G.R. No. L-64013 November 28, 1983 2.
2. Holding that the assets of the Pioneer Glass taken over by DBP and part of which was
UNION GLASS & CONTAINER CORPORATION and CARLOS PALANCA, JR., in his capacity as
President of Union Glass & Container Corporation, petitioners,
vs.
THE SECURITIES AND EXCHANGE COMMISSION and CAROLINA HOFILEA, respondents.
Eduardo R. Ceniza for petitioners.
The Solicitor General for respondent SEC.
Remedios C. Balbin for respondent Carolina Y. Hofilea.
ESCOLIN, J.:+.wph!1
This petition for certiorari and prohibition seeks to annul and set aside the Order of the Securities and
Exchange Commission, dated September 25, 1981, upholding its jurisdiction in SEC Case No. 2035,
entitled "Carolina Hofilea, Complainant, versus Development Bank of the Philippines, et al.,
Respondents."
Private respondent Carolina Hofilea, complainant in SEC Case No. 2035, is a stockholder of Pioneer
Glass Manufacturing Corporation, Pioneer Glass for short, a domestic corporation engaged in the
operation of silica mines and the manufacture of glass and glassware. Since 1967, Pioneer Glass had
obtained various loan accommodations from the Development Bank of the Philippines [DBP], and also
from other local and foreign sources which DBP guaranteed.
As security for said loan accommodations, Pioneer Glass mortgaged and/or assigned its assets, real and
personal, to the DBP, in addition to the mortgages executed by some of its corporate officers over their
personal assets. The proceeds of said financial exposure of the DBP were used in the construction of a
glass plant in Rosario, Cavite, and the operation of seven silica mining claims owned by the corporation.
It appears that through the conversion into equity of the accumulated unpaid interests on the various loans
amounting to P5.4 million as of January 1975, and subsequently increased by another P2.2 million in 1976,
the DBP was able to gain control of the outstanding shares of common stocks of Pioneer Glass, and to
get two, later three, regular seats in the corporation's board of directors.
Sometime in March, 1978, when Pioneer Glass suffered serious liquidity problems such that it could no
longer meet its financial obligations with DBP, it entered into a dacion en pago agreement with the latter,
whereby all its assets mortgaged to DBP were ceded to the latter in full satisfaction of the corporation's
obligations in the total amount of P59,000,000.00. Part of the assets transferred to the DBP was the glass
plant in Rosario, Cavite, which DBP leased and subsequently sold to herein petitioner Union Glass and
Container Corporation, hereinafter referred to as Union Glass.
On April 1, 1981, Carolina Hofilea filed a complaint before the respondent Securities and Exchange
Commission against the DBP, Union Glass and Pioneer Glass, docketed as SEC Case No. 2035. Of the
five causes of action pleaded therein, only the first cause of action concerned petitioner Union Glass as
transferee and possessor of the glass plant. Said first cause of action was based on the alleged illegality
of the aforesaid dacion en pago resulting from: [1] the supposed unilateral and unsupported undervaluation
of the assets of Pioneer Glass covered by the agreement; [2] the self-dealing indulged in by DBP, having
acted both as stockholder/director and secured creditor of Pioneer Glass; and [3] the wrongful inclusion
by DBP in its statement of account of P26M as due from Pioneer Glass when the same had already been
converted into equity.
Thus, with respect to said first cause of action, respondent Hofilea prayed that the SEC issue an
order:t.hqw
1. Holding that the so called dacion en pago conveying all the assets of Pioneer Glass and the
Hofilea personal properties to Union Glass be declared null and void on the ground that the
said conveyance was tainted with.t.hqw
A. Self-dealing on the part of DBP which was acting both as a controlling
stockholder/director and as secured creditor of the Pioneer Glass, all to its advantage
and to that of Union Glass, and to the gross prejudice of the Pioneer Glass,
B. That the dacion en pago is void because there was gross undervaluation of the
assets included in the so-called dacion en pago by more than 100% to the prejudice
of Pioneer Glass and to the undue advantage of DBP and Union Glass;
C. That the DBP unduly favored Union Glass over another buyer, San Miguel
Corporation, notwithstanding the clearly advantageous terms offered by the latter to
the prejudice of Pioneer Glass, its other creditors and so-called 'Minority stockholders.'
delivered to Union Glass particularly the glass plant to be returned accordingly.
3. That the DBP be ordered to accept and recognize the appraisal conducted by the Asian
Appraisal Inc. in 1975 and again in t978 of the asset of Pioneer Glass. 1
In her common prayer, Hofilea asked that DBP be sentenced to pay Pioneer Glass actual, consequential,
moral and exemplary damages, for its alleged illegal acts and gross bad faith; and for DBP and Union
Glass to pay her a reasonable amount as attorney's fees. 2
On April 21, 1981, Pioneer Glass filed its answer. On May 8, 1981, petitioners moved for dismissal of the
case on the ground that the SEC had no jurisdiction over the subject matter or nature of the suit.
Respondent Hofilea filed her opposition to said motion, to which herein petitioners filed a rejoinder.
On July 23, 1981, SEC Hearing Officer Eugenio E. Reyes, to whom the case was assigned, granted the
motion to dismiss for lack of jurisdiction. However, on September 25, 1981, upon motion for reconsideration
filed by respondent Hofilea, Hearing Officer Reyes reversed his original order by upholding the SEC's
jurisdiction over the subject matter and over the persons of petitioners. Unable to secure a reconsideration
of the Order as well as to have the same reviewed by the Commission En Banc, petitioners filed the instant
petition for certiorari and prohibition to set aside the order of September 25, 1981, and to prevent
respondent SEC from taking cognizance of SEC Case No. 2035.
The issue raised in the petition may be propounded thus: Is it the regular court or the SEC that has
jurisdiction over the case?
In upholding the SEC's jurisdiction over the case Hearing Officer Reyes rationalized his conclusion
thus:t.hqw
As correctly pointed out by the complainant, the present action is in the form of a derivative suit
instituted by a stockholder for the benefit of the corporation, respondent Pioneer Glass and
Manufacturing Corporation, principally against another stockholder, respondent Development
Bank of the Philippines, for alleged illegal acts and gross bad faith which resulted in the dacion
en pago arrangement now being questioned by complainant. These alleged illegal acts and
gross bad faith came about precisely by virtue of respondent Development Bank of the
Philippine's status as a stockholder of co-respondent Pioneer Glass Manufacturing Corporation
although its status as such stockholder, was gained as a result of its being a creditor of the latter.
The derivative nature of this instant action can also be gleaned from the common prayer of the
complainant which seeks for an order directing respondent Development Bank of the Philippines
to pay co-respondent Pioneer Glass Manufacturing Corporation damages for the alleged illegal
acts and gross bad faith as above-mentioned.
As far as respondent Union Glass and Container Corporation is concerned, its inclusion as a
party-respondent by virtue of its being an indispensable party to the present action, it being in
possession of the assets subject of the dacion en pago and, therefore, situated in such a way
that it will be affected by any judgment thereon, 3
In the ordinary course of things, petitioner Union Glass, as transferee and possessor of the glass plant
covered by the dacion en pago agreement, should be joined as party-defendant under the general rule
which requires the joinder of every party who has an interest in or lien on the property subject matter of
the dispute. 4 Such joinder of parties avoids multiplicity of suits as well as ensures the convenient, speedy
and orderly administration of justice.
But since petitioner Union Glass has no intra-corporate relation with either the complainant or the DBP, its
joinder as party-defendant in SEC Case No. 2035 brings the cause of action asserted against it outside
the jurisdiction of the respondent SEC.
The jurisdiction of the SEC is delineated by Section 5 of PD No. 902-A as follows:t.hqw
Sec. 5. In addition to the regulatory and adjudicative function of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it
as expressly granted under existing laws and devices, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
a] Devices and schemes employed by or any acts, of the board of directors, business associates,
its officers or partners, amounting to fraud and misrepresentation which may be detrimental to
the interest of the public and/or the stockholders, partners, members of associations or
organizations registered with the Commission
b] Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
 partnership, or association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity;
c] Controversies in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations.
This grant of jurisdiction must be viewed in the light of the nature and function of the SEC under the law.
Section 3 of PD No. 902-A confers upon the latter "absolute jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit
issued by the government to operate in the Philippines ... " 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. 5
It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly
specified and delimited its jurisdiction to matters intrinsically connected with the regulation of corporations,
partnerships and associations and those dealing with the internal affairs of such corporations, partnerships
or associations.
Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to
any of the following relationships: [a] between the corporation, partnership or association and the public;
[b] between the corporation, partnership or association and its stockholders, partners, members, or
officers; [c] between the corporation, partnership or association and the state in so far as its franchise,
permit or license to operate is concerned; and [d] among the stockholders, partners or associates
themselves.
The fact that the controversy at bar involves the rights of petitioner Union Glass who has no intra-corporate
relation either with complainant or the DBP, places the suit beyond the jurisdiction of the respondent SEC.
The case should be tried and decided by the court of general jurisdiction, the Regional Trial Court. This
view is in accord with the rudimentary principle that administrative agencies, like the SEC, are tribunals of
limited jurisdiction 6 and, as such, could wield only such powers as are specifically granted to them by their
enabling statutes. 7 As We held in Sunset View Condominium Corp. vs. Campos, Jr.: 8t.hqw
Inasmuch as the private respondents are not shareholders of the petitioner condominium
corporation, the instant cases for collection cannot be a 'controversy 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,' which controversies are under the original
and exclusive jurisdiction of the Securities & Exchange Commission, pursuant to Section 5 [b]
of P.D. No. 902-A. ...
As heretofore pointed out, petitioner Union Glass is involved only in the first cause of action of Hofileas
complaint in SEC Case No, 2035. While the Rules of Court, which applies suppletorily to proceedings
before the SEC, allows the joinder of causes of action in one complaint, such procedure however is subject
to the rules regarding jurisdiction, venue and joinder of parties. 9 Since petitioner has no intra-corporate
relationship with the complainant, it cannot be joined as party-defendant in said case as to do so would
violate the rule or jurisdiction. Hofileas complaint against petitioner for cancellation of the sale of the glass
plant should therefore be brought separately before the regular court But such action, if instituted, shall be
suspended to await the final outcome of SEC Case No. 2035, for the issue of the validity of the dacion en
pago posed in the last mentioned case is a prejudicial question, the resolution of which is a logical
antecedent of the issue involved in the action against petitioner Union Glass. Thus, Hofileas complaint
against the latter can only prosper if final judgment is rendered in SEC Case No. 2035, annulling the dacion
en pago executed in favor of the DBP.
WHEREFORE, the instant petition is hereby granted, and the questioned Orders of respondent SEC, dated
September 25, 1981, March 25, 1982 and May 28, 1982, are hereby set aside. Respondent Commission
is ordered to drop petitioner Union Glass from SEC Case No. 2035, without prejudice to the filing of a
separate suit before the regular court of justice. No pronouncement as to costs.
SO ORDERED.1wph1.t
Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova and Gutierrez, Jr.,
JJ., concur.
Separate Opinions
TEEHANKEE, J., concurring:
I concur in the Court's judgment penned by Mr. Justice Escolin setting aside the questioned orders of
respondent SEC and ordering that petitioner Union Glass be dropped from SEC Case No. 2035 for lack of
SEC jurisdiction over it as a third party purchaser of the glass plant acquired by the DBP by dacion en
pago from Pioneer Glass, without prejudice to Hofilea filing a separate suit in the regular courts of justice
against Union Glass for recovery and cancellation of the said sale of the glass plant in favor of Union
Glass.
I concur also with the statement in the Court's opinion that the final outcome of SEC Case No. 2035 with
regard to the validity of the dacion en pago is a prejudicial case. If Hofilea's complaint against said dacion
en pago fails in the SEC, then it clearly has no cause of action against Union Glass for cancellation of
DBP's sale of the plant to Union Glass.
The purpose of this brief concurrence is with reference to the statement in the Court's opinion that "Thus,
Hofileas complaint against the latter can only prosper if final judgment is rendered in SEC Case No. 2035,
annulling the dacion en pago executed in favor of the DBP," to erase any impression that a favorable
judgment secured by Hofilea in SEC Case No. 2035 against the DBP and Pioneer Glass would
necessarily mean that its action against Union Glass in the regular courts of justice for recovery and
cancellation of the DBP sale of the glass plant to Union Glass would necessarily prosper. It must be borne
in mind that as already indicated, the SEC has no jurisdiction over Union Glass as an outsider. The suit in
the regular courts of justice that Hofilea might bring against Union Glass is of course subject to all
defenses as to the validity of the sale of the glass plant in its favor as a buyer in good faith and should it
successfully substantiate such defenses, then Hofileas action against it for cancellation of the sale might
fail as a consequence.
AQUINO, J., dissenting:
I dissent with due deference to Justice Escolin's opinion. What are belatedly assailed in this certiorari and
prohibition case filed on May 17, 1983 are the order of September 25, 1981 of Eugenio E. Reyes, a SEC
hearing officer, and the orders of March 25 and May 28, 1982 of Antonio R. Manabat, another SEC hearing
officer.
Although a jurisdictional issue is raised and jurisdiction over the subject matter may be raised at any stage
of the case, nevertheless, the petitioners are guilty of laches and nonexhaustion of the remedy of appeal
with the Securities and Exchange Commission en banc.
The petitioners resorted to the special civil actions of certiorari and prohibition because they assail the
orders of mere SEC hearing officers. This is not a review of the order, decision or ruling of the SEC sitting
en banc which, according to section 6 of Presidential Decree No. 902-A (1976), may be made by this Court
"in accordance with the pertinent provisions of the Rules of Court."
Rule 43 of the Rules of Court used to allow review by this Court of the SEC order, ruling or decision.
Republic Act 5434 (1968) substituted the Court of Appeals for this Court in line with the policy of lightening
our heavy jurisdictional burden. But this Court seems to have been restored as the reviewing authority by
Presidential Decree No. 902-A.
However, section 9 of the Judiciary Reorganization Law returned to the Intermediate Appellate Court the
exclusive jurisdiction to review the ruling, order or decision of the SEC as a quasi-judicial agency. The
same section 9 granted to the Appellate Court jurisdiction in certiorari and prohibition cases over the SEC
although not exclusive.t.hqw
In this case, the SEC seems to have adopted the orders of the two hearing officers as its own
orders as shown by the stand taken by the Solicitor General in defending the SEC. If that were
so, that is, if the orders of the hearing officers should be treated as the orders of the SEC itself
en banc, this Court would have no jurisdiction over this case. It should be the Appellate Court
that should exercise the power of review.
Carolina Hofilea has been a stockholder since 1958 of the Pioneer Glass Manufacturing Corporation. Her
personal assets valued at P6,804,810 were apparently or supposedly mortgaged to the DBP to secure the
obligations of Pioneer Glass (p. 32, Rollo).
Pioneer Glass became indebted to the Development Bank of the Philippines in the total sum of
P59,000,000. Part of the loan was used by Pioneer Glass to establish its glass plant in Rosario, Cavite.
The unpaid interest on the loan amounting to around seven million pesos became the DBP's equity in
Pioneer Glass. The DBP became a substantial stockholder of Pioneer Glass. Three members of the
Pioneer Glass' board of directors were from the DBP.
The glass plant commenced operations in 1977. At that time, Pioneer Glass was heavily indebted to the
DBP. Instead of foreclosing its mortgage, DBP maneuvered to have the mortgaged assets of Pioneer
Glass, including the glass plant, transferred to the DBP by way of dacion en pago. This transaction was
alleged to be an "auto contract" or a case of the DBP contracting with itself since the DBP had a dominant
position in Pioneer Glass.
Hofilea alleged that although the debt to the DBP of Pioneer Glass amounted to P59,000,000, the glass
plant in 1977 had a "sound value" of P77,329,000 and a "reproduction cost" of P90,403,000. She further
alleged that San Miguel Corporation was willing to buy the glass plant for P40,000,000 cash, whereas it
was actually sold to Union Glass & Container Corporation for the same amount under a 25-year term of
payment (pp. 32-34, Rollo).
On March 31, 1981; Carmen Hofilea filed with the SEC a complaint against the DBP, Union Glass,
Pioneer Glass and Rafael Sison as chairman of the DBP and Pioneer Glass boards of directors. Union
Glass filed a motion to dismiss on the ground that jurisdiction over the case is lodged in the Court of First
Instance. Hofilea opposed the motion. Hearing Officer Reyes in his order of July 23, 1981 dismissed the
complaint on the ground that the case is beyond the jurisdiction of the SEC.
Hofilea filed a motion for reconsideration which was opposed by Union Glass. Hearing Officer Reyes in
his order of September 25, 1981 reconsidered his dismissal order and ruled that Union Glass is an
indispensable party because it is the transferee of the controverted assets given by way of dacion en pago
to the DBP. He ruled that the SEC has jurisdiction over the case.
Union Glass filed a motion for reconsideration. Hearing Officer Antonio R. Manabat denied the motion on
the ground "that the present action is an intra-corporate dispute involving stockholders of the same
corporation (p. 26, Rollo).
Union Glass filed a second motion for reconsideration with the prayer that the SEC should decide the
motion en banc. The hearing officer ruled that the remedy of Union Glass was to file a timely appeal.
Hence, its second motion for reconsideration was denied by the hearing officer. (This ruling is a technicality
which hinders substantial justice.)
It is clear that Union Glass has no cause of action for certiorari and prohibition. Its recourse was to appeal
to the SEC en banc the denial of its first motion for reconsideration.
There is no question that the SEC has jurisdiction over the intra-corporate dispute between Hofilea and
the DBP, both stockholders of Pioneer Glass, over the dacion en pago.
Now, does the SEC lose jurisdiction because of the joinder of Union Glass which has privity with the DBP
since it was the transferee of the assets involved in the dacion en pago?
Certainly, the joinder of Union Glass does not divest the SEC of jurisdiction over the case. The joinder of
Union Glass is necessary because the DBP, its transfer or, is being sued regarding the dacion en pago.
The defenses of Union Glass are tied up with the defenses of the DBP in the intra-corporate dispute.
Hofileas cause of action should not be split.
It would not be judicious and expedient to require Hofilea to sue the DBP and Union Glass in the Regional
Trial Court. The SEC is more competent than the said court to decide the intra-corporate dispute.
The SEC, as the agency enforcing Presidential Decree No. 902-A, is in the best position to know the extent
of its jurisdiction. Its determination that it has jurisdiction in this case has persuasive weight.
Concepcion, Jr., Guerro, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova and Gutierrez, Jr.,
JJ., concur.
G.R. No. L-63558 May 19, 1987
SPOUSES JOSE ABEJO AND AURORA ABEJO, TELEC. TRONIC SYSTEMS, INC., petitioners,
vs.
HON. RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT (NATIONAL CAPITAL
JUDICIAL REGION, BRANCH CLX-PASIG), SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA,
VIRGILIO BRAGA AND NORBERTO BRAGA, respondents.
No. L-68450-51 May 19, 1987
POCKET BELL PHILIPPINES, INC., AGAPITO T. BRAGA, VIRGILIO T. BRAGA, NORBERTO BRAGA,
and VIRGINIA BRAGA, petitioners,
vs.
THE HONORABLE SECURITIES AND EXCHANGE COMMISSION, TELECTRONIC SYSTEMS, INC.,
JOSE ABEJO, JOSE LUIS SANTIAGO, SIMEON A. MIRAVITE, SR., ANDRES T. VELARDE AND L.
QUIDATO BANDOLINO, respondents.
TEEHANKEE, C.J.:
These two cases, jointly heard, are jointly herein decided. They involve the question of who, between the
Regional Trial Court and the Securities and Exchange Commission (SEC), has original and exclusive
jurisdiction over the dispute between the principal stockholders of the corporation Pocket Bell Philippines,
Inc. (Pocket Bell), a "tone and voice paging corporation," namely, the spouses Jose Abejo and Aurora
Abejo (hereinafter referred to as the Abejos) and the purchaser, Telectronic Systems, Inc. (hereinafter
referred to as Telectronics) of their 133,000 minority shareholdings (for P5 million) and of 63,000 shares
registered in the name of Virginia Braga and covered by five stock certificates endorsed in blank by her
(for P1,674,450.00), and the spouses Agapito Braga and Virginia Braga (hereinafter referred to as the
Bragas), erstwhile majority stockholders. With the said purchases, Telectronics would become the majority
stockholder, holding 56% of the outstanding stock and voting power of the corporation Pocket Bell.
With the said purchases in 1982, Telectronics requested the corporate secretary of the corporation,
Norberto Braga, to register and transfer to its name, and those of its nominees the total 196,000 Pocket
Bell shares in the corporation's transfer book, cancel the surrendered certificates of stock and issue the
corresponding new certificates of stock in its name and those of its nominees.
Norberto Braga, the corporate secretary and son of the Bragas, refused to register the aforesaid transfer
of shares in t e corporate oo s, asserting that the Bragas claim preemptive rights over the 133,000 Abejo
shares and that Virginia Braga never transferred her 63,000 shares to Telectronics but had lost the five
stock certificates representing those shares.
This triggered off the series of intertwined actions between the protagonists, all centered on the question
of jurisdiction over the dispute, which were to culminate in the filing of the two cases at bar.
The Bragas assert that the regular civil court has original and exclusive jurisdiction as against the Securities
and Exchange Commission, while the Abejos claim the contrary. A summary of the actions resorted to by
the parties follows:
A. ABEJOS ACTIONS IN SEC
1. The Abejos and Telectronics and the latter's nominees, as new majority shareholders, filed SEC Cases
Nos. 02379 and 02395 against the Bragas on December 17, 1982 and February 14, 1983, respectively.
2. In SEC Case No. 02379, they prayed for mandamus from the SEC ordering Norberto Braga, as
corporate secretary of Pocket Bell to register in their names the transfer and sale of the aforesaid 196,000
Pocket Bell shares (of the Abejos 1 and Virginia Braga 2, cancel the surrendered certificates as duly
endorsed and to issue new certificates in their names.
3. In SEC Case No.02395, they prayed for injunction and a temporary restraining order that the SEC enjoin
the Bragas from disbursing or disposing funds and assets of Pocket Bell and from performing such other
acts pertaining to the functions of corporate officers.
4. Pocket Bell's corporate secretary, Norberto Braga, filed a Motion to Dismiss the mandamus case (SEC
Case No. 02379) contending that the SEC has no jurisdiction over the nature of the action since it does
not involve an intracorporate controversy between stockholders, the principal petitioners therein,
Telectronics, not being a stockholder of record of Pocket Bell.
5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the motion. On January 14, 1983,
the corporate secretary filed a Motion for Reconsideration. On March 21, 1983, SEC Hearing Officer
Joaquin Garaygay issued an order granting Braga's motion for reconsideration and dismissed SEC Case
No. 02379.
6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction case, SEC Case No.
02395. On April 8, 1985, the SEC Director, Eugenio Reyes, acting upon the Abejos'ex-parte motion,
created a three-man committee composed of Atty. Emmanuel Sison as Chairman and Attys. Alfredo Oca
and Joaquin Garaygay as members, to hear and decide the two SEC cases (Nos. 02379 and 02395).
7. On April 13, 1983, the SEC three-man committee issued an order reconsidering the aforesaid order of
March 21, 1983 of the SEC Hearing Officer Garaygay (dismissing the mandamus petition SEC Case No.
02379) and directing corporate secretary Norberto Braga to file his answer to the petitioner therein.
B. BRAGAS' ACTION IN SEC
8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition and mandamus with the
SEC en banc, SEC Case No. EB #049, seeking the dismissal of SEC Cases Nos.' 02379 and 02395 for
lack of jurisdiction of the Comn-iission and the setting aside of the various orders issued by the SEC three-
man committee in the course of the proceedings in the two SEC cases.
9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas' petition in SEC Case No.
EB#049 for lack of merit and at the same time ordering the SEC Hearing Committee to continue with the
hearings of the Abejos and Telectronics SEC Cases Nos. 02379 and 02395, ruhng that the "issue is not
the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty
of recording transfers of shares of stock of the corporation of which he is secretary."
10. On May 15, 1984 the Bragas filed a motion for reconsideration but the SEC en banc denied the same
on August 9, 1984.
C. BRAGAS' ACTION IN CFI (NOWRTC)
11. On November 25, 1982, following the corporate secretary's refusal to register the transfer of the shares
in question, the Bragas filed a complaint against the Abejos and Telectronics in the Court of First Instance
of Pasig, Branch 21 (now the Regional Trial Court, Branch 160) docketed as Civil Case No. 48746 for: (a)
rescission and annulment of the sale of the shares of stock in Pocket Bell made by the Abejos in favor of
Telectronics on the ground that it violated the Bragas' alleged pre-emptive right over the Abej os'
shareholdings and an alleged perfected contract with the Abejos to sell the same shares in their (Bragas)
favor, (Ist cause of action); plus damages for bad faith; and (b) declaration ofnullity of any transfer,
assignment or endorsement of Virginia Bragas' stock certificates for 63,000 shares in Pocket Ben to
Telectronics for want of consent and consideration, alleging that said stock certificates, which were
intended as security for a loan application and were thus endorsed by her in blank, had been lost (2nd
cause of action).
12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on the ground that it is the
SEC that is vested under PD 902-A with original and exclusive jurisdiction to hear and decide cases
involving, among others, controversies "between and among stockholders" and that the Bragas' suit is
such a controversy as the issues involved therein are the stockholders' alleged pre-emptive rights, the
validity of the transfer and endorsement of certificates of stock, the election of corporate officers and the
management and control of the corporation's operations. The dismissal motion was granted by Presiding
Judge G. Pineda on January 14, 1983.
13. On January 24, 1983, the Bragas filed a motion for reconsideration. The Abejos opposed. Meanwhile,
respondent Judge Rafael de la Cruz was appointed presiding judge of the court (renamed Regional Trial
Court) in place of Judge G. Pineda.
14. On February 14, 1983, respondent Judge de la Cruz issued an order rescinding the January 14, 1983
order and reviving the temporary restraining order previously issued on December 23, 1982 restraining
Telectronics' agents or representatives from enforcing their resolution constituting themselves as the new
set of officers of Pocket Bell and from assuming control of the corporation and discharging their functions.
15. On March 2, 1983, the Abejos filed a motion for reconsideration, which motion was duly opposed by
the Bragas. On March 11, 1983, respondent Judge denied the motion for reconsideration.
D. ABEJOS' PETITION AT BAR
16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge in refusing to dismiss the
complaint despite clear lack of jurisdiction over the action and in refusing to reconsider his erroneous
position were performed without jurisdiction and with grave abuse of discretion, filed their herein Petition
for certiorari and Prohibition with Preliminary Injunction. They prayed that the challenged orders of
respondent Judge dated February 14, 1983 and March 11, 1983 be set aside for lack of jurisdiction and
that he be ordered to permanently desist from further proceedings in Civil Case No. 48746. Respondent
judge desisted from further proceedings in the case, dispensing with the need of issuing any restraining
order.
