Lipat and Lipat v. Pacific Banking Corp, et al. G.R. No. 142435. 30 April 2003. Quisumbing, J.

without prior resolution from the Board of Directors of BEC. All were secured by the REM over the same property. BEC defaulted. The REM was extrajudicially foreclosed and the property sold at public auction.

Facts. Petitioners Sps. Lipat owned Belas Export Trading (BET), a single proprietorship. BET was engaged in the manufacture of garments. BET supplied garments to a US firm Mystical Fashions also owned

The Lipats filed a complaint for annulment of the REM, extrajudicial foreclosure and certificate of sale issued. RTC dismissed the complaint, piercing the veil of corporate fiction of BEC. CA affirmed. The Lipats argue: the credit transactions were all ultra vires acts of Teresita and thus it does not bind BEC. And even assuming the credit transactions were valid and binding, these were the corporation's sole obligation, it having a personality distinct and separate from the Lipats. The lower courts erred in piercing the veil of corporate fiction of BEC absent any clear showing of fraud on their part. Issues.

Lipat and Lipat v. Pacific Banking Corp, et al. G.R. No. 142435. 30 April 2003. Quisumbing, J.

Facts. Petitioners Sps. Lipat owned Belas Export Trading (BET), a single proprietorship. BET was engaged in the manufacture of garments. BET supplied garments to a US firm Mystical Fashions also owned by the Lipats. Mrs. Lipat designated her daughter, Teresita, to manage BET. Mrs. Lipat executed in December 1978 an SPA in favor of Teresita to obtain loans and other credit accommodations from respondent Pacific Banking Corp. (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank including any extension or renewal thereof. April 1979, Teresita, by virtue of the SPA, was able to secure for and in behalf of Mrs. Lipat and BET, a loan from Pacific Bank. An REM over the Sps. Lipats property in Cubao was constituted as security. Per their agreement, said property was likewise made to secure other additional loans and credit lines which may be subsequently obtained. September 1979, BET was incorporated into a family corporation: Bela's Export Corp. (BEC). The Sps. Lipat were majority stockholders and were among the incorporators and board of directors. Mrs. Lipat was named President of BEC, and Teresita the EVP and GM. BEC was engaged in the same business as BET and utilized the same machineries and equipment previously used by BET. The corporate funds were held by Mrs. Lipat. The loan was later restructured in the name of BEC. Subsequent promissory notes, trust receipts and export bills were executed by Teresita on behalf of BEC in favor of Pacific Bank

(1) Is the application of the doctrine of piercing the veil of corporate fiction warranted? (2) May the obligations incurred by Teresita in behalf of BEC bind the latter? Held. (1) Yes. Both courts below relied upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. Under the instrumentality rule or alter ego doctrine, when the corporation is the mere alter ego or business conduit of a person as when it is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the separate personality of the corporation (the instrumentality or alter ego) may be disregarded.[1] Case at bar, the business operations of the BEC were so merged with those of Mrs. Lipat such that they were practically indistinguishable. The corporate funds were held by Mrs. Lipat and the corporation itself had no visible assets. The Lipats were members of the board. Mrs. Lipat had full control over the activities of and decided business matters of the corporation. She had benefited from the loans secured from Pacific Bank to finance her business abroad and from the export bills secured by BEC for the account of Mystical Fashion. It could not have been coincidental that BET and BEC are so intertwined with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded the former.

(2) Yes. BEC is estopped from denying its agents authority.*2+ If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority. Teresita had dealt with Pacific Bank on the mortgage contract by virtue of an SPA executed by Mrs. Lipat. Teresita had acted as the manager of both BEC and BET and had been deciding business matters in the absence of Mrs. Lipat. Further, the export bills secured by BEC were for the benefit of Mystical Fashion owned by Mrs. Lipat. Hence, Pacific Bank cannot be faulted for relying on the same authority granted to Teresita by Mrs. Lipat by virtue of a SPA.

Times argues: the application of the doctrine of piercing the veil of corporate fiction by the CA and finding Mencorp liable for its obligations is contrary to the accepted and usual course of judicial proceedings. Issue. Is the application of the doctrine of piercing the veil of corporate fiction warranted? Held. Yes. Piercing the corporate veil is warranted 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.[3] Case at bar, Times and Mencorp failed to adduce evidence to refute allegations of collusion between them. The sale of Times' franchise as well as most of its bus units to a company owned by Rondaris' daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to remove Times' remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it.

Times Transportation Co., Inc. v. Sotelo, et al. G.R. No. 163786. 16 February 2005. Ynares-Santiago, J.

Facts. Times Employees Union (TEU), an LLO, struck against its employer, Times, for ULP. The SOJ certified the dispute to the NLRC. Meanwhile, TEU was certified as the sole and exclusive bargaining representative in Times, and requested for collective bargaining. Times refused. TEU filed a notice of strike. Times implemented a retrenchment program. Those retrenched include herein respondents. TEU struck. Times terminated all striking employees for participation in what it deemed was an illegal strike. The SOJ again certified the dispute to the NLRC. Meanwhile, Mencorp Transport Systems, Inc. (Mencorp.), which never obtained a franchise since its incorporation in 1994, acquired ownership of Times' Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale. Mencorp is controlled and operated by Mendoza, daughter of Rondaris, the majority stockholder of Times. Notably, all of the stockholders/incorporators of Mencorp are relatives of Rondaris. Presently, all the buses of Times are already being run/operated by Mencorp. In 1998, after the closure of Times, the retrenched employees, including respondents, filed cases for illegal dismissal, money claims and ULP against Times before the RAB, impleading Mencorp and the Sps. Mendoza. LA held that the dismissals of respondents constituted ULP and the sale of Times to Mencorp was simulated and in bad faith warranting the piercing of the veil of corporate fiction. LA ordered Times and/or Rondaris and Mencorp and/or Mendoza to cause the reinstatement of herein respondents. NLRC vacated the decision of the LA. CA reinstated the decision of the LA.

Nacpil v. Intercontinental Broadcasting Corp. G.R. No. 144767. 379 SCRA 653. 21 March 2002. Kapunan, J.

Facts. Petitioner Nacpil was the Comptroller and Assistant Manager of respondent IBC. He was allegedly appointed as such by IBCs General Manager. It is, however, settled that his appointment had been subsequently approved by IBCs Board of Directors. Notably, IBCs bylaws provide: the officers of the corporation shall consist of x x x 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 x x x Nacpil filed for illegal dismissal and non-payment of benefits with the Labor Arbiter (LA). LA held for Nacpil. NLRC affirmed. CA reversed. IBC argues: LA had no jurisdiction over the case contending that Nacpil is a corporate officer. Hence, jurisdiction belongs with the SEC.[4] Nacpil argues: he is not a corporate officer but an employee and posits, among others, in support thereof that IBCs by-laws does not even include the position of comptroller.

Issues. (1) Is Nacpil a corporate officer? (2) Does the LA have jurisdiction over the case? Held. (1) Yes. That the position of comptroller is not expressly mentioned among the officers of the IBC in the by-laws is of no moment, because IBCs Board is empowered under Sec. 25 of the Corp. Code*5+ and IBCs by-laws to appoint such other officers as it may deem necessary. An office is a creation of the charter of a corporation, while an officer is 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. As Nacpils appointment as comptroller required approval and formal action of IBCs Board of Directors to become valid, it is clear therefore that Nacpil is a corporate officer. (2) No. Under PD 902-A, Sec. 5(c), controversies in the x x x appointment of *corporate+ officers x x x are within the exclusive jurisdiction of the SEC. As Nacpil is a corporate officer, it is clear that his dismissal may be the subject of a controversy cognizable by the SEC.[6]

The Certificates of Registration of the North and South Assocs. were cancelled and LGVHAI was recognized as the sole homeowners association in the subdivision. Issue. Did the failure of LGVHAI to file its by-laws within one month from the date of its incorporation as prescribed by Section 46 of the Corp. Code have the effect of its automatic dissolution? Held. No. The word "must" in a statute x x x is not always imperative. The deliberations of the Batasang Pambansa demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, taken as a whole x x x Section 46 reveals the legislative intent to attach a directory x x x meaning for the word "must" in the first sentence thereof. x x x [T]he second paragraph of the law allows the filing of the by-laws even prior to incorporation. This x x x rules out mandatory compliance with the requirement of filing the by-laws "within one (1) month after x x x notice of the issuance of its certificate of incorporation x x x ." It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of the corporation. The adoption of by-laws is a matter of practical, if not one of legal, necessity. x x x The mere fact x x x of the existence of power in the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity of any of its acts. PD 902-A, Sec 6(1) provides that the SEC possess the power to suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations x x x upon any of the grounds provided by law, including x x x failure to file by-laws within the required period. [Thus, t]here is no outright "demise" of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society.

Loyola Grand Villas Homeowners (South) Assoc., Inc. v. CA, et al. G.R. No. 117188. 276 SCRA 681. 7 August 1997. Romero, J. China Banking Corp. v. CA, and Valley Golf and Country Club, Inc. Facts. Loyola Grand Villas Homeowners Assoc., Inc. (LGVHAI) was registered as the sole homeowners association in Loyola Grand Villas. It was organized on Feb 8, 1983 but was unable to file its corporate by-laws. Sometime in 1989, its officers discovered that there were two other homeowners organizations in the subdivision: the North Assoc. and the petitioner South Assoc. It appears that LGVHAI has been automatically dissolved for its failure to submit its by-laws pursuant to Sec. 46 of the Corp. Code.[7] The officers of LGVHAI lodged a complaint with the Home Insurance and Guaranty Corp. (HIGC) and obtained favorable ruling. G.R. No. 117604. 270 SCRA 503. 26 March 1997. Kapunan, J.

Facts. Calapatia pledged his stock in respondent VGCCI to petitioner CBC to secure his loans with the latter. The deed of pledge executed in CBCs favor was duly recorded in VGCCIs corporate books. Calapatia failed to pay his loan obligation. CBC petitioned for extrajudicial

foreclosure and requested VGCCI to transfer the pledged stock in its name. VGCCI informed CBC of its inability to accede to the request in view of Calapatia's unsettled accounts with the club. Notwithstanding, CBC proceeded to foreclose the pledge. It emerged as the highest bidder and was issued the corresponding certificate of sale. Subsequently, VGCCI sold Calapatias stock at public auction for his failure to settle his accounts with it (monthly dues). Thus when CBC requested that a new certificate of stock be issued in its name, VGCCI replied it has already been sold. At the SEC, CBC sought to cancel the latter sale and have a new certificate of stock issued in its name. VGCCI anchors its prior right over the subject stock on a provision of its by-laws: after a member shall have been posted as delinquent, the Board may order his x x x share sold to satisfy the claims of the Club... VGCCI maintains that CBC is bound by its by-laws arguing that CBC had actual knowledge of its by-laws when CBC foreclosed the pledge and when CBC purchased the pledged stocks. Issue. Is CBC bound by the by-laws of VGCCI? Held. No. [A third person] is not privy to the contract created by the by-laws between the shareholder . . . and [the corporation]. [Concededly, i]t is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. x x x [However, i]n order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. CBCs belated notice of said by-laws at the time of foreclosure will not suffice.

longer directors/officers of ALFA considering Sec 23 of the Corp. Code: x x x Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director. Issue. Did the Voting Trust Agreement deprive petitioners of their right to qualify as directors? Held. Yes. Thus, there is improper service of summons on ALFA through the petitioners. The execution of a voting trust agreement may create a dichotomy between the equitable or beneficial ownership of the corporate shares of stockholders, on the one hand, and the legal title thereto on the other hand. In order to be eligible as a director [under Sec 23 of the Corp Code], what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation. The facts of this case show that the petitioners, by virtue of the voting trust agreement executed, disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Sec 23 of the Corp Code. The petitioners ceased to be directors.

Evangelista, et al. v. Santos G.R. No. L-1721. 86 SCRA 387. 19 May 1950. Reyes, J.

Lee and Lacdao v. CA, et al. G.R. No. 93695. 205 SCRA 725. 4 February 1992. Gutierrez, Jr., J.

