
association. We quote hereunder the pertinent portion of the Bicameral Conference Committees
deliberation, to wit:
THE CHAIRMAN (SEN. ZUBIRI). Lets go back, Mr. Chair, very quickly on homeowners.
THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think our views are similar, Your
Honor, Senator Zubiri, the entry of the condominium units might just complicate the whole matters.
So wed like to put it on record that were very much concerned about the plight of the Condominium
Unit Homeowners Association. But this could very well be addressed on a separate bill that Im
willing to co-sponsor with the distinguished Senator Zubiri, to address in the Condominium Act of the
Philippines, rather than address it here because it might just create a red herring into the entire thing
and it will just complicate matters, hindi ba?
THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I sympathize with them---although
we sympathize with them and we feel that many times their rights have been also violated by
abusive condominium corporations. However, there are certain things that we have to reconcile.
There are certain issues that we have to reconcile with this version.
In the Condominium Code, for example, they just raised a very peculiar situation under the
Condominium Code --- Condominium Corporation Act. Its five years the proxy, whereas here, its
three years. So there would already be violation or there will be already a problem with their version
and our version. Sino ang matutupad doon? Will it be our version or their version?
So I agree that has to be studied further. And because they have a law pertaining to the
condominium housing units, I personally feel that it would complicate matters if we include them.
Although I agree that they should be looked after and their problems be looked into.
Probably we can ask our staff, Your Honor, to come up already with the bill although we have no
more time. Hopefully we can tackle this again on the 15th Congress. But I agree with the sentiments
and the inputs of the Honorable Chair of the House panel.
May we ask our resource persons to also probably give comments?

Atty. Dayrit.
MR. DAYRIT.
Yes I agree with you. There are many, I think, practices in their provisions in the Condominium Law
that may be conflicting with this version of ours.
For instance, in the case of, lets say, the condominium, the so-called common areas and/or maybe
so called open spaces that they may have, especially common areas, they are usually owned by the
condominium corporation. Unlike a subdivision where the open spaces and/or the common areas
are not necessarily owned by the association. Because sometimes --- generally these are donated to
the municipality or to the city. And it is only when the city or municipality gives the approval or the
conformity that this is donated to the homeowners association. But generally, under PD [Presidential
Decree] 957, its donated. In the Condominium Corporation, hindi. Lahat ng mga open spaces and
common areas like corridors, the function rooms and everything, are owned by the corporation. So
thats one main issue that can be conflicting.
THE CHAIRMAN (SEN. ZUBIRI). Ill just ask for a one-minute suspension so we can talk.
THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a catchall phrase like what we
did in the Senior Citizens Act. Something like, to the extent --- paano ba iyon? To the extent that it is
practicable and applicable, the rights and benefits of the homeowners, are hereby extended to the --mayroon kaming ginamit na phrase eh...to the extent that it be practicable and applicable to the unit
homeoweners, is hereby extended, something like that. Its a catchall phrase. But then again, it
might create a...
MR. JALANDONI. It will become complicated. There will be a lot of conflict of laws between the two
laws.
THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I dont know. I think the --mayroon naman silang protection sa ano eh, di ba? Buyers decree doon sa Condominium Act. Im
sure there are provisions there eh. Huwag na lang, huwag na lang.
MR. JALANDONI. Mr. Chairman, I think it would be best if your previous comments that youd be
supporting an amendment. I think that would be --- Well, that would be the best course of action
with all due respect.
1wphi1

THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So iyon na lang final proposal
naming yung catchall phrase, "With respect to the..."
32

xxxx
THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final decision on the definition of
homeowners?
THE ACTING CHAIRMAN (REP. ZIALCITA).

We stick to the original, Mr. Chairman. Well just open up a whole can of worms and a whole new
ball game will come into play. Besides, I am not authorized, neither are you, by our counterparts to
include the condominium owners.
THE CHAIRMAN (SEN. ZUBIRI).
Basically that is correct. We are not authorized by the Senate nor because we have discussed this
lengthily on the floor, actually, several months on the floor. And we dont have the authority as well
for other Bicam members to add a provision to include a separate entity that has already their legal
or their established Republic Act tackling on that particular issue. But we just like to put on record,
we sympathize with the plight of our friends in the condominium associations and we will just
guarantee them that we will work on an amendment to the Condominium Corporation Code. So with
that we skipped, that is correct, we have to go back to homeowners association definition, Your
Honor, because we had skipped it altogether. So just quickly going back to Page 7 because there
are amendments to the definition of homeowners. If it is alright with the House Panel, adopt the
opening phrase of Subsection 7 of the Senate version as opening phrase of Subsection 10 of the
reconciled version.
xxxx