E. BRAGAS' PETITION AT BAR
17. On August 29, 1984, the Bragas, alleging in turn that the SEC has no jurisdiction over SEC Cases
Nos. 02379 and 02395 and that it acted arbitrarily, whimsically and capriciously in dismissing their petition
(in SEC Case No. EB #049) for dismissal of the said cases, filed their herein Petition for certiorari and
Prohibition with Preliminary Injunction or TRO. The petitioner seeks the reversal and/or setting aside of
the SEC Order dated May 15, 1984 dismissing their petition in said SEC Case No. EB #049 and sustaining
its jurisdiction over SEC Cases Nos. 02379 and 02395, filed by the Abejos. On September 24, 1984, this
Court issued a temporary restraining order to maintain the status quo and restrained the SEC and/or any
of its officers or hearing committees from further proceeding with the hearings in SEC Cases Nos. 02379
and 02395 and from enforcing any and all orders and/or resolutions issued in connection with the said
cases.
The cases, having been given due course, were jointly heard by the Court on March 27, 1985 and the
parties thereafter filed on April 16, 1985 their respective memoranda in amplification of oral argument on
the points of law that were crystalled during the hearing,
The Court rules that the SEC has original and exclusive jurisdiction over the dispute between the principal
stockholders of the corporation Pocket Bell, namely, the Abejos and
Telectronics, the purchasers of the 56% majority stock (supra, at page 2) on the one hand, and the Bragas,
erstwhile majority stockholders, on the other, and that the SEC, through its en banc Resolution of May 15,
1984 co"ectly ruled in dismissing the Bragas' Petition questioning its jurisdiction, that "the issue is not the
ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of
recording transfers of shares of stock of the Corporation of which he is secretary."
1. The SEC ruling upholding its primary and exclusive jurisdiction over the dispute is correctly premised
on, and fully supported by, the applicable provisions of P.D. No. 902-A which reorganized the SEC with
additional powers "in line with the government's policy of encouraging investments, both domestic and
foreign, and more active publicParticipation in the affairs of private corporations and enterprises through
which desirable activities may be pursued for the promotion of economic development; and, to promote a
wider and more meaningful equitable distribution of wealth," and accordingly provided that:
SEC. 3. The Commission shall have absolute jurisdiction, supervision and control ouer all
corporations, partnerships or associations, who are the grantees of primary franchise and/or a
license or permit issued by the government to operate in the Philippines; ...
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 associations,
its officers or partners, amounting to fruud and misrepresentation which may be detrimental to
the interest of the public andlor of the stockholder, partners, members of associations or
organizations registered with the Commission.
b) Controversies arising out of intracorporate or partnership relations, between and among
stockholders, members, or associates; between any andlor all of them and the corporation,
partnership or association of which they are stockholders, members or assmiates, respectively;
and between such corporation, partnership or assmiation and the state insofar as it concems
their individual franchise or right to exist as such entity;
c) Controversies in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations. 3
Section 6 further grants the SEC "in order to effectively exercise such jurisdiction," the power, inter alia,
"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."
2. Basically and indubitably, the dispute at bar, as held by the SEC, is an intracorporate dispute that has
arisen between and among the principal stockholders of the corporation Pocket Bell due to the refusal of
the corporate secretary, backed up by his parents as erstwhile majority shareholders, to perform his
"ministerial duty" to record the transfers of the corporation's controlling (56%) shares of stock, covered by
duly endorsed certificates of stock, in favor of Telectronics as the purchaser thereof. mandamus in the
SEC to compel the corporate secretary to register the transfers and issue new certificates in favor of
Telectronics and its nominees was properly resorted to under Rule XXI, Section 1 of the SEC's New Rules
of Procedure, 4 which provides for the filing of such petitions with the SEC. Section 3 of said Rules further
authorizes the SEC to "issue orders expediting the proceedings ... and also [to] grant a preliminary
injunction for the preservation of the rights of the parties pending such proceedings, "
The claims of the Bragas, which they assert in their complaint in the Regional Trial Court, praying for
rescission and annulment of the sale made by the Abejos in favor of Telectronics on the ground that they
had an alleged perfected preemptive right over the Abejos' shares as well as for annulment of sale to
Telectronics of Virginia Braga's shares covered by street certificates duly endorsed by her in blank, may
in no way deprive the SEC of its primary and exclusive jurisdiction to grant or not the writ of mandamus
ordering the registration of the shares so transferred. The Bragas' contention that the question of ordering
the recording of the transfers ultimately hinges on the question of ownership or right thereto over the shares
notwithstanding, the jurisdiction over the dispute is clearly vested in the SEC.
3. The very complaint of the Bragas for annulment of the sales and transfers as filed by them in the regular
court questions the validity of the transfer and endorsement of the certificates of stock, claiming alleged
pre-emptive rights in the case of the Abejos' shares and alleged loss of thio certificates and lack of consent
and consideration in the case of Virginia Braga's shares. Such dispute c learly involve's controversies
"between and among stockholders, " as to the Abej os' right to sell and dispose of their shares to
Telectronics, the validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas and
the Abejos' transferee should be recognized as the controlling shareholders of the corporation, with the
right to elect the corporate officers and the management and control of its operations. Such a dispute and
case clearly fag within the original and exclusive jurisdiction of the SEC to decide, under Section 5 of P.D.
902-A, above-quoted. The restraining order issued by the Regional Trial Court restraining Telectronics
agents and representatives from enforcing their resolution constituting themselves as the new set of
officers of Pocket Bell and from assuming control of the corporation and discharging their functions patently
encroached upon the SEC's exclusive jurisdiction over such specialized corporate controversies calling for
its special competence. As stressed by the Solicitor General on behalf of the SEC, the Court has held that
"Nowhere does the law [PD 902-A] empower any Court of First Instance [now Regional Trial Court] to
interfere with the orders of the Commission," 5 and consequently "any ruling by the trial court on the issue
of ownership of the shares of stock is not binding on the Commission 6 for want of jurisdiction.
4. The dispute therefore clearly falls within the general classification of cases within the SEC's original and
exclusive jurisdiction to hear and decide, under the aforequoted governing section 5 of the law. Insofar as
the Bragas and their corporate secretary's refusal on behalf of the corporation Pocket Bell to record the
transfer of the 56% majority shares to Telectronics may be deemed a device or scheme amounting to fraud
and misrepresentation emplolyed by them to keep themselves in control of the corporation to the detriment
of Telectronics (as buyer and substantial investor in the corporate stock) and the Abejos (as substantial
stockholders-sellers), the case falls under paragraph (a). The dispute is likewise an intra-corporate
controversy between and among the majority and minority stockholders as to the transfer and disposition
of the controlling shares of the corporation, failing under paragraph (b). As stressed by the Court in DMRC
Enterprises v. Este del Sol Mountain Reserve, Inc, 7 Considering the announced policy of PD 902-A, the
expanded jurisdiction of the respondent Securities and Exchange Commission under said decree extends
exclusively to matters arising from contracts involving investments in private corporations, partnerships
and associations." The dispute also concerns the fundamental issue ofwhether the Bragas or Telectronics
have the right to elect the corporate directors and officers and manage its business and operations, which
falls under paragraph (c).
5. Most of the cases that have come to this Court involve those under paragraph (b), i.e. whether the
controversy is an intra-corporate one, arising "between and among stockholders" or "between any or allof
them and the corporation." The parties have focused their arguments on this question. The Bragas'
contention in his field must likewise fail. In Philex Mining Corp. v. Reyes, 8 the Court spelled out that"'an
intra-corporate controversy is one which arises between a stockholder and the corporation. There is no
distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of
controversies between stockholders and corporations. The issue of whether or not a corporation is bound
to replace a stockholder's lost certificate of stock is a matter purely between a stockholder and the
corporation. It is a typical intra-corporate dispute. The quqsjion of damage's raised is merely incidental to
that main issue. The Court rejected the stockholders' theory of excluding his complaint (for replacement of
a lost stock [dividend] certificate which he claimed to have never received) from the classification of intra-
corporate controversies as one that "does not square with the intent of the law, which is to segregate from
the general jurisdiction of regular Courts controversies involving corporations and their stockholders and
to bring them to the SEC for exclusive resolution, in much the same way that labor disputes are now
brought to the Ministry-of Labor and Employment (MOLE) and the National Labor Relations Commission
(NLRC), and not to the Courts."
(a) The Bragas contend that Telectronics, as buyertransferee of the 56% majority shares is not
a registered stockholder, because they, through their son the corporate secretary, appear to
have refused to perform "the ministerial duty of recording transfers of shares of stock of the
corporation of which he is the secretary," and that the dispute is therefore, not an intracorporate
one. This contention begs the question which must properly be resolved by the SEC, but which
they would prevent by their own act, through their son, of blocking the due recording of the
transfer and cannot be sanctioned. It can be seen from their very complaint in the regular courts
that they with their two sons constituting the plaintiffs are all stockholders while the defendants
are the Abejos who are also stockholders whose sale of the shares to Telectronics they would
annul.
(b) There can be no question that the dispute between the Abejos and the Bragas as to the sale
and transfer of the former's shares to Telectronics for P5 million is an intracorporate one under
section 5 (b), prescinding from the applicability of section 5 (a) and (c), (supra, par. 4) lt is the
SEC which must resolve the Bragas' claim in their own complaint in the court case filed by them
of an alleged pre-emptive right to buy the Abejos' shares by virtue of "on-going negotiations,"
which they may submit as their defense to the mandamus petition to register the sale of the
shares to Telectronics. But asserting such preemptive rights and asking that the same be
enforced is a far cry from the Bragas' claim that "the case relates to questions of ownership"
over the shares in question. 9 (Not to mention, as pointed out by the Abejos, that the corporation
is not a close corporation, and no restriction over the free transferability of the shares appears
in the Articles of Incorporation, as well as in the by-laws 10 and the certificates of stock
themselves, as required by law for the enforcement of such restriction. See Go Soc & Sons, etc.
v. IAC, G.R. No. 72342, Resolution of February 19, 1987.)
(c) The dispute between the Bragas and Telectronics as to the sale and transfer for
P1,674,450.00 of Virginia Braga's 63.000 shares covered by Street certificates duly endorsed in
blank by her is within the special competence and jurisdiction of the SEC, dealing as it does with
the free transferability of corporate shares, particularly street certificates," as guaranteed by the
Corporation Code and its proclaimed policy of encouraging foreign and domestic investments in
Philippine private corpora. tions and more active public participation therein for the Promotion of
economic development. Here again, Virginia Braga's claim of loss of her street certificates 11 or
theft thereof (denounced by Telectronics as 11 perjurious" 12 ) must be pleaded by her as a
defense against Telectronics'petition for mandamus and recognition now as the controlling
stockholder of the corporation in the light of the joint affidavit of Geneml Cerefino S. Carreon of
the National Telecommunications Commission and private respondent Jose Luis Santiago of
Telectronics narrating the facts and circumstances of how the former sold and delivered to
Telectronics on behalf of his compadres, the Bragas, Virginia Braga's street certificates for
63,000 shares equivalent to 18% of the corporation's outstanding stock and received the cash
price thereof. 13 But as to the sale and transfer of the Abejos' shares, the Bragas cannot oust
the SEC of its original and exclusive jurisdiction to hear and decide the case, by blocking through
the corporate secretary, their son, the due recording of the transfer and sale of the shares in
question and claiming that Telectronics is not a stockholder of the corporation which is the
very issue that the SEC is called upon to resolve. As the SEC maintains, "There is no
requirement that a stockholder of a corporation must be a registered one in order that,the
Securities and Exchange Commission may take cognizance of a suit seeking to enforce his
rights as such stockholder." 14 This is because the SEC by express mandate has "absolute
jurisdiction, supervision and control over all corporations" and is called upon to enforce the
provisions of the Corporation Code, among which is the stock purchaser's right to secure the
corresponding certificate in his name under the provisions of Section 63 of the Code. Needless
to say, any problem encountered in securing the certificates of stock representing the investment
made by the buyer must be expeditiously dealt with through administrative mandamus
proceedings with the SEC, rather than through the usual tedious regular court procedure.
Furthermore, as stated in the SEC order of April 13, 1983, notice given to the corporation of the
sale of the shares and presentation of the certificates for transfer is ,equivalent to registration:
"Whether the refusal of the (corporation) to effect the same is ivalid or not is still subject to the
outcome of the hearing on the merits of the case. 15
6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions
and boards the power to resolve specialized disputes in the field of labor (as in corporations, public
transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the
resolution of labor-management controversies likely to cause strikes or lockouts meant such jurisdiction to
be exclusive, although it did not so expressly state in the law. The Court held that under the "sense-making
and expeditious doctrine of primary jurisdiction ... the courts cannot or will n6t determine a controversy
involving a question which is within the jurisdiction of an administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the special knowledge, experience, and
seruices of the administratiue tribunal to determine technical and intricate matters of fact, and a uniformity
of ruling is essential to comply uith the purposes of the regulatory statute administered " 16
In this era of clogged court dockets, the need for specialized administrative boards or commissions with
the special knowledge, experience and capability to hear and determine promptly disputes on technical
matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has
become well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an
administrative body and a court, the unmistakable trend has been to refer it to the former. 'Increasingly,
this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice
should fall on [an administrative agency.]' " 17 The Court in the earlier case of Ebon vs. De Guzman 18
noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to
award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their
jurisdiction with the regular courts, "evidently ... had second thoughts about depriving the Labor Arbiters
and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity
of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on
one and the same claim."
7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specifically vests the SEC with the
Rule-making power in the discharge of its task of implementing the provisions of the Code and particularly
charges it with the duty of preventing fraud and abuses on the part of controlling stockholders, directors
and officers, as follows:
SEC. 143. Rule-making power of the Securities and Exchange Commission. The Securities
and Exchange Commission shall have the power and authority to implement the provisions of
this Code, and to promulgate rules and regulations reasonably necessary to enable it to perform
its duties hereunder, particularly in the prevention of fraud and abuses on the part of the
controlling stockholders, members, directors, trustees or officers. (Emphasis supplied)
The dispute between the contending parties for control of thecorporation manifestly fans within the primary
and exclusive jurisdiction of the SEC in whom the law has reserved such jurisdiction as an administrative
agency of special competence to deal promptly and expeditiously therewith.
As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant of jurisdiction [in Section
51 must be viewed in the light of the nature and functions of the SEC under the law. Section 3 of PD No.
902-A confers upon the latter 'absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the
government to operate in the Philippines ... 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.
"It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly
specified and delin-dted its jurisdiction to matters intrinsically connected with the regulation of corporations,
partnerships and associations and those dealing with the internal affairs of such corporations, partnerships
or associations.
"Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to
any of the following relationships: [al between the corporation, partnership or association and the public;
[b] between the corporation, partnership or association and its stockholders, partners, members, or
officers; [c] between the corporation, partnership or association and the state in so far as its franchise,
permit or license to operate is concerned; and Id] among the stockholders, partners or associates
themselves." 20
Parenthetically, the cited case of Union Glass illustrates by way of contrast what disputes do not fall within
the special jurisdiction of the SEC. In this case, the SEC had properly assumed jurisdiction over the
dissenting stockholders' com. Plaint against the corporation Pioneer Glass questioning its dacion en pago
of its glass plant and all its assets in favor of the DBP which was clearly an intra-corporate controversy
dealing with its internal affairs. But the Court held that the SEC had no jurisdiction over petitioner Union
Glass Corp., imPle,aded as third party purchaser of the plant from DBP in the action to annul the dacion
en pago. The Court held that such action for recovery of the glass plant could be brought by the dissenting
stockholder to the regular courts only if and when the SE C rendered final judgment annulling the dacion
en pago and furthermore subject to Union Glass' defenses as a third party buyer in good faith. Similarly,
in the DMRC case, therein petitioner's,tomplaint for collection of the amounts due to it as payment of
rentals for the lease of its heavy equipment in the form mainly of cash and part in shares of stock of the
debtor-defendant corporation was held to be not covered by the SEC's exclusive jurisdiction over
intracorporate disputes, since "to pass upon a money claim under a lease contract would be beyond the
competence Of the Securities and Exchange Commission and to separate the claim for money from the
claim for shares of stock would be splitting a single cause of action resulting in a multiplicity of suitS." 21
Such an action for collection of a debt does not involve enforcement Of rights and obligations under the
Corporation Code nor the in. temal or intracorporate affairs of the debtor corporation. But in aR disputes
affecting and dealing With the interests of the corporation and its stockholders, following the trend and
clear legislative intent of entmsting all disputes of a specialized nature to administrative agencies
possessing. the requisite competence, special knowledge, experience and services and facilities to
expeditiously resolve them and determine the essential facts including technical and intricate matters, as
in labor and public utilities rates disputes, the SEC has been given "the original and exclusive jurisdiction
to hear anddecide" them (under section 5 of P.D. 902-A) "in addition to [its] regulatory and adjudicative
functions" (under Section 3, vesting in it "absolute jurisdiction, supervision and control over all
corporations" and the Rule-making power granted it in Section 143 of the Corporation Code, supra). As
stressed by the Court in the Philex case, supra, "(T)here is no distinction, qualification, nor any exemption
whatsoever. The provision is broad and covers all kinds of controversies between stockholders and
corporations."
It only remains now to deal with the Order dated April 15, 1983 (Annex H, Petition) 22 of the SEC's three-
member Hearing Conunittee granting Telectronics' motion for creation of a receivership or management
committee with the ample powers therein enumerated for the preservation pendente lite of the
corporation's assets and in discharge of its "power and duty to preserve the rights of the parties, the
stockholders, the public availing of the corporation's services and the rights of creditors," as well as "for
reasons of equity and justice ... (and) to prevent possible paralization of corporate business." The said
Order has not been implemented notwithstanding its having been upheld per the SEC en banc's Order of
May 15, 1984 (Annex "V", Petition) dismissing for lack of merit the petition for certiorari, prohibition and
mandamus with prayer for restraining order or injunction filed by the Bragas seeking the disbandment of
the Hearing Committee and the setting aside of its Orders, and its Resolution of August 9, 1984, denying
reconsideration (Annex "X", Petition), due to the Bragas' filing of the petition at bar.
Prescinding from the great concern of damage and prejudice expressed by Telectronics due to the Bragas
having remained in control of the corporation and having allegedly committed acts of gross
mismanagement and misapplication of funds, the Court finds that under the facts and circumstances of
record, it is but fair and just that the SEC's order creating a receivership committee be implemented
forthwith, in accordance with its terms, as follows:
The three-man receivership committee shall be composed of a representative from the
commission, in the person of the Director, Examiners and Appraisers Department or his
designated representative, and a representative from the petitioners and a representative of the
respondent.
The petitioners and respondent are therefore directed to sub. mit to the Commission the name
of their designated representative within three (3) days from receipt of this order. The
Conunission shall appoint the other representatives if either or both parties fafl to comply with
the requirement within the stated time.
ACCORDINGLY, judgment is hereby rendered:
(a) Granting the petition in G.R. No. 63558, annulling the challenged Orders of respondent Judge
clated February 14, 1983 and March i 1, 1983 (Annexes "L" and "P" of the Abejos' petition) and
prohibiting respondent Judge from further proceeding in Civil Case No. 48746 filed in his Court
other than to dismiss the same for lack or jurisdiction over the subject-matter;
(b) Dismissing the petition in G.R. Nos. 68450-51 and lifting the temporary restraining order
issued on September 24, 1984, effective immediately upon promulgation hereof,
(c) Directing the SEC through its Hearing Committee to proceed immediately with hearing and
resolving the pending mandamus petition for recording in the corporate books the transfer to
Telectronics and its nominees of the majority (56%) shares of stock of the corporation Pocket
Bell pertaining to the Abejos and Virginia Braga and all related issues, taking into consideration,
without need of resubmittal to it, the pleadings, annexes and exhibits filed by the contending
parties in the cases at bar; and
(d) Likewise directing the SEC through its Hearing Committee to proceed immediately with the
implementation of its receivership or management committee Order of April 15, 1983 in SEC
 Case No. 2379 and for the purpose, the contending parties are ordered to submit to said Hearing
Committee the name of their designated representatives in the receivership/management
committee within three (3) days from receipt of this decision, on pain of forfeiture of such right in
case of failure to comply herewith, as provided in the said Order; and ordering theBragas to
perform only caretaker acts in the corporation pending the organization of such
receivership/management committee and assumption of its functions.
This decision shall be immediately executory upon its promulgation.
SO ORDERED.
Yap, Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.
G.R. No. 87135 May 22, 1992
ALMA MAGALAD, petitioner,
vs.
PREMIERE FINANCING CORP., respondent.
PARAS, J.:
This is an appeal originally filed with the Court of Appeals but certified to this court for disposition since it
involves purely questions of law from the decision of the Regional Trial Court (RTC), Branch LXXXV,
Quezon City, dated May 22, 1984, in Civil Case No. Q-40392, ordering the defendant-appellant Premiere
Financing Corporation (Premiere for short) to pay to the plaintiff-appellee Alma Magalad (Magalad for
short) the sum of:
(a) P50,000.00, the principal obligation, plus interest at the legal rate from September 12, 1983, until the
full amount is paid; (b) P10,000.00, both for moral and exemplary damages; (c) P5,000.00, for and as
attorney's fees and (d) the costs of suit.
The antecedent facts of the case are as follows:
Premiere is a financing company engaged in soliciting and accepting money market placements or
deposits (Original Record, p. 29).
On September 12, 1983 with expired permit to issue commercial papers (Ibid., p. 8) and with intention not
to pay or defraud its creditors, Premiere induced and misled Magalad into making a money market
placement of P50,000.00 at 22% interest per annum for which it issued a receipt (Ibid., Exh. "B", p. 8).
Aside from the receipt, Premier likewise issued two (2) post-dated checks in the total sum of P51,079.00
(Ibid., Exh. "C", p. 9) and assigned to Magalad its receivable from a certain David Saman for the same
amount (Ibid., Exh. "C", p. 10).
When the said checks were presented for payment on their due dates, the drawee bank dishonored the
checks for lack of sufficient funds to cover the amount (Ibid., Exhs. "D-1", "E-1", pp. 11-12). Despite
demands by Magalad for the replacement of said checks with cash, Premiere, for no valid reason, failed
and refused to honor such demands and due to fraudulent acts of Premiere, Magalad suffered sleepless
nights, mental anguish, fright, serious anxiety, considering the fact that the money she invested is blood
money and is the only source of support for her family (Ibid., p. 4).
Magalad in order to seek redress and retrieve her blood money, availed of the service of counsel for which
she agreed to pay twenty percent (20%) of the amount due as and for attorney's fees (Ibid.)
On January 10, 1984, Magalad filed a complaint for damages with prayer for writ of preliminary attachment
with the RTC, Branch LXXXV, Quezon City, docketed as Civil Case No. Q-40392 against herein Premiere
(Ibid., p. 3-6).
Premiere having failed to file an answer and acting on Magalad's motion, the lower court declared Premiere
in default by virtue of an order dated April 5, 1984 allowing Magalad to present evidence ex-parte (Ibid.,
pp. 21; 22)
On May 22, 1984 the lower court rendered a default judgment against Premiere, the dispositive portion of
which reads:
From the foregoing evidence, the court finds that plaintiff has fully established her claim that
defendant had indeed acted fraudulently in incurring the obligation and considering that no
evidence has been adduced by the defendant to contradict the same, judgment is hereby
rendered ordering the defendant to pay plaintiff as follows:
(a) P50,000.00, the principal obligation, plus interest at the legal rate from September 12, 1983
until the full amount is paid;
(b) P10,000.00 both for moral and exemplary damages;
(c) P5,000.00 for and as attorney's fees; and
(d) the costs of suit.
SO ORDERED. (Ibid., p. 30)
Premiere filed a motion for reconsideration of the foregoing decision, based principally on a question of
law alleging that the Securities and Exchange Commission (SEC) has exclusive and original jurisdiction
over a corporation under a state of suspension of payments (Ibid., pp. 32-41).
Magalad filed an opposition to the motion for reconsideration on January 8, 1985 alleging among others
that the regular court has jurisdiction over the case to the exclusion of the SEC. (Ibid., pp. 51-53).
On May 28, 1986 the lower court issued an order denying the motion for reconsideration (Ibid., p. 61).
On June 11, 1986 Premiere filed his notice of appeal which led to the issuance of the order of the lower
court dated July 29, 1986 elevating the case to the Court of Appeals (CA) (Ibid., pp. 62-63).
The Court of Appeals in its resolution dated September 8, 1987 dismissed the case for failure of Premiere
to file its brief despite the ninety-day extension granted to it, which expired on June 10, 1987 (Rollo, p. 16).
An omnibus motion for reconsideration and admission of late filing of Premiere's brief was filed on
September 22, 1987 (Rollo, pp. 17-19; 32).
On September 30, 1987 the Court of Appeals issued a resolution which reconsidered its previous
resolution dated September 5, 1987 and admitted the Premiere's brief (Rollo, p. 26).
On January 31, 1989 the Court of Appeals issued a resolution certifying the instant case to this Court on
the ground that the case involves a question of law, the dispositive part of which stating:
ACCORDINGLY, pursuant to Rule 50, Sec. 3, in relation to the Judiciary Act of 1948, Sec. 17,
par. 4(3) (4), the Appeal in this case is hereby certified to the Supreme Court on the ground that
the only issue raised concerns the jurisdiction of the trial court and only a question of law. (Rollo,
p. 33)
Hence, this appeal.
The pivotal issue in this case is whether or not the court a quo had jurisdiction to try the instant case.
At the very core of this appeal assailing the aforesaid pronouncement of the lower court, and around which
revolve the arguments of the parties, is the applicability of Presidential Decree No. 902-A (Reorganization
of the SEC with Additional Powers), as amended by Presidential Decrees Nos. 1653, 1758 and 1799.
Magalad submits that the legal suit which she has brought against Premiere is an ordinary action for
damages with the preliminary attachment cognizable solely by the RTC. Premiere, on the other hand,
espouses the original and exclusive jurisdiction of the Securities and Exchange Commission.
Presidential Decree No. 902-A, Section 3, provides:
Sec. 3. 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; and in the exercise of
its authority, it shall have the power to enlist the aid and support of and to deputize any and all
enforcement agencies of the government, civil or military as well as any private institution,
corporation, firm, association or person. (As amended by Presidential Decree No. 1758).
