Oscar Reyes vs.

RTC of Makati
G.R. No. 165744. August 11, 2008
Facts:
Petitioner and private respondent were siblings together with two others, namely Pedro and
Anastacia, in a family business established as Zenith Insurance Corporation (Zenith), from
which they owned shares of stocks. The Pedro and Anastacia subsequently died. The former
had his estate judicially partitioned among his heirs, but the latter had not made the same in
her shareholding in Zenith. Zenith and Rodrigo filed a complaint with the Securities and
Exchange Commission (SEC) against petitioner (1) a derivative suit to obtain accounting of
funds and assets of Zenith, and (2) to determine the shares of stock of deceased Pedro and
Anastacia that were arbitrarily and fraudulently appropriated [by Oscar, and were unaccounted
for]. In his answer with counterclaim, petitioner denied the illegality of the acquisition of shares
of Anastacia and questioned the jurisdiction of SEC to entertain the complaint because it
pertains to settlement of [Anastacias] estate. The case was transferred to. Petitioner filed
Motion to Declare Complaint as Nuisance or Harassment Suit and must be dismissed. RTC
denied the motion. The motion was elevated to the Court of Appeals by way of petition for
certiorari, prohibition and mandamus, but was again denied
Issue:
(1) Whether or not Rodrigo may be considered a stockholder of Zenith with respect to the
shareholdings originally belonging to Anastacia.
(2) Whether or not there is an intra-corporate relationship between the parties that would
characterize the case as an intra-corporate dispute?
Ruling:
(1) No. Rodrigo must, hurdle two obstacles before he can be considered a stockholder of
Zenith with respect to the shareholdings originally belonging to Anastacia. First, he must
prove that there are shareholdings that will be left to him and his co-heirs, and this can be
determined only in a settlement of the decedents estate. No such proceeding has been
commenced to date. Second, he must register the transfer of the shares allotted to him to
make it binding against the corporation. He cannot demand that this be done unless and until
he has established his specific allotment (and prima facie ownership) of the shares. Without
the settlement of Anastacias estate, there can be no definite partition and distribution of the
estate to the heirs. Without the partition and distribution, there can be no registration of the
transfer. And without the registration, we cannot consider the transferee-heir a stockholder
who may invoke the existence of an intra-corporate relationship as premise for an intracorporate controversy within the jurisdiction of a special commercial court. The subject shares
of stock (i.e., Anastacias shares) are concerned Rodrigo cannot be considered a stockholder
of Zenith.
(2) No. Court cannot declare that an intra-corporate relationship exists that would serve as
basis to bring this case within the special commercial courts jurisdiction under Section 5(b) of
PD 902-A, as amended because Rodrigos complaint failed the relationship test above.
Power Homes Unlimited vs. SEC
GR. No. 164182 February 26, 2008
Facts:
Power Homes was engaged in managing real estate properties for subdivision & allied
purposes and in the purchase, exchange, and/or sale of such through network marketing.
Manero & Munsayac requested SEC to investigate Ps business since he attended a seminar
conducted by Power Homes where the latter claimed to sell properties that were inexistent and
without any brokers license & desires to know if network marketing is legitimate. Power
Homes submitted to SEC copies of its marketing course module and letters of
accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer Realty
Corporation after a conference held by R. R found P to be engaged in the sale or offer for sale
or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of
R.A. No. 8799 (The Securities Regulation Code), but failed to register them in violation of Sec.

8.1 of the same Act. R then issued a CDO to P to enjoin the latter from engaging in the sale,
offer or distribution of the securities.
Issue:
Whether Ps business constitutes investment contracts which should be registered with SEC
before its sale or offer for sale or distribution to the public.
Ruling:
Yes. The court ruled that Power Homes failed the Howey Test. It requires a transaction,
contract, or scheme whereby a person:
(1) makes an investment of money
(2) in a common enterprise
(3) with the expectation of profits
(4) to be derived solely from the efforts of others.
Any investment contract covered by the Howey Test must be registered under the Securities
Act, regardless of whether its issuer was engaged in fraudulent practices. R.A. No. 8799 defines
an Investment contract as a contract, transaction or scheme whereby a person invests his
money in a common enterprise and is led to expect profits not solely but primarily from the
efforts of others. In the case at bar, Ps business involves security contracts wherein an
investor enrolls in Ps program by paying US$234. This entitles him to recruit two (2) investors
who pay US$234 each and out of which amount he receives US$92. A minimum recruitment of
four (4) investors by these two (2) recruits, who then recruit at least two (2) each, entitles the
principal investor to US$184 and the pyramid goes on.
