Philippine Stock Exchange vs Court of Appeals

FACTS OF THE CASE:

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was granted
permission by the Securities and Exchange Commission (SEC) to sell its shares to the public in order
for PALI to develop its properties.

PALI then asked the Philippine Stock Exchange (PSE) to list PALI’s stocks/shares to facilitate
exchange. The PSE Board of Governors denied PALI’s application on the ground that there were
multiple claims on the assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the
Marcoses), and some other corporations were claiming assets if not ownership over PALI.

PALI then wrote a letter to the SEC asking the latter to review PSE’s decision. The SEC reversed
PSE’s decisions and ordered the latter to cause the listing of PALI shares in the Exchange. SEC ruled in
favor of PALI affirmed by the CA ordering PSE to list the shares of PALI in the stock exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.

HELD:
Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to the
Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE, as a
corporation itself and as a stock exchange is subject to SEC’s jurisdiction, regulation, and control. In
order to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC has
the authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say as to
whether or not securities, including shares of stock of a corporation, may be traded or not in the stock
exchange.

HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse
decisions issued by the PSE if such are tainted with bad faith. In this case, there was no showing that
PSE acted with bad faith when it denied the application of PALI. Based on the multiple adverse claims
against the assets of PALI, PSE deemed that granting PALI’s application will only be contrary to the
best interest of the general public. It was reasonable for the PSE to exercise its judgment in the manner
it deems appropriate for its business identity, as long as no rights are trampled upon, and public welfare
is safeguarded.

Doctrine applicable:
Business judgment rule- whereby the SEC and the courts are barred from intruding into business
judgments of corporations, when the same are made in good faith. The said rule precludes the reversal
of the decision of the PSE to deny PALI’s listing application, absent a showing of bad faith on the part
of the PSE. Under the listing rules of the PSE, to which PALI had previously agreed to comply, the
PSE retains the discretion to accept or reject applications for listing. Thus, even if an issuer has
complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject the
issuer’s listing application if the PSE determines that the listing shall not serve the interests of the
investing public.