UNION GLASS V SEC

ISSUE: Is it the regular court or the SEC that has jurisdiction over the case?

HELD: In the ordinary course of things, petitioner Union possessor of the glass plant covered by the dacion en pago
agreement, should be joined as party-defendant under the general rule which requires the joinder of every Glass, as
transferee and party who has an interest in or lien on the property subject matter of the dispute. 4(4) Such joinder of
parties avoids multiplicity of suits as well as ensures the convenient, speedy and orderly administration of justice.

But since petitioner Union Glass has no intra-corporate relation with either the complainant or the DBP, its joinder as
party-defendant in SEC Case No. 2035 brings the cause of action asserted against it outside the jurisdiction of the
respondent SEC.

The jurisdiction of the SEC is delineated by Section 5 of PD No. 902-A as follows:

"Sec. 5. In addition to the regulatory and adjudicative function of the Securities and Exchange Commission
over corporations, partnerships and other forms of associations registered with it as expressly granted under
existing laws and devices, it shall have original and exclusive jurisdiction to hear and decide cases involving:

a] Devices and 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 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 appointments of directors, trustees, officers or managers of such

corporations, partnerships or associations.

In order that the SEC can take cognizance of a case, the controversy must pertain to any of the following
relationships: (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 in so far as its franchise, permit or license to operate is concerned; and (d)
among the stockholders, partners or associates.

The fact that the controversy at bar involves the rights of petitioner Union Glass who has no intra-corporate relation
either with complainant or the DBP, places the suit beyond the jurisdiction of the respondent SEC. The case should be
tried and decided by the court of general jurisdiction, the Regional Trial Court. 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.

Hofileña's complaint against petitioner for cancellation of the sale of the glass plant should therefore be brought
separately before the regular court. But such action, if instituted, shall be suspended to await the final outcome of
SEC Case No. 2035, for the issue of the validity of the dacion en pago posed in the last mentioned case is a
prejudicial question, the resolution of which is a logical antecedent of the issue involved in the action against
petitioner Union Glass. Thus, Hofileña's complaint against the latter can only prosper if final judgment is rendered in
SEC Case No. 2035, annulling the dacion en pago executed in favor of the DBP.
ABEJO V DELA CRUZ: (1987)

- 1982: Telectronics purchased 63k shares registered in the name of Virginia Braga (with said purchase,
Telectronics would become majority stockholder) + requested corporate secretary, Norberto Braga, to
register and transfer to its name and issue new certificates of stock
o Norbertyo refused to register transfer of shares, asserting Bagas claim preemptive rights over 133,000
Abejo shares and that Virginia Braga never transferred her 63k shares to Tleectronics but had LOST the
5 stock certificates representing those shares
o Bragas claim civil court has jurisdiction; Abejos claim SEC has jurisdiction
o Abejos:
 Prayer for mandamus ordering Norberto as corporate secretary to register in their name the
transfer of Pocket Bell shares + injunction enjoining Bragas from disbursing/disposing funds and
assets of Pocket Bell
 Norberto filed MTD on ground that action is not an intracorporate controversy, Telectronics
not being a stockholder of Pocket Bell
o 1983: Sec Hearing Officer denied MTD --; but Hearing officer Garaygay granted Braga’s MR,
dismissing SEC case
 SEC three-man committee on injunction case reconsidered the dismissal of mandamus
petition and directed Braga to file answer
o Bragas:
 Filed petition for certiorari, prohibition and mandamus with SEC en banc seeking dismissal of
SEC cases and setting aside of three-man committee’
o 1984: SEC en banc issued order dismissing Bragas’ petition for lack of merit + ordering continuaince of
hearings of the case, ruling issue is not ownership of shares but nonperformance by Corporate
Secretary of ministerial duty to record transfers of shares fo stock
o Bragas in CFI:
 Filed complaint against Abejos and Telectronics in CFI Pasig for recission and annulment of
sale of shares of stock by Aejos in favor of Telectronics on ground that it violated Bragas’
alleged pre-emptive right over Abejos’ shareholdings + alleged perfected contract with
Abejos to sell the same shares to Bragas + damages for bad faith + declaration of nullity of
transfer by Virginia Bragas’ 64k shares to Telectronics for want of consideration, since said
stock certificates were intended as security for loan application (hence endorsed as blank_
and had been lost
 Abejos filed MTD – that SEC has original and exlusive jurisdiction as per PD 902-A; dismissal
granted
 Bragas’ MR – de la Cruz issued order rescinding order + revived TRO against Telectronics
restraining them from constituting themselves as new officers of Pocket Bell; Abejos’ MR
denied
o Abejos filed present petition against de La Cruz alleging grave abuse of discretion + lack of jurisdicton
o Bragas alleged SEC has no jurisdiction and had acted capriciously in dismissing their petition