The trainings or seminars are merely designed to enhance Power Homes business of teaching
its investors the know-how of its multi-level marketing business. An investor enrolls under the
scheme of Power Homes to be entitled to recruit other investors and to receive commissions
from the investments of those directly recruited by him. Under the scheme, the accumulated
amount received by the investor comes primarily from the efforts of his recruits.
Abacus Securities vs. Ampil
G.R. No. 160016
February 27, 2006
Facts:
Abacus Securities [petitioner] is engaged in business as a broker and dealer of securities of
listed companies at the Philippine Stock Exchange Center.
Sometime in April 1997, [respondent] opened a cash or regular account with [petitioner] for
the purpose of buying and selling securities as evidenced by the Account Application Form.
"Since April 10, 1997, [respondent] actively traded his account, and as a result of such trading
activities, he accumulated an outstanding obligation in favor of [petitioner] in the principal sum
of P6,617,036.22 as of April 30, 1997.
"Despite the lapse of the period within which to pay his account as well as sufficient time given
by [petitioner] for [respondent] to comply with his proposal to settle his account, the latter
failed to do so. Such that [petitioner] thereafter sold [respondents] securities to set off against
his unsettled obligations.
"After the sale of [respondents] securities and application of the proceeds thereof against his
account, [respondents] remaining unsettled obligation to [petitioner] was P3,364,313.56.
[Petitioner] then referred the matter to its legal counsel for collection purposes.
[Petitioner] through counsel demanded that [respondent] settle his obligation plus the agreed
penalty charges accruing thereon equivalent to the average 90day Treasury Bill rate plus 2%
per annum (200 basis points). [Respondent] acknowledged receipt of [petitioners] demand
[letter] and admitted his unpaid obligation and at the same time request[ed] for 60 days to
raise funds to pay the same, which was granted by [petitioner].

"Despite said demand and the lapse of said requested extension, [respondent] failed and/or
refused to pay his accountabilities to [petitioner].
"For his defense, [respondent] claims that he was induced to trade in a stock security with
[petitioner] because the latter allowed offset settlements wherein he is not obliged to pay the
purchase price. Rather, it waits for the customer to sell. And if there is a loss, [petitioner] only
requires the payment of the deficiency (i.e., the difference between the higher buying price
and the lower selling price). In addition, it charges a commission for brokering the sale.
In its Decision, the Regional Trial Court (RTC) of Makati City (Branch 57) held that petitioner
violated Sections 23 and 25 of the Revised Securities Act (RSA) and Rule 251 of the Rules
Implementing the Act (RSA Rules) when it failed to: 1) require the respondent to pay for his
stock purchases within three (T+3) or four days (T+4) from trading; and 2) request from the
appropriate authority an extension of time for the payment of respondents cash purchases.
The trial court noted that despite respondents nonpayment within the required period,
petitioner did not cancel the purchases of respondent. Neither did it require him to deposit
cash payments before it executed the buy and/or sell orders subsequent to the first unsettled
transaction. According to the RTC, by allowing respondent to trade his account actively without
cash, petitioner effectively induced him to purchase securities thereby incurring excessive
credits.
The trial court also found respondent to be equally at fault, by incurring excessive credits and
waiting to see how his investments turned out before deciding to invoke the RSA. Thus, the
RTC concluded that petitioner and respondent were in pari delicto and therefore without
recourse against each other. The CA upheld the lower courts finding that the parties were in
pari delicto.
Issue:
Whether the pari delicto rule is applicable in the present case.
Ruling:
Yes.
Section 23(b) above
the alleged violation of petitioner which provides the basis for
respondents defense makes it unlawful for a broker to extend or maintain credit on any
securities other than in conformity with the rules and regulations issued by Securities and
Exchange Commission (SEC). Section 25 lays down the rules to prevent indirect violations of
Section 23 by brokers or dealers. RSA Rule 251 prescribes in detail the regulations governing
cash accounts.
The law places the burden of compliance with margin requirements primarily upon the brokers
and dealers.
