SECOND DIVISION

[G.R. No. 132358. April 12, 2002.]

MILA YAP SUMNDAD, petitioner, vs. JOHN WILLIAM
HARRIGAN and BORACAY BEACH CLUB HOTEL, INC.,
(BBCHI), respondent.

Stephen C. Arceno for petitioner.

Enrique M. Belo for Boracay Beach Club Hotel, Inc.
Meer Meer and Meer and Fortun Narvasa & Salazar for respondent Harrigan.

SYNOPSIS
Respondent Harrigan filed a collection case against respondent
corporation for P8,000,000.00 representing the corporation's loans or
advances. Harrigan amended his complaint to state that respondent
corporation disposed of and continues to actually dispose of corporate
properties and funds "in fraud of its creditors." Petitioner, claiming
ownership of the property, filed an urgent motion for leave to intervene.
Petitioner's motion was granted, but instead of filing a complaint or an
answer in intervention, moved to dismiss the amended complaint. When
the same was denied, petitioner filed several motions for additional time to
answer. She, however, failed to file the same and was subsequently
declared as in default. Trying to regain her standing, petitioner filed several
motions and pleading but without moving to lift the order of default.
Meanwhile, Harrigan moved to execute the judgment, which the trial court
granted. Petitioner then raised the issue to the Court of Appeals by way of
a petition for certiorari, prohibition and mandamus. The petition was
dismissed and his motion for reconsideration was denied. Hence, this
petition for review on certiorari. Petitioner claimed that the trial court had
no jurisdiction over the case being an intra-corporate dispute with the
allegation of "in fraud of creditors" in the amended complaint.
It was held that the jurisdiction of courts are conferred by law and
determined by the allegations in the complaint; that the allegation in the
complaint seeking the collection of advances or loans from the corporation
falls within the jurisdiction of the Regional Trial Court; that intra-corporate
disputes, under the provision of Republic Act No. 8799, falls within the
jurisdiction of Regional Trial Courts and no longer the Securities and
Exchange Commission; and that certiorari is not a substitute for lost
appeal.

SYLLABUS

1. REMEDIAL LAW; ACTIONS; JURISDICTION OVER SUBJECT MATTER,

CONFERRED BY LAW AND DETERMINED BY ALLEGATIONS IN COMPLAINT. The
rule is that jurisdiction over the subject matter of the case is conferred by law
and determined by the allegations of the complaint. Therefore, to resolve the
issue raised to us, an interpretation and application of the law on jurisdiction,
must be made vis--vis the averments of the petitioner's complaint.
2. ID.; ID.; ID.; CASE AT BAR. Now, from the averments of the amended
complaint filed with the trial court as quoted above, Harrigan seeks to collect
from BBCHI his advances or loans in the amount of at least P8 million, which
are demandable in character pursuant to their agreement, including interest at
20% per annum accruing from September 1, 1990. The cause of action of the
suit is, clearly, for the collection of a sum of money.
3. ID.; ID.; COMPLAINT; ALLEGATION OF "FRAUD OF CREDITORS" CAN ONLY
MEAN "TO THE PREJUDICE OF CREDITORS"; CASE AT BAR. In Alleje vs. CA,
"fraud" is defined as a generic term embracing all multifarious means which
human ingenuity can devise, and which are resorted to by one individual to
secure an advantage over another by false suggestions or by suppression of
truth and includes all surprise, trick, cunning, dissembling and any unfair way
by which another is cheated. Within the context of the complaint as quoted
above, the phrase "in fraud of creditors" can only mean, "to the prejudice of
creditors" and not to the use of devises or schemes tantamount to fraud and
misrepresentation employed by the Board of Directors, business associates or
its officers and partners to divert corporate funds and assets for personal use,
as contemplated in Section 5 of PD 902-A. TCDcSE
4. ID.; ID.; INTRA-CORPORATE DISPUTES, NOW UNDER THE JURISDICTION OF
THE REGIONAL TRIAL COURTS. Equally unavailing is petitioner's contention
that the case involves an intra-corporate controversy, or one between the
corporation and its stockholder transposing it within the domain of the SEC. It
should be noted that the issue has become moot and academic because
with Republic Act No. 8799, Securities Regulation Code, it is now the Regional
Trial Court and no longer the SEC that has jurisdiction. Under Section 5.2
of Republic Act No. 8799, original and exclusive jurisdiction to hear and decide,
cases involving intra-corporate controversies have been transferred to a court
of general jurisdiction or the appropriate Regional Trial Court.
5. ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES AND TRIBUNALS, WITH
LIMITED JURISDICTION. Foregoing given, Harrigan's complaint against
petitioner to recoup his financial exposure with BBCHI was properly lodged with
the regular court and not with the SEC. This view is in accord with the
rudimentary principle that administrative agencies, like the SEC, are tribunals
of limited jurisdiction and, as such, could wield only such powers as are
specifically granted to them by their enabling statutes.
6. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; NOT A SUBSTITUTE
FOR LOST OR LAPSED APPEAL. Given our disquisition that the complaint for
sum of money was instituted with the proper court, petitioner's remedy before
the appellate court should have been a timely appeal and not certiorari.
Therefore, the appellate court was correct in dismissing petitioner's petition
for certiorari for being time-barred. Indeed, certiorari cannot be used as a
substitute for lost or lapsed remedy of appeal, especially if such loss was
occasioned by one's own neglect or error in the choice of remedies. As long as
a court acts within its jurisdiction, any alleged errors committed in the exercise

of its jurisdiction will amount to nothing more than errors of judgment

reviewable by timely appeal and not by a special civil action of certiorari.

or loans to said defendant, which as of October 2,

1990, already amounted to P1,000,000.00 . . .

7. ID.; SUPREME COURT; NOT A TRIER OF FACTS. Neither does petitioner's

last assigned error merit our consideration, as any discussion on this issue of
"personality" is merely academic. As earlier stated, whether or not petitioner
has the personality to question the RTC order against BBCHI is a matter that
should have been properly threshed out in an appeal filed with the CA. By
allowing said order to become final and executory without interposing an
appeal and by having incorrectly availed of the extraordinary remedy
of certiorari, we can no longer, at this late hour, deal on this issue. We hasten
to add that this issue requires delving into the facts of the case. Basic is the
rule that this court is not a trier of facts. HCSEcI

5. Plaintif continued to give advances to defendant BBCHI to

complete the construction of the buildings and
facilities of the Boracay Beach Club Hotel resort,
which advances or loans was determined to be at
least P8,000,000.00. Said loans, which are
demandable in character and subject to interest of
20% per annum accruing from September 1, 1990,
are to be serviced and paid by defendant
BBCHI. SaIACT

DECISION

QUISUMBING, J p:
This petition for review on certiorari seeks to annul and set aside the decision
promulgated on October 1, 1997, by the Court of Appeals, affirming the
decision of the Regional Trial Court of Makati, Branch 61, which ruled in favor of
respondent John William Harrigan, ordering respondent Boracay Beach Club
Hotel Inc. to pay P8 million plus interest, attorney's fees and costs.
The facts of this case disclose that on February 6, 1995, Harrigan filed a
complaint docketed as Civil Case No. 95-223 for collection of a sum of money
with prayer for preliminary attachment with the RTC Makati against respondent
BBCHI. 1
Harrigan prayed for the issuance of a writ of preliminary attachment pending
the hearing of the case, which was granted by the trial court on March 2, 1995,
after he posted an attachment bond of P2 million. 2
On March 6, 1995, Harrigan filed an amended complaint 3 impleading the
management committee of BBCHI through its acting chairman, Corazon T. Tirol.
The following material facts were alleged in the complaint, as amended: 4
xxx xxx xxx
3. Pursuant to a joint venture agreement between plaintif
and one Mila Yap-Sumndad, a Filipino and alleged
owner of a 3,000 sq. m. land in Boracay, Aklan, to
establish and develop a first-class tourist resort on
said land which was assigned to defendant BBCHI,
plaintif invested in, and paid P1 Million for 8,000
shares of defendant corporation corresponding to
40% of its authorized capital stock.
4. To finance the construction of new buildings and the
acquisition of furniture, equipment and other
facilities of said resort, called Boracay Beach Club
Hotel and owned by BBCHI, plaintif gave advances

xxx xxx xxx

9. Considering that as of September 1994, defendant has
failed to service and pay, not only its abovementioned demand able loans but even the accrued
interests thereon which, as of December 31, 1994,
already amounted to P393,451.07, plaintif through
his counsel demanded from defendant, through its
officer and SEC-appointed manager, for settlement of
the latter's said unpaid obligations.
10. Despite
plaintif's foregoing written
demands
for
payment of its due obligations, the defendant has
refused and failed to do so. 5
The trial court admitted the amended complaint and issued an amended order
for the issuance of writ of attachment. 6
On March 29, 1995, petitioner Mila Yap Sumndad filed an "Urgent Motion for
Leave to Intervene with Prayer for Status Quo Order and/or Suspension"
praying that she be allowed to intervene either as plaintif or defendant. 7 The
trial court granted said motion on June 8, 1995 and gave petitioner ten days to
file either a complaint or an answer in intervention. 8

Instead of filing an answer, petitioner moved to dismiss the amended

complaint based on the following grounds: (1) forum shopping; (2) lack of
jurisdiction; (3) failure to state a cause of action; and (4) litis pendentia. 9 This
was denied by the RTC in its order dated October 17, 1995. 10 Thereafter,
Sumndad filed 6 motions for additional time to file an answer. 11
Upon motion of Harrigan, petitioner was declared in default on March 21, 1996,
for failure to answer within the reglementary period and the trial court
proceeded with the ex-parte presentation of evidence. 12
On April 18, 1996, Harrigan filed a Motion for Judgment on the Pleadings. 13
On several occasions, petitioner attempted to regain her standing in court by
filing numerous pleadings and motions. On October 1, 1996, the trial court
resolved her motions in this wise: HCaEAT
A scrutiny of the entire records of this case show that
Intervenor MILA YAP SUMNDAD, for failure to file COMPLAINT
or ANSWER IN INTERVENTION, was declared in default per
Order of 21 March 1996 and received by counsel for

Intervenor on 10 May 1996, and subsequent thereto

Intervenor MILA YAP SUMNDAD filed the following pleadings,
to wit:
1. Manifestation and Opposition to Motion for Judgment on
the Pleadings filed on 20 May 1996;
2. Motion to Suspend Proceedings filed on 28 May 1996;
3. Supplement to the Opposition to Motion for Judgment on
the Pleadings with Manifestation to file Motion to Lift Order of
Default filed on 17 June 1996;
4. Supplement to "Motion to Suspend Proceedings" on
ground of Prejudicial Question and Forum Shopping;
5. Motion to Consolidate Above-Entitled Case with Civil Case
No. 4847 of the RTC, Branch 7, Kalibo, Aklan filed on 03
September 1996.
The records likewise show that Intervenor MILA YAP
SUMNDAD despite its Supplement to the Opposition to
Motion for Judgment on the Pleadings with Manifestation to
file Motion to Lift Order of Default filed on 17 July
1996 (Italics ours) has not, until now, filed the necessary
motion to lift Order of Default, dated 21 March 1996.
In view of the foregoing, and the Order of 21 March 1996
declaring Intervenor MILA YAP SUMNDAD [in default,] not
having been lifted, Intervenor has no standing in court, or
considered out of court, and consequently can no longer
appear herein, or expect her pleadings to be acted upon.
(citation omitted) 14
On the same date, the trial court, acting on Harrigan's motion for judgment on
the pleadings, decreed: HDAaIc
A perusal of the ANSWERS filed by the defendants in this
case for a SUM OF MONEY evidently failed to tender an issue
and therefore, pursuant to Section 1, Rule 19, Rules of Court,
JUDGMENT ON THE PLEADINGS is hereby rendered in favor of
plaintif and as against defendant BORACAY BEACH CLUB
HOTEL, INC. (BBCHI), who is hereby ordered to:
1. PAY plaintif the sum of EIGHT MILLION (P8,000,000.00)
PESOS, Philippine Currency, plus 12% interest per
annum computed from 27 July 1993, until fully paid;
2. PAY attorney's fees in the amount of P200,000.00, plus
appearance fee of P2,000.00 per hearing attended by
the counsel; and to
3. PAY the costs. 15
Not satisfied with the decision, petitioner moved for reconsideration. 16 In the
meantime, Harrigan moved for the execution of judgment. 17 By order dated
March 11, 1997, the trial court denied petitioner's motion for reconsideration
and granted Harrigan's motion for execution of judgment. 18
Thereafter, a writ of execution was issued. 19

On May 7, 1997, petitioner filed with the Court of Appeals, a petition

for certiorari, prohibition and mandamus, docketed as CA-G.R. SP No.
44088. 20 On October 1, 1997, the CA dismissed the petition for lack of
merit. 21
Petitioner again moved for reconsideration. This, too, was denied in a
resolution dated January 21, 1998. 22
Hence this petition for review on certiorari ascribing the following errors to the
appellate court below:
I
THE COURT OF APPEALS, SIXTH DIVISION HAS SO FAR
SANCTIONED THE ERRONEOUS EXERCISE OF JURISDICTION
BY THE REGIONAL TRIAL COURT, MAKATI BRANCH 61
OVERCIVIL CASE NO. 95-223, FILED BY PRIVATE RESPONDENT
JOHN HARRIGAN, AGAINST BORACAY BEACH CLUB HOTEL
INC., OF WHICH HE ALLEGES TO BE A STOCKHOLDER (40%)
FOR COLLECTION OF A SUM OF MONEY, BASED ON ALLEGED
FRAUD, WHICH IS A SUBJECT MATTER CLEARLY WITHIN THE
ORIGINAL AND EXCLUSIVE JURISDICTION OF THE SECURITIES
AND EXCHANGE COMMISSION, UNDER SEC. 5 PD 902-A. FOR
SUCH CLEAR ERROR OF JURISDICTION CERTIORARI NOT
ORDINARY APPEAL IS THE CORRECT REMEDY. 23
II
THE COURT OF APPEALS HAS CAPRICIOUSLY, GROSSLY AND
PATENTLY ERRED IN HOLDING THAT PETITIONER'S REMEDY IS
APPEAL AND NOT CERTIORARI, WHICH REMEDY WAS LOST
FOR FAILURE TO APPEAL WITHIN THE REGLEMENTARY PERIOD
OF APPEAL, INCONSISTENTLY CATEGORIZING THE ALLEGED
ERRORS
AS
ONE
OF
JUDGMENT
AND
NOT
OFJURISDICTION. 24
III.
THE COURT OF APPEALS HAS ERRONEOUSLY RULED THAT
THE PETITION FOR CERTIORARI HAS BEEN FILED BELATEDLY
COUNTING THE THREE (3) MONTHS PERIOD NOT FROM APRIL
27, 1997 THE DATE OF RECEIPT OF THE DENIAL OF THE
MOTION FOR RECONSIDERATION OF THE JUDGMENT ON THE
PLEADINGS
DATED
OCTOBER
1,
1996
SUBJECT
OFCERTIORARI BUT FROM MARCH 21, 1996, THE DATE OF
THE DENIAL OF THE MOTION FOR RECONSIDERATION OF THE
ORDER DENYING MOTION TO DISMISS. 25
IV.
THE COURT OF APPEALS CLEARLY AND WHIMSICALLY ERRED
IN HOLDING THAT THE PETITIONER LACKS PERSONALITY TO
QUESTION THE DECISION AGAINST BORACAY BEACH CLUB
HOTEL INC. WHICH DECISION DOES NOT CONCERN HER
ALLEGEDLY. 26

The central issue raised in the petition is: Is it the regular court or the
Securities and Exchange Commission (SEC) that has jurisdiction over the
subject matter of the case?
Petitioner insists that it is the SEC that has jurisdiction by virtue of Presidential
Decree No. 902-A (Reorganization of the Securities and Exchange Commission
with Additional Powers) because the complaint alludes to fraud committed by
respondent corporation, and the complainant is a stockholder of the
respondent corporation.
Private respondent, on the other hand, maintains that jurisdiction is lodged
with the regular courts, it being a simple collection case.
The petition is unmeritorious.
First. The rule is that jurisdiction over the subject matter of the case is
conferred
by
law
and
determined
by
the
allegations
of
the
complaint. 27 Therefore, to resolve the issue raised to us, an interpretation
and application of the law on jurisdiction, must be made vis--vis the
averments of the petitioner's complaint.
The law on jurisdiction of the SEC, Section 5 of PD 902-A, states that in addition
to the regulatory and adjudicative functions of the SEC 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 devises or schemes
employed by or any acts of the Board of Directors, business associates, its
officers and partners, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or to the stockholders, partners,
members of associations or organizations registered with the Commission. 28
Now, from the averments of the amended complaint filed with the trial court as
quoted above, Harrigan seeks to collect from BBCHI his advances or loans in
the amount of at least P8 million, which are demandable in character pursuant
to their agreement, 29 including interest at 20% per annum accruing from
September 1, 1990. The cause of action of the suit is, clearly, for the collection
of a sum of money.
However, petitioner interprets said collection complaint as one involving
mainly the issue of fraud committed by respondent corporation, which makes
the controversy fall under the ambit of PD 902-A. The particular portion of the
amended complaint referred to by petitioner states:
14. In so allowing another person to have the absolute and
uncontrolled possession, management, and utilization of the
buildings and facilities of the Boracay Beach Club Hotel
resort without any corresponding financial return or material
benefit therefor, and the misappropriation by said third party
of the income from the operation of the resort business
therein, since July 28, 1994 and up to the present or for a
period of over seven (7) months now, defendant has, in
efect, disposed of and continues to ACTUALLY DISPOSE of
and/or wantonly waste/dissipate said corporate properties
and funds, in fraud of its creditors, which include herein
plaintif. 30
To our mind, from the totality of the complaint filed by Harrigan, the main issue
is whether or not he is entitled to collect the loan and not whether or not he

was defrauded by BBCHI. The mere use of the phrase "in fraud of creditors"
does not, ipso facto, throw the case within SEC's jurisdiction. The amended
complaint filed by Harrigan does not sufficiently allege acts amounting to fraud
and misrepresentation committed by respondent corporation.
In Alleje vs. CA, 31 "fraud" is defined as a generic term embracing
all multifarious means which human ingenuity can devise, and which are
resorted to by one individual to secure an advantage over another by false
suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is cheated.Within the context
of the complaint as quoted above, the phrase "in fraud of creditors" can only
mean, "to the prejudice of creditors" and not to the use of devises or schemes
tantamount to fraud and misrepresentation employed by the Board of
Directors, business associates or its officers and partners to divert corporate
funds and assets for personal use, as contemplated in Section 5 of PD 902A. CaSAcH
Equally unavailing is petitioner's contention that the case involves an intracorporate controversy, or one between the corporation and its stockholder
transposing it within the domain of the SEC. It should be noted that the issue
has become moot and academic because with Republic Act No.
8799, Securities Regulation Code, it is now the Regional Trial Court and no
longer the SEC that has jurisdiction. Under Section 5.2 of Republic Act No.
8799, 32 original and exclusive jurisdiction to hear and decide cases involving
intra-corporate controversies have been transferred to a court of general
jurisdiction or the appropriate Regional Trial Court. 33

Foregoing given, Harrigan's complaint against petitioner to recoup his financial

exposure with BBCHI was properly lodged with the regular court and not with
the SEC. This view is in accord with the rudimentary principle that
administrative agencies, like the SEC, are tribunals of limited jurisdiction and,
as such, could wield only such powers as are specifically granted to them by
their enabling statutes. 34
Given our disquisition that the complaint for sum of money was instituted with
the proper court, petitioner's remedy before the appellate court should have
been a timely appeal and not certiorari. Therefore, the appellate court was
correct in dismissing petitioner's petition for certiorari for being time-barred.
Indeed, certiorari cannot be used as a substitute for lost or lapsed remedy of
appeal, especially if such loss was occasioned by one's own neglect or error in
the choice of remedies. 35 As long as a court acts within its jurisdiction, any
alleged errors committed in the exercise of its jurisdiction will amount to
nothing more than errors of judgment reviewable by timely appeal and not by
a special civil action of certiorari. 36
It is now moot and academic to delve into the third assigned error raised by
petitioner, i.e., that the CA erred in ruling that three month reglementary
period for filing a petition for certiorari has already lapsed.
Neither does petitioner's last assigned error merit our consideration, as any
discussion on this issue of "personality" is merely academic. As earlier stated,
whether or not petitioner has the personality to question the RTC order against
BBCHI is a matter that should have been properly threshed out in an appeal
filed with the CA. By allowing said order to become final and executory without
interposing an appeal and by having incorrectly availed of the extraordinary

remedy of certiorari, we can no longer, at this late hour, deal on this issue. We
hasten to add that this issue requires delving into the facts of the case. Basic is
the rule that this court is not a trier of facts.

FLORENCIO
ORENDAIN, petitioner, vs.
INC., respondent.

WHEREFORE, the instant petition is DENIED for lack of merit and the
challenged decision of the Court of Appeals of October 1, 1997 in CA-G.R. SP
No. 44088 is hereby AFFIRMED. Costs against the petitioner.

BF

HOMES,

DECISION

SO ORDERED.
Bellosillo, Mendoza and De Leon, Jr., JJ., concur
||| (Sumndad v. Harrigan, G.R. No. 132358, April 12, 2002)

VELASCO, JR., J p:
Before us is a Petition for Review on Certiorari praying for the reversal of the
August 18, 2000 Decision and December 6, 2000 Resolution of the Court of
Appeals (CA) in CA-G.R. SP No. 48263 entitledFlorencio B. Orendain v. Hon.
Alfredo R. Enriquez, Presiding Judge of RTC-Br. 275, Las Pias, and BF Homes,
Inc., which affirmed the December 4, 1996 and April 22, 1998 Orders of the Las
Pias RTC finding that said court, not SEC, has jurisdiction over Civil Case No.
LP-96-0022 for reconveyance of the lot covered by TCT No. T-36482 to
respondent BF Homes, Inc. ('BF Homes' for brevity).
BF Homes, Inc. is a domestic corporation operating under Philippine laws and
organized primarily to develop and sell residential lots and houses and other
related realty business. 1
Records show that respondent BF Homes had to avail itself of financial
assistance from various sources to enable it to buy properties and convert
them into residential subdivisions. This resulted in its incurring liabilities
amounting to PhP 1,542,805,068.23 2 as of July 31, 1984. On the other hand,
during its business operations, it was able to acquire properties and assets
worth PhP 2,482,843,358.81 as of July 31, 1984, which, if liquidated, were more
than enough to pay all its creditors. 3
Despite its solvent status, respondent filed a Petition for Rehabilitation and for
Declaration in a State of Suspension of Payments under Section 4 of PD No.
1758 before the Securities and Exchange Commission (SEC) because of the
following:
(a) the predatory acts of the Central Bank of trying to take
over Banco Filipino and hand it cheap to its
unidentified principal and its buyer financing facility
with Banco Filipino has been suspended such that it
cannot now consummate its sales transactions
necessary for it to generate cash to service and/or
liquidate its various maturing obligations;

THIRD DIVISION
[G.R. No. 146313. October 31, 2006.]

(b) the libelous [circulars] made by the Central Bank to banks

under its supervision that its deposit accounts and
other transactions with them were being examined
such that the creditors of [BF Homes] have [begun]
insisting on full liquidation under pain of foreclosure
of their notes . . .; and ACcaET
(c) the [liquidation] of [BF Homes'] assets cannot be made in
such a short time as demanded by its creditors. 4
In the said petition, respondent prayed that in the meantime it was
continuing its business operations it be aforded time to pay its aforesaid

obligations, freed from various proceedings either judicially or extra-judicially

against its assets and properties. Also, respondent highlighted the importance
of and prayed for a Rehabilitation Receiver in the petition. Such receiver,
according to respondent, was "imperative to oversee the management and
operations of [BF Homes] so that its business may not be paralyzed and the
interest of the creditors may not be prejudiced." It further argued that
"rehabilitation [was] feasible and imperative because otherwise, in view of the
extent of its involvement in the shelter program of the government and in the
nation's home mortgage insurance system, which has a secured coverage for
at least P900 M of [BF Homes'] P1.5 B liabilities, not only [the] creditors,
[buyers, and stockholders] of the petitioner corporation may sufer but the
public as well." 5
In SEC Case No. 2693, the SEC subsequently issued its March 18, 1985 Order
which stated:
WHEREFORE, in the interest of the parties-litigants, as well as
the general public, and in order to prevent [paralyzation] of
business operation[s] of the B.F. Homes, Inc., a Management
Committee is hereby created composed of:
1. Atty. Florencio Orendain as Chairman
2. Representative of B. F. Homes, Inc. member
3. Representative of Home Financing Commission member
4. Two (2) representatives from the major creditors
members
xxx xxx xxx
Accordingly, with the creation of the Management
Committee, all actions for claims against B.F. Homes, Inc.
pending before the court, tribunal, board or body are hereby
deemed suspended. 6
Thereafter, on February 2, 1988, the SEC ordered the appointment of a
rehabilitation receiver, FBO Management Networks, Inc., with petitioner
Orendain as Chairman to prevent paralyzation of BF Homes' business
operations. 7
On October 8, 1993, a Deed of Absolute Sale 8 was executed by and between
BF Homes represented by petitioner Orendain as absolute and registered
owner, and the Local Superior of the Franciscan Sisters of the Immaculate
Phils., Inc. (LSFSIPI) over a parcel of land situated at Barangay Pasong Papaya,
BF International, Municipality of Las Pias, Metro Manila, covered by Transfer
Certificate of Title No. T-36482.
The portion of land sold to LSFSIPI was 7,800 square meters, more or less, for
Nineteen Million Five Hundred Thousand Pesos (PhP 19,500,000.00). 9
Meanwhile, on November 7, 1994, the SEC hearing panel released an Omnibus
Order 10 which admitted and confirmed the Closing Report submitted by the
receiver, petitioner Orendain. It further appointed a new Committee of
Receivers composed of the eleven (11) members of the Board of Directors of
BF Homes with Albert C. Aguirre as the Chairman of the Committee.
Consequently, receiver Orendain was relieved of his duties and
responsibilities. DEICHc

