CASE ASSIGNMENT #2
PSE v CA, 1997
Power Homes Unlimited Corp v SEC, 2008
CASE DIGESTS:
5. PSE v CA, 1197
Facts:
PALI (Puerto Azul Land, Inc.) sought to offer
its shares to the public to raise funds to
develop its properties and pay its loans to
several banks. SEC issued a Permit to Sell.
PALI wanted to trade its shares thru PSE.
Before the Board of Governors of PSE could act
on PALI’s application, they received a letter
from the heirs of F.E Marcos claiming the late
President was the legal and beneficial owner of
PALI’s assets held in trust by Panlilio.
In its regular meeting, the Board of Governors
reached a decision to reject PALI’s application
citing the existence of serious claims, issues
and circumstances surrounding PALI's
ownership over its assets that adversely affect
the suitability of listing PALI's shares in the
stock exchange. However, SEC ordered the
petitioner PSE to allow PALI to be listed in its
stock market, thus paving the way for the
public offering of PALI's shares.
CA ruled that SEC had both jurisdiction and
authority to look into the decision of PSE being
both a corporation and a stock exchange
(entity).
ISSUE: Power/Authority of SEC
RULING: SEC has the authority to ORDER
PSE to list the shares of PALI in the stock
exchange if PSE’s decision is made in BAD
FAITH.
The SEC is the entity with the primary say as
to whether or not securities, including shares
of stock of a corporation, may be traded or not
in the stock exchange. This is in line with the
SEC's mission to ensure proper compliance
with the laws, such as the Revised Securities
Act and to regulate the sale and disposition of
securities in the country.
The PSE is a corporation authorized by its
corporate franchise to engage in its proposed
and duly approved business. One of the PSE's
main concerns is still the generation of profit
for its stockholders. Moreover, the PSE has all
the rights pertaining to corporations, including
the right to sue and be sued, to hold property
in its own name, to enter (or not to enter) into
contracts with third persons, and to perform all
other legal acts within its allocated express or
implied powers.
Thus, notwithstanding the regulatory power of
the SEC over the PSE, and the resultant
authority to reverse the PSE's decision in
matters of application for listing in the market,
the SEC may exercise such power only if
the PSE's judgment is attended by bad
faith.
In Board of Liquidators vs. Kalaw, it
was held that bad faith does not simply
connote bad judgment or negligence. It
imports a dishonest purpose or some
moral obliquity and conscious doing of
wrong. It means a breach of a known
duty through some motive or interest of
ill will, partaking of the nature of fraud.
In any case, for the purpose of determining
whether PSE acted correctly in refusing the
application of PALI, the true ownership of the the law and by the circumstances
properties of PALI need not be determined as attendant to this case.
an absolute fact. What is material is that
the uncertainty of the properties'
ownership and alienability exists, and this 6. Power Homes Unlimited Corp v SEC
puts to question the qualification of PALI's
public offering. Facts:

In sum, the Court finds that the SEC had PHU is a domestic corporation duly registered
acted arbitrarily in arrogating unto itself with the SEC has its primary purpose:
the discretion of approving the
To engage in the transaction of
application for listing in the PSE of the
promoting, acquiring, managing,
private respondent PALI, since this is a
leasing, obtaining options on,
matter addressed to the sound discretion of
development, and improvement of real
the PSE, a corporation entity, whose business
estate properties for subdivision and
judgments are respected in the absence of bad
allied purposes, and in the purchase,
faith.
sale and/or exchange of said subdivision
The question as to what policy is, or should be and properties through network
relied upon in approving the registration and marketing.
sale of securities in the SEC is not for the Court
R. Manero requested SEC to investigate PHU
to determine, but is left to the sound discretion
business because the seminar he attended
of the Securities and Exchange Commission. In
conducted by the corporation, it claimed to sell
mandating the SEC to administer the Revised
properties that were inexistent and without any
Securities Act, and in performing its other
broker’s license. Another RE Munsayac Jr.
functions under pertinent laws, the Revised
inquired before the SEC if the said corporation
Securities Act, under Section 3 thereof, gives
is involved in a LEGITMATE NETWORK
the SEC the power to promulgate such rules
MARKETING.
and regulations as it may consider appropriate
in the public interest for the enforcement of PHU submitted to public respondent SEC
the said laws. copies of its marketing course module and
letters of accreditation/authority or
The SEC must recognize and implement the
confirmation from Crown Asia, Fil-Estate
mandate of the law, particularly the Revised
Network and Pioneer 29 Realty Corporation.
Securities Act, the provisions of which cannot
be amended or supplanted by mere SEC found that PHU is engaged in the sale or
administrative issuance. offer for sale or distribution of investment
contracts, which are considered securities
In resume, the Court finds that the PSE has
under Sec. 3.1 (b) of R.A. No. 8799 (The
acted with justified circumspection,
Securities Regulation Code), but failed to
discounting, therefore, any imputation of
register them in violation of Sec. 8.1 of the
arbitrariness and whimsical animation on its
same Act. It then issued a Cease and Desist
part. Its action in refusing to allow the listing
Order to PHU to enjoin the latter from
of PALI in the stock exchange is justified by
engaging in the sale, offer or distribution of the All these were done before the CDO was issued
securities. by the public respondent SEC. Trite to state, a
formal trial or hearing is not necessary to
ISSUE: Business of PHU; does it constitute
comply with the requirements of due process.
INVESTMENT CONTRACT hence registrable
Its essence is simply the opportunity to explain
with SEC.
one’s position. Public respondent SEC
RULING: SC affirmed the ruling of the public abundantly allowed PHU to prove its side.
respondent SEC and the Court of Appeals that
PHU was engaged in the sale or distribution of
an investment contract. 

An investment contract is defined in the

Amended Implementing Rules and Regulations
of R.A. No. 8799 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."

Thus, to be a security subject to regulation by

the SEC, an investment contract in PH
jurisdiction must be proved to be:

(1) an investment of money,

(2) in a common enterprise,

(3) with expectation of profits,

(4) primarily from efforts of others.

RELATED/RELEVANT ISSUE: Due process in

the issuance of CDO.

PHU was not denied due process. The records

reveal that public respondent SEC properly
examined petitioner’s business operations
when it (1) called into conference three of
petitioner’s incorporators, (2) requested
information from the incorporators regarding
the nature of petitioner’s business operations,
(3) asked them to submit documents pertinent
thereto, and (4) visited petitioner’s business
premises and gathered information thereat.