Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 125469 October 27, 1997
PHILIPPINE STOCK ECH!NGE, INC., petitioner,
vs.
THE HONOR!"LE COURT O# !PPE!LS, SECURITIES !N$
ECH!NGE COMMISSION %&' PUERTO !(UL L!N$,
INC., respondents.
TORRES, )R., J.:
he Securities and E!chan"e Co##ission is the "overn#ent
a"enc$, under the direct "eneral supervision of the O%ce of the
President,
1
&ith the i##ense tas' of enforcin" the Revised
Securities (ct, and all other duties assi"ned to it b$ pertinent
la&s. (#on" its inu#erable functions, and one of the #ost
i#portant, is the supervision of all corporations, partnerships or
associations, &ho are "rantees of pri#ar$ franchise and)or a
license or per#it issued b$ the "overn#ent to operate in the
Philippines.
2
*ust ho& far this re"ulator$ authorit$ e!tends,
particularl$, &ith re"ard to the Petitioner Philippine Stoc'
E!chan"e, Inc. is the issue in the case at bar.
In this Petition for Revie& on Certiorari, petitioner assails the
resolution of the respondent Court of (ppeals, dated *une +,,
-../, &hich a%r#ed the decision of the Securities and E!chan"e
Co##ission orderin" the petitioner Philippine Stoc' E!chan"e,
Inc. to allo& the private respondent Puerto (0ul 1and, Inc. to be
listed in its stoc' #ar'et, thus pavin" the &a$ for the public
o2erin" of P(1I3s shares.
he facts of the case are undisputed, and are hereb$ restated in
su#.
he Puerto (0ul 1and, Inc. 4P(1I5, a do#estic real estate
corporation, had sou"ht to o2er its shares to the public in order
to raise funds alle"edl$ to develop its properties and pa$ its loans
&ith several ban'in" institutions. In *anuar$, -..6, P(1I &as
issued a Per#it to Sell its shares to the public b$ the Securities
and E!chan"e Co##ission 4SEC5. o facilitate the tradin" of its
shares a#on" investors, P(1I sou"ht to course the tradin" of its
shares throu"h the Philippine Stoc' E!chan"e, Inc. 4PSE5, for
&hich purpose it 7led &ith the said stoc' e!chan"e an application
to list its shares, &ith supportin" docu#ents attached.
On 8ebruar$ 9, -../, the 1istin" Co##ittee of the PSE, upon a
perusal of P(1I3s application, reco##ended to the PSE3s :oard of
;overnors the approval of P(1I3s listin" application.
On 8ebruar$ -<, -../, before it could act upon P(1I3s application,
the :oard of ;overnors of the PSE received a letter fro# the heirs
of 8erdinand E. Marcos, clai#in" that the late President Marcos
&as the le"al and bene7cial o&ner of certain properties for#in"
part of the Puerto (0ul :each =otel and Resort Co#ple! &hich
P(1I clai#s to be a#on" its assets and that the ernate
Develop#ent Corporation, &hich is a#on" the stoc'holders of
P(1I, li'e&ise appears to have been held and continue to be held
in trust b$ one Rebecco Panlilio for then President Marcos and
no&, e2ectivel$ for his estate, and re>uested P(1I3s application to
be deferred. P(1I &as re>uested to co##ent upon the said letter.
P(1I3s ans&er stated that the properties for#in" part of the
Puerto (0ul :each =otel and Resort Co#ple! &ere not clai#ed b$
P(1I as its assets. On the contrar$, the resort is actuall$ o&ned
b$ 8antasia 8ilipina Resort, Inc. and the Puerto (0ul Countr$ Club,
entities distinct fro# P(1I. 8urther#ore, the ernate Develop#ent
Corporation o&ns onl$ -.+?@ of P(1I. he Marcoses responded
that their clai# is not con7ned to the facilities for#in" part of the
Puerto (0ul =otel and Resort Co#ple!, thereb$ i#pl$in" that the$
are also assertin" le"al and bene7cial o&nership of other
properties titled under the na#e of P(1I.
On 8ebruar$ +?, -../, the PSE &rote Chair#an Ma"tan""ol
;uni"undo of the Presidential Co##ission on ;ood ;overn#ent
4PC;;5 re>uestin" for co##ents on the letters of the P(1I and
the Marcoses. On March <, -../, the PSE &as infor#ed that the
Marcoses received a e#porar$ Restrainin" Order on the sa#e
date, enAoinin" the Marcoses fro#, a#on" others, Bfurther
i#pedin", obstructin", dela$in" or interferin" in an$ #anner b$
or an$ #eans &ith the consideration, processin" and approval b$
the PSE of the initial public o2erin" of P(1I.B he RO &as issued
b$ *ud"e Martin S. Villara#a, E!ecutive *ud"e of the RC of Pasi"
Cit$ in Civil Case No. /66/-, pendin" in :ranch /. thereof.