In its August 22, 1995 Order, 11 the SEC denied BF Homes' and the intervenorderivative suitor Eduardo S. Rodriguez's motions for reconsideration of its
November 7, 1994 Omnibus Order.
On January 23, 1996, BF Homes filed a Complaint before the Las Pias RTC
against LSFSIPI and petitioner Orendain, in Civil Case No. LP-96-0022, for
reconveyance of the property covered by TCT No. T-36482 alleging, inter
alia, that the LSFSIPI transacted with Orendain in his individual capacity and
therefore, neither FBO Management, Inc. nor Orendain had title to the property
transferred. Moreover, BF Homes averred that the selling price was grossly
inadequate or insufficient amounting to fraud and conspiracy with the LSFSIPI.
BF Homes also stated that the total assessed value of the property was
approximately PhP 802,330.00. Hence, it prayed in the Complaint that LSFSIPI
reconvey the disputed property or, if reconveyance was no longer feasible, pay
the present value of the property. 12
On March 21, 1996, the LSFSIPI filed its Answer with Compulsory
Counterclaim, 13 stating, among others, that (1) the Complaint stated no
cause of action since there was a valid sale with sufficient consideration, and
there was no fraud; (2) it was barred by a prior judgment of a tribunal with
sufficient jurisdiction over the matter, and BF Homes was liable for forum
shopping; and (3) BF Homes could not question its own acts by way of
estoppel.
On June 14, 1996, Florencio B. Orendain filed a Motion to Dismiss stating that
(1) the RTC had no jurisdiction over the reconveyance suit; (2) the Complaint
was barred by the finality of the November 7, 1994 Omnibus Order of the SEC
hearing panel; and (3) BF Homes, acting through its Committee of Receivers,
had neither the interest nor the personality to prosecute the said action, in the
absence of SEC's clear and actual authorization for the institution of the said
suit. 14
On July 15, 1996, BF Homes filed its Opposition 15 to petitioner's Motion to
Dismiss, alleging that the case was within the exclusive jurisdiction of the RTC,
not the SEC, considering that the case was an ordinary reconveyance suit.
Likewise, BF Homes alleged that the cause of action was not barred by the
perceived finality of the SEC November 7, 1994 Omnibus Order, and that the
general powers of a receiver authorized BF Homes to institute actions to
recover the property.
On December 4, 1996, RTC Las Pias, Branch 275 issued an Order denying the
June 14, 1996 Motion to Dismiss for lack of merit. 16
However, on May 8, 1997, the SEC rendered its Order, as follows:
WHEREFORE, premises considered, the decision of the
hearing panel denying the motion for intervention of Mr.
Eduardo Rodriguez is hereby AFFIRMED. The Commission
hereby receives and notes the Closing Report of the
Management Network and the Joaquin Cunanan Audit Report
for inclusion in the records of the case without going into the
merits and veracity of the contents thereof; the order to pay
the attorney's fees of Balgos and Perez is hereby SET ASIDE;
the resolution of the issue on the alleged payment of
receiver's fees of FBO Management Network is hereby
deferred, and the order to pay the additional fees of the
receiver is hereby set aside until after the Commission en

banc finally clears and releases FBO Management Networks

from its accountabilities in accordance with the policies and
orders of the Commission on the receivership. 17
On December 27, 1997, petitioner Orendain filed his Motion for
Reconsideration 18 of the RTC December 4, 1996 Order. Consequently, BF
Homes filed its January 17, 1997 Opposition 19 to Orendain's Motion for
Reconsideration; and on April 22, 1998, the RTC issued an Order denying the
Motion for Reconsideration for lack of merit and petitioner Orendain was
directed to file his answer to the Complaint within ten (10) days from receipt of
the Order. 20
Petitioner then filed his Answer Ex Abudante Ad Cautelam with Compulsory
Counterclaims 21 on May 29, 1998.
On July 13, 1998, petitioner filed before the CA a Petition for Certiorari and
Prohibition with Prayer for the Issuance of a Temporary Restraining Order
and/or Bonded Writ of Preliminary Injunction 22 which sought to annul the RTC
December 4, 1996 and April 22, 1998 Orders, denying petitioner's Motion to
Dismiss and Motion for Reconsideration. Petitioner alleged that these motions
were issued without jurisdiction or with grave abuse of discretion amounting to
lack or in excess of jurisdiction. aSTAcH

The Ruling of the Court of Appeals

In its August 18, 2000 Decision, the CA held that the action for reconveyance
filed by BF Homes was within the exclusive jurisdiction of the RTC. In the
rehabilitation case, the LSFSIPI was not a party to the said case and did not
have any intra-corporate relation with petitioner at the time of the sale. The
SEC could not acquire jurisdiction over the Franciscan Sisters; while petitioner
Orendain was sued in his individual capacity and not in his official capacity as
receiver. 23
Moreover, the CA stated that at the time the assailed orders were issued, the
subject SEC Order had not yet attained finality; that there was no identity
between the first and the second action with respect to the parties; and that
the SEC November 7, 1994 Omnibus Order relied on by Orendain was not a
decision on the merits of BF Homes' Petition for Rehabilitation and for a
Declaration in a State of Suspension of Payments under Sec. 4 of P.D. No. 1758.
According to the CA:
Although this Court is not oblivious to the fact that the
SEC en banc in a Decision dated May 8, 1997, affirmed the
denial of the intervention filed by Rodriguez, still the said
order did not go into the merits of the intervention but
merely refused to give due recognition to the intervention as
it was allegedly "untimely." Therefore, the contention of
petitioner that the principle of res judicata is applicable in
the case at bar does not hold water. 24
The CA ultimately rendered its judgment in this wise:
WHEREFORE, premises considered, the instant petition is
DISMISSED for failure to clearly show grave abuse of
discretion and the assailed orders dated December 4, 1996

and April 22, 1998, are hereby AFFIRMED in toto without

costs to petitioner. 25
Hence, this petition is before us.
The Court's Ruling
Petitioner avers that the CA erred in holding that (1) the complaint a quo is a
simple reconveyance suit and hence, can be heard and tried by the court a
quo; (2) res judicata is inapplicable to the complaint a quo; and (3) the
Committee of Receivers may institute an action against a former receiver
without prior SEC approval. 26
The petition is not meritorious.
Action for Reconvenyance in the RTC Does Not Involve IntraCorporate Dispute
The issue central to this petition is: which has jurisdiction over the action for
reconveyance the RTC or SEC.
Petitioner Orendain argues that it is the SEC that has jurisdiction by virtue
of Presidential Decree No. 902-A since BF Homes' suit was instituted against
him as its former receiver. He also avers that BF Homes' allegations were
nothing more than protestations against the former receiver who entered into
a transaction during BF Homes' regime of rehabilitation; and that the assailed
transaction was consummated at the time the SEC had placed BF Homes under
rehabilitation. Therefore, according to petitioner, the SEC, which appointed the
rehabilitation receiver, has the sole power to decide the issue as to whether
petitioner acted within the scope of the vested authority.
Petitioner also claims that the resolution of the instant controversy depends on
the ratification by the SEC of the acts of its agent, the receiver. Also, he asserts
that for the RTC to insist on hearing and deciding the case below is to dislodge
the appointing body from reviewing, ratifying, confirming, or overruling the
acts of its appointee; and such would constitute undue interference on the
jurisdiction of the SEC by a court of equal jurisdiction. Further, petitioner claims
that the questions of whether the receiver of a company undergoing
rehabilitation acted within the scope of his authority, and whether a
transaction consummated during the rehabilitation proceedings is
impermissible, are matters not within the province of a regular court acting on
an ordinary reconveyance suit. Petitioner avers that the undisputed fact is that
at the time of the said transaction, respondent was operating under
rehabilitation whereby receivership places all matters arising from, incidental,
or connected with the implementation of said rehabilitation proceedings
beyond the jurisdiction of regular courts. In addition, petitioner avers that the
property in question is one of the many properties which formed part of a pool
of assets placed under receivership and that he was the Chairman of the FBO
Management, Inc. the SEC-appointed Rehabilitation Receiver at the time of
the transaction. TaDCEc
WE hold OTHERWISE.
In Speed Distributing Corp. v. CA, we held that:
Jurisdiction over the subject matter is conferred by law. The
nature of an action, as well as which court or body has
jurisdiction over it, is determined based on the allegations
contained in the complaint of the plaintif, irrespective of

whether or not plaintif is entitled to recover upon all or some

of the claims asserted therein. It cannot depend on the
defenses set forth in the answer, in a motion to dismiss, or in
a motion for reconsideration by the defendant (citations
omitted). 27
In the case at bench, the BF Homes' Complaint for reconveyance was filed on
January 23, 1996 against LSFSIPI and Florencio B. Orendain, in Civil Case No.
LP-96-002.
In 1996, Section 5 of PD No. 902-A, 28 which was approved on March 11, 1976,
was still the law in force whereby the SEC still had original and exclusive
jurisdiction to hear and decide cases involving:
b) controversies arising out of intra-corporate or partnership
relations,
between
and among
stockholders,
members, or associates; between any and/or all of
them and the corporation, partnership, or association
of which they are stockholders, members or
associates,
respectively;
and
between
such
corporation, partnership or association and the state
insofar as it concerns their individual franchise or
right to exist as such entity.
Clearly, the controversy involves matters purely civil in character and is
beyond the ambit of the limited jurisdiction of the SEC. As held in Viray v. Court
of Appeals, "[t]he better policy in determining which body has jurisdiction over
a case would be to consider not only [1] the status or relationship of the
parties but also [2] the nature of the question that is the subject of their
controversy." 29
More so, in Speed Distributing Corp., we held that:
The first element requires that the controversy must arise
out of intra-corporate or partnership relations between any
or all of the parties and the corporation, partnership or
association of which they are stockholders, members or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the State insofar
as it concerns their individual franchises. The second
element requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation.
If the nature of the controversy involves matters that are
purely civil in character, necessarily, the case does not
involve an intra-corporate controversy. The determination of
whether a contract is simulated or not is an issue that could
be resolved by applying pertinent provisions of the Civil Code
(citations omitted). 30
However, Section 5 of PD No. 902-A does not apply in the instant case. The
LSFSIPI is neither an officer nor a stockholder of BF Homes, and this case does
not involve intra-corporate proceedings. In addition, the seller, petitioner
Orendain, is being sued in his individual capacity for the unauthorized sale of
the property in controversy. Hence, we find no cogent reason to sustain
petitioner's manifestation that the resolution of the instant controversy

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

We are not persuaded.

There are two (2) aspects to the doctrine of res judicata:

The first, known as "bar by prior judgment," is the efect of a
judgment as a bar to the prosecution of a second action upon
the same claim, demand or cause of action. The second,
known as "conclusiveness of judgment," issues actually and
directly resolved in a former suit cannot again be raised in
any future case between the same parties involving a
diferent cause of action. 32
A case is barred by prior judgment when the following requisites are present:
"(1) the former judgment is final; (2) it is rendered by a court
having jurisdiction over the subject matter and the parties; (3) it is a judgment
or an order on the merits; and (4) there is between the first and second
actions identity of parties, of subject matter, and causes of action." 33
Petitioner asserts that bar by prior judgment exists since the May 8, 1997
Order of the SEC en banc had become final which would efectively preclude
the adjudication of Civil Case No. LP-96-0022.
We DISAGREE.
While the said SEC order denied the motion for intervention filed by intervenor
Eduardo S. Rodriguez, it did not, however, resolve the issues raised in the
motion on the merits. A judgment is "on the merits when it amounts to a
legal declaration of the respective rights and duties of the parties based upon
the disclosed facts (emphasis supplied and citation omitted)." 34 It is apparent
that the SEC order in question merely acknowledged the Closing Report for
inclusion in the records of the case. It did not, however, pass upon the merits
and veracity of the report's contents. As such, it cannot, in any wise, be
considered as an adjudication of the rights and obligations of the parties
relating to the subject matter of the action. ASIDTa
Likewise, it appears that between the first and second actions, there was no
identity of parties, of subject matter, and of cause of action. Hence, res
judicata does not apply in the instant case.
The second type of res judicata is "conclusiveness of judgment." In Francisco v.
Co, this Court elucidated the nature of this principle, thus:
"Conclusiveness of judgment" operates as a bar even if there
is no identity as between the first and second causes of
judgment. Under the doctrine, any right, fact, or matter in
issue directly adjudicated or necessarily involved in the
determination of an action before a competent court in which
judgment is rendered on the merits is conclusively settled by
the judgment therein and cannot again be litigated between
the parties and their privies whether or not the claim,
demand, purpose, or subject matter of the two actions is the
same.
Evidently, "conclusiveness of judgment" may operate to bar
the second case even if there is no identity of causes of
action. The judgment is conclusive in the second case, only
as to those matters actually and directly controverted and
determined, and not as to matters merely involved
therein. 35

A perusal of the SEC case would show that reconveyance of the property in
controversy was neither an issue nor a relief sought by any party in the SEC
proceedings. Evidently, the SEC November 7, 1994 Omnibus Order did not
mention any reconveyance of property. 36
Eduardo S. Rodriguez, the intervenor in the SEC case, did not demand the
reversion of the disputed property precisely because the SEC has no
jurisdiction over the action for reconveyance. Assuming, arguendo, that
intervenor Rodriguez raised the issue on the validity of petitioner's acts in his
capacity as receiver, still, the SEC November 7, 1994 Omnibus Order did not
delve into the merits of the intervention nor did the order give due course to
the intervention as it was untimely.
Thus, there is no "conclusiveness of judgment" as the reconveyance of the lot
sold to LSFSIPI was not directly decided or necessarily involved and
adjudicated in the said SEC order.
Furthermore, petitioner argues that the Committee of Receivers should have
sought prior clearance from the SEC before instituting the action for
reconveyance before the RTC, because it does not have the legal capacity to
sue. This is incorrect. One of the general powers of a receiver under Rule 59,
Section 6 of the Rules of Court is the power to bring and defend suits in such
capacity.
Petitioner also contends that an action filed by a successor-receiver against
him as predecessor-receiver is not allowed under Rule 59, Section 6 without
leave of court which appointed him; as Section 6 provides that "no action may
be filed by or against a receiver without leave of the court which appointed
him." This is bereft of merit.
The rule talks of the current receiver of the company and not the previous
receiver like petitioner Orendain. The reason behind Rule 59, Section 6, which
requires leave of court for all suits by or against the present receiver, is to
forestall any undue interference with the receiver's performance of duties
through improvident suits. Apparently, such situation cannot apply to Orendain
who is no longer BF Homes' receiver.
Moreover, the instant petition has been rendered moot and academic by the
passage of RA 8799 or The Securities Regulation Code which took efect on
August 8, 2000. 37
Section 5.2 of RA 8799 transferred exclusive and original jurisdiction of the SEC
over actions involving intra-corporate controversies to the courts of general
jurisdiction or the appropriate RTC. In the transition, all intra-corporate cases
pending in the SEC, which were not ripe for adjudication as of August 8, 2000,
were turned over to the RTC. Congress thereby recognized the expertise and
competence of the RTC to take cognizance of and resolve cases involving intracorporate controversies. Thus, "whether or not the issue is intra-corporate, it is
now the [RTC] and no longer the SEC that takes cognizance of [and resolves
cases involving intra-corporate controversies]." 38
Section 5.2 of RA 8799 explicitly provides:
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
payment/rehabilitation cases filed as of 30 June 2000
until finally disposed (emphasis supplied). AEIHCS
Subsequently, on January 23, 2001, the Supreme Court issued
Supplemental Administrative Circular No. 8-01 which ordered that efective
March 1, 2000, "all SEC cases originally assigned or transmitted to the regular
RTC shall be transferred to the branches of the regular RTC specially
designated to hear such cases in accordance with AM No. 00-11-03-SC."
During the Bicameral Conference Committee's discussions on the conflicting
provisions of Senate Bill No. 1220 and House Bill No. 8015 on the
"Amendments to the Securities, Regulations and Enforcement Act," former
Senator Raul S. Roco rendered his report, 39 as follows:
The first major departure is as regards the Security Exchange
Commission. The Securities and Exchange Commission has
been authorized under this proposal to reorganize itself. As
an administrative agency, we strengthened it and at
the same time we take away the quasi-judicial
functions. The quasi-judicial functions are now given
back to the courts of general jurisdiction the
Regional Trial Court, except for two categories of
cases (emphasis supplied).
In case of corporate disputes, only those that are now
submitted for final determination of the SEC will remain with
the SEC. So, all those cases, both memos of the plaintif and
defendant, that have been submitted for resolution will
continue. At the same time, cases involving rehabilitation,
bankruptcy, suspension of payments and receiverships that
were filed before June 30, 2000 will continue with the SEC. In
other words, we are avoiding the possibility, upon approval of
this bill, of people filing cases with the SEC, in a manner of
speaking, to select their court.
. . . It is only right now with this bill that we clarify the
independent functions, not only in terms of monetary polity,
by giving it to the Monetary Board, but in matters of
commerce and securities and capital formation, by giving
them to the [SEC], with sufficient powers to monitor and
regulate capital formation in the Philippines.
That is the first major departure . . . in terms of the powers
and responsibilities of the [SEC]. In registration of securities,
exempt transactions [and exempt securities], these are very
technical and there are modifications . . . The registration
and monitoring of securities are basically the same as the old
law.
Pre-need plans . . . remain with the SEC. Originally we
wanted the SEC to concentrate on commerce, corporations

and the securities regulation, but pre-need plan[s] under the

Senate report was really with the SEC and under the House
report, it was recommended to remain with the SEC without
prejudice to a subsequent law if we should decide to do so to
have the pre-need plans transferred to the Office of the
Insurance Commissioner. . . .
Thus, it is unequivocal that the jurisdiction to try and decide cases originally
assigned to the SEC under Section 5 of PD 902-A has been transferred to the
RTC. For clarity, we quote those cases under Section 5, PD 902-A, which now
fall within the RTC's jurisdiction, as follows:
(a) Devices or schemes employed by or any acts of the board
of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation
which may be detrimental to the interest of the
public and/or stockholders, partners, members of
associations registered with the Commission;

(b) Controversies arising out of intra-corporate or partnership

relations,
between
and among
stockholders,
members, or associates; between any or all of them
and the corporation, partnership or association and
the State insofar as it concerns their individual
franchise or right as such entity;
(c) Controversies in the election or appointment of directors,
trustees, officers or managers of such corporations,
partnerships, or associations; ACEIac
(d) Petitioners of corporations, partnerships or associations to
be declared in the state of suspension of payment in
cases where the corporation, partnership or
association possesses sufficient property to cover all
its debts but foresees the impossibility of meeting
them when they fall due or in cases where the
corporation, partnership or association has no
sufficient assets to cover its liabilities but is under
the management of a rehabilitation receiver or
management committee created pursuant to this
Decree.
The remaining powers and functions of the SEC are enumerated in Section 5
of RA 8799, to wit:
Powers and Functions of the Commission. [5.1] The
Commission shall act with transparency and shall have the
powers and functions provided by this Code, Presidential
Decree No. 902-A, the Corporation Code, the Investment
Houses Law, the Financing Company Act and other existing
law[s]. Pursuant thereto the Commission shall have, among
others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations,
partnerships or associations who are the grantees of

primary franchises and/or a license or permit issued

by the Government;
(b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress
and other government agencies on all aspects of the
securities marker and propose legislation and
amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments
to registration statements, and registration and
licensing applications;
(d) Regulate, investigate and supervise the activities of
persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of
exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and the rules,
regulations and orders issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations, and
orders, and issue opinions and provide guidance on
and supervise compliance with such rules,
regulations and orders;
(h) Enlist the aid and support of and/or deputize any and all
enforcement agencies of the Government, civil or
military as well as any private institution,
corporation, firm, associations or person in the
implementation of its powers and functions under
this Code;
(i) Issue cease and desist orders to prevent fraud or injury to
the investing public;
(j) Punish for contempt of the Commission, both direct and
indirect, in accordance with the pertinent provisions
of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or
association to call meetings of stockholders or
members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to
appear in any proceedings of the Commission and in
appropriate cases, order the examination, search and
seizure of all documents, papers, files and records,
tax returns, and books of accounts of any entity or
person under investigation as may be necessary for
the proper disposition of the cases before it, subject
to the provision of existing laws; SCHATc
(m) Suspend, or revoke, after notice and hearing the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the
grounds provided by law; and

(n) Exercise such other powers as my be provided by law as

well as those which may be implied from, or which
are necessary or incidental to the carrying out of, the
express powers granted the Commission to achieve
the objectives and purposes of these laws.
Juxtaposing the jurisdiction of the RTC under RA 8799 and the powers that were
retained by the SEC, it is clear that the SEC retained its administrative,
regulatory, and oversight powers over all corporations, partnerships, and
associations who are grantees of primary franchises, and/or a license or permit
issued by the Government. However, theSecurities Regulations Code (SRC) is
clear that when there is a controversy arising out of intra-corporate relations,
between and among stockholders, members or associates, and between, any,
or all of them and the corporation, it is the RTC, not SEC, which has jurisdiction
over the case.
Thus, when the complaint involves "an active antagonistic assertion of a legal
right on one side and a denial thereof on the other concerning a real, and not a
mere theoretical question or issue," 40 a cause of action involving a delict or
wrongful act or omission committed by a party in violation of the primary right
of another, 41 or an actual controversy involving rights which are legally
demandable or enforceable, 42 the jurisdiction over this complaint is lodged
with the RTC but not the SEC.
The passage of RA 8799 has put to rest petitioner Orendain's claim that it is
the SEC and not the RTC that has jurisdiction over Civil Case No. LP-96-0022. At
present, the instant petition has nothing to stand on and perforce must fail.
WHEREFORE, the August 18, 2000 Decision and December 6, 2000 Resolution
of the Court of Appeals in CA-G.R. SP No. 48263 is hereby AFFIRMED IN TOTO.
SO ORDERED.
Quisumbing, Carpio, Carpio Morales and Tinga, JJ., concur.
||| (Orendain v. BF Homes, Inc., G.R. No. 146313, October 31, 2006)

Each of the following events and occurrences shall constitute

an Event of Default ("Event of Default") under this
Agreement:
a) the BORROWER fails to make payment when due and
payable of any amount he is obligated to pay under this
Agreement;
b) the BORROWER fails to mortgage in favor of the LENDER
real property sufficient to cover the amount of the LOAN. 4
As petitioner failed to pay the installments as they became due, respondent,
apparently in answer to a proposal of petitioner respecting the settlement of
the loan, advised him by letter dated July 15, 1998 that he may use his
retirement benefits in Sky Vision in partial settlement of his loan after he
settles his accountabilities to the latter and gives his written instructions to it
(Sky Vision). 5

THIRD DIVISION
[G.R. No. 153886. January 14, 2004.]
MEL V. VELARDE, petitioner, vs. LOPEZ, INC., respondent.

DECISION

CARPIO MORALES, J p:
This petition for review on certiorari under Rule 45 of the Rules of Court, which
seeks to review the decision 1 and resolution 2 of the Court of Appeals, raises
the issue of whether the defendant in a complaint for collection of sum of
money can raise a counterclaim for retirement benefits, unpaid salaries and
incentives, and other benefits arising from services rendered by him in a
subsidiary of the plaintif corporation.
On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez,
Inc., as LENDER, and petitioner Mel Velarde, then General Manager of Sky
Vision Corporation (Sky Vision), a subsidiary of respondent, as BORROWER,
forged a notarized loan agreement covering the amount of ten million
(P10,000,000.00) pesos. The agreement expressly provided for, among other
things, the manner of payment and the circumstances constituting default
which would give the lender the right to declare the loan together with accrued
interest immediately due and payable. 3
Sec. 6 of the agreement detailed what constituted an "event of default" as
follows:
Section 6

Petitioner protested the computation indicated in the July 15, 1998 letter, he
asserting that the imputed unliquidated advances from Sky Vision had already
been properly liquidated. 6
On August 18, 1998, respondent filed a complaint for collection of sum of
money with damages at the Regional Trial Court (RTC) of Pasig City against
petitioner, alleging that petitioner violated the above-quoted Section 6 of the
loan agreement as he failed to put up the needed collateral for the loan and
pay the installments as they became due, and that despite his receipt of
letters of demand dated December 1, 1997 7 and January 13, 1998, 8 he
refused to pay.
In his answer, petitioner alleged that the loan agreement did not reflect his
true agreement with respondent, it being merely a "cover document" to
evidence the reward to him of ten million pesos (P10,000,000.00) for his
loyalty and excellent performance as General Manager of Sky Vision and that
the payment, if any was expected, was in the form of continued service; and
that it was when he was compelled by respondent to retire that the form of
payment agreed upon was rendered impossible, prompting the late Eugenio
Lopez, Jr. to agree that his retirement benefits from Sky Vision would instead be
applied to the loan. 9
By way of compulsory counterclaim, petitioner claimed that he was entitled to
retirement benefits from Sky Vision in the amount of P98,280,000.00, unpaid
salaries in the amount of P2,740,000.00, unpaid incentives in the amount of
P500,000, unpaid share from the "net income of Plaintif corporation," equity in
his service vehicle in the amount of P1,500,000, reasonable return on the stock
ownership plan for services rendered as General Manager, and moral damages
and attorney's fees. 10
Petitioner thus prayed for the dismissal of the complaint and the award of the
following sums of money in the form of compulsory counterclaims:
1. P103,020,000.00, PLUS the value of Defendant's stock
options and unpaid share from the net income with
Plaintif corporation (to be computed) as actual
damages; DaEATc
2. P15,000,000.00, as moral damages; and

3. P1,500,000.00, as attorney's fees plus appearance fees

and the costs of suit. 11
Respondent filed a manifestation and a motion to dismiss the counterclaim for
want of jurisdiction, which drew petitioner to assert in his comment and
opposition thereto that the veil of corporate fiction must be pierced to hold
respondent liable for his counterclaims.
By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied
respondent's motion to dismiss the counterclaim on the following premises: A
counterclaim being essentially a complaint, the principle that a motion to
dismiss hypothetically admits the allegations of the complaint is applicable; the
counterclaim is compulsory, hence, within its jurisdiction; and there is identity
of interest between respondent and Sky Vision to merit the piercing of the veil
of corporate fiction. 12
Respondent's motion for reconsideration of the trial court's Order of January 3,
2000 having been denied, it filed a Petition for Certiorari at the Court of
Appeals which held that respondent is not the real party-in-interest on the
counterclaim and that there was failure to show the presence of any of the
circumstances to justify the application of the principle of "piercing the veil of
corporate fiction." The Orders of the trial court were thus set aside and the
counterclaims of petitioner were accordingly dismissed. 13
The Court of Appeals having denied petitioner's motion for reconsideration, the
instant Petition for Review was filed which assigns the following errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
THE RTC BRANCH 155 ALLEGEDLY ACTED WITH GRAVE ABUSE
OF DISCRETION IN ISSUING THE ORDERS DATED JANUARY 3,
2000 AND OCTOBER 9, 2000 CONSIDERING THAT THE
GROUNDS RAISED BY RESPONDENT LOPEZ, INC. IN ITS
PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF
JUDGMENT AND NOT ERRORS OF JURISDICTION.
II.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
RESPONDENT LOPEZ, INC. IS NOT THE REAL PARTY-ININTEREST AS PARTY-DEFENDANT ON THE COUNTERCLAIMS
OF PETITIONER VELARDE CONSIDERING THAT THE FILING OF
RESPONDENT LOPEZ, INC.'S MANIFESTATION AND MOTION TO
DISMISS
COUNTERCLAIM
HAD
THE
EFFECT
OF
HYPOTHETICALLY ADMITTING THE TRUTH OF THE MATERIAL
AVERMENTS OF THE ANSWER, WHICH MATERIAL AVERMENTS
SUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ, INC.
COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY
VISION, WAS A MERE BUSINESS CONDUIT OR ALTER EGO OF
THE FORMER, THUS, JUSTIFYING THE PIERCING OF THE VEIL
OF CORPORATE FICTION.
III.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
THE COUNTERCLAIMS OF PETITIONER VELARDE ARE NOT
COMPULSORY. 14

While petitioner correctly invokes the ruling in Atienza v. Court of

Appeals 15 to postulate that not every denial of a motion to dismiss can be
corrected by certiorari under Rule 65 and that, as a general rule, the remedy
from such denial is to appeal in due course after a decision has been rendered
on the merits, there are exceptions thereto, as when the court in denying the
motion to dismiss acted without or in excess of jurisdiction or with patent grave
abuse of discretion, 16 or when the assailed interlocutory order is patently
erroneous and the remedy of appeal would not aford adequate and
expeditious relief, 17 or when the ground for the motion to dismiss is improper
venue, 18 res judicata, 19 or lack of jurisdiction 20 as in the case at bar.
Early on, it bears noting, when the case was still with the trial court,
respondent filed a motion to dismiss the counterclaims to assail its jurisdiction,
respondent asserting that the counterclaims, being money claims arising from
a labor relationship, are within the exclusive competence of the National Labor
Relations Commission. 21 On the other hand, petitioner alleged that due to the
tortuous manner he was coerced into retirement, it is the Regional Trial Courts
(RTCs) and not the National Labor Relations Commission which has exclusive
jurisdiction over his counterclaims.
In determining which has jurisdiction over a case, the averments of the
complaint/counterclaim, taken as a whole, are considered. 22 In his
counterclaim, petitioner alleged that:
xxx xxx xxx
29. It was only on July 15, 1998 that Lopez, Inc. submitted a
computation of the retirement benefit due to the Defendant.
(Copy attached as ANNEX 4). Immediately after receiving this
computation, Defendant immediately informed Plaintif of the
erroneous figure used as salary in the computation of
benefits. This was done in a telephone conversation with a
certain Atty. Amina Amado of Lopez, Inc.
29.1 The Defendant also informed her that the so
called
"unliquidated
advances
amounting
to
P422,922.87 since 1995" had all been properly
liquidated as reflected in all the reports of the
company. The Defendant reminded Atty. Amado
of unpaid incentives and salaries for 1997.
29.2 Defendant likewise informed Plaintif that
the one month for every year of service as a basis for
the computation of the Defendant's retirement
benefit is erroneous. This computation is even less
than what the rank and file employees get. That
CEO's, COO's and senior executives of the level of
ABS-CBN, Sky Vision, Benpres, Meralco and other
Lopez companies had and have received a lot more
than the regular rank and file employees. All these
retired executives and records can be summoned for
verification. DHSCTI
29.3 The circumstances of the retirement of the
Defendant are not those for a simple and ordinary
rank and file employee. Mr. Lopez, III admitted that
he and the Defendant have had problems which

accumulated through time and that they chose to

part ways in a manner that was dignified for both of
them. Treating the Defendant as a rank and file
employee is hardly dignified not just to the
Defendant but also to the Lopezes whose existing
executives serving them will draw lessons from the
Defendant's experience.