Sec. 3 of Pres. Decree No. 902-A should also be read in conjunction with Sec. 5 of the same law, providing:
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 the existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
a) Devises 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 public and/or to the stockholders, partners, members of
associations or organizations registered with the Commission. (Emphasis supplied)
Considering that Magalad's complaint sufficiently alleges acts amounting to fraud and misrepresentation
committed by Premiere, the SEC must be held to retain its original and exclusive jurisdiction over the case,
despite the fact that the suit involves collection of sums of money paid to said corporation, the recovery of
which would ordinarily fall within the jurisdiction of regular courts. The fraud committed is detrimental to
the interest of the public and, therefore, encompasses a category of relationship within the SEC jurisdiction.
Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to
any of the following relationships: (a) between the corporation, partnership or association and the public;
(b) between the corporation, partnership or association and its stockholders, partners, members or officers;
(c) between the corporation, partnership or association and the state so far as its franchise, permit or
license to operate is concerned; and (d) among the stockholders, partners or associates themselves
(Union Glass & Container Corp. v. SEC, 126 SCRA 31; 38; 1983; Abejo v. De la Cruz, 149 SCRA 654,
1987).
In this case, the recitals of the complaint sufficiently allege that devices or schemes amounting to fraud
and misrepresentation detrimental to the interest of the public have been resorted to by Premiere
Corporation. It can not but be conceded, therefore, that the SEC may exercise its adjudicative powers
pursuant to Sec. 5(a) of Pres. Decree No. 902-A (Supra).
The fact that Premiere's authority to engage in financing already expired will not have the effect of divesting
the SEC of its original and exclusive jurisdiction. The expanded jurisdiction of the SEC was conceived
primarily to protect the interest of the investing public. That Magalad's money placements were in the
nature of investments in Premiere can not be gainsaid. Magalad had reasonably expected to receive
returns from moneys she had paid to Premiere. Unfortunately, however, she was the victim of alleged
fraud and misrepresentation.
Reliance by Magalad on the cases of DMRC v. Este del Sol, (132 SCRA 293) and Union Glass & Container
Corp. v. SEC (126 SCRA 31), where the jurisdiction of the ordinary Courts was upheld, is misplaced for,
as explicitly stated in those cases, nowhere in the complaints therein is found any averment of fraud or
misrepresentation committed by the respective corporations involved. The causes of action, therefore,
were nothing more than simple money claims.
Further bolstering the jurisdiction of the SEC in this case is the fact that said agency had already appointed
a Rehabilitation Receiver for Premiere and has directed all proceedings or claims against it be suspended.
This, pursuant to Sec. 6(c) of Pres. Decree No. 902-A providing that "upon appointment of a . . .
rehabilitation receiver . . . all actions for claims against corporations . . . under receivership pending before
any court, tribunal, board or body shall be suspended accordingly."
By so doing, SEC has exercised its original and exclusive jurisdiction to hear and decide cases involving:
a) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments 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
respectively 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 of a Rehabilitation Receiver or Management Committee created pursuant to
this Decree. (Section 5(d) of Pres. Decree No. 902-A as added by Pres. Decree 1758).
In fine, the adjudicative powers of the SEC being clearly defined by law, its jurisdiction over this case has
to be upheld.
PREMISES CONSIDERED, the instant appeal is GRANTED, and the order of the Presiding Judge of the
Regional Trial Court, Quezon City, Branch LXXXV dated May 22, 1984, in Civil Case No. Q-40392 is
REVERSED and SET ASIDE, without prejudice to the filing by Alma Magalad of the appropriate complaint
against Premiere Financing Corporation with the Securities and Exchange Commission.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.
G.R. No. 179047, March 11, 2015
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. SUBIC BAY GOLF AND COUNTRY CLUB,
INC. AND UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT CORPORATION, Respondents.
DECISION
LEONEN, J.:
Intra-corporate controversies, previously under the Securities and Exchange Commission's jurisdiction,
are now under the jurisdiction of Regional Trial Courts designated as commercial courts. However, the
transfer of jurisdiction to the trial courts does not oust the Securities and Exchange Commission of its
jurisdiction to determine if administrative rules and regulations were violated.
In this Petition for Review1 on Certiorari under Rule 45 of the Rules of Court, petitioner Securities and
Exchange Commission prays for the reversal of the Court of Appeals' July 31, 2007 Decision. 2 The Court
of Appeals declared void the Securities and Exchange Commission's February 10, 2004 Decision
affirming its Corporation Finance Department's Order3 to refund payments for Subic Bay Golf and
Country Club, Inc.'s shares of stock.4cralawrednad
Subic Bay Golf Course, also known as Binictican Valley Golf Course, was operated by Subic Bay
Metropolitan Authority (SBMA) under the Bases Conversion Development Authority (BCDA). 5 Universal
International Group of Taiwan (UIG), a Taiwanese corporation, was chosen to implement the plan to
privatize the golf course.6cralawrednad
On May 25, 1995, SBMA and UIG entered into a Lease and Development Agreement. Under the
agreement, SBMA agreed to lease the golf course to UIG for 50 years, renewable for another 25 years.7
UIG agreed to "develop, manage and maintain the golf course and other related facilities within the
complex[.]"8 Later, Universal International Group Development Corporation (UIGDC) succeeded to the
interests of UIG on the golf course development.9cralawrednad
On April 1, 1996, UIGDC executed a Deed of Assignment in favor of Subic Bay Golf and Country Club,
Inc. (SBGCCI). Under the Deed of Assignment, UIGDC assigned all its rights and interests in the golf
course's development, operations, and marketing to SBGCCI.10cralawrednad
On April 25, 1996, SBGCCI and UIGDC entered into a Development Agreement. 11 UIGDC agreed to
"finance, construct and develop the [golf course], for and in consideration of the payment by [SBGCCI] of
its 1,530 (SBGCCI) shares of stock."12cralawrednad
Upon SBGCCI's application, the Securities and Exchange Commission issued an Order for the
Registration of 3,000 no par value shares of SBGCCI on July 8, 1996. SBGCCI was issued a Certificate
of Permit to Offer Securities for Sale to the Public of its 1,530 no par value proprietary shares on August
9, 1996. The shares were sold at P425,000.00 per share. SBGCCI would use the proceeds of the sale of
securities to pay UIGDC for the development of the golf course. 13cralawrednad
In the letter14 dated November 4, 2002 addressed to Atty. Justina Callangan, Director of Securities and
Exchange Commission's Corporation Finance Department, complainants Regina Filart (Filart) and
Margarita Villareal (Villareal) informed the Securities and Exchange Commission that they had been
asking UIGDC for the refund of their payment for their SBGCCI shares. UIGDC did not act on their
requests.15 They alleged that they purchased the shares in 1996 based on the promise of SBGCCI and
UIGDC to deliver the following:cralawlawlibrary
a. an 18 hole golf course that would meet the highest USGA and PGA standards.
b. A 9 hole executive course which would be completely illuminated to allow members
to play after dark
c. A swimming pool and tennis courts
d. Golf Villas and Residential Condominium-Hotel
e. Driving range of 30 berths provided with a roof and illuminated to afford nighttime
driving.
f. Club facilities with a restaurant which will offer French, Filipino and Chinese cuisine
and 7 well-furnished VIP rooms which are equipped with the latest toilet and bath
facilities and are available for private meetings and conferences. 16
However, these promises were not delivered.17cralawrednad
Villareal and Filart also claimed that despite SBGCCI's and UIGDC's failure to deliver the promised
amenities, they started to charge them monthly dues. They also never received any billing statement
from them until they were sent a demand notice to pay the alleged back dues of P39,000.00 within five
(5) days. They were threatened that their shares amounting to P740,000.00 and paid off in December
1996 would be auctioned off if their alleged back dues would not be paid. 18 Villareal and Filart prayed for
relief from the "terrible situation [they found themselves] in."19 They also prayed that their letter be
accepted "as a formal complaint against Universal International Group Development Corporation for
breach of promise/contract with its investors who put in hard-earned money believing that they would
deliver what their brochures promised to deliver."20cralawrednad
In their Comment,21 SBGCCI and UIGDC averred that they had already substantially complied with their
commitment to provide the members a world-class golf and country club.22 The construction of the golf
course substantially met international standards.23 Other proposed project developments such as the
construction of villas and residential condominium-hotels were not included in the rights purchased with
member shares.24 They also denied that they failed to send monthly billing statements to Filart and SUBIC BAY GOLF and COUNTRY CLUB, INC. is likewise hereby ordered to amend its Prospectus,
Villareal.25cralawredcralawrednad reflecting therein the actual status of the facilities of the club, and to comply with the requirements of
SRC Rule 14.
SBGCCI and UIGDC also stressed that SBMA, under its Contract of Lease, was the one duty-bound to
complete the golf course and amenities. It would be in breach of contract if it failed to complete the golf Furthermore, due to its failure to comply with its undertakings in its Registration Statement and
course and the amenities. Insofar as SBGCCI's commitments were concerned, it was able to fully Prospectus, tantamount to misrepresentation, and in violation of the provisions of the Securities
comply with its obligations.26cralawrednad Regulation Code, and its implementing rules and regulation, the Certificate of Registration and Permit to
Sell Securities to the Public issued to respondent Subic Bay Golf and Country Club, Inc., are hereby
In January 2003, the Securities and Exchange Commission's Corporation Finance Department SUSPENDED until the aforementioned misrepresentations are rectified and the requirements of this
conducted an ocular inspection of the project. Based on the Memorandum Report prepared by Julius H. Order are complied with. The Commission shall make a determination, within thirty (30) days, whether or
Baltazar, Specialist I, SBGCCI and UIGDC failed to comply substantially with their commitment to not such registration should be revoked.
complete the project.27 According to the Report:cralawlawlibrary
Completion And, pursuant to Section 54 of the Code, respondent corporations, SUBIC BAY GOLF AND COUNTRY
Project Description based on Work Findings per ocular inspection as of CLUB, INC. and UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT CORPORATION, are hereby
date/cost per
Program January 3, 2003 fined the amount of P100,000.00.
Prospectus
Reconstruction/rehabilitation of the 18- The 18-hole golf course is already
hole golf course. This includes the existing and playable. It was observed SO ORDERED.30 (Emphasis in the original)
Before November The Corporation Finance Department found that Filart and Villareal invested in the golf course because
construction of the following: that the grass in some parts of the 18-
1996 of SBGCCI and UIGDC's representation that a 27-hole, world-class golf course would be developed.31 It
hole course is dry and withered
P301,600[,]000. also found that SBGCCI and UIGDC failed to comply with their commitments and representations as
1. greens
2. fairways The road/cart paths are fully concrete stated in their prospectus.32cralawrednad
3. road/cart paths and passable, bridges, drainage and
4. bridges irrigation systems are in place. The Corporation Finance Department ordered the return of the purchase price of shares pursuant to
5. drainage & irrigation system Rule 1433 of the Implementing Rules and Regulations of Republic Act No. 8799 or the Securities
6. driving range There is a driving range with roof and 7 Regulation Code. It explained that the non-completion of the golf course constituted a material
7. tee houses berths and one (1) tee house in hole # amendment in the prospectus. The prospectus had become misleading, tending to work a fraud. This
3. gave the purchasers the right to a refund of their contributions. 34cralawrednad
After November
Construction of additional 9-hole course.
1996 P156,000,000 SBGCCI and UIGDC filed a Petition for Review35 of the Corporation Finance Department's Order before
The construction of the additional 9-hole
course has not yet started. the Securities and Exchange Commission. SBGCCI and UIGDC assailed the Corporation Finance
Department's and the Securities and Exchange Commission's authority to order a refund of investments.
They also assailed its jurisdiction over the case, which according to SBGCCI and UIGDC involved an
Construction/renovation of Clubhouse with Before November The clubhouse has a dining area, intra-corporate dispute. They argued that the Corporation Finance Department's Order was issued
the following facilities: 1996 P192,400,000 function room, 6 VIP rooms, sport shop, without due process.36cralawrednad
one (1) restaurant and men & ladies
1. dining areas locker rooms. It has no sauna and On February 10, 2004, the Securities and Exchange Commission rendered the Decision37 affirming the
2. function rooms massage rooms. July 1, 2003 Order of the Corporation Finance Department:cralawlawlibrary
3. indoor and outdoor tennis courts WHEREFORE, in view of the foregoing, the PETITION is hereby DENIED. The July 1, 2003 ORDER of
4. 25-meter swimming pool Beside the clubhouse is a swimming the Corporate Finance Department is hereby AFFIRMED.
5. gyms pool with no water and one (1) tennis
6. saunas and massage room court, [sic] that are both poorly SO ORDERED.38
7. sport shops maintained. The Securities and Exchange Commission ruled that the Corporation Finance Department's proceedings
were administrative in nature. It was only conducted to determine if SBGCCI and UIGDC violated the
Condominiums, Residential Villas, 250- There is [sic] none.28 Securities and Exchange Commission's rules and regulations. While Villareal and Filart's letter-complaint
bedroom hotel and a conference center alleged intra-corporate matters, it also alleged matters pertaining to SBGCCI and UIGDC's compliance
with the prospectus and registration statements. The Securities and Exchange Commission has the
In the July 1, 2003 Order, the Securities and Exchange Commission's Corporation Finance Department authority to investigate possible acts of abuse of franchise and violations of its rules and regulations. It
gave due course to Villareal and Filart's letter-complaint:29 also has the power to impose appropriate administrative sanctions. The Corporation Finance Department
WHEREFORE, upon consideration of the foregoing, the complaint of REGINA S. FILART and only exercised these powers.39cralawrednad
MARGARITA G. VILLAREAL is hereby given DUE COURSE.
The Corporation Finance Department, tasked to oversee securities registration, has the implied power to
Respondents SUBIC BAY GOLF AND COUNTRY CLUB, INC. and UNIVERSAL INTERNATIONAL suspend or revoke registration upon showing of violations of the Securities and Exchange Commission's
GROUP DEVELOPMENT CORPORATION, are hereby ordered to refund to REGINA S. FILART and rules and regulations. Based on Section 4.6 of the Securities Regulation Code, the Securities and
MARGARITA G. VILLAREAL, within ten (10) days from receipt of this Order, the total purchase price of Exchange Commission has the power to delegate some of its functions to any of its
their shares of stock issued by Subic Bay Golf and Country Club, Inc., in the amount of P740,000.00 departments.40cralawrednad
each, or a total of P1,480,000.00.

On SBGCCI and UIGDC's allegation that they were not given due process, the Securities and Exchange
Commission ruled that suspension of permit to sell securities does not require a full-blown hearing. In
any case, SBGCCI and UIGDC were served notice and given an opportunity to present their case. They
were even able to file their Comment on the letter-complaint on January 6, 2003.41cralawrednad
The Securities and Exchange Commission added that the Corporation Finance Department's directive to
return the purchasers' investments was in accordance with the rules. Rule 14 of the Securities
Regulation Code allows purchasers to renounce their securities. 42cralawrednad
SBGCCI and UIGDC filed a Motion for Reconsideration of the February 10, 2004 Securities and
Exchange Commission Decision, but this was denied in the Order43 dated April 6, 2004.44cralawrednad
SBGCCI and UIGDC filed a Petition for Review45 of the Securities and Exchange Commission's February
10, 2004 Decision before the Court of Appeals.46 They argued that the letter-complaint filed by Villareal
and Filart involved an intra-corporate dispute that was under the jurisdiction of the Regional Trial Court
and not the Securities and Exchange Commission.47 They also argued that the Securities Regulation
Code does not grant the Securities and Exchange Commission the power to order the refund of payment
for shares of stock.48cralawrednad
On July 31, 2007, the Court of Appeals declared void the February 10, 2004 Decision of the Securities
and Exchange Commission insofar as it ordered the refund of the purchase price of Filart's and
Villareal's investments.49 Thus:cralawlawlibrary
WHEREFORE, the February 10, 2004 Decision of the Securities and Exchange Commission in CFD-AA-
Case No. 08-03-36, affirming the July 1, 2003 Order of the Corporate Finance Department, insofar as it
ordered the refund of the purchase price of the shares of stock of petitioner SBGCCI, is hereby declared
NULL and VOID for lack of jurisdiction.
SO ORDERED.50
The Court of Appeals found that the case involved an intra-corporate controversy. The Securities and
Exchange Commission acted in excess of its jurisdiction when it ordered UIGDC and SBGCCI to refund
Villareal and Filart the amount they paid for SBGCCI shares of stock. The authority to exercise powers
necessary to carry out the objectives of the Securities and Exchange Commission does not include the
authority to refund investments. This power has been transferred to the Regional Trial Court. The
Securities and Exchange Commission should have limited its exercise of power to issuing an order
imposing a fine, to amend the prospectus, and to suspend the Certificate of Registration and Permit to
Sell Securities to the Public.51cralawrednad
Hence, this petition was filed.
The Securities and Exchange Commission argues that Villareal and Filart's letter-complaint of November
4, 2002 did not only raise matters involving intra-corporate relations. Their letter-complaint also stated
serious violations of the Securities Regulation Code, which may require the Securities and Exchange
Commission's intervention.52 The Commission did not adjudicate private rights or awarded damages. 53 It
only determined whether SBGCCI and UIGDC committed misrepresentations,54 in violation of the
Securities Regulation Code and its implementing rules.55cralawrednad
The Securities and Exchange Commission contends that its Order to return the stock purchasers'
contributions is in accordance with Rule 14, Section 1(c)56 of the Implementing Ru|es and Regulations of
the Securities Regulation Code.57 This provision is within the Securities and Exchange Commission's
rule-making power under Section 14358 of the Corporation Code and Section 5(g) and (n)59 of the
Securities Regulation Code.60 Section l(c) is necessary to implement the Securities Regulation Code's
mandate "to protect the investing public from unscrupulous corporations taking advantage of every
situation[.]"61cralawrednad
The Securities and Exchange Commission points out that Villareal and Filart had been demanding from
SBGCCI and UIGDC the return of their investments. Its Corporation Finance Department already
directed SBGCCI and UIGDC to amend their prospectus and registration statements to comply with the
Securities Regulation Code. However, SBGCCI and UIGDC failed to comply. 62cralawrednad
In their Comment,63 SBGDCC and UIGDC insist that the case involved an intra-corporate dispute over
which only the Regional Trial Court has jurisdiction.64 The Securities and Exchange Commission has no
authority to order the return of payments made by Villareal and Filart. 65 Even assuming that the
Securities and Exchange Commission has jurisdiction over intra-corporate cases, there should first be a
disagreement over prospectus amendments before paid contributions can be refunded. 66cralawrednad
We determine which between the Securities and Exchange Commission and the Regional Trial Court
has jurisdiction over this case. We also determine whether the Securities and Exchange Commission
has the authority to order the return of purchase price of securities upon finding that there were
fraudulent representations in the prospectus.
We rule for SBGCCI and UIGDC.
Under Presidential Decree No. 902-A,67 the Securities and Exchange Commission has jurisdiction over
acts amounting to fraud and misrepresentation by a corporation's board of directors, business
associates, and officers. It also provides that it has jurisdiction over intra-corporate disputes.
Thus:cralawlawlibrary
WHEREAS, in line with the government's policy of encouraging investments, both domestic and foreign,
and more active public participation in the affairs of private corporations and enterprises through which
desirable activities may be pursued for the promotion of economic development; and, to promote a wider
and more meaningful equitable distribution of wealth, there is a need for an agency of the government to
be invested with ample powers to protect such investment and the public;
....
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 partners, 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;
c. Controversies in the election or appointments of directors, trustees, officers or
managers of such corporations, partnerships or associations.
However, jurisdiction over intra-corporate disputes and all other cases enumerated in Section 5 of
Presidential Decree No. 902-A had already been transferred to designated Regional Trial Courts.
Section 5.2 of Republic Act No. 8799 provides:cralawlawlibrary
5.2.The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial
Court: 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
fully disposed.
Hence, actions pertaining to intra-corporate disputes should be filed directly before designated Regional
Trial Courts. Intra-corporate disputes brought before other courts or tribunals are dismissible for lack of
jurisdiction.68cralawrednad
For a dispute to be "intra-corporate," it must satisfy the relationship and nature of controversy
tests.69cralawrednad
The relationship test requires that the dispute be between a corporation/partnership/association and the
public; a corporation/partnership/association and the state regarding the entity's franchise, permit, or
license to operate; a corporation/partnership/association and its stockholders, partners, members, or
officers; and among stockholders, partners, or associates of the entity. 70cralawrednad
The nature of the controversy test requires that the action involves the enforcement of corporate rights
and obligations.
Courts and tribunals must consider both the parties' relationship and the nature of the controversy to
determine whether they should assume jurisdiction over a case. In Medical Plaza Makati Condominium
Corporation v. Cullen:71
[T]he controversy must not only be rooted in the existence of an intra-corporate relationship, but must as
well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code
and the internal and intra-corporate regulatory rules of the corporation. In other words, jurisdiction should
be determined by considering both the relationship of the parties as well as the nature of the question
involved.72 (Citations omitted)
This case is an intra-corporate dispute, over which the Regional Trial Court has jurisdiction. It involves a
dispute between the corporation, SBGCCI, and its shareholders, Villareal and Filart.
This case also involves corporate rights and obligations. The nature of the action whether it involves
corporate rights and obligations is determined by the allegations and reliefs in the
complaint.73cralawrednad
Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI and UIGDC's
alleged failure to abide by their representations in their prospectus. Specifically, Villareal and Filart
alleged in their letter-complaint that the world-class golf course that was promised to them when they
purchased shares did not materialize. This is an intra-corporate matter that is under the designated
Regional Trial Court's jurisdiction. It involves the determination of a shareholder's rights under the
Corporation Code or other intra-corporate rules when the corporation or association fails to fulfill its
obligations.
However, even though the Complaint filed before the Securities and Exchange Commission contains
allegations that are intra-corporate in nature, it does not necessarily oust the Securities and Exchange
Commission of its regulatory and administrative jurisdiction to determine and act if there were
administrative violations committed.
The Securities and Exchange Commission is organized in line with the policy of encouraging and
protecting investments.74 It also administers the Securities Regulation Code,75 which was enacted to
"promote the development of the capital market, protect investors, ensure full and fair disclosure about
securities, [and] minimize if not totally eliminate insider trading and other fraudulent or manipulative
devices and practices which create distortions in the free market." 76 Pursuant to these policies, the
Securities and Exchange Commission is given regulatory powers 77 and "absolute jurisdiction, supervision
and control over all corporations, partnerships' or associations. . . ."78cralawrednad
In relation to securities, the Securities and Exchange Commission's regulatory power pertains to the
approval and rejection, and suspension or revocation, of applications for registration of securities 79 for,
among others, violations of the law, fraud, and misrepresentations. Thus:cralawlawlibrary
SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. The Commission may reject a
registration statement and refuse registration of the security thereunder, or revoke the effectivity of a
registration statement and the registration of the security thereunder after due notice and hearing by
issuing an order to such effect, setting forth its findings in respect thereto, if it finds that:
a. The issuer:
i. Has been judicially declared insolvent;
ii. Has violated any of the provisions of this Code, the rules promulgated pursuant
thereto, or any order of the Commission of which the issuer has notice in
connection with the offering for which a registration statement has been filed;
iii. Has been engaged or is about to engage in fraudulent transactions;
iv. Has made any false or misleading representation of material facts in any
prospectus concerning the issuer or its securities;
v. Has failed to comply with any requirement that the Commission may impose as
a condition for registration of the security for which the registration statement has
been filed; or
b. 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 fact required
to be stated therein or necessary to make the statements therein not misleading; or
c. The issuer, any officer, director or controlling person of the issuer, or person performing
similar functions, or any underwriter has been convicted, by a competent judicial or
administrative body, upon plea of guilty, or otherwise, of an offense involving moral
turpitude and/or fraud or is enjoined or restrained by the Commission or other competent
judicial or administrative body for violations of securities, commodities, and other related
laws.
....
13.4. If the Commission deems it necessary, it may issue an order suspending the offer and sale of the
securities pending any investigation. The order shall state the grounds for taking such action, but such
order of suspension although binding upon the persons notified thereof, shall be deemed confidential,
and shall not be published. Upon the issuance of the suspension order, no further offer or sale of such
security shall be made until the same is lifted or set aside by the Commission. Otherwise, such sale shall
be void.
....
SEC. 15. Suspension of Registration. - 15.1. If, at any time, the information contained in the registration
statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect,
or the sale or offering for sale of the security registered thereunder may work or tend to work a fraud, the
Commission may require from the issuer such further information as may In its judgment be necessary to
enable the Commission to ascertain whether the registration of such security should be revoked on any
ground specified in this Code. The Commission may also suspend the right to sell and offer for sale such
security pending further investigation, by entering an order specifying the grounds for such action, and by
notifying the issuer, underwriter, dealer or broker known as participating in such offering.80
To ensure compliance with the law and the rules, the Securities and Exchange Commission is also given
the power to impose fines and penalties. It may also investigate motu proprio whether corporations comply
with the Corporation Code, Securities Regulation Code, and rules implemented by the Securities and
Exchange Commission.chanrobleslaw
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:ChanRoblesvirtualLawlibrary
d. Regulate, investigate or supervise the activities of persons to ensure compliance;
f. Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;
i. Issue cease and desist orders to prevent fraud or injury to the investing public;

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.81
The Securities and Exchange Commission's approval of securities registrations signals to the public that
the securities are valid. It provides the public with basis for relying on the representations of corporations
that issue securities or financial instruments.
Any fraud or misrepresentation in the issuance of securities injures the public. The Securities and
Exchange Commission's power to suspend or revoke registrations and to impose fines and other
penalties provides the public with a certain level of assurance that the securities contain representations
that are true, and that misrepresentations if later found, would be detrimental to the erring corporation. It
creates risks to corporations that issue securities and adds cost to errors, misrepresentations, and
violations related to the issuance of those securities. This protects the public who will rely on
representations of corporations and partnerships regarding financial instruments that they issue. The
Securities and Exchange Commission's regulatory power over securities-related activities is tied to the
government's duty to protect the investing public from illegal and fraudulent instruments.
Thus, when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC committed
misrepresentations in the sale of their shares, nothing prevented the Securities and Exchange
Commission from taking cognizance of it to determine if SBGCCI and UIGDC committed administrative
violations and were liable under the Securities Regulation Code. The Securities and Exchange
Commission may investigate activities of corporations under its jurisdiction to ensure compliance with the
law.
However, the Securities and Exchange Commission's regulatory power does not include the authority to
order the refund of the purchase price of Villareal's and Filart's shares in the golf club. The issue of
refund is intra-corporate or civil in nature. Similar to issues such as the existence or inexistence of
appraisal rights, pre-emptive rights, and the right to inspect books and corporate records, the issue of
refund is an intra-corporate dispute that requires the court to determine and adjudicate the parties' rights
based on law or contract. Injuries, rights, and obligations involved in intra-corporate disputes are specific
to the parties involved. They do not affect the Securities and Exchange Commission or the public
directly.
