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Russel Anne Bundoc | JD-2B | College of Law, Bulacan State University | Corpo | Case Digests

of Law, Bulacan State University | Corpo | Case Digests I. SHORT TITLE: GSIS v CA

I. SHORT TITLE:

GSIS v CA

II. FULL TITLE: G.R. No. 183905. April 16, 2009. GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. THE HON. COURT OF APPEALS, (8TH DIVISION), ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAÑEZ, and FRANCIS GILES PUNO, respondents.

III. TOPIC:

Corporation Law

- Proxy solicitation and proxy validation

IV. STATEMENT OF FACTS:

During the annual stockholders meeting of the Manila Electric Company (MERALCO,) due to the resignation of the corporate secretary Quiason, the Board of Directors (BoD) of MERALCO designated Vitug to act as corporate secretary. However, the proxy validation was presided over by respondent Rosete, assistant corporate secretary and in-house chief legal counsel of MERALCO. GSIS thereafter filed a complaint with the RTC of Pasay City seeking the nullification of the proxies which were validated during the aforementioned proceeding presided over by respondent Rosete. On the very same day, a Cease and Desist Order (CDO) was then issued and signed by SEC Commissioner Jesus Martinez to restrain the use of said proxies during the annual meeting. Nevertheless, Rosete continued the meeting despite the foregoing. The SEC then issued a Show Cause Order (SCO) against Rosete ordering them to give an explanation why they should not be cited in contempt. On appeal, the CA Eighth Division held that the complaint filed by GSIS is dismissed for lack of jurisdiction, forum shopping by splitting of causes of action. Thereafter, three different action arose therefrom, one of which involves the jurisdiction of the SEC over the contested petition as well as the validity of the CDO and SCO.

V. ISSUE:

1. Whether or not the SEC has jurisdiction over the petition filed by GSIS against

private respondents.

2. Whether or not the CDO and SCO issued by the SEC are valid.

VI. RULING:

1. No. Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC,

the jurisdiction of the regular trial courts with respect to election-related controversies is

specifically confined to “controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations.” Evidently,

Russel Anne Bundoc | JD-2B | College of Law, Bulacan State University | Corpo | Case Digests

of Law, Bulacan State University | Corpo | Case Digests the jurisdiction of the regular courts

the jurisdiction of the regular courts over so-called election contests or controversies under Section 5(c) does not extend to every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Section 24 of the Corporation Code. This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regular courts over election contests or controversies. The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree No. 902-A.

2. No. The lack of jurisdiction of the SEC over the subject matter of GSIS’s petition necessarily invalidates the CDO and SCO issued by that body. The error of the SEC in granting the CDO without stating which kind of CDO it was issuing is more unpardonable, as it is an act that contravenes due process of law. The CDO bore the signature of Commissioner Jesus Martinez, identified therein as “Officer-in-Charge,” and nobody else’s. The SEC is a collegial body composed of a Chairperson and four (4) Commissioners. In order to constitute a quorum to conduct business, the presence of at least three (3) Commissioners is required. Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of the SEC. The SEC acts through a five-person body, and the five members of the commission each has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the SEC. It is clear that Martinez was designated as OIC because of the official travel of only one member, Chairperson Fe Barin. Martinez was not commissioned to act as the SEC itself.

VII. DISPOSITIVE PORTION:

WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the petitioner to bring forth the suit. The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third paragraphs of the fallo of the assailed decision dated 23 July 2008 of the Court of Appeals, including subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the second paragraph, are hereby DELETED. No pronouncements as to costs. SO ORDERED.