Facts. A complaint for a sum of money was filed against respondents who, in turn, filed a third party complaint against Alfa Integrated Textile Mills (ALFA). Summons on ALFA was served through petitioners. Petitioners were previously directors and the president and vicepresident of ALFA. At the time, a Voting Trust[8] Agreement between ALFA and Development Bank of the Phils. (DBP) had already been executed. Pursuant to the Agreement, the petitioners transferred to the trustee (DBP) the right to vote upon the shares and in that respect the same powers as owners of the equitable as well as the legal title to the stock. Petitioners thus claim that there was improper service of summons on ALFA as they are no

Facts. Petitioners are minority stockholders of the Vitali Lumber Co., Inc. Santos holds majority of the capital stock and is the president, manager and treasurer thereof. Petitioners filed a complaint for damages against Santos for mismanagement of the corporate affairs and misuse of corporate assets which caused the complete ruin of the corporation and total depreciation of its stocks. The complaint prays for judgment requiring Santos to, among others, pay petitioners the value of their respective participation in said assets. The lower court dismissed the complaint for, one, lack of cause of action. Issue. Do petitioners have a cause of action against Santos? Held. No. The injury complained of is primarily to the corporation, so that the suit for the damages claimed should be by the corporation rather than by the stockholders. The stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the

dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done. But while it is to the corporation that the action should pertain x x x, however, if the officers of the corporation, who are the ones called upon to protect their rights, refuse to sue, or where a demand upon them to file the necessary suit would be futile because they are the very ones to be sued or because they hold the controlling interest in the corporation, then in that case any one of the stockholders is allowed to bring suit. But in that case it is the corporation itself and not the plaintiff stockholder that is the real party in interest, so that such damages as may be recovered shall pertain to the corporation. In other words, it is a derivative suit brought by a stockholder as the nominal party plaintiff for the benefit of the corporation, which is the real party in interest. In the present case, petitioners have brought the action not for the benefit of the corporation but for their own benefit. Notably, the action is susceptible of being converted into a derivative suit for the benefit of the corporation by a mere change in the prayer.

Issues. (1) Was the Club dissolved already at the time the complaint was filed? (2) Does the SEC have jurisdiction over the case? Held. (1) No. 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 where no rights of creditors may be prejudiced (see Sec. 118, Corp. Code). These requirements should have been strictly complied with. No proof was offered by petitioners with regard to the notice and publication requirements as well as the proof of the board members certification. The SEC Order of Dissolution was never submitted as evidence. (2) Yes. The present dispute is intra-corporate in character. Parties here involved are officers and members of the Club. The present conflict arose from this relation of the parties. The subject of the complaint, namely, the legality of the expulsion from membership of the Sps. Raniel and the validity of the amendments in the clubs by-laws are, furthermore, within the SECs jurisdiction.*9+

Vesagas v. CA and Sps. Raniel G.R. No. 142924. 371 SCRA 508. 5 December 2001. Puno, J. Facilities Management Corp., et al. v. de la Osa Facts. The Luz Village Tennis Club, Inc. (the Club) made amendments to its by-laws. Subsequently, its Board of Trustees resolved to continue to consider the Club as a nonregistered or non-corporate entity and just a social association for the purpose of playing tennis. Later, respondents Sps. Raniel, members in good standing of the Club hitherto, filed a complaint with the SEC against petitionersthe Clubs President and Vice Presidentfor allegedly being summarily stripped of their lawful membership without due process of law. They sought to have their expulsion declared illegal and also to have the amendments to the Clubs by-laws declared a nullity. Petitioners moved to dismiss on the ground that the SEC lacks jurisdiction over the subject matter. SEC denied the motion. CA affirmed. Petitioners argue: at the time the complaint was filed, the Club had already dissolved its corporate existence. Thus, there can be no intra-corporate dispute over which the SEC may exercise jurisdiction. G.R. No. L-38649. 86 SCRA 131. 26 March 1979. Makasiar, J.

Facts. Petitioner Facilities Management Corp. (FMC) is a foreign corporation domiciled in Wake Island, CA, USA. Petitioner Catuira is its Philippine agent with authority to execute therefor employment contracts and receive therefor legal services from processes of the Philippine courts of justice. Respondent de la Osa was an employee of FMC. He filed a complaint for the recovery of unpaid overtime pay and night shift premiums. Summons was served upon Catuira. FMC moved to dismiss on the ground of lack of jurisdiction, claiming it cannot be sued in the Philippines because it is not doing business in the Philippines.[10] Issue. Is FMC doing business in the Philippines so that the service of summons upon Catuira, its agent, vested the trial court with jurisdiction?

Held. Yes. Clearly, Catuira was a liaison officer of FMC. Doing business includes, among others, the opening of liaison offices. Notably, the object of the Corporation Law was to prevent [a foreign corporation from doing business in the Philippines] without taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of the Legislature to exclude [a foreign corporation not doing business in, but has obtained] an isolated order for business from, the Philippines from securing redress in the Philippine courts. Indeed, if a foreign corporation not [doing] business in the Philippines is not banned from seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person in the Philippines.

execution of the insurance contracts must be deemed to have been cured by the subsequent registration.

Mentholatum Co., Inc., et al. v. Mangaliman, et al. G.R. No. L-47701. 73 Phil 524. 27 June 1941. Laurel, J.

The Home Insurance Co. v. Eastern Shipping Lines, et al. G.R. No. L-34382. 123 SCRA 144. 20 July 1983. Gutierrez, Jr., J.

Facts. Mentholatum is the registered trademark for the medical salve manufactured by petitioner Mentholatum Co., Inc. (MCI). MCI is a Kansas corporation with PhilippineAmerican Drug Co. (Philam DC) as its exclusive distributing agent in the Philippines. However, MCI does not have a license to do business in the Philippines. Later, respondents Mangaliman brothers manufactured and sold Mentholiman, also a medical salve. MCI sued for trademark infringement and unfair competition. CFI ruled for MCI. CA reversed holding that MCI is engaged in business in the Philippines without a license and, thus, it may not maintain the suit. Issue. May MCI prosecute the action? Held. No. MCI, through its agent, Philam DC, has been doing business in the Philippines by selling its products here. It follows that whatever transactions Philam DC had executed, in view of the law, MCI did it itself. And, MCI, being a foreign corporation doing business in the Philippines without the required license, it may not prosecute this action. The true test in determining whether a foreign corporation is doing business seems to be whether such corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. Doing business implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.

Facts. Respondents were liable for breach of contract of carriage covering a shipment of coils of Black Hot Rolled Copper Wire Rods. Petitioner The Home Insurance Co. (HIC) paid their customer pursuant to the insurance policy it had with said customer covering the shipment. Pursuant to its right of subrogation, HIC brought suits against respondents to recover what it has paid. The complaints were dismissed on the ground that HIC failed to prove its capacity to sue. At the time the insurance contracts were executed, HIC did not have a license to do business in the Philippines. However, at the time it filed the complaints, it has already obtained the necessary license. Issue. Does HIC have the capacity to sue in Philippine courts? Held. Yes. The Corporation Law must be given a reasonable interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries. The object of Sec. 69 of the Corporation Law was to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts.[11] The lack of registration cannot be taken to mean that the insurance contracts made were void such that no suits could be prosecuted on them in any court. The requirement of registration affects only the remedy. Thus, in this case, the lack of capacity to sue at the time of the

Eriks Pte. Ltd. v. CA and Enriquez, Jr. G.R. No. 118843. 276 SCRA 576. 6 February 1997. Panganiban, J.

winning bidder. Notwithstanding, the OP directed the SBMA to refrain from signing the Concession Contract with HPPL and to conduct a rebidding. HPPL filed a complaint with the RTC for specific performance, mandatory injunction and damages. SBMA nonetheless commenced the rebidding. HPPL moved for maintenance of status quo which was denied. Hence, this petition for injunction. The legal capacity of HPPL to sue is impugned for doing business in the Philippines without a license. Issue. Does HPPL have the legal capacity to sue? Held. No. HPPL is doing business in the Philippines without the requisite license. It must be held to be incapacitated to bring this petition. A single act or transaction may be considered as doing business when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a singular act cannot be merely incidental or casual if it indicates the foreign corporations intention to do business. Participating in the bidding process constitutes doing business because it shows the foreign corporations intention to engage in business here. The bidding for the concession contract is but an exercise of the corporations reason for creation or existence.

Facts. Petitioner Eriks Pte. Ltd. (Eriks) is a Singaporean corporation.[12] It does not have license to do business in the Philippines. In a period of 5 months, respondent Enriquez, Jr. made 16 purchases of goods from Eriks on 90-day credit terms. Enriquez failed to settle his account. Eriks filed a collection suit. RTC dismissed the complaint, holding that Eriks is barred from prosecuting the action under Sec. 133 of the Corporation Code.[13] CA affirmed. Issue. May Eriks prosecute the action? Held. No. Eriks is doing business in the Philippines without the requisite license. It is thus barred access to our court system. More than the sheer number of transactions entered into, a clear and unmistakable intention on the part of Eriks to continue the body of its business in the Philippines is more than apparent.[14] The sale by Eriks of the goods, which are part and parcel of its main product line, was actually carried out in the progressive prosecution of commercial gain and the pursuit of the purpose and object of its business. Further, its grant and extension of 90-day credit terms to Enriquez for every purchase made, unarguably shows an intention to continue transacting with Enriquez, since in the usual course of commercial transactions, credit is extended only to x x x those on whom there is an intention to maintain long-term relationship. The series of transactions in question could not have been isolated or casual transactions.[15]

Antam Consolidated, Inc., et al. v. CA, et al. G.R. No. L-61523. 31 July 1986. Gutierrez, Jr., J. Hutchison Ports Phils., Ltd. v. SBMA, et al. G.R. No. 131367. 31 August 2000. Ynares-Santiago, J. Facts. Respondent Stokely Van Camp, Inc. (Stokely) is a corporation organized and existing under the laws of Indiana, U.S.A. It has no license to do business in the Philippines. It purchased from Comphil (control of which now belongs to petitioners) 500 long tons of crude coconut oil. Petitioners failed to deliver so Stokely covered its coconut oil needs in the open market and sustained a loss of US$103,600. Instead of making an outright demand on petitioners, Stokely opted to enter into a second transaction where petitioners were to buy back the crude coconut oil in an amount which will earn Stokely a profit equivalent to its loss of US$103,600. Petitioners again failed to pay. Stokely then entered a third transaction with petitioners whereby the latter were to sell crude coconut oil to it at a discounted rate, the

Facts. Respondent Subic Bay Metropolitan Authority (SBMA) conducted a bidding for the development and operation of a modern marine container terminal within the Subic Bay Freeport Zone. SBMA resolved to award the winning bid to petitioner Hutchison Ports Phils., Ltd. (HPPL). One of the bidders[16] appealed to the Office of the President (OP). Pursuant to the directive from the OP, SBMA conducted a reevaluation. HPPL was still selected the

total amount of such discount also being equivalent to its loss. Petitioners still failed to deliver. Stokely filed a collection suit. Petitioners impugn Stokelys legal capacity to sue for being a foreign corporation doing business in the Philippines without a license. Petitioners argue: Stokely has participated in three transactions, either as a seller or buyer, which are by their nature, in the pursuit of the purpose and object for which it was organized. Issue. Does Stokely have the legal capacity to sue? Held. Yes. The transactions entered into by Stokely with petitioners are not a series of commercial dealings which signify an intent on the part of Stokely to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business." It can be deduced that in reality, there was only one agreement between the petitioners and Stokely. The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate intent on the part of Stokely to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines. Being a foreign corporation not doing business in the Philippines, Stokely does not need to obtain a license to do business to have capacity to sue.

ML FUTURES allege: from the outset, the Sps. Lara knew and were duly advised it did not have a license to do business in the Philippines. Issue. May the Sps. Lara impugn ML FUTURES' capacity to sue them in Philippine courts? Held. No. The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. This doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract x x x. There would seem to be no question that the Sps. Lara received benefits generated by their business relations with ML FUTURES. Assuming that the Sps. Lara were aware from the outset that ML FUTURES had no license to do business in this country, it would be inequitable for the Sps. Lara to evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done business in this country in the first place.