The Securities and Exchange Commission argues that the power to order a refund is in accordance with
the implementing rules of the Securities Regulation Code. Despite orders from the Securities and
Exchange Commission to amend their prospectus, SBGCCI and UIGDC failed to comply. Thus, Villareal
and Filart were entitled to the refund of the purchase price of their shares. They cite Section 14 of the
Implementing Rules and Regulations of the Securities Regulation Code:ChanRoblesvirtualLawlibrary
SRC Rule 14 - Amendments to the Registration Statement
1.If a prospectus filed with the Commission under the Code becomes incomplete or inaccurate in any
material respect or if the issuer wants to change any material information therein, the issuer shall:
a.file an amendment to the registration statement with the Commission explaining all proposed changes
which shall be reviewed by the Commission in accordance with Section 14 of the Code;
c. where material amendments have been made to the prospectus after the effective date thereof,
purchasers may, within thirty (30) days from the date of such notification, renounce their purchase of
securities, whereupon the issuer, or any person acting on behalf of the issuer in connection with the
distribution of said securities, shall, within ten (10) days from receipt of notification of such election,
return the contributions paid by such purchasers without making any deductions. Purchasers who
decide not to renounce their purchase of securities shall be subject to the terms of the amended
offering. (Emphasis supplied)
Based on these provisions, Villareal and Filart may be entitled to a refund of the purchase price of their
shares. Provisions giving shareholders rights, however, are not to be interpreted as sources of authority
or jurisdiction when there is none. The provisions in the law or in the rules giving Villareal and Filart the
right to be refunded the value of their shares are not equivalent to authority for the Securities and
Exchange Commission to issue an order for the refund. Such order may not come from the Securities
and Exchange Commission.
Neither the provisions of the implementing rules nor the provisions of the Securities Regulation Code, 82
the law being implemented, give the Securities and Exchange Commission the power to order a refund.
The Securities and Exchange Commission's power when violations of the Securities Regulation Code
are found is limited to issuing regulatory orders such as suspending or revoking registration statements,
providing for the terms and conditions for registration, and imposing fines and penalties.
The implementing rules cannot be interpreted to give the Securities and Exchange Commission the
power that is more than what is provided under the Securities Regulation Code. Implementing rules are
limited by the laws they implement. The rules cannot be used to amend, expand, or modify the law being
implemented. The law shall prevail in case of inconsistency between the law and the rules.
In United BF Homeowner's Association v. BF Homes, Inc.:83
As early as 1970, in the case of Teoxon vs. Members of the Board of Administrators (PVA), we ruled that
the power to promulgate rules in the implementation of a statute is necessarily limited to what is provided
for in the legislative enactment. Its terms must be followed for an administrative agency cannot amend
an Act of Congress. "The rule-making power must be confined to details for regulating the mode or
proceedings to carry into effect the law as it has been enacted, and it cannot be extended to amend or
expand the statutory requirements or to embrace matters not covered by the statute." If a discrepancy
occurs between the basic law and an implementing rule or regulation, it is the former that prevails.
. . . The rule-making power of a public administrative body is a delegated legislative power, which it may
not use either to abridge the authority given it by Congress or the Constitution or to enlarge its power
beyond the scope intended. Constitutional and statutory provisions control what rules and regulations
may be promulgated by such a body, as well as with respect to what fields are subject to regulation by it.
It may not make rules and regulations which are inconsistent with the provisions of the Constitution or a
statute, particularly the statute it is administering or which created it, or which are in derogation of, or
defeat, the purpose of a statute.
Moreover, where the legislature has delegated to an executive or administrative officers and boards
authority to promulgate rules to carry out an express legislative purpose, the rules of administrative
officers and boards, which have the effect of extending, or which conflict with the authority-granting
statute, do not represent a valid exercise of the rule-nrnking power but constitute an attempt by an
administrative body to legislate. "A statutory grant of powers should not be extended by implication
beyond what may be necessary for their just and reasonable execution." It is axiomatic that a rule or
regulation must bear upon, and be consistent with, the provisions of the enabling statute if such rule or
regulation is to be valid.84 (Citations omitted)
Hence, the issue of refund should be litigated in the appropriate Regional Trial Court. This issue is both
intra-corporate and civil in nature, which is under the jurisdiction of the designated Regional Trial Courts.
WHEREFORE, the Court of Appeals Decision dated July 31, 2007 is AFFIRMED.
SO ORDERED.chanrobles virtuallawlibrary
*
Carpio, (Chairperson), Brion, Del Castillo, and Perez, JJ., concur.Ch
G.R. No. 203023 June 17, 2015
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION and PHILCOMSAT HOLDINGS Daniel C. Gutierrez Chairman
CORPORATION, Petitioners, Erlinda I. Bildner Vice-Chairman
vs. Katrina C. Ponce-Enrile President
SANDIGANBAYAN 5th DIVISION and PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, Marietta K. Ilusorio Treasurer
Respondents. Rafael A. Poblador Asst. Treasurer
DECISION Victoria C. delos Reyes Secretary
CARPIO, J.: On the same day, PHILCOMSAT held a special stockholders meeting attended by Erlinda I. Bildner as
The Case proxy for POTC. At the request of the Republic of the Philippines, the three government representatives
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Philippine were nominated to the PHILCOMSAT Board of Directors. The following were elected:
Communications Satellite Corporation (PHILCOMSAT) and PHILCOMSAT Holdings Corporation (PHC) Abraham R. Abesamis (government)
[petitioners] against respondents, the Sandiganbayan and the Presidential Commission on Good Ramon P. Jacinto (government)
Government (PCGG). Petitioners are assailing the Sandiganbayan's Resolution1 promulgated on 3 May Rodolfo G. Serrano, Jr. (government)
2012 dismissing their complaint in Civil Case No. SB-12-CVL-0001, and the Resolution2 promulgated on Erlinda I. Bildner (private)
14 August 2012 denying their motion for reconsideration. Katrina C. Ponce-Enrile (private)
The Facts Pablo L. Lobregat (private)
PHC is a domestic corporation listed in the Philippine Stock Exchange (PSE). It was previously known as Honorio A. Poblador III (private)
Liberty Mines, Inc. (LMI) and had been previously engaged in the discovery, exploitation, development Marietta K. Ilusorio (private)
and exploration of oils.3 Lorna P. Kapunan (private)
On 13 September 1995, Oliverio G.Laperal (Laperal), then Chairman of the Board and President of LMI, Immediately after, at the meeting of the new and unified Board of Directors of PHILCOMSAT, the following
and Honorio Poblador III, then President of PHILCOMSAT, signed a Memorandum of Agreement4 for the were elected officers:
latter to gain controlling interest in LMI through an increase in its authorized capital stock.5 Abraham R. Abesamis Chairman
On 24 June 1996, Laperal and PHILCOMSAT executed a Supplemental Memorandum of Agreement6 Pablo L. Lobregat Vice-Chairman
reiterating the increase in capital stock of LMI from six billion shares to100 billion shares with par value of Erlinda I. Bildner President
P0.01 per share equivalent to 1 billion. As part of its implementation of the Supplemental MOA, Marietta K. Ilusorio Vice-President
PHILCOMSAT subscribed to 79,050,000,000 shares of LMI.7 Sometime in 1997, LMI changed its name Katrina C. Ponce-Enrile Treasurer
to PHC. It declassified its shares and amended its primary purpose to become a holding company. PHC Rafael A. Poblador Asst. Treasurer
then filed its application with the PSE for listing the shares representing the increase in its capital stock. John Benedict B. Sioson Secretary
Included in this application were the PHC shares owned by PHILCOMSAT.8 On 7 May 2008, the PCGG issued En Banc Resolution No. 2008-00912 recognizing the validity of the
Pending the PSEs final approval of PHCs application for listing of the shares, the PCGG on 1 March POTCs and PHILCOMSATs respective stockholders meetings and elections, both held on 19 November
2005, through its then Chairman Camilo L. Sabio (Chairman Sabio), made a written request to suspend 2007:
the listing of the increase in PHCs capital stock citing as reason the need to settle the conflicting claims NOW, THEREFORE, be it RESOLVED, as it is hereby RESOLVED, that:
of the two sets of board of directors of the Philippine Overseas Telecommunication Corporation (POTC) 1. The PCGG recognize[s] the validity of the 19 November 2007, POTC/PHILCOMSAT stockholders
and PHILCOMSAT.9 meeting and confirm[s] as valid the election of the following government nominees: Atty. Daniel C.
In a letter10 dated 22 March 2005, the PSE informed the PCGG that the PSE Listing Committee deferred Gutierrez, Justice Santiago J. Ranada and Atty. Allan S. Montano to the Board of Directors of POTC and
action on the companys listing application and instead referred the matter to the PSE General Counsel to Radm. Abraham R. Abesamis, Mr. Ramon P. Jacinto and Mr. Rodolfo G. Serrano,Jr. to the Board of
ascertain the applicability of the provisions on disqualifications for listing as provided under the PSE Directors of PHILCOMSAT;
Revised Listing Rules. x x x x13
On 7 June 2005, the PCGG sent another letter11 to the PSE reiterating its request to defer the listing of In a letter14 dated 25 July 2011, Katrina C. Ponce-Enrile (Ponce-Enrile), then President of POTC, wrote
PHC shares. to then PCGG Chairman Andres D. Bautista (Chairman Bautista) demanding that the PCGG rescind its
In November 2007, then President Gloria Macapagal-Arroyo appointed new government nominees to the objection to the listing of the increase in PHCs capital stock.
POTC and PHILCOMSAT boards to replace Enrique Locsin, Manuel Andal, Julio Jalandoni and Guy de When PCGG failed to reply, PHILCOMSAT sent a final demand Letter15 reiterating its demand for PCGG
Leon. POTC owns 100% of PHILCOMSAT. to withdraw its objection to the listing of the increase in PHCs capital stock.
On 19 November 2007, in a special stockholders meeting attended by POTCs private stockholders and On 11 January 2012, Ponce-Enrile received a letter16 from Chairman Bautista, informing her that, among
Presidential Management Staff Undersecretary Enrique D. Perez, as representative and proxy of the others, the agency was discussing the matter with the Department of Finance and that the two would give
Republic of the Philippines, and observed by Securities and Exchange Commission (SEC) representatives, a joint recommendation thereafter. However, the PCGG never communicated said recommendation to
the following were elected directors: PHILCOMSAT.
Daniel C. Gutierrez (government) On 1 February 2012, PHILCOMSAT filed a complaint17 before the Sandiganbayan against PCGGto
Santiago J. Ranada (government) compel the latter to withdraw its opposition to the listing of the increase in PHCs capital stock.
Erlinda I. Bildner (private) PHILCOMSAT argued that PCGG had already recognized the validity of the stockholders meetings in the
Katrina C. Ponce-Enrile (private) two corporations, which "practically erased" the alleged conflict between the two sets of directors.18
Marietta K. Ilusorio (private) The PCGG filed a motion to dismiss the complaint, which PHILCOMSAT subsequently opposed. The
Pablo L. Lobregat (private) Sandiganbayans Ruling
Honorio A. Poblador III (private) On 3 May 2012, the Sandiganbayan issued the assailed Resolution, the dispositive portion of which reads:
Allan S. Montao (government) WHEREFORE, premises considered, defendant Presidential Commission on Good Government
Francisca Benedicto-Paulino (private) (PCGG)s Motion to Dismiss dated 8 March 2012 is hereby GRANTED for lack of jurisdiction over the
Immediately thereafter, the new directors elected POTCs new set of officers: subject matter.
SO ORDERED.19
The Sandiganbayan held that, based on the allegations in the complaint, the action was one for specific
performance since it sought to have PCGG withdraw its objection to the listing of the increase in PHCs
capital stock at the PSE. Following Section 1920 of Batas Pambansa Blg.129 (B.P. 129), as amended by
Republic Act No. 7691 (R.A. 7691), the Regional Trial Court (RTC) has exclusive jurisdiction over the case.
It said:
In our considered view, the allegations in the complaint show that it is primarily one for specific performance
as it prays that the PCGG be directed to withdraw its objection to the listing of PHILCOMSATs shares in
PHC, hence, incapable of pecuniary estimation and within the RTCs jurisdiction.21
The Sandiganbayan also ruled that the case was a "dispute among its directors," and thus, was an intra-
corporate dispute, viz:22
The determination of whether or not the PCGG should withdraw its request to defer the listing of the
PHILCOMSAT shares until the conflicting claims between the two sets of board of directors of POTC and
PHILCOMSAT is settled, is an intra-corporate controversy. (Emphasis in the original) On 14 August 2012,
the Sandiganbayan denied petitioners motion for reconsideration. It reiterated its earlier ruling that it did
not have jurisdiction over the controversy since it was an intra-corporate dispute.
In plaintiffs complaint, it was stated that: "The Republic of the Philippines is the 34.9% owner of POTC,
which wholly owns PHILCOMSAT, which in turn, owns 81% of PHC. As such, the Republic of the
Philippines, with 28.7% indirect ownership in PHC, also its largest single beneficial owner, continues to
sustain the incalculable loss of holding illiquid or unmarketable shares in a publicly listed company."
Evidently, while the PCGG may not be a stockholder, director, officer, member or even associate of the
plaintiff corporations, it bears emphasis that the Commission has an interest in the PHC shares prompting
the PCGG to request the PSE to suspend the listing of the SEC approved increase in capital stock of PHC.
The Commissions interest in the aforesaid shares determines the "nature of the question under
controversy" in the instant case and consequently, the reiteration of this Courts pronouncement in the
assailed Resolution of having no jurisdiction over the subject matter of the instant case.23
The Issue
Petitioners are now before the Court on a petition for review on certiorari under Rule 45 raising this sole
assignment of error:
The Sandiganbayan erred in dismissing the case a quo for lack of jurisdiction on [the] ground that the
action allegedly involves an intra-corporate controversy.24
Petitioners arguments
Petitioners argue that the allegations in the complaint do not qualify as an intra-corporate controversy
because "not a single element of an intra-corporate controversy exists in this case."25
Petitioners claim that, first, the cause of action in this case to compel PCGG to withdraw its objection to
the listing of PHILCOMSATs shares in PHC is not an intra-corporate dispute,26 since PCGG is not a
stockholder, director, officer, member or even associate of the plaintiff corporation.27
Second, petitioners insist that the "subject matter of the case a quo, that is, to have respondent PCGG
withdraw its objections to the listing of [PHILCOMSATs] shares in PHC, does not fall in any of the cases
that may be considered intra-corporate controversy, as enumerated in Section 5 of PD 902-A."28 It argues
that "the issue in this case does not even involve POTC and/or the shares that the Republic owns therein
to the extent of thirty five percent (35%). The issue specifically pertains to petitioner [PHILCOMSATs]
shares in petitioner PHC where the respondent PCGG, through abuse of authority, objected to the listing
in the Philippine Stock Exchange. While the government (Republic of the Philippines) owns 35% of POTC,
the latter has a separate and distinct legal personality with petitioner PHILCOMSAT and PHC. x x x.
Respondent PCGG, which is not even the registered owner of a single PHILCOMSAT share has no
personality to meddle in PHCs affairs and block the listing of PHILCOMSATs share in the stock exchange.
The twin element of corporate relationship and intra-corporate issues were never met in the complaint."29
Third, petitioners state that PCGG has ceased to have a valid and justifiable reason for blocking the listing
of the increase in PHCs capital stock because "the appointment of new government nominees and the
stockholders meetings of POTC, PHILCOMSAT and PHC in 2007 paved the way for unified boards and
erased whatever alleged uncertainty that existed previously on who has control over these
corporations."30
More importantly, with its 7 May 2008 En Banc Resolution No. 2008-009, the PCGG itself has recognized
the valid election of the POTC, PHILCOMSAT and PHC boards and, therefore, the basis for its objection
is no longer obtaining.31
Lastly, petitioners argue that the PCGGis a co-equal body with the RTC and since co-equal bodies have
no power to control the other, the RTC cannot compel the PCGG to follow its order.32
The PCGGs arguments
On the other hand, the PCGG, through the Office of the Solicitor General, raised the following arguments
in its Comment:33
I. THE RESPONDENT COURT IS BEREFT OF JURISDICTION OVER PETITIONERS
COMPLAINT.
II. PETITIONERS PROTESTATIONS NOTWITHSTANDING, THE COMPLAINT DESERVES
OUTRIGHT DISMISSAL BECAUSE:
A. PETITIONERS HAVE NOT ALLEGED ANY CAUSE OF ACTION TO ENTITLE
THEM TO THE RELIEF DEMANDED.
B. PETITIONERS FAILED TO IMPLEAD THE REPUBLIC AS INDISPENSABLE
PARTY.
C. ASSUMING THAT THE STATE HAS BEEN IMPLEADED THROUGH THE PCGG,
THIS CASE SHOULD NONETHELESS BE DISMISSED ON THE GROUND THAT
THE STATE MAY NOT BE SUED WITHOUT ITS CONSENT.
D. THE PRESENT SUIT IS BARRED BY LITIS PENDENTIA.
E. PETITIONERS COUNSEL FAILED TO COMPLY WITH BAR MATTER NO. 1922
DATED JUNE 3, 2008.
The PCGG contends that "the controversy does not emanate from, nor does it relate to any functions of
the PCGG of recovering ill-gotten wealth, or any incident arising from, or incidental to such duty."34 Rather,
the PCGG posits that the acts complained of are in the nature of an intra-corporate controversy. It avers
that "the nature of petitioners claim refers to the enforcement of the parties rights under the Corporation
Code and internal rules of the corporation, particularly affecting the propriety of publicly listing in the
Philippine Stock Exchange (PSE) of the 790 million shares of PHILCOMSAT with PHC."35 The PCGG
emphasized that "the matter of compelling the PCGG x x x to withdraw its objection regarding the listing
of shares in PHC, which objection is an exercise of ownership rights, is an intra-corporate controversy and
outside the jurisdiction of the respondent court."36
The Court's Ruling
The petition has no merit and is, therefore, denied.
The Complaint involves an Intra-corporate Controversy
Intra-corporate controversy
To determine if a case involves an intra-corporate controversy, the courts have applied two tests: the
relationship test and the nature of the controversy test.
Under the relationship test, the existence of any of the following relationships makes the conflict intra-
corporate: (1) between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the State insofar as its franchise, permit or license to operate
is concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves.37
On the other hand, the nature of the controversy test dictates that "the controversy must not only be rooted
in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties
correlative rights and obligations under the Corporation Code and the internal and intra-corporate
regulatory rules of the corporation."38
A combined application of the relationship test and the nature of the controversy test has become the norm
in determining whether a case is an intra-corporate controversy,39 to be "heard and decided by the
[b]ranches of the RTC specifically designated by the Court to try and decide such cases."40
Relationship test
Under the relationship test, an intra-corporate controversy arises when the conflict is "between the
corporation, partnership or association and its stockholders, partners, members or officers." Petitioners
insist that the PCGG is not a stockholder, partner, member or officer of the corporation. This is misleading
and inaccurate.
The PCGG was created under Executive Order No. 1 (E.O. 1) to assist the President in:
(a) The recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos,
his immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad, including the takeover or sequestration of all business enterprises and
entities owned or controlled by them, during his administration, directly or through nominees, by
 taking undue advantage of their public office and/or using their powers, authority, influence,
connections or relationship.
(b) The investigation of such cases of graft and corruption as the President may assign to the
Commission from time to time.
(c) The adoption of safeguards to ensure that the above practices shall not be repeated in any
manner under the new government, and the institution of adequate measures to prevent the
occurrence of corruption.41
This Court, in PCGG v. Pea,42 further explained:
In the discharge of its vital task "to recover the tremendous wealth plundered from the people by the past
regime in the most execrable thievery perpetrated in all history," or "organized pillage" (to borrow a phrase
from the articulate Mr. Blas Ople), the Commission was vested with the ample power and authority
(a) x x x
(b) to sequester or place or cause to be placed under its control or possession any building or
office wherein any ill-gotten wealth or properties may be found, and any records pertaining
thereto, in order to prevent their destruction, concealment or disappearance which would
frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing
its task.
(c) to provisionally takeover in the public interest or to prevent the disposal or dissipation of
business enterprises and properties taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.
(d) to enjoin or restrain any actual or threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the
Commission to carry out its task under this Order. x x x.43
In Republic v. Sandiganbayan,44 the Court settled that, due to the Compromise Agreement validly entered
into by the Republic through the PCGG, the Republic of the Philippines now owns 4,727 shares of POTC.
As it stands today, the Republic of the Philippines owns 34.9% of POTC, which wholly owns
PHILCOMSAT, which in turn owns 81% of PHC.45 The Republic, then, has an interest in the proper
operations of the PHC, however indirect this interest may seem to be.
Chairman Sabio, while himself not a stockholder of the subject corporations, was acting as head of the
PCGG, which is the agency tasked to adopt safeguards so that incidents of graft and corruption, as well
as cases of abuse of "powers, authority, influence, connections or relationship" in these corporations are
eliminated.46
The Republic acts through its lawfully designated representatives or nominees. Thus, PCGG nominees
and directors sit in the boards of directors of sequestered corporations not for themselves but on behalf of
the Republic. It is their duty to protect and advance the interests of the Republic of the Philippines.
Nature of the controversy test
The nature of the controversy test examines the controversy in relation to the "enforcement of the parties
correlative rights and obligations under the Corporation Code and the internal and intra-corporate
regulatory rules of the corporation."47
The controversy in the present case stems from the act of Chairman Sabio in requesting the PSE to
suspend the listing of PHCs increase in capital stock because of still unresolved issues on the election of
the POTCs and PHILCOMSATs respective boards of directors.1wphi1 Based on the foregoing, the Sandiganbayan correctly dismissed the complaint for lack of jurisdiction.
The act of Chairman Sabio in asking the SEC to suspend the listing of PHCs shares was done in pursuit
of protecting the interest of the Republic of the Philippines, a legitimate stockholder in PHCs controlling
parent company, POTC. The character of the shares held by the PCGG/Republic, on whose behalf the
PCGG Chairman is presumed to be acting, is irrelevant to Chairman Sabios actions. Any shareholder,
harboring any apprehensions or concerns, could have done the same or posed the same objection. It was
an act that had no relation to any proceeding or question of ill-gotten wealth or sequestration. The PCGG
was merely protecting the rights and interest of the Republic of the Philippines.
From the foregoing, it is clear that the dispute in the present case is an intra-corporate controversy.
The Sandiganbayan has no Jurisdiction
As such, it is clear that the jurisdiction lies with the regular courts and not with the Sandiganbayan.
Section 5 of Presidential Decree No. 902-A conferred original and exclusive jurisdiction over intra-
corporate disputes on the SEC. However, Section 5.2of R.A. 8799, transferred the jurisdiction over such
cases to courts of general jurisdiction, or the appropriate RTC.48
Petitioners, however, further argue that the case must be decided by the Sandiganbayan because the
RTC is co-equal to the PCGG and therefore would have no authority to issue an order to the latter.49
The following pronouncements of this Court are instructive:
Under Section 2 of Executive Order No. 14, the Sandiganbayan has exclusive and original jurisdiction over
all cases regarding "the funds, moneys, assets and properties illegally acquired by Former President
Ferdinand E. Marcos, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees," civil or criminal, including incidents arising from such cases.
The Decision of the Sandiganbayan is subject to review on certiorari exclusively by the Supreme Court.
In the exercise of its functions, the PCGG is a co-equal body with the regional trial courts and co-equal
bodies have no power to control the other. The regional trial courts and the Court of Appeals have no
jurisdiction over the PCGG in the exercise of its powers under the applicable Executive Orders and Section
26, Article XVIII of the 1987 Constitution and, therefore, may not interfere with and restrain or set aside
the orders and actions of the PCGG.50
Further:
The issue of whether or not the Regional Trial Courts have jurisdiction over the Presidential Commission
on Good Government in the exercise of the latters powers and functions under the applicable Executive
Orders and Section 26, Article XVIII of the 1987 Constitution has been laid to rest in PCGG vs. Hon.
Emmanuel G. Pea, et al., G.R. No. 77663, April 12, 1988 where Mr. Chief Justice Claudio Teehankee
articulated the opinion of an almost unanimous court as follows:
On the issue of jurisdiction squarely raised, as above indicated, the Court sustains petitioners stand and
holds that regional trial courts and the Court of Appears for that matter have no jurisdiction over the
Presidential Commission on Good Government in the exercise of its powers under the applicable
Executive Orders and Article XVIII, Section 26 of the Constitution and therefore may not interfere with and
restrain or set aside the orders and actions of the Commission. Under Section 2 of the Presidents
Executive Order No. 14 issued on May 7, 1986, all cases of the Commission regarding "the Funds,
Moneys, Assets and Properties Illegally Acquired or Misappropriated by Former President Ferdinand
Marcos, Mrs. Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates,
Dummies, Agents or Nominees" whether civil or criminal, are lodged within the "exclusive and original
jurisdiction of the Sandiganbayan" and all incidents arising from, incidental to, or related to, such cases
necessarily fall likewise under the Sandiganbayans exclusive and original jurisdiction subject to review on
certiorari exclusively by the Supreme Court.51 (Emphasis supplied)
As the Court has already conclusively ruled, the RTC is co-equal to the PCGG only in relation to cases
falling under the latters function under the applicable Executive Orders, specifically Section 2 of E.O. 14,
and Section 26, Article XVIII of the 1987 Constitution.
Note that in this case, the acts complained of do not pertain to the PCGGs function under the
aforementioned provisions of law and the Constitution, i.e., it is not a case involving "the Funds, Moneys,
Assets and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs.
Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates, Dummies, Agents
or Nominees, whether civil or criminal, x x x" nor can it be considered an "[incident] arising from, incidental
to, or related to"52 such cases.
Rather, the PCGG, acting as representative of the Republic, was exercising a duty of a stockholder to
ensure the proper and lawful exercise of corporate acts.
WHEREFORE, the petition is DENIED. The Resolutions of the Sandiganbayan in Civil Case No. SB-12-
CVL-0001 promulgated on 3 May 2012 and 14 August 2012 are AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 181416 November 11, 2013
MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,
vs.
ROBERT H. CULLEN, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of Appeals
(CA) Decision1 dated July 10, 2007 and Resolution2 dated January 25, 2008 in CA-G.R. CV No. 86614.
The assailed decision reversed and set aside the September 9, 2005 Order3 of the Regional Trial Court
(RTC) of Makati, Branch 58 in Civil Case No. 03-1018; while the assailed resolution denied the separate
motions for reconsideration filed by petitioner Medical Plaza Makati Condominium Corporation (MPMCC)
and Meridien Land Holding, Inc. (MLHI).