33

To be sure, RA 4726 or the Condominium Act was enacted to specifically govern a condominium.
Said law sanctions the creation of the condominium corporation which is especially formed for the
purpose of holding title to the common area, in which the holders of separate interests shall
automatically be members or shareholders, to the exclusion of others, in proportion to the
appurtenant interest of their respective units. The rights and obligations of the condominium unit
owners and the condominium corporation are set forth in the above Act.
34

Clearly, condominium corporations are not covered by the amendment. Thus, the intra-corporate
dispute between petitioner and respondent is still within the jurisdiction of the RTC sitting as a
special commercial court and not the HLURB. The doctrine laid down by the Court in Chateau de
Baie Condominium Corporation v. Moreno which in turn cited Wack Wack Condominium
Corporation, et al v. CA is still a good law.
35

36

WHEREFORE, we hereby GRANT the petition and REVERSE the Court of Appeals Decision dated
July 10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV No. 86614. The Complaint
before the Regional Trial Court of Makati City, Branch 58, which is not a special commercial court,
docketed as Civil Case No. 03-1018 is ordered DISMISSED for lack of jurisdiction. Let the case be
REMANDED to the Executive Judge of the Regional Trial Court of Makati City for re-raffle purposes
among the designated special commercial courts.
SO ORDERED.

G.R. No. 153886

January 14, 2004

MEL V. VELARDE, petitioner,


vs.
LOPEZ, INC., respondent.
DECISION
CARPIO-MORALES, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to review the
decision1 and resolution2 of the Court of Appeals, raises the issue of whether the defendant in a
complaint for collection of sum of money can raise a counterclaim for retirement benefits, unpaid
salaries and incentives, and other benefits arising from services rendered by him in a subsidiary of
the plaintiff corporation.
On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and
petitioner Mel Velarde, then General Manager of Sky Vision Corporation (Sky Vision), a subsidiary of
respondent, as BORROWER, forged a notarized loan agreement covering the amount of ten million
(P10,000,000.00) pesos. The agreement expressly provided for, among other things, the manner of
payment and the circumstances constituting default which would give the lender the right to declare
the loan together with accrued interest immediately due and payable. 3
Sec. 6 of the agreement detailed what constituted an "event of default" as follows:
Section 6
Each of the following events and occurrences shall constitute an Event of Default ("Event of
Default") under this Agreement:
a) the BORROWER fails to make payment when due and payable of any amount he
is obligated to pay under this Agreement;
b) the BORROWER fails to mortgage in favor of the LENDER real property sufficient
to cover the amount of the LOAN.4
As petitioner failed to pay the installments as they became due, respondent, apparently in answer to
a proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15,
1998 that he may use his retirement benefits in Sky Vision in partial settlement of his loan after he
settles his accountabilities to the latter and gives his written instructions to it (Sky Vision). 5
Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the
imputed unliquidated advances from Sky Vision had already been properly liquidated. 6
On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at
the Regional Trial Court (RTC) of Pasig City against petitioner, alleging that petitioner violated the
above-quoted Section 6 of the loan agreement as he failed to put up the needed collateral for the