Sections 23 and 25 and Rule 251, otherwise known as the "mandatory closeout rule,"clearly
vest upon petitioner the obligation, not just the right, to cancel or otherwise liquidate a
customers order, if payment is not received within three days from the date of purchase. The
word "shall" as opposed to the word "may," is imperative and operates to impose a duty,
which may be legally enforced. For transactions subsequent to an unpaid order, the broker
should require its customer to deposit funds into the account sufficient to cover each purchase
transaction prior to its execution. These duties are imposed upon the broker to ensure faithful
compliance with the margin requirements of the law, which forbids a broker from extending
undue credit to a customer.
The nature of the stock brokerage business enables brokers, not the clients, to verify, at any
time, the status of the clients account.28 Brokers, therefore, are in the superior position to
prevent the unlawful extension of credit. Because of this awareness, the law imposes upon
them the primary obligation to enforce the margin requirements.
On the other hand, we find respondent equally guilty in entering into the transactions in
violation of the RSA and RSA Rules. We are not prepared to accept his self serving assertions of
being an "innocent victim" in all the transactions. Clearly, he is not an unsophisticated, small
investor merely prodded by petitioner to speculate on the market with the possibility of large

profits with low or no capital outlay, as he pictures himself to be. Rather, he is an experienced
and knowledgeable trader who is well versed in the securities market and who made his own
investment decisions. In fact, in the Account Opening Form (AOF), he indicated that he had
excellent knowledge of
stock investments; had experience in stocks trading, considering that he had similar accounts
with other firms.41 Obviously, he knowingly speculated on the market, by taking advantage of
the "nocashout" arrangement extended to him by petitioner.
We note that it was respondent who repeatedly asked for some time to pay his obligations for
his stock transactions. Petitioner acceded to his requests. It is only when sued upon his
indebtedness that respondent raised as a defense the invalidity of the transactions due to
alleged violations of the RSA. It was respondents privilege to gamble or speculate, as he
apparently did so by asking for extensions of time and refraining from giving orders to his
broker to sell, in the hope that the prices would rise. Sustaining his argument now would
amount to relieving him of the risk and consequences of his own speculation and saddling
them on the petitioner after the result was known to be unfavorable. Such contention finds no
legal or even moral justification and must necessarily be overruled. Respondents conduct is
precisely the behavior of an investor deplored by the law.
In the final analysis, both parties acted in violation of the law and did not come to court with
clean hands with regard to transactions subsequent to the initial trades made on April 10 and
11, 1997. Thus, the peculiar facts of the present case bar the application of the pari delicto
rule expressed in the maxims "Ex dolo malo non oritur action" and "In pari delicto potior est
conditio defendentis" to all the transactions entered into by the parties. The pari delecto rule
refuses legal remedy to either party to an illegal agreement and leaves them where they
were.43 In this case, the pari delicto rule applies only to transactions entered into after the
initial trades made on April 10 and 11, 1997.
Cemco Holdings vs. National Life Insurance Company
GR. No. 171815
August 7, 2007
Facts:
Union Cement Corporation (UCC), a publiclylisted company, has two principal stockholders
UCHC, a nonlisted company, with shares amounting to 60.51%, and petitioner Cemco with
17.03%. Majority of UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%.
Cemco, on the other hand, owned 9% of UCHC stocks.
In a disclosure letter BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary
ACC had passed resolutions to sell to Cemco BCIs stocks in UCHC equivalent to 21.31% and
ACCs stocks in UCHC equivalent to 29.69%.
In the PSE Circular for Brokers it was stated that as a result of petitioner Cemcos acquisition of
BCI and ACCs shares in UCHC, petitioners total beneficial ownership, direct and indirect, in UCC
has increased by 36% and
amounted to at least 53% of the shares of UCC .
As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired
as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities
Regulation Code is not applicable to the purchase by petitioner of the majority of shares of
UCC. In a letter dated July 27, 2004 the SEC en banc had resolved that the Cemco transaction
was not covered by the tender offer rule.
On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance
Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco
demanding the latter to comply with the rule on mandatory tender offer. Cemco, however,
refused.
On 19 August 2004, respondent National Life Insurance Company of the Philippines, Inc. filed a
complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the
purchase agreement of Cemco void and praying that the mandatory tender offer rule be

applied to its UCC shares. SEC ruled in favor of the respondent by reversing and setting aside
its 27 July 2004 Resolution
Petitioner filed a petition with the Court of Appeals challenging the SECs. The Court of Appeals
rendered a decision affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to
render the questioned decision.
Issue:
Whether or not the SEC has jurisdiction over respondents complaint and to require Cemco to
make a tender offer for respondents UCC shares.