The factual and procedural antecedents are as follows:
Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of the Medical Plaza
Makati covered by Condominium Certificate of Title No. 45808 of the Register of Deeds of Makati. Said
title was later cancelled and Condominium Certificate of Title No. 64218 was issued in the name of
respondent.
On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni E. Dimayuga,
demanded from respondent payment for alleged unpaid association dues and assessments amounting to
145,567.42. Respondent disputed this demand claiming that he had been religiously paying his dues
shown by the fact that he was previously elected president and director of petitioner.4 Petitioner, on the
other hand, claimed that respondents obligation was a carry-over of that of MLHI.5 Consequently,
respondent was prevented from exercising his right to vote and be voted for during the 2002 election of
petitioners Board of Directors.6 Respondent thus clarified from MLHI the veracity of petitioners claim, but
MLHI allegedly claimed that the same had already been settled.7 This prompted respondent to demand
from petitioner an explanation why he was considered a delinquent payer despite the settlement of the
obligation. Petitioner failed to make such explanation. Hence, the Complaint for Damages8 filed by
respondent against petitioner and MLHI, the pertinent portions of which read:
xxxx
6. Thereafter, plaintiff occupied the said condominium unit no. 1201 and religiously paid all the
corresponding monthly contributions/association dues and other assessments imposed on the
same. For the years 2000 and 2001, plaintiff served as President and Director of the Medical
Plaza Makati Condominium Corporation;
7. Nonetheless, on September 19, 2002, plaintiff was shocked/surprised to receive a letter from
the incumbent Corporate Secretary of the defendant Medical Plaza Makati, demanding payment
of alleged unpaid association dues and assessments arising from plaintiffs condominium unit
no. 1201. The said letter further stressed that plaintiff is considered a delinquent member of the
defendant Medical Plaza Makati.
x x x;
8. As a consequence, plaintiff was not allowed to file his certificate of candidacy as director.
Being considered a delinquent, plaintiff was also barred from exercising his right to vote in the
election of new members of the Board of Directors x x x;
9. x x x Again, prior to the said election date, x x x counsel for the defendant [MPMCC] sent a
demand letter to plaintiff, anent the said delinquency, explaining that the said unpaid amount is
a carry-over from the obligation of defendant Meridien. x x x;
10. Verification with the defendant [MPMCC] resulted to the issuance of a certification stating
that Condominium Unit 1201 has an outstanding unpaid obligation in the total amount of
145,567.42 as of November 30, 2002, which again, was attributed by defendant [MPMCC] to
defendant Meridien. x x x;
11. Due to the seriousness of the matter, and the feeling that defendant Meridien made false
representations considering that it fully warranted to plaintiff that condominium unit 1201 is free
and clear from all liens and encumbrances, the matter was referred to counsel, who accordingly
sent a letter to defendant Meridien, to demand for the payment of said unpaid association dues
and other assessments imposed on the condominium unit and being claimed by defendant
[MPMCC]. x x x;
12. x x x defendant Meridien claimed however, that the obligation does not exist considering that
the matter was already settled and paid by defendant Meridien to defendant [MPMCC]. x x x;
13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x x x. The said letter x x x
sought an explanation on the fact that, as per the letter of defendant Meridien, the delinquency
of unit 1201 was already fully paid and settled, contrary to the claim of defendant [MPMCC]. x x
x;
14. Despite receipt of said letter on April 24, 2003, and to date however, no explanation was
given by defendant [MPMCC], to the damage and prejudice of plaintiff who is again obviously
being barred from voting/participating in the election of members of the board of directors for the
year 2003;
15. Clearly, defendant [MPMCC] acted maliciously by insisting that plaintiff is a delinquent
member when in fact, defendant Meridien had already paid the said delinquency, if any. The
branding of plaintiff as delinquent member was willfully and deceitfully employed so as to prevent
plaintiff from exercising his right to vote or be voted as director of the condominium corporation;
16. Defendant [MPMCC]s ominous silence when confronted with claim of payment made by
defendant Meridien is tantamount to admission that indeed, plaintiff is not really a delinquent
member;
17. Accordingly, as a direct and proximate result of the said acts of defendant [MPMCC], plaintiff
experienced/suffered from mental anguish, moral shock, and serious anxiety. Plaintiff, being a
doctor of medicine and respected in the community further suffered from social humiliation and
besmirched reputation thereby warranting the grant of moral damages in the amount of
500,000.00 and for which defendant [MPMCC] should be held liable;
18. By way of example or correction for the public good, and as a stern warning to all similarly
situated, defendant [MPMCC] should be ordered to pay plaintiff exemplary damages in the
amount of 200,000.00;
19. As a consequence, and so as to protect his rights and interests, plaintiff was constrained to
hire the services of counsel, for an acceptance fee of 100,000.00 plus 2,500.00 per every
court hearing attended by counsel;
20. In the event that the claim of defendant [MPMCC] turned out to be true, however, the herein
defendant Meridien should be held liable instead, by ordering the same to pay the said
delinquency of condominium unit 1201 in the amount of 145,567.42 as of November 30, 2002
as well as the above damages, considering that the non-payment thereof would be the proximate
cause of the damages suffered by plaintiff;9
Petitioner and MLHI filed their separate motions to dismiss the complaint on the ground of lack of
jurisdiction.10 MLHI claims that it is the Housing and Land Use Regulatory Board (HLURB) which is vested
with the exclusive jurisdiction to hear and decide the case. Petitioner, on the other hand, raises the
following specific grounds for the dismissal of the complaint: (1) estoppel as respondent himself approved
the assessment when he was the president; (2) lack of jurisdiction as the case involves an intra-corporate
controversy; (3) prematurity for failure of respondent to exhaust all intra-corporate remedies; and (4) the
case is already moot and academic, the obligation having been settled between petitioner and MLHI.11
On September 9, 2005, the RTC rendered a Decision granting petitioners and MLHIs motions to dismiss
and, consequently, dismissing respondents complaint.
The trial court agreed with MLHI that the action for specific performance filed by respondent clearly falls
within the exclusive jurisdiction of the HLURB.12 As to petitioner, the court held that the complaint states
no cause of action, considering that respondents obligation had already been settled by MLHI. It, likewise,
ruled that the issues raised are intra-corporate between the corporation and member.13
On appeal, the CA reversed and set aside the trial courts decision and remanded the case to the RTC for
further proceedings. Contrary to the RTC conclusion, the CA held that the controversy is an ordinary civil
action for damages which falls within the jurisdiction of regular courts.14 It explained that the case hinged
on petitioners refusal to confirm MLHIs claim that the subject obligation had already been settled as early
as 1998 causing damage to respondent.15 Petitioners and MLHIs motions for reconsideration had also
been denied.16
Aggrieved, petitioner comes before the Court based on the following grounds:
I.
THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT THERETOFORE
DETERMINED BY THE SUPREME COURT, OR HAS DECIDED IT IN A WAY NOT IN ACCORD WITH
LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT DECLARED THE
INSTANT CASE AN ORDINARY ACTION FOR DAMAGES INSTEAD OF AN INTRA-CORPORATE
CONTROVERSY COGNIZABLE BY A SPECIAL COMMERCIAL COURT.
II.
THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT IN ACCORD WITH LAW OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT TOOK COGNIZANCE OF
THE APPEAL WHILE RAISING ONLY PURE QUESTIONS OF LAW.17
The petition is meritorious.
It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the complaint.
It is not affected by the pleas or the theories set up by the defendant in an answer or a motion to dismiss.
Otherwise, jurisdiction would become dependent almost entirely upon the whims of the defendant.18 Also
illuminating is the Courts pronouncement in Go v. Distinction Properties Development and Construction,
Inc.:19
Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and
determined by the allegations in the complaint which comprise a concise statement of the ultimate facts
constituting the plaintiffs cause of action. 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 the plaintiff is entitled to recover upon all or some of the claims asserted
therein. The averments in the complaint and the character of the relief sought are the ones to be consulted.
Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether
or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. x x x20
Based on the allegations made by respondent in his complaint, does the controversy involve intra-
corporate issues as would fall within the jurisdiction of the RTC sitting as a special commercial court or an
ordinary action for damages within the jurisdiction of regular courts?
In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests,
namely, the relationship test and the nature of the controversy test.21
An intra-corporate controversy is one which pertains to any of the following relationships: (1) between the
corporation, partnership or association and the public; (2) between the corporation, partnership or
association and the State insofar as its franchise, permit or license to operate is concerned; (3) between
the corporation, partnership or association and its stockholders, partners, members or officers; and (4)
among the stockholders, partners or associates themselves.22 Thus, under the relationship test, the
existence of any of the above intra-corporate relations makes the case intra-corporate.23
Under the nature of the controversy test, "the controversy must not only be rooted in the existence of an
intra-corporate relationship, but must as well pertain to the enforcement of the parties correlative rights
and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation."24 In other words, jurisdiction should be determined by considering both the relationship of
the parties as well as the nature of the question involved.25
Applying the two tests, we find and so hold that the case involves intra-corporate controversy. It obviously
arose from the intra-corporate relations between the parties, and the questions involved pertain to their
rights and obligations under the Corporation Code and matters relating to the regulation of the
corporation.26
Admittedly, petitioner is a condominium corporation duly organized and existing under Philippine laws,
charged with the management of the Medical Plaza Makati. Respondent, on the other hand, is the
registered owner of Unit No. 1201 and is thus a stockholder/member of the condominium corporation.
Clearly, there is an intra-corporate relationship between the corporation and a stockholder/member.
The nature of the action is determined by the body rather than the title of the complaint.1wphi1 Though
denominated as an action for damages, an examination of the allegations made by respondent in his
complaint shows that the case principally dwells on the propriety of the assessment made by petitioner
against respondent as well as the validity of petitioners act in preventing respondent from participating in
the election of the corporations Board of Directors. Respondent contested the alleged unpaid dues and
assessments demanded by petitioner.
The issue is not novel. The nature of an action involving any dispute as to the validity of the assessment
of association dues has been settled by the Court in Chateau de Baie Condominium Corporation v.
Moreno.27 In that case, respondents therein filed a complaint for intra-corporate dispute against the
petitioner therein to question how it calculated the dues assessed against them, and to ask an accounting
of association dues. Petitioner, however, moved for the dismissal of the case on the ground of lack of
jurisdiction alleging that since the complaint was against the owner/developer of a condominium whose
condominium project was registered with and licensed by the HLURB, the latter has the exclusive
jurisdiction. In sustaining the denial of the motion to dismiss, the Court held that the dispute as to the
validity of the assessments is purely an intra-corporate matter between petitioner and respondent and is
thus within the exclusive jurisdiction of the RTC sitting as a special commercial court. More so in this case
as respondent repeatedly questioned his characterization as a delinquent member and, consequently,
petitioners decision to bar him from exercising his rights to vote and be voted for. These issues are clearly
corporate and the demand for damages is just incidental. Being corporate in nature, the issues should be
threshed out before the RTC sitting as a special commercial court. The issues on damages can still be
resolved in the same special commercial court just like a regular RTC which is still competent to tackle
civil law issues incidental to intra-corporate disputes filed before it.28
Moreover, Presidential Decree No. 902-A enumerates the cases over which the Securities and Exchange
Commission (SEC) exercises exclusive jurisdiction:
xxxx
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates, respectively;
and between such corporation, partnership or association and the State insofar as it concerns
their individual franchise or right to exist as such entity; and
c) Controversies in the election or appointment of directors, trustees, officers, or managers of
such corporations, partnerships, or associations.29
To be sure, this action partakes of the nature of an intra-corporate controversy, the jurisdiction over which
pertains to the SEC. Pursuant to Section 5.2 of Republic Act No. 8799, otherwise known as the Securities
Regulation Code, the jurisdiction of the SEC over all cases enumerated under Section 5 of Presidential
Decree No. 902-A has been transferred to RTCs designated by this Court as Special Commercial
Courts.30 While the CA may be correct that the RTC has jurisdiction, the case should have been filed not
with the regular court but with the branch of the RTC designated as a special commercial court.
Considering that the RTC of Makati City, Branch 58 was not designated as a special commercial court, it
was not vested with jurisdiction over cases previously cognizable by the SEC.31 The CA, therefore, gravely
erred in remanding the case to the RTC for further proceedings.
Indeed, Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and Homeowners Associations,
approved on January 7, 2010 and became effective on July 10, 2010, empowers the HLURB to hear and
decide inter-association and/or intra-association controversies or conflicts concerning homeowners
associations. However, we cannot apply the same in the present case as it involves a controversy between
a condominium unit owner and a condominium corporation. While the term association as defined in the
law covers homeowners associations of other residential real property which is broad enough to cover a
condominium corporation, it does not seem to be the legislative intent. A thorough review of the
deliberations of the bicameral conference committee would show that the lawmakers did not intend to
extend the coverage of the law to such kind of association. We quote hereunder the pertinent portion of
the Bicameral Conference Committees deliberation, to wit:
THE CHAIRMAN (SEN. ZUBIRI). Lets go back, Mr. Chair, very quickly on homeowners.
THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think our views are similar, Your Honor,
Senator Zubiri, the entry of the condominium units might just complicate the whole matters. So wed like
to put it on record that were very much concerned about the plight of the Condominium Unit Homeowners
Association. But this could very well be addressed on a separate bill that Im willing to co-sponsor with the
distinguished Senator Zubiri, to address in the Condominium Act of the Philippines, rather than address it
here because it might just create a red herring into the entire thing and it will just complicate matters, hindi
ba?
THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I sympathize with them---although we
sympathize with them and we feel that many times their rights have been also violated by abusive
condominium corporations. However, there are certain things that we have to reconcile. There are certain
issues that we have to reconcile with this version.
In the Condominium Code, for example, they just raised a very peculiar situation under the Condominium
Code --- Condominium Corporation Act. Its five years the proxy, whereas here, its three years. So there
would already be violation or there will be already a problem with their version and our version. Sino ang
matutupad doon? Will it be our version or their version?
So I agree that has to be studied further. And because they have a law pertaining to the condominium
housing units, I personally feel that it would complicate matters if we include them. Although I agree that
they should be looked after and their problems be looked into.
Probably we can ask our staff, Your Honor, to come up already with the bill although we have no more
time. Hopefully we can tackle this again on the 15th Congress. But I agree with the sentiments and the
inputs of the Honorable Chair of the House panel.
May we ask our resource persons to also probably give comments?
Atty. Dayrit.
MR. DAYRIT.
Yes I agree with you. There are many, I think, practices in their provisions in the Condominium Law that
may be conflicting with this version of ours.
For instance, in the case of, lets say, the condominium, the so-called common areas and/or maybe so
called open spaces that they may have, especially common areas, they are usually owned by the
condominium corporation. Unlike a subdivision where the open spaces and/or the common areas are not
necessarily owned by the association. Because sometimes --- generally these are donated to the
municipality or to the city. And it is only when the city or municipality gives the approval or the conformity
that this is donated to the homeowners association. But generally, under PD [Presidential Decree] 957,
its donated. In the Condominium Corporation, hindi. Lahat ng mga open spaces and common areas like
corridors, the function rooms and everything, are owned by the corporation. So thats one main issue that
can be conflicting.
THE CHAIRMAN (SEN. ZUBIRI). Ill just ask for a one-minute suspension so we can talk.
THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a catchall phrase like what we did in
the Senior Citizens Act. Something like, to the extent --- paano ba iyon? To the extent that it is practicable
and applicable, the rights and benefits of the homeowners, are hereby extended to the --- mayroon kaming
ginamit na phrase eh...to the extent that it be practicable and applicable to the unit homeoweners, is hereby
extended, something like that. Its a catchall phrase. But then again, it might create a...
MR. JALANDONI. It will become complicated. There will be a lot of conflict of laws between the two laws.
THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I dont know. I think the --- mayroon
naman silang protection sa ano eh, di ba? Buyers decree doon sa Condominium Act. Im sure there are
provisions there eh. Huwag na lang, huwag na lang.
MR. JALANDONI. Mr. Chairman, I think it would be best if your previous comments that youd be
supporting an amendment.1wphi1 I think that would be --- Well, that would be the best course of action
with all due respect.
THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So iyon na lang final proposal
naming yung catchall phrase, "With respect to the..."32
xxxx
THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final decision on the definition of homeowners?
THE ACTING CHAIRMAN (REP. ZIALCITA).
We stick to the original, Mr. Chairman. Well just open up a whole can of worms and a whole new ball
game will come into play. Besides, I am not authorized, neither are you, by our counterparts to include the
condominium owners.
THE CHAIRMAN (SEN. ZUBIRI).
Basically that is correct. We are not authorized by the Senate nor because we have discussed this
lengthily on the floor, actually, several months on the floor. And we dont have the authority as well for
other Bicam members to add a provision to include a separate entity that has already their legal or their
established Republic Act tackling on that particular issue. But we just like to put on record, we sympathize
with the plight of our friends in the condominium associations and we will just guarantee them that we will
work on an amendment to the Condominium Corporation Code. So with that we skipped, that is correct,
we have to go back to homeowners association definition, Your Honor, because we had skipped it
altogether. So just quickly going back to Page 7 because there are amendments to the definition of
homeowners. If it is alright with the House Panel, adopt the opening phrase of Subsection 7 of the Senate
version as opening phrase of Subsection 10 of the reconciled version.
x x x x33
To be sure, RA 4726 or the Condominium Act was enacted to specifically govern a condominium. Said
law sanctions the creation of the condominium corporation which is especially formed for the purpose of
holding title to the common area, in which the holders of separate interests shall automatically be members
or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective
units.34 The rights and obligations of the condominium unit owners and the condominium corporation are
set forth in the above Act.
Clearly, condominium corporations are not covered by the amendment. Thus, the intra-corporate dispute
between petitioner and respondent is still within the jurisdiction of the RTC sitting as a special commercial
court and not the HLURB. The doctrine laid down by the Court in Chateau de Baie Condominium
Corporation v. Moreno35 which in turn cited Wack Wack Condominium Corporation, et al v. CA36 is still a
good law.
WHEREFORE, we hereby GRANT the petition and REVERSE the Court of Appeals Decision dated July
10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV No. 86614. The Complaint before the
Regional Trial Court of Makati City, Branch 58, which is not a special commercial court, docketed as Civil
Case No. 03-1018 is ordered DISMISSED for lack of jurisdiction. Let the case be REMANDED to the
Executive Judge of the Regional Trial Court of Makati City for re-raffle purposes among the designated
special commercial courts.
SO ORDERED.
G.R. No. 202664, November 20, 2015
MANUEL LUIS C. GONZALES AND FRANCIS MARTIN D. GONZALES, Petitioners, v. GJH LAND, INC.
(FORMERLY KNOWN AS S.J. LAND, INC.), CHANG HWAN JANG A.K.A. STEVE JANG, SANG RAK
KIM, MARIECHU N. YAP, AND ATTY. ROBERTO P. MALLARI II, Respondent.
DECISION
PERLAS-BERNABE, J.:
This is a direct recourse to the Court, via a petition for review on certiorari,1 from the Orders dated April
17, 20122 and July 9, 20123 of the Regional Trial Court (RTC) of Muntinlupa City, Branch 276 (Branch 276)
dismissing Civil Case No. 11-077 for lack of jurisdiction.
The Facts
On August 4, 2011, petitioners Manuel Luis C. Gonzales4 and Francis Martin D. Gonzales (petitioners)
filed a Complaint5 for "Injunction with prayer for Issuance of Status Quo Order, Three (3) and Twenty
(20)-Day Temporary Restraining Orders, and Writ of Preliminary Injunction with Damages" against
respondents GJH Land, Inc. (formerly known as S.J. Land, Inc.), Chang Hwan Jang, Sang Rak Kim,
Mariechu N. Yap, and Atty. Roberto P. Mallari II6 (respondents) before the RTC of Muntinlupa City
seeking to enjoin the sale of S.J. Land, Inc.'s shares which they purportedly bought from S.J. Global, Inc.
on February 1, 2010. Essentially, petitioners alleged that the subscriptions for the said shares were
already paid by them in full in the books of S.J. Land, Inc.,7 but were nonetheless offered for sale on July
29, 2011 to the corporation's stockholders,8 hence, their plea for injunction.
The case was docketed as Civil Case No. 11-077 and raffled to Branch 276, which is not a Special
Commercial Court. On August 9, 2011, said branch issued a temporary restraining order, 9 and later, in
an Order10 dated August 24, 2011, granted the application for a writ of preliminary injunction.
After filing their respective answers11 to the complaint, respondents filed a motion to dismiss12 on the
ground of lack of jurisdiction over the subject matter, pointing out that the case involves an intra-
corporate dispute and should, thus, be heard by the designated Special Commercial Court of Muntinlupa
City.13
The RTC Ruling
In an Order14 dated April 17, 2012, Branch 276 granted the motion to dismiss filed by respondents. It
found that the case involves an intra-corporate dispute that is within the original and exclusive jurisdiction
of the RTCs designated as Special Commercial Courts. It pointed out that the RTC of Muntinlupa City,
Branch 256 (Branch 256) was specifically designated by the Court as the Special Commercial Court,
hence, Branch 276 had no jurisdiction over the case and cannot lawfully exercise jurisdiction on the
matter, including the issuance of a Writ of Preliminary Injunction.15 Accordingly, it dismissed the case.
Dissatisfied, petitioners filed a motion for reconsideration, 16 arguing that they filed the case with the
Office of the Clerk of Court of the RTC of Muntinlupa City which assigned the same to Branch 276 by
raffle.17 As the raffle was beyond their control, they should not be made to suffer the consequences of
the wrong assignment of the case, especially after paying the filing fees in the amount of P235,825.00
that would be for naught if the dismissal is upheld.18 They further maintained that the RTC has
jurisdiction over intra-corporate disputes under Republic Act No. (RA) 8799,19 but since the Court
selected specific branches to hear and decide such suits, the case must, at most, be transferred or
raffled off to the proper branch.20
In an Order21 dated July 9, 2012, Branch 276 denied the motion for reconsideration, holding that it has
no authority or power to order the transfer of the case to the proper Special Commercial Court, citing
Calleja v. Panday22 (Calleja); hence, the present petition.
The Issue Before the Court
The essential issue for the Court's resolution is whether or not Branch 276 of the RTC of Muntinlupa City
erred in dismissing the case for lack of jurisdiction over the subject matter.
The Court's Ruling
The petition is meritorious.
At the outset, the Court finds Branch 276 to have correctly categorized Civil Case No. 11-077 as a
commercial case, more particularly, an intra-corporate dispute,23 considering that it relates to petitioners'
averred rights over the shares of stock offered for sale to other stockholders, having paid the same in
full. Applying the relationship test and the nature of the controversy test, the suit between the parties is
clearly rooted in the existence of an intra-corporate relationship and pertains to the enforcement of their
correlative rights and obligations under the Corporation Code and the internal and intra-corporate
regulatory rules of the corporation,24 hence, intra-corporate, which should be heard by the designated
Special Commercial Court as provided under A.M. No. 03-03-03-SC25 dated June 17, 2003 in relation to
Item 5.2, Section 5 of RA 8799.
The present controversy lies, however, in the procedure to be followed when a commercial case - such
as the instant intra-corporate dispute -has been properly filed in the official station of the
designated Special Commercial Court but is, however, later wrongly assigned by raffle to a
regular branch of that station.
As a basic premise, let it be emphasized that a court's acquisition of jurisdiction over a particular case's
subject matter is different from incidents pertaining to the exercise of its jurisdiction. Jurisdiction over the
subject matter of a case is conferred by law, whereas a court's exercise of jurisdiction, unless
provided by the law itself, is governed by the Rules of Court or by the orders issued from time to time by
the Court.26 In Lozada v. Bracewell,27 it was recently held that the matter of whether the RTC resolves
an issue in the exercise of its general jurisdiction or of its limited jurisdiction as a special court is
only a matter of procedure and has nothing to do with the question of jurisdiction.
Pertinent to this case is RA 8799 which took effect on August 8, 2000. By virtue of said law, jurisdiction
over cases enumerated in Section 528 of Presidential Decree No. 902-A29 was transferred from the
Securities and Exchange Commission (SEC) to the RTCs, being courts of general jurisdiction. Item
5.2, Section 5 of RA 8799 provides:chanRoblesvirtualLawlibrary
SEC. 5. Powers and Functionsof the Commission. - x x x
xxxx
5.2 The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: 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 payments/rehabilitation cases filed as of
30 June 2000 until finally disposed. (Emphasis supplied)cralawlawlibrary
The legal attribution of Regional Trial Courts as courts of general jurisdiction stems from Section 19
(6), Chapter II of Batas Pambansa Bilang (BP) 129,30 known as "The Judiciary Reorganization Act of
1980":chanRoblesvirtualLawlibrary
Section 19. Jurisdiction in civil cases.- Regional Trial Courts shall exercise exclusive original
jurisdiction:chanRoblesvirtualLawlibrary
xxxx
(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body exercising
jurisdiction or any court, tribunal, person or body exercising judicial or quasi-judicial functions; x x x x
cralawlawlibrary
As enunciated in Durisol Philippines, Inc. v. CA:31chanroblesvirtuallawlibrary
The regional trial court, formerly the court of first instance, is a court of general jurisdiction. All cases, the
jurisdiction over which is not specifically provided for by law to be within the jurisdiction of any other
court, fall under the jurisdiction of the regional trial court. 32ChanRoblesVirtualawlibrary
cralawlawlibrary
To clarify, the word "or" in Item 5.2, Section 5 of RA 8799 was intentionally used by the legislature to
particularize the fact that the phrase "the Courts of general jurisdiction" is equivalent to the phrase "the
appropriate Regional Trial Court." In other words, the jurisdiction of the SEC over the cases enumerated
under Section 5 of PD 902-A was transferred to the courts of general jurisdiction, that is to say (or,
otherwise known as), the proper Regional Trial Courts. This interpretation is supported by San Miguel
Corp. v. Municipal Council,33 wherein the Court held that:chanRoblesvirtualLawlibrary
[T]he word "or" may be used as the equivalent of "that is to say" and gives that which precedes it the
same significance as that which follows it. It is not always disjunctive and is sometimes interpretative or
expository of the preceding word.34cralawlawlibrary
Further, as may be gleaned from the following excerpt of the Congressional
deliberations:chanRoblesvirtualLawlibrary
Senator [Raul S.] Roco: x x x.
xxxx
x x x. The first major departure is as regards the Securities and 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.
In the 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 the 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 manner of speaking, to select their court.35
x x x x (Emphasis supplied)cralawlawlibrary
Therefore, one must be disabused of the notion that the transfer of jurisdiction was made only in favor of
particular RTC branches, and not the RTCs in general.