loan and pay the installments as they became due, and that despite his receipt of letters of demand
dated December 1, 19977 and January 13, 1998,8he refused to pay.
In his answer, petitioner alleged that the loan agreement did not reflect his true agreement with
respondent, it being merely a "cover document" to evidence the reward to him of ten million pesos
(P10,000,000.00) for his loyalty and excellent performance as General Manager of Sky Vision and
that the payment, if any was expected, was in the form of continued service; and that it was when he
was compelled by respondent to retire that the form of payment agreed upon was rendered
impossible, prompting the late Eugenio Lopez, Jr. to agree that his retirement benefits from Sky
Vision would instead be applied to the loan.9
By way of compulsory counterclaim, petitioner claimed that he was entitled to retirement benefits
from Sky Vision in the amount of P98,280,000.00, unpaid salaries in the amount of P2,740,000.00,
unpaid incentives in the amount of P500,000, unpaid share from the "net income of Plaintiff
corporation," equity in his service vehicle in the amount of P1,500,000, reasonable return on the
stock ownership plan for services rendered as General Manager, and moral damages and attorneys
fees.10
Petitioner thus prayed for the dismissal of the complaint and the award of the following sums of
money in the form of compulsory counterclaims:
1. P103,020,000.00, PLUS the value of Defendants stock options and unpaid share from the
net income with Plaintiff corporation (to be computed) as actual damages;
2. P15,000,000.00, as moral damages; and
3. P1,500,000.00, as attorneys fees plus appearance fees and the costs of suit. 11
Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction,
which drew petitioner to assert in his comment and opposition thereto that the veil of corporate
fiction must be pierced to hold respondent liable for his counterclaims.
By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied respondents motion to dismiss
the counterclaim on the following premises: A counterclaim being essentially a complaint, the
principle that a motion to dismiss hypothetically admits the allegations of the complaint is applicable;
the counterclaim is compulsory, hence, within its jurisdiction; and there is identity of interest between
respondent and Sky Vision to merit the piercing of the veil of corporate fiction. 12
Respondents motion for reconsideration of the trial courts Order of January 3, 2000 having been
denied, it filed a Petition for Certiorari at the Court of Appeals which held that respondent is not the
real party-in-interest on the counterclaim and that there was failure to show the presence of any of
the circumstances to justify the application of the principle of "piercing the veil of corporate fiction."
The Orders of the trial court were thus set aside and the counterclaims of petitioner were accordingly
dismissed.13

The Court of Appeals having denied petitioners motion for reconsideration, the instant Petition for
Review was filed which assigns the following errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTC BRANCH 155
ALLEGEDLY ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS DATED
JANUARY 3, 2000 AND OCTOBER 9, 2000 CONSIDERING THAT THE GROUNDS RAISED BY
RESPONDENT LOPEZ, INC. IN ITS PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF
JUDGMENT AND NOT ERRORS OF JURISDICTION.
II.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENT LOPEZ, INC. IS
NOT THE REAL PARTY-IN-INTEREST AS PARTY-DEFENDANT ON THE COUNTERCLAIMS OF
PETITIONER VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ, INC.S
MANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM HAD THE EFFECT OF
HYPOTHETICALLY ADMITTING THE TRUTH OF THE MATERIAL AVERMENTS OF THE
ANSWER, WHICH MATERIAL AVERMENTS SUFFICIENTLY ALLEGED THAT RESPONDENT
LOPEZ, INC. COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY VISION, WAS A
MERE BUSINESS CONDUIT OR ALTER EGO OF THE FORMER, THUS, JUSTIFYING THE
PIERCING OF THE VEIL OF CORPORATE FICTION.
III.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE COUNTERCLAIMS OF
PETITIONER VELARDE ARE NOT COMPULSORY.14
While petitioner correctly invokes the ruling in Atienza v. Court of Appeals15 to postulate that not
every denial of a motion to dismiss can be corrected by certiorari under Rule 65 and that, as a
general rule, the remedy from such denial is to appeal in due course after a decision has been
rendered on the merits, there are exceptions thereto, as when the court in denying the motion to
dismiss acted without or in excess of jurisdiction or with patent grave abuse of discretion, 16 or when
the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief,17 or when the ground for the motion to dismiss is improper
venue,18 res judicata,19 or lack of jurisdiction20 as in the case at bar.
Early on, it bears noting, when the case was still with the trial court, respondent filed a motion to
dismiss the counterclaims to assail its jurisdiction, respondent asserting that the counterclaims,
being money claims arising from a labor relationship, are within the exclusive competence of the
National Labor Relations Commission.21 On the other hand, petitioner alleged that due to the
tortuous manner he was coerced into retirement, it is the Regional Trial Courts (RTCs) and not the
National Labor Relations Commission which has exclusive jurisdiction over his counterclaims.
In determining which has jurisdiction over a case, the averments of the complaint/counterclaim,
taken as a whole, are considered.22 In his counterclaim, petitioner alleged that:

xxx
29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation of the retirement
benefit due to the Defendant. (Copy attached as ANNEX 4). Immediately after receiving this
computation, Defendant immediately informed Plaintiff of the erroneous figure used as salary
in the computation of benefits. This was done in a telephone conversation with a certain Atty.
Amina Amado of Lopez, Inc.
29.1 The Defendant also informed her that the so called "unliquidated advances amounting
to P422,922.87 since 1995" had all been properly liquidated as reflected in all the reports of
the company. The Defendant reminded Atty. Amado of
unpaid incentives and salaries for 1997.
29.2 Defendant likewise informed Plaintiff that the one month for every
year of service as a basis for the computation of the Defendants retirement benefit is
erroneous. This computation is even less than what the rank and file employees get. That
CEOs, COOs and senior executives of the level of ABS-CBN, Sky Vision, Benpres, Meralco
and other Lopez companies had and have received a lot more than the regular rank and file
employees. All these retired executives and records can be summoned for verification.
29.3 The circumstances of the retirement of the Defendant are not those for a simple and
ordinary rank and file employee. Mr. Lopez, III admitted that he and the Defendant have had
problems which accumulated through time and that they chose to part ways in a manner that
was dignified for both of them. Treating the Defendant as a rank and file employee is hardly
dignified not just to the Defendant but also to the Lopezes whose existing executives serving
them will draw lessons from the Defendants experience.
29.4 These circumstances hardly reflect a simple retirement. The Defendant, who is known
in the local and international media community, is hardly considered a rank and file
employee. Defendant was a stockholder of the Corporation and a duly-elected member of
the Board of Directors. Certain government officials can attest to the sensitivity of issues and
matters the Defendant had represented for the Lopezes that are hardly issues handled by a
simple rank and file employee. Respectable individuals in government and industry are
willing to testify to this regard.x x x23 (Underscoring and italics supplied).
At the heart of petitioners counterclaim is his alleged forced retirement which is also the basis of his
claim for, among other things, unpaid salaries, unpaid incentives, reasonable return on the stock
ownership plan, and other benefits from a subsidiary company of the respondent.
Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) applies to a
corporate officers dismissal. For a corporate officers dismissal is always a corporate act and/or an
intra-corporate controversy and that its nature is not altered by the reason or wisdom which the
Board of Directors may have in taking such action.24
With regard to petitioners claim for unpaid salaries, unpaid share in net income, reasonable return
on the stock ownership plan and other benefits for services rendered to Sky Vision, jurisdiction

thereon pertains to the Securities Exchange Commission even if the complaint by a corporate officer
includes money claims since such claims are actually part of the prerequisite of his position and,
therefore, interlinked with his relations with the corporation.25 The question of remuneration involving
a person who is not a mere employee but a stockholder and officer of the corporation is not a simple
labor problem but a matter that comes within the area of corporate affairs and management, and is
in fact a corporate controversy in contemplation of the Corporation Code. 26
While petitioners counterclaims were filed on December 1, 1998, the second challenged order of the
trial court denying respondents motion for reconsideration of the denial of its motion to dismiss was
issued on October 9, 2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on
July 19, 2000) which mandated the transfer of jurisdiction over intra-corporate controversies, subject
of the counterclaims, to RTCs.
But even if the subject matter of the counterclaims is now cognizable by RTCs, the filing thereof
against respondent is improper, it not being the real party-in-interest, for it is petitioners employer
Sky Vision, respondents subsidiary.
It cannot be gainsaid that a subsidiary has an independent and separate juridical personality, distinct
from that of its parent company, hence, any claim or suit against the latter does not bind the former
and vice versa.
Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of
corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in cases when the
separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, such that in the case of two corporations, the law will regard the corporations as merged into
one.27 The rationale behind piercing a corporations identity is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who
use the corporate personality as a shield for undertaking certain proscribed activities. 28
In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be
established: (1) control, not merely majority or complete stock control; (2) such control must have
been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the
aforesaid control and breach of duty must proximately cause the injury or unjust loss complained
of.29
Nowhere, however, in the pleadings and other records of the case can it be gathered that
respondent has complete control over Sky Vision, not only of finances but of policy and business
practice in respect to the transaction attacked, so that Sky Vision had at the time of the transaction
no separate mind, will or existence of its own. The existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations.
This Court is thus not convinced that the real party-in-interest with regard to the counterclaim for
damages arising from the alleged tortuous manner by which petitioner was forced to retire as
General Manager of Sky Vision is respondent.

Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control
over the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into
signing the loan agreement on the misleading assurance that it was merely for the purpose of
documenting the reward to him of ten million pesos. This argument does not persuade. Petitioner,
being a lawyer, is presumed to know the legal and binding effects of loan agreements.
It bears emphasis that Sky Visions involvement in the transaction subject of the case sprang only
after a proposal was apparently proffered by petitioner that his retirement benefits from Sky Vision
be used in partial payment of his loan from respondent as gathered from the July 15, 1998 letter 30 of
Rommel Duran, Vice-President and General Manager of respondent, to petitioner reading:
Dear Mr. Velarde:
As requested, we have made computations on the outstanding amount of your loan with
Lopez, Inc. should your retirement benefits from Sky Vision Corporation/Central CATV, Inc.
""Sky/Central") be applied to the partial payment of your loan. Please note that in order to
effect the application of your retirement benefits to the partial payment of your
loan, you will need to give Sky/Central written instructions on the same in the soonest
possible time.
As you will see in the attached computation, the amount of P4,077,077.13 will be applied to
the payment of your loan to retroact on January 1, 1998. The amount of P422,922.87,
representing unliquidated advances made by Sky/Central to you (see attached listing), has
been deducted from your retirement pay of P4.5 million. Should you be able
to liquidate the advances as requested by Sky/Central, the said amount will be applied to the
partial payment of your loan and we shall adjust the amount of principal and interest due
from you accordingly. After the application of the amount of P4,077,077.13 to the partial
payment of your loan, the amount of P7,585,912.86 will be immediately due and
demandable. The amount of P7,585,912.86 represents the outstanding principal and interest
due as of July 15, 1998.
Without the application of your retirement benefits to the partial payment of your loan, the
amount of P11,850,000.00 is due as of July 15, 1998. We reiterate our demand for full
payment of your outstanding obligation immediately. (Underscoring supplied)
As for the trial courts ruling that the agreement to set-off is an amendment of the loan agreement
resulting to an identity of interest between respondent and Sky Vision and, therefore, sufficient to
pierce the veil of corporate fiction, it is untenable. The abovequoted letter is clear that, to effect a setoff, it is a condition sine qua non that the approval thereof by "Sky/Central" must be obtained, and
that petitioner liquidate his advances from Sky Vision. These conditions hardly manifest that
respondent possessed that degree of control over Sky Vision as to make the latter its mere
instrumentality, agency or adjunct.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED.
SO ORDERED.

G.R. No. 144767

March 21, 2002

DILY DANY NACPIL, petitioner,


vs.
INTERNATIONAL BROADCASTING CORPORATION, respondent.
KAPUNAN, J.:
This is a petition for review on certiorari under Rule 45, assailing the Decision of the Court of
Appeals dated November 23, 1999 in CA-G.R. SP No. 527551 and the Resolution dated August 31,
2000 denying petitioner Dily Dany Nacpil's motion for reconsideration. The Court of Appeals
reversed the decisions promulgated by the Labor Arbiter and the National Labor Relations
Commission (NLRC), which consistently ruled in favor of petitioner.
Petitioner states that he was Assistant General Manager for Finance/Administration and Comptroller
of private respondent Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997.
According to petitioner, when Emiliano Templo was appointed to replace IBC President Tomas
Gomez III sometime in March 1997, the former told the Board of Directors that as soon as he
assumes the IBC presidency, he would terminate the services of petitioner. Apparently, Templo
blamed petitioner, along with a certain Mr. Basilio and Mr. Gomez, for the prior mismanagement of
IBC. Upon his assumption of the IBC presidency, Templo allegedly harassed, insulted, humiliated
and pressured petitioner into resigning until the latter was forced to retire. However, Templo refused
to pay him his retirement benefits, allegedly because he had not yet secured the clearances from the
Presidential Commission on Good Government and the Commission on Audit. Furthermore, Templo
allegedly refused to recognize petitioner's employment, claiming that petitioner was not the Assistant
General Manager/Comptroller of IBC but merely usurped the powers of the Comptroller. Hence, in
1997, petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-payment of
benefits.
1wphi1.nt

Instead of filing its position paper, IBC filed a motion to dismiss alleging that the Labor Arbiter had no
jurisdiction over the case. IBC contended that petitioner was a corporate officer who was duly
elected by the Board of Directors of IBC; hence, the case qualifies as an intra-corporate dispute
falling within the jurisdiction of the Securities and Exchange Commission (SEC). However, the
motion was denied by the Labor Arbiter in an Order dated April 22, 1998. 2
On August 21, 1998, the Labor Arbiter rendered a Decision stating that petitioner had been illegally
dismissed. The dispositive portion thereof reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the
complainant and against all the respondents, jointly and severally, ordering the latter:
1. To reinstate complainant to his former position without diminution of salary or loss
of seniority rights, and with full backwages computed from the time of his illegal
dismissal on May 16, 1997 up to the time of his actual reinstatement which is