- ISSUE: who between the RTC and the SEC has jurisdiction over a dispute between the principal stockholders
of corporation Pocket Bell (Abejos) and purchaser Telectronic Systems Inc: SEC.
o SEC en banc resolution correct: issue is not ownership of shares but nonperformance by corporate
secretary to perform ministerial duty of recording transfers of shares of stock.
 SEC’s primary and exclusive jurisdiction based on PD 902-A:
 Sec. 3: Commission has absolute jurisdiction, supervision and control over all
corporations, partnerships or associations who are grantees of primary
franchise/license or permit by gov’t to operate
 Sec 5: in additin to regulatory and adjudicative functions of SEC… has original and
exclusive jurisdiction to hear and decide cases …
 Sec. 6: power to issue prelim/permanent injunctions whether prohibitory or mandatory
in nature in all cases to which it has jurisdiction
  Dispute at bar is an intracorporate dispute arising because the corporate secretary backed
by his parents (erstwhile majority shareholders) failed to perform his ministerial duty to record
the transfers of corporation’s controlling shares in favor of Telectronics as purchase of the
Abejos; mandamus in SEC is proper
 Claims of Bragas in RTC praying for resicions and annulment of sale to Telectronics on ground
of preemptive right of Bragas + lost shares of stock by Virginia may in no way deprive SEC of
primary and exclusive jurisdiction to grant or not the writ of mandamus – Bragas’ contention
that question of ordering the recording of transfers hinges on question of ownership
notwithstanding, jurisdiction over dispute is vested with SEC
o Bragas’ complaint itself involves controversies “between and among stockholders” as to Abejos’ right
to sell and dispose of shares to Telectronics and the validity of the latter’s acquisition of those shares +
who among bragas/Abejas should be reocngized as controlling shareholders of the corporation +
RTC order restraining Telectronics from constituting themselves as new set of officers of Pcoket Bell
encroached on SEC’s exclusive jurisdiction
 “nowhere does PD 902-A empower any CFI to interfere with the orders of the Commission +
any ruling by the TC on the issue of ownership of shares of stock is not binding on the
Commission”
o Bragas’ refusal to record the transfer of shares of stock may be deemed a device/scheme
amounting to fraud/misrepresentation employed to keep the Bragas in control of the corporation ot
the detriment of Telectronics and Abejos, thus falling under par. A of PD 902-A + dispute is an intra-
corporate controversy between and among the majority and minority stockholders as to the transfer
and disposition of the controlling shares of the corporation falling under par. b + concerns issue of
whether the Bragas or Telectronics have the right to elect the corporate directors and officers and
manage its business an doperations under par. c.
o An intra-corporate controversy is one which arises between a stockholder and the corporation,
without distinction; issue of whether or not a corporation is bound to replace a stockholder’s lost
certificate of stock isa matter purely between a stockholder and the corporation (damages is
incidental to the main issue); general intent of law is to segregate from general jurisdiction of regular
courts controversies involving corporations and their stockholders and to bring them to the SEC for
exclusive resolution
 Fact of WON to register to Telectronics shares must be resolved by SEC; Norberto blocked this
dispute resolution by refusing to register the transfer
 Dispute between Abejos and bragas as to sale and transfer of A’s former shres to Telectronics
is an intracorporate one; SEC must resolve the Bragas’ caim of an alleged pre-emptive right
to buy the Abejos’ share by virtue of “on-going negotiations” _ corporation is not a close
corporation, and there is no restriction over the free transferability of the shares in the Articles
of Incorporation
 Dispute between Bragas and Telectronics re Virginia’s 63k shares endorsed in blank in
certificates afll within SEC jurisdiction since they deal with free transferability of corporate
shares as guaranteed by the Corporation Code and its proclaimed policy of encouraging
foreign and domestic investments in Ph private corporations
 There is no requirement that astockholder of a corporation must be a registered one in order
that the SEC may take cognizance of a suit seeking to enforce his rights as such stockholder
(SEC has absolute jursdiciton, superivison and control over all corporations)
o Doctrine of primary jurisdiction: the courts cannot or will n6t determine a controversy involving a
question which is within the jurisdiction of an administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the special knowledge, experience, and seruices
of the administratiue tribunal to determine technical and intricate matters of fact, and a uniformity of
ruling is essential to comply uith the purposes of the regulatory statute administere
o Corporation Code specifically vests the SEC with Rule-makign power in discharge of its task of
implemnting provisions of the Code “…particularly in the prevention of fraud and abuses on the part
of the controlling stockholders, members, directors, trustees or officers.” SEC has primary and exclusvei
jurisdiction over this dispute.
  Action fo rrecovery of glass plant in an action to annul the dacion en pago could be brought
by dissenting stockholder to regular courts only if and when the SEC rendered final judgment
annulling dacion en pago and subject to Union Glass’ defenses as athrid party buyer in good
faith
 Money claim under a slease contract, even if the collection of rentals includes shares of stock
in defendant corporation, would be beyond the competence of the SEC.
o Precinding from great concern of damage and prejudice expressed by Telctronics due to Bragas
remaining in control of corporation and allegedly committing acts of gross mismangement and
misapplication of funds, fair that SEC’s order creaing receivership committee be implemented (3-man
committee: rep of SEC, rep of petitioner, rep of respondent)