Consistent with the foregoing, history depicts that when the transfer of SEC cases to the RTCs was first
implemented, they were transmitted to the Executive Judges of the RTCs for raffle between or among its
different branches, unless a specific branch has been designated as a Special Commercial Court,
in which instance, the cases were transmitted to said branch.36 It was only on November 21, 2000
that the Court designated certain RTC branches to try and decide said SEC cases 37 without, however,
providing for the transfer of the cases already distributed to or filed with the regular branches thereof.
Thus, on January 23, 2001, the Court issued SC Administrative Circular No. 08-200138 directing the
transfer of said cases to the designated courts (commercial SEC courts). Later, or on June 17, 2003, the
Court issued A.M. No. 03-03-03-SC consolidating the commercial SEC courts and the intellectual
property courts39 in one RTC branch in a particular locality, i.e., the Special Commercial Court, to
streamline the court structure and to promote expediency.40 Accordingly, the RTC branch so
designated was mandated to try and decide SEC cases, as well as those involving violations of
intellectual property rights, which were, thereupon, required to be filed in the Office of the Clerk of Court
in the official station of the designated Special Commercial Courts, to
wit:chanRoblesvirtualLawlibrary
1. The Regional Courts previously designated as SEC Courts through the: (a) Resolutions of this Court
dated 21 November 2000, 4 July 2001, 12 November 2002, and 9 July 2002 all issued in A.M. No. 00-
11-03-SC; (b) Resolution dated 27 August 2001 in A.M. No. 01-5-298-RTC; and (c) Resolution dated 8
July 2002 in A.M. No. 01-12-656-RTC are hereby DESIGNATED and shall be CALLED as Special
Commercial Courts to try and decide cases involving violations of Intellectual Property Rights which fall
within their jurisdiction and those cases formerly cognizable by the Securities and Exchange
Commission:chanRoblesvirtualLawlibrary
xxxx
4. The Special Commercial Courts shall have jurisdiction over cases arising within their respective
territorial jurisdiction with respect to the National Capital Judicial Region and within the respective
provinces with respect to the First to Twelfth Judicial Regions. Thus, cases shall be filed in the Office of
the Clerk of Court in the official station of the designated Special Commercial Court;41
x x x x (Underscoring supplied)cralawlawlibrary
It is important to mention that the Court's designation of Special Commercial Courts was made in line
with its constitutional authority to supervise the administration of all courts as provided under Section 6,
Article VIII of the 1987 Constitution:chanRoblesvirtualLawlibrary
Section 6. The Supreme Court shall have administrative supervision over all courts and the personnel
thereof.cralawlawlibrary
The objective behind the designation of such specialized courts is to promote expediency and
efficiency in the exercise of the RTCs' jurisdiction over the cases enumerated under Section 5 of PD
902-A. Such designation has nothing to do with the statutory conferment of jurisdiction to all RTCs under
RA 8799 since in the first place, the Court cannot enlarge, diminish, or dictate when jurisdiction shall be
removed, given that the power to define, prescribe, and apportion jurisdiction is, as a general rule,
a matter of legislative prerogative.42 Section 2, Article VIII of the 1987 Constitution
provides:chanRoblesvirtualLawlibrary
Section 2. The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the
various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in
Section 5 hereof.
xxxx
cralawlawlibrary
Here, petitioners filed a commercial case, i.e., an intra-corporate dispute, with the Office of the Clerk of
Court in the RTC of Muntinlupa City, which is the official station of the designated Special Commercial
Court, in accordance with A.M. No. 03-03-03-SC. It is, therefore, from the time of such filing that the
RTC of Muntinlupa City acquired jurisdiction over the subject matter or the nature of the action.43
Unfortunately, the commercial case was wrongly raffled to a regular branch, e.g., Branch 276,
instead of being assigned44to the sole Special Commercial Court in the RTC of Muntinlupa City,
which is Branch 256. This error may have been caused by a reliance on the complaint's caption, i.e.,
"Civil Case for Injunction with prayer for Status Quo Order, TRO and Damages," 45 which, however,
contradicts and more importantly, cannot prevail over its actual allegations that clearly make out an intra-
corporate dispute:chanRoblesvirtualLawlibrary
16. To the surprise of MLCG and FMDG, however, in two identical letters both dated 13 May 2011, under
the letterhead of GJH Land, Inc., Yap, now acting as its President, Jang and Kim demanded payment of
supposed unpaid subscriptions of MLCG and FMDG amounting to P10,899,854.30 and P2,625,249.41,
respectively.
16.1 Copies of the letters dated 13 May 2011 are attached hereto and made integral parts hereof as
Annexes "J" and "K", repectively.
17. On 29 July 2011, MLCG and FMDG received an Offer Letter addressed to stockholders of GJH
Land, Inc. from Yap informing all stockholders that GJH Land, Inc. is now offering for sale the unpaid
shares of stock of MLCG and FMDG. The same letter states that the offers to purchase these shares will
be opened on 10 August 2011 with payments to be arranged by deposit to the depository bank of GJH
Land, Inc.
17.1 A copy of the undated Offer Letter is attached hereto and made and made an integral part hereof as
Annex "L".
18. The letter of GJH Land, Inc. through Yap, is totally without legal and factual basis because as
evidenced by the Deeds of Assignment signed and certified by Yap herself, all the S.J. Land, Inc. shares
acquired by MLCG and FMDG have been fully paid in the books of S.J. Land, Inc.
19. With the impending sale of the alleged unpaid subscriptions on 10 August 2011, there is now a
clear danger that MLCG and FMDG would be deprived of these shares without legal and factual
basis.
20. Furthermore, if they are deprived of these shares through the scheduled sale, both MLCG and
FMDG would suffer grave and irreparable damage incapable of pecuniary estimation.
21. For this reason, plaintiffs now come to the Honorable Court for injunctive relief so that after trial on
the merits, a permanent injunction should be issued against the defendants preventing them from selling
the shares of the plaintiffs, there being no basis for such sale. 46cralawlawlibrary
According to jurisprudence, "it is not the caption but the allegations in the complaint or other initiatory
pleading which give meaning to the pleading and on the basis of which such pleading may be legally
characterized."47 However, so as to avert any future confusion, the Court requires henceforth, that all
initiatory pleadings state the action's nature both in its caption and the body, which parameters are
defined in the dispositive portion of this Decision.
Going back to the case at bar, the Court nonetheless deems that the erroneous raffling to a regular
branch instead of to a Special Commercial Court is only a matter of procedure - that is, an incident
related to the exercise of jurisdiction - and, thus, should not negate the jurisdiction which the RTC of
Muntinlupa City had already acquired. In such a scenario, the proper course of action was not for the
commercial case to be dismissed; instead, Branch 276 should have first referred the case to the
Executive Judge for re-docketing as a commercial case; thereafter, the Executive Judge should
then assign said case to the only designated Special Commercial Court in the station, i.e., Branch
256.
Note that the procedure would be different where the RTC acquiring jurisdiction over the case has
multiple special commercial court branches; in such a scenario, the Executive Judge, after re-
docketing the same as a commercial case, should proceed to order its re-raffling among the said
special branches.
Meanwhile, if the RTC acquiring jurisdiction has no branch designated as a Special Commercial
Court, then it should refer the case to the nearest RTC with a designated Special Commercial Court
branch within the judicial region.48 Upon referral, the RTC to which the case was referred to should re-
docket the case as a commercial case, and then: (a) if the said RTC has only one branch designated as
a Special Commercial Court, assign the case to the sole special branch; or (b) if the said RTC has
multiple branches designated as Special Commercial Courts, raffle off the case among those special
branches.
In all the above-mentioned scenarios, any difference regarding the applicable docket fees should be duly
accounted for. On the other hand, all docket fees already paid shall be duly credited, and any excess,
refunded.
At this juncture, the Court finds it fitting to clarify that the RTC mistakenly relied on the Calleja case to
support its ruling. In Calleja, an intra-corporate dispute49 among officers of a private corporation with
principal address at Goa, Camarines Sur, was filed with the RTC of San Jose, Camarines Sur, Branch
58 instead of the RTC of Naga City, which is the official station of the designated Special Commercial
Court for Camarines Sur. Consequently, the Court set aside the RTC of San Jose, Camarines Sur's
order to transfer the case to the RTC of Naga City and dismissed the complaint considering that it was
filed before a court which, having no internal branch designated as a Special Commercial Court, had no
jurisdiction over those kinds of actions, i.e., intra-corporate disputes. Calleja involved two different
RTCs, i.e., the RTC of San Jose, Camarines Sur and the RTC of Naga City, whereas the instant case
only involves one RTC, i.e., the RTC of Muntinlupa City, albeit involving two different branches of the
same court, i.e., Branches 256 and 276. Hence, owing to the variance in the facts attending, it was then
improper for the RTC to rely on the Calleja ruling.
Besides, the Court observes that the fine line that distinguishes subject matter jurisdiction and exercise
of jurisdiction had been clearly blurred in Calleja. Harkening back to the statute that had conferred
subject matter jurisdiction, two things are apparently clear: (a) that the SEC's subject matter
jurisdiction over intra-corporate cases under Section 5 of Presidential Decree No. 902-A was
transferred to the Courts of general jurisdiction, i.e., the appropriate Regional Trial Courts; and (b) the
designated branches of the Regional Trial Court, as per the rules promulgated by the Supreme Court,
shall exercise jurisdiction over such cases. Item 5.2, Section 5 of RA 8799
provides:chanRoblesvirtualLawlibrary
SEC. 5. Powers and Functions of the Commission. - x x x
xxxx
5.2 The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: 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, x x
x.cralawlawlibrary
In contrast, the appropriate jurisprudential reference to this case would be Tan v. Bausch & Lomb, Inc.,50
which involves a criminal complaint for violation of intellectual property rights filed before the RTC of
Cebu City but was raffled to a regular branch thereof (Branch 21), and not to a Special Commercial
Court. As it turned out, the regular branch subsequently denied the private complainant's motion to
transfer the case to the designated special court of the same RTC, on the ground of lack of jurisdiction.
The CA reversed the regular branch and, consequently, ordered the transfer of the case to the
designated special court at that time (Branch 9). The Court, affirming the CA, declared that the RTC had
acquired jurisdiction over the subject matter. In view, however, of the designation of another court as the
Special Commercial Court in the interim (Branch 11 of the same Cebu City RTC), the Court accordingly
ordered the transfer of the case and the transmittal of the records to said Special Commercial Court
instead.51Similarly, the transfer of the present intra-corporate dispute from Branch 276 to Branch
256 of the same RTC of Muntinlupa City, subject to the parameters above-discussed is proper
and will further the purposes stated in A.M. No. 03-03-03-SC of attaining a speedy and efficient
administration of justice.
For further guidance, the Court finds it apt to point out that the same principles apply to the inverse
situation of ordinary civil cases filed before the proper RTCs but wrongly raffled to its branches
designated as Special Commercial Courts. In such a scenario, the ordinary civil case should then
be referred to the Executive Judge for re-docketing as an ordinary civil case; thereafter, the
Executive Judge should then order the raffling of the case to all branches of the same RTC,
subject to limitations under existing internal rules, and the payment of the correct docket fees in
case of any difference. Unlike the limited assignment/raffling of a commercial case only to branches
designated as Special Commercial Courts in the scenarios stated above, the re-raffling of an ordinary
civil case in this instance to all courts is permissible due to the fact that a particular branch which has
been designated as a Special Commercial Court does not shed the RTC's general jurisdiction over
ordinary civil cases under the imprimatur of statutory law, i.e., Batas Pambansa Bilang (BP) 129.52 To
restate, the designation of Special Commercial Courts was merely intended as a procedural tool to
expedite the resolution of commercial cases in line with the court's exercise of jurisdiction. This
designation was not made by statute but only by an internal Supreme Court rule under its authority to
promulgate rules governing matters of procedure and its constitutional mandate to supervise the
administration of all courts and the personnel thereof.53 Certainly, an internal rule promulgated by the
Court cannot go beyond the commanding statute. But as a more fundamental reason, the designation of
Special Commercial Courts is, to stress, merely an incident related to the court's exercise of jurisdiction,
which, as first discussed, is distinct from the concept of jurisdiction over the subject matter. The RTC's
general jurisdiction over ordinary civil cases is therefore not abdicated by an internal rule streamlining
court procedure.
In fine, Branch 276's dismissal of Civil Case No. 11-077 is set aside and the transfer of said case to
Branch 256, the designated Special Commercial Court of the same RTC of Muntinlupa City, under the
parameters above-explained, is hereby ordered.
WHEREFORE, the petition is GRANTED. The Orders dated April 17, 2012 and July 9, 2012 of the
Regional Trial Court (RTC) of Muntinlupa City, Branch 276 in Civil Case No. 11-077 are hereby
REVERSED and SET ASIDE. Civil Case No. 11-077 is REFERRED to the Executive Judge of the RTC
of Muntinlupa City for re-docketing as a commercial case. Thereafter, the Executive Judge shall ASSIGN
said case to Branch 256, the sole designated Special Commercial Court in the RTC of Muntinlupa City,
which is ORDERED to resolve the case with reasonable dispatch. In this regard, the Clerk of Court of
said RTC shall DETERMINE the appropriate amount of docket fees and, in so doing, ORDER the
payment of any difference or, on the other hand, refund any excess.
Furthermore, the Court hereby RESOLVES that henceforth, the following guidelines shall be observed:
1. If a commercial case filed before the proper RTC is wrongly raffled to its regular branch, the proper
courses of action are as follows:
1.1 If the RTC has only one branch designated as a Special Commercial Court, then the case shall be
referred to the Executive Judge for re-docketing as a commercial case, and thereafter, assigned to the
sole special branch;
1.2 If the RTC has multiple branches designated as Special Commercial Courts, then the case shall be
referred to the Executive Judge for re-docketing as a commercial case, and thereafter, raffled off among
those special branches; and
1.3 If the RTC has no internal branch designated as a Special Commercial Court, then the case shall be
referred to the nearest RTC with a designated Special Commercial Court branch within the judicial
region. Upon referral, the RTC to which the case was referred to should re- docket the case as a
commercial case, and then: (a) if the said RTC has only one branch designated as a Special Commercial
Court, assign the case to the sole special branch; or (b) if the said RTC has multiple branches
designated as Special Commercial Courts, raffle off the case among those special branches.
2. If an ordinary civil case filed before the proper RTC is wrongly raffled to its branch designated as a
Special Commercial Court, then the case shall be referred to the Executive Judge for re-docketing as an
ordinary civil case. Thereafter, it shall be raffled off to all courts of the same RTC (including its
designated special branches which, by statute, are equally capable of exercising general jurisdiction
same as regular branches), as provided for under existing rules.
3. All transfer/raffle of cases is subject to the payment of the appropriate docket fees in case of any
difference. On the other hand, all docket fees already paid shall be duly credited, and any excess,
refunded.
4. Finally, to avert any future confusion, the Court requires that all initiatory pleadings state the action's
nature both in its caption and body. Otherwise, the initiatory pleading may, upon motion or by order of
the court motu proprio, be dismissed without prejudice to its re-filing after due rectification. This last On September 7, 2004, Bullion, represented by its President, entered into a Memorandum of Agreement 6
procedural rule is prospective in application. (MOA) with Majestic, which was represented by one Dionisio N. Yao. Pertinent portions of the MOA read,
thus:
5. All existing rules inconsistent with the foregoing are deemed superseded.cralawlawlibrary 1. SUBJECT MATTER

SO ORDERED. MAJESTIC agrees to acquire 80% equity interest in BULLION, subject to the following terms
and conditions, and the completion of the construction of the subject MALL by both parties.
Sereno, C.J. Carpio, Velasco, Jr., Peralta, Bersamin, Del Castillo, Villarama, Jr., Reyes, and Jardeleza, 2. CONSIDERATION 2.1. MAJESTIC and BULLION agree that the present shareholdings and
JJ., concur. assets of BULLION shall be valued at ONE HUNDRED TWENTY MILLION PESOS
Leonardo-De Castro, J., I concur in the result. I subscribe to the ruling in the Calleja case that the (Php120,000,000.00).
misfiling of a commercial case with a court not duly designated Special Commercial Court is an error of 2.2. It is expressly agreed that the 80% equity interest to be acquired by MAJESTIC shall
jurisdiction. However the Supreme Court has constitutional and legal basis [RA 8799] to promulgated correspond to NINETY-SIX MILLION PESOS (PhP96,000,000.00), payable by MAJESTIC
the guidelines here for future cases. under the following Terms of Payment provided in the succeeding section.
Brion, and Mendoza, JJ., on leave. 2.3 MAJESTIC agrees to infuse additional capital to cover the expenditure for the completion of
Perez, J., I submitted a dissenting opinion. the construction of the MALL.
Leonen, J., see concurring opinion. 3. TERMS OF PAYMENT

G.R. No. 201017, December 05, 2016 The 80% equity interest, corresponding to NINETY-SIX MILLION PESOS (Php96,000,000.00),
MAJESTIC PLUS HOLDING INTERNATIONAL, INC., Petitioner, v. BULLION INVESTMENT AND shall be payable by MAJESTIC to the existing stockholders of BULLION as
DEVELOPMENT CORPORATION, Respondent. follows:cralawlawlibrary

G.R. No. 215289, December 5, 2016 3.1 Upon execution of this MOA, MAJESTIC shall pay THIRTY-FIVE MILLION PESOS
(Php35,000,000.00).
MAJESTIC PLUS HOLDING INTERNATIONAL, INC., Petitioner, v. BULLION INVESTMENT AND 3.2 The balance of SIXTY-ONE MILLION PESOS(Php61 ,000,000.00) shall be payable as
DEVELOPMENT CORPORATION, GENESSON U. TECSON, ROLAND M. LAUTCHANG, WILSON follows:
CHUNBON CHENG KOA, LUIS K. LOKIN, JR., JEFFERSON U. TECSON AND ROSALINE C. CHING, 3.2.1. TEN MILLION PESOS (Php10,000,000.00) within 75 days from the execution
Respondents. of this MOA;
DECISION 3.2.2. SIX MILLION PESOS (Php6,000,000.00) payable 30 days thereafter;
PERALTA, J.:* 3.2.3. SIX MILLION PESOS (Php6,000,000.00) payable 30 days after 3.2.2;
Before the Court are two (2) consolidated petitions for review on certiorari under Rule 45 of the Rules of 3.2.4. SIX MILLION PESOS (Php6,000,000.00) payable 30 days after 3.2.3;
Court. 3.2.5. SIX MILLION PESOS (Php6,000,000.00) payable 30 days after 3.2.4;
In G.R. No. 201017, petitioner Majestic Plus Holdings International, Inc. (Majestic) seeks to nullify the 3.2.6. ELEVEN MILLION PESOS (Php11,000,000.00) payable 30 days after
Decision1 dated November 2, 2011 and the Resolution2 dated March 14, 2012, respectively, of the Court 3.2.7. EIGHT MILLION PESOS (Php8,000,000.00) payable 30 days after 3.2.6;
of Appeals (CA) in CA-G.R. SP No. 121072. 3.2.8. EIGHT MILLION PESOS (Php8,000,000.00) payable within two (2) years from
In G.R. No. 215289, Majestic prays for the reversal and setting aside of the Decision 3 dated October 23, the execution of this MOA.
2013 and the Resolution4 dated November 4, 2014, respectively, of the CA in CA-G.R. CV No. 97537. 3.3 The above payments shall all be covered by post-dated checks to be issued by MAJESTIC
The factual and procedural antecedents follow. in favor of BULLION and/or Bingson U. Tecson, duly-authorized representative of existing
In a Resolution passed on August 14, 2001, the City Council of Manila authorized its Mayor to enter into a stockholders.
contract with any reputable corporation for the long term lease and development of a 4,808.40-square- 4. TRANSFER OF SHARES
meter non-income generating property of the City located within the vicinity of Felipe II, Reina Regente
and General La Chambre Streets in Binondo, Manila. Pursuant to such authority, the Office of the City 4.1. The shares representing the 30% equity of BULLION shall be ceded and transferred to
Mayor issued an Invitation to Pre-qualify and Bid for the said development project. Subsequently, herein MAJESTIC only upon full payment of the amount of THIRTY-FIVE MILLION PESOS
respondent company, Bullion Investment and Development Corporation (Bullion) participated and won in (Php35,000,000.00), pursuant to Sec. 3.1.
the bidding. 4.2. Additional shares representing the 10% equity of BULLION shall be assigned and
Thus, on June 30, 2003, the City of Manila, through then City Mayor Joselito Atienza, and Bullion, transferred to MAJESTIC upon payment of the additional amount of TEN MILLION PESOS
represented by its President Roland Lautachang, entered into a Contract5 for the lease of the said property (Php10,000,000.00) based on Sec. 3.2.1
for a period of twenty-five (25) years. Under the Contract, Bullion, as lessee, agreed to construct two 4- 4.3. Upon payment of the additional amount of TWENTY-FOUR MILLION PESOS
storey buildings, one of which shall be used as an extension office of the Manila City Hall for its institutional (Php24,000,000.00) based on Secs. 3.2.2, 3.2.3, 3.2.4 and 3.2.5, additional shareholdings
services, while the other shall be used for commercial purposes. representing 20% equity of BULLION shall be assigned and transferred to MAJESTIC.
Bullion then commenced construction and was able to finish and turn over the City Hall extension building 4.4. The parties undertake to execute the necessary documents for the transfer of additional
to the Manila City Government. However, Bullion was unable to finish the construction of the commercial shares corresponding to another 20% upon receipt of the full payment of the EIGHTY-EIGHT
building. Bullion then sought the help of and was able to convince petitioner corporation, Majestic Plus MILLION PESOS (Php88,000,000.00).
Holding International, Incorporation (Majestic), to invest in Bullion's business venture, particularly the 4.5. BULLION shall provide and/or furnish MAJESTIC copies of all corporate records, such as
completion of the construction of its commercial building which was intended to be used as a mall (Meisic but not limited to [the] Article of Incorporation, By-laws, Financial Statements, General
Mall). Information Sheets, Board Resolutions, etc.
 5. CAPITAL INFUSION With the completion of major construction works and the installation of the aforementioned equipment, the
Meisic Mall became operational as early as May 2005. Majestic conducted business therein by renting out
5.1. The MAJESTIC shall infuse additional capital to cover the construction cost for the full the mall's leasable spaces to stallholders and by employing personnel for the security, maintenance and
completion of the MALL. The additional funding for the construction cost and completion of the upkeep of the mall's premises.13
MALL shall be converted to increased equity for MAJESTIC. However, in the morning of June 25, 2005, respondent, aided by several police personnel and security
5.2. BULLION and MAJESTIC agree to amend the Authorized Capital Stock of BULLION from guards, entered the premises and took physical possession and control of Meisic Mall.
the existing THIRTY MILLION PESOS (Php30,000,000.00) to at least TWO HUNDRED This prompted Majestic to file a Complaint14 for Specific Performance, Injunction and Damages with a
MILLION PESOS (Php200,000,000.00) to ref1ect the actual capital investments of the parties Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction against Bullion, together with
and for the construction and completion of the MALL. several other persons. Majestic alleged that it has become a majority shareholder of Bullion by reason of
5.3. In the event of any capital call and infusion, existing BULLION stockholders shall have the its P191,522,803.22 investment, which comprises 95.76% of the agreed P200,000,000.00 authorized
option to maintain their 20% percent equity. In case any stockholder waives his option to capital stock of Bullion. Majestic also claims that the subject MOA remains valid and binding and that
subscribe to any additional capital call or infusion, the other stockholders shall be given the Bullion failed to comply with its undertakings thereunder.
option to subscribe to the remaining unpaid subscription rights offering. In its Answer,15 Bullion denied the material allegations of Majestic's complaint alleging the defense that it
6. ACCELERATION CLAUSE was the latter which, in fact, violated the provisions of the MOA causing Bullion to rescind the said
agreement.
6.1. MAJESTIC shall have the option to accelerate the Terms of Payment under Sec. 3 in order Initially, the instant case was treated as an intra-corporate dispute and raffled to Branch 24 of the Regional
to expedite the implementation of Sec. 4. Trial Court (RTC) of Manila, a commercial court, wherein several Orders were issued against Bullion, and
6.2. In the event that MAJESTIC fails to pay, despite written demands, at least two (2) eventually, a Decision16 dated October 12, 2005 was rendered in favor of Majestic. Bullion assailed the
installment dues within the period provided in this MOA, the full balance of the amount unpaid RTC Orders via a special civil action for certiorari filed with the CA, docketed as CA-G.R. SP No. 91886,
shall become immediately due and demandable. while respondent's stockholders filed an appeal of the RTC Decision, docketed as CA-G.R. CV No. 86167.