29.4 These circumstances hardly reflect a simple

retirement. The Defendant, who is known in the local
and international media community, is hardly
considered a rank and file employee. Defendant was
a stockholder of the Corporation and a duly-elected
member of the Board of Directors. Certain
government officials can attest to the sensitivity of
issues and matters the Defendant had represented
for the Lopezes that are hardly issues handled by a
simple rank and file employee. Respectable
individuals in government and industry are willing to
testify to this regard. . . . 23 (Emphasis and italics
supplied).
At the heart of petitioner's counterclaim is his alleged forced retirement which
is also the basis of his claim for, among other things, unpaid salaries, unpaid
incentives, reasonable return on the stock ownership plan, and other benefits
from a subsidiary company of the respondent.
Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation
Code) applies to a corporate officer's dismissal. For a corporate officer's
dismissal is always a corporate act and/or an intra-corporate controversy and
that its nature is not altered by the reason or wisdom which the Board of
Directors may have in taking such action. 24
With regard to petitioner's claim for unpaid salaries, unpaid share in net
income, reasonable return on the stock ownership plan and other benefits for
services rendered to Sky Vision, jurisdiction thereon pertains to the Securities
Exchange Commission even if the complaint by a corporate officer includes
money claims since such claims are actually part of the prerequisite of his
position and, therefore,
interlinked
with his relations
with the
corporation. 25 The question of remuneration involving a person who is not a
mere employee but a stockholder and officer of the corporation is not a simple
labor problem but a matter that comes within the area of corporate afairs and
management, and is in fact a corporate controversy in contemplation of the
Corporation Code. 26
While petitioner's counterclaims were filed on December 1, 1998, the second
challenged order of the trial court denying respondent's motion for
reconsideration of the denial of its motion to dismiss was issued on October 9,
2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on
July 19, 2000) which mandated the transfer of jurisdiction over intra-corporate
controversies, subject of the counterclaims, to RTCs.
But even if the subject matter of the counterclaims is now cognizable by RTCs,
the filing thereof against respondent is improper, it not being the real party-ininterest, for it is petitioner's employer Sky Vision, respondent's subsidiary.

It cannot be gainsaid that a subsidiary has an independent and separate

juridical personality, distinct from that of its parent company, hence, any claim
or suit against the latter does not bind the former and vice versa.
Petitioner argues nevertheless that jurisdiction over the subsidiary is justified
by piercing the veil of corporate fiction. Piercing the veil of corporate fiction is
warranted, however, only in cases when the separate legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, such
that in the case of two corporations, the law will regard the corporations as
merged into one. 27 The rationale behind piercing a corporation's identity is to
remove the barrier between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities. 28
In applying the doctrine of piercing the veil of corporate fiction, the following
requisites must be established: (1) control, not merely majority or complete
stock control; (2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest acts in contravention of plaintif's legal rights;
and (3) the aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of. 29
Nowhere, however, in the pleadings and other records of the case can it be
gathered that respondent has complete control over Sky Vision, not only of
finances but of policy and business practice in respect to the transaction
attacked, so that Sky Vision had at the time of the transaction no separate
mind, will or existence of its own. The existence of interlocking directors,
corporate officers and shareholders is not enough justification to pierce the veil
of corporate fiction in the absence of fraud or other public policy
considerations.
This Court is thus not convinced that the real party-in-interest with regard to
the counterclaim for damages arising from the alleged tortuous manner by
which petitioner was forced to retire as General Manager of Sky Vision is
respondent.
Petitioner muddles the issues by arguing that respondent fraudulently took
advantage of the control over the matter of compensation and benefits of an
employee of Sky Vision to deceive petitioner into signing the loan agreement
on the misleading assurance that it was merely for the purpose of
documenting the reward to him of ten million pesos. This argument does not
persuade. Petitioner, being a lawyer, is presumed to know the legal and
binding efects of loan agreements. DIHETS
It bears emphasis that Sky Vision's involvement in the transaction subject of
the case sprang only after a proposal was apparently profered by petitioner
that his retirement benefits from Sky Vision be used in partial payment of his
loan from respondent as gathered from the July 15, 1998 letter 30 of Rommel
Duran, Vice-President and General Manager of respondent, to petitioner
reading:
Dear Mr. Velarde:
As requested, we have made computations on the
outstanding amount of your loan with Lopez, Inc. should your
retirement benefits from Sky Vision Corporation/Central
CATV, Inc. ("Sky/Central") be applied to the partial payment

of your loan. Please note that in order to efect the

application of your retirement benefits to the partial payment
of your loan, you will need to give Sky/Central written
instructions on the same in the soonest possible time.
As you will see in the attached computation, the amount of
P4,077,077.13 will be applied to the payment of your loan to
retroact on January 1, 1998. The amount of P422,922.87,
representing unliquidated advances made by Sky/Central to
you (see attached listing), has been deducted from your
retirement pay of P4.5 million. Should you be able to
liquidate the advances as requested by Sky/Central, the said
amount will be applied to the partial payment of your loan
and we shall adjust the amount of principal and interest due
from you accordingly. After the application of the amount of
P4,077,077.13 to the partial payment of your loan, the
amount of P7,585,912.86 will be immediately due and
demandable. The amount of P7,585,912.86 represents the
outstanding principal and interest due as of July 15, 1998.
Without the application of your retirement benefits to the
partial payment of your loan, the amount of P11,850,000.00
is due as of July 15, 1998. We reiterate our demand for full
payment of your outstanding obligation immediately.
(Emphasis supplied)
As for the trial court's ruling that the agreement to set-of is an amendment of
the loan agreement resulting to an identity of interest between respondent and
Sky Vision and, therefore, sufficient to pierce the veil of corporate fiction, it is
untenable. The abovequoted letter is clear that, to efect a set-of, it is a
condition sine qua non that the approval thereof by "Sky/Central" must be
obtained, and that petitioner liquidate his advances from Sky Vision. These
conditions hardly manifest that respondent possessed that degree of control
over Sky Vision as to make the latter its mere instrumentality, agency or
adjunct.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED.
SO ORDERED.
Vitug, Sandoval-Gutierrez and Corona, JJ ., concur.
||| (Velarde v. Lopez, Inc., G.R. No. 153886, January 14, 2004)

THIRD DIVISION
[G.R. No. 158941. February 11, 2008.]
TIMESHARE REALTY CORPORATION, petitioner, vs. CESAR LAO
and CYNTHIA V. CORTEZ, respondents.

DECISION

AUSTRIA-MARTINEZ, J p:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the October 30, 2002 Resolution 1 of the Court of Appeals (CA), which
denied due course to the appeal of Timeshare Realty Corporation (petitioner) from the
March 25, 2002 Decision 2 of the Securities and Exchange Commission (SEC) in SEC
Case No. 01-99-6199; and the July 4, 2003 CA Resolution, 3 which denied petitioner's
Motion for Reconsideration.
As found by the SEC, 4 the antecedent facts are as follows:
On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia V. Cortez
(respondents), one timeshare of Laguna de Boracay for US$7,500.00 under Contract No.
135000998 payable in eight months and fully paid by the respondents.
Sometime in February 1998, the SEC issued a resolution to the efect that petitioner was
without authority to sell securities, like timeshares, prior to February 11, 1998. It further
stated in the resolution/order that the Registration Statement of petitioner became
efective only on February 11, 1998. It also held that the 30 days within which a
purchaser may exercise the option to unilaterally rescind the purchase agreement and
receive the refund of money paid applies to all purchase agreements entered into by
petitioner prior to the efectivity of the Registration Statement.
Petitioner sought a reconsideration of the aforesaid order but the SEC denied the same in
a letter dated March 9, 1998.
On March 30, 1998, respondents wrote petitioner demanding their right and option to
cancel their Contract, as it appears that Laguna de Boracay is selling said shares without
license or authority from the SEC. For failure to get an answer to the said letter,
respondents this time, through counsel, reiterated their demand through another letter
dated June 29, 1998. But despite repeated demands, petitioner failed and refused to
refund or pay respondents. 5
Respondents directly filed with SEC En Banc 6 a Complaint 7 against petitioner and the
Members of its Board of Directors Julius S. Strachan, Angel G. Vivar, Jr. and Cecilia R.
Palma for violation of Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178. 8 Petitioner
filed an Answer 9 to the Complaint but the SEC En Banc, in an Order 10 dated April 25,
2000, expunged the Answer from the records due to tardiness.

On March 25, 2002, the SEC En Banc rendered a Decision in favor of respondents,
ordering petitioner, together with Julius S. Strachan, Angel G. Vivar, Jr., and Cecilia R.
Palma, to pay respondents the amount of US$7,500.00. 11
Petitioner filed a Motion for Reconsideration 12 which the SEC En Banc denied in an
Order 13 dated June 24, 2002.
Petitioner received a copy of the June 24, 2002 SEC En Banc Order on July 4,
2002 14 and had 15 days or until July 19, 2002 within which to appeal. However, on July
10, 2002, petitioner sought from the CA an extension of 30 days, counted from July 19,
2002, or until August 19, 2002, within which to appeal. 15 The CA partly granted the
motion in an Order dated July 24, 2002, to wit:
As prayed for, but conditioned on the timeliness of its filing, the
Motion for Extension to File Petition for Review dated 09 July 2002
and filed before this Court on 10 July 2002 is GRANTED and
petitioners are given a non-extendible period of fifteen (15) days
from 10 July 2002 or until 25 July 2002 within which to file the
desired petition, otherwise, the above-entitled case will be
dismissed. (Emphasis supplied.) 16
Petitioner purportedly received the July 24, 2002 CA Order on July 29, 2002, 17 but filed
a Petition for Review with the CA on August 19, 2002. 18
In the assailed October 30, 2002 Resolution, the CA dismissed the Petition for Review,
thus:
Under Section 4, Rule 43 of the 1997 Revised Rules of Civil
Procedure, petitioners shall not be given an extension longer than
fifteen (15) days from the expiration of the reglementary period,
except for the most compelling reason.
Thus, on 24 July 2002, in the absence of a compelling reason that
justifies the granting of a longer period of extension, this Court
issued a resolution wherein petitioners were given an extension of
ONLY fifteen days from 10 July 2002 or until 25 July 2002 within
which to file the petition for review, otherwise, the above entitled
case will be dismissed.
However, records show that petitioners filed their petition for review
only on 19 August 2002, which is twenty-five (25) days beyond the
allowed 15-day extended period granted by this Court.
WHEREFORE, the appeal from the decision of the Securities and
Exchange Commission (SEC) Case No. 01-99-6199 is hereby
DISMISSED for failure of the petitioners to file their Petition for
Review under the 15-day period granted by this Court as provided by
Rule 43, Section 4 of the 1997 Revised Rules of Civil Procedure.
SO ORDERED. 19
and denied petitioner's Motion for Reconsideration in the assailed Resolution dated
July 4, 2003. 20
Petitioner filed the present petition, urging us to look beyond the procedural lapse in its
appeal, and resolve the following substantive issues:
Whether or not the eventual approval or issuance of license has
retroactive efect and therefore ratifies all earlier transactions;
Whether or not a party in a contract could withdraw or rescind
unilaterally without valid reason. 21
We deny the petition.

A judgment must become final at the time appointed by law 22 this is a fundamental
principle upon which rests the efficacy of our courts whose processes and decrees
command obedience only when these are perceived to have some degree of
permanence and predictability. Thus, an appeal from such judgment, not being a natural
right but a mere statutory privilege, must be perfected according to the mode and within
the period prescribed by the law and the rules; otherwise, the appeal is forever barred,
and the judgment becomes binding. 23
Section 70 of Republic Act No. 8799 24 which was enacted on July 19, 2000, is the law
which governs petitioner's appeal from the orders of the SEC En Banc. It prescribes that
such appeal be taken to the CA "by petition for review in accordance with the pertinent
provisions of the Rules of Court," specifically Rule 43. 25
Section 4 of Rule 43 is restrictive in its treatment of the period within which a petition
may be filed:
Section 4. Period of appeal. The appeal shall be taken within
fifteen (15) days from notice of the award, judgment, final order or
resolution, or from the date of its last publication, if publication is
required by law for its efectivity, or of the denial of petitioner's
motion for new trial or reconsideration duly filed in accordance with
the governing law of the court or agency a quo. Only one (1) motion
for reconsideration shall be allowed. Upon proper motion and the
payment of the full amount of the docket fee before the
expiration of the reglementary period, the Court of Appeals
may grant an additional period of fifteen (15) days only
within which to file the petition for review. No further
extension shall be granted except for the most compelling
reason and in no case to exceed fifteen (15) days. (Emphasis
supplied.)
Petitioner's Motion for Extension of Time to File Petition for Review flouted the foregoing
restriction: it sought, not a 15-day, but a 30-day extension of the appeal period; 26 and
it did not even bother to cite a compelling reason for such extension, other than its
counsel's caseload which, as we have repeatedly ruled, hardly qualifies as an imperative
cause for moderation of the rules. 27
Its motion for extension being inherently flawed, petitioner should not have presumed
that the CA would fully grant the same. 28 Instead, it should have exercised due
diligence by filing the proper petition within the allowable period, 29 or at the very least,
ascertaining from the CA whether its motion for extension had been acted upon. 30 As it
were, petitioner's counsel left the country, unmindful of the possibility that his client's
period to appeal was about to lapse as it indeed lapsed on July 25, 1999, after the CA
allowed them a 15-day extension only, in view of the restriction under Section 4, Rule 43.
Thus, petitioner has only itself to blame that the Petition for Review it filed on August 19,
1999 was late by 25 days. The CA cannot be faulted for dismissing it.
The Court notes that the CA reckoned the 15-day extension it granted to petitioner from
July 10, 1999, the date petitioner filed its Motion for Extension, rather than from July 19,
1999, the date of expiration of petitioner's original period to appeal. While such
computation of the CA appears to be erroneous, petitioner did not question it in the
present petition. But even if we do reckon the 15-day extension period from July 19,
1999, the same would have ended on August 3, 1999, making petitioner's appeal still
inexcusably tardy by 16 days. Either way we reckon it, therefore, petitioner's appeal was
not perfected within the period prescribed under Rule 43.
Nevertheless, the Court opts to resolve the substantive issues raised by petitioner in its
appeal so as to determine the lawful rights of the parties and put an end to the litigation.
Petitioner claims that at the time it entered into a timeshare purchase agreement with
respondents on October 6, 1996, it already possessed the requisite license and
marketing agreement to engage in such transactions, 31 as evidenced by its registration
with the SEC as a corporation. 32 Petitioner argues that when it was registered and

authorized by the SEC as broker of securities 33 such as the Laguna de Boracay

timeshares this had the efect of ratifying its October 6, 1996 purchase agreement
with respondents, and removing any cause for the latter to rescind it.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner.
SO ORDERED.

The Court is not persuaded.

Ynares-Santiago, Corona, * Nachura and Reyes, JJ., concur.

As cited by the SEC En Banc in its March 25, 2002 Decision, as early as February 13,
1998, the SEC, through Director Linda A. Daoang, already rendered a ruling on the
efectivity of the registration statement of petitioner, viz:

||| (Timeshare Realty Corp. v. Lao, G.R. No. 158941, February 11, 2008)

This has reference to your registration statement which was

rendered efective 11 February 1998. The 30 days within which a
purchaser may exercise the option to unilaterally rescind the
purchase agreement and receive the refund of money paid, applies
to all purchase agreements entered into by the registrant prior to
the effectivity of the registration statement. The 30-day
rescission
period
for
contracts
signed
before
the
Registration Statement was rendered effective shall
commence on 11 February 1998. The rescission period for
contracts after 11 February 1998 shall commence on the
date of purchase agreement. (Emphasis supplied.) 34
Petitioner sought a reconsideration of said ruling but the same was denied by Director
Daoang in an Order dated March 9, 1998. 35 However, petitioner did not resort to any
other administrative remedy against said ruling, such as by questioning the same before
the SEC En Banc. Having failed to exhaust the administrative remedies available to it,
petitioner is already bound by said ruling and can no longer question the same through a
direct and belated recourse to us. 36
Finally, the provisions of B.P. Blg. 178 do not support the contention of petitioner that its
mere registration as a corporation already authorizes it to deal with unregistered
timeshares. Corporate registration is just one of several requirements before it may deal
with timeshares:
Section 8. Procedure for registration. (a) All securities required to
be registered under subsection (a) of Section four of this Act shall be
registered through the filing by the issuer or by any dealer or
underwriter interested in the sale thereof, in the office of the
Commission, of a sworn registration statement with respect to such
securities, containing or having attached thereto, the following:

THIRD DIVISION
[G.R. No. 138949. June 6, 2001.]

xxx xxx xxx

(36) Unless previously filed and registered with the Commission and
brought up to date:
(a) A

copy of its articles of incorporation with all

amendments thereof and its existing by-laws or
instruments corresponding thereto, whatever the
name, if the issuer be a corporation.

Prior to fulfillment of all the other requirements of Section 8, petitioner

is absolutely proscribed under Section 4 from dealing with unregistered timeshares,
thus:
Section 4. Requirement of registration of securities. (a) No
securities, except of a class exempt under any of the provisions of
Section five hereof or unless sold in any transaction exempt under
any of the provisions of Section six hereof, shall be sold or ofered for
sale or distribution to the public within the Philippines unless such
securities shall have been registered and permitted to be
sold as hereinafter provided. (Emphasis supplied.)

UNION BANK OF THE PHILIPPINES, petitioner, vs.

SECURITIES AND EXCHANGE COMMISSION, respondent.

Macalino and Associates for petitioner.

The Solicitor General for respondent.

SYNOPSIS
Petitioner Union Bank of the Philippines was required by the respondent
Securities and Exchange Commission (SEC) to submit a Proxy/Information
Statement in connection with its annual meeting held on May 23, 1997 in
compliance with respondent Commission's Full Material Disclosure Rule under
the Revised Securities Act (RSA) Implementing Rules 11(a)-1, 34(a)-1 and

34(c)-1 which require the submission of certain reports to ensure full, fair and
accurate disclosure of information for the protection of the investing public.
Petitioner did not comply, arguing that it is not covered by the said regulations,
so the SEC imposed a fine on petitioner in the amount of P91,000.00 for failure
to file SEC Form 11-A which excludes the fine accruing after the cut-of date
until the final submission of the report. An additional amount of P50,000.00
was also imposed for violation of RSA Rule 34(a)-1 or Rule 34(c)(1). Petitioner
sought reconsideration, but was denied by respondent Commission in an order
dated April 14, 1998. Petitioner then elevated its case to the Court of Appeals
which affirmed, the questioned Order. Hence, the present petition. Petitioner
argued that since its securities are exempt from the registration requirements
under Section 5(a)(3) of the Revised Securities Act, it follows that they are also
exempt from the coverage of Rules 11 (a)-1, 34(a)-1 and 34(c)-1 of the RSA
Implementing rules.
The Supreme Court denied the petition. According to the Court, while Section
5(a)(3) of the Revised Securities Act exempts from registration the securities
issued by banking or financial institutions mentioned in the law, nowhere does
it state or even imply that petitioner, as a listed corporation, is exempt from
complying with the reports required by the assailed RSA Implementing Rules.
The Court emphasized that petitioner is a commercial banking corporation
listed in the stock exchange, and, therefore, it must adhere not only to banking
and other allied special laws, but also to the rules promulgated by respondent
SEC, the government entity tasked not only with the enforcement of the
Revised Securities Act, but also with the supervision of all corporations,
partnerships or associations which are grantees of government-issued primary
franchises and/or licenses or permits to operate in the Philippines.

SYLLABUS
1. COMMERCIAL LAW; REVISED SECURITIES ACT; EXEMPT SECURITIES;
COVERAGE. Because its securities are exempt from the registration
requirements under Section 5(a)(3) of the Revised Securities Act, petitioner
argues that it is not covered by RSA Implementing Rule 11(a)-1, which requires
the filing of annual, quarterly, current predecessor and successor reports; Rule
34(a)-1, which mandates the filing of proxy statements and forms of proxy; and
Rule 34(c)-1, which obligates the submission of information statements. We do
not agree. Section 5(a)(3) of the said Act reads: "Sec. 5. Exempt Securities. (a)
Except as expressly provided, the requirement of registration under subsection
(a) of Section four of this Act shall not apply to any of the following classes of
securities: . . . (3) Any security issued or guaranteed by any banking institution
authorized to do business in the Philippines, the business of which is
substantially confined to banking, or a financial institution licensed to engage
in quasi-banking, and is supervised by the Central Bank." This provision
exempts from registration the securities issued by banking or financial
institutions mentioned in the law. Nowhere does it state or even imply that
petitioner, as a listedcorporation, is exempt from complying with the reports
required by the assailed RSA Implementing Rules.
2. ID.; ID.; ID.; COMMERCIAL BANKING CORPORATION LISTED IN THE STOCK
EXCHANGE; MUST ADHERE NOT ONLY TO BANKING AND OTHER ALLIED
SPECIAL LAWS, BUT ALSO TO THE RULES PROMULGATED BY SECURITIES AND
EXCHANGE COMMISSION. Worth repeating is the CA's disquisition on the

matter, which we quote: "However, the exemption from the registration

requirement enjoyed by petitioner does not necessarily connote that [it is]
exempted from the other reportorial requirements. Having confined the
exemption enjoyed by petitioner merely to the initial requirement of
registration of securities for public ofering, and not [to] the subsequent filing
of various periodic reports, respondent Commission, as the regulatory agency,
is able to exercise its power of supervision and control over corporations and
over the securities market as a whole. Otherwise, the objectives of the 'Full
Material Disclosure' policy would be defeated since petitioner corporation and
its dealings would be totally beyond the reach of respondent Commission and
the investing public." It must be emphasized that petitioner is a commercial
banking corporation listed in the stock exchange. Thus, it must adhere not only
to banking and other allied special laws, but also to the rules promulgated by
Respondent SEC, the government entity tasked not only with the enforcement
of the Revised Securities Act, but also with the supervision of all corporations,
partnerships or associations which are grantees of government-issued primary
franchises and/or licenses or permits to operate in the Philippines. RSA Rules
11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain reports to ensure
full, fair and accurate disclosure of information for the protection of the
investing public. These Rules were issued by respondent pursuant to the
authority conferred upon it by Section 3 of the RSA. The said Rules do not
amend Section 5(a)(3) of the Revised Securities Act, because they do
not revoke or amend the exemption from registration of the securities
enumerated thereunder. They are reasonable regulations imposed upon
petitioner as a banking corporation trading its securities in the stock market.
3. ID.; ID.; ID.; ID.; REASON THEREFOR. That petitioner is under the
supervision of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Stock
Exchange (PSE) does not exempt it from complying with the continuing
disclosure requirements embodied in the assailed Rules. Petitioner, as a bank,
is primarily subject to the control of the BSP; and as a corporation trading its
securities in the stock market, it is under the supervision of the SEC. It must be
pointed out that even the PSE is under the control and supervision of
respondent. There is no over-supervision here. Each regulating authority
operates within the sphere of its powers. That stringent requirements are
imposed is understandable, considering the paramount importance given to
the interests of the investing public. Otherwise stated, the mere fact that in
regard to its banking functions, petitioner is already subject to the supervision
of the BSP does not exempt the former from reasonable disclosure regulations
issued by the SEC. These regulations are meant to assure full, fair and accurate
disclosure of information for the protection of investors in the stock market.
Imposing such regulations is a function within the jurisdiction of the SEC. Since
petitioner opted to trade its shares in the exchange, then it must abide by the
reasonable rules imposed by the SEC.
4. ID.; ID.; ID.; ADMINISTRATIVE SANCTIONS IN CASE OF VIOLATION OF THE
ACT. It bears stressing that the fine imposed upon petitioner is sanctioned by
Section 46(b) of the RSA, which reads as follows: "Sec. 46. Administrative
sanctions. If, after proper notice and hearing, the Commission finds that there
is a violation of this Act, its rules, or its orders or that any registrant has, in a
registration statement and its supporting papers and other reports required by
law or rules to be filed with the Commission, made any untrue statement of a
material fact, or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or refused
to permit any lawful examination into its afairs, it shall, in its discretion,

impose any or all of the following sanctions: . . . (b) A fine of no less than two
hundred (P200.00) pesos nor more than fifty thousand (P50,000.00) pesos plus
not more than five hundred (P500.00) pesos for each day of continuing
violation." Petitioner complied with RSA Rule 11(a)-1 on April 30, 1998. To date,
it still has not complied with either RSA Rule 34(a)-1 or Rule 34(c)-1. That there
was a failure to submit the required reports on time is evident in the present
case. Thus, respondent was justified in imposing a fine upon it.

DECISION

PANGANIBAN, J p:
The mere fact that petitioner, in regard to its banking functions, is already
subject to the supervision of the Bangko Sentral ng Pilipinas does not exempt
the former from reasonable disclosure regulations issued by the Securities and
Exchange Commission (SEC). These regulations imposed on petitioner as a
banking institution listed in the stock market are meant to assure full, fair
and accurate information for the protection of investors. Imposing such
regulations is a function within the jurisdiction of the SEC.
The Case
Before us is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of
Court, challenging the November 16, 1998 Decision 2 of the Court of Appeals
(CA) in CA-GR SP No. 48002. The dispositive portion of the assailed Decision
reads as follows:
"GIVEN THE FOREGOING, the assailed Orders dated
November 5, 1997 and April 14, 1998 are hereby AFFIRMED,
with the MODIFICATION that petitioner is assessed a single
fine of FIFTY THOUSAND (P50,000.00) PESOS plus FIVE
HUNDRED (P500.00) PESOS beginning July 21, 1997, for each
day of continuing violation." 3
Likewise assailed is the May 31, 1999 CA Resolution, 4 which denied
petitioner's Motion for Reconsideration.

The Facts
The court a quo summarized the antecedents of the case as follows:
"Records show that on April 4, 1997, petitioner, through its
General Counsel and Corporate Secretary, sought the opinion
of Chairman Perfecto Yasay, Jr. of respondent Commission as
to the applicability and coverage of the Full Material
Disclosure Rule on banks, contending that said rules, in
efect, amend Section 5 (a) (3) of the Revised Securities Act
which exempts securities issued or guaranteed by banking
institutions from the registration requirement provided by
Section 4 of the same Act. (Annex "C", p. 20,Rollo).