tentatively computed as of the date of this decision on August 21, 1998 in the amount
of P1,231,750.00 (i.e., P75,000.00 a month x 15.16 months = P1,137,000.00 plus
13th month pay equivalent to 1/12 of P 1,137,000.00 = P94,750.00 or the total amount
of P 1,231,750.00). Should complainant be not reinstated within ten (10) days from
receipt of this decision, he shall be entitled to additional backwages until actually
reinstated.
2. Likewise, to pay complainant the following:
a) P 2 Million as and for moral damages;
b) P500,000.00 as and for exemplary damages; plus and (sic)
c) Ten (10%) percent thereof as and for attorney's fees.
SO ORDERED.3
IBC appealed to the NLRC, but the same was dismissed in a Resolution dated March 2, 1999, for its
failure to file the required appeal bond in accordance with Article 223 of the Labor Code. 4 IBC then
filed a motion for reconsideration that was likewise denied in a Resolution dated April 26, 1999. 5
IBC then filed with the Court of Appeals a petition for certiorari under Rule 65, which petition was
granted by the appellate court in its Decision dated November 23, 1999. The dispositive portion of
said decision states:
WHEREFORE, premises considered, the petition for Certiorari is GRANTED. The assailed
decisions of the Labor Arbiter and the NLRC are REVERSED and SET ASIDE and the
complaint is DISMISSED without prejudice.
SO ORDERED.6
Petitioner then filed a motion for reconsideration, which was denied by the appellate court in a
Resolution dated August 31, 2000.
Hence, this petition.
Petitioner Nacpil submits that:
I.
THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER WAS APPOINTED BY
RESPONDENT'S BOARD OF DIRECTORS AS COMPTROLLER. THIS FINDING IS
CONTRARY TO THE COMMON, CONSISTENT POSITION AND ADMISSION OF BOTH
PARTIES. FURTHER, RESPONDENT'S BY-LAWS DOES NOT INCLUDE COMPTROLLER
AS ONE OF ITS CORPORATE OFFICERS.

II.
THE COURT OF APPEALS WENT BEYOND THE ISSUE OF THE CASE WHEN IT
SUBSTITUTED THE NATIONAL LABOR RELATIONS COMMISSION'S DECISION TO
APPLY THE APPEAL BOND REQUIREMENT STRICTLY IN THE INSTANT CASE. THE
ONLY ISSUE FOR ITS DETERMINATION IS WHETHER NLRC COMMITTED GRAVE
ABUSE OF DISCRETION IN DOING THE SAME.7
The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal
dismissal and non-payment of benefits filed by petitioner. The Court finds that the Labor Arbiter had
no jurisdiction over the same.
Under Presidential Decree No. 902-A (the Revised Securities Act), the law in force when the
complaint for illegal dismissal was instituted by petitioner in 1997, the following cases fall under the
exclusive of the SEC:
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 stockholders, partners, members of
associations or organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity;
c) Controversies in the election or appointment of directors, trustees, officers, or
managers of such corporations, partnerships or associations;
d) Petitions of corporations, partnerships, or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association
possesses property to cover all of its debts but foresees the impossibility of meeting them
when they respectively fall due or in cases where the corporation, partnership or association
has no sufficient assets to cover its liabilities, but is under the Management Committee
created pursuant to this decree. (Emphasis supplied.)
The Court has consistently held that there are two elements to be considered in determining whether
the SEC has jurisdiction over the controversy, to wit: (1) the status or relationship of the parties; and
(2) the nature of the question that is the subject of their controversy.8
Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had
not been elected nor appointed as Comptroller and Assistant Manager by the IBC's Board of
Directors. He points out that he had actually been appointed as such on January 11, 1995 by the
IBC's General Manager, Ceferino Basilio. In support of his argument, petitioner underscores the fact
that the IBC's By-Laws does not even include the position of comptroller in its roster of corporate