7. DEFAULT These two (2) actions were subsequently consolidated by the CA and in its Decision, 17 promulgated on
February 19, 2008, via a special division of five, unanimously set aside the Decision of the commercial
7.1. Should MAJESTIC default in the payment of at least two (2) installment dues under this court and remanded the case to Branch 24, RTC of Manila to be tried as an ordinary specific performance
contract, BULLION, at its sole option may elect to rescind the contract in which event only half case. However, on Majestic's motion, the presiding judge of Branch 24 subsequently inhibited himself from
of the total amount paid by MAJESTIC shall be refunded to it without need of demand. the case18 prompting the executive judge to assign the same to Branch 46, RTC of Manila which is also a
MAJESTIC shall be considered in default upon its failure to pay the full amount of the commercial court.19 The parties did not question the jurisdiction of Branch 46.
outstanding obligation within fifteen (15) days from written demand of BULLION. In the ensuing proceedings before Branch 46, the parties jointly moved that the case be submitted for
7.2 In the event BULLION elects to rescind the contract under this provision, it shall serve a summary judgment, to which the RTC acceded.20
written notice of the rescission to MAJESTIC. On July 28, 2011, Branch 46, RTC of Manila rendered a Decision21 in favor of petitioner, the dispositive
7.3. In the event BULLION fails to comply with any of its undertaking under this contract, a portion of which reads:
written demand shall likewise be made giving it 15 days to comply. Upon failure to do so, WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Majestic Plus
MAJESTIC shall serve a written notice of rescission to BULLION. All sums paid by MAJESTIC Holding International, Inc. and against the herein defendants, ordering the latter to:
shall be refunded to it after written demand. 1. Strictly comply and implement in full the terms and conditions of the Memorandum of
7.4. In the event that any of the parties should be compelled to seek judicial relief against any of Agreement, more particularly the acquisition of 80% shareholdings of defendant
the parties, the aggrieved parties shall pay an amount equivalent to 10% of the total amount Bullion by plaintiff Majestic;ChanRoblesVirtualawlibrary
claimed as attorney's fees, plus cost of litigation and other expenses. 2. Issue the shares of stock of defendant Bullion in favor of plaintiff Majestic
8. MANAGEMENT Upon payment of Php35,000,000.00 by MAJESTIC, a joint management corresponding to 40% which has long been paid by plaintiff Majestic and record the
committee shall be created and convened by the Board of Directors that will oversee the same in its Stock and Transfer Book;ChanRoblesVirtualawlibrary
construction and operation of the MALL for a period of six (6) months. 3. Maintain/restore plaintiff Majestic in the physical possession and control of the entire
x x x7 Meisic Mall premises;ChanRoblesVirtualawlibrary
Following the execution of the MOA, Majestic issued five (5) checks, on various dates, for an aggregate 4. Transfer the remaining shares of stock in the name of plaintiff Majestic up to the extent
amount of Fifty-Seven Million Pesos (P57,000,000.00) in favor of Bullion, as partial payment of the 80% of 80% shareholdings upon payment of the balance of P39,000,000.00 and to record
equity interest in the latter. Bullion acknowledged such payment. However, it alleged that an additional the same in the Stock and Transfer Book;ChanRoblesVirtualawlibrary
four (4) checks, representing a total amount of P31,000,000.00, which were subsequently issued by 5. Furnish/provide plaintiff Majestic within reasonable time all of defendant Bullion's
Majestic were dishonored because of "Stop Payment" orders.8 As a result, Bullion sent letters to Majestic corporate records;ChanRoblesVirtualawlibrary
demanding payment in full of the latter's outstanding obligations, otherwise the former would be 6. Immediately cause the amendment of the authorized capital stock of defendant Bullion
constrained to rescind the MOA.9 For Majestic's failure to heed Bullion's demands, the latter sent another from P30,000,000.00 to P200,000,000.00 and reflect the increased equity of plaintiff
letter to the former, dated June 24, 2005, informing it that Bullion had elected to rescind the MOA. 10 Majestic brought about by the expenses it incurred to complete the Meisic Mall; and
Meanwhile, Majestic took over the supervision and eventually finished the construction of the Meisic Mall, 7. Pay the cost of this suit.
except with respect to some minor installations. Based on the Summary of Payments, 11 attached to its The counterclaims of the herein defendants are dismissed for lack of merit.
complaint, Majestic claims that, aside from the P57,000,000.00 it had earlier paid to Bullion, it also incurred SO ORDERED.22
expenses for the purpose of sustaining the construction of Meisic Mall and the acquisition of various Bullion and its directors appealed the above RTC Decision with the CA.23
equipment for use inside the mall in the sum of One Hundred Thirty-Four Million Five Hundred Twenty- On August 22, 2011, Majestic filed a Motion for Execution Pending Appeal 24 which was granted by the
Two Thousand Eight Hundred Three Pesos and TwentyTwo Centavos (P134,522,803.22).12 Thus, the RTC by virtue of a Special Order25 and two other related orders,26 all dated September 1, 2011.
aggregate amount alleged to have been invested by Majestic is P191,522,803.22. Consequently, a Writ of Execution Pending Appeal27 on even date was issued. Per Sheriffs Return dated
September 2, 2011, the Writ was served on Bullion and was thereby immediately implemented. 28 In
accordance with the Writ, the Sheriff was able to completely and successfully remove the physical
possession and control of Meisic Mall from Bullion and deliver the same to Majestic. 29
In view thereof, Bullion filed a Petition for Certiorari30 before the CA seeking the nullification of the: (1)
Special Order granting the Motion for Execution Pending Appeal; (2) Order granting police assistance to
the implementing Sheriff; (3) Order granting the appointment of a Special Sheriff; and (4) Writ of Execution
Pending Appeal. Bullion also prayed for the issuance of a Temporary Restraining Order and Mandatory
Injunction.
In its Decision31 dated November 2, 2011, the CA granted the aforesaid Petition and annulled and set
aside the Special Order and the two (2) other assailed Orders, all dated September 1, 2011, the dispositive
portion of which states:
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The assailed Special Order
and the two (2) other Orders, all dated 02 September 2011 rendered by the public respondent judge are
ANNULLED and SET ASIDE. Any and all acts committed in pursuance of the said Orders are necessarily
NULLIFIED.
Accordingly, let a writ of final prohibitory and mandatory injunction issue, as follows:
1. The public and private respondents, together with all persons acting for and in their
behalf are ENJOINED from proceeding with the implementation of the public
respondent's Decision dated 28 July 2011 in Civil Case No. 05-113352 entitled,
"Majestic Plus Holding International, Inc. vs. Bullion Investment and Development
Corporation, Genesson U. Tecson, Roland M. Lautchang, Wilson Chun Bon Cheng
Koa, Luis K. Lokin, Jr., Jefferson U. Tecson and Rosalie C. Ching," as well as the writ
of execution pending appeal dated 01 September 2011 ; and
2. The public and private respondents, and all persons acting for and in their behalf, are
ORDERED to RESTORE the possession and control of the Meisic Mall to petitioner
in the same situation and condition immediately before the Decision dated 28 July
2011 in Civil Case No. 05-113352 aforecited.
32
SO ORDERED.
The CA basically ruled that the RTC committed grave abuse of discretion in granting Majestic's motion for
execution pending appeal since the "good reasons" required by Rule 39 of the Rules of Court are found to
be absent in the instant case.
On November 14, 2011, Majestic filed a Motion for Reconsideration with the CA, which was denied in its
Resolution33 dated March 14, 2012. Thus, the filing of the present petition by Majestic, docketed as G.R.
No. 201017, raising the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT RULED THAT THE
REQUISITE FILING OF A MOTION FOR RECONSIDERATION WOULD ONLY DELAY THE URGENT
NECESSITY TO RESOLVE THE TEMPORARY RESTRAINING ORDER AS CONTAINED IN THE
PETITION ITSELF.
B.
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT ACCEPTED
A HIGHLY DEFECTIVE VERIFICATION AND CERTIFICATION AS WELL AS SECRETARY'S
CERTIFICATE SUBMITTED BY BULLION.
C.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THE
UNDISPUTED FACT THAT BULLION'S PETITION FOR CERTIORARI PRESENTS ISSUES/MATTERS
THAT ARE PROPER AND ALSO THE SUBJECT OF THE APPEAL INTERPOSED BY BULLION.
D.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT STRUCK DOWN THE
"GOOD REASONS" AS FOUND BY THE TRIAL COURT.
E.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ORDERING THE RESTORATION
OF THE POSSESSION AND CONTROL OF THE MEISIC MALL TO BULLION.34
During the pendency of G.R. No. 201017, the CA promulgated its Decision35 on Bullion's appeal of the July
28, 2011 Decision of the RTC. The CA essentially ruled that since there are genuine issues of fact in the
present case which require the presentation of evidence, the RTC should have proceeded to conduct a
full-blown trial and should have refrained from issuing a summary judgment. Hence, the assailed CA
Decision disposed as follows:
WHEREFORE, the appealed July 28, 2011 Decision of the Regional Trial Court of Manila, Branch 46,
National Capital Judicial Region is hereby REVERSED AND SET ASIDE.
Accordingly, the portion of the Decision directing defendant-appellant Bullion Investment and Development
Corporation to maintain/restore plaintiff Majestic in the physical possession and control of the entire Meisic
Mall premises is declared to be of no force and effect. The right of defendant-appellant Bullion Investment
and Development Corporation to physically possess, manage and control the Meisic Mall, now known as
11/88 Mall, is recognized. As to the other aspects of the case, let this case be REMANDED to the RTC of
Manila, to be re-raff1ed to a regular court and not to a special commercial court, for further proceedings
and proper disposition, according to regular procedure.
SO ORDERED.36
Aggrieved by the CA Decision, Majestic comes to this Court via the instant petition, docketed as G.R. No.
215289, on the following grounds:
I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE DECISION OF
THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA.
II. THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA HAS JURISDICTION OVER THE CASE.
III. THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA DID NOT EXCEED JURISDICTION.
IV. THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA DID NOT ERR IN GRANTING MAJESTIC
CLAIMS AND DISMISSING DEFENDANTS-APPELLANTS' COUNTER-CLAIM.
V. THE HONORABLE COURT OF APPEALS ERRED WHEN IT DENIED MAJESTIC'S MOTION FOR
RECONSIDERATION.37
In a Resolution38 dated January 28, 2015, this Court resolved to consolidate G.R. No. 201017 and 215289.
The petitions lack merit.
At the outset, it behooves this Court to determine the issue of whether or not the RTC, Branch 46 of Manila
has jurisdiction over the subject matter of the instant case. In its Comment in G.R. No. 215289, Bullion
contends that neither Branch 24 nor Branch 46 of the RTC of Manila has jurisdiction over the suit for
specific performance filed by Majestic. Bullion argues that having been designated as special commercial
courts, the jurisdiction of Branches 24 and 46 is limited to trying and deciding special commercial cases
only. On the other hand, Majestic counters that the designation of RTCs as special commercial courts has
not, in any way, limited their jurisdiction to hear and decide cases of all nature, whether civil, criminal or
special proceedings.
As a basic premise, the Court reiterates the principle that a court's acquisition of jurisdiction over a
particular case's subject matter is different from incidents pertaining to the exercise of its jurisdiction. 39
Jurisdiction over the subject matter of a case is conferred by law, whereas a court's exercise of jurisdiction,
unless provided by the law itself, is governed by the Rules of Court or by the orders issued from time to
time by the Supreme Court.40 The matter of whether the RTC resolves an issue in the exercise of its
general jurisdiction or of its limited jurisdiction as a special court is only a matter of procedure and has
nothing to do with the question of jurisdiction.41
Moreover, it should be noted that Special Commercial Courts (SCCs) are still considered courts of general
jurisdiction.42 Section 5.243 of R.A. No. 8799, otherwise known as The Securities Regulation Code, directs
merely the Supreme Court's designation of RTC branches that shall exercise jurisdiction over intra-
corporate disputes. The assignment of intra-corporate disputes to SCCs is only for the purpose of
streamlining the workload of the RTCs so that certain branches thereof like the SCCs can focus only on a
particular subject matter.44 Nothing in the language of the law suggests the diminution of jurisdiction of
those RTCs to be designated as SCCs.45 The RTC exercising jurisdiction over an intra-corporate dispute
can be likened to an RTC exercising its probate jurisdiction or sitting as a special agrarian court. The
designation of the SCCs as such has not in any way limited their jurisdiction to hear and decide cases of
all nature, whether civil, criminal or special proceedings. 46
Stated differently, in the ruling case of Gonzales, et al. v. GJH Land. Inc., et al.,47 this Court held that:
x x x the fact that a particular branch x x x has been designated as a Special Commercial Court does not
shed the RTC's general jurisdiction over ordinary civil cases under the imprimatur of statutory law, i.e.,
Batas Pambansa Bilang (BP) 129. To restate, the designation of Special Commercial Courts was merely
intended as a procedural tool to expedite the resolution of commercial cases in line with the court's
exercise of jurisdiction. This designation was not made by statute but only by an internal Supreme Court
rule under its authority to promulgate rules governing matters of procedure and its constitutional mandate
to supervise the administration of all courts and the personnel thereof. Certainly, an internal rule
promulgated by the Court cannot go beyond the commanding statute. But as a more fundamental reason,
the designation of Special Commercial Courts is, to stress, merely an incident related to the court's
exercise of jurisdiction, which, as first discussed, is distinct from the concept of jurisdiction over the subject
matter. The RTC's general jurisdiction over ordinary civil cases is therefore not abdicated by an internal
rule streamlining court procedure.48
Hence, based on the foregoing, it is clear that Branch 46, RTC of Manila, despite being designated as an
SCC, has jurisdiction to hear and decide Majestic's suit for specific performance.
Having disposed of the question of jurisdiction, the Court will now proceed to delve into the merits of the
present petitions.
There are two basic issues posed in these two petitions. First is the correctness of the July 28, 2011
Decision of the RTC via summary judgment. Second is the propriety of ordering the execution of such
Decision pending appeal. In turn, the Court notes that both these issues hinge on the preliminary
determination of whether or not the RTC was correct in considering the case appropriate for summary
judgment. The Court will, thus, follow the course taken by the CA and proceed to determine first if it was
proper for the RTC to render its assailed summary judgment.
Summary judgment is a procedural device resorted to in order to avoid long drawn out litigations and
useless delays.49 Relief by summary judgment is intended to expedite or promptly dispose of cases where
the facts appear undisputed and certain from the pleadings, depositions, admissions and affidavits.50
Summary judgments are proper when, upon motion of the plaintiff or the defendant, the court finds that
the answer filed by the defendant does not tender a genuine issue as to any material fact and that one
party is entitled to a judgment as a matter of law.51But if there be a doubt as to such facts and there be
an issue or issues of fact joined by the parties, neither one of them can pray for a summary
judgment.52Where the facts pleaded by the parties are disputed or contested, proceedings for a
summary judgment cannot take the place of a trial.53
In Calubaquib, et al. v. Republic of the Philippines,54 this Court had the occasion to discuss the nature of
a summary judgment and to reiterate the conditions that should be met before it can be resorted to, to wit:
xxxx
An examination of the Rules will readily show that a summary judgment is by no means a hasty one. It
assumes a scrutiny of facts in a summary hearing after the filing of a motion for summary judgment by one
party supported by affidavits, depositions, admissions, or other documents, with notice upon the adverse
party who may file an opposition to the motion supported also by affidavits, depositions, or other documents
x x x. In spite of its expediting character, relief by summary judgment can only be allowed after
compliance with the minimum requirement of vigilance by the court in a summary hearing
considering that this remedy is in derogation of a party's right to a plenary trial of his case. At any
rate, a party who moves for summary judgment has the burden of demonstrating clearly the absence of
any genuine issue of fact, or that the issue posed in the complaint is so patently unsubstantial as not to
constitute a genuine issue for trial, and any doubt as to the existence of such an issue is resolved against
the movant.
As mentioned above, a summary judgment is permitted only if there is no genuine issue as to any material
fact and the moving party is entitled to a judgment as a matter of law. The test of the propriety of rendering
summary judgments is the existence of a genuine issue of fact, as distinguished from a sham, fictitious,
contrived or false claim. A factual issue raised by a party is considered as sham when by its nature it is
evident that it cannot be proven or it is such that the party tendering the same has neither any sincere
intention nor adequate evidence to prove it. This usually happens in denials made by defendants merely
for the sake of having an issue and thereby gaining delay, taking advantage of the fact that their answers
are not under oath anyway.
In determining the genuineness of the issues, and hence the propriety of rendering a summary
judgment, the court is obliged to carefully study and appraise, not the tenor or contents of the
pleadings, but the facts alleged under oath by the parties and/or their witnesses in the affidavits
that they submitted with the motion and the corresponding opposition. Thus, it is held that, even if
the pleadings on their face appear to raise issues, a summary judgment is proper so long as "the affidavits,
depositions, and admissions presented by the moving party show that such issues are not genuine."
The filing of a motion and the conduct of a hearing on the motion are, therefore, important because
these enable the court to determine if the parties' pleadings, affidavits and exhibits in support of,
or against, the motion are sufficient to overcome the opposing papers and adequately justify the
finding that, as a matter of law, the claim is clearly meritorious or there is no defense to the action.
The non-observance of the procedural requirements of filing a motion and conducting a hearing
on the said motion warrants the setting aside of the summary judgment.55
In the present case, it is true that both parties moved for the rendition of a summary judgment.56 However,
it is apparent that the RTC did not comply with the procedural guidelines when it ordered that the case be
submitted for summary judgment without first conducting a hearing to determine if there are indeed no
genuine issues of fact that would necessitate trial. The trial court merely required the parties to submit their
respective memoranda, together with their affidavits and exhibits and, although the parties presented
opposing claims, the RTC hastily rendered a summary judgment. Thus, the trial court erred in cursorily
issuing the said judgment.
Undoubtedly, the case at bar may not, even by the most liberal or strained interpretation, be considered
as one not involving genuine issues of fact which necessitates presentation of evidence to determine which
of the two conflicting assertions is correct. A careful examination of the pleadings will show that Majestic's
causes of action in its Complaint are anchored on Bullion's supposed violations of the provision of the
subject MOA. On the other hand, Majestic's allegations are controverted by Bullion who, in a like manner,
asserts that by virtue of Majestic's failure to comply with the provisions of the said MOA, it decided to
rescind the same. These diametrically opposed and conflicting claims present a factual dispute which can
be resolved and settled only by means of evidence presented during trial. The documents and
memorandum submitted by the parties all the more show that the facts pleaded are disputed or contested.
It is true that the main document from which the parties base their claims and defenses is the same MOA
and that the issue submitted for resolution before the RTC is which of the parties complied with or violated
the provisions of the said MOA. However, arising from this main issue are conflicting allegations coming
from both parties. In turn, these allegations tender genuine issues of fact necessitating the presentation of
evidence, thus, precluding the rendition of a summary judgment. Certainly, the issue as to who violated
the subject MOA, thus, raised by the parties and formulated by the RTC in its Amended Pre-Trial Order,
as well as the particular matters as to whether or not the said MOA has been validly rescinded and whether
or not Majestic has, in fact, incurred P134,522,803.22 in completing the construction of and in maintaining
the operation of the Meisic Mall, are issues which may not be categorized as frivolous and sham so as to
dispense with the presentation of evidence in a formal trial.
As to the issue of rescission of the subject MOA, Bullion contends that it rescinded the MOA because
Majestic failed to pay several installments of its obligations which are due thereunder, which failure gives
Bullion the right to rescind the same. On the other hand, Majestic opposes the rescission insisting that the
MOA remains valid and binding for Bullion's failure to comply with the conditions of a valid rescission as
set under the MOA. Majestic likewise argues that it was, in fact, Bullion which violated the provisions of
the MOA. It is a settled rule that extrajudicial rescission has a legal effect where the other party does not
oppose it.57 Where it is objected to, a judicial determination of the issue is still necessary. 58 Thus,
considering Majestic's strong opposition to Bullion's rescission of the MOA, and since both parties allege
that the other had violated the MOA, the Court agrees with the CA that the issue of rescission necessitates
judicial intervention which entails examination by the trial court of evidence presented by the parties in a
full-blown trial.
Also, the Court finds no error in the ruling of the CA that the aggregate sum of P134,522,803.22 alleged
by Majestic as expenses it incurred in completing the construction of the Meisic Mall, as well as in the
acquisition of equipment and facilities used therein, is yet to be substantiated by competent proof. The
only evidence presented by Majestic to support its claims is an Affidavit 59 executed by the Finance
Comptroller of its allied corporation, accompanied by a summary of Payments Made to Meisic Mall. 60
Majestic has yet to present receipts or other competent documentary evidence to prove the said payments.
Moreover, these claims were specifically denied by Bullion in its Answer to the Complaint. In view of such
denial, Majestic's claims are, thus, subject to confirmation and validation by proof during trial proper.
Morever, in a Special Division composed of five (5) Justices, the CA in its February 19, 2008 Decision,
which remanded the case to the RTC to be tried as an ordinary specific performance case, held that
Majestic's Complaint raises many factual issues which, while refuted by Bullion's Answer, would still have
to be disproved by evidence in further proceedings.61 Also, in its presently assailed Decision dated
November 2, 2011, another Division of the CA, which annulled the RTC Order granting Majestic's motion
for execution pending appeal, expressed misgivings with respect to the trial court's disposition of the case
by ratiocinating in this wise:
What is more, the Court is mystified [perplexed?] on how the public respondent judge came to rule as to Finally, the Court agrees with the ruling of the CA which ordered the remand of the case to the RTC of
the actions sought to be implemented or enforced in the assailed Orders. Of course, the Court is aware Manila to be re-raffled to a noncommercial court for further proceedings and proper disposition.
that the entry of private respondents shareholdings in the stock and transfer books, the amendment of WHEREFORE, the instant petitions are DENIED. The November 2, 2011 Decision and March 14, 2012
value of its investments and the award of physical possession of the Meisic Mall, are all contained in the Resolution of the Court of Appeals in CA-G.R. SP No. 121072 are AFFIRMED. The October 23, 2013
dispositive portion of the lower court's Decision. However, it appears in the very same Decision that the Decision and November 4, 2014 Resolution of the Court of Appeals in CA-GR. CV No. 97537 are, likewise,
proceedings before the public respondent are summary in nature and that the sole issue which the parties AFFIRMED. The Executive Judge of the Regional Trial Court of Manila is hereby ORDERED to
agreed upon is who between these parties violated the Memorandum of Agreement. Nothing more, nothing PROMPTLY RE-RAFFLE the case among the non-commercial courts with a directive that the same be
less.62 resolved with deliberate dispatch.
Furthermore, a perusal of the records of the case would show that Majestic itself is not totally convinced SO ORDERED.
that the case is, indeed, ripe for summary judgment. In its Motion for Reconsideration of the May 13, 2010 Perez, Reyes, Perlas-Bernabe and Jardeleza, JJ., concur.
Order of the RTC of Manila, which initially dismissed its Complaint on the ground of lack of cause of action,
Majestic argued for the need of a full-blown trial to thresh out the parties' conflicting claims, to wit: G.R. No. L-12719 May 31, 1962
xxxx THE COLLECTOR OF INTERNAL REVENUE, petitioner,
As regard[s] defendant Bullion's alleged non commission of any act or omission in violation of [Majestic's] vs.
rights and the failure of the latter to comply with its obligations, these are in no doubt, evidentiary matters THE CLUB FILIPINO, INC. DE CEBU, respondent.
which have yet to be established in a full blown trial. As the records would show, the case has not even Office of the Solicitor General for petitioner.
reached the pre-trial hearing and therefore, it becomes too premature for the Honorable Court to make a V. Jaime and L. E. Petilla for respondent.
definite ruling on the alleged lack of cause of action. PAREDES, J.:
Indeed, unless the parties have presented their respective evidence in chief, any findings on the alleged This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector
lack of cause of action will be highly premature and speculative at best. 63 of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of
In granting Majestic's Motion for Reconsideration, the RTC agreed with Majestic's above-quoted argument P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a
and ruled, thus: keeper of bar and restaurant.
xxxx As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic
A perusal of the complaint hypothetically admitting all the facts and allegations in the subject complaint corporation organized under the laws of the Philippines with an original authorized capital stock of
[shows that] there [are] sufficient factual averments where this Court can render valid judgments. P22,000.00, which was subsequently increased to P200,000.00, among others, to it "proporcionar, operar,
Essentially, these causes of action raise many factual issues traversing on the Memorandum of Agreement y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de
and the obligation of the defendant[s] to the plaintiff which indeed have to be disproved by the defendants billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar
in a full blown trial as this was refuted in the Answer. Even the comment in the motion for reconsideration y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de
establishing the circumstances involving the rescission of the Memorandum of Agreement are clear factual sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in
matters which should be proved and threshed out in a full blown trial. 64 the articles or by-laws is there a provision relative to dividends and their distribution, although it is
On the basis of the foregoing, it is clear that the RTC erred in rendering its assailed summary judgment. covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to
Thus, the CA did not commit error in setting aside the said summary judgment. a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).
In view of this Court's affirmance of the CA ruling which reversed and set aside the July 28, 2011 Decision The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
of the RTC, there is no longer any RTC judgment that may be executed. Hence, the issue as to whether government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to
or not there are "good reasons" to execute the assailed Decision of the RTC has become moot and its members and their guests. The bar-restaurant was a necessary incident to the operation of the club
academic. This is in accordance with our ruling in Osmea III v. Social Security System of the Philippines,65 and its golf-course. The club is operated mainly with funds derived from membership fees and dues.
where we defined a moot and academic case or issue as follows: Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951.
A case or issue is considered moot and academic when it ceases to present a justiciable controversy by as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of
virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the
no practical value or use. In such instance, there is no actual substantial relief which a petitioner would be stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross
entitled to, and which would be negated by the dismissal of the petition. Courts generally decline jurisdiction receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated
over such case or dismiss it on the ground of mootness - save when, among others, a compelling December 22, 1852, the Collector of Internal Revenue assessed against and demanded from the Club,
constitutional issue raised requires the formulation of controlling principles to guide the bench, the bar and the following sums:
the public; or when the case is capable of repetition yet evading judicial review.66
Consequently, this Court no longer finds any need to discuss and resolve the other issues raised in G.R. As percentage tax on its gross receipts
No. 201017. during the tax years 1946 to 1951 P9,599.07
As to who between the parties has the right of possession, control and operation of the Meisic Mall, suffice
Surcharge therein 2,399.77
it to say that the Court agrees with the disquisition of the CA in its October 23, 2013 Decision in CA-GR.
CV No. 97537, which sustains the restoration of possession and control of the Meisic Mall in favor of
As fixed tax for the years 1946 to 1952 70.00
Bullion, to wit:
Basic is the rule in corporation law that the business and affairs of a corporation [are] handled by a Board
Compromise penalty 500.00
of Directors and not the controlling stockholder. All corporate powers are exercised, all business conducted
and all properties controlled by the Board of Directors. Hence, [even granting that] Majestic has become The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been
the controlling stockholder of the Bullion x x x by itself alone, it cannot have the physical possession and denied, the Club filed the instant petition for review.
operate the business of the Meisic Mall.67 The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage
taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the
assessment was made, in connection with the operation of its bar and restaurant, during the periods
mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on
which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year
or fraction thereof in which such person shall engage in said business." Section 183 provides in general
that "the percentage taxes on business shall be payable at the end of each calendar quarter in the amount
lawfully due on the business transacted during each quarter; etc." And section 191, same Tax Code,
provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall
pay a tax three per centum, and keepers of bar and cafes where wines or liquors are served five per
centum of their gross receipts . . .". It has been held that the liability for fixed and percentage taxes, as
provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and
restaurant. For the liability to attach, the operator thereof must be engaged in the business as a barkeeper
and restaurateur. The plain and ordinary meaning of business is restricted to activities or affairs where
profit is the purpose or livelihood is the motive, and the term business when used without qualification,
should be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood (The
Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R.
No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et
al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the
ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate sports of all class and
denomination, for the healthful recreation and entertainment of its stockholders and members; that upon
its dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine
Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the
Club's bar and restaurant catered only to its members and their guests; that there was in fact no cash
dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant
was used to defray its overall overhead expenses and to improve its golf-course (cost-plus-expenses-
basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant
(same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does
not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts
of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary
object of developing and cultivating sports for the healthful recreation and entertainment of the
stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has
been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred Heart
College v. Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational
Corp., G.R. No. L-9276, Oct. 23, 1956).1wph1.t
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into
shares, does not detract from the finding of the trial court that it is not engaged in the business of operator
of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its
object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not
controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be
shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic
evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper
and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock
divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments
of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in
its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or
surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the
contemplation of the corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock
organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et
al., supra), which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a
bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for
any penalty, much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Dizon, JJ., concur.
