Professional Documents
Culture Documents
THE FACTS
This is a petition to nullify the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC) by
the government of the Republic of the Philippines, acting through
the Inter-Agency Privatization Council (IPC), to Metro Pacific
Assets Holdings, Inc. (MPAH), an affiliate of First Pacific
Company Limited (First Pacific), a Hong Kong-based investment
management and holding company and a shareholder of the
Philippine Long Distance Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it
also involved an indirect sale of 12 million shares (or about 6.3
percent of the outstanding common shares) of PLDT owned by
PTIC to First Pacific. With the this sale, First Pacifics common
shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the total common shareholdings of
foreigners in PLDT to about 81.47%. This, according to the
petitioner, violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the capital of a
public utility to not more than 40%.
II.
THE ISSUE
Does the term capital in Section 11, Article XII of the
Constitution refer to the total common shares only, or to the total
outstanding capital stock (combined total of common and nonvoting preferred shares) of PLDT, a public utility?
xxx
xxx
xxx
xxx
xxx
To construe broadly the term capital as the total
outstanding capital stock, including both common and nonvoting preferred shares, grossly contravenes the intent and letter
of the Constitution that the State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos.
A broad definition unjustifiably disregards who owns the allimportant voting stock, which necessarily equates to control of the
public utility.
We shall illustrate the glaring anomaly in giving a broad
definition to the term capital. Let us assume that a corporation
has 100 common shares owned by foreigners and 1,000,000
non-voting preferred shares owned by Filipinos, with both classes
of share having a par value of one peso (P1.00) per share. Under
the broad definition of the term capital, such corporation would
be considered compliant with the 40 percent constitutional limit on
foreign equity of public utilities since the overwhelming majority,
or more than 99.999 percent, of the total outstanding capital stock
is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the
common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a
minuscule equity of less than 0.001 percent, exercise control over
the public utility. On the other hand, the Filipinos, holding more
than 99.999 percent of the equity, cannot vote in the election of
directors and hence, have no control over the public utility. This
starkly circumvents the intent of the framers of the Constitution,
as well as the clear language of the Constitution, to place the
control of public utilities in the hands of Filipinos. It also renders
illusory the State policy of an independent national
economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in
the real world, and in fact exists in the present case.
xxx
xxx
xxx
[O]nly holders of common shares can vote in the election
of directors [of PLDT], meaning only common shareholders
exercise control over PLDT. Conversely, holders of preferred
shares, who have no voting rights in the election of directors, do
not have any control over PLDT. In fact, under PLDTs Articles of
Incorporation, holders of common shares have voting rights for all
purposes, while holders of preferred shares have no voting right
for any purpose whatsoever.
It must be stressed, and respondents do not dispute,
that foreigners hold a majority of the common shares of PLDT. In
fact, based on PLDTs 2010 General Information Sheet
(GIS), which is a document required to be submitted annually to
the Securities and Exchange Commission, foreigners hold
120,046,690 common shares of PLDT whereas Filipinos hold only
66,750,622 common shares. In other words, foreigners hold
64.27% of the total number of PLDTs common shares, while
Filipinos hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that foreigners
exercise control over PLDT. Such amount of control unmistakably
exceeds the allowable 40 percent limit on foreign ownership of
public utilities expressly mandated in Section 11, Article XII of the
Constitution.
As shown in PLDTs 2010 GIS, as submitted to the SEC,
the par value of PLDT common shares is P5.00 per share,
whereas the par value of preferred shares is P10.00 per share. In
other words, preferred shares have twice the par value of
common shares but cannot elect directors and have only 1/70 of
the dividends of common shares. Moreover, 99.44% of the
preferred shares are owned by Filipinos while foreigners own only
a minuscule 0.56% of the preferred shares. Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT
while common shares constitute only 22.15%. This undeniably
shows that beneficial interest in PLDT is not with the non-voting
preferred shares but with the common shares, blatantly violating
the constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipinos in
accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is constitutionally required for
the States grant of authority to operate a public utility. The
undisputed fact that the PLDT preferred shares, 99.44% owned
by Filipinos, are non-voting and earn only 1/70 of the dividends
that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting
stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section
xxx
xxx
WHEREFORE, we PARTLY GRANT the petition and
rule that the term capital in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock (common
and non-voting preferred shares). Respondent Chairperson of the
Securities and Exchange Commission is DIRECTED to apply this
definition of the term capital in determining the extent of
allowable foreign ownership in respondent Philippine Long
Distance Telephone Company, and if there is a violation of
Section 11, Article XII of the Constitution, to impose the
appropriate sanctions under the law.
April 2, 2007
SO ORDERED.10
Respondents filed separate petitions for certiorari before this
Court under Rule 65 of the 1964 Rules of Court. Carag filed his
petition, docketed as G.R. No. 118820, on 13 February 1995. In
the meantime, we granted MAC's prayer for the issuance of a
temporary restraining order to enjoin the NLRC from enforcing
Arbiter Ortiguerra's Decision. On 31 May 1995, we granted
complainants' motion for consolidation of G.R. No. 118820 with
G.R. No. 118839 (MAC v. NLRC, et al.) and G.R. No. 118880
(David v. Arbiter Ortiguerra, et al.). On 12 July 1999, after all the
parties had filed their memoranda, we referred the consolidated
cases to the appellate court in accordance with our decision in St.
Martin Funeral Home v. NLRC.11Respondents filed separate
petitions before the appellate court.
The Ruling of the Appellate Court
On 29 February 2000, the appellate court issued a joint decision
on the separate petitions. The appellate court identified two
issues as essential: (1) whether Arbiter Ortiguerra properly held
Carag and David, in their capacities as corporate officers, jointly
and severally liable with MAC for the money claims of the
employees; and (2) whether the NLRC abused its discretion in
denying the separate motions to reduce bond filed by MAC and
Carag.
The appellate court held that the absence of a formal hearing
before the Labor Arbiter is not a cause for Carag and David to
impute grave abuse of discretion. The appellate court found that
Carag and David, as the most ranking officers of MAC, had a
direct hand at the time in the illegal dismissal of MAC's
employees. The failure of Carag and David to observe the notice
requirement in closing the company shows malice and bad faith,
which justifies their solidary liability with MAC. The appellate court
also found that the circumstances of the present case do not
warrant a reduction of the appeal bond. Thus:
IN VIEW WHEREOF, the petitions are DISMISSED. The decision
of Labor Arbiter Isabel Panganiban-Ortiguerra dated June 17,
1994, and the Resolution dated January 5, 1995, issued by the
National Labor Relations Commission are hereby AFFIRMED. As
a consequence of dismissal, the temporary restraining order
issued on March 2, 1995, by the Third Division of the Supreme
Court is LIFTED. Costs against petitioners.
Arbiter Ortiguerra did not specify what act of bad faith Carag
committed, or what particular labor standard laws he violated.
To hold a director personally liable for debts of the corporation,
and thus pierce the veil of corporate fiction, the bad faith or
wrongdoing of the director must be established clearly and
convincingly.24 Bad faith is never presumed.25 Bad faith does not
connote bad judgment or negligence. Bad faith imports a
dishonest purpose. Bad faith means breach of a known duty
through some ill motive or interest. Bad faith partakes of the
nature of fraud.26 In Businessday Information Systems and
Services, Inc. v. NLRC,27 we held:
There is merit in the contention of petitioner Raul Locsin that the
complaint against him should be dismissed. A corporate officer is
not personally liable for the money claims of discharged corporate
employees unless he acted with evident malice and bad faith in
terminating their employment. There is no evidence in this case
that Locsin acted in bad faith or with malice in carrying out the
retrenchment and eventual closure of the company (Garcia vs.
NLRC, 153 SCRA 640), hence, he may not be held personally
and solidarily liable with the company for the satisfaction of the
judgment in favor of the retrenched employees.
Neither does bad faith arise automatically just because a
corporation fails to comply with the notice requirement of labor
laws on company closure or dismissal of employees. The failure
to give notice is not an unlawful act because the law does not
define such failure as unlawful. Such failure to give notice is a
violation of procedural due process but does not amount to an
unlawful or criminal act. Such procedural defect is called illegal
dismissal because it fails to comply with mandatory procedural
requirements, but it is not illegal in the sense that it constitutes an
unlawful or criminal act.
For a wrongdoing to make a director personally liable for debts of
the corporation, the wrongdoing approved or assented to by the
director must be a patently unlawful act. Mere failure to comply
with the notice requirement of labor laws on company closure or
dismissal of employees does not amount to a patently unlawful
act. Patently unlawful acts are those declared unlawful by law
which imposes penalties for commission of such unlawful acts.
There must be a law declaring the act unlawful and penalizing the
act.
An example of a patently unlawful act is violation of Article 287 of
the Labor Code, which states that "[V]iolation of this provision is
hereby declared unlawful and subject to the penal provisions
provided under Article 288 of this Code." Likewise, Article 288 of
the Labor Code on Penal Provisions and Liabilities, provides that
"any violation of the provision of this Code declared unlawful or
penal in nature shall be punished with a fine of not less than One
Thousand Pesos (P1,000.00) nor more than Ten Thousand Pesos
(P10,000.00), or imprisonment of not less than three months nor
more than three years, or both such fine and imprisonment at the
discretion of the court."
In this case, Article 28328 of the Labor Code, requiring a onemonth prior notice to employees and the Department of Labor
NFSCs land and sugar mill. During public auction, EPCIB was
the sole bidder and was thus able to buy the entire property and
consolidate the titles in its name. EPCIB then employed the
services of Philippine Industrial Security Agency (PISA) to help it
in its effort to secure the land and the sugar mill.
On September 16, 2002, CIMICO filed with the RTC an
Amended Complaint[7] where it impleaded PISA and EPCIB. As a
result, on September 25, 2002, upon the motion of CIMICO, the
G.R. No. 170352
RTC issued a restraining order, directing EPCIB and PISA to
desist from taking possession over the property in dispute.
Hence, CIMICO was able to continue its possession over the
Present
property.
CARPIO,
On October 3, 2002, CIMICO and petitioner Megan
NACHURA,
Sugar Corporation (MEGAN) entered into a MOA [8] whereby
PERALTA,
MEGAN assumed CIMICOs rights, interests and obligations over
ABAD, and
the property. As a result of the foregoing undertaking, MEGAN
MENDOZA,
started operating the sugar mill on November 18, 2002.
x----------------------------------------------------------------------------------------x
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari,
under Rule 45 of the Rules of Court, seeking to set aside the
August 23, 2004 Decision[2] and October 12, 2005 Resolution[3] of
the Court of Appeals (CA), in CA-G.R. SP No. 75789.
[1]
court orders were sent to the office of MEGAN; yet, despite the
same, MEGAN never repudiated the authority of Atty. Sabig.
After a judicial examination of the records pertinent to
the case at bar, this Court agrees with the finding of the CA that
MEGAN is already estopped from assailing the jurisdiction of the
RTC.
Relevant to the discussion herein is the transcript
surrounding the events of the November 29, 2002 hearing of
Passi Sugars motion for intervention, to wit:
ATTY. ARNOLD LEBRILLA:
Appearing as counsel for defendant
PCI Equitable Bank, your Honor.
ATTY. CORNELIO PANES:
Also appearing as counsel for
defendant
New
Frontier
Sugar
Corporation.
ATTY. ANTONIO SINGSON:
I am appearing, your Honor, as
counsel for Passisugar.
ATTY. REUBEN MIKHAIL SABIG:
Appearing your Honor, for Megan
Sugar, Inc.
ATTY. LEBRILLA: Your Honor, the counsel for
the plaintiff CIMICO
has not yet arrived.
ATTY. SABIG:
COURT:
ATTY. PANES:
the
case
itself,
specifically for the
hearing [on] this
motion. Thats our
appearance
for
today because we
have been served
and we have to
protect
our
interest. We are not
saying that we are
taking over the case
but there is a
hearing
for
the
motion
in
intervention and we
have been served a
copy, thats why we
appear voluntarily.
ATTY. SINGSON:
ATTY. PANES:
COURT:
ATTY. SINGSON:
ATTY. SABIG:
ATTY. PANES:
COURT:
Just
ATTY. SABIG:
a moment, Atty.
Panes. Shall
we
allow Atty. Sabig to
finish first?
ATTY. SINGSON:
ATTY.
SABIG:
Yes,
your
Honor. Specifically
for
the
hearing
because apparently,
we
have
to
voluntarily
appear
since they furnished
us a copy that would
directly affect our
rights.
xxxx
COURT:
ATTY. SABIG:
COURT:
ATTY. SABIG:
xxxx
COURT:
ATTY.
We
are already in
possession of the
mill, your Honor.
ATTY. SINGSON:
ATTY. SABIG:
We have a Memorandum
of
Agreement
which we entered,
your Honor, and
they
transferred
their [referring to
CIMICO] rights to
us.[24]
that Atty. Sabig said in court that he was only appearing for the
hearing of Passi Sugars motion for intervention and not for the
case itself, his subsequent acts, coupled with MEGANs inaction
and negligence to repudiate his authority, effectively bars MEGAN
from assailing the validity of the RTC proceedings under the
principle of estoppel.
In the first place, Atty. Sabig is not a complete stranger
to MEGAN. As a matter of fact, as manifested by EPCIB, Atty.
Sabig and his law firm SABIG SABIG & VINGCO Law Office has
represented MEGAN in other cases[26] where the opposing parties
involved were also CIMICO and EPCIB. As such, contrary to
MEGANs claim, such manifestation is neither immaterial nor
irrelevant,[27] because at the very least, such fact shows that
MEGAN knew Atty. Sabig.
MEGAN can no longer deny the authority of Atty. Sabig
as they have already clothed him with apparent authority to act in
their behalf. It must be remembered that when Atty. Sabig entered
his appearance, he was accompanied by Concha, MEGANs
director and general manager. Concha himself attended several
court hearings, and on December 17, 2002, even sent a
letter[28] to the RTC asking for the status of the case. A corporation
may be held in estoppel from denying as against innocent third
persons the authority of its officers or agents who have been
clothed by it with ostensible or apparent authority.[29]Atty. Sabig
may not have been armed with a board resolution, but the
appearance of Concha made the parties assume that MEGAN
had knowledge of Atty. Sabigs actions and, thus, clothed Atty.
Sabig with apparent authority such that the parties were made to
believe that the proper person and entity to address was Atty.
Sabig. Apparent authority, or what is sometimes referred to as the
"holding out" theory, or doctrine of ostensible agency, imposes
liability, not as the result of the reality of a contractual relationship,
but rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship
or the authority exists.[30]
Like the CA, this Court notes that MEGAN never
repudiated the authority of Atty. Sabig when all the motions,
pleadings and court orders were sent not to the office of Atty.
Sabig but to the office of MEGAN, who in turn, would forward all
of the same to Atty. Sabig, to wit:
x x x All the motions, pleadings and other
notices in the civil case were mailed to Atty.
Reuben Mikhail P. Sabig, Counsel for Megan
Sugar, NFSC Compound, Barangay Man-it,
Passi, Iloilo City which is the address of the
Sugar Central being operated by Megan Sugar.
The said address is not the real office address
of Atty. Sabig. As pointed out by private
respondent Equitable PCI Bank, the office
address of Atty. Sabig is in Bacolod City. All
orders, pleadings or motions filed in Civil Case
02-243 were received in the sugar central being
operated by Megan Central and later forwarded
by Megan Sugar to Atty. Sabig who is based
in Bacolod City. We find it incredible that,
granting that there was no authority given to
said counsel, the record shows that it was
received in the sugar mill operated by Megan
and passed on to Atty. Sabig. At any stage,
petitioner could have repudiated Atty. Sabig
when it received the court pleadings addressed
to Atty. Sabig as their counsel.[31]
MEGAN on the premise that the same were not covered by the
RTC Orders. Atty. Sabig manifested that 30% of the value of the
quedans will be deposited in court as payment for accrued
rentals. Noteworthy is the fact that Atty. Sabigs motion was
favorably acted upon by the RTC. Like the CA, this Court finds
that estoppel has already set in. It is not right for a party who has
affirmed and invoked the jurisdiction of a court in a particular
matter to secure an affirmative relief to afterwards deny that same
jurisdiction to escape a penalty.[38] The party is barred from such
conduct not because the judgment or order of the court is valid
but because such a practice cannot be tolerated for reasons of
public policy.[39]
Lastly, this Court also notes that on April 2, 2003, Atty.
Sabig again filed an Urgent Ex-Parte Motion[40] asking the RTC to
direct the SRA to release certain quedans not covered by the
RTC Orders. The same was granted by the RTC in an
Order[41] dated April 2, 2003. Curiously, however, Rene Imperial,
the Plant Manager of MEGAN, also signed the April 2, 2003 RTC
Order and agreed to the terms embodied therein. If Atty. Sabig
was not authorized to act in behalf of MEGAN, then why would
MEGANs plant manager sign an official document assuring the
RTC that he would deliver 30% of the value of the quedans earlier
released to MEGAN pursuant to the March 27, 2003 Order?
The rule is that the active participation of the party
against whom the action was brought, coupled with his failure to
object to the jurisdiction of the court or administrative body where
the action is pending, is tantamount to an invocation of that
jurisdiction and a willingness to abide by the resolution of the
case and will bar said party from later on impugning the court or
bodys jurisdiction.[42] Based on the preceding discussion, this
Court holds that MEGANs challenge to Atty. Sabigs authority and
the RTCs jurisdiction was a mere afterthought after having
received an unfavorable decision from the RTC. Certainly, it
would be unjust and inequitable to the other parties if this Court
were to grant such a belated jurisdictional challenge.
WHEREFORE, premises considered, the petition
is DENIED. The August 23, 2004 Decision and October 12,
2005 Resolution of the Court of Appeals, in CA-G.R. SP No.
75789, are AFFIRMED.
SO ORDERED.
JOSE MARCEL PANLILIO, ERLINDA PANLILIO,
NICOLE MORRIS and MARIO T. CRISTOBAL,
Petitioners,
G.R. No. 1
Present:
CORONA
CARPIO,
PERALTA,
PEREZ,** a
MENDOZA
Promulgat
February 2
MEGAN had all the opportunity to assail the jurisdiction
of the RTC and yet far from doing so, it even complied with the
RTC Order. With the amount of money involved, it is beyond
belief for MEGAN to claim that it had no knowledge of the events
that transpired. Moreover, it bears to stress that Atty. Sabig even
filed subsequent motions asking for affirmative relief, more
important of which is his March 27, 2003 Urgent ExParte Motion[37] asking the RTC to direct the Sugar Regulatory
Administration (SRA) to release certain quedans in favor of
x -------------------------------------------------------------------------------x
DECISION
PERALTA, J.:
Before this Court is a petition for review
on certiorari[1] under Rule 45 of the Rules of Court, seeking to set
aside the April 27, 2006 Decision[2] and August 2, 2006
Resolution[3] of the Court of the Appeals (CA) in CA-G.R. SP No.
90947.
The facts of the case are as follows:
On October 15, 2004, Jose Marcel Panlilio, Erlinda
Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as
corporate officers of Silahis International Hotel, Inc. (SIHI), filed
with the Regional Trial Court (RTC) of Manila, Branch 24, a
petition for Suspension of Payments and Rehabilitation[4] in SEC
Corp. Case No. 04-111180.
On October 18, 2004, the RTC of Manila, Branch 24,
issued an Order[5] staying all claims against SIHI upon finding the
petition sufficient in form and substance. The pertinent portions
of the Order read:
Finding the petition, together with its
annexes, sufficient in form and substance and
pursuant to Section 6, Rule 4 of the Interim
Rules on Corporate Rehabilitation, the Court
hereby:
xxxx
2) Stays the enforcement of all claims,
whether for money or otherwise and whether
such enforcement is by court action or
otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor.[6]
At the time, however, of the filing of the petition for
rehabilitation, there were a number of criminal charges[7] pending
against petitioners in Branch 51 of the RTC of Manila. These
criminal charges were initiated by respondent Social Security
System (SSS) and involved charges of violations of Section 28 (h)
[8]
of Republic Act 8282, or the Social Security Act of 1997
(SSS law), in relation to Article 315 (1) (b) [9] of the Revised Penal
Code, or Estafa. Consequently, petitioners filed with the RTC of
Manila, Branch 51, a Manifestation and Motion to Suspend
Proceedings.[10] Petitioners argued that the stay order issued by
Branch 24 should also apply to the criminal charges pending in
Branch 51. Petitioners, thus, prayed that Branch 51 suspend its
proceedings until the petition for rehabilitation was finally
resolved.
On December 13, 2004, Branch 51 issued an
Order[11] denying
petitioners
motion
to
suspend
the
proceedings. It ruled that the stay order issued by Branch 24 did
not cover criminal proceedings, to wit:
xxxx
Clearly then, the issue is, whether the
stay order issued by the RTC commercial court,
Branch 24 includes the above-captioned
criminal cases.
The Court shares the view of the
private complainants and the SSS that the said
stay order does not include the prosecution of
criminal
offenses.
Precisely,
the
law
criminalizes the non-remittance of SSS
Section 6 (c). x x x
x x x Provided, finally, that upon appointment
of a management committee, rehabilitation
receiver, board or body, pursuant to this
Decree, all
actions
for
claims against
corporations, partnerships or associations
under management or receivership pending
before any court, tribunal, board or body, shall
be suspended accordingly.[19]
In November 21, 2000, this Court En Banc promulgated
the Interim Rules of Procedure on Corporate Rehabilitation,
[20]
Section 6, Rule 4 of which provides a stay order on all claims
against the corporation, thus:
Stay Order. - If the court finds the
petition to be sufficient in form and substance, it
shall, not later than five (5) days from the filing
of the petition, issue an Order x x x; (b) staying
enforcement of all claims, whether for money
or otherwise and whether such enforcement is
by court action or otherwise, against the debtor,
its guarantors and sureties not solidarily liable
with the debtor; x x x[21]
In Finasia Investments and Finance Corporation v. Court
of Appeals,[22] the term "claim" has been construed to refer to
debts or demands of a pecuniary nature, or the assertion to have
money paid. The purpose for suspending actions for claims
against the corporation in a rehabilitation proceeding is to enable
the management committee or rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extrajudicial
interference that might unduly hinder or prevent the rescue of the
debtor company.[23]
The issue to be resolved then is: does the suspension of
all claims as an incident to a corporate rehabilitation also
contemplate the suspension of criminal charges filed against the
corporate officers of the distressed corporation?
February 8, 2007
The trend in the securities market, however, was bearish and the
worth of petitioners investment went down further to only
US$3,000.00.
On October 26, 2001, petitioner learned from Marivel Gonzales,
head of the SCB Legal and Compliance Department, that the
latter had been prohibited by the BSP to sell GPTMF securities.
Petitioner then filed with the BSP a letter-complaint demanding
compensation for his lost investment. But SCB denied his
demand on the ground that his investment is "regular."
On July 15, 2003, petitioner filed with the Department of Justice
(DOJ), represented herein by its prosecutors, public respondents,
a complaint charging the above-named officers and members of
the SCB Board of Directors and other SCB officials, private
versus
PERFORMANCE
EXCHANGE CORPORATION,
Respondent.
FOREIGN
Promulgated:
July 20, 2006
x -------------------------------------------------------------------------------------- x
DECISION
SANDOVAL-GUTIERREZ, J.:
Primary Purpose
To operate as a broker/agent between
market participants in transactions involving,
but not limited to, foreign exchange, deposits,
interest rate instruments, fixed income
securities, bonds/bills, repurchased agreements
of fixed income securities, certificate of
deposits, bankers acceptances, bills of
exchange, over-the-counter option of the
aforementioned instruments, Lesser Developed
Countrys (L.D.C.) debt, energy and stock
indexes and all related, similar or derivative
products, other than acting as a broker for the
trading of securities pursuant to the Revised
Securities Act of the Philippines.
Secondary Purpose
To engage in money changer or
exchanging foreign currencies into domestic
currency, Philippine currency or other foreign
currencies into another currencies.
After two years of operation, respondent received a letter
dated November 28, 2000 from the SEC, herein petitioner,
requiring it to appear before the Compliance and Enforcement
Department
(CED)
on
December
14,
2000
for
a clarificatory conference
regarding
its
business
operations. Respondents officers complied and explained
before the CED the nature of their business.
On January 16, 2001, Emilio B. Aquino, Director of CED,
issued a Cease and Desist Order,[3] in CED Case No. 99-2297,
stating that his department conducted an inquiry on respondents
business operations for possible violation of Republic Act (R.A.)
No. 8799 (otherwise known as The Securities Regulation Code);
that the outcome of the inquiry shows that respondent is engaged
in the trading of foreign currency futures contracts in behalf of its
clients without the necessary license; that such transaction can
be deemed as a direct violation of Section 11 of R.A. No.
8799[4] and the related provisions of its Implementing Rules and
Regulations; and that it is imperative to enjoin respondent from
further operating as such to protect the interest of the
public. The dispositive portion of the said Order reads:
WHEREFORE, pursuant to the authority
vested in the Commission, PERFORMANCE
FOREIGN EXCHANGE CORPORATION, its
officers, directors, agents, representatives, and
any and all persons claiming and acting under
their
authority, are
hereby ordered to
immediately CEASE AND DESIST from
further engaging in the solicitation of funds
for foreign currency trading and operating
as
a
foreign
currency
futures
merchant/broker, upon receipt of this Order.
In accordance with the provisions of
Section 64.3[5] of Republic Act 8799, otherwise
known as the Securities Regulation Code, the
parties subject of this Cease and Desist Order
We
hope
we
satisfactorily clarified your concerns.
have
Very
truly yours,
(
S
g
d
.
)
AMAND
O M. TETANGCO, JR.[15]
ORDERED.[21] (Underscoring
xxx
Enclosed are pertinent documents
which were submitted by a corporation showing
how its transactions operate. It is claimed by
the corporation in question that theirs are all
spot transactions and are not covered by
the Bangko Sentral ng Pilipinas. We
understand, however, that in other jurisdiction,
this type of activity can only be done by banks.
Previous
inquiries
from
the Bangko Sentral ng Pilipinas,
specifically
Department of Commercial Banks II, and your
department, Commercial Banks I, lead to
conclude that this kind of trading in foreign
currencies may be a form of financial
derivatives.
May we, therefore, request a
definitive statement that the abovedescribed transactions, and as illustrated in
the attached documents, are a form of
financial derivatives and, therefore, can only
be undertaken by banks, or non-bank
financial intermediaries performing quasibanking
functions
and/or
its
subsidiaries/affiliates.[20] (Underscoring
supplied)