- HELD:
o Order of de la cruz annulled + dismissed for lack of jursidction
o TRO on Telectronics lfited
o SEC Hearing Comitte to proceed with mandamus petition re transfer of shares to Telectronics +
implementation of receivership or management comittee

MAGALAD V PREMIERE FINANCING CORPORATION: (1992)

- Premiere, a financing company for solicity/accepting money market placements or deposits, on Sept 1983
w/ expired permit to issue commercial papers and with intention to defraud creditors, induced Magalad into
making money market placement of P50k at 22% interest per annum + issued 2 post-dated checks in total
sum of P51,079 and assigned to Magalad its receivable from a David Saman
o Drawee bank disnohonred checks for lack of sufficient funds
o Magald made demands to replace checks with cash, but Premiere failed to honor demans without
just cause
- Magalad filed complaint with RTC, QC against Premiere; Premiere failed to fie answer, so lower court
declared Premiere in default and allowed Magalad to present evidence ex-parte
- RTC:
o Magalad fuly established claim – Premiere obliged to play Magalad principal obligation _ interest
until amount fully paid _ damages
- Premiere’s MR: SEC has exclusive and original jurisdiction over a corporation under a state of suspension of
payments
o RTC denied mR
o CA certified appeal by Premiere to SC on question of law

- ISSUE: WON lower court has jurisdiction to try the case.

o PD 902-A provides that SEC has absolute jurisdiction over all corporations + over schemes by Board of
corporations amounting to fraud or misrepresentation which may be detrimental to
public/stockholders/partners etc
o Considering that Magalad’s complaint sufficiently alleges acts amounting to fraud and
misrepresentation committed by Premiere, SEC has original and exclusive jurisdiction over the case
despite the suit involving collection of sums of money paid to said corporation – fraud is detrimental
to interest of public
o In this case, complaint alleges that schemes amount to fraud have been resorted to by Premiere
 Fact that Premiere’s authority to engage in financing already expired does not divest SEC of
jurisdiction; Magalad’s money placement were in the nature of investiments in Premiere
 Magalad’s reliance on Union Glass and DMRC are misplaced since in those cases, nothing in
the complaint alleges fraud on the part of defendant corporatins
 SEC had further already appointed a Rehabilitation Receiver for Premiere and directed that
all proceedings or claims against it be suspended (Sec. 6 of PD 902-A: “upon appointment of
 a… rehabilitation receiver… all actions for claims against corporations… under receivership
pending before any court, tribunal, board or body shall be suspended accordingly.”
 Exercise by SEC of original and exclusive jurisdciton to hear and decide cass
involving… petitions of corporations/partnerships/associations to be declared in the
state o fsuspension of paymentsin cases where the corporation etc possesses
sufficient property to cover all its debts but foresees the impossibility of meeting thme
when they respectively fall due, or in cases where corp etc has no sufficient assets to
cover its liabilities but is under the management of a Rehabilitation Receiver
- HELD: appeal granted; RTC decision reversed and set aside w/o prejudice to Magalad filing appropriate
complaint against Premiere with SEC.

SEC V SUBIC BAY GOLF COUNTRY CLUB INC (SBGCCI)

Facts: UIDC, pursuant to a Development Agreement promised to undertake the creation and rehabilitation of a
world class gold course, located in Subic, for SBGCCI. For the consideration of such undertaking, SBGCCI offered its
stocks for sale to the public, the proceeds of which were used to finance the construction of said golf course. The
stocks were sold at 425,000 per share. Regina Filart and Margarita Villareal were among these buyers and hence,
became stock holders of SBGCCI.

Filart and VIllareal sent a letter to the SEC-Finance Department (FD) and reported that SBGCCI and UIGC did not act
on their request to have their money refunded when they bought the stocks. According to them, the world class golf
course they had invested in, had not attained world class status just yet. In their letter complaint they stated that the
amenities that were promised to them that is to be included in the golf course were not attained. Furthermore, their
back dues were not billed to them monthly. UIGC and SBGCCI allegedly threatened them that their shares would be
auctioned off if they do not pay their back dues (39,000).

Upon inspection, the SEC-FD found out that most of the allegations are true: the restaurants were not fully functional,
no sauna, swimming pool had no water and two tennis courts were poorly maintained, contrary to what SBGCCU
and UIGC had shown in their prospectus, in violation of the SRC. So the SEC-FD ordered SBGCCI and UIGC to refund
the purchase price of the stocks bought, ordered SBGCCI to amend the prospectus to the actual status of the of the
golf course amenities, and ordered BOTH to pay a fine of 100,000.