"In reply thereto, Chairman Yasay, in a letter dated April 8,

1997, informed petitioner that while the requirements of
registration do not apply to securities of banks which are
exempt under Section 5(a) (3) of the Revised Securities Act,
however, banks with a class of securities listed for trading on
the Philippine Stock Exchange, Inc. are covered by certain
Revised Securities Act Rules governing the filing of various
reports with respondent Commission, i.e., (1) Rule 11(a)-1
requiring the filing of Annual, Quarterly, Current, Predecessor
and Successor Reports; (2) Rule 34-(a)-1 requiring
submission of Proxy Statements; and (3) Rule 34-(c)-1
requiring submission of Information Statements, among
others. (Annex D, P, U, Rollo).
"Not satisfied, petitioner, per letter dated April 30, 1997,
informed Chairman Yasay that they will refer the matter to
the Philippine Stock Exchange for clarification. (Annex E, p.
22,Rollo)
"On May 9, 1997, respondent Commission, through its Money
Market Operations Department Director, wrote petitioner,
reiterating its previous position that petitioner is not exempt
from the filing of certain reports. The letter further stated
that the Revised Securities Act Rule 11 (a) requires the
submission of reports necessary for full, fair and accurate
disclosure to the investing public, and not the registration of
its shares. (Annex F, p. 23, Rollo).
"On July 17, 1997, respondent Commission wrote petitioner,
enjoining the latter to show cause why it should not be
penalized for its failure to submit a Proxy/Information
Statement in connection with its annual meeting held on May
23, 1997, in violation of respondent Commission's 'Full
Material Disclosure Rule.' (Annex 6, p. 24, Rollo).
"Failing to respond to the aforesaid communication,
petitioner was given a '2nd Show Cause with Assessment' by
respondent Commission on July 21, 1997. Petitioner was then
assessed a fine of P50,000.00 plus P500.00 for every day
that the report [was] not filed, or a total of P91,000.00 as of
July 21, 1997. Petitioner was likewise advised by respondent
Commission to submit the required reports and settle the
assessment, or submit the case to a formal hearing. (Annex
H, p. 25, Rollo).
"On August 18, 1997, petitioner wrote respondent
Commission disputing the assessment. (Annex I, pp. 2627, Rollo).
"Thus, on November 5, 1997, respondent issued the assailed
Order, the dispositive portion of which provides:
"In view of the foregoing, the appeal filed by the
Union Bank of the Philippines is hereby denied. The
penalty imposed in the amount of P91,000.00 as of
July 21, 1997, for failure to file SEC Form 11-A
excludes the fine accruing after the cut-of date until

the final submission of the report. Further, the

amount of P50,000.00 shall be collected for the
violation of RSA Rule 34(a)-1 or Rule 34 (c)(1)." (p.
17, Rollo).

employment of the 'full material disclosure' policy is

sanctioned and recognized by the laws, nonetheless, the
Revised Securities Act sets substantial and procedural
standards which a proposed issuer of securities must satisfy.

"Petitioner sought a reconsideration thereof which was

denied by respondent Commission per assailed Order dated
April 14, 1998, the dispositive portion of which reads:

"Moreover and perhaps most importantly, the construction

given by respondent Commission on the scope of application
of the 'Full Material Disclosure' policy permits greater
opportunity for respondent Commission to implement [its]
statutory mandate of protecting the investing public by
requiring public issuers of securities to inform the public of
the true financial conditions and prospects of the
corporation." 6

"There being no new matters raised in the motion for

reconsideration to overcome the denial of the Appeal
by the Commission En Banc in its Order of November
5, 1997, and considering that the reasons advanced
are [a] mere rehash of its defenses duly addressed in
the Appeal, the Motion for Reconsideration is hereby,
DENIED. (p. 19,Rollo)." 5
Petitioner then elevated its case to the Court of Appeals which, as already
stated, affirmed the questioned Orders.
The CA Ruling
In its well-written 10-page Decision, the Court of Appeals cited the expertise of
Respondent SEC on matters within the ambit of the latter's mandate, as
follows: HcACST
"To begin with, it is already well-settled that the construction
given to a statute by an administrative agency charged with
the interpretation and application of that statute is entitled to
great respect and should be accorded great weight by the
courts, unless such construction is clearly shown to be in
sharp conflict with the governing statute or the Constitution
and other laws. (Nestle Philippines, Inc. v. Court of Appeals,
203 SCRA 504 [1991], at page 510) The rationale for this rule
relates not only to the emergence of the multifarious needs
of a modern or modernizing society and the establishment of
diverse administrative agencies for addressing and satisfying
those needs; it also relates to accumulation of experience
and growth of specialized capabilities by the administrative
agency charged with implementing a particular statute.
(Nestle Philippines, Inc. v. Court of Appeals, ibid., at pp. 510511)
"In this regard, the Supreme Court, in Philippine Stock
Exchange v. Securities and Exchange Commission, et al.,
G.R. No. 125469, October 27, 1998, already upheld the
power of respondent Securities and Exchange Commission to
promulgate rules and regulations, as it may consider
appropriate, for the enforcement of the Revised Securities
Act and other pertinent laws. Thus, pursuant to their
regulatory authority, respondent Securities and Exchange
Commission adopted the policy of 'full material disclosure'
where all companies, listed or applying for listing, are
required to divulge truthfully and accurately, all material
information about themselves and the securities they sell, for
the protection of the investing public, and under pain of
administrative, criminal and civil sanctions. While the

The court a quo stressed that Rules 11(a)-1, 34(a)-1, and 34(c)-1 were issued
by respondent to implement the Revised Securities Act (RSA). They do not
require the registration of petitioner's securities; thus, it cannot be said that
the SEC amended Section 5(a)(3) of the said Act.
Hence, this Petition. 7
Issues
Petitioner submits for our resolution the following issues:
"A. Whether or not petitioner is required to comply with the
respondent SEC's full disclosure rules.
"B. Whether or not the SEC's full disclosure rules [are]
contrary to and efectively [amend] section 5(a)(3) of the
Revised Securities Act.
"C. Whether or not Respondent Court of Appeals gravely
erred in holding that petitioner violated three (3) Rules,
namely: Rule 11(A)-1, Rule 34(A)-1 and Rule 34(C)-1 of the
full disclosure rule.
"D. Whether or not Respondent Court of Appeals erred in
affirming with modification the imposition of excessive fines
in violation of the Philippine Constitution." 8
In the main, the Court will determine (1) the applicability of RSA Implementing
Rules 11(a)-1, 34(a)-1 and 34(c)-1 to petitioner; and (2) the propriety of the
fine imposed upon the latter.
The Court's Ruling
The Petition is not meritorious.
First Issue:
Applicability of the Assailed RSA Implementing Rules
Because its securities are exempt from the registration requirements under
Section 5(a)(3) of the Revised Securities Act, petitioner argues that it is not
covered by RSA Implementing Rule 11(a)-1, which requires the filing of annual,
quarterly, current predecessor and successor reports; Rule 34(a)-1 which
mandates the filing of proxy statements and forms of proxy; and Rule 34(c)-1,
which obligates the submission of information statements.
We do not agree. Section 5(a)(3) of the said Act reads:

"SECTION. 5. Exempt Securities. (a) Except as expressly

provided, the requirement of registration under subsection
(a) of Section four of this Act shall not apply to any of the
following classes of securities:
xxx xxx xxx
(3) Any security issued or guaranteed by any banking
institution authorized to do business in the Philippines, the
business of which is substantially confined to banking, or a
financial institution licensed to engage in quasi-banking, and
is supervised by the Central Bank."
This provision exempts from registration the securities issued by banking or
financial institutions mentioned in the law. Nowhere does it state or even imply
that petitioner, as a listed corporation, is exempt from complying with the
reports required by the assailed RSA Implementing Rules. Worth repeating is
the CA's disquisition on the matter, which we quote:
"However, the exemption from the registration requirement
enjoyed by petitioner does not necessarily connote that [it is]
exempted from the other reportorial requirements. Having
confined the exemption enjoyed by petitioner merely to the
initial requirement of registration of securities for public
ofering, and not [to] the subsequent filing of various periodic
reports, respondent Commission, as the regulatory agency, is
able to exercise its power of supervision and control over
corporations and over the securities market as a whole.
Otherwise, the objectives of the 'Full Material Disclosure'
policy would be defeated since petitioner corporation and its
dealings would be totally beyond the reach of respondent
Commission and the investing public." 9

It must be emphasized that petitioner is a commercial banking

corporation 10 listed in the stock exchange. Thus, it must adhere not only to
banking and other allied special laws, but also to the rules promulgated by
Respondent SEC, the government entity tasked not only with the enforcement
of the Revised Securities Act, 11 but also with the supervision of all
corporations, partnerships or associations which are grantees of governmentissued primary franchises and/or licenses or permits to operate in the
Philippines. 12
RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain
reports to ensure full, fair and accurate disclosure of information for the
protection of the investing public. These Rules were issued by respondent
pursuant to the authority conferred upon it by Section 3 of the RSA. 13
The said Rules do not amend Section 5(a)(3) of the Revised Securities Act,
because they do not revoke or amend the exemption from registration of the
securities enumerated thereunder. They are reasonable regulations imposed
upon petitioner as a banking corporation trading its securities in the stock
market.
That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP)
and the Philippine Stock Exchange (PSE) does not exempt it from complying
with the continuing disclosure requirements embodied in the assailed Rules.

Petitioner, as a bank, is primarily subject to the control of the BSP; and as a

corporation trading its securities in the stock market, it is under the
supervision of the SEC. It must be pointed out that even the PSE is under the
control and supervision of respondent. 14 There is no over-supervision here.
Each regulating authority operates within the sphere of its powers. That
stringent requirements are imposed is understandable, considering the
paramount importance given to the interests of the investing public.
Otherwise stated, the mere fact that in regard to its banking functions,
petitioner is already subject to the supervision of the BSP does not exempt the
former from reasonable disclosure regulations issued by the SEC. These
regulations are meant to assure full, fair and accurate disclosure of information
for the protection of investors in the stock market. Imposing such regulations is
a function within the jurisdiction of the SEC. Since petitioner opted to trade its
shares in the exchange, then it must abide by the reasonable rules imposed by
the SEC.
Second Issue:
Propriety of Fine Imposed
Contending that both respondent and the CA erred in imposing an excessive
fine upon it, petitioner complains that it was not given an opportunity to be
heard regarding the matter. aDHScI
It bears stressing that the fine imposed upon petitioner is sanctioned by
Section 46(b) of the RSA, which reads as follows:
"SECTION 46. Administrative sanctions. If, after proper
notice and hearing, the Commission finds that there is a
violation of this Act, its rules, or its orders or that any
registrant has, in a registration statement and its supporting
papers and other reports required by law or rules to be filed
with the Commission, made any untrue statement of a
material fact, or omitted to state any material fact required
to be stated therein or necessary to make the statements
therein not misleading, or refused to permit any lawful
examination into its afairs, it shall, in its discretion, impose
any or all of the following sanctions:
xxx xxx xxx
(b) A fine of no less than two hundred (P200.00) pesos nor
more than fifty thousand (P50,000.00) pesos plus not more
than five hundred (P500.00) pesos for each day of continuing
violation."
Petitioner complied with RSA Rule 11(a)-1 on April 30, 1998. To date, it still has
not complied with either RSA Rule 34(a)-1 or Rule 34(c)-1. That there was a
failure to submit the required reports on time is evident in the present case.
Thus. respondent was justified in imposing a fine upon it.
We reject the contention of petitioner that it was not heard on the matter of
the fine imposed. The latter was assessed after the former had failed to
respond to the SEC's first show-cause letter dated June 17, 1997. 15 In its
August 18, 1997 letter, 16 petitioner sought before the SEC en banc the
nullification of the fine. The matter was raised to the appellate court, which
then considered it. Clearly then, petitioner satisfied the essence of due process
notice and opportunity to be heard. 17 That it received adverse rulings from

both respondent and the CA does not mean that its right to be heard was
discarded.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, Vitug, Gonzaga-Reyes and Sandoval-Gutierrez, JJ., concur.
||| (Union Bank of the Phil. v. Securities & Exchange Commission, G.R. No.
138949, June 06, 2001)

SECOND DIVISION
[G.R. No. 90707. February 1, 1993.]
ONAPAL
PHILIPPINES
COMMODITIES,
INC., petitioner, vs. THE
HONORABLE
COURT
OF
APPEALS AND SUSAN CHUA, respondents.

Zosa & Quijano Law Offices for respondent.

SYLLABUS
1. CIVIL LAW; COMMODITY FUTURES CONTRACT; TRADING CONTRACTS FOR
THE PURCHASE AND SALE OF COMMODITIES FOR FUTURE DELIVERY ARE IN

THE NATURE OF GAMBLING WHERE THE PARTIES DO NOT INTEND AN ACTUAL

DELIVERY; SUCH CONTRACTS ARE UNENFORCEABLE, ILLEGAL AND VOID.
Making contracts for the purchase and sale of commodities for future delivery,
the parties not intending an actual delivery, contracts of the kind commonly
called futures, are unenforceable. This is simple speculation, gambling or
wagering on prices within a given time; it is not buying and selling and is illegal
as against public policy. It appears that petitioner and private respondent did
not intend, in the deals of purchasing and selling for future delivery, the actual
or constructive delivery of the goods/community, despite the payment of the
full price therefor. The contract between them falls under the definition of what
is called "futures". The payments made under said contract were payments of
diference in prices arising out of the rise or fall in the market price above or
below the contract price thus making it purely gambling and declared null and
void by law.
2. THE TRANSACTION UNDER THE TRADING CONTRACT IS IN THE NATURE OF A
GAMBLING AGREEMENT AND FALLS UNDER ARTICLE 2018 OF THE NEW CIVIL
CODE (NOT UNDER ARTICLE 1462) AND NEITHER UNDER THE Revised
Securities Act NOR THE RULES AND REGULATIONS AND COMMODITY FUTURES
TRADING LAID DOWN BY THE SEC. The written trading contract in question is
not illegal but the transaction between the petitioner and the private
respondent purportedly to implement the contract is in the nature of a
gambling agreement and falls within the ambit of Article 2018 of the New Civil
Code, which is quoted hereunder: "If a contract which purports to be for the
delivery of goods, securities or shares of stock is entered into with the
intention that the diference between the price stipulated and the exchange or
market price at the time of the pretended delivery shall be paid by the loser to
the winner, the transaction is null and void. The loser may recover what he has
paid." We draw the conclusion that no actual delivery of goods and commodity
was intended and ever made by the parties. In the realities of the transaction,
the parties merely speculated on the rise or fall in the price of the
goods/commodity subject matter of the transaction. If private respondent's
speculation was correct, she would be the winner and the petitioner, the loser,
so petitioner would have to pay private respondent the "margin". But if private
respondent was wrong in her speculation then she would emerge as the loser
and the petitioner, the winner. The petitioner would keep the money or collect
the diference from the private respondent. This is clearly a form of gambling
provided for with unmistakeable certainty under Article 2018 abovestated. It
should thus be governed by the New Civil Code and not by the Revised
Securities Act nor the Rules and Regulations on Commodity Futures Trading laid
down by the SEC. Article 1462 of the New Civil Code does not govern this case
because the said provision contemplates a contract of sale of specific goods
where one of the contracting parties binds himself to transfer the ownership of
and deliver a determinate thing and the other to pay therefore a price certain
in money or its equivalent. The said article requires that there be delivery of
goods, actual or constructive, to be applicable. In the transaction in question,
there was no such delivery; neither was there any intention to deliver a
determinate thing.
3. THE TRANSACTION IS NOT WHAT THE PARTIES CALL IT BUT WHAT THE LAW
DEFINES IT TO BE. The transaction is not what the parties call it but what the
law defines it to be.

DECISION

We quote hereunder the respondent Court's detailed findings

transactions between the parties:

CAMPOS, JR., J p:
This is an appeal by way of a Petition for Certiorari under Rule 45 of the Rules
of Court to annul and set aside the following actions of the Court of Appeals:
a) Decision ** in Case CA-G.R. CV No. 08924; and
b) Resolution *** denying a Motion for Reconsideration.
on the ground of grave abuse of discretion amounting to lack or excess of
jurisdiction and further ground that the decision is contrary to law and
evidence. The questioned decision upheld the trial court's findings that the
Trading Contract 1 on "futures" is a specie of gambling and therefore null
and void. Accordingly, the petitioner (as defendant in lower court) was
ordered to refund to the private respondent (as plaintif) the losses
incurred in the trading transactions.
In support of the petition, the grounds alleged are:
1) Article 2018 of the New Civil Code is inapplicable to the factual milieu of the
instant case considering that in a commodity futures transaction, the broker is
not the direct participant and cannot be considered as winner or loser and the
contract itself, from its very nature, cannot be considered as gambling.
2) A commodity futures contract, being a specie of securities, is valid and
enforceable as its terms are governed by special laws, notably the Revised
Securities Act and the Revised Rules and Regulations on Commodity Futures
Trading issued by the Securities and Exchange Commission (SEC) and
approved by the Monetary Board of the Central Bank; hence, the Civil Code is
not the controlling piece of legislation.
From the records,
proceedings. LexLib

We

gather

the

following

antecedent

facts

and

The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly

organized and existing corporation, was licensed as commission
merchant/broker by the SEC, to engage in commodity futures trading in Cebu
City under Certificate of Registration No. CEB-182. On April 27, 1983, petitioner
and private respondent concluded a "Trading Contract". Like all customers of
the petitioner, private respondent was furnished regularly with "Commodities
Daily Quotations" showing daily movements of prices of commodity futures
traded and of market reports indicating the volume of trade in diferent futures
exchanges in Hongkong, Tokyo and other centers. Every time a customer
enters into a trading transaction with petitioner as broker, the trading order is
communicated by telex to its principal, Frankwell Enterprises of Hongkong. If
the transaction, either buying or selling commodity futures, is consummated
by the principal, the petitioner issues a document known as "Confirmation of
Contract and Balance Sheet" to the customer. An order of a customer of the
petitioner is supposed to be transmitted from Cebu to petitioner's office in
Manila. From Manila, it should be forwarded to Hongkong and from there,
transmitted to the Commodity Futures Exchange in Japan.
There were only two parties involved as far as the transactions covered by the
Trading Contracts are concerned the petitioner and the private respondent.

of the

"It appears from plaintif's testimony that sometime in April

of 1983, she was invited by defendant's Account Executive
Elizabeth Diaz to invest in the commodity futures trading by
depositing the amount of P500,000.00 (Exh. "A"): She was
further told that the business is "profitable" and that she
could withdraw her money anytime; she was furthermore
instructed to go to the Onapal Office where she met the
Manager, Mr. Ciam, and the Account Executive Elizabeth Diaz
who told her that they would take care of how to trade
business and her account. She was then made to sign the
Trading Contract and other documents without making her
aware/understand the risks involved; that at the time they let
her sign "those papers" they were telling her that those
papers were for "formality sake"; that when she was told
later on that she made a profit of P20,480.00 in a span of
three days in the first transaction, they told her that the
business is "very profitable" (tsn, Francisco, March 14, 1985,
p. 11).
On June 2, 1983, plaintif was informed by Miss Diaz that she
had to deposit an additional amount of P300,000.00 "to pay
the diference" in prices, otherwise she will loss her original
deposit of P500,000.00: Fearing the loss of her original
deposit, plaintif was constrained to deposit an additional
amount of P300,000.00 (Exh. "B"): Since she was made to
understand that she could withdraw her deposit/investment
anytime, she not knowing how the business is
operated/managed as she was not made to understand what
the business was all about, she wanted to withdraw her
investment; but Elizabeth Diaz, defendant's Account
Executive, told her she could not get out because there are
some accounts hanging on the transactions. cdphil
Plaintif further testified that she understood the transaction
of buying and selling as speculating in prices, and her paying
the diference between gains and losses without actual
delivery of the goods to be gambling, and she would like to
withdraw from this kind of business, the risk of which she
was not made aware of. Plaintif further testified that she
stopped trading in commodity futures in September, 1983
when she realized that she was engaged in gambling. She
was able to get only P470,000.00 out her total deposit of
P800,000.00. In order to recover her loss of P330,000.00, she
filed this case and engaged the services of counsel for
P40,000.00 and expects to incur expenses of litigation in the
sum of P20,000.00." 2
A commodity futures contract is a specie of securities included in the broad
definition of what constitutes securities under Section 2 of the Revised
Securities Act. 3
"Sec. 2. . . . :

(a) Securities shall include bonds, . . ., commodity futures

contracts, . . ."
The Revised Rules and Regulations on Commodity Futures Trading issued by
the SEC and approved by the Monetary Board of the Central Bank defines such
contracts as follows:

"Commodity Futures Contract" shall refer to an agreement to

buy or sell a specified quantity and grade of a commodity at
a future date at a price established at the floor of the
exchange.
The petitioner is a duly licensed commodity futures broker as defined
under the Revised Rules and Regulations on Commodity Futures Trading as
follows:
"Futures Commission Merchant/Broker" shall refer to
corporation or partnership, which must be registered and
licensed as a Future Commission Merchant/Broker and is
engaged in soliciting or in accepting orders for the purchase
or sale of any commodity for future delivery on or subject to
the rules of any contract market and that, in connection with
such solicitation or acceptance of orders, accepts any
money, securities or property (or extends credit in lieu
thereof) to margin, guarantee or secure any trade or contract
that results or may result therefrom."
At the time private respondent entered into the transaction with the
petitioner, she signed a document denominated as "Trading Contract" in
printed form as prepared by the petitioner represented by its Branch
Manager, Albert Chiam, incorporating the Rules for Commodity Trading. A
copy of said contract was furnished to the private respondent but the
contents thereof were not explained to the former, beyond what was told
her by the petitioner's Account Executive Elizabeth Diaz. Private
respondent was also told that the petitioner's principal was Frankwell
Enterprises with offices in Hongkong but the private respondent's money
which was supposed to have been transmitted to Hongkong, was kept by
petitioner in a separate account in a local bank.
Petitioner now contends that commodity futures trading is a legitimate
business practiced in the United States, recognized by the SEC and permitted
under the Civil Code, specifically Article 1462 thereof, quoted as follows:
"The goods which form the subject of a contract of sale may
be either existing goods, owned or possessed by the seller,
or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale, in this Title
called "future goods"
There may be a contract of sale of goods, whose acquisition
by the seller depends upon a contingency which may or may
not happen." Cdpr
Petitioner further argues that the SEC, in the exercise of its powers, authorized
the operation of commodity exchanges to supervise and regulate commodity
futures trading. 4

The contract between the parties falls under the kind commonly called
"futures". In the late 1880's, trading in futures become rampant in the
purchase and sale of cotton and grain in the United States, giving rise to
unregulated trading exchanges known as "bucket shops". These were common
in Chicago and New York City where cotton from the South and grain from the
Mid-west were constantly traded in. The name of the party to whom the seller
was to make delivery when the future contract of sale was closed or from
whom he was to receive delivery in case of purchase is not given in the
memorandum (contract). The business dealings between the parties were
terminated by the closing of the transaction of purchase and sale of
commodities without directions of the buyer because his margins were
exhausted. 5 Under the rules of the trading exchanges, weekly settlements
were required if there was any diference in the prices of cotton between those
obtaining at the time of the contract and at the date of delivery so that under
the contract made by the purchaser, if the price of cotton had advanced, he
would have received in cash from the seller each week the advance (increase)
in price and if cotton prices declined, the purchaser had to make like payments
to the seller. In the terminology of the exchange, these payments are called
"margins". 6 Either the seller or the buyer may elect to make or demand
delivery of the cotton agreed to be sold and bought, but in general, it seems
practically a uniform custom that settlements are made by payments and
receipts of diference in prices at the time of delivery from that prevailing at
the time of payment of the last weekly "margins". These settlements are made
by "closing out" the contracts. 7 Where the broker represented the buyer in
buying and selling cotton for future delivery with himself extending credit
margins, and some of the transactions were closed at a profit while others at a
loss, payments being made of the diference in prices arising out of their rise
or fall above or below the contract price, and the facts showed that no actual
delivery of cotton was contemplated, such contracts are of the kind commonly
called "futures". 8 Making contracts for the purchase and sale of commodities
for future delivery, the parties not intending an actual delivery, contracts of the
kind commonly called futures, are unenforceable. 9
The term "futures" has grown out of those purely speculative transactions in
which there are nominal contracts to sell for future delivery, but where in fact
no delivery is intended or executed. The nominal seller does not have or
expect to have a stock of merchandise he purports to sell nor does the nominal
buyer expect to receive it or to pay for the price. Instead of that, a percentage
or margin is paid, which is increased or diminished as the market rates go up
and down, and accounted for to the buyer. This is simple speculation, gambling
or wagering on prices within a given time; it is not buying and selling and is
illegal as against public policy. 10
The facts as disclosed by the evidence on record show that private respondent
made arrangements with Elizabeth Diaz, Account Executive of petitioner for
her to see Mr. Albert Chiam, petitioner's Branch Manager. The contract signed
by private respondent purports to be for the delivery of goods with the
intention that the diference between the price stipulated and the exchange or
market price at the time of the pretended delivery shall be paid by the loser to
the winner. We quote with approval the following findings of the trial court as
cited in the Court of Appeals decision:
"The evidence of the plaintif tend to show that in her
transactions with the defendant, the parties never intended
to make or accept delivery of any particular commodity but

the parties merely made a speculation on the rise or fall in

the market of the contract price of the commodity, subject of
the transaction, on the pretended date of delivery so that if
the forecast was correct, one party would make a profit, but
if the forecast was wrong, one party would lose money. Under
this scheme, plaintif was only able to recover P470,000.00
out of her original and "additional" deposit of P800,000.00
with the defendant.
The defendant admits that in all the transactions that it had
with the plaintif, there was (sic) no actual deliveries and that
it has made no arrangements with the Central Bank for the
remittance of its customers' money abroad but defendant
contends in its defense that the mere fact that there were no
actual deliveries made in the transactions which plaintif had
with the defendant, did not mean that no such actual
deliveries were intended by the parties since paragraph 10 of
the rules for commodity trading, attached to the trading
contract which plaintif signed before she traded with the
defendant, amply provided for actual delivery of the
commodity subject of the transaction.
The court has, therefore, to find out from all the facts and
circumstances of this case, whether the parties really
intended to make or accept deliveries of the commodities
traded or whether the defendant merely placed a provision
for delivery in its rules for commodity futures trading so as to
escape from being called a bucket shop. . . . prLL
xxx xxx xxx
. . . the court is convinced that the parties never really
intended to make or accept delivery of any commodity being
traded as, in fact, the unrebutted testimony of Mr. Go is to
the efect that all the defendant's customers were mere
speculators who merely forecast the rise or fall in the market
of the commodity, subject of the transaction, below or above
the contract price on the pretended date of delivery and, in
fact, the defendant even discourages its customers from
taking or accepting delivery of any commodity by making it
hard, if not impossible, for them to make or accept delivery
of any commodity. Proof of this is paragraph 10(d) of
defendant's rules for commodity trading which provides that
the customer shall apply for the necessary licenses and
documents with the proper government agency for the
importation and exportation of any particular commodity." 11
The trading contract signed by private respondent and Albert Chiam,
representing petitioner, is a contract for the sale of products for future
delivery, in which either seller or buyer may elect to make or demand delivery
of goods agreed to be bought and sold, but where no such delivery is actually
made. By delivery is meant the act by which the res or subject is placed in the
actual or constructive possession or control of another. It may be actual as
when physical possession is given to the vendee or his representative; or
constructive which takes place without actual transfer of goods, but includes
symbolic delivery or substituted delivery as when the evidence of title to the

goods, the key to the warehouse or bill of lading/warehouse receipt is

delivered. 12 As a contract in printed form, prepared by petitioner and served
on private respondent, for the latter's signature, the trading contract bears all
the indicia of a valid trading contract because it complies with the Rules and
Regulations on Commodity Futures Trading as prescribed by the SEC. But when
the transaction which was carried out to implement the written contract
deviates from the true import of the agreement as when no such delivery,
actual or constructive, of the commodity or goods is made, and final
settlement is made by payment and receipt of only the diference in prices at
the time of delivery from that prevailing at the time the sale is made, the
dealings in futures become mere speculative contracts in which the parties
merely gamble on the rise or fall in prices. A contract for the sale or purchase
of goods/commodity to be delivered at future time, if entered into without the
intention of having any goods/commodity pass from one party to another, but
with an understanding that at the appointed time, the purchaser is merely to
receive or pay the diference between the contract and the market prices, is a
transaction which the law will not sanction, for being illegal. 13

The written trading contract in question is not illegal but the transaction
between the petitioner and the private respondent purportedly to implement
the contract is in the nature of a gambling agreement and falls within the
ambit of Article 2018 of the New Civil Code, which is quoted hereunder:
"If a contract which purports to be for the delivery of goods,
securities or shares of stock is entered into with the intention
that the diference between the price stipulated and the
exchange or market price at the time of the pretended
delivery shall be paid by the loser to the winner, the
transaction is null and void. The loser may recover what he
has paid."
The facts clearly establish that the petitioner is a direct participant in the
transaction, acting through its authorized agents. It received the customers'
orders and private respondent's money. As per terms of the trading contract,
customers' orders shall be directly transmitted by the petitioner as broker to its
principal, Frankwell Enterprises Ltd. of Hongkong, being a registered member
of the International Commodity Clearing House, which in turn must place the
customers' orders with the Tokyo Exchange. There is no evidence that the
orders and money were transmitted to its principal Frankwell Enterprises Ltd. in
Hongkong nor were the orders forwarded to the Tokyo Exchange. We draw the
conclusion that no actual delivery of goods and commodity was intended and
ever made by the parties. In the realities of the transaction, the parties merely
speculated on the rise or fall in the price of the goods/commodity subject
matter of the transaction. If private respondent's speculation was correct, she
would be the winner and the petitioner, the loser, so petitioner would have to
pay private respondent the "margin". But if private respondent was wrong in
her speculation then she would emerge as the loser and the petitioner, the
winner. The petitioner would keep the money or collect the diference from the
private respondent. This is clearly a form of gambling provided for with
unmistakeable certainty under Article 2018 above stated. It should thus be
governed by the New Civil Code and not by the Revised Securities Act nor the
Rules and Regulations on Commodity Futures Trading laid down by the
SEC. cdrep

Article 1462 of the New Civil Code does not govern this case because the said
provision contemplates a contract of sale of specific goods where one of the
contracting parties binds himself to transfer the ownership of and deliver a
determinate thing and the other to pay therefore a price certain in money or its
equivalent. 14 The said article requires that there be delivery of goods, actual
or constructive, to be applicable. In the transaction in question, there was no
such delivery; neither was there any intention to deliver a determinate thing.
The transaction is not what the parties call it but what the law defines it to
be. 15
After considering all the evidence in this case, it appears that petitioner and
private respondent did not intend, in the deals of purchasing and selling for
future delivery, the actual or constructive delivery of the goods/community,
despite the payment of the full price therefor. The contract between them falls
under the definition of what is called "futures". The payments made under said
contract were payments of diference in prices arising out of the rise or fall in
the market price above or below the contract price thus making it purely
gambling and declared null and void by law. 16
In England and America where contracts commonly called futures originated,
such contracts were at first held valid and could be enforced by resort to
courts. Later these contracts were held invalid for being speculative, and in
some states in America, it was unlawful to make contracts commonly called
"futures". Such contracts were found to be mere gambling or wagering
agreements covered and protected by the rules and regulations of exchange in
which they were transacted under devices which rendered it impossible for the
courts to discover their true character. 17 The evil sought to be suppressed by
legislation is the speculative dealings by means of such trading contracts,
which degenerated into mere gambling in the future price of
goods/commodities ostensibly but not actually, bought or sold. 18
Under Article 2018, the private respondent is entitled to refund from the
petitioner what she paid. There is no evidence that the orders of private
respondent were actually transmitted to the petitioner's principal in Hongkong
and Tokyo. There was no arrangement made by petitioner with the Central
Bank for the purpose of remitting the money of its customers abroad. The
money which was supposed to be remitted to Frankwell Enterprises of
Hongkong was kept by petitioner in a separate account in a local bank. Having
received the money and orders of private respondent under the trading
contract, petitioner has the burden of proving that said orders and money of
private respondent had been transmitted. But petitioner failed to prove this
point.
For reasons indicated and construed in the light of the applicable rules and
under the plain language of the statute, We find no reversible error committed
by the respondent Court that would justify the setting aside of the questioned
decision and resolution. For lack of merit, the petition is DISMISSED and the
judgment sought to be reversed is hereby AFFIRMED. With costs against
petitioner.
SO ORDERED.

