I.

THE LAW ON SECURITIES

a. PURPOSE OF THE LAWS ON SECURITIES (SEC 2)

No. L-23004. June 30, 1965.

MAKATI STOCK EXCHANGE, INC., petitioner, vs. SECURITIES AND
EXCHANGE COMMISSION and MANILA STOCK EXCHANGE, respondents.
Securities and Exchange Commission; May not prohibit double listing of securities in
stock exchanges.The Securities and Exchange Commissions rule that a security
already listed in any securities exchange may not be listed anew in any other
securities exchange is beyond the power of the Commission to impose because it
results in discrimination and violation of constitutional rights.
Same; Same; Prohibition against double listing as condition for licensing of stock
exchange.The Securities and Exchange Commission may not validly impose as a
condition precedent for the licensing of a stock exchange its rule against double
listing of securities. [Makati Stock Exchange, Inc. vs. Securities and Exchange
Commission, 14 SCRA 620(1965)]
BENGZON, C.J.:
This is a review of the resolution of the Securities and Exchange Commission which
would deny the Makati Stock Exchange, Inc., permission to operate a stock
exchange unless it agreed not to list for trading on its board, securities already
listed in the Manila Stock Exchange.
Objecting to the requirement, Makati Stock Exchange, Inc. contends that the
Commission has no power to impose it and that, anyway, it is illegal, discriminatory
and unjust.
Under the law, no stock exchange may do business in the Philippines unless it is
previously registered with the Commission by filing a statement containing the
information described in Sec. 17 of the Securities Act (Commonwealth Act 83, as
amended).
It is assumed that the Commission may permit registration if the section is complied
with; if not, it may refuse. And there is now no question that the section has been
complied with, or would be complied with, except that the Makati Stock Exchange,
upon challenging this particular requirement of the Commission (rule against double
listing) may be deemed to have shown inability or refusal to abide by its rules, and
thereby to have given ground for denying registration. [Sec. 17 (a) (1) and (d)].
Such rule provides: "... nor shall a security already listed in any securities exchange
be listed anew in any other securities exchange ... ."
The objection of Makati Stock Exchange, Inc., to this rule is understandable. There is
actually only one securities exchange The Manila Stock Exchange that has
been operating alone for the past 25 years; and all or presumably all available
or worthwhile securities for trading in the market are now listed there. In effect, the

Commission permits the Makati Stock Exchange, Inc., to deal only with
other securities. Which is tantamount to permitting a store to open provided it sells
only those goods not sold in other stores. And if there's only one existing store, 1 the
result is a monopoly.
It is not farfetched to assert as petitioner does 2 that for all practical purposes, the
Commission's order or resolution would make it impossible for the Makati Stock
Exchange to operate. So, its "permission" amounted to a "prohibition."
Apparently, the Commission acted "in the public interest." 3 Hence, it is pertinent to
inquire whether the Commission may "in the public interest" prohibit (or make
impossible) the establishment of another stock exchange (besides the Manila Stock
Exchange), on the ground that the operation of two or more exchanges adversely
affects the public interest.
At first glance, the answer should be in the negative, because the law itself
contemplated, and, therefore, tacitly permitted or tolerated at least, the operation
of two or more exchanges.
Wherever two or more exchanges exist, the Commission, by order, shall require and
enforce uniformity of trading regulations in and/or between said exchanges.
[Emphasis Ours] (Sec. 28b-13, Securities Act.)
In fact, as admitted by respondents, there were five stock exchanges in Manila,
before the Pacific War (p. 10, brief), when the Securities Act was approved or
amended. (Respondent Commission even admits that dual listing was practiced
then.) So if the existence of more than one exchange were contrary to public
interest, it is strange that the Congress having from time to time enacted legislation
amending the Securities Act, 4 has not barred multiplicity of exchanges.
Forgetting for the moment the monopolistic aspect of the Commission's resolution,
let us examine the authority of the Commission to promulgate and implement the
rule in question.
It is fundamental that an administrative officer has only such powers as are
expressly granted to him by the statute, and those necessarily implied in the
exercise thereof.
In its brief and its resolution now subject to review, the Commission cites no
provision expressly supporting its rule. Nevertheless, it suggests that the power is
"necessary for the execution of the functions vested in it"; but it makes no
explanation, perhaps relying on the reasons advanced in support of its position that
trading of the same securities in two or more stock exchanges, fails to give
protection to the investors, besides contravening public interest. (Of this, we shall
treat later) .
On the legality of its rule, the Commission's argument is that: (a) it was approved by
the Department Head before the War; and (b) it is not in conflict with the
provisions of the Securities Act. In our opinion, the approval of the Department, 5 by
itself, adds no weight in a judicial litigation; and the test is not whether the Act
forbids the Commission from imposing a prohibition, but whether it empowers the

Commission to prohibit. No specific portion of the statute has been cited to uphold
this power. It is not found in sec. 28 (of the Securities Act), which is entitled "Powers
(of the Commission) with Respect to Exchanges and Securities." 6
According to many court precedents, the general power to "regulate" which the
Commission has (Sec. 33) does not imply authority to prohibit." 7
The Manila Stock Exchange, obviously the beneficiary of the disputed rule, contends
that the power may be inferred from the express power of the Commission to
suspend trading in a security, under said sec. 28 which reads partly:
And if in its opinion, the public interest so requires, summarily to suspend trading in
any registered security on any securities exchange ... . (Sec. 28[3], Securities Act.)
However, the Commission has not acted nor claimed to have acted in
pursuance of such authority, for the simple reason that suspension under it may
only be for ten days. Indeed, this section, if applicable, precisely argues against the
position of the Commission because the "suspension," if it is, and as applied to
Makati Stock Exchange, continues for an indefinite period, if not forever; whereas
this Section 28 authorizes suspension for ten days only. Besides, the suspension of
trading in the security should not be on one exchange only, but on allexchanges;
bearing in mind that suspension should be ordered "for the protection of investors"
(first par., sec. 28) in all exchanges, naturally, and if "the public interest so requires"
[sec. 28(3)].
This brings up the Commission's principal conclusions underlying its determination
viz.: (a) that the establishment of another exchange in the environs of Manila would
be inimical to the public interest; and (b) that double or multiple listing of securities
should be prohibited for the "protection of the investors."
(a) Public Interest Having already adverted to this aspect of the matter, and the
emerging monopoly of the Manila Stock Exchange, we may, at this juncture,
emphasize that by restricting free competition in the marketing of stocks, and
depriving the public of the advantages thereof the Commission all but permits what
the lawpunishes as monopolies as "crimes against public interest." 8
"A stock exchange is essentially monopolistic," the Commission states in its
resolution (p. 14-a, Appendix, Brief for Petitioner). This reveals the basic foundation
of the Commission's process of reasoning. And yet, a few pages afterwards, it
recalls the benefits to be derived "from the existence of two or more exchanges,"
and the desirability of "a healthy and fair competition in the securities market,"
even as it expresses the belief that "a fair field of competition among stock
exchanges should be encouraged only to resolve, paradoxically enough, that Manila
Stock Exchange shall, in effect, continue to be the only stock exchange in Manila or
in the Philippines.
"Double listing of a security," explains the Commission, "divides the sellers and the
buyers, thus destroying the essence of a stock exchange as a two-way auction
market for the securities, where all the buyers and sellers in one geographical area
converge in one defined place, and the bidders compete with each other to

purchase the security at the lowest possible price and those seeking to sell it
compete with each other to get the highest price therefor. In this sense, a stock
exchange is essentially monopolistic."
Inconclusive premises, for sure. For it is debatable whether the buyer of stock may
get the lowest price where all the sellers assemble in only one place. The price
there, in one sale, will tend to fix the price for the succeeding, sales, and he has no
chance to get a lower price except at another stock exchange. Therefore, the
arrangement desired by the Commission may, at most, be beneficial to sellers of
stock not to buyers although what applies to buyers should obtain equally as
to sellers (looking for higher prices). Besides, there is the brokerage fee which must
be considered. Not to mention the personality of the broker.
(b) Protection of investors. At any rate, supposing the arrangement contemplated
is beneficial to investors (as the Commission says), it is to be doubted whether it is
"necessary" for their "protection" within the purview of the Securities Act. As the
purpose of the Act is to give adequate and effective protection to the investing
publicagainst fraudulent representations, or false promises and the imposition of
worthless ventures, 9 it is hard to see how the proposed concentration of the market
has a necessary bearing to the prevention of deceptive devices or unlawful
practices. For it is not mere semantics to declare that acts for the protection of
investors are necessarily beneficial to them; but not everything beneficial to them is
necessary for their protection.
And yet, the Commission realizes that if there were two or more exchanges "the
same security may sell for more in one exchange and sell for less in the other.
Variance in price of the same security would be the rule ... ." Needless to add, the
brokerage rates will also differ.
This, precisely, strengthens the objection to the Commission's ruling. Such
difference in prices and rates gives the buyer of shares alternative options, with the
opportunity to invest at lower expense; and the seller, to dispose at higher prices.
Consequently, for the investors' benefit (protection is not the word), quality of
listing 10 should be permitted, nay, encouraged, and other exchanges allowed to
operate. The circumstance that some people "made a lot of money due to the
difference in prices of securities traded in the stock exchanges of Manila before the
war" as the Commission noted, furnishes no sufficient reason to let one exchange
corner the market. If there was undue manipulation or unfair advantage in
exchange trading the Commission should have other means to correct the specific
abuses.
Granted that, as the Commission observes, "what the country needs is not another"
market for securities already listed on the Manila Stock Exchange, but "one that
would focus its attention and energies on the listing of new securities and thus
effectively help in raising capital sorely needed by our ... unlisted industries and
enterprises."
Nonetheless, we discover no legal authority for it to shore up (and stifle) free
enterprise and individual liberty along channels leading to that economic
desideratum. 11

The Legislature has specified the conditions under which a stock exchange may
legally obtain a permit (sec. 17, Securities Act); it is not for the Commission to
impose others. If the existence of two competing exchanges jeopardizes public
interest which is doubtful let the Congress speak. 12 Undoubtedly, the opinion
and recommendation of the Commission will be given weight by the Legislature, in
judging whether or not to restrict individual enterprise and business opportunities.
But until otherwise directed by law, the operation of exchanges should not be so
regulated as practically to create a monopoly by preventing the establishment of
other stock exchanges and thereby contravening:
(a) the organizers' (Makati's) Constitutional right to equality before the law;
(b) their guaranteed civil liberty to pursue any lawful employment or trade; and
(c) the investor's right to choose where to buy or to sell, and his privilege to select
the brokers in his employment. 13
And no extended elucidation is needed to conclude that for a licensing officer to
deny license solely on the basis of what he believes is best for the economy of the
country may amount to regimentation or, in this instance, the exercise of
undelegated legislative powers and discretion.
Thus, it has been held that where the licensing statute does not expressly or
impliedly authorize the officer in charge, he may not refuse to grant a license simply
on the ground that a sufficient number of licenses to serve the needs of the public
have already been issued. (53 C.J.S. p. 636.)
Concerning res judicata. Calling attention to the Commission's order of May 27,
1963, which Makati Stock did not appeal, the Manila Stock Exchange pleads the
doctrine of res judicata. 14 (The order now reviewed is dated May 7, 1964.)
It appears that when Makati Stock Exchange, Inc. presented its articles of
incorporation to the Commission, the latter, after making some inquiries, issued on
May 27, 1963, an order reading as follows.
Let the certificate of incorporation of the MAKATI STOCK EXCHANGE be issued, and if
the organizers thereof are willing to abide by the foregoing conditions, they may file
the proper application for the registration and licensing of the said Exchange.
In that order, the Commission advanced the opinion that "it would permit the
establishment and operation of the proposed Makati Stock Exchange, provided ... it
shall not list for trading on its board, securities already listed in the Manila Stock
Exchange ... ."
Admittedly, Makati Stock Exchange, Inc. has not appealed from that order of May
27, 1963. Now, Manila Stock insists on res judicata.
Why should Makati have appealed? It got the certificate of incorporation which it
wanted. The condition or proviso mentioned would only apply if and when
it subsequently filed the application for registration as stock exchange. It had not
yet applied. It was not the time to question the condition; 15 Makati was still
exploring the convenience of soliciting the permit to operate subject to that

condition. And it could have logically thought that, since the condition did not affect
its articles of incorporation, it should not appeal the order (of May 27, 1963) which
after all, granted the certificate of incorporation (corporate existence) it wanted at
that time.
And when the Makati Stock Exchange finally found that it could not successfully
operate with the condition attached, it took the issue by the horns, and expressing
its desire for registration and license, it requested that the condition (against double
listing) be dispensed with. The order of the Commission denying, such request is
dated May 7, 1964, and is now under, review.
Indeed, there can be no valid objection to the discussion of this issue of double
listing now, 16 because even if the Makati Stock Exchange, Inc. may be held to have
accepted the permission to operate with the condition against double listing (for
having failed to appeal the order of May 27, 1963), still it was not precluded from
afterwards contesting 17 the validity of such condition or rule:
(1) An agreement (which shall not be construed as a waiver of any constitutional
right or any right to contest the validity of any rule or regulation) to comply and to
enforce so far as is within its powers, compliance by its members, with the
provisions of this Act, and any amendment thereto, and any rule or regulation made
or to be made thereunder. (See. 17-a-1, Securities Act [Emphasis Ours].)
Surely, this petition for review has suitably been coursed. And making reasonable
allowances for the presumption of regularity and validity of administrative action,
we feel constrained to reach the conclusion that the respondent Commission
possesses no power to impose the condition of the rule, which, additionally, results
in discrimination and violation of constitutional rights.
ACCORDINGLY, the license of the petition to operate a stock exchange is approved
without such condition. Costs shall be paid by the Manila Stock Exchange. So
ordered.
Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal,
Bengzon, J.P., and Zaldivar, JJ., concur.
Barrera, J., is on leave.

[No. 45655. June 15, 1938]

THE PEOPLE OF THE PHILIPPINES, plaintiff and appellee, vs. VICENTE T.
FERNANDEZ and JOAQUIN TRINIDAD, defendants and appellants.
1.CRIMINAL LAW; SPECULATIVE SECURITIES UNDER ACT No. 2581 (THE BLUE SKY
LAW).The certificates of membership issued by the Philippine Mutual Cooperative
Society, Inc., are truly speculative securities within the meaning of Act No. 2581,
otherwise known as the Blue Sky Law, because in order to encourage and induce
their sale, an extraordinary profit, in the ordinary course of business, of 800 per
cent of the invested capital, has been advertised or promised, this profit or benefit
not being dependent upon the actual tangible assets or conditions of the business

of the corporation, but upon its growth or development obtainable through the
admission of new groups of 16 or 12 members, as the case may be, so that each
original member could receive the benefit aids of P40 or P20, respectively.
2.10.; ID.The certificates of membership in question also come within the purview
of paragraph (c) of section 1 of Act No. 2581 because to promote their sale, the
corporation has offered and paid a commission of 10 per cent which, though later
on reduced to 5 per cent, was in fact more than 5 per cent because the corporation
has paid another 5 per cent for traveling expenses.
3.ID. ; ID.The speculative character of the membership certificates issued by the
corporation is also shown by the fact that when a member, whether belonging to
class O or to class S. has not received his benefit aid after two years from the date
of his enrollment, he cannot expect anything more than the refund of the dues paid
by him plus 25 per cent of the same. But it is possible, as the by-laws of the
corporation themselves provide, that there are no funds with which to reimburse the
member or members, who have not been able to collect any benefit aid, the dues
paid by them. To avoid such an eventuality, it is provided that the corporation hold
public contests and benefit performances, the net proceeds of which will be applied
to the payment of benefit aids.
4.ID.; ID.; MITIGATING ClRCUMSTANCES.Good faith and lack of intention to violate
the law may, in this case, be considered as mitigating- circumstances in the
imposition of the penalty; but they do not constitute a valid defense. (People vs.
McCalla, [1923], 63 Cal. App., 783; 220 Pac., 436.) The same may be said of the
argument that the members, who had the right to the benefit aids of P40 or P20, as
the case may be, did receive such aids, and that it has not been proved that the
association has committed any fraud, or is in imminent danger of insolvency.
[People vs. Fernandez., 65 Phil. 675(1938)]

CONCEPCION, J.:

This case involves the meaning and interpretation of "speculative securities" under
the provisions of Act No. 2581. The defendants were charged with a violation of said
statute and were tried and convicted in the Court of First Instance of Manila from
whose judgment they appealed.

It was established by the prosecution and admitted by the appellants that they,
together with other persons, organized a corporation which was registered in the
Bureau of Commerce on January 7, 1936 under the name of Philippine Mutual
Cooperative Society, Inc. The purposes of this association, according to its articles
of incorporation and by-laws, are to promote the social, moral and economic wellbeing of its members by extending to them aid in the form of benefit payments or in
any other form allowed by the laws of the Philippines. An attempt has been made to
show that the object is purely cooperative by relieving and helping the unemployed,

the needy, and people of moderate means in particular and all those who need
material aid in general.

In order to carry out these purposes, the corporation has established and admitted
two classes of members, namely, class O and class S. Each member in O must pay a
due of P5 which entitled him to a regular benefit aid of P40. The payment of all and
each of these benefit aids should be made whenever 16 new members had been
admitted. The second member would receive said aid of after 12 new members had
been admitted. The third member and each of those following would receive their
respective benefit aids of P40 after the admission of each group of eleven new
members. Those of class S had to pay a due of P2 each, which was later increased
to P2.50, and they would be entitled to a benefit aid of P12, which was subsequently
increased to P20 as soon as sixteen new members were admitted. The second
member and each of those following would receive their corresponding benefit aids
after the admission of every group of ten new members. The members of both
classes, who may have received the benefit aids of the corporation, were bound to
renew their subscriptions by paying every time they received said aid the amount of
p5 or P2.50, according to the class to which they belonged. The corporation would
and did issue to each member a certificate of membership which specified the class
to which he belonged. The benefit aids were due and payable to the members
strictly by turns according to the respective dates of their enrollment. If after two
years from the date of his admission, no benefit aid had been paid a member, the
corporation promised to refund him, on demand, the dues paid by him plus 25 per
cent of the same. In order to obtain more members and carry out its purpose, the
corporation offered to each member, who secured new members, a commission of
10 per cent for each new member, which was payable from the dues collected from
the new members. Said commission was later reduced to 5 per cent, but an
additional 5 per cent for traveling expenses was allowed.

To prevent a shortage in the funds of the corporation due to its expenditures and
the fact that the benefit aids paid by it were larger than the membership dues, it
would hold public literary contests, etc., and other benefit performances, the net
proceeds of which would be exclusively devoted to the payment of benefit aids. The
cost of holding these performances would be paid from the allotment of the
association for expenses in order not to disturb the reserve funds devoted to the
payment of benefit aids.

From November 28, 1935, or prior to its incorporation, up to January 11, 1936, the
corporation, without having previously obtained a license from the Insular Treasurer
as required by law and through the distribution of 20,000 prospectuses, known as
Exhibit V, to the public, secured and admitted 477 members of class O and 278
members of class S. Of these 32 and 29, respectively, received benefit aids, and
from January 12, 1936 to the date of trial, the corporation admitted 18,294
members of class O and 4,351 members of class S, of whom 1,399 and 323,

respectively, received benefit aids. Between November 28, 1935 and May 31, 1936,
the corporation received dues from its members in the amount of P103,514; and
after deducting commissions (P4,765), traveling expenses (P4,765), operating and
general expenses (P7,066.66), administrative and management fees (P4,400),
sundry accounts (P1,002.94), and benefit aids (P63,052), there only remained as
cash account the sum of P18,461.45 (Exhibit W-1); and on May 12, 1936, the
receipts amounted to P97,780.23, and deducting therefrom the disbursements
amounting to P77,628.25, there was a cash balance of P20,151.98 (Exhibit W).

The lower court having found the certificates of membership issued by the
corporation as speculative securities, convicted Vicente T. Fernandez and Joaquin
Trinidad, president and general manager, respectively, of the Philippine Mutual
Cooperative Society, Inc., of a violation of section 2 of Act No. 2581, and sentenced
each to pay a fine of P5,000, with the corresponding subsidiary imprisonment in
case of insolvency, and the costs.

Appellants assign in their brief five errors which the trial court is alleged to have
committed: First, in declaring that the membership certificates issued by the
Philippine Mutual Cooperative Society, Inc., are securities with the meaning of Act
No. 2581; second, in holding that they are speculative; third, in not holding Act No.
2581 unconstitutional because it is vague and because it confers legislative and
judicial powers upon the Insular Treasurer; fourth and fifth, in not interpreting the
law strictly in favor of the accused and dismissing the charge against them.

Act No. 2581, better known as the Blue Sky Law, is patterned after similar laws
enacted in various states of the Union, one of the oldest of which, if not the oldest,
is that of the State of Kansas, which was amended in 1913 and 1915 (Fletcher, vol.
7 [1919], p. 7714). The purpose of these laws, as was said by Justice Mckenna, is to
protect the public against the imposition of unsubstantial schemes and the
securities based thereon. It is said that the name given the law indicates the evil
against which it is directed, namely, speculative schemes which have no more basis
than a few feet of the blue sky (Fletcher, supra).

Section 1 of Act No. 2581, as amended by Act No. 2817 (which amendment does not
affect the present case), provides:

SECTION 1. Terms defined. The term "securities" as used in this Act shall be taken
to mean stock certificates, shares, bonds, debentures, certificates of participation,
contracts, contracts or bonds for the sale and conveyance of lands on deferred
payments or on the installment plan, or other instruments in the nature thereof, by

whatsoever name known or called. The term "speculative securities" as used in this
Act shall be deemed to mean and include:

(a) All securities to promote or induce the sale of which profit, gain, or advantage
unusual in the ordinary course of legitimate business is in any way advertized or
promised;

(b) All securities the value of which materially depends upon proposed or promised
future promotion or development rather than on present tangible assets and
conditions;

(c) All securities for promoting the sale of which a commission of more than five per
cent is offered or paid;

(d) The securities of any enterprise or corporation which has included, or proposes
to include in its assets as a material part thereof patents, formulae, good-will,
promotion or other intangible assets, or which has issued or proposes to issue a
material part of its securities in payment for patents, formulae, good-will, promotion
or other intangible assets.

The certificates of membership issued by the Philippine Mutual Cooperative Society,

Inc., are truly speculative securities within the meaning of Act No. 2581.

First. In order to encourage and induce their sale, profit unusual in the ordinary
course of business has been advertised or promised, for through the payment of the
sum of P5 by a member appertaining to class O, or that of P2.50 by a member
belonging to class S, each will receive profits of P40 and P20, respectively, which
represent the fabulous and extraordinary gain of 800 per cent.

Second. The speculative character of said certificates is also shown by the fact that
such profit or advantage of 800 per cent does not depend upon the actual tangible
assets or conditions of the corporation, but upon its growth and development which
would be attained through the admission of new groups of 16 or 12 members so
that each original member could receive the benefit aids of P40 or P20, as the case
may be. Therefore, if there were no enrollment of 16 or 12 new members, according
to the class, a member of class O or class S would not receive the corresponding
benefit aid of P40 or P20, respectively.

Third. Another proof of their speculative nature is that even if a member of class O
or class S should be able to secure a group of 16 or 12 new members, as the case
may be, this fact would not necessarily entitle him to receive immediately the
benefit aid of P40 or P20, respectively, for according to the by-laws of the
corporation, he would have to wait for his turn before he could receive his benefit
aid. And it is possible that his turn may never come because notwithstanding the
admission of 16 or 12 members, according to the class, there may be no funds with
which to pay his benefit aid, for before the coming of his turn, the funds of the
corporation might have been exhausted by the payment of the dues of the old
members in accordance with the strict rotation, while no new members may have
been admitted in the meantime.

Fourth. The certificates of membership in question also come within the purview of
paragraph (c) of section 1 of Act No. 2581 because to promote their sale, the
corporation has offered and paid a commission of 10 per cent which, though later
on reduced to 5 per cent, was in fact more than 5 per cent because the corporation
has paid another 5 per cent for traveling expenses.

Fifth. The speculative character of the member certificates issued by the

corporation is also shown by the fact that when a member, whether belonging to
class O or to class S, had not received his benefit aid after two years from the date
of his enrollment, he cannot expect anything more than the refund of the dues paid
by him plus 25 per cent of the same. But it is possible, as they by-laws of the
corporation themselves provide, that there are no funds with which to reimburse the
member or members, who have not been able to collect any benefit aid, the dues
paid by them. To avoid such an eventuality, it is provided that the corporation hold
public contests and benefit performances, the net proceeds of which will be applied
to the payment of benefit aids. It may, however, happen that, even by these means,
the corporation will not be able to raise the necessary funds to pay the members,
who ask for reimbursement of their dues, as would undoubtedly occur should no
new members enroll in the corporation.

The following decisions show the various and distinguishing features which may be
found in the membership certificates in question:

In re Lamb ([1923]), 61 Cal. App., 321; 215 Pac., 109), the court said: 'The
"securities" which may not be issued or sold without the permission of the
corporation commissioner are . . . "any instrument issued or offered to the public by
any company", evidencing any right to participate in the profits or earnings or the
distributions of assets of any business carried on for profit by the company . . .

"Certificates" providing "that, in consideration of the certificate holder's promise to

render such assistance and in further consideration of $50 paid by him, defendant
will divide pro rata among all the holders of like certificates who reside at a
specified place, 10 per cent of the net price of such tires and tubes as may be sold
by defendant's representative at such place, such division to be made quarterly for
the period of twenty years; that the holder is entitled to a discount of 10 per cent on
all its goods which he may purchase for defendant for his personal use, and that
defendant will annually set aside as a bonus to certificate holders all of its excess
earning after paying operating expenses, fixed charges, and dividends to
stockholders, the same to be distributed at its option in the form of preferred stock,"
have been held to be security within the meaning of the Minnesota Blue Sky Law,
where the certificates were transferable on notice to the company, although they
contained a clause stating that they were not to be construed to be certificates of
stock, or security or investment contracts. (State vs. Gopher Tire & Rubber Co.
[1920], 146 Minn., 52; 177 N.W., 937.)

Speculative securities include those the value of which materially depends on

proposed or promised future promotion or development, rather than on present
tangible assets or conditions. (Moos vs. Landowners Oil Asso. [1932], 136 Kan., 424;
15 Pac. [2d], 1073.)

"Investment contract", within the meaning of the Blue Sky Law, includes certificates
issue in consideration of cash and services entitling the holder to share in the profits
of the business. (State vs. Gopher Tire & Rubber Co., supra.)

Certificate of membership in corporation selling sick and death benefit insurance is

a "security" within the meaning of Blue Sky Law. (Stevens vs. Atlantic & Security
Mut. Ass'ns., 116 N. J. Eq., 584; 174 Atl., 744.)

The appellants contends that the Philippine Mutual Cooperative Society, Inc., is
purely a civic association and does not engage in business. The truth is that the
members pay dues and the association gives them benefit aids which represent a
profit of 800 per cent. Do ut des.

They further point out that the membership certificates issued by the corporation
are not contracts, nor certificates of participation, bonds, debentures, etc. The fact,
however, is that said certificates represent obligations to pay a sum of money or
securities of payment so that they are in reality investment contracts. It is not true
that one becomes a member without any expectation of gain. In fact, the contrary is
evident, and the association itself admits members with a like intention to gain.