Agilent Technologies Singapore (Pte.), Ltd. v. Integrated Silicon Technology Phils. Corp., et al. G.R. No. 154618. 14 April 2004. Ynares-Santiago, J. Merrill Lynch Futures, Inc. v. CA and Sps. Lara G.R. No. 97816. 24 July 1992. Narvasa, C. J. Facts. Hewlett-Packard Singapore (HP-Singapore) entered into a Value Added Assembly Services Agreement (VAASA) with respondent Integrated Silicon Technology Phils. Corp. (Integrated Silicon), a domestic corporation. Under the VAASA, Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore. HP-Singapore was to consign raw materials to Integrated Silicon, transport machinery to the plant of Integrated Silicon, and pay Integrated Silicon the purchase price of the finished products. HP-Singapores rights and obligations to the VAASA were later assigned to petitioner Agilent Technologies Singapore (Pte.), Ltd (Agilent). Agilent is a foreign corporation, which is not licensed to do business in the Philippines. When the VAASA expired, it appeared Integrated Silicon refused to return to Agilent its equipment, machineries and materials. Agilent sued. Integrated Silicon impugned Agilents legal capacity to sue for, among others, doing business in the Philippines without a license.

Facts. Petitioner Merrill Lynch Futures, Inc. (ML FUTURES) is a futures commission merchant organized and existing under the laws of Delaware, U.S.A. It had no license to do business in the Philippines. ML FUTURES entered into a Futures Customer Agreement with respondents, the Sps. Lara, whereby it acted as the latter's broker for the purchase and sale of futures contracts in the U.S. Orders were transmitted through the facilities of its agent corporation[17] for four or so years. The last 3 transactions had resulted in a loss. The Sps. Lara refused to settle. ML FUTURES filed a collection suit. The Sps. Lara moved to dismiss on the ground of ML FUTURES lack of capacity to sue for, among others, being a foreign corporation doing business in the Philippines without a license. RTC granted the motion. CA affirmed.

Issue. Does Agilent have legal capacity to sue? Held. Yes. Agilent is not doing business in the Philippines. Thus, it needed no license before it can sue before our courts. Agilents activities in the Philippines were confined to (1) maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to be used in the processing of products for export. As such, Agilent cannot be deemed to be "doing business" in the Philippines.[18]

In the case at bar, the sales of lace products were consummated in Hong Kong. We find no single activity which ZUIDEN performed here in the Philippines pursuant to its purpose and object as a business organization. Therefore, there is no basis for ruling that ZUIDEN is doing business in the Philippines. The mere act of exporting from ones own country, without doing any specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing country.[19]

B. Van Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc. PSE v. CA, SEC and Puerto Azul Land, Inc. G.R. No. 147905. 28 May 2007. Carpio, J. G.R. No. 125469. 281 SCRA 232. 27 October 1997. Torres Jr., J.

Facts. Petitioner B. Van Zuiden Bros., Ltd. (ZUIDEN) is a Hong Kong corporation without license to do business in the Philippines. ZUIDEN filed a complaint for a sum of money against respondent GTVL Mnfg. Industries, Inc. (GTVL)a domestic corporation. ZUIDEN alleged in its complaint: it is engaged in the importation and exportation of several products, including lace products. GTVL purchased lace products from it on several occasions. Per instructions of GTVL, the purchased goods are delivered to Kenzar, a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the goods, the products were considered sold. Kenzar, in turn, had the obligation to deliver the goods to the Philippines to GTVL. GTVL failed and refused to pay the agreed purchase price for several deliveries. RTC dismissed the case for ZUIDENs lack of capacity to sue, holding that it was doing business in the Philippines without a license. CA affirmed. Issue. Does ZUIDEN have the legal capacity to sue in Philippine courts? Held. Yes. ZUIDEN is not doing business in the Philippines. Thus, it does not need a license before it can sue before our courts. To be doing business in the Philippines" for purposes of Sec. 133 of the Corp. Code, the foreign corporation must actually transact business in the Philippines on a continuing basis in its own name and for its own account.

Facts. Respondent Puerto Azul Land, Inc. (PALI) sought to course the trading of its shares through the petitioner PSE. As PSE was considering PALIs application, it received objections from the representative of the late Pres. Marcos and his family who claim PALIs properties to be part of the Marcos estate.[20] PSE rejected PALIs application on the ground of the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange. SEC ruled in favor of PALI and ordered PSE to cause the listing of the PALI shares. CA affirmed. CA held: the SEC had jurisdiction and authority to look into the decision of PSE for the purpose of ensuring fair administration of the exchange pursuant to Sec.6(j) and 38(b) of PD 902-A, among others.[21] Issue. Does SEC have the jurisdiction and authority to reverse the decision of the PSE? Held. No. We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock, may be traded or not in the stock exchange. This is in line with the SECs mission to ensure proper compliance with the laws. This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. PSE is, after all, a corporation. One of PSEs main concerns, as such, is still the generation of profit for its stockholders. The PSE has all the rights pertaining to corporations. As to its corporate and management decisions, therefore, the State will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the

officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs decision in matters of application for listing in the market, the SEC may exercise such power only if PSEs judgment is attended by bad faith. In this case, PSE was in the right when it refused PALIs application, for a contrary ruling was not to the best interest of the general public as there is serious doubt on the integrity of PALI as a stock issuer. The purpose of the RSA, after all, is to give adequate and effective protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless ventures.

Held. Yes. While the question of whether the subject checks fall within the classification of securities under the RSA may still be the subject of debate, at the very least, a prima facie case has been established. It is one thing for a corporation to issue checks to satisfy isolated individual obligations, and another for a corporation to execute an elaborate scheme where it would comport itself to the public as a pseudo-investment house and issue postdated checks instead of stocks or traditional securities to evidence the investments of its patrons. The definition of securities set forth in the RSA includes commercial papers evidencing indebtedness of any person, financial or non-financial entity. A check is a commercial paper evidencing indebtedness of any person, financial or non-financial entity. Since the checks in this case were generally rolled over to augment the creditors existing investment with ASBHI, they most definitely take on the attributes of traditional stocks.

Gabionza and Tan v. CA, et al. G.R. No. 161057. 12 September 2008. Tinga, J. Power Homes Unlimited Corp. v. SEC G.R. No. 164182. 26 February 2008. Puno, C.J. Facts. Respondents are the President and Senior VP-Treasurer of ASB Holdings, Inc. (ASBHI). ASBHI runs the following modus operandi. It borrows funds from individual investors, and issues 2 postdated checks in exchangeone representing the principal amount and the other covering the interest thereon. The checks would mature in 30 to 45 days. On the maturity of the checks, the lenders would renew the loans, either collecting only the interest earnings or rolling over the same with the principal amounts. In 1998, ASBHI borrowed funds from about 700 individual investors amounting to close to P4 billion. In 2000, ASBHI filed for rehabilitation and receivership, and obtained an order enjoining it from paying its outstanding liabilities. Petitioners, two of the many individual lenders of ASBHI, filed a complaint for, among others, violation of the RSA. The SOJ directed the filing of information for violation of the prohibition against the sale or offer for sale of unregistered securities under the RSA.[22] CA reversed, ordered the dismissal of the criminal cases, and cursorily ruled that the postdated checks issued by ASBHI do not constitute securities under the RSA. Issue. Has a prima facie case been established against respondents to warrant their prosecution for the offense?

Facts. Petitioner Power Homes Unlimited Corp. (Power Homes) is a marketing company that promotes and facilitates sales of real properties and other related products of real estate developers through effective leverage marketing.[23] Respondent SEC received two letters inquiring into the legitimacy of Power Homes network marketing; whereupon, SEC conducted an investigation. SEC found Power Homes to be engaged in the sale or offer for sale or distribution of investment contracts without registering them in violation of Sec. 8.1 of the SRC. SEC thus issued a CDO enjoining Power Homes and any and all persons claiming and acting under their authority from further engaging in the sale, offer or distribution of the securities. CA upheld the CDO. Issue. Does the business of Power Homes constitute an investment contract? Held. Yes. An investment contract is defined in the SRC Rules 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." Under Power Homes scheme, an investor enrolls to be entitled to recruit other investors and to receive commissions from the investments of those directly recruited by him. The accumulated amount received by the investor comes primarily from the efforts of his recruits. Thus, the

scheme constitutes an investment contract which must be registered with SEC before its sale or offer for sale or distribution to the public.[24]

parties. To deprive the SEC of this power would render the agency inutile, because it would become powerless to regulate and implement the law. (2) Yes. Tender offer is in place to protect minority shareholder against any scheme that dilutes the share value of their investments. This is the legislative intent of Sec. 19 of the SRC. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes it clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase or shares. Control may be effected through a direct and indirect acquisition, and when this takes place, irrespective of the means, a tender offer must occur.

Cemco Holdings, Inc. v. National Life Insurance Co. G.R. No. 171815. 529 SCRA 355. 7 August 2007. Chico-Nazario, J.

Facts. Union Cement Holdings Corp. (UCHC) owned 60.51% and petitioner Cemco Holdings, Inc. (Cemco) 17.03% of the stocks of Union Cement Corp. (UCC), a publicly-listed company. Cemco also owned 9% of the stocks of UCHC. The major stockholders of UCHC (BCI and ACC) sold their shares in UCHC to Cemco, giving Cemco now 60% ownership of UCHC. This gave Cemco 36% indirect ownership of UCC, and consequently, 53% total ownership of the same. No tender offer for the UCC shares was made. Respondent National Life Insurance Co. (NLIC), a minority stockholder of UCC, filed a complaint with the SEC praying that the mandatory tender offer rule be applied. SEC ruled in NLICs favor, directing Cemco to make a tender offer. CA affirmed. Cemco argues: (1) SECs authority is purely administrative, thus it cannot adjudicate and issue orders granting affirmative reliefs such as commanding it to make a tender offer; (2) the mandatory tender offer rule applies only to direct acquisition of shares. Issues. (1) Does the SEC have the jurisdiction to require Cemco to make a tender offer? (2) Does the rule on mandatory tender offer apply to the indirect acquisition of shares in a listed company? Held. (1) Yes. The SEC has the power and authority to regulate, investigate or supervise the activities of persons to ensure compliance with the SRC (SRC Sec. 5.1(d)), such as the provisions on mandatory tender offer in Sec. 19 thereof. It also may exercise such powers which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted to it (SRC Sec. 5.1(n)). As a regulatory agency, it has the incidental power to conduct hearings and render decisions fixing the rights and obligations of the

Phil. Assoc. of Stock Transfer and Registry Agencies, Inc. v. CA G.R. No. 137321. 536 SCRA 61. 15 October 2007. Quisumbing, J.

Facts. Allegedly to sustain financial viability of its members and to upgrade facilities, petitioner PASTRA[25] increased its transfer processing fees from P45 to P75 and then to P100 in span of 5 months. This it did notwithstanding SEC directives to desist from implementing the new rates. PASTRA also authorized the imposition of fees from P50 to P500 for stockholder information requested by external auditors and validation of status of certificates without prior approval of the SEC. SEC conducted a hearing. SEC issued a CDO against PASTRA and fined the same for violating its previous orders. SEC opined that there exists the possibility that the act or practice may cause grave or irreparable injury to the investing public if left unrestrained. PASTRA alleged grave abuse of discretion on the part of SEC before the CA. CA dismissed PASTRAs petition. PASTRA argues: SEC cannot restrict its members from increasing the transfer and processing fees because there is no specific law, rule or regulation authorizing it. Sec. 40[26] of the RSA only lays down the general powers of the SEC to regulate and supervise the corporate activities of organizations connected with the securities market. It could not justify SECs interference in management prerogatives.

Issue. Does the SEC have the power to issue the CDO? Held. Yes. As a securities-related organization under the jurisdiction and supervision of SEC by virtue of Sec. 40 of the RSA, PASTRA was under the obligation to comply with its orders. Defiance was subject to administrative sanctions. The power to regulate PASTRAs fees was included in the general power given to SEC under said Sec. 40. While the SEC is indeed without authority to substitute its judgment for that of the corporations board of directors on business matters so long as the board acts in good faith, this case involves not whether PASTRAs actions pertained to such management prerogatives or whether PASTRA acted in good faith. Rather, this case involves the question of whether the SEC had the power to enjoin PASTRAs planned increase in fees after the SEC had determined that said act if pursued may cause grave or irreparable injury or prejudice to the investing public.[27] Sec. 47 of the RSA[28] expressly gave the SEC the power to enjoin motu proprio any such act or practice of securities-related organizations.

Held. No. There is no identity of causes of action or identity of rights asserted by the parties in both cases. The proceedings in the said cases are independent and separate of each other and may thus proceed separately. The issue under SICD Case is an intra-corporate dispute, which falls under the jurisdiction of the SICD; while the investigation being conducted by the PED is the alleged anomalous transaction and spurious documents used in the increase in capital of T.F. Ventures, Inc., which falls under the jurisdiction of PED pursuant to Sec. 8 of PD No. 902A.[30]

Orendain v. BF Homes, Inc. G.R. No. 146313. 506 SCRA 243. 31 October 2006. Velasco, Jr., J.