In its re"ular #eetin" held on March +,, -../, the :oard of
;overnors of the PSE reached its decision to reAect P(1I3s
application, citin" the e!istence of serious clai#s, issues and
circu#stances surroundin" P(1I3s o&nership over its assets that
adversel$ a2ect the suitabilit$ of listin" P(1I3s shares in the stoc'
e!chan"e.
On (pril --, -../, P(1I &rote a letter to the SEC addressed to the
then (ctin" Chair#an, Perfecto R. Casa$, *r., brin"in" to the SEC3s
attention the action ta'en b$ the PSE in the application of P(1I for
the listin" of its shares &ith the PSE, and re>uestin" that the SEC,
in the e!ercise of its supervisor$ and re"ulator$ po&ers over
stoc' e!chan"es under Section /4A5 of P.D. No. .?+D(, revie& the
PSE3s action on P(1I3s listin" application and institute such
#easures as are Aust and proper under the circu#stances.
On the sa#e date, or on (pril --, -../, the SEC &rote to the PSE,
attachin" thereto the letter of P(1I and directin" the PSE to 7le its
co##ents thereto &ithin 7ve da$s fro# its receipt and for its
authori0ed representative to appear for an Bin>uir$B on the
#atter. On (pril ++, -../, the PSE sub#itted a letter to the SEC
containin" its co##ents to the (pril --, -../ letter of P(1I.
On (pril +<, -../, the SEC rendered its Order, reversin" the
PSE3s decision. he dispositive portion of the said order readsE
F=ERE8ORE, pre#ises considered, and invo'in"
the Co##issioner3s authorit$ and Aurisdiction
under Section G of the Revised Securities (ct, in
conAunction &ith Section G, /4A5 and /4#5 of
Presidential Decree No. .?+D(, the decision of the
:oard of ;overnors of the Philippine Stoc'
E!chan"e den$in" the listin" of shares of Puerto
(0ul 1and, Inc., is hereb$ set aside, and the PSE is
hereb$ ordered to i##ediatel$ cause the listin" of
the P(1I shares in the E!chan"e, &ithout preAudice
to its authorit$ to re>uire P(1I to disclose such
other #aterial infor#ation it dee#s necessar$ for
the protection of the investi"atin" public.
his Order shall ta'e e2ect i##ediatel$.
SO ORDERED.
PSE 7led a #otion for reconsideration of the said order on (pril
+., -../, &hich &as, ho&ever denied b$ the Co##ission in its
Ma$ ., -../ Order &hich statesE
F=ERE8ORE, pre#ises considered, the
Co##ission 7nds no co#pellin" reason to
reconsider its order dated (pril +<, -../, and in
the li"ht of recent develop#ents on the adverse
clai# a"ainst the P(1I properties, PSE should
re>uire P(1I to sub#it full disclosure of #aterial
facts and infor#ation to protect the investin"
public. In this re"ard, P(1I is hereb$ ordered to
a#end its re"istration state#ents 7led &ith the
Co##ission to incorporate the full disclosure of
these #aterial facts and infor#ation.
Dissatis7ed &ith this rulin", the PSE 7led &ith the Court of
(ppeals on Ma$ -,, -../ a Petition for Revie& 4&ith (pplication
for Frit of Preli#inar$ InAunction and e#porar$ Restrainin"
Order5, assailin" the above #entioned orders of the SEC,
sub#ittin" the follo&in" as errors of the SECE
I. SEC COMMIED SERIOHS ERROR
(ND ;R(VE (:HSE O8 DISCREION
IN ISSHIN; =E (SS(I1ED ORDERS
FI=OH POFER, *HRISDICION, OR
(H=ORICI SEC =(S NO POFER O
ORDER =E 1ISIN; (ND S(1E O8
S=(RES O8 P(1I F=OSE (SSES (RE
SEJHESERED (ND O REVIEF (ND
SH:SIHE DECISIONS O8 PSE ON
1ISIN; (PP1IC(IONSI
II. SEC COMMIED SERIOHS ERROR
(ND ;R(VE (:HSE O8 DISCREION
IN 8INDIN; =( PSE (CED IN (N
(R:IR(RC (ND (:HSIVE M(NNER
IN DIS(PPROVIN; P(1I3S 1ISIN;
(PP1IC(IONI
III. =E (SS(I1ED ORDERS O8 SEC
(RE I11E;(1 (ND VOID 8OR
(11OFIN; 8HR=ER DISPOSIION
O8 PROPERIES IN CHSODI( 1E;IS
(ND F=IC= 8ORM P(R O8
N(V(1)MI1I(RC RESERV(IONI (ND
IV. =E 8H11 DISC1OSHRE O8 =E
SEC F(S NO PROPER1C
PROMH1;(ED (ND IS
IMP1EMEN(ION (ND (PP1IC(ION
IN =IS C(SE VIO1(ES =E DHE
PROCESS C1(HSE O8 =E
CONSIHION.
On *une <, -../, P(1I 7led its Co##ent to the Petition for Revie&
and subse>uentl$, a Co##ent and Motion to Dis#iss. On *une
-?, -../, PSE Ked its Repl$ to Co##ent and Opposition to
Motion to Dis#iss.
On *une +,, -../, the Court of (ppeals pro#ul"ated its
Resolution dis#issin" the PSE3s Petition for Revie&. =ence, this
Petition b$ the PSE.
he appellate court had ruled that the SEC had both Aurisdiction
and authorit$ to loo' into the decision of the petitioner PSE,
pursuant to Section G
*
of the Revised Securities (ct in relation to
Section /4A5 and /4#5
4
of P.D. No. .?+D(, and Section G94b5
5
of
the Revised Securities (ct, and for the purpose of ensurin" fair
ad#inistration of the e!chan"e. :oth as a corporation and as a
stoc' e!chan"e, the petitioner is subAect to public respondent3s
Aurisdiction, re"ulation and control. (cceptin" the ar"u#ent that
the public respondent has the authorit$ #erel$ to supervise or
re"ulate, &ould a#ount to serious conse>uences, considerin"
that the petitioner is a stoc' e!chan"e &hose business is
i#pressed &ith public interest. (buse is not re#ote if the public
respondent is left &ithout an$ s$ste# of control. If the securities
act vested the public respondent &ith Aurisdiction and control
over all corporationsI the po&er to authori0e the establish#ent of
stoc' e!chan"esI the ri"ht to supervise and re"ulate the sa#eI
and the po&er to alter and supple#ent rules of the e!chan"e in
the listin" or delistin" of securities, then the la& certainl$
"ranted to the public respondent the plenar$ authorit$ over the
petitionerI and the po&er of revie& necessaril$ co#es &ithin its
authorit$.
(ll in all, the court held that P(1I co#plied &ith all the
re>uire#ents for public listin", a%r#in" the SEC3s rulin" to the
e2ect thatE
. . . the Philippine Stoc' E!chan"e has acted in an
arbitrar$ and abusive #anner in disapprovin" the
application of P(1I for listin" of its shares in the
face of the follo&in" considerationsE
-. P(1I has clearl$ and ad#ittedl$ co#plied &ith
the 1istin" Rules and full disclosure re>uire#ents
of the E!chan"eI
+. In appl$in" its clear and reasonable standards
on the suitabilit$ for listin" of shares, PSE has
failed to Austif$ &h$ it acted di2erentl$ on the
application of P(1I, as co#pared to the IPOs of
other co#panies si#ilarl$ situated that &ere
allo&ed listin" in the E!chan"eI
G. It appears that the clai#s and issues on the title
to P(1I3s properties &ere even less serious than the
clai#s a"ainst the assets of the other co#panies in
that, the assertions of the Marcoses that the$ are
o&ners of the disputed properties &ere not
substantiated enou"h to overco#e the stren"th of
a title to properties issued under the orrens
S$ste# as evidence of o&nership thereofI
<. No action has been 7led in an$ court of
co#petent Aurisdiction see'in" to nullif$ P(1I3s
o&nership over the disputed properties, neither
has the "overn#ent instituted recover$
proceedin"s a"ainst these properties. Cet the
i#port of PSE3s decision in den$in" P(1I3s
application is that it &ould be P(1I, not the
Marcoses, that #ust "o to court to prove the
le"alit$ of its o&nership on these properties before
its shares can be listed.
In addition, the ar"u#ent that the P(1I properties belon" to the
Militar$)Naval Reservation does not inspire belief. he point is,
the P(1I properties are no& titled. ( propert$ losses its public
character the #o#ent it is covered b$ a title. (s a #atter of fact,
the titles have lon" been settled b$ a 7nal Aud"#entI and the
7nal decree havin" been re"istered, the$ can no lon"er be reD
opened considerin" that the one $ear period has alread$ passed.
1astl$, the deter#ination of &hat standard to appl$ in allo&in"
P(1I3s application for listin", &hether the discretion #ethod or
the s$ste# of public disclosure adhered to b$ the SEC, should be
addressed to the Securities Co##ission, it bein" the "overn#ent
a"enc$ that e!ercises both supervisor$ and re"ulator$ authorit$
over all corporations.
On (u"ust -6, -../- the PSE, after it &as "ranted an e!tension,
7led the instant Petition for Revie& on Certiorari, ta'in"
e!ception to the rulin"s of the SEC and the Court of (ppeals.
Respondent P(1I 7led its Co##ent to the petition on October -,,
-../. On the sa#e date, the PC;; 7led a Motion for 1eave to 7le
a Petition for Intervention. his &as follo&ed up b$ the PC;;3s
Petition for Intervention on October +-, -../. ( supple#ental
Co##ent &as 7led b$ P(1I on October +6, -..,. he O%ce of
the Solicitor ;eneral, representin" the SEC and the Court of
(ppeals, li'e&ise 7led its Co##ent on Dece#ber +/, -../. In
ans&er to the PC;;3s #otion for leave to 7le petition for
intervention, P(1I 7led its Co##ent thereto on *anuar$ -,, -..,,
&hereas the PSE 7led its o&n Co##ent on *anuar$ +?, -..,.
On 8ebruar$ +6, -../, the PSE 7led its Consolidated Repl$ to the
co##ents of respondent P(1I 4October -,, -../5 and the
Solicitor ;eneral 4Dece#ber +/, -../5. On Ma$ -/, -..,, P(1I
7led its ReAoinder to the said consolidated repl$ of PSE.
PSE sub#its that the Court of (ppeals erred in rulin" that the SEC
had authorit$ to order the PSE to list the shares of P(1I in the
stoc' e!chan"e. Hnder presidential decree No. .?+D(, the po&ers
of the SEC over stoc' e!chan"es are #ore li#ited as co#pared
to its authorit$ over ordinar$ corporations. In connection &ith
this, the po&ers of the SEC over stoc' e!chan"es under the
Revised Securities (ct are speci7call$ enu#erated, and these do
not include the po&er to reverse the decisions of the stoc'
e!chan"e. (uthorities are in abundance even in the Hnited
States, fro# &hich the countr$3s securit$ policies are patterned,
to the e2ect of "ivin" the Securities Co##ission less control over
stoc' e!chan"es, &hich in turn are "iven #ore leeD&a$ in #a'in"
the decision &hether or not to allo& corporations to o2er their
stoc' to the public throu"h the stoc' e!chan"e. his is in accord
&ith the Bbusiness Aud"#ent ruleB &hereb$ the SEC and the
courts are barred fro# intrudin" into business Aud"#ents of
corporations, &hen the sa#e are #ade in "ood faith. the said
rule precludes the reversal of the decision of the PSE to den$
P(1I3s listin" application, absent a sho&in" of bad faith on the
part of the PSE. Hnder the listin" rules of the PSE, to &hich P(1I
had previousl$ a"reed to co#pl$, the PSE retains the discretion
to accept or reAect applications for listin". hus, even if an issuer
has co#plied &ith the PSE listin" rules and re>uire#ents, PSE
retains the discretion to accept or reAect the issuer3s listin"
application if the PSE deter#ines that the listin" shall not serve
the interests of the investin" public.
Moreover, PSE ar"ues that the SEC has no Aurisdiction over
se>uestered corporations, nor &ith corporations &hose properties
are under se>uestration. ( readin" of Republic of the Philippines
vs. Sadiganbayan, ;.R. No. -?6+?6, +<? SCR( G,/, &ould reveal
that the properties of P(1I, &hich &ere derived fro# the ernate
Develop#ent Corporation 4DC5 and the Monte del Sol
Develop#ent Corporation 4MSDC5. are under se>uestration b$
the PC;;, and subAect of forfeiture proceedin"s in the
Sandi"anba$an. his rulin" of the Court is the Bla& of the caseB
bet&een the Republic and DC and MSDC. It cate"oricall$
declares that the assets of these corporations &ere se>uestered
b$ the PC;; on March -?, -.9/ and (pril <, -.99.
It is, li'e&ise, inti#ated that the Court of (ppeals3 sanction that
P(1I3s o&nership over its properties can no lon"er be >uestioned,
since certi7cates of title have been issued to P(1I and #ore than
one $ear has since lapsed, is erroneous and i"nores &ell settled
Aurisprudence on land titles. hat a certi7cate of title issued
under the orrens S$ste# is a conclusive evidence of o&nership
is not an absolute rule and ad#its certain e!ceptions. It is
funda#ental that forest lands or #ilitar$ reservations are nonD
alienable. hus, &hen a title covers a forest reserve or a
"overn#ent reservation, such title is void.
PSE, li'e&ise, assails the SEC3s and the Court of (ppeals reliance
on the alle"ed polic$ of Bfull disclosureB to uphold the listin" of
P(1I3s shares &ith the PSE, in the absence of a clear #andate for
the e2ectivit$ of such polic$. (s it is, the case records reveal the
truth that P(1I did not co#pl$ &ith the listin" rules and disclosure
re>uire#ents. In fact, P(1I3s docu#ents supportin" its application
contained #isrepresentations and #isleadin" state#ents, and
concealed #aterial infor#ation. he #atter of se>uestration of
P(1I3s properties and the fact that the sa#e for# part of
#ilitar$)naval)forest reservations &ere not reKected in P(1I3s
application.
It is undeniable that the petitioner PSE is not an ordinar$
corporation, in that althou"h it is clothed &ith the #ar'in"s of a
corporate entit$, it functions as the pri#ar$ channel throu"h
&hich the vessels of capital trade pl$. he PSE3s relevance to the
continued operation and 7ltration of the securities transactions in
the countr$ "ives it a distinct color of i#portance such that
"overn#ent intervention in its a2airs beco#es Austi7ed, if not
necessaril$. Indeed, as the onl$ operational stoc' e!chan"e in the
countr$ toda$, the PSE enAo$s a #onopol$ of securities
transactions, and as such, it $ields an i##ense inKuence upon
the countr$3s econo#$.
Due to this special nature of stoc' e!chan"es, the countr$3s
la&#a'ers has seen it &ise to "ive special treat#ent to the
ad#inistration and re"ulation of stoc' e!chan"es.
6
hese provisions, read to"ether &ith the "eneral "rant of
Aurisdiction, and ri"ht of supervision and control over all
corporations under Sec. G of P.D. .?+D(, "ive the SEC the special
#andate to be vi"ilant in the supervision of the a2airs of stoc'
e!chan"es so that the interests of the investin" public #a$ be
full$ safe"uard.
Section G of Presidential Decree .?+D(, standin" alone, is enou"h
authorit$ to uphold the SEC3s challen"ed control authorit$ over
the petitioner PSE even as it provides that Bthe Co##ission shall
have absolute Aurisdiction, supervision, and control over all
corporations, partnerships or associations, &ho are the "rantees
of pri#ar$ franchises and)or a license or per#it issued b$ the
"overn#ent to operate in the Philippines. . .B he SEC3s
re"ulator$ authorit$ over private corporations enco#passes a
&ide #ar"in of areas, touchin" nearl$ all of a corporation3s
concerns. his authorit$ sprin"s fro# the fact that a corporation
o&es its e!istence to the concession of its corporate franchise
fro# the state.
he SEC3s po&er to loo' into the subAect rulin" of the PSE,
therefore, #a$ be i#plied fro# or be considered as necessar$ or
incidental to the carr$in" out of the SEC3s e!press po&er to
insure fair dealin" in securities traded upon a stoc' e!chan"e or
to ensure the fair ad#inistration of such e!chan"e.
7
It is,
li'e&ise, observed that the principal function of the SEC is the
supervision and control over corporations, partnerships and
associations &ith the end in vie& that invest#ent in these
entities #a$ be encoura"ed and protected, and their activities for
the pro#otion of econo#ic develop#ent.
+
hus, it &as in the alle"ed e!ercise of this authorit$ that the SEC
reversed the decision of the PSE to den$ the application for
listin" in the stoc' e!chan"e of the private respondent P(1I. he
SEC3s action &as a%r#ed b$ the Court of (ppeals.
Fe a%r# that the SEC is the entit$ &ith the pri#ar$ sa$ as to
&hether or not securities, includin" shares of stoc' of a
corporation, #a$ be traded or not in the stoc' e!chan"e. his is
in line &ith the SEC3s #ission to ensure proper co#pliance &ith
the la&s, such as the Revised Securities (ct and to re"ulate the
sale and disposition of securities in the countr$.
9
(s the appellate
court e!plainsE
Para#ount polic$ also supports the authorit$ of the
public respondent to revie& petitioner3s denial of
the listin". :ein" a stoc' e!chan"e, the petitioner
perfor#s a function that is vital to the national
econo#$, as the business is a2ected &ith public
interest. (s a #atter of fact, it has often been said
that the econo#$ #oves on the basis of the rise
and fall of stoc's bein" traded. :$ its econo#ic
po&er, the petitioner certainl$ can dictate &hich
and ho& #an$ users are allo&ed to sell securities
thru the facilities of a stoc' e!chan"e, if allo&ed to
interpret its o&n rules liberall$ as it #a$ please.