THIRD DIVISION
[G.R. No. 171815. August 7, 2007.]
CEMCO HOLDINGS, INC., petitioner, vs. NATIONAL LIFE
INSURANCE
COMPANY
OF
THE
PHILIPPINES,
INC., respondent.

Narvasa, C . J ., Feliciano, Regalado and Nocon, JJ., concur.

||| (ONAPAL Philippines Commodities, Inc. v. Court of Appeals, G.R. No. 90707,
February 01, 1993)

DECISION

CHICO-NAZARIO, J p:
This Petition for Review under Rule 45 of the Rules of Court seeks to reverse
and set aside the 24 October 2005 Decision 1 and the 6 March 2006
Resolution 2 of the Court of Appeals in CA-G.R. SP No. 88758 which affirmed
the judgment 3 dated 14 February 2005 of the Securities and Exchange
Commission (SEC) finding that the acquisition of petitioner Cemco Holdings,
Inc. (Cemco) of the shares of stock of Bacnotan Consolidated Industries, Inc.
(BCI) and Atlas Cement Corporation (ACC) in Union Cement Holdings
Corporation (UCHC) was covered by the Mandatory Ofer Rule under Section 19
of Republic Act No. 8799, otherwise known as The Securities Regulation
Code. AaEDcS
The Facts
Union Cement Corporation (UCC), a publicly-listed company, has two principal
stockholders UCHC, a non-listed company, with shares amounting to
60.51%, and petitioner Cemco with 17.03%. Majority of UCHC's stocks were
owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand,
owned 9% of UCHC stocks.
In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock
Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to
Cemco BCI's stocks in UCHC equivalent to 21.31% and ACC's stocks in UCHC
equivalent to 29.69%.
In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated
that as a result of petitioner Cemco's acquisition of BCI and ACC's shares in
UCHC, petitioner's total beneficial ownership, direct and indirect, in UCC has
increased by 36% and amounted to at least 53% of the shares of UCC, to wit: 4
Particulars Percentage
Existing shares of Cemco in UCHC 9%
Acquisition by Cemco of BCI's and ACC's shares in UCHC 51%
Total stocks of Cemco in UCHC 60%
Percentage of UCHC ownership in UCC 60%
Indirect ownership of Cemco in UCC 36%
Direct ownership of Cemco in UCC 17%
Total ownership of Cemco in UCC 53%
As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15
July 2004, inquired as to whether the Tender Ofer Rule under Rule 19 of the
Implementing Rules ofThe Securities Regulation Code is not applicable to the
purchase by petitioner of the majority of shares of UCC.
In a letter dated 16 July 2004, Director Justina Callangan of the SEC's Corporate
Finance Department responded to the query of the PSE that while it was the
stance of the department that the tender ofer rule was not applicable, the
matter must still have to be confirmed by the SEC en banc. caHASI
Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan
confirmed that the SEC en banc had resolved that the Cemco transaction was
not covered by the tender ofer rule.

On 28 July 2004, feeling aggrieved by the transaction, respondent National Life

Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent
a letter to Cemco demanding the latter to comply with the rule on mandatory
tender ofer. Cemco, however, refused.
On 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI,
as sellers, and Cemco, as buyer.
On 12 August 2004, the transaction was consummated and closed.
On 19 August 2004, respondent National Life Insurance Company of the
Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July
2004 Resolution and to declare the purchase agreement of Cemco void and
praying that the mandatory tender ofer rule be applied to its UCC shares.
Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC, which were
then required by the SEC to file their respective comment on the complaint. In
their comments, they were uniform in arguing that the tender ofer rule applied
only to a direct acquisition of the shares of the listed company and did not
extend to an indirect acquisition arising from the purchase of the shares of a
holding company of the listed firm.
In a Decision dated 14 February 2005, the SEC ruled in favor of the respondent
by reversing and setting aside its 27 July 2004 Resolution and directed
petitioner Cemco to make a tender ofer for UCC shares to respondent and
other holders of UCC shares similar to the class held by UCHC in accordance
with Section 9 (E), Rule 19 of The Securities Regulation Code.
Petitioner filed a petition with the Court of Appeals challenging the SEC's
jurisdiction to take cognizance of respondent's complaint and its authority to
require Cemco to make a tender ofer for UCC shares, and arguing that the
tender ofer rule does not apply, or that the SEC's re-interpretation of the rule
could not be made to retroactively apply to Cemco's purchase of UCHC shares.
The Court of Appeals rendered a decision affirming the ruling of the SEC. It
ruled that the SEC has jurisdiction to render the questioned decision and, in
any event, Cemco was barred by estoppel from questioning the SEC's
jurisdiction. It, likewise, held that the tender ofer requirement under The
Securities Regulation Code and its Implementing Rules applies to Cemco's
purchase of UCHC stocks. The decretal portion of the said Decision reads:
IN VIEW OF THE FOREGOING, the assailed decision of the SEC
is AFFIRMED, and the preliminary injunction issued by the
Court LIFTED. 5 IHcSCA
Cemco filed a motion for reconsideration which was denied by the Court of
Appeals.
Hence, the instant petition.
In its memorandum, petitioner Cemco raises the following issues:
I.
ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION
OVER NATIONAL LIFE'S COMPLAINT AND THAT THE SEC'S REINTERPRETATION OF THE TENDER OFFER RULE IS CORRECT,
WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED
RETROACTIVELY TO CEMCO'S PREJUDICE.

II.
WHETHER OR NOT THE SEC HAS JURISDICTION TO
ADJUDICATE THE DISPUTE BETWEEN THE PARTIES A QUO OR
TO RENDER JUDGMENT REQUIRING CEMCO TO MAKE A
TENDER OFFER FOR UCC SHARES.
III.
WHETHER OR NOT CEMCO'S PURCHASE OF UCHC SHARES IS
SUBJECT TO THE TENDER OFFER REQUIREMENT.
IV.
WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE
CA DECISION, IS AN INCOMPLETE JUDGMENT WHICH
PRODUCED NO EFFECT. 6
Simply stated, the following are the issues:
1. Whether or not the SEC has jurisdiction over respondent's
complaint and to require Cemco to make a tender
ofer for respondent's UCC shares.
2. Whether or not the rule on mandatory tender ofer applies
to the indirect acquisition of shares in a listed
company, in this case, the indirect acquisition by
Cemco of 36% of UCC, a publicly-listed company,
through its purchase of the shares in UCHC, a nonlisted company.
3. Whether or not the questioned ruling of the SEC can be
applied retroactively to Cemco's transaction which
was consummated under the authority of the SEC's
prior resolution.
On the first issue, petitioner Cemco contends that while the SEC can take
cognizance of respondent's complaint on the alleged violation by petitioner
Cemco of the mandatory tender ofer requirement under Section 19 of Republic
Act No. 8799, the same statute does not vest the SEC with jurisdiction to
adjudicate and determine the rights and obligations of the parties since, under
the same statute, the SEC's authority is purely administrative. Having been
vested with purely administrative authority, the SEC can only impose
administrative sanctions such as the imposition of administrative fines, the
suspension or revocation of registrations with the SEC, and the like. Petitioner
stresses that there is nothing in the statute which authorizes the SEC to issue
orders granting affirmative reliefs. Since the SEC's order commanding it to
make a tender ofer is an affirmative relief fixing the respective rights and
obligations of parties, such order is void. AHTICD
Petitioner further contends that in the absence of any specific grant of
jurisdiction by Congress, the SEC cannot, by mere administrative regulation,
confer on itself that jurisdiction.
Petitioner's stance fails to persuade.
In taking cognizance of respondent's complaint against petitioner and
eventually rendering a judgment which ordered the latter to make a tender

ofer, the SEC was acting pursuant to Rule 19 (13) of the Amended
Implementing Rules and Regulations of The Securities Regulation Code, to wit:
13. Violation
If there shall be violation of this Rule by pursuing a purchase
of equity shares of a public company at threshold amounts
without the required tender ofer, the Commission, upon
complaint, may nullify the said acquisition and direct the
holding of a tender ofer. This shall be without prejudice to
the imposition of other sanctions under the Code.
The foregoing rule emanates from the SEC's power and authority to regulate,
investigate or supervise the activities of persons to ensure compliance
with The Securities Regulation Code, more specifically the provision on
mandatory tender ofer under Section 19 thereof. 7
Another provision of the statute, which provides the basis of Rule 19 (13) of the
Amended Implementing Rules and Regulations of The Securities Regulation
Code, is Section 5.1 (n), viz:
[T]he Commission shall have, among others, the following
powers and functions:
xxx xxx xxx
(n) Exercise such other powers as may be provided by law as
well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives
and purposes of these laws.
The foregoing provision bestows upon the SEC the general
adjudicative power which is implied from the express powers of the
Commission or which is incidental to, or reasonably necessary to carry out,
the performance of the administrative duties entrusted to it. As a
regulatory agency, it has the incidental power to conduct hearings and
render decisions fixing the rights and obligations of the parties. In fact, to
deprive the SEC of this power would render the agency inutile, because it
would become powerless to regulate and implement the law. As correctly
held by the Court of Appeals: aTSEcA
We are nonetheless convinced that the SEC has the
competence to render the particular decision it made in this
case. A definite inference may be drawn from the provisions
of the SRC that the SEC has the authority not only to
investigate complaints of violations of the tender ofer rule,
but to adjudicate certain rights and obligations of the
contending parties and grant appropriate reliefs in the
exercise of its regulatory functions under the SRC. Section
5.1 of the SRC allows a general grant of adjudicative powers
to the SEC which may be implied from or are necessary or
incidental to the carrying out of its express powers to
achieve the objectives and purposes of the SRC. We must
bear in mind in interpreting the powers and functions of the
SEC that the law has made the SEC primarily a regulatory

body with the incidental power to conduct administrative

hearings and make decisions. A regulatory body like the SEC
may conduct hearings in the exercise of its regulatory
powers, and if the case involves violations or conflicts in
connection with the performance of its regulatory functions,
it will have the duty and authority to resolve the dispute for
the best interests of the public. 8
For sure, the SEC has the authority to promulgate rules and regulations,
subject to the limitation that the same are consistent with the declared policy
of the Code. Among them is the protection of the investors and the
minimization, if not total elimination, of fraudulent and manipulative devises.
Thus, Subsection 5.1 (g) of the law provides:
Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulations and
orders.
Also, Section 72 of The Securities Regulation Code reads:
72.1. . . . To efect the provisions and purposes of this Code,
the Commission may issue, amend, and rescind such rules
and regulations and orders necessary or appropriate, . . . .
72.2. The Commission shall promulgate rules and
regulations providing for reporting, disclosure and the
prevention of fraudulent, deceptive or manipulative practices
in connection with the purchase by an issuer, by tender ofer
or otherwise, of and equity security of a class issued by it
that satisfies the requirements of Subsection 17.2. Such rules
and regulations may require such issuer to provide holders of
equity securities of such dates with such information relating
to the reasons for such purchase, the source of funds, the
number of shares to be purchased, the price to be paid for
such securities, the method of purchase and such additional
information as the Commission deems necessary or
appropriate in the public interest or for the protection of
investors, or which the Commission deems to be material to
a determination by holders whether such security should be
sold. SAHIaD
The power conferred upon the SEC to promulgate rules and regulations is a
legislative recognition of the complexity and the constantly-fluctuating nature
of the market and the impossibility of foreseeing all the possible contingencies
that cannot be addressed in advance. As enunciated in Victorias Milling Co.,
Inc. v. Social Security Commission: 9
Rules and regulations when promulgated in pursuance of the
procedure or authority conferred upon the administrative
agency by law, partake of the nature of a statute, and
compliance therewith may be enforced by a penal sanction
provided in the law. This is so because statutes are usually
couched in general terms, after expressing the policy,
purposes, objectives, remedies and sanctions intended by
the legislature. The details and the manner of carrying out
the law are often times left to the administrative agency

entrusted with its enforcement. In this sense, it has been said

that rules and regulations are the product of a delegated
power to create new or additional legal provisions that have
the efect of law.
Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It
must be pointed out that petitioner had participated in all the proceedings
before the SEC and had prayed for affirmative relief. In fact, petitioner
defended the jurisdiction of the SEC in its Comment dated 15 September 2004,
filed with the SEC wherein it asserted:
This Honorable Commission is a highly specialized body
created for the purpose of administering, overseeing, and
managing the corporate industry, share investment and
securities market in the Philippines. By the very nature of its
functions, it dedicated to the study and administration of the
corporate and securities laws and has necessarily developed
an expertise on the subject. Based on said functions, the
Honorable Commission is necessarily tasked to issue rulings
with respect to matters involving corporate matters and
share acquisitions. Verily when this Honorable Commission
rendered the Ruling that " . . . the acquisition of Cemco
Holdings of the majority shares of Union Cement Holdings,
Inc., a substantial stockholder of a listed company, Union
Cement Corporation, is not covered by the mandatory tender
ofer requirement of the SRC Rule 19," it was well within its
powers and expertise to do so. Such ruling shall be
respected, unless there has been an abuse or improvident
exercise of authority. 10
Petitioner did not question the jurisdiction of the SEC when it rendered an
opinion favorable to it, such as the 27 July 2004 Resolution, where the SEC
opined that the Cemco transaction was not covered by the mandatory tender
ofer rule. It was only when the case was before the Court of Appeals and after
the SEC rendered an unfavorable judgment against it that petitioner
challenged the SEC's competence. As articulated in Ceroferr Realty
Corporation v. Court of Appeals: 11 ESHAIC
While the lack of jurisdiction of a court may be raised at any
stage of an action, nevertheless, the party raising such
question may be estopped if he has actively taken part in the
very proceedings which he questions and he only objects to
the court's jurisdiction because the judgment or the order
subsequently rendered is adverse to him.
On the second issue, petitioner asserts that the mandatory tender ofer rule
applies only to direct acquisition of shares in the public company.
This contention is not meritorious.
Tender ofer is a publicly announced intention by a person acting alone or in
concert with other persons to acquire equity securities of a public
company. 12 A public company is defined as a corporation which is listed on an
exchange, or a corporation with assets exceeding P50,000,000.00 and with
200 or more stockholders, at least 200 of them holding not less than 100
shares of such company. 13 Stated diferently, a tender ofer is an ofer by the
acquiring person to stockholders of a public company for them to tender their

shares therein on the terms specified in the ofer. 14 Tender ofer is in place to
protect minority shareholders against any scheme that dilutes the share value
of their investments. It gives the minority shareholders the chance to exit the
company under reasonable terms, giving them the opportunity to sell their
shares at the same price as those of the majority shareholders. 15
Under Section 19 of Republic Act No. 8799, it is stated:
Tender Offers. 19.1. (a) Any person or group of persons
acting in concert who intends to acquire at least fifteen
percent (15%) of any class of any equity security of a listed
corporation or of any class of any equity security of a
corporation with assets of at least Fifty million pesos
(P50,000,000.00) and having two hundred (200) or more
stockholders with at least one hundred (100) shares each or
who intends to acquire at least thirty percent (30%) of such
equity over a period of twelve (12) months shall make a
tender ofer to stockholders by filing with the Commission a
declaration to that efect; and furnish the issuer, a statement
containing such of the information required in Section 17 of
this Code as the Commission may prescribe. Such person or
group of persons shall publish all requests or invitations for
tender, or materials making a tender ofer or requesting or
inviting letters of such a security. Copies of any additional
material soliciting or requesting such tender ofers
subsequent to the initial solicitation or request shall contain
such information as the Commission may prescribe, and shall
be filed with the Commission and sent to the issuer not later
than the time copies of such materials are first published or
sent or given to security holders.
Under existing SEC Rules, 16 the 15% and 30% threshold acquisition of shares
under the foregoing provision was increased to thirty-five percent (35%). It is
further provided therein that mandatory tender ofer is still applicable even if
the acquisition is less than 35% when the purchase would result in ownership
of over 51% of the total outstanding equity securities of the public
company. 17 THaAEC
The SEC and the Court of Appeals ruled that the indirect acquisition by
petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC
shares is covered by the mandatory tender ofer rule.
This interpretation given by the SEC and the Court of Appeals must be
sustained.
The rule in this jurisdiction is that the construction given to a statute by an
administrative agency charged with the interpretation and application of that
statute is entitled to great weight by the courts, unless such construction is
clearly shown to be in sharp contrast with the governing law or statute. 18 The
rationale for this rule relates not only to the emergence of the multifarious
needs of a modern or modernizing society and the establishment of diverse
administrative agencies for addressing and satisfying those needs; it also
relates to accumulation of experience and growth of specialized capabilities by
the administrative agency charged with implementing a particular statute. 19

The SEC and the Court of Appeals accurately pointed out that the coverage of
the mandatory tender ofer rule covers not only direct acquisition but also
indirect acquisition or "any type of acquisition". This is clear from the
discussions of the Bicameral Conference Committee on the Securities Act of
2000, on 17 July 2000.
SEN. S. OSMEA.
Eto ang mangyayari diyan, eh. Somebody controls 67% of
the Company. Of course, he will pay a premium for
the first 67%. Control yan, eh. Eh, kawawa yung mga
maiiwan, ang 33% because the value of the stock
market could go down, could go down after that,
because there will (p. 41) be no more market. Wala
nang gustong bumenta. Wala nang . . . I mean
maraming gustong bumenta, walang gustong bumili
kung hindi yung majority owner. And they will not
buy. They already have 67%. They already have
control. And this protects the minority. And we have
had a case in Cebu wherein Ayala A who already
owned 40% of Ayala B made an ofer for another 40%
of Ayala B without ofering the 20%. Kawawa naman
yung nakahawak ngayon ng 20%. Ang baba ng share
sa market. But we did not have a law protecting
them at that time.
CHAIRMAN ROCO.
So what is it that you want to achieve?
SEN. S. OSMEA.
That if a certain group achieves a certain amount of
ownership in a corporation, yeah, he is obligated to
buy anybody who wants to sell.
CHAIRMAN ROCO.
Pro-rata lang. (p. 42).
xxx xxx xxx
REP. TEODORO.
As long as it reaches 30, ayan na. Any type of acquisition
just as long as it will result in 30 . . . (p. 50) . . .
reaches 30, ayan na. Any type of acquisition just
as long as it will result in 30, general tender,
pro-rata. 20 (Emphasis supplied.) cHSTEA
Petitioner counters that the legislator's reference to "any type of acquisition"
during the deliberations on The Securities Regulation Code does not indicate
that congress meant to include the "indirect" acquisition of shares of a public
corporation to be covered by the tender ofer rule. Petitioner also avers that it
did not directly acquire the shares in UCC and the incidental benefit of having
acquired the control of the said public company must not be taken against it.
These arguments are not convincing. The legislative intent of Section 19 of the
Code is to regulate activities relating to acquisition of control of the listed

company and for the purpose of protecting the minority stockholders of a listed
corporation. Whatever may be the method by which control of a public
company is obtained, either through the direct purchase of its stocks or
through an indirect means, mandatory tender ofer applies. As appropriately
held by the Court of Appeals:
The petitioner posits that what it acquired were stocks of
UCHC and not UCC. By happenstance, as a result of the
transaction, it became an indirect owner of UCC. We are
constrained, however, to construe ownership acquisition to
mean both direct and indirect. What is decisive is the
determination of the power of control. The legislative intent
behind the tender ofer rule makes clear that the type of
activity intended to be regulated is the acquisition of control
of the listed company through the purchase of shares.
Control may [be] efected through a direct and indirect
acquisition of stock, and when this takes place, irrespective
of the means, a tender ofer must occur. The bottomline of
the law is to give the shareholder of the listed company the
opportunity to decide whether or not to sell in connection
with a transfer of control. . . . . 21
As to the third issue, petitioner stresses that the ruling on mandatory tender
ofer rule by the SEC and the Court of Appeals should not have retroactive
efect or be made to apply to its purchase of the UCHC shares as it relied in
good faith on the letter dated 27 July 2004 of the SEC which opined that the
proposed acquisition of the UCHC shares was not covered by the mandatory
ofer rule.
The argument is not persuasive.
The action of the SEC on the PSE request for opinion on the Cemco transaction
cannot be construed as passing merits or giving approval to the questioned
transaction. As aptly pointed out by the respondent, the letter dated 27 July
2004 of the SEC was nothing but an approval of the draft letter prepared by
Director Callanga. There was no public hearing where interested parties could
have been heard. Hence, it was not issued upon a definite and concrete
controversy afecting the legal relations of parties thereby making it a
judgment conclusive on all the parties. Said letter was merely advisory.
Jurisprudence has it that an advisory opinion of an agency may be stricken
down if it deviates from the provision of the statute. 22 Since the letter dated
27 July 2004 runs counter to The Securities Regulation Code, the same may be
disregarded as what the SEC has done in its decision dated 14 February
2005. TEDaAc
Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the
same cannot be utilized to determine the rights of the parties. What is to be
applied in the present case is the subsequent ruling of the SEC dated 14
February 2005 abandoning the opinion embodied in the letter dated 27 July
2004. In Serrano v. National Labor Relations Commission, 23 an argument was
raised similar to the case under consideration. Private respondent therein
argued that the new doctrine pronounced by the Court should only be applied
prospectively. Said postulation was ignored by the Court when it ruled:
While a judicial interpretation becomes a part of the law as of
the date that law was originally passed, this is subject to the

qualification that when a doctrine of this Court is overruled

and a diferent view is adopted, and more so when there is a
reversal thereof, the new doctrine should be applied
prospectively and should not apply to parties who relied on
the old doctrine and acted in good faith. To hold otherwise
would be to deprive the law of its quality of fairness and
justice then, if there is no recognition of what had transpired
prior to such adjudication.
It is apparent that private respondent misconceived the
import of the ruling. The decision in Columbia Pictures does
not mean that if a new rule is laid down in a case, it should
not be applied in that case but that said rule should apply
prospectively
to
cases
arising
afterwards.
Private
respondent's view of the principle of prospective application
of new judicial doctrines would turn the judicial function into
a mere academic exercise with the result that the doctrine
laid down would be no more than a dictum and would
deprive the holding in the case of any force.
Indeed, when the Court formulated the Wenphil doctrine,
which we reversed in this case, the Court did not defer
application of the rule laid down imposing a fine on the
employer for failure to give notice in a case of dismissal for
cause. To the contrary, the new rule was applied right then
and there. . . . .
Lastly, petitioner alleges that the decision of the SEC dated 14 February 2005
is "incomplete and produces no efect".
This contention is baseless.
The decretal portion of the SEC decision states:
In view of the foregoing, the letter of the Commission, signed
by Director Justina F. Callangan, dated July 27, 2004,
addressed to the Philippine Stock Exchange is hereby
REVERSED and SET ASIDE. Respondent Cemco is hereby
directed to make a tender ofer for UCC shares to
complainant and other holders of UCC shares similar to the
class held by respondent UCHC, at the highest price it paid
for the beneficial ownership in respondent UCC, strictly in
accordance with SRC Rule 19, Section 9 (E). 24
A reading of the above ruling of the SEC reveals that the same is complete. It
orders the conduct of a mandatory tender ofer pursuant to the procedure
provided for under Rule 19 (E) of the Amended Implementing Rules and
Regulations of The Securities Regulation Code for the highest price paid for the
beneficial ownership of UCC shares. The price, on the basis of the SEC decision,
is determinable. Moreover, the implementing rules and regulations of the Code
are sufficient to inform and guide the parties on how to proceed with the
mandatory tender ofer.
WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24
October 2005 and 6 March 2006, respectively, affirming the Decision dated 14
February 2005 of the Securities and Exchange Commission En Banc, are
hereby AFFIRMED. Costs against petitioner. ASICDH

SO ORDERED.
Ynares-Santiago, Austria-Martinez and Nachura, JJ., concur.