The appellants argue that the Blue Sky Law is unconstitutional on two grounds: First,
because it is vague and indefinite: and second, because it delegates legislative and
judicial powers to the Insular Treasurer. The ambiguity of the statute the
appellants insist is shown by the inability of both the City Fiscal's and Insular
Treasurer's office to determine within a reasonable time whether the scheme of the
corporation comes under Act No. 2581. We find no merit in this contention.

The argument that the statute delegates legislative and judicial powers to the
Insular Treasurer is founded on the fact that, according to the appellants, the law
vests authority in the Insular Treasurer to cancel a permit granted a person or
corporation to enter into transactions without establishing any fixed rule or guide in
the exercise of such discretion. In the first place, the question involved herein is
whether or not the Philippine Mutual Cooperative Society, Inc., should have applied
for a permit from the Insular Treasurer to issue and sell certificates of its
membership. It is, therefore, immaterial whether the Insular Treasurer can withdraw
a permit which he may have already given. In the second place, the purpose of the
law being to avoid ruinous speculations, it is obvious that the public interest is and
should be the reason on which the Insular Treasurer should base his decisions.

It has, nevertheless, been proved that Attorney Jose Moreno, on behalf of the
Philippine Mutual Cooperative Society, Inc., consulted the offices of the City Fiscal
and the Insular Treasurer for the purpose of obtaining a statement as to the legality
of the schemes of the association and whether they came within the scope of Act
No. 2581. He began his inquiry in November, 1935, and it was while expecting the
decision of said offices that the information in this case was filed in May, 1936
without any previous notice or answer to said inquiry. Good faith and lack of
intention to violate the law may, in this case, be considered as mitigating
circumstances in the imposition of the penalty; but they do not constitute a valid
defense. (People vs. McCalla [1923], 63 Cal. App., 783; 220 Pac., 436.) The same
may be said of the argument that the members, who had the right to the benefit
aids of P40 or P20, as the case may be, did receive such aids, and that it has not
been proved that the association has committed any fraud, or is in imminent danger
of insolvency.

Wherefore, the appealed judgment is modified and the accused are sentenced each
to pay a fine of P100 or suffer the corresponding subsidiary imprisonment
prescribed by law, in case of insolvency, and to pay the costs. So ordered.

B. DEFINITION AND CLASSIFICATION (SEC. 3)

THE HOWEY TEST
G.R. No. 164197.January 25, 2012.*

SECURITIES AND EXCHANGE COMMISSION, petitioner, PROSPERITY.COM,

INC., respondent.
Mercantile Law; Securities Regulation Code; Investment Contracts; An investment
contract is a contract, transaction, or scheme where a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others.
The Securities Regulation Code treats investment contracts as securities that
have to be registered with the SEC before they can be distributed and sold. An
investment contract is a contract, transaction, or scheme where a person invests his
money in a common enterprise and is led to expect profits primarily from the efforts
of others.
Same; Same; Same; Conditions for Investment Contracts to Arise.The United
States Supreme Court held in Securities and Exchange Commission v. W.J. Howey
Co., that, for an investment contract to exist, the following elements, referred to as
the Howey test must concur: (1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in a common enterprise; (4)
expectation of profits; and (5) profits arising primarily from the efforts of others.
Thus, to sustain the SEC position in this case, PCIs scheme or contract with its
buyers must have all these elements. [Securities and Exchange Commission vs.
Prosperity.Com, Inc., 664 SCRA 28(2012)]
ABAD, J.:

This case involves the application of the Howey test in order to determine if a
particular transaction is an investment contract.

The Facts and the Case

Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without
providing internet service. To make a profit, PCI devised a scheme in which, for the
price of US$234.00 (subsequently increased to US$294), a buyer could acquire from
it an internet website of a 15-Mega Byte (MB) capacity. At the same time, by
referring to PCI his own down-line buyers, a first-time buyer could earn
commissions, interest in real estate in the Philippines and in the United States, and
insurance coverage worth P50,000.00.

To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other
buyers as his own down-lines. These second tier of buyers could in turn build up
their own down-lines. For each pair of down-lines, the buyer-sponsor received a
US$92.00 commission. But referrals in a day by the buyer-sponsor should not
exceed 16 since the commissions due from excess referrals inure to PCI, not to the
buyer-sponsor.

Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI),
which company stopped operations after the Securities and Exchange Commission
(SEC) issued a cease and desist order (CDO) against it. As it later on turned out, the
same persons who ran the affairs of GVI directed PCIs actual operations.

In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI,
alleging that the latter had taken over GVIs operations. After hearing,1 the SEC,
through its Compliance and Enforcement unit, issued a CDO against PCI. The SEC
ruled that PCIs scheme constitutes an Investment contract and, following the
Securities Regulations Code,2 it should have first registered such contract or
securities with the SEC.

Instead of asking the SEC to lift its CDO in accordance with Section 64.3 of Republic
Act (R.A.) 8799, PCI filed with the Court of Appeals (CA) a petition for certiorari
against the SEC with an application for a temporary restraining order (TRO) and
preliminary injunction in CA-G.R. SP 62890. Because the CA did not act promptly on
this application for TRO, on January 31, 2001 PCI returned to the SEC and filed with
it before the lapse of the five-day period a request to lift the CDO. On the following
day, February 1, 2001, PCI moved to withdraw its petition before the CA to avoid
possible forum shopping violation.

During the pendency of PCIs action before the SEC, however, the CA issued a TRO,
enjoining the enforcement of the CDO.3 In response, the SEC filed with the CA a
motion to dismiss the petition on ground of forum shopping. In a Resolution,4 the
CA initially dismissed the petition, finding PCI guilty of forum shopping. But on PCIs
motion, the CA reversed itself and reinstated the petition.5

In a joint resolution,6 CA-G.R. SP 62890 was consolidated with CA-G.R. SP 64487

that raised the same issues. On July 31, 2003 the CA rendered a decision, granting
PCIs petition and setting aside the SEC-issued CDO.7 The CA ruled that, following
the Howey test, PCIs scheme did not constitute an investment contract that needs
registration pursuant to R.A. 8799, hence, this petition.

The Issue Presented

The sole issue presented before the Court is whether or not PCIs scheme
constitutes an investment contract that requires registration under R.A. 8799.

The Ruling of the Court

The Securities Regulation Code treats investment contracts as "securities" that have
to be registered with the SEC before they can be distributed and sold. An
investment contract is a contract, transaction, or scheme where a person invests his
money in a common enterprise and is led to expect profits primarily from the efforts
of others.8

Apart from the definition, which the Implementing Rules and Regulations provide,
Philippine jurisprudence has so far not done more to add to the same. Of course, the
United States Supreme Court, grappling with the problem, has on several occasions
discussed the nature of investment contracts. That courts rulings, while not binding
in the Philippines, enjoy some degree of persuasiveness insofar as they are logical
and consistent with the countrys best interests.9

The United States Supreme Court held in Securities and Exchange Commission v.
W.J. Howey Co.10 that, for an investment contract to exist, the following elements,
referred to as the Howey test must concur: (1) a contract, transaction, or scheme;
(2) an investment of money; (3) investment is made in a common enterprise; (4)
expectation of profits; and (5) profits arising primarily from the efforts of others. 11
Thus, to sustain the SEC position in this case, PCIs scheme or contract with its
buyers must have all these elements.

An example that comes to mind would be the long-term commercial papers that
large companies, like San Miguel Corporation (SMC), offer to the public for raising
funds that it needs for expansion. When an investor buys these papers or securities,
he invests his money, together with others, in SMC with an expectation of profits
arising from the efforts of those who manage and operate that company. SMC has to
register these commercial papers with the SEC before offering them to
investors.1wphi1

Here, PCIs clients do not make such investments. They buy a product of some value
to them: an Internet website of a 15-MB capacity. The client can use this website to
enable people to have internet access to what he has to offer to them, say, some
skin cream. The buyers of the website do not invest money in PCI that it could use
for running some business that would generate profits for the investors. The price of
US$234.00 is what the buyer pays for the use of the website, a tangible asset that
PCI creates, using its computer facilities and technical skills.

Actually, PCI appears to be engaged in network marketing, a scheme adopted by

companies for getting people to buy their products outside the usual retail system
where products are bought from the stores shelf. Under this scheme, adopted by
most health product distributors, the buyer can become a down-line seller. The
latter earns commissions from purchases made by new buyers whom he refers to
the person who sold the product to him. The network goes down the line where the
orders to buy come.

The commissions, interest in real estate, and insurance coverage worth P50,000.00
are incentives to down-line sellers to bring in other customers. These can hardly be
regarded as profits from investment of money under the Howey test.

The CA is right in ruling that the last requisite in the Howey test is lacking in the
marketing scheme that PCI has adopted. Evidently, it is PCI that expects profit from
the network marketing of its products. PCI is correct in saying that the US$234 it
gets from its clients is merely a consideration for the sale of the websites that it
provides.

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision dated July 31,
2003 and the resolution dated June 18, 2004 of the Court of Appeals in CA-G.R. SP
62890.

SO ORDERED.

G.R. No. 195542.March 19, 2014.*

SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. OUDINE SANTOS,
respondent.
Remedial Law; Criminal Procedure; Preliminary Investigation; Generally, at the
preliminary investigation proper, the investigating prosecutor, and ultimately, the
Secretary of the Department of Justice (DOJ), is afforded wide latitude of discretion
in the exercise of its power to determine probable cause to warrant criminal
prosecution.Generally, at the preliminary investigation proper, the investigating
prosecutor, and ultimately, the Secretary of the DOJ, is afforded wide latitude of
discretion in the exercise of its power to determine probable cause to warrant
criminal prosecution. The determination of probable cause is an executive function
where the prosecutor determines merely that a crime has been committed and that
the accused has committed the same. The rules do not require that a prosecutor
has moral certainty of the guilt of a person simply for preliminary investigation
purposes.

Same; Same; Same; The authority of the prosecutor and the Department of Justice
(DOJ) is not absolute; it cannot be exercised arbitrarily or capriciously.The
authority of the prosecutor and the DOJ is not absolute; it cannot be exercised
arbitrarily or capriciously. Where the findings of the investigating prosecutor or the
Secretary of the DOJ as to the existence of probable cause are equivalent to a gross
misapprehension of facts, certiorari will lie to correct these errors. While it is our
policy not to interfere in the conduct of preliminary investigations, we have, on
more than one occasion, adhered to some exceptions to the general rule: 1. when
necessary to afford adequate protection to the constitutional rights of the accused;
2. when necessary for the orderly administration of justice or to avoid oppression or
multiplicity of actions; 3. when there is a prejudicial question which is sub judice; 4.
when the acts of the officer are without or in excess of authority; 5. where the
prosecution is under an invalid law, ordinance or regulation; 6. when double
jeopardy is clearly apparent; 7. where the court has no jurisdiction [Secuirties and
Exchange Commission vs. Santos, 719 SCRA 514(2014)]
over the offense; 8. where it is a case of persecution rather than prosecution; 9.
where the charges are manifestly false and motivated by the lust for vengeance; 10.
when there is clearly no prima facie case against the accused and a motion to
quash on that ground has been denied.
Criminal Law; Investment Contracts; Pyramid Scam; When the investor is relatively
uninformed and turns over his money to others, essentially depending upon their
representations and their honesty and skill in managing it, the transaction generally
is considered to be an investment contract.The transaction initiated by Santos
with Sy and Lorenzo, respectively, is an investment contract or participation in a
profit sharing agreement that falls within the definition of the law. When the
investor is relatively uninformed and turns over his money to others, essentially
depending upon their representations and their honesty and skill in managing it, the
transaction generally is considered to be an investment contract. The touchstone is
the presence of an investment in a common venture premised on a reasonable
expectation of profits to be derived from the entrepreneurial or managerial efforts of
others. [Secuirties and Exchange Commission vs. Santos, 719 SCRA 514(2014)]
PEREZ, J.:
Before us is another cautionary tale of an investment arrangement which, at the
outset, appeared good, unraveling unhappily as a deal toogoodtobetrue.
This petition for review on certiorari under Rule 45 of the Rules of Court assails the
Decision1 of the Court of Appeals in CAG.R. SP No. 112781 affirming the
Resolutions2 of the Secretary of Justice in I.S. No. 20071054 which, among others,
dismissed the criminal complaint for violation of Section 28 of Republic Act No.
8799, the Securities Regulation Code, filed by petitioner Securities and Exchange
Commission (SEC) against respondent Oudine Santos (Santos).
Sometime in 2007, yet another investment scam was exposed with the
disappearance of its primary perpetrator, Michael H.K. Liew (Liew), a selfstyled
financial guru and Chairman of the Board of Directors of Performance Investment

Products Corporation (PIPCBVI), a foreign corporation registered in the British Virgin

Islands.
To do business in the Philippines, PIPCBVI incorporated herein as Philippine
International Planning Center Corporation (PIPC Corporation).
Because the head of PIPC Corporation had gone missing and with it the monies and
investment of a significant number of investors, the SEC was flooded with
complaints from thirtyone (31) individuals against PIPC Corporation, its directors,
officers, employees, agents and brokers for alleged violation of certain provisions of
the Securities Regulation Code, including Section 28 thereof. Santos was charged in
the complaints in her capacity as investment consultant of PIPC Corporation, who
supposedly induced private complainants Luisa Mercedes P. Lorenzo (Lorenzo) and
Ricky Albino P. Sy (Sy), to invest their monies in PIPC Corporation.
The common recital in the 31 complaints is that:chanRoblesvirtualLawlibrary
x x x [D]ue to the inducements and solicitations of the PIPC corporations directors,
officers and employees/agents/brokers, the former were enticed to invest their
hardearned money, the minimum amount of which must be US$40,000.00, with
PIPCBVI, with a promise of higher income potential of an interest of 12 to
18 percentum (%) per annum at relatively lowrisk investment program. The private
complainants also claimed that they were made to believe that PIPC Corporation
refers to Performance Investment Product Corporation, the Philippine office or
branch of PIPCBVI, which is an entity engaged in foreign currency trading, and not
Philippine International Planning Center Corporation. 3
Soon thereafter, the SEC, through its Compliance and Endorsement Division, filed a
complaintaffidavit for violation of Sections 8,4 265 and 286 of the Securities
Regulation Code before the Department of Justice which was docketed as I.S. No.
20071054. Among the respondents in the complaintaffidavit were the principal
officers of PIPC: Liew, Chairman and President; Cristina GonzalezTuason, Director
and General Manager; Ma. Cristina BautistaJurado, Director; and herein respondent
Santos.
Private complainants, Lorenzo and Sy, in their affidavits annexed to SECs
complaintaffidavit, respectively narrated Santos participation in how they came to
invest their monies in PIPC Corporation:chanRoblesvirtualLawlibrary
1. Lorenzos affidavit
xxxx
2. I heard about PIPC Corporation from my friend Derrick Santos during an informal
gathering sometime in March 2006. He said that the investments in PIPC
Corporation generated a return of 1820% p.a. every two (2) months. He then gave
me the number of his sister, Oudine Santos who worked for PIPC Philippines to

discuss the investment further.

3. I then met with Oudine Santos sometime during the first week of April 2006 at
PIPC Philippines lounge x x x. Oudine Santos conducted for my personal benefit a
presentation of the characteristics of their investment product called Performance
Managed Portfolio (PMP). The main points of her presentation are indicated in a
summary she gave me, x x x:chanRoblesvirtualLawlibrary
xxxx
4. I asked Oudine Santos who were the traders, she said their names were
confidential.
5. Oudine Santos also emphasized in that same meeting that I should keep this
transaction to myself because they were not allowed to conduct foreign currency
trading. However, she assured me that I should not worry because they have a lot
of big people backing them up. She also mentioned that they were applying for a
seat in the stock exchange.
6. I ultimately agreed to put in FORTY THOUSAND US DOLLARS (US$40,000.00) in
their investment product.
7. Oudine Santos then gave me instructions on how to place my money in PMP and
made me sign a Partnership Agreement. x x x.
xxxx
8. Soon thereafter, pursuant to the instructions Oudine Santos gave me, I remitted
US$40,000.00 to ABNAMRO Hong Kong.
9. Afterwards, I received a letter dated 17 April 2006, signed by Michael H.K. Liew,
welcoming my investment.
xxxx
10. Sometime on May 2006, I added another US$ 60,000.00 to my then subsisting
account #181372, thus totaling US$100,000.00. This amount, pursuant to the
instructions of Oudine Santos, was remitted to Standard Chartered Bank.
xxxx
14. Then sometime on May 2007, I planned to pull out my remaining
US$100,000.00 investment in PIPC Philippines. On 22 May 2007, I met with Oudine
Santos at the 15th Floor of Citibank Tower in Makati City. I told her I wanted to
terminate all my investments.
15. Oudine Santos instead said that PIPC Philippines has a new product I might be

interested in. x x x She explained that this product had the following
characteristics:chanRoblesvirtualLawlibrary
xxxx
16. Oudine Santos reiterated these claims in an email she sent me on 22 May
2007. x x x.
17. Enticed by these assurances and promises of large earnings, I put in FOUR
HUNDRED THOUSAND US DOLLARS (US$400,000.00) in PMP (RZB), which became
account # R149432.
18. Pursuant to the instructions Oudine Santos gave me, I remitted the amount of
US$ 400,000.00 to RZB Austria, Singapore Branch.
xxxx
22. I tried calling Oudine Santos and was finally able to reach her at around 7 in the
morning. She confirmed what Leah Caringal told me. I told her then that I want full
recovery of my investment in accordance with their 100% principal guarantee. To
this day[,] I have not received my principal investment. 7

5. Sys affidavit

2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo
branch for the past 15 years. Sometime in the last quarter of 2006, I was at BPI
Pasong Tamo to accomplish certain routine transactions. Being a client of long
standing, the bank manager[,] as a matter of courtesy, allowed me to wait in her
cubicle. It was there that the bank manager introduced me to another bank client,
Ms. Oudine Santos. After exchanging pleasantries, and in the course of a brief
conversation, Ms. Santos told me that she is a resident of Damarias Village and
was working as an investment consultant for a certain company, Performance
Investment Products Corporation [PIPC]. She told me that she wanted to invite me
to her office at the Citibank Tower in Makati so that she could explain the
investment products that they are offering. I gave her my contact number and
finished my transaction with the bank for that day;
3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the
business lounge of [PIPC] located at the 15th Floor of Citibank Tower, Makati. During
the meeting, Ms. Santos enticed me to invest in their Performance Managed
Portfolio which she explained was a risk controlled investment program designed for
individuals like me who are looking for higher investment returns than bank
deposits while still having the advantage of security and liquidity. She told me that
they were engaged in foreign currency trading abroad and that they only employ
professional and experienced foreign exchange traders who specialize in trading the

Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told her
that I did not have any experience in foreign currency trading and was quite
conservative in handling my money;
4. Ms. Santos quickly allayed my fears by emphasizing that the capital for any
investment with [PIPC] is secure. She then trumpeted [PIPCs] track record in the
Philippines, having successfully solicited investments from many wealthy and well
known individuals since 2001;
5. Ms. Santos convinced me to invest in Performance Management Portfolio I x x x
[which] features full protection for the principal investment and a 60%40% sharing
of the profit between the client and [PIPC] respectively;
6. In November of 2006, I decided to invest USD 40,000 specifically in Performance
Management Portfolio I x x x. After signing the Partnership Agreement, x x x, I was
instructed by Ms. Santos to deposit the amount by telegraphic transfer to [PIPCs]
account in ABN AMRO Bank Hong Kong. I did as instructed;
xxxx
8. Sometime January to March of 2007, [Santos] was convincing me to make an
additional investment under a second product, Performance Management Portfolio II
[PMP II] which provides a more limited guarantee for the principal investment of
USD 100,000 and a 80%20% sharing of the profit between the client and [PIPC]
respectively. In both schemes, the clients participation will be limited to choosing
two currencies which will in turn be traded by professional traders abroad. Profit
earned from the transaction will then be remitted to the clients account every 8
weeks;
xxxx
10. After I made my USD 40,000 PMP I investment, Ms. Santos invited me to meet
Mr. Michael Liew in the business lounge some time during the first quarter of this
year. My impression was that he was quite unassuming considering that he was the
head of an international investment firm. x x x.8
On the whole, Lorenzo and Sy charge Santos in her capacity as investment
consultant of PIPC Corporation who actively engaged in the solicitation and
recruitment of investors. Private complainants maintain that Santos, apart from
being PIPC Corporations employee, acted as PIPC Corporations agent and made
representations regarding its investment products and that of the supposed global
corporation PIPCBVI. Facilitating Lorenzos and Sys investment with PIPC
Corporation, Santos represented to the two that investing with PIPC Corporation, an
affiliate of PIPCBVI, would be safe and fullproof.
In SECs complaintaffidavit, it charged the following:chanRoblesvirtualLawlibrary

xxxx
12. This case stems from the act of fraud and chicanery masterfully orchestrated
and executed by the officers and agents of PIPC Corp. against their unsuspecting
investors.The deception is founded on the basic fact that neither PIPC Corp. nor its
officers, employees and agents are registered brokers/dealers, making their
numerous transactions of buying and selling securities to the public a blatant
violation of the provisions of the SRC, specifically Sections 8 and 28 thereof. Their
illegal offer/sale of securities in the form of the Performance Management
Partnership Agreement to the public was perpetrated for about nine (9) years and
would have continued were it not for the alleged, and most probably, contrived and
deliberate withdrawal of the entire funds of the corporation by Michael H.K. Liew.
The [scam] was masked by a supposed offshore foreign currency trading scheme
promising that the principal or capital infused will be guaranteed or fully protected.
Coupled with this [full] guarantee for the principal is the prospect of profits at an
annual rate of 12 to 18%. [One of] the other enticements provided by the subject
company were free use of its business either for personal or business purposes, free
subscription of imported magazines, [trips] abroad, and insurance coverage, just to
name a few. Fully convinced and enamored [by the] thought of earning higher rates
of interest along with the promise of a guaranteed [capital] the investors placed and
entrusted their money to PIPC Corp., only to find out later [that they] had been
deceived and taken for a ride.
xxxx
17. Sometime in 2006, an investigation was undertaken by the [Compliance and
Enforcement Division of the SEC] on the [account] of PIPC Corp. Per its Articles of
Incorporation, PIPC Corp. was authorized to engage [in the] dissemination of
information on the current flow of foreign exchange (forex) as x x x precious metals
such as gold, silver, and oil, and items traded in stock and securities/commodities
exchanges around the world. To be more specific, PIPC Corp. [was] authorized to
act only as a research arm of their foreign clients.
xxxx
22. x x x.
Name of
Investors

Broker / Bank/Locati Date

Agent on
to which
funds were
transferred

Account
Number

Amount of Bank/Location
Investment x x x

R149432

US$500,000 Not provided

xxxx
23. Luisa
Oudine RZB
Mercedes P. Santos Austria,
Lorenzo
Singapore

June
2007

Branch
xxxx
32. Ricky
Oudine ABNAMRO 9
080028776 US$40,000 BPI Pasong
Albino P. Sy Santos Bank
October 9
Tamo B9
Hongkong 2006

23. A careful perusal of the complaintaffidavits revealed that for every completed
investment transaction, a company brochure, depending on the type of investment
portfolio chosen, was provided to each investor containing the following information
on Performance BVI and its investment product called Performance Managed
Portfolio or PMP, the points of which are as follows:
a. 8 calendar week maturity period[,]
b. principal investment (minimum of USD 40,000) is protected[,]
c. investments maintained in strict confidentiality[,]
d. features: security, liquidity, short term commitment,
e. taxexemption status for offshore investments.
24. The investment flow is described as follows:
a. Investors funds will be placed into a fixed deposit account with a PIPC
designated bank and shall not be exposed for trading purposes. The PIPC
designated bank shall then extend a margin line request for trading based on
the deposit;
b. PIPC shall open a separate account which will contain an amount of not more
than 30% of its own funds to serve as a profit and loss account;
c. Trading will commence with PIPC designated bank closely monitoring the
performance to ensure that if losses are incurred trading will cease
immediately should the 20% stop limit be hit;
d. Profits will be credited into the Profit and Loss account with PIPC designated
bank account. Losses will be debited from the same account up to the
controlled 20% limit;
e. Notice of withdrawals must be submitted two weeks prior to schedule of
maturity otherwise investment is automatically rolled over to the next batch;
f.

At maturity, profits accumulated in the settlement account shall be

distributed and deposited into each investors dollar bank account within
fourteen (14) banking days;

g. The funds of various investors are pooled, batched and deposited with PIPC
designated bank account acting as custodian bank, to form a massive asset
base. This account is separate and distinct from the Profit and Loss Account.

The line from this pooled fund is then entrusted to full time professional and
experienced foreign traders who each specialize in the following currencies:
Japanes Yen, Euro, British Pound, Swiss Francs and Australian Dollar. Profits
generated from trading these major currencies is credited into the Profit and
Loss Account, which at the end of the eight calendar week lockin period, will
be distributed among the investors. Investors are informed of their account
status thru trading statements issued by PIPC every time there is a trade
made in their respective accounts.
xxxx
25. Furthermore, it was relayed by the officers and agents to complainants
investors that PIPC Corp. is the Philippine office of the Performance Group of
Companies affiliates situated in different parts of the world, particularly China,
Indonesia, Hong Kong, Japan, Korea, Singapore, and the British Virgin Islands (BVI),
even reaching Switzerland. With such basic depiction of the legitimacy and stability
of PIPC Corp., complainantsinvestors deduced that it was clothed with the authority
to solicit, offer [and] sell securities. As regards the officers and agents of [PIPC
Corp.], they secured proper individual licenses with the SEC as brokers/dealers of
securities to enable to solicit, offer and/or sell the same.
26. Official SEC documents would show that while PIPC Corp. is indeed registered
with the SEC, it having engaged in the solicitation and sale of securities was
contrary to the purpose for which it was established which is only to act as a
financial research. Corollarily, PIPC Corp.s officers, agents, and brokers were not
licensed to solicit, offer and sell securities to the public, a glaring violation of
Sections 8 and 28 of the SRC. 10
In refutation, Santos denied intentionally defrauding complainants Lorenzo and
Sy:chanRoblesvirtualLawlibrary
12. I cannot understand how I can be charged of forming, or even of being a part
of, a syndicate formed with the intention of carrying an unlawful or illegal act,
transaction, enterprise or scheme. If this charge has reference to PIPC Corp. then I
certainly cannot be held liable therefore. As I mentioned above, I joined PIPC Corp.
only inApril 2005 and, by that time, the company was already in existence for over
four years. I had no participation whatsoever in its creation or formation, as I was
not even connected with PIPC Corp. at the time of its incorporation. In fact, I have
never been a stockholder, director, general manager or officer of PIPC Corp. Further,
PIPC Corp. was duly registered with the Securities and Exchange Commission and
was organized for a legitimate purpose, and certainly not for the purpose of
perpetrating a fraud against the public.
13. That I was an employee and, later on, an independent information provider of
PIPC Corp. is of little consequence. My duties as such were limited to providing
information about the corporate clients of PIPC Corp. that had been expressly
requested by interested individuals. I performed my assigned job without any

criminal intent or malice. In this regard, I have been advised that offenses penalized
under the RPC are intentional felonies for which criminal liability attaches only when
it is shown that the malefactors acted with criminal intent or malice. There can be
no crime when the criminal mind is wanting. In this case, I performed my task of
providing requested information about the clients of PIPC Corp. without any intent to
violate the law. Thus, there can be no criminal liability.
[14]. I have also been advised that under the law, the directors and officers of a
corporation who act for and in behalf of the corporation, who keep within the lawful
scope of their authority, and act in good faith, do not become liable, whether civilly
or otherwise, for the consequences of their acts, as these acts are properly
attributed to the corporation alone. The same principle should apply to individual,
like myself, who was only acting within the bounds of her assigned tasks and had
absolutely no decisionmaking power in the management and supervision of the
company.
[15]. Neither can I be liable of forming a syndicate with respect to PIPCBVI. To
reiterate, at no time was I ever a stockholder, director, employee, officer or agent of
PIPCBVI. Said company is simply one of many companies serviced by PIPC Corp. I
had no participation whatsoever in its creation and/or in the direction of its dayto
day affairs.
xxxx
19. Further, I have been advised by counsel that conspiracy must be established by
positive and conclusive evidence. It cannot be based on mere conjecture but must
be established as a fact. In this case, no proof of conspiracy was presented against
me. In fact, it appears that I have been dragged in to this allegation based on the
hearsay statement of Felicia Tirona that I was one of the inhouse account
executives or work force of PIPCBVI and PIPC Corp. There was no allegation
whatsoever of any illegal act done by me to warrant the institution of criminal
charges against me. If at all, only Michael Liew should be held criminally liable, as
he was clearly the one who absconded with the money of the investors of PIPCBVI.
Mr. Liew has since disappeared and efforts to locate him have apparently proved to
be futile to date.
xxxx
23. In the first place, I did not receive any money or property from any of the
complainants. As clearly shown by the documents submitted to this Honorable
Office, particularly, the Portfolio Management Partnership Agreement, Security
Agreement, Declaration of Trust, bank statements and acknowledgement receipts,
complainants delivered their money to PIPCBVI, not to PIPC Corp. Complainants
deposited their investment in PIPCBVIs bank account, and PIPCBVI would
subsequently issue an acknowledgement receipt. No part of the said money was
ever delivered to PIPC Corp. or to me.