Morato, et al. v. CA, et al. G.R. No. 141510. 436 SCRA 438. 13 August 2004. Callejo, Sr., J.

Facts. Petitioners (stockholders/officers of T.F. Ventures, Inc.) instituted a petition with the SEC against respondent Matsuura (Chairman of the Board of Directors of T.F. Ventures, Inc.) and others for the annulment of the notice of annual stockholders meeting, the resulting stockholders meeting pursuant to the said notice, and all corporate acts thereafter taken by the respondent Matsuura and the officers elected in the said meeting. The case was docketed with the Securities Investigation and Clearing Dept. (SICD) of the SEC. Later, Matsuura requested the SEC to examine the basis of the capital increase of T.F. Ventures, Inc., alleging commission of fraudulent schemes, devices and misrepresentations in violation of the law. He alleged, among others, that petitioners falsely certified the Treasurers Affidavit to enable the petitioners to gain control of T.F. Ventures, Inc. at practically zero cash outlay.[29] This was docketed with the Prosecution and Enforcement Dept. (PED) of the SEC. Petitioners moved to suspend proceedings in the PED case and/or consolidation of cases alleging that the issue in the SICD case is a prejudicial question therein. Issue. Is the issue in the SICD case a prejudicial question in the PED case?

Facts. Respondent BF Homes was placed under receivership. The rehabilitation receiver appointed by the SEC was FBO Management Networks, Inc. (FBO) with petitioner Orendain as Chairman. During the receivership, BF Homes, represented by Orendain, executed a Deed of Sale conveying a parcel of land to the Local Superior of the Franciscan Sisters of the Immaculate Phils., Inc. (LSFSIPI). Subsequently, BF Homes filed with the RTC an action for reconveyance of the property against LSFSIPI and Orendain alleging, inter alia, that Orendain transacted in his individual capacity and therefore, neither FBO nor Orendain had title to the property transferred. Orendain moved to dismiss on the ground that the RTC had no jurisdiction. RTC denied the motion. CA affirmed. Orendain argues: it is the SEC that has jurisdiction by virtue of PD 902-A since BF Homes suit was instituted against him as its former receiver. Thus, the SEC, which appointed the rehabilitation receiver, has the sole power to decide the issue as to whether he acted within the scope of the vested authority. Issue. Does the RTC have jurisdiction over the case? Held. Yes. The controversy involves matters purely civil in character and is beyond the ambit of the limited jurisdiction of the SEC. The LSFSIPI is neither an officer nor a stockholder of BF Homes, and this case does not involve intra-corporate proceedings. In addition, the seller, Orendain, is being sued in his individual capacity for the unauthorized sale of the property in controversy. Hence, we find no cogent reason to sustain Orendains

manifestation that the resolution of the instant controversy depends on the ratification by the SEC of the acts of its agent or the receiver because the act of Orendain was allegedly not within the scope of his authority as receiver. Furthermore, the determination of the validity of the sale to LSFSIPI will necessitate the application of the provisions of the Civil Code.[31]

Issues. (1) (2) Held. (1) No. The linchpin in deciding the question is whether or not the cause of action of GSIS before the SEC is intimately tied to an election controversy. It is evident under Sec. 5(c) of PD 902-A that the jurisdiction of the regular courts over election contests or controversies does not extend to every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Sec. 24 of the Corporation Code. The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under Sec. 5 of PD 902-A. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts. That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy falls within the contemplation of an election controversy properly within the jurisdiction of the regular courts. (2) No. Firstly, since the SEC had no jurisdiction over the petition filed by GSIS, the CDO granted with respect thereto is necessarily invalid. Secondly, the error of the SEC in granting the CDO without stating which kind of CDO it was issuing is unpardonable, as it is an act that contravenes due process of law. In administrative proceedings, the body or tribunal must "render its decision in such a manner that the parties to the proceeding can know the various issues involved, and the reason for the decision rendered." This requirement is vital, as its fulfillment would afford the adverse party the opportunity to interpose a reasoned and intelligent appeal that is responsive to the grounds cited against it. The citation in the CDO of Sec. 5.1, 53.3 and 64 together may leave the impression that it is grounded on all three provisions.[35] This, however, is legally impermissible. The CDO under Sec. 53.3 is premised on distinctly different requisites than the CDO under Sec. 64. Even more crucially, the lifetime of the CDO under Sec. 53.3 is confined to a definite span of ten (10) days, which is not the case with the CDO under Sec. 64. This CDO Does the SEC have jurisdiction over the petition filed by GSIS? Was the CDO issued valid?

Government Service Insurance System v. CA, et al. G.R. No. 183905. 16 April 2009. Tinga, J.

Facts. In connection with the annual stockholders meeting of Meralco, proxies were submitted. Petitioner GSIS, a major stockholder in Meralco, was distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco management. GSIS alleged that the information statement Meralco had filed with the SEC in connection with the annual meeting did not contain any proxy form as required by AIRR-SRC Rule 20 (The Proxy Rule). GSIS filed an Urgent Petition with the SEC seeking to, among others, annul and declare invalid proxies in favor of the private respondents, corporate officers of Meralco (respondents). GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said proxies during the annual meeting. SEC Commissioner Martinez issued the CDO. The CDO cited SRC Sec. 5.1, 53.5 and 64 in ratiocinating the issuance. Notwithstanding the CDO, Meralco announced it would push through with the meeting opining that the CDO is null and void. SEC issued a Show Cause Order (SCO) against respondents ordering them to explain why they should not be cited for contempt. Respondents filed a petition for certiorari with prohibition with the CA. CA ruled in favor of respondents, dismissing the [petition] filed by GSIS in the SEC for SECs lack of jurisdiction, among others, and concluding that SECs CDO and SCO are thus void ab initio. GSIS argues: since proxy solicitations, following SRC Section 20.1, have to be made in accordance with rules and regulations issued by the SEC, it is the SEC under SRC Sec. 53.1 that has the jurisdiction to investigate alleged violations of the rules on proxy solicitations.[32] Respondents argue: under Sec. 5.2 of the SRC, the SECs jurisdiction over all cases enumerated in Sec. 5 of PD No. 902-A, including election contests were transferred to the regional trial court.[33] And under Rule 6, Sec. 2 of the Interim Rules on Intra-Corporate Controversies, an election contest includes any controversy or dispute involving the validation of proxies.[34]

under Sec. 64 may be the object of a formal request for lifting within five (5) days from its issuance, a remedy not expressly afforded to the CDO under Sec. 53.3. Thirdly, the fact that the CDO was signed, much less apparently deliberated upon, by only by one commissioner likewise renders the order fatally infirm. The SEC is a collegial body composed. It acts through a five-person body, and each of the members has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the SEC.

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, among others. However, 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.[36] The mere use of the phrase in fraud of creditors does not, ipso facto, throw the case within SECs jurisdiction. Within the context of the complaint, the said phrase can only mean to the prejudice of creditors and not to the devises or schemes tantamount to fraud and misrepresentation contemplated in PD 902-A, Sec. 5.[37]

Sumndad v. Harrigan and Boracay Beach Club Hotel, Inc. G.R. No. 132358. 381 SCRA 8. 12 April 2002. Quisumbing, J.

Speed Distributing Corp., et al. v. CA and Rufina Lim G.R. No. 149351. 425 SCRA 691. 17 March 2004. Callejo, Sr., J.

Facts. Petitioner Sumndad and respondent Harrigan entered into a joint venture agreement to establish and develop a first-class tourist resort on 3,000 sq.m. of land in Boracay owned by Sumndad. The land was then assigned to defendant Boracay Beach Club Hotel, Inc. (BBCHI). Harrigan acquired 40% of the authorized capital stock of BBCHI. For the development of the resort, Harrigan made several advances or loans in favor of BBCHI amounting to a total of P8M plus interests. BBCHI did not pay despite repeated demands. Harrigan brought suit in the RTC for collection of money. In his amended complaint, he alleged: In so allowing another person to have absolute and uncontrolled x x x management x x x of the x x x facilities of [BBCHI] without any corresponding financial return x x x and the misappropriation by said third party of the income x x x [BBCHI] has, in effect, disposed of x x x and/or wantonly x x x dissipated x x x corporate properties and funds, in fraud of creditors, including *Harrigan+. Sumndad moved to intervene and was allowed, but she was subsequently declared in default. RTC ruled in favor of Harrigan. Sumndad filed a petition for certiorari with the CA, but was dismissed. Sumndad argues: RTC has no jurisdiction over the subject matter of the case because the complaint alleges fraud committed by BBCHI against complainant Harrigan who is a stockholder thereof. Jurisdiction belongs to the SEC. Issue. Does the RTC have jurisdiction over the subject matter of the case? Held. Yes. Under PD 902-A, Sec. 5, the SEC has original and exclusive jurisdiction to hear and decide cases involving devises or schemes employed by or any acts of the Board of Directors,

Facts. Pastor Lim died intestate and was survived by his wife (respondent Rufina), and other compulsory heirs. Few months later, Leslim Corp. (Leslim) executed a deed of absolute sale in favor of petitioner Speed Distributing Corp. (Speed) which covered a parcel of lot at Diliman, Quezon City. Pastor owned 79.75% of Leslim and only 10 of the 12,500 shares of Speed. Rufina filed a complaint against Speed and petitioners with the RTC for the nullification of the said deed of sale alleging that the same is simulated and that it was a scheme resorted to by petitioners in divesting Leslim of real property so as to gain control of the estate of Pastor, thereby depriving her of her conjugal share as well as her own share in her husbands own estate. RTC dismissed the complaint[38], and further ruled that the action involved an intracorporate controversy over which the SEC had jurisdiction. CA agreed that the case involved an intra-corporate controversy but in the light of the enactment of the SRC, jurisdiction therefor now belongs to the RTC.[39] CA remanded the case to the RTC to hear the complaint on the merits. Issue. Does the case involve an intra-corporate controversy? Held. No. Both elements of an intra-corporate controversy are absent.[40] Firstly, Rufina has never been a stockholder of either Leslim or Speed. Secondly, 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.

Velarde v. Lopez, Inc. G.R. No. 153886. 419 SCRA 422. 14 January 2004. Carpio-Morales, J.

former and vice versa. The requisites for applying the doctrine of piercing the veil of corporate fiction were not established.[43] Nowhere in the pleadings and other records of the case can it be gathered that Lopez, Inc. has complete control over Sky Vision 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 in the absence of fraud or other public policy considerations.

Facts. Petitioner Velarde was the General Manager of Sky Vision Corp. (Sky Vision), a subsidiary of respondent Lopez, Inc. Sky Vision and Lopez, Inc. had interlocking directors, corporate officers and shareholders. Rivilla, et al. v. IAC, et al. Velarde loaned P10M from Lopez, Inc. Velarde defaulted in paying his installments, and apparently proposed that he set-off his loan obligation partially with his retirement benefits from Sky Vision. Lopez, Inc. was amenable. Sky Vision then wrote Velarde, apparently in response to the latters request, showing the computation of his retirement benefits proposed to be set-off. Velarde protested the computation. Lopez, Inc. filed a collection suit with the RTC. Velarde filed a counterclaim for unpaid salaries, unpaid incentives, reasonable return on the stock ownership plan and other benefits.[41] Lopez, Inc. moved to dismiss the counterclaim for lack of jurisdiction, averring that the money claims arise from a labor relationship and thus are within the competence of the NLRC. RTC denied. CA reversed and dismissed the counterclaim, holding that Lopez, Inc. is not the real party-in-interest. Velarde argues: there is identity of interest between Lopez, Inc. and Sky Vision to merit the piercing of the veil of corporate fiction. Issues. (1) (2) Held. (1) Yes. Sec. 5(c) of PD 902-A*42+ applies to a corporate officers dismissal for a corporate officers dismissal is always a corporate act and/or an intra-corporate controversy. 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. (2) No. 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 Is the subject matter of the case within the jurisdiction of the RTC? Is the piercing of the veil of corporate fiction justified? G.R. No. 78170. 31 July 1989. Padilla, J.