Petitioner can either allo& or den$ the entr$ to the
#ar'et of securities. o repeat, the #onopol$,
unless acco#panied b$ control, beco#es subAect
to abuseI hence, considerin" public interest, then it
should be subAect to "overn#ent re"ulation.
he role of the SEC in our national econo#$ cannot be
#ini#i0ed. he le"islature, throu"h the Revised Securities (ct,
Presidential Decree No. .?+D(, and other pertinent la&s, has
entrusted to it the serious responsibilit$ of enforcin" all la&s
a2ectin" corporations and other for#s of associations not
other&ise vested in so#e other "overn#ent o%ce.
1,
his is not to sa$, ho&ever, that the PSE3s #ana"e#ent
prero"atives are under the absolute control of the SEC. he PSE
is, alter all, a corporation authori0ed b$ its corporate franchise to
en"a"e in its proposed and dul$ approved business. One of the
PSE3s #ain concerns, as such, is still the "eneration of pro7t for
its stoc'holders. Moreover, the PSE has all the ri"hts pertainin"
to corporations, includin" the ri"ht to sue and be sued, to hold
propert$ in its o&n na#e, to enter 4or not to enter5 into contracts
&ith third persons, and to perfor# all other le"al acts &ithin its
allocated e!press or i#plied po&ers.
( corporation is but an association of individuals, allo&ed to
transact under an assu#ed corporate na#e, and &ith a distinct
le"al personalit$. In or"ani0in" itself as a collective bod$, it
&aives no constitutional i##unities and per>uisites appropriate
to such a bod$.
11
(s to its corporate and #ana"e#ent decisions,
therefore, the state &ill "enerall$ not interfere &ith the sa#e.
Juestions of polic$ and of #ana"e#ent are left to the honest
decision of the o%cers and directors of a corporation, and the
courts are &ithout authorit$ to substitute their Aud"#ent for the
Aud"#ent of the board of directors. he board is the business
#ana"er of the corporation, and so lon" as it acts in "ood faith,
its orders are not revie&able b$ the courts.
12
hus, not&ithstandin" the re"ulator$ po&er of the SEC over the
PSE, and the resultant authorit$ to reverse the PSE3s decision in
#atters of application for listin" in the #ar'et, the SEC #a$
e!ercise such po&er onl$ if the PSE3s Aud"#ent is attended b$
bad faith. In Board of Liquidators vs. Kalaw,
1*
it &as held that
bad faith does not si#pl$ connote bad Aud"#ent or ne"li"ence. It
i#ports a dishonest purpose or so#e #oral obli>uit$ and
conscious doin" of &ron". It #eans a breach of a 'no&n dut$
throu"h so#e #otive or interest of ill &ill, parta'in" of the nature
of fraud.
In reachin" its decision to den$ the application for listin" of P(1I,
the PSE considered i#portant facts, &hich, in the "eneral
sche#e, brin"s to serious >uestion the >uali7cation of P(1I to sell
its shares to the public throu"h the stoc' e!chan"e. Durin" the
ti#e for receivin" obAections to the application, the PSE heard
fro# the representative of the late President 8erdinand E. Marcos
and his fa#il$ &ho clai# the properties of the private respondent
to be part of the Marcos estate. In ti#e, the PC;; con7r#ed this
clai#. In fact, an order of se>uestration has been issued coverin"
the properties of P(1I, and suit for reconve$ance to the state has
been 7led in the Sandi"anba$an Court. =o& the properties &ere
e2ectivel$ transferred, despite the se>uestration order, fro# the
DC and MSDC to Rebecco Panlilio, and to the private respondent
P(1I, in onl$ a short span of ti#e, are not $et e!plained to the
Court, but it is clear that such circu#stances "ive rise to serious
doubt as to the inte"rit$ of P(1I as a stoc' issuer. he petitioner
&as in the ri"ht &hen it refused application of P(1I, for a contrar$
rulin" &as not to the best interest of the "eneral public. he
purpose of the Revised Securities (ct, after all, is to "ive
ade>uate and e2ective protection to the investin" public a"ainst
fraudulent representations, or false pro#ises, and the i#position
of &orthless ventures.
14
It is to be observed that the H.S. Securities (ct e#phasi0ed its
avo&ed protection to acts detri#ental to le"iti#ate business,
thusE
he Securities (ct, often referred to as the Btruth in
securitiesB (ct, &as desi"ned not onl$ to provide
investors &ith ade>uate infor#ation upon &hich to
base their decisions to bu$ and sell securities, but
also to protect le"iti#ate business see'in" to
obtain capital throu"h honest presentation a"ainst
co#petition fro# croo'ed pro#oters and to
prevent fraud in the sale of securities. 4enth
(nnual Report, H.S. Securities L E!chan"e
Co##ission, p. -<5.
