G.

R.No.171995 Apr
il18,2012

STEELCASE,I
NC.
,Pet
it
ioner
,
vs.
DESI
GNI
NTERNATI
ONALSELECTI
ONS,I
NC.
,Respondent
.

DECISION

MENDOZA,J.
:

Thi
si sapetit
ionforreviewoncer t
iorariunderRul
e45assai li
ngtheMar
ch
31,2005Decision1oft heCourtofAppeal s(CA)whichaff
ir
medt heMay29,
2000Or der2oft heRegi onalTri
alCour t
,Branch60,Makat iCit
y(RTC),
di
smissi
ng the compl aintforsum ofmoneyi n Civi
lCase No.99-122
enti
tl
ed"Steel
case,Inc.v.DesignInternati
onalSel
ecti
ons,Inc.
"

TheFact
s

Pet
it
ionerSteelcase,I nc.( St
eelcase)isaf orei
gncorpor at
ionexi
sti
ngunder
t
helawsofMi chi gan,Uni t
edSt atesofAmer i
ca(U.S.A. )
,andengagedi n
t
hemanuf actureofof f
icef urni
tur
ewi thdeal ersworldwide.3Respondent
Desi
gnI nt
ernationalSel ecti
ons,Inc.(DISI)isacor porati
onexist
ingunder
Phi
li
ppine Laws and engaged i nt he furnit
ure business,incl
uding t
he
di
str
ibut
ionoffur nit
ure.4

Somet ime i n 1986 or1987,St eelcase and DI SIor al

lyent er
ed i
ntoa
dealershipagr eementwherebySt eelcasegr ant
edDI SItherighttomarket,
sel
l,distri
bute,inst
all
,andservi
cei t
spr oductstoend-usercustomerswithi
n
thePhi l
ippines.Thebusinessr el
ationshipcontinuedsmoot hlyunti
litwas
ter
mi natedsomet i
mei nJanuary1999af tertheagreementwasbr eached
wi
thnei
therpar
tyadmi
tt
inganyf
aul
t.
5

On January18,1999,Steel
case f i
led a compl
aint6forsum ofmoney
agai
nstDISIall
egi
ng,amongot hers,thatDISIhadanunpai daccountof
US$600,000.
00.St
eelcaseprayedt hatDISIbeor deredtopayact ualor
compensator
ydamages,exemplarydamages,at t
orney’
sfees,andcostsof
sui
t.

InitsAnswerwi thCompul soryCount erclaims7dat edFebr uar y4,1999,

DISIsoughtt hefoll
owing:( 1)theissuanc eofat empor aryrest r
ainingor der
(TRO)andawr i
tofpr el
iminaryinjuncti
ont oenj oi
nSt eelcasef rom sel l
ing
i
tspr oductsinthePhilippinesexceptt hroughDI SI;(2)thedi smi ssaloft he
compl ai
ntf orlackofmer i
t;and ( 3)the paymentofact ual,mor aland
exempl arydamagest oget herwit
hat tor
ney’sf eesandexpensesofl i
ti
gati
on.
DISIal l
egedt hatthecompl aintfail
edt ost ateacauseofact i
onandt o
containt he r
equired allegati
onson St eelcase’scapacit yto sue i nt he
Phil
ippinesdespi t
ethef actthatit(Steelcase)wasdoi ngbusi nessi nt he
Phil
ippineswi t
houtther equiredli
censet odoso.Consequent l
y,i tposited
thatthecompl ai
ntshoul dbedi smissedbecauseofSt eelcase’ slackofl egal
capacitytosuei nPhil
ippinecour t
s.

On Mar ch 3,1999,St eel

case f
il
ed it
s Mot ion to Admi
tAmended
Complaint
8whichwasgrantedbytheRTC,t hroughthenActi
ngPresi
ding
JudgeRobertoC.Diokno,initsOrder
9dat edApr i
l26,1999.However,
Steel
casesoughtt
ofur
theramenditscomplaintbyfi
l
ingaMotiont
oAdmi t
SecondAmendedCompl ai
nt10onMarch13,1999.

Inhi
sOrder11datedNovember15,1999,Act ingPresidingJudgeBoni f
acio
SanzMacedadismissedt hecompl ai
nt,grant
edt heTROpr ayedforbyDI SI,
setasi
det heApril26,1999Or deroft heRTC admi t
ti
ngtheAmended
Complai
nt,and denied Steelcase’sMot ion to AdmitSecond Amended
Complai
nt.The RTC st ated thatinr equir
ing DISIt o meett he Dealer
Perf
ormanceExpectati
onandi nterminati
ngthedeal ershi
pagreementwi th
DISIbased on it
sf ai
luretoi mprove it
s performance int he areas of
busi
nessplanni
ng,organizat
ionalstructur
e,oper at
ionaleff
ecti
veness,and
effi
ci
ency, St eelcase unwi t
ti
nglyr eveal ed that it participated i nt he
operati
onsofDI SI.Itt
henconcludedt hatSteelcasewas" doi ngbusi ness"
i
nt hePhi l
i
ppines,ascont emplatedbyRepubl icAct( R.A.)No.7042( The
ForeignI nvestment sActof1991) ,andsi nceitdidnothavet hel i
censet o
dobusi nessi nt hecount r
y,itwasbar r
edf rom seekingr edr essf rom our
courtsunt i
litobtainedtherequisi
telicenset odoso.I tsdet erminat i
onwas
furt
herbol st
eredbyt heappoi
ntmentbySt eel
caseofar epresent ativeinthe
Phili
ppi
nes.Fi nall
y,despit
eashowi ngt hatDISItransactedwi t
ht helocal
customer sini tsownnameandf ori tsownaccount ,itwasoft heopinion
thatanydoubti nt hefact
ualenvironmentshoul dber esol
vedi nfavorofa
pronouncementt hata foreign corpor ati
on was doi ng busi ness int he
Phili
ppi
nes,consi deri
ng the twelve-year per iod thatDI SIhad been
dist
ri
butingSt eelcaseproductsinthePhi l
ippi
nes.

St
eelcasemovedfort
her
econsi
derat
ionoft
hequest
ionedOr
derbutt
he
moti
onwasdeniedbyt
heRTCinit
sMay29,2000Order.12

Aggr i
eved,St eel case elevat ed t he case t ot he CA bywayofappeal ,
assaili
ngtheNovember15,1999andMay29,2000Or der
soft heRTC.On
Mar ch31,2005,t heCAr ender edi tsDeci sionaf f
ir
mingtheRTC or ders,
rul
ing thatSt eelcase was a f oreign cor por ati
on doing ort r
ansacti
ng
businessi nt he Phi l
i
ppineswi t
houta l i
cense.The CA st ated thatthe
fol
lowingactsofSt eel
caseshowedi tsintenti
ont opur sueandcont i
nuethe
conductofi tsbusi nessi nt hePhi l
ippines:( 1)sendi ngal ett
ert oPhinma,
i
nformingt hel att
ert hatt hedi st r
ibutionr ightsf oritsproductswoul dbe
establi
shedint henearf utureanddi rectingot herquest i
onsaboutor dersfor
Steelcasepr oduct st oSt eelcaseI nternat i
onal;( 2)cancell
ingor dersfrom
DISI’scustomer s,parti
cularlyVi steon,Phi l
s.,I nc.(Vist
eon);(3)continui
ng
to send i t
s pr oductst ot he Phi l
ippines t hrough Moder nform Gr oup
CompanyLi mited( Modernf orm) ,asevi dencedbyanOceanBi llofLading;
and( 4)goingbeyondt hemer eappoi ntmentofDI SIasadeal erbymaki ng
severalimposi ti
onsonmanagementandoper ati
onsofDI SI.Thus,t heCA
rul
edt hatSt eel casewasbar redf rom accesst oourcour t
sf orbeinga
for
eigncor porat i
ondoi ngbusi nessher ewi thoutt her equi
sit
elicenset odo
so.
Steel
casefil
edamot
ionforreconsi
der
ati
onbuti
twasdeni
edbyt
heCAi
n
i
tsResolut
iondat
edMarch23,2006.13

Hence,t
hispet
it
ion.

TheI
ssues

St
eel
casef
il
edt
hepr
esentpet
it
ionr
elyi
ngont
hef
oll
owi
nggr
ounds:

THECOURTOFAPPEALSCOMMI TTED REVERSI

BLEERROR WHEN
I
TFOUND THATSTEELCASEHAD BEEN "DOING BUSI
NESS"I
N THE
PHI
LIPPI
NESWI
THOUTALI CENSE.

I
I

THECOURTOFAPPEALSCOMMI TTEDREVERSI
BLEERRORINNOT
FI
NDINGTHATRESPONDENTWASESTOPPEDFROM CHALLENGING
STEELCASE’
S LEGAL CAPACI
TY TO SUE,AS AN AFFI
RMATI
VE
DEFENSEINITSANSWER.

Thei
ssuest
ober
esol
vedi
nthi
scasear
e:

(
1)WhetherornotSt
eel
casei
sdoi
ngbus
inessi
nthePhi
l
ippi
neswi
thouta
l
i
cense;and
(2)WhetherornotDI
SIi
sest
oppedf
rom chal
l
engi
ngt
heSt
eel
case’
slegal
capaci
tytosue.

TheCour
t’
sRul
i
ng

TheCour
trul
esi
nfavoroft
hepet
it
ioner
.

St
eelcaseisanunl
i
censedf
orei
gncor
por
ati
onNOTdoi
ngbusi
nessi
nthe
Phi
li
ppines

Anentt hef irstissue,St eelcasear guest hatSect ion3( d)ofR. A.No.7042

ort heFor eignI nves tmentsActof1991( FI A)expr esslyst at
est hatthe
phrase" doingbusi ness"excl udest heappoi ntmentbyaf or eigncor porati
on
ofal ocaldi stributordomi cil
edi nt hePhi li
ppineswhi cht ransact sbusi ness
i
ni tsownnameandf orit
sownaccount .Steelcasecl aimst hatitwasnot
doing bus i
ness i nt he Phi l
ippines when i tent ered i nto a deal ershi
p
agreementwi thDI SIwher ethel atter,acti
ngast hef ormer ’sappoi ntedl ocal
di
stributor,t ransact edbusi nessi ni tsownnameandf ori t
sownaccount .
Speci fi
cally,St eelcase contendst hatitwasDI SIt hatsol d Steel case’s
f
urnituredi rectlytot heend- user sorcust omer swho,i nt urn,direct l
ypaid
DISIf ort hef urnit
uret heybought .St eel
casef urthercl aimst hatDI SI,asa
non- exclusive deal eri nt he Phi l
ippines,had t he r ightt o mar ket,sel l
,
di
stributeandser viceSt eelcasepr oduct
si nitsownnameandf ori t
sown
account .Hence,DI SIwasani ndependentdi stri
but orofSt eel casepr oducts,
andnotamer eagentorcondui tofSt eelcase.

Ont heot herhand,DI SIarguest hatitwasappoi ntedbySteelcaseasthe

l
atter’
sexcl usi
vedi st
ri
butorofSt eelcasepr oducts.DISIli
kewiseasserts
thatitwasnotal l
owedbySt eelcaset ot ransactbusinessinit
sownname
andf oritsownaccountasSt eelcasedi ctatedthemannerbywhi chitwas
to conducti ts busi
ness,incl
uding t he managementand sol i
cit
ati
on of
ordersfrom cust omers,t
herebyassumi ngcont rolofitsoper
ations.DI
SI
furt
heri nsi
stst hatSteel
case treated and consi dered DI
SIas a mer e
conduit,asevi denced byt he factt hatSt eelcase i
tsel
fdir
ectlysoldits
product stocust omer sl ocat edint hePhi l
ippineswhower ecl assi
fiedas
partoft heir"globalaccount s."DISIci t
edot herestabli
shedci rcumst ances
whichpr ovet hatSteel casewasdoi ngbusinessi nthePhi l
ippinesincluding
thefollowing:(1)thesal eanddel iverybySt eelcaseoffurnituretoRegus,a
Phil
ippine cl i
ent,t hr ough Moder nform, a Thaicor porat i
on allegedl y
controll
ed by St eelcase;( 2) t
he i mpositi
on by St eelcase ofcer tai
n
requirement s overt he managementand oper at
ions ofDI SI;( 3)t he
representati
onsmadebySt evenHusakasCount r
yManagerofSt eel case;
(4)thec ancellati
onbySt eelcaseofor dersplacedbyPhi li
ppi necli
ents ;and
(5)theexpr essionbySt eelcaseofi tsdesir
et omai ntai
nitsbusi nessi nthe
Phil
ippines.Thus,St eelcasehasnol egalcapaci tytosuei nPhi li
ppine
Cour t
sbecausei twasdoi ngbusinessi nthePhi l
ippi
neswi t
houtal i
censet o
doso.

TheCour
tagr
eeswi
tht
hepet
it
ioner
.

Ther ulethatanunli
censedforei
gncorpor
ati
onsdoingbusi nessinthe
Phil
i
ppi nedonothavethecapacit
ytosuebeforethelocalcourt
siswell
-
est
ablished.Secti
on 133 ofthe Cor
porat
ion Code ofthe Phili
ppi
nes
expl
ici
tlystat
es:

Sec.133.Doi ng business wi t
houta license.-No f or
eign corporati
on
tr
ansacti
ngbusi nessint hePhi l
ippi
neswithoutali
cense,oritssuccessors
orassigns,shallbeper mitt
edt omaint
ainorinter
veneinanyact i
on,suitor
proceedinginanycour toradmi ni
str
ati
veagencyoft hePhi li
ppi
nes;but
such corporati
on maybe s ued orproceeded agai
nstbef or
e Phili
ppine
court
soradmi nistr
ati
vet r
ibunalsonanyval i
dcauseofact ionrecognized
underPhi l
i
ppinel aws.

Thephrase"doingbusi
ness"i
sclearl
ydefi
nedinSect
ion3(
d)ofR.
A.No.
7042(
ForeignInvest
mentsActof1991)
,towit
:

d)The phrase "

doi
ng busi
ness"shal
lincl
ude soli
ci
ti
ng or
der
s,servi
ce
cont
ract
s,openi
ng of
fi
ces,whethercal
led "
li
aison"of
fi
cesorbranches;
appointingr epresentativesordi stri
but orsdomi ciledi nt hePhi li
ppinesor
whoi nanycal endaryearst ayi nt hecount r
yf oraper iodorper iodst otall
ing
onehundr edei ghty(180)daysormor e;par t
icipatingi nthemanagement ,
supervisionorcont r
olofanydomest icbusi ness,f i
rm,ent it
yorcor poration
i
nt hePhi li
ppines;andanyot heractoract st hati mpl yacont i
nuityof
commer cialdeal i
ngsorar r
angement s,andcont empl atet othatext entt he
perfor
manceofact sorwor ks,ort heexer ci
seofsomeoft hef unctions
normal l
yi ncidentt o,andi npr ogressi vepr osecut ionof ,commer ci
algai nor
ofthepur poseandobj ectoft hebusi nessor gani zation:Pr ovided,however ,
Thatt hephr ase" doingbusi ness"shal lnotbedeemedt oincludemer e
i
nvestmentasashar eholderbyaf oreignent i
tyi ndomest iccor porations
dulyr egister ed to do busi ness,and/ ort he exer cise ofr i
ghtsassuch
i
nvestor ;norhavi nganomi needi r
ect ororof fi
cert or epresenti tsinterests
i
nsuchcor porati
on;norappoi ntingar epresent ativeordi stri
butordomi ci
led
i
nt hePhi l
ippineswhi cht rans actsbusi nessi nitsownnameandf oritsown
account ;(Emphasessuppl i
ed)

Thi
sdefi
nit
ionissuppl
ementedbyit
sImpl
ement
ingRulesandRegul
ati
ons,
Rul
eI,Section1(
f)whi
chelabor
atesont
hemeaningofthesamephr
ase:

f."Doi ng busi ness"shal linclude soli

ci
ti
ng or ders,ser vi
ce cont r
acts,
opening of f
ices, whet her l iaison offi
ces or br anches; appoi nti
ng
representati
vesordi stri
butors,oper at
ingunderf ullcontr
oloft hef orei
gn
corporati
on,domi ci
ledinthePhi l
ippi
nesorwhoi nanycal endaryearst ayin
thecount ryforaper iodt otal
li
ngonehundr edei ghty[180]daysormor e;
parti
cipat
ingi nt hemanagement ,supervi
sionorcont rolofanydomest ic
business,fir
m,ent i
tyorcor porationinthePhili
ppines;andanyot heractor
actsthati mplyacont inuit
yofcommer ci
aldealingsorar rangement s,and
contemplatet ot hatext entt he per f
ormance ofact s orwor ks,ort he
exerciseofsomeoft hef uncti
onsnor mall
yi nci
dentt oandi npr ogressi
ve
prosecuti
on ofcommer cialgai n oroft he pur pose and objectoft he
businessor ganizati
on.

Thef
oll
owi
ngact
sshal
lnotbedeemed"
doi
ngbusi
ness"i
nthePhi
l
ippi
nes:
1.Mer ei nvest
mentas a shar
ehol
derby a forei
gn ent
it
yi n domest
ic
corpor
ati
onsdulyregi
ster
edtodobusi
ness,and/
ortheexer
ciseofri
ght
sas
suchinvestor
;

2.Havi
nganomi
needi
rect
ororof
fi
cert
orepr
esenti
tsi
nter
esti
nsuch
cor
por
ati
on;

3.Appoint
ingar epr
esent
ati
veordist
ri
butordomi
cil
edi nt
hePhil
ippi
nes
whi
chtransactsbusi
nessi
ntherepr
esentati
ve'
sordi
str
ibut
or'
sownname
andaccount;

4.The publi
cat
ion ofa gener
aladver
ti
sementt
hrough any pr
intor
br
oadcastmedi
a;

5.Maint
aini
ngast
ockofgoodsint
hePhil
ippi
nessol
elyforthepur
poseof
havi
ngthesamepr
ocessedbyanot
herent
it
yinthePhi
li
ppines;

6.Consi
gnmentbyaf or
eignenti
tyofequi
pmentwi
thal
ocalcompanyt
obe
usedi
ntheprocessi
ngofproductsf
orexport
;

7.Col
l
ect
ingi
nfor
mat
i
oni
nthePhi
l
ippi
nes
;and

8.Per f
ormingservicesauxili
arytoanexi sti
ngi sol
atedcontr
actofsal e
whicharenotonacont inuingbasis,suchasi nstal
l
inginthePhi li
ppi
nes
machineryithasmanufacturedorexportedtothePhili
ppi
nes,servici
ngthe
same,t rai
ning domesti
c wor ker
st o operat
ei t,and simil
ari nci
dental
ser
vices.(Emphasessupplied)

Fr
om the precedi
ng cit
ati
ons,the appoi
ntmentofa dist
ri
but
orint he
Phi
li
ppi
nesisnotsuff
ici
enttoconst
it
ute"doi
ngbusi
ness"unl
essi
tisunder
t
he f ul
lcontroloft he forei
gn corpor ati
on.On the otherhand,i fthe
distr
ibutorisani ndependentent i
tywhi chbuysanddi str
ibut
esproducts,
othert hanthoseoft heforeigncorpor ati
on,fori
tsownnameandi t
sown
account ,the lat
tercannotbe consi dered t
o be doing busi
nessi nthe
Phi l
i
ppines.14Itshouldbekepti nmi ndt hatt
hedeterminat
ionofwhethera
f
or eigncorporati
onisdoi ngbusinessi nt hePhil
i
ppinesmustbej udgedin
l
ightoft heatt
endantcircums t
ances.15

Inthecaseatbench,i tisundisputedt
hatDI SIwasfoundedi n1979andi s
i
ndependently owned and managed by t he spouses Leandr o and
Josephine Bantug.16 I n addit
ion to St eelcase products, DI
SI also
dist
ri
butedproductsofot hercompaniesi ncludingcarpetti
les,rel
ocat
able
wallsandtheat
erset t
ings.17Thedealershipagr eementbetweenSt eel
case
andDI SIhadbeendescr i
bedbyt heownerhi mselfas:

xxx basically a buy and sel lar rangementwher eby we woul di nform
Steelcaseoft hevol umeoft heproduct sneededf orapar t
icularproj
ec tand
Steelcase woul d,i nt urn,give ‘specialquot ati
ons’ordi scounts aft
er
consideri
ngt hevalueoft heenti
repackage.I nmaki ngt hebi dofthepr oj
ect,
wewoul dt henaddoutpr of
itmar ginoverSt eel
case’ spr i
ces.Af terthe
approvaloft hebi dbyt hec l
i
ent,wewoul dt hereafterplacet heor dersto
Steelcase.Thel atter,uponourpayment ,woul dthenshi pt hegoodst othe
Phil
ippines, with us shoul deri
ng t he freight char ges and t axes.18
[Emphasi ssupplied]

Thiscl
earl
ybel i
esDISI’sassert
ionthatitwasamer econdui
tthroughwhich
Steel
caseconductedi t
sbusinessint hecountr
y.From t
heprecedingfacts,
t
heonl yreasonableconclusionthatcanber eachedisthatDI SIwasan
i
ndependentcont r
actor,di
stri
buti
ngvar iouspr
oductsofSteelcaseandof
ot
hercompani es,act
inginit
sownnameandf orit
sownaccount .

TheCA,i nfindingSteel
caset obeunl awful
lyengagedi nbusi
nessint he
Phi
li
ppines,tookintoconsiderati
onthedeli
verybySt eel
caseofal et
terto
Phi
nmai nfor
mi ngthelat
terthatthedist
ri
buti
onri
ghtsforit
sproduct
swoul d
beestabli
shedi nt
henearf uture,andalsoit
scancel
lati
onoforderspl
aced
byVi steon.Thef oregoi ngact swer eappar entl
ymi sinterpr
etedbyt heCA.
Inst
eadofsuppor ti
ngt hecl aimt hatSteelcasewasdoi ngbusi nessinthe
count r
y,thesai dactspr oveot herwise.Itshouldbepoi ntedoutt hatnosale
wasconcl udedasar esul tofthesecommuni cati
ons.HadSt eelcaseindeed
beendoi ngbusinessi nt hePhi l
ippi
nes,i twouldhaver eadi
lyacceptedand
servicedt heor dersf r
om t heabovement ionedPhi li
ppinecompani es.Its
decisiont ovoluntari
lyceaset osel lit
spr oductsint heabsenceofal ocal
dist
ributorindicates it
sr efusalto engage i n activit
ies which mightbe
const r
uedas" doingbusi ness."

Anotherpoi ntbei ngr aisedbyDI SIisthedel iveryandsal eofSt eel

case
productst o a Phi li
ppine cli
entby Moder nform allegedly an agentof
Steelcase.Basi ci sther uleincorporati
onl aw t hatacor porati
onhasa
separate and di st i
nctper sonal
it
yf rom it
sst ockholder sand f r
om ot her
corporati
ons wi t
h whi ch i tmay be c onnect ed.19 Thus,despi t
et he
admi ssi
on by St eel
case t hatitowns 25% ofModer nform,wi t
ht he
remaining75% bei ngownedandcont r
oll
edbyThaist ockholder s,
20i tis
grosslyinsuff
icienttojust i
fypi
erci
ngt heveilofcorporatef i
cti
onanddecl are
thatModer nf
or m act ed as t he al
terego ofSt eel
case t o enabl eitt o
i
mpr operlyconductbusi nessinthePhi l
ippines.Ther ecordsar eber eftof
anyevi dencewhi chmi ghtlendevenahi ntofcr edencet oDI SI’
sasser ti
ons.
Assuch,St eelcasecannotbedeemedt ohavebeendoi ngbusi nessint he
Phili
ppinesthroughModer nform.

Finally,botht he CA and DI SIr elyheavi l

yon t he Deal erPer formance
Expect ati
onr equi redbySt eelcaseofi tsdistr
ibut orst opr ovet hatDI SIwas
notf uncti
oningi ndependent l
yfrom St eelcasebecauset hesamei mposed
certaincondi ti
onsper t
ainingt obusi nesspl anni ng,or ganizationalstructur
e,
oper ati
onalef f
ect i
venessandef fi
ciency,andf inanci alst abil
it
y.Itisact ually
l
ogicalt oexpectt hatSt eel case,bei ngoneoft hemaj ormanuf acturersof
offi
ce syst ems f ur nit
ure,woul dr equi rei t
s deal erst o meetsever al
condi ti
onsf ort hegr antandcont inuat i
onofadi stri
butorshi pagreement .
Thei mposi t
ionofmi nimum st andardsconcer ningsal es,mar keting,finance
and oper ations i s not hing mor et han an exer cise ofsound busi ness
practice t
oi ncrease sal esand maxi mi ze prof i
tsf ort he benef i
tofbot h
Steelcaseandi tsdi st
ri
but ors.Forasl ongast heser equirement sdonot
i
mpi ngeonadi stributor’
si ndependence,t hent her ei snot hingwr ongwi th
pl
aci
ngr
easonabl
eexpect
ati
onsont
hem.

Allthingsconsi
dered,ithasbeensuf f
ici
entlydemonst
rat
edthatDI SIwas
ani ndependentcontractorwhi chsoldSteelcasepr
oductsi
nitsownname
andf orit
sownaccount .Asar esul
t,Steel
casecannotbeconsi
der edtobe
doingbusinessint hePhi l
ippinesbyi t
sactofappointi
ngadistr
ibutorasi
t
f
allsunderoneoft heexcept ionsunderR. A.No.7042.

DI
SIi
sest
oppedf
rom chal
l
engi
ngSt
eel
case’
slegalcapaci
tyt
osue

Regar di
ngt hesecondi ssue,St eel
casear guest hatassumi ngar guendo
thatithadbeen" doi
ngbusi ness"int hePhil
ippineswi t
houtal i
cense,DI SI
wasnonet helessest
oppedf r
om challengi
ngSt eelcase’
scapacitytosuei n
thePhi l
ippines.Steelcasec l
aimst hatsinceDI SIwasawar ethatitwas
doingbusi nessinthePhi l
ippineswithoutalicenseandhadbenef it
edf rom
suchbusi ness,thenDI SIshouldbeest oppedf r
om r ai
si
ngt hedefenset hat
Steelcasel acksthecapacitytosueint hePhili
ppinesbyr easonofitsdoing
businesswi thoutali
cense.

Ont heot herhand,DI SIar guest hatthedoct ri

neofest oppelcannotgi ve
Steelcasethelicenset odobusi nessint hePhi l
ippi
nesorper missi
ont ofil
e
suitint hePhi l
ippines.DI SIcl aimst hatwhenSt eelcaseent eredi ntoa
dealershipagreementwi thDI SIi n1986,i twasnotdoi ngbusi nessi nt he
Phil
ippines.I
twasaf t
ersuchdeal ershipwasputi nplacet hatitstartedt o
dobusi nesswithoutf ir
stobt ai
ningthenecessar yli
cense.Hence,est oppel
cannotwor kagai nstit.Mor eover,DISIcl ai
mst hati
tsuffer edasar esultof
Steelcase’s"doi ng busi ness" and t hati tnever benef i
ted from t he
dealershipand,ass uch,itcannotbees t
oppedf r
om r aisingthei ssueof
l
ackofcapaci t
yt osueont hepar tofSteelcase.

Thear
gumentofSt
eel
casei
smer
it
ori
ous.
I
findeedSteel
casehadbeendoingbusi
nessint
hePhi l
i
ppineswi
thouta
l
i
cense,DISIwouldnonet
hel
essbeest
oppedfr
om chal
l
engingthef
ormer’
s
l
egalcapaci
tyt
osue.

Itcannotbedeni edt hatDI SIent er

edi ntoadeal ershi
pagr eementwi t
h
Steel
caseandpr ofi
tedf rom itf or12year sfrom 1987unt i
l1999.DI SI
admitsthatitcompl i
edwi t
hitsobl i
gationsunderthedeal ershi
pagreement
by exerti
ng mor e effortand maki ng substantiali nvestmentsi nt he
promoti
onofSt eelcasepr oducts.Italsoc l
aimsthatitwasabl etoestabli
sh
a very good r eputati
on and goodwi llforSteelcase and i ts pr
oduct s,
resul
ti
ng int he establishmentand devel opmentofa st rong marketfor
Steel
casepr oductsint hePhi l
ippines.Becauseoft his,DI SIwasverypr oud
to be awar ded t he " Steel
case I nternati
onalPer formance Awar d"f or
meetingsalesobjectives,satisfyi
ngcust omerneeds,managi nganeffecti
ve
companyandmaki ngapr ofi
t.
21

Unquest i
onably,ent er i
ng into a deal ership agr eementwi t
h St eelcase
charged DI SIwi tht he knowl edge thatSt eelcase was notl i
censed t o
engagei nbusi nessact i
vit
iesint hePhi lippines.Thi sCour thascar efully
combedt her ecordsandf oundnopr ooft hat,from thei nceptionoft he
dealershi
pagr eementi n1986unt i
lSept ember1998,DI SIevenbr oughtto
Steelcase’s att
ention t hati twas i mpr oper l
y doi ng busi ness i nt he
Phili
ppineswithoutal icense.Itwasonl yt owar dst helatt
erpar tof1998t hat
DISIdeemedi tnecessar yt oinf
orm St eelcaseoft heimpr opri
et yoft he
conductofi tsbusi nesswi thoutther equisitePhi lippi
nelicense.I tshoul d,
however ,benot edt hatDI SIonlyr aisedt hei ssueoft heabsenceofa
l
icense wi t
h St eelcase af teritwas i nformed t hatitowed t he latt
er
US$600, 000.00f orthesal eanddel iveryofi tspr oductsundert heirspeci al
creditarr
angement .

Byac knowledgingthecor porateent i

tyofSteelcaseandent eri
ngint
oa
dealershipagreementwi t
hitandevenbenef i
ti
ngf r
om i
t,DISIisest
opped
from questioning Steelcase’s exi
stence and capaci
tyto sue.Thi si s
consistentwit
ht heCour t’
sr ul
inginCommuni cati
onMaterial
sandDesi gn,
Inc.v.CourtofAppeal s22wher ei
twaswr i
tt
en:
Not
wi t
hstandingsuchf i
ndi
ngt hatI
TEC isdoingbusinessi
nthecountr
y,
pet
it
ionerisnonet hel
essestoppedfrom r
aisi
ngthi
sfacttobarI
TEC f
rom
i
nst
it
utingthisinj
uncti
oncaseagainstit
.

Af oreign cor porat

ion doing business i nt he Phili
ppines may sue i n
Phili
ppineCour t
sal t
houghnotaut horizedt odobusi nessher eagai nsta
Phili
ppineci t
izenorent i
tywhohadcont ractedwithandbenef it
edbysai d
corporation.Toputi tinanotherway,apar tyisestoppedt ochal l
enget he
personality ofa cor por
ation afterhavi ng acknowl edged t he same by
enteri
ng i nt
o a cont r
actwi t
hi t
.And t he doctri
ne ofest oppelt o deny
corporateexi st
enceappliestoaf orei
gnaswel lastodomest iccor porati
ons.
Onewhohasdeal twithacor por
at i
onoff orei
gnoriginasacor porateent i
ty
i
sest oppedt odenyi t
scorporateexistenc eandcapaci ty:Thepr i
nciplewi l
l
beappl iedt opreventaper soncont racti
ngwi thaf or
eigncor porati
onf rom
l
atert akingadvant ageofi t
snoncompl iancewi tht hest atut
eschi ef l
yin
caseswher esuchper sonhasr eceivedt hebenef i
tsoft hecontract.

Ther ul
eisdeeplyroot
edi nthetime-
honoredaxi
om ofCommodum ex
i
njuri
asuanonhaberedebet— noper sonoughttoder
iveanyadvantage
ofhisownwrong.Thisisasitshouldbeforasmandatedbyl aw,"
every
personmustintheexerciseofhisri
ghtsandintheperformanceofhis
duti
es,actwi
thjust
ic
e,giveeveryonehisdue,andobservehonest
yand
goodfai
th.
"

Concededly,corpor at
ionsac tthroughagent s,l i
kedi rect
orsandof f
icers.
Corpor
ate dealings mustbe char act er
ized by ut mostgood f ait
h and
f
air
ness.Cor porati
onscannotj ustfeigni gnoranceoft helegalrul
esasi n
most cases, they ar e manned by sophi sti
cated of f
icers wit
ht ri
ed
managementski ll
sandl egalexpertswi thpracticedeyeonl egalproblems.
Eachpartyt oacor poratetr
ansactioni sexpect edtoactwi thutmostcandor
andfai
rnessand,t herebyallow ar easonabl epr oport
ionbet weenbenef its
andexpect edbur dens.Thi sisanor m whi chshoul dbeobser vedwher e
oneortheot herisaf orei
gnentityvent uri
nginagl obalmarket.
xxx

Byent eri
ngintothe" Representat
iveAgr eement"wit
hI TEC,petit
ioneris
chargedwithknowledget hatI
TECwasnotl i
censedtoengagei nbusiness
act
ivit
iesi
nthecount r
y,andi sthusestoppedf r
om rai
singindefensesuch
i
ncapacityofITEC,havi ngchosent oi gnoreorevenpr esumpti
velytake
advantageofthesame. 23(Emphasessuppl i
ed)

The case ofRimbunan Hi

jau Group ofCompani
es v.Or
ient
alWood
Processi
ngCor
porat
ion24i
slikewi
seinst
ruct
ive:

Respondent’sunequi
vocaladmissi
onofthet
ransacti
onwhi chgaver i
seto
t
hecompl aintest
abli
shestheappli
cabi
l
it
yofestoppelagainsti
t.Rul e129,
Secti
on4oft heRulesonEvidenceprovi
desthatawr i
tt
enadmi ssionmade
byapar t
yint hecourseoftheproceedi
ngsint hesamecasedoesnot
requi
reproof.Wehel dinthecaseofElaydav.Cour tofAppeal s,thatan
admission made i
nt he pl
eadi
ngscannotbe cont r
overt
ed byt he party
makingsuchadmi ssi
onandar econcl
usi
veast ohim.Thus,ourconsi stent
pronouncement,asheldincasessuchasMer r
ilLynchFuturesv.Cour tof
Appeals,i
sapropos:

The r ul
ei st hata par tyisest opped t o chal
l
enge t he personalit
yofa
corporati
onaf terhavi ngacknowl edgedt hesamebyent er
ingint
oacont ract
withit.Andt he‘ doctri
neofest oppeltodenycor porateexist
enceappl iesto
forei
gnaswel last odomest iccor porati
ons;’"onewhohasdeal twi t
ha
corporati
onoff oreignor igi
nasacor porateentit
yi sestoppedt odenyi ts
exist
enceandcapaci ty.
"Thepr inci
ple" wil
lbeappl i
edt opreventaper son
contracti
ngwi thaf orei
gncor porati
onf r
om lat
ert akingadvant ageofi ts
noncompl iancewi t
ht hest at
utes,chiefl
yi ncaseswher esuchper sonhas
recei
v edthebenef i
tsoft hecontract..."

Allt
hingsconsider
ed,r
espondentcannolongerinvokepetit
ioner
’slackof
capacit
yt o sue i
nthi
sj ur
isdi
cti
on.
1âwphi
1 Considerat
ions off ai
rplay
dict
atet hataft
erhavi
ng contract
ed and benefi
tt
ed fr
om i ts busi
ness
t
ransact
ionwit
hRimbunan,r
espondentshouldbebar
redfr
om quest
i
oni
ng
t
helatt
er’sl
ackofl
i
censetot
ransactbusi
nessint
hePhil
i
ppi
nes.

Int hecaseofAnt am Consol i

dated,Inc.v .CA,t hisCourtnotedt hatitisa
commonpl oyofdef ault
ingl ocalcompani eswhi charesuedbyunl i
censed
foreigncor por ati
onsnotengagedi nbusi nessi nt hePhil
ippi
nest oinvoke
thel att
er ’
sl ackofcapaci tytosue.Thi spr acticeofdomest i
ccor porati
onsi s
par t
icularlyr epr ehensi bleconsi deringt hati nr equir
ingal i
cense,t hel aw
neveri ntendedt opr eventf orei
gncor por at
ionsf r
om performingsi ngleor
i
sol atedact si nt hiscount r
y,ort ofavordomest iccorpor
ati
onswhor enege
ont heirobl igationst ofor ei
gnf ir
msunwar yenought oengagei nsol it
ary
transact i
ons wi t
ht hem.Rat her,t he l aw was i nt
ended to barf oreign
corpor ati
onsf r
om acqui ringadomi ci
l
ef ort hepur poseofbusi nesswi thout
fi
rstt akingt hest epsnecessar yt orendert hem amenabl et osui t
si nt he
l
ocalcour t
s.I twast opr eventt hef oreigncompani esfrom enj oyi
ngt he
goodwhi l
edi sregar dingt hebad.

Asamat t
erofpr i
nciple,t
hisCour twil
lnotstepintoshielddef aul
ti
nglocal
compani esf r
om t her epercussionsoft heirbusi
nessdeal i
ngs.Whi l
et he
doctr
ineofl ackofcapaci t
yt osuebasedonf ail
uretofirstacquir
eal ocal
l
icense may be r esort
ed t oi n mer i
tor
ious cases,iti s nota magi c
i
ncantation.Itcannotbecal leduponwhennoevi denceexi ststosupportit
s
i
nvocationort hef actsdonotwar ranti
tsappli
cati
on.Int hiscase,thatthe
respondenti sestoppedf r
om chal l
engi
ngt hepetit
ioners’capacitytosue
hasbeenconcl usivel
yest abli
shed,andt hef or
thcomingt r
ialbefor
et he
l
owercour tshoul d weigh instead on the otherdefensesr ai
sed byt he
respondent.25(Emphasessuppl ied)

Asshowni nthepr evi

ouslycitedcases,t hi
sCour thast imeandagai n
uphel dt he pri
ncipl
et hata f orei
gn corporati
on doing busi
ness i
nt he
Phili
ppineswi t
houtal i
censemayst i
llsuebef orethePhi l
i
ppinecourt
sa
Fili
pino ora Phi l
ippine ent
it
yt hathad der i
ved some benefi
tf r
om thei
r
contractualarr
angementbecauset helatt
erisconsideredtobeest opped
from challengi
ngt hepersonali
tyofacor porat
ionaft
erithadacknowledged
thesaidcor porat
ionbyent er
ingintoacont r
actwithi
t.26
InAntam Consolidat
ed,Inc.v.Cour tofAppeals,27t hi
sCour thadt he
occasi
ontodrawat t
enti
ontot hecommonpl oyofinvoki
ngtheincapaci
tyto
sueofanunl icensedforei
gncor por
ati
onut i
li
zedbydef aul
ti
ngdomest i
c
companieswhichseekt oav oidthesui
tbyt heformer.TheCour tcannot
all
owthistoconti
nuebyal waysruli
nginfavoroflocalcompanies,despit
e
theinj
usti
cetot heoverseascor por
ati
onwhi chisl ef
twithnoavai l
able
remedy.

Duringt hi speriodoff inanci aldi

ff
icult
y,ournat iongr eat
lyneedst oat t
ract
mor ef or ei
gni nvestment sandencour aget radebet weent hePhi l
ippi
nes
andot hercount ri
esi nor dert orebuildandst rengt henoureconomy.Whi l
e
i
tisessent i
altouphol dt hesoundpubl icpolicybehi ndt her ulethatdenies
unl
icens edf or
eigncor por ati
onsdoi ngbusinessi nt hePhi li
ppinesaccesst o
ourcour ts
,i tmustneverbe used t of r
ust ratet he endsofj usti
ce by
becomi nganal l
-encompass i
ngshi el
dt opr ot ectunscr upulousdomest ic
enterprisesf r
om f orei
gnent i
ti
esseeki ngr edr essi nourcount ry.Todo
ot
her wisecoul dser i
ouslyj eopardi
zet hedesirabi li
tyoft hePhi l
ippinesasan
i
nvest mentsi t
eandwoul dpossi bl
yhavet hedel eteriousef f
ectofhi nderi
ng
t
radebet weenPhi li
ppinecompani esandi nternat ionalcor porati
ons.

WHEREFORE,t heMarch31,2005Deci si
onoft
heCourtofAppealsand
i
tsMar ch23,2006Resoluti
onar eherebyREVERSED andSETASI DE.
Thedismissalor
deroft
heRegi onalTr
ialCour
tdatedNovember15,1999
i
sher ebysetaside.St
eelcase’
sAmendedCompl ai
nti
sherebyor dered
REINSTATED andt hecasei sREMANDED t otheRTC forappropri
ate
act
ion.

SOORDERED.
G.
R.No.171815 August7,2007

CEMCOHOLDI
NGS,I
NC.
,Pet
it
ioner
,
vs.
NATIONALLI FE I
NSURANCE COMPANY OFTHE PHI
LIPPI
NES,I
NC.
,
Respondent
.

DECISION

CHI
CO-
NAZARI
O,J.
:

ThisPetit
ionf orReview underRul e45oft heRulesofCour tseekst o
rever
seandsetasi det he24Oct ober2005Deci si
on1andt he6Mar ch
2006Resol ut
ion2oft heCour tofAppeal si nCA-G.R.SPNo.88758whi ch
aff
ir
med the judgment 3 dated 14 Febr uary2005 oft he Securi
ti
esand
Exchange Commi ssion (SEC)f indi
ng t hatthe acqui
sit
ion ofpetit
ioner
Cemco Hol di
ngs,I nc.( Cemco)oft he shares ofstock ofBacnot an
Consoli
datedIndust
ries,Inc.(BCI )andAt lasCementCor por
ation(ACC)i n
Union Cement Hol dings Cor porati
on ( UCHC) was cover ed by t he
Mandatory Of f
erRul e underSect i
on 19 ofRepubl ic ActNo.8799,
other
wiseknownast heSecur it
iesRegul ati
onCode.

TheFact
s

Union CementCorporat
ion (
UCC),a publi
cly-
li
sted company,has two
pr
inci
palstockhol
ders – UCHC,a non- l
isted company,wi t
h shares
amounti
ng t
o 60.51%,and peti
ti
onerCemco wi th 17.03%.Major
ity of
UCHC’sstockswereownedbyBCIwi th21.31% andACC wi th29.69%.
Cemco,ontheotherhand,owned9% ofUCHCst ocks.
Inadi scl
osur
elet
terdated5July2004,BCIi
nfor
medthePhil
ippi
neStock
Exchange( PSE)t
hati tandit
ssubsi
diar
yACC hadpassedresol
uti
onsto
selltoCemcoBCI ’
sst ocksi
nUCHC equival
entto21.31% andACC’ s
stocksinUCHCequi val
entto29.
69%.

InthePSECi rcularf
orBrokersNo.3146- 2004dated8Jul y2004,itwas
stat
edthatasar esul
tofpeti
ti
onerCemc o’
sacquisi
ti
onofBCIandACC’ s
sharesi
nUCHC,pet i
ti
oner
’stotalbenef
ici
alownership,di
rectandindi
rect
,
i
nUCChasi ncreasedby36% andamount edtoatleast53% oftheshares
ofUCC,towit4:

Par
ti
cul
arsPer
cent
age
Exi
sti
ngshar
esofCemcoi
nUCHC 9%
Acqui
si
ti
onbyCemcoofBCI
’
sandACC’
sshar
esi
nUCHC 51%
Tot
alst
ocksofCemcoi
nUCHC 60%
Per
cent
ageofUCHCowner
shi
pinUCC60%
I
ndi
rectowner
shi
pofCemcoi
nUCC 36%
Di
rectowner
shi
pofCemcoi
nUCC 17%
Tot
alowner
shi
pofCemcoi
nUCC53%
Asaconsequenceoft hisdiscl
osure,t
hePSE,i nalet
tertotheSECdat ed
15July2004,inqui
redast owhethertheTenderOfferRul eunderRule19
ofthe Impl
ement i
ng Rules oft he Securi
ti
es Regulat
ion Code is not
appl
icabl
etothepurchasebypet i
ti
onerofthemajor
it
yofshar esofUCC.

I
nal ett
erdated16Jul y2004,DirectorJust
inaCallanganoftheSEC’s
Corporat
eFi nanceDepart
mentr espondedt othequer yofthePSE t
hat
whil
eitwast hestanceoft
hedepar t
mentthatthetenderoff
errul
ewasnot
appli
cable,t
hemat t
ermustst
il
lhavetobeconf i
rmedbyt heSECenbanc.

Ther
eaf
ter
,inasubsequentl
ett
erdat
ed27Jul
y2004,Di
rect
orCal
l
angan
conf
ir
medt hatt
heSECenbanchadr esol
vedt
hatt
heCemcot
ransact
ion
wasnotcoveredbyt
het
enderof
ferr
ule.

On28July2004,f eel
ingaggri
evedbyt hetr
ansact
ion,respondentNat i
onal
Li
feI
nsuranceCompanyoft hePhili
ppines,I
nc.,ami nori
tystockholderof
UCC,sental ett
ertoCemcodemandi ngthelatt
ertocompl ywi t
ht herul
e
onmandatorytenderoff
er.Cemco,however,ref
used.

On5August2004,aSharePurchaseAgreementwasexecut
edbyACC
andBCI
,assel
l
ers,andCemco,asbuyer
.

On12August2004,t
het
ransact
ionwasc
onsummat
edandcl
osed.

On19August2004,r espondentNat i
onalLifeInsuranceCompanyoft he
Phili
ppi
nes,I
nc.f i
ledacompl aintwiththeSEC aski ngi ttor everseit
s27
July2004Resol utionandt odeclaret hepurchaseagr eementofCemco
voidandprayingthatt hemandat orytenderoff
errulebeappl i
edt oitsUCC
shares.Impl
eadedi nt hecompl ai
ntwer eCemco,UCC,UCHC,BCIand
ACC,whi chwer ethenr equir
edbyt heSECt ofi
letheirrespectivecomment
ont hecomplaint
.Int heircomment s,theywereuni f
ormi narguingthatthe
tenderoff
erruleappl iedonlyt oadi rectacquisi
ti
onoft heshar esoft he
l
istedcompanyanddi dnotext endtoani ndi
rectacquisit
ionarisingfr
om the
purchaseoft
heshar esofahol dingcompanyoft helistedf i
rm.

I
n a Deci si
on dated 14 February2005,t he SEC rul
ed i
nfavorofthe
respondentbyr eversi
ngandset t
ingasi
deits27July2004Resoluti
onand
dir
ected peti
ti
onerCemco t o make a t enderoff
erf orUCC shares to
respondentandot herholder
sofUCC shar essimi
lartothecl
assheldby
UCHC i n accor dance wit
h Sect i
on 9(E),Rule 19 oft he Secur
it
ies
Regulati
onCode.

Pet
it
ionerf
il
edapet
it
ionwi
tht
heCour
tofAppeal
schal
l
engi
ngt
heSEC’
s
j
uri
sdicti
ontotakecogni
zanceofrespondent ’
scompl
aintanditsaut hori
ty
t
orequi r
eCemcot omakeat enderoff
erf orUCCshares,andarguingt hat
t
hetenderofferrul
edoesnotapply,ort hattheSEC’
sr e-i
nter
pretat
ionof
t
her ulecoul
dnotbemadet oretr
oact
ivelyapplyt
oCemco’ spur chaseof
UCHCshar es.

TheCour tofAppeal
sr enderedadeci si
onaf f
ir
mi ngtherul
ingoftheSEC.It
rul
edt hattheSEChasj ur
isdict
iontorenderthequest i
oneddecisi
onand,in
anyevent ,Cemcowasbar redbyest oppelfrom questi
oningtheSEC’ s
j
uri
sdicti
on.I t
,li
kewise,heldt hatthet enderof f
errequir
ementundert he
Securiti
esRegulati
onCodeandi tsI
mpl ementingRulesappliestoCemco’s
purchaseofUCHCs t
ocks.Thedecr etalporti
onoft hesai
dDeci si
onreads:

I
N VIEW OF THE FOREGOI NG,the assail
ed deci
si
on ofthe SEC i
s
AFFI
RMED,andthepr
eli
minar
yinj
unct
ionissuedbytheCourtLIFTED.
5

Cemcofil
edamot
ionf
orr
econsi
der
ati
onwhi
chwasdeni
edbyt
heCour
tof
Appeal
s.

Hence,t
hei
nst
antpet
it
ion.

I
nit
smemor
andum,pet
it
ionerCemcor
aisest
hef
oll
owi
ngi
ssues:

I
.

ASSUMING ARGUENDO THAT THE SEC HAS JURI

SDI
CTION OVER
NATI
ONAL LI FE’
S COMPLAINT AND THAT THE SEC’ S RE-
I
NTERPRETATION OF THE TENDER OFFER RULE IS CORRECT,
WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLI
ED
RETROACTIVELYTOCEMCO’SPREJUDICE.
I
I.

WHETHER OR NOT THE SEC HAS JURISDI

CTION TO ADJUDI
CATE
THE DI
SPUTE BETWEEN THE PARTI ES A QUO OR TO RENDER
JUDGMENT REQUI
RING CEMCO TO MAKE A TENDER OFFER FOR
UCCSHARES.

I
II
.

WHETHER OR NOT CEMCO’

S PURCHASE OF UCHC SHARES I
S
SUBJECTTOTHETENDEROFFERREQUIREMENT.

I
V.

WHETHER OR NOTTHE SEC DECISION,AS AFFI

RMED BY THE CA
DECISI
ON,IS AN I
NCOMPLETE JUDGMENTWHI CH PRODUCED NO
EFFECT.6

Si
mpl
yst
ated,t
hef
oll
owi
ngar
ethei
ssues:

1.Whet
herornott
heSEChasjuri
sdi
cti
onoverrespondent
’
scompl
aintand
t
orequi
reCemcotomakeatenderof
ferf
orrespondent
’sUCCshar
es.

2.Whet herornott
herul
eonmandat or
yt enderoff
erappliest
ot heindi
rect
acquisi
ti
on ofshares i
nal i
sted company,i nt hi
s case,the indi
rect
acquisi
ti
onbyCemcoof36% ofUCC,apubl i
cly-
li
stedcompany,throughits
purchaseoftheshar
esinUCHC,anon- l
istedcompany.
3.Whet herornotthe quest
ioned rul
i
ng ofthe SEC can be appl
i
ed
ret
roact
ivel
ytoCemco’
st r
ansacti
onwhi chwasconsummatedunderthe
author
it
yoftheSEC’
spri
orresolut
ion.

Ont hef i
rstissue,pet it
ionerCemcocont endst hatwhil
et heSECcant ake
cognizanceofr espondent ’
scompl aintont heal legedviolationbypet i
ti
oner
Cemcooft hemandat oryt enderof f
err equirementunderSect ion19of
Republ i
cActNo.8799,t he same st atute doesnotvestt he SEC wi t
h
j
uri
sdicti
ont oadj udicateanddet erminet her ightsandobl i
gati
onsoft he
part
ies since,undert he s ame st atute,t he SEC’ s aut horit
yi s pur el
y
administr
ative.Havi ngbeenvest edwi t
hpur el
yadmi ni
strat i
veaut horit
y,the
SEC canonl yimposeadmi ni
strati
vesanct i
onssuchast hei mpositi
onof
administr
ativef i
nes,t hesus pensionorr evocat ionofregi strat
ionswi t
ht he
SEC,andt hel i
ke.Pet iti
onerst ressest hatt her eisnot hingi nt hest at
ute
whichaut horizestheSECt oissueor dersgr ant ingaff
ir
mat i
ver eli
efs.Since
theSEC’ sor dercommandi ngi tt omakeat enderof feri sanaf f
ir
mat i
ve
rel
i
eff i
xingt her espect i
ver ightsandobl i
gationsofpar ti
es,suchor deris
voi
d.

Pet
it
ionerfurt
hercont
endst hatintheabsenceofanyspeci
fi
cgrantof
j
uri
sdict
ion by Congress, t
he SEC cannot, by mer
e admini
str
ati
ve
r
egulati
on,conf
eronit
selft
hatjur
isdi
cti
on.

Pet
it
ioner
’sst
ancef
ail
stoper
suade.

I
nt aking cognizance ofrespondent’
sc ompl
aintagainstpet
it
ionerand
eventual
l
yr enderingajudgmentwhi chor
deredthelat
tertomakeat ender
off
er,the SEC was act i
ng pursuantto Rul
e 19(13)oft he Amended
I
mpl ementi
ngRul esandRegul at
ionsoftheSecuri
ti
esRegulati
onCode,t o
wit
:

13.Vi
olat
ion
Ifthereshallbeviol
ati
onoft hisRulebypur sui
ngapur chaseofequi t
y
sharesofapubl i
ccompanyatt hr
esholdamount swit
houtther equi
red
tenderof f
er,the Commissi
on,upon compl ai
nt,may nulli
fythe said
acquisi
ti
onanddi r
ecttheholdingofat enderoff
er.Thi
sshallbewi t
hout
prejudi
cetotheimposi
ti
onofothersanct
ionsundertheCode.

The foregoi
ng rule emanat
es from the SEC’s powerand aut hor
it
yt o
regul
ate,invest
igate orsupervi
se the acti
vit
ies ofpersons t
o ensure
compli
ance witht he Secur
it
ies Regulat
ion Code,mor e speci
fi
cal
l
yt he
provi
si
ononmandat oryt
enderoff
erunderSect i
on19t her
eof.
7

Anot
herprovi
si
onoft
hestat
ute,whichprovi
dest
hebasisofRul
e19(13)of
t
he Amended Impl
ementi
ng Rules and Regulat
ions oft
he Secur
it
ies
Regul
ati
onCode,i
sSect
ion5.1(n)
,viz:

[
T]heCommissi
onshal
lhave,amongot
her
s,t
hef
oll
owi
ngpower
sand
f
unct
ions:

xxxx

(n)Exerci
sesuchotherpowersasmaybeprovidedbylawaswel lasthose
whichmaybei mpliedfr
om,orwhi charenecessar
yori nci
dentaltothe
carryi
ngoutof,t
heexpresspowersgrant
edtheCommi ssi
ontoachievethe
object
ivesandpurposesoft
heselaws.

Thef oregoi
ngprovisi
onbest owsupont heSEC thegener aladj
udicat
ive
powerwhi chisimpl i
edf rom theexpr esspowersoft heCommi ssi
onor
which isi nci
dentalt o, or reasonably necessaryto car r
y out,t he
perf
ormanceoft headmi nist
rati
vedut i
esentrust
edtoi t
.Asar egulat
ory
agency,i thas the inci
dentalpowert o conducthearings and render
decisi
onsf i
xi
ngther i
ghtsandobl igat
ionsoftheparti
es.Infact
,todeprive
t
heSEC oft hispowerwoul drendertheagencyi nut
il
e,becausei twould
becomepowerl
esstoregul
ateandi
mpl
ementt
hel
aw.Ascor
rect
lyhel
dby
t
heCourtofAppeal
s:

Wear enonet helessconvi ncedthatt heSEChast hecompet encet or ender

thepar ti
culardeci sioni tmadei nt hiscase.A def i
ni t
ei nfer encemaybe
drawnf rom t hepr ovisionsoft heSRC t hatt heSEC hast heaut horitynot
onlyt oi nvest i
gatecompl aintsofvi ol ati
onsoft het enderof ferr ule,butt o
adjudi catecer t
ainr i
ght sandobl igationsoft hecont endingpar ti
esandgr ant
appr opriaterelief
si nt heexer ci
seofi tsregul atoryfunct ionsundert heSRC.
Sect i
on5. 1oft heSRCal lowsagener algrantofadj udicativepower st othe
SEC whi chmaybei mpli
edf rom orar enecessar yori nci dentalt ot he
carryingoutofi t
sex presspower st oachi evet heobj ecti
vesandpur poses
oftheSRC.Wemustbeari nmindi ni nter
pr eti
ngt hepower sandf unc ti
ons
oftheSECt hatthel awhasmadet heSECpr i
mar il
yar egul atorybodywi t
h
the i ncidentalpower t o conduct admi nistrati
ve hear ings and make
decisions.A r egulator ybodyl i
ket heSEC mayconducthear ingsi nthe
exerci seofi tsregul atorypower s,andi fthecasei nvolvesvi olat i
onsor
conflictsinconnect ionwi tht heper formanceofi tsr egul ator yfunct i
ons,i t
wil
lhavet hedut yandaut hor i
tytor esol vethedi sput efort hebesti nterests
ofthepubl ic.
8

Forsur e,theSEC hast heauthorit

yt opromulgat
er ul
esandr egul
ati
ons,
subjecttot heli
mit
ati
ont hatthesamear econsi
stentwit
ht hedec l
ared
poli
cyoft heCode.Amongt hem isthepr ot
ect
ionoftheinvest
orsandt he
minimizati
on,i
fnott
otaleli
minati
on,offraudul
entandmanipulat
ivedevi
ses.
Thus,Subsection5.
1(g)ofthelawpr ovi
des:

Prepare,appr
ove,amendorr epealr
ules,r
egul
ati
onsandorder
s,andi
ssue
opini
onsandpr ovideguidanceonandsuper vi
secompli
ancewithsuch
rul
es,regul
ati
onsandorders.

Al
so,Sect
ion72oft
heSecur
it
iesRegul
ati
onCoder
eads:

72.
1.x x x To ef
fectt
he pr
ovi
si
ons and pur
poses oft
his Code,t
he
Commissi
onmayi ssue,amend,andresci
ndsuchr
ulesandr
egul
ati
ons
andor
dersnecessaryorappr
opri
ate,xxx.

72.2.TheCommi ssionshal lpromul gaterulesandr egulationspr ovidingf or

reporting,di sclosure and t he pr eventi
on off raudulent ,decept ive or
mani pul at
ivepr acti
cesi nconnect i
onwi tht hepur chasebyani ssuer ,by
tenderof f
erorot herwi se,ofandequi t
ys ecurit
yofacl assi ssuedbyi tthat
sati
sfiest her equirement sofSubsect i
on17. 2.Suchr ulesandr egul ati
ons
mayr equi resuchi ssuert opr ovidehol dersofequi t
ysecur i
ti
esofsuch
dateswi thsuchi nformat i
onr elati
ngt other easonsf orsuchpur chase,t he
sourceoff unds,thenumberofshar estobepur chased,t hepr icetobepai d
forsuchsecur iti
es,themet hodofpur chas eandsuchaddi tionalinformat i
on
ast heCommi ssiondeemsnecessar yorappr opri
atei nt hepubl i
ci nterest
orfort hepr otecti
onofi nvestors,orwhi cht heCommi ssiondeemst obe
mater i
alt oadet ermi nati
onbyhol derswhet hersuchsecur i
tyshoul dbesol d.

Thepowerconf erredupontheSECt opr omul

gater ulesandregulati
onsis
al egisl
ati
verecognit
ionofthecompl exi
tyandt heconst ant
ly-
fl
uctuat
ing
natureoft hemar ketandtheimpossibil
i
tyofforeseeingallthepossible
contingenci
esthatcannotbe addressed in advance.Asenunci at
ed in
Victori
asMill
i
ngCo. ,I
nc.v.Soci
alSecuri
tyCommi ssion9:

Rulesandr egulationswhenpr omul gatedi npur suanceoft heprocedur eor

authori
tyconferredupont headmi nistr
at i
veagencybyl aw,par t
akeoft he
natureofast atute,andcompl iancet herewi t
hmaybeenf orcedbyapenal
sancti
on provided int he law.Thi si ss o because st atutesare usual l
y
couchedingener alterms,af terexpressi ngthepol icy,purposes,objectives,
remediesandsanct ionsi ntendedbyt hel egisl
ature.Thedet ai
lsandt he
mannerofcar ryi
ngoutt hel aw ar eof tent i
mesl efttotheadmi ni
strative
agencyentrustedwi thitsenf orcement .Int hi
ssense,i thasbeensai dt hat
rul
esandr egulationsar ethepr oductofadel egatedpowert ocreatenewor
addit
ionall
egalpr ovisionst hathavet heef fectoflaw.

Mor
eover
,pet
it
ioneri
sbar r
edfrom quest
ioni
ngthejur
isdi
cti
onoftheSEC.
I
tmustbepoi
ntedoutthatpet
it
ionerhadpart
ici
pat
edinallthepr
oceedi
ngs
bef
oretheSEC andhadpr ayedforaffi
rmat
iver
eli
ef.Inf
act
,pet
it
ioner
def
endedthejur
isdi
cti
onoft
heSEC initsCommentdated15Sept
ember
2004,f
il
edwi
ththeSECwhereini
tasser
ted:

ThisHonor ableCommi ssionisahi ghlyspeci al

izedbodycr eat edf orthe
purposeofadmi nisteri
ng,over seeing,andmanagi ngthecor por ateindust ry,
sharei nvest mentandsecur it
iesmar ketint hePhi l
ippi
nes.Byt hever y
natureofi t
sf unct ions,itdedi catedt othest udyandadmi nistrationoft he
corporateandsecur i
ti
esl awsandhasnecessar il
ydevelopedanexper t
ise
ont hesubj ect.Basedons aidf uncti
ons,t heHonor ableCommi ssioni s
necessar i
lyt asked t oi ssue r uli
ngs wi thr espectt o mat tersi nvolvi
ng
corporate mat ters and shar e acqui sit
ions.Ver il
y when thi s Honor able
Commi ssion r ender ed the Rul ing that"… t he acquisit
ion ofCemco
Holdings oft he maj orit
y shar es ofUni on CementHol di ngs,I nc. ,a
substantialst ockhol derofal i
stedcompany,Uni onCementCor porati
on,i s
notcover edbyt hemandat oryt enderof f
err equi r
ementoft heSRC Rul e
19,"itwaswel lwi thinitspower sandexper t
isetodoso.Suchr uli
ngshal l
ber espect ed,unl esst herehasbeenanabuseori mprovidentexer ciseof
authori
ty.10

Pet
it
ionerdidnotquest i
onthejuri
sdi
ctionoft heSECwheni trender
edan
opi
nionfavorabl
etoi t
,suchasthe27Jul y2004Resol ut
ion,wheretheSEC
opi
nedt hatt heCemcot r
ansacti
onwasnotcover edbyt hemandat or
y
t
enderof ferrul
e.I twasonl ywhen t he case wasbef orethe Courtof
Appealsandaf tertheSEC r ender
edanunf avor
abl
ejudgmentagai nstit
t
hatpeti
tionerchall
engedtheSEC’ scompet ence.Asart
iculat
edinCeroferr
Real
tyCor porat
ionv.CourtofAppeals11:

Whilethelackofj uri
sdi
cti
onofacour tmayber ai
sedatanystageofan
act
ion,nevert
heless,thepartyrai
singsuchquesti
onmaybeest oppedi
fhe
hasactivel
ytakenpar ti
nt heverypr oceedi
ngswhichhequest
ionsandhe
onlyobject
stot hec ourt
’sjuri
sdict
ionbecausethejudgmentortheorder
subsequentl
yrenderedisadver setohim.

Ont
hesecondi
ssue,pet
it
ionerasser
tst
hatt
hemandat
oryt
enderof
ferr
ule
appl
i
esonl
ytodi
rectacqui
si
ti
onofshar
esi
nthepubl
i
ccompany.

Thi
scont
ent
ioni
snotmer
it
ori
ous.

Tenderof ferisapubl iclyannouncedi ntentionbyaper sonact i

ngal oneor
i
n concer twi th ot
herper sons to acqui re equity secur i
ti
es ofa publ i
c
company. 12Apubl iccompanyi sdef inedasacor porationwhi chisl isted
onanexchange,oracor porationwi t
hasset sexceedi ng₱50, 000,000. 00
andwi t
h200ormor est ockhol der s,atl east200oft hem hol dingnotl ess
than100shar esofsuchcompany. 13St ateddi f
ferentl
y,at enderof f
erisan
offerbytheacqui ri
ngper sont ost ockhol dersofapubl i
ccompanyf orthem
tot endertheirshar est hereinont het ermsspeci f
iedint heof f
er.14Tender
offerisinpl acet opr otectmi nor i
tyshar eholdersagainstanyschemet hat
dil
ut es t
he shar e val ue oft hei rinvest ments.I tgi ves the mi nor it
y
shar ehol
derst he chance t o exitt he companyunderr easonablet er ms,
givingthem t heoppor tunityt osel ltheirshar esatt hesamepr i
ceast hose
ofthemaj oritysharehol ders.15

UnderSect
ion19ofRepubl
i
cActNo.8799,i
tisst
ated:

TenderOf f
ers.19. 1.(a)Anyper sonorgr oupofper sonsact i
ngi nconcert
whoi ntendst oacqui reatl eastf if
teenper cent( 15%)ofanycl assofany
equitysecur i
tyofal istedcor porationorofanycl assofanyequi tysecurit
y
ofacor porationwi t
hasset sofatl eastFift
ymi ll
i
onpesos( ₱50, 000,000.00)
and havi ng two hundr ed (200)ormor e st ockholder swi th atl eastone
hundred( 100)shar eseachorwhoi nt
endst oacqui reatl eastthirtypercent
(30%)ofsuchequi tyoveraper i
odoft wel ve(12)mont hsshal lmakea
t
enderof f
ertost ockhol dersbyf i
li
ngwi t
ht heCommi ssionadecl ar
ati
ont o
t
hatef fect;and f urnish the issuer ,a stat ementcont aining such oft he
i
nformat i
onr equiredi nSect i
on17oft hisCodeast heCommi ssionmay
prescri
be.Suchper sonorgr oupofper sonsshal lpubl ishallr equestsor
i
nvitati
onsf ortender ,ormat erial
smaki ngat enderof ferorr equest i
ngor
i
nviti
ngl ett
ersofsuchasecur i
ty.Copiesofanyaddi ti
onalmat erialsoli
cit
ing
orr equestingsucht enderof ferssubsequentt ot hei ni t
ialsolicit
ati
onor
requestshal lcontainsuchi nformat i
onast heCommi ssionmaypr escri
be,
andshallbefi
ledwi
ththeCommissi
onandsentt
othei
ssuernotl
atert
han
theti
mecopi esofsuchmater
ial
sarefir
stpubl
i
shedorsentorgivento
secur
it
yholders.

Underexi st
ingSEC Rul es,16the15% and30% t hreshol
dacqui si
ti
onof
sharesundert hef oregoingprovisionwasi
ncreasedt othir
ty-f
iveper cent
(35%).Iti sfurt
herpr ovided t
her eint
hatmandatoryt enderof f
erisst il
l
appli
cableeveni ftheacqui si
ti
oni sl
esst
han35% whent hepur chase
wouldr esultin owner shi
p ofover51% oft he totaloutstanding equity
securi
ti
esoft hepubliccompany. 17

TheSEC andt heCourtofAppealsruledthatt

heindirectacqui
si
ti
onby
pet
it
ionerof36% ofUCC sharesthroughtheacqui
sit
ionoft henon-l
i
sted
UCHCshar esiscover
edbythemandat oryt
enderof
ferrule.

Thisint
erpr
etat
iongi
venbyt
heSEC andt
heCour
tofAppeal
smustbe
sust
ained.

Ther uleint hisjur

isdict
ionist hattheconst ructi
ongi ventoastatut ebyan
administrati
veagenc ychar gedwi tht hei nterpretat
ionandappl icationof
thatst atutei s entitl
ed t o greatwei ghtby t he courts,unless such
constructi
oni sclearl
yshownt obei nshar pcont rastwi t
hthegover ninglaw
orstatute.18Ther ationaleforthisr ulerelatesnotonl yt ot
heemer genceof
the mul ti
fari
ous needs ofa moder n ormoder ni
zing soci
ety and t he
establi
shmentofdi verse admi nistrat
ive agenci es foraddressing and
sati
sfyingt hoseneeds;i talsor el
at estoaccumul at
ionofexper i
enceand
growthofspeci al
i
zedcapabi li
ti
esbyt headmi nistr
ativeagencychar ged
withimplement ingapar ticul
arstatute.19

The SEC and t he Cour tofAppeal s accurat

ely poi
nted outthatthe
cover
age oft he mandat or
yt enderofferr ule cover
s notonl y di
rect
acqui
sit
ionbutal
soi ndir
ectacqui
sit
ionor" anytypeofacquisi
ti
on."Thi
si s
cl
earfrom t
hediscussionsoftheBicamer alConfer
enceCommi t
teeonthe
Securi
ti
esActof2000,on17Jul y2000.
SEN.S.OSMEÑA.Et oangmangyayar idiyan,eh.Somebodycont rol
s67%
oftheCompany.Ofcour se,hewi
llpayapr emium fort hefi
rst67%.Cont rol
yan,eh.Eh,kawawayungmgamai i
wan,ang33% becauset hevalueof
thestockmarketcouldgodown,coul dgodownaf terthat
,becauset here
wil
l(p.41)benomor emarket
.Wal ananggust ongbument a.Walanang…
Imeanmar aminggust ongbument a,wal anggust ongbumi l
ikunghi ndi
yungmaj or
it
yowner .Andtheywillnotbuy.Theyal readyhave67%.They
alr
eadyhavecont rol
.Andt hi
sprotectst hemi nori
ty.Andwehavehada
caseinCebuwher ei
nAyalaAwhoal readyowned40% ofAyal aBmade
anof f
erforanother40% ofAyal aB wi t
houtof f
eringt he20%.Kawawa
namanyungnakahawakngayonng20%.Angbabangshar esamar ket.
Butwedi dnothaveal awprot
ect
ingt hem atthatti
me.

CHAI
RMANROCO.Sowhati
sitt
hatyouwantt
oachi
eve?

SEN.S.OSMEÑA.Thatifacertai
ngr
oupachi
evesacert
ainamountof
owner
shi
pinacorpor
ati
on,yeah,heisobl
i
gatedtobuyanybodywho
want
stosel
l
.

CHAI
RMANROCO.Pr
o-r
atal
ang.(
p.42)
.

xxxx

REP.TEODORO.As l ong as itreaches 30,ayan na.Any t ype of

acqui
sit
ionjustaslongasitwi
llr
esul
tin30… (p.50)…reaches30,ayanna.
Anytypeofacquisiti
onj
ustaslongasitwil
lresul
tin30,gener
altender,pr
o
-r
ata.
20( Emphasissuppl
ied.
)

Peti
ti
oner counter
st hat the l
egisl
ator’
sr efer
ence to "any type of
acqui
sit
ion"duri
ng the del
i
berat
ionson the Securi
ti
esRegul at
ion Code
doesnoti ndi
cat
ethatcongressmeantt oincl
udethe"indi
rect
"acquisi
ti
on
ofsharesofapubliccorporati
ont obecoveredbyt het
enderofferrul
e.
Peti
ti
oneral
soaversthatitdidnotdir
ectl
yacqui
retheshar
esinUCCand
the i
nci
dent
albenefi
tofhavi ng acquir
ed t
he cont
rolofthe sai
d publ
ic
companymustnotbetakenagai nsti
t.

Thesear gumentsarenotconvincing.Thelegislat
iveintentofSection19of
t
heCodei storegulateacti
vit
iesrelati
ngt oacquisit
ionofcont roloft he
l
ist
edcompanyandf ort hepurposeofpr otecti
ngthemi nor
it
ystockhol der
s
ofal i
stedcor por
ati
on.What evermaybet hemet hodbywhi chcont rolofa
publ
iccompanyi sobtained,eit
herthrought hedir
ectpur chaseofitsstocks
or through an i ndi
rectmeans,mandat oryt ender of f
er applies.As
appropriatel
yheldbyt heCourtofAppeal s:

Thepet iti
onerpositst hatwhati tacqui redwer est ocksofUCHC andnot
UCC.Byhappenst ance,asar esultofthet ransact i
on,itbecameani ndi
rect
ownerofUCC.We ar e const rained,however ,t o construe owner shi
p
acquisi
tion to mean bot h directand i ndirect.Whati s deci si
ve isthe
determinationoft hepowerofcont rol.Thel egislati
vei ntentbehi ndthe
tenderof ferrul
e makescl eart hatt he type ofact ivi
tyi ntended to be
regulat
edi stheacqui sit
ionofcont r
oloft hel i
stedcompanyt hroughthe
purchaseofshar es.Cont rolmay[ be]effectedt hroughadi rectandi ndi
rect
acquisi
tionofstock,andwhent hi
st akespl ace,irrespectiveoft hemeans,a
tenderof fermustoccur .The bot t
oml i
ne oft he law i st o gi ve t
he
shareholderofthel i
stedcompanyt heoppor tunit
yt odeci dewhet herornot
toselli
nconnect i
onwi that ransferofcont rol.xxx. 21

Astothethir
dissue,peti
ti
onerstr
essest hatt
herul
ingonmandat
orytender
of
ferrul
ebyt heSECandt heCour tofAppealsshoul
dnothaveret
roact
ive
ef
fectorbemadet oapplytoitspurchaseoftheUCHCshar esasitrel
ied
i
ngoodf ait
hont helet
terdat
ed27Jul y2004oftheSECwhichopinedthat
t
hepr oposedacquis i
ti
onoft heUCHC shar eswasnotcoveredbyt he
mandatoryoff
errul
e.

Thear
gumenti
snotper
suas
ive.
Theact ionoft heSEC ont hePSE r equestforopi nionont heCemco
t
ransact ioncannotbeconst ruedaspassi ngmer it
sorgi vingappr ovaltothe
quest i
onedt r
ansacti
on.Asapt l
ypointedoutbyt her espondent ,thelett
er
dated27Jul y2004oft heSEC wasnot hi
ngbutanappr ovaloft hedr aft
l
etterpr eparedbyDi r
ectorCal l
anga.Ther ewasnopubl i
chear i
ngwher e
i
nter est
edpar t
iescouldhavebeenhear d.Hence,i twasnoti ssuedupona
definit
eandconcr et
econt roversyaffect
ingt hel egalr elati
onsofpar ti
es
t
her ebymaki ngi taj
udgmentconcl usiveonal lthepar t
ies.Sai dlett
erwas
mer elyadvisory.Juri
sprudencehasi tthatanadvi soryopi nionofanagency
maybest r
ickendowni fitdeviat
esf rom thepr ovisionoft hest atut
e.22
Since t he letterdated 27 Jul y 2004 r uns count ert othe Secur i
ti
es
Regul ati
onCode,t hesamemaybedi sregardedaswhatt heSEChasdone
i
ni t
sdeci si
ondat ed14Febr uary2005.

Assumi ngarguendot hatthel et

terdated27Jul y2004const i
tutesar uli
ng,
thesamecannotbeut il
i
zedt odet erminetherightsoftheparties.Whati s
tobeappl i
edint hepr esentc asei sthesubsequentr ul
i
ngoftheSECdat ed
14Febr uary2005abandoni ngtheopi nionembodi edintheletterdated27
July 2004.In Ser rano v.Nat i
onalLaborRel at
ions Commi ssion,23 an
argumentwas r aised simi l
art ot he case underconsi der
ation.Pr i
vate
respondentthereinar guedt hatthenewdoct r
inepr onouncedbyt heCour t
shouldonlybeappl iedpr ospectivel
y.Saidpostulati
onwasi gnoredbyt he
Courtwheni trul
ed:

Whi l
eaj udici
alint
erpret
ationbecomesapar tofthelawasoft hedatethat
l
aw wasor igi
nall
ypassed,t hisissubjectt ot hequalif
icat
ionthatwhena
doctri
neoft hi
sCour ti
sover ruledandadi fferentviewisadopt ed,andmore
sowhent herei sar eversalt hereof
,thenew doct ri
neshoul dbeappl i
ed
prospecti
velyandshoul dnotappl ytopart
ieswhor eli
edont heolddoct
ri
ne
andact edingoodf ait
h.Tohol dotherwi
sewoul dbet odeprivethelawofits
quali
tyoff air
nessandj ust i
cet hen,ift
herei snor ecognit
ionofwhathad
tr
anspiredpr i
ort
osuchadj udicati
on.

I
tisappar
entt
hatpr
ivat
erespondentmi
sconcei
vedt
hei
mpor
toft
her
uli
ng.
Thedeci si
oninColumbiaPict
uresdoesnotmeant hatifanewr ul
eislai
d
downi nacase,i tshouldnotbeappl i
edint hatcasebutt hatsaidrul
e
should apply prospecti
vel
y t o cases ar isi
ng af t
erwar
ds. Pr i
vat
e
respondent’
sviewofthepri
ncipl
eofprospect
iveapplicat
ionofnewjudici
al
doctr
ineswouldtur
nthejudici
alf
unct
ionint
oamer e
academicexer
cisewit
hther
esul
tthatt
hedoctri
nelaiddownwouldbeno
morethanadict
um andwoul
ddepri
vethehol
dinginthecaseofanyf
orce.

I
ndeed,when t he Cour
tfor
mulated the Wenphildoctr
ine,which we
rever
sedi nthi
scase,theCourtdidnotdeferappli
cati
onoftherulelai
d
downimposingaf i
neontheemployerforf
ail
uretogivenot
iceinacaseof
dismi
ssalforcause.Tothecontr
ary,t
henew r ul
ewasappl i
edri
ghtthen
andthere.xxx.

Last
ly,pet
it
ionerall
egest
hatthedeci
si
onoftheSEC dat
ed14Febr
uar
y
2005is"i
ncompleteandpr
oducesnoeff
ect
."

Thi
scont
ent
ioni
sbasel
ess.

Thedecr
etalpor
ti
onoft
heSECdeci
si
onst
ates:

Inview ofthef oregoi

ng,t helet
teroftheCommi ssion,si
gnedbyDirector
JustinaF.Cal langan,dat edJuly27,2004,addr essedtot hePhil
ippi
ne
Stock Exchange i s hereby REVERSED and SET ASI DE.Respondent
Cemco i sher ebydi rect
ed to make a tenderofferforUCC shar est o
compl ai
nantandot herhol der
sofUCCshar essi
mi l
artotheclassheldby
respondentUCHC,att hehighestpri
ceitpaidf
orthebenef i
ci
alownership
i
nr espondentUCC,st r
ict
lyin accor
dance wi
th SRC Rul e 19,Secti
on
9(E).24

Areadi
ngoftheaboverul
i
ngoftheSECr evealst
hatt
hesameiscomplet
e.
I
torder
stheconductofamandator
ytenderoff
erpur
suantt
othepr
ocedure
providedf orunderRul e19(E)oft heAmendedI mplementi
ngRul esand
Regul ati
onsoftheSecur i
ti
esRegulati
onCodef orthehi
ghestpri
cepaidf
or
t
hebenef ici
alownershi
pofUCCshar es.Thepr i
ce,onthebasisoft
heSEC
decision, is determinabl
e. Mor eover,t he implementi
ng r ul
es and
regulati
onsoft heCodear esuff
ici
enttoi nfor
m andguidet heparti
eson
howt opr oceedwiththemandatorytenderoffer.

WHEREFORE,t heDeci
si
onandResol
utionoftheCourtofAppeal
sdated
24October2005and6Mar ch2006,respecti
vel
y,aff
ir
mingtheDecisi
on
dat
ed14Febr uary2005oft
heSecuri
ti
esandExchangeCommi ssi
onEn
Banc,ar
eherebyAFFIRMED.Cost
sagainstpeti
ti
oner
.
SOORDERED.
G.
R.No.183905 Apr
il16,2009

GOVERNMENTSERVI
CE,I
NSURANCESYSTEM,Pet
it
ioner
,
vs.
THE HON.COURT OF APPEALS,( 8TH DI
VISI
ON),ANTHONY V.
ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F.
FRANCI
SCO, CHRISTI
AN S. MONSOD, ELPI DIO L. I
BAÑEZ, and
FRANCI
SGI LESPUNO,Respondent
s.

x-----------------------
x

G.
R.No.184275 Apr
il16,2009

SECURI
TIESANDEXCHANGECOMMI SSI
ON,COMMI SSIONERJESUS
ENRI
QUE G.MARTINEZIN HI
S CAPACITY AS OFFICER-I
N-CHARGE
OFTHESECURITIESANDEXCHANGECOMMI SSIONandHUBERTG.
GUEVARA I
N HI
S CAPACI
TY AS DIRECTOR OF THE COMPLI ANCE
ANDENFORCEMENTDEPT.OFSECURI TIESPeti
ti
oners,
vs.
ANTHONY V.ROSETE,MANUEL M.LOPEZ,FELI PE B.ALFONSO,
JESUSF.FRANCISCO,CHRISTIAN S.MONSOD,ELPIDI
O L.I
BAÑEZ,
andFRANCI
SGILESRespondent
s.

DECISION

TI
NGA,J.
:

Thesear
etheundi
sput
edf
act
s.
Theannualst
ockhol
ders’meeti
ng( annualmeeti
ng)oftheManil
aEl ect
ri
c
Company(Meral
co)wasscheduledon27May2008. 1Inconnect
ionwi t
h
t
heannualmeeti
ng,pr
oxies2wererequiredt
obesubmi t
tedonorbefore17
May2008,andt heproxyval
idati
onwassl atedforf
ivedayslat
er,or22
May.
3

Invi ew oft her esi gnati

onofCami l
oQui ason,4t hepositi
onofcor por ate
secr etaryofMer al cobecamevacant .5On15May2008,t heboar dof
director sofMer alcodesi gnatedJoseVi t
ug6t oactascor poratesecr etary
fortheannualmeet i
ng.7However ,whenthepr oxyval i
dati
onbeganon22
May,t hepr oceedi ngswer epr esidedoverbyr espondentAnt honyRoset e
(Roset e),assistantc or
por at
esecr etaryandi n-
housechi eflegalcounselof
Mer al co.8 Privater espondent snonet hel
essar gue thatRoset e wast he
acting cor por at
e secr etaryofMer al
co.9 Peti
tionerGover nmentSer vice
Insur anceSyst em ( GSI S),amaj orshareholderinMer alco,wasdi st
ressed
overt he proxyval idati
on proceedi ngs,and the r esul
ti
ng cer t
if
icati
on of
proxi esinf avoroft heMer al
comanagement .
10

On23May2008,GSI Sfi
ledacomplai
ntwi
tht
heRegionalTri
alCourt(
RTC)
ofPasayCit
y,docket
edasR- PSY-08-
05777-
C4seekingthedecl
arati
onof
cer
tai
nproxi
esasinvali
d.11Thr
eedays

l
at er
,on 26 May,GSI Sf i
led a Not ice witht he RTC mani festi
ng the
dismissaloft he compl aint.
12 On t he same day,GSI Sf i
led an Ur gent
Pet i
ti
on13wi ththeSecur it
iesandExchangeCommi ssion(SEC)seek ingt o
restr
ain Roset ef rom "recognizing,count i
ng and t abulati
ng,di r
ectly or
i
ndi r
ectl
y,notionall
yoract uallyorinwhat everway,f or m,mannerormeans,
orot herwise honor i
ng the shar escover ed by"t he pr oxi
esi nf avorof
respondent sManuelLopez, 14Fel i
peAl fonso,15JesusFr ancisco,16Oscar
Lopez,Chr i
sti
anMonsod, 17El pi
dioI bañez,18Fr anciscoGi l
es- Puno19" or
any of f
icerr epresenti
ng MERALCO Management ,
"and t o annuland
declarei nval
idsai dproxies.20GSI S al sopr ayedf ort heissuanceofa
CeaseandDesi stOr der( CDO)t orestraintheuseofsai dpr oxiesdur i
ng
t
heannualmeet i
ngschedul edfort hef oll
owingday. 21A CDO22t ot hat
ef
fectsi
gnedbySECCommi ssi
onerJesusMarti
nezwasissuedon26May
2008,thesamedayt hecomplaintwasfil
ed.Duringtheannualmeet
ing
hel
dont hefol
lowingday,Roseteannouncedthatthemeeti
ngwouldpush
t
hrough,expr
essingtheopi
nionthatt
heCDOi snullandvoi
d.23

On28May2008,t heSEC i ssuedaShow CauseOr der(

SCO) 24agai nst
pri
vater
espondents,orderi
ngt hem toappearbef
oretheCommi ssionon30
May2008andexpl ai
nwhyt heyshouldnotbeci tedincontempt .On29
May2008,r espondentsfi
ledapet it
ionforcer
ti
orar
iwi t
hprohi
bit
ion25wi t
h
t
heCour tofAppeals,prayingthattheCDOandt heSCObeannul led.The
peti
ti
onwasdocket edasCA- G. R.SPNo.103692.

Manydevel opmentsinvolvingtheCourtofAppeals’handlingofCA- G.R.

SP No.103692andt heconductofsever alofitsindi
vidualjust
icesar e
recountedinourResoluti
ondat ed9September2008i nA. M.No.08- 8-11-
CA( Re:LetterOfPresidi
ngJust i
ceConradoM.Vasquez,Jr .OnCA- G.R.
SPNo.103692) .26On23Jul y2008,t
heCour tofAppealsEi ght
hDi vi
sion
promulgatedadeci
sionint hecasewitht
hef ol
l
owingdisposit
iveporti
on:

WHEREFORE,pr emisesconsi
dered,theMay26,2008compl aintf
il
edby
GSISint heSEC i sherebyDISMISSED duet oSEC’ sl
ackofj uri
sdi
cti
on,
duetoforum shoppingbyrespondentGSIS,andduet ospli
tt
ingofcauses
ofact
ionbyr espondentGSIS.Consequently,theSEC’sundat edc ease
anddesistorderandtheSEC’sMay28,2008showcauseor derar ehereby
DECLARED VOI D AB I NITIO and wi t
hout legal ef
fect and t hei
r
i
mplement at
ionareherebypermanentl
yrest
rained.

TheMay26,2008compl aintfi
ledbyGSI Si nt heSEC i sher ebybarred
fr
om being consi
dered,outofequi tabl
e consider ati
ons,asan el ect
ion
contesti
nt heRTC,becaus et hepr escr
ipt
iveper iodof15daysf r
om the
May27,2008Mer alcoelecti
ont ofi
leanel ecti
oncont estintheRTC had
alr
eadyr unit
scourse,pursuanttoSec.3,Rul e6oft heinterim Rulesof
ProcedureGoverni
ngI nt
ra-Corporat
eCont roversiesunderR. A.No.8799,
duet odeli
ber
ateactofGSI Sinfil
ingacompl aintint heSECi nsteadofthe
RTC.
Letseventeen(17)copiesofthi
sdecisi
onbeoffi
ci
all
yTRANSMITTED t
o
t
heOf f
iceoftheChiefJust
iceandthr
ee(3)copi
estot
heOff
iceoft
heCourt
Admini
s t
rat
or:

(1)f
orsanct
ionbytheSupremeCour
tagai
nstt
he"
GSI
SLAW OFFI
CE"f
or
unaut
hori
zedpract
iceofl
aw,

(2)f
orsanct i
onanddiscipl
inebyt heSupremeCour tofGSISlawyersled
byAtty.Estr
ell
aElamparo-Tayag,Att
y.MarcialC.Pimentel
,Att
y.Enr
iqueL.
TandanI I
I,andotherGSI Slawyersforvi
olati
onofSec.27ofRul e138of
t
heRevi sedRul esofCour t
,pursuanttoSantayanav.Al ampay,A.
C.No.
5878,Mar ch21,2005454SCRA 1,andpur suanttoLandBankoft he
Phil
i
ppinesv.RaymundaMar ti
nez,G.R.No.169008,August14,2007:

(a)forvi ol
ati
ng expr essprovisi
onsoflaw and def yi
ng publi
cpolicyin
del
iberatelydispl
acingt heOf f
iceoftheGover nmentCor porat
eCounsel
(OGCC)f rom itsdut yast he excl
usi
ve lawyerofGSI S,a government
owned and cont r
olled corporat
ion (
GOCC) ,by admi tt
edl
yf il
i
ng and
defending cases as wel las appearing as counselforGSI S,wi thout
authori
tytodoso,t heaut hor
it
ybelongi
ngexclusi
velytotheOGCC;

(b)forvi
olat
ingt
helawyer
’soat
hforfai
li
ngi nt
hei
rdut
ytoactasf
ait
hful
off
icer
softhecour
tbyengagi
ngi
nforum shoppi
ng;

(
c)f orviol
ati
ng expr
ess provi
sions ofl
aw mostespeci
all
ythos
e on
j
uri
sdict
ionwhi
charemandatory;and

(d)forvi
olat
ingSec.3,Rule2oft he1997RulesofCi vi
lProcedur
eby
deli
berat
elyspl
it
ti
ngcausesofact
ioni
nordertof
il
emult
iplecomplai
nts:(
i)
i
nt heRTCofPasayCi tyand(i
i)i
ntheSEC,inor
dert
oensur eafavorabl
e
order.
27
Thepr omulgati
onofthesai ddeci sionprovokedasear i
ngcontroversy,as
detail
ed in ourResol uti
on in A. M.No.08- 8-
11- CA.Nonet heless,the
appellatec ourt
’
sdeci sionspawnedt hr
eedi ff
erentact i
onsdocket edwi t
h
theirownc asenumber sbefor ethi
sCour t.Oneoft hem,G.R.No.183933,
wasi niti
atedbyaMot ionforExt ensionofTi met oFi l
ePetit
ionforRevi ew
fi
ledbyt heOf fi
ceoft heSol i
cit
orGener al( OSG)i nbehalfoft heSEC,
Commi ssi
onerMar t
inezi nhi
scapaci t
yasof f
icer-i
n-chargeoftheSEC,and
Huber tGuevar rai n his capacity as Di r
ectoroft he Compl i
ance and
Enf or
cementDepar t
mentoft heSEC. 28However ,theOSG di dnotf ol
low
throughwi t
hthef i
l
ingoft hepet i
ti
onf orreview advertedto;thus,on19
Januar y2009,t heCour tresolvedtodec lareG. R.No.183933cl osedand
terminated.29

Thet wor emai ningcasesbef oreusar edocket edasG. R.No.183905and

184275.G. R.No.183905per tainstoapet i
ti
onf orcerti
orar iandprohibi
ti
on
f
il
ed byGSI S,agai nstt he Cour tofAppeal s,and r espondentsRoset e,
Lopez,Al fonso,Fr ancisco,Monsod,I bañezandPuno,al lofwhom ser vein
di
fferentc orporatec apaciti
eswi t
hMer alcoorFi rstPhi l
ippinesHol di
ngs
Cor porati
on,amaj orst ockholderofMer alcoandanaf fi
li
at eoftheLopez
GroupofCompani es.Thi spet i
ti
onseeksoft heCour ttodecl aret
he23Jul y
2008deci sionoft heCour tofAppeal snul landvoi d,af fi
rmtheSEC’ s
j
urisdicti
onovert hepet iti
onfil
edbef oreitbyGSI S,andpr onouncet hatthe
CDOandt heSCOor der sareval i
d.Thispet i
ti
onwasf il
edi nbehalfofGSI S
byt he" GSI SLaw Of f
ice;"itwassi gnedbyt heChi efLegalCounseland
AssistantLegalCounselofGSI S,andt hreesel f-i
dentif
ied" At
torney[
s],"
presumabl yhol dinglawyerposi t
ionsinGSI S.30

TheOSG al sof i
ledtheot herpet i
ti
on,docketedasG. R.No.184275.I t
i
dentif
iesasi tspet i
ti
onerstheSEC,Commi ssi
onerMar ti
nezi nhi scapacit
y
asOI Coft heSEC,andHuber tGuevar r
ai nhiscapacit
yasDi rectorofthe
Compliance and Enf or
cementDepar t
mentoft he SEC – t he same
pet
it
ionersint heabor t
edpet it
ionforrevi
ew ini
ti
allydocketedasG. R.No.
183933.Unl ikewhatwasadver t
edtoi nthemot i
onforext ensionf i
ledby
t
hesamepet it
ionersinG. R.No.183933,t hepetiti
oninG.R.No.184275i s
oneforcertiorariunderRul e65asi ndi
catedonpage3t hereof ,
31andnota
pet
it
ionf orr eview.Inter
estingl
y,savef orthef i
rstpagewhi chl eavesthe
docketnumberblank,all86pagesoft hispet
it
ionforcer ti
oraricarr
ya
headerwronglyidenti
fyi
ng t
he pl
eadi
ng asthe non-exist
entpet i
ti
on for
revi
ew underG.R.No.183933.Thi speti
ti
onseeksthe" r
eversal"ofthe
assai
leddeci
si
onoft heCourtofAppeal
s,t
herecognit
ionofthej uri
sdi
cti
on
oftheSECovert hepet i
ti
onofGSIS,andtheaff
irmationoftheCDO and
SCO.

I
I.

Pr i
vaterespondentsseekt heexpunctionofthepeti
tionfi
ledbyt heSECi n
G. R.No.184275.Weagr eethatthepet i
ti
onerst
herein,namely:t heSEC,
Commi ssi
onerMar quezandGuevar r
a,arenotrealparti
es-i
n-i
nterestt
othe
disputeandt husber eftofcapacit
yt ofil
et hepeti
tion.Bywayofsi mple
i
llustr
ati
on,to argue otherwise i
st o sayt hatt
he t r
ialcourtjudge,the
Nat i
onalLaborRelationsCommi ssion,oranyquasi-j
udici
alagencyhast he
ri
ghtt oseekthereviewofanappel latecourtdeci
si
onr eversi
nganyoft hei
r
ruli
ngs.Thatpr ospect,asanyser iouss t
udentofr emediallaw knows,is
zero.

TheCour t,throught heResol uti

onoft heThirdDi visi
ondat ed2Sept ember
2008,hadr esolvedt ot r
eatt hepet i
tioninG. R.No.184275asapet i
ti
onf or
reviewoncer t
iorari
,butwi thhel dgivingduecour set oit.
32UnderSec t
ion1
ofRul e45,whi chgover nsappeal sbycer ti
orar i
,t herighttof i
l
et heappeal
i
sr estrictedt o" apar t
y,"meani ngt hatonlyt her ealparti
es-in-i
nterestwho
l
iti
gatedt hepet it
ionforcer tioraribef oretheCour tofAppeal sareent itl
edt o
appealt hesameunderRul e45.TheSEC andi tstwoof fi
cersmayhave
beendesi gnatedasr espondent sint hepet i
tionf orcerti
orarifi
ledwi tht he
Cour tofAppeal s,butunderSect ion5ofRul e65t heyar enotent it
ledt obe
classif
iedasr ealpar t
ies-in-interest.Undert hepr ovi
sion,thej udge,cour t
,
quasi-judi ci
alagency,t ri
bunal ,cor porati
on,boar d,offi
cerorper son t o
whom gr av eabuseofdi scretioni simput ed(theSECandi t
st woof fi
cer sin
thiscase)ar e denomi nated onl yaspubl i
cr espondent s.The pr ovision
furt
herst atest hat" publi
cr espondent sshallnotappeari norf i
leananswer
orcommentt ot hepet i
tionoranypl eadingt herein."33Just i
ceRegal ado
explains :
[R]ul
e 65 i nvolves an or i
ginalspeci
alci vi
laction specifi
call
y directed
againsttheper son,cour t
,agencyorpar tyaquowhi chhadcommi t
tednot
onlyami st
akeofj udgmentbutaner rorofj uri
sdicti
on,henceshoul dbe
madepubl i
cr espondentsinthatacti
onbr oughttonul l
ifyt
hei
rinvali
dact s.I
t
shall
,howeverbet hedutyoft hepart
yl i
ti
gant,whet herinanappealunder
Rule45ori naspec i
alcivi
lacti
oninRul e65,t odef endinhisbehal fand
thepar t
ywhoseadj udicati
oni sassai
led,ashei st heonei nt
erestedi n
sustai
ning t he cor r
ectness oft he disposit
ion or t he vali
dit
y oft he
proceedings.

xxxThepar t
yinter
est
edi nsust ai
ningt hepr oceedi
ngsi nt helowercourt
mustbej oinedasaco- r
espondentandhehast hedut ytodefendinhi s
ownbehal fandi nbehalfofthecourtwhi chrenderedthequest i
onedorder.
Whi l
etherei snothi
ngint heRul esthatpr ohibitt
hepr esi
dingjudgeofthe
courtinvolvedf r
om fi
li
nghisownansweranddef endinghi squesti
oned
order,the Supr eme Courthasr emi nded j
udgesoft he lowercourtsto
ref
rainfrom doingsounlessor deredbyt heSupr emeCour t
.34Thejudi
cial
norm ormodeofconductt obeobser vedintrialandappellat
ecourtsi
snow
prescri
bedi nthesecondparagr aphoft hi
ssect i
on.

xxx

Apersonnotapar t
ytotheproceedi
ngsi
nthetri
alcour
tori
ntheCour
tof
Appealscannotmaint
ainanactionf
orcer
ti
orar
iintheSupr
emeCourtto
havethejudgmentr
evi
ewed.35

Rule65doesr ecogni zet hattheSEC andi tsoffi

cersshouldhavebeen
desi
gnat edaspubl i
cr espondentsi nthepeti
tionforcerti
orar
ifil
edwitht he
CourtofAppeal s.Yett heirinvolvementint heinstantpeti
ti
oni snotas
ori
ginalparty-l
i
tigant
s,butas t he quasi
-judi
cialagency and of fi
cers
exercisi
ng t
he adjudicative f
unct i
onsovert he dispute bet
ween the t wo
contendingfact
ionswi thi
nMer alco.From t
heonset ,nei
thertheSEC nor
MartinezorGuevar r
a hasbeen consi der
ed asa r ealparty-i
n-i
nterest
.
Section2,Rul e3oft he1997RulesofCivi
lProcedureprovidesthatever
y
act
ionmustbepr osecut
edordef endedinthenameoft herealpart
yin
i
nterest,thatis"t
hepar tywhost andstobebenef it
edori njur
edbyt he
j
udgmenti nthesuit
,orthepart
yent i
tl
edtot
heavai l
soft hesuit
."Itwoul
d
bef acet
ioustoassumet hattheSEChadanyr ealinter
estorstakeinthe
i
ntra-corpor
atedi
sputewithi
nMeralco.

Wef indourr uli

ngi nHon.Sant i
agov.Cour tofAppeals36qui t
eapposi teto
thequest i
onathand.Pet i
tionert herein,atri
alcourtjudge,hadpr esi ded
overan expr opriat
ion case.The l i
ti
gant
s had ar r
ived atan ami cable
sett
lement,butt hej udger efusedt oappr ovet hesame,evendecl aringit
i
nvalid.Themat t
erwasel evatedt otheCour tofAppeal s,whichprompt l
y
reversedthet ri
alcour tandappr ovedt heami cabl
eset t
lement.Thej udge
tooktheex t
raordinarystepoff il
i
ngi nhi sownbehalfapet it
ionforr
eviewon
cert
iorariwit
ht hisCour t,as sai
li
ngt hedecisionoft heCour tofAppeal s
which had rever sed him.I n disallowing t
he judge’
spet i
ti
on,the Cour t
explained:

WhiletheissueintheCourtofAppealsandt hatrai
sedbypet i
ti
onernowis
whetherthelatt
erabusedhisdiscret
ioninnulli
fyi
ngthedeedsofsal eand
i
npr oceedingwiththeexpropri
ati
onpr oceedi
ng,thatquest
ionisecli
psed
bytheconcer nofwhetherJudgePedr oT.Santiagomayf i
l
et hi
speti
ti
onat
al
l.

Andt heanswermustbei nt henegat i

ve,Sect i
on1ofRul e45al l
owsa
partyt oappealbyc er t
ior
arifrom aj udgmentoft heCour tofAppeal sby
f
il
ingwi ththisCour tapet it
ionf orr evi
ewoncer t
iorar
i.Butpet i
ti
onerj udge
wasnotapar tyei theri ntheexpr opriationproceedingori nthecer ti
orari
proceedingi ntheCour tofAppeal s.Hi sbei ngnamedasr espondenti nthe
Cour tofAppeal s was mer el
yt o compl y wit
ht he rulet hatin or i
ginal
peti
tionsforcer t
iorari
,thecour tort hej udge,inhiscapaci t
yassuch,shoul d
benamedaspar t
yr espondentbecauset hequest i
oninsuchapr oceeding
i
st hej uri
s di
cti
onoft hecour ti t
sel f(SeeMayolv.Bl anco,61Phi l
.547
[
19351,ci tedinComment sont heRul esofCour t,Moran,Vol .II
,1979ed. ,
p.471) ."I
nspeci alproceedi ngs,t hejudgewhoseor deri sunderat tacki s
mer elyanomi nalpar ty;wher efore,aj udgei nhisoffi
cialcapacit
y,shoul d
notbemadet oappearasapar t
yseekingrever
salofadecisi
onthatis
unfavorabl
etot heactiontakenbyhim.A decentr egardf
orthej
udici
al
hier
archybarsaj udgef r
om sui
ngagai
nsttheadverseopini
onofahigher
court,
...."(
Alcasi
dv .Samson,102Phi
l.785,740[1957])

ACCORDINGLY,thi
spet
it
ioni
sDENI
EDf
orl
ackofl
egalcapaci
tyt
osueby
t
hepet
it
ioner
.37

Just
iceIsaganiCruzadded,inaConcurri
ngOpi ni
oninSant i
ago:"The
j
udgei snotanact i
vecombat
anti
nsuchpr oceedi
ngandmustl eaveitto
the par
tiesthemselvest
o ar
gue t
hei
rrespective posi
ti
onsand forthe
appell
atecourtt
oruleont
hematt
erwit
houthispart
ici
pati
on."
38

Not ethatinSant i
ago,t heCour trecogni zedt hegoodf ait
hoft hej udge,who
perceivedt heami cabl
eset t
lement" asamani festl
yi ni
qui t
ousandi ll
egal
contract.
"39 The SEC coul d have si milarl
yf el
tin good f ait
ht hatt he
assailedCour tofAppeal sdecisionhadundul yimpairedi t
spr erogat i
vesor
causedsomedegr eeofhur tt oit.Yetassumi ngthatt herear er ightsor
prerogati
ves pecul i
art ot he SEC i tsel
ft hatthe appel l
ate cour thad
countermanded,t hesecanbevi ndicat edint hepeti
ti
onf orcer t
iorarifil
edby
GSI S,whosel egalcapaci tytochal lenget heCourtofAppeal sdeci si
oni s
withoutquest ion.Ther esi mplyi snopl ausibl
er easonf ort hi
sCour tto
deviatefrom at i
me- honoredr ulet hatpr eservesthepur i
tyofourj udicial
and quasi -judici
alof fices to accommodat e the SEC’ s di str
ust and
resentmentoft heappel lat
ecour t’
sdeci si
on.Theexpunct i
onoft hepet it
ion
i
nG. R.No.184275i saccordingl
yi nor der.

Atthispoint,onl
yonepet it
ionremains—thepetit
ionf orcert
iorarif
il
edby
GSI Si n G.R.No.183905.Cast i
ng offthe uncrit
icaland uni mport
ant
aspects,thetwomai nissuesforadjudi
cati
onareasf ol
l
ows:( 1)whether
theSEC hasj ur
isdi
cti
onovert hepet i
ti
onfil
edbyGSI S againstpri
vate
respondents;and(2)whethertheCDO andSCO i ssuedbyt heSEC ar e
vali
d.
I
I.

Itis ourr esolut

ei nclination t hatt his case,whi ch r ai
ses i nter
esting
questi
onsofl aw,bedeci dedsol elyont hemer it
s,withoutr egardt ot he
personali
ti
esi nvolvedort hewel l-
reporteddr amapr ecedingt hepet i
ti
on.To
thatend,theCour thast akennot eofr epor
tsint hemedi at hatGSI Sand
theLopezgr ouphavet akenposi ti
vest epstodi vestorsignificant l
yreduce
thei
rr espective interestsi n Mer al
co.40 These ar e devel opment st hat
cert
ainlyeaset het ensionsur roundingt hiscase,nott oment ionreason
enough fort he two gr oupst o make an i nter
nalr eassessmentoft heir
respecti
veposi ti
onsandi nterestsi nrelati
ont ot
hiscase.St il
l,t hekeyl egal
questi
onsr aisedint hepet i
tiondonotdependatal lonthei dent ityofanyof
theparti
es,andwoul dobt aint hesamedenouementeveni fthi scasewas
l
odgedbyunknownsaspet i
tionersagai nstsimil
arlyobscurer espondent s.

Wi t
ht heobj ectivet oresol vet hekeyquest ionsofl awr aisedi nt hepet iti
on,
someoft heissuesr aiseddi mi nishasper ipher al
.Forexampl e,petiti
oner s
rai
sear gument stiedt ot hebehavi orofi ndi vidualj usti
cesoft heCour tof
Appeal s,par t
icularlyformerJust i
ceVi centeRoxas,i nr elati
ont othiscase
asitwaspendi ngbef oret heappel l
atecour t.TheCour ttakescogni zance
ofourResol utioni nA. M.No.08- 8-11-CAdat ed9Sept ember2008,whi ch
dulyr ecitedthevar iousanomal ousorunbecomi ngact si nr elati
ont ot his
caseper for
medbyt wooft hej usticeswhodeci dedt hecasei nbehal foft he
Cour tofAppeal s—f ormer Just i
ce Roxas ( t
he ponent e) and Just ice
Bienveni doL.Reyes( t
heChai rmanoft he8t hDi vision)–aswel last hr ee
othermember soft heCour tofAppeal s.Att hesamet ime,t heconsens usof
the Cour tas i tdel i
berat ed on A. M.No.08- 8-11- CA was t or eser ve
commentorconcl usionont heassai leddeci sionoft heCour tofAppeal s,in
recogni t
ion oft he r ealityt hathowever st i
gmat i
zed t he act i
ons and
mot i
vationsofJust i
c eRoxasar e,t hedeci sioni sst i
llthepr oductoft he
Cour tofAppeal sasacol l
egi alj udicialbody,andnotofoneorsomer ogue
j
ustices.Thepenal ti
esl eviedbyt heCour tont heseappel latecour tjustices,
i
nourest i
mation,r edresst heunwhol esomeact swhi cht heyhadcommi tt
ed.
Atthesamet i
me,gi vent hej urisprudent i
ali mpor tanceoft hequest i
onsof
l
aw r aisedi nt hepet i
ti
on,anyr esultr eachedwi thoutsquar elyaddr essi ng
suchquest i
onswoul dbeuns atisfactory,per hapsder eli
cteven.
I
II
.

Wenowexami newhethertheSEChasj uri

sdi
cti
onoverthepetit
ionfi
l
edby
GSIS.Torecal
l,SEChassoughttoenjoint
heuseandannult hevali
dati
on,
ofthe pr
oxies i
ssued i
nf avorofseveraloft he pr
ivat
er espondent
s,
par
ti
cul
arl
yinconnecti
onwiththeannualmeet
ing.

A.

Juri
sdict
ioni
sconferr
edbynoot hersourcebutl aw.Bot
hsideshavereli
ed
uponpr ovi
si
onsofRep.ActNo.8799,ot herwiseknownast heSecuri
ties
Regulati
onCode( SRC),it
simplementi
ngr ules( AmendedI mpl
ementi
ng
RulesorAI RR-SRC) ,andotherrel
atedr ul
est osupportt
heircompeti
ng
contenti
onsthateit
hertheSEC ort het r
ialcourtshasexclusi
veori
ginal
j
uri
sdicti
onoverthedisput
e.

GSI
S pri
mari
lyanchorsi
tsargumentontwocor
rel
atedpr
ovi
si
onsoft
he
SRC.TheseareSect
ion53.
1andSecti
on20.
1,whi
chwecit
e:

SEC.53.I nvestigations,I njunctionsandPr osecut i

onofOf fenses.-53. 1.
The Commi ssion may,i ni tsdi screti
on,make such i nvest i
gationsasi t
deemsnecessar ytodet erminewhet heranyper sonhasvi ol
at edori sabout
to vi olat
e any pr ovision oft his Code,any r ule,r egul
at ion oror der
thereunder ,oranyr uleofanExchange,r egisteredsecur it
iesassoci at i
on,
clearing agency,ot hersel f-regul at
oryor gani zati
on,and mayr equi
r e or
per mitanyper son t of il
e wi thi ta st atementi n wr i
ti
ng,underoat h or
other wise,as t he Commi ssion shal ldet ermi ne,as t o al lf act
s and
circumst ancesconcer ningt hemat t
ert obei nvest i
gated.TheCommi ssion
maypubl i
shinfor mat i
onconcer ninganysuchvi olations,andt oinvestigate
anyf act,condition,pr act i
ceormat t
erwhi chi tmaydeem necessar yor
propert oaidi nt heenf orcementoft hepr ovisionsoft hi
sCode,i nt he
prescr ibi
ngofr ulesandr egul ationst hereunder ,ori nsecur inginf or
mat ion
toser veasabasi sf orr ec ommendi ngf urtherl egisl
ationconcer ni
ngt he
mat terstowhi cht hisCoder elates:xxx( emphasi ssuppl i
ed)
SEC.20.ProxySol
i
cit
ati
ons.–20.1.Proxi
esmustbeissuedandproxy
sol
i
cit
ati
onmustbemadei naccor
dancewithr
ulesandregul
ati
onst
obe
i
ssuedbytheCommi
ssi
on;

Thear gument ,st

ri
ppedofext ravagance,i sthatsincepr oxysolicit
ati
ons
fol
lowing Sect i
on 20.
1 have t o be made i n accordance withr ulesand
regulati
onsi ssuedbytheSEC,i ti stheSEC underSect i
on53. 1t hathas
the jurisdi
cti
on toinvestigate alleged vi
olati
ons oft he rul
es on pr oxy
soli
cit
ations. The GSI S pet i
ti
on i nvoked AI RR-AI RR- SRC Rul e 20,
otherwiseknownas" ThePr oxyRul e,"whichenumer atest herequirement s
as t of orm ofpr oxy and del ivery ofinformation to security holders.
Accor di
ngt oGSI S,thei nformat i
onst at
ementMer alcohadf i
ledwi ththe
SECi nconnect i
onwiththeannualmeet i
ngdi dnotcont ai
nanypr oxyf orm
asr equiredunderAIRR-SRCRul e20.

Ontheot herhand,pr
ivater espondent sarguebeforeust hatunderSect i
on
5.
2oft heSRC,t heSEC’ sj ur
isdicti
onoverallcasesenumer atedinSecti
on
5ofPr esi
denti
alDecr
eeNo.902- Awast r
ansferr
edtot hecour tsofgeneral
j
uri
sdicti
onortheappropriater egionalt
ri
alcourt
.Thet wopar t
icul
arcl
asses
ofcasesi ntheenumer ationunderSect i
on5ofPr esidenti
alDecreeNo.
902-
Awhi chpr
ivat
erespondent sespecial
lyref
ertoar easf oll
ows:

xxx

(2)Controversi
esari
si
ngoutofint
ra-cor
porat
e,par
tner
ship,orassoci
ati
on
rel
ati
ons,betweenandamongst ockhol
ders,members,orassociat
es;or
associat
ion ofwhich t
hey ar
e stockholder
s,member s,orassoc i
ates,
respecti
vel
y;

3)Contr
over
sies i
nthe el
ecti
on orappointmentofdi r
ect
ors,tr
ust
ees,
of
fi
cer
sormanagersofcor
porat
ions,par
tner
ships,orassoci
ati
ons;
xxx

I
naddi ti
on,pr i
vat
er espondent
scit
etheI nt
eri
m RulesonI nt
ra-Corpor
ate
Controversi
es( I
nter
im Rules)promulgat
ed bythi
sCour tin 2001,most
pert
inentl
y,Sect i
on 2 ofRul e6( on El
ecti
on Contest
s),which defi
nes
"el
ecti
oncont est
s"asf ol
l
ows:

SEC.2.Def i
niti
on.– An election contestr ef
ersto anycont roversyor
disputeinvol
vingtit
leorclai
mt oanyel ecti
veof f
icei
nast ockornonst ock
corporati
on,theval i
dati
onofpr oxies,themannerandval i
dityofelecti
ons
andt hequalif
icati
onsofcandidates,includi
ngt heprocl
amationofwi nners,
tot he off
ice ofdirect
or,tr
ustee orot herof fi
cerdir
ect
lyel ect
ed byt he
stockholdersi n a close corporati
on orby member s ofa nonst ock
corporati
on wher et he ar
ti
cles ofi ncorporati
on orbylaws so pr ovide.
(emphasi ssuppli
ed)

The cor rectanswer i s notcl ear-cut

,butt hereis one.I n pr ivate
respondent s’favor
,t he provisionsofl aw theycite pert
ain dir
ect l
yand
exclusi
velyt othestatutoryjurisdict
ionoftri
alcourtsacquir
edbyvi r
tueof
t
het ransferofjuri
sdi
ctionfoll
owi ngthepassageoft heSRC.I ncont rast,the
SRC pr ovisi
ons rel
ied upon by GSI S do noti mmedi at
ely ordi rectl
y
establi
sht hatbody’sjuri
sdict
ionovert hepeti
ti
on,sinceitnecessitatest he
l
inkageofSect ion20t oSection53. 1oft heSRCbef orethepoi ntcanbear
onus.

Ontheot herhand,thedisti
nct
ionbetween"pr
oxysol
ici
tat
ion"and"pr
oxy
val
i
dation"cannotbedismissedoff
hand.Theri
ghtofastockhol
dert
ovote
byproxyisgeneral
lyest
abli
shedbythe

Corpor
ati
onCode,41buti
tist
heSRCwhi chspeci
fi
cal
l
yr egul
atestheform
anduseofpr oxi
es,morepart
icul
arl
ytheprocedureofproxysolici
tat
ion,
pri
mari
lyt
hroughSect
ion20.
42AI RR-SRCRule20definestheter
mssol ici
t
andsol
i
cit
ati
on:

Thet
ermssol
i
citandsol
i
cit
ati
oni
ncl
ude:

A.anyrequestf
orapr
oxywhet
herornotaccompani
edbyori
ncl
udedi
na
f
orm ofpr
oxy

B.anyr
equestt
oexecut
eornott
oexecut
e,ort
orevoke,apr
oxy;or

C.t hefur
nishingofaf orm ofproxyorot hercommunicat
iont osecur
it
y
holder
s under ci r
cumstance reasonabl
y calcul
ated t
o r esul
tin the
procur
ement ,wit
hholdi
ngorrevocat
ionofaproxy.

Itis pl
aint hatpr oxy soli
citati
on i s a pr ocedur
et hatant ecedes proxy
vali
dati
on.Thef ormeri nvolvest hesecur ingandsubmi ssionofpr oxi
es,
whilethel at t
erconcer nst heval i
dationofsuchsecur edandsubmi t
ted
proxi
es.GSI Sr ai
sest hesensi blepoi ntthattherewasnoel ectionyetatthe
ti
mei tfi
ledi tspet i
ti
onwi ththeSEC,hencenopr operelectioncontestor
contr
oversyyetoverwhi cht her egul arcour t
smayhavej uri
sdi
cti
on.And
the poi
ntt iesi t
scause ofact ion to alleged ir
regul
ari
ti
esi nthe proxy
soli
ci
tat
ion pr ocedure,a pr ocesst hatpr ecedesei t
hert he vali
dati
on of
proxi
esort heannualmeet i
ngi tself.

UnderSect i
on20. 1,thesol icit
ationofpr oxi
esmustbei naccordancewi t
h
rulesandr egulati
onsi ssuedbyt heSEC,suchasAI RR- SRCRul e4.And
byvi rt
ue ofSect ion 53. 1,t he SEC hast he discreti
on "to make such
i
nvest igati
onsasi tdeemsnecessar ytodet erminewhet heranypersonhas
violated"anyr uleissuedbyi t,suchasAI RR-SRCRul e4.Thei nvest
igator
y
poweroft heSEC est abli
shedbySect i
on53. 1iscent raltoit
sregulator
y
aut hori
ty,mostcr ucialtot hepubl i
cinterestespeciall
yasi tmayper t
ainto
corpor ati
onswi thpubliclytradedshar es.Fort hatreason,wear enotkeen
onpur suingpr i
vater espondent s’insist
encet hatt heGSI S complaintbe
viewed as r oot
ed in an i ntr
a-corporate controver
sy solely withi
nt he
j
ur i
sdicti
onoft hetri
alcourtstodecide.I tispossibl
ethatani nt
ra-corpor
ate
controversymayani mat eadi sgrunt
ledshar eholdertocomplaintotheSEC
acor por at
ion’sviol
ati
onsofSEC r ulesandr egulat
ions,butthatmot ive
aloneshoul dnotbesuf fi
cienttodepr ivetheSEC ofi t
sinvesti
gatoryand
regulatorypower s,especiall
ysosi nces uchpower sar eexerci
sabl eona
mot upr opr
iobasis.

Att hesamet i
me,Mer al
cor aisesthesubstantialpoi ntthatnot hi
ngi nthe
SRCempower st heSECt oannulori nval
idatei mpr operpr oxiesissuedin
contraventi
onofSec tion20.I tcit
esthatthepenal tiesdef inedbyt heSEC
i
tselfforviolat
ionofSect i
on20orAI RR-SRC Rul e20ar el i
mitedt oa
reprimand/warningfort hef i
rstoff
ense,andpecuni aryfinesf orsucceeding
offenses.43 I
ndeed,i fthe SEC doesnothave t he powert oi nval
idat
e
proxiessoli
cit
edi nviolati
onofi tspromul
gatedr ules,ser i
ousquest i
onsmay
ber aisedwhet herithast hepowert oadjudicatecl aimsofvi olat
ioninthe
fi
rstplace,si
ncet her eli
efitmayext enddoesnotdi rectl
yr edresst hecause
ofact i
onofthecompl ainantseekingtheexclusionoft heproxies.

Ther
ei sanint
erest
i
ngpoi nt
,whichnei
t
herpar
tyrai
ses,andi
tconcer
ns
Sect
ion6(
g)ofPresi
dent
ialDecr
eeNo.902-
A,whi
chstat
es:

SEC.6.I nordert
oef f
ect
ivel
yexer
cisesuchj
uri
sdi
cti
on,t
heCommi
ssi
on
shal
lpossessthef
oll
owingpower
s:

xxx

(
g)Topassuponthevalidi
tyoft
heissuanceanduseofpr
oxi
esandv
oti
ng
t
rustagr
eement
sforabsentst
ockhol
dersormembers;

xxx
Aspr omulgatedthen,thepr
ovisionwouldconferont heSECt hepowert o
adjudicat
econt r
overs
iesrel
ati
ngnotonl ytoproxysol i
cit
ati
on,butalsoto
proxyvalidat
ion.Shouldthepr oposi
ti
onholdt r
ueupt othepr esent,t
he
posit
ion ofGSI S would have mer it
,especiall
y since Section 6 of
President
ialDecreeNo.902-Awasnotex pr
esslyrepealedorabrogatedby
t
heSRC. 44

Yetacl oserr eadi

ngoft hepr ovisionindicatesthatsuchpoweroft heSEC
thenwasi nci
dentaloranci ll
ar yt othe" exerci
seofsuchj uri
sdict
ion."Not e
thatSect i
on 6 i simmedi at el
ypr eceded bySect ion 5,whi ch or i
ginally
conf erredont heSEC" ori
ginalandexcl usivejurisdicti
ont ohearanddeci de
cases"i nvolving"contr
over siesi ntheel ecti
onorappoi nt
mentsofdi rectors,
trustees,of fi
cers ormanager s ofsuc h corporations,par t
nershi ps or
associ ations."Thecasesr efer redt oinSect i
on5wer et r
ansf
erredf rom the
j
ur isdict
ionoft heSECt other egularcourtswi t
ht hepassageoft heSRC,
speci fi
callySect i
on5.2.Thus,t heSEC’ spowert opassupont heval idi
tyof
pr oxiesi nrelati
ontoelectioncont r
oversieshasef fectivel
ybeenwi thdrawn,
ti
edasi tistoitsabrogatedj urisdicti
onalpower s.

Based on t he foregoi
ng,itisevidentthatthe li
nchpinin deci
ding the
questioniswhet herornotthecauseofact ionofGSI Sbefor
et heSEC i s
i
ntimatelyti
edtoanel ect
ioncont
roversy,asdefi
nedunderSect i
on5( c)of
Presidenti
alDecr ee No.902- A.To answert hat,we need t o properl
y
ascertai
nthescopeoft hepoweroft r
ialcourt
storesolvecontr
oversiesin
corporat
eel ect
ions.

B.

Shar esofst ocki ncor

porati
onsmaybedi videdint
ovotingshar esandnon-
voti
ngshar es,whi charegeneral
lyissuedas" pref
erred"or" redeemable"
shar es.45Vot i
ngr i
ght
sar eexer
cisedduri
ngr egul
arorspeci almeet i
ngsof
stockhol der
s;r egul
armeet i
ngstobehel dannuallyonaf ixeddat e,whil
e
speci almeet i
ngsmaybehel datanyt imenecessaryoraspr ovidedinthe
by-laws,uponduenot ice.
46TheCor por
ationCodepr ovidesf orawhol e
rangeofmat terswhichcanbevot eduponbyst ockholders,includi
nga
l
imitedsetonwhichevennon-vot
ingstockhol
der
sareent
it
ledtovot
eon.47
Onanyoft hesematterswhi
chmaybevot eduponbystockhol
ders,t
he
proxydevicei
sgenerall
yavai
l
able.48

UnderSect ion5(c)ofPresident
ialDecr eeNo.902- A,inrel
ationtot heSRC,
thej uri
sdicti
onoft her egulartri
alcour t
swi t
hr espectt oel ect
ion-rel
ated
cont r
oversiesisspeci f
ical
lyconfinedt o" controversi
esi nt heel ecti
onor
appoi nt
mentofdi rect
ors,trust
ees,of fi
cer sormanager sofcor porations,
partnerships,orassoci ati
ons."Evi dent l
y,t he juri
sdict
ion oft he r egular
cour t
soverso- call
edel ect
ioncont estsorcont r
over si
esunderSect ion5( c)
does notext end to every potent i
alsubj ectt hatmay be vot ed on by
shar ehol
der s,butonlyt ot heelect i
onofdi r
ectorsort r
ustees,i nwhi ch
stockholders are aut hori
zed to par tici
pate under Sect ion 24 oft he
Cor porat
ionCode. 49

Thisqual if
icati
onallowsforausef uldi st
inct
iont hatgi vesdueef fectt othe
statutor
yr ightoftheSEC t oregul atepr oxysol ici
tati
on,andt hest atut
or y
j
ur i
sdict
ionofr egul
arcour tsoverel ect i
oncont est sorcont r
over sies.The
poweroft heSECt oinvesti
gatevi olati
onsofi t
sr ulesonpr oxysolicitati
oni s
unquest i
onedwhenpr oxiesareobt ainedt ovot eonmat t
ersunr elatedto
thecasesenumer atedunderSect ion5ofPr esidentialDecr eeNo.902- A.
However ,whenpr oxiesar esoli
citedi nr elat
iont ot heel ecti
onofcor por
ate
director
s,t heresult
ingcontroversy,eveni fi
tost ensiblyr ai
sedt hevi olati
on
oft heSEC r ul
esonpr oxysol icitati
on,shoul dbepr oper l
yseenasan
electi
oncont r
oversywithi
nt heor iginalandexcl usivej uri
sdicti
onoft het r
ial
cour t
sbyvi rt
ueofSect i
on5. 2oft heSRC i nr elat
iont oSect i
on5( c)of
PresidentialDecreeNo.902- A.

Theconf er
mentofor igi
nalandexcl usi
vej uri
sdict
ionont heregularcour t
s
oversuchcont rovers i
esintheelecti
onofcor poratedirect
orsmustbeseen
asi ntendedtoconf inet oonebodyt headj udicati
onofal lr
elat
edcl aimsand
cont r
oversyar i
singf rom t
heelectionofsuchdi r
ect or
s.Forthatr eason,the
aforequotedSect i
on2,Rul e6oft heI nteri
m Rul esbroadlydefinestheter m
"electioncontest"asencompassi ngal lplausibl
ei nci
dentsari
si ngfrom the
electionofcor poratedi rect
ors,incl
udi ng:(1)anycont rover
syordi spute
i
nvol ving t
it
le orcl aim to any elective offi
ce in a stock ornonst ock
corporati
on,( 2)t heval idati
onofpr oxies,( 3)t hemannerandval idi
tyof
elect
ions and ( 4) t he qual if
icati
ons of candi dates, including t he
proclamation ofwi nners.I fal lmat tersant eceding the holding ofsuch
elect
ionwhi chaf fectitsmannerandconduct ,suchast heproxysol i
cit
ation
process,ar edeemedwi t
hint heor i
ginalandexcl usi
vej ur
isdicti
onoft he
SEC,t hent hepr ospectofover l
appingandcompet i
ngjuri
sdi
ctionsbet ween
thatbodyand t he r egularcour tsbecomesf r
ighteninglyreal.Fr om t he
l
anguageofSect i
on5( c)ofPr esi
dent i
alDecr eeNo.902- A,itisindubi table
thatcontroversiesast ot hequal ifi
cati
onofvot i
ngshar es,ort heval i
dit
yof
votescasti nfavorofacandi datef orelectiont ot heboar dofdi rectorsar e
properly cognizabl e and adj udicable by t he r egularcour ts exer c
ising
origi
nalandexcl usivejurisdi
c t
ionoverel ecti
oncases.Quest i
onsr elati
ngt o
thepr opersol i
citationofpr oxiesusedi nsuchel ectionarei ndi sputably
relat
edt osuchi ssues,yeti ft heposi ti
onofGSI Swer etobeuphel d,t hey
wouldber esolvedbyt heSECandnott her egularcour t
s,eveni ftheyf al
l
withi
n" contr
over siesintheel ect i
on"ofdi rectors.

TheCour trecogni zest hatGSI S’spositi

onf l
ir
tswi t
ht heabhor r
entevilof
spli
tjuri
sdicti
on,50al l
owi ngasi tdoesbot htheSECandt heregul
arcour t
s
toasser tjuri
sdicti
onovert hesamecont roversiessurroundinganel ecti
on
contest.Shoul dt he ar gumentofGSI S be sust ai
ned,we woul d be
perpetuall
yconf r
ontedwi t
ht hespect acl
eofel ecti
oncont r
oversi
esbei ng
heardandadj udicatedbybot ht heSEC andt her egularcourts,made
possibl
et hroughamer eal l
egationthattheant ecedi
ngpr oxysol i
ci
tati
on
processwaser rant,butt hecompet ingcasesf i
ledwi t
honeobj ect
ivein
mind–t oaf fecttheout comeoft heelecti
onoft heboar dofdirect
ors.There
i
snodef ini
ti
vest atutorypr ovi
siont hatexpresslymandat essount i
dya
fr
amewor k,andwear edi si
ncli
nedt oconst r
uet heSRCi nsuchamanner
astopavet hewayf orthespl i
tt
ingofjuri
sdict
ion.

Unli
keeitherSection20. 1orSecti
on53. 1,whichmerel
yal l
udestother ul
e-
makingori nvest
igatorypoweroft heSEC,Sect i
on5ofPr es.DecreeNo.
902-A setsfort
hadef init
iverul
eonj uri
sdi
cti
on,expresslygrant
ingasi t
does" or
igi
nalandexcl usivejuri
sdict
ion"fi
rsttotheSEC,andnow t othe
regularcourt
s.Thef actthatthej ur
isdi
cti
onoft heregularcourtsunder
Section5(c)isconfi
nedt ot hevot
ingonel ecti
onofoffi
cers,andnotonal l
matterswhichmaybevot eduponbyst ockhol
ders,elucidat
est hatthe
poweroftheSECt
oregul
ateproxi
esr
emai
nsext
antandcoul
dver
ywellbe
exerci
sedwhenst
ockhol
dersvoteonmat
ter
sotherthantheel
ect
ionof
di
rector
s.

Thattheproxychallenger aisedbyGSI Sr el
atest otheelect
ionoft he
di
rect
orsofMer al
coisundisputed.Thecontr
over sywasengenderedbyt he
l
oomingannualmeet i
ng,dur i
ngwhi chthestockholdersofMeral
cower eto
el
ectthedir
ectorsofthecorpor at
ion.GSISverywel lknewofthatfact
.On
17Mar ch2008,theMer al
coboar dofdi r
ect
orsadopt edaboardr esol
uti
on
st
ati
ng:

RESOLVED t hattheboar dofdirectorsoft heMani l

aEl ect
ri
cCompany
(MERALCO)del egate,as ither eby delegates tot he Nomi nati
on &
Gover nanceCommi t
teet heauthor i
tytoappr oveandadoptappr opri
ate
ruleson:( 1)nominati
onofcandi datesforelecti
ontotheboar dofdirectors;
(2)appr eciat
ionofbal l
otsduri
ngt heel ect
ionofmember softheboar dof
direct
ors;and( 3)vali
dati
onofpr oxi
esf orregularorspecialmeet
ingsoft he
stockholders.
51

Inaddit
ion,t
heInformat
ionSt
atement
/Proxyfor
mfil
edbyFir
stPhil
i
ppi
ne
Holdi
ngsCor por
ati
onwiththeSEC pursuanttoSect
ion20oftheSRC,
stat
es:

REASONFORSOLI
CITATI
ONOFVOTES

TheSol i
cit
ori
ssoli
cit
ingproxi
esfrom stockhol
dersoftheCompanyforthe
purpose ofelecti
ng the dir
ectors named undert he subjectheaded
‘
Di r
ector
s’int
hisStat
ementaswel last ovotethematt
ersintheagendaof
t
hemeet i
ngasprovidedforintheInformati
onStatementoft
heCompany.
Alloft
henomineesar ecurr
entdir
ectorsoftheCompany.52

Undert
heci
rcumst
ances,wedonotseei
tfeasi
blef
orGSI
Stoposi
tthati
ts
chall
enget ot hesol i
ci
tationorval idati
onofpr oxi
esbor enor elati
onatal lt
o
the scheduled el ect
ion oft he boar d ofdi rect
orsofMer alco during t
he
annualmeet ing.GSI Sver ywel lknew t hatthecont roversyf all
swi thi
nthe
contempl at
ionofanel ectioncont rover
sypr operl
ywi thinthej urisdi
cti
onof
theregularcour ts.Ot herwi se,itwouldhaveneverf il
edi tsor i
ginalpeti
ti
on
withtheRTCofPasay.GSI Smayhavewi thdrawni t
spet it
ionwi ththeRTC
onanew assessmentmadei ngoodf ai t
ht hatthecont roversyf all
swithi
n
the j
ur i
sdic
tion oft he SEC,yett he realit
yi st hatt he reassessmenti s
preci
s el
ywr ongasamat teroflaw.

I
V.

The lackofj ur
isdi
ction ofthe SEC overt he subj
ectmat t
erofGSI S’s
peti
ti
onnecessar i
lyinvali
dat
est heCDO andSDO i ssuedbyt hatbody.
However,especiall
ywi t
hrespecttotheCDO,t hereisneedforthi
sCourtto
squarel
yr ul
e on t he questi
on per t
aini
ng toi t
s vali
dit
y,i fonl
yf or
j
uri
sprudenti
alvalueandf ort
hegui danceoftheSEC.

Torecountthef act
ssur roundi
ngtheissuanceoftheCDO,GSI Sfi
l
edi t
s
pet
it
ionwiththeSECon26May2008.TheCDO,si x( 6)pagesinallwith
t
hree( 3)pagesdevot edt othetenabi
li
tyofgranti
ngt heinj
uncti
verelief,
wasissuedont hever ysameday,26May2008,wi thoutnoti
ceorhearing.
TheCDO bor ethesi gnatur
eofCommi ssi
onerJesusMar ti
nez,i
denti
fi
ed
t
hereinas"Offi
cer-i
n-Charge,"andnobodyelse’
s.

Thepr
ovi
si
onsoft
heSRCr
elevantt
othei
ssuanceofaCDOar
easf
oll
ows:

SEC.5.Power sandFunct i
onsoft heCommi ssi
on.
-5. 1.TheCommi ssion
shallactwi thtranspar
ency and shallhave the powers and f
uncti
ons
provi
dedbyt hisCode,Pr esident
ialDecr
eeNo.902- A,theCorporation
Code,t heInvest
mentHousesLaw,t heFinanci
ngCompanyActandot her
exist
inglaws.Pursuanttheret
ot heCommissionshallhave,amongother s,
thefoll
owingpower sandfunct
ions:
xxx

(i
)Issueceaseanddesi
stor
der
stopr
eventf
raudori
njur
ytot
hei
nvest
ing
publi
c;

xxx

[SEC. ]53. 3.Wheneveri tshal lappeart ot heCommi ssiont hatanyper son

hasengagedori saboutt oengagei nanyactorpr acticeconst i
tutinga
viol
ati
on ofany pr ovi si
on oft hi
s Code,any r ule,r egul ation oror der
thereunder ,oranyr uleofanExchange,r egisteredsecur iti
esassoci ati
on,
cleari
ngagencyorot hersel f
-regul
ator yor ganizati
on,itmayi ssueanor der
tosuchper sont odesi stfrom commi tti
ngsuchactorpr actice:Pr ovided,
however ,Thatt heCommi ssionshal lnotchar geanyper sonwi thviolat i
on
ofther ulesofanExchangeorot hersel fregulatoryor gani zationunl essi t
appear st ot heCommi ssiont hatsuchExchangeorot hersel f-regulator y
organizat i
oni sunableorunwi l
li
ngtot akeact i
onagai nstsuchper son.Af ter
fi
ndingt hatsuchper sonhasengagedi nanysuchactorpr act i
ceandt hat
thereisar easonablel ikel
ihoodofcont inuing,furtherorf ut urevi olati
onsby
suchper son,theCommi ssionmayi ssueex- parteaceaseanddesi stor der
fora maxi mum per iod oft en (10)days,enj oi
ning t he vi olati
on and
compel li
ngcompl i
anc ewi thsuchpr ovision.TheCommi ssi onmayt ransmi t
such evi dence as may be avai lablec oncer ni
ng any vi olation ofany
provisi
onoft hisCode,oranyr ul
e,r egulationoror dert her eunder ,t ot he
Depar tmentofJust i
ce,whi ch may i nsti
tutet he appr opriate cr i
mi nal
proceedingsundert hisCode.

SEC.64.CeaseandDesi stOrder.–64.1.TheCommi ssion,aft

erpr oper
i
nvesti
gati
onorver i
fi
cati
on,mot upropri
o,oruponver i
fi
edcompl aintbyany
aggri
evedparty,mayi ssueaceaseanddesi stor
derwi thoutthenecessity
ofapriorhear
ingifi
nitsjudgmentt heactorpract
ice,unl
essr est
rained,wil
l
operat
easaf raudoni nvest
orsori sotherwi
sel i
kelytocausegr aveor
i
rrepar
ableinj
uryorprejudicetotheinvest
ingpubl
ic.
64.2.UntiltheCommi ssi
onissuesaceaseanddesi storder
,thefactt
hat
an invest
igati
on hasbeen initi
ated ort hata complai
nthasbeen f i
l
ed,
i
ncluding the content
s oft he compl aint,shal
lbe conf i
dent
ial
.Upon
i
ssuanceofaceaseanddesi storder,theCommi ssi
onshallmakepubl i
c
suchor derandacopyt hereofshallbei mmediat
elyfurni
shedtoeach
personsubjecttotheorder
.

64.3.Anyper sonagai nstwhom aceaseanddesi storderwasi ssuedmay,

wit
hinf i
ve( 5)daysf rom recei
ptoft heorder,fi
l
eaf ormalrequestfora
l
if
ti
ngt hereof.Saidr equestshal lbesetforheari
ngbyt heCommi ssi
onnot
l
aterthanf if
teen( 15)daysf r
om it
sfil
i
ngandt heresoluti
onthereofshallbe
madenotl aterthant en( 10)daysfrom t
heterminati
onoft heheari
ng.Ifthe
Commi ssionf ail
st or esolvetherequestwithi
nthet i
meher einprescr
ibed,
t
heceaseanddesi stor dershal
lautomati
cal
lybelif
ted.

Ther
ear ethreedist
inctbasesf
ort heissuancebytheSEC oft heCDO.
Thefi
rst
,al
locatedbySection5(
i)
,ispr edi
catedonanecessi
ty"t
oprevent
f
raudorinj
urytotheinvesti
ngpubl
ic".Noot herr
equi
si
teordetai
list
i
edto
t
hisCDOaut hori
zedunderSecti
on5( i
).

Thesecondbasi s,foundi nSect i

on53. 3,i
nvolvesadet erminat
ionbyt he
SEC t hat"anyper sonhasengagedori saboutt oengagei nanyactor
pract
iceconst i
tutingavi olat
ionofanypr ovi
si
onoft hi
sCode,anyr ule,
regulati
onoror dert hereunder,oranyr uleofanExchange,r egist
ered
securiti
es associ at
ion, cl eari
ng agency or ot her sel f
-r
egulatory
organizati
on.
"Thepr ovisi
onaddi t
ional
l
yr equi
resaf i
ndi
ngt hat"ther
eisa
reasonablel i
kelihood ofcont i
nuing [orengagi ng in]furt
herorf ut
ure
viol
ationsbysuchper son."Themaxi mum dur ati
onoft heCDO i ssued
underSect i
on53. 3isten( 10)days.

Thethi
rdbasi
sforthei
ssuanceofaCDO i sSecti
on64.ThisCDO i s
f
oundedonadeter
minat
ionofanactorpr
act
ice,whi
chunl
essrest
rained,
"wi
l
loper
ateasafr
audoninvest
orsori
sot
her
wi sel
i
kel
ytocausegraveor
i
rrepar abl
ei nj ur
yorpr ejudi
cet othei nvest i
ngpubl ic"
.Secti
on64. 1plainly
providest hr eesegr egat einstancesuponwhi cht heSEC mayi ssuet he
CDO undert hisprovision:(1)afterpr operi nvest
igati
onorver i
ficati
on,( 2)
mot upr oprio,or( 3)uponver i
fiedcompl aintbyanyaggr ievedpar ty.Whi le
no lifeti
me i s expressly specifi
ed fort he CDO underSect i
on 64,t he
respondentt ot heCDO mayf il
eaf ormalr equestforthel i
ft
ingt hereof,
whicht heSEC musthearwi thinfif
teen( 15)daysf r
om fil
i
nganddeci de
withi
nt en( 10)daysf r
om t hehear i
ng.

I
tappearst hattheCDO underSect i
on5( i)issi mil
art otheCDO under
Sect
ion64.1.Bothrequireacommonf indi
ngofaneedt opreventf
raudor
i
njur
yt othe invest
ing publi
c.Att he same t ime,no ment i
on ismade
whethert
heCDOdef i
nedunderSect i
on5(i)maybei ssuedex-part
e,whil
e
t
he CDO underSect i
on 64.1r equi
res "grave and i r
repar
able"inj
ury,
l
anguageabsenti nSect i
on5( i
).Notwit
hst
andi ngt hesi mil
ari
ti
esbetween
Sect
ion5(i
)andSect i
on64.1,itremainscleart hattheCDO i ssuedunder
Sect
ion53.3isadist
inctcreat
ionfrom t
hatunderSect ion64.

TheCour tofAppeal sci tedt heCDO ashavi ngbeeni ssuedi nvi olationof
t
heconst i
tut
ionalprovisiononduepr oces s,whichr equiresbothpr iornot i
ce
andpr iorhearing.53Yeti nterestingly,theCDOascont emplatedi nSect i
on
53.3ori nSect i
on64,maybei ssued" ex-parte"( underSect ion53. 3)or
"wit
houtnecessi t
y ofhear ing"( underSect i
on 64. 1).Not hi
ng i nt hese
provisi
onsi mpose a r equi si
te hear i
ng bef oret he CDO maybe i ssued
t
her eunder.Nonet heless,t her ear eident if
iabl
er equi sit
eact i
onsont hepar t
oftheSECt hatmustbeunder t
akenbef oretheCDO maybei ssuedei t
her
underSec ti
on53. 3orSect i
on64.I nt hecaseofSect ion53. 3,theSEC
mustmaket wof i
ndings:( 1)t hatsuchper sonhasengagedi nanysuchact
orpr acti
ce,and( 2)t hatt herei sar easonabl el ikelihoodofcont inuing,(or
engagi ngin)f urt
herorf utur evi olationsbysuchper son.I nt hecaseof
Section64,t heSEC mustadj udget hatt heact ,unl essr estrained,wi ll
oper at
easaf raudoni nves tor
sori sot herwisel i
kelyt ocausegr aveor
i
rreparableinjuryorpr ej
udi cet ot heinves t
ingpubl ic."

Noti
ceabl
y,t
heCDO i
snotpreci
sel
ycl
earwhet
heri
twasissuedont
he
basi
sofSecti
on5.
1,Sect
ion53.
3orSecti
on64oftheSRC.TheCDO
act
uall
yrefer
sand ci t
esallthree pr
ovisions,yetitisapparentthata
si
ngularCDO could notbe founded on Section 5.
1,Secti
on 53.
3 and
Secti
on64coll
ect
ivel
y.Attheveryleast,theCDO underSection53.
3and
underSect
ion64havethei
rrespecti
verequisit
esandterms.

GSIS wassimilar
lycageyi nit
spet i
ti
onbef oretheSEC,i tdemur r
ingt o
st
atewhetheritwasseekingtheCDO underSect i
on5.1,Secti
on53. 3,or
Secti
on 64.Consideri
ng thatinj
unct
ive reli
efgener al
l
yavailsupon t he
showingofaclearlegalri
ghtt
osuchr eli
ef,theinabil
i
tyorunwil
li
ngnesst o
l
aybar ethe preci
se stat
utor
ybasi sfort he prayerfori
njunct
ion i
san
obvi
ousimpedimenttoasuccessful

appl
icat
i
on.Nonethel
ess,t
heer r
oroftheSECingr
anti
ngtheCDO wit
hout
st
ati
ngwhichkindofCDO itwasi ssui
ngismor
eunpar
donabl
e,asiti
san
actt
hatcont
ravenesdueprocessoflaw.

Wehavepar ticularl
yr equired,inadmi ni
str
ati
veproceedings,thatthebody
ortribunal"i
nal lcont roversialquest i
ons,renderitsdecisioninsucha
mannert hatt hepar tiest ot hepr oceedingcanknow t hevar i
ousi ssues
i
nvolved,andt hereasonf orthedeci sionrendered.
"54Thi srequir
ementi s
vi
tal,asi t
sf ulfi
l
lmentwoul daf f
ordt headver separtytheoppor t
unityto
i
nterpose a r easoned and i ntell
igentappealt hatisr esponsive tot he
groundscitedagai nstit.TheCDOext endedbyt heSECf ail
st oprovi
det he
neededr easonabl eclarityofther ati
onalebehindit
sissuance.

Thesubj ectCDOf ir
stref
erstoSect i
on64,citi
ngitspr
ovisions,thenstati
ng:
"[p]
rescindingfrom t
heaf or
equoted,therecanbenodoubtwhat soeverthat
theCommi ssi
onisinfactmandat edtotakeup,ifexpedit
iously,anyverif
ied
compl aintpr ayi
ng fort he pr
ovisi
onalr emedy ofa cease and desi st
order."55TheCDOt hendiscussesthenat ur
eoft her
ightofGSI Stoobtain
the CDO,aswel las" the urgentand par amountnecessi tyto prevent
seri
ousdamagebecauset hestockhol
ders’meet i
ngisschedul edonMay
28,2008xxx"Hadt heCDO st oppedthere,theunequi vocalimpression
wouldhavebeent hattheorderisbasedonSect ion64.
Butt heCDO goesont ociteSect ion5. 1,quotingpar agr aphs( i
)and( n)in
full
,ratioci
nat i
ngt hatundert hesepr ovi
sions,t heSEC had" thepowert o
i
ssueceaseanddesi stor derst opr eventf r
audori nj
ur ytothepubl icand
suchot hermeasur esnecessar yt ocar ryoutt heCommi ssion’sr ol
eas
regulator."
56I mmedi atelyt hence,t heCDO ci t
esSect ion53. 3aspr ov i
ding
"thatwheneveri tshallappeart ot heCommi ssiont hatnayper sonhas
engagedori sabouttoengagei nanyactorpr acticeconst i
tut
ingavi ol
ation
ofanypr ovision,anyr ule,r egulat
ionoror derthereunder ,theCommi ssion
mayi ssueex- par
teaceaseanddesi storderf oramaxi mum per i
odoft en
(10)days,enj oini
ngthevi olationandcompel l
i
ngcompl iancether ewith.
"57

The cit
ati
on i
nt he CDO ofSect i
on 5.1,Sect i
on 53. 3 and Sect i
on 64
t
ogethermay l eave the i
mpr essi
on thati tis gr ounded on al lt hree
provi
si
ons,andt hatmayver ywellhavebeent hei ntenti
onoft heSEC.
Assumingthati
sso,i ti
slegall
yimpermissibl
efort heSECt ohaveut i
lized
bothSecti
on53.3andSect ion64asbas isfortheCDO att hesamet ime.
TheCDO underSect i
on53.3i spremisedondi stinctlydi f
ferentrequi
si t
es
t
hant heCDO underSect i
on64.Evenmor ecr uciall
y,t hel if
eti
meoft he
CDO underSect i
on53. 3isconfinedtoadef i
nitespanoft en(10)days,
whichisnotthecasewi t
ht heCDO underSect i
on64.Thi sCDO under
Secti
on64maybet heobjectofaf or
malr equestf orl if
ti
ngwi t
hinfi
ve( 5)
daysfrom i
tsi
ssuance,aremedynotexpr essl
yaf f
or dedt ot heCDO under
Secti
on53.3.

Anyr espondentt oaCDO whi chci t

esbothSecti
on53. 3andSect i
on64
wouldnothaveani nt
ell
igentoradequat ebasistor espondtot hesame.
Such r espondentwoul d notknow whet herthe CDO woul d have a
determinatel i
fespan oft en (10)days,as i n Section 53.
3,orwoul d
necessitat
eaf ormalr eques tforlift
ingwit
hinfi
ve( 5)days,asr equi
red
underSect i
on64. 1.Thisl ackofcl ari
tyi
stotheobvi ousprejudiceofthe
respondent,and i si n cl
eardef i
ance ofthe const
ituti
onalrightto due
processofl aw.I ndeed,t hever i
tablemélangethattheassai l
edCDO i s,
withit
sj umbledmi xtur
eofpr emisesandconclusi
ons,t heanti
thesisofdue
process.
Hadt heCDOi ssuedbyt heSECexpr essedthelengthofitsterm,per haps
greatercl ar
it
ywoul dhavebeenof feredonwhatSect i
onoft heSRC i tis
based.However ,theCDO i spr eciselysil
entast oitslifet
ime,t hereby
precludingmuchneededcl ari
fi
cation.I nview ofthestat
utorydi f
ferences
amongt hethreeCDOsundert heSRC,i ti
sessent i
althattheSEC,i n
i
ssuingsuchi njuncti
ver el
i
ef,ident i
fyt heexactprovi
sionoft heSRC on
whicht heCDO i sfounded.Onlybydoi ngsocouldtheadver selyaf f
ected
partybeabl etopr operl
yevaluatewhat everhi
sresponsesundert helaw.

Tomakemat t
ersworsefortheSEC,t hefactt
hatt
heCDO wassi
gned,
much lessappar ent
lydeli
berat
ed upon,byonlybyone commi
ssi
oner
l
ikewi
ser enderst
heorderfat
all
yinf
ir
m.

TheSEC i sacol l
egialbodycomposedofaChai rpersonandf our(4)
Commi ssi
oners.58I
nor dertoconst
ituteaquorum t
oconductbusiness,the
presenceofatleastthree(3)Commi ssi
oner
sisrequi
r ed.
59I nt
heleading
caseofGMCRv.Bel l
,60wedef i
nit
ivelyexpl
ainedthenat ur
eofacol l
egial
body,andhowt heactofonememberofsuchbody,eveni ft
hehead,could
notbeconsideredasthatoftheenti
rebodyi t
self
.Thus:

Weher ebydecl arethattheNTC i sacol l

egialbodyr equi
ringamaj ori
ty
voteoutoft hethreemember soft hecommi ssioninor dertovalidlydeci
de
acaseoranyi ncidenttherei
n.Cor ol
l
ar i
l
y,t
hevot eal oneofthechai rmanof
thecommi ssion,asi nthi
scase,thevot eofCommi ssionerKintanar,absent
therequiredconcur r i
ngvotecomingf rom t
her estoft hemember shi
pofthe
commi ssi
ont oatl eastarri
veatamaj or
it
ydeci sion,i snotsuf fi
ci
entto
l
egallyrenderanNTCor der,r
esoluti
onordecision.

Simpl
yput,Commi ssi
onerKintanari
snottheNat i
onalTel ecommunicati
ons
Commissi
on.Heal onedoesnotspeakf orandi nbehal foftheNTC.The
NTC actst hr
ough a t hr
ee-man body,and t he three member s ofthe
commissi
oneachhasonev otetocasti
never ydeliberationconcerni
nga
caseoranyi ncidentther
einthatissubj
ecttothej uri
sdictionoftheNTC.
Whenweconsi derthehistori
calmil
i
euinwhi chtheNTC evol vedintothe
quasi
-j
udi
cialagency i tis now underExecutive Or derNo.146 whi ch
or
ganizedtheNTCasat hr
ee-mancommissionandexposet hei
l
legali
tyof
al
lmemor andum ci
rcul
arsnegat
ingthecol
legi
alnat
ureoft heNTC under
Executi
veOrderNo.146,wear elef
twit
honl yonel
ogicalconcl
usion:the
NTCi sacoll
egi
albodyandwasacol l
egi
albodyevenduringthet
imewhen
i
twasac ti
ngasaone- manregi
me.61

Wec anadoptavir
tuall
ywor d-
for-
wordobservat
ionwithr espectt
oformer
Commissi
onerMart
inezandt heSEC.Si mplyput,Commi ssi
onerMarti
nez
i
snottheSEC.Heal onedoesnotspeakf orandinbehal foftheSEC.The
SEC actsthr
ough a five-
person body,and the fi
ve member s ofthe
commissi
oneachhasonev otetocastineverydeli
berationconcerni
nga
caseoranyi
nci
denttherei
nthatissubj
ecttot
hejuri
sdict
ionoft heSEC.

GSIS at temptstodef endf ormerCommi ssionerMar ti

nez’sact i
on,buti t
s
argumenti swithoutmer it
.ItcitesSEC Or derNo.169,Ser iesof2008,
wher ebyMar ti
nezwasdesi gnat
edas" Off
icer-
in-
Char geoft heCommi ssion
f
ort hedur ati
onoft heoffi
cialtr
aveloftheChai r
persont oPar is,France,to
at
tend t he 33rd AnnualConf erence oft he [IOSCO]f rom May 26- 30,
2008. "
62Asof fi
cer-i
n-charge(OI C),Mar t
inezwas" authorizedt osignal l
document sandpaper sandper form allotheractsanddeedsasmaybe
necessar yintheday-to-dayoperationoftheCommi ssion".
1avvphi 1

Iti
sclearthatMart
inezwasdesignatedasOI Cbecauseoft heof f
ici
alt
ravel
of only one member , Chai r
person Fe Bar i
n. Mar tinez was not
commi ssi
onedtoactast heSECi t
self.Atmost,hewast oacti nplaceof
Chairper
sonBar i
nintheexerci
seofherdut i
esasChairper sonoft heSEC.
UnderSect i
on4.3oftheSRC,t heChai rper
sonisthechi
efexecut iveoff
icer
oftheSEC,andt husempower edto" executeandadmi nisterthepoli
cies,
decisi
ons,order
sandr esol
uti
onsappr ovedbytheCommi ssion,"aswellas
to"havethe

generalexecuti
vedir
ecti
onandsuper vi
si
onofthewor kandoper at
i
onof
t
heCommi ssion.
"63Iti
sinr el
ati
ontotheexer
ciseoftheseduti
esofthe
Chair
person,andnottothefunct
ionsoft
heCommi ssi
on,t
hatMart
inezwas
"aut
hori
zedt osignalldocumentsandpapersandper f
orm al
lotheract
s
and deeds as may be necessar
yint
he day-
to-
day oper
ati
on oft
he
Commi ssi
on.
"

GSI Slikewi seci t

es,asaut horit
yf orMar t
inez’suni lat
eralissuanceoft he
CDO,Sect ion 4. 6 ofthe SRC,whi ch states thatt he SEC " may ,for
purposesofef f
ici
ency,del egateanyofi t
sf unct i
onst oanydepar t
mentor
off
iceoft heCommi ssi
on,ani ndivi
dualCommi ssionerorst affmemberof
theCommi ssionexc eptitsr eview orappel l
at eaut hor
ityandi tspowert o
adopt,al terand suppl ementany r ul
e orr egulati
on."Rel iance on this
provi
sioni si nappropriat
e.Fi rst
,therei snoconvi ncingdemonst rat
ionthat
theSEC haddel egatedt oMar ti
nezt heaut horitytoissuet heCDO.The
SEC Or derdesi gnatingMar t
inezasOI C onl yaut hori
zedhi mt oexercise
thefunct i
onsoft heabsentChai rperson,andnotoft heCommi ssi
on.Ift
he
Orderi sr eadasenabl i
ngMar t
inezt oissuet heCDO i nbehal fofthe
Commi ssi on,i twoul dbeaki nt oconcedi ngt hatt heSEC Chai r
person,
acti
ngal one,cani ssuet heCDO i nbehalfoft heSEC i tself.Thatagai n
contr
avenesourhol dinginGMCRv.Bel l.

Inaddi ti
on,itisclearunderSect i
on4. 6thattheabi l
i
tyt odelegatefuncti
ons
toasi nglecommi ssionerdoesnotext endt otheexer ciseofther evi
ewor
appellateaut horit
yoft heSEC.Thei ssuanceoft heCDO i sanactoft he
SEC i tsel
fdonei nt heexer ci
seofi t
sor i
ginaljur
isdicti
ontor eview actual
casesorcont rover si
es.Ifi
thasnotbeencl eartotheSECbef ore,i
tshould
becl earnow t hati t
spowert oissueaCDO cannot ,undert heSRC,be
delegat edtoani ndi vi
dualcommissioner.

V.

Intheend,evenas sumi ngthattheevent snar r

atedinourResol utioni n
A.M.No.08- 8-
11-CA const i
tute suffi
cientbasist o null
if
yt he assai led
decisi
onoft heCourtofAppeal s,sti
llitremainsclearthatther el
i
efsGSI S
seeksoft hi
sCourthavenobasi sinl aw.Not wit
hstandi
ngt heblackmar k
thatst
ainstheappellatecourt’
sdeci si
on,t hefir
stparagraphofi t
sf allo,to
theextentthati
tdi
smi ssedthecompl aintofGSI Swi t
htheSECf orl ackof
j
urisdi
cti
onandconsequent lynulli
fi
edt heCDO andSDO,def i
esunbi ased
scr
uti
nyanddeser
vesaf
fi
rmat
ion.

A.

Init
sdi sposi t
ivepor ti
on,theCour tofAppeal slikewi sepronouncedt hatt he
compl ai ntf il
ed by GSI S witht he SEC shoul d be bar red fr
om bei ng
consider ed" asanel ecti
oncontesti ntheRTC" ,giventhatt hefif
teen( 15)
daypr escr i
pti
veper i
odt of i
l
eanel ecti
oncont estwi t
ht heRTC,under
Section3,Rul e6oft heInteri
m Rul es,hadal r
eadyr unit
scour se.64Yetno
such r eliefwas r equested by pr i
vater espondent si nt heirpetiti
on f or
cert
ior arif il
edwi t
ht heCour tofAppeal s65.Wi t
houtdi sputi
ngt hel egal
predicat essur roundingthispronouncement ,wenot ethati t
stenor ,ifnot
thetext ,undul ysuggest sanunwhol esomepr e-empt i
vest ri
ke.Gi venour
obser vat i
onsi nA. M.No.08- 8-11-CAoft he" unduei nt
erest"exhibitedby
theaut horoft heappel l
atecourtdeci si
on,suchdecl arat
ioni sbestdel eted.
Nonet hel ess,wedot r
ustthatanycour tortr
ibunalt hatmaybeconf ront ed
withthatpr emiseadver t
edtobyt heCour tofAppeal swoul dknowhowt o
proper lyt reatthesame.

B.

Fi
nal
ly,weturntot
hesanc
tionont
hel
awyer
sofGSI
Simposedbyt
he
Cour
tofAppeal
s.

Nonethel
ess,wef i
ndthatasamat t
erofl
awthesanct i
onsareunwar r
ant ed.
ThecharterofGSI S66i suniqueamonggover nmentownedorcont roll
ed
corpor
ati
onswi t
hor i
ginalchart
erinthati
tallocatesar ol
ef oritsinternal
l
egalcounselthatisinconjuncti
onwithorcompl ementarytot heOf f
i
ceof
theGovernmentCor porateCounsel(OGCC) ,whi chisthest atut
oryl egal
counself
orGOCCs.Sect i
on47ofGSI Scharterreads:

SEC.47.LegalCounsel
.—TheGover
nmentCor
por
ateCounselshal
lbe
thelegaladvi serandconsul t
antofGSI S,butGSI S mayassi gntothe
Offi
ce oft he Gover nmentCor porate Counsel(OGCC)cases f orlegal
acti
on ort r
ial,issues f
orl egalopi ni
ons,pr eparat
ion and revi
ew of
contr
acts/
agr eementsandot hers,asGSI Smaydeci deordet er
minefrom
ti
met otime:Pr ovided,however,Thatt hepresentlegalservi
cesgroupin
GSISshal lserveasi t
sin-
housel egalcounsel
.

The GSI S may,subjectt

o approvalbyt he pr
opercourt,deput
ize any
personnelofthe legalservi
ce group t
o actas specialsheri
ffint he
enf
or cementofwritsand processesissued bythe cour
t,quasi
-judi
cial
agenciesoradmini
str
ati
vebodiesincasesinvol
vi
ngGSI S.
67

Thedesi gnat i
onoft heOGCCast hel egalcounself orGOCCsi ssetfor t
h
by st atute,i nit
ial
ly by Rep.ActNo.3838,t hen r eit
erated by t he
Admi nistrati
veCodeof1987. 68Gi vent hatthedesi gnati
oni sst atutor
yi n
nat ur
e,t herei snoi mpedimentf orCongr esstoi mposeadi ff
er entrolefor
the OGCC wi t
hr espectt o par t
icularGOCCsi tmaychar t
er.Congr ess
appear st ohavedonesowi t
hr espectt oGSI S,designati
ngt heOGCCasa
"legaladvi serandconsul tant,
"r athert hanascounselt oGSI S.Fur ther,the
l
aw cl ear l
yvest suntoGSI Sthedi scr eti
on,r atherthanthedut y,toassi gn
casest ot heOGCC f orlegalact i
on,whi l
edesi gnati
ngt hepr esentl egal
ser vi
cesgr oupofGSI S as" in-housel egalcounsel ."Thissi t
uat esGSI S
differ
entlyf rom theLandBankoft hePhi li
ppines,whoseowni n-
house
l
awyer shaveper si
stentl
yar guedbef oret hisCour ttonoavai lont heir
allegedr ight

tofi
l
epetit
ionsbef
oreusinst
eadoftheOGCC. 69Nothi
ngint
heLandBank
chart
er70vestedi
twit
hthediscr
eti
ontochoosewhentoassi
gn

casestot
heOGCC,not
wit
hst
andi
ngt
heest
abl
i
shmentofi
tsownLegal
Depart
ment
.71

Congressisnotboundt
or et
aintheOGCCasthepri
mar yorexcl
usi
vel
egal
counselofGSISevenifitperf
ormssuchar
oleforotherGOCCs.Tobi nd
Congresstoperf
ormi nt
hatmannerwouldbeakintoel
evat
ingtheOGCC’s
stat
utor
yrolet
oi r
repeal
ablest
atus,andi
tisbasi
cthatCongr
essisbar
red
fr
om passi
ngirr
epealabl
elaws.
72

C.

Wecl osebyacknowledgingthatthesurroundingcir
cumstancesbehind
t
hesepet i
ti
onsareunf
ort
unat
e,giventheeventsasnarrat
edinA.M.No.08
-
8-11-CA.Whi l
eduepuni
shmenthasbeenmet edontheerrantmagi
str
ates,
t
hecor porat
ewor l
dmayverywel lberemindedt hatt
hemember soft he
j
udici
aryarenottobevi
ewedortreatedas

merepawnsorpuppet sint hei nternecinef i

ght
sbusi nessmenandt heir
associ
ateswage againstotherbusi nessmen i nthe questforcorporate
dominance.Int he end,the pet iti
ons di d aff
ordthis Courtto clari
fy
consequenti
alpoi
ntsoflaw,poi ntsr ootedi npri
ncipl
eswhi chwi
llendur e
l
ongaf t
erthenamesofthepar t
icipantsint hesecaseshavebeenf or
gotten.

WHEREFORE,t hepet i
ti
oninG.R.No.184275i
sEXPUNGED f
orl
ackof
capaci
tyoft
hepet
it
ionertobr
ingf
ort
hthesui
t.

Thepet it
ioni
nG. R.No.183905isDISMISSEDf orl
ackofmer i
texceptthat
t
hesecondandt hir
dparagraphsoft
hef al
looft
heassaileddecisiondat
ed
23Jul y2008oftheCourtofAppeal
s,incl
udi
ngsubparagraphs(1),(2)
,2(a)
,
2(b),2(c)and2(
d)underthesecondpar agr
aph,areherebyDELETED.No
pronouncementsastocosts.SOORDERED.