Union Glass v.

SEC 001
GR No. 64013, 28 November 1983, Escolin, J.
Digested by Nads • Law 106 – Corpo
Topic:

PResp Hofileña filed a case in SEC against DBP, Pioneer Glass and PET Union Glass. PET
Union Glass was a mere transferee of the glass plant previously owned by Pioneer Glass. SEC
Hearing Officer held that SEC has jurisdiction to try the case. This was reversed by SEC and
held that there’s PET Union Glass has no intra-corporate relation with Hofileña and DBP,
thereby vesting jurisdiction over the matter with courts of general jurisdiction aka RTC.

FACTS
• PResp Carolina Hofileña is a stockholder of Pioneer Glass, a domestic corporation
engaged in the operation of silica mines and the manufacture of glasswares.
• Pioneer Glass obtained various loans from DBP and also from other sources which DBP
guaranteed. As security, Pioneer Glass mortgaged and/or assigned its assets to DBP.
• The proceeds were used in the construction of a glass plant in Cavite and operation of 7
silica mining claims.
• Accumulated unpaid interests were P5.4M as of 1975 and increased by another P2.2M as
of 1976.
o Because of this, such unpaid interests were converted into equity shares under the
name of DBP. DBP was able to gain control of the common shares of Pioneer
Glass.
• When Pioneer Glass could no longer meet its financial obligations with DBP, it entered
into a dacion en pago agreement with DBP, whereby all its assets mortgaged to DBP
were ceded to the latter in full satisfaction of the debt totaling P59M.
o This includes the glass plant in Cavite, which DBP leased and subsequently sold
to PET Union Glass.
• In 1981, PResp Hofileña filed a complaint before SEC against DBP, PET Union Glass
and Pioneer Glass and alleges that the dacion en pago agreement is illegal.
• PETs moved for the dismissal of the case on the ground that the SEC had no jurisdiction
over the subject matter or nature of the suit.
• SEC Hearing Officer Reyes: granted the MTD for lack of jurisdiction; Upon MR, he
reversed his original order, thereby upholding SEC’s jurisdiction.

ISSUES & HOLDING

• Whether the SEC or the regular court has jurisdiction over the case? – Regular court.
PET Union Glass has no intra-corporate relation with either Hofilena or DBP.

RATIO
The regular court, not SEC, has jurisdiction over this
action.
• The jurisdiction of the SEC is delineated by Sec. 5, PD No. 902-A
Sec. 5. In addition to the regulatory and adjudicative function of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws
and devices, it shall have original and exclusive jurisdiction to hear and decide cases involving:
a] Devices and 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 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 appointments of directors, trustees, officers or managers of such corporations,
partnerships or associations.

• The principal function of the SEC is the supervision and control over corporations,
partnerships and associations with the end in view that investment in these entities may
be encouraged and protected, and their activities pursued for the promotion of economic
development. It is in aid of this office that the adjudicative power of the SEC must be
exercised.
• In order that SEC 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 in so far as its
franchise, permit or license to operate is concerned; and
d. among the stockholders, partners or associates themselves.
• Application to the case:
o The fact that the controversy at bar involves the rights of PET Union Glass who
has no intra-corporate relation with either Hofileña or the DBP places the suit
beyond the jurisdiction of SEC.
o This case should be tried and decided by the court of general jurisdiction, the
RTC.
o PET Union Glass is involved only in the first cause of action of Hofileña’s
complaint. Since petitioner has no intra-corporate relationship with the
complainant, it cannot be joined as party-defendant in said case as to do so would
violate the rule on jurisdiction.
o Hofileña's complaint against PET Union Glass for cancellation of the sale of the
glass plant should be brought separately before the regular court. But such action,
if instituted, shall be suspended to await the final outcome of SEC Case, for the
issue of the validity of the dacion en pago is a prejudicial question, the resolution
of which is a logical antecedent of the issue involved in the action against PET
Union Glass. Thus, Hofileña's complaint against the latter can only prosper if
 final judgment is rendered in SEC Case, annulling the dacion en pago executed in
favor of the DBP.

DISPOSITIVE
Petition GRANTED.

DISSENTING OPINION
Aquino, J.

PETs are guilty of laches and nonexhaustion of the remedy of appeal with SEC en banc.
• When Hearing Officer Reyes reversed itself and held that SEC has jurisdiction, PET
Union Glass filed an MR. Hearing Officer Manabat denied the motion.
• PET Union Glass filed a 2nd MR with the prayer that the SEC should decide the motion
en banc. The hearing officer ruled that the remedy of PET Union Glass was to file a
timely appeal.
• Instead, PET Union Glass filed a petition for certiorari and prohibition. It has no cause of
action for certiorari and prohibition.

SEC has jurisdiction over the intra-corporate dispute between Hofileña and the DBP, both
stockholders of Pioneer Glass, over the dacion en pago.
• Certainly, the joinder of Union Glass does not divest the SEC of jurisdiction over the
case. The joinder of Union Glass is necessary because the DBP, its transferor, is being
sued regarding the dacion en pago.
• It would not be judicious and expedient to require Hofileña to sue the DBP and Union
Glass in the Regional Trial Court. The SEC is more competent than the said court to
decide the intra-corporate dispute.