(s has been pointed out, the e2ects of such an act
are chieK$ 4-5 prevention of e!cesses and
fraudulent transactions, #erel$ b$ re>uire#ent of
that their details be revealedI 4+5 placin" the
#ar'et durin" the earl$ sta"es of the o2erin" of a
securit$ a bod$ of infor#ation, &hich operatin"
indirectl$ throu"h invest#ent services and e!pert
investors, &ill tend to produce a #ore accurate
appraisal of a securit$, . . . hus, the Co##ission
#a$ refuse to per#it a re"istration state#ent to
beco#e e2ective if it appears on its face to be
inco#plete or inaccurate in an$ #aterial respect,
and e#po&er the Co##ission to issue a stop order
suspendin" the e2ectiveness of an$ re"istration
state#ent &hich is found to include an$ untrue
state#ent of a #aterial fact or to o#it to state an$
#aterial fact re>uired to be stated therein or
necessar$ to #a'e the state#ents therein not
#isleadin". 4Ide#5.
(lso, as the pri#ar$ #ar'et for securities, the PSE has
established its na#e and "ood&ill, and it has the ri"ht to protect
such "ood&ill b$ #aintainin" a reasonable standard of propriet$
in the entities &ho choose to transact throu"h its facilities. It &as
reasonable for the PSE, therefore, to e!ercise its Aud"#ent in the
#anner it dee#s appropriate for its business identit$, as lon" as
no ri"hts are tra#pled upon, and public &elfare is safe"uarded.
In this connection, it is proper to observe that the concept of
"overn#ent absolutis# is a thin" of the past, and should re#ain
so.
he observation that the title of P(1I over its properties is
absolute and can no lon"er be assailed is of no #o#ent. (t this
Auncture, there is the clai# that the properties &ere o&ned b$
DC and MSDC and &ere transferred in violation of se>uestration
orders, to Rebecco Panlilio and later on to P(1I, besides the clai#
of the Marcoses that such properties belon" to the Marcos estate,
and &ere held onl$ in trust b$ Rebecco Panlilio. It is also alle"ed
b$ the petitioner that these properties belon" to naval and forest
reserves, and therefore be$ond private do#inion. If an$ of these
clai#s is established to be true, the certi7cates of title over the
subAect properties no& held b$ P(1I #ap be disre"arded, as it is
an established rule that a re"istration of a certi7cate of title does
not confer o&nership over the properties described therein to the
person na#ed as o&ner. he inscription in the re"istr$, to be
e2ective, #ust be #ade in "ood faith. he defense of
indefeasibilit$ of a orrens itle does not e!tend to a transferee
&ho ta'es the certi7cate of title &ith notice of a Ka&.
In an$ case, for the purpose of deter#inin" &hether PSE acted
correctl$ in refusin" the application of P(1I, the true o&nership of
the properties of P(1I need not be deter#ined as an absolute
fact. Fhat is #aterial is that the uncertaint$ of the properties3
o&nership and alienabilit$ e!ists, and this puts to >uestion the
>uali7cation of P(1I3s public o2erin". In su#, the Court 7nds that
the SEC had acted arbitraril$ in arro"atin" unto itself the
discretion of approvin" the application for listin" in the PSE of the
private respondent P(1I, since this is a #atter addressed to the
sound discretion of the PSE, a corporation entit$, &hose business
Aud"#ents are respected in the absence of bad faith.
he >uestion as to &hat polic$ is, or should be relied upon in
approvin" the re"istration and sale of securities in the SEC is not
for the Court to deter#ine, but is left to the sound discretion of
the Securities and E!chan"e Co##ission. In #andatin" the SEC
to ad#inister the Revised Securities (ct, and in perfor#in" its
other functions under pertinent la&s, the Revised Securities (ct,
under Section G thereof, "ives the SEC the po&er to pro#ul"ate
such rules and re"ulations as it #a$ consider appropriate in the
public interest for the enforce#ent of the said la&s. he second
para"raph of Section < of the said la&, on the other hand,
provides that no securit$, unless e!e#pt b$ la&, shall be issued,
endorsed, sold, transferred or in an$ other #anner conve$ed to
the public, unless re"istered in accordance &ith the rules and
re"ulations that shall be pro#ul"ated in the public interest and
for the protection of investors b$ the Co##ission. Presidential
Decree No. .?+D(, on the other hand, provides that the SEC, as
re"ulator$ a"enc$, has supervision and control over all
corporations and over the securities #ar'et as a &hole, and as
such, is "iven a#ple authorit$ in deter#inin" appropriate
policies. Pursuant to this re"ulator$ authorit$, the SEC has
#anifested that it has adopted the polic$ of Bfull #aterial
disclosureB &here all co#panies, listed or appl$in" for listin", are
re>uired to divul"e truthfull$ and accuratel$, all #aterial
infor#ation about the#selves and the securities the$ sell, for the
protection of the investin" public, and under pain of
ad#inistrative, cri#inal and civil sanctions. In connection &ith
this, a fact is dee#ed #aterial if it tends to induce or other&ise
e2ect the sale or purchase of its securities.
15
Fhile the
e#plo$#ent of this polic$ is reco"ni0ed and sanctioned b$ the
la&s, nonetheless, the Revised Securities (ct sets substantial and
procedural standards &hich a proposed issuer of securities #ust
satisf$.
16
Pertinentl$, Section . of the Revised Securities (ct sets
forth the possible Grounds for the Rejection of the re"istration of
a securit$E
M he Co##ission #a$ reAect a re"istration
state#ent and refuse to issue a per#it to sell the
securities included in such re"istration state#ent if
it 7nds that M
4-5 he registration state!ent is on its face
inco!plete or inaccurate in any !aterial respect or
includes any untrue state!ent of a !aterial fact or
o!its to state a !aterial fact required to be stated
therein or necessary to !a"e the state!ents
therein not !isleadingI or
4+5 he issuer or re"istrant M
4i5 is not solvent or not in sound
7nancial conditionI
4ii5 has violated or has not co#plied
&ith the provisions of this (ct, or the
rules pro#ul"ated pursuant thereto,
or an$ order of the Co##issionI
4iii5 has failed to co#pl$ &ith an$ of
the applicable re>uire#ents and
conditions that the Co##ission #a$,
in the public interest and for the
protection of investors, i#pose
before the securit$ can be
re"isteredI
4iv5 has been en"a"ed or is en"a"ed
or is about to en"a"e in fraudulent
transactionI
4v5 is in an$ &a$ dishonest or is not
of "ood reputeI or
4vi5 does not conduct its business in
accordance &ith la& or is en"a"ed in
a business that is ille"al or contrar$
to "overn#ent rules and re"ulations.
4G5 he enterprise or the business of the issuer is
not sho&n to be sound or to be based on sound
business principlesI
4<5 (n o%cer, #e#ber of the board of directors, or
principal stoc'holder of the issuer is dis>uali7ed to
be such o%cer, director or principal stoc'holderI or
465 he issuer or registrant has not shown to the
satisfaction of the Co!!ission that the sale of its
security would not wor" to the prejudice of the
public interest or as a fraud upon the purchasers
or investors. 4E#phasis Ours5
( readin" of the fore"oin" "rounds reveals the intention of the
la&#a'ers to #a'e the re"istration and issuance of securities
dependent, to a certain e!tent, on the #erits of the securities
the#selves, and of the issuer, to be deter#ined b$ the Securities
and E!chan"e Co##ission. his #easure &as #eant to protect
the interests of the investin" public a"ainst fraudulent and
&orthless securities, and the SEC is #andated b$ la& to
safe"uard these interests, follo&in" the policies and rules
therefore provided. he absolute reliance on the full disclosure
#ethod in the re"istration of securities is, therefore, untenable.
(s it is, the Court 7nds that the private respondent P(1I, on at
least t&o points 4nos. - and 65 has failed to support the propriet$
of the issue of its shares &ith unfailin" clarit$, thereb$ lendin"
support to the conclusion that the PSE acted correctl$ in refusin"
the listin" of P(1I in its stoc' e!chan"e. his does not discount
the e2ectivit$ of &hatever #ethod the SEC, in the e!ercise of its
vested authorit$, chooses in settin" the standard for public
o2erin"s of corporations &ishin" to do so. =o&ever, the SEC
#ust reco"ni0e and i#ple#ent the #andate of the la&,
particularl$ the Revised Securities (ct, the provisions of &hich
cannot be a#ended or supplanted b$ #ere ad#inistrative
issuance.
In resu#e, the Court 7nds that the PSE has acted &ith Austi7ed
circu#spection, discountin", therefore, an$ i#putation of
arbitrariness and &hi#sical ani#ation on its part. Its action in
refusin" to allo& the listin" of P(1I in the stoc' e!chan"e is
Austi7ed b$ the la& and b$ the circu#stances attendant to this
case.
(CCORDIN;1C, in vie& of the fore"oin" considerations, the Court
hereb$ ;R(NS the Petition for Revie& onCertiorari. he
Decisions of the Court of (ppeals and the Securities and
E!chan"e Co##ission dated *ul$ +,, -../ and (pril +<, -../
respectivel$, are hereb$ REVERSED and SE (SIDE, and a ne&
*ud"#ent is hereb$ ENERED, a%r#in" the decision of the
Philippine Stoc' E!chan"e to den$ the application for listin" of
the private respondent Puerto (0ul 1and, Inc.
SO ORDERED.
Regalado and Puno# $$%# concur%
&endo'a# $%# concurs in the result%