SBGCCI and UIGC filed a petition for review in the SEC. SEC affirmed SEC-FD ruling on the matter. They allege that the
issue regarding the claim for refund is an intra-corporate dispute, the jurisdiction of which has already been
transferred to the RTC. SEC denied the petition

SBCCI and UIGC appealed the case to the CA. CA modified the decision by saying that all the decisions are valid
except the part regarding the refund for it is an intra-corporate issue, one which the RTC has jurisdiction over, not
SEC. Hence this petition

Issue: WON SEC has jurisdiction over the case?

Ruling: NO in so far as the order for refund is concerned the issue of which is an intra-corporate dispute

Under Presidential Decree No. 902-A,67 the Securities and Exchange Commission has jurisdiction over acts amounting
to fraud and misrepresentation by a corporation's board of directors, business associates, and officers. It also provides
that it has jurisdiction over intra-corporate disputes.

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

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;

However, jurisdiction over intra-corporate disputes and all other cases enumerated in Section 5 of Presidential Decree
No. 902-A had already been transferred to designated Regional Trial Courts. Section 5.2 of Republic Act No. 8799
provides:

The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is
hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: xxx 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 fully
disposed.

Hence, actions pertaining to intra-corporate disputes should be filed directly before designated Regional Trial Courts.
Intra-corporate disputes brought before other courts or tribunals are dismissible for lack of jurisdiction.68cralawrednad

What is an intra corporate dispute?

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

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.72 (Citations omitted)
This case also involves corporate rights and obligations. The nature of the action — whether it involves corporate
rights and obligations — is determined by the allegations and reliefs in the complaint

Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI and UIGDC's alleged failure to
abide by their representations in their prospectus. Specifically, Villareal and Filart alleged in their letter-complaint that
the world-class golf course that was promised to them when they purchased shares did not materialize. This is an
intra-corporate matter that is under the designated Regional Trial Court's jurisdiction. It involves the determination of a
shareholder's rights under the Corporation Code or other intra-corporate rules when the corporation or association
fails to fulfill its obligations.

Is the SEC completely divested of jurisdiction?

However, even though the Complaint filed before the Securities and Exchange Commission contains allegations that
are intra-corporate in nature, it does not necessarily oust the Securities and Exchange Commission of its regulatory
and administrative jurisdiction to determine and act if there were administrative violations of the SRC that are
committed.

Hence, the investigation, the fine imposed, and the order of amendment were all under the regulatory functions of
the SEC. The order for refund however is outside this power.

SEC contends that it has the power order the refund based on SRC IRR - Rule 14, correct?

SRC Rule 14 - Amendments to the Registration Statement

 If a prospectus filed with the Commission under the Code becomes incomplete or inaccurate in any material
respect or if the issuer wants to change any material information therein, the issuer shall:

Xxx

Where material amendments have been made to the prospectus after the effective date thereof,purchasers
may, within thirty (30) days from the date of such notification, renounce their purchase of securities, whereupon
the issuer, or any person acting on behalf of the issuer in connection with the distribution of said securities, shall,
within ten (10) days from receipt of notification of such election, return the contributions paid by such purchasers
without making any deductions. Purchasers who decide not to renounce their purchase of securities shall be
subject to the terms of the amended offering. (Emphasis supplied)

The provisions in the law or in the rules giving Villareal and Filart the right to be refunded the value of their shares are
not equivalent to authority for the Securities and Exchange Commission to issue an order for the refund. Such order
may not come from the Securities and Exchange Commission. Implementing rules are limited by the laws they
implement. The rules cannot be used to amend, expand, or modify the law being implemented. The law shall prevail
in case of inconsistency between the law and the rules.

WHEREFORE, the Court of Appeals Decision dated July 31, 2007 is AFFIRMED.

**

Intra-corporate controversies, previously under the SEC’s jurisdiction, are now under the jurisdiction of the RTC
designated as commercial courts. However, the transfer of jurisdiction to the trial courts does not oust the SEC of its
jurisdiction to determine if administrative rules and regulations were violated.

On April 25 1996, Subic Bay Golf and Country Club, Inc (SBGCCI) and Universal International Group Development
Corporation (UIGDC) entered into a Development Agreement. UIGDC agreed to “finance, construct and develop the
golf course, for an in consideration of the payment by SBGCCI of it’s 1,530 shares of stock.”

Upon, SBGCCI’s application, SEC issued an order for the registration of 3,000 no par value shares of SBGCCI on July 8,
1996. SBGCCI was also issued a certificate of permit to offer securities for sale to the Public of its 1, 530 no par value
proprietary shares on August 9, 1996. The shares are sold at P425,000 per share and the same were used to pay UIGDC
for the development of the golf course.

Complainants Filart and Villareal informed SEC that they had been asking UIGDC for the refund of their payment for
their SGGBCCI shares. UIGDC did not act on their requests. They alleged that they purchased shares in the promise of
SBGCCI and UIGDC to deliver the ff:1) swimming pool and tennis court; 2) 18 hole golf course; 3) 9 hole executive
course and etc. However, these promises were not delivered. And despite the undelivered promises, they started to
charged monthly dues They were even threated that their shares would be auctioned off if their back dues would
remain unpaid.

SBGCCI and UIGDC averred that they had already substantially complied with their commitment. SEC conducted an
inspection and found that SBGCCI and UIGDC failed to substantially comply with their commitment to complete the
project. They found out that Filart and Villareal invested because of SBGCCI and UIGDC’s representation of a 27-hole
world class golf course being developed. Hence, the Corporate Finance Dept of SEC ordered the return of purchase
price of the shares.

SBGCCI and UIGDC in a petition for review questioned the order and jurisdiction of the Corporation Finance
Deparment’s order before the SEC since the same involved an intra-corporate dispute. SEC ruled that the proceedings
were administrative in nature. It was only conducted to determining if SEC’s rules and regulations were violated. SEC
has power to investigate possible violations and impose appropriate administrative sanctions. CA, however, declared
SEC’s decision as null and void since it found the case as an intra-corporate controversy not under SEC’s jurisdiction.

ISSUE: Who between the SEC and the RTC has jurisdiction over this case

HELD: Before solving the issue, we have to determine whether SEC has the authority to order the return of purchase
price of securities upon finding that there were fraudulent representation in the prospectus.

The Court rules for SBGCCI and UIGDC.

Under PD No. 902-A, SEC has jurisdiction over acts amunting to fraud and misrepresentation by a corporation’s board
of directors, business association and officers, even intra-corporate disputes. However, jurisdiction over intra-corporate
disputes and all other cases enumerated in Sec 5 had already been transferred to designated RTC under RA no. 8799.
For a dispute to be intra-corporate, it must satisfy the relationship and nature of controversy tests.

 Relationship test – requires that the dispute be between a:

o corporation/partnership/association and the public;
o a corporation/partnership/association and the state regarding the entity’s franchise, permit or license
to operate;
o a corporation/partnership/association and its stockholders, partners, members or officers; and
o among stockholders, partners or associates of the entity
 Nature of the Controversy Test – requires that the action involves the enforcement of corporate rights and
obligations.

In Medical Plaza Makati Condominium Corporation vs. Cullen: “The controversy must not only be rooted in the
existence of an intra-corporate relationship, but must as well pertain to the enforcement of parties’ correlative rights
and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation.”

This case is an intra-corporate dispute, over which the RTC has jurisdiction. It involves a dispute between the
corporation, SBGCCI and its shareholders, Villareal and Filart. Their right to a refund of the value of their shares was
based on SBGCCI and UIGDC's alleged failure to abide by their representations in their prospectus. It involves the
determination of a shareholder's rights under the Corporation Code or other intra-corporate rules when the corporation
or association fails to fulfill its obligations.

HOWEVER, even though it is intra-corporate in nature, it does not necessarily oust the Commission of its regulatory and
administrative jurisdiction to determine and act if there were administrative violations committed. n relation to
securities, the Securities and Exchange Commission's regulatory power pertains to the approval and rejection, and
suspension or revocation, of applications for registration of securities for, among others, violations of the law, fraud, and
misrepresentations. (CF: Sec 13 and 15)

To ensure compliance with the law and the rules, SEC is empowered to impose fines and penalties. It may also
investigate motu propio to see whether corporations are compliant. Any fraud or misrepresentation in the issuance of
securities injures the public. However, the Securities and Exchange Commission's regulatory power does not include
the authority to order the refund of the purchase price of Villareal's and Filart's shares in the golf club. The issue of refund
is intra-corporate or civil in nature. Similar to issues such as the existence or inexistence of appraisal rights, pre-emptive
rights, and the right to inspect books and corporate records, the issue of refund is an intra- corporate dispute that
requires the court to determine and adjudicate the parties' rights based on law or contract. Injuries, rights, and
obligations involved in intra-corporate disputes are specific to the parties involved. They do not affect the Securities
and Exchange Commission or the public directly.

Hence, the issue of refund should be litigated in the appropriate Regional Trial Court. This issue is both intra-corporate
and civil in nature, which is under the jurisdiction of the designated Regional Trial Courts.
MANUEL DULAY V CA: (1993)