24. Indeed, complainants own evidence show that the Portfolio Management
Partnership Agreement, Security Agreement and Declaration of Trust were executed
between PIPCBVI and the individual complainants. Further, paragraph 2 of the
Declaration of Trust explicitly stated that PIPCBVI hold the said amount of money
UPON TRUST for the Beneficiary Owner. The complainants cannot, therefore, hold
PIPC Corp., or any of its officers or employees, with misappropriating their money or
property when they were fully aware that they delivered their money to, and
transacted solely with, PIPCBVI, and not PIPC Corp.
25. It also bears stressing that of the twentyone (21) complainants in this case,
only complainant Ricky Albino Sy alleged that he had actually dealt with me.
Complainant Sy himself never alleged that he delivered or entrusted any money or
property to me. On the contrary, complainant Sy admitted that he deposited his
investment of U.S.$40,000.00 by bank transfer to PIPCBVIs account in the ABN
Amro Bank. That the money was delivered to PIPCBVI, and not to me, is shown by
the fact that the receipt was issued by PIPCBVI. I never signed or issued any
acknowledgement receipt, as I never received any such money. Neither did I ever
gain physical or juridical possession of the said money. 11 (Emphasis and
underscoring supplied).
Santos defense consisted in: (1) denying participation in the conspiracy and fraud
perpetrated against the investorcomplainants of PIPC Corporation, specifically Sy
and Lorenzo; (2) claiming that she was initially and merely an employee of, and
subsequently an independent information provider for, PIPC Corporation; (3) PIPC
Corporation being a separate entity from PIPCBVI of which Santos has never been a
part of in any capacity; (4) her not having received any money from Sy and Lorenzo,
the two having, in actuality, directly invested their money in PIPCBVI; (5) Santos
having dealt only with Sy and the latter, in fact, deposited money directly into PIPC
BVIs account; and (6) on the whole, PIPCBVI as the other party in the investment
contracts signed by Sy and Lorenzo, thus the only corporation liable to Sy and
Lorenzo and the other complainants.
On 18 April 2008, the DOJ, in I.S. No. 20071054, issued a Resolution signed by a
panel of three (3) prosecutors, with recommendation for approval of the Assistant
Chief State Prosecutor, and ultimately approved by Chief State Prosecutor Jovencito
R. Zuo, indicting: (a) Liew and GonzalezTuason for violation of Sections 8 and 26
of the Securities Regulation Code; and (b) herein respondent Santos, along with
Cristina GonzalezTuason and 12 others for violation of Section 28 of the Securities
Regulation Code. The same Resolution likewise dismissed the complaint against 8
of the respondents therein for insufficiency of evidence. In the 18 April 2008
Resolution, the DOJ discussed at length the liability of PIPC Corporation and its
officers, employees, agents and all those acting on PIPC Corporations behalf, to
wit:chanRoblesvirtualLawlibrary
Firstly, complainant SEC filed the instant case for alleged violation by respondents
[therein, including herein respondent, Santos,] of Section 8 of the SRC.

Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold

or offered for sale or distribution within the Philippines, without a registration
statement duly filed with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
Based on the above provision of the law, complainant SEC is now accusing all
respondents [therein, including Santos,] for violating the same when they allegedly
sold and/or offered for sale unregistered securities.
However, Section 8.5 thereof provides that The Commission may audit the
financial statements, assets and other information of a firm applying for registration
of its securities whenever it deems the same necessary to insure full disclosure or
to protect the interest of the investors and the public in general.
The abovequoted provision is loud and clear and needs no further interpretation. It
is the firm through its authorized officers that is required to register its securities
with the SEC and not the individual persons allegedly selling and/or offering for sale
said unregistered securities. To do otherwise would open the floodgates to
numerous complaints against innocent individuals who have no hand in the control,
decisionmaking and operations of said investment company.
Clearly, it is only the PIPC Corp. and respondents Michael H. Liew and Cristina
GonzalezTuason being the President and the General Manager respectively, of PIPC
Corp. who violated Section 8 of the SRC.
xxxx
Respondents Liew and Tuason are directors and officers of PIPC Corp. who exercise
power of control and supervision in the management of said corporation. Surely
they cannot claim having no knowledge of the operations of PIPC Corp. visvis its
scope of authority since they are the ones who actually created and manage the
same. They are well aware that PIPC Corp. is a mere financial research facility and
has nothing to do with selling or offering for sale securities to the general public.
But despite knowledge, they continue to recruit and deceive the general public by
making it appear that PIPC Corp. is a legitimate investment company.
Moreover, they cannot evade liability by hiding behind the veil of a corporate
fiction. x x x.
xxxx
In the case at bar, the investors were made to believe that PIPC Corp. and PIPCBVI
is one and the same corporation. There is nothing on record that would show that
private complainants were informed that PIPC Corp. and PIPCBVI are two entities
distinct and separate from one another. In fact, when they invested their money,
they dealt with PIPC Corp. and the people acting on its behalf but when they signed

documents they were provided with ones bearing the name of PIPCBVI. Clearly, this
obvious and intentional confusion of names of the two entities is designed to
defraud and later to avoid liabilities from their victims. Therefore, the defense of a
corporate fiction is unavailing in the instant case.
xxxx
Buying and selling of securities is an indispensable element that makes one a broker
or dealer. So if one is not engaged in the business of buying and selling of
securities, naturally he or she cannot be considered as a broker or dealer. However,
a person may be considered as an agent of another, juridical or natural person, if it
can be inferred that he or she acts as an agent of his or her principal as above
defined. One can also be an investor and agent at the same time.
An examination of the records and the evidence submitted by the parties, we have
observed that all respondents are investors of PIPCBVI, same with the private
complainants, they also lost thousands of dollars. We also noted the fact that most
of the private complainants and alleged brokers or agents are long time friends if
not blood related individuals. Notably also is the fact that most of them are highly
educated businessmen/businesswomen who are financially welloff. Hence, they are
regarded to be wiser and more prudent and expected to exercise due diligence of a
good father of a family in managing their finances as compared to those who are
less fortunate in life.
However, we still need to delve deeper into the facts and the [evidence] on record
to determine the degree of respondents participations and if on the basis of their
actions, it can be inferred that they acted as employeesagents or investoragents
of PIPC Corp. or PIPCBVI then are liable under Section 28 of the SRC otherwise, they
cannot be [blamed] for being mere employees or investors thereof.
xxxx
Oudine Santos. Investment Consultant of PIPC Corp. who allegedly invited,
convinced and assured private complainants Luisa Mercedes P. Lorenzo and Ricky
Albino P. Sy to invest in PIPC Corp. To prove their allegations, respondents attached
email exchanges with respondent Santos regarding the details in investing with
PIPCBVI. Respondent Santos failed to submit counteraffidavit despite subpoena.
xxxx
After painstakingly going over the record and the supporting documents attached
thereto and after carefully evaluating the respective claims and defenses raised by
all the parties, the undersigned panel of prosecutors has a reason to believe that
Section 28 of the SRC has been violated and that the following respondents are
probably guilty thereof and should, therefore, be held for trial:
1. Cristina GonzalezTuason

2. x x x.
xxxx
13. Oudine Santos
The abovenamed respondents, aside from being officers, employees or investors,
clearly acted as agents of PIPC Corp. who made representations regarding PIPC
Corp. and PIPCBVI investment products. They assured their clients that investing
with PIPCBVI will be 100% guaranteed. In addition, they also facilitated their
clients investments with PIPCBVI and some, if not all, even received money
investors as evidenced by the acknowledgement receipts they signed and on behalf
of PIPCBVI. The documentary evidence submitted by witnesses and their
categorical and positive assertion of facts which, taken together corroborate one
another, prevails over the defense of denial raised by the abovenamed
respondents which are mostly selfserving in nature.
A formal or written contract of agency between two or more persons is not
necessary for one to become an agent of the other for as long as it can be inferred
from their actions that there exists a principalagent relationship between them on
the one hand and the PIPC Corp. or PIPCBVI on the other hand, then, it is implied
that a contract of agency is created.
As to their contention that they are not officers or employees of PIPC Corp., the
Supreme Court ruled that one may be an agent of a domestic corporation although
he or she is not an officer thereto. x x x. The basis of agency is representation; the
question of whether an agency has been created is ordinarily a question which may
be established in the same way as any other fact, either by direct or substantial
evidence; though that fact or extent of authority of the agents may not, as a
general rule, be established from the declarations of the agents alone, if one
professes to act as agent for another, he or she is estopped to deny her agency
both as against the asserted principal and third persons interested in the
transaction in which he or she is engaged.
Further, they cannot raise the defense of good faith for the simple reason that the
SRC is a special law where criminal intent is not an essential element. Mere violation
of which is punishable except in some provisions thereof where fraud is a condition
sine qua non such as Section 26 of the said law.
xxxx
WHEREFORE, the foregoing considered, it is respectfully recommended that this
resolution be APPROVED and that:
1. An information for violation of Section 8 of the SRC be filed against
respondent PIPC Corp., MICHAEL H. LIEW and CRISTINA GONZALEZTUASON;
2. An information for violation of Section 26 thereof be also filed against
respondents MICHAEL H. LIEW and CRISTINA GONZALEZTUASON; and

3. An information for violation of Section 28 thereof be filed against respondents

CRISTINA GONZALEZTUASON, MA. CRISTINA BAUTISTAJURADO, BARBARA
GARCIA, ANTHONY KIERULF, EUGENE GO, MICHAEL MELCHOR NUBLA, MA.
PAMELA MORRIS, LUIS JIMBO ARAGON, RENATO SARMIENTO, JR., VICTOR
JOSE VERGEL DE DIOS, NICOLINE AMORANTO MENDOZA, JOSE JAY TENGCO
III, [respondent] OUDINE SANTOS AND HERLEY JESUITAS; and
4. The complaint against MAYENNE CARMONA, YEYE SAN PEDROCHOA, MIA
LEGARDA, NICOLE ORTEGA, DAVID CHUAUNSU, STANLEY CHUAUNSU,
DEBORAH V. YABUT, CHRISTINE YU and JONATHAN OCAMPO be dismissed for
insufficiency of evidence.12 (Emphasis supplied)
In sum, the DOJ panel based its finding of probable cause on the collective acts of
the majority of the respondents therein, including herein respondent Santos, which
consisted in their acting as employeesagent and/or investoragents of PIPC
Corporation and/or PIPCBVI. Specifically alluding to Santos as Investment
Consultant of PIPC Corporation, the DOJ found probable cause to indict her for
violation of Section 28 of the Securities Regulation Code for engaging in the
business of selling or offering for sale securities, on behalf of PIPC Corporation
and/or PIPCBVI (which were found to be an issuer13 of securities without the
necessary registration from the SEC) without Santos being registered as a broker,
dealer, salesman or an associated person.
On separate motions for reconsideration of the respondents therein, including
herein respondent Santos, the DOJ panel issued a Resolution dated 2 September
2008 modifying its previous ruling and excluding respondent Victor Jose Vergel de
Dios from prosecution for violation of Section 28 of the Securities Regulation Code,
thus:chanRoblesvirtualLawlibrary
After an assiduous reevaluation of the facts and the evidence submitted by the
parties in support of their respective positions, the undersigned panel finds x x x
[that the] rest of the respondents mainly rehashed their earlier arguments except
for a few respondents who, in one way or another, failed to participate in the
preliminary investigation; hence raising their respective defenses for the first time
in their motions for reconsideration.
xxxx
With respect to respondents Luis Jimbo Aragon and Oudine Santos who also
claimed to have not received subpoenas, this panel, after thoroughly evaluating
their respective defenses, finds them to be similarly situated with the other
respondents who acted as agents for and in behalf of PIPC Corp. and/or PIPCBVI;
hence, their inclusion in the information is affirmed.
xxxx
x x x As to the issue on whether or not PMPA is a security contract, we rule in the

affirmative, as supported by the herein below provisions of the SRC,

particularly:chanRoblesvirtualLawlibrary
Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold
or offered for sale or distribution within the Philippines, without registration
statement duly filed with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
Securities have been defined as shares, participation or interest in a corporation or
in a commercial enterprise or profit making venture and evidenced by a certificate,
contract, instrument, whether written or electronic in character. It includes among
others, investment contracts, certificates of interest or participation in a profit
sharing agreement, certificates of deposit for a future subscription.
Under the SRCs Amended Implementing Rules and Regulations, specifically Rule 3,
par. 1 subpar. G, an investment contract has been defined as a contract, transaction
or scheme (collectively contract), whereby a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others.
It is likewise provided in the said provision that an investment contract is presumed
to exist whenever a person seeks to use the money or property of others on the
promise of profits and a common enterprise is deemed created when two (2) or
more investors pool their resources creating a common enterprise, even if the
promoter receives nothing more than a brokers commission. Undoubtedly, the
PMPA is an investment contract falling within the purview of the term securities as
defined by law.
xxxx
It bears to emphasize that the purpose of a preliminary investigation and/or
confrontation between the partylitigants is for them to lay down all their cards on
the table to properly inform and apprise the other of the charges against him/her, to
avoid suprises and to afford the adverse party all the opportunity to defend
himself/herself based on the evidence submitted against him/her. Thus, failure on
the part of the defaulting party to submit evidence that was then available to him is
deemed a waiver on his part to submit it in the same proceedings against the same
party for the same issue.
WHEREFORE, the foregoing premises considered, the undersigned panel of
prosecutors respectfully recommends that the assailed resolution be modified by
dismissing the complaint against Victor Jose Vergel De Dios and that the Information
filed with the appropriate court for violation of Section 28 of the SRC be amended
accordingly.14
Respondent Santos filed a petition for review before the Office of the Secretary of
the DOJ assailing the Resolutions dated 18 April 2008 and 2 September 2008 and

claiming that she was a mere clerical employee/information provider who never
solicited nor recruited investors, in particular complainants Sy and Lorenzo, for PIPC
Corporation or PIPCBVI. Santos also claimed dearth of evidence indicating she was
a salesman/agent or an associated person of a broker or dealer, as defined under
the Securities Regulation Code.
The SEC filed its Comment opposing Santos petition for review. Thereafter, the
Office of the Secretary of the DOJ, through its then Undersecretary Ricardo R.
Blancaflor, issued a Resolution dated 1 October 2009 which, as previously adverted
to, excluded respondent Santos from prosecution for violation of Section 28 of the
Securities Regulation Code. For a complete picture, we quote in full the disquisition
of the Secretary of the DOJ:chanRoblesvirtualLawlibrary
[Santos] argues that while Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy
mentioned two (2) instances wherein she allegedly enticed them to invest, their
own pieces of evidence, particularly the Annex E series (several Details of Profit
distribution & Renewal of Partnership Agreement bearing different dates addressed
to Ricky Albino P. Sy with stamped signature for PIPCBVI), indicate that they
invested and reinvested their money with PIPCBVI repeatedly and even earned
profits from these transactions through direct dealing with PIPCBVI and without her
participation. In addition, she maintains that Luisa Mercedes P. Lorenzo and Ricky
Albino P. Sy had several opportunities to divest or withdraw their respective
investments but opted not to do so at their own volitions.
xxxx
The sole issue in this case is whether or not respondent Santos acted as agent of
PIPC Corp. or had enticed Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy to buy PIPC
Corp. or PIPCBVIs investment products.
We resolve in the negative.
Section 28 of the Securities Regulation Code (SRC) reads:
SEC. [28]. Registration of Brokers, Dealers, Salesmen and Associated
Persons. 28.1. No person shall engage in the business of buying or selling
securities in the Philippines as a broker or dealer unless registered as such with the
Commission.
28.2. No registered broker or dealer shall employ any salesman or any associated
person, and no issuer shall employ any salesman, who is not registered as such with
the Commission.
Jurisprudence defines an agent as a business representative, whose function is to
bring about, modify, affect, accept performance of, or terminate contractual
obligations between principal and third persons. x x x On the other hand, the
Implementing Rules of the SRC simply provides that an agent or a salesman is a

person employed as such or as an agent, by the dealer, issuer or broker to buy and
sell securities x x x.
A judicious examination of the records indicates the lack of evidence that
respondent Santos violated Section 28 of the SRC, or that she had acted as an
agent for PIPC Corp. or enticed Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy to
buy PIPC Corp. or PIPCBVIs investment products.
The annex D (Welcome to PMP Letter dated [17 April 2006] addressed to Luisa
Mercedes P. Lorenzo signed by Michael Liew as president of PIPCBVI), Annex E
(Fixed Deposit Advice Letter dated [26 June 2006] addressed to Luisa Mercedes P.
Lorenzo and stamped signature for PIPCBVI), and Annex H (Welcome to PMP
Letter dated [30 May 2007] addressed to Luisa Mercedes P. Lorenzo signed by
Michael Liew as President of PIPCBVI) of the complaintaffidavit dated [11
September 2007] of Luisa Mercedes P. Lorenzo show that she directly dealt with
PIPCBVI in placing her investment. The same is true with regard to Annex A
series (Portfolio Management Partnership Agreement between Ricky Albino P. Sy and
PIPCBVI, Security Agreement between Ricky Albino P. Sy and PIPCBVI, and
Declaration of Trust between Ricky Albino P. Sy and PIPCBVI), Annex B (Official
Receipt dated 09 November 2006 issued by PIPCBVI), Annex C (Welcome to
PMP Letter dated [10 November 2006] addressed to Ricky Albino P. Sy and signed
by Michael [Liew] as President of PIPCBVI), and Annex D (Fixed Deposit Advice
Letter dated [29 January 2007] addressed to Ricky Albino P. Sy with stamped
signature for PIPCBVI) of the complaintaffidavit dated [26 September 2007] of
Ricky Albino P. Sy. These documents categorically show that the parties therein, i.e.,
Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy and PIPCBVI, transacted with each
other directly without any participation from respondent Santos. These documents
speak for themselves. Moreover, it bears stressing that Luisa Mercedes P. Lorenzo
and Ricky Albino P. Sy admit in their respective affidavits that they directly
deposited their investments by bank transfer to PIPCBVIs offshore bank account.
Annex B (Printed background of the PMP of [PIPC]BVI enumerating the features of
said product) and Annex C (Printed Procedures in PMP Account Opening
instructing the client what to do in placing his/her investment) of the complaint
affidavit of Luisa Mercedes P. Lorenzo actually supports the allegations of
respondent Santos that there were printed forms/brochures for distribution to
persons requesting the same. These printed/prepared handouts contain the
assurances or guarantees of PIPCBVI and the instructions on where and how to
deposit the investors money.
Likewise, Luisa Mercedes P. Lorenzos Annex A (2006 GIS of PIPC Corp. listing the
stockholders, board of directors an[d] officers thereof), Annex F (Deposit
Confirmation dated [14 June 2006] from Standard Chartered Bank) and Annexes I
to L (SEC Certifications stating that PIPC Corp., PIPC, PIPCBVI and Performance
Investment Products Ltd., respectively, are not registered issuer of securities nor
licensed to offer or sell securities to the public) are not evidence against respondent
Santos. Her name is not even mentioned in any of these documents. If at all, these

documents are evidence against PIPC Corp. and its officers named therein.
Further, it is important to note that in the Request Form, one of the documents
being distributed by respondent Santos x x x, it is categorically stated therein that
said request shall not be taken as an investment solicitation x x x, but is mainly for
the purpose of providing me with information. Clearly, this document proves that
respondent Santos did not or was not involved in the solicitation of investments but
merely shows that she is an employee of PIPC Corp. In addition, the Information
Dissemination Agreement between her employer PIPC Corp. and PIPCBVI readably
and understandably provides that she is prohibited from soliciting investments in
behalf of PIPCBVI and her authority is limited only to providing interested persons
with thenecessary information regarding how to communicate directly with
PIPC.Parenthetically, the decision to sign the partnership Agreement with PIPCBVI
to invest and repeatedly reinvest their monies with PIPCBVI were made by Luisa
Mercedes P. Lorenzo and Ricky Albino P. Sy themselves without any inducement or
undue influence from respondent Santos.
xxxx
WHEREFORE, the assailed resolution is hereby MODIFIED, the Chief State Prosecutor
is directed to EXCLUDE respondent Oudine Santos from the Information for violation
of Section 28 of the Securities and Regulation Code, if any has been filed, and report
the action taken thereon within ten (10) days from receipt hereof. 15
Expectedly, after the denial of the SECs motion for reconsideration before the
Secretary of the DOJ, the SEC filed a petition for certiorari before the Court of
Appeals seeking to annul the 1 October 2009 Resolution of the DOJ.
The Court of Appeals dismissed the SECs petition for certiorari and affirmed the 1
October 2009 Resolution of the Secretary of the DOJ:chanRoblesvirtualLawlibrary
Prescinding from the foregoing, a person must first and foremost be engaged in the
business of buying and selling securities in the Philippines before he can be
considered as a broker, a dealer or salesman within the coverage of the Securities
Regulation Code. The record in this case however is bereft of any showing that
[Santos] was engaged in the business of buying and selling securities in the
Philippines, whether for herself or in behalf of another person or entity. Apart from
[SECs] sweeping allegation that [Santos] enticed Sy and Lorenzo and solicited from
them investments for PIPCBVI without first being registered as broker, dealer or
salesman with SEC, no evidence had been adduced that shows [Santos] actual
participation in the alleged offer and sale of securities to the public, particularly to
Sy and Lorenzo, within the Philippines. There was likewise no exchange of funds
between Sy and Lorenzo, on one hand, and [Santos], on the other hand, as the price
of certain securities offered by PIPCBVI. There was even no specific proof that
[Santos] misrepresented to Sy and Lorenzo that she was a licensed broker, dealer or
salesperson of securities, thereby inducing them to invest and deliver their hard
earned money with PIPCBVI. In fact, the Information Dissemination Agreement

between PIPC Corporation, [Santos employer], and PIPCBVI clearly provides that
[Santos] was prohibited from soliciting investments in behalf of PIPCBVI and that
her authority is limited only to providing prospective client with the necessary
information on how to communicate directly with PIPC. Thus, it is obvious that the
final decision of investing and reinvesting their money with PIPCBVI was made
solely by Sy and Lorenzo themselves.
xxxx
WHEREFORE, in view of the foregoing premises, the petition filed in this case is
herebyDENIED and, consequently, DISMISSED. The assailed Resolutions dated [1
October 2009] and [23 November 2009] of the Secretary of Justice in I.S. No. 2007
1054 are hereby AFFIRMED.16
Hence, this appeal by certiorari raising the sole error of Santos exclusion from the
Information for violation of Section 28 of the Securities Regulation Code.
Generally, at the preliminary investigation proper, the investigating prosecutor, and
ultimately, the Secretary of the DOJ, is afforded wide latitude of discretion in the
exercise of its power to determine probable cause to warrant criminal prosecution.
The determination of probable cause is an executive function where the prosecutor
determines merely that a crime has been committed and that the accused has
committed the same.17 The rules do not require that a prosecutor has moral
certainty of the guilt of a person simply for preliminary investigation purposes.
However, the authority of the prosecutor and the DOJ is not absolute; it cannot be
exercised arbitrarily or capriciously. Where the findings of the investigating
prosecutor or the Secretary of the DOJ as to the existence of probable cause are
equivalent to a gross misapprehension of facts,certiorari will lie to correct these
errors.18
While it is our policy not to interfere in the conduct of preliminary investigations, we
have, on more than one occasion, adhered to some exceptions to the general
rule:chanRoblesvirtualLawlibrary
1. when necessary to afford adequate protection to the constitutional rights of
the accused;
2. when necessary for the orderly administration of justice or to avoid
oppression or multiplicity of actions;
3. when there is a prejudicial question which is sub judice;
4. when the acts of the officer are without or in excess of authority;
5. where the prosecution is under an invalid law, ordinance or regulation;
6. when double jeopardy is clearly apparent;

7. where the court has no jurisdiction over the offense;

8. where it is a case of persecution rather than prosecution;
9. where the charges are manifestly false and motivated by the lust for
vengeance;
10.when there is clearly no prima facie case against the accused and a motion to
quash on that ground has been denied. 19 (Italics supplied).
In excluding Santos from the prosecution of the supposed violation of Section 28 of
the Securities Regulation Code, the Secretary of the DOJ, as affirmed by the
appellate court, debunked the DOJ panels finding that Santos was prima facie liable
for either: (1) selling securities in the Philippines as a broker or dealer, or (2) acting
as a salesman, or an associated person of any broker or dealer on behalf of PIPC
Corporation and/or PIPCBVI without being registered as such with the SEC.
To get to that conclusion, the Secretary of the DOJ and the appellate court ruled that
no evidence was adduced showing Santos actual participation in the final sale by
PIPC Corporation and/or PIPCBVI of unregistered securities since the very affidavits
of complainants Lorenzo and Sy proved that Santos had never signed, neither was
she mentioned in, any of the investment documents between Lorenzo and Sy, on
one hand, and PIPC Corporation and/or PIPCBVI, on the other hand.
The conclusions made by the Secretary of the DOJ and the appellate court are a
myopic view of the investment solicitations made by Santos on behalf of PIPC
Corporation and/or PIPCBVI while she was not licensed as a broker or dealer, or
registered as a salesman, or an associated person of a broker or dealer.
We sustain the DOJ panels findings which were not overruled by the Secretary of
the DOJ and the appellate court, that PIPC Corporation and/or PIPCBVI was: (1) an
issuer of securities without the necessary registration or license from the SEC, and
(2) engaged in the business of buying and selling securities. In connection
therewith, we look to Section 3 of the Securities Regulation Code for pertinent
definitions of terms:chanRoblesvirtualLawlibrary
Sec. 3. Definition of Terms. x x x.
xxxx
3.3. Broker is a person engaged in the business of buying and selling securities for
the account of others.
3.4. Dealer means [any] person who buys [and] sells securities for his/her own
account in the ordinary course of business.
3.5. Associated person of a broker or dealer is an employee thereof whom, directly
exercises control of supervisory authority, but does not include a salesman, or an

agent or a person whose functions are solely clerical or ministerial.

xxxx
3.13. Salesman is a natural person, employed as such [or] as an agent, by a
dealer, issuer or broker to buy and sell securities.
To determine whether the DOJ Secretarys Resolution was tainted with grave abuse
of discretion, we pass upon the elements for violation of Section 28 of the Securities
Regulation Code: (a) engaging in the business of buying or selling securities in the
Philippines as a broker or dealer; or (b) acting as a salesman; or (c) acting as an
associated person of any broker or dealer, unless registered as such with the SEC.
Tying it all in, there is no quarrel that Santos was in the employ of PIPC Corporation
and/or PIPCBVI, a corporation which sold or offered for sale unregistered securities
in the Philippines. To escape probable culpability, Santos claims that she was a
mere clerical employee of PIPC Corporation and/or PIPCBVI and was never an agent
or salesman who actually solicited the sale of or sold unregistered securities issued
by PIPC Corporation and/or PIPCBVI.
Solicitation is the act of seeking or asking for business or information; it is not a
commitment to an agreement.20
Santos, by the very nature of her function as what she now unaffectedly calls an
information provider, brought about the sale of securities made by PIPC Corporation
and/or PIPCBVI to certain individuals, specifically private complainants Sy and
Lorenzo by providing information on the investment products of PIPC Corporation
and/or PIPCBVI with the end in view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts on Sys or Lorenzos investments,
Santos procured the sale of these unregistered securities to the two (2)
complainants by providing information on the investment products being offered for
sale by PIPC Corporation and/or PIPCBVI and convincing them to invest therein.
No matter Santos strenuous objections, it is apparent that she connected the
probable investors, Sy and Lorenzo, to PIPC Corporation and/or PIPCBVI, acting as
an ostensible agent of the latter on the viability of PIPC Corporation as an
investment company. At each point of Sys and Lorenzos investment, Santos
participation thereon, even if not shown strictly on paper, was prima
facieestablished.
In all of the documents presented by Santos, she never alleged or pointed out that
she did not receive extra consideration for her simply providing information to Sy
and Lorenzo about PIPC Corporation and/or PIPCBVI. Santos only claims that the
monies invested by Sy and Lorenzo did not pass through her hands. In short, Santos
did not present in evidence her salaries as a supposed mere clerical employee or

information provider of PIPCBVI. Such presentation would have foreclosed all

questions on her status within PIPC Corporation and/or PIPCBVI at the lowest rung
of the ladder who only provided information and who did not use her discretion in
any capacity.
We cannot overemphasize that the very information provided by Santos locked the
deal on unregistered securities with Sy and Lorenzo.
In fact, Sy alleged in his affidavit, which allegation was not refuted by Santos, that
he was introduced to Santos while he performed routine transactions at his
bank:chanRoblesvirtualLawlibrary
2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo
branch for the past 15 years. Sometime in the last quarter of 2006, I was at BPI
Pasong Tamo to accomplish certain routine transactions. Being a client of long
standing, the bank manager[,] as a matter of courtesy, allowed me to wait in her
cubicle. It was there that the bank manager introduced me to another bank client,
Ms. Oudine Santos. After exchanging pleasantries, and in the course of a brief
conversation, Ms. Santos told me that she is a resident of Damarias Village and
was working as an investment consultant for a certain company, Performance
Investment Products Corporation [PIPC]. She told me that she wanted to invite me
to her office at the Citibank Tower in Makati so that she could explain the
investment products that they are offering. I gave her my contact number and
finished my transaction with the bank for that day;
3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the
business lounge of [PIPC] located at the 15th Floor of Citibank Tower, Makati. During
the meeting, Ms. Santos enticed me to invest in their Performance Managed
Portfolio which she explained was a risk controlled investment program designed for
individuals like me who are looking for higher investment returns than bank
deposits while still having the advantage of security and liquidity. She told me that
they were engaged in foreign currency trading abroad and that they only employ
professional and experienced foreign exchange traders who specialize in trading the
Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told her
that I did not have any experience in foreign currency trading and was quite
conservative in handling my money;21
Santos countered that:chanRoblesvirtualLawlibrary
28. I also categorically deny complainant Sys allegation that I enticed him to
enter into a Partnership Agreement with PIPCBVI. In the first place, I came to know
complainant Sy only when he was referred to me by a mutual acquaintance, Ms.
Ana Liliosa Santos, who was then the Manager of the Bank of the Philippine Islands,
Pasong Tamo Branch. Ms. Ana Santos set up a meeting between complainant Sy
and me because complainant Sy wanted to know more about PIPCBVI. As with the
other individuals who expressed interest in PIPC Corp.s client companies, I then
provided complainant Sy with additional information about PIPCBVI. The decision

to enter into the aforementioned Partnership Agreement with PIPCBVI was made by
complainant Sy alone without any inducement or undue influence from me, as in
fact I only met him twice the first one was on the meeting set up by Ms. Ana
Santos and the second one was to introduce him to Michael Liew. Indeed,
complainant Sy appears to be a welleducated person with years of experience as a
businessman. It is reasonable to assume that before entering into the said
Partnership Agreement with PIPCBVI, complainant Sy had fully understood the
nature of the agreement and that in entering thereto, he had been motivated by a
desire to earn a profit and had believed, as I myself have been led to believe, that
PIPCBVI was a legitimate business concern which offered a reasonable return on
investment, Moreover, complainant Sy could have withdrawn his initial investment
of US$40,000.00 on its date of maturity, i.e., 26 January 2007, as indicated in the
PIPCBVIs letter dated 10 November 2006, a copy of which is attached to
complainant Sys Sworn Statement. Complainant Sy, however, obviously decided on
his own volition to keep his investment with PIPCBVI presumably because he
wanted to gain more profit therefrom. Complainant Sy in fact admitted that he
received monetary returns from PIPCBVI in the total amount of US$2,439.12. 22
What is palpable from the foregoing is that Sy and Lorenzo did not go directly to
Liew or any of PIPC Corporations and/or PIPCBVIs principal officers before making
their investment or renewing their prior investment. However, undeniably, Santos
actively recruited and referred possible investors to PIPC Corporation and/or PIPC
BVI and acted as the gobetween on behalf of PIPC Corporation and/or PIPCBVI.
The DOJs and Court of Appeals reasoning that Santos did not sign the investment
contracts of Sy and Lorenzo is specious. The contracts merely document the act
performed by Santos.
Individual complainants and the SEC have categorically alleged that Liew and PIPC
Corporation and/or PIPCBVI is not a legitimate investment company but a company
which perpetrated a scam on 31 individuals where the president, a foreign national,
Liew, ran away with their money. Liews absconding with the monies of 31
individuals and that PIPC Corporation and/or PIPCBVI were not licensed by the SEC
to sell securities are uncontroverted facts.
The transaction initiated by Santos with Sy and Lorenzo, respectively, is an
investment contract or participation in a profit sharing agreement that falls within
the definition of the law. When the investor is relatively uninformed and turns over
his money to others, essentially depending upon their representations and their
honesty and skill in managing it, the transaction generally is considered to be an
investment contract.23 The touchstone is the presence of an investment in a
common venture premised on a reasonable expectation of profits to be derived from
the entrepreneurial or managerial efforts of others. 24
At bottom, the exculpation of Santos cannot be preliminarily established simply by
asserting that she did not sign the investment contracts, as the facts alleged in this

case constitute fraud perpetrated on the public. Specially so because the absence
of Santos signature in the contract is, likewise, indicative of a scheme to
circumvent and evade liability should the pyramid fall apart.
Lastly, we clarify that we are only dealing herein with the preliminary investigation
aspect of this case. We do not adjudge respondents guilt or the lack thereof.
Santos defense of being a mere employee or simply an information provider is best
raised and threshed out during trial of the case.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in
CAG.R. No. SP No. 112781 and the Resolutions of the Department of Justice dated 1
October 2009 and 23 November 2009 are ANNULLED and SET ASIDE. The
Resolution of the Department of Justice dated 18 April 2008 and 2 September 2008
are REINSTATED. The Department of Justice is directed to include respondent
Oudine Santos in the Information for violation of Section 28 of the Securities and
Regulation Code.
SO ORDERED.

INTRA-CORPORATE CONTROVERSIES UNDER AM NO 01-2-04-SC

CASES
G.R. No. 132358

April 12, 2002

MILA YAP SUMNDAD, petitioner,

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

Actions; Jurisdiction; Pleadings and Practice; Jurisdiction over the subject matter of
the case is conferred by law and determined by the allegations of the 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 petitioners complaint. [Sumndad vs. Harrigan,
381 SCRA 8(2002)]
Same; Same; Securities and Exchange Commission; An action for collection of sum
of money falls within the jurisdiction of ordinary courts, not the Securities and
Exchange Commission.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. 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.
Same; Same; Same; Fraud; Words and Phrases; The mere use of the phrase in
fraud of creditors does not ipso facto throw the case within SECs jurisdiction.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 SECs jurisdiction. The amended complaint filed by
Harrigan does not sufficiently allege acts amounting to fraud and misrepresentation
committed by respondent corporation.
Same; Same; Same; Same; Same; 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.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.
Same; Same; Same; Securities Regulation Code (R.A. No. 8799); Under Section 5.2
of R.A. 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.Equally unavailing is
petitioners 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 intracorporate controversies have been transferred to a court of general jurisdiction or
the appropriate Regional Trial Court.

Same; Same; Same; Administrative Law; 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.Foregoing given, Harrigans
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.
Same; Certiorari; Appeals; Certiorari cannot be used as a substitute for lost or
lapsed remedy of appeal, especially if such loss was occasioned by ones own
neglect or error in the choice of remedies.Given our disquisition that the
complaint for sum of money was instituted with the proper court, petitioners
remedy before the appellate court should have been a timely appeal and not
certiorari. Therefore, the appellate court was correct in dismissing petitioners
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 ones 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. [Sumndad vs. Harrigan,
381 SCRA 8(2002)]
QUISUMBING, J.:
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, attorneys 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
3. Pursuant to a joint venture agreement between plaintiff 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, plaintiff
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,
plaintiff gave advances or loans to said defendant, which as of October 2, 1990, already
amounted to P1,000,000.00
5. Plaintiff 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.
xxx
9. Considering that as of September 1994, defendant has failed to service and pay, not only
its above-mentioned demandable loans but even the accrued interests thereon which, as of
December 31, 1994, already amounted to P393,451.07, plaintiff through his counsel
demanded from defendant, through its officer and SEC-appointed manager, for settlement of
the latters said unpaid obligations.
10. Despite plaintiffs 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 forStatus Quo Order and/or Suspension" praying that she be allowed to intervene either as
plaintiff or defendant.7The 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:
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 (Underscoring 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 Harrigans motion for judgment on the pleadings,
decreed:
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 plaintiff and as against defendant BORACAY
BEACH CLUB HOTEL, INC. (BBCHI), who is hereby ordered to:
1. PAY plaintiff 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 attorneys 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
petitioners motion for reconsideration and granted Harrigans 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 OVER CIVIL 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 PETITIONERS 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
JUDGEMENT AND NOT OF JURISDICTION.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 OF CERTIORARI 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
petitioners 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 902A. 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 ofover seven (7)
months now, defendant has, in effect, 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 plaintiff.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 SECs 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 902-A.
Equally unavailing is petitioners 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, 32original 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, Harrigans 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,
petitioners remedy before the appellate court should have been a timely appeal and not certiorari.
Therefore, the appellate court was correct in dismissing petitioners 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 ones 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 petitioners 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.
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.
SO ORDERED.

G.R. No. 149351

March 17, 2004

SPEED DISTRIBUTING CORP., LITA MARCELO, IRENEO MARCELO and PEDRO

AQUINO, petitioners,
vs.
COURT OF APPEALS and RUFINA LIM, respondents.

Courts; Jurisdiction; Jurisdiction over the subject matter is conferred by law.

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 plaintiff, irrespective of whether or not
plaintiff 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.
Same; Same; Regional Trial Courts; Intra-Corporate Controversies; Section 5.2 of
Rep. Act No. 8799, transferred the erstwhile exclusive and original jurisdiction of the
SEC over actions involving intra-corporate controversies to the courts of general
jurisdiction.However, Section 5.2 of Rep. Act No. 8799, transferred the erstwhile
exclusive and original jurisdiction of the SEC over actions involving intra-corporate
controversies to the courts of general jurisdiction, or the appropriate RTC. All
intracorporate cases pending in the SEC were to be transferred to the appropriate
RTC. Congress thereby recognized the expertise and competence of the RTC to take
cognizance of and resolve cases involving intra-corporate controversies. In
compliance with the law, the Court issued on November 21, 2000 a Resolution
designating certain branches of the RTC in the National Capital Region to try and
decide cases enumerated in Section 5 of P.D. No. 902-A.
Same; Same; Same; Same; Elements; To determine whether a case involves an
intra-corporate controversy, two elements must concur.To determine whether a
case involves an intra-corporate controversy, and is to be heard and decided by the
Branches of the RTC specifically designated by the Court to try and decide such
cases, two elements must concur: (a) the status or relationship of the parties; and
(2) the nature of the question that is the subject of their controversy.
Same; Same; Same; Same; Same; Elements explained.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.

Actions; Parties; Succession; Successional rights are transmitted from the moment
of death of the decedent and compulsory heirs are called upon to succeed by
operation of law to the inheritance.The general rule under the law on succession
is that successional rights are transmitted from the moment of death of the
decedent and compulsory heirs are called upon to succeed by operation of law to
the inheritance without the need of further proceedings. Under Article 776 of the
New Civil Code, inheritance includes all the properties, rights and obligations of a
party, not extinguished by his death.
Same; Same; Same; As successors who stepped into the shoes of their decedent
upon his death, they can commence any action originally pertaining to the
decedent.As successors who stepped into the shoes of their decedent upon his
death, they can commence any action originally pertaining to the decedent. From
the moment of his death, his rights as a partner and to demand fulfillment of
petitioners obligations as outlined in their dissolution agreement were transmitted
to respondents. They, therefore, had the capacity to sue and seek the courts
intervention to compel petitioner to fulfill his obligations.
[Speed Distributing Corp. vs. Court of Appeals, 425 SCRA 691(2004)]
CALLEJO, SR., J.:
This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. No. 52214 (CV)
reversing the November 21, 1995 Order2 of the Regional Trial Court of Quezon City, Branch 222,
dismissing the complaint in Civil Case No. Q-95-24588, and its August 8, 2001 Resolution denying
the Motion for Reconsideration of the aforesaid decision.
The Antecedents
On September 20, 1953, Pastor Y. Lim married private respondent Rufina Luy Lim. 3 During the early
part of their marriage, Pastor organized some family corporations using their conjugal funds. Among
these corporations was Skyline International Corporation (Skyline, for brevity) which was engaged in
the importation and sale of Hankook Brand Korean Tires and the acquisition of real estate. The
couple were incorporators and major stockholders of the corporation and were also employed
therein.
Pastor and the private respondent did not have a child. They decided to "adopt" Leonard Lim and
petitioner Lita Lim Marcelo, who were children of their distant poor relatives in Zamboanga City.
There was, however, no formal court adoption. Sometime thereafter, marital problems arose, as a
result of which the private respondent stopped working at Skyline. As the domestic problems
remained unresolved, Pastor and the private respondent jointly filed on August 13, 1968 a Petition
before the Juvenile and Domestic Relations Court of Quezon City, for voluntary dissolution of
conjugal properties. As their differences worsened, the private respondent filed on January 27, 1971
a petition for legal separation against Pastor on the ground of infidelity before the then Juvenile and
Domestic Relations Court of Quezon City. The petition was amended into one for Support with
Alimony and the case was docketed as Civil Case No. QE-0030.
On February 17, 1972, the court rendered a decision, awarding P3,000 monthly support to the
private respondent and the children, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered:

1. Ordering defendant to pay plaintiff monthly support of P3,000.00 effective as of
February, 1971;
2. Ordering defendant to pay plaintiff attorneys fees in the sum of P2,000.00, plus
the cost of this suit. 4
On June 24, 1975, the private respondent filed a motion for execution. The court issued an order
granting the motion and the sheriff levied on the properties of Skyline. The latter filed, on December
19, 1975, a third-party claim, alleging that the properties levied were its personal properties and not
those of Pastor, who was only one of its stockholders. The private respondent filed a motion to
quash Skylines claim, which the court granted.
Skyline filed a petition for certiorari with prayer for temporary restraining order before the Court of
Appeals for the nullification of the order of the trial court quashing the third-party claim. The case
was docketed as CA-G.R. No. 05312 (SP). The appellate court issued a temporary restraining order
on April 27, 1976. On June 23, 1976, the Court of Appeals rendered a decision dismissing the
petition, thus, lifting the restraining order.5 The appellate court ruled as follows:
While it is recognized as "lawful to obtain a corporation charter, even with a single substantial
stockholder, to engage in a specific activity, and such activity may co-exist with other private
activities of the stockholder" (Liddel & Co., Inc. vs. Collector of Internal Revenue, L-9687,
June 30, 1961, 2 SCRA 632), the corporations distinct personality will be disregarded when
it is so "controlled and its affairs so conducted as to make it merely an instrumentality,
agency or conduit of another" (NAMARCO vs. Associated Finance Company, supra).
It is not disputed that petitioner Skyline International, Inc. was a conjugal enterprise (p. 2,
Decision) before its incorporation in December 1970 (p. 10, id.), when it was still a
proprietorship. Petitioner Skyline International, Inc. is still engaged in the sale of automotive
parts and dealership of Firestone Rubber and Tires which business it was already doing
when it was still a proprietorship. Respondent Court found that the only assets of petitioner
corporation are the conjugal properties. Thus, respondent Court concludes that "it is safe to
assume that Skyline International Corporation is another name for Mr. and Mrs. Pastor Y. Lim
in person." In fact, Pastor Y. Lim admitted that the other incorporators are their former
employees and their respective shares are nominal (Decision, pp. 14-15).
The above facts are more than enough justification for respondent Court to pierce the veil of
corporate fiction. Consequently, we find the questioned orders to be in order.6
Skyline, then, filed a petition for review before this Court, but the petition was dismissed in a
Resolution dated August 6, 1976.7
On August 21, 1987, the Speed Distributing Corporation (Speed, for brevity), was registered with the
Securities and Exchange Commission, with Pastor Lim as one of the incorporators. He owned ten
shares, valued at P100.00 per share. The following were the names of the incorporators, the number
of shares respectively subscribed to by them and the amount paid up:

Shares
Lita T. Lim

Subscribed

Paid

11,200

P 1,120,000.00

P 280,000.00

1,000

100,000.00

25,000.00

Lina S. Lim

150

15,000.00

3,750.00

Larry S. Lim

140

14,000.00

3,500.00

Pastor Y. Lim

10

1,000.00

250.00

12,500

P1,250,000.00

P 312,500.008

Leonard L. Lim

Petitioner Lita Lim-Marcelo was elected treasurer of the corporation.

On June 21, 1991, the Leslim Corporation (Leslim, for brevity), was registered with the Securities
and Exchange Commission with a capital stock of P12,000,000.00, divided into 120,000 shares at
par value of P100.00 per share. Pastor Lim subscribed to 95,700 shares valued at P9,570,000.00.
The incorporators, the number of shares they subscribed to and the amounts paid for were indicated
in the articles of incorporation as follows:
Name
Teresa T. Lim

No. of Share Amount Subscribed

24,000

P2,400,000.00

Leonard L. Lim

100

10,000.00

Larry S. Lim

100

10,000.00

Lina L. Lim

100

10,000.00

95,700

9,570,000.00

120,000

P12,000,000.00

Pastor Y. Lim

The following persons have paid on the shares of the capital stock for which they have subscribed
the amount set after their names respectively:
Name
Teresa T. Lim

Amount Paid
P600,000.00

Leonard L. Lim

2,500.00

Larry S. Lim

2,500.00

Lina L. Lim

2,500.00

Pastor Y. Lim

P2,392,500.00
P3,000,000.009

Under the articles of incorporation, Pastor Lim was the treasurer-in-trust of the corporation. 10 The
Vice-President and Treasurer of the corporation was petitioner Lita Lim-Marcelo, now married to
petitioner Ireneo Marcelo.
On August 26, 1994, Leslim Corporation executed a deed of absolute sale in favor of the Speed,
represented by its Vice-President, petitioner Ireneo Marcelo, over the parcel of lot located at Diliman
Quezon City, covered by TCT No. 36617 for the price of P3,900,000.00. 11 Petitioner Lita LimMarcelo, the Vice-President of Leslim12signed in the deed for and in behalf of the corporation. She
was authorized by the Board of Directors in a Resolution August 19, 1994 to sign the said deed and
to receive the purchase price for and in behalf of Leslim. The said Resolution was certified by
corporate secretary Pedro Aquino on August 22, 1994.13 Consequently, TCT No. 36617 which was in
the name of Leslim, was cancelled and a new one, TCT No. T-116716, was issued to and in the
name of Speed.14
On June 11, 1994, Pastor Lim died intestate and was survived by his wife, the private respondent.
On March 17, 1995, the private respondent, through her nephew and attorney-in-fact George Luy,
filed a petition for the administration of the estate of her deceased husband before the Regional Trial
Court of Quezon City, docketed as Special Proceedings No. Q-95-23334. 15 The case was raffled to
Branch 93. The private respondent filed a motion praying for the annotation of a notice of lis
pendens at the dorsal portion of all titles over the properties in the name of Pastor. Included in the
said properties were those registered in the name of other corporations of which Pastor was a
stockholder, including that parcel of land covered by TCT No. T-116717 registered under the name of
Speed. The court granted the motion. The affected corporations, including Speed, filed motions to
cancel the notices of lis pendens and motions for exclusion of certain properties from Pastors
estate. On June 8, 1995, the Court granted the motions and ordered the exclusion of certain
properties from the estate of Pastor and the cancellation of the notices of lis pendens on properties
registered in the name of the said corporations, including that covered by TCT No. T-116716 under
the name of Speed.
On June 27, 1995, the private respondent filed a verified amended petition in SP No. Q-95-23334
alleging, among others, that during his lifetime, Pastor substantially owned the following business
entities: Skyline Sales Corporation, Speed Distributing, Inc., and Leslim Corporation:
5. That the following real properties, although registered in the name of the above entities,
were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit:
CORPORATION

TITLE

LOCATION

b. Leslim Corp.

TCT No. 36617

Quezon City

but now illegally transferred to and registered in the name of Speed Distributing, Inc. under
TCT No. 116716.16
On July 4, 1995, the probate court issued an Order setting aside its June 8, 1995 Order and directed
the Register of Deeds to reinstate the notice of lis pendens on TCT No. T-116716. The court denied
the motion for the reconsideration of the said order.
Speed filed a petition for certiorari with the Court of Appeals for the nullification of the July 4, 1995
and September 12, 1995 Orders of the trial court, docketed as CA-G.R. No. 38617 (SP).
Meanwhile, on August 1, 1995, the private respondent filed a complaint against Speed, and the
petitioners with the RTC of Quezon City, for the nullification of the Deed of Absolute Sale executed
by Leslim in favor of Speed over the property covered by TCT No. T-36617, and the cancellation of
TCT No. T-11676, with damages before the RTC of Quezon City. The case was raffled to Branch
222, and was docketed as Q-95-24588. The private respondent alleged, inter alia, that:
...
6. Plaintiff is the surviving spouse of the late Pastor Y. Lim who died intestate on June 11,
1994, but leaving several properties, real and personal, situated in Quezon City, Makati City,
Rizal Province, Las Pias, Valenzuela, Manila, Cavite, Masbate and other parts of the
country.
7. During the existence of the marriage of plaintiff and Pastor Y. Lim, the latter formed,
among others, Leslim Corporation, and he actually owned the same as in fact he had in his
name 95,700 out of the 120,000 shares of the authorized capital stock. The remaining
shares of stocks were listed in the name of some persons who were actually his dummies,
and were made to appear as stockholders of Leslim Corporation only for purposes of
registration with the Securities and Exchange Commission.
8. Leslim Corporation, in turn, is a registered owner of a certain parcel of land located in
Diliman, Quezon City, as evidenced by TCT No. 36617, issued by defendant Register of
Deeds, copy of which is hereto attached as Annex "C."
9. Plaintiff initiated an intestate proceedings on the estate of her deceased husband in order
to lay claim on her conjugal share thereon. She then started to verify the various TCTs of the
real property in the name of her deceased husband, including those in the name of Leslim
Corporation, and she discovered that TCT No. 36617 had already been canceled and in lieu
thereof, TCT No. 116716 was issued by defendant Register of Deeds in the name of
defendant Corporation
10. Upon further verification, plaintiff discovered that the basis of the cancellation of TCT No.
36617 in favor of TCT No. 116716 is a Deed of Sale signed and executed by defendant Lita
Marcelo who misrepresented herself as Vice President of Leslim Corporation and as such
she was purportedly authorized to dispose of the property in question in favor of defendant
corporation, which latter corporation was allegedly represented in the transaction by her

husband, herein defendant Ireneo Marcelo who claimed himself as the Vice President of
defendant corporation.
11. To give a semblance of legality to the feigned transaction of sale, defendant Pedro
Aquino, misrepresenting himself as the corporate secretary of Leslim Corporation, executed
a simulated/falsified secretarys certificate, wherein he stated that in an alleged special
meeting of the Board of Directors of Leslim Corporation held on August 19, 1994 in its office
at 1006 Quezon Avenue, Quezon City, defendant Lita Marcelo was allegedly authorized by
the Board to enter into the transaction in question.
12. The transfer of the property from Leslim to defendant corporation is imaginary, the deed
of sale and the secretarys certificate are simulated, hence, null and void, as shown below:
13. First of all, there was no such special meeting of the board of directors of Leslim
Corporation on August 19, 1994, contrary to the allegation in the secretarys certificate. No
notices to that effect were ever sent to Pastor Lim, a director and owner of 79.75 per cent of
the capital stock of Leslim Corporation. Secondly, there was never a meeting of the
stockholders wherein more than two-thirds of the stocks were present in order to approve the
sale of all or substantially all of the assets consisting of real properties of Leslim Corporation.
Indeed, no such meeting could have been held because Pastor Lim, who owned practically
two-thirds of the total capital stock, had already died on June 11, 1994. The last meeting of
stockholders of Leslim Corporation was held in January, 1994. Since then up to the present,
no other stockholders meeting, special or otherwise, was ever held by Leslim Corporation.
14. Thirdly, the place of the alleged special stockholders meeting could not have occurred in
the place where it was purportedly held, namely, 1006 Quezon Avenue, Quezon City. This
place is the address of Accurate Distributing, Inc., which had been under the control of the
group of Estrelita Cabarles since August 1994 up to the present. On the other hand,
defendants Lita Marcelo, Ireneo Marcelo, and Pedro Aquino and their cohorts are the
adversaries of Estrelita Cabarles in several cases, civil and criminal, pending before various
courts in Metro Manila and suburbs. The control and possession by the group of Cabarles of
the premises ineluctably shows that no meeting was ever held thereon by their adversaries.
Fourthly, there was never any payment made to Leslim Corporation respecting the alleged
purchase price.
15. As a consequence of the above, defendant Lita Marcelo could not have been the Vice
President of Leslim Corporation at the time the simulated deed of sale in question was
executed, contrary to her claim thereon. Besides, defendant Lita Marcelo has never been a
stockholder, much less a director of Leslim Corporation. Hence, it follows that the subject
deed of absolute sale and the secretarys certificate are both simulated, and TCT No. 116716
of no force and effect, necessitating as it does its cancellation. The imaginary transaction of
sale was clearly resorted to by defendants after the August 19, 1994 special stockholders
meeting of Accurate Distributing Inc., where in the ground of Estrelita Cabarles were elected
as Board of Directors and corporate officers and in order to deprive plaintiff of her conjugal
share and the other heirs of Pastor Y. Lim of their shares in his estate. In fact, all the real
property registered in the name of Leslim Corporation and in Nellmart Corporation wherein
Pastor Lim is also the majority stockholder had been transferred by defendants and their
cohorts to themselves or to entities controlled by them, all at practically the same time. Thus:

a. TCT No. 36617 Deed of Sale dated August 22, 1994 from Leslim to defendant
Corporation. Amount P3,400,000.00.
b. TCT No. 66001 Deed of Sale dated August 26, 1994 from Leslim to Auto Truck
TBA. Amount P10,500,000.00.
c. TCT No. 101730 Deed of Sale dated August 26, 1994 from Leslim to Skyline
Sales Corporation. Amount P15,500,00.00.
d. TCT No. T-48028 in the name of Nellmart but illegally transferred to defendant
corporation under TCT No. 116718.
e. TCT No. 236236 in the name of Nellmart but illegally transferred to Alliance
Marketing, Inc., under TCT No. 285400.
f. TCT No. 236237 in the name of Nellmart but illegally transferred to Alliance
Marketing, Inc. under TCT No. 285399.
16. The same scheme was resorted to by defendants and their cohorts in divesting other
corporations of all real property, where Pastor Lim is the stockholder. Thus, the motives of
defendants in conspiracy with each other and with several other persons and entities are one
and the same, namely: to monopolize the control, possession, enjoyment and ownership of
all the estate of Pastor Lim, thereby depriving plaintiff of her conjugal share as well as her
own share in her husbands own estate.
17. By reason of these acts of defendants, plaintiff was constrained to hire the services of
counsel for a fee of P50,000.00 and appearance fee of P1,500.00 per hearing. She likewise
suffered sleepless nights and wounded feelings, which if converted into its monetary
equivalent would be P100,000.00, more or less.
18. In order to prevent defendants from repeating the unlawful acts, they should be
condemned by pay exemplary damages in the amount of P100,000.00. 17
The private respondent prayed that, after due proceedings, judgment be rendered in her favor, thus :
WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that
after notice and hearing, judgment be rendered:
a. declaring the secretarys certificate and the deed of sale under question null and void;
b. cancelling TCT No. 116716 issued in the name of defendant Speed Distributing
Corporation for being without basis in fact and in law;
c. ordering defendants to pay jointly and severally the amount of P100,000.00 exemplary
damages;
d. ordering defendants to play (sic) plaintiff jointly and severally the amount of P50,000.00
attorneys fees and P1,000.00 appearance fee per hearing.

e. Ordering defendants to pay the cost of suit.18

In their answer with compulsory counterclaim, the petitioners specifically denied the material
allegations of the complaint, and by way of special and affirmative defenses, alleged that the private
respondent (the plaintiff therein), was not privy to the deed of sale executed by Leslim and Speed.
As such, she was not the real party-in-interest and had no cause of action against the defendants.
Pursuant to Presidential Decree No. 902-A, the SEC, not the RTC, had jurisdiction over the
complaint, as it was evident that the complaint involved an intra-corporate controversy.19
In her reply, the private respondent alleged that even if she was not privy to the deed of sale over the
subject property, she was entitled to its income, and her right accrued at the time of Pastors death
on June 11, 1994.
On September 4, 1995, the RTC issued an Order in Special Proceedings No. 95-2334 granting the
petition and appointed the private respondent as the co-administrator of Miguel Lim, with Atty.
Donald Lee as special administrator.20
The court held a hearing on the special and affirmative defenses of the defendants (the petitioners
herein) in Civil Case No. 95-24588. On November 25, 1995, the RTC issued an order dismissing the
complaint, real party-in-interest. According to the court, she had no cause of action against the
petitioners as she was not privy to the contract of sale between Leslim and Speed. Neither was she
a stockholder of the defendant corporation; as such, she could not sue for the corporation. According
to the court, the private respondent could not file the complaint in behalf of her deceased husband
Pastor as she was unable to show that she was the authorized representative of his estate; even if
she was so authorized, her claim was limited to the shares owned by Pastor, which could not extend
to the properties of Leslim. The court also ruled that the action involved intra-corporate controversies
over which the SEC had original and exclusive jurisdiction.
Aggrieved, the private respondent filed a motion for reconsideration of the order which was denied
on February 9, 1996.21 Dissatisfied, she appealed the order to the Court of Appeals, 22 docketed as
CA-G.R. CV No. 52214. She ascribed the following errors to the court a quo:
I
THE LOWER COURT ERRED IN RULING THAT THE PLAINTIFF-APPELLANT IS NOT A
REAL PARTY-IN-INTEREST TO FILE THE "COMPLAINT" BEFORE THE COURT A QUO.
II
THE LOWER COURT ERRED IN RULING THAT IT HAD NO JURISDICTION OVER THE
"COMPLAINT" IN CIVIL CASE NO. Q-95-24588.
III.
THE LOWER COURT ERRED IN DISMISSING THE PLAINTIFF-APPELLANTS
"COMPLAINANT" IN CIVIL CASE NO. Q-95-24588.23
On April 18, 1996, the Court of Appeals rendered judgment in CA-G.R. SP No. 38617 nullifying the
assailed orders. The CA ruled that the private respondent failed to prove that Pastor Lim, not Speed,

owned the property. It also ruled that the finding of the probate court that the property belonged to
Pastor Lim was only provisional in nature. The private respondent then filed a petition for review on
certiorari with this Court, docketed as G.R. No. 124715. On January 24, 2000, this Court rendered a
Decision dismissing the petition.
On September 15, 2000, the CA rendered a decision in CA-G.R. CV No. 52214 setting aside the
assailed orders and ordering the RTC to hear Civil Case No. Q-95-24588, thus:
WHEREFORE, premises considered, the Regional Trial Court, National Capital Judicial
Region, Quezon City, Branch 222 is hereby ORDERED to try Civil Case No. Q-95-24588
without costs to plaintiff-appellant.24
The CA ruled that, as gleaned from the pleadings of the parties, the action involved intra-corporate
controversies as defined in Section 5 of Presidential Decree (PD) No. 902-A; as such, the RTC had
no jurisdiction over the action. However, in light of Rep. Act No. 8799 which transferred to courts of
general jurisdiction or the appropriate RTC cases over which the SEC had jurisdiction, the CA
ordered the remand of the case to the RTC, for the determination, among others, of the resolution of
the issue of whether or not the private respondent was the real party-in-interest. The Court of
Appeals stated, thus:
However, viewed in the light of Republic Act No. 8799, otherwise known as the Securities
Regulation Code, approved on July 19, 2000 which has effectively divested the Securities
and Exchange Commission of its quasi-judicial functions and transferred them to the
Regional Trial Court, We rule that the latter may take cognizance of the instant case so as
not to roundabout the judicial process, without prejudiced (sic) to its being ventilated as to
whether or not appellant The private respondent Lim is a real party in interest to be
determined during the trial on the merits before the appropriate court who has now the
jurisdiction over the case at bar.25
The motion for reconsideration of the petitioners was denied by the CA, per its Resolution dated
August 8, 2001.
In their petition at bar, the petitioners argue that
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT
HAS JURISDICTION OVER THE SUBJECT CASE BY VIRTUE OF THE EFFECTIVITY OF
RA 8799 KNOWN AS SECURITIES REGULATION CODE.26
The petitioners contend that the RTC had no jurisdiction over the private respondents complaint
because the case involved intra-corporate controversies. Since Rep. Act No. 8799 took effect only
on August 8, 2000, while the private respondents appeal in the CA was pending, it should not be
given retroactive effect. Furthermore, Section 5.2 of RA 8799 proscribes the transfer of cases to the
RTC; as such, the CA should have dismissed the private respondents appeal without prejudice to
her right to refile her complaint in the RTC. The petitioners argue that the CA cannot order the case
remanded to the RTC for the sake of convenience.
For her part, the private respondent asserts that the complaint does not involve intra-corporate
controversies and the RTC had jurisdiction over the action and the issues raised by the parties in

their pleadings. The private respondent, likewise, opines that there is nothing wrong with the CAs
ruling directing the RTC to hear the case to avoid any consequent delay.
The sole issue in this case is whether or not the CA erred in remanding the case to the RTC and
directing it to decide and hear the complaint on its merits, in view of Rep. Act No. 8799 which took
effect on August 8, 2000, during the pendency of the case before it, effectively transferring
jurisdiction over cases involving intra-corporate controversies from the SEC to the RTC.
The Private Respondents Action in the RTC Does Not Involve an Intra- Corporate Dispute.
Jurisdiction over the subject matter is conferred by law.27 The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not plaintiff is entitled to recover upon all or some
of the claims asserted therein.28 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. 29
Section 5 of P.D. No. 902-A provides that the SEC shall have original and exclusive jurisdiction over
complaints, to hear and decide cases involving the following:
(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, partnership or associations;
(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 assciation 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.30
However, Section 5.231 of Rep. Act No. 8799, transferred the erstwhile exclusive and original
jurisdiction of the SEC over actions involving intra-corporate controversies to the courts of general
jurisdiction, or the appropriate RTC. All intra-corporate cases pending in the SEC were to be
transferred to the appropriate RTC. Congress thereby recognized the expertise and competence of
the RTC to take cognizance of and resolve cases involving intra-corporate controversies. In
compliance with the law, the Court issued, on November 21, 2000 a Resolution designating certain
branches of the RTC in the National Capital Region to try and decide cases enumerated in Section 5
of P.D. No. 902-A. For Quezon City cases, the Court designated Branches 46 and 93 of the RTC.
Branch 222 of the Quezon City RTC, which dismissed the complaint of the private respondent, was

not so designated by the Court. On March 13, 2001, the Court approved the Interim Rules of
Procedure for Intra-Corporate Controversies, which took effect on April 1, 2001.
To determine whether a case involves an intra-corporate controversy, and is to be heard and
decided by the Branches of the RTC specifically designated by the Court to try and decide such
cases, two elements must concur: (a) the status or relationship of the parties; and (2) the nature of
the question that is the subject of their controversy.32
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.33 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. 34
In the present recourse, it is clear that the private respondents complaint in the RTC is not an intracorporate case. For one thing, the private respondent has never been a stockholder of Leslim, or of
Speed for that matter. The complaint is one for the nullification of the deed of absolute sale executed
by Leslim in favor of Speed over the property covered by TCT No. T-36617 in the name of Leslim,
the cancellation of TCT No. T-116716 in the name of Speed, as well as the Secretarys Certificate
dated August 22, 1994. The private respondent alleged that since her deceased husband, Pastor
Lim, acquired the property during their marriage, the said property is conjugal in nature, although
registered under the name of Leslim under TCT No. T-36617. She asserted that the petitioners
connived to deprive the estate of Pastor Lim and his heirs of their possession and ownership over
the said property using a falsified Secretarys Certificate stating that the Board of Directors of Leslim
had a meeting on August 19, 1995, when, in fact, no such meeting was held. Petitioner Lita Lim was
never a stockholder of Leslim or a member of its Board of Directors; her husband, petitioner Ireneo
Marcelo was the Vice-President of Speed; and, petitioner Pedro Aquino was Leslims corporate
secretary. The private respondent further averred that the amount of P3,900,000.00, the purchase
price of the property under the deed of absolute sale, was not paid to Leslim, and that petitioners
Spouses Marcelo and petitioner Pedro Aquino contrived the said deed to consummate their devious
scheme and chicanery. The private respondent concluded that the Deed of Absolute Sale was
simulated; hence, null and void.
We are convinced that on the basis of the material allegations of the complaint, the court a quo had
jurisdiction over the case.
The Private Respondent is a Real Party-in-Interest as Plaintiff.
Rule 3, Section 2 of the Rules of Court, as amended, provides as follows:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited
or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.

The private respondent filed the complaint as one of the heirs of Pastor Lim, who died intestate on
June 11, 1994. She was, in fact, the surviving spouse of the deceased, a compulsory heir by
operation of law. The general rule under the law on succession is that successional rights are
transmitted from the moment of death of the decedent and compulsory heirs are called upon to
succeed by operation of law to the inheritance without the need of further proceedings. Under Article
776 of the New Civil Code, inheritance includes all the properties, rights and obligations of a party,
not extinguished by his death.35 Although the private respondent was appointed by the probate court
as a special administratrix of the estate of Pastor Lim, she had the right, apart from her being a
special administratrix, to file the complaint against the petitioners for the nullification of the deed of
absolute sale, and TCT Nos. T-36617 and T-116716. Indeed, in Emnace vs. Court of Appeals, et
al.,36 we held that:
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no
legal capacity to sue since she was never appointed as administratrix or executrix of his
estate. Petitioners objection in this regard is misplaced. The surviving spouse does not need
to be appointed as executrix or administratrix of the estate before she can file the action. She
and her children are complainants in their own right as successors of Vicente Tabanao. From
the very moment of Vicente Tabanaos death, his rights insofar as the partnership was
concerned were transmitted to his heirs, for rights to the succession are transmitted from the
moment of death of the decedent.
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more particularly by succession, which is a
mode of acquisition by virtue of which the property, rights and obligations to the extent of the
value of the inheritance of a person are transmitted. Moreover, respondents became owners
of their respective hereditary shares from the moment Vicente Tabanao died.
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix
or administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As
successors who stepped into the shoes of their decedent upon his death, they can
commence any action originally pertaining to the decedent. From the moment of his death,
his rights as a partner and to demand fulfillment of petitioners obligations as outlined in their
dissolution agreement were transmitted to respondents. They, therefore, had the capacity to
sue and seek the courts intervention to compel petitioner to fulfill his obligations. 37
All the Compulsory Heirs of the Decedent and Leslim Corporation are Indispensable Parties.
In her complaint, the private respondent sought the nullification of the Deed of Absolute Sale
executed by Leslim Corporation in favor of Speed, as well as TCT No. T-36617 under its name.
Thus, Leslim Corporation is an indispensable party, and should be impleaded as a party-defendant
conformably to Section 7, Rule 3 of the Rules of Court, as amended.
SEC. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no
final determination can be had of an action shall be joined either as plaintiffs or defendants.
As Leslim Corporation was a party to the deed, its interests in the subject of the action and the
outcome thereof is such that the trial court could not proceed without its presence. All actuations of
the trial court subsequent to the filing of the complaint are null and void, not only as to Leslim
Corporation, but also as to the present parties.38 All the compulsory heirs of the deceased must also

be impleaded as plaintiffs, being indispensable parties.39 Thus, the private respondent needs to
amend her complaint in the court a quo to include all indispensable parties; otherwise, her claim
would be dismissed.
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The records are remanded to the
Regional Trial Court of Quezon City, Branch 222, for further proceedings on the merits of the case.
SO ORDERED

G.R. No. 142924

December 5, 2001

TEODORO B. VESAGAS, and WILFRED D. ASIS, petitioners,

vs.
The Honorable COURT OF APPEALS and DELFINO RANIEL and HELENDA
RANIEL, respondents.

Corporation Law; Securities and Exchange Commission; Administrative Law; The

question of whether a tennis club was indeed registered and issued a certification or
not is one which necessitates a factual inquiry, and on this score, the finding of the
Securities and Exchange Commission, as the administrative agency tasked with
among others the function of registering and administering corporations, is given
weight and accorded high respect.It ought to be remembered that the question of
whether the club was indeed registered and issued a certification or not is one
which necessitates a factual inquiry. On this score, the finding of the Commission, as
the administrative agency tasked with among others the function of registering and
administering corporations, is given great weight and accorded high respect. We
therefore have no reason to disturb this factual finding relating to the clubs
registration and incorporation.
Same; Same; Admissions; The admission by a party binds him and may be taken or
used against him, and where made in the course of the proceedings in the same
case, it does not require proof, and actually may be contradicted only by showing
that it was made through palpable mistake or that no such admission was made.
Moreover, by their own admission contained in the various pleadings which they
have filed in the different stages of this case, petitioners themselves have
considered the club as a corporation. This admission, under the rules of evidence,
binds them and may be taken or used against them. Since the admission was made
in the course of the proceedings in the same case, it does not require proof, and
actually may be contradicted only by showing that it was made through palpable
mistake or that no such admission was made.
Same; Same; Dissolution of Corporations; The requirements for dissolution
mandated by the Corporation Code should be strictly complied with.We note that
to substantiate their claim of dissolution, petitioners submitted only two relevant
documents: the Minutes of the First Board Meeting held on January 5, 1997, and the
board resolution issued on April 14, 1997 which declared to continue to consider
the club as a nonregistered or a non-corporate entity and just a social association of

re spectable and respecting individual members who have associated themselves,

since the 1970s, for the purpose of playing the sports of tennis x x x. Obviously,
these two documents will not suffice. The requirements mandated by the
Corporation Code should have been strictly complied with by the members of the
club. The records reveal that no proof was offered by the petitioners with regard to
the notice and publication requirements. Similarly wanting is the proof of the board
members certification. Lastly, and most important of all, the SEC Order of
Dissolution was never submitted as evidence.
Same; Same; Jurisdiction; Requisites; The fact that the parties involved in a
controversy are all stockholders or that the parties involved are the stockholders
and the corporation, does not necessarily place the dispute within the loop of
jurisdiction of the Securities and Exchange Commissionjurisdiction should be
determined by considering not only the status or the relationship of the parties but
also the nature of the question that is the subject of their controversy.We now
resolve whether the dispute between the respondents and petitioners is a corporate
matter within the exclusive competence of the SEC to decide. In order that the
commission can take cognizance of a case, the controversy must pertain to any of
the following relationships: a) between the corporation, partnership or association
and the public; b) between the corporation, partnership or association and its
stockholders, partners, members, or officers; c) between the corporation,
partnership, or association and the state as far as its franchise, permit or license to
operate is concerned; and d) among the stockholders, partners or associates
themselves. The fact that the parties involved in the controversy are all
stockholders or that the parties involved are the stockholders and the corporation,
does not necessarily place the dispute within the loop of jurisdiction of the SEC.
Jurisdiction should be determined by considering not only the status or relationship
of the parties but also the nature of the question that is the subject of their
controversy.
Same; Same; Same; Actions; It is axiomatic that jurisdiction is conferred by the
Constitution and by the laws in force at the time of the commencement of the
action.Well to underscore is the date when the original complaint was filed at the
SEC, which was March 26, 1997. On that date, the SEC still exercised quasi-judicial
functions over this type of suits. It is axiomatic that jurisdiction is conferred by the
Constitution and by the laws in force at the time of the commencement of the
action. In particular, the Commission was thereupon empowered, under Sec. 5 of
P.D. 902-A, to hear and decide cases involving intra-corporate disputes. [Vesagas vs.
Court of Appeals, 371 SCRA 508(2001)]
Same; Same; Same; Statutes; Securities Regulation Code (Republic Act 8799); The
enactment of Republic Act 8799 transferred the jurisdiction to resolve intracorporate controversies to courts of general jurisdiction or the appropriate Regional
Trial Courts.The enactment of R.A. 8799, otherwise known as the Securities
Regulation Code, however, transferred the jurisdiction to resolve intra-corporate
controversies to courts of general jurisdiction or the appropriate Regional Trial
Courts, thus: 5.2. The Commissions jurisdiction over all cases enumerated under
Section 5 of Presidential Decree No. 902-A is hereby transferred to the Court of

general jurisdiction or the appropriate Regional Trial Court: Provided, That the
Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intracorporate disputes
submitted for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed.
Same; Same; Same; Same; Same; The case at bar should now be referred to the
appropriate Regional Trial Court.On August 22, 2000, we issued a resolution, in
A.M. No. 00-8-10-SC, wherein we DIRECT(ed) the Court Administrator and the
Securities and Exchange Commission to cause the actual transfer of the records of
such cases and all other SEC cases affected by R.A. No. 8799 to the appropriate
Regional Trial Courts x x x. We also issued another resolution designating certain
branches of the Regional Trial Court to try and decide cases formerly cognizable by
the SEC. Consequently, the case at bar should now be referred to the appropriate
Regional Trial Court.
Same; Actions; Parties; Dismissal is not the remedy for non-joinder of partiesthe
remedy is to implead the non-party, claimed to be necessary or indispensable, in
the action.First is the alleged failure of the respondents to implead the club as a
necessary or indispensable party. Petitioners contend that the original complaint
should be dismissed for not including the club as one of the respondents therein.
Dismissal is not the remedy for non-joinder of parties. Under the Rules, the remedy
is to implead the non-party, claimed to be necessary or indispensable, in the action,
thus: SEC. 11. Misjoinder and non-joinder of parties.Neither misjoinder or nonjoinder of parties is a ground for dismissal of an action. Parties may be dropped or
added by order of the court on motion of any party or on its own initiative at any
stage of the action and on such terms as are just. Any claim against a misjoinder
party may be severed and proceeded with separately.
[Vesagas vs. Court of Appeals, 371 SCRA 508(2001)]
Same; Contempt; Moot and Academic Questions; In light of Presidential Decree 902As repeal, the need to rule on the question of the extent of the contempt powers of
the Securities and Exchange Commission hearing officer relative to his authority to
issue subpoenas and orders to parties involved in intra-corporate cases or potential
witnesses therein has been rendered academic.The other issue is with regard to
the alleged oppressive subpoenas and orders issued by Hearing Officer Soller,
purportedly without or in excess of authority. In light of PD 902-As repeal, the need
to rule on the question of the extent of the contempt powers of an SEC hearing
officer relative to his authority to issue subpoenas and orders to parties involved in
intra-corporate cases, or potential witnesses therein has been rendered academic.
The enactment of RA 8799 mooted this issue as SEC hearing officers, now bereft of
any power to resolve disputes, are likewise stripped of their power to issue
subpoenas and contempt orders incidental to the exercise of their quasi-judicial
powers.

Same; Same; Parties; Elementary is the principle that only those who expect to be
adversely affected by an order can complain against it.At any rate, it taxes our
credulity why the petitioners insists in raising this issue in the case at bar. The socalled oppressive subpoenas and orders were not directed to them. They were
issued to the clubs secretary, Purita Escobar, directing her to appear before the
Commission and bring certain documents of the club, that were supposedly under
her possession or control. It is obvious that the petitioners are not the proper parties
to assail the oppressiveness of the subpoenas or the orders, and impugn their
validity. Elementary is the principle that only those who expect to be adversely
affected by an order can complain against it. It is their addressee, Purita Escobar,
who can assail their alleged oppressiveness. Petitioners protestation has therefore
no leg to stand on [Vesagas vs. Court of Appeals, 371 SCRA 508(2001)]
PUNO, J.:
Before us is the instant Petition for Review on Certiorari assailing the Decision, dated July 30, 1999,
of the Court of Appeals in CA-G.R. SP No. 51189, as well as its Resolution, dated March 16, 2000,
which denied petitioner's Motion for Reconsideration.
The respondent spouses Delfino and Helenda Raniel are members in good standing of the Luz
Villaga Tennis Clud, Inc. (club). They alleged that petitioner Teodoro B. Vesagas, who claims to be
the club's duly elected president, in conspiracy with petitioner Wilfred D. Asis, who, in turn, claims to
be its duly elected vice-president and legal counsel, summarily stripped them of their lawful
membership, without due process of law. Thereafter, respondent spouses filed a Complaint with the
Securities and Exchange Commission (SEC) on March 26, 1997 against the petitioners. It was
docketed as SEC Case No. 03-97-5598.1 In this case, respondents asked the Commission to
declare as illegal their expulsion from the club as it was allegedly done in utter disregard of the
provisions of its by-laws as well as the requirements of due process. They likewise sought the
annulment of the amendments to the by-laws made on December 8, 1996, changing the annual
meeting of the club from the last Sunday of January to November and increasing the number of
trustees from nine to fifteen. Finally, they prayed for the issuance of a Temporary Restraining Order
and Writ of Preliminary Injunction. The application for TRO was denied by SEC Hearing Officer
Soller in an Order dated April 29, 1997.
1wphi1.nt

Before the hearing officer could start proceeding with the case, however, petitioners filed a motion to
dismiss on the ground that the SEC lacks jurisdiction over the subject matter of the case. The motion
was denied on August 5, 1997. Their subsequent move to have the ruling reconsidered was likewise
denied. Unperturbed, they filed a petition for certiorari with the SEC En Banc seeking a review of the
hearing officer's orders. The petition was again denied for lack of merit, and so was the motion for its
reconsideration in separate orders, dated July 14, 1998 and November 17, 1998, respectively.
Dissatisfied with the verdict, petitioners promptly sought relief with the Court of Appeals contesting
the ruling of the Commission en banc. The appellate court, however, dismissed the petition for lack
of merit in a Decision promulgated on July 30, 1999. Then, in a resolution rendered on March 16,
2000, it similarly denied their motion for reconsideration.
Hence, the present course of action where the petitioners raise the following grounds:
"C.1. The respondent Court of Appeals committed a reversible error when it determined that
the SEC has jurisdiction in 03-97-5598."2

"C.2. The respondent Court of Appeals committed a reversible error when it merely upheld
the theoretical power of the SEC Hearing Officer to issue a subpoena and to cite a person in
contempt (actually a non-issue of the petition) while it shunted away the issue of whether
that hearing officer may hold a person in contempt for not obeying a subpoena where his
residence is beyond fifty (500 kilometers from the place of hearing and no transportation
expense was tendered to him."3
In support of their first assignment of error, petitioners contend that since its inception in the 1970's,
the club in practice has not been a corporation. They add that it was only the respondent spouses,
motivated by their own personal agenda to make money from the club, who surreptitiously caused its
registration with the SEC. They then assert that, at any rate, the club has already ceased to be a
corporate body. Therefore, no intra-corporate relations can arise as between the respondent
spouses and the club or any of its members. Stretching their argument further, petitioners insist that
since the club, by their reckoning is not a corporation, the SEC does not have the power or authority
to inquire into the validity of the expulsion of the respondent spouses. Consequently, it is not the
correct forum to review the challenged act. In conclusion, petitioners put respondent spouses to task
for their failure to implead the club as a necessary or indispensable party to the case.
These arguments cannot pass judicial muster.
Petitioners' attempt to impress upon this court that the club has never been a corporation is devoid
of merit. It must fail in the face of the Commission's explicit finding that the club was duly registered
and a certificate of incorporation was issued in its favor, thus:
"We agree with the hearing officer that the grounds raised by petitioner in their motion to
dismiss are factual issues, the veracity of which can only be ascertained in a full blown
hearing. Records show that the association is duly registered with the association and
a certificate of incorporation was issued. Clearly, the Commission has jurisdiction
over the said association. As to petitioner's allegation that the registration of the club was
done without the knowledge of the members, this is a circumstance, which was not duly
proven by the petitioner (sic) in his (sic) motion to dismiss."4
It ought to be remembered that the question of whether the club was indeed registered and issued a
certification or not is one which necessitates a factual inquiry. On this score, the finding of the
Commission, as the administrative agency tasked with among others the function of registering and
administering corporations, is given great weight and accorded high respect. We therefore have no
reason to disturb this factual finding relating to the club's registration and incorporation.
Moreover, by their own admission contained in the various pleadings which they have filed in the
different stages of this case, petitioners themselves have considered the club as a corporation. This
admission, under the rules of evidence, binds them and may be taken or used against them. 5 Since
the admission was made in the course of the proceedings in the same case, it does not require
proof, and actually may be contradicted only by showing that it was made through palpable mistake
or that no such admission was made.6 Noteworthy is the "Minute of the First Board Meeting"7 held on
January 5, 1997, which contained the following pertinent portions:
"11. Unanimously approved by the Board a Resolution to Dissolve the corporate
structure of LVTC which is filed with the SEC. Such resolution will be formulated by Atty.
Fred Asis to be ready on or before the third week of January 1997. Meanwhile, the

operational structure of the LVTC will henceforth be reverted to its former status as an
ordinary club/Association."8
Similarly, petitioner's Motion to Dismiss9 alleged:
"1. This Commission has no jurisdiction over the Luz Village Tennis Club not only because it
was not impleaded but because since 5 January 1997, it had already rid itself, as it had
to in order to maintain respect and decency among its members, of the unfortunate
experience of being a corporate body. Thus at the time of the filing of the complaint,
the club had already dissolved its corporate existence and has functioned as a mere
association of respectable and respecting individual members who have associated
themselves since the 1970's xxx"10
The necessary implication of all these is that petitioners recognized and acknowledged the corporate
personality of the club. Otherwise, there is no cogency in spearheading the move for its dissolution.
Petitioners were therefore well aware of the incorporation of the club and even agreed to get elected
and serve as its responsible officers before they reconsidered dissolving its corporate form.
This brings us to petitioners' next point. They claim in gratia argumenti that while the club may have
been considered a corporation during a brief spell, still, at the time of the institution of this case with
the SEC, the club was already dissolved by virtue of a Board resolution.
Again, the argument will not carry the day for the petitioner. The Corporation Code establishes the
procedure and other formal requirements a corporation needs to follow in case it elects to dissolve
and terminate its structure voluntarily and where no rights of creditors may possibly be prejudiced,
thus:
"Sec. 118. Voluntary dissolution where no creditors are affected. - If dissolution of a
corporation does not prejudice the rights of any creditor having a claim against it, the
dissolution may be effected by majority vote of the board of directors or trustees and by a
resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds
(2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members at a meeting
to be held upon call of the directors or trustees after publication of the notice of time, place
and object of the meeting for three (3) consecutive weeks in a newspaper published in the
place where the principal office of said corporation is located; and if no newspaper is
published in such place, then in a newspaper of general circulation in the Philippines, after
sending such notice to each stockholder or member either by registered mail or by personal
delivery at least 30 days prior to said meeting. A copy of the resolution authorizing the
dissolution shall be certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation. The Securities and Exchange Commission
shall thereupon issue the certificate of dissolution."11
We note that to substantiate their claim of dissolution, petitioners submitted only two relevant
documents: the Minutes of the First Board Meeting held on January 5, 1997, and the board
resolution issued on April 14, 1997 which declared "to continue to consider the club as a nonregistered or a non-corporate entity and just a social association of respectable and respecting
individual members who have associated themselves, since the 1970's, for the purpose of playing
the sports of tennis x x x."12 Obviously, these two documents will not suffice. The requirements
mandated by the Corporation Code should have been strictly complied with by the members of the

club. The records reveal that no proof was offered by the petitioners with regard to the notice and
publication requirements. Similarly wanting is the proof of the board members' certification. Lastly,
and most important of all, the SEC Order of Dissolution was never submitted as evidence.
We now resolve whether the dispute between the respondents and petitioners is a corporate matter
within the exclusive competence of the SEC to decide. In order that the commission can take
cognizance of a case, the controversy must pertain to any of the following relationship: a) between
the corporation, partnership or association and its stockholders, partners, members, or officers; c)
between the corporation, partnership, or association and the state as far as its franchise, permit or
license to operate is concerned; and d) among the stockholders, partners or associates
themselves.13 The fact that the parties involved in the controversy are all stockholders or that the
parties involved are the stockholders and the corporation, does not necessarily place the dispute
within the loop of jurisdiction of the SEC.14 Jurisdiction should be determined by considering not only
the status or relationship of the parties but also the nature of the question that is the subject of their
controversy.15
We rule that the present dispute is intra-corporate in character. In the first place, the parties here
involved are officers and members of the club. Respondents claim to be members of good standing
of the club until they were purportedly stripped of their membership in illegal fashion. Petitioners, on
the other hand, are its President and Vice-President, respectively. More significantly, the present
conflict relates to, and in fact arose from, this relation between the parties. The subject of the
complaint, namely, the legality of the expulsion from membership of the respondents and the validity
of the amendments in the club's by-laws are, furthermore, within the Commission's jurisdiction.
Well to underscore is the date when the original complaint was filed at the SEC, which was March
26, 1997. On that date, the SEC still exercised quasi-judicial functions over this type of suits. It is
axiomatic that jurisdiction is conferred by the Constitution and by the laws in force at the time of the
commencement of the action..16 In particular, the Commission was thereupon empowered, under
Sec. 5 of P.D. 902-A, to hear and decide cases involving intra-corporate disputes, thus:
"SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of association
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
xxx
b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are the 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;
x x x."17
The enactment of R.A. 8799, otherwise known as the Securities Regulation Code, however,
transferred the jurisdiction to resolve intra-corporate controversies to courts of general jurisdiction or
the appropriate Regional Trial Courts, thus:

"5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Court of general jurisdiction
or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise
of its authority may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases
involving intra-corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction
over pending suspension of payments/ rehabilitation cases filed as of 30 June 2000 until
finally disposed."18
On August 22, 2000, we issued a resolution, in A.M. No. 00-8-10-SC, wherein we "DIRECT(ed) the
Court Administrator and the Securities and Exchange Commission to cause the actual transfer of the
records of such cases and all other SEC cases affected by R.A. No. 8799 to the appropriate
Regional trial Courts x x x."19 We also issued another resolution designating certain branches of the
Regional Trial Court to try and decide cases formerly cognizable by the SEC. 20 Consequently, the
case at bar should now be referred to the appropriate Regional Trial Court.
Before we finally write finis to the instant petition, however, we will dispose of the two other issues
raised by the petitioners.
First is the alleged failure of the respondents to implead the club as a necessary or indispensable
party. Petitioners contend that the original complaint should be dismissed for not including the club
as one of the respondents therein. Dismissal is not the remedy for non-joinder of parties. Under the
Rules, the remedy is to implead the non-party, claimed to be necessary or indispensable, in the
action, thus:
"SEC. 11. Misjoinder and non-joinder of parties. - Neither misjoinder nor non-joinder of
parties is a ground for dismissal of an action. Parties may be dropped or added by order of
the court on motion of any party or on its own initiative at any stage of the action and on such
terms as are just. Any claim against a misjoined party may be severed and proceeded with
separately."21
The other issue is with regard to the alleged oppressive subpoenas and orders issued by Hearing
Officer Soller, purportedly without or in excess of authority. In light of PD 902-A's repeal, the need to
rule on the question of the extent of the contempt powers of an SEC hearing officer relative to his
authority to issue subpoenas and orders to parties involved in intra-corporate cases, or potential
witnesses therein has been rendered academic. The enactment of RA 8799 mooted this issue as
SEC hearing officers, now bereft of any power to resolve disputes, are likewise stripped of their
power to issue subpoenas and contempt orders incidental to the exercise of their quasi-judicial
powers.
At any rate, it taxes our credulity why the petitioners insist in raising this issue in the case at bar. The
so-called oppressive subpoenas and orders were not directed to them. They were issued to the
club's secretary, Purita Escobar, directing her to appear before the Commission and bring certain
documents of the club, that were supposedly under her possession or control. It is obvious that the
petitioners are not the proper parties to assail the oppressiveness of the subpoenas or the orders,
and impugn their validity. Elementary is the principle that only those who expect to be adversely
affected by an order can complain against it. It is their addressee, Purita Escobar, who can assail
their alleged oppressiveness. Petitioners' protestation has therefore no legal leg to stand on.

IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision, the petition is
DENIED. In conformity with R.A. 8799, SEC Case No. 03-97-5598, entitled "Delfino Raniel and
Helenda Raniel v. Teodoro B. Vesagas and Wilfred D. Asis" is referred to the Regional Trial Court of
the Ninth Judicial region, Branch 3322located in Agusan del Norte (Butuan City), one of the
designated special commercial courts pursuant to A.M. No. 00-11-03-SC.
1wphi1.nt

SO ORDERED.
G.R. No. 201298

February 5, 2014

RAUL C. COSARE, Petitioner,

vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.

Mercantile Law; Corporation Law; Intra-Corporate Controversies; Jurisdiction; An

intra-corporate controversy, which falls within the jurisdiction of regular courts, has
been regarded in its broad sense to pertain to disputes that involve any of the
following relationships: (1) between the corporation, partnership or association and
the public; (2) between the corporation, partnership or association and the state in
so far as its franchise, permit or license to operate is concerned; (3) between the
corporation, partnership or association and its stockholders, partners, members or
officers; and (4) among the stockholders, partners or associates, themselves.As
regards the issue of jurisdiction, the Court has determined that contrary to the
ruling of the Court of Appeals (CA), it is the LA, and not the regular courts, which
has the original jurisdiction over the subject controversy. An intra-corporate
controversy, which falls within the jurisdiction of regular courts, has been regarded
in its broad sense to pertain to disputes that involve any of the following
relationships: (1) between the corporation, partnership or association and the
public; (2) between the corporation, partnership or association and the state in so
far as its franchise, permit or license to operate is concerned; (3) between the
corporation, partnership or association and its stockholders, partners, members or
officers; and (4) among the stockholders, partners or associates, themselves.
Labor Law; Termination of Employment; Illegal Dismissals; Labor Arbiters;
Jurisdiction; Settled jurisprudence qualifies that when the dispute involves a charge
of illegal dismissal, the action may fall under the jurisdiction of the Labor Arbiters
upon whose jurisdiction, as a rule, falls termination disputes and claims for damages
arising from employer-employee relations as provided in Article 217 of the Labor
Code.Settled jurisprudence, however, qualifies that when the dispute involves a
charge of illegal dismissal, the action may fall under the jurisdiction of the Labor
Arbiters (LAs) upon whose jurisdiction, as a rule, falls termination disputes and
claims for damages arising from employer-employee relations as provided in Article
217 of the Labor Code. Consistent with this jurisprudence, the mere fact that Cosare
was a stockholder and an officer of Broadcom at the time the subject controversy
developed failed to necessarily make the case an intra-corporate dispute.
Mercantile Law; Corporation Law; Corporate Officers; Words and Phrases; Corporate
officers in the context of Presidential Decree No. 902-A are those officers of the

corporation who are given that character by the Corporation Code or by the
corporations by-laws.Applying the foregoing to the present case, the LA had the
original jurisdiction over the complaint for illegal dismissal because Cosare,
although an officer of Broadcom for being its AVP for Sales, was not a corporate
officer as the term is defined by law. We emphasized in Real v. Sangu Philippines,
Inc., 640 SCRA 67 (2011), the definition of corporate officers for the purpose of
identifying an intra-corporate controversy. Citing Garcia v. Eastern
Telecommunications Philippines, Inc., 585 SCRA 450 (2009), we held: Corporate
officers in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the
corporations by-laws. There are three specific officers whom a corporation must
have under Section 25 of the Corporation Code. These are the president, secretary
and the treasurer. The number of officers is not limited to these three. A corporation
may have such other officers as may be provided for by its by-laws like, but not
limited to, the vice-president, cashier, auditor or general manager. The number of
corporate officers is thus limited by law and by the corporations by-laws.
Labor Law; Termination of Employment; Illegal Dismissals; Intra-Corporate Disputes;
Corporate Officers; It is only when the officer claiming to have been illegally
dismissed is classified as such corporate officer that the issue is deemed an intracorporate dispute which falls within the jurisdiction of the trial courts.As may be
deduced from the foregoing, there are two circumstances which must concur in
order for an individual to be considered a corporate officer, as against an ordinary
employee or officer, namely: (1) the creation of the position is under the
corporations charter or by-laws; and (2) the election of the officer is by the
directors or stockholders. It is only when the officer claiming to have been illegally
dismissed is classified as such corporate officer that the issue is deemed an intracorporate dispute which falls within the jurisdiction of the trial courts.
Mercantile Law; Corporation Law; Corporate Officers; Board of Directors; The board
of directors has no power to create other corporate offices without first amending
the corporate by-laws so as to include therein the newly created corporate office.
Although a blanket authority provides for the Boards appointment of such other
officers as it may deem necessary and proper, the respondents failed to sufficiently
establish that the position of AVP for Sales was created by virtue of an act of
Broadcoms board, and that Cosare was specifically elected or appointed to such
position by the directors. No board resolutions to establish such facts form part of
the case records. Further, it was held in Marc II Marketing, Inc. v. Joson, 662 SCRA 35
(2011), that an enabling clause in a corporations by-laws empowering its board of
directors to create additional officers, even with the subsequent passage of a board
resolution to that effect, cannot make such position a corporate office. The board of
directors has no power to create other corporate offices without first amending the
corporate by-laws so as to include therein the newly created corporate office. To
allow the creation of a corporate officer position by a simple inclusion in the
corporate by-laws of an enabling clause empowering the board of directors to do so
can result in the circumvention of that constitutionally well-protected right [of every
employee to security of tenure].

Labor Law; Corporation Law; Intra-Corporate Controversies; Time and again, the
Supreme Court has ruled that in determining the existence of an intra-corporate
dispute, the status or relationship of the parties and the nature of the question that
is the subject of the controversy must be taken into account.Time and again, the
Court has ruled that in determining the existence of an intra-corporate dispute, the
status or relationship of the parties and the nature of the question that is the
subject of the controversy must be taken into account. Considering that the pending
dispute particularly relates to Cosares rights and obligations as a regular officer of
Broadcom, instead of as a stockholder of the corporation, the controversy cannot be
deemed intra-corporate. This is consistent with the controversy test explained by
the Court in Reyes v. Hon. RTC, Br. 142, 561 SCRA 593 (2008), to wit: Under the
nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intracorporate. The controversy must not only be rooted in the existence of an intracorporate relationship, but must as well pertain to the enforcement of the parties
correlative rights and obligations under the Corporation Code and the internal and
intra-corporate regulatory rules of the corporation. If the relationship and its
incidents are merely incidental to the controversy or if there will still be conflict
even if the relationship does not exist, then no intra-corporate controversy exists.
Same; Termination of Employment; Constructive Dismissals; Illegal Dismissals;
Constructive dismissal occurs when there is cessation of work because continued
employment is rendered impossible, unreasonable, or unlikely as when there is a
demotion in rank or diminution in pay or when a clear discrimination, insensibility,
or disdain by an employer becomes unbearable to the employee leaving the latter
with no other option but to quit.The Court agrees with Cosares claim of
constructive and illegal dismissal. [C]onstructive dismissal occurs when there is
cessation of work because continued employment is rendered impossible,
unreasonable, or unlikely as when there is a demotion in rank or diminution in pay
or when a clear discrimination, insensibility, or disdain by an employer becomes
unbearable to the employee leaving the latter with no other option but to quit. In
Dimagan v. Dacworks United, Incorporated, 661 SCRA 438 (2011), it was explained:
The test of constructive dismissal is whether a reasonable person in the employees
position would have felt compelled to give up his position under the circumstances.
It is an act amounting to dismissal but is made to appear as if it were not.
Constructive dismissal is therefore a dismissal in disguise. The law recognizes and
resolves this situation in favor of employees in order to protect their rights and
interests from the coercive acts of the employer.
Same; Same; Abandonment; To constitute abandonment of work, two elements
must concur: (1) the employee must have failed to report for work or must have
been absent without valid or justifiable reason; and (2) there must have been a
clear intention on the part of the employee to sever the employer-employee
relationship manifested by some overt act.The charge of abandonment was
inconsistent with this imposed suspension. Abandonment is the deliberate and
unjustified refusal of an employee to resume his employment. To constitute
abandonment of work, two elements must concur: (1) the employee must have
failed to report for work or must have been absent without valid or justifiable

reason; and (2) there must have been a clear intention on the part of the employee
to sever the employer-employee relationship manifested by some overt act.
Cosares failure to report to work beginning April 1, 2009 was neither voluntary nor
indicative of an intention to sever his employment with Broadcom. It was illogical to
be requiring him to report for work, and imputing fault when he failed to do so after
he was specifically denied access to all of the companys assets.
Same; Same; Illegal Dismissals; Constructive Dismissals; An illegally or
constructively dismissed employee is entitled to: (1) either reinstatement, if viable,
or separation pay, if reinstatement is no longer viable; and (2) backwages.
Following a finding of constructive dismissal, the Court finds no cogent reason to
modify the NLRCs monetary awards in Cosares favor. In Robinsons
Galleria/Robinsons Supermarket Corporation v. Ranchez, 640 SCRA 135 (2011), the
Court reiterated that an illegally or constructively dismissed employee is entitled to:
(1) either reinstatement, if viable, or separation pay, if reinstatement is no longer
viable; and (2) backwages. The award of exemplary damages was also justified
given the NLRCs finding that the respondents acted in bad faith and in a wanton,
oppressive and malevolent manner when they dismissed Cosare. It is also by reason
of such bad faith that Arevalo was correctly declared solidarily liable for the
monetary awards. [Cosare vs. Broadcom Asia, Inc., 715 SCRA 534(2014)]
[Cosare vs. Broadcom Asia, Inc., 715 SCRA 534(2014)]
[Cosare vs. Broadcom Asia, Inc., 715 SCRA 534(2014)]

[Cosare vs. Broadcom Asia, Inc., 715 SCRA 534(2014)] REYES, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, which
assails the Decision dated November 24, 2011 and Resolution dated March 26, 2012 of the Court
of Appeals (CA) in CA-G.R. SP. No. 117356, wherein the CA ruled that the Regional Trial Court
(RTC), and not the Labor Arbiter (LA), had the jurisdiction over petitioner Raul C. Cosare's (Cosare)
complaint for illegal dismissal against Broadcom Asia, Inc. (Broadcom) and Dante Arevalo (Arevalo),
the President of Broadcom (respondents).
1

The Antecedents
The case stems from a complaint for constructive dismissal, illegal suspension and monetary claims
filed with the National Capital Region Arbitration Branch of the National Labor Relations Commission
(NLRC) by Cosare against the respondents.
4

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who was
then in the business of selling broadcast equipment needed by television networks and production
houses. In December 2000, Arevalo set up the company Broadcom, still to continue the business of
trading communication and broadcast equipment. Cosare was named an incorporator of Broadcom,
having been assigned 100 shares of stock with par value of P1.00 per share. In October 2001,
Cosare was promoted to the position of Assistant Vice President for Sales (AVP for Sales) and Head
of the Technical Coordination, having a monthly basic net salary and average commissions
of P18,000.00 and P37,000.00, respectively.
5

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcoms Vice President for Sales and
thus, became Cosares immediate superior. On March 23, 2009, Cosare sent a confidential memo to
Arevalo to inform him of the following anomalies which were allegedly being committed by Abiog
against the company: (a) he failed to report to work on time, and would immediately leave the office
on the pretext of client visits; (b) he advised the clients of Broadcom to purchase camera units from
its competitors, and received commissions therefor; (c) he shared in the "under the-table dealings"
or "confidential commissions" which Broadcom extended to its clients personnel and engineers; and
(d) he expressed his complaints and disgust over Broadcoms uncompetitive salaries and wages and
delay in the payment of other benefits, even in the presence of office staff. Cosare ended his memo
by clarifying that he was not interested in Abiogs position, but only wanted Arevalo to know of the
irregularities for the corporations sake.
7

Apparently, Arevalo failed to act on Cosares accusations. Cosare claimed that he was instead called
for a meeting by Arevalo on March 25, 2009, wherein he was asked to tender his resignation in
exchange for "financial assistance" in the amount of P300,000.00. Cosare refused to comply with
the directive, as signified in a letter dated March 26, 2009 which he sent to Arevalo.
8

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcoms Manager for
Finance and Administration, a memo signed by Arevalo, charging him of serious misconduct and
willful breach of trust, and providing in part:
10

1. A confidential memo was received from the VP for Sales informing me that you had
directed, or at the very least tried to persuade, a customer to purchase a camera from
another supplier. Clearly, this action is a gross and willful violation of the trust and confidence
this company has given to you being its AVP for Sales and is an attempt to deprive the
company of income from which you, along with the other employees of this company, derive
your salaries and other benefits. x x x.
2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in
another place outside of the office without proper turnover from you to this office which had
assigned said vehicle to you. The vehicle was found to be inoperable and in very bad
condition, which required that the vehicle be towed to a nearby auto repair shop for
extensive repairs.
3. You have repeatedly failed to submit regular sales reports informing the company of your
activities within and outside of company premises despite repeated reminders. However, it
has been observed that you have been both frequently absent and/or tardy without proper
information to this office or your direct supervisor, the VP for Sales Mr. Alex Abiog, of your
whereabouts.
4. You have been remiss in the performance of your duties as a Sales officer as evidenced
by the fact that you have not recorded any sales for the past immediate twelve (12) months.
This was inspite of the fact that my office decided to relieve you of your duties as technical
coordinator between Engineering and Sales since June last year so that you could focus and
concentrate [on] your activities in sales.
11

Cosare was given forty-eight (48) hours from the date of the memo within which to present his
explanation on the charges. He was also "suspended from having access to any and all company
files/records and use of company assets effective immediately." Thus, Cosare claimed that he was
12

precluded from reporting for work on March 31, 2009, and was instead instructed to wait at the
offices receiving section. Upon the specific instructions of Arevalo, he was also prevented by
Villareal from retrieving even his personal belongings from the office.
On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to
merely wait outside the office building for further instructions. When no such instructions were given
by 8:00 p.m., Cosare was impelled to seek the assistance of the officials of Barangay San Antonio,
Pasig City, and had the incident reported in the barangay blotter.
13

On April 2, 2009, Cosare attempted to furnish the company with a Memo by which he addressed
and denied the accusations cited in Arevalos memo dated March 30, 2009. The respondents
refused to receive the memo on the ground of late filing, prompting Cosare to serve a copy thereof
by registered mail. The following day, April 3, 2009, Cosare filed the subject labor complaint, claiming
that he was constructively dismissed from employment by the respondents. He further argued that
he was illegally suspended, as he placed no serious and imminent threat to the life or property of his
employer and co-employees.
14

15

In refuting Cosares complaint, the respondents argued that Cosare was neither illegally suspended
nor dismissed from employment. They also contended that Cosare committed the following acts
inimical to the interests of Broadcom: (a) he failed to sell any broadcast equipment since the year
2007; (b) he attempted to sell a Panasonic HMC 150 Camera which was to be sourced from a
competitor; and (c) he made an unauthorized request in Broadcoms name for its principal,
Panasonic USA, to issue an invitation for Cosares friend, one Alex Paredes, to attend the National
Association of Broadcasters Conference in Las Vegas, USA. Furthermore, they contended that
Cosare abandoned his job by continually failing to report for work beginning April 1, 2009,
prompting them to issue on April 14, 2009 a memorandum accusing Cosare of absence without
leave beginning April 1, 2009.
16

17

18

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision dismissing the
complaint on the ground of Cosares failure to establish that he was dismissed, constructively or
otherwise, from his employment. For the LA, what transpired on March 30, 2009 was merely the
respondents issuance to Cosare of a show-cause memo, giving him a chance to present his side on
the charges against him. He explained:
19

It is obvious that [Cosare] DID NOT wait for respondents action regarding the charges leveled
against him in the show-cause memo. What he did was to pre-empt that action by filing this
complaint just a day after he submitted his written explanation. Moreover, by specifically seeking
payment of "Separation Pay" instead of reinstatement, [Cosares] motive for filing this case becomes
more evident.
20

It was also held that Cosare failed to substantiate by documentary evidence his allegations of illegal
suspension and non-payment of allowances and commissions.
Unyielding, Cosare appealed the LA decision to the NLRC.
The Ruling of the NLRC

On August 24, 2010, the NLRC rendered its Decision reversing the Decision of LA Menese. The
dispositive portion of the NLRC Decision reads:
21

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are found
guilty of Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and Dante Arevalo
are ordered to pay [Cosares] backwages, and separation pay, as well as damages, in the total
amount of P1,915,458.33, per attached Computation.
SO ORDERED.

22

In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to
[Cosares] contention that he was constructively dismissed by Respondent Arevalo when he was
asked to resign from his employment." The fact that Cosare was suspended from using the assets
of Broadcom was also inconsistent with the respondents claim that Cosare opted to abandon his
employment.
23

Exemplary damages in the amount of P100,000.00 was awarded, given the NLRCs finding that the
termination of Cosares employment was effected by the respondents in bad faith and in a wanton,
oppressive and malevolent manner. The claim for unpaid commissions was denied on the ground of
the failure to include it in the prayer of pleadings filed with the LA and in the appeal.
The respondents motion for reconsideration was denied. Dissatisfied, they filed a petition for
certiorari with the CA founded on the following arguments: (1) the respondents did not have to prove
just cause for terminating the employment of Cosare because the latters complaint was based on an
alleged constructive dismissal; (2) Cosare resigned and was thus not dismissed from employment;
(3) the respondents should not be declared liable for the payment of Cosares monetary claims; and
(4) Arevalo should not be held solidarily liable for the judgment award.
24

In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a new
argument, i.e., the case involved an intra-corporate controversy which was within the jurisdiction of
the RTC, instead of the LA. They argued that the case involved a complaint against a corporation
filed by a stockholder, who, at the same time, was a corporate officer.
25

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision granting the respondents petition. It
agreed with the respondents contention that the case involved an intra-corporate controversy which,
pursuant to Presidential Decree No. 902-A, as amended, was within the exclusive jurisdiction of the
RTC. It reasoned:
26

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as one
of its directors. Moreover, he held the position of [AVP] for Sales which is listed as a corporate office.
Generally, the president, vice-president, secretary or treasurer are commonly regarded as the
principal or executive officers of a corporation, and modern corporation statutes usually designate
them as the officers of the corporation. However, it bears mentioning that under Section 25 of the
Corporation Code, the Board of Directors of [Broadcom] is allowed to appoint such other officers as it
may deem necessary. Indeed, [Broadcoms] By-Laws provides:

Article IV
Officer
Section 1. Election / Appointment Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at
said meeting.
The Board, may, from time to time, appoint such other officers as it may determine to be necessary
or proper. x x x
We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed held
a corporate office, as evidenced by the General Information Sheet which was submitted to the
Securities and Exchange Commission (SEC) on October 22, 2009. (Citations omitted and emphasis
supplied)
27

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing
the labor complaint on the ground of lack of jurisdiction, finding it unnecessary to resolve the main
issues that were raised in the petition. Cosare filed a motion for reconsideration, but this was denied
by the CA via the Resolution dated March 26, 2012. Hence, this petition.
28

The Present Petition

The pivotal issues for the petitions full resolution are as follows: (1) whether or not the case
instituted by Cosare was an intra-corporate dispute that was within the original jurisdiction of the
RTC, and not of the LAs; and (2) whether or not Cosare was constructively and illegally dismissed
from employment by the respondents.
The Courts Ruling
The petition is impressed with merit.
Jurisdiction over the controversy
As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the CA, it
is the LA, and not the regular courts, which has the original jurisdiction over the subject controversy.
An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been regarded
in its broad sense to pertain to disputes that involve any of the following relationships: (1) between
the corporation, partnership or association and the public; (2) between the corporation, partnership
or association and the state in so far as its franchise, permit or license to operate is concerned; (3)
between the corporation, partnership or association and its stockholders, partners, members or
officers; and (4) among the stockholders, partners or associates, themselves. Settled jurisprudence,
however, qualifies that when the dispute involves a charge of illegal dismissal, the action may fall
under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination disputes and
claims for damages arising from employer-employee relations as provided in Article 217 of the Labor
Code. Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an officer
of Broadcom at the time the subject controversy developed failed to necessarily make the case an
intra-corporate dispute.
29

In Matling Industrial and Commercial Corporation v. Coros, the Court distinguished between a
"regular employee" and a "corporate officer" for purposes of establishing the true nature of a dispute
or complaint for illegal dismissal and determining which body has jurisdiction over it. Succinctly, it
was explained that "[t]he determination of whether the dismissed officer was a regular employee or
corporate officer unravels the conundrum" of whether a complaint for illegal dismissal is cognizable
by the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the
RTC exercises the legal authority to adjudicate.
30

31

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was
not a "corporate officer" as the term is defined by law. We emphasized in Real v. Sangu Philippines,
Inc. the definition of corporate officers for the purpose of identifying an intra-corporate controversy.
Citing Garcia v. Eastern Telecommunications Philippines, Inc., we held:
32

33

" Corporate officers in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporations by-laws.
There are three specific officers whom a corporation must have under Section 25 of the Corporation
Code. These are the president, secretary and the treasurer. The number of officers is not limited to
these three. A corporation may have such other officers as may be provided for by its by-laws like,
but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporations by-laws." (Emphasis ours)
34

In Tabang v. NLRC, the Court also made the following pronouncement on the nature of corporate
offices:
35

It has been held that an "office" is created by the charter of the corporation and the officer is elected
by the directors and stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to such employee. (Citations
omitted)
36

As may be deduced from the foregoing, there are two circumstances which must concur in order for
an individual to be considered a corporate officer, as against an ordinary employee or officer,
namely: (1) the creation of the position is under the corporations charter or by-laws; and (2) the
election of the officer is by the directors or stockholders. It is only when the officer claiming to have
been illegally dismissed is classified as such corporate officer that the issue is deemed an intracorporate dispute which falls within the jurisdiction of the trial courts.
To support their argument that Cosare was a corporate officer, the respondents referred to Section 1,
Article IV of Broadcoms by-laws, which reads:
ARTICLE IV
OFFICER
Section 1. Election / Appointment Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at
said meeting.

The Board may, from time to time, appoint such other officers as it may determine to be necessary or
proper. Any two (2) or more compatible positions may be held concurrently by the same person,
except that no one shall act as President and Treasurer or Secretary at the same time. (Emphasis
ours)
37

This was also the CAs main basis in ruling that the matter was an intra-corporate dispute that was
within the trial courts jurisdiction.
The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted
provision, the only officers who are specifically listed, and thus with offices that are created under
Broadcoms by-laws are the following: the President, Vice-President, Treasurer and Secretary.
Although a blanket authority provides for the Boards appointment of such other officers as it may
deem necessary and proper, the respondents failed to sufficiently establish that the position of AVP
for Sales was created by virtue of an act of Broadcoms board, and that Cosare was specifically
elected or appointed to such position by the directors. No board resolutions to establish such facts
form part of the case records. Further, it was held in Marc II Marketing, Inc. v. Joson that an
enabling clause in a corporations by-laws empowering its board of directors to create additional
officers, even with the subsequent passage of a board resolution to that effect, cannot make such
position a corporate office. The board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created corporate
office. "To allow the creation of a corporate officer position by a simple inclusion in the corporate bylaws of an enabling clause empowering the board of directors to do so can result in the
circumvention of that constitutionally well-protected right [of every employee to security of tenure]."
38

39

40

The CAs heavy reliance on the contents of the General Information Sheets , which were submitted
by the respondents during the appeal proceedings and which plainly provided that Cosare was an
"officer" of Broadcom, was clearly misplaced. The said documents could neither govern nor establish
the nature of the office held by Cosare and his appointment thereto. Furthermore, although Cosare
could indeed be classified as an officer as provided in the General Information Sheets, his position
could only be deemed a regular office, and not a corporate office as it is defined under the
Corporation Code. Incidentally, the Court noticed that although the Corporate Secretary of
Broadcom, Atty. Efren L. Cordero, declared under oath the truth of the matters set forth in the
General Information Sheets, the respondents failed to explain why the General Information Sheet
officially filed with the Securities and Exchange Commission in 2011 and submitted to the CA by the
respondents still indicated Cosare as an AVP for Sales, when among their defenses in the charge of
illegal dismissal, they asserted that Cosare had severed his relationship with the corporation since
the year 2009.
41

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the cases filing did
not necessarily make the action an intra- corporate controversy. "Not all conflicts between the
stockholders and the corporation are classified as intra-corporate. There are other facts to consider
in determining whether the dispute involves corporate matters as to consider them as intra-corporate
controversies." Time and again, the Court has ruled that in determining the existence of an intracorporate dispute, the status or relationship of the parties and the nature of the question that is the
subject of the controversy must be taken into account. Considering that the pending dispute
particularly relates to Cosares rights and obligations as a regular officer of Broadcom, instead of as
a stockholder of the corporation, the controversy cannot be deemed intra-corporate. This is
consistent with the "controversy test" explained by the Court in Reyes v. Hon. RTC, Br. 142, to wit:
42

43

44

Under the nature of the controversy test, the incidents of that relationship must also be considered
for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy
must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to
the enforcement of the parties correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents
are merely incidental to the controversy or if there will still be conflict even if the relationship does not
exist, then no intra-corporate controversy exists. (Citation omitted)
45

It bears mentioning that even the CAs finding that Cosare was a director of Broadcom when the
dispute commenced was unsupported by the case records, as even the General Information Sheet
of 2009 referred to in the CA decision to support such finding failed to provide such detail.
46

All told, it is then evident that the CA erred in reversing the NLRCs ruling that favored Cosare solely
on the ground that the dispute was an intra-corporate controversy within the jurisdiction of the
regular courts.
The charge of constructive dismissal
Towards a full resolution of the instant case, the Court finds it appropriate to rule on the correctness
of the NLRCs ruling finding Cosare to have been illegally dismissed from employment.
In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing among
other circumstances the charges that were hurled and the suspension that was imposed against him
via Arevalos memo dated March 30, 2009. Even prior to such charge, he claimed to have been
subjected to mental torture, having been locked out of his files and records and disallowed use of his
office computer and access to personal belongings. While Cosare attempted to furnish the
respondents with his reply to the charges, the latter refused to accept the same on the ground that it
was filed beyond the 48-hour period which they provided in the memo.
47

Cosare further referred to the circumstances that allegedly transpired subsequent to the service of
the memo, particularly the continued refusal of the respondents to allow Cosares entry into the
companys premises. These incidents were cited in the CA decision as follows:
On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve his
personal belongings, but the latter said that x x x Arevalo directed her to deny his request, so
[Cosare] again waited at the receiving section of the office. On April 1, 2009, [Cosare] was not
allowed to enter the office premises. He was asked to just wait outside of the Tektite (PSE) Towers,
where [Broadcom] had its offices, for further instructions on how and when he could get his personal
belongings. [Cosare] waited until 8 p.m. for instructions but none were given. Thus, [Cosare] sought
the assistance of the officials of Barangay San Antonio, Pasig who advised him to file a labor or
replevin case to recover his personal belongings. x x x. (Citation omitted)
48

It is also worth mentioning that a few days before the issuance of the memo dated March 30, 2009,
Cosare was allegedly summoned to Arevalos office and was asked to tender his immediate
resignation from the company, in exchange for a financial assistance of P300,000.00. The directive
was said to be founded on Arevalos choice to retain Abiogs employment with the company. The
respondents failed to refute these claims.
49

50

Given the circumstances, the Court agrees with Cosares claim of constructive and illegal dismissal.
"[C]onstructive dismissal occurs when there is cessation of work because continued employment is
rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in
pay or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to
the employee leaving the latter with no other option but to quit." In Dimagan v. Dacworks United,
Incorporated, it was explained:
51

52

The test of constructive dismissal is whether a reasonable person in the employees position would
have felt compelled to give up his position under the circumstances. It is an act amounting to
dismissal but is made to appear as if it were not. Constructive dismissal is therefore a dismissal in
disguise. The law recognizes and resolves this situation in favor of employees in order to protect
their rights and interests from the coercive acts of the employer. (Citation omitted)
53

It is clear from the cited circumstances that the respondents already rejected Cosares continued
involvement with the company. Even their refusal to accept the explanation which Cosare tried to
tender on April 2, 2009 further evidenced the resolve to deny Cosare of the opportunity to be heard
prior to any decision on the termination of his employment. The respondents allegedly refused
acceptance of the explanation as it was filed beyond the mere 48-hour period which they granted to
Cosare under the memo dated March 30, 2009. However, even this limitation was a flaw in the
memo or notice to explain which only further signified the respondents discrimination, disdain and
insensibility towards Cosare, apparently resorted to by the respondents in order to deny their
employee of the opportunity to fully explain his defenses and ultimately, retain his employment. The
Court emphasized in King of Kings Transport, Inc. v. Mamac the standards to be observed by
employers in complying with the service of notices prior to termination:
54

[T]he first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the opportunity to
submit their written explanation within a reasonable period. "Reasonable opportunity" under the
Omnibus Rules means every kind of assistance that management must accord to the employees to
enable them to prepare adequately for their defense. This should be construed as a period of at
least five (5) calendar days from receipt of the notice to give the employees an opportunity to study
the accusation against them, consult a union official or lawyer, gather data and evidence, and decide
on the defenses they will raise against the complaint. Moreover, in order to enable the employees to
intelligently prepare their explanation and defenses, the notice should contain a detailed narration of
the facts and circumstances that will serve as basis for the charge against the employees. A general
description of the charge will not suffice. Lastly, the notice should specifically mention which
company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged
against the employees. (Citation omitted, underscoring ours, and emphasis supplied)
55

In sum, the respondents were already resolute on a severance of their working relationship with
Cosare, notwithstanding the facts which could have been established by his explanations and the
respondents full investigation on the matter. In addition to this, the fact that no further investigation
and final disposition appeared to have been made by the respondents on Cosares case only
negated the claim that they actually intended to first look into the matter before making a final
determination as to the guilt or innocence of their employee. This also manifested from the fact that
even before Cosare was required to present his side on the charges of serious misconduct and
willful breach of trust, he was summoned to Arevalos office and was asked to tender his immediate
resignation in exchange for financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their persistent
accusation that Cosare abandoned his post, allegedly signified by his failure to report to work or file
a leave of absence beginning April 1, 2009. This was even the subject of a memo issued by Arevalo
to Cosare on April 14, 2009, asking him to explain his absence within 48 hours from the date of the
memo. As the records clearly indicated, however, Arevalo placed Cosare under suspension
beginning March 30, 2009. The suspension covered access to any and all company files/records
and the use of the assets of the company, with warning that his failure to comply with the memo
would be dealt with drastic management action. The charge of abandonment was inconsistent with
this imposed suspension. "Abandonment is the deliberate and unjustified refusal of an employee to
resume his employment. To constitute abandonment of work, two elements must concur: (1) the
employee must have failed to report for work or must have been absent without valid or justifiable
reason; and (2) there must have been a clear intention on the part of the employee to sever the
employer- employee relationship manifested by some overt act." Cosares failure to report to work
beginning April 1, 2009 was neither voluntary nor indicative of an intention to sever his employment
with Broadcom. It was illogical to be requiring him to report for work, and imputing fault when he
failed to do so after he was specifically denied access to all of the companys assets. As correctly
observed by the NLRC:
56

57

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1,
2009. However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended
[Cosare] from using not only the equipment but the "assets" of Respondent [Broadcom]. This insults
rational thinking because the Respondents tried to mislead us and make [it appear] that [Cosare]
failed to report for work when they had in fact had [sic] placed him on suspension. x x x.
58

Following a finding of constructive dismissal, the Court finds no cogent reason to modify the NLRC's
monetary awards in Cosare's favor. In Robinsons Galleria/Robinsons Supermarket Corporation v.
Ranchez, the Court reiterated that an illegally or constructively dismissed employee is entitled to:
(1) either reinstatement, if viable, or separation pay, if reinstatement is no longer viable; and (2)
backwages. The award of exemplary damages was also justified given the NLRC's finding that the
respondents acted in bad faith and in a wanton, oppressive and malevolent manner when they
dismissed Cosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily
liable for the monetary awards.
59

60

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution
dated March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The
Decision dated August 24, 2010 of the National Labor Relations Commission in favor of petitioner
Raul C. Cosare is AFFIRMED.
SO ORDERED.
G.R. No. 181416

November 11, 2013

MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,

vs.
ROBERT H. CULLEN, Respondent.

Remedial Law; Civil Procedure; Jurisdiction; It is a settled rule that jurisdiction over
the subject matter is determined by the allegations in the complaint. It is not
affected by the pleas or the theories set up by the defendant in an answer or a

motion to dismiss.It is a settled rule that jurisdiction over the subject matter is
determined by the allegations in the complaint. It is not affected by the pleas or the
theories set up by the defendant in an answer or a motion to dismiss. Otherwise,
jurisdiction would become dependent almost entirely upon the whims of the
defendant. Also illuminating is the Courts pronouncement in Go v. Distinction
Properties Development and Construction, Inc., 671 SCRA 461 (2012): Basic as a
hornbook principle is that jurisdiction over the subject matter of a case is conferred
by law and determined by the allegations in the complaint which comprise a concise
statement of the ultimate facts constituting the plaintiffs cause of action. The
nature of an action, as well as which court or body has jurisdiction over it, is
determined based on the allegations contained in the complaint of the plaintiff,
irrespective of whether or not the plaintiff is entitled to recover upon all or some of
the claims asserted therein. The averments in the complaint and the character of
the relief sought are the ones to be consulted. Once vested by the allegations in the
complaint, jurisdiction also remains vested irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted therein.
Corporation Law; Intra-Corporate Controversy; In determining whether a dispute
constitutes an intra-corporate controversy, the Court uses two tests, namely, the
relationship test and the nature of the controversy test.In determining whether a
dispute constitutes an intra-corporate controversy, the Court uses two tests,
namely, the relationship test and the nature of the controversy test. An intracorporate controversy is one which pertains to any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the State insofar as its franchise, permit
or license to operate is concerned; (3) between the corporation, partnership or
association and its stockholders, partners, members or officers; and (4) among the
stockholders, partners or associates themselves. Thus, under the relationship test,
the existence of any of the above intra-corporate relations makes the case intracorporate. Under the nature of the controversy test, the controversy must not only
be rooted in the existence of an intra-corporate relationship, but must as well
pertain to the enforcement of the parties correlative rights and obligations under
the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation. In other words, jurisdiction should be determined by considering both
the relationship of the parties as well as the nature of the question involved.
Actions; The nature of the action is determined by the body rather than the title of
the complaint.The nature of the action is determined by the body rather than the
title of the complaint. Though denominated as an action for damages, an
examination of the allegations made by respondent in his complaint shows that the
case principally dwells on the propriety of the assessment made by petitioner
against respondent as well as the validity of petitioners act in preventing
respondent from participating in the election of the corporations Board of Directors.
Respondent contested the alleged unpaid dues and assessments demanded by
petitioner. [Medical Plaza Makati Condominium Corporation vs. Cullen, 709 SCRA
110(2013)]

Remedial Law; Courts; Special Commercial Courts; Jurisdiction; Pursuant to Section

5.2 of Republic Act No. 8799, otherwise known as the Securities Regulation Code,
the jurisdiction of the Securities and Exchange Commission (SEC) over all cases
enumerated under Section 5 of Presidential Decree No. 902-A has been transferred
to Regional Trial Courts (RTCs) designated by this Court as Special Commercial
Courts.To be sure, this action partakes of the nature of an intra-corporate
controversy, the jurisdiction over which pertains to the SEC. Pursuant to Section 5.2
of Republic Act No. 8799, otherwise known as the Securities Regulation Code, the
jurisdiction of the SEC over all cases enumerated under Section 5 of Presidential
Decree No. 902-A has been transferred to RTCs designated by this Court as Special
Commercial Courts. While the CA may be correct that the RTC has jurisdiction, the
case should have been filed not with the regular court but with the branch of the
RTC designated as a special commercial court. Considering that the RTC of Makati
City, Branch 58 was not designated as a special commercial court, it was not vested
with jurisdiction over cases previously cognizable by the SEC. The CA, therefore,
gravely erred in remanding the case to the RTC for further proceedings.
Condominiums; Housing and Land Use Regulatory Board (HLURB); Republic Act No.
9904, or the Magna Carta for Homeowners and Homeowners Associations,
approved on January 7, 2010 and became effective on July 10, 2010, empowers the
Housing and Land Use Regulatory Board (HLURB) to hear and decide interassociation and/or intra-association controversies or conflicts concerning
homeowners associations. However, we cannot apply the same in the present case
as it involves a controversy between a condominium unit owner and a condominium
corporation.Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and
Homeowners Associations, approved on January 7, 2010 and became effective on
July 10, 2010, empowers the HLURB to hear and decide inter-association and/or
intra-association controversies or conflicts concerning homeowners associations.
However, we cannot apply the same in the present case as it involves a controversy
between a condominium unit owner and a condominium corporation. While the term
association as defined in the law covers homeowners associations of other
residential real property which is broad enough to cover a condominium
corporation, it does not seem to be the legislative intent. A thorough review of the
deliberations of the bicameral conference commit tee would show that the
lawmakers did not intend to extend the coverage of the law to such kind of
association.
Same; Condominium Act (R.A. No. 4726); The rights and obligations of the
condominium unit owners and the condominium corporation are set forth in the
Condominium Act.To be sure, RA 4726 or the Condominium Act was enacted to
specifically govern a condominium. Said law sanctions the creation of the
condominium corporation which is especially formed for the purpose of holding title
to the common area, in which the holders of separate interests shall automatically
be members or shareholders, to the exclusion of others, in proportion to the
appurtenant interest of their respective units. The rights and obligations of the
condominium unit owners and the condominium corporation are set forth in the
above Act.

[Medical Plaza Makati Condominium Corporation vs. Cullen, 709 SCRA 110(2013)]

PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of
Appeals (CA) Decision dated July 10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV
No. 86614. The assailed decision reversed and set aside the September 9, 2005 Order of the
Regional Trial Court (RTC) of Makati, Branch 58 in Civil Case No. 03-1018; while the assailed
resolution denied the separate motions for reconsideration filed by petitioner Medical Plaza Makati
Condominium Corporation (MPMCC) and Meridien Land Holding, Inc. (MLHI).
1

The factual and procedural antecedents are as follows:

Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of the Medical
Plaza Makati covered by Condominium Certificate of Title No. 45808 of the Register of Deeds of
Makati. Said title was later cancelled and Condominium Certificate of Title No. 64218 was issued in
the name of respondent.
On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni E. Dimayuga,
demanded from respondent payment for alleged unpaid association dues and assessments
amounting to P145,567.42. Respondent disputed this demand claiming that he had been religiously
paying his dues shown by the fact that he was previously elected president and director of
petitioner. Petitioner, on the other hand, claimed that respondents obligation was a carry-over of
that of MLHI. Consequently, respondent was prevented from exercising his right to vote and be
voted for during the 2002 election of petitioners Board of Directors. Respondent thus clarified from
MLHI the veracity of petitioners claim, but MLHI allegedly claimed that the same had already been
settled. This prompted respondent to demand from petitioner an explanation why he was considered
a delinquent payer despite the settlement of the obligation. Petitioner failed to make such
explanation. Hence, the Complaint for Damages filed by respondent against petitioner and MLHI,
the pertinent portions of which read:
4

xxxx
6. Thereafter, plaintiff occupied the said condominium unit no. 1201 and religiously paid all
the corresponding monthly contributions/association dues and other assessments imposed
on the same. For the years 2000 and 2001, plaintiff served as President and Director of the
Medical Plaza Makati Condominium Corporation;
7. Nonetheless, on September 19, 2002, plaintiff was shocked/surprised to receive a letter
from the incumbent Corporate Secretary of the defendant Medical Plaza Makati, demanding
payment of alleged unpaid association dues and assessments arising from plaintiffs
condominium unit no. 1201. The said letter further stressed that plaintiff is considered a
delinquent member of the defendant Medical Plaza Makati.
x x x;

8. As a consequence, plaintiff was not allowed to file his certificate of candidacy as director.
Being considered a delinquent, plaintiff was also barred from exercising his right to vote in
the election of new members of the Board of Directors x x x;
9. x x x Again, prior to the said election date, x x x counsel for the defendant [MPMCC] sent a
demand letter to plaintiff, anent the said delinquency, explaining that the said unpaid amount
is a carry-over from the obligation of defendant Meridien. x x x;
10. Verification with the defendant [MPMCC] resulted to the issuance of a certification stating
that Condominium Unit 1201 has an outstanding unpaid obligation in the total amount
of P145,567.42 as of November 30, 2002, which again, was attributed by defendant
[MPMCC] to defendant Meridien. x x x;
11. Due to the seriousness of the matter, and the feeling that defendant Meridien made false
representations considering that it fully warranted to plaintiff that condominium unit 1201 is
free and clear from all liens and encumbrances, the matter was referred to counsel, who
accordingly sent a letter to defendant Meridien, to demand for the payment of said unpaid
association dues and other assessments imposed on the condominium unit and being
claimed by defendant [MPMCC]. x x x;
12. x x x defendant Meridien claimed however, that the obligation does not exist considering
that the matter was already settled and paid by defendant Meridien to defendant [MPMCC]. x
x x;
13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x x x. The said letter x x x
sought an explanation on the fact that, as per the letter of defendant Meridien, the
delinquency of unit 1201 was already fully paid and settled, contrary to the claim of
defendant [MPMCC]. x x x;
14. Despite receipt of said letter on April 24, 2003, and to date however, no explanation was
given by defendant [MPMCC], to the damage and prejudice of plaintiff who is again obviously
being barred from voting/participating in the election of members of the board of directors for
the year 2003;
15. Clearly, defendant [MPMCC] acted maliciously by insisting that plaintiff is a delinquent
member when in fact, defendant Meridien had already paid the said delinquency, if any. The
branding of plaintiff as delinquent member was willfully and deceitfully employed so as to
prevent plaintiff from exercising his right to vote or be voted as director of the condominium
corporation; 16. Defendant [MPMCC]s ominous silence when confronted with claim of
payment made by defendant Meridien is tantamount to admission that indeed, plaintiff is not
really a delinquent member;
17. Accordingly, as a direct and proximate result of the said acts of defendant [MPMCC],
plaintiff experienced/suffered from mental anguish, moral shock, and serious anxiety.
Plaintiff, being a doctor of medicine and respected in the community further suffered from
social humiliation and besmirched reputation thereby warranting the grant of moral damages
in the amount of P500,000.00 and for which defendant [MPMCC] should be held liable;

18. By way of example or correction for the public good, and as a stern warning to all
similarly situated, defendant [MPMCC] should be ordered to pay plaintiff exemplary damages
in the amount of P200,000.00;
19. As a consequence, and so as to protect his rights and interests, plaintiff was constrained
to hire the services of counsel, for an acceptance fee of P100,000.00 plus P2,500.00 per
every court hearing attended by counsel;
20. In the event that the claim of defendant [MPMCC] turned out to be true, however, the
herein defendant Meridien should be held liable instead, by ordering the same to pay the
said delinquency of condominium unit 1201 in the amount of P145,567.42 as of November
30, 2002 as well as the above damages, considering that the non-payment thereof would be
the proximate cause of the damages suffered by plaintiff;
9

Petitioner and MLHI filed their separate motions to dismiss the complaint on the ground of lack of
jurisdiction. MLHI claims that it is the Housing and Land Use Regulatory Board (HLURB) which is
vested with the exclusive jurisdiction to hear and decide the case. Petitioner, on the other hand,
raises the following specific grounds for the dismissal of the complaint: (1) estoppel as respondent
himself approved the assessment when he was the president; (2) lack of jurisdiction as the case
involves an intra-corporate controversy; (3) prematurity for failure of respondent to exhaust all intracorporate remedies; and (4) the case is already moot and academic, the obligation having been
settled between petitioner and MLHI.
10

11

On September 9, 2005, the RTC rendered a Decision granting petitioners and MLHIs motions to
dismiss and, consequently, dismissing respondents complaint.
The trial court agreed with MLHI that the action for specific performance filed by respondent clearly
falls within the exclusive jurisdiction of the HLURB. As to petitioner, the court held that the complaint
states no cause of action, considering that respondents obligation had already been settled by
MLHI. It, likewise, ruled that the issues raised are intra-corporate between the corporation and
member.
12

13

On appeal, the CA reversed and set aside the trial courts decision and remanded the case to the
RTC for further proceedings. Contrary to the RTC conclusion, the CA held that the controversy is an
ordinary civil action for damages which falls within the jurisdiction of regular courts. It explained that
the case hinged on petitioners refusal to confirm MLHIs claim that the subject obligation had
already been settled as early as 1998 causing damage to respondent. Petitioners and MLHIs
motions for reconsideration had also been denied.
14

15

16

Aggrieved, petitioner comes before the Court based on the following grounds:
I.
THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT THERETOFORE
DETERMINED BY THE SUPREME COURT, OR HAS DECIDED IT IN A WAY NOT IN ACCORD
WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
DECLARED THE INSTANT CASE AN ORDINARY ACTION FOR DAMAGES INSTEAD OF AN
INTRA-CORPORATE CONTROVERSY COGNIZABLE BY A SPECIAL COMMERCIAL COURT.

II.
THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT IN ACCORD WITH LAW
OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT TOOK
COGNIZANCE OF THE APPEAL WHILE RAISING ONLY PURE QUESTIONS OF LAW.
17

The petition is meritorious.

It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the
complaint. It is not affected by the pleas or the theories set up by the defendant in an answer or a
motion to dismiss. Otherwise, jurisdiction would become dependent almost entirely upon the whims
of the defendant. Also illuminating is the Courts pronouncement in Go v. Distinction Properties
Development and Construction, Inc.:
18

19

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law
and determined by the allegations in the complaint which comprise a concise statement of the
ultimate facts constituting the plaintiffs cause of action. The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein. The averments in the complaint and the character of the relief
sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction
also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some
of the claims asserted therein. x x x
20

Based on the allegations made by respondent in his complaint, does the controversy involve intracorporate issues as would fall within the jurisdiction of the RTC sitting as a special commercial court
or an ordinary action for damages within the jurisdiction of regular courts?
In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two
tests, namely, the relationship test and the nature of the controversy test.
21

An intra-corporate controversy is one which pertains to any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the State insofar as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves. Thus,
under the relationship test, the existence of any of the above intra-corporate relations makes the
case intra-corporate.
22

23

Under the nature of the controversy test, "the controversy must not only be rooted in the existence of
an intra-corporate relationship, but must as well pertain to the enforcement of the parties correlative
rights and obligations under the Corporation Code and the internal and intra-corporate regulatory
rules of the corporation." In other words, jurisdiction should be determined by considering both the
relationship of the parties as well as the nature of the question involved.
24

25

Applying the two tests, we find and so hold that the case involves intra-corporate controversy. It
obviously arose from the intra-corporate relations between the parties, and the questions involved
pertain to their rights and obligations under the Corporation Code and matters relating to the
regulation of the corporation.
26

Admittedly, petitioner is a condominium corporation duly organized and existing under Philippine
laws, charged with the management of the Medical Plaza Makati. Respondent, on the other hand, is
the registered owner of Unit No. 1201 and is thus a stockholder/member of the condominium
corporation. Clearly, there is an intra-corporate relationship between the corporation and a
stockholder/member.
The nature of the action is determined by the body rather than the title of the complaint. Though
denominated as an action for damages, an examination of the allegations made by respondent in his
complaint shows that the case principally dwells on the propriety of the assessment made by
petitioner against respondent as well as the validity of petitioners act in preventing respondent from
participating in the election of the corporations Board of Directors. Respondent contested the
alleged unpaid dues and assessments demanded by petitioner.
1wphi1

The issue is not novel. The nature of an action involving any dispute as to the validity of the
assessment of association dues has been settled by the Court in Chateau de Baie Condominium
Corporation v. Moreno. In that case, respondents therein filed a complaint for intra-corporate
dispute against the petitioner therein to question how it calculated the dues assessed against them,
and to ask an accounting of association dues. Petitioner, however, moved for the dismissal of the
case on the ground of lack of jurisdiction alleging that since the complaint was against the
owner/developer of a condominium whose condominium project was registered with and licensed by
the HLURB, the latter has the exclusive jurisdiction. In sustaining the denial of the motion to dismiss,
the Court held that the dispute as to the validity of the assessments is purely an intra-corporate
matter between petitioner and respondent and is thus within the exclusive jurisdiction of the RTC
sitting as a special commercial court. More so in this case as respondent repeatedly questioned his
characterization as a delinquent member and, consequently, petitioners decision to bar him from
exercising his rights to vote and be voted for. These issues are clearly corporate and the demand for
damages is just incidental. Being corporate in nature, the issues should be threshed out before the
RTC sitting as a special commercial court. The issues on damages can still be resolved in the same
special commercial court just like a regular RTC which is still competent to tackle civil law issues
incidental to intra-corporate disputes filed before it.
27

28

Moreover, Presidential Decree No. 902-A enumerates the cases over which the Securities and
Exchange Commission (SEC) exercises exclusive jurisdiction:
xxxx
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity; and
c) Controversies in the election or appointment of directors, trustees, officers, or managers of
such corporations, partnerships, or associations.
29

To be sure, this action partakes of the nature of an intra-corporate controversy, the jurisdiction over
which pertains to the SEC. Pursuant to Section 5.2 of Republic Act No. 8799, otherwise known as
the Securities Regulation Code, the jurisdiction of the SEC over all cases enumerated under Section
5 of Presidential Decree No. 902-A has been transferred to RTCs designated by this Court as

Special Commercial Courts. While the CA may be correct that the RTC has jurisdiction, the case
should have been filed not with the regular court but with the branch of the RTC designated as a
special commercial court. Considering that the RTC of Makati City, Branch 58 was not designated as
a special commercial court, it was not vested with jurisdiction over cases previously cognizable by
the SEC. The CA, therefore, gravely erred in remanding the case to the RTC for further
proceedings.
30

31

Indeed, Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and Homeowners
Associations, approved on January 7, 2010 and became effective on July 10, 2010, empowers the
HLURB to hear and decide inter-association and/or intra-association controversies or conflicts
concerning homeowners associations. However, we cannot apply the same in the present case as it
involves a controversy between a condominium unit owner and a condominium corporation. While
the term association as defined in the law covers homeowners associations of other residential real
property which is broad enough to cover a condominium corporation, it does not seem to be the
legislative intent. A thorough review of the deliberations of the bicameral conference committee
would show that the lawmakers did not intend to extend the coverage of the law to such kind of
association. We quote hereunder the pertinent portion of the Bicameral Conference Committees
deliberation, to wit:
THE CHAIRMAN (SEN. ZUBIRI). Lets go back, Mr. Chair, very quickly on homeowners.
THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think our views are similar, Your
Honor, Senator Zubiri, the entry of the condominium units might just complicate the whole matters.
So wed like to put it on record that were very much concerned about the plight of the Condominium
Unit Homeowners Association. But this could very well be addressed on a separate bill that Im
willing to co-sponsor with the distinguished Senator Zubiri, to address in the Condominium Act of the
Philippines, rather than address it here because it might just create a red herring into the entire thing
and it will just complicate matters, hindi ba?
THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I sympathize with them---although
we sympathize with them and we feel that many times their rights have been also violated by
abusive condominium corporations. However, there are certain things that we have to reconcile.
There are certain issues that we have to reconcile with this version.
In the Condominium Code, for example, they just raised a very peculiar situation under the
Condominium Code --- Condominium Corporation Act. Its five years the proxy, whereas here, its
three years. So there would already be violation or there will be already a problem with their version
and our version. Sino ang matutupad doon? Will it be our version or their version?
So I agree that has to be studied further. And because they have a law pertaining to the
condominium housing units, I personally feel that it would complicate matters if we include them.
Although I agree that they should be looked after and their problems be looked into.
Probably we can ask our staff, Your Honor, to come up already with the bill although we have no
more time. Hopefully we can tackle this again on the 15th Congress. But I agree with the sentiments
and the inputs of the Honorable Chair of the House panel.
May we ask our resource persons to also probably give comments?

Atty. Dayrit.
MR. DAYRIT.
Yes I agree with you. There are many, I think, practices in their provisions in the Condominium Law
that may be conflicting with this version of ours.
For instance, in the case of, lets say, the condominium, the so-called common areas and/or maybe
so called open spaces that they may have, especially common areas, they are usually owned by the
condominium corporation. Unlike a subdivision where the open spaces and/or the common areas
are not necessarily owned by the association. Because sometimes --- generally these are donated to
the municipality or to the city. And it is only when the city or municipality gives the approval or the
conformity that this is donated to the homeowners association. But generally, under PD [Presidential
Decree] 957, its donated. In the Condominium Corporation, hindi. Lahat ng mga open spaces and
common areas like corridors, the function rooms and everything, are owned by the corporation. So
thats one main issue that can be conflicting.
THE CHAIRMAN (SEN. ZUBIRI). Ill just ask for a one-minute suspension so we can talk.
THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a catchall phrase like what we
did in the Senior Citizens Act. Something like, to the extent --- paano ba iyon? To the extent that it is
practicable and applicable, the rights and benefits of the homeowners, are hereby extended to the --mayroon kaming ginamit na phrase eh...to the extent that it be practicable and applicable to the unit
homeoweners, is hereby extended, something like that. Its a catchall phrase. But then again, it
might create a...
MR. JALANDONI. It will become complicated. There will be a lot of conflict of laws between the two
laws.
THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I dont know. I think the --mayroon naman silang protection sa ano eh, di ba? Buyers decree doon sa Condominium Act. Im
sure there are provisions there eh. Huwag na lang, huwag na lang.
MR. JALANDONI. Mr. Chairman, I think it would be best if your previous comments that youd be
supporting an amendment. I think that would be --- Well, that would be the best course of action
with all due respect.
1wphi1

THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So iyon na lang final proposal
naming yung catchall phrase, "With respect to the..."
32

xxxx
THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final decision on the definition of
homeowners?
THE ACTING CHAIRMAN (REP. ZIALCITA).

We stick to the original, Mr. Chairman. Well just open up a whole can of worms and a whole new
ball game will come into play. Besides, I am not authorized, neither are you, by our counterparts to
include the condominium owners.
THE CHAIRMAN (SEN. ZUBIRI).
Basically that is correct. We are not authorized by the Senate nor because we have discussed this
lengthily on the floor, actually, several months on the floor. And we dont have the authority as well
for other Bicam members to add a provision to include a separate entity that has already their legal
or their established Republic Act tackling on that particular issue. But we just like to put on record,
we sympathize with the plight of our friends in the condominium associations and we will just
guarantee them that we will work on an amendment to the Condominium Corporation Code. So with
that we skipped, that is correct, we have to go back to homeowners association definition, Your
Honor, because we had skipped it altogether. So just quickly going back to Page 7 because there
are amendments to the definition of homeowners. If it is alright with the House Panel, adopt the
opening phrase of Subsection 7 of the Senate version as opening phrase of Subsection 10 of the
reconciled version.
xxxx

33

To be sure, RA 4726 or the Condominium Act was enacted to specifically govern a condominium.
Said law sanctions the creation of the condominium corporation which is especially formed for the
purpose of holding title to the common area, in which the holders of separate interests shall
automatically be members or shareholders, to the exclusion of others, in proportion to the
appurtenant interest of their respective units. The rights and obligations of the condominium unit
owners and the condominium corporation are set forth in the above Act.
34

Clearly, condominium corporations are not covered by the amendment. Thus, the intra-corporate
dispute between petitioner and respondent is still within the jurisdiction of the RTC sitting as a
special commercial court and not the HLURB. The doctrine laid down by the Court in Chateau de
Baie Condominium Corporation v. Moreno which in turn cited Wack Wack Condominium
Corporation, et al v. CA is still a good law.
35

36

WHEREFORE, we hereby GRANT the petition and REVERSE the Court of Appeals Decision dated
July 10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV No. 86614. The Complaint
before the Regional Trial Court of Makati City, Branch 58, which is not a special commercial court,
docketed as Civil Case No. 03-1018 is ordered DISMISSED for lack of jurisdiction. Let the case be
REMANDED to the Executive Judge of the Regional Trial Court of Makati City for re-raffle purposes
among the designated special commercial courts.
SO ORDERED.

G.R. No. 153886

January 14, 2004

MEL V. VELARDE, petitioner,

vs.
LOPEZ, INC., respondent.

Remedial Law; Certiorari; Not every denial of a motion to dismiss can be corrected by certiorari
under Rule 65, exception.While petitioner correctly invokes the ruling in Atienza v. Court of
Appeals 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, or when the assailed interlocutory order is patently erroneous and the remedy of appeal
would not afford adequate and expeditious relief, or when the ground for the motion to dismiss is
improper venue, res judicata, or lack of jurisdiction as in the case at bar. [Velarde vs. Lopez, Inc.,
419 SCRA 422(2004)]
Same; Jurisdiction; In determining which has jurisdiction over a case, the averments of the
complaint/counterclaim, taken as a whole, are considered.In determining which has jurisdiction
over a case, the averments of the complaint/counterclaim, taken as a whole, are considered.
Corporation Law; Securities and Exchange Commission; Section 5(c) of P.D. No. 902-A applies to a
corporate officers dismissal; The question of remuneration involving a person who is not a mere
employee but a stock-holder and officer of the corporation is not a simple labor problem but a matter
that comes within the area of corporate affairs and management, and is in fact a corporate
controversy in contemplation of the Corporation Code.Section 5(c) of P.D. 902-A (as amended by
R.A. 8799, the Securities Regulation Code) applies to a corporate officers dismissal. For a corporate
officers 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.
With regard to petitioners 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. 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 affairs and management, and is
in fact a corporate controversy in contemplation of the Corporation Code.
Same; Piercing the veil of corporate fiction; Piercing the veil of corporate fiction is warranted, 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.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. The rationale behind piercing a corporations 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.
Same; Same; Requisites to be established in applying the doctrine of piercing the veil of corporate
fiction.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 plaintiffs legal rights; and (3) the
aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
Same; Same; 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.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. [Velarde vs. Lopez, Inc., 419 SCRA
422(2004)]
DECISION
CARPIO-MORALES, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to review the
decision1 and resolution2 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 plaintiff 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
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

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, 19977 and January 13, 1998,8he 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 Plaintiff
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 attorneys
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 Defendants stock options and unpaid share from the
net income with Plaintiff corporation (to be computed) as actual damages;
2. P15,000,000.00, as moral damages; and
3. P1,500,000.00, as attorneys 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 respondents 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
Respondents motion for reconsideration of the trial courts 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 petitioners 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-IN-INTEREST 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 Appeals15 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 afford
adequate and expeditious relief,17 or when the ground for the motion to dismiss is improper
venue,18 res judicata,19 or lack of jurisdiction20 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
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 Plaintiff 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 Plaintiff that the one month for every
year of service as a basis for the computation of the Defendants retirement benefit is
erroneous. This computation is even less than what the rank and file employees get. That
CEOs, COOs 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.
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 Defendants 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.x x x23 (Underscoring and italics supplied).
At the heart of petitioners 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 officers dismissal. For a corporate officers 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 petitioners 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 affairs and management, and is
in fact a corporate controversy in contemplation of the Corporation Code. 26
While petitioners counterclaims were filed on December 1, 1998, the second challenged order of the
trial court denying respondents 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-in-interest, for it is petitioners employer
Sky Vision, respondents 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 corporations 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 plaintiffs 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 effects of loan agreements.

It bears emphasis that Sky Visions involvement in the transaction subject of the case sprang only
after a proposal was apparently proffered 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
effect 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. (Underscoring supplied)
As for the trial courts ruling that the agreement to set-off 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 effect a setoff, 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.

G.R. No. 144767

March 21, 2002

DILY DANY NACPIL, petitioner,

vs.
INTERNATIONAL BROADCASTING CORPORATION, respondent.

Corporation Law; Securities and Exchange Commission; Two elements to be considered in

determining whether the SEC has jurisdiction over the controversy.The Court has consistently held
that there are two elements to be considered in determining whether the SEC has jurisdiction over
the controversy, to wit: (1) the status or relationship of the parties; and (2) the nature of the question
that is the subject of their controversy.
Same; Same; The board of directors may also be empowered under the by-laws to create additional
officers as may be necessary.The Court has held that in most cases the by-laws may and usually
do provide for such other officers, and that where a corporate office is not specifically indicated in
the roster of corporate offices in the by-laws of a corporation, the board of directors may also be
empowered under the by-laws to create additional officers as may be necessary.
Same; Same; The relationship of a person to a corporation, whether as officer or agent or employee
is not determined by the nature of the services performed, but instead by the incidents of the
relationship as they actually exist.As to petitioners argument that the nature of his functions is
recommendatory thereby making him a mere managerial officer, the Court has previously held that
the relationship of a person to a corporation, whether as officer or agent or employee is not
determined by the nature of the services performed, but instead by the incidents of the relationship
as they actually exist.
Remedial Law; Jurisdiction; Court has consistently held that where there is a finding that any
decision was rendered without jurisdiction, the action shall be dismissed; Lack of jurisdiction can be
interposed at any time, during appeal or even after final judgment.The IBCs failure to post an
appeal bond within the period mandated under Article 223 of the Labor Code has been rendered
immaterial by the fact that the Labor Arbiter did not have jurisdiction over the case since as stated
earlier, the same is in the nature of an intra-corporate controversy. The Court has consistently held
that where there is a finding that any decision was rendered without jurisdiction, the action shall be
dismissed. Such defense can be interposed at any time, during appeal or even after final judgment.
It is a well-settled rule that jurisdiction is conferred only by the Constitution or by law. It cannot be
fixed by the will of the parties; it cannot be acquired through, enlarged or diminished by, any act or
omission of the parties.
[Nacpil vs. Intercontinental Broadcasting Corporation, 379 SCRA 653(2002)]
KAPUNAN, J.:
This is a petition for review on certiorari under Rule 45, assailing the Decision of the Court of
Appeals dated November 23, 1999 in CA-G.R. SP No. 527551 and the Resolution dated August 31,
2000 denying petitioner Dily Dany Nacpil's motion for reconsideration. The Court of Appeals
reversed the decisions promulgated by the Labor Arbiter and the National Labor Relations
Commission (NLRC), which consistently ruled in favor of petitioner.
Petitioner states that he was Assistant General Manager for Finance/Administration and Comptroller
of private respondent Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997.
According to petitioner, when Emiliano Templo was appointed to replace IBC President Tomas
Gomez III sometime in March 1997, the former told the Board of Directors that as soon as he
assumes the IBC presidency, he would terminate the services of petitioner. Apparently, Templo
blamed petitioner, along with a certain Mr. Basilio and Mr. Gomez, for the prior mismanagement of
IBC. Upon his assumption of the IBC presidency, Templo allegedly harassed, insulted, humiliated

and pressured petitioner into resigning until the latter was forced to retire. However, Templo refused
to pay him his retirement benefits, allegedly because he had not yet secured the clearances from the
Presidential Commission on Good Government and the Commission on Audit. Furthermore, Templo
allegedly refused to recognize petitioner's employment, claiming that petitioner was not the Assistant
General Manager/Comptroller of IBC but merely usurped the powers of the Comptroller. Hence, in
1997, petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-payment of
benefits.
1wphi1.nt

Instead of filing its position paper, IBC filed a motion to dismiss alleging that the Labor Arbiter had no
jurisdiction over the case. IBC contended that petitioner was a corporate officer who was duly
elected by the Board of Directors of IBC; hence, the case qualifies as an intra-corporate dispute
falling within the jurisdiction of the Securities and Exchange Commission (SEC). However, the
motion was denied by the Labor Arbiter in an Order dated April 22, 1998. 2
On August 21, 1998, the Labor Arbiter rendered a Decision stating that petitioner had been illegally
dismissed. The dispositive portion thereof reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the
complainant and against all the respondents, jointly and severally, ordering the latter:
1. To reinstate complainant to his former position without diminution of salary or loss
of seniority rights, and with full backwages computed from the time of his illegal
dismissal on May 16, 1997 up to the time of his actual reinstatement which is
tentatively computed as of the date of this decision on August 21, 1998 in the amount
of P1,231,750.00 (i.e., P75,000.00 a month x 15.16 months = P1,137,000.00 plus
13th month pay equivalent to 1/12 of P 1,137,000.00 = P94,750.00 or the total amount
of P 1,231,750.00). Should complainant be not reinstated within ten (10) days from
receipt of this decision, he shall be entitled to additional backwages until actually
reinstated.
2. Likewise, to pay complainant the following:
a) P 2 Million as and for moral damages;
b) P500,000.00 as and for exemplary damages; plus and (sic)
c) Ten (10%) percent thereof as and for attorney's fees.
SO ORDERED.3
IBC appealed to the NLRC, but the same was dismissed in a Resolution dated March 2, 1999, for its
failure to file the required appeal bond in accordance with Article 223 of the Labor Code. 4 IBC then
filed a motion for reconsideration that was likewise denied in a Resolution dated April 26, 1999. 5
IBC then filed with the Court of Appeals a petition for certiorari under Rule 65, which petition was
granted by the appellate court in its Decision dated November 23, 1999. The dispositive portion of
said decision states:

WHEREFORE, premises considered, the petition for Certiorari is GRANTED. The assailed
decisions of the Labor Arbiter and the NLRC are REVERSED and SET ASIDE and the
complaint is DISMISSED without prejudice.
SO ORDERED.6
Petitioner then filed a motion for reconsideration, which was denied by the appellate court in a
Resolution dated August 31, 2000.
Hence, this petition.
Petitioner Nacpil submits that:
I.
THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER WAS APPOINTED BY
RESPONDENT'S BOARD OF DIRECTORS AS COMPTROLLER. THIS FINDING IS
CONTRARY TO THE COMMON, CONSISTENT POSITION AND ADMISSION OF BOTH
PARTIES. FURTHER, RESPONDENT'S BY-LAWS DOES NOT INCLUDE COMPTROLLER
AS ONE OF ITS CORPORATE OFFICERS.
II.
THE COURT OF APPEALS WENT BEYOND THE ISSUE OF THE CASE WHEN IT
SUBSTITUTED THE NATIONAL LABOR RELATIONS COMMISSION'S DECISION TO
APPLY THE APPEAL BOND REQUIREMENT STRICTLY IN THE INSTANT CASE. THE
ONLY ISSUE FOR ITS DETERMINATION IS WHETHER NLRC COMMITTED GRAVE
ABUSE OF DISCRETION IN DOING THE SAME.7
The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal
dismissal and non-payment of benefits filed by petitioner. The Court finds that the Labor Arbiter had
no jurisdiction over the same.
Under Presidential Decree No. 902-A (the Revised Securities Act), the law in force when the
complaint for illegal dismissal was instituted by petitioner in 1997, the following cases fall under the
exclusive of the SEC:
a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, members of
associations or organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity;

c) Controversies in the election or appointment of directors, trustees, officers, or

managers of such corporations, partnerships or associations;
d) Petitions of corporations, partnerships, or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association
possesses property to cover all of its debts but foresees the impossibility of meeting them
when they respectively fall due or in cases where the corporation, partnership or association
has no sufficient assets to cover its liabilities, but is under the Management Committee
created pursuant to this decree. (Emphasis supplied.)
The Court has consistently held that there are two elements to be considered in determining whether
the SEC has jurisdiction over the controversy, to wit: (1) the status or relationship of the parties; and
(2) the nature of the question that is the subject of their controversy.8
Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had
not been elected nor appointed as Comptroller and Assistant Manager by the IBC's Board of
Directors. He points out that he had actually been appointed as such on January 11, 1995 by the
IBC's General Manager, Ceferino Basilio. In support of his argument, petitioner underscores the fact
that the IBC's By-Laws does not even include the position of comptroller in its roster of corporate
officers.9 He therefore contends that his dismissal is a controversy falling within the jurisdiction of the
labor courts.10
Petitioner's argument is untenable. Even assuming that he was in fact appointed by the General
Manager, such appointment was subsequently approved by the Board of Directors of the IBC. 11 That
the position of Comptroller is not expressly mentioned among the officers of the IBC in the By-Laws
is of no moment, because the IBC's Board of Directors is empowered under Section 25 of the
Corporation Code12 and under the corporation's By-Laws to appoint such other officers as it may
deem necessary. The By-Laws of the IBC categorically provides:
XII. OFFICERS
The officers of the corporation shall consist of a President, a Vice-President, a SecretaryTreasurer, a General Manager, and such other officers as the Board of Directors may
from time to time does fit to provide for. Said officers shall be elected by majority vote
of the Board of Directors and shall have such powers and duties as shall hereinafter
provide (Emphasis supplied).13
The Court has held that in most cases the "by-laws may and usually do provide for such other
officers,"14 and that where a corporate office is not specifically indicated in the roster of corporate
offices in the by-laws of a corporation, the board of directors may also be empowered under the bylaws to create additional officers as may be necessary.15
An "office" has been defined as a creation of the charter of a corporation, while an "officer" as a
person elected by the directors or stockholders. On the other hand, an "employee" occupies no
office and is generally employed not by action of the directors and stockholders but by the managing
officer of the corporation who also determines the compensation to be paid to such employee. 16
As petitioner's appointment as comptroller required the approval and formal action of the IBC's
Board of Directors to become valid,17 it is clear therefore holds that petitioner is a corporate officer

whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5(c) of
P.D. 902-A which includes controversies involving both election and appointment of corporate
directors, trustees, officers, and managers.18 Had petitioner been an ordinary employee, such board
action would not have been required.
Thus, the Court of Appeals correctly held that:
Since complainant's appointment was approved unanimously by the Board of Directors of
the corporation, he is therefore considered a corporate officer and his claim of illegal
dismissal is a controversy that falls under the jurisdiction of the SEC as contemplated by
Section 5 of P.D. 902-A. The rule is that dismissal or non-appointment of a corporate officer
is clearly an intra-corporate matter and jurisdiction over the case properly belongs to the
SEC, not to the NLRC.19
As to petitioner's argument that the nature of his functions is recommendatory thereby making him a
mere managerial officer, the Court has previously held that the relationship of a person to a
corporation, whether as officer or agent or employee is not determined by the nature of the services
performed, but instead by the incidents of the relationship as they actually exist. 20
It is likewise of no consequence that petitioner's complaint for illegal dismissal includes money
claims, for such claims are actually part of the perquisites of his position in, and therefore linked with
his relations with, the corporation. The inclusion of such money claims does not convert the issue
into a simple labor problem. Clearly, the issues raised by petitioner against the IBC are matters that
come within the area of corporate affairs and management, and constitute a corporate controversy in
contemplation of the Corporation Code.21
Petitioner further argues that the IBC failed to perfect its appeal from the Labor Arbiter's Decision for
its non-payment of the appeal bond as required under Article 223 of the Labor Code, since
compliance with the requirement of posting of a cash or surety bond in an amount equivalent to the
monetary award in the judgment appealed from has been held to be both mandatory and
jurisdictional.22 Hence, the Decision of the Labor Arbiter had long become final and executory and
thus, the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in giving due course to the IBC's petition for certiorari, and in deciding the case on the
merits.
The IBC's failure to post an appeal bond within the period mandated under Article 223 of the Labor
Code has been rendered immaterial by the fact that the Labor Arbiter did not have jurisdiction over
the case since as stated earlier, the same is in the nature of an intra-corporate controversy. The
Court has consistently held that where there is a finding that any decision was rendered without
jurisdiction, the action shall be dismissed. Such defense can be interposed at any time, during
appeal or even after final judgment.23 It is a well-settled rule that jurisdiction is conferred only by the
Constitution or by law. It cannot be fixed by the will of the parties; it cannot be acquired through,
enlarged or diminished by, any act or omission of the parties.24
Considering the foregoing, the Court holds that no error was committed by the Court of Appeals in
dismissing the case filed before the Labor Arbiter, without prejudice to the filing of an appropriate
action in the proper court.
1wphi1.nt

It must be noted that under Section 5.2 of the Securities Regulation Code (Republic Act No. 8799)
which was signed into law by then President Joseph Ejercito Estrada on July 19, 2000, the SEC's
jurisdiction over all cases enumerated in Section 5 of P.D. 902-A has been transferred to the
Regional Trial Courts.25
WHEREFORE, the petition is hereby DISMISSED and the Decision of the Court of Appeals in CAG.R. SP No. 52755 is AFFIRMED.
SO ORDERED.