officers.9 He therefore contends that his dismissal is a controversy falling within the jurisdiction of the
labor courts.10
Petitioner's argument is untenable. Even assuming that he was in fact appointed by the General
Manager, such appointment was subsequently approved by the Board of Directors of the IBC. 11 That
the position of Comptroller is not expressly mentioned among the officers of the IBC in the By-Laws
is of no moment, because the IBC's Board of Directors is empowered under Section 25 of the
Corporation Code12 and under the corporation's By-Laws to appoint such other officers as it may
deem necessary. The By-Laws of the IBC categorically provides:
XII. OFFICERS
The officers of the corporation shall consist of a President, a Vice-President, a SecretaryTreasurer, a General Manager, and such other officers as the Board of Directors may
from time to time does fit to provide for. Said officers shall be elected by majority vote
of the Board of Directors and shall have such powers and duties as shall hereinafter
provide (Emphasis supplied).13
The Court has held that in most cases the "by-laws may and usually do provide for such other
officers,"14 and that where a corporate office is not specifically indicated in the roster of corporate
offices in the by-laws of a corporation, the board of directors may also be empowered under the bylaws to create additional officers as may be necessary.15
An "office" has been defined as a creation of the charter of a corporation, while an "officer" as a
person elected by the directors or stockholders. On the other hand, an "employee" occupies no
office and is generally employed not by action of the directors and stockholders but by the managing
officer of the corporation who also determines the compensation to be paid to such employee. 16
As petitioner's appointment as comptroller required the approval and formal action of the IBC's
Board of Directors to become valid,17 it is clear therefore holds that petitioner is a corporate officer
whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5(c) of
P.D. 902-A which includes controversies involving both election and appointment of corporate
directors, trustees, officers, and managers.18 Had petitioner been an ordinary employee, such board
action would not have been required.
Thus, the Court of Appeals correctly held that:
Since complainant's appointment was approved unanimously by the Board of Directors of
the corporation, he is therefore considered a corporate officer and his claim of illegal
dismissal is a controversy that falls under the jurisdiction of the SEC as contemplated by
Section 5 of P.D. 902-A. The rule is that dismissal or non-appointment of a corporate officer
is clearly an intra-corporate matter and jurisdiction over the case properly belongs to the
SEC, not to the NLRC.19
As to petitioner's argument that the nature of his functions is recommendatory thereby making him a
mere managerial officer, the Court has previously held that the relationship of a person to a

corporation, whether as officer or agent or employee is not determined by the nature of the services
performed, but instead by the incidents of the relationship as they actually exist. 20
It is likewise of no consequence that petitioner's complaint for illegal dismissal includes money
claims, for such claims are actually part of the perquisites of his position in, and therefore linked with
his relations with, the corporation. The inclusion of such money claims does not convert the issue
into a simple labor problem. Clearly, the issues raised by petitioner against the IBC are matters that
come within the area of corporate affairs and management, and constitute a corporate controversy in
contemplation of the Corporation Code.21
Petitioner further argues that the IBC failed to perfect its appeal from the Labor Arbiter's Decision for
its non-payment of the appeal bond as required under Article 223 of the Labor Code, since
compliance with the requirement of posting of a cash or surety bond in an amount equivalent to the
monetary award in the judgment appealed from has been held to be both mandatory and
jurisdictional.22 Hence, the Decision of the Labor Arbiter had long become final and executory and
thus, the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in giving due course to the IBC's petition for certiorari, and in deciding the case on the
merits.
The IBC's failure to post an appeal bond within the period mandated under Article 223 of the Labor
Code has been rendered immaterial by the fact that the Labor Arbiter did not have jurisdiction over
the case since as stated earlier, the same is in the nature of an intra-corporate controversy. The
Court has consistently held that where there is a finding that any decision was rendered without
jurisdiction, the action shall be dismissed. Such defense can be interposed at any time, during
appeal or even after final judgment.23 It is a well-settled rule that jurisdiction is conferred only by the
Constitution or by law. It cannot be fixed by the will of the parties; it cannot be acquired through,
enlarged or diminished by, any act or omission of the parties.24
Considering the foregoing, the Court holds that no error was committed by the Court of Appeals in
dismissing the case filed before the Labor Arbiter, without prejudice to the filing of an appropriate
action in the proper court.
1wphi1.nt

It must be noted that under Section 5.2 of the Securities Regulation Code (Republic Act No. 8799)
which was signed into law by then President Joseph Ejercito Estrada on July 19, 2000, the SEC's
jurisdiction over all cases enumerated in Section 5 of P.D. 902-A has been transferred to the
Regional Trial Courts.25
WHEREFORE, the petition is hereby DISMISSED and the Decision of the Court of Appeals in CAG.R. SP No. 52755 is AFFIRMED.
SO ORDERED.