Ruling:
In taking cognizance of respondents complaint against petitioner and eventually
rendering a judgment which ordered the latter to make a tender offer, the SEC was acting
pursuant to Rule 19(13) of the Amended Implementing Rules and Regulations of the
Securities Regulation Code, to wit:
13. Violation
If there shall be violation of this Rule by pursuing a purchase of equity shares of a public
company at threshold amounts without the required tender offer, the Commission, upon
complaint, may nullify the said acquisition and direct the holding of a tender offer. This shall be
without prejudice to the imposition of other sanctions under the Code.
The foregoing rule emanates from the SECs power and authority to regulate, investigate or
supervise the activities of persons to ensure compliance with the Securities Regulation Code,
more specifically the provision on mandatory tender offer under Section 19 thereof. Another
provision of the statute, which provides the basis of Rule 19(13) of the Amended Implementing
Rules and Regulations of the Securities Regulation Code, is Section 5.1
[T]he Commission shall have, among others, the following powers and functions: xxxx
(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express powers
granted the Commission to achieve the objectives and purposes of these laws.
The foregoing provision bestows upon the SEC the general adjudicative power which is implied
from the express powers of the Commission or which is incidental to, or reasonably necessary
to carry out, the performance of the administrative duties entrusted to it. As a regulatory
agency, it has the incidental power to conduct hearings and render decisions fixing the rights
and obligations of the parties. In fact, to deprive the SEC of this power would render the
agency inutile, because it would become powerless to regulate and implement the law.
SEC VS. INTERPORT RESOURCES CORP.
FACTS:
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with
Ganda Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or
the entire capital stock of Ganda Energy Holdings, Inc. (GEHI),[2] which would own and operate
a 102 megawatt (MW) gas turbine power-generating barge. The agreement also stipulates that
GEHI would assume a five-year power purchase contract with National Power Corporation. At
that time, GEHIs power-generating barge was 97% complete and would go on-line by midSeptember of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of
IRC amounting to 40.88 billion shares which had a total par value of P488.44 million.[3]
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc.
(PRCI). PRCI owns 25.724 hectares of real estate property in Makati. Under the Agreement,
GHB, a member of the Westmont Group of Companies in Malaysia, shall extend or arrange a
loan required to pay for the proposed acquisition by IRC of PRCI.
on 8 August 1994, a press release announcing the approval of the agreement was sent through
facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile

machine of the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press
release on the morning of 9 August 1994.[5]
The SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC
shares utilizing this material insider information.
On 16 August 1994, the SEC Chairman issued a directive requiring IRC to submit to the SEC a
copy of its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed
all principal officers of IRC to appear at a hearing before the Brokers and Exchanges
Department (BED) of the SEC to explain IRCs failure to immediately disclose the information as
required by the Rules on Disclosure of Material Facts.[6]
IRC sent a letter to SEC, attaching a copies of MOA and its directors appeared to explain IRCs
alleged failure to immediately disclose material information as required under the Rules on
Disclosure of Facts.
On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules
on Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed
to make timely disclosure of its negotiations with GHB. In addition, the SEC pronounced that
some of the officers and directors of IRC entered into transactions involving IRC shares in
violation of Section 30, in relation to Section 36, of the Revised Securities Act.
IRC filed an Omnibus Motion (later an Amended Omnibus Motion) alleging that SEC had no
authority to investigate the subject matter, since under Sec. 8 of PD 902-A, as amended by PD
1758, jurisdiction was conferred upon the Prosecution and Enforcement Dept (PED) of SEC. IRC
also claimed that SEC violated their right to due process when it ordered that the respondents
appear before SEC and show cause why no administrative, civil or criminal sanctions should be
imposed on them, and thus, shifted the burden of proof to the respondents. They filed a
Motion for Continuance of Proceedings.
No formal hearings were conducted in connection with the Motions.
25 Jan 1995- SEC issued an Omnibus Order: creating special investigating panel to hear and
decide the instant case in accordance with the Rules of Practice and Procedure Before the
Prosecution and Enforcement Department (PED), Securities and Exchange Commission, to
recall the show cause orders; and to deny the Motion for Continuance for lack of merit.
Respondents filed a petition before the CA questioning the Omnibus Orders and filed a
Supplemental Motion wherein they prayed for the issuance of a writ of preliminary injunction.
5 May 1995- CA granted their motion and issued a writ of preliminary injunction, which
effectively enjoined SEC from filing any criminal, civil or administrative case against the
respondents.
20 Aug. 1998- CA promulgated a Decision[19] on 20 August 1998. It determined that there
were no implementing rules and regulations regarding disclosure, insider trading, or any of the
provisions of the Revised Securities Acts which the respondents allegedly violated. The Court of
Appeals likewise noted that it found no statutory authority for the SEC to initiate and file any
suit for civil liability under Sections 8, 30 and 36 of the Revised Securities Act. Thus, it ruled
that no civil, criminal or administrative proceedings may possibly be held against the
respondents without violating their rights to due process and equal protection. It further
resolved that absent any implementing rules, the SEC cannot be allowed to quash the assailed
Omnibus Orders for the sole purpose of re-filing the same case against the respondents.[20]
The Court of Appeals further decided that the Rules of Practice and Procedure Before the PED,
which took effect on 14 April 1990, did not comply with the statutory requirements contained
in the Administrative Code of 1997. Section 8, Rule V of the Rules of Practice and Procedure
Before the PED affords a party the right to be present but without the right to cross-examine
witnesses presented against him, in violation of Section 12(3), Chapter 3, Book VII of the
Administrative Code.

ISSUES:
1. Do sections 8, 30 and 36 of the Revised Securities Act require the enactment of
implementing rules to make them binding and effective? NO
2. Does the right to cross-examination be demanded during investigative proceedings
before the PED? NO
3. May a criminal case still be filed against the respondents despite the repeal of Secs. 8,
30 and 36 of the Revised Securities Ast? YES.
4. Did SEC retain the jurisdiction to investigate violations of the Revised Securities Act, reenacted in the Securities Regulations Code, despite the abolition of the PED? YES.
5. Does the instant case prescribed already? NO.
6. Is CA justified in denying SECs Motion for Leave to Quash SEC Omnibus.
RULING:
The petition is impressed with merit. it should be noted that while this case was pending in this
Court, Republic Act No. 8799, otherwise known as the Securities Regulation Code, took effect
on 8 August 2000. Section 8 of Presidential Decree No. 902-A, as amended, which created the
PED, was already repealed as provided for in Section 76 of the Securities Regulation Code.
Thus, under the law, the PED has been abolished, and the Securities Regulation Code has
taken the place of the Revised Securities Act. On the merits: 1. Sections 8, 30 and 36 of the
Securities Regulation Code has taken the place of the Revised Securities Act (RSA) do not
require the enactment of implementing rules to make them binding and effective.
The mere absence of implementing rules cannot effectively invalidate provisions of law, where
a reasonable construction that will support the law may be given. absence of any constitutional
or statutory infirmity, which may concern Sections 30 and 36 of the Revised Securities Act, this
Court upholds these provisions as legal and binding. It is well settled that every law has in its
favor the presumption of validity. Unless and until a specific provision of the law is declared
invalid and unconstitutional, the same is valid and binding for all intents and purposes.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the
Revised Securities Act, Section 30 of the Revised Securities Act provides that if a fact affects
the sale or purchase of securities, as well as its price, then the insider would be required to
disclose such information to the other party to the transaction involving the securities. This is
the first definition given to a fact of special significance. Sec. 36- Directors, officers and
principal stockholders. A straightforward provision that imposes upon: 1. A beneficial owner of
more than 10 percent of any class of any equity security or 2. A dir. Or any officer of the issuer
of such security the obligation to submit a statement indicating his or her ownership of the
issuers securities and such changes in his or her ownership.
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the
securities market and prevent unscrupulous individuals, who by their positions obtain nonpublic information, from taking advantage of an uninformed public.
Section 30 of the Revised Securities Act prevented the unfair use of non-public information in
securities transactions, while Section 36 allowed the SEC to monitor the transactions entered
into by corporate officers and directors as regards the securities of their companies.
The right to cross-examination is not absolute and cannot be demanded during investigative
proceedings before the PED.
Section 4. Nature of Proceedings Subject to the requirements of due process, proceedings
before the PED shall be summary in nature not necessarily adhering to or following the
technical rules of evidence obtaining in the courts of law. The Rules of Court may apply in said
proceedings in suppletory character whenever practicable.
A formal hearing was not mandatory; it was within the discretion of the Hearing Officer to
determine whether there was a need for a formal hearing. Since, according to the foregoing
rules, the holding of a hearing before the PED is discretionary, then the right to crossexamination could not have been demanded by either party.