- Manuel Dulay Enterprises owned Dulay Apartment (16 apartment units) in Pasay City; thru president Manuel
Dulay, DE obtained loans for construction of its hotel project (Frederick Hotel) and borrowed from Virgilio
Dulay, who occupied one of the unit apartments since 1973 while managing the Dulay Apartment as his
shareholdings in the corp was increased by his father
- Dec 1976: Manuel via Board Resolution sold the property to Maria Theresa and Castrense Veloso for P300k;
TCTs were issued to them, with right to repurchase within 2 years (but was not annotated on TCT)
o w/o Manuel’s knowledge, TVeloso mortgaged the property to Manuel Torres for a P250k loan,
annotated in TCT
o when Veloso efaulted, subject property was sold to Torres as highest bidder in extrajudicial foreclosure
- July 1978: Veloso executed deed of absolute assignment of right to redeem in favor of Manuel Dulay
assigning her right to repurchase subject property from Torres
o Neither Veloso nor Dulay redeemed w/in 1 year statutory period
o Torres filed affidavit for consolidation of ownership, and TCT was issued to him
- Oct 1979: Torres filed petition for issuance of writ of possession against Veloso and Dulay; but Dulay was never
authorized by corporation to sell the subject property, hence trial court ordered Torres to implead
corporation as indispensible party, but Torres later moved for dismissal of petition which was granted
- June 1980: Torres and Pabalan (real estate administrator) filed action against corporation and Nepomuceno,
tenant of Dulay Aprtment, for recovryo fpossession + sum of money and damages in CFI Rizal
o Dulay Corp filed action against Velosos and Torres for cancellation of certificate of Sheriff’s sale
o Jan 1981: Pabalan and Tores filed action against Manalastasas, tenants of Dulay Aparmtment, for
ejectment with MTC Pasay City, which ruled in favor of Torres ordering tennats to vacate
- May 1985: Corporation and DUlay fild action against MTC Pasay City, Pabal and Torres, for annulment of RTC
decision
- Cases were jointly tried; ruled in favor of Torres; CA affirmed, hence this petition

- ISSUE: WON respondent court acted with grave abuse of discretion when it applied the doctrine of piercing
the veil of corporate entity considering the sale of subject property between Veloso and Dualy was pursuant
to a resolution that was not approved by all members of the board and was prepared by a person not
designated by corp to be its secretary. NO GAD.
o Sec 101 of Corporation Code: When board meeting is unnecessary or improperly held. Unless the by-
laws provide otherwise, any action by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
 1. Before or after such action is taken, written consent thereto is signed by all the directors, or
 2. All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; or
 3. The directors are accustomed to take informal action with the express or implied acquiese
of all the stockholders, or
 4. All the directors have express or implied knowledge of the action in question and none of
them makes prompt objection thereto in writing.
 If a directors' meeting is held without call or notice, an action taken therein within the
corporate powers is deemed ratified by a director who failed to attend, unless he promptly
files his written objection with the secretary of the corporation after having knowledge
thereof.
o As applied: Dulay Corp is a close corporation; a board resolution authorizing the sale/mortgage of
subject property is not necessary to bind the corporation for the action of its president + corporate
action taken at a board meeting without proper call or notice ina close corporation is deemed
ratified by the absent director unless the latter promptly files his written objection with the secretary of
the corporation after knowledge of the meeting which Virgilio Dulay failed to do
o A corporation may have a personality distinct from its members, but the veil of corporate fiction may
be pierced when it is used to defeat public convenience, justif wrong, protect fraud, or defend
 crime; when the corporation is used as a mere alter ego of a person, the law will regard the
corporation as the act of that person
o CA was correct in ruling that Virgiio Dulay was privy to transactions – as incorporator and one of the
board, and as a “family corporation” + 4/5 of its incorporators are close relatives (3 children and their
father) + Virgilio executed an affidavit as signatory witness to the execution of the Deed of Absolute
Slae in favor of Torres = awareness of transaction by his father
o Corporation is liable for Manuel Dulay’s act and the sale is vali and binding
 Sale was a corporate act and not a personal transaction of Manuel, because Manuel was
not just president and treasurer but also general manager of the corporation; the only non-
relative on the board was Atty Jose who appeared on paper as secretary; as a closed family
ocrporation, it cannot be concealed that Manuel as president had absolute control over the
business and affairs of the corporation
o Furthermore, prior physical delivery or possession is not legally required for Torres to acquire ownership,
since texecution of deed of sale in public instrument is deemed eqivalent to delivery.

- HELD: Decision appealed from affirmed.

**
Facts:
 Manuel R. Dulay Enterprises, Inc, a domestic corporation obtained various loans for the construction of its hotel
project, Dulay Continental Hotel (now Frederick Hotel).
 Manuel Dulay by virtue of Board Resolution No 18 sold the subject property to spouses Maria Theresa and
Castrense Veloso.
 Maria Veloso (buyer), without the knowledge of Manuel Dulay, mortgaged the subject property to private
respondent Manuel A. Torres. #fluffypeaches Upon the failure of Maria Veloso to pay Torres, the property was
sold to Torres in an extrajudicial foreclosure sale.
 Torres filed an action against the corporation, Virgilio Dulay and against the tenants of the apartment.
 RTC ordered the corporation and the tenants to vacate the building.
 Petitioners: RTC had acted with GAD when it applied the doctrine of piercing the veil of
corporate entity considering that the sale has no binding effect on corporation as Board Resolution No. 18
which authorized the sale of the subject property was resolved without the approval of all the members of the
board of directors and said Board Resolution was prepared by a person not designated by the corporation to
be its secretary.

Issue: WON the sale to Veloso is valid notwithstanding that it was resolved without the approval of all the members of
the board of directors. (YES)

Ruling:
 Section 101 of the Corporation Code of the Philippines provides:
 Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any
action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of all the
stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them makes
prompt objection thereto in writing.
1. If a directors' meeting is held without call or notice, an action taken therein within the corporate powers
is deemed ratified by a director who failed to attend, unless he promptly files his written objection with
the secretary of the corporation after having knowledge thereof.
  Dulay Inc. is classified as a close corporation and consequently a board resolution authorizing the sale or
mortgage is not necessary to bind the corporation for the action of its president. #fluffypeaches At any
rate, corporate actiontaken at a board meeting without proper call or notice in a close corporation is deemed
ratified by the absent director unless the latter promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case, Virgilio Dulay failed to do.

 Although a corporation is an entity which has a personality distinct and separate from its individual stockholders
or members, the veil of corporate fiction may be pierced when it is used to defeat public convenience justify
wrong, protect fraud or defend crime.

PIONEER INSURANCE V CA: (1989)

- 1965: Jaclob Lim owned and operated Southern Air Lines, a single proprietorship
o May 1965: at Tokyo, Japan, Japan Domestic Airlines and Lim entered into an executed sales contract
for 2 planes and 1 set of spare parts for USD 109k to be paid in installments – one plane arrived in
June 1965, the other on July 1965
o Border Machinery and Heavy Equipment Company (Bormaheco), Francisco and Modesto Cervantes
(Cervanteses) and Constancio Maglana had contributed some funds for the purchase as their
contributions to a new corporation by Lim to expand his airline business
o Two indemnity agreements were executed to bind them solidarily to save Pioneer from damages in
consequence of having become surety upon the bond
- June 1965: Lim under SAL executed in favor of Pioneer a deed of chattel mortgage as security for the latter’s
suretyship = reistered with Office of the Register of Deeds of the City o Manila and the Civil Aeronautics
Administration
o Lim defaulted; JDA requested pyments from surety, which Pioneer paid
o Pioneer filed petition for extrajudicial foreclosure before Sheriff of Davao City w/ application for writ of
preliminary attachment against Lim and respondents, who filed cross-craim against Lim alleging they
were not privies to the contracts
- Trial court: Lim liable to Pioneer, but dismissed Pioneer’s complaint against other defendants; CA affirmed,
hence this petition.

Issue: Has Pioneer a cause of action against defendants with respect to its obligations to JDA as has been
paid with reinsurance money?
o Total amount paid by Pioneer to JDA is P299; Pioneer colleceed from reinsurers P295k, with uninsured
portion having difference of P3,666 but was covered by the proceeds of the chattel mortgage sale,
totaling P37k, thus Pioneer was overpaid by P33k – Pioneer has no claim against defendants
o Art 2207 applies insofar as the reinsurer acquires the same rights by subrogation as are acquired in
similar cases where the orignal insurer pays a loss, whereby the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the
contract (ie insurer is deemed subogated to the rights of the insured against the wrongdoer and if the
amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled
to recover the deficiency – real party in interest is thus the insurer and ot the insured
o When Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer, it erred because
Pioneer is not the real party in interest (should be reinsurer) and thus has no cause of action against
respondents)
o The indemnity agreement ceased to be valid and effective after the execution of the chattel
mortgage – the planes could not be mortgaged at first being in Japan, but as soon as they were
brought to the Philippines, they wuld be mortgaged to Pioneer Insurane to cover the bond and the
indemnity agreement would be cancelled; Pioneer, having foreclosed on the chattel mortgage,
have no further action against the indemnitors since the indemnity agreement was extinguished
upon the foreclosure of the chattel mortgage (Recto Law)
o Original memorandum was novated by a subsequent agreement that altered the maturity dates of
the obligation twice – having been done without the knowledge or consent of defendants, their
 obligation under the inemnity agreement was extinguished (NCC 2079: an extension granted to the
debtor by the creditor without the consent of the guarantor extinguishes the guaranty…)
o JDA had not presented claim to Pioneer within 10 days from default of Lim or SAL; thus Pioneer not
entitled to exact reimbursement even though he paid the surety to JDA because payment by a
solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made
after the obligation has prescribed or become illegal

- Issue: WON as a result of respondents’ failure to incorporate, a de facto partnership among them was
created, and as a consequence of such relationship, all must share in the losses and/or gains of the venture
in proportion to their contribution? Ie WON respondents should reimburse amounts given by them to Pioneer
as their contributions to the intended corporation?
o As between themselves, rights of stockholders in a defectively incorporate association should be
governed by the supposed charter and laws of the state relating thereto and not by the rules
governing partners, BUT persons who attempt but fail to form a corporation and who carry on
business under the corporate name occupy the position of prtners inter se
 Legal effects = partners inter se
 However, such a relation does not necessarily exist, for ordinarily persons cannot be made to
assume the relation of partners, as between themselves, when their purpose is that no
partnership shall exist, and it should be implied only when necessary to do justice between
the parties + thus one who takes no part except to subscribe for stock in a proposed
corporation which is never legally formed does not become a partner with other subscribers
who engage in business under the name of the pretended corporation, so as to be liable as
such in an action for settlement of the alleged partnership and contribution
 AS APPLIED: although Lim received money from respondents as to planes and spare parts, Lim
denied having received any amount – never had intention to form a corporation with
respondents despite his representations, hence respondents’ cross-claims that they were
induced and lured by Lim to make contributons to a proposed corporation which was never
formed because Lim reneged on their agreement
 Thus no de facto partnership was created among the parties which would entitle Lim
to a reimbumrsenent of the supposed losses of the proposed corporation; record
shows Lim was acting on his own and not in behalf of other would-be incorporators in
transaction the sale of planes and spare parts.
- HELD: petitions dismissed.

**

FACTS: Lim is an owner-operator of Southern Airlines (SAL). Japan Domestic Airlines (JDA) and Lim entered into a sales
contract. Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its principal
Lim. Border Machinery and Heacy Equipment Co, Inc., Francisco and Modesto Cervantes, and Constancio Maglana
contributed funds based on the misrepresentation of Lim that they will form a new corporation to expand his business.
They executed two separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly
signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors
principally agree and bind themselves jointly and severally to indemnify and hold and save Pioneer from and against
any/all damages, losses, etc. of whatever kind and nature may incur in consequence of having become surety.

Lim executed in favor of Pioneer a deed of chattel mortgage as security. Upon default on the payments, Pioneer paid
for him and filed a petition for the foreclosure of chattel mortgage as security. Maglana, Bormaheco and the
Cervantes’s filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and for
recovery of the sum of money they advanced to Lim for the purchase of the aircrafts. The decision was rendered
holding Lim liable to pay.

ISSUE: 1. Whether Pioneer has a cause of action against respondents.

 2. Whether failure to incorporate automatically resulted to de facto partnership.

HELD:

1. Pioneer has no right to institute and maintain in its own name an action for the benefit of the reinsurers. It is well-
settled that an action brought by an attorney-in-fact in his own name instead of that of the principal will not
prosper, and this is so even where the name of the principal is disclosed in the complaint. An attorney-in-fact is
not a real party in interest, that there is no law permitting an action to be brought by an attorney-in-fact.
2. NO. Partnership inter se does not necessarily exist, for ordinarily persons cannot be made to assume the relation
of partners as between themselves, when their purpose is that no partnership shall exist and it should be implied
only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for
stock in a proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation, so as to be liable as such
in an action for settlement of the alleged partnership and contribution.

**
Lessons Applicable: Defective attempt to form a corp. does NOT result in at least a partnership absent intent to form
one (Corporate Law)

FACTS:
 1965: Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship
 May 17 1965: Japan Domestic Airlines (JDA) and Lim entered into a sales contract regarding:
 2 DC-#A type aircrafts
 1 set of necessary spare parts
 Total: $ 190,000 in installments
 May 22 1965: Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on behalf of
its principal Lim
 Border Machinery and Heacy Equipment Co, Inc. Francisco and Modesto Cervantes and Constancio Maglana
contributed funds for the transaction based on the misrepresentation of Lim that they will form a new corp.. to
expand his business
 Jun 10 1965: Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as security
 Restructuring of obligation to change the maturity was done 2x w/o the knowledge of other defendants
 made the surety of JDA prescribed so not entitled to reimbursement
 Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the foreclosure of chattel
mortgage as security
 CA affirmed Trial of Merits: Only Lim is liable to pay

ISSUE: W/N failure of respondents to incorporate = de facto partnership.

HELD: NO. CA affirmed.

 Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume the relation of partners
as bet. themselves, when their purpose is that no partnership shall exists
 Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to make others liable)
 Lim never intended to form a corp.

MEDICAL PLAZA MAKATI CONDOMINIUM COPR. V CULLEN

FACTS: Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of the Medical Plaza 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 respondent’s 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 petitioner’s Board of Directors. Respondent thus clarified from MLHI the veracity of
petitioner’s claim, but MLHI allegedly claimed that the same had already been settled.7 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.

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.

On September 9, 2005, the RTC rendered a Decision granting petitioner’s and MLHI’s motions to dismiss and,
consequently, dismissing respondent’s 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 respondent’s obligation had already been settled by MLHI. It, likewise, ruled that the issues raised are
intra-corporate between the corporation and member.

On appeal, the CA reversed and set aside the trial court’s 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 petitioner’s refusal to confirm
MLHI’s claim that the subject obligation had already been settled as early as 1998 causing damage to respondent.
Petitioner’s and MLHI’s motions for reconsideration had also been denied.

HELD: It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the complaint.
Based on the allegations made by respondent in his complaint, does the controversy involve intra-corporate 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.

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.

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.

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.
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.

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.

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 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.