ABACUS
SECURITIES
CORPORATION, petitioner, vs.
RUBEN U. AMPIL, respondent.

||| (Cemco Holdings, Inc. v. National Life Insurance Co. of the Philippines, Inc.,
G.R. No. 171815, August 07, 2007)

DECISION

PANGANIBAN, C.J p:
Stock market transactions afect the general public and the national economy.
The rise and fall of stock market indices reflect to a considerable degree the
state of the economy. Trends in stock prices tend to herald changes in business
conditions. Consequently, securities transactions are impressed with public
interest, and are thus subject to public regulation. In particular, the laws and
regulations requiring payment of traded shares within specified periods are
meant to protect the economy from excessive stock market speculations, and
are thus mandatory.
In the present case, respondent cannot escape payment of stocks validly
traded by petitioner on his behalf. These transactions took place before both
parties violated the trading law and rules. Hence, they fall outside the purview
of the pari delicto rule.
The Case
Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court,
challenging the March 21, 2003 Decision 2 and the September 19, 2003
Resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 68273. The
assailed Decision disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE THUS, this
appeal is hereby DISMISSED. With costs." 4
The CA denied reconsideration in its September 19, 2003 Resolution.
The Facts
The factual antecedents were summarized by the trial court (and reproduced
by the CA in its assailed Decision) in this wise:
"Evidence adduced by the [petitioner] has established the
fact that [petitioner] is engaged in business as a broker and
dealer of securities of listed companies at the Philippine
Stock Exchange Center.
"Sometime in April 1997, [respondent] opened a cash or
regular account with [petitioner] for the purpose of buying
and selling securities as evidenced by the Account
Application Form. The parties' business relationship was
governed by the terms and conditions [stated therein] . . . .
FIRST DIVISION
[G.R. No. 160016. February 27, 2006.]

"Since April 10, 1997, [respondent] actively traded his

account, and as a result of such trading activities, he
accumulated an outstanding obligation in favor of
[petitioner] in the principal sum of P6,617,036.22 as of April
30, 1997. HSIADc

"Despite the lapse of the period within which to pay his

account as well as sufficient time given by [petitioner] for
[respondent] to comply with his proposal to settle his
account, the latter failed to do so. Such that [petitioner]
thereafter sold [respondent's] securities to set-of against his
unsettled obligations.
"After the sale of [respondent's] securities and application of
the proceeds thereof against his account, [respondent's]
remaining
unsettled
obligation
to
[petitioner]
was
P3,364,313.56. [Petitioner] then referred the matter to its
legal counsel for collection purposes.
"In a letter dated August 15, 1997, [petitioner] through
counsel demanded that [respondent] settle his obligation
plus the agreed penalty charges accruing thereon equivalent
to the average 90-day Treasury Bill rate plus 2% per annum
(200 basis points).
"In a letter dated August [26], 1997, [respondent]
acknowledged receipt of [petitioner's] demand [letter] and
admitted his unpaid obligation and at the same time
request[ed] for 60 days to raise funds to pay the same, which
was granted by [petitioner].
"Despite said demand and the lapse of said requested
extension, [respondent] failed and/or refused to pay his
accountabilities to [petitioner].
"For his defense, [respondent] claims that he was induced to
trade in a stock security with [petitioner] because the latter
allowed ofset settlements wherein he is not obliged to pay
the purchase price. Rather, it waits for the customer to sell.
And if there is a loss, [petitioner] only requires the payment
of the deficiency (i.e., the diference between the higher
buying price and the lower selling price). In addition, it
charges a commission for brokering the sale.
"However, if the customer sells and there is a profit,
[petitioner] deducts the purchase price and delivers only the
surplus after charging its commission.
"[Respondent] further claims that all his trades with
[petitioner] were not paid in full in cash at anytime after
purchase or within the T+4 [4 days subsequent to trading]
and none of these trades was cancelled by [petitioner] as
required in Exhibit 'A-1'. Neither did [petitioner] apply with
either the Philippine Stock Exchange or the SEC for an
extension of time for the payment or settlement of his cash
purchases. This was not brought to his attention by his
broker and so with the requirement of collaterals in margin
account. Thus, his trade under an ofset transaction with
[petitioner] is unlimited subject only to the discretion of the
broker. . . . [Had petitioner] followed the provision under par.
8 of Exh. 'A-1' which stipulated the liquidation within the T+3
[3 days subsequent to trading], his net deficit would only be
P1,601,369.59. [Respondent] however affirmed that this is

not in accordance with RSA [Rule 25-1 par. C, which

mandates that if you do not pay for the first] order, you
cannot subsequently make any further order without
depositing the cash price in full. So, if RSA Rule 25-1, par. C,
was applied, he was limited only to the first transaction. That
[petitioner] did not comply with the T+4 mandated in cash
transaction. When [respondent] failed to comply with the
T+3, [petitioner] did not require him to put up a deposit
before it executed its subsequent orders. [Petitioner] did not
likewise apply for extension of the T+4 rule. Because of the
ofset transaction, [respondent] was induced to [take a] risk
which resulted [in] the filing of the instant suit against him
[because of which] he sufered sleepless nights, lost appetite
which if quantified in money, would amount to P500,000.00
moral damages and P100,000.00 exemplary damages." 5
In its Decision 6 dated June 26, 2000, the Regional Trial Court (RTC) of Makati
City (Branch 57) held that petitioner violated Sections 23 and 25 of the Revised
Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA
Rules) when it failed to: 1) require the respondent to pay for his stock
purchases within three (T+3) or four days (T+4) from trading; and 2) request
from the appropriate authority an extension of time for the payment of
respondent's cash purchases. The trial court noted that despite respondent's
non-payment within the required period, petitioner did not cancel the
purchases of respondent. Neither did it require him to deposit cash payments
before it executed the buy and/or sell orders subsequent to the first unsettled
transaction. According to the RTC, by allowing respondent to trade his account
actively without cash, petitioner efectively induced him to purchase securities
thereby incurring excessive credits. HSaIET
The trial court also found respondent to be equally at fault, by incurring
excessive credits and waiting to see how his investments turned out before
deciding to invoke the RSA. Thus, the RTC concluded that petitioner and
respondent were in pari delicto and therefore without recourse against each
other.
Ruling of the Court of Appeals
The CA upheld the lower court's finding that the parties were in pari delicto. It
castigated petitioner for allowing respondent to keep on trading despite the
latter's failure to pay his outstanding obligations. It explained that "the reason
[behind petitioner's act] is elemental in its simplicity. And it is not exactly
altruistic. Because whether [respondent's] trading transaction would result in a
surplus or deficit, he would still be liable to pay [petitioner] its commission.
[Petitioner's] cash register will keep on ringing to the sound of incoming
money, no matter what happened to [respondent]." 7
The CA debunked petitioner's contention that the trial court lacked jurisdiction
to determine violations of the RSA. The court a quo held that petitioner was
estopped from raising the question, because it had actively and voluntarily
participated in the assailed proceedings.
Hence, this Petition. 8
Issues
Petitioner submits the following issues for our consideration:

"I.
Whether or not the Court of Appeal's ruling that petitioner
and respondent are in pari delicto which allegedly bars any
recovery, is in accord with law and applicable jurisprudence
considering that respondent was the first one who violated
the terms of the Account Opening Form, [which was the]
agreement between the parties.
"II.
Whether or not the Court of Appeal's ruling that the
petitioner and respondent are in pari delicto is in accord with
law and applicable jurisprudence considering the Account
Opening Form is a valid agreement.
"III.
Whether or not the Court of Appeal's ruling that petitioner
cannot recover from respondent is in accord with law and
applicable jurisprudence since the evidence and admission of
respondent proves that he is liable to petitioner for his
outstanding obligations arising from the stock trading
through petitioner.
"IV.
Whether or not the Court of Appeal's ruling on petitioner's
alleged violation of the Revised Securities Act [is] in accord
with law and jurisprudence since the lower court has no
jurisdiction over violations of the Revised Securities Act." 9
Briefly, the issues are (1) whether the pari delicto rule is applicable in the
present case, and (2) whether the trial court had jurisdiction over the case.
The Court's Ruling
The Petition is partly meritorious.

(b) It shall be unlawful for any member of an exchange or

any broker or dealer, directly or indirectly, to extend or
maintain credit or arrange for the extension or maintenance
of credit to or for any customer
(1) On any security other than an exempted security, in
contravention of the rules and regulations which the
Commission shall prescribe under subsection (a) of this
Section;TDCaSE
(2) Without collateral or on any collateral other than
securities, except (i) to maintain a credit initially extended in
conformity with the rules and regulations of the Commission
and (ii) in cases where the extension or maintenance of
credit is not for the purpose of purchasing or carrying
securities or of evading or circumventing the provisions of
subparagraph (1) of this subsection.
xxx xxx xxx
"SEC. 25. Enforcement of margin requirements and
restrictions on borrowings. To prevent indirect violations of
the margin requirements under Section 23 hereof, the broker
or dealer shall require the customer in nonmargin
transactions to pay the price of the security purchased for his
account within such period as the Commission may
prescribe, which shall in no case exceed three trading days;
otherwise, the broker shall sell the security purchased
starting on the next trading day but not beyond ten trading
days following the last day for the customer to pay such
purchase price, unless such sale cannot be efected within
said period for justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to recover any
deficiency from the customer. . . . ."
"RSA RULE 25-1

Main Issue:
Applicability of the
Pari Delicto Principle
In the present controversy, the following pertinent facts are undisputed: (1) on
April 8, 1997, respondent opened a cash account with petitioner for his
transactions in securities;10 (2) respondent's purchases were consistently
unpaid from April 10 to 30, 1997; 11 (3) respondent failed to pay in full, or
even just his deficiency, 12 for the transactions on April 10 and 11,
1997; 13 (4) despite respondent's failure to cover his initial deficiency,
petitioner subsequently purchased and sold securities for respondent's account
on April 25 and 29; 14 (5) petitioner did not cancel or liquidate a substantial
amount of respondent's stock transactions until May 6, 1997. 15

The provisions governing the above transactions are Sections 23 and 25 of the
RSA 16 and Rule 25-1 of the RSA Rules, which state as follows:
"SEC. 23. Margin Requirements.
xxx xxx xxx

"Purchases and Sales in Cash Account

"(a) Purchases by a customer in a cash account shall be paid
in full within three (3) business days after the trade date.
"(b) If full payment is not received within the required time
period, the broker or dealer shall cancel or otherwise
liquidate the transaction, or the unsettled portion thereof,
starting on the next business day but not beyond ten (10)
business days following the last day for the customer to pay,
unless such sale cannot be efected within said period for
justifiable reasons.
"(c) If a transaction is cancelled or otherwise liquidated as a
result of non-payment by the customer, prior to any
subsequent purchase during the next ninety (90) days, the
customer shall be required to deposit sufficient funds in the
account to cover each purchase transaction prior to
execution.
xxx xxx xxx

"(f) Written application for an extension of the period of time

required for payment under paragraph (a) be made by the
broker or dealer to the Philippine Stock Exchange, in the case
of a member of the Exchange, or to the Commission, in the
case of a non-member of the Exchange. Applications for the
extension must be based upon exceptional circumstances
and must be filed and acted upon before the expiration of
the original payment period or the expiration of any
subsequent extension."
Section 23(b) above the alleged violation of petitioner which provides the
basis for respondent's defense makes it unlawful for a broker to extend or
maintain credit on any securities other than in conformity with the rules and
regulations issued by Securities and Exchange Commission (SEC). Section 25
lays down the rules to prevent indirect violations of Section 23 by brokers or
dealers.
RSA
Rule
25-1
prescribes
in
detail
the
regulations
governing cash accounts.
The United States, from which our country's security policies are
patterned, 17 abound with authorities explaining the main purpose of the
above statute on margin 18requirements. This purpose is to regulate the
volume of credit flow, by way of speculative transactions, into the securities
market and redirect resources into more productive uses. Specifically, the main
objective of the law on margins is explained in this wise:
"The main purpose of these margin provisions . . . is not to
increase the safety of security loans for lenders. Banks and
brokers normally require sufficient collateral to make
themselves safe without the help of law. Nor is the main
purpose even protection of the small speculator by making it
impossible for him to spread himself too thinly although
such a result will be achieved as a byproduct of the main
purpose. DaTEIc
xxx xxx xxx
"The main purpose is to give a [g]overnment credit agency
an efective method of reducing the aggregate amount of the
nation's credit resources which can be directed by
speculation into the stock market and out of other more
desirable uses of commerce and industry . . . ." 19
A related purpose of the governmental regulation of margins is the stabilization
of the economy. 20 Restrictions on margin percentages are imposed "in order
to achieve the objectives of the government with due regard for the promotion
of the economy and prevention of the use of excessive credit." 21
Otherwise stated, the margin requirements set out in the RSA are primarily
intended to achieve a macroeconomic purpose the protection of the overall
economy from excessive speculation in securities. Their recognized secondary
purpose is to protect small investors.
The law places the burden of compliance with margin requirements primarily
upon the brokers and dealers. 22 Sections 23 and 25 and Rule 25-1, otherwise
known as the "mandatory close-out rule," 23 clearly vest upon petitioner the
obligation, not just the right, to cancel or otherwise liquidate a customer's
order, if payment is not received within three days from the date of purchase.

The word "shall" as opposed to the word "may," is imperative and operates to
impose a duty, which may be legally enforced. For transactions subsequent to
an unpaid order, the broker should require its customer to deposit funds into
the account sufficient to cover each purchase transaction prior to its execution.
These duties are imposed upon the broker to ensure faithful compliance with
the margin requirements of the law, which forbids a broker from extending
undue credit to a customer.
It will be noted that trading on credit (or "margin trading") allows investors to
buy more securities than their cash position would normally allow. 24 Investors
pay only a portion of the purchase price of the securities; their broker
advances for them the balance of the purchase price and keeps the securities
as collateral for the advance or loan. 25 Brokers take these securities/stocks to
their bank and borrow the "balance" on it, since they have to pay in full for the
traded stock. Hence, increasing margins 26 i.e., decreasing the amounts which
brokers may lend for the speculative purchase and carrying of stocks is the
most direct and efective method of discouraging an abnormal attraction of
funds into the stock market and achieving a more balanced use of such
resources.
". . . [T]he . . . primary concern is the efficacy of security
credit controls in preventing speculative excesses that
produce dangerously large and rapid securities price rises
and accelerated declines in the prices of given securities
issues and in the general price level of securities. Losses to a
given investor resulting from price declines in thinly
margined securities are not of serious significance from a
regulatory point of view. When forced sales occur and put
pressures on securities prices, however, they may cause
other forced sales and the resultant snowballing efect may
in turn have a general adverse efect upon the entire
market." 27
The nature of the stock brokerage business enables brokers, not the clients, to
verify, at any time, the status of the client's account. 28 Brokers, therefore, are
in the superior position to prevent the unlawful extension of credit. 29 Because
of this awareness, the law imposes upon them the primary obligation to
enforce the margin requirements.
Right is one thing; obligation is quite another. A right may not be exercised; it
may even be waived. An obligation, however, must be performed; those who
do not discharge it prudently must necessarily face the consequence of their
dereliction or omission. 30
Respondent
Liable
But Not for the Subsequent Trades

for

the

First,

Nonetheless, these margin requirements are applicable only to transactions

entered into by the present parties subsequent to the initial trades of April 10
and 11, 1997. Thus, we hold that petitioner can still collect from respondent to
the extent of the diference between the latter's outstanding obligation as of
April 11, 1997 less the proceeds from the mandatory sell out of the shares
pursuant to the RSA Rules. Petitioner's right to collect is justified under the
general law on obligations and contracts. 31
Article 1236 (second paragraph) of the Civil Code, provides:

"Whoever pays for another may demand from the

debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to
the debtor." (Emphasis supplied) CIDTcH
Since a brokerage relationship is essentially a contract for the employment
of an agent, principles of contract law also govern the broker-principal
relationship. 32
The right to collect cannot be denied to petitioner as the initial transactions
were entered pursuant to the instructions of respondent. The obligation of
respondent for stock transactions made and entered into on April 10 and 11,
1997 remains outstanding. These transactions were valid and the obligations
incurred by respondent concerning his stock purchases on these dates subsist.
At that time, there was no violation of the RSA yet. Petitioner's fault arose only
when it failed to: 1) liquidate the transactions on the fourth day following the
stock purchases, or on April 14 and 15, 1997; and 2) complete its liquidation no
later than ten days thereafter, applying the proceeds thereof as payment for
respondent's outstanding obligation. 33

Elucidating further, since the buyer was not able to pay for the transactions
that took place on April 10 and 11, that is at T+4, the broker was duty-bound
to advance the payment to the settlement banks without prejudice to the right
of the broker to collect later from the client. 34
In securities trading, the brokers are essentially the counterparties to the stock
transactions at the Exchange. 35 Since the principals of the broker are
generally undisclosed, the broker is personally liable for the contracts thus
made. 36 Hence, petitioner had to advance the payments for respondent's
trades. Brokers have a right to be reimbursed for sums advanced by them with
the express or implied authorization of the principal, 37 in this case,
respondent.
It should be clear that Congress imposed the margin requirements to protect
the general economy, not to give the customer a free ride at the expense of
the broker. 38 Not to require respondent to pay for his April 10 and 11 trades
would put a premium on his circumvention of the laws and would enable him to
enrich himself unjustly at the expense of petitioner.
In the present case, petitioner obviously failed to enforce the terms and
conditions of its Agreement with respondent, specifically paragraph 8 thereof,
purportedly acting on the plea 39 of respondent to give him time to raise funds
therefor. These stipulations, in relation to paragraph 4, 40 constituted faithful
compliance with the RSA. By failing to ensure respondent's payment of his first
purchase transaction within the period prescribed by law, thereby allowing him
to make subsequent purchases, petitioner efectively converted respondent's
cash account into a credit account. However, extension or maintenance of
credits on nonmargin transactions, are specifically prohibited under Section
23(b). Thus, petitioner was remiss in its duty and cannot be said to have come
to court with "clean hands" insofar as it intended to collect on
transactions subsequent to the initial trades of April 10 and 11, 1997.
Respondent
for Subsequent Trades

Equally

Guilty

On the other hand, we find respondent equally guilty in entering into the
transactions in violation of the RSA and RSA Rules. We are not prepared to
accept his self-serving assertions of being an "innocent victim" in all the
transactions. Clearly, he is not an unsophisticated, small investor merely
prodded by petitioner to speculate on the market with the possibility of large
profits with low or no capital outlay, as he pictures himself to be. Rather,
he is an experienced and knowledgeable trader who is well versed in the
securities market and who made his own investment decisions. In fact, in the
Account Opening Form (AOF), he indicated that he had excellent knowledge of
stock investments; had experience in stocks trading, considering that he had
similar accounts with other firms. 41 Obviously, he knowingly speculated on
the market, by taking advantage of the "no-cash-out" arrangement extended
to him by petitioner.
We note that it was respondent who repeatedly asked for some time to pay his
obligations for his stock transactions. Petitioner acceded to his requests. It is
only when sued upon his indebtedness that respondent raised as a defense the
invalidity of the transactions due to alleged violations of the RSA. It was
respondent's privilege to gamble or speculate, as he apparently did so by
asking for extensions of time and refraining from giving orders to his broker to
sell, in the hope that the prices would rise. Sustaining his argument now would
amount to relieving him of the risk and consequences of his own speculation
and saddling them on the petitioner after the result was known to be
unfavorable. 42 Such contention finds no legal or even moral justification and
must necessarily be overruled. Respondent's conduct is precisely the behavior
of an investor deplored by the law. DEcSaI
In the final analysis, both parties acted in violation of the law and did not come
to court with clean hands with regard to transactions subsequent to the initial
trades made on April 10 and 11, 1997. Thus, the peculiar facts of the present
case bar the application of the pari delicto rule expressed in the maxims "Ex
dolo malo non oritur action" and "In pari delicto potior est conditio defendentis"
to all the transactions entered into by the parties. The pari delecto rule
refuses legal remedy to either party to an illegal agreement and leaves them
where they were. 43 In this case, the pari delicto rule applies only to
transactions entered into after the initial trades made on April 10 and 11,
1997.
Since the initial trades are valid and subsisting obligations, respondent is liable
for them. Justice and good conscience require all persons to satisfy their debts.
Ours are courts of both law and equity; they compel fair dealing; they do not
abet clever attempts to escape just obligations. Ineludibly, this Court would not
hesitate to grant relief in accordance with good faith and conscience.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the transaction
(sold the stocks) on the fourth day following the transaction (T+4) and
completed its liquidation not later than ten days following the last day for the
customer to pay (efectively T+14). Respondent's outstanding obligation is
therefore to be determined by using the closing prices of the stocks purchased
at T+14 as basis.
We consider the foregoing formula to be just and fair under the circumstances.
When petitioner tolerated the subsequent purchases of respondent without
performing its obligation to liquidate the first failed transaction, and without
requiring respondent to deposit cash before embarking on trading stocks any
further, petitioner, as the broker, violated the law at its own peril. Hence, it

cannot now complain for failing to obtain the full amount of its claim for
these latter transactions.

payment if warranted. It may hold trial and hear the parties to be able to make
this determination.

On the other hand, with respect to respondent's counterclaim for damages for
having been allegedly induced by petitioner to generate additional purchases
despite his outstanding obligations, we hold that he deserves no legal or
equitable relief consistent with our foregoing finding that he was not an
innocent investor as he presented himself to be.

No finding as to costs in this instance.

Second Issue:
Jurisdiction

SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
||| (Abacus Securities Corp. v. Ampil, G.R. No. 160016, February 27, 2006)

It is axiomatic that the allegations in the complaint, not the defenses set up in
the answer or in the motion to dismiss determine which court has jurisdiction
over an action. 44Were we to be governed by the latter rule, the question of
jurisdiction would depend almost entirely upon the defendant. 45
The instant controversy is an ordinary civil case seeking to enforce rights
arising from the Agreement (AOF) between petitioner and respondent. It
relates to acts committed by the parties in the course of their business
relationship. The purpose of the suit is to collect respondent's alleged
outstanding debt to petitioner for stock purchases.
To be sure, the RSA and its Rules are to be read into the Agreement entered
into between petitioner and respondent. Compliance with the terms of the AOF
necessarily means compliance with the laws. Thus, to determine whether the
parties fulfilled their obligations in the AOF, this Court had to pass upon their
compliance with the RSA and its Rules. This, in no way, deprived the Securities
and Exchange Commission (SEC) of its authority to determine willful violations
of the RSA and impose appropriate sanctions therefor, as provided under
Sections 45 and 46 of the Act.
Moreover, we uphold the SEC in its Opinion, thus:
"As to the issue of jurisdiction, it is settled that a party
cannot invoke the jurisdiction of a court to secure affirmative
relief against his opponent and after obtaining or failing to
obtain such relief, repudiate or question that same
jurisdiction. cHSIDa
"Indeed, after voluntarily submitting a cause and
encountering an adverse decision on the merits, it is too late
for petitioner to question the jurisdictional power of the
court. It is not right for a party who has affirmed and invoked
the jurisdiction of a court in a particular matter to secure an
affirmative relief, to afterwards deny that same jurisdiction to
escape a penalty." 46
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby MODIFIED. Respondent is ordered to pay petitioner the diference
between the former's outstanding obligation as of April 11, 1997 less the
proceeds from the mandatory sell out of shares pursuant to the RSA Rules,
with interest thereon at the legal rate until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation of
respondent's outstanding obligation using the closing prices of the stocks at
T+14 as basis counted from April 11, 1997 and to issue the proper order for

SECOND DIVISION

[G.R. No. 191995. August 3, 2011.]

PHILIPPINE VETERANS BANK, petitioner, vs. JUSTINA
CALLANGAN, in her capacity as Director of the
Corporation Finance Department of the Securities and
Exchange Commission and/or the SECURITIES AND
EXCHANGE COMMISSION, respondent.

RESOLUTION

The Bank reiterates that it is not a "public company" subject to the reportorial
requirements under Section 17.1 of the SRC because its shares can be owned
only by a specific group of people, namely, World War II veterans and their
widows, orphans and compulsory heirs, and is not open to the investing public
in general. The Bank also asks the Court to take into consideration the financial
impact to the cause of "veteranism"; compliance with the reportorial
requirements under the SRC, if the Bank would be considered a "public
company," would compel the Bank to spend approximately P40 million just to
reproduce and mail the "Information Statement" to its 400,000 shareholders
nationwide.
The Court's Ruling
We DENY the motion for reconsideration for lack of merit.
To determine whether the Bank is a "public company" burdened with the
reportorial requirements ordered by the SEC, we look to Subsections 17.1 and
17.2 of the SRC, which provide:

BRION, J p:
We resolve the motion for reconsideration 1 filed by petitioner Philippine
Veterans Bank (the Bank) dated August 5, 2010, addressing our June 16, 2010
Resolution that denied the Bank's petition for review on certiorari.
Factual Antecedents
On March 17, 2004, respondent Justina F. Callangan, the Director of the
Corporation Finance Department of the Securities and Exchange
Commission (SEC), sent the Bank a letter, informing it that it qualifies as a
"public company" under Section 17.2 of the Securities Regulation
Code (SRC) in relation with Rule 3 (1) (m) of the Amended Implementing Rules
and Regulations of the SRC. The Bank is thus required to comply with the
reportorial requirements set forth in Section 17.1 of the SRC. 2
The Bank responded by explaining that it should not be considered a "public
company" because it is a private company whose shares of stock are available
only to a limited class or sector, i.e., to World War II veterans, and not to the
general public. 3
In a letter dated April 20, 2004, Director Callangan rejected the Bank's
explanation and assessed it a total penalty of One Million Nine Hundred ThirtySeven Thousand Two Hundred Sixty-Two and 80/100 Pesos (P1,937,262.80) for
failing to comply with the SRC reportorial requirements from 2001 to 2003. The
Bank moved for the reconsideration of the assessment, but Director Callangan
denied the motion in SEC-CFD Order No. 085, Series of 2005 dated July 26,
2005. 4 When the SEC En Banc also dismissed the Bank's appeal for lack of
merit in its Order dated August 31, 2006, prompting the Bank to file a petition
for review with the Court of Appeals (CA). 5 AaSTIH
On March 6, 2008, the CA dismissed the petition and affirmed the assailed SEC
ruling, with the modification that the assessment of the penalty be recomputed
from May 31, 2004. 6
The CA also denied the Bank's motion for reconsideration, 7 opening the way
for the Bank's petition for review on certiorari filed with this Court. 8
On June 16, 2010, the Court denied the Bank's petition for failure to show any
reversible error in the assailed CA decision and resolution. 9
The Motion for Reconsideration

Section 17.Periodic and Other Reports of Issuers.

17.1.Every issuer satisfying the requirements in Subsection
17.2 hereof shall file with the Commission:
a)Within one hundred thirty-five (135) days, after the end of
the issuer's fiscal year, or such other time as the Commission
may prescribe, an annual report which shall include, among
others, a balance sheet, profit and loss statement and
statement of cash flows, for such last fiscal year, certified by
an independent certified public accountant, and a
management discussion and analysis of results of operations;
and
b)Such other periodical reports for interim fiscal periods and
current reports on significant developments of the issuer as
the Commission may prescribe as necessary to keep current
information on the operation of the business and financial
condition of the issuer. CcHDSA
17.2.The reportorial requirements of Subsection 17.1 shall
apply to the following:
xxx xxx xxx
c)An issuer with assets of at least Fifty million pesos
(P50,000,000.00) or such other amount as the Commission
shall prescribe, and having two hundred (200) or more
holders each holding at least one hundred (100)
shares of a class of its equity securities: Provided,
however, That the obligation of such issuer to file reports
shall be terminated ninety (90) days after notification to the
Commission by the issuer that the number of its holders
holding at least one hundred (100) shares is reduced to less
than one hundred (100). (emphases supplied)
We also cite Rule 3 (1) (m) of the Amended Implementing Rules and
Regulations of the SRC, which defines a "public company" as "any corporation
with a class of equity securities listed on an Exchange or with assets in
excess of Fifty Million Pesos (P50,000,000.00) and having two hundred

(200) or more holders, at least two hundred (200) of which are

holding at least one hundred (100) shares of a class of its equity
securities."

SO ORDERED.

From these provisions, it is clear that a "public company," as contemplated by

the SRC, is not limited to a company whose shares of stock are publicly listed;
even companies like the Bank, whose shares are ofered only to a specific
group of people, are considered a public company, provided they meet the
requirements enumerated above.

||| (Philippine Veterans Bank v. Callangan, G.R. No. 191995, August 03, 2011)

The records establish, and the Bank does not dispute, that the Bank has assets
exceeding P50,000,000.00 and has 395,998 shareholders. 10 It is thus
considered a public company that must comply with the reportorial
requirements set forth in Section 17.1 of the SRC.
The Bank also argues that even assuming it is considered a "public company"
pursuant to Section 17 of the SRC, the Court should interpret the pertinent SRC
provisions in such a way that no financial prejudice is done to the thousands of
veterans who are stockholders of the Bank. Given that the legislature intended
the SRC to apply only to publicly traded companies, the Court should exempt
the Bank from complying with the reportorial requirements. ATICcS
On this point, the Bank is apparently referring to the obligation set forth in
Subsections 17.5 and 17.6 of the SRC, which provide:
Section 17.5. Every issuer which has a class of equity
securities satisfying any of the requirements in Subsection
17.2 shall furnish to each holder of such equity security
an annual report in such form and containing such
information as the Commission shall prescribe.
Section 17.6. Within such period as the Commission may
prescribe preceding the annual meeting of the holders of any
equity security of a class entitled to vote at such meeting,
the issuer shall transmit to such holders an annual report in
conformity with Subsection 17.5. (emphases supplied)
In making this argument, the Bank ignores the fact that the first and
fundamental duty of the Court is to apply the law. 11 Construction and
interpretation come only after a demonstration that the application of the law
is impossible or inadequate unless interpretation is resorted to. 12 In this case,
we see the law to be very clear and free from any doubt or ambiguity; thus, no
room exists for construction or interpretation.
Additionally, and contrary to the Bank's claim, the Bank's obligation to provide
its stockholders with copies of its annual report is actually for the benefit of the
veterans-stockholders, as it gives these stockholders access to information on
the Bank's financial status and operations, resulting in greater transparency on
the part of the Bank. While compliance with this requirement will undoubtedly
cost the Bank money, the benefit provided to the shareholders clearly
outweighs the expense. For many stockholders, these annual reports are the
only means of keeping in touch with the state of health of their investments; to
them, these are invaluable and continuing links with the Bank that
immeasurably contribute to the transparency in public companies that the law
envisions. THIECD
WHEREFORE, premises considered, petitioner Philippine Veterans Bank's
motion for reconsideration is hereby DENIED with finality.

Carpio, Leonardo-de Castro, * Perez and Sereno, JJ., concur.

and would go on-line by mid-September of 1994. In exchange, IRC will issue to

GHB 55% of the expanded capital stock of IRC amounting to 40.88 billion
shares which had a total par value of P488.44 million. 3
On the side, IRC would acquire 67% of the entire capital stock of Philippine
Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in
Makati. Under the Agreement, GHB, a member of the Westmont Group of
Companies in Malaysia, shall extend or arrange a loan required to pay for the
proposed acquisition by IRC of PRCI. 4

EN BANC
[G.R. No. 135808. October 6, 2008.]
SECURITIES
AND
EXCHANGE
COMMISSION, petitioner, vs. INTERPORT RESOURCES
CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA,
PELAGIO RICALDE, ANTONIO REINA, FRANCISCO
ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN,
JR., respondents.

DECISION

CHICO-NAZARIO, J p:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the Decision, 1 dated 20 August 1998, rendered by the Court of
Appeals in C.A.-G.R. SP No. 37036, enjoining petitioner Securities and
Exchange Commission (SEC) from taking cognizance of or initiating any action
against the respondent corporation Interport Resources Corporation (IRC) and
members of its board of directors, respondents Manuel S. Recto, Rene S.
Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and
Santiago Tanchan, Jr., with respect to Sections 8, 30 and 36 of the Revised
Securities Act. In the same Decision of the appellate court, all the proceedings
taken against the respondents, including the assailed SEC Omnibus Orders of
25 January 1995 and 30 March 1995, were declared void. HDCAaS
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of
Agreement with Ganda Holdings Berhad (GHB). Under the Memorandum of
Agreement, IRC acquired 100% or the entire capital stock of Ganda Energy
Holdings, Inc. (GEHI), 2 which would own and operate a 102 megawatt (MW)
gas turbine power-generating barge. The agreement also stipulates that GEHI
would assume a five-year power purchase contract with National Power
Corporation. At that time, GEHI's power-generating barge was 97% complete

IRC alleged that on 8 August 1994, a press release announcing the approval of
the agreement was sent through facsimile transmission to the Philippine Stock
Exchange and the SEC, but that the facsimile machine of the SEC could not
receive it. Upon the advice of the SEC, the IRC sent the press release on the
morning of 9 August 1994. 5
The SEC averred that it received reports that IRC failed to make timely public
disclosures of its negotiations with GHB and that some of its directors,
respondents herein, heavily traded IRC shares utilizing this material insider
information. On 16 August 1994, the SEC Chairman issued a directive requiring
IRC to submit to the SEC a copy of its aforesaid Memorandum of Agreement
with GHB. The SEC Chairman further directed all principal officers of IRC to
appear at a hearing before the Brokers and Exchanges Department (BED) of
the SEC to explain IRC's failure to immediately disclose the information as
required by the Rules on Disclosure of Material Facts. 6
In compliance with the SEC Chairman's directive, the IRC sent a letter dated 16
August 1994 to the SEC, attaching thereto copies of the Memorandum of
Agreement. Its directors, Manuel Recto, Rene Villarica and Pelagio Ricalde, also
appeared before the SEC on 22 August 1994 to explain IRC's alleged failure to
immediately disclose material information as required under the Rules on
Disclosure of Material Facts. 7 SCaIcA
On 19 September 1994, the SEC Chairman issued an Order finding that IRC
violated the Rules on Disclosure of Material Facts, in connection with the Old
Securities Act of 1936, when it failed to make timely disclosure of its
negotiations with GHB. In addition, the SEC pronounced that some of the
officers and directors of IRC entered into transactions involving IRC shares in
violation of Section 30, in relation to Section 36, of the Revised Securities
Act. 8
Respondents filed an Omnibus Motion, dated 21 September 1994, which was
superseded by an Amended Omnibus Motion, filed on 18 October 1994,
alleging that the SEC had no authority to investigate the subject matter, since
under Section 8 of Presidential Decree No. 902-A, 9 as amended by Presidential
Decree No. 1758, jurisdiction was conferred upon the Prosecution and
Enforcement Department (PED) of the SEC. Respondents also claimed that the
SEC violated their right to due process when it ordered that the respondents
appear before the SEC and "show cause why no administrative, civil or criminal
sanctions should be imposed on them", and, thus, shifted the burden of proof
to the respondents. Lastly, they sought to have their cases tried jointly given
the identical factual situations surrounding the alleged violation committed by
the respondents. 10
Respondents also filed a Motion for Continuance of Proceedings on 24 October
1994, wherein they moved for discontinuance of the investigations and the
proceedings before the SEC until the undue publicity had abated and the

investigating officials had become reasonably free from prejudice and public
pressure. 11

the SEC cannot be allowed to quash the assailed Omnibus Orders for the sole
purpose of re-filing the same case against the respondents. 20

No formal hearings were conducted in connection with the aforementioned

motions, but on 25 January 1995, the SEC issued an Omnibus Order which thus
disposed of the same in this wise: 12

The Court of Appeals further decided that the Rules of Practice and Procedure
Before the PED, which took efect on 14 April 1990, did not comply with the
statutory requirements contained in the Administrative Code of 1997. Section
8, Rule V of the Rules of Practice and Procedure Before the PED afords a party
the right to be present but without the right to cross-examine witnesses
presented against him, in violation of Section 12 (3), Chapter 3, Book VII of the
Administrative Code. 21

WHEREFORE, premised on the foregoing considerations, the

Commission resolves and hereby rules:
1.To create a special investigating panel to hear and decide
the instant case in accordance with the Rules of Practice and
Procedure Before the Prosecution and Enforcement
Department (PED), Securities and Exchange Commission, to
be composed of Attys. James K. Abugan, Medardo Devera
(Prosecution and Enforcement Department), and Jose Aquino
(Brokers and Exchanges Department), which is hereby
directed to expeditiously resolve the case by conducting
continuous hearings, if possible. EIcTAD
2.To recall the show cause orders dated September 19, 1994
requiring the respondents to appear and show cause why no
administrative, civil or criminal sanctions should be imposed
on them.
3.To deny the Motion for Continuance for lack of merit.
Respondents
filed
an
Omnibus
Motion
for
Partial
Reconsideration, 13 questioning the creation of the special investigating panel
to hear the case and the denial of the Motion for Continuance. The SEC denied
reconsideration in its Omnibus Order dated 30 March 1995. 14
The respondents filed a petition before the Court of Appeals docketed as C.A.G.R. SP No. 37036, questioning the Omnibus Orders dated 25 January 1995 and
30 March 1995. 15During the proceedings before the Court of Appeals,
respondents filed a Supplemental Motion 16 dated 16 May 1995, wherein they
prayed for the issuance of a writ of preliminary injunction enjoining the SEC
and its agents from investigating and proceeding with the hearing of the case
against respondents herein. On 5 May 1995, the Court of Appeals granted their
motion and issued a writ of preliminary injunction, which efectively enjoined
the SEC from filing any criminal, civil or administrative case against the
respondents herein. 17
On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus
Orders so that the case may be investigated by the PED in accordance with the
SEC Rules andPresidential Decree No. 902-A, and not by the special body
whose creation the SEC had earlier ordered. 18 EaTCSA
The Court of Appeals promulgated a Decision 19 on 20 August 1998. It
determined that there were no implementing rules and regulations regarding
disclosure, insider trading, or any of the provisions of the Revised Securities
Acts which the respondents allegedly violated. The Court of Appeals likewise
noted that it found no statutory authority for the SEC to initiate and file any
suit for civil liability under Sections 8, 30 and 36 of the Revised Securities Act.
Thus, it ruled that no civil, criminal or administrative proceedings may possibly
be held against the respondents without violating their rights to due process
and equal protection. It further resolved that absent any implementing rules,

In the dispositive portion of its Decision, dated 20 August 1998, the Court of
Appeals ruled that: 22
WHEREFORE, [herein petitioner SEC's] Motion for Leave to
Quash SEC Omnibus Orders is hereby DENIED. The petition
for certiorari, prohibition
and mandamus is
GRANTED.
Consequently, all proceedings taken against [herein
respondents] in this case, including the Omnibus Orders of
January 25, 1995 and March 30, 1995 are declared null and
void.The writ of preliminary injunction is hereby made
permanent
and,
accordingly,
[SEC]
is
hereby
prohibited from taking cognizance or initiating any
action, be they civil, criminal, or administrative against
[respondents] with respect to Sections 8 (Procedure for
Registration), 30 (Insider's duty to disclose when trading) and
36 (Directors, Officers and Principal Stockholders) in relation
to Sections 46 (Administrative sanctions) 56 (Penalties) 44
(Liabilities of Controlling persons) and 45 (Investigations,
injunctions and prosecution of ofenses) of the Revised
Securities Act and Section 144 (Violations of the Code) of the
Corporation Code. (Emphasis provided.) DSHcTC

The SEC filed a Motion for Reconsideration, which the Court of Appeals denied
in a Resolution 23 issued on 30 September 1998.
Hence, the present petition, which relies on the following grounds: 24
I
THE COURT OF APPEALS ERRED WHEN IT DENIED
PETITIONER'S MOTION FOR LEAVE TO QUASH THE ASSAILED
SEC OMNIBUS ORDERS DATED JANUARY 25 AND MARCH 30,
1995.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE
IS NO STATUTORY AUTHORITY WHATSOEVER FOR PETITIONER
SEC TO INITIATE AND FILE ANY SUIT BE THEY CIVIL, CRIMINAL
OR ADMINISTRATIVE AGAINST RESPONDENT CORPORATION
AND ITS DIRECTORS WITH RESPECT TO SECTION 30
(INSIDER'S DUTY TO DISCLOSED [sic] WHEN TRADING) AND
36 (DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS)
OF THE Revised Securities Act; AND

III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES
OF PRACTICE AND PROSECUTION BEFORE THE PED AND THE
SICD
RULES
OF
PROCEDURE
ON
ADMINISTRATIVE
ACTIONS/PROCEEDINGS 25 ARE INVALID AS THEY FAIL TO
COMPLY WITH THE STATUTORY REQUIREMENTS CONTAINED
IN THE ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.
Before discussing the merits of this case, it should be noted that while this
case was pending in this Court, Republic Act No. 8799, otherwise known as The
Securities Regulation Code, took efect on 8 August 2000. Section 8
of Presidential Decree No. 902-A, as amended, which created the PED, was
already repealed as provided for in Section 76 of The Securities Regulation
Code: cSIADH
SEC. 76.Repealing Clause. The Revised Securities
Act (Batas Pambansa Blg. 178), as amended, in its entirety,
and Sections 2, 4 and 8 of Presidential Decree 902-A, as
amended, are hereby repealed. All other laws, orders, rules
and regulations, or parts thereof, inconsistent with any
provision of this Code are hereby repealed or modified
accordingly.
Thus, under the new law, the PED has been abolished, and The Securities
Regulation Code has taken the place of the Revised Securities Act.
The Court now proceeds with a discussion of the present case.
I.Sections
8,
30
and
36
of
Securities
Act
do
not
enactment
of
implementing
make them binding and effective.

the
Revised
require
the
rules
to

The Court of Appeals ruled that absent any implementing rules for Sections 8,
30 and 36 of the Revised Securities Act, no civil, criminal or administrative
actions can possibly be had against the respondents without violating their
right to due process and equal protection, citing as its basis the case Yick Wo
v. Hopkins. 26 This is untenable.
In the absence of any constitutional or statutory infirmity, which may concern
Sections 30 and 36 of the Revised Securities Act, this Court upholds these
provisions as legal and binding. It is well settled that every law has in its favor
the presumption of validity. Unless and until a specific provision of the law is
declared invalid and unconstitutional, the same is valid and binding for all
intents and purposes. 27 The mere absence of implementing rules cannot
efectively invalidate provisions of law, where a reasonable construction that
will support the law may be given. In People v. Rosenthal, 28 this Court ruled
that:
In this connection we cannot pretermit reference to the rule
that "legislation should not be held invalid on the ground of
uncertainty if susceptible of any reasonable construction that
will support and give it efect. An Act will not be declared
inoperative and inefectual on the ground that it furnishes no
adequate means to secure the purpose for which it is passed,

if men of common sense and reason can devise and provide

the means, and all the instrumentalities necessary for its
execution are within the reach of those intrusted therewith."
(25 R.C.L., pp. 810, 811) HDTSIE
In Garcia v. Executive Secretary, 29 the Court underlined the importance of the
presumption of validity of laws and the careful consideration with which the
judiciary strikes down as invalid acts of the legislature:
The policy of the courts is to avoid ruling on constitutional
questions and to presume that the acts of the political
departments are valid in the absence of a clear and
unmistakable showing to the contrary. To doubt is to sustain.
This presumption is based on the doctrine of separation of
powers which enjoins upon each department a becoming
respect for the acts of the other departments. The theory is
that as the joint act of Congress and the President of the
Philippines, a law has been carefully studied and determined
to be in accordance with the fundamental law before it was
finally enacted.
The necessity for vesting administrative authorities with power to make rules
and regulations is based on the impracticability of lawmakers' providing
general regulations for various and varying details of management. 30 To rule
that the absence of implementing rules can render inefective an act of
Congress, such as the Revised Securities Act, would empower the
administrative bodies to defeat the legislative will by delaying the
implementing rules. To assert that a law is less than a law, because it is made
to depend on a future event or act, is to rob the Legislature of the power to act
wisely for the public welfare whenever a law is passed relating to a state of
afairs not yet developed, or to things future and impossible to fully know. 31 It
is well established that administrative authorities have the power to
promulgate rules and regulations to implement a given statute and to
efectuate its policies, provided such rules and regulations conform to the
terms and standards prescribed by the statute as well as purport to carry into
efect its general policies. Nevertheless, it is undisputable that the rules and
regulations cannot assert for themselves a more extensive prerogative or
deviate from the mandate of the statute. 32Moreover, where the statute
contains sufficient standards and an unmistakable intent, as in the case of
Sections 30 and 36 of the Revised Securities Act, there should be no
impediment to its implementation. cHSIDa
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins 33 shows a
glaring error. In the cited case, this Court found unconstitutional an ordinance
which gave the board of supervisors authority to refuse permission to carry on
laundries located in buildings that were not made of brick and stone, because
it violated the equal protection clause and was highly discriminatory and
hostile to Chinese residents and not because the standards provided therein
were vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections 30 and
36 of the Revised Securities Act, such that the acts proscribed and/or
required would not be understood by a person of ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:

Sec. 30.Insider's duty to disclose when trading. (a) It

shall be unlawful for an insider to sell or buy a security of the
issuer, if he knows a fact of special significance with respect
to the issuer or the security that is not generally available,
unless (1) the insider proves that the fact is generally
available or (2) if the other party to the transaction (or his
agent) is identified, (a) the insider proves that the other
party knows it, or (b) that other party in fact knows it from
the insider or otherwise.
(b)"Insider" means (1) the issuer, (2) a director or officer of,
or a person controlling, controlled by, or under common
control with, the issuer, (3) a person whose relationship or
former relationship to the issuer gives or gave him access to
a fact of special significance about the issuer or the security
that is not generally available, or (4) a person who learns
such a fact from any of the foregoing insiders as defined in
this subsection, with knowledge that the person from whom
he learns the fact is such an insider.
(c)A fact is "of special significance" if (a) in addition to being
material it would be likely, on being made generally
available, to afect the market price of a security to a
significant extent, or (b) a reasonable person would consider
it especially important under the circumstances in
determining his course of action in the light of such factors
as the degree of its specificity, the extent of its diference
from information generally available previously, and its
nature and reliability.
(d)This section shall apply to an insider as defined in
subsection (b) (3) hereof only to the extent that he knows of
a fact of special significance by virtue of his being an insider.
The provision explains in simple terms that the insider's misuse of nonpublic
and undisclosed information is the gravamen of illegal conduct. The intent of
the law is the protection of investors against fraud, committed when an insider,
using secret information, takes advantage of an uninformed investor. Insiders
are obligated to disclose material information to the other party or abstain
from trading the shares of his corporation. This duty to disclose or abstain is
based on two factors: first, the existence of a relationship giving access,
directly or indirectly, to information intended to be available only for a
corporate purpose and not for the personal benefit of anyone; and second, the
inherent unfairness involved when a party takes advantage of such information
knowing it is unavailable to those with whom he is dealing. 34 CSEHcT
In the United States (U.S.), the obligation to disclose or abstain has been
traditionally imposed on corporate "insiders", particularly officers, directors, or
controlling stockholders, but that definition has since been expanded. 35 The
term "insiders" now includes persons whose relationship or former relationship
to the issuer gives or gave them access to a fact of special significance about
the issuer or the security that is not generally available, and one who learns
such a fact from an insider knowing that the person from whom he learns the
fact is such an insider. Insiders have the duty to disclose material facts which
are known to them by virtue of their position but which are not known to
persons with whom they deal and which, if known, would afect their

investment judgment. In some cases, however, there may be valid corporate

reasons for the nondisclosure of material information. Where such reasons
exist, an issuer's decision not to make any public disclosures is not ordinarily
considered as a violation of insider trading. At the same time, the undisclosed
information should not be improperly used for non-corporate purposes,
particularly to disadvantage other persons with whom an insider might
transact, and therefore the insider must abstain from entering into transactions
involving such securities. 36

Respondents further aver that under Section 30 of the Revised Securities Act,
the SEC still needed to define the following terms: "material fact",
"reasonable
person",
"nature
and
reliability" and "generally
available". 37 In determining whether or not these terms are vague, these
terms must be evaluated in the context of Section 30 of the Revised Securities
Act. To fully understand how the terms were used in the aforementioned
provision, a discussion of what the law recognizes as a fact of special
significance is required, since the duty to disclose such fact or to abstain from
any transaction is imposed on the insider only in connection with a fact of
special significance.
Under the law, what is required to be disclosed is a fact of "special
significance" which may be (a) a material fact which would be likely, on being
made generally available, to afect the market price of a security to a
significant extent, or (b) one which a reasonable person would consider
especially important in determining his course of action with regard to the
shares of stock. TCDHaE
(a)Material Fact The concept of a "material fact" is not a new one. As early
as 1973, the Rules Requiring Disclosure of Material Facts by Corporations
Whose Securities Are Listed In Any Stock Exchange or Registered/Licensed
Under the Securities Act, issued by the SEC on 29 January 1973, explained that
"[a] fact is material if it induces or tends to induce or otherwise afect the sale
or purchase of its securities." Thus, Section 30 of the Revised Securities
Act provides that if a fact afects the sale or purchase of securities, as well as
its price, then the insider would be required to disclose such information to the
other party to the transaction involving the securities. This is the first definition
given to a "fact of special significance".
(b.1)Reasonable Person The second definition given to a fact of special
significance involves the judgment of a "reasonable person". Contrary to the
allegations of the respondents, a "reasonable person" is not a problematic
legal concept that needs to be clarified for the purpose of giving efect to a
statute; rather, it is the standard on which most of our legal doctrines stand.
The doctrine on negligence uses the discretion of the "reasonable man" as the
standard. 38 A purchaser in good faith must also take into account facts which
put a "reasonable man" on his guard. 39 In addition, it is the belief of the
reasonable and prudent man that an ofense was committed that sets the
criteria for probable cause for a warrant of arrest. 40 This Court, in such cases,
diferentiated the reasonable and prudent man from "a person with training in
the law such as a prosecutor or a judge", and identified him as "the average
man on the street", who weighs facts and circumstances without resorting to
the calibrations of our technical rules of evidence of which his knowledge is nil.
Rather, he relies on the calculus of common sense of which all reasonable men
have in abundance. 41 In the same vein, the U.S. Supreme Court similarly

determined its standards by the actual significance in the deliberations of a

"reasonable investor", when it ruled in TSC Industries, Inc. v. Northway,
Inc., 42 that the determination of materiality "requires delicate assessments of
the inferences a 'reasonable shareholder' would draw from a given set of facts
and the significance of those inferences to him." EcTDCI
(b.2)Nature and Reliability The factors afecting the second definition of a
"fact of special significance", which is of such importance that it is expected to
afect the judgment of a reasonable man, were substantially lifted from a test
of materiality pronounced in the case In the Matter of Investors Management
Co., Inc.: 43
Among the factors to be considered in determining whether
information is material under this test are the degree of its
specificity, the extent to which it difers from information
previously publicly disseminated, and its reliability in light of
its nature and source and the circumstances under which it
was received.
It can be deduced from the foregoing that the "nature and reliability" of a
significant fact in determining the course of action a reasonable person
takes regarding securities must be clearly viewed in connection with the
particular circumstances of a case. To enumerate all circumstances that
would render the "nature and reliability" of a fact to be of special
significance is close to impossible. Nevertheless, the proper adjudicative
body would undoubtedly be able to determine if facts of a certain "nature
and reliability" can influence a reasonable person's decision to retain, sell
or buy securities, and thereafter explain and justify its factual findings in its
decision.
(c)Materiality Concept A discussion of the "materiality concept" would be
relevant to both a material fact which would afect the market price of a
security to a significant extent and/or a fact which a reasonable person would
consider in determining his or her cause of action with regard to the shares of
stock. Significantly, what is referred to in our laws as a fact of special
significance is referred to in the U.S. as the "materiality concept" and the latter
is similarly not provided with a precise definition. In Basic v. Levinson,44 the
U.S. Supreme Court cautioned against confining materiality to a rigid formula,
stating thus:
A bright-line rule indeed is easier to follow than a standard
that requires the exercise of judgment in the light of all the
circumstances. But ease of application alone is not an excuse
for ignoring the purposes of the Securities Act and Congress'
policy decisions. Any approach that designates a single fact
or occurrence as always determinative of an inherently factspecific finding such as materiality, must necessarily be
overinclusive or underinclusive. DIEACH
Moreover, materiality "will depend at any given time upon a balancing of
both the indicated probability that the event will occur and the anticipated
magnitude of the event in light of the totality of the company
activity." 45 In drafting the Securities Act of 1934, the U.S. Congress put
emphasis on the limitations to the definition of materiality:
Although the Committee believes that ideally it would be
desirable to have absolute certainty in the application of the

materiality concept, it is its view that such a goal is illusory

and unrealistic. The materiality concept is judgmental in
nature and it is not possible to translate this into a
numerical formula. The Committee's advice to the
[SEC] is to avoid this quest for certainty and to
continue consideration of materiality on a case-bycase basis as disclosure problems are identified. House
Committee on Interstate and Foreign Commerce, Report of
the Advisory Committee on Corporate Disclosure to the
Securities and Exchange Commission, 95th Cong., 1st Sess.,
327 (Comm.Print 1977). (Emphasis provided.) 46
(d)Generally Available Section 30 of the Revised Securities Act allows the
insider the defense that in a transaction of securities, where the insider is in
possession of facts of special significance, such information is "generally
available" to the public. Whether information found in a newspaper, a
specialized magazine, or any cyberspace media be sufficient for the term
"generally available" is a matter which may be adjudged given the particular
circumstances of the case. The standards cannot remain at a standstill. A
medium, which is widely used today was, at some previous point in time,
inaccessible to most. Furthermore, it would be difficult to approximate how the
rules may be applied to the instant case, where investigation has not even
been started. Respondents failed to allege that the negotiations of their
agreement with GHB were made known to the public through any form of
media for there to be a proper appreciation of the issue presented.
Section 36 (a) of the Revised Securities Act
As regards Section 36 (a) of the Revised Securities Act, respondents claim that
the term "beneficial ownership" is vague and that it requires implementing
rules to give efect to the law. Section 36 (a) of the Revised Securities Act is a
straightforward provision that imposes upon (1) a beneficial owner of more
than ten percent of any class of any equity security or (2) a director or any
officer of the issuer of such security, the obligation to submit a statement
indicating his or her ownership of the issuer's securities and such changes in
his or her ownership thereof. The said provision reads: EICSDT
Sec. 36.Directors, officers and principal stockholders.
(a) Every person who is directly or indirectly the beneficial
owner of more than ten per centum of any [class] of any
equity security which is registered pursuant to this Act, or
who is [a] director or an officer of the issuer of such security,
shall file, at the time of the registration of such security on a
securities exchange or by the efective date of a registration
statement or within ten days after he becomes such a
beneficial owner, director or officer, a statement with the
Commission and, if such security is registered on a securities
exchange, also with the exchange, of the amount of all
equity securities of such issuer of which he is the beneficial
owner, and within ten days after the close of each calendar
month thereafter, if there has been a change in such
ownership during such month, shall file with the Commission,
and if such security is registered on a securities exchange,
shall also file with the exchange, a statement indicating his
ownership at the close of the calendar month and such

changes in his ownership as have occurred during such

calendar month. (Emphasis provided.)
Section 36 (a) refers to the "beneficial owner". Beneficial owner has been
defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust
property (also called "equitable ownership"); and second, to
refer to the power of a corporate shareholder to buy or sell
the shares, though the shareholder is not registered in the
corporation's books as the owner. Usually, beneficial
ownership is distinguished from naked ownership, which is
the enjoyment of all the benefits and privileges of ownership,
as against possession of the bare title to property. 47

Even assuming that the term "beneficial ownership" was vague, it would
not afect respondents' case, where the respondents are directors and/or
officers of the corporation, who are specifically required to comply with the
reportorial requirements under Section 36 (a) of the Revised Securities Act.
The validity of a statute may be contested only by one who will sustain a
direct injury as a result of its enforcement. 48 IaEHSD
Sections 30 and 36 of the Revised Securities Act were enacted to promote full
disclosure in the securities market and prevent unscrupulous individuals, who
by their positions obtain non-public information, from taking advantage of an
uninformed public. No individual would invest in a market which can be
manipulated by a limited number of corporate insiders. Such reaction would
stifle, if not stunt, the growth of the securities market. To avert the occurrence
of such an event, Section 30 of the Revised Securities Actprevented the unfair
use of non-public information in securities transactions, while Section 36
allowed the SEC to monitor the transactions entered into by corporate officers
and directors as regards the securities of their companies.
In the case In the Matter of Investor's Management Co., 49 it was cautioned
that "the broad language of the anti-fraud provisions", which include the
provisions on insider trading, should not be "circumscribed by fine distinctions
and rigid classifications." The ambit of anti-fraud provisions is necessarily
broad so as to embrace the infinite variety of deceptive conduct. 50
In Tatad v. Secretary of Department of Energy, 51 this Court brushed aside a
contention, similar to that made by the respondents in this case, that certain
words or phrases used in a statute do not set determinate standards, declaring
that:
Petitioners contend that the words "as far as practicable",
"declining" and "stable" should have been defined in R.A. No.
8180 as they do not set determinate and determinable
standards. This stubborn submission deserves scant
consideration. The dictionary meanings of these words are
well settled and cannot confuse men of reasonable
intelligence. . . . . The fear of petitioners that these words will
result in the exercise of executive discretion that will run riot
is thus groundless. To be sure, the Court has sustained the
validity of similar, if not more general standards in other
cases.