Facts. Respondent Rivera made an investment in C.R. Agro Industrial Devt. Corp. (CR AGRO). Whence, a promissory note was issued in the name of CR AGRO in favor of respondent Rivera. CR AGRO defaulted on the payment. Rivera filed a complaint with the RTC. Rivera alleged that petitioners Rivilla, et al. (the controlling stockholders and officers of CR AGRO) actually used CR AGRO as a shield to perpetrate or commit fraud and/or evade their just and valid obligation to him by issuing the promissory note in the name of CR AGRO without prior registration thereof with the SEC and by falsely representing that it was so registered. Rivilla, et al. moved to dismiss on the ground that it is the SEC which has jurisdiction and not the RTC. RTC denied the motion. Appellate court upheld RTCs jurisdiction, ruling that the case is for a sum of money properly within the RTCs jurisdiction. Issue. Does the RTC have jurisdiction over the case? Held. No. SEC has jurisdiction over the case. The grant of jurisdiction by Sec. 5 of PD 902-A upon the SEC must be viewed in the light of the nature and function of the SEC under the law. In other words, the jurisdiction of the SEC should be construed in relation to its power of control and supervision over all corporations to encourage active public participation in the affairs of private corporations by way of investments. The case at bar is not simply an action for the recovery of a sum of money. It springs from an investment made by Rivera with CR AGRO. Rivera now seeks the return of his investment by CR AGRO, and more particularly, by Rivilla, et al.its corporate officers and controlling

stockholders. The averments of Rivera shows that, evidently, the present controversy is within the contemplation of Sec. 5(a) of PD No. 902-A, as amended.[44]

withhold exemption depending on the perceived level of need for protection by the investing public pursuant to Sec. 6(b) of the RSA.*46+ In fine, Nestls proposed construction of Sec. 6(a)(4) would establish an inflexible rule of automatic exemption of issuances of additional, previously authorized but unissued, capital stock. We must reject an interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely when such protection may be most needed.

Nestl Philippines, Inc. v. CA and SEC G.R. No. 86738. 203 SCRA 504. 13 November 1991. Feliciano, J. SEC v. CA, et al. Facts. In February 1983, petitioner Nestl Philippines, Inc. (Nestl) increased its authorized capital stock (ACS) from P300M divided into 3M shares to P600M into 6M shares for the same par value per share of P100. Nestl paid the necessary filing fee of P50k to the SEC. In December that year, Nestl resolved to issue 344,500 shares out of the previously authorized but unissued capital stock of Nestl, exclusively to their only principal stockholders: San Miguel Corp. and Nestl S.A. Nestl requested exemption of its proposed issuance of additional shares from the registration requirement under Sec. 4 of the RSA and from payment of the exemption fee referred to in Sec. 6(c) of the same. SEC denied the requests. CA affirmed. Nestl argues: the proposed issuance of previously authorized but theretofore unissued capital stock is contemplated in the phrase issuance of additional capital stock under Sec. 6(a)(4) and therefore is an exempt transaction.[45] Wherefore, it is exempt from payment of the said exemption fee since that would amount to collecting twice for the same transaction because it has already paid P50k as filing fee for increasing its ACS in February that year. Issue. Is the proposed issuance of additional shares exempt from the registration requirement? Held. No. The phrase issuance of additional capital stock under Sec.6(a)(4) of the RSA refers only to that which is part of and in the course of increasing the authorized capital stock of a corporation and not to the issuance of already authorized but still unissued capital stock as in the case at bar. This permits greater opportunity for the SEC to implement the statutory objective of protecting the investing public by requiring proposed issuers of capital stock to inform such public of the true financial conditions and prospects of the corporation. By so limiting the scope of the exemption, the SEC is enabled to examine the issuance of previously authorized but theretofore unissued capital stock on a case-to-case basis; and grant or G.R. Nos. 106425 & 106431-32. 246 SCRA 738. 21 July 1995. Vitug, J.

Facts. Respondent Fidelity Stock Transfer, Inc. (Fidelity) is the stock transfer agent of Philex Mining. Sometime in 1988, stock certificates representing 1,400,000 shares of Philex were stolen from the premises of Fidelity. The stocks ended in the hands of a certain Agustin Lopez who brought the same to respondent Cualoping Securities Corp. (Cualoping), a stockbroker, for trading. The stock certificates bore the apparent indorsement in blank of the owners thereof as well as the apparent verification of these signatures by Fidelity. Cualoping stamped thereon Indorsement Guaranteed and thereafter traded the same with the stock exchange. The stock certificates were delivered to Fidelity for cancellation. Meanwhile, Cualoping paid Lopez checks amounting to P400,000 for the stocks. After 2 months, Fidelity rejected the issuance of the new certificates in favor of the buyers alleging the indorsements were forged. Fidelity sought an opinion from the SEC. Both respondents appealed the ruling of the Brokers and Exchange Dept. to the SEC en banc. SEC en banc ordered respondents to jointly replace the shares and to each pay a P50,000 fine for violation of Sec. 29 (a) of the RSA, which reads in part: xxx it shall be unlawful for any person xxx in connection with the xxx sale of any securities xxx (3) to engage in any xxx course of business which operates or would operate as a fraud or deceit xxx. CA reversed the order. Issues. (1) Does the SEC have jurisdiction over the case? (2) Was the imposition of the fine on each of the respondents proper? Held.

(1) No. This case started only on the basis of a request by Fidelity for an opinion from the SEC. The stockholders who have been deprived of their certificates of stock or the persons to whom the forged certificates have ultimately been transferred by the supposed indorsees thereof are yet to initiate an appropriate adversarial action. Neither have they been made parties to the proceedings now at bench. A justiciable controversy such as can occasion an exercise of SECs exclusive jurisdiction would require an assertion of a right by a proper party against another who, in turn, contests it. In this case, the proper parties would be all or any of those who are adversely affected by the transfer of the pilfered stock certificates. Any peremptory judgment by the SEC, without such proceedings having first been initiated, would be precipitate. (2) No. To constitute a violation of the RSA that can warrant an imposition of a fine, fraud[47] or deceit, not mere negligence, on the part of the offender must be established. Given the factual circumstances found by the appellate court, neither Fidelity nor Cualoping, albeit remiss in the observance of due diligence, can be held liable under [Sec. 29 (a), RSA]. However, the negligence committed would still be actionable but such action belongs not to the SEC but to those whose rights have been injured.

Held. Yes. The foreign exchange trading transaction appears to be 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 touchtone 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.

Timeshare Realty Corp. v. Lao and Cortez G.R. No. 158941. 11 February 2008. Austria-Martinez, J.

People of the Philippines v. Petralba G.R. No. 137512. 27 September 2004. Austria-Martinez, J.

Facts. Petitioner Timeshare Realty Corp. (TRC) is duly registered as a corporation. It sold to respondents one timeshare of Laguna de Boracay in 1998. Subsequently, SEC issued a resolution to the effect that TRC was without authority to sell securities, like timeshares, prior to 11 February 1998, stating that its Registration Statement became effective only on said date. It further gave a purchaser prior to said date the option to unilaterally rescind his purchase agreement with TRC and receive refund of money paid. Respondents thus demanded cancellation of their purchase agreement and refund but TRC refused. Respondents filed a complaint with the SEC against TRC for violation of the prohibition against the sale of unregistered securities. SEC ruled for respondents. TRC argues: its mere registration as a corporation already authorizes it to deal with timeshares. Issue. Did TRCs registration as a corporation authorize it to deal with timeshares? Held. No. Corporate registration is just one of several requirements before it may deal with securities.[48] Prior to fulfillment of all the other requirements of Sec. 8 of the RSA, TRC is absolutely proscribed under Sec. 4 from dealing with timeshares.[49]

Facts. Defendant Petralba is charged with, among others, offering for sale and selling unregistered securities which are neither exempt securities nor exempt transactions. Petralba is an employee of Lansdale Enterprises, Inc. (Lansdale). It is alleged that she represented herself to complainant Dr. Bailey as a trader for Lansdale. Relying on the representations of Petralba, Dr. Bailey gave Petralba a check worth $6,000 as her starting capital for trading in the alleged securities (foreign currency trading) which were unregistered. RTC convicted Petralba. CA affirmed. Petralba argues: the transaction that transpired between Dr. Bailey and her employer Lansdale was a mere foreign exchange trading which is not covered by the term securities of the RSA. Issue. Does the contract between Dr. Bailey and Lansdale come within the term securities contemplated by the RSA?

Union Bank of the Philippines v. SEC

G.R. No. 138949. 358 SCRA 479. 6 June 2001. Panganiban, J.

Onapal Philippines Commodities, Inc. v. CA and Chua G.R. No. 90707. 218 SCRA 281. 1 February 1993. Campos, Jr., J.

Facts. Petitioner Union Bank of the Philippines (UB) is a commercial banking corporation trading its shares in the PSE. 8 April 1997, respondent SEC issued an opinion that while UBs securities are exempt from registration pursuant to Sec 5(a)(3) of the RSA, it is not exempt from the Full Material Disclosure Rule of the SEC. Thus, UB is not exempt from the filing of various reports under the RSA Rules: (1) Annual, Quarterly, Current, Predecessor and Successor Reports [Rule 11(a)-1]; (2) Proxy Statements [Rule 34(a)-1], and; (3) Information Statements, among others [Rule 34(c)-1]. UB complied with Rule 11(a)-1 only. SEC sent show-cause letters to UB which it failed to respond to. SEC fined UB P50,000 plus P500 for every day that the report was not filed for a total of P91,000. CA affirmed. Issues. (1) Is UB exempt from the Full Material Disclosure Rule of the SEC? (2) Is the imposition of the fine on UB proper? Held. (1) No. RSA Sec 5(a)(3) exempts the securities issued by banking institutions authorized to do business in the Philippines, which business is substantially confined to banking and which is supervised by the BSP, from registration. Nowhere does it state or even imply that UB, as a listed corporation, is exempt from complying with the reports required by the RSA Rules. Having confined the exemption merely to the initial requirement of registration of securities for public offering, the SEC, as a regulatory agency, is able to exercise its power of supervision and control over corporations and securities market as a whole. Otherwise, the objectives of the Full Material Disclosure policy would be defeated since UB and its dealings would be totally beyond the reach of the SEC and the investing public. As a bank, UB is primarily subject to the control of the BSP. As a corporation trading its securities in the stock market, it is under the supervision of the SEC. (2) Yes. The fine is sanctioned by RSA Sec 46: If, after proper notice and hearing, the *SEC+ finds there is a violation of x x x its rules x x x it shall, in its discretion x x x impose x x x a fine of x x x no more than [P50,000] plus not more than [P500] for each day of continuing violation.

Facts. Petitioner Onapal Philippines Commodities, Inc. (Onapal) was a commission merchant/broker engaged in commodity futures trading[50] in Cebu. Onapal and respondent Chua entered into a Trading Contract. Chua did not read the Contract nor was she made aware of the contents thereof when she signed it. It turned out the Contract was one for sale of products for future delivery of goods in which either party may elect to make or demand delivery of goods agreed to be bought and sold.[51] Chua, however, was made to understand that the intention was that final settlement is made by payment of the difference between the price stipulated and the exchange/market price at the time of the pretended delivery; such price difference shall be paid by the loser to the winner. In all the transactions, there were no actual deliveries. Per terms of the Contract, Chuas orders shall be directly transmitted by Onapal to its principal, Frankwell Enterprises of Hongkong, which in turn must place her orders with the Tokyo Exchange. Chuas orders, however, were not transmitted to Hongkong and her money was kept by Onapal in a separate account in a local bank. Realizing the trading to be gambling, Chua withdrew from the business. She was able to get only P470,000 out of her total deposit of P800,000. She brought suit to recover the loss. Lower court ruled in Chuas favor, holding that the Trading Contract is a specie of gambling and thus was null and void, and ordering Onapal to refund Chua. Issue. Is the Trading Contract valid? Held. No. The subject Trading Contract in its printed form bears all the indicia of a valid trading contract because it complies with the SEC Rules and Regulations on Commodity Futures Trading. However, the transaction, which was carried out to implement the written contract, deviates from the true import thereof as no delivery, actual or constructive, of the commodity was ever made and final settlement was made by payment of the difference between the price stipulated and the exchange/market price at the time of the pretended delivery. Such dealings in futures are mere speculative contracts in which the parties merely gamble on the rise or fall in prices. Such transactions are illegal. This is clearly a form of gambling contemplated under Art. 2018 of the NCC, and thus Chua is entitled to recover what she has paid.[52]

SEC v. Performance Foreign Exchange Corp.

G.R. No. 154131. 20 July 2006. Sandoval-Gutierrez, J. Facts. The board of directors of Interport Resources Corp. (IRC) approved a Memorandum of Agreement (MOA) with Ganda Holdings Berhad (GHB). Under the MOA, IRC acquired 100% of the capital stock of Ganda Energy Holdings, Inc. (GEHI). In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC.[55] 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. After a hearing, SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of Material Facts and that some of its officers and directors engaged in insider trading in violation of Sec. 30, in relation to Sec. 36, of the RSA. SEC ordered, among others, the creation of a special investigating panel to hear and decide the case. At the time, the SEC has not promulgated rules to implement Secs. 8, 30 and 36 of the RSA. Respondents filed a petition before the CA. CA ruled in repondents favor. CA held that absent any implementing rules for the RSA provisions which respondents allegedly violated, Secs. 8, 30 and 36,[56] no civil, criminal or administrative actions can possibly be had against the respondents without violating their right to due process and equal protection. Respondents aver: SEC still needed to define the terms "material fact," "reasonable person," "nature and reliability" and "generally available" in Sec. 30 of the RSA; and the term "beneficial ownership" in Sec. 36 of the RSA to give effect to the law. Issue. May respondents be held to violate Secs. 8, 30 and 36 of the RSA without implementing rules therefor? Held. Yes. In the absence of any constitutional or statutory infirmity, which may concern said sections of the RSA, the provisions are legal and binding. To rule that the absence of implementing rules can render ineffective an act of Congress, would empower the administrative bodies to defeat the legislative will by delaying the implementing rules. Where the statute contains sufficient standards and an unmistakable intent, as in this case, there should be no impediment to its implementation. The terms, which according to respondents, still needed to be defined by the SEC are not vague. These provisions are sufficiently clear and complete by themselves. Their requirements are specifically set out, and the acts which are enjoined are determinable.[57]

Facts. Petitioner SEC conducted a clarificatory conference to ascertain the nature of respondent Performance Foreign Exchange Corp.s (PFEC) business. Thereafter, SEC issued a CDO based on Sec. 64 of the SRC upon PFEC, stating that it finds PFEC to be engaged in the trading of foreign currency futures contracts in behalf of its clients without the necessary license contrary to the SRC. SEC then wrote to BSP, requesting a definitive statement that PFECs business transactions are a form of financial derivatives which can only be undertaken by banks or non-bank financial intermediaries performing quasi-banking functions. Without waiting for BSPs reply, SEC proceeded to make the CDO permanent over the objections of PFEC. PFEC filed a petition for certiorari with the CA.[53] CA ruled in favor of PFEC. Issue. Is the issuance of the CDO proper? Held. No. Both the essential requirements that must be complied with by the SEC before it may issue a CDO under Sec. 64 of the SRC are not present.[54] As for the first requirement, SEC did not conduct proper investigation or verification before it issued the challenged orders. The clarificatory conference undertaken cannot be considered a proper investigation or verification process. It was merely an initial stage of such process considering SEC still sought verification from the BSP on the nature of PFECs business activity. SECs referral indicates that it concedes to the BSPs expertise in determining the nature of PFECs business. *BSPs determination is thus an+ essential part of the investigation and verification process. Hence, the SEC acted with grave abuse of discretion when it issued the CDO even before it could finish its investigation and verification (without waiting for BSPs determination). As for the second requirement, it implies that the act to be restrained has been determined after conducting the proper investigation/verification. In this case, the nature of the act to be restrained can only be determined after the BSP shall have submitted its findings to the SEC.

SEC v. Interport Resources Corp., et al. G.R. No. 135808. 6 October 2008. Chico-Nazario, J.

Concurring opinion by J. Tinga:

The reasons given for securities regulation are (1) to protect investors, (2) to supply the informational needs of investors, (3) to ensure that stock prices conform to the fundamental value of the companies traded, (4) to allow shareholders to gain greater control over their corporate managers, and (5) to foster economic growth, innovation and access to capital. The most common forms of checking securities fraud are (1) disclosure regulation and (2) financial activity regulation. Disclosure regulation requires issuers to make public a large amount of financial information to actual and potential investors. The standard justification for disclosure rules is that the managers of the issuing firm have more information about the financial health and future of the firm than investors who own or are considering the purchase of the firm's securities. Financial activity regulation consists of rules about traders of securities and trading on or off the stock exchange, e.g. the set of rules against insider trading. In its barest essence, insider trading involves the trading of securities based on knowledge of material information not disclosed to the public at the time. It was the U.S. SEC which formulated the "disclose or abstain" rule, requiring an insider in possession of material nonpublic information to disclose such information before trading or, if disclosure is impossible or improper, abstain from trading.

Held. No. Nicolas traded securities for the account of others without the necessary license from the SEC. Such omission was in violation of Sec. 19 of the RSA which provides that no broker shall sell any securities unless he is registered with the SEC. American jurisprudence emphasizes the principle that: xxx, an unlicensed person may not recover compensation for services as a broker where a statute or ordinance requiring a license is applicable and such statute or ordinance is of a regulatory nature, was enacted in the exercise of police power for the purpose of protecting the public, requires a license as evidence of qualification and fitness, and expressly precludes an unlicensed person from recovering compensation by suit xxx. We see no reason not to apply the same rule in our jurisdiction.

Lopez, Locsin, Ledesma & Co., Inc. v. CA G.R. No. L-14291. 168 SCRA 276. 8 December 1988. Gutierrez, J.

Nicolas v. CA and Buan G.R. No. 122857. 288 SCRA 307. 27 March 1998. Romero, J.

Facts. Petitioner Nicolas traded securities for the account of others without the necessary license from the SEC. He and respondent Buan entered into a Portfolio Mngt. Agreement wherein he was to manage the stock transactions of Buan. After 6 months, Buan terminated the agreement. Nicolas demanded from Buan P68,263.67 representing his alleged management fees pursuant to their Agreement which provides that Buan would pay Nicolas 20% of all realized profits every end of the month as management fees. Buan refused to pay. Nicolas sued Buan. RTC ruled in Nicolas favor. CA reversed. Issue. Does Nicolas have the right to the management fees?

Facts. Respondent CMS Stock Brokerage, Inc. (CMS) and petitioner LLL are members of the Makati Stock Exchange (MSE). CMS sold to LLL, as buyer for and on orders of third parties, 2,650 Benguet Consolidated shares on a 10-20 days delayed deliver basis. The transaction was evidenced by exchange contracts. After about 4 months, however, CMS still has not delivered to LLL the said shares which remained unpaid. LLL refused to accept the belated delivery since its clients for whom the purchases were made had cancelled their orders. CMS sued LLL. CFI ruled in favor of CMS, compelling LLL to accept delivery, among others. CA affirmed. LLL avers the law on contracts is controlling in this case (and not the MSE Rules which CA ruled LLL to have violated). Hence CMS failure to deliver within the stipulated time warrants rescission of the exchange contracts, and thus LLL cannot be compelled to accept the belated delivery. Under the Rule at issue, if the selling member fails or refuses to deliver, it may be compelled through the Chairman of the Floor Trading and Arbitration Committee to purchase the same for the selling members account. It does not give the buying member the right to rescind the contract. Issue. Are the Exchange Rules controlling as to the subject exchange contracts? Held. Yes. As members of the MSE, CMS and LLL are bound by the rules and by-laws of the exchange.[58] The contention that rules and regulations of the exchange should not apply to or affect contracts which may involve third persons is without merit. Rules and regulations of the Stock Exchange form part of the contract.

Because of the peculiarity of the business involved in a stock exchange,[59] rules were adopted to govern not only the members but the transactions between the members as well. Under the applicable rule, case at bar, if the selling member fails or refuses to deliver, it may be compelled to purchase the same for the selling members account. There being a special remedy agreed upon by the members, the right to rescission under the New Civil Code is inapplicable. Exchange contracts are peculiar in certain ways. Firstly, they are affected with public interest and therefore should be clothed with greater sanctity than ordinary contracts. Consequently, unless there are clear and insuperable obstacles to their enforcement, they should be enforced. Secondly, exchange contracts are entered into with speed (in seconds) even if they involve thousands of pesos. Therefore, the Exchange Rules must be interpreted to assure enforcement. Thirdly, the stockbrokers usually do not invest their own money but their clients. Thus, the investor is practically dealing with people who are complete strangers to him. The inviolability of exchange contracts and their enforcement must, therefore, be guaranteed or else no stock exchange is possible. Public policy demands that LLL must be compelled to accept the delivery of the shares and to pay for them. Any other interpretation of the Exchange Rules would destroy the Exchange itself.

holding Ampil to have been equally at fault by incurring excessive credits before invoking the RSA. CA affirmed. Issue. Is the pari delicto rule applicable? Held. Yes, but only for the stock transactions subsequent to the initial trade. Ampil is thus liable for the first trade, but neither Ampil nor Abacus is entitled to any legal remedy for the subsequent trades. The margin requirements[61] are applicable only to transactions entered subsequent to the initial trades. Abacus may collect from Ampil the extent of the difference between Ampils outstanding obligation as of April 11, 1997 (the initial trade) less the proceeds from the mandatory sell out of the shares pursuant to RSA Rule 25-1. Ampils obligation for the initial trades remains outstanding as these were valid for there was no violation of the RSA yet at the time. Not to require Ampil to pay for his initial trades would put a premium on his circumvention of the laws and would enable him to enrich himself unjustly at the expense of Abacus. Abacus fault arose only when it failed to (1) liquidate the initial trades within T+4 and (2) complete its liquidation within T+14, applying the proceeds thereof as payment for Ampils outstanding obligation. By failing to ensure Ampils payment of his first purchase transaction within T+14, thereby allowing him to make subsequent purchases, Abacus effectively converted Ampils cash account into a credit account. However, extension or maintenance of credits on nonmargin transactions is specifically prohibited under Sec. 23(b). Ampil is equally guilty for the subsequent transactions. He is not an innocent investor. He knowingly speculated on the market by taking advantage of the no-cash-out arrangement extended to him by Abacus. Notably, he repeatedly asked for some time to pay his obligations, and it was only when he was sued that he raised as a defense the invalidity of the transactions.

Abacus Securities Corp. v. Ampil G.R. No. 160016. 483 SCRA 315. 27 February 2006. Panganiban, C.J.

Facts. Petitioner Abacus Securities Corp. (Abacus) is a broker-dealer of securities of listed companies at the PSE. Respondent Ampil is an experienced and knowledgeable trader wellversed in the securities market. Ampil opened a cash account with Abacus. Abacus made the initial trade on Ampils account on April 10 and 11, 1997 and continued thereafter to actively trade on the same. Under their agreement, Abacus allowed offset settlements, wherein Ampil was not obliged to pay the purchase price. Rather, Abacus waits for Ampil to sell. And if there is a loss, Ampil need only pay the deficiency. By the 30th of that month, Ampil accumulated an outstanding obligation in favor of Abacus the principal sum of P6,617,036.22. Abacus sold Ampils securities to offset Ampils obligations but there remained unsettled a balance of P3,364,313.56. Abacus brought suit for collection. In his defense, Ampil alleged Abacus to have violated the RSA. RTC ruled Abacus and Ampil to be in pari delicto, holding Abacus to have violated Secs. 23 and 25 of the RSA and Rule 25-1 of the RSA Rules,[60] and

[1] The control necessary to invoke the [instrumentality] rule [or alter ego doctrine] is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. (Lipat and Lipat v. Pacific Banking Corp., et al., G.R. No. 142435)

[2] The board of directors may validly delegate some of its functions and powers to officers, committees, or agents. Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. (Lipat and Lipat v. Pacific Banking Corp., et al., G.R. No. 142435)

(1)

the status or relationship of the parties; and

(2) the nature of the question that is the subject of their controversy. (Nacpil v. IBC, 379 SCRA 653, 658)

[3] Piercing of the veil of corporate fiction may be allowed only if the following elements concur: (1) Control not mere stock control, but complete domination not only of finances, but of policy and business practice in respect to the transaction attacked; (2) Such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) The said control and breach of duty must have proximately caused the injury or unjust loss complained of. (Times Transportation Co., Inc. v. Sotelo, et al., G.R. No. 163786)

[7] Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. x x x Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation x x x

[8] Voting trust trust created by an agreement between a group of the stockholders and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby x x x control over the stock x x x is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used (Ballentine's Law Dictionary)

[4] The prevailing law at the time was still the RSA. Jurisdiction of the SEC under Sec. 5 thereof has not been transferred to the RTC.

Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period not exceeding five (5) years at any one time x x x . The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement x x x (Corp. Code)

[5] Sec. 25. Corporate officers, quorum. Immediately after their election, the directors of a corporation must formally organize by the election of a president x x x a treasurer x x x a secretary x x x and such other officers as may be provided for in the by-laws x x x

[6] Two elements to be considered in determining whether the SEC has jurisdiction over the controversy:

By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting

rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. [12] Eriks is engaged in the manufacture and sale of elements used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial uses. Under Sec 59 of the Corp. Code, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement x x x. Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such x x x may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement.

[13] Sec. 133. Doing business without a license. No foreign corporation transacting business in the Philippines without a license x x x shall be permitted to maintain or intervene in any action x x x in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine x x x tribunals on any valid cause of action x x x.

[9] Requisites in order that the SEC (now RTC) may take cognizance of a case: (1) the controversy must pertain to any of the following relationships: [14] What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country [i.e. the nature and character of its transactions]. The number and quantity are merely evidence of such intention. (Eriks Pte. Ltd. v. CA and Enriquez, Jr., G.R. No. 118843)

between the corporation, partnership or association and the public; between the corporation, partnership or association and its stockholders, partners, members , or officers; between the corporation, partnership, or association and the state as far as its franchise permit or license to operate is concerned; and among the stockholders, partners or associations themselves. (2) nature of the question that is the subject of their controversy must be considered (Vesagas v. CA and Sps. Raniel, 371 SCRA 508, 517)

N.B. the case filed by the Sps. Raniel was transferred to the RTC in view of the enactment of RA 8799.

[15] The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. (Ibid.)

[16] International Container Terminal Services, Inc. (ICTSI)

[10] Rules of Court prevailing at the time: SEC. 6. Service upon private foreign corporations. If the defendant is a foreign corporation x x x doing business in the Philippines, service may be made on its resident agent x x x

[17] Merrill Lynch Philippines, Inc.

[11] Old Corporation Law, Sec. 69. No foreign corporation x x x shall be permitted to transact business in the [Philippines] or maintain x x x any suit for the recovery of any x x x claim x x x unless it shall have the license x x x

[18] Summary of the principles regarding the right of a foreign corporation to bring suit in Philippine courts:

(1) if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts; (2) if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction; (3) if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporations corporate personality in a suit brought before Philippine courts; and (4) if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction. (Agilent Technologies Singapore (Pte.), Ltd. v. Integrated Silicon Technology Phils. Corp., et al., G.R. No. 154618 [2004])

(j) To authorize the establishment and operation of stock exchanges x x x and to supervise and regulate the same x x x xxx xxx xxx

PD 902-A Sec. 38. Powers with respect to exchanges and securities. xxx xxx xxx

(b) The [SEC] is further authorized x x x to alter or supplement the rules of such exchange (insofar as necessary or appropriate to effect [changes for the protection of investors or to insure fair dealing in securities traded therein]) x x x xxx xxx xxx

[19] The Court differentiated the case from Eriks Pte., Ltd. v. CA (G.R. No. 118843[1997]), where deliveries of goods where perfected in Singapore but nonetheless Eriks (the foreign corporation) was found to be doing business in the Philippines because the transactions involved were not isolated: x x x respondent *in the Eriks case+ alleged the existence of a distributorship agreement between him and the foreign corporation. If duly established, such distributorship agreement could support respondents claim that *the foreign corporation] was indeed doing business in the Philippines. Here, there is no such or similar agreement between *ZUIDEN+ and *GTVL+. (B. Van Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc., G.R. No. 147905 [2007])

[22] The DOJ, in its Resolution, made the following observations: x x x it has been held that checks of a debtor received and held by the lender also are evidences of indebtedness and therefore securities under the Act, where the debtor agreed to pay interest on a monthly basis so long as the principal checks remained uncashed, it being said that such principal extent as would have promissory notes payable on demand (69 Am Jur 2d, p. 606). x x x Checks constitute mere substitutes for cash if so issued in payment of obligations in the ordinary course of business transactions. But when they are issued in exchange for a big number of individual non-personalized loans solicited from the public, numbering about 700 in this case, the checks cease to be such. In such a circumstance, the checks assume the character of evidences of indebtedness. This is especially so where the individual loans were not evidenced by appropriate debt instruments, such as promissory notes, loan agreements, etc., as in this case x x x

[20] PCGG confirmed this claim of the Marcoses. A sequestration order has in fact been issued over the properties, and suit for reconveyance to the State has been filed.

[21] PD 902-A, Sec. 6. x x x the [SEC] shall possess the following powers: xxx xxx xxx

[23] Under the business scheme of Power Homes, an investor enrolls in its 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. As the pyramid goes on, a certain amount is deducted from the amounts to be received by the investor to go to the investors Property Fund which will be applied as down payment for the real property chosen by such investor from any of Power Homes accredited real estate developers.

[24] To be a security subject to regulation by the SEC, an investment contract in our 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.

[31] In addition, jurisdiction over the case for reconveyance is clearly vested in the RTC as provided in paragraph (2), Section 19, B.P. Blg. 129

[25] an association of stock transfer agents principally engaged in the registration of stock transfers in the stock-and-transfer book of corporations

[32] SRC Sec. 20. Proxy Solicitations. 20.1. Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission; SRC Sec. 53. Investigations, Injunctions and Prosecution of Offenses. - 53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder x x x

[26] RSA Sec. 40. Power of the [SEC] with respect to securities related organizations.The [SEC] shall have the power to x x x regulate, supervise, examine, suspend or otherwise discontinue, the operation of organizations whose operations are related to or connected with the securities market such as but not limited to x x x transfer agents x x x

N.B. AIRR-SRC Rule 20. The terms solicit and solicitation include: A. *27+ PASTRAs fees have far-reaching effects on the capital market. Charging exorbitant processing fees could discourage many small prospective investors and curtail the infusion of money in the capital market. B. any request for a proxy whether or not accompanied by or included in a form of proxy any request to execute or not to execute, or to revoke, a proxy; or

C. the furnishing of a form of proxy or other communication to security holders under circumstance reasonably calculated to result in the procurement, withholding or revocation of a proxy [28] RSA Sec. 47. Cease and desist order.The [SEC] x x x motu proprio, or x x x may issue a cease and desist order x x x if in its judgment the act or practice, unless restrained may cause grave or irreparable injury or prejudice to the investing public x x x Thus, proxy solicitation is not the same as proxy validation. Proxy solicitation is a procedure that antecedes proxy validation. The former involves the securing and submission of proxies, while the latter concerns the validation of such secured and submitted proxies. *29+ Among Matsuuras allegations: the increase of P90,000,000 in the authorized capital stock, P40,000,000 was fully paid by the stockholders when in fact it was not, and the mode of payment of paid-in capital was changed from "cash" to "offset of liability"

[33] PD 902-A Sec. 5. [30] Under Section 8 of P.D. No. 902-A, the SEC, through the PED, is vested with authority to investigate, either motu proprio or upon complaint, any act or omission, fraudulent schemes, devices or misrepresentations in violation of any law, rules or regulations, administered and enforced by the SEC, and to file and prosecute appropriate civil or criminal cases upon a prima facie finding of violation of such laws, rules or regulations. xxx xxx xxx

(3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations

in Sec. 5(i). Notwithstanding, it remains clear that the CDO issued under Sec. 53.3 is a distinct creation from that under Sec. 64.

[34] Interim Rules on Intra-Corporate Controversies Rule 6, Sec. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity of elections and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a nonstock corporation where the articles of incorporation or bylaws so provide.

[36] Fraud 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. (Sumndad v. Harrigan, 381 SCRA 8, 18)

[35] There are three distinct bases for the issuance by the SEC of the CDO: (1) SRC Sec. 5(i) predicated on a necessity "to prevent fraud or injury to the investing public". No other requisite or detail is tied to this CDO (2) SRC Sec. 53.3 requires the SEC to make two findings before the issuance of the CDO: (i) that such person has engaged in any act or practice constituting a violation of any provision of the SRC, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization, and (ii) that there is a reasonable likelihood of continuing, (or engaging in) further or future violations by such person. The maximum duration of this CDO is ten (10) days. (3) SRC Sec. 64 requires the SEC to adjudge that the act, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. It plainly provides three segregate instances upon which the CDO may be issued: (i) after proper investigation or verification, (ii) motu proprio, or (iii) upon verified complaint by any aggrieved party.While no lifetime is expressly specified for the CDO under Sec. 64, the respondent to the CDO may file within 5 days from issuance a formal request for the lifting thereof, which the SEC must hear within 15 days from filing and decide within ten (10) days from the hearing.

*37+ Notably, this issue is now moot and academic since SECs jurisdiction under PD 902-A, Sec.5 has been transferred to the RTC.

*38+ Rufinas complaint was dismissed for lack of cause of action. RTC ruled she was not a real party-in-interest, she was not privy to the contract of sale, and neither was she a stockholder of Speed.

[39] SRC, Sec. 5.2 transferred from the SEC to the RTC the jurisdiction over the following: (a) Devices or schemes employed by, or any act 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, or members of associations registered with the [SEC]; (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; 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 association has no sufficient

N.B. It appears that the CDO under Sec. 5(i) is similar to the CDO under Sec. 64.1. Both require a common finding of a need to prevent fraud or injury to the investing public. At the same time, no mention is made whether the CDO defined under Sec. 5(i) may be issued exparte, while the CDO under Sec. 64.1 requires "grave and irreparable" injury, language absent

assets to cover its liabilities but is under the management of a rehabilitation receiver or management committee created x x x

(2) Such control must have been used by defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or [to commit] 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. (Velarde v. Lopez, Inc., 419 SCRA 422, 431)

[40] Elements of an intra-corporate controversy: (1) The status or relationship of the parties.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 such corporation, partnership or association and the State insofar as it concerns their individual franchises. (2) The nature of the question that is the subject of their controversy.requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. [44] PD 902-A, Sec. 5. x x x the [SEC] x x x shall have original and exclusive jurisdiction to hear and decide cases involving: (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 stockholder, partners, members of associations or organizations registered with the [SEC] xxx xxx xxx

[45] RSA Sec. 6. Exempt Transactions.(a) The requirement of registration x x x shall not apply to the sale of any security in any of the following transactions: *41+ In his Answer, Velarde alleged that the loan agreement was a mere cover document to evidence the reward to him of P10M for his loyalty and excellent service, that payment, if any, was expected in the form of continued service; and that it was when he was forced to retire by Lopez, Inc. that it was agreed that his retirement benefits be applied to the loan. xxx xxx xxx

(4) x x x the issuance of additional capital stock of a corporation sold or distributed by it among its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale or distribution of such increased capital stock.

[42] PD 902-A, Sec. 5(c). Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnership or associations

[43] Requisites for applying the doctrine of piercing the veil of corporate fiction: (1) Control, not merely majority or complete stock control;

*46+ RSA Sec. 6(b): The *SEC+ may, from time to time x x x exempt transactions other than those provided under the preceding paragraph, if it finds that the enforcement of the requirements of registration x x x is not necessary in the public interest and for the protection of the investors by reason fo the small amount involved or the limited character of the public offering.

N.B. When capital stock is issued in the course of and in compliance with the requirements of increasing its ACS, the SEC as a matter of course examines the financial condition of the corporation, and hence there is no real need for exercise of SEC authority under the RSA. Moreover, since 2/3 of the stockholders would have to approve such an increase in the ACS, the directors and officers of the corporation may be expected to take pains to inform the shareholders of the financial condition and prospects of the corporation and of the proposed utilization of the fresh capital sought to be raised. Upon the other hand, issuance of previously authorized but theretofore unissued capital stock by the corporation requires only Board approval. There would be no opportunity for the SEC to see to it that shareholders have a reasonable opportunity to inform themselves about the very fact of such issuance and about the condition of the corporation and the potential value of the shares being offered. (Nestl Philippines, Inc. v. CA and SEC, 203 SCRA 504, 512)

[50] Futures Commission Merchant/Broker one engaged in soliciting or accepting orders for the purchase or sale of any commodity for future delivery, and in connection with such solicitation or acceptance, accepts money, securities or property (or extends credit in lieu thereof) to margin, guarantee or secure any trade or contract that results or may result therefrom

[51] Commodity Futures Contract an agreement to buy or sell a specified quantity and grade of a commodity at a future date at a price established at the floor of the exchange

[47] Fraud is akin to bad faith which implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. (SEC v. CA, 246 SCRA 738, 747)

*52+ Art. 2018 of the NCC: If a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the lower to the winner, the transaction is null and void. The loser may recover what he has paid.

[48] RSA, Sec. 8. Procedure for registration. (a) All securities required to be registered x x x shall be registered through the filing by the issuer or by any dealer or underwriter interested in the sale [thereof in the SEC] of a sworn registration statement with respect to such securities, containing or having attached thereto, the following: xxx xxx xxx

*53+ Meanwhile, BSP replied to SECs letter-request stating that PFECs business activity is does not fall under the category of futures trading and cannot be classified as financial derivatives transactions.

(36) Unless previously filed and registered with the Commission and brought up to date:

[54] Essential requirements for issuance by the SEC of a CDO under SRC, Sec. 64: (1) SEC must conduct proper investigation or verification; and

(a) A copy of its articles of incorporation with all amendments thereof and its existing bylaws or instruments corresponding thereto, whatever the name, if the issuer be a corporation.

(2) there must be a finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

[49] RSA, Sec. 4. Requirement of registration of securities. - (a) No securities, except of a class exempt x x x or unless sold in any transaction exempt x x x, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided.

[55] Pursuant to the MOA, GEHI would own and operate a gas turbine power-generating barge, and would assume a 5-year power purchase contract with Napocor. GHB also undertook to extend or arrange a loan required to pay for the acquisition by IRC of 67% of the entire capital stock of Philippine Racing Club, Inc.

[56] RSA Sec. 30. Insider's duty to disclose when trading. (a) It shall be unlawful for an insider to sell or buy a security of the issuer, if he knows a fact of special significance with respect to the issuer or the security that is not generally available, unless: (1) the insider proves that the fact is generally available; or [57] A fact is material if it induces or tends to induce or otherwise affect the sale or purchase of its securities. Materiality will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity. Must be considered in a case-to-case basis. Generally available to the public. Whether information found in a newspaper, a specialized magazine, or any cyberspace media will be sufficient for the term "generally available" is a matter which may be adjudged given the particular circumstances of the case. The standards cannot remain at a standstill. A medium, which is widely used today was, at some previous point in time, inaccessible to most. The reasonable person is the standard on which most of our legal doctrines stand; the average man on the street who relies on the calculus of common sense. Nature and reliability. Degree of its specificity, the extent to which it differs from information previously publicly disseminated, and its reliability in light of its nature and source and the circumstances under which it was received. Must be clearly viewed in connection with the particular circumstances of a case. Beneficial ownership. Refers to shareholders with the power to buy or sell the shares, though the shareholder is not registered in the corporation's books as the owner. N.B. The foregoing provisions that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation.

(2) if the other party to the transaction (or his agent) is identified, (a) the insider proves that the other party knows it, or (b) that other party in fact knows it from the insider or otherwise xxx xxx xxx

(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made generally available, to affect the market price of a security to a significant extent, or (b) a reasonable person would consider it especially important under the circumstances in determining his course of action in the light of such factors as the degree of its specificity, the extent of its difference from information generally available previously, and its nature and reliability. xxx xxx xxx

RSA Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is x x x the beneficial owner of more than ten per centum of any [class] of any equity security which is registered pursuant to this Act, or who is [a] director or an officer of the issuer of such security, shall file, x x x a statement with the [SEC] x x x of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten days after the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file with the [SEC] x x x a statement indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month.

N.B. Secs. 30 and 36 of the RSA were enacted to promote full disclosure in the securities market and prevent unscrupulous individuals, who by their positions obtain non-public information, from taking advantage of an uninformed public. No individual would invest in a market which can be manipulated by a limited number of corporate insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert the occurrence of such an event, Sec. 30 prevented the unfair use of non-public information in securities transactions, while Sec. 36 allowed the SEC to monitor the transactions entered into by corporate officers and directors as regards the securities of their companies.

[58] An exchange has the power to adopt its own constitution, by-laws, rules and regulations so far as they are not contrary to law or public policy and which will secure to the members

exclusive rights and privileges which the courts have fully recognized. Anyone who becomes a member of the exchange voluntarily submits himself to the operation of these rules and is expected to be bound by and to respect them. (Lopez, Locsin, Ledesma & Co., Inc. v. CA , 168 SCRA 276, 284)

business days following the last day for the customer to pay [T+13] unless such sale cannot be effected within said period for justifiable reasons. (c) If a transaction is cancelled or otherwise liquidated x x x, prior to any subsequent purchase x x x, the customer shall be required to deposit funds in the account to cover each purchase transaction prior to execution. xxx xxx xxx

[59] Nature and purposes of an exchange. An exchange is a voluntary association or corporation organized for the purpose of furnishing to its members a convenient and suitable place to transact their business of promoting uniformity in the customs and usages of merchants, of inculcating principles of justice and equity in trade, of facilitating the speedy adjustment of business disputes, of acquiring and disseminating valuable commercial and economic information and generally of securing to its members the benefits of co-operation in the furtherance of their legitimate pursuits. (Ibid., 284)

(d) Written application for an extension of the period of time required for payment under [par. (a)] be made by the broker or dealer to the [PSE] xxx xxx xxx

[60] RSA Sec. 23. Margin Requirements. xxx xxx xxx

N.B. Margin account an account in which the broker lends the customer cash with which to purchase securities. Unlike a cash account, it allows an investor to buy securities with money borrowed from the broker. RSA limits margin borrowing to a maximum of 50% of the amount invested.

(b) It shall be unlawful for x x x broker or dealer x x x to extend or maintain credit x x x to or for any customer (1) On any security other than an exempted security, in contravention of the rules and regulations x x x [61] The main purpose of the margin requirements in the RSA is primarily to achieve a macroeconomic purposethe protection of the overall economy from excessive speculation in securities. Their recognized secondary purpose is to protect small investors by making it impossible for them to spread themselves too thinly. Trading on credit (margin trading) allows investors to buy more securities than their cash position would normally allow. Investors pay only a portion of the purchase price of the securities; their broker advances for them the balance and keeps the securities as collateral for the advance or loan. Hence, increasing margins, i.e. decreasing the amounts which brokers may lend for the speculative purchase and carrying of stocks, is the most direct and effective method of discouraging an abnormal attraction of funds into the stock market and achieving more balanced use of such resources. The primary concern is the efficacy of security credit controls in preventing speculative excesses that produce dangerously large and rapid securities price rises and accelerated declines in the general price level of securities. nc?i vPwacy of security credit controls in preventing speculative excesses that produce dangerously large and rapid securities price rises and accelerated declines in the general price level of securities.

RSA Sec. 25. Enforcement of margin requirements.x x x the broker or dealer shall require the customer in nonmargin transactions to pay the price of the security purchased for his account within such period as the *SEC+ may prescribe x x x.

RSA Rule 25-1. Purchases and Sales in Cash Account (the mandatory close-out rule) (a) Purchases by a customer in a cash account shall be paid in full within [T+3, i.e. within 3 business days after the trade date] (b) If full payment is not received within the required time period, the broker or dealer shall cancel or otherwise liquidate the transaction starting on the next business day, within 10

by the Lipats. Mrs. Lipat designated her daughter, Teresita, to manage BET. Mrs. Lipat executed in December 1978 an SPA in favor of Teresita to obtain loans and other credit accommodations from respondent Pacific Banking Corp. (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank including any extension or renewal thereof. April 1979, Teresita, by virtue of the SPA, was able to secure for and in behalf of Mrs. Lipat and BET, a loan from Pacific Bank. An REM over the Sps. Lipats property in Cubao was constituted as security. Per their agreement, said property was likewise made to secure other additional loans and credit lines which may be subsequently obtained. September 1979, BET was incorporated into a family corporation: Bela's Export Corp. (BEC). The Sps. Lipat were majority stockholders and were among the incorporators and board of directors. Mrs. Lipat was named President of BEC, and Teresita the EVP and GM. BEC was engaged in the same business as BET and utilized the same machineries and equipment previously used by BET. The corporate funds were held by Mrs. Lipat. The loan was later restructured in the name of BEC. Subsequent promissory notes, trust receipts and export bills were executed by Teresita on behalf of BEC in favor of Pacific Bank without prior resolution from the Board of Directors of BEC. All were secured by the REM over the same property. BEC defaulted. The REM was extrajudicially foreclosed and the property sold at public auction. The Lipats filed a complaint for annulment of the REM, extrajudicial foreclosure and certificate of sale issued. RTC dismissed the complaint, piercing the veil of corporate fiction of BEC. CA affirmed. The Lipats argue: the credit transactions were all ultra vires acts of Teresita and thus it does not bind BEC. And even assuming the credit transactions were valid and binding, these were the corporation's sole obligation, it having a personality distinct and separate from the Lipats. The lower courts erred in piercing the veil of corporate fiction of BEC absent any clear showing of fraud on their part. Issues. (1) Is the application of the doctrine of piercing the veil of corporate fiction warranted? (2) May the obligations incurred by Teresita in behalf of BEC bind the latter?

Held. (1) Yes. Both courts below relied upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. Under the instrumentality rule or alter ego doctrine, when the corporation is the mere alter ego or business conduit of a person as when it is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the separate personality of the corporation (the instrumentality or alter ego) may be disregarded.[1] Case at bar, the business operations of the BEC were so merged with those of Mrs. Lipat such that they were practically indistinguishable. The corporate funds were held by Mrs. Lipat and the corporation itself had no visible assets. The Lipats were members of the board. Mrs. Lipat had full control over the activities of and decided business matters of the corporation. She had benefited from the loans secured from Pacific Bank to finance her business abroad and from the export bills secured by BEC for the account of Mystical Fashion. It could not have been coincidental that BET and BEC are so intertwined with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded the former. (2) Yes. BEC is estopped from denying its agents authority.*2+ If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority. Teresita had dealt with Pacific Bank on the mortgage contract by virtue of an SPA executed by Mrs. Lipat. Teresita had acted as the manager of both BEC and BET and had been deciding business matters in the absence of Mrs. Lipat. Further, the export bills secured by BEC were for the benefit of Mystical Fashion owned by Mrs. Lipat. Hence, Pacific Bank cannot be faulted for relying on the same authority granted to Teresita by Mrs. Lipat by virtue of a SPA.

Times Transportation Co., Inc. v. Sotelo, et al. G.R. No. 163786. 16 February 2005. Ynares-Santiago, J.

Facts. Times Employees Union (TEU), an LLO, struck against its employer, Times, for ULP. The SOJ certified the dispute to the NLRC. Meanwhile, TEU was certified as the sole and exclusive

bargaining representative in Times, and requested for collective bargaining. Times refused. TEU filed a notice of strike. Times implemented a retrenchment program. Those retrenched include herein respondents. TEU struck. Times terminated all striking employees for participation in what it deemed was an illegal strike. The SOJ again certified the dispute to the NLRC. Meanwhile, Mencorp Transport Systems, Inc. (Mencorp.), which never obtained a franchise since its incorporation in 1994, acquired ownership of Times' Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale. Mencorp is controlled and operated by Mendoza, daughter of Rondaris, the majority stockholder of Times. Notably, all of the stockholders/incorporators of Mencorp are relatives of Rondaris. Presently, all the buses of Times are already being run/operated by Mencorp. In 1998, after the closure of Times, the retrenched employees, including respondents, filed cases for illegal dismissal, money claims and ULP against Times before the RAB, impleading Mencorp and the Sps. Mendoza. LA held that the dismissals of respondents constituted ULP and the sale of Times to Mencorp was simulated and in bad faith warranting the piercing of the veil of corporate fiction. LA ordered Times and/or Rondaris and Mencorp and/or Mendoza to cause the reinstatement of herein respondents. NLRC vacated the decision of the LA. CA reinstated the decision of the LA. Times argues: the application of the doctrine of piercing the veil of corporate fiction by the CA and finding Mencorp liable for its obligations is contrary to the accepted and usual course of judicial proceedings. Issue. Is the application of the doctrine of piercing the veil of corporate fiction warranted? Held. Yes. Piercing the corporate veil is warranted 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.[3] Case at bar, Times and Mencorp failed to adduce evidence to refute allