SRC and the SEC

SECTION 1. Title. This shall be known as The Securities Regulation Code. SEC. 2. Declaration of State Policy. The State shall establish a socially conscious, free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. To achieve these ends, this Securities Regulation Code is hereby enacted. SEC. 4. Administrative Agency. -

4.1. This Code shall be administered by the Securities and Exchange Commission (hereafter the Commission) as a collegial body, composed of a Chairperson and four (4) Commissioners, appointed by the President for a term of seven (7) years each and who shall serve as such until their successor shall have been appointed and qualified. A Commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his/her predecessor was appointed, shall serve only for the unexpired portion of such term. The incumbent Chairperson and Commissioners at the effectivity of this Code, shall serve the unexpired portion of their terms underPresidential Decree No. 902-A. Unless the context indicates otherwise, the term Commissioner includes the Chairperson. 4.2. The Commissioners must be natural-born citizens of the Philippines, at least forty (40) years of age for the Chairperson and at least thirty-five (35) years of age for the Commissioners, of good moral character, of unquestionable integrity, of known probity and patriotism, and with recognized competence in social and economic disciplines: Provided, That the majority of Commissioners, including the Chairperson, shall be members of the Philippine Bar. 4.3. The Chairperson is the chief executive officer of the Commission. The Chairperson shall execute and administer the policies, decisions, orders and resolutions approved by the Commission and shall have the general executive direction and supervision of the work and operation of the Commission and of its members, bodies, boards, offices, personnel and all its administrative business. 4.4. The salary of the Chairperson and the Commissioners shall be fixed by the President of the Philippines based on an objective classification system, at a sum comparable to the members of the Monetary Board and commensurate to the importance and responsibilities attached to the position.

4.5. The Commission shall hold meetings at least once a week for the conduct of business or as often as may be necessary upon call of the Chairperson or upon the request of three (3) Commissioners. The notice of the meeting shall be given to all Commissioners and the presence of three (3) Commissioners shall constitute a quorum. In the absence of the Chairperson, the most senior Commissioner shall act as presiding officer of the meeting. 4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter and supplement any rule or regulation. The Commission may review upon its own initiative or upon the petition of any interested party any action of any department or office, individual Commissioner, or staff member of the Commission. SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:chanroblesvirtualawlibrary (a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government; (b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto; (c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; (d) Regulate, investigate or supervise the activities of persons to ensure compliance; (e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; (f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; (g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders;

(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code; (i) Issue cease and desist orders to prevent fraud or injury to the investing public; (j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; (k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; (l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws; (m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws. 5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization, and may require or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter to be investigated. The Commission may publish information concerning any such violations, and to investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the provisions of

this Code, in the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this Code relates: Provided, however, That any person requested or subpoenaed to produce documents or testify in any investigation shall simultaneously be notified in writing of the purpose of such investigation: Provided, further, That all criminal complaints for violations of this Code, and the implementing rules and regulations enforced or administered by the Commission shall be referred to the Department of Justice for preliminary investigation and prosecution before the proper court: Provided, furthermore, That in instances where the law allows independent civil or criminal proceedings of violations arising from the same act, the Commission shall take appropriate action to implement the same: Provided, finally, That the investigation, prosecution, and trial of such cases shall be given priority. 53.2. For the purpose of any such investigation, or any other proceeding under this Code, the Commission or any officer designated by it is empowered to administer oaths and affirmations, subpoenawitnesses, compel attendance, take evidence, require the production of any book, paper, correspondence, memorandum, or other record which the Commission deems relevant or material to the inquiry, and to perform such other acts necessary in the conduct of such investigation or proceedings. 53.3. Whenever it shall appear to the Commission that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization, it may issue an order to such person to desist from committing such act or practice: Provided, however, That the Commission shall not charge any person with violation of the rules of an Exchange or other self regulatory organization unless it appears to the Commission that such Exchange or other self-regulatory organization is unable or unwilling to take action against such person. After finding that such person has engaged in any such act or practice and that there is a reasonable likelihood of continuing, further or future violations by such person, the Commission may issue ex-parte a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance with such provision. The Commission may transmit such evidence as may be available concerning any violation of any provision of this Code, or any rule, regulation or order thereunder, to the Department of Justice, which may institute the appropriate criminal proceedings under this Code. 53.4. Any person who, within his power but without cause, fails or refuses to comply with any lawful order, decision or subpoena issued by the Commission under Subsection 53.2 or Subsection 53.3 or Section 64 of this Code, shall after due notice and hearing, be guilty of contempt of the Commission. Such person shall be fined in such reasonable amount as the Commission may determine, or when such failure or refusal is a clear and open defiance of the Commissions order, decision or subpoena, shall be detained under an arrest order issued by the Commission, until such order, decision or subpoena is complied with.

SEC. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. 64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been initiated or that a complaint has been filed, including the contents of the complaint, shall be confidential. Upon issuance of a cease and desist order, the Commission shall make public such order and a copy thereof shall be immediately furnished to each person subject to the order. 64.3. Any person against whom a cease and desist order was issued may, within five (5) days from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall automatically be lifted.

SRC Rule 1 Title of Rules These Rules shall be referred to as the Amended Implementing Rules and Regulations of the Securities Regulation Code or Amended SRC Rules. SRC Rule 2 Interpretation of Rules

Any doubt in the interpretation of these Rules shall be resolved by the Commission in a manner which would establish a socially conscious free market that regulates itself, encourage the widest participation of ownership in an enterprise, enhance the democratization of wealth, promote the development of the capital market, protect investors, ensure full and timely disclosure of material information, and/or minimize, if not eliminate, insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. SRC Rule 4 Securities and Exchange Commission These Rules shall be implemented by the Commission as a collegial body composed of a Chairperson and four (4) Commissioners. 1. The Commission has five (5) principal departments, each to be headed by a director. Its core function of capital market regulation shall be performed by the Market Regulation Department, Corporation Finance Department, and Non-traditional Securities and Instruments Department. Its company registration and enforcement functions shall be performed by the Company Registration and Monitoring Department and Compliance and Enforcement Department, respectively. A. The Market Regulation Department develops the registration criteria for all market participants and supervises them to ensure compliance with registration requirements and endorses infractions of the Code and rules and regulations to the Compliance and Enforcement Department. B. The Corporation Finance Department registers securities before they are offered for sale or sold to the public and ensures that adequate information is available about the said securities. It also ensures that investors have access to all material disclosures regarding the said offering and the securities of public companies. The department also monitors compliance by issuers with the Code and rules and regulations adopted thereunder and endorses infractions thereof to the Compliance and Enforcement Department. C. The Non-traditional Securities and Instruments Department registers and licenses nontraditional securities and instruments including, but not limited to, pre-need plans, commodity futures contracts, proprietary or non-proprietary membership certificates and other similar instruments. It monitors compliance with related rules and endorses infractions thereof to the Compliance and Enforcement Department. D. The Company Registration and Monitoring Department registers domestic corporations, partnerships and associations, including representative offices and foreign corporations intending to do business in the Philippines. It also supervises and monitors such entities relative

to their compliance with laws, rules and regulations administered by the Commission. E. The Compliance and Enforcement Department ensures compliance by all market participants, issuers and individuals, and takes appropriate enforcement action against them for legal infraction of the Code and other relevant laws, rules and regulations implemented by the Commission. 2. The Commission shall have support services departments, namely Human Resource and Administrative Department, Economic Research and Information Department and Financial Management Department. A. The Human Resource and Administrative Department is responsible for all activities relating to personnel and human resource management, including benefits, training and development. It also handles the central receiving, records management, general administrative and maintenance services of the Commission. B. The Economic Research and Information Department provides investment and economic research, analysis and advice to the Commission. It is also the lead technical support group of the Commission for software development, database management, hardware procurement, and establishment and maintenance of a communication network. C. The Financial Management Department manages the internal finances of the Commission which includes budgeting, accounting and cash management. 3. The Commission shall have special offices, namely the Office of the General Counsel and the Office of the General Accountant. A. The Office of the General Counsel, headed by the General Counsel, shall serve as the lead legal adviser to the Commission. It also serves as legal liaison for the Commission with other government agencies, self-regulatory organizations and foreign government regulators and agencies. It oversees non-enforcement litigations and appeals to the Commission en banc. It likewise oversees the office of the Commission Secretary. B. The Office of the General Accountant, headed by the General Accountant, advises the Commission and the private sector in the area of accounting standards and on issues of accounting treatment for public offerings and disclosures. It also coordinates with any board or council in the development of accounting standards for the Philippines and its capital market. 4. The Commission shall have Extension Offices in key cities, each to be headed by a Director. The Extension Offices shall perform company registration, supervision, monitoring and other delegated functions of the Commission within its geographical jurisdiction. The Directors shall execute the programs of the Commission in their respective geographical jurisdictions, subject to the supervision of the Commission. 5. The Commission shall hold regular meetings at least once a week on a day and time fixed by it. Special meetings may also be called as often as may be necessary by the Chairperson or upon the request of three (3) Commissioners. In such cases, the Commissioners shall be given notice of the meeting, and the presence of three (3) Commissioners shall constitute a quorum. In the absence of the Chairperson, the most senior Commissioner present shall act as the presiding

officer

of

the

meeting.

6. The Commission may, for purposes of efficiency, delegate any of its functions to an individual Commissioner, any department or office of the Commission or any staff member of the Commission except its review or appellate authority and its power to adopt, alter and supplement any rule or regulation. 7. The Commission, motu proprio or upon a petition filed by an interested party, may review any order, resolution, decision or action of any of its departments, offices, individual Commissioner, or staff member of the Commission. The petition for review shall be filed with the Office of the General Counsel within fifteen (15) days from receipt of the order, resolution, decision or any document evidencing the action taken which is the subject of the review. The petition shall contain, among other things, its factual and legal basis and shall be signed by the petitioner or counsel. SRC Rule 5.1(a) Supervision Over Registered Corporations

As used in this Rule, the word supervision is interpreted to mean as follows:chanroblesvirtuallawlibrary 1. The business operations of corporations which are grantees of secondary licenses or franchises by this Commission, such as but not limited to financing companies, investment companies, investment houses, pre-need companies, broker/dealers and exchanges, as well as public companies, shall be under the direct supervision of this Commission, i.e.:chanroblesvirtuallawlibrary a. submission of reports (monthly, quarterly, operational, annual, etc.) required in the different laws governing the type of activity engaged in by these corporations; and b. compliance with provisions of the Corporation Code including those provisions requiring submission of documents to effect compliance. Additionally, the Commission exercises regulatory authority over said companies except unregistered/unlisted public companies. For corporations with registered/listed issues, compliance with registration requirements and the conditions imposed by the Commission for their registration shall likewise be under its direct supervision. 2. For all other business operations of companies with certificates of registration with the Commission as corporations but not requiring a secondary license from the Commission, the extent of its supervision and monitoring shall be limited to their compliance with theCorporation Code, i.e.:chanroblesvirtuallawlibrary a. submission of financial statements; b. submission of General Information Sheets (GIS);

c. compliance with provisions in their by-laws on:chanroblesvirtuallawlibrary

i. ii.

number qualifications, compensation

of of

directors directors

iii. holding of meetings, etc. d. declaration e. inspection of

of books;

dividends; and

f. other provisions of the Code requiring submission of documents to effect compliance. 3. The business operations of corporations which are grantees of secondary licenses of franchises of other government agencies such as but not limited to banking and quasi-banking institutions, building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws, shall not be under the direct supervision of this Commission, but under the direct supervision of the concerned government agency granting such secondary license or franchise. The extent of the Commissions supervisory powers over such corporations shall be limited to those mentioned in Item No. 2 hereof, except if it is a reporting company under Sec. 17.2 of the Code. 4. Notwithstanding the foregoing, the Commission, as provided in Section 5 of the Code and the effective provision of PD 902-A, shall have the power to do any and all acts to carry out the effective implementation of the laws it is mandated to enforce, i.e., constitute a Management Committee; appoint receivers; issue Cease and Desist Orders to prevent fraud or injury to the public; and such other measures necessary to carry out its role as a regulator. 5. All complaints regarding the operations of a company shall be directed to its primary regulator. However, in cases where the Commission and another agency are both primary regulators, e.g. investment houses with quasi-banking function, any complaint can be lodged with either agency. Both regulators shall coordinate their action. SRC Rule 5.1(e) Clarification of Commission Powers to Take-Over an Exchange Procedures for implementing the Commissions power to suspend or take-over an Exchange are set forth in SRC Rule 40.5, Paragraph 1. SRC Rule 7.2 Periodic Review of Commission Structure The Commission shall conduct, once every two (2) years, a review of its organization and structure to achieve the goals of the Code and more efficiently and effectively exercise its powers and functions thereunder, without prejudice to its power to conduct yearly merit reviews and provide increases in compensation based on productivity and efficiency. SRC Rule 40.5 Commission Powers Over Exchanges, Clearing Agencies and Self Regulatory Organizations

1. Subject to paragraph 2 through 6 of this rule, the Commission may, when it is satisfied that it is in the interest of the investing public, or is appropriate to do so for the protection of investors, and after due notice and a hearing:chanroblesvirtuallawlibrary A. suspend registration of an Exchange, clearing agency and/or self regulatory organization (hereinafter collectively Exchange) upon findings that such Exchange has willfully violated or is unable to comply with any provision of this Code, or the rules and regulations hereunder, or its own rules, or has failed to enforce compliance therewith by a member of, person associated therewith, or a participant in such Exchange; or B. suspend any or all officers of said Exchange and appoint an independent administrator knowledgeable in capital market operations to take over the management of the Exchange, and/or suspend any and all member/s of the board of directors and appoint new director/s to serve during the suspension period, upon findings that such officer/s and/or director/s have willfully violated any provision of this Code, any other law administered by the Commission, the rules or regulations thereunder, or the rules of such Exchange, or abused his authority, or without reasonable justification or excuse has failed to enforce compliance with any of such provisions. 2. Upon discovery of any of the above-mentioned violations or failures, the Commission shall notify the Exchange, officer/s and/or director/s thereof and set a period of time in which such violation or failure shall be rectified, which period shall be no less than ten (10) days nor more than ninety (90) days. 3. In the event that an Exchange fails to rectify such violation or failure within the stated period, which the Commission may extend only once based on its finding that such extension is in the public interest or for the protection of investors, the Commission, after due notice and a hearing, may undertake the necessary remedies to correct the same. 4. For as long as an order suspending any officer/s and/or director/s is in effect under this rule, none of the functions to which the order relates shall be performed, by said suspended officer or director. 5. Where an independent administrator is appointed under this rule, such administrator shall immediately prepare a workplan which shall be submitted to the Commission for approval and/or amendment, to address the underlying reason for the suspension. Such workplan shall include a timetable for compliance with this Code which shall not be later than the period of suspension. 6. At the end of the suspension period, or upon expiration of the period set forth in the workplan approved by the Commission, the Commission may: (a) lift the suspension order and reinstate the Exchanges registration; (b) revoke such registration pursuant to this Code; (c) reinstate the Exchanges officer/s and/or board member/s; and/or (d) issue an order prohibiting officers and/or members of the board who have been suspended from serving in such capacity for a stated period.

7. Immediately after the issuance of a decision to revoke registration, no new transactions shall be effected, except as necessary to protect investors.

PD 902-A Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving. (a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder, partners, members of associations or organizations registered with the Commission; (b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; and (c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:chanroblesvirtuallawlibrary (a) To issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply; (b) To punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of, and penalties prescribed by, the Rules of Court; (c) To compel the officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision; (d) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent stockholders or members; (e) To issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases order search and seizure or cause the search and seizure of all documents, papers, files and records as well as books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it; (f) To impose fines and/or penalties for violation of this Decree or any other laws being implemented by the Commission, the pertinent rules and regulations, its orders, decisions and/or rulings; (g) To authorize the establishment and operation of stock exchanges, commodity exchanges and such other similar organization and to supervise and regulate the same; including the authority to determine their number, size and location, in the light of national or regional requirements for such activities with the view to promote, conserve or rationalize investment; (h) To pass upon, refuse or deny, after consultation with the Board of Investments, Department of Industry, National Economic and Development Authority or any other appropriate government agency, the application for registration of any corporation, partnership or association or any form of organization falling within its jurisdiction, if their establishment, organization or operation will not be consistent with the declared national economic policies.

(i) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following:chanroblesvirtuallawlibrary [1] Fraud in procuring its certificate of registration; [2] Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public; [3] Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would amount to a grave violation of its franchise; [4] Continuous inoperation for a period of at least five (5) years; [5] Failure to file by-laws within the required period; [6] Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period; (j) To exercise such other powers as implied, necessary or incidental to the carrying out the express powers granted to the Commission or to achieve the objectives and purposes of this Decree. In the exercise of the foregoing authority and jurisdiction of the Commission, hearings shall be conducted by the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sittingen banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of procedures to govern the proceedings, hearings and appeals of cases falling within its jurisdiction. The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for petition for review in accordance with the pertinent provisions of the Rules of Court.

[G.R. No. 125469. October 27, 1997] PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC., respondents. DECISION TORRES, JR., J.: The Securities and Exchange Commission is the government agency, under the direct general supervision of the Office of the President,[1] with the immense task of enforcing the Revised Securities Act, and all other duties assigned to it by pertinent laws. Among its inumerable functions, and one of the most important, is the supervision of all corporations, partnerships or associations, who are grantees or primary franchise and/or a license or permit issued by the government to operate in the Philippines.[2] Just how far this regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar. In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated June 27, 1996, which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way for the public offering of PALIs shares. The facts of the case are undisputed, and are hereby restated in sum. The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its shares, with supporting documents attached. On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application, recommended to the PSEs Board of Governors the approval of PALIs listing application. On February 14, 1996, before it could act upon PALIs application, the Board of Governors of PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALIs application to be deferred. PALI was requested to comment upon the said letter. PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI.

On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government (PCGG) requesting for comments on the letter of the PALI and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a Temporary Restraining Order on the same date, enjoining the Marcoses from, among others, further impeding, obstructing, delaying or interfering in any manner by or any means with the consideration, processing and approval by the PSE of the initial public offering of PALI. The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561, pending in Branch 69 thereof. In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALIs application, citing the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange. On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on PALIs listing application and institute such measures as are just and proper and under the circumstances. On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing the PSE to file its comments thereto within five days from its receipt and for its authorized representative to appear for an inquiry on the matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI. On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive portion of the said order reads: WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange, without prejudice to its authority to require PALI to disclose such other material information it deems necessary for the protection of the investing public. This Order shall take effect immediately. SO ORDERED. PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the Commission in its May 9, 1996 Order which states: WHEREFORE, premises considered, the Commission finds no compelling reason to consider its order dated April 24, 1996, and in the light of recent developments on the adverse claim against the PALI properties, PSE should require PALI to submit full disclosure of material facts and information to protect the investing public. In this regard, PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material facts and information. Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with application for Writ of Preliminary Injunction and Temporary Restraining

Order), assailing the above mentioned orders of the SEC, submitting the following as errors of the SEC: I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS; II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING APPLICATION; III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION; AND IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION. On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to Dismiss. On June 10, 1996, PSE filed its Reply to Comment and Opposition to Motion to Dismiss. On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. Hence, this Petition by the PSE. The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, pursuant to Section 3[3] of the Revised Securities Act in relation to Section 6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised Securities Act, and for the purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject to public respondents jurisdiction, regulation and control. Accepting the argument that the public respondent has the authority merely to supervise or regulate, would amount to serious consequences, considering that the petitioner is a stock exchange whose business is impressed with public interest. Abuse is not remote if the public respondent is left without any system of control. If the securities act vested the public respondent with jurisdiction and control over all corporations; the power to authorize the establishment of stock exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the exchange in the listing or delisting of securities, then the law certainly granted to the public respondent the plenary authority over the petitioner; and the power of review necessarily comes within its authority. All in all, the court held that PALI complied with all the requirements for public listing, affirming the SECs ruling to the effect that: x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its shares in the face of the following considerations: 1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange; 2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it acted differently on the application of PALI, as compared to the IPOs of other companies similarly that were allowed listing in the Exchange;

3. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the assets of the other companies in that, the assertions of the Marcoses that they are owners of the disputed properties were not substantiated enough to overcome the strength of a title to properties issued under the Torrens System as evidence of ownership thereof; 4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed properties, neither has the government instituted recovery proceedings against these properties. Yet the import of PSEs decision in denying PALIs application is that it would be PALI, not the Marcoses, that must go to court to prove the legality of its ownership on these properties before its shares can be listed. In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. The point is, the PALI properties are now titled. A property losses its public character the moment it is covered by a title. As a matter of fact, the titles have long been settled by a final judgment; and the final decree having been registered, they can no longer be re-opened considering that the one year period has already passed. Lastly, the determination of what standard to apply in allowing PALIs application for listing, whether the discretion method or the system of public disclosure adhered to by the SEC, should be addressed to the Securities Commission, it being the government agency that exercises both supervisory and regulatory authority over all corporations. On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for Review on Certiorari, taking exception to the rulings of the SEC and the Court of Appeals. Respondent PALI filed its Comment to the petition on October 17, 1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by the PCGGs Petition for Intervention on October 21, 1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office of the Solicitor General, representing the SEC and the Court of Appeals, likewise filed its Comment on December 26, 1996. In answer to the PCGGs motion for leave to file petition for intervention, PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997. On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996) and the Solicitor General (December 26, 1996). On may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE. PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the stock exchange. Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are more limited as compared to its authority over ordinary corporations. In connection with this, the powers of the SEC over stock exchanges under the Revised Securities Act are specifically enumerated, and these do not include the power to reverse the decisions of the stock exchange. Authorities are in abundance even in the United States, from which the countrys security policies are patterned, to the effect of giving the Securities Commission less control over stock exchanges, which in turn are given more leeway in making the decision whether or not to allow corporations to offer their stock to the public through the stock exchange. This is in accord with the business judgment rule whereby the SEC and the courts are barred from intruding into business judgments of corporations, when the same are made in good faith. The said rule precludes the reversal of the decision of the PSE to deny PALIs listing application, absent a showing a bad faith on the part of the

PSE. Under the listing rule of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the investing public. Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose properties are under sequestration. A reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the properties of PALI, which were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation (MSDC), are under sequestration by the PCGG, and the subject of forfeiture proceedings in the Sandiganbayan. This ruling of the Court is the law of the case between the Republic and the TDC and MSDC. It categorically declares that the assets of these corporations were sequestered by the PCGG on March 10, 1986 and April 4, 1988. It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer be questioned, since certificates of title have been issued to PALI and more than one year has since lapsed, is erroneous and ignores well settled jurisprudence on land titles. That a certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits certain exceptions. It is fundamental that forest lands or military reservations are non-alienable. Thus, when a title covers a forest reserve or a government reservation, such title is void. PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold the listing of the PALIs shares with the PSE, in the absence of a clear mandate for the effectivity of such policy. As it is, the case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. In fact, PALIs documents supporting its application contained misrepresentations and misleading statements, and concealed material information. The matter of sequestration of PALIs properties and the fact that the same form part of military/naval/forest reservations were not reflected in PALIs application. It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the marking of a corporate entity, its functions as the primary channel through which the vessels of capital trade ply. The PSEs relevance to the continued operation and filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its affairs becomes justified, if not necessary. Indeed, as the only operational stock exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an immense influence upon the countrys economy. Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give special treatment to the administration and regulation of stock exchanges.[6] These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully safeguarded. Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs challenged control authority over the petitioner PSE even as it provides that the Commission

shall have absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines The SECs regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a corporations concerns. This authority springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or incidental to the carrying out of the SECs express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange.[7] It is, likewise, observed that the principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development.[8] Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing in the stock exchange of the private respondent PALI. The SECs action was affirmed by the Court of Appeals. We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange. This is in line with the SECs mission to ensure proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in the country. [9] As the appellate court explains: Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. Being a stock exchange, the petitioner performs a function that is vital to the national economy, as the business is affected with public interest. As a matter of fact, it has often been said that the economy moves on the basis of the rise and fall of stocks being traded. By its economic power, the petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject to government regulation. The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in some other government office.[10] This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSEs main concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to perform all other legal acts within its allocated express or implied powers. A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body. [11] As to its

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

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

criminal and civil sanctions. In connection with this, a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of its securities.[15] While the employment of this policy is recognized and sanctioned by laws, nonetheless, the Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must satisfy.[16] Pertinently, Section 9 of the Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security: - - The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration statement if it finds that - (1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material facts required to be stated therein or necessary to make the statements therein not misleading; or (2) The issuer or registrant - (i) is not solvent or not is sound financial condition; (ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any order of the Commission; (iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public interest and for the protection of investors, impose before the security can be registered; (iv) had been engaged or is engaged or is about to engaged in fraudulent transactions; (v) is in any was dishonest of is not of good repute; or (vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or government rules and regulations. (3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles; (4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to such officer, director or principal stockholder; or (5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the prejudice to the public interest or as a fraud upon the purchaser or investors. (Emphasis Ours) A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be determined by the Securities and Exchange Commission. This measure was meant to protect the interest of the investing public against fraudulent and worthless securities, and the SEC is mandated by law to safeguard these interests, following the policies and rules therefore provided. The absolute reliance on the full disclosure method in the registration of securities is, therefore, untenable. At it is, the Court finds that the private respondent PALI, on at least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the effectivity of whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of corporations wishing to do so. However, the SEC must recognize and implement the mandate of the law, particularly the Revised Securities Act, the provisions of which cannot be amended or supplanted my mere administrative issuance.

In resum, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation of arbitrariness and whimsical animation on its part. Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case. ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review on Certiorari. The decisions of the Court of Appeals and the Securities and Exchage Commission dated July 27, 1996 and April 24, 1996, respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land, Inc.

G.R. No. 149351 March 17, 2004 SPEED DISTRIBUTING CORP., LITA MARCELO, AQUINO, petitioners, vs. COURT OF APPEALS and RUFINA LIM, respondents.

IRENEO

MARCELO

and

PEDRO

DECISION

CALLEJO, SR., J.: This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. No. 52214 (CV) reversing the November 21, 1995 Order2 of the Regional Trial Court of Quezon City, Branch 222, dismissing the complaint in Civil Case No. Q-95-24588, and its August 8, 2001 Resolution denying the Motion for Reconsideration of the aforesaid decision. The Antecedents On September 20, 1953, Pastor Y. Lim married private respondent Rufina Luy Lim. 3 During the early part of their marriage, Pastor organized some family corporations using their conjugal funds. Among these corporations was Skyline International Corporation (Skyline, for brevity) which was engaged in the importation and sale of Hankook Brand Korean Tires and the acquisition of real estate. The couple were incorporators and major stockholders of the corporation and were also employed therein. Pastor and the private respondent did not have a child. They decided to "adopt" Leonard Lim and petitioner Lita Lim Marcelo, who were children of their distant poor relatives in Zamboanga City. There was, however, no formal court adoption. Sometime thereafter, marital problems arose, as a result of which the private respondent stopped working at Skyline. As the domestic problems remained unresolved, Pastor and the private respondent jointly filed on August 13, 1968 a Petition before the Juvenile and Domestic Relations Court of Quezon City, for voluntary dissolution of conjugal properties. As their differences worsened, the private respondent filed on January 27, 1971 a petition for legal separation against Pastor on the ground of infidelity before the then Juvenile and Domestic Relations Court of Quezon City. The petition was amended into one for Support with Alimony and the case was docketed as Civil Case No. QE0030. On February 17, 1972, the court rendered a decision, awarding P3,000 monthly support to the private respondent and the children, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered: 1. Ordering defendant to pay plaintiff monthly support of P3,000.00 effective as of February, 1971; 2. Ordering defendant to pay plaintiff attorneys fees in the sum of P2,000.00, plus the cost of this suit. 4 On June 24, 1975, the private respondent filed a motion for execution. The court issued an order granting the motion and the sheriff levied on the properties of Skyline. The latter filed, on December 19, 1975, a third-party claim, alleging that the properties levied were its personal

properties and not those of Pastor, who was only one of its stockholders. The private respondent filed a motion to quash Skylines claim, which the court granted. Skyline filed a petition for certiorari with prayer for temporary restraining order before the Court of Appeals for the nullification of the order of the trial court quashing the third-party claim. The case was docketed as CA-G.R. No. 05312 (SP). The appellate court issued a temporary restraining order on April 27, 1976. On June 23, 1976, the Court of Appeals rendered a decision dismissing the petition, thus, lifting the restraining order.5 The appellate court ruled as follows: While it is recognized as "lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in a specific activity, and such activity may co-exist with other private activities of the stockholder" (Liddel & Co., Inc. vs. Collector of Internal Revenue, L-9687, June 30, 1961, 2 SCRA 632), the corporations distinct personality will be disregarded when it is so "controlled and its affairs so conducted as to make it merely an instrumentality, agency or conduit of another" (NAMARCO vs. Associated Finance Company, supra). It is not disputed that petitioner Skyline International, Inc. was a conjugal enterprise (p. 2, Decision) before its incorporation in December 1970 (p. 10, id.), when it was still a proprietorship. Petitioner Skyline International, Inc. is still engaged in the sale of automotive parts and dealership of Firestone Rubber and Tires which business it was already doing when it was still a proprietorship. Respondent Court found that the only assets of petitioner corporation are the conjugal properties. Thus, respondent Court concludes that "it is safe to assume that Skyline International Corporation is another name for Mr. and Mrs. Pastor Y. Lim in person." In fact, Pastor Y. Lim admitted that the other incorporators are their former employees and their respective shares are nominal (Decision, pp. 14-15). The above facts are more than enough justification for respondent Court to pierce the veil of corporate fiction. Consequently, we find the questioned orders to be in order. 6 Skyline, then, filed a petition for review before this Court, but the petition was dismissed in a Resolution dated August 6, 1976.7 On August 21, 1987, the Speed Distributing Corporation (Speed, for brevity), was registered with the Securities and Exchange Commission, with Pastor Lim as one of the incorporators. He owned ten shares, valued at P100.00 per share. The following were the names of the incorporators, the number of shares respectively subscribed to by them and the amount paid up: Shares Subscribed Paid Lita T. Lim 11,200 P 1,120,000.00 P 280,000.00 Leonard L. Lim 1,000 100,000.00 25,000.00 Lina S. Lim 150 15,000.00 3,750.00 Larry S. Lim 140 14,000.00 3,500.00 Pastor Y. Lim 10 1,000.00 250.00 12,500 P1,250,000.00 P 312,500.008 Petitioner Lita Lim-Marcelo was elected treasurer of the corporation. On June 21, 1991, the Leslim Corporation (Leslim, for brevity), was registered with the Securities and Exchange Commission with a capital stock of P12,000,000.00, divided into

120,000 shares at par value of P100.00 per share. Pastor Lim subscribed to 95,700 shares valued at P9,570,000.00. The incorporators, the number of shares they subscribed to and the amounts paid for were indicated in the articles of incorporation as follows: Name No. of Share Amount Subscribed Teresa T. Lim 24,000 P2,400,000.00 Leonard L. Lim 100 10,000.00 Larry S. Lim 100 10,000.00 Lina L. Lim 100 10,000.00 Pastor Y. Lim 95,700 9,570,000.00 120,000 P12,000,000.00 The following persons have paid on the shares of the capital stock for which they have subscribed the amount set after their names respectively: Name Amount Paid Teresa T. Lim P600,000.00 Leonard L. Lim 2,500.00 Larry S. Lim 2,500.00 Lina L. Lim 2,500.00 Pastor Y. Lim P2,392,500.00 P3,000,000.009 Under the articles of incorporation, Pastor Lim was the treasurer-in-trust of the corporation.10 The Vice-President and Treasurer of the corporation was petitioner Lita LimMarcelo, now married to petitioner Ireneo Marcelo. On August 26, 1994, Leslim Corporation executed a deed of absolute sale in favor of the Speed, represented by its Vice-President, petitioner Ireneo Marcelo, over the parcel of lot located at Diliman Quezon City, covered by TCT No. 36617 for the price of P3,900,000.00. 11 Petitioner Lita Lim-Marcelo, the Vice-President of Leslim12 signed in the deed for and in behalf of the corporation. She was authorized by the Board of Directors in a Resolution August 19, 1994 to sign the said deed and to receive the purchase price for and in behalf of Leslim. The said Resolution was certified by corporate secretary Pedro Aquino on August 22, 1994.13 Consequently, TCT No. 36617 which was in the name of Leslim, was cancelled and a new one, TCT No. T-116716, was issued to and in the name of Speed.14 On June 11, 1994, Pastor Lim died intestate and was survived by his wife, the private respondent. On March 17, 1995, the private respondent, through her nephew and attorney-infact George Luy, filed a petition for the administration of the estate of her deceased husband before the Regional Trial Court of Quezon City, docketed as Special Proceedings No. Q-9523334.15 The case was raffled to Branch 93. The private respondent filed a motion praying for the annotation of a notice of lis pendens at the dorsal portion of all titles over the properties in the name of Pastor. Included in the said properties were those registered in the name of other corporations of which Pastor was a stockholder, including that parcel of land covered by TCT

No. T-116717 registered under the name of Speed. The court granted the motion. The affected corporations, including Speed, filed motions to cancel the notices of lis pendens and motions for exclusion of certain properties from Pastors estate. On June 8, 1995, the Court granted the motions and ordered the exclusion of certain properties from the estate of Pastor and the cancellation of the notices of lis pendens on properties registered in the name of the said corporations, including that covered by TCT No. T-116716 under the name of Speed. On June 27, 1995, the private respondent filed a verified amended petition in SP No. Q-9523334 alleging, among others, that during his lifetime, Pastor substantially owned the following business entities: Skyline Sales Corporation, Speed Distributing, Inc., and Leslim Corporation: 5. That the following real properties, although registered in the name of the above entities, were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit: CORPORATION TITLE LOCATION b. Leslim Corp. TCT No. 36617 Quezon City but now illegally transferred to and registered in the name of Speed Distributing, Inc. under TCT No. 116716.16 On July 4, 1995, the probate court issued an Order setting aside its June 8, 1995 Order and directed the Register of Deeds to reinstate the notice of lis pendens on TCT No. T-116716. The court denied the motion for the reconsideration of the said order. Speed filed a petition for certiorari with the Court of Appeals for the nullification of the July 4, 1995 and September 12, 1995 Orders of the trial court, docketed as CA-G.R. No. 38617 (SP). Meanwhile, on August 1, 1995, the private respondent filed a complaint against Speed, and the petitioners with the RTC of Quezon City, for the nullification of the Deed of Absolute Sale executed by Leslim in favor of Speed over the property covered by TCT No. T-36617, and the cancellation of TCT No. T-11676, with damages before the RTC of Quezon City. The case was raffled to Branch 222, and was docketed as Q-95-24588. The private respondent alleged, inter alia, that: ... 6. Plaintiff is the surviving spouse of the late Pastor Y. Lim who died intestate on June 11, 1994, but leaving several properties, real and personal, situated in Quezon City, Makati City, Rizal Province, Las Pias, Valenzuela, Manila, Cavite, Masbate and other parts of the country. 7. During the existence of the marriage of plaintiff and Pastor Y. Lim, the latter formed, among others, Leslim Corporation, and he actually owned the same as in fact he had in his name 95,700 out of the 120,000 shares of the authorized capital stock. The remaining shares of stocks were listed in the name of some persons who were actually his dummies, and were made to appear as stockholders of Leslim Corporation only for purposes of registration with the Securities and Exchange Commission. 8. Leslim Corporation, in turn, is a registered owner of a certain parcel of land located in Diliman, Quezon City, as evidenced by TCT No. 36617, issued by defendant Register of Deeds, copy of which is hereto attached as Annex "C." 9. Plaintiff initiated an intestate proceedings on the estate of her deceased husband in order to lay claim on her conjugal share thereon. She then started to verify the various TCTs of the real property in the name of her deceased husband, including those in the name of Leslim Corporation, and she discovered that TCT No. 36617 had already been canceled and in lieu

thereof, TCT No. 116716 was issued by defendant Register of Deeds in the name of defendant Corporation 10. Upon further verification, plaintiff discovered that the basis of the cancellation of TCT No. 36617 in favor of TCT No. 116716 is a Deed of Sale signed and executed by defendant Lita Marcelo who misrepresented herself as Vice President of Leslim Corporation and as such she was purportedly authorized to dispose of the property in question in favor of defendant corporation, which latter corporation was allegedly represented in the transaction by her husband, herein defendant Ireneo Marcelo who claimed himself as the Vice President of defendant corporation. 11. To give a semblance of legality to the feigned transaction of sale, defendant Pedro Aquino, misrepresenting himself as the corporate secretary of Leslim Corporation, executed a simulated/falsified secretarys certificate, wherein he stated that in an alleged special meeting of the Board of Directors of Leslim Corporation held on August 19, 1994 in its office at 1006 Quezon Avenue, Quezon City, defendant Lita Marcelo was allegedly authorized by the Board to enter into the transaction in question. 12. The transfer of the property from Leslim to defendant corporation is imaginary, the deed of sale and the secretarys certificate are simulated, hence, null and void, as shown below: 13. First of all, there was no such special meeting of the board of directors of Leslim Corporation on August 19, 1994, contrary to the allegation in the secretarys certificate. No notices to that effect were ever sent to Pastor Lim, a director and owner of 79.75 per cent of the capital stock of Leslim Corporation. Secondly, there was never a meeting of the stockholders wherein more than two-thirds of the stocks were present in order to approve the sale of all or substantially all of the assets consisting of real properties of Leslim Corporation. Indeed, no such meeting could have been held because Pastor Lim, who owned practically twothirds of the total capital stock, had already died on June 11, 1994. The last meeting of stockholders of Leslim Corporation was held in January, 1994. Since then up to the present, no other stockholders meeting, special or otherwise, was ever held by Leslim Corporation. 14. Thirdly, the place of the alleged special stockholders meeting could not have occurred in the place where it was purportedly held, namely, 1006 Quezon Avenue, Quezon City. This place is the address of Accurate Distributing, Inc., which had been under the control of the group of Estrelita Cabarles since August 1994 up to the present. On the other hand, defendants Lita Marcelo, Ireneo Marcelo, and Pedro Aquino and their cohorts are the adversaries of Estrelita Cabarles in several cases, civil and criminal, pending before various courts in Metro Manila and suburbs. The control and possession by the group of Cabarles of the premises ineluctably shows that no meeting was ever held thereon by their adversaries. Fourthly, there was never any payment made to Leslim Corporation respecting the alleged purchase price. 15. As a consequence of the above, defendant Lita Marcelo could not have been the Vice President of Leslim Corporation at the time the simulated deed of sale in question was executed, contrary to her claim thereon. Besides, defendant Lita Marcelo has never been a stockholder, much less a director of Leslim Corporation. Hence, it follows that the subject deed of absolute sale and the secretarys certificate are both simulated, and TCT No. 116716 of no force and effect, necessitating as it does its cancellation. The imaginary transaction of sale was clearly resorted to by defendants after the August 19, 1994 special stockholders meeting of Accurate Distributing Inc., where in the ground of Estrelita Cabarles were elected as Board of

Directors and corporate officers and in order to deprive plaintiff of her conjugal share and the other heirs of Pastor Y. Lim of their shares in his estate. In fact, all the real property registered in the name of Leslim Corporation and in Nellmart Corporation wherein Pastor Lim is also the majority stockholder had been transferred by defendants and their cohorts to themselves or to entities controlled by them, all at practically the same time. Thus: a. TCT No. 36617 Deed of Sale dated August 22, 1994 from Leslim to defendant Corporation. Amount P3,400,000.00. b. TCT No. 66001 Deed of Sale dated August 26, 1994 from Leslim to Auto Truck TBA. Amount P10,500,000.00. c. TCT No. 101730 Deed of Sale dated August 26, 1994 from Leslim to Skyline Sales Corporation. Amount P15,500,00.00. d. TCT No. T-48028 in the name of Nellmart but illegally transferred to defendant corporation under TCT No. 116718. e. TCT No. 236236 in the name of Nellmart but illegally transferred to Alliance Marketing, Inc., under TCT No. 285400. f. TCT No. 236237 in the name of Nellmart but illegally transferred to Alliance Marketing, Inc. under TCT No. 285399. 16. The same scheme was resorted to by defendants and their cohorts in divesting other corporations of all real property, where Pastor Lim is the stockholder. Thus, the motives of defendants in conspiracy with each other and with several other persons and entities are one and the same, namely: to monopolize the control, possession, enjoyment and ownership of all the estate of Pastor Lim, thereby depriving plaintiff of her conjugal share as well as her own share in her husbands own estate. 17. By reason of these acts of defendants, plaintiff was constrained to hire the services of counsel for a fee of P50,000.00 and appearance fee of P1,500.00 per hearing. She likewise suffered sleepless nights and wounded feelings, which if converted into its monetary equivalent would be P100,000.00, more or less. 18. In order to prevent defendants from repeating the unlawful acts, they should be condemned by pay exemplary damages in the amount of P100,000.00.17 The private respondent prayed that, after due proceedings, judgment be rendered in her favor, thus : WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that after notice and hearing, judgment be rendered: a. declaring the secretarys certificate and the deed of sale under question null and void; b. cancelling TCT No. 116716 issued in the name of defendant Speed Distributing Corporation for being without basis in fact and in law; c. ordering defendants to pay jointly and severally the amount of P100,000.00 exemplary damages; d. ordering defendants to play (sic) plaintiff jointly and severally the amount of P50,000.00 attorneys fees and P1,000.00 appearance fee per hearing. e. Ordering defendants to pay the cost of suit.18 In their answer with compulsory counterclaim, the petitioners specifically denied the material allegations of the complaint, and by way of special and affirmative defenses, alleged that the private respondent (the plaintiff therein), was not privy to the deed of sale executed by Leslim

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

WHEREFORE, premises considered, the Regional Trial Court, National Capital Judicial Region, Quezon City, Branch 222 is hereby ORDERED to try Civil Case No. Q-95-24588 without costs to plaintiff-appellant.24 The CA ruled that, as gleaned from the pleadings of the parties, the action involved intracorporate controversies as defined in Section 5 of Presidential Decree (PD) No. 902-A; as such, the RTC had no jurisdiction over the action. However, in light of Rep. Act No. 8799 which transferred to courts of general jurisdiction or the appropriate RTC cases over which the SEC had jurisdiction, the CA ordered the remand of the case to the RTC, for the determination, among others, of the resolution of the issue of whether or not the private respondent was the real party-in-interest. The Court of Appeals stated, thus: However, viewed in the light of Republic Act No. 8799, otherwise known as the Securities Regulation Code, approved on July 19, 2000 which has effectively divested the Securities and Exchange Commission of its quasi-judicial functions and transferred them to the Regional Trial Court, We rule that the latter may take cognizance of the instant case so as not to roundabout the judicial process, without prejudiced (sic) to its being ventilated as to whether or not appellant The private respondent Lim is a real party in interest to be determined during the trial on the merits before the appropriate court who has now the jurisdiction over the case at bar. 25 The motion for reconsideration of the petitioners was denied by the CA, per its Resolution dated August 8, 2001. In their petition at bar, the petitioners argue that THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAS JURISDICTION OVER THE SUBJECT CASE BY VIRTUE OF THE EFFECTIVITY OF RA 8799 KNOWN AS SECURITIES REGULATION CODE.26 The petitioners contend that the RTC had no jurisdiction over the private respondents complaint because the case involved intra-corporate controversies. Since Rep. Act No. 8799 took effect only on August 8, 2000, while the private respondents appeal in the CA was pending, it should not be given retroactive effect. Furthermore, Section 5.2 of RA 8799 proscribes the transfer of cases to the RTC; as such, the CA should have dismissed the private respondents appeal without prejudice to her right to refile her complaint in the RTC. The petitioners argue that the CA cannot order the case remanded to the RTC for the sake of convenience. For her part, the private respondent asserts that the complaint does not involve intra-corporate controversies and the RTC had jurisdiction over the action and the issues raised by the parties in their pleadings. The private respondent, likewise, opines that there is nothing wrong with the CAs ruling directing the RTC to hear the case to avoid any consequent delay. The sole issue in this case is whether or not the CA erred in remanding the case to the RTC and directing it to decide and hear the complaint on its merits, in view of Rep. Act No. 8799 which took effect on August 8, 2000, during the pendency of the case before it, effectively transferring jurisdiction over cases involving intra-corporate controversies from the SEC to the RTC. The Private Respondents Action in the RTC Does Not Involve an Intra- Corporate Dispute. Jurisdiction over the subject matter is conferred by law.27 The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not plaintiff is entitled to recover upon

all or some of the claims asserted therein.28 It cannot depend on the defenses set forth in the answer, in a motion to dismiss, or in a motion for reconsideration by the defendant. 29 Section 5 of P.D. No. 902-A provides that the SEC shall have original and exclusive jurisdiction over complaints, to hear and decide cases involving the following: (a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or stockholders, partners, members of associations registered with the Commission; (b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association and the State insofar as it concerns their individual franchise or right as such entity; (c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnership or associations; (d) Petitioners of corporations, partnerships or associations to be declared in the state of suspension of payment in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they fall due or in cases where the corporation, partnership or assciation has no sufficient assets to cover its liabilities but is under the management of a rehabilitation receiver or management committee created pursuant to this Decree.30 However, Section 5.231 of Rep. Act No. 8799, transferred the erstwhile exclusive and original jurisdiction of the SEC over actions involving intra-corporate controversies to the courts of general jurisdiction, or the appropriate RTC. All intra-corporate cases pending in the SEC were to be transferred to the appropriate RTC. Congress thereby recognized the expertise and competence of the RTC to take cognizance of and resolve cases involving intra-corporate controversies. In compliance with the law, the Court issued, on November 21, 2000 a Resolution designating certain branches of the RTC in the National Capital Region to try and decide cases enumerated in Section 5 of P.D. No. 902-A. For Quezon City cases, the Court designated Branches 46 and 93 of the RTC. Branch 222 of the Quezon City RTC, which dismissed the complaint of the private respondent, was not so designated by the Court. On March 13, 2001, the Court approved the Interim Rules of Procedure for Intra-Corporate Controversies, which took effect on April 1, 2001. To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the Branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy.32 The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership or association of which they are stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation.33 If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not

involve an intra-corporate controversy. The determination of whether a contract is simulated or not is an issue that could be resolved by applying pertinent provisions of the Civil Code. 34 In the present recourse, it is clear that the private respondents complaint in the RTC is not an intra-corporate case. For one thing, the private respondent has never been a stockholder of Leslim, or of Speed for that matter. The complaint is one for the nullification of the deed of absolute sale executed by Leslim in favor of Speed over the property covered by TCT No. T36617 in the name of Leslim, the cancellation of TCT No. T-116716 in the name of Speed, as well as the Secretarys Certificate dated August 22, 1994. The private respondent alleged that since her deceased husband, Pastor Lim, acquired the property during their marriage, the said property is conjugal in nature, although registered under the name of Leslim under TCT No. T36617. She asserted that the petitioners connived to deprive the estate of Pastor Lim and his heirs of their possession and ownership over the said property using a falsified Secretarys Certificate stating that the Board of Directors of Leslim had a meeting on August 19, 1995, when, in fact, no such meeting was held. Petitioner Lita Lim was never a stockholder of Leslim or a member of its Board of Directors; her husband, petitioner Ireneo Marcelo was the VicePresident of Speed; and, petitioner Pedro Aquino was Leslims corporate secretary. The private respondent further averred that the amount of P3,900,000.00, the purchase price of the property under the deed of absolute sale, was not paid to Leslim, and that petitioners Spouses Marcelo and petitioner Pedro Aquino contrived the said deed to consummate their devious scheme and chicanery. The private respondent concluded that the Deed of Absolute Sale was simulated; hence, null and void. We are convinced that on the basis of the material allegations of the complaint, the court a quo had jurisdiction over the case. The Private Respondent is a Real Party-in-Interest as Plaintiff. Rule 3, Section 2 of the Rules of Court, as amended, provides as follows: SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest. The private respondent filed the complaint as one of the heirs of Pastor Lim, who died intestate on June 11, 1994. She was, in fact, the surviving spouse of the deceased, a compulsory heir by operation of law. The general rule under the law on succession is that successional rights are transmitted from the moment of death of the decedent and compulsory heirs are called upon to succeed by operation of law to the inheritance without the need of further proceedings. Under Article 776 of the New Civil Code, inheritance includes all the properties, rights and obligations of a party, not extinguished by his death.35 Although the private respondent was appointed by the probate court as a special administratrix of the estate of Pastor Lim, she had the right, apart from her being a special administratrix, to file the complaint against the petitioners for the nullification of the deed of absolute sale, and TCT Nos. T-36617 and T116716. Indeed, in Emnace vs. Court of Appeals, et al.,36 we held that: On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to sue since she was never appointed as administratrix or executrix of his estate. Petitioners objection in this regard is misplaced. The surviving spouse does not need to be appointed as executrix or administratrix of the estate before she can file the action. She and her

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

[G.R. No. 141510. August 13, 2004] MANUEL L. MORATO, ANTONIO L. TAN, JR., JOSE THOMAS D. BELDIA, TRUMAN E. BECKER and T.F. VENTURES, INC., petitioners, vs.HON. COURT OF APPEALS, HON. SIMEON P. BADILLO, JR., and YOSHITSUGU MATSUURA, respondents. DECISION CALLEJO, SR., J.: This is a petition filed under Rule 45 and/or Rule 65 of the 1997 Revised Rules of Civil Procedure of the Decision[1] of the Court of Appeals in CA-G.R. SP No. 49930 and the Resolution denying the motion for reconsideration thereon. The Antecedents On October 1, 1997, herein petitioners, Manuel L. Morato, Antonio L. Tan, Jr., Jose Thomas D. Beldia, Truman E. Becker, T.F. Ventures, Inc., and Atty. Dennis G. Manicad filed a petition with the Securities and Exchange Commission (SEC) against Alexander Poblador, Romeo F. Gaza, Yusuke Fukuzumi, Florence R. Valmonte, Virgilio R. Lazaga, Reza M. Arabpour, Ruben P. Jacinto and herein private respondent Yoshitsugu Matsuura, for declaration of nullity of stockholders and directors meetings and damages. The petition was docketed as SEC Case No. 10-97-5778 and referred to the Securities Investigation and Clearing Department (SICD) of the SEC for investigation and resolution. The petition was later amended to include a prayer for the issuance of a temporary restraining order and a writ of preliminary injunction.[2] The petitioners alleged therein, inter alia, that when petitioner T.F. Ventures, Inc. was organized and registered on April 25, 1984, the following were the stockholders and the amount of their respective subscriptions: Amount of Name Number of Shares Subscription MANUEL MORATO 23,500 2,350,000.00 ANTONIO L. TAN, JR. 26,500 2,650,000.00 JOSE THOMAS BELDIA 5,000 500,000.00 ALEXANDER POBLADOR 5,000 500,000.00 TRUMAN BECKER 5,000 500,000.00 YOSHITSUGU MATSUURA 20,000 2,000,000.00 MASAO OGURA 15,000 1,500,000.00 Total 100,000 PHP 10,000,000.00[3] Petitioner Atty. Manicad was the corporate secretary of T.F. Ventures, Inc., having been appointed to the said office by the members of the board of directors of the said corporation on August 7, 1996. On October 8, 1996, the SEC approved the amended Articles of Incorporation of T.F. Ventures, Inc. increasing the authorized capitalization fromP10,000,000 to P100,000,000, as well as the subscription of Hiroshi Tanaka to P10,000,000 worth of shares. As of the said date, the total number of shares issued and outstanding was 500,000, at P100.00/per share, totaling P50,000,000. The stockholders on record and the number of shares subscribed by them, respectively, were as follows: Name Number of Shares Worth MANUEL MORATO 100,000 10,000,000.00 ANTONIO L. TAN, JR. 150,000 15,000,000.00 JOSE THOMAS BELDIA 25,000 2,500,000.00

ALEXANDER POBLADOR 25,000 2,500,000.00 TRUMAN BECKER 25,000 2,500,000.00 YOSHITSUGU MATSUURA 50,000 5,000,000.00 MASAO OGURA 25,000 2,500,000.00 HIROSHI TANAKA 100,000 10,000,000.00 Total 500,000 PHP 50,000,000.00[4] Following a dispute by and between the herein petitioners, who constituted the majority of the stockholders and directors of the petitioner corporation and respondent Matsuura, the latter had all the corporate records carted away from Suite 2112 Makati Prime Citadel Building, P. Burgos Street, Makati City, then the principal office of the corporation, to an unknown location. The said office was then padlocked and abandoned. The petitioners, thereafter, secured a search warrant against respondent Matsuura, his wife, and Jacinto, and were able to recover a substantial bulk of the petitioner corporations records. Thereafter, in a Board Resolution dated April 30, 1997, respondent Matsuura and Jacinto were charged with qualified theft. The Board of Directors of the petitioner corporation then transferred the principal office address to its Project Site, the Delta Sunrise Hotel, at 7835 Makati Ave., corner Eduque St., Makati City. In September 1997, petitioners Morato, Becker and Beldia received a notice of stockholders meeting from respondent Atty. Poblador, set at 10:00 a.m. on September 22, 1997. Atty. Poblador had apparently illegally assumed and maliciously represented himself as corporate secretary without proper authority from the Board of Directors. Stockholders, petitioners Tan[5] and Ogura,[6] who each owned a substantial number of shares of stock, were not formally notified of the said meeting. Petitioners Becker and Beldia then wrote Atty. Poblador, directing him to desist and refrain from proceeding with his intended actions. The meetings of stockholders and directors were nevertheless conducted on September 22, 1997 at 10:00 a.m. and 2:00 p.m., respectively. According to the petitioners, Atty. Pobladors act of calling such stockholders meeting was illegal and unauthorized for the following reasons: (a) the Board of Directors of T.F. Ventures, Inc., by virtue of a Board Resolution dated August 7, 1996, had already appointed Atty. Manicad as the new corporate secretary effective on the said date; (b) respondent Matsuura, even if he was Chairman of the Board of the Directors, could not, on his own, call for a stockholders meeting, as the authority to do so was vested in the president, petitioner Morato, or, in the event that no annual stockholders meeting would be held on the 1st Tuesday of March, the Board of Directors as stated in the by-laws;[7] and, (c) the absence of the petitioner corporations legitimate and existing stockholders on record negated the existence of a quorum. According to the petitioners, the increase in the subscribed capital stock and issuance of the outstanding number of shares therefor without proper authority from the SEC was made by the petitioner corporation in violation of the Corporation Code and the Articles of Incorporation. The election of the Board of Directors during the said meeting was illegal, considering that, except for respondent Matsuura, the rest of the members of the Board of Directors elected in the said meeting were not even shareholders as appearing in the books of the corporation, and as certified by petitioner Atty. Manicad, the corporate secretary. The petitioners prayed that, after due proceedings, judgment be rendered in their favor, viz:

A. Declaring the alleged NOTICE FOR ANNUAL STOCKHOLDERS MEETING as well as the alleged ANNUAL STOCKHOLDERS MEETING conducted by the Respondents on 22 September 1997 [at] 10:00 a.m. as NULL and VOID from the very beginning, including the proceedings made therein, to include but not limited to the sham ELECTION of the alleged Members of the Board of Directors and the appointment of the EXTERNAL AUDITOR; B. Declaring the alleged ORGANIZATIONAL MEETING of the renegade Board of Directors conducted by the Respondents on 22 September 1997 at 2:00 p.m. as NULL and VOID from the very beginning, including all proceedings made therein, to include but not limited to the sham ELECTION of the alleged Officers of T.F. VENTURES, INC.; C. Declaring any or all acts of the Respondents conducted or made at or proceeding from the alleged ANNUAL STOCKHOLDERS MEETING conducted by the Respondents on 22 September 1997 at 10:00 [a.m.] and ORGANIZATIONAL MEETING of the renegade Board of Directors conducted by the Respondents on 22 September 1997 at 2:00 p.m. as NULL and VOID. [8] The petitioners also prayed that the respondents be held, jointly and severally, liable to pay damages and attorneys fees, as follows: a) the sum of P25,000,000.00 representing the consequential damages suffered by Petitioners; b) the sum of P5,000,000.00 representing moral damages and the sum of P2,000,000.00 as and for exemplary damages; c) attorneys fees in the amount of P200,000.00 and expenses of suit in an amount of not less than P100,000.00 plus interest thereof from the date of the judgment; d) cost of suit; and e) interest on items (a) and (b) above from the date of filing of the Complaint until full payment thereof.[9] Traversing the material allegations of the amended petition, respondent Matsuura maintained in his answer to the petition that the meeting of the stockholders on September 22, 1997 and the election of the members of the Board of Directors on the said date were valid. He alleged that the petitioners held their own renegade stockholders meeting on October 20, 1997 without notifying him as Chairman of the Board. He further alleged that petitioner Tan, whose outstanding shares had been assigned and transferred in his favor as early as January 20, 1997, was present and participated in the said meeting. Respondent Matsuura also alleged that petitioner Tan, then acting as the treasurer, falsely certified in the Treasurers Affidavit dated September 29, 1993 that of the increase of P90,000,000 in the authorized capital stock, P40,000,000 was fully paid by the stockholders. He alleged that the original treasurers affidavit notarized on September 29, 1997 was replaced under the same Doc. No. 457 in order to reach the required minimum deposit and change the mode of payment of paid-in capital, from cash to offset of liability, to enable the petitioners to gain control of the corporation at practically zero cash outlay. Thereafter, the renegade board headed by petitioner Morato and former stockholder and ex-treasurer petitioner Tan concocted another Board Resolution on April 24, 1997, authorizing the opening of a new and secret account, with petitioner Morato as the sole signatory for the purpose of cashing in loan proceeds from another bank. Previous to that, the respondent further contends that petitioner Tan had already committed several misappropriations of both money and property belonging to the petitioner corporation. Respondent Matsuura, thus, interposed the following affirmative defenses:

THE STOCKHOLDERS MEETING HELD AT THE PRINCIPAL OFFICE ON SEPTEMBER 22, 1997 IS VALID, LEGAL AND MUST SUBSIST, THE SAME HAVING BEEN CONDUCTED WITH DUE NOTICE TO ALL PARTIES CONCERNED INCLUDING PAID AND UNPAID STOCKHOLDERS OF RECORD. IN COMPARISON, THE STOCKHOLDERS MEETING OF OCTOBER 20, 1997 SPEARHEADED BY COMPLAINANTS, WHO DID NOT PAY THEIR SUBSCRIPTION, AND WITHOUT NOTICE TO THE CHAIRMAN AND THE PAID-UP SUBSCRIBERS, IS PATENTLY ILLEGAL, VOID AND WITHOUT EFFECT. COROLLARILY, ALL BOARD RESOLUTIONS PASSED BY THE UNPAID SUBSCRIBERS AMONG THEMSELVES, WITHOUT NOTICE TO THE CHAIRMAN AND THE OFFICIAL CORPORATE SECRETARY ON RECORD, ARE VOID AND UNENFORCEABLE. THEREFORE, THE SAME MUST BE STRICKEN OUT. MOST IMPORTANTLY, THE APPROVAL FOR THE APPLICATION FOR INCREASED CAPITALIZATION IN THE AMOUNT OF P100,000,000.00 MUST BE RECALLED FOR FAILURE OF CONSIDERATION (OF STOCKHOLDERS TO PAY THEIR SUBSCRIPTIONS).[10] The respondent prayed that, after due proceedings, judgment in his favor be rendered as follows: a) To UPHOLD the VALIDITY of the stockholders meeting held on September 22, 1997 at the principal office of T.F. VENTURES, INC., and, consequently, lift the temporary restraining order initially granted to complainants. b) To DECLARE the stockholders meeting subsequently held by complainants on October 20, 1997 as NULL AND VOID, as well as all Board Resolutions certified by one Dennis Manicad as Corporate Secretary for being false, sham and consisting of ultra vires acts. c) To RECALL and NULLIFY the approval of application for increased capitalization in the amount of P100,000,000.00 due to failure of consideration. d) To ISSUE a TEMPORARY RESTRAINING ORDER against the private complainants from further issuing board resolutions and any alleged corporate acts in behalf of T.F. VENTURES, INC. and, thereafter, to issue a permanent WRIT OF PRELIMINARY INJUNCTION against complainants. e) To order complainants to pay MORAL DAMAGES in an amount not less than ONE MILLION PESOS, Actual or Compensatory and Exemplary Damages as may be determined by the Honorable Investigator, plus interests. f) To order private complainants/petitioners to pay ATTORNEYS FEES amounting to P200,000.00 and LITIGATION EXPENSES amounting to P100,000.00, plus interest.[11] On October 14, 1997, Hearing Officer Manolito S. Soller issued an Order granting a temporary restraining order prayed for by the petitioner.[12] On November 12, 1997, an Order was issued granting the writ of preliminary injunction prayed for by the petitioners on a bond of P400,000.[13] In the meantime, respondent Matsuura wrote Director Otillo C. San Diego of the Examiners and Appraisers Department of the SEC, requesting for an examination of the basis for the capital increase of T.F. Ventures, Inc. from P10,000,000 to P100,000,000, alleging the commission of devices, schemes and criminal acts. Thus: The undersigned Chairman of the Board of T.F. VENTURES, INC., in his capacity as such and as a stockholder, with the assistance of Counsel, most respectfully requests that a reexamination of the basis for capital increase of T.F. VENTURES, INC. be conducted in view of several anomalous

transactions and spurious documents that were unearthed only recently. The planned increase of the authorized shares to P100 Million was approved in principle sometime in 1993, however, since only the undersigned and Mr. Masao Ogura paid their increased shares, the plan was aborted. Whatever advances were given by the Japanese investors, including Mr. Tanaka later on, were agreed to be treated as credit of T.F. VENTURES, INC. It was discovered lately that a recommendation for approval by Mr. Remigio Santiago was issued on August 3, 1996, a copy is attached hereto as ANNEX A, used as basis in approving the P100 Million capital increase. Relative to [the] above recommendation, your attention is invited to verify the following documents and bank certifications, to wit: 1. TREASURERS AFFIDAVIT dated September 29, 1993 signed by Antonio Tan, Jr. who originally attested that out of the increased capital stock of P90 Million, P40 Million has been subscribed and fully paid by way of cash, a copy is attached hereto as ANNEX A1. Undersigned was led to believe that all stockholders subscribing to additional shares would, indeed, pay in cash, at the time the Memorandum of Agreement was drawn. However, Mr. Tan erased and substituted the same Affidavit later on to reflect that said increase in capital stock has been actually paid-in by way of offset of liabilities, the latter words having been superimposed, a copy is attached hereto as ANNEX A-2, under the same notarial register. 2. In the second paragraph of ANNEX A, on Verification and Comments, it was stated therein that cash received from the said subscribers were deposited on various dates with the corporations accounts with China Banking Corporation under SA # 103-07033-1-8 and (Dollar) $ account # 103311-1; and United Coconut Planters bank under SAQ # 103-123370-5, $ account # 01-103-300364-0 and Unified Trust Placement. Upon verification with China Bank, however, said Dollar Acct # 103311-1 is non-existent, the only dollar account is #103-703171-1, as shown in the attached letter of the undersigned, ANNEX A-3 and the Certification of China Bank as ANNEX A-4. 3. Moreover, in the same verification, the mention of Unified (sic) Trust Placement pertained to P20 Million proceeds of loan from Masao Ogura for use in company operations / construction, as shown in UCPB bank certification attached hereto as ANNEX A-5. The rights of Masao Ogura having been transferred to Yusuke Fukuzumi, the latter filed a criminal complaint for ESTAFA against the stockholders who claimed aforesaid proceeds as their paid in capital. A copy of the demand letter of Mr. Fukuzumi and the memorandum of criminal investigation is (sic) attached hereto as ANNEXES A-6 and A-7. 4. In furtherance of their interest, then Treasurer Antonio Tan, Jr. coerced a newly hired accountant to switch records, reclassify account names from Buyers Deposit to Deposit for Future Subscriptions and sign spurious certificate to make it appear that the unpaid subscribers have paid their subscriptions out of Advances from Stockholders for the purpose of getting SEC approval. However, knowing the criminal consequence of his acts, said Accountant Mr. Nestor Pangan, swore under oath that he executed the false certificate under threat and intimidation, a copy of which is attached hereto as ANNEX B and the admittedly false certificate submitted to this Office as ANNEX B-1. And finally, the approval by SEC on October 8, 1996 of the capital increase based on the admittedly spurious documents, is attached hereto as ANNEX B-2, described in paragraph 17 of said Accountants Affidavit.

5. Verily, then Treasurer Antonio Tan [Jr.] filed a G.I.S. as of September 1996 declaring P10 Million authorized capital stock, adopting the same stand as the last G.I.S. filed on March 1, 1994, except that he falsely claimed full payment of subscribed capital stock and he miscomputed the shares of Alexander Poblador by placing P500,000, instead of only P300,000. Notably, the 1996 G.I.S. was notarized on September 22, 1997 and filed only on September 23, 1997, together with the 1997 G.I.S. declaring P100 Million authorized capital, purposely to defeat the general stockholders meeting called on September 22, 1997 by the Corporate Secretary Alexander Poblador with due notice to all stockholders concerned. A copy of the March 1, 1994 G.I.S. is attached hereto as ANNEX C, the September 1996 G.I.S. as ANNEX C-1, and the 1997 G.I.S. as ANNEX C-2. 6. Stressworthy is the fact that as of January 1997, then Treasurer Antonio Tan [Jr.] had already transferred all his shares to the undersigned, a copy of the Deed of Trust is attached hereto as ANNEX D. Effectively therefore, he had no longer any personality to act as a Director of the corporation and the 1997 G.I.S. reflecting P100 Million capitalization is sham, illegal and void for lack of consideration; the same must be cancelled. WHEREFORE, after verification of the foregoing, it is most respectfully requested of this Honorable Office to SET ASIDE the approval of the P100 Million capital increase for failure of consideration, and REVERT to the status quo, which has an undisputed P10 Million authorized capital stock.[14] The matter was docketed as CSI Case No. 97-11-31. The letter was later forwarded by the SEC to the Prosecution and Enforcement Department (PED) which redocketed the matter as PED Case No. 98-2231. In a Letter[15] dated February 27, 1998 to then SEC Chairman Perfecto R. Yasay, Jr., petitioners Morato, Tan and Beldia, disclosed that they were not served any notice of the proceedings conducted in PED Case No. 98-2231. They stated that the issue of the sufficiency of the consideration of the increase in capital stock of the petitioner corporation had already been put in issue in SEC Case No. 10-97-5778. They contended that when respondent Matsuura raised the matter in his answer, he thereby resorted to forum shopping. The petitioners requested that the proceedings in PED Case No. 98-2231 be held in abeyance, considering that the SICD had acquired jurisdiction over their amended petition in SEC Case No. 10-97-5778 ahead of respondent Matsuuras letter-complaint. Chairman Yasay thereafter sent a Reply Letter[16] dated March 13, 1998 to petitioners Morato, Tan and Beldia, informing them that both cases, SEC Case No. 10-97-5778 and PED Case No. 982231, could proceed independently of each other. Yasay reasoned that the issue in the former case involved the validity of the notice and stockholders meeting of T.F. Ventures, Inc. and the organizational meeting of the members of the Board of Directors, while the latter case involved the alleged anomalous transactions and spurious documents used in the increase of the corporations capital stock. He added that under Section 8 of Presidential Decree (PD) No. 902A, the PED had the exclusive authority to investigate the matter before it for purposes of filing and prosecuting the corresponding cases for violation of the Corporate Code, the Revised Penal Code, and the rules and regulations enforced by the SEC.[17] Petitioners Morato, Tan and Beldia filed a Motion to Suspend Proceedings and/or Consolidation of Cases[18] in PED Case No. 98-2231. They prayed that the PED suspend its investigation in the said case until after the proceedings in the SICD in SEC Case No. 10-97-5778 shall have been

finally resolved; or, in the alternative, that the PED case be consolidated with SEC Case No. 1097-5778 pending in the SICD. They alleged that the issue in SEC Case No. 10-97-5778 was a prejudicial question in PED Case No. 98-2231. On April 27, 1998, Hearing Officer Atty. Simeon Badillo, Jr., issued an Order[19] denying the motion for lack of merit, ruling that the issue on prejudicial question had already been resolved by the SEC Chairman. Petitioners Morato, Tan and Beldia then filed a petition for review on certiorari with the SEC En Banc, pursuant to Rule XV of the 1993 SEC Revised Rules of Procedure. The petition was denied in an Order dated September 11, 1998, where the following matters were declared by the SEC En Banc: (a) a petition for review on certiorari of an interlocutory order is a prohibited pleading under Section 5, Rule I of the Rules of Practice and Procedure before the PED; (b) the Hearing Officer did not commit any grave abuse of discretion amounting to excess or lack of jurisdiction in denying the motion of the petitioners to suspend the proceedings in PED Case No. 98-2231; and, (c) respondent Matsuura was not guilty of forum shopping as there was no identity of the issues or causes of action involved in the two cases pending before the SICD and PED, respectively. The motion for reconsideration thereafter filed was, likewise, denied for lack of merit in a Resolution dated November 24, 1998. The petitioners elevated the matter to the CA by way of a petition for review under Rule 43 of the Rules of Court, on the ground that the SEC erred in (a) disregarding the rules on counterclaim and jurisdiction relative to the issue of increase in capitalization; (b) not finding the respondent guilty of forum shopping; and, (c) denying their motion for suspension and/or consolidation. On October 13, 1999, the CA rendered a Decision[20] dismissing the petition for lack of merit. The CA ratiocinated that, in the first place, the petition for certiorari filed before the SEC En Banc is a prohibited pleading under the 1993 SEC Revised Rules on Procedure. Secondly, the main prayer in SEC Case No. 10-97-5778 was the annulment of the notice of annual stockholders meeting, the resulting stockholders meeting pursuant to the said notice, and all corporate acts thereafter taken by the respondent Matsuura and the officers elected in the said meeting. On the other hand, the main prayer of respondent Matsuura in PED Case No. 98-2231 was the recall and nullification, for failure of consideration, of the approval of the petitioners application for increased capitalization from P10,000,000 to P100,000,000. The appellate court held that as the two pending cases are poles apart, the resolution of one case would not affect the proceedings and outcome of the other. The petitioners motion for reconsideration of the said decision was denied by the appellate court in its Resolution dated January 11, 2000.[21] Hence, this petition. The petitioners assail the decision and resolution of the CA, contending as follows: I THE RESPONDENT COURT OF APPEALS GRAVELY ERRED AND ABUSED ITS DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN NOT DECLARING THAT PRIVATE RESPONDENT IS GUILTY OF FORUM SHOPPING. II

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED AND ABUSED (SIC) DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN DISREGARDING THE SETTLED RULE ON COUNTERCLAIM VIS A VIS THE QUESTION OF JURISDICTION IN A GIVEN CASE. III THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE MOTION FOR SUSPENSION AND/OR CONSOLIDATION FILED BEFORE THE PUBLIC RESPONDENT IS PROPER AND PROCEDURALLY SANCTIONED.[22] We note that the petitioners designated their recourse to this Court as an appeal by way of petition for review under Rule 45 and/or Rule 65 of the 1997 Rules of Civil Procedure, as amended.[23] We find the same to be highly irregular. The petitioners are mandated to state categorically in their petition the Rule under which the same is filed, and not merely leave the matter for the Courts determination. It must be borne in mind that the remedies under Rules 45 and 65 of the Rules of Court cannot be interchanged, for as we ruled inNational Irrigation Administration v. Court of Appeals:[24] The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65 of the Rules of Court, now Rule 45 and Rule 65, respectively, of the 1997 Rules of Civil Procedure. Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this Court by filing a petition for review, which would be but a continuation of the appellate process over the original case. [25] Prescinding from the petitioners procedural lapse, we shall treat the petition as one filed under Rule 45 of the Rules of Court. The petitioners posit that in filing a letter-petition in PED Case No. 98-2231 and raising the issue of sufficiency of consideration for the petitioner corporations increase in capital stock despite the pendency of SEC Case No. 10-97-5778 before the SICD, respondent Matsuura thereby engaged in forum shopping. The petitioners point out that the respondent raised the same issue in his answer to their complaint and, in so doing, submitted the issue to the SICD for resolution, to the exclusion of the PED in PED Case No. 98-2231 which was filed much later with the SEC. The petitioners further contend that the SICD had already acquired jurisdiction over SEC Case No. 10-97-5778 when the respondent filed his letter-petition in PED Case No. 982231. Hence, the petitioners conclude that the proceedings in the latter case should be suspended, pending the resolution of the SICD case. We rule against the petitioners. We agree that when the respondent filed his letter-petition in PED Case No. 98-2231, the SICD had already acquired jurisdiction over the complaint of the petitioners in SEC Case No. 10-975778. However, the respondents act of filing such letter-petition did not constitute forum shopping. There is forum shopping where the elements of litis pendentiaare present, and where a final judgment in one case will amount to res judicata in the other. There is litis pendentia if the following requisites are present: (a) identity of parties, or at least such parties represent the same interests in both actions; (b) identity of the rights asserted and relief prayed for, the relief being founded on the same facts; and, (c) the identity of the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to res judicata in the action under consideration. The requisites of res judicata, on the other hand, are as follows: (a) there must be a final judgment or order;

(b) the court rendering the same must have jurisdiction over the subject matter and the parties; (c) the judgment or order must be on the merits; and, (d) there must be, between the two cases, identity of parties, identity of subject matter and identity of causes of action.[26] The test of identity of causes of action lies not in the form of action but on whether the same facts or evidence would support and establish the former and present causes of action. [27] Causes of action which are separate and independent of each other, although arising from the same contract, transaction or state of facts, may be sued separately or at one time, being no bar to subsequent actions on others.[28] In this case, SEC Case No. 10-97-5778 is pending before the SICD, which has exclusive jurisdiction to investigate and resolve intra-corporate disputes. The respondents letterpetition, on the other hand, was referred by the SEC to the PED, docketed as PED Case No. 982231,[29] and is pending before the Prosecution and Enforcement Department of the SEC. We find no identity of causes of action or identity of rights asserted by the parties in both cases. Section 8 of P.D. No. 902-A, as amended, provides: SECTION 6. The Prosecution and Enforcement Department shall have, subject to the Commissions control and supervision, the exclusive authority to investigate, on complaint or motu propio, any act or omission of the Board of Directors/Trustees of corporations, or of partnerships, or other associations, or of their stockholders, officers or partners, including any fraudulent devices, schemes or representations, in violation of any law or rules and regulations administered and enforced by the Commission; to file and prosecute in accordance with law and rules and regulations issued by the Commission and in appropriate cases, the corresponding criminal or civil case before the Commission or the proper court or body upon prima facie finding of violation of any laws or rules and regulations administered and enforced by the Commission; and to perform such other powers and functions as may be provided by law or duly delegated to it by the Commission. Prosecution under this Decree or any Act, Law, Rules and Regulations enforced and administered by the Commission shall be without prejudice to any liability for violation of any provision of the Revised Penal Code. Under the said provision, the SEC, through the PED, is vested with authority to investigate, either motu proprio or upon complaint, any act or omission, fraudulent schemes, devices or misrepresentations in violation of any law, rules or regulations, administered and enforced by the SEC, and to file and prosecute appropriate civil or criminal cases upon aprima facie finding of violation of such laws, rules or regulations. The petitioners, in SEC Case No. 10-97-5778, sought the nullification of the Notice for the Annual Stockholders Meeting, the stockholders meeting and organizational meeting held on September 22, 1997, on their claim that the holding of the same was in violation of the Corporation Code and the By-Laws of the petitioner corporation. In his answer to the petition, the respondent asserted the validity of the said meeting and prayed, by way of counterclaim, for the nullification of the October 20, 1997 meeting of the petitioners, and for damages. In contrast, the respondent alleged in his letterpetition in PED Case No. 98-2231 that the petitioners were engaged in fraudulent schemes, devices or misrepresentations in violation of the law, and SEC rules and regulations. [30] The complainant Matsuura asked the PED to investigate the complaint and file the corresponding administrative, civil or criminal cases before the SEC, the proper court or body, for violation of the laws, rules or regulations administered and enforced by the SEC. The fact that the SICD has

not yet resolved SEC Case No. 10-97-5778 does not constitute a bar to the resolution of PED Case No. 98-2231. The proceedings in the said cases are independent and separate of each other and may thus proceed separately. As correctly ruled by the SEC En Banc: Clearly, the PED had jurisdiction to investigate said increase in capitalization allegedly with failure of consideration and to determine whether or not the corporation and its responsible officers are liable, criminally and administratively, for violating the Corporation Code. The investigation conducted by the PED Hearing Officer Badillo in PED Case No. 98-2231 can proceed independently from the SICD case SEC Case No. 10-97-5778 as the issues to be resolved are different. Whatever findings that may result from said investigation may or may not result to the filing of the appropriate civil and criminal action before the proper courts or tribunal; and may, likewise, result to the suspension or revocation of the corporations certificate of registration if the allegations of failure of consideration in the increase in capitalization is found to be true. These are all within the exclusive jurisdiction of the PED.[31] The ruling of the SEC En Banc is an affirmation of the following reply of Chairman Yasay: In this regard, please be informed that the issue under SICD Case No. 10-97-5778 which calls for the declaration of the alleged Notice for Annual Stockholders Meeting and the Annual Stockholders Meeting and Organizational Meeting of the Board of Directors conducted on September 22, 1997 as NULL and VOID, is an intra-corporate dispute which falls under the jurisdiction of the SICD, while the investigation being conducted by the PED is the alleged anomalous transaction and spurious documents used in the increase in capital of T.F. Ventures, Inc., which is separate and distinct from each other. Be advised further that under PD 902-A, as amended, the Prosecution and Enforcement Department shall have, subject to the Commissions control and supervision, the exclusive authority to investigate, on complaint or motu proprio, any act or omission of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of their partnerships or of other associations, (sic) or of their stockholders, officers or partners, including any fraudulent devices, schemes or representations, in violation of any law or rules and regulations administered and enforced by the Commission, to file and prosecute in accordance with law and rules and regulations issued by the Commission and in appropriate case, file the corresponding criminal or civil case before the Commission or the proper court or body upon prima facie finding of violation of any laws or rules regulations (sic) administered and enforced by the Commission; and to perform such other powers and functions as may be provided by law or duly delegated to it by the Commission. In view thereof, the PED, pursuant to the mandate of the law, can proceed with the investigation, considering that the issues are different from the ones raised in the SICD case. [32] It is true that in his answer with counterclaim in SEC Case No. 10-97-5778, the respondent raised the matter of the sufficiency of consideration for the increase in the petitioner corporations capitalization. He even alleged that the petitioners were engaged in schemes and devices, and were guilty of culpable acts and omissions in violation of pertinent rules and laws. However, such allegation was made only for the purpose of defending the legality of the September 22, 1997 stockholders meeting and the election of the Board of Directors, as well as the nullity of the October 20, 1997 meeting spearheaded by the petitioners. By so doing, the respondent did not thereby submit the matters complained of in his letter-petition in PED Case No. 98-2231 to the SICD for resolution, since the latter has no jurisdiction to investigate and

resolve the same, or prosecute those guilty of such violations. In any event, if the respondent failed to raise such matters in his answer to the amended petition of the petitioners, he would have waived the said defenses. As provided for in Section 13, Rule IV of the 1993 SEC Revised Rules of Procedure, defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived.[33] We note that while this case was pending in this Court, Republic Act No. 8799, otherwise known as the Securities Regulation Code, took effect on August 8, 2000. Section 5.2 of the law provides: 5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. Among the powers and functions of the SEC which were transferred to the RTC include the following: (a) jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government; (b) the approval, rejection, suspension, revocation or requirement for registration statements, and registration and licensing applications; (c) the regulation, investigation or supervision of the activities of persons to ensure compliance; (d) the supervision, monitoring, suspension or take over the activities of exchanges, clearing agencies and other SROs; (e) the imposition of sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; (f) the issuance of cease-and-desist orders to prevent fraud or injury to the investing public; (g) the compulsion of the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; and, (h) the exercise of such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws. Under Section 1, Rule 1, of the Interim Rules of Procedure Governing Intra-Corporate Controversies under Rep. Act No. 8799, the RTC is empowered to hear civil cases involving the following: (1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association; (2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; (3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations; (4) Derivative suits; and

(5) Inspection of corporate books. (b) Prohibition against nuisance and harassment suits. Nuisance and harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following: (1) The extent of the shareholding or interest of the initiating stockholder or member; (2) Subject matter of the suit; (3) Legal and factual basis of the complaint; (4) Availability of appraisal rights for the act or acts complained of; and (5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought. In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case. However, Section 8 of P.D. No. 902-A, as amended, has already been repealed, as provided for in Section 76 of Rep. Act No. 8799: SEC. 76. Repealing Clause. The Revised Securities Act (Batas Pambansa Blg. 178), as amended, in its entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A, as amended, are hereby repealed. All other laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code are hereby repealed or modified accordingly. Thus, under the new law, the PED ceased to exist. However, the SEC retains jurisdiction to continue with its investigation of the letter-petition of respondent Matsuura. When Rep. Act No. 8799 took effect, SEC Case No. 10-97-5778 had not yet been submitted for decision by the SEC. Hence, the said case should be transferred to the RTC of Makati City, to be raffled to the appropriate branch thereof assigned to try such cases. Despite the repeal of Section 8 of P.D. No. 902-A and the abolition of the PED, the SEC may continue with its investigation of the letter-petition of respondent Matsuura. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision of the Court of Appeals dated October 13, 1999 and the Resolution dated January 11, 2000 are AFFIRMED with MODIFICATIONS. Pursuant to Section 5.2 of Republic Act No. 8799, the Securities and Exchange Commission is hereby DIRECTED to transfer SEC Case No. 10-97-5778 to the Regional Trial Court of Makati City. The SEC may continue with its investigation of the letter-petition of respondent Matsuura formerly docketed as PED Case No. 98-2231.

G.R. No. 146313 October 31, 2006 FLORENCIO vs. BF HOMES, INC., respondent.

ORENDAIN, petitioner,

DECISION

VELASCO, JR., J.: Before us is a Petition for Review on Certiorari praying for the reversal of the August 18, 2000 Decision and December 6, 2000 Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 48263 entitled Florencio B. Orendain v. Hon. Alfredo R. Enriquez, Presiding Judge of RTC-Br. 275, Las Pias, and BF Homes, Inc., which affirmed the December 4, 1996 and April 22, 1998 Orders of the Las Pias RTC finding that said court, not SEC, has jurisdiction over Civil Case No. LP-96-0022 for reconveyance of the lot covered by TCT No. T-36482 to respondent BF Homes, Inc. (BF Homes for brevity). BF Homes, Inc. is a domestic corporation operating under Philippine laws and organized primarily to develop and sell residential lots and houses and other related realty business. 1 Records show that respondent BF Homes had to avail itself of financial assistance from various sources to enable it to buy properties and convert them into residential subdivisions. This resulted in its incurring liabilities amounting to PhP 1,542,805,068.23 2 as of July 31, 1984. On the other hand, during its business operations, it was able to acquire properties and assets worth PhP 2,482,843,358.81 as of July 31, 1984, which, if liquidated, were more than enough to pay all its creditors.3 Despite its solvent status, respondent filed a Petition for Rehabilitation and for Declaration in a State of Suspension of Payments under Section 4 of PD No. 1758 before the Securities and Exchange Commission (SEC) because of the following: (a) the predatory acts of the Central Bank of trying to take over Banco Filipino and hand it cheap to its unidentified principal and its buyer financing facility with Banco Filipino has been suspended such that it cannot now consummate its sales transactions necessary for it to generate cash to service and/or liquidate its various maturing obligations; (b) the libelous [circulars] made by the Central Bank to banks under its supervision that its deposit accounts and other transactions with them were being examined such that the creditors of [BF Homes] have [begun] insisting on full liquidation under pain of foreclosure of their notes x x x; and (c) the [liquidation] of [BF Homes] assets cannot be made in such a short time as demanded by its creditors.4 In the said petition, respondent prayed thatin the meantime it was continuing its business operationsit be afforded time to pay its aforesaid obligations, freed from various proceedings either judicially or extra-judicially against its assets and properties. Also, respondent highlighted the importance of and prayed for a Rehabilitation Receiver in the petition. Such receiver, according to respondent, was "imperative to oversee the management and operations of [BF Homes] so that its business may not be paralyzed and the interest of the creditors may not be

prejudiced." It further argued that "rehabilitation [was] feasible and imperative because otherwise, in view of the extent of its involvement in the shelter program of the government and in the nations home mortgage insurance system, which has a secured coverage for at least P900 M of [BF Homes] P1.5 B liabilities, not only [the] creditors, [buyers, and stockholders] of the petitioner corporation may suffer but the public as well." 5 In SEC Case No. 2693, the SEC subsequently issued its March 18, 1985 Order which stated: WHEREFORE, in the interest of the parties-litigants, as well as the general public, and in order to prevent [paralyzation] of business operation[s] of the B.F. Homes, Inc., a Management Committee is hereby created composed of: 1. Atty. Florencio Orendain as Chairman 2. Representative of B. F. Homes, Inc. member 3. Representative of Home Financing Commission member 4. Two (2) representatives from the major creditors members xxxx Accordingly, with the creation of the Management Committee, all actions for claims against B.F. Homes, Inc. pending before the court, tribunal, board or body are hereby deemed suspended. 6 Thereafter, on February 2, 1988, the SEC ordered the appointment of a rehabilitation receiver, FBO Management Networks, Inc., with petitioner Orendain as Chairman to prevent paralyzation of BF Homes business operations.7 On October 8, 1993, a Deed of Absolute Sale8 was executed by and between BF Homes represented by petitioner Orendainas absolute and registered owner, and the Local Superior of the Franciscan Sisters of the Immaculate Phils., Inc. (LSFSIPI) over a parcel of land situated at Barangay Pasong Papaya, BF International, Municipality of Las Pias, Metro Manila, covered by Transfer Certificate of Title No. T-36482. The portion of land sold to LSFSIPI was 7,800 square meters, more or less, for Nineteen Million Five Hundred Thousand Pesos (PhP 19,500,000.00).9 Meanwhile, on November 7, 1994, the SEC hearing panel released an Omnibus Order 10 which admitted and confirmed the Closing Report submitted by the receiver, petitioner Orendain. It further appointed a new Committee of Receivers composed of the eleven (11) members of the Board of Directors of BF Homes with Albert C. Aguirre as the Chairman of the Committee. Consequently, receiver Orendain was relieved of his duties and responsibilities. In its August 22, 1995 Order,11 the SEC denied BF Homes and the intervenor-derivative suitor Eduardo S. Rodriguezs motions for reconsideration of its November 7, 1994 Omnibus Order. On January 23, 1996, BF Homes filed a Complaint before the Las Pias RTC against LSFSIPI and petitioner Orendain, in Civil Case No. LP-96-0022, for reconveyance of the property covered by TCT No. T-36482alleging, inter alia, that the LSFSIPI transacted with Orendain in his individual capacity and therefore, neither FBO Management, Inc. nor Orendain had title to the property transferred. Moreover, BF Homes averred that the selling price was grossly inadequate or insufficient amounting to fraud and conspiracy with the LSFSIPI. BF Homes also stated that the total assessed value of the property was approximately PhP 802,330.00. Hence, it prayed in the Complaint that LSFSIPI reconvey the disputed property or, if reconveyance was no longer feasible, pay the present value of the property.12 On March 21, 1996, the LSFSIPI filed its Answer with Compulsory Counterclaim, 13 stating, among others, that (1) the Complaint stated no cause of action since there was a valid sale with

sufficient consideration, and there was no fraud; (2) it was barred by a prior judgment of a tribunal with sufficient jurisdiction over the matter, and BF Homes was liable for forum shopping; and (3) BF Homes could not question its own acts by way of estoppel. On June 14, 1996, Florencio B. Orendain filed a Motion to Dismiss stating that (1) the RTC had no jurisdiction over the reconveyance suit; (2) the Complaint was barred by the finality of the November 7, 1994 Omnibus Order of the SEC hearing panel; and (3) BF Homes, acting through its Committee of Receivers, had neither the interest nor the personality to prosecute the said action, in the absence of SECs clear and actual authorization for the institution of the said suit.14 On July 15, 1996, BF Homes filed its Opposition15 to petitioners Motion to Dismiss, alleging that the case was within the exclusive jurisdiction of the RTC, not the SEC, considering that the case was an ordinary reconveyance suit. Likewise, BF Homes alleged that the cause of action was not barred by the perceived finality of the SEC November 7, 1994 Omnibus Order, and that the general powers of a receiver authorized BF Homes to institute actions to recover the property. On December 4, 1996, RTC Las Pias, Branch 275 issued an Order denying the June 14, 1996 Motion to Dismiss for lack of merit.16 However, on May 8, 1997, the SEC rendered its Order, as follows: WHEREFORE, premises considered, the decision of the hearing panel denying the motion for intervention of Mr. Eduardo Rodriguez is hereby AFFIRMED. The Commission hereby receives and notes the Closing Report of the Management Network and the Joaquin Cunanan Audit Report for inclusion in the records of the case without going into the merits and veracity of the contents thereof; the order to pay the attorneys fees of Balgos and Perez is hereby SET ASIDE; the resolution of the issue on the alleged payment of receivers fees of FBO Management Network is hereby deferred, and the order to pay the additional fees of the receiver is hereby set aside until after the Commission en banc finally clears and releases FBO Management Networks from its accountabilities in accordance with the policies and orders of the Commission on the receivership.17 On December 27, 1997, petitioner Orendain filed his Motion for Reconsideration 18 of the RTC December 4, 1996 Order. Consequently, BF Homes filed its January 17, 1997 Opposition 19 to Orendains Motion for Reconsideration; and on April 22, 1998, the RTC issued an Order denying the Motion for Reconsideration for lack of merit and petitioner Orendain was directed to file his answer to the Complaint within ten (10) days from receipt of the Order.20 Petitioner then filed his Answer Ex Abudante Ad Cautelam with Compulsory Counterclaims21 on May 29, 1998. On July 13, 1998, petitioner filed before the CA a Petition for Certiorari and Prohibition with Prayer for the Issuance of a Temporary Restraining Order and/or Bonded Writ of Preliminary Injunction22 which sought to annul the RTC December 4, 1996 and April 22, 1998 Orders, denying petitioners Motion to Dismiss and Motion for Reconsideration. Petitioner alleged that these motions were issued without jurisdiction or with grave abuse of discretion amounting to lack or in excess of jurisdiction. The Ruling of the Court of Appeals In its August 18, 2000 Decision, the CA held that the action for reconveyance filed by BF Homes was within the exclusive jurisdiction of the RTC. In the rehabilitation case, the LSFSIPI was not a party to the said case and did not have any intra-corporate relation with petitioner at the time

of the sale. The SEC could not acquire jurisdiction over the Franciscan Sisters; while petitioner Orendain was sued in his individual capacity and not in his official capacity as receiver. 23 Moreover, the CA stated that at the time the assailed orders were issued, the subject SEC Order had not yet attained finality; that there was no identity between the first and the second action with respect to the parties; and that the SEC November 7, 1994 Omnibus Order relied on by Orendain was not a decision on the merits of BF Homes Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments under Sec. 4 of P.D. No. 1758. According to the CA: Although this Court is not oblivious to the fact that the SEC en banc in a Decision dated May 8, 1997, affirmed the denial of the intervention filed by Rodriguez, still the said order did not go into the merits of the intervention but merely refused to give due recognition to the intervention as it was allegedly "untimely." Therefore, the contention of petitioner that the principle of res judicata is applicable in the case at bar does not hold water. 24 The CA ultimately rendered its judgment in this wise: WHEREFORE, premises considered, the instant petition is DISMISSED for failure to clearly show grave abuse of discretion and the assailed orders dated December 4, 1996 and April 22, 1998, are hereby AFFIRMED in toto without costs to petitioner.25 Hence, this petition is before us. The Courts Ruling Petitioner avers that the CA erred in holding that (1) the complaint a quo is a simple reconveyance suit and hence, can be heard and tried by the court a quo; (2) res judicata is inapplicable to the complaint a quo; and (3) the Committee of Receivers may institute an action against a former receiver without prior SEC approval.26 The petition is not meritorious. Action for Reconvenyance in the RTC Does Not Involve Intra-Corporate Dispute The issue central to this petition is: which has jurisdiction over the action for reconveyance the RTC or SEC. Petitioner Orendain argues that it is the SEC that has jurisdiction by virtue of Presidential Decree No. 902-A since BF Homes suit was instituted against him as its former receiver. He also avers that BF Homes allegations were nothing more than protestations against the former receiver who entered into a transaction during BF Homes regime of rehabilitation; and that the assailed transaction was consummated at the time the SEC had placed BF Homes under rehabilitation. Therefore, according to petitioner, the SEC, which appointed the rehabilitation receiver, has the sole power to decide the issue as to whether petitioner acted within the scope of the vested authority. Petitioner also claims that the resolution of the instant controversy depends on the ratification by the SEC of the acts of its agent, the receiver. Also, he asserts that for the RTC to insist on hearing and deciding the case below is to dislodge the appointing body from reviewing, ratifying, confirming, or overruling the acts of its appointee; and such would constitute undue interference on the jurisdiction of the SEC by a court of equal jurisdiction. Further, petitioner claims that the questions of whether the receiver of a company undergoing rehabilitation acted within the scope of his authority, and whether a transaction consummated during the rehabilitation proceedings is impermissible, are matters not within the province of a regular court acting on an ordinary reconveyance suit. Petitioner avers that the undisputed fact is that

at the time of the said transaction, respondent was operating under rehabilitation whereby receivership places all matters arising from, incidental, or connected with the implementation of said rehabilitation proceedings beyond the jurisdiction of regular courts. In addition, petitioner avers that the property in question is one of the many properties which formed part of a pool of assets placed under receivership and that he was the Chairman of the FBO Management, Inc.the SEC-appointed Rehabilitation Receiver at the time of the transaction. WE hold OTHERWISE. In Speed Distributing Corp. v. CA, we held that: Jurisdiction over the subject matter is conferred by law. The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not plaintiff is entitled to recover upon all or some of the claims asserted therein. It cannot depend on the defenses set forth in the answer, in a motion to dismiss, or in a motion for reconsideration by the defendant (citations omitted).27 In the case at bench, the BF Homes Complaint for reconveyance was filed on January 23, 1996 against LSFSIPI and Florencio B. Orendain, in Civil Case No. LP-96-002. In 1996, Section 5 of PD No. 902-A,28 which was approved on March 11, 1976, was still the law in forcewhereby the SEC still had original and exclusive jurisdiction to hear and decide cases involving: b) controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any and/or all of them and the corporation, partnership, or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity. Clearly, the controversy involves matters purely civil in character and is beyond the ambit of the limited jurisdiction of the SEC. As held in Viray v. Court of Appeals, "[t]he better policy in determining which body has jurisdiction over a case would be to consider not only [1] the status or relationship of the parties but also [2] the nature of the question that is the subject of their controversy."29 More so, in Speed Distributing Corp., we held that: The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership or association of which they are stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy. The determination of whether a contract is simulated or not is an issue that could be resolved by applying pertinent provisions of the Civil Code (citations omitted).30 However, Section 5 of PD No. 902-A does not apply in the instant case. The LSFSIPI is neither an officer nor a stockholder of BF Homes, and this case does not involve intra-corporate proceedings. In addition, the seller, petitioner Orendain, is being sued in his individual capacity

for the unauthorized sale of the property in controversy. Hence, we find no cogent reason to sustain petitioners manifestation that the resolution of the instant controversy depends on the ratification by the SEC of the acts of its agent or the receiver because the act of Orendain was allegedly not within the scope of his authority as receiver. Furthermore, the determination of the validity of the sale to LSFSIPI will necessitate the application of the provisions of the Civil Code on obligations and contracts, agency, and other pertinent provisions. In addition, jurisdiction over the case for reconveyance is clearly vested in the RTC as provided in paragraph (2), Section 19, B.P. Blg. 129, to wit: Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive [and] original jurisdiction (1) In all civil actions in which the subject of the litigation is incapable of pecuniary estimation; and (2) In all civil actions which involve the title to, or possession of, real property or any interest therein, where the assessed value of the property involved exceeds Twenty Thousand pesos (P20,000.00) or for civil actions in Metro Manila, where such value exceeds Fifty Thousand pesos (P50,000.00) x x x Likewise, in DMRC Enterprises v. Este del Sol Mountain Reserve, Inc., the Court said: Nowhere in said decree [PD 902-A] do we find even so much as an intimidation [sic] that absolute jurisdiction and control is vested in the Securities and Exchange Commission in all matters affecting corporations. To uphold the respondents arguments would remove without the legal imprimatur from the regular courts all conflicts over matters involving or affecting corporations, regardless of the nature of the transactions which give rise to such dispute. The courts would then be divested of jurisdiction not by reason of the nature of the dispute submitted to them for adjudication, but solely for the reason that the dispute involves a corporation. This cannot be done. To do so would not only be to encroach on the legislative prerogative to grant and revoke jurisdiction of the courts but such a sweeping interpretation may suffer constitutional infirmity. Neither can we reduce jurisdiction of the court by judicial fiat ( [citing] Article X, Section 1, The [1973] Constitution).31 Res Judicata Does Not Apply in the Action for Reconveyance According to petitioner, dismissal of the complaint is proper based on res judicata. He alleged that on September 28, 1994, he filed a Petition for Rehabilitation and for Declaration in a State of Suspension of Payments docketed as SEC Case No. 2693; and that sometime in 1994, FBO Management Network, Inc. submitted its Closing Report to the SEC. In said report, the receiver disclosed the conveyance of the property to the LSFSIPI. It is the same transaction which BF Homes seeks to nullify in the complaint a quo. We are not persuaded. There are two (2) aspects to the doctrine of res judicata: The first, known as "bar by prior judgment," is the effect of a judgment as a bar to the prosecution of a second action upon the same claim, demand or cause of action. The second, known as "conclusiveness of judgment," issues actually and directly resolved in a former suit cannot again be raised in any future case between the same parties involving a different cause of action.32 A case is barred by prior judgment when the following requisites are present: "(1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and

the parties; (3) it is a judgment or an order on the merits; and (4) there isbetween the first and second actionsidentity of parties, of subject matter, and causes of action."33 Petitioner asserts that bar by prior judgment exists since the May 8, 1997 Order of the SEC en banc had become final which would effectively preclude the adjudication of Civil Case No. LP96-0022. We DISAGREE. While the said SEC order denied the motion for intervention filed by intervenor Eduardo S. Rodriguez, it did not, however, resolve the issues raised in the motion on the merits. A judgment is "on the merits when it amounts to a legal declaration of the respective rights and duties of the parties based upon the disclosed facts (emphasis supplied and citation omitted)."34 It is apparent that the SEC order in question merely acknowledged the Closing Report for inclusion in the records of the case. It did not, however, pass upon the merits and veracity of the reports contents. As such, it cannot, in any wise, be considered as an adjudication of the rights and obligations of the parties relating to the subject matter of the action. Likewise, it appears that between the first and second actions, there was no identity of parties, of subject matter, and of cause of action. Hence, res judicata does not apply in the instant case. The second type of res judicata is "conclusiveness of judgment." In Francisco v. Co, this Court elucidated the nature of this principle, thus: "Conclusiveness of judgment" operates as a bar even if there is no identity as between the first and second causes of judgment. Under the doctrine, any right, fact, or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by the judgment therein and cannot again be litigated between the parties and their privies whether or not the claim, demand, purpose, or subject matter of the two actions is the same. Evidently, "conclusiveness of judgment" may operate to bar the second case even if there is no identity of causes of action. The judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein.35 A perusal of the SEC case would show that reconveyance of the property in controversy was neither an issue nor a relief sought by any party in the SEC proceedings. Evidently, the SEC November 7, 1994 Omnibus Order did not mention any reconveyance of property. 36 Eduardo S. Rodriguez, the intervenor in the SEC case, did not demand the reversion of the disputed property precisely because the SEC has no jurisdiction over the action for reconveyance. Assuming, arguendo, that intervenor Rodriguez raised the issue on the validity of petitioners acts in his capacity as receiver, still, the SEC November 7, 1994 Omnibus Order did not delve into the merits of the intervention nor did the order give due course to the intervention as it was untimely. Thus, there is no "conclusiveness of judgment" as the reconveyance of the lot sold to LSFSIPI was not directly decided or necessarily involved and adjudicated in the said SEC order. Furthermore, petitioner argues that the Committee of Receivers should have sought prior clearance from the SEC before instituting the action for reconveyance before the RTC, because it does not have the legal capacity to sue. This is incorrect. One of the general powers of a

receiver under Rule 59, Section 6 of the Rules of Court is the power to bring and defend suits in such capacity. Petitioner also contends that an action filed by a successor-receiver against him as predecessorreceiver is not allowed under Rule 59, Section 6 without leave of court which appointed him; as Section 6 provides that "no action may be filed by or against a receiver without leave of the court which appointed him." This is bereft of merit. The rule talks of the current receiver of the company and not the previous receiver like petitioner Orendain. The reason behind Rule 59, Section 6, which requires leave of court for all suits by or against the present receiver, is to forestall any undue interference with the receivers performance of duties through improvident suits. Apparently, such situation cannot apply to Orendain who is no longer BF Homes receiver. Moreover, the instant petition has been rendered moot and academic by the passage of RA 8799 or The Securities Regulation Code which took effect on August 8, 2000.37 Section 5.2 of RA 8799 transferred exclusive and original jurisdiction of the SEC over actions involving intra-corporate controversies to the courts of general jurisdiction or the appropriate RTC. In the transition, all intra-corporate cases pending in the SEC, which were not ripe for adjudication as of August 8, 2000, were turned over to the RTC. Congress thereby recognized the expertise and competence of the RTC to take cognizance of and resolve cases involving intra-corporate controversies. Thus, "whether or not the issue is intra-corporate, it is now the [RTC] and no longer the SEC that takes cognizance of [and resolves cases involving intracorporate controversies]."38 Section 5.2 of RA 8799 explicitly provides: The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over the cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payment/rehabilitation cases filed as of 30 June 2000 until finally disposed (emphasis supplied). Subsequently, on January 23, 2001, the Supreme Court issued Supplemental Administrative Circular No. 8-01 which ordered that effective March 1, 2000, "all SEC cases originally assigned or transmitted to the regular RTC shall be transferred to the branches of the regular RTC specially designated to hear such cases in accordance with AM No. 00-11-03-SC." During the Bicameral Conference Committees discussions on the conflicting provisions of Senate Bill No. 1220 and House Bill No. 8015 on the "Amendments to the Securities, Regulations and Enforcement Act," former Senator Raul S. Roco rendered his report, 39 as follows: The first major departure is as regards the Security Exchange Commission. The Securities and Exchange Commission has been authorized under this proposal to reorganize itself. As an administrative agency, we strengthened it and at the same time we take away the quasi-judicial functions. The quasi-judicial functions are now given back to the courts of general jurisdiction the Regional Trial Court, except for two categories of cases (emphasis supplied).

In case of corporate disputes, only those that are now submitted for final determination of the SEC will remain with the SEC. So, all those cases, both memos of the plaintiff and defendant, that have been submitted for resolution will continue. At the same time, cases involving rehabilitation, bankruptcy, suspension of payments and receiverships that were filed before June 30, 2000 will continue with the SEC. In other words, we are avoiding the possibility, upon approval of this bill, of people filing cases with the SEC, in a manner of speaking, to select their court. x x x It is only right now with this bill that we clarify the independent functions, not only in terms of monetary polity, by giving it to the Monetary Board, but in matters of commerce and securities and capital formation, by giving them to the [SEC], with sufficient powers to monitor and regulate capital formation in the Philippines. That is the first major departure x x x in terms of the powers and responsibilities of the [SEC]. In registration of securities, exempt transactions [and exempt securities], these are very technical and there are modifications x x x The registration and monitoring of securities are basically the same as the old law. Pre-need plans x x x remain with the SEC. Originally we wanted the SEC to concentrate on commerce, corporations and the securities regulation, but pre-need plan[s] under the Senate report was really with the SEC and under the House report, it was recommended to remain with the SEC without prejudice to a subsequent law if we should decide to do so to have the pre-need plans transferred to the Office of the Insurance Commissioner. x x x Thus, it is unequivocal that the jurisdiction to try and decide cases originally assigned to the SEC under Section 5 of PD 902-A has been transferred to the RTC. For clarity, we quote those cases under Section 5, PD 902-A, which now fall within the RTCs jurisdiction, as follows: (a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or stockholders, partners, members of associations registered with the Commission; (b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association and the State insofar as it concerns their individual franchise or right as such entity; (c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships, or associations; (d) Petitioners of corporations, partnerships or associations to be declared in the state of suspension of payment in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities but is under the management of a rehabilitation receiver or management committee created pursuant to this Decree. The remaining powers and functions of the SEC are enumerated in Section 5 of RA 8799, to wit: Powers and Functions of the Commission. [5.1] The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other

existing law[s]. Pursuant thereto the Commission shall have, among others, the following powers and functions: (a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government; (b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities marker and propose legislation and amendments thereto; (c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; (d) Regulate, investigate and supervise the activities of persons to ensure compliance; (e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; (f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; (g) Prepare, approve, amend or repeal rules, regulations, and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders; (h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, associations or person in the implementation of its powers and functions under this Code; (i) Issue cease and desist orders to prevent fraud or injury to the investing public; (j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; (k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; (l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provision of existing laws; (m) Suspend, or revoke, after notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and (n) Exercise such other powers as my be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws. Juxtaposing the jurisdiction of the RTC under RA 8799 and the powers that were retained by the SEC, it is clear that the SEC retained its administrative, regulatory, and oversight powers over all corporations, partnerships, and associations who are grantees of primary franchises, and/or a license or permit issued by the Government. However, the Securities Regulations Code (SRC) is clear that when there is a controversy arising out of intra-corporate relations, between and among stockholders, members or associates, and between, any, or all of them and the corporation, it is the RTC, not SEC, which has jurisdiction over the case. Thus, when the complaint involves "an active antagonistic assertion of a legal right on one side and a denial thereof on the other concerning a real, and not a mere theoretical question or issue,"40 a cause of action involving a delict or wrongful act or omission committed by a party in

violation of the primary right of another,41 or an actual controversy involving rights which are legally demandable or enforceable,42 the jurisdiction over this complaint is lodged with the RTC but not the SEC. The passage of RA 8799 has put to rest petitioner Orendains claim that it is the SEC and not the RTC that has jurisdiction over Civil Case No. LP-96-0022. At present, the instant petition has nothing to stand on and perforce must fail. WHEREFORE, the August 18, 2000 Decision and December 6, 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 48263 is hereby AFFIRMED IN TOTO.

G.R. No. 168639 January 29, 2007 ALDERITO Z. YUJUICO, BONIFACIO C. SUMBILLA, and DOLNEY S. SUMBILLA, Petitioners, vs. CEZAR T. QUIAMBAO, JOSE M. MAGNO III, MA. CHRISTINA F. FERREROS, ANTHONY K. QUIAMBAO, SIMPLICIO T. QUIAMBAO, JR., ERIC C. PILAPIL, ALBERT M. RASALAN, and REGIONAL TRIAL COURT, BRANCH 48, URDANETA CITY, Respondents. DECISION SANDOVAL-GUTIERREZ, J.: Before us for resolution is the Petition for Review on Certiorari 1 challenging the Decision dated March 31, 2005 rendered by the Court of Appeals in CA-G.R. SP No. 87785, as well as its Resolution dated June 29, 2006. The facts are: Strategic Alliance Development Corporation (STRADEC) is a domestic corporation engaged in the business of providing financial and investment advisory services and investing in projects through consortium or joint venture information.2 From its inception, STRADECs principal place of business was located at the 24th Floor, One Magnificent Mile-Citra Building, San Miguel Avenue, Ortigas Center, Pasig City. On July 27, 1998, the Securities and Exchange Commission (SEC) approved the amendment of STRADECs Articles of Incorporation authorizing the change of its principal office from Pasig City to Bayambang, Pangasinan.3 On March 1, 2004, STRADEC held its annual stockholders meeting in its Pasig City office as indicated in the notices sent to the stockholders.4 At the said meeting, the following were elected members of the Board of Directors: Alderito Z. Yujuico, Bonifacio C. Sumbilla, Dolney S. Sumbilla (petitioners herein), Cesar T. Quiambao, Jose M. Magno III and Ma. Christina Ferreros (respondents herein). Petitioners Alderito Yujuico was elected Chairman and President, while Bonifacio Sumbilla was elected Treasurer. All of them then discharged the duties of their office. After five (5) months, or on August 16, 2004, respondents filed with the Regional Trial Court (RTC), San Carlos City, Pangasinan a Complaint against STRADEC (represented by herein petitioners as members of its Board of Directors), docketed as Civil Case No. SCC-2874 and raffled off to Branch 56. The complaint prays that: (1) the March 1, 2004 election be nullified on the ground of improper venue, pursuant to Section 51 of the Corporation Code; (2) all ensuing transactions conducted by the elected directors be likewise nullified; and (3) a special stockholders meeting be held anew. Subsequently, respondents filed an Amended Complaint dated September 2, 2004 further praying for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction to enjoin petitioners from discharging their functions as directors and officers of STRADEC. On September 22, 2004, they filed a Supplemental Complaint praying that the court (1) direct Export Industry Bank, Cezar T. Quiambao and Bonifacio G. Sumbilla to surrender to them the original and reconstituted Stock and Transfer Book and other corporate documents of STRADEC; and (2) nullify the reconstituted Stock and Transfer Book and all transactions of the corporation. Both pleadings were admitted by the trial court. As the controversy involves an intra-corporate dispute, the trial court, on October 4, 2004, issued an Order transferring Civil Case No. SCC-2874 to RTC, Branch 48, Urdaneta City, being a designated Special Commercial Court.5 The case was then re-docketed as Civil (SEC) Case No. U14.

Since Branch 48 of RTC, Urdaneta City had no presiding judge then, Judge Meliton G. Emuslan acted as pairing judge of that branch to take cognizance of the cases therein until the appointment and assumption to duty of a regular judge.6 On November 2, 2004, petitioners filed their Answer with Counterclaim 7 in Civil (SEC) Case No. U-14. They prayed for the dismissal of the complaint on the following grounds, among others: (a) the complaint does not state a cause of action; (b) the action is barred by prescription for it was filed beyond the 15-day prescriptive period provided by Section 2, Rule 6 of the Interim Rules and Procedure Governing Intra-Corporate Controversies under Republic Act (R.A.) No. 8799; (c) respondents prayer that a special stockholders meeting be held in Bayambang, Pangasinan "is premature pending the establishment of a principal office of STRADEC in said municipality;" and (d) respondents waived their right to object to the venue as they attended and participated in the said March 1, 2004 meeting and election without any protest."8 Petitioners likewise opposed the application for a writ of preliminary injunction as respondents have no right that was violated, hence, are not entitled to be protected by law. They further prayed for damages by way of counterclaim. Meanwhile, Judge Aurelio R. Ralar, Jr. was appointed presiding judge of RTC, Branch 48, Urdaneta City. Significantly, on November 9, 2004, he took his oath of office before Associate Justice Diosdado M. Peralta of the Sandiganbayan, and on November 12, 2004, he assumed his duties.9 Subsequently, or on November 25, 2004, pairing Judge Meliton Emuslan still issued an Order10 granting respondents application for preliminary injunction ordering (1) the holding of a special stockholders meeting of STRADEC on December 10, 2004 "in the principal office of the corporation in Bayambang, Pangasinan;" and (2) the turn-over by petitioner Bonifacio Sumbilla to the court of the duplicate key of the safety deposit box in Export Industry Bank, Shaw Boulevard, Pasig City where the original Stock and Transfer Book of STRADEC was deposited. The pertinent portions of the Order read: ORDER This resolves the application of plaintiffs for the issuance of writ of preliminary prohibitory injunction. During the hearing on the application for Temporary Restraining Order/Injunction on October 20, 2004, plaintiffs presented as witnesses: Cezar T. Quiambao, Jose M. Magno III and Eric Gene Pilapil who testified in support of the material averments of the plaintiffs in their Amended Complaint and Supplemental Complaint. Specifically, plaintiff Quiambao testified, among other things, on the fact of the unlawful denial by defendant Yujuico of his request for the holding of a special stockholders meeting, the location of the principal place of office of the corporation, the deposit by him and defendant Sumbilla of the Stock and Transfer Book of the corporation in the Export Industry Bank in Pasig City, the illegal and unjustified reconstitution of said stock and transfer book, and the damages which he and the corporation sustained as a result of defendants unlawful acts including the unauthorized sale of corporate shares of stock. Plaintiff Magno III testified that he did not attend the Annual Stockholders meeting held last March 1, 2004 and that he did not authorize anybody to appear for and in his behalf. Lastly, witness Pilapil testified on the principal place of business of defendant corporation, the holding of the Annual Stockholders Meeting in a place outside the principal place of business of the corporation, and the fact that two (2) other stockholders, namely, Jose Magno III and Angel

Umali were neither present nor represented in said meeting, contrary to what was alleged in defendants Answer with Counterclaim (see par. 50, Answer with Counterclaim). xxx After a careful evaluation of the records and all the pleadings extant in this case as well as the testimonies of the witnesses for the plaintiffs, this court is inclined to grant the plaintiffs application for the writs of preliminary prohibitory injunction in order to restrain the defendants from acting as officers of the corporation and committing further acts inimical to the corporation and to the rest of the stockholders thereof. It is also evident from the pleadings that defendants would not yield to the demand of plaintiffs for the maintenance of the status quo until after the resolution of the merits of the instant controversy. xxx The effect of the issuance of this Order would create a hiatus in the action of the board of directors of STRADEC, pending the determination of the merits of the case and after trial on the merits. It would thus be for the best interest of the corporation as well as its stockholders that an election be undertaken of the members of the board and officers pursuant to STRADECS Articles of the corporation (sic) and the Corporation Code of the Philippines, under the supervision of the court. This is to avoid discontinuity of the operations of the corporation, which may result to its damage and prejudice. WHEREFORE, premises considered, let the Writ of Preliminary Injunction issue, upon posting of the requisite bond in the amount of Five Hundred Thousand Pesos (P500,000.00) to answer for whatever damages that the defendants would suffer on account of the issuance of the injunction writ, restraining defendants from acting as officers of the Corporation and committing further acts inimical to the corporation. It is likewise ordered that a special stockholders meeting in the principal place of office of the corporation in Bayambang, Pangasinan on December 10, 2004 be held. The Branch Clerk of this court shall attend the said meeting to observe the proceedings and report his observations to this court. For this purpose, the defendant Bonifacio Sumbilla is ordered to surrender to the court, not later than December 3, 2004, the duplicate key given to him by Export Industry Bank, Shaw Blvd., Pasig City, of the safety deposit box where he and plaintiff Cezar T. Quiambao deposited the Original Stock and Transfer Book of STRADEC which shall be the basis in the determination of the corporate stockholding during the meeting scheduled on the abovementioned date. SO ORDERED. In compliance with the above Order, the court sheriff (and respondent Cezar Quiambao, as claimed by petitioners) caused the opening of the safety deposit box of STRADEC in the Export Industry Bank, Shaw Boulevard Branch, Pasig City and took custody of its contents. On December 10, 2004, petitioners, claiming that a motion for reconsideration is a prohibited pleading under Section 8(3), Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, filed with the Court of Appeals a Petition for Certiorari with Prayer for the Issuance of a TRO and/or Preliminary Injunction,11 assailing Judge Emuslans November 25, 2004 Order. The petition was docketed as CA-G.R. SP No. 87785. In the proceedings before the appellate court, petitioners raised the following issues:

A. Only the SEC, not the RTC, has jurisdiction to order the holding of a special stockholders meeting involving an intra-corporate controversy; B. Judge Meliton Emuslan had no authority to issue the assailed Order dated November 25, 2004 as Judge Aurelio Ralar, Jr. was already the presiding judge of RTC, Branch 48, Urdaneta City;12 and C. Assuming Judge Emuslan had authority to issue the assailed Order, he nonetheless acted with grave abuse of discretion amounting to lack or excess of jurisdiction. Meanwhile, on the same day (December 10), as directed in the November 25, 2004 Order of Judge Emuslan, a special stockholders meeting of STRADEC was held in Bayambang, Pangasinan wherein a new set of directors were elected for the term 2004-2005, namely: Cezar T. Quiambao, Anthony K. Quiambao, and Simplicio T. Quiambao, Jr. Immediately thereafter, the new directors elected the following officers: Cezar T. Quiambao as Chairman and President; Eric C. Pilapil as Corporate Secretary; Anthony K. Quiambao as Corporate Treasurer; and Albert M. Rasalan as Assistant Corporate Secretary. On March 31, 2005, the Court of Appeals rendered a Decision13 in CA-G.R. SP No. 87785, dismissing the Petition for Certiorari. It upheld the jurisdiction of the RTC over the controversy and sustained the validity of Judge Emuslans Order of November 25, 2004. Petitioners motion for reconsideration was denied in a Resolution dated June 29, 2005.14 Hence, the instant Petition for Review on Certiorari. FIRST, petitioners contend that the Court of Appeals erred in ruling that the RTC has the power to call a special stockholders meeting involving an intra-corporate controversy. They maintain that it is only the SEC that may do so to be held under its supervision. The respondents, in their comment, counter that the appellate court correctly ruled that the power to hear and decide controversies involving intra-corporate disputes, as well as to act on matters incidental and necessary thereto, have been transferred from the SEC to the RTCs designated as Special Commercial Courts. It would be the height of absurdity, they argue, to require the filing of a separate case with the SEC for the sole purpose of asking the said agency to order the holding of a special stockholders meeting where there is already a pending case involving the same matter before the proper court. We agree with respondents. An intra-corporate controversy is one which "pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves."15 There is thus no dispute that respondents complaint in Civil (SEC) Case No. U-14 before the RTC, Branch 48, Urdaneta City involves an intra-corporate controversy, the contending parties being stockholders and officers of a corporation. Originally, Section 5 of Presidential Decree (P.D.) No. 902-A bestowed the SEC original and exclusive jurisdiction over cases involving the following: (a) Devices or schemes employed by, or any act of, the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of associations registered with the Commission;

(b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association and the State insofar as it concerns their individual franchise or right as such entity; (c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnership or associations; (d) Petitioners of corporations, partnerships or associations to be declared in the state of suspension of payment in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities but is under the management of a rehabilitation receiver or management committee created pursuant to this Decree.16(Underscoring supplied) Upon the enactment of R.A. No. 8799, otherwise known as "The Securities Regulation Code" which took effect on August 8, 2000,17 the jurisdiction of the SEC over intra-corporate controversies and other cases enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction, or the appropriate RTC. Section 5.2 of R.A. No. 8799 provides: 5.2. The Commissions jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court, Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Underscoring supplied) Pursuant to R.A. No. 8799, the Court issued a Resolution dated November 21, 2000 in A.M. No. 00-11-03-SC designating certain branches of the RTC to try and decide cases enumerated in Section 5 of P.D. No. 902-A. Branch 48 of RTC, Urdaneta City, the court a quo, is among those designated as a Special Commercial Court. On March 13, 2001, the Court approved the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799 which took effect on April 1, 2001.18 Sections 1 and 2, Rule 6 of the said Rules provide: SEC. 1. Cases covered. The provisions of this rule shall apply to election contests in stock and non-stock corporations. SEC. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide. (Underscoring supplied) In Morato v. Court of Appeals,19 we held that pursuant to R.A. No. 8799 and the Interim Rules of Procedure Governing Intra-Corporate Controversies, "among the powers and functions of the SEC which were transferred to the RTC include the following: (a) jurisdiction and supervision over all corporations, partnerships or associations which are the grantees of primary franchises and/or a license or permit issued by the Government; (b) the approval, rejection, suspension,

revocation or requirement for registration statements, and registration and licensing applications; (c) the regulation, investigation, or supervision of the activities of persons to ensure compliance; (d) the supervision, monitoring, suspension or take over the activities of exchanges, clearing agencies, and other SROs; (e) the imposition of sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; (f) the issuance of ceaseand-desist orders to prevent fraud or injury to the investing public; (g) the compulsion of the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; and (h) the exercise of such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws." Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the parties herein. Concomitant to said power is the authority to issue orders necessary or incidental to the carrying out of the powers expressly granted to it. Thus, the RTC may, in appropriate cases, order the holding of a special meeting of stockholders or members of a corporation involving an intra-corporate dispute under its supervision. SECOND, petitioners assert that Judge Emuslan did not have the authority to issue the assailed Order of November 25, 2004 upon the appointment and assumption on "November 2, 2004" (should be November 12) by Judge Aurelio R. Ralar, Jr. as the regular presiding judge of RTC, Branch 48, Urdaneta City. Significantly, respondents never refuted petitioners assertion. The Court of Appeals, for its part, dismissed petitioners allegation by merely ruling that "this is the first time they are raising this issue which is much too late in the day. In any event, one cannot question the authority of the court when it does not suit him and accepts such authority when it favors him."20 The ruling suggests that petitioners are barred by laches and/or estoppel from raising that issue. The appellate court likewise denied petitioners motion to set the case for oral arguments. The Court of Appeals should have resolved the issue of whether Judge Emuslan had the authority to issue the assailed Order, a jurisdictional question crucial to the resolution of the petition. It is elementary that a jurisdictional controversy may be raised at any time. 21 Indeed, as early as November 12, 2004, Judge Aurelio Ralar, Jr. assumed his duties as presiding judge of RTC, Branch 48, Urdaneta City. Evidently, Judge Emuslans authority, as pairing judge of Branch 48, to act on Civil (SEC) Case No. U-14 automatically ceased on that date. Therefore, he no longer had the authority to issue the Order of November 25, 2004, or thirteen (13) days after Judge Ralar, Jr. had assumed office. This is clear from this Courts Circular No. 19-98 dated February 18, 1998 which mandates: TO : ALL JUDGES OF THE REGIONAL TRIAL COURTS, METROPOLITAN TRIAL COURTS, MUNICIPAL TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS, AND MUNICIPAL CIRCUIT TRIAL COURTS SUBJECT : EXPANDED AUTHORITY OF PAIRING COURTS In the interest of efficient administration of justice, the authority of the pairing judge under Circular No. 7 dated September 23, 1974 (Pairing System for Multiple Sala Stations) to act on incidental or interlocutory matters and those urgent matters requiring immediate action on cases pertaining to the paired court shall henceforth be expanded to include all other matters. Thus, whenever a vacancy occurs by reason of resignation, dismissal, suspension, retirement, death, or prolonged absence of the presiding judge in a multi-sala station, the judge of the

paired court shall take cognizance of all cases thereat as acting judge therein UNTIL the APPOINTMENT and ASSUMPTION TO DUTY OF THE REGULAR JUDGE or the designation of an acting presiding judge or the return of the regular incumbent judge, or until further orders from this Court. For this purpose, the provisions of Circular No.7, dated September 23, 1974, inconsistent with this Circular are hereby amended. x x x. (Underscoring supplied) Thus, although the RTC, Branch 48, Urdaneta City is clothed with power to take cognizance of Civil (SEC) Case No. U-14, the exercise of such power is entirely a different matter. Verily, in Tolentino v. Leviste,22 this Court, speaking through Justice (now Chief Justice) Reynato S. Puno, held: x x x. Jurisdiction is not the same as the exercise of jurisdiction. As distinguished from the exercise of jurisdiction, jurisdiction is the authority to decide a cause, not the decision rendered therein. Where there is jurisdiction over the person and the subject matter, the decision on all other questions arising in the case is but an exercise of the jurisdiction. x x x. (Underscoring supplied) There are instances where a judge may commit errors. He may issue an order without authority. And if clothed with power, he may exercise it in excess of his authority or with grave abuse of discretion amounting to lack or excess of jurisdiction. Any of these acts may be struck down as a nullity through a petition for certiorari,23 as what petitioners did before the Court of Appeals. It bears stressing that any act or order rendered by a judge without authority, such as the questioned November 25, 2004 Order, is no order at all. It is void. As such, it cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal force and effect.24 THIRD, petitioners further contend that even if Judge Emuslan had the authority to issue the challenged Order, still he issued it with grave abuse of discretion amounting to lack or excess of jurisdiction. They lament that the Order effectively disposed of the merits of the main case [Civil (SEC) Case No. U-14]. Unfortunately, despite the significance of this issue, the Court of Appeals totally ignored it by failing to render a ruling thereon. Respondents, for their part, merely aver that Judge Emuslan "only had the best interest of STRADEC in mind" when he issued the questioned Order. 25 We find for petitioners. The duty of the court taking cognizance of an application for a writ of preliminary injunction is to determine whether the requisites necessary for the grant of such writ are present. The requisites for the issuance of a writ of preliminary injunction are: (1) the applicant for such writ must show that he has a clear and unmistakable right that must be protected; and (2) there exists an urgent and paramount necessity for the writ to prevent serious damage. 26 In this case, Judge Emuslans November 25, 2004 Order, quoted earlier, is hazy and too unsubstantial to justify the issuance of a writ of preliminary injunction. The Order does not contain specific findings of fact and conclusion of law showing that the requirements for the grant of the injunctive writ are present. It merely mentions the names of witnesses presented by respondents during the hearing on the application for the issuance of the writ, but there is no specific and substantial narration of the witnesses testimonies to establish the existence of a clear and unmistakable right on their part that must be protected, as well as the serious

damage or irreparable loss that they would suffer if the writ is not granted. It does not also disclose the specific evidence formally offered by the applicants. Obviously, the basis of the judges conclusion is too uncertain. Thus, in issuing the questioned November 25, 2004 Order granting a writ of preliminary injunction, he committed grave abuse of discretion. In Manila International Airport Authority v. Court of Appeals,27 we held: In the instant case, however, the trial courts order of January 20, 1993 was, on its face, bereft of basis for the issuance of a writ of preliminary injunction. There were no findings of fact or law in the assailed order indicating that any of the elements essential for the grant of a preliminary injunction existed. The trial court alluded to hearings during which the parties marked their respective exhibits and the trial court heard the oral arguments of opposing counsels. However, it cannot be ascertained what evidence was formally offered and presented by the parties and given weight and credence by the trial court. The basis for the trial courts conclusion that K Services was entitled to a writ of preliminary injunction is unclear. In its order of August 5, 1993, the trial court stated that it issued the injunction to prevent irreparable loss that might be caused to K Services. Once more, however, the trial court neglected to mention what right in esse of K Services, if any, was in danger of being violated and required the protection of a preliminary injunction. x x x. x x x the possibility of irreparable damage without proof of actual existing right is not a ground for an injunction (Heirs of Asuncion v. Gervacio, Jr., 304 SCRA 322 [1999]). Where the complainants right is doubtful or disputed, injunction is not proper. Absent a clear legal right, the issuance of the injunctive relief constitutes grave abuse of discretion (Id.). 28 Furthermore, Judge Emuslans November 25, 2004 Order goes against the concept and objective of a writ of preliminary injunction. A writ of preliminary injunction is a provisional remedy, an adjunct to a main suit. It is also a preservative remedy, issued to preserve the status quo of the things subject of the action or the relations between the parties during the pendency of the suit. In Selegna Management and Development Corporation v. United Coconut Planters Bank,29 we held: x x x. Injunction is not designed to protect contingent or future rights. It is not proper when the complainants right is doubtful or disputed. x x x, courts should avoid issuing this writ which in effect disposes of the main case without trial (F. Regalado, Remedial Law Compendium, Vol. I, 639 (7th revised ed., 1999). x x x. (Underscoring supplied) In the same case of Manila International Airport Authority v. Court of Appeals, 30 we urged the courts to exercise extreme caution in issuing the writ, thus: x x x. We remind trial courts that while generally the grant of a writ of preliminary injunction rests on the sound discretion of the court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion. The discretion of the court a quo to grant an injunctive writ must be exercised based on the grounds and in the manner provided by law. Thus, the Court declared in Garcia v. Burgos: It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should

never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages. Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it [citations omitted]. (Underscoring supplied) To repeat, the purpose of the writ of preliminary injunction is to preserve the status quo until the court could hear the merits of the case.31 The status quo is the last actual peaceable uncontested status that preceded the controversy32 which, in the instant case, is the holding of the annual stockholders meeting on March 1, 2004 and the ensuing election of the directors and officers of STRADEC. But instead of preserving the status quo, Judge Emuslans Order messed it up when, in compliance therewith, a special stockholders meeting was held anew and a new set of directors and officers of STRADEC was elected. That effectively resolved respondents principal action without even a full-blown trial on the merits since the Order impliedly ruled that the March 1, 2004 annual stockholders meeting and election are void. Verily, the issuance of the questioned Order violates the established principle that courts should avoid granting a writ of preliminary injunction that would in effect dispose of the main case without trial.33 Equally important is the fact that the Order was issued even though respondents right to an injunctive relief is doubtful or has been vehemently disputed. We note that petitioners, in their answer with counterclaim, raised serious and valid defenses, among which is that the action is premature since the principal office of STRADEC in Bayambang, Pangasinan is yet to be established, as authorized by the SEC.34 Obviously, pending the establishment of a principal office in Bayambang, Pangasinan, all the stockholders meetings of STRADEC have been properly held in their principal office in Pasig City. Another weighty defense raised by petitioners is that the action has prescribed. One of the reliefs sought by respondents in the complaint is the nullification of the election of the Board of Directors and corporate officers held during the March 1, 2004 annual stockholders meeting on the ground of improper venue, in violation of the Corporation Code. Hence, the action involves an election contest, falling squarely under the Interim Rules of Procedure Governing IntraCorporate Controversies under R.A. No. 8799. Sections 1 and 2, Rule 6 of the Interim Rules provide: SEC. 1. Cases covered. The provisions of this rule shall apply to election contests in stock and non-stock corporations. SEC. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide. (Underscoring supplied)1avvphi1.net It is important to note that the Court of Appeals itself ruled that respondents action before the RTC, Branch 48, Urdaneta City is an election contest, thus:

Likewise, as clearly provided in Section 1, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, among the intra-corporate controversies transferred to the special courts are: xxx (3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporation, partnerships or associations; xxx Undoubtedly, therefore, the instant case is an intra-corporate controversy among the stockholders themselves relative to the election of directors or officers of STRADEC, specifically between respondents x x x on one hand and petitioners x x x on the other. x x x. If there is still any doubt that the Special Corporate Court can call for a stockholders meeting, Rule 6 (citing Sections 1 and 2) of the Interim Rules completely puts to rest said issue. xxx Clearly, therefore, said Rule empowers the special corporate courts to decide election cases x x x.35(Underscoring supplied) As pointed out by petitioners in their answer with counterclaim, under Section 3, Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, an election contest must be "filed within 15 days from the date of the election."36 It was only on August 16, 2004 that respondents instituted an action questioning the validity of the March 1, 2004 stockholders election, clearly beyond the 15-day prescriptive period. In sum, Judge Emuslan, in granting the writ of preliminary injunction, acted with grave abuse of discretion amounting to lack or excess of jurisdiction. WHEREFORE, we GRANT the instant petition and reverse the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 87785. The Order dated November 25, 2004 of Judge Meliton G. Emuslan, RTC, Branch 48, Urdaneta City in Civil (SEC) Case No. U-14 and the special stockholders meeting and election held on December 10, 2004 in Bayambang, Pangasinan are SET ASIDE. The last actual peaceable uncontested status of the parties prior to the filing by respondents herein of Civil (SEC) Case No. U-14 is RESTORED. This case is REMANDED to the RTC, Branch 48, Urdaneta City for further proceedings with dispatch.

CEMCO HOLDINGS, INC., Petitioner,

G.R. No. 171815 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, and NACHURA, JJ. Promulgated:

- versus -

NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent.

August 7, 2007 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set aside the 24 October 2005 Decision[1] and the 6 March 2006 Resolution[2] of the Court of Appeals in CAG.R. SP No. 88758 which affirmed the judgment[3] dated 14 February 2005 of the Securities and Exchange Commission (SEC) finding that the acquisition of petitioner Cemco Holdings, Inc. (Cemco) of the shares of stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas Cement Corporation (ACC) in Union Cement Holdings Corporation (UCHC) was covered by the Mandatory Offer Rule under Section 19 of Republic Act No. 8799, otherwise known as the Securities Regulation Code. The Facts Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell toCemco BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in UCHC equivalent to 29.69%. In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result of petitioner Cemcos acquisition of BCI and ACCs shares in UCHC, petitioners total beneficial

ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the shares of UCC, to wit[4]: Particulars Percentage Existing shares of Cemco in UCHC 9% Acquisition by Cemco of BCIs and ACCs shares in 51% UCHC Total stocks of Cemco in UCHC 60% Percentage of UCHC ownership in UCC 60% Indirect ownership of Cemco in UCC 36% Direct ownership of Cemco in UCC 17% Total ownership of Cemco in UCC 53%

As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC. In a letter dated 16 July 2004, Director Justina Callangan of the SECs Corporate Finance Department responded to the query of the PSE that while it was the stance of the department that the tender offer rule was not applicable, the matter must still have to be confirmed by the SEC en banc. Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en banc had resolved that the Cemco transaction was not covered by the tender offer rule. On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused. On 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco, as buyer. On 12 August 2004, the transaction was consummated and closed. On 19 August 2004, respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July 2004Resolution and to declare the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares. Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC, which were then required by the SEC to file their respective comment on the complaint. In their comments, they were uniform in arguing that the tender offer rule applied only to a direct

acquisition of the shares of the listed company and did not extend to an indirect acquisition arising from the purchase of the shares of a holding company of the listed firm. In a Decision dated 14 February 2005, the SEC ruled in favor of the respondent by reversing and setting aside its 27 July 2004 Resolution and directed petitionerCemco to make a tender offer for UCC shares to respondent and other holders of UCC shares similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of the Securities Regulation Code. Petitioner filed a petition with the Court of Appeals challenging the SECs jurisdiction to take cognizance of respondents complaint and its authority to requireCemco to make a tender offer for UCC shares, and arguing that the tender offer rule does not apply, or that the SECs reinterpretation of the rule could not be made to retroactively apply to Cemcos purchase of UCHC shares. The Court of Appeals rendered a decision affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to render the questioned decision and, in any event, Cemco was barred by estoppel from questioning the SECs jurisdiction. It, likewise, held that the tender offer requirement under the Securities Regulation Code and its Implementing Rules applies to Cemcos purchase of UCHC stocks. The decretal portion of the said Decision reads: IN VIEW OF THE FOREGOING, the assailed decision of the SEC is AFFIRMED, and the preliminary injunction issued by the Court LIFTED.[5] Cemco filed a motion for reconsideration which was denied by the Court of Appeals. Hence, the instant petition. In its memorandum, petitioner Cemco raises the following issues: I. ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONAL LIFES COMPLAINT AND THAT THE SECS RE-INTERPRETATION OF THE TENDER OFFER RULE IS CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED RETROACTIVELY TO CEMCOS PREJUDICE. II. WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE DISPUTE BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO TO MAKE A TENDER OFFER FOR UCC SHARES. III. WHETHER OR NOT CEMCOS PURCHASE OF UCHC SHARES IS SUBJECT TO THE TENDER OFFER REQUIREMENT.

IV. WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA DECISION, IS AN INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT.[6]

Simply stated, the following are the issues: 1. Whether or not the SEC has jurisdiction over respondents complaint and to require Cemco to make a tender offer for respondents UCC shares. 2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company, in this case, the indirect acquisition by Cemco of 36% of UCC, a publicly-listed company, through its purchase of the shares in UCHC, a non-listed company. 3. Whether or not the questioned ruling of the SEC can be applied retroactively to Cemcos transaction which was consummated under the authority of the SECs prior resolution.

On the first issue, petitioner Cemco contends that while the SEC can take cognizance of respondents complaint on the alleged violation by petitioner Cemco of the mandatory tender offer requirement under Section 19 of Republic Act No. 8799, the same statute does not vest the SEC with jurisdiction to adjudicate and determine the rights and obligations of the parties since, under the same statute, the SECs authority is purely administrative. Having been vested with purely administrative authority, the SEC can only impose administrative sanctions such as the imposition of administrative fines, the suspension or revocation of registrations with the SEC, and the like. Petitioner stresses that there is nothing in the statute which authorizes the SEC to issue orders granting affirmative reliefs. Since the SECs order commanding it to make a tender offer is an affirmative relief fixing the respective rights and obligations of parties, such order is void. Petitioner further contends that in the absence of any specific grant of jurisdiction by Congress, the SEC cannot, by mere administrative regulation, confer on itself that jurisdiction. Petitioners stance fails to persuade. In taking cognizance of respondents complaint against petitioner and eventually rendering a judgment which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, to wit: 13. Violation

If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company at threshold amounts without the required tender offer, the Commission, upon complaint, may nullify the said acquisition and direct the holding of a tender offer. This shall be without prejudice to the imposition of other sanctions under the Code.

The foregoing rule emanates from the SECs power and authority to regulate, investigate or supervise the activities of persons to ensure compliance with the Securities Regulation Code, more specifically the provision on mandatory tender offer under Section 19 thereof. [7] Another provision of the statute, which provides the basis of Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, is Section 5.1(n), viz: [T]he Commission shall have, among others, the following powers and functions: xxxx (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the express powers of the Commission or which is incidental to, or reasonably necessary to carry out, the performance of the administrative duties entrusted to it. As a regulatory agency, it has the incidental power to conduct hearings and render decisions fixing the rights and obligations of the parties. In fact, to deprive the SEC of this power would render the agency inutile, because it would become powerless to regulate and implement the law. As correctly held by the Court of Appeals: We are nonetheless convinced that the SEC has the competence to render the particular decision it made in this case. A definite inference may be drawn from the provisions of the SRC that the SEC has the authority not only to investigate complaints of violations of the tender offer rule, but to adjudicate certain rights and obligations of the contending parties and grant appropriate reliefs in the exercise of its regulatory functions under the SRC. Section 5.1 of the SRC allows a general grant of adjudicative powers to the SEC which may be implied from or are necessary or incidental to the carrying out of its express powers to achieve the objectives and purposes of the SRC. We must bear in mind in interpreting the powers and functions of the SEC that the law has made the SEC primarily a regulatory body with the incidental power to conduct administrative hearings and make decisions. A regulatory body like the SEC may conduct hearings in the exercise of its regulatory powers, and if the case involves violations or conflicts in connection with the performance of its regulatory functions, it will have the duty and authority to resolve the dispute for the best interests of the public.[8]

For sure, the SEC has the authority to promulgate rules and regulations, subject to the limitation that the same are consistent with the declared policy of the Code. Among them is the protection of the investors and the minimization, if not total elimination, of fraudulent and manipulative devises. Thus, Subsection 5.1(g) of the law provides: Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders.

Also, Section 72 of the Securities Regulation Code reads: 72.1. x x x To effect the provisions and purposes of this Code, the Commission may issue, amend, and rescind such rules and regulations and orders necessary or appropriate, x x x. 72.2. The Commission shall promulgate rules and regulations providing for reporting, disclosure and the prevention of fraudulent, deceptive or manipulative practices in connection with the purchase by an issuer, by tender offer or otherwise, of and equity security of a class issued by it that satisfies the requirements of Subsection 17.2. Such rules and regulations may require such issuer to provide holders of equity securities of such dates with such information relating to the reasons for such purchase, the source of funds, the number of shares to be purchased, the price to be paid for such securities, the method of purchase and such additional information as the Commission deems necessary or appropriate in the public interest or for the protection of investors, or which the Commission deems to be material to a determination by holders whether such security should be sold.

The power conferred upon the SEC to promulgate rules and regulations is a legislative recognition of the complexity and the constantly-fluctuating nature of the market and the impossibility of foreseeing all the possible contingencies that cannot be addressed in advance. As enunciated in Victorias Milling Co., Inc. v. Social Security Commission[9]: Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law are often times left to the administrative agency entrusted with its enforcement. In this sense, it has been said that rules and regulations are the product of a delegated power to create new or additional legal provisions that have the effect of law.

Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It must be pointed out that petitioner had participated in all the proceedings before the SEC and had prayed for

affirmative relief. In fact, petitioner defended the jurisdiction of the SEC in its Comment dated 15 September 2004, filed with the SEC wherein it asserted: This Honorable Commission is a highly specialized body created for the purpose of administering, overseeing, and managing the corporate industry, share investment and securities market in the Philippines. By the very nature of its functions, it dedicated to the study and administration of the corporate and securities laws and has necessarily developed an expertise on the subject. Based on said functions, the Honorable Commission is necessarily tasked to issue rulings with respect to matters involving corporate matters and share acquisitions. Verily when this Honorable Commission rendered the Ruling that the acquisition of Cemco Holdings of the majority shares of Union Cement Holdings, Inc., a substantial stockholder of a listed company, Union Cement Corporation, is not covered by the mandatory tender offer requirement of the SRC Rule 19, it was well within its powers and expertise to do so. Such ruling shall be respected, unless there has been an abuse or improvident exercise of authority.[10]

Petitioner did not question the jurisdiction of the SEC when it rendered an opinion favorable to it, such as the 27 July 2004 Resolution, where the SEC opined that the Cemco transaction was not covered by the mandatory tender offer rule. It was only when the case was before the Court of Appeals and after the SEC rendered an unfavorable judgment against it that petitioner challenged the SECs competence. As articulated in Ceroferr Realty Corporation v. Court of Appeals[11]: While the lack of jurisdiction of a court may be raised at any stage of an action, nevertheless, the party raising such question may be estopped if he has actively taken part in the very proceedings which he questions and he only objects to the courts jurisdiction because the judgment or the order subsequently rendered is adverse to him.

On the second issue, petitioner asserts that the mandatory tender offer rule applies only to direct acquisition of shares in the public company. This contention is not meritorious. Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company.[12] A public company is defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company.[13] Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer.[14] Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority

shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders.[15] Under Section 19 of Republic Act No. 8799, it is stated: Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at least fifteen percent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty percent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders by filing with the Commission a declaration to that effect; and furnish the issuer, a statement containing such of the information required in Section 17 of this Code as the Commission may prescribe. Such person or group of persons shall publish all requests or invitations for tender, or materials making a tender offer or requesting or inviting letters of such a security. Copies of any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request shall contain such information as the Commission may prescribe, and shall be filed with the Commission and sent to the issuer not later than the time copies of such materials are first published or sent or given to security holders. Under existing SEC Rules,[16] the 15% and 30% threshold acquisition of shares under the foregoing provision was increased to thirty-five percent (35%). It is further provided therein that mandatory tender offer is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company.[17] The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule. This interpretation given by the SEC and the Court of Appeals must be sustained. The rule in this jurisdiction is that the construction given to a statute by an administrative agency charged with the interpretation and application of that statute is entitled to great weight by the courts, unless such construction is clearly shown to be in sharp contrast with the governing law or statute.[18] The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute.[19] The SEC and the Court of Appeals accurately pointed out that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or any type of

acquisition. This is clear from the discussions of the Bicameral Conference Committee on the Securities Act of 2000, on 17 July 2000. SEN. S. OSMEA. Eto ang mangyayari diyan, eh. Somebody controls 67% of the Company. Of course, he will pay a premium for the first 67%. Control yan, eh. Eh, kawawayung mga maiiwan, ang 33% because the value of the stock market could go down, could go down after that, because there will (p. 41) be no more market. Wala nang gustong bumenta.Wala nang I mean maraming gustong bumenta, walang gustong bumili kung hindi yung majority owner. And they will not buy. They already have 67%. They already have control. And this protects the minority. And we have had a case in Cebu wherein Ayala A who already owned 40% of Ayala B made an offer for another 40% of Ayala B without offering the 20%. Kawawanaman yung nakahawak ngayon ng 20%. Ang baba ng share sa market. But we did not have a law protecting them at that time. CHAIRMAN ROCO. So what is it that you want to achieve? SEN. S. OSMEA. That if a certain group achieves a certain amount of ownership in a corporation, yeah, he is obligated to buy anybody who wants to sell. CHAIRMAN ROCO. Pro-rata lang. (p. 42). xxxx REP. TEODORO. As long as it reaches 30, ayan na. Any type of acquisition just as long as it will result in 30 (p.50) reaches 30, ayan na. Any type of acquisition just as long as it will result in 30, general tender, pro-rata.[20] (Emphasis supplied.)

Petitioner counters that the legislators reference to any type of acquisition during the deliberations on the Securities Regulation Code does not indicate that congress meant to include the indirect acquisition of shares of a public corporation to be covered by the tender offer rule. Petitioner also avers that it did not directly acquire the shares in UCC and the incidental benefit of having acquired the control of the said public company must not be taken against it. These arguments are not convincing. The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks or through an indirect means, mandatory tender offer applies. As appropriately held by the Court of Appeals: The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as a result of the transaction, it became an indirect owner of UCC. We are

constrained, however, to construe ownership acquisition to mean both direct and indirect. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase of shares. Control may [be] effected through a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur. The bottomline of the law is to give the shareholder of the listed company the opportunity to decide whether or not to sell in connection with a transfer of control. x x x.[21]

As to the third issue, petitioner stresses that the ruling on mandatory tender offer rule by the SEC and the Court of Appeals should not have retroactive effect or be made to apply to its purchase of the UCHC shares as it relied in good faith on the letter dated 27 July 2004 of the SEC which opined that the proposed acquisition of the UCHC shares was not covered by the mandatory offer rule. The argument is not persuasive. The action of the SEC on the PSE request for opinion on the Cemco transaction cannot be construed as passing merits or giving approval to the questioned transaction. As aptly pointed out by the respondent, the letter dated 27 July 2004 of the SEC was nothing but an approval of the draft letter prepared by DirectorCallanga. There was no public hearing where interested parties could have been heard. Hence, it was not issued upon a definite and concrete controversy affecting the legal relations of parties thereby making it a judgment conclusive on all the parties. Said letter was merely advisory. Jurisprudence has it that an advisory opinion of an agency may be stricken down if it deviates from the provision of the statute.[22] Since the letter dated 27 July 2004 runs counter to the Securities Regulation Code, the same may be disregarded as what the SEC has done in its decision dated 14 February 2005. Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the same cannot be utilized to determine the rights of the parties. What is to be applied in the present case is the subsequent ruling of the SEC dated 14 February 2005 abandoning the opinion embodied in the letter dated 27 July 2004. In Serrano v. National Labor Relations Commission,[23] an argument was raised similar to the case under consideration. Private respondent therein argued that the new doctrine pronounced by the Court should only be applied prospectively. Said postulation was ignored by the Court when it ruled: While a judicial interpretation becomes a part of the law as of the date that law was originally passed, this is subject to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine and acted in good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no recognition of what had transpired prior to such adjudication.

It is apparent that private respondent misconceived the import of the ruling. The decision in Columbia Pictures does not mean that if a new rule is laid down in a case, it should not be applied in that case but that said rule should apply prospectively to cases arising afterwards. Private respondents view of the principle of prospective application of new judicial doctrines would turn the judicial function into a mere academic exercise with the result that the doctrine laid down would be no more than a dictum and would deprive the holding in the case of any force. Indeed, when the Court formulated the Wenphil doctrine, which we reversed in this case, the Court did not defer application of the rule laid down imposing a fine on the employer for failure to give notice in a case of dismissal for cause. To the contrary, the new rule was applied right then and there. x x x.

Lastly, petitioner alleges that the decision of the SEC dated 14 February 2005 is incomplete and produces no effect. This contention is baseless. The decretal portion of the SEC decision states: In view of the foregoing, the letter of the Commission, signed by Director Justina F. Callangan, dated July 27, 2004, addressed to the Philippine Stock Exchange is hereby REVERSED and SET ASIDE. Respondent Cemco is hereby directed to make a tender offer for UCC shares to complainant and other holders of UCC shares similar to the class held by respondent UCHC, at the highest price it paid for the beneficial ownership in respondent UCC, strictly in accordance with SRC Rule 19, Section 9(E).[24]

A reading of the above ruling of the SEC reveals that the same is complete. It orders the conduct of a mandatory tender offer pursuant to the procedure provided for under Rule 19(E) of the Amended Implementing Rules and Regulations of the Securities Regulation Code for the highest price paid for the beneficial ownership of UCC shares. The price, on the basis of the SEC decision, is determinable. Moreover, the implementing rules and regulations of the Code are sufficient to inform and guide the parties on how to proceed with the mandatory tender offer. WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6 March 2006, respectively, affirming the Decision dated 14 February 2005 of the Securities and Exchange Commission En Banc, are hereby AFFIRMED. Costs against petitioner.

GOVERNMENT SERVICE, INSURANCE SYSTEM, Petitioner,

G.R. No. 183905

Present: QUISUMBING, Chairperson, CARPIO MORALES, TINGA, VELASCO, JR., and BRION, JJ.

- versus -

THE HON. COURT OF APPEALS, (8TH DIVISION), ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAEZ, and FRANCIS GILES PUNO, Respondents.

Promulgated:

April 16, 2009

x----------------------------------------------------------------------------------------------- x SECURITIES AND EXCHANGE G.R. No. 184275 COMMISSION, COMMISSIONER JESUS ENRIQUE G. MARTINEZ IN HIS CAPACITY AS OFFICERIN-CHARGE OF THE SECURITIES AND EXCHANGE COMMISSION and HUBERT G. GUEVARA IN HIS CAPACITY AS DIRECTOR OF THE COMPLIANCE AND ENFORCEMENT DEPT. OF SECURITIES Petitioners,

versus -

ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAEZ, and FRANCIS

GILES PUNO, Respondents. x---------------------------------------------------------------------------------x

DECISION TINGA, J.:

These are the undisputed facts. The annual stockholders meeting (annual meeting) of the Manila Electric Company (Meralco) was scheduled on 27 May 2008.[1] In connection with the annual meeting, proxies[2] were required to be submitted on or before 17 May 2008, and the proxy validation was slated for five days later, or 22 May.[3] In view of the resignation of Camilo Quiason,[4] the position of corporate secretary of Meralco became vacant.[5] On 15 May 2008, the board of directors of Meralco designated Jose Vitug[6] to act as corporate secretary for the annual meeting.[7] However, when the proxy validation began on 22 May, the proceedings were presided over by respondent Anthony Rosete (Rosete), assistant corporate secretary and in-house chief legal counsel of Meralco.[8] Private respondents nonetheless argue that Rosete was the acting corporate secretary of Meralco.[9] Petitioner Government Service Insurance System (GSIS), a major shareholder in Meralco, was distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco management.[10] On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as R-PSY-08-05777-C4 [11] seeking the declaration of certain proxies as invalid. Three days later, on 26 May, GSIS filed a Notice with the RTC manifesting the dismissal of the complaint.[12] On the same day, GSIS filed an Urgent Petition[13] with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from recognizing, counting and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise honoring the shares covered by the proxies in favor of respondents Manuel Lopez,[14] Felipe Alfonso,[15] Jesus Francisco,[16] Oscar Lopez, Christian Monsod,[17] Elpidio Ibaez,[18] Francisco Giles-Puno[19] or any officer representing MERALCO Management, and to annul and declare invalid said proxies.[20] GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said proxies during the annual meeting scheduled for the following day.[21] A CDO[22] to that effect signed by SEC Commissioner Jesus Martinez was issued on 26 May 2008, the same day the complaint was filed. During the annual meeting held on the following day, Rosete announced that the meeting would push through, expressing the opinion that the CDOis null and void.[23] On 28 May 2008, the SEC issued a Show Cause Order (SCO)[24] against private respondents, ordering them to appear before the Commission on 30 May 2008 and explain why they should

not be cited in contempt. On 29 May 2008, respondents filed a petition for certiorari with prohibition[25] with the Court of Appeals, praying that the CDO and the SCO be annulled. The petition was docketed as CA-G.R. SP No. 103692. Many developments involving the Court of Appeals handling of CA-G.R. SP No. 103692 and the conduct of several of its individual justices are recounted in our Resolution dated 9 September 2008 in A.M. No. 08-8-11-CA (Re: Letter Of Presiding Justice Conrado M. Vasquez, Jr. On CA-G.R. SP No. 103692).[26] On 23 July 2008, the Court of Appeals Eighth Division promulgated a decision in the case with the following dispositive portion: WHEREFORE, premises considered, the May 26, 2008 complaint filed by GSIS in the SEC is hereby DISMISSED due to SECs lack of jurisdiction, due to forum shopping by respondent GSIS, and due to splitting of causes of action by respondent GSIS. Consequently, the SECs undated cease and desist order and the SECs May 28, 2008 show cause order are hereby DECLARED VOID AB INITIO and without legal effect and their implementation are hereby permanently restrained. The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being considered, out of equitable considerations, as an election contest in the RTC, because the prescriptive period of 15 days from the May 27, 2008 Meralco election to file an election contest in the RTC had already run its course, pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, due to deliberate act of GSIS in filing a complaint in the SEC instead of the RTC. Let seventeen (17) copies of this decision be officially TRANSMITTED to the Office of the Chief Justice and three (3) copies to the Office of the Court Administrator: (1) for sanction by the Supreme Court against the GSIS LAW OFFICE for unauthorized practice of law, (2) for sanction and discipline by the Supreme Court of GSIS lawyers led by Atty. Estrella Elamparo-Tayag, Atty. Marcial C. Pimentel, Atty. Enrique L. Tandan III, and other GSIS lawyers for violation of Sec. 27 of Rule 138 of the Revised Rules of Court, pursuant to Santayana v. Alampay, A.C. No. 5878, March 21, 2005 454 SCRA 1, and pursuant to Land Bank of the Philippines v. Raymunda Martinez, G.R. No. 169008, August 14, 2007: (a) for violating express provisions of law and defying public policy in deliberately displacing the Office of the Government Corporate Counsel (OGCC) from its duty as the exclusive lawyer of GSIS, a government owned and controlled corporation (GOCC), by admittedly filing and defending cases as well as appearing as counsel for GSIS, without authority to do so, the authority belonging exclusively to the OGCC; (b) for violating the lawyers oath for failing in their duty to act as faithful officers of the court by engaging in forum shopping; (c) for violating express provisions of law most especially those on jurisdiction which are mandatory; and (d) for violating Sec. 3, Rule 2 of the 1997 Rules of Civil Procedure by deliberately splitting causes of action in order to file multiple complaints: (i) in the RTC of Pasay City and (ii) in the SEC, in order to ensure a favorable order.[27] The promulgation of the said decision provoked a searing controversy, as detailed in our Resolution in A.M. No. 08-8-11-CA. Nonetheless, the appellate courts decision spawned three different actions docketed with their own case numbers before this Court. One of them, G.R.

No. 183933, was initiated by a Motion for Extension of Time to File Petition for Review filed by the Office of the Solicitor General (OSG) in behalf of the SEC, Commissioner Martinez in his capacity as officer-in-charge of the SEC, and Hubert Guevarra in his capacity as Director of the Compliance and Enforcement Department of the SEC.[28] However, the OSG did not follow through with the filing of the petition for review adverted to; thus, on 19 January 2009, the Court resolved to declare G.R. No. 183933 closed and terminated.[29] The two remaining cases before us are docketed as G.R. No. 183905 and 184275. G.R. No. 183905 pertains to a petition for certiorari and prohibition filed by GSIS, against the Court of Appeals, and respondents Rosete, Lopez, Alfonso, Francisco, Monsod, Ibaez and Puno, all of whom serve in different corporate capacities with Meralco or First Philippines Holdings Corporation, a major stockholder of Meralco and an affiliate of the Lopez Group of Companies. This petition seeks of the Court to declare the 23 July 2008 decision of the Court of Appeals null and void, affirm the SECs jurisdiction over the petition filed before it by GSIS, and pronounce that the CDO and the SCO orders are valid. This petition was filed in behalf of GSIS by the GSIS Law Office; it was signed by the Chief Legal Counsel and Assistant Legal Counsel of GSIS, and three self-identified Attorney[s], presumably holding lawyer positions in GSIS.[30] The OSG also filed the other petition, docketed as G.R. No. 184275. It identifies as its petitioners the SEC, Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his capacity as Director of the Compliance and Enforcement Department of the SEC the same petitioners in the aborted petition for review initially docketed as G.R. No. 183933. Unlike what was adverted to in the motion for extension filed by the same petitioners in G.R. No. 183933, the petition in G.R. No. 184275 is one for certiorari under Rule 65 as indicated on page 3 thereof,[31] and not a petition for review. Interestingly, save for the first page which leaves the docket number blank, all 86 pages of this petition for certiorari carry a header wrongly identifying the pleading as the non-existent petition for review under G.R. No. 183933. This petition seeks the reversal of the assailed decision of the Court of Appeals, the recognition of the jurisdiction of the SEC over the petition of GSIS, and the affirmation of the CDO and SCO. II. Private respondents seek the expunction of the petition filed by the SEC in G.R. No. 184275. We agree that the petitioners therein, namely: the SEC, Commissioner Marquez and Guevarra, are not real parties-in-interest to the dispute and thus bereft of capacity to file the petition. By way of simple illustration, to argue otherwise is to say that the trial court judge, the National Labor Relations Commission, or any quasi-judicial agency has the right to seek the review of an appellate court decision reversing any of their rulings. That prospect, as any serious student of remedial law knows, is zero. The Court, through the Resolution of the Third Division dated 2 September 2008, had resolved to treat the petition in G.R. No. 184275 as a petition for review on certiorari, but withheld giving due course to it.[32] Under Section 1 of Rule 45, which governs appeals by certiorari, the right to file the appeal is restricted to a party, meaning that only the real parties-in-interest who litigated the petition for certiorari before the Court of Appeals are entitled to appeal the same under Rule 45. The SEC and its two officers may have been designated as respondents in the petition for certiorari filed with the Court of Appeals, but under Section 5 of Rule 65 they are not entitled to be classified as real parties-in-interest. Under the provision, the judge, court,

quasi-judicial agency, tribunal, corporation, board, officer or person to whom grave abuse of discretion is imputed (the SEC and its two officers in this case) are denominated only as public respondents. The provision further states that public respondents shall not appear in or file an answer or comment to the petition or any pleading therein.[33] Justice Regalado explains: [R]ule 65 involves an original special civil action specifically directed against the person, court, agency or party a quo which had committed not only a mistake of judgment but an error of jurisdiction, hence should be made public respondents in that action brought to nullify their invalid acts. It shall, however be the duty of the party litigant, whether in an appeal under Rule 45 or in a special civil action in Rule 65, to defend in his behalf and the party whose adjudication is assailed, as he is the one interested in sustaining the correctness of the disposition or the validity of the proceedings. xxx The party interested in sustaining the proceedings in the lower court must be joined as a corespondent and he has the duty to defend in his own behalf and in behalf of the court which rendered the questioned order. While there is nothing in the Rules that prohibit the presiding judge of the court involved from filing his own answer and defending his questioned order, the Supreme Court has reminded judges of the lower courts to refrain from doing so unless ordered by the Supreme Court.[[34]] The judicial norm or mode of conduct to be observed in trial and appellate courts is now prescribed in the second paragraph of this section. xxx A person not a party to the proceedings in the trial court or in the Court of Appeals cannot maintain an action for certiorari in the Supreme Court to have the judgment reviewed. [35] Rule 65 does recognize that the SEC and its officers should have been designated as public respondents in the petition for certiorari filed with the Court of Appeals. Yet their involvement in the instant petition is not as original party-litigants, but as the quasi-judicial agency and officers exercising the adjudicative functions over the dispute between the two contending factions within Meralco. From the onset, neither the SEC nor Martinez or Guevarra has been considered as a real party-in-interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that every action must be prosecuted or defended in the name of the real party in interest, that is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. It would be facetious to assume that the SEC had any real interest or stake in the intra-corporate dispute within Meralco. We find our ruling in Hon. Santiago v. Court of Appeals[36] quite apposite to the question at hand. Petitioner therein, a trial court judge, had presided over an expropriation case. The litigants had arrived at an amicable settlement, but the judge refused to approve the same, even declaring it invalid. The matter was elevated to the Court of Appeals, which promptly reversed the trial court and approved the amicable settlement. The judge took the extraordinary step of filing in his own behalf a petition for review on certiorari with this Court, assailing the decision of the Court of Appeals which had reversed him. In disallowing the judges petition, the Court explained: While the issue in the Court of Appeals and that raised by petitioner now is whether the latter abused his discretion in nullifying the deeds of sale and in proceeding with the expropriation

proceeding, that question is eclipsed by the concern of whether Judge Pedro T. Santiago may file this petition at all. And the answer must be in the negative, Section 1 of Rule 45 allows a party to appeal by certiorari from a judgment of the Court of Appeals by filing with this Court a petition for review on certiorari. But petitioner judge was not a party either in the expropriation proceeding or in the certiorari proceeding in the Court of Appeals. His being named as respondent in the Court of Appeals was merely to comply with the rule that in original petitions for certiorari, the court or the judge, in his capacity as such, should be named as party respondent because the question in such a proceeding is the jurisdiction of the court itself (See Mayol v. Blanco, 61 Phil. 547 [19351, cited in Comments on the Rules of Court, Moran, Vol. II, 1979 ed., p. 471). "In special proceedings, the judge whose order is under attack is merely a nominal party; wherefore, a judge in his official capacity, should not be made to appear as a party seeking reversal of a decision that is unfavorable to the action taken by him. A decent regard for the judicial hierarchy bars a judge from suing against the adverse opinion of a higher court,. . . ." (Alcasid v. Samson, 102 Phil. 785, 740 [1957]) ACCORDINGLY, this petition is DENIED for lack of legal capacity to sue by the petitioner.[37] Justice Isagani Cruz added, in a Concurring Opinion in Santiago: The judge is not an active combatant in such proceeding and must leave it to the parties themselves to argue their respective positions and for the appellate court to rule on the matter without his participation.[38] Note that in Santiago, the Court recognized the good faith of the judge, who perceived the amicable settlement as a manifestly iniquitous and illegal contract.[39] The SEC could have similarly felt in good faith that the assailed Court of Appeals decision had unduly impaired its prerogatives or caused some degree of hurt to it. Yet assuming that there are rights or prerogatives peculiar to the SEC itself that the appellate court had countermanded, these can be vindicated in the petition for certiorari filed by GSIS, whose legal capacity to challenge the Court of Appeals decision is without question. There simply is no plausible reason for this Court to deviate from a time-honored rule that preserves the purity of our judicial and quasi-judicial offices to accommodate the SECs distrust and resentment of the appellate courts decision. The expunction of the petition in G.R. No. 184275 is accordingly in order. At this point, only one petition remainsthe petition for certiorari filed by GSIS in G.R. No. 183905. Casting off the uncritical and unimportant aspects, the two main issues for adjudication are as follows: (1) whether the SEC has jurisdiction over the petition filed by GSIS against private respondents; and (2) whether the CDOand SCO issued by the SEC are valid. II. It is our resolute inclination that this case, which raises interesting questions of law, be decided solely on the merits, without regard to the personalities involved or the well-reported drama preceding the petition. To that end, the Court has taken note of reports in the media that GSIS and the Lopez group have taken positive steps to divest or significantly reduce their respective interests in Meralco.[40] These are developments that certainly ease the tension

surrounding this case, not to mention reason enough for the two groups to make an internal reassessment of their respective positions and interests in relation to this case. Still, the key legal questions raised in the petition do not depend at all on the identity of any of the parties, and would obtain the same denouement even if this case was lodged by unknowns as petitioners against similarly obscure respondents. With the objective to resolve the key questions of law raised in the petition, some of the issues raised diminish as peripheral. For example, petitioners raise arguments tied to the behavior of individual justices of the Court of Appeals, particularly former Justice Vicente Roxas, in relation to this case as it was pending before the appellate court. The Court takes cognizance of our Resolution in A.M. No. 08-8-11-CA dated 9 September 2008, which duly recited the various anomalous or unbecoming acts in relation to this case performed by two of the justices who decided the case in behalf of the Court of Appealsformer Justice Roxas (the ponente) and Justice Bienvenido L. Reyes (the Chairman of the 8th Division) as well as three other members of the Court of Appeals. At the same time, the consensus of the Court as it deliberated on A.M. No. 08-8-11-CA was to reserve comment or conclusion on the assailed decision of the Court of Appeals, in recognition of the reality that however stigmatized the actions and motivations of Justice Roxas are, the decision is still the product of the Court of Appeals as a collegial judicial body, and not of one or some rogue justices. The penalties levied by the Court on these appellate court justices, in our estimation, redress the unwholesome acts which they had committed. At the same time, given the jurisprudential importance of the questions of law raised in the petition, any result reached without squarely addressing such questions would be unsatisfactory, perhaps derelict even. III. We now examine whether the SEC has jurisdiction over the petition filed by GSIS. To recall, SEC has sought to enjoin the use and annul the validation, of the proxies issued in favor of several of the private respondents, particularly in connection with the annual meeting. A. Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act No. 8799, otherwise known as the Securities Regulation Code (SRC), its implementing rules (Amended Implementing Rules or AIRR-SRC), and other related rules to support their competing contentions that either the SEC or the trial courts has exclusive original jurisdiction over the dispute. GSIS primarily anchors its argument on two correlated provisions of the SRC. These are Section 53.1 and Section 20.1, which we cite: SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization, and may require or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter to be investigated. The Commission may publish information concerning any such violations, and to investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the provisions of

this Code, in the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this Code relates: xxx (emphasis supplied) SEC. 20. Proxy Solicitations. 20.1. Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission; The argument, stripped of extravagance, is that since proxy solicitations following Section 20.1 have to be made in accordance with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that has the jurisdiction to investigate alleged violations of the rules on proxy solicitations. The GSIS petition invoked AIRR-AIRR-SRC Rule 20, otherwise known as The Proxy Rule, which enumerates the requirements as to form of proxy and delivery of information to security holders. According to GSIS, the information statement Meralco had filed with the SEC in connection with the annual meeting did not contain any proxy form as required under AIRR-SRC Rule 20. On the other hand, private respondents argue before us that under Section 5.2 of the SRC, the SECs jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to the courts of general jurisdiction or the appropriate regional trial court. The two particular classes of cases in the enumeration under Section 5 of Presidential Decree No. 902-A which private respondents especially refer to are as follows: xxx (2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; or association of which they are stockholders, members, or associates, respectively; 3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations; xxx In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules) promulgated by this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which defines election contests as follows: SEC. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity of elections and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a nonstock corporation where the articles of incorporation or bylaws so provide. (emphasis supplied) The correct answer is not clear-cut, but there is one. In private respondents favor, the provisions of law they cite pertain directly and exclusively to the statutory jurisdiction of trial courts acquired by virtue of the transfer of jurisdiction following the passage of the SRC. In contrast, the SRC provisions relied upon by GSIS do not immediately or directly establish that

bodys jurisdiction over the petition, since it necessitates the linkage of Section 20 to Section 53.1 of the SRC before the point can bear on us. On the other hand, the distinction between proxy solicitation and proxy validation cannot be dismissed offhand. The right of a stockholder to vote by proxy is generally established by the Corporation Code,[41] but it is the SRC which specifically regulates the form and use of proxies, more particularly the procedure of proxy solicitation, primarily through Section 20.[42] AIRR-SRC Rule 20 defines the terms solicit and solicitation: The terms solicit and solicitation include: A. any request for a proxy whether or not accompanied by or included in a form of proxy B. any request to execute or not to execute, or to revoke, a proxy; or C. the furnishing of a form of proxy or other communication to security holders under circumstance reasonably calculated to result in the procurement, withholding or revocation of a proxy. It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former involves the securing and submission of proxies, while the latter concerns the validation of such secured and submitted proxies. GSIS raises the sensible point that there was no election yet at the time it filed its petition with the SEC, hence no proper election contest or controversy yet over which the regular courts may have jurisdiction. And the point ties its cause of action to alleged irregularities in the proxy solicitation procedure, a process that precedes either the validation of proxies or the annual meeting itself. Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations issued by the SEC, such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion to make such investigations as it deems necessary to determine whether any person has violated any rule issued by it, such as AIRR-SRC Rule 4. The investigatory power of the SEC established by Section 53.1 is central to its regulatory authority, most crucial to the public interest especially as it may pertain to corporations with publicly traded shares. For that reason, we are not keen on pursuing private respondents insistence that the GSIS complaint be viewed as rooted in an intra-corporate controversy solely within the jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy may animate a disgruntled shareholder to complain to the SEC a corporations violations of SEC rules and regulations, but that motive alone should not be sufficient to deprive the SEC of its investigatory and regulatory powers, especially so since such powers are exercisable on a motu proprio basis. At the same time, Meralco raises the substantial point that nothing in the SRC empowers the SEC to annul or invalidate improper proxies issued in contravention of Section 20. It cites that the penalties defined by the SEC itself for violation of Section 20 or AIRR-SRC Rule 20 are limited to a reprimand/warning for the first offense, and pecuniary fines for succeeding offenses.[43] Indeed, if the SEC does not have the power to invalidate proxies solicited in violation of its promulgated rules, serious questions may be raised whether it has the power to adjudicate claims of violation in the first place, since the relief it may extend does not directly redress the cause of action of the complainant seeking the exclusion of the proxies. There is an interesting point, which neither party raises, and it concerns Section 6(g) of Presidential Decree No. 902-A, which states:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx (g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent stockholders or members; xxx As promulgated then, the provision would confer on the SEC the power to adjudicate controversies relating not only to proxy solicitation, but also to proxy validation. Should the proposition hold true up to the present, the position of GSIS would have merit, especially since Section 6 of Presidential Decree No. 902-A was not expressly repealed or abrogated by the SRC.[44] Yet a closer reading of the provision indicates that such power of the SEC then was incidental or ancillary to the exercise of such jurisdiction. Note that Section 6 is immediately preceded by Section 5, which originally conferred on the SEC original and exclusive jurisdiction to hear and decide cases involving controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. The cases referred to in Section 5 were transferred from the jurisdiction of the SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus, the SECs power to pass upon the validity of proxies in relation to election controversies has effectively been withdrawn, tied as it is to its abrogated jurisdictional powers. Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the cause of action of GSIS before the SEC is intimately tied to an election controversy, as defined under Section 5(c) of Presidential Decree No. 902-A. To answer that, we need to properly ascertain the scope of the power of trial courts to resolve controversies in corporate elections. B. Shares of stock in corporations may be divided into voting shares and non-voting shares, which are generally issued as preferred or redeemable shares.[45]Voting rights are exercised during regular or special meetings of stockholders; regular meetings to be held annually on a fixed date, while special meetings may be held at any time necessary or as provided in the bylaws, upon due notice.[46] The Corporation Code provides for a whole range of matters which can be voted upon by stockholders, including a limited set on which even non-voting stockholders are entitled to vote on.[47] On any of these matters which may be voted upon by stockholders, the proxy device is generally available.[48] Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election-related controversies is specifically confined to controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations. Evidently, the jurisdiction of the regular courts over so-called election contests or controversies under Section 5(c) does not extend to every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Section 24 of the Corporation Code.[49]

This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regular courts over election contests or controversies. The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree No. 902-A. The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the election of corporate directors must be seen as intended to confine to one body the adjudication of all related claims and controversy arising from the election of such directors. For that reason, the aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term election contest as encompassing all plausible incidents arising from the election of corporate directors, including: (1) any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, (2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications of candidates, including the proclamation of winners. If all matters anteceding the holding of such election which affect its manner and conduct, such as the proxy solicitation process, are deemed within the original and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing jurisdictions between that body and the regular courts becomes frighteningly real. From the language of Section 5(c) of Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification of voting shares, or the validity of votes cast in favor of a candidate for election to the board of directors are properly cognizable and adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases. Questions relating to the proper solicitation of proxies used in such election are indisputably related to such issues, yet if the position of GSIS were to be upheld, they would be resolved by the SEC and not the regular courts, even if they fall within controversies in the election of directors. The Court recognizes that GSISs position flirts with the abhorrent evil of split jurisdiction,[50] allowing as it does both the SEC and the regular courts to assert jurisdiction over the same controversies surrounding an election contest. Should the argument of GSIS be sustained, we would be perpetually confronted with the spectacle of election controversies being heard and adjudicated by both the SEC and the regular courts, made possible through a mere allegation that the anteceding proxy solicitation process was errant, but the competing cases filed with one objective in mind to affect the outcome of the election of the board of directors. There is no definitive statutory provision that expressly mandates so untidy a framework, and we are disinclined to construe the SRC in such a manner as to pave the way for the splitting of jurisdiction. Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory power of the SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly granting as it does original and exclusive jurisdiction first to the SEC, and now to the regular courts. The fact that the jurisdiction of the regular courts under Section 5(c) is confined to the voting on election of officers, and not on all matters which may be voted upon by stockholders, elucidates that the power of the SEC to regulate proxies remains extant

and could very well be exercised when stockholders vote on matters other than the election of directors. That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy was engendered by the looming annual meeting, during which the stockholders of Meralco were to elect the directors of the corporation. GSIS very well knew of that fact. On 17 March 2008, the Meralco board of directors adopted a board resolution stating: RESOLVED that the board of directors of the Manila Electric Company (MERALCO) delegate, as it hereby delegates to the Nomination & Governance Committee the authority to approve and adopt appropriate rules on: (1) nomination of candidates for election to the board of directors; (2) appreciation of ballots during the election of members of the board of directors; and (3) validation of proxies for regular or special meetings of the stockholders. [51] In addition, the Information Statement/Proxy form filed by First Philippine Holdings Corporation with the SEC pursuant to Section 20 of the SRC, states: REASON FOR SOLICITATION OF VOTES The Solicitor is soliciting proxies from stockholders of the Company for the purpose of electing the directors named under the subject headed Directors in this Statement as well as to vote the matters in the agenda of the meeting as provided for in the Information Statement of the Company. All of the nominees are current directors of the Company.[52] Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation or validation of proxies bore no relation at all to the scheduled election of the board of directors of Meralco during the annual meeting. GSIS very well knew that the controversy falls within the contemplation of an election controversy properly within the jurisdiction of the regular courts. Otherwise, it would have never filed its original petition with the RTC of Pasay. GSIS may have withdrawn its petition with the RTC on a new assessment made in good faith that the controversy falls within the jurisdiction of the SEC, yet the reality is that the reassessment is precisely wrong as a matter of law. IV. The lack of jurisdiction of the SEC over the subject matter of GSISs petition necessarily invalidates the CDO and SDO issued by that body. However, especially with respect to the CDO, there is need for this Court to squarely rule on the question pertaining to its validity, if only for jurisprudential value and for the guidance of the SEC. To recount the facts surrounding the issuance of the CDO, GSIS filed its petition with the SEC on 26 May 2008. The CDO, six (6) pages in all with three (3) pages devoted to the tenability of granting the injunctive relief, was issued on the very same day, 26 May 2008, without notice or hearing. The CDO bore the signature of Commissioner Jesus Martinez, identified therein as Officer-in-Charge, and nobody elses. The provisions of the SRC relevant to the issuance of a CDO are as follows:

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential

Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions: xxx (i) Issue cease and desist orders to prevent fraud or injury to the investing public; xxx [SEC.] 53.3. Whenever it shall appear to the Commission that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization, it may issue an order to such person to desist from committing such act or practice: Provided, however, That the Commission shall not charge any person with violation of the rules of an Exchange or other self regulatory organization unless it appears to the Commission that such Exchange or other self-regulatory organization is unable or unwilling to take action against such person. After finding that such person has engaged in any such act or practice and that there is a reasonable likelihood of continuing, further or future violations by such person, the Commission may issue ex-parte a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance with such provision. The Commission may transmit such evidence as may be available concerning any violation of any provision of this Code, or any rule, regulation or order thereunder, to the Department of Justice, which may institute the appropriate criminal proceedings under this Code. SEC. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. 64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been initiated or that a complaint has been filed, including the contents of the complaint, shall be confidential. Upon issuance of a cease and desist order, the Commission shall make public such order and a copy thereof shall be immediately furnished to each person subject to the order. 64.3. Any person against whom a cease and desist order was issued may, within five (5) days from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall automatically be lifted.

There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i), is predicated on a necessity to prevent fraud or injury to the investing public. No other requisite or detail is tied to this CDO authorized under Section 5(i). The second basis, found in Section 53.3, involves a determination by the SEC that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization. The provision additionally requires a finding that there is a reasonable likelihood of continuing [or engaging in] further or future violations by such person. The maximum duration of the CDO issued under Section 53.3 is ten (10) days.

The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act or practice, which unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. Section 64.1 plainly provides three segregate instances upon which the SEC may issue the CDO under this provision: (1) after proper investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party. While no lifetime is expressly specified for the CDO under Section 64, the respondent to the CDO may file a formal request for the lifting thereof, which the SEC must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing. It appears that the CDO under Section 5(i) is similar to the CDO under Section 64.1. Both require a common finding of a need to prevent fraud or injury to the investing public. At the same time, no mention is made whether the CDO defined under Section 5(i) may be issued exparte, while the CDO under Section 64.1 requires grave and irreparable injury, language absent in Section 5(i). Notwithstanding the similarities between Section 5(i) and Section 64.1, it remains clear that the CDOissued under Section 53.3 is a distinct creation from that under Section 64. The Court of Appeals cited the CDO as having been issued in violation of the constitutional provision on due process, which requires both prior notice and prior hearing.[53] Yet interestingly, the CDO as contemplated in Section 53.3 or in Section 64, may be issued exparte (under Section 53.3) or without necessity of hearing (under Section 64.1). Nothing in these provisions impose a requisite hearing before the CDO may be issued thereunder. Nonetheless, there are identifiable requisite actions on the part of the SEC that must be undertaken before the CDO may be issued either under Section 53.3 or Section 64. In the case of Section 53.3, the SEC must make two findings: (1) that such person has engaged in any such act or practice, and (2) that there is a reasonable likelihood of continuing, (or engaging in) further or future violations by such person. In the case of Section 64, the SEC must adjudge that the act, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3 or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a singular CDO could not be founded on Section 5.1, Section 53.3 and Section 64 collectively. At the very least, the CDO under Section 53.3 and under Section 64 have their respective requisites and terms. GSIS was similarly cagey in its petition before the SEC, it demurring to state whether it was seeking the CDO under Section 5.1, Section 53.3, or Section 64. Considering that injunctive relief generally avails upon the showing of a clear legal right to such relief, the inability or unwillingness to lay bare the precise statutory basis for the prayer for injunction is an obvious impediment to a successful application. Nonetheless, the error of the SEC in granting the CDO without stating which kind of CDO it was issuing is more unpardonable, as it is an act that contravenes due process of law. We have particularly required, in administrative proceedings, that the body or tribunal in all controversial questions, render its decision in such a manner that the parties to the proceeding can know the various issues involved, and the reason for the decision rendered. [54] This requirement is vital, as its fulfillment would afford the adverse party the opportunity to interpose a reasoned and intelligent appeal that is responsive to the grounds cited against it. The CDO extended by the SEC fails to provide the needed reasonable clarity of the rationale behind its issuance. The subject CDO first refers to Section 64, citing its provisions, then stating: [p]rescinding from the aforequoted, there can be no doubt whatsoever that the Commission is in fact mandated to take up, if expeditiously, any verified complaint praying for the provisional remedy of a cease and desist order.[55] The CDO then discusses the nature of the right of GSIS to obtain the CDO, as well as the urgent and paramount necessity to prevent serious damage because the stockholders meeting is scheduled on May 28, 2008 x x x Had the CDO stopped there, the unequivocal impression would have been that the order is based on Section 64. But the CDO goes on to cite Section 5.1, quoting paragraphs (i) and (n) in full, ratiocinating that under these provisions, the SEC had the power to issue cease and desist orders to prevent fraud or injury to the public and such other measures necessary to carry out the Commissions role as regulator.[56] Immediately thence, the CDO cites Section 53.3 as providing that whenever it shall appear to the Commission that nay person has engaged or is about to engage in any act or practice constituting a violation of any provision, any rule, regulation or order thereunder, the Commission may issue ex-parte a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance therewith.[57] The citation in the CDO of Section 5.1, Section 53.3 and Section 64 together may leave the impression that it is grounded on all three provisions, and that may very well have been the intention of the SEC. Assuming that is so, it is legally impermissible for the SEC to have utilized both Section 53.3 and Section 64 as basis for the CDO at the same time. The CDO under Section 53.3 is premised on distinctly different requisites than the CDO under Section 64. Even more

crucially, the lifetime of the CDO under Section 53.3 is confined to a definite span of ten (10) days, which is not the case with the CDO under Section 64. This CDO under Section 64 may be the object of a formal request for lifting within five (5) days from its issuance, a remedy not expressly afforded to the CDO under Section 53.3. Any respondent to a CDO which cites both Section 53.3 and Section 64 would not have an intelligent or adequate basis to respond to the same. Such respondent would not know whether the CDO would have a determinate lifespan of ten (10) days, as in Section 53.3, or would necessitate a formal request for lifting within five (5) days, as required under Section 64.1. This lack of clarity is to the obvious prejudice of the respondent, and is in clear defiance of the constitutional right to due process of law. Indeed, the veritable mlange that the assailed CDO is, with its jumbled mixture of premises and conclusions, the antithesis of due process. Had the CDO issued by the SEC expressed the length of its term, perhaps greater clarity would have been offered on what Section of the SRC it is based. However, the CDO is precisely silent as to its lifetime, thereby precluding much needed clarification. In view of the statutory differences among the three CDOs under the SRC, it is essential that the SEC, in issuing such injunctive relief, identify the exact provision of the SRC on which the CDO is founded. Only by doing so could the adversely affected party be able to properly evaluate whatever his responses under the law. To make matters worse for the SEC, the fact that the CDO was signed, much less apparently deliberated upon, by only by one commissioner likewise renders the order fatally infirm. The SEC is a collegial body composed of a Chairperson and four (4) Commissioners. [58] In order to constitute a quorum to conduct business, the presence of at least three (3) Commissioners is required.[59] In the leading case of GMCR v. Bell,[60] we definitively explained the nature of a collegial body, and how the act of one member of such body, even if the head, could not be considered as that of the entire body itself. Thus: We hereby declare that the NTC is a collegial body requiring a majority vote out of the three members of the commission in order to validly decide a case or any incident therein. Corollarily, the vote alone of the chairman of the commission, as in this case, the vote of Commissioner Kintanar, absent the required concurring vote coming from the rest of the membership of the commission to at least arrive at a majority decision, is not sufficient to legally render an NTC order, resolution or decision. Simply put, Commissioner Kintanar is not the National Telecommunications Commission. He alone does not speak for and in behalf of the NTC. The NTC acts through a three-man body, and the three members of the commission each has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the NTC. When we consider the historical milieu in which the NTC evolved into the quasi-judicial agency it is now under Executive Order No. 146 which organized the NTC as a three-man commission and

expose the illegality of all memorandum circulars negating the collegial nature of the NTC under Executive Order No. 146, we are left with only one logical conclusion: the NTC is a collegial body and was a collegial body even during the time when it was acting as a one-man regime.[61] We can adopt a virtually word-for-word observation with respect to former Commissioner Martinez and the SEC. Simply put, Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of the SEC. The SEC acts through a five-person body, and the five members of the commission each has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the SEC. GSIS attempts to defend former Commissioner Martinezs action, but its argument is without merit. It cites SEC Order No. 169, Series of 2008, wherebyMartinez was designated as Officer-in-Charge of the Commission for the duration of the official travel of the Chairperson to Paris, France, to attend the 33rd Annual Conference of the [IOSCO] from May 26-30, 2008.[62] As officer-in-charge (OIC), Martinez was authorized to sign all documents and papers and perform all other acts and deeds as may be necessary in the day-to-day operation of the Commission. It is clear that Martinez was designated as OIC because of the official travel of only one member, Chairperson Fe Barin. Martinez was not commissioned to act as the SEC itself. At most, he was to act in place of Chairperson Barin in the exercise of her duties as Chairperson of the SEC. Under Section 4.3 of the SRC, the Chairperson is the chief executive officer of the SEC, and thus empowered to execute and administer the policies, decisions, orders and resolutions approved by the Commission, as well as to have the general executive direction and supervision of the work and operation of the Commission.[63] It is in relation to the exercise of these duties of the Chairperson, and not to the functions of the Commission, that Martinez was authorized to sign all documents and papers and perform all other acts and deeds as may be necessary in the day-to-day operation of the Commission. GSIS likewise cites, as authority for Martinezs unilateral issuance of the CDO, Section 4.6 of the SRC, which states that the SEC may, for purposes of efficiency, delegate any of its functions to any department or office of the Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter and supplement any rule or regulation. Reliance on this provision is inappropriate. First, there is no convincing demonstration that the SEC had delegated to Martinez the authority to issue the CDO. The SEC Order designating Martinez as OIC only authorized him to exercise the functions of the absent Chairperson, and not of the Commission. If the Order is read as enabling Martinez to issue the CDO in behalf of the Commission, it would be akin to conceding that the SEC Chairperson, acting alone, can issue the CDO in behalf of the SEC itself. That again contravenes our holding in GMCR v. Bell. In addition, it is clear under Section 4.6 that the ability to delegate functions to a single commissioner does not extend to the exercise of the review or appellate authority of the SEC. The issuance of the CDO is an act of the SEC itself done in the exercise of its original jurisdiction

to review actual cases or controversies. If it has not been clear to the SEC before, it should be clear now that its power to issue a CDO can not, under the SRC, be delegated to an individual commissioner. V. In the end, even assuming that the events narrated in our Resolution in A.M. No. 08-8-11CA constitute sufficient basis to nullify the assailed decision of the Court of Appeals, still it remains clear that the reliefs GSIS seeks of this Court have no basis in law. Notwithstanding the black mark that stains the appellate courts decision, the first paragraph of its fallo, to the extent that it dismissed the complaint of GSIS with the SEC for lack of jurisdiction and consequently nullified the CDOand SDO, defies unbiased scrutiny and deserves affirmation. A. In its dispositive portion, the Court of Appeals likewise pronounced that the complaint filed by GSIS with the SEC should be barred from being considered as an election contest in the RTC, given that the fifteen (15) day prescriptive period to file an election contest with the RTC, under Section 3, Rule 6 of the Interim Rules, had already run its course. [64] Yet no such relief was requested by private respondents in their petition for certiorari filed with the Court of Appeals[65]. Without disputing the legal predicates surrounding this pronouncement, we note that its tenor, if not the text, unduly suggests an unwholesome pre-emptive strike. Given our observations in A.M. No. 08-8-11-CA of the undue interest exhibited by the author of the appellate court decision, such declaration is best deleted. Nonetheless, we do trust that any court or tribunal that may be confronted with that premise adverted to by the Court of Appeals would know how to properly treat the same. B. Finally, we turn to the sanction on the lawyers of GSIS imposed by the Court of Appeals. Nonetheless, we find that as a matter of law the sanctions are unwarranted. The charter of GSIS[66] is unique among government owned or controlled corporations with original charter in that it allocates a role for its internal legal counsel that is in conjunction with or complementary to the Office of the Government Corporate Counsel (OGCC), which is the statutory legal counsel for GOCCs. Section 47 of GSIS charter reads:

SEC. 47. Legal Counsel.The Government Corporate Counsel shall be the legal adviser and consultant of GSIS, but GSIS may assign to the Office of the Government Corporate Counsel (OGCC) cases for legal action or trial, issues for legal opinions, preparation and review of contracts/agreements and others, as GSIS may decide or determine from time to

time: Provided, however, That the present legal services group in GSIS shall serve as its in-house legal counsel. The GSIS may, subject to approval by the proper court, deputize any personnel of the legal service group to act as special sheriff in the enforcement of writs and processes issued by the court, quasi-judicial agencies or administrative bodies in cases involving GSIS.[67] The designation of the OGCC as the legal counsel for GOCCs is set forth by statute, initially by Rep. Act No. 3838, then reiterated by the Administrative Code of 1987. [68] Given that the designation is statutory in nature, there is no impediment for Congress to impose a different role for the OGCC with respect to particular GOCCs it may charter. Congress appears to have done so with respect to GSIS, designating the OGCC as a legal adviser and consultant, rather than as counsel to GSIS. Further, the law clearly vests unto GSIS the discretion, rather than the duty, to assign cases to the OGCC for legal action, while designating the present legal services group of GSIS as in-house legal counsel. This situates GSIS differently from the Land Bank of the Philippines, whose own in-house lawyers have persistently argued before this Court to no avail on their alleged right to file petitions before us instead of the OGCC.[69] Nothing in the Land Bank charter[70] vested it with the discretion to choose when to assign cases to the OGCC, notwithstanding the establishment of its own Legal Department.[71] Congress is not bound to retain the OGCC as the primary or exclusive legal counsel of GSIS even if it performs such a role for other GOCCs. To bind Congress to perform in that manner would be akin to elevating the OGCCs statutory role to irrepealable status, and it is basic that Congress is barred from passing irrepealable laws.[72] C. We close by acknowledging that the surrounding circumstances behind these petitions are unfortunate, given the events as narrated in A.M. No. 08-8-11-CA. While due punishment has been meted on the errant magistrates, the corporate world may very well be reminded that the members of the judiciary are not to be viewed or treated as mere pawns or puppets in the internecine fights businessmen and their associates wage against other businessmen in the quest for corporate dominance. In the end, the petitions did afford this Court to clarify consequential points of law, points rooted in principles which will endure long after the names of the participants in these cases have been forgotten. WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the petitioner to bring forth the suit. The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third paragraphs of the fallo of the assailed decision dated 23 July 2008 of the Court of Appeals, including subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the second paragraph, are hereby DELETED.

No pronouncements as to costs.