Among the words or phrases that this Court upheld as valid standards were
"simplicity and dignity", 52 "public interest", 53 and "interests of law and
order". 54
The Revised Securities Act was approved on 23 February 1982. The fact that
the Full Disclosure Rules were promulgated by the SEC only on 24 July 1996
does not render inefective in the meantime Section 36 of the Revised
Securities Act. It is already unequivocal that the Revised Securities Act requires
full disclosure and the Full Disclosure Rules were issued to make the
enforcement of the law more consistent, efficient and efective. It is equally
reasonable to state that the disclosure forms later provided by the SEC, do not,
in any way imply that no compliance was required before the forms were
provided. The efectivity of a statute which imposes reportorial requirements
cannot be suspended by the issuance of specified forms, especially where
compliance therewith may be made even without such forms. The forms
merely made more efficient the processing of requirements already identified
by the statute. cEAIHa
For the same reason, the Court of Appeals made an evident mistake when it
ruled that no civil, criminal or administrative actions can possibly be had
against the respondents in connection with Sections 8, 30 and 36 of
the Revised Securities Act due to the absence of implementing rules. These
provisions are sufficiently clear and complete by themselves. Their
requirements are specifically set out, and the acts which are enjoined are
determinable. In particular, Section 8 55 of the Revised Securities Act is a
straightforward enumeration of the procedure for the registration of securities
and the particular matters which need to be reported in the registration
statement thereof. The Decision, dated 20 August 1998, provides no valid
reason to exempt the respondent IRC from such requirements. The lack of
implementing rules cannot suspend the efectivity of these provisions. Thus,
this Court cannot find any cogent reason to prevent the SEC from exercising its
authority to investigate respondents for violation of Section 8 of the Revised
Securities Act.
II.The

right
to
cross-examination
absolute
and
cannot
be
during
investigative
before the PED.

is
not
demanded
proceedings

In its assailed Decision dated 20 August 1998, the Court of Appeals

pronounced that the PED Rules of Practice and Procedure was invalid since
Section 8, Rule V 56 thereof failed to provide for the parties' right to crossexamination, in violation of the Administrative Code of 1987 particularly
Section 12 (3), Chapter 3, Book VII thereof. This ruling is incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure,
categorically stated that the proceedings before the PED are summary in
nature:
Section 4.Nature of Proceedings. Subject to the
requirements of due process, proceedings before the "PED"
shall be summary in nature not necessarily adhering to or
following the technical rules of evidence obtaining in the
courts of law. The Rules of Court may apply in said
proceedings
in
suppletory
character
whenever
practicable. DSEaHT

Rule V of the PED Rules of Practice and Procedure further specified that:
Section 5.Submission of Documents. During the
preliminary conference/hearing, or immediately thereafter,
the Hearing Officer may require the parties to simultaneously
submit their respective verified position papers accompanied
by all supporting documents and the affidavits of their
witnesses, if any which shall take the place of their direct
testimony. The parties shall furnish each other with copies of
the position papers together with the supporting affidavits
and documents submitted by them.
Section 6.Determination of necessity of hearing.
Immediately after the submission by the parties of their
position papers and supporting documents, the Hearing
Officer shall determine whether there is a need for a formal
hearing. At this stage, he may, in his discretion, and for the
purpose of making such determination, elicit pertinent facts
or information, including documentary evidence, if any, from
any party or witness to complete, as far as possible, the facts
of the case. Facts or information so elicited may serve as
basis for his clarification or simplifications of the issues in the
case. Admissions and stipulation of facts to abbreviate the
proceedings shall be encouraged.
Section 7.Disposition of Case. If the Hearing Officer finds
no necessity of further hearing after the parties have
submitted their position papers and supporting documents,
he shall so inform the parties stating the reasons therefor
and shall ask them to acknowledge the fact that they were so
informed by signing the minutes of the hearing and the case
shall be deemed submitted for resolution.
As such, the PED Rules provided that the Hearing Officer may require the
parties to submit their respective verified position papers, together with all
supporting documents and affidavits of witnesses. A formal hearing was
not mandatory; it was within the discretion of the Hearing Officer to
determine whether there was a need for a formal hearing. Since, according
to the foregoing rules, the holding of a hearing before the PED is
discretionary, then the right to cross-examination could not have been
demanded by either party.
Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative
Code, entitled "Adjudication", does not afect the investigatory functions of the
agencies. The law creating the PED, Section 8 of Presidential Decree No. 902-A,
as amended, defines the authority granted to the PED, thus: caIDSH
SEC. 8.The Prosecution and Enforcement Department shall
have,
subject
to
the
Commission's
control
and
supervision, the exclusive authority to investigate, on
complaint ormotu proprio, any act or omission of the Board
of Directors/Trustees of corporations, or of partnerships, or of
other associations, or of their stockholders, officers or
partners, including any fraudulent devices, schemes or
representations, in violation of any law or rules and
regulations
administered
and
enforced
by
the

Commission; to file and prosecute in accordance with law

and rules and regulations issued by the Commission and in
appropriate cases, the corresponding criminal or civil case
before the Commission or the proper court or body
upon prima facie finding of violation of any laws or rules and
regulations administered and enforced by the Commission;
and to perform such other powers and functions as may be
provided by law or duly delegated to it by the Commission.
(Emphasis provided.)
The law creating PED empowers it to investigate violations of the rules and
regulations promulgated by the SEC and to file and prosecute such cases.
It fails to mention any adjudicatory functions insofar as the PED is
concerned. Thus, the PED Rules of Practice and Procedure need not comply
with the provisions of the Administrative Code on adjudication, particularly
Section 12 (3), Chapter 3, Book VII.
In Cario v. Commission on Human Rights, 57 this Court sets out the
distinction between investigative and adjudicative functions, thus:
"Investigate", commonly understood, means to examine,
explore, inquire or delve or probe into, research on, study.
The dictionary definition of "investigate" is "to observe or
study closely; inquire into systematically: "to search or
inquire into" xx to subject to an official probe xx: to conduct
an official inquiry." The purpose of an investigation, of course
is to discover, to find out, to learn, obtain information.
Nowhere included or intimated is the notion of settling,
deciding or resolving a controversy involved in the facts
inquired into by application of the law to the facts
established by the inquiry.

The legal meaning of "investigate" is essentially the same:

"(t)o follow up step by step by patient inquiry or observation.
To trace or track; to search into; to examine and inquire into
with care and accuracy; to find out by careful inquisition;
examination; the taking of evidence; a legal inquiry"; "to
inquire; to make an investigation", "investigation" being in
turn described as "(a)n administrative function, the exercise
of which ordinarily does not require a hearing. 2 Am J2d Adm
L Sec. 257; xx an inquiry, judicial or otherwise, for the
discovery and collection of facts concerning a certain matter
or matters."
"Adjudicate", commonly or popularly understood, means to
adjudge, arbitrate, judge, decide, determine, resolve, rule on,
settle. The dictionary defines the term as "to settle finally
(the rights and duties of parties to a court case) on the
merits of issues raised: xx to pass judgment on: settle
judicially: xx act as judge." And "adjudge" means "to decide
or rule upon as a judge or with judicial or quasi-judicial
powers: xx to award or grant judicially in a case of
controversy . . . ."

In a legal sense, "adjudicate" means: "To settle in the

exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense"; and
"adjudge" means: "To pass on judicially, to decide, settle, or
decree, or to sentence or condemn. . . . Implies a judicial
determination of a fact, and the entry of a judgment."
There is no merit to the respondent's averment that the sections under
Chapter 3, Book VII of the Administrative Code, do not distinguish between
investigative and adjudicatory functions. Chapter 3, Book VII of the
Administrative Code, is unequivocally entitled "Adjudication".
Respondents insist that the PED performs adjudicative functions, as
enumerated under Section 1 (h) and (j), Rule II; and Section 2 (4), Rule VII of
the PED Rules of Practice and Procedure:
Section 1.Authority of the Prosecution and Enforcement
Department. Pursuant to Presidential Decree No. 902-A, as
amended by Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily charged with the
following:
xxx xxx xxx
(h)Suspends or revokes, after proper notice and hearing in
accordance with these Rules, the franchise or certificate of
registration of corporations, partnerships or associations,
upon any of the following grounds:
1.Fraud in procuring its certificate of registration;
2.Serious misrepresentation as to what the
corporation can do or is doing to the great prejudice
of or damage to the general public; TAaEIc
3.Refusal to comply or defiance of any lawful order of
the Commission restraining commission of acts which
would amount to a grave violation of its franchise;
xxx xxx xxx
(j)Imposes charges, fines and fees, which by law, it is
authorized to collect;
xxx xxx xxx
Section 2.Powers of the Hearing Officer. The Hearing
Officer shall have the following powers:
xxx xxx xxx
4.To cite and/or declare any person in direct or indirect
contempt in accordance with pertinent provisions of the
Rules of Court. ACaTIc
Even assuming that these are adjudicative functions, the PED, in the instant
case, exercised its investigative powers; thus, respondents do not have the
requisite standing to assail the validity of the rules on adjudication. A valid
source of a statute or a rule can only be contested by one who will sustain a
direct injury as a result of its enforcement. 58 In the instant case, respondents

are only being investigated by the PED for their alleged failure to disclose their
negotiations with GHB and the transactions entered into by its directors
involving IRC shares. The respondents have not shown themselves to be under
any imminent danger of sustaining any personal injury attributable to the
exercise of adjudicative functions by the SEC. They are not being or about to
be subjected by the PED to charges, fees or fines; to citations for contempt; or
to the cancellation of their certificate of registration under Section 1 (h), Rule II
of the PED Rules of Practice and Procedure.
To repeat, the only powers which the PED was likely to exercise over the
respondents were investigative in nature, to wit:
Section 1.Authority of the Prosecution and Enforcement
Department. Pursuant to Presidential Decree No. 902-A, as
amended by Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily charged with the
following:
xxx xxx xxx
b.Initiates proper investigation of corporations and
partnerships or persons, their books, records and
other properties and assets, involving their business
transactions, in coordination with the operating
department involved;
xxx xxx xxx
e.Files and prosecutes civil or criminal cases before the
Commission and other courts of justice involving
violations of laws and decrees enforced by the
Commission and the rules and regulations
promulgated thereunder; caAICE
f.Prosecutes erring directors, officers and stockholders of
corporations and partnerships, commercial paper
issuers or persons in accordance with the pertinent
rules on procedures;
The authority granted to the PED under Section 1 (b), (e), and (f), Rule II of the
PED Rules of Practice and Procedure, need not comply with Section 12, Chapter
3, Rule VII of the Administrative Code, which afects only the adjudicatory
functions of administrative bodies. Thus, the PED would still be able to
investigate the respondents under its rules for their alleged failure to disclose
their negotiations with GHB and the transactions entered into by its directors
involving IRC shares.
This is not to say that administrative bodies performing adjudicative functions
are required to strictly comply with the requirements of Chapter 3, Rule VII of
the Administrative Code, particularly, the right to cross-examination. It should
be noted that under Section 2.2 of Executive Order No. 26, issued on 7 October
1992, abbreviated proceedings are prescribed in the disposition of
administrative cases:
2.Abbreviation of Proceedings. All administrative agencies
are hereby directed to adopt and include in their respective
Rules of Procedure the following provisions:

xxx xxx xxx

exception is where the repealing act reenacts the former

statute and punishes the act previously penalized under the
old law. In such instance, the act committed before the
reenactment continues to be an ofense in the statute books
and pending cases are not afected, regardless of whether
the new penalty to be imposed is more favorable to the
accused. (Emphasis provided.)

2.2Rules adopting, unless otherwise provided by special laws

and without prejudice to Section 12, Chapter 3, Book VII of
the Administrative Code of 1987, the mandatory use of
affidavits in lieu of direct testimonies and the preferred use
of depositions whenever practicable and convenient.
As a consequence, in proceedings before administrative or quasi-judicial
bodies, such as the National Labor Relations Commission and the Philippine
Overseas Employment Agency, created under laws which authorize summary
proceedings, decisions may be reached on the basis of position papers or other
documentary evidence only. They are not bound by technical rules of
procedure and evidence. 59 In fact, the hearings before such agencies do not
connote full adversarial proceedings. 60 Thus, it is not necessary for the rules
to require affiants to appear and testify and to be cross-examined by the
counsel of the adverse party. To require otherwise would negate the summary
nature of the administrative or quasi-judicial proceedings. 61 In Atlas
Consolidated Mining and Development Corporation v. Factoran, Jr., 62 this
Court stated that: ASTcEa
[I]t is sufficient that administrative findings of fact are
supported by evidence, or negatively stated, it is sufficient
that findings of fact are not shown to be unsupported by
evidence. Substantial evidence is all that is needed to
support an administrative finding of fact, and substantial
evidence is "such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion."

Securities
Regulations
Code
not
repeal
Sections
8,
30
and
36
the Revised
Securities
Act since
provisions
were
reenacted
in
the
law.

did
of
said
new

The Securities Regulations Code absolutely repealed the Revised Securities

Act. While the absolute repeal of a law generally deprives a court of its
authority to penalize the person charged with the violation of the old law prior
to its appeal, an exception to this rule comes about when the repealing law
punishes the act previously penalized under the old law. The Court,
in Benedicto v. Court of Appeals, sets down the rules in such
instances: 64 IaDcTC
As a rule, an absolute repeal of a penal law has the efect of
depriving the court of its authority to punish a person
charged with violation of the old law prior to its repeal. This is
because an unqualified repeal of a penal law constitutes a
legislative act of rendering legal what had been previously
declared as illegal, such that the ofense no longer exists and
it is as if the person who committed it never did so. There
are, however, exceptions to the rule. One is the inclusion of
a saving clause in the repealing statute that provides that
the repeal shall have no efect on pending actions. Another

Section 8 of the Revised Securities Act, which previously provided for the
registration of securities and the information that needs to be included in the
registration statements, was expanded under Section 12, in connection with
Section 8 of the Securities Regulations Code. Further details of the information
required to be disclosed by the registrant are explained in the Amended
Implementing Rules and Regulations of the Securities Regulations Code, issued
on 30 December 2003, particularly Sections 8 and 12 thereof.
Section 30 of the Revised Securities Act has been reenacted as Section 27 of
the Securities Regulations Code, still penalizing an insider's misuse of material
and non-public information about the issuer, for the purpose of protecting
public investors. Section 26 of the Securities Regulations Code even widens the
coverage of punishable acts, which intend to defraud public investors through
various devices, misinformation and omissions.

In order to comply with the requirements of due process, what is required,

among other things, is that every litigant be given reasonable opportunity to
appear and defend his right and to introduce relevant evidence in his favor. 63
III.The

In the present case, a criminal case may still be filed against the respondents
despite the repeal, since Sections 8, 65 12, 66 26, 67 27 68 and 23 69 of the
Securities Regulations Code impose duties that are substantially similar to
Sections 8, 30 and 36 of the repealed Revised Securities Act.

Section 23 of the Securities Regulations Code was practically lifted from

Section 36 (a) of the Revised Securities Act. Both provisions impose upon (1) a
beneficial owner of more than ten percent of any class of any equity security or
(2) a director or any officer of the issuer of such security, the obligation to
submit a statement indicating his or her ownership of the issuer's securities
and such changes in his or her ownership thereof. HDATCc
Clearly, the legislature had not intended to deprive the courts of their authority
to punish a person charged with violation of the old law that was repealed; in
this case, theRevised Securities Act.
IV.The

SEC
retained
the
jurisdiction
to
investigate
violations
of
the
Revised
Securities
Act,
reenacted
in
the
Securities
Regulations
Code,
despite
the abolition of the PED.

Section 53 of the Securities Regulations Code clearly provides that criminal

complaints for violations of rules and regulations enforced or administered by
the SEC shall be referred to the Department of Justice (DOJ) for preliminary
investigation, while the SEC nevertheless retains limited investigatory
powers. 70 Additionally, the SEC may still impose the appropriate
administrative sanctions under Section 54 of the aforementioned law. 71
In Morato v. Court of Appeals, 72 the cases therein were still pending before
the PED for investigation and the SEC for resolution when the Securities
Regulations Code was enacted. The case before the SEC involved an intracorporate dispute, while the subject matter of the other case investigated by

the PED involved the schemes, devices, and violations of pertinent rules and
laws of the company's board of directors. The enactment of the Securities
Regulations Code did not result in the dismissal of the cases; rather, this Court
ordered the transfer of one case to the proper regional trial court and the SEC
to continue with the investigation of the other case.
The case at bar is comparable to the aforecited case. In this case, the SEC
already commenced the investigative proceedings against respondents as
early as 1994. Respondents were called to appear before the SEC and explain
their failure to disclose pertinent information on 14 August 1994. Thereafter,
the SEC Chairman, having already made initial findings that respondents failed
to make timely disclosures of their negotiations with GHB, ordered a special
investigating panel to hear the case. The investigative proceedings were
interrupted only by the writ of preliminary injunction issued by the Court of
Appeals, which became permanent by virtue of the Decision, dated 20 August
1998, in C.A.-G.R. SP No. 37036. During the pendency of this case, the
Securities Regulations Code repealed the Revised Securities Act. As in Morato
v. Court of Appeals, the repeal cannot deprive SEC of its jurisdiction to continue
investigating the case; or the regional trial court, to hear any case which may
later be filed against the respondents. AcDaEH
V.The instant case has not yet prescribed.
Respondents have taken the position that this case is moot and academic,
since any criminal complaint that may be filed against them resulting from the
SEC's investigation of this case has already prescribed. 73 They point out that
the prescription period applicable to ofenses punished under special laws,
such as violations of the Revised Securities Act, is twelve years under Section 1
of Act No. 3326, as amended by Act No. 3585 and Act No. 3763, entitled "An
Act to Establish Periods of Prescription for Violations Penalized by Special Acts
and Municipal Ordinances and to Provide When Prescription Shall Begin to
Act." 74 Since the ofense was committed in 1994, they reasoned that
prescription set in as early as 2006 and rendered this case moot. Such
position, however, is incongruent with the factual circumstances of this case,
as well as the applicable laws and jurisprudence.
It is an established doctrine that a preliminary investigation interrupts the
prescription period. 75 A preliminary investigation is essentially a
determination whether an ofense has been committed, and whether there is
probable cause for the accused to have committed an ofense:
A preliminary investigation is merely inquisitorial, and it is
often the only means of discovering the persons who may be
reasonably charged with a crime, to enable the fiscal to
prepare the complaint or information. It is not a trial of the
case on the merits and has no purpose except that of
determining whether a crime has been committed or
whether there is probable cause to believe that the accused
is guilty thereof. 76
Under Section 45 of the Revised Securities Act, which is entitled Investigations,
Injunctions and Prosecution of Offenses, the Securities Exchange Commission
(SEC) has the authority to "make such investigations as it deems necessary to
determine whether any person has violated or is about to violate any provision
of this Act XXX." After a finding that a person has violated the Revised

Securities Act, the SEC may refer the case to the DOJ for preliminary
investigation and prosecution. HTAIcD
While the SEC investigation serves the same purpose and entails substantially
similar duties as the preliminary investigation conducted by the DOJ, this
process cannot simply be disregarded. In Baviera v. Paglinawan, 77 this Court
enunciated that a criminal complaint is first filed with the SEC, which
determines the existence of probable cause, before a preliminary
investigation can be commenced by the DOJ. In the aforecited case, the
complaint filed directly with the DOJ was dismissed on the ground that it should
have been filed first with the SEC. Similarly, the ofense was a violation of the
Securities Regulations Code, wherein the procedure for criminal prosecution
was reproduced from Section 45 of the Revised Securities Act. 78 This Court
affirmed the dismissal, which it explained thus:
The Court of Appeals held that under the above provision, a
criminal complaint for violation of any law or rule
administered by the SEC must first be filed with the latter. If
the Commission finds that there is probable cause, then it
should refer the case to the DOJ. Since petitioner failed to
comply with the foregoing procedural requirement, the DOJ
did not gravely abuse its discretion in dismissing his
complaint in I.S. No. 2004-229.
A criminal charge for violation of The Securities Regulation
Code is a specialized dispute. Hence, it must first be referred
to an administrative agency of special competence, i.e., the
SEC. Under the doctrine of primary jurisdiction, courts will
not determine a controversy involving a question within the
jurisdiction of the administrative tribunal, where the question
demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said
administrative tribunal to determine technical and intricate
matters of fact. The Securities Regulation Code is a special
law. Its enforcement is particularly vested in the SEC. Hence,
all complaints for any violation of the Code and its
implementing rules and regulations should be filed with the
SEC. Where the complaint is criminal in nature, the SEC shall
indorse the complaint to the DOJ for preliminary investigation
and prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner
committed a fatal procedural lapse when he filed his criminal
complaint directly with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in dismissing
petitioner's complaint. aIAHcE
The said case puts in perspective the nature of the investigation undertaken by
the SEC, which is a requisite before a criminal case may be referred to the DOJ.
The Court declared that it is imperative that the criminal prosecution be
initiated before the SEC, the administrative agency with the special
competence.
It should be noted that the SEC started investigative proceedings against the
respondents as early as 1994. This investigation efectively interrupted the
prescription period. However, said proceedings were disrupted by a preliminary

injunction issued by the Court of Appeals on 5 May 1995, which efectively

enjoined the SEC from filing any criminal, civil, or administrative case against
the respondents herein. 79 Thereafter, on 20 August 1998, the appellate court
issued the assailed Decision in C.A. G.R. SP. No. 37036 ordering that the writ of
injunction be made permanent and prohibiting the SEC from taking cognizance
of and initiating any action against herein respondents. The SEC was bound to
comply with the aforementioned writ of preliminary injunction and writ of
injunction issued by the Court of Appeals enjoining it from continuing with the
investigation of respondents for 12 years. Any deviation by the SEC from the
injunctive writs would be sufficient ground for contempt. Moreover, any step
the SEC takes in defiance of such orders will be considered void for having
been taken against an order issued by a court of competent jurisdiction.

An investigation of the case by any other administrative or judicial body would

likewise be impossible pending the injunctive writs issued by the Court of
Appeals. Given the ruling of this Court in Baviera v. Paglinawan, 80 the DOJ
itself could not have taken cognizance of the case and conducted its
preliminary investigation without a prior determination of probable cause by
the SEC. Thus, even presuming that the DOJ was not enjoined by the Court of
Appeals from conducting a preliminary investigation, any preliminary
investigation conducted by the DOJ would have been a futile efort since the
SEC had only started with its investigation when respondents themselves
applied for and were granted an injunction by the Court of Appeals.
Moreover, the DOJ could not have conducted a preliminary investigation or
filed a criminal case against the respondents during the time that issues on the
efectivity of Sections 8, 30 and 36 of the Revised Securities Act and the PED
Rules of Practice and Procedure were still pending before the Court of Appeals.
After the Court of Appeals declared the aforementioned statutory and
regulatory provisions invalid and, thus, no civil, criminal or administrative case
may be filed against the respondents for violations thereof, the DOJ would have
been at a loss, as there was no statutory provision which respondents could be
accused of violating. DcCEHI
Accordingly, it is only after this Court corrects the erroneous ruling of the Court
of Appeals in its Decision dated 20 August 1998 that either the SEC or DOJ may
properly conduct any kind of investigation against the respondents for
violations of Sections 8, 30 and 36 of the Revised Securities Act. Until then, the
prescription period is deemed interrupted.
To reiterate, the SEC must first conduct its investigations and make a finding of
probable cause in accordance with the doctrine pronounced in Baviera v.
Paglinawan. 81 In this case, the DOJ was precluded from initiating a
preliminary investigation since the SEC was halted by the Court of Appeals
from continuing with its investigation. Such a situation leaves the prosecution
of the case at a standstill, and neither the SEC nor the DOJ can conduct any
investigation against the respondents, who, in the first place, sought the
injunction to prevent their prosecution. All that the SEC could do in order to
break the impasse was to have the Decision of the Court of Appeals
overturned, as it had done at the earliest opportunity in this case. Therefore,
the period during which the SEC was prevented from continuing with its
investigation should not be counted against it. The law on the prescription
period was never intended to put the prosecuting bodies in an impossible bind
in which the prosecution of a case would be placed way beyond their control;

for even if they avail themselves of the proper remedy, they would still be
barred from investigating and prosecuting the case.
Indubitably, the prescription period is interrupted by commencing the
proceedings for the prosecution of the accused. In criminal cases, this is
accomplished by initiating the preliminary investigation. The prosecution of
ofenses punishable under the Revised Securities Act and the Securities
Regulations Code is initiated by the filing of a complaint with the SEC or by an
investigation conducted by the SEC motu proprio. Only after a finding of
probable cause is made by the SEC can the DOJ instigate a preliminary
investigation. Thus, the investigation that was commenced by the SEC in 1995,
soon after it discovered the questionable acts of the respondents, efectively
interrupted the prescription period. Given the nature and purpose of the
investigation conducted by the SEC, which is equivalent to the preliminary
investigation conducted by the DOJ in criminal cases, such investigation would
surely interrupt the prescription period. ECSHAD
VI.The Court of Appeals was justified in
denying SEC's Motion for Leave to
Quash SEC Omnibus Orders dated
23 October 1995.
The SEC avers that the Court of Appeals erred when it denied its Motion for
Leave to Quash SEC Omnibus Orders, dated 23 October 1995, in the light of its
admission that the PED had the sole authority to investigate the present case.
On this matter, this Court cannot agree with the SEC.
In the assailed decision, the Court of Appeals denied the SEC's Motion for
Leave to Quash SEC Omnibus Orders, since it found other issues that were
more important than whether or not the PED was the proper body to
investigate the matter. Its refusal was premised on its earlier finding that no
criminal, civil, or administrative case may be filed against the respondents
under Sections 8, 30 and 36 of the Revised Securities Act, due to the absence
of any implementing rules and regulations. Moreover, the validity of the PED
Rules on Practice and Procedure was also raised as an issue. The Court of
Appeals, thus, reasoned that if the quashal of the orders was granted, then it
would be deprived of the opportunity to determine the validity of the
aforementioned rules and statutory provisions. In addition, the SEC would
merely pursue the same case without the Court of Appeals having determined
whether or not it may do so in accordance with due process requirements.
Absent a determination of whether the SEC may file a case against the
respondents based on the assailed provisions of the Revised Securities Act, it
would have been improper for the Court of Appeals to grant the SEC's Motion
for Leave to Quash SEC Omnibus Orders.
IN ALL, this Court rules that no implementing rules were needed to render
efective Sections 8, 30 and 36 of the Revised Securities Act; nor was the PED
Rules of Practice and Procedure invalid, prior to the enactment of the Securities
Regulations Code, for failure to provide parties with the right to cross-examine
the witnesses presented against them. Thus, the respondents may be
investigated by the appropriate authority under the proper rules of procedure
of the Securities Regulations Code for violations of Sections 8, 30, and 36 of
the Revised Securities Act. 82
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court
hereby REVERSES the assailed Decision of the Court of Appeals promulgated

on 20 August 1998 in CA-G.R. SP No. 37036 and LIFTS the permanent

injunction issued pursuant thereto. This Court further DECLARES that the
investigation of the respondents for violations of Sections 8, 30 and 36 of
the Revised Securities Act may be undertaken by the proper authorities in
accordance with the Securities Regulations Code. No costs.
SO ORDERED.
||| (SEC v. Interport Resources Corp., G.R. No. 135808, October 06, 2008)