Bengzon, C.J., is on leave.
G.R. No. 91889 August 27, 1993
MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN,
petitioners,
vs.
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR.,
MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents.
Virgilio E. Dulay for petitioners.
Torres, Tobias, Azura & Jocson for private respondents.
NOCON, J.:
This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals
affirming the decision2 of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and
2880-P, the dispositive portion of which reads, as follows:
Wherefore, in view of all the foregoing considerations, in this Court hereby renders
judgment, as follows:
In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and
Virgilio E. Dulay for annulment or declaration of nullity of the decision of the
Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81 entitled
"Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is dismissed
for lack of merits;
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for
cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds
of Pasay City) and reconveyance, is dismissed for lack or merit, and,
In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio
E. Dulay are ordered to surrender and deliver possession of the parcel of land,
together with all the improvements thereon, described in Transfer Certificate of Title
No. 24799 of the Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel
A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administrator of said
Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from
dwelling unit No. 8-A of the apartment building (Dulay Apartment) from June 1980 up
to the present, to indemnify plaintiffs, jointly and severally, expenses of litigation in the
amount of P4,000.00 and attorney's fees in the sum of P6,000.00, for all the three (3)
cases. Co-defendant Nepomuceno Redovan is ordered to pay the current and
subsequent rentals on the premises leased by him to plaintiffs.
The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises,
Inc. and N. Redovan, dismissed for lack of merit. With costs against the three (3)
aforenamed defendants. 3
The facts as found by the trial court are as follows:
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its
Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and
general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay
with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and
designated as secretary, owned a property covered by TCT No. 17880 4 and known as Dulay Apartment
consisting of sixteen (16) apartment units on a six hundred eighty-nine (689) square meters lot, more or
less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of
its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner
Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay
occupied one of the unit apartments of the subject property since property since 1973 while at the same
time managing the Dulay Apartment at his shareholdings in the corporation was subsequently increased
by his father. 5
On December 23, 1976, Manuel Dulay by virtue of Board Resolution
No 186 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa
and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale.7
Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private respondent Maria
Theresa Veloso. 8 Subsequently, Manuel Dulay and private respondents spouses Veloso executed a
Memorandum to the Deed of Absolute Sale of December 23, 1976 9 dated December 9, 1977 giving
Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for
P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225.
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay,
mortgaged the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which
was duly annotated as Entry No. 68139 in TCT No. 23225. 10
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property
was sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure
sale as evidenced by the Certificate of Sheriff's Sale 11 issued on April 20, 1978.
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right
to Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from private
respondent Torres as a result of the extra sale held on April 25, 1978.
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject
property within the one year statutory period for redemption, private respondent Torres filed an Affidavit of
Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT No. 24799 14 was
subsequently issued to private respondent Manuel Torres on April 23, 1979.
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession
against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when
petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject
property, the trial court ordered private respondent Torres to implead petitioner corporation as an
indispensable party but the latter moved for the dismissal of his petition which was granted in an Order
dated April 8, 1980.
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres,
filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay
Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary
injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and
Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P
with the then Court of First Instance of Rizal.
On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino
and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor
for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a
decision on April 25, 1985, dispositive portion of which reads, as follows:
Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private
respondents) and against the defendants:
1. Ordering the defendants and all persons claiming possession under them to vacate
the premises.
2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May,
1979 until they shall have vacated the premises with interest at the legal rate;
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and
P1,000.00 as other expenses of litigation and for them to pay the costs of the suit.15
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding
judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the
annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private
respondents.
Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision
on October 23, 1989, the dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being appealed should be as it is hereby
AFFIRMED in full. 16
On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26,
1990.
Hence, this petition.
During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death
certificate 17 and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic
will 18 dated October 31, 1986.
Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the
doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject
property between private respondents spouses Veloso and Manuel Dulay has no binding effect on
petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was
resolved without the approval of all the members of the board of directors and said Board Resolution was
prepared by a person not designated by the corporation to be its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws
provide otherwise, any action by the directors of a close corporation without a meeting
shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the
directors, or
2. All the stockholders have actual or implied knowledge of the action and make no
prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied
acquiese of all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and
none of them makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the
corporate powers is deemed ratified by a director who failed to attend, unless he
promptly files his written objection with the secretary of the corporation after having
knowledge thereof.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation
for the action of its president. At any rate, corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his
written objection with the secretary of the corporation after having knowledge of the meeting which, in his
case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and separate
from its individual stockholders or members, 19 the veil of corporate fiction may be pierced when it is used
to defeat public convenience justify wrong, protect fraud or defend crime. 20 The privilege of being treated
as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate
uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act.
When the corporation is used merely as an alter ego or business conduit of a person, the law will regard
the corporation as the act of that person. 21 The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to annul a valid contract executed by
one of its members.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private
respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without
the knowledge and consent of the other members of the board of directors cannot be sustained. As
correctly pointed out by the respondent Court of Appeals:
Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he
never participated nor was even aware of any meeting or resolution authorizing the
 mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay,
dated May 31, 1984, p. 14, Exh. "21") is difficult to believe. On the contrary, he is very
much privy to the transactions involved. To begin with, he is a incorporator and one
of the board of directors designated at the time of the organization of Manuel R. Dulay
Enterprise, Inc. In ordinary parlance, the said entity is loosely referred to as a "family
corporation". The nomenclature, if imprecise, however, fairly reflects the
cohesiveness of a group and the parochial instincts of the individual members of such
an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, three (3) children and their father whose
name identifies their corporation (Articles of Incorporation of Manuel R. Dulay
Enterprises, Inc. Exh. "31-A"). 22
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that he was a
signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor
of private respondent Torres indicates that he was aware of the transaction executed between his father
and private respondents and had, therefore, adequate knowledge about the sale of the subject property to
private respondents.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject
property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria
Theresa V. Veloso and Castrense C. Veloso, was a corporate act of the former and
not a personal transaction of Manuel R. Dulay. This is so because Manuel R. Dulay
was not only president and treasurer but also the general manager of the corporation.
The corporation was a closed family corporation and the only non-relative in the board
of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There
is no denying the fact, however, that Maria Socorro R. Dulay at times acted as
secretary. . . ., the Court can not lose sight of the fact that the Manuel R. Dulay
Enterprises, Inc. is a closed family corporation where the incorporators and directors
belong to one single family. It cannot be concealed that Manuel R. Dulay as president,
treasurer and general manager almost had absolute control over the business and
affairs of the corporation. 24
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly
overlooked certain facts of substance and value that, if considered, might affect the result of the case, 25
which is not present in the instant case.
Petitioners' contention that private respondent Torres never acquired ownership over the subject property
since the latter was never in actual possession of the subject property nor was the property ever delivered
to him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the
deed the contrary do not appear or cannot clearly be inferred.
Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent
to the delivery of the property. Likewise, this Court had held that:
It is settled that the buyer in a foreclosure sale becomes the absolute owner of the
property purchased if it is not redeemed during the period of one year after the
registration of the sale. As such, he is entitled to the possession of the said property
and can demand it at any time following the consolidation of ownership in his name
and the issuance to him of a new transfer certificate of title. The buyer can in fact
demand possession of the land even during the redemption period except that he has
to post a bond in accordance with Section 7 of Act No. 3133 as amended. No such
bond is required after the redemption period if the property is not redeemed.
Possession of the land then becomes an absolute right of the purchaser as confirmed
owner. 26
Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of
Sale in deemed equivalent to delivery.
Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for
reconsideration despite the fact that private respondents failed to submit their comment to said motion as
required by the respondent appellate court from resolving petitioners' motion for reconsideration without
the comment of the private respondent which was required merely to aid the court in the disposition of the
motion. The courts are as much interested as the parties in the early disposition of cases before them. To
require otherwise would unnecessarily clog the courts' dockets.
WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla and Regalado, JJ., concur.
Puno, J., took no part.
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE
VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as
Deputy Sheriff of Calamba, Laguna, Respondents.
DECISION
CRUZ, J.:
This case involves the constitutionality of a presidential decree which, like all other issuances of President
Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere,
that his acts are being tested by the touchstone of the fundamental law that even then was supposed to
limit presidential action.: rd
The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the
Agrix Group of Companies to be administered mainly by the National Development Company. The law
outlined the procedure for filing claims against the Agrix companies and created a Claims Committee to
process these claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof
providing that "all mortgages and other liens presently attaching to any of the assets of the dissolved
corporations are hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans
Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baos,
Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of
salvaging this and the other Agrix companies that the aforementioned decree was issued by President
Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment
of its loan credit. In the meantime, the New Agrix, Inc. and the National Development Company, petitioners
herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of Calamba, Laguna,
for the cancellation of the mortgage lien in favor of the private respondent. For its part, the private
respondent took steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second
case with the same court to stop the foreclosure. The two cases were consolidated.
After the submission by the parties of their respective pleadings, the trial court rendered the impugned
decision. Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but
the entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power
was a violation of the principle of separation of powers; (2) the law impaired the obligation of contracts;
and (3) the decree violated the equal protection clause. The motion for reconsideration of this decision
having been denied, the present petition was filed.: rd
The petition was originally assigned to the Third Division of this Court but because of the constitutional
questions involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the
petitioner's prayer for a temporary restraining order and instructed the respondents to cease and desist
from conducting a public auction sale of the lands in question. After the Solicitor General and the private
respondent had filed their comments and the petitioners their reply, the Court gave due course to the
petition and ordered the parties to file simultaneous memoranda. Upon compliance by the parties, the case
was deemed submitted.
The petitioners contend that the private respondent is now estopped from contesting the validity of the
decree. In support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where
the constitutionality of Pres. Decree No. 1717 was also raised but not resolved. The Court, after noting
that the petitioners had already filed their claims with the AGRIX Claims Committee created by the decree,
had simply dismissed the petition on the ground of estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres.
Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to
foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the
decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the decree,
that the private respondent attacked the validity of the provision. At that stage, however, consistent with
Mendoza, the private respondent was already estopped from questioning the constitutionality of the
decree.
The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to
this decree. It must be noted, however, that this was done in 1980, when President Marcos was the
absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them would
have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation, was
aware of that reality and knew it had no choice under the circumstances but to conform.: nad
It is true that there were a few venturesome souls who dared to question the dictator's decisions before
the courts of justice then. The record will show, however, that not a single act or issuance of President
Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power. To
rule now that the private respondent is estopped for having abided with the decree instead of boldly
assailing it is to close our eyes to a cynical fact of life during that repressive time.
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the
AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without
protest or reservation. The herein private respondent has not been paid a single centavo on its claim,
which was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the
validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial
foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that the
private respondent was estopped from questioning the decree because of its earlier compliance with its
provisions.
Independently of these observations, there is the consideration that an affront to the Constitution cannot
be allowed to continue existing simply because of procedural inhibitions that exalt form over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages
and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in
Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all
accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or
unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no
person shall be deprived of life, liberty or property without due course of law nor shall any person be denied
the equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts shall be
passed."
In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation
under the police power for the promotion of the common welfare. The contention is that this inherent power
of the state may be exercised at any time for this purpose so long as the taking of the property right, even
if based on contract, is done with due process of law.
This argument is an over-simplification of the problem before us. The police power is not a panacea for all
constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for
every act of the government depriving a person of his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject and a lawful
method. In more familiar words, a) the interests of the public generally, as distinguished from those of a
particular class, should justify the interference of the state; and b) the means employed are reasonably
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2
Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not
sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The
decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the
corporation were not to be assisted. However, the record does not state how many there are of such
investors, and who they are, and why they are being preferred to the private respondent and other creditors
of AGRIX with vested property rights.:-cralaw
The public interest supposedly involved is not identified or explained. It has not been shown that by the
creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the
interests of the public as a whole, as distinguished from those of a particular class, would be promoted or
protected. The indispensable link to the welfare of the greater number has not been established. On the
contrary, it would appear that the decree was issued only to favor a special group of investors who, for
reasons not given, have been preferred to the legitimate creditors of AGRIX.
Assuming there is a valid public interest involved, the Court still finds that the means employed to
rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The
oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests,
penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for
the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the
decree. The right to property is dissolved by legislative fiat without regard to the private interest violated
and, worse, in favor of another private interest.
A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of
Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they
accrue. Private property cannot simply be taken by law from one person and given to another without
compensation and any known public purpose. This is plain arbitrariness and is not permitted under the
Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and
other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the
same level in the prosecution of their respective claims. In this respect, all of them are considered
unsecured creditors. The only concession given to the secured creditors is that their loans are allowed to
earn interest from the date of the decree, but that still does not justify the cancellation of the interests
earned before that date. Such interests, whether due to the secured or the unsecured creditors, are all
extinguished by the decree. Even assuming such cancellation to be valid, we still cannot see why all kinds
of creditors, regardless of security, are treated alike.
Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the
privileges conferred and the obligations imposed. Conversely, all persons or things differently situated
should be treated differently. In the case at bar, persons differently situated are similarly treated, in
disregard of the principle that there should be equality only among equals.- nad
One may also well wonder why AGRIX was singled out for government help, among other corporations
where the stockholders or investors were also swindled. It is not clear why other companies entitled to
similar concern were not similarly treated. And surely, the stockholders of the private respondent, whose
mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were no less
deserving of protection, which they did not get. The decree operated, to use the words of a celebrated
case, 3 "with an evil eye and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article
XIV, Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization,
or regulation of private corporations, unless such corporations are owned or controlled by the Government
or any subdivision or instrumentality thereof. 4
The new corporation is neither owned nor controlled by the government. The National Development
Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc.
Pending payment thereof, NDC would undertake the management of the corporation, but with the
obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said
board can then appoint its own management. The stocks of the new corporation are to be issued to the
old investors and stockholders of AGRIX upon proof of their claims against the abolished corporation. They
shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so should have
been organized under the Corporation Law in accordance with the above-cited constitutional provision.
The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private
respondent without justification. While it is true that the police power is superior to the impairment clause,
the principle will apply only where the contract is so related to the public welfare that it will be considered
congenitally susceptible to change by the legislature in the interest of the greater number. 5 Most present-
day contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by
AGRIX are purely private transactions and have not been shown to be affected with public interest. There
was therefore no warrant to amend their provisions and deprive the private respondent of its vested
property rights.
It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we
sustained the preference in payment of a mortgage creditor as against the argument that the claims of
laborers should take precedence over all other claims, including those of the government. In arriving at
this ruling, the Court recognized the mortgage lien as a property right protected by the due process and
contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was
a proper exercise of the police power.: nad
The Court reaffirms and applies that ruling in the case at bar.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in
conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the
mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of
AGRIX constitutes taking without due process of law, and this is compounded by the reduction of the
secured creditors to the category of unsecured creditors in violation of the equal protection clause.
Moreover, the new corporation, being neither owned nor controlled by the Government, should have been
created only by general and not special law. And insofar as the decree also interferes with purely private
agreements without any demonstrated connection with the public interest, there is likewise an impairment
of the obligation of the contract.
With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos
to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had
such authority, the decree must fall just the same because of its violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL.
The temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nad
SO ORDERED.
Fernan (C.J.), Narvasa, Gutierrez, Jr., Paras, Gancayco Padilla, Bidin, Sarmiento, Grio-Aquino,
Medialdea and Regalado, JJ., concur.
Melencio-Herrera, J., In the result. In Dumlao v. COMELEC, 95 SCRA 392 (1980), a portion of the
second paragraph of section 4 of Batas Pambansa Blg. 52 was declared null and void for being
unconstitutional.
Feliciano, J., is on leave.
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER
MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV
No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135.
The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No.
84197) was dismissed but in all other respects the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay
plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum compounded
monthly; plus 15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until
full payment is made; plus P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred additional miscellaneous
expenses aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is
further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana
the other half, the amount of Pl84,878.74 with interest from the filing of the cross-complaints
until the amount is fully paid; plus moral and exemplary damages in the amount of P184,878.84
with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and
exemplary damages in the amount of P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants
Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is
required to indemnify the defendants Bormaheco and the Cervanteses the amount of
P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate
of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00
as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was filed in good
faith. The fact that the properties of the Bormaheco and the Cervanteses were attached and that
they were required to file a counterbond in order to dissolve the attachment, is not an act of bad
faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary
damages. Furthermore, the rights exercised were provided for in the Rules of Court, and it was
the court that ordered it, in the exercise of its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for
it only secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would
be liable for damages in performing an act which is clearly within its power and which is the
reason for its being, then nobody would engage in the insurance business. No further claim or
counter-claim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-
16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator
of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a
sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-3
Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as
surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal,
Lim, for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed
some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be
their contributions to a new corporation proposed by Lim to expand his airline business. They executed
two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana
and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and
hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of
having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors
and assigns, all sums and amounts of money which it or its representatives should or may pay or cause
to be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as
deed of chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated
therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly
registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No.
776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the
surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff
of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-
owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary
attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that
they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for
being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase
of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's
complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against
all the defendants was dismissed. In all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE
APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY
COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE
JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT
FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo
- G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk
of liability under the surety bond in favor of JDA and subsequently collected the proceeds of
such reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts
to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28
from defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute
the instant action as it does not stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from
defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present
any evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an
action for and in behalf of the latter. To qualify a person to be a real party in interest in whose
name an action must be prosecuted, he must appear to be the present real owner of the right
sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has
been held that the real party in interest is the party who would be benefited or injured by the
judgment or the party entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88
Phil. 125, 131). By real party in interest is meant a present substantial interest as distinguished
from a mere expectancy or a future, contingent, subordinate or consequential interest (Garcia v.
David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers
v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in
interest as it has already been paid by the reinsurer the sum of P295,000.00 the bulk of
defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer,
the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine,
realizing the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the
sum of P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent
that plaintiff has been overpaid in the amount of P33,383.72 considering that the total amount it
had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants
the amount in excess of P298,666.28 would be tantamount to unjust enrichment as it has already
been paid by the reinsurance company of the amount plaintiff has paid to JDA as surety of
defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled is the rule that no person
should unjustly enrich himself at the expense of another (Article 22, New Civil Code). (Rollo-
84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was
paid by its reinsurer in the aforesaid amount, as this matter has never been raised by any of the parties
herein both in their answers in the court below and in their respective briefs with respondent court; (Rollo,
p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the respondents had
any interest in the matter since the reinsurance is strictly between the petitioner and the re-insurer pursuant
to section 91 of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to
recover from respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is not
applicable considering that whatever amount he would recover from the co-indemnitor will be paid to the
reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money was never raised by
the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so much of its obligations
to JDA as has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still any claim against
defendants, considering the amount it has realized from the sale of the mortgaged properties?
(Record on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in
favor of JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with
the said amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that
on this score it no longer has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants
for the amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to
the latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety
Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is
representing the reinsurers to recover the amount.' In other words, insofar as the amount paid
to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has
no right to institute and maintain in its own name an action for the benefit of the reinsurers. It is
well-settled that an action brought by an attorney-in-fact in his own name instead of that of the
principal will not prosper, and this is so even where the name of the principal is disclosed in the
complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action
must be prosecuted in the name of the real party in interest.' This provision
is mandatory. The real party in interest is the party who would be benefitted
or injured by the judgment or is the party entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a real
party in interest, that there is no law permitting an action to be brought by
an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484;
Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial
Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured portion of what it paid to JDA is the difference
between the two amounts, or P3,666.28. This is the amount for which Pioneer may sue
defendants, assuming that the indemnity agreement is still valid and effective. But since the
amount realized from the sale of the mortgaged chattels are P35,000.00 for one of the airplanes
and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid by
P33,383.72. Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp.
360-363).
The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering
this admitted payment, the only issue that cropped up was the effect of payment made by the reinsurers
to the petitioner. Therefore, the petitioner's argument that the respondents had no interest in the
reinsurance contract as this is strictly between the petitioner as insured and the reinsuring company
pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are
acquired in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time
Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general applicable to actions
or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126
GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101
Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court
of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed subrogated to the rights of the insured against
the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the
aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision,
the real party in interest with regard to the portion of the indemnity paid is the insurer and not
the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint
as against the respondents for the reason that the petitioner was not the real party in interest in the
complaint and, therefore, has no cause of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have
been dismissed on the premise that the evidence on record shows that it is entitled to recover from the
counter indemnitors. It does not, however, cite any grounds except its allegation that respondent
"Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its
finding that the counter-indemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective
after the execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to
issue the bond provided that the same would be mortgaged to it, but this was not possible
because the planes were still in Japan and could not be mortgaged here in the Philippines. As
soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer
Insurance to cover the bond, and this indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have impaired and
rendered insufficient the security under the chattel mortgage and there is thus no other
sufficient security for the claim sought to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is no other security for the
claim sought to be enforced by this action, which necessarily means that the indemnity
agreement had ceased to have any force and effect at the time this action was instituted. Sec 2,
Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes
and spare parts, no longer has any further action against the defendants as indemnitors to
recover any unpaid balance of the price. The indemnity agreement was ipso jure extinguished
upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be
entitled to be subrogated to the right of Pioneer should they make payments to the latter. Articles
2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of foreclosure
precludes any further action to recover any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer
as surety having made of the payments to JDA, the alternative remedies open to Pioneer were
as provided in Article 1484 of the New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial
foreclosure and the instant suit. Such being the case, as provided by the aforementioned
provisions, Pioneer shall have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance
Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the contention that
Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of
JDA as vendor, having subrogated it in such rights. Nor may the application of the provision be
validly opposed on the ground that these defendants and defendant Maglana are not the vendee
but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov.
20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates
discharged these defendants from any liability as alleged indemnitors. The change of the
maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru novations
thus discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three months interval
installments, the first of which shall be due and payable 25 August 1965, the
remainder of which ... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and payable 26th May
1967.
However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim
and JDA, modifying the maturity dates of the obligations, as follows:
The principal hereof shall be paid in eight equal successive three month interval
installments the first of which shall be due and payable 4 September 1965, the
remainder of which ... shall be due and payable on the 4th day ... of each succeeding
months and the last of which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates
different from that fixed in the aforesaid memorandum; the due date of the first installment
appears as October 15, 1965, and those of the rest of the installments, the 15th of each
succeeding three months, that of the last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates, effected twice, were
done without the knowledge, much less, would have it believed that these defendants Maglana
(sic). Pioneer's official Numeriano Carbonel would have it believed that these defendants and
defendant Maglana knew of and consented to the modification of the obligations. But if that were
so, there would have been the corresponding documents in the form of a written notice to as
well as written conformity of these defendants, and there are no such document. The
consequence of this was the extinguishment of the obligations and of the surety bond secured
by the indemnity agreement which was thereby also extinguished. Applicable by analogy are
the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553,
563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty The mere failure on the part of the creditor to
demand payment after the debt has become due does not of itself constitute any
extension time referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v.
Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to recover from these defendants, as
supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety
 bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or
SAL on every installment, released Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the
indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from
his co-debtors if such payment is made after the obligation has prescribed or became
illegal.
These defendants are entitled to recover damages and attorney's fees from Pioneer and its
surety by reason of the filing of the instant case against them and the attachment and
garnishment of their properties. The instant action is clearly unfounded insofar as plaintiff drags
these defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No.
84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose agreement was to do
business through the corporate vehicle but who failed to incorporate the entity in which they had
chosen to invest? How are the losses to be treated in situations where their contributions to the
intended 'corporation' were invested not through the corporate form? This Petition presents
these fundamental questions which we believe were resolved erroneously by the Court of
Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure of respondents
Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto
partnership among them was created, and that as a consequence of such relationship all must share in
the losses and/or gains of the venture in proportion to their contribution. The petitioner, therefore, questions
the appellate court's findings ordering him to reimburse certain amounts given by the respondents to the
petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total
amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the
cross-complaints until the amount is fully paid. Defendant Lim should pay one-half of the said
amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is
established in the records that defendant Lim had duly received the amount of Pl51,000.00 from
defendants Bormaheco and Maglana representing the latter's participation in the ownership of
the subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred
additional expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the stockholders in a defectively
incorporated association should be governed by the supposed charter and the laws of the state
relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A.
121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form
a corporation and who carry on business under the corporate name occupy the position of
partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus,
where persons associate themselves together under articles to purchase property to carry on a
business, and their organization is so defective as to come short of creating a corporation within
the statute, they become in legal effect partners inter se, and their rights as members of the
company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond
Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain
persons associated themselves as a corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation, and two of them contracted to pay a third
the difference in the proportionate value of the land conveyed by him, and no stock was ever
issued in the corporation, it was treated as a trustee for the associates in an action between
them for an accounting, and its capital stock was treated as partnership assets, sold, and the
proceeds distributed among them in proportion to the value of the property contributed by each
(Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not necessarily exist, for
ordinarily persons cannot be made to assume the relation of partners, as between themselves,
when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6
S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to
do justice between the parties; thus, one who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation, so as to be
liable as such in an action for settlement of the alleged partnership and contribution (Ward v.
Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other
stockholders, who were also directors, will not be implied in the absence of an agreement, so
as to make the former liable to contribute for payment of debts illegally contracted by the latter
(Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear
during the pretrial despite notification. In his answer, the petitioner denied having received any amount
from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court,
however, found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing
the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes
and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru
the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with the respondents
despite his representations to them. This gives credence to the cross-claims of the respondents to the
effect that they were induced and lured by the petitioner to make contributions to a proposed corporation
which was never formed because the petitioner reneged on their agreement. Maglana alleged in his cross-
claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to
expand his airline business. Lim was to procure two DC-3's from Japan and secure the
necessary certificates of public convenience and necessity as well as the required permits for
the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00
for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes,
likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about
August 9,1965, promised to incorporate his airline in accordance with their agreement and
proceeded to acquire the planes on his own account. Since then up to the filing of this answer,
Lim has refused, failed and still refuses to set up the corporation or return the money of Maglana.
(Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and
third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase
two airplanes and spare parts from Japan which the latter considered as their lawful contribution
and participation in the proposed corporation to be known as SAL. Arrangements and
negotiations were undertaken by defendant Lim. Down payments were advanced by defendants
Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the
agreement among the defendants, defendant Lim in connivance with the plaintiff, signed and
executed the alleged chattel mortgage and surety bond agreement in his personal capacity as
the alleged proprietor of the SAL. The answering defendants learned for the first time of this
trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage
(sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the
form of third party claim. Notwithstanding repeated oral demands made by defendants
Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes
and their accessories and or return the amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored,
omitted and refused to comply with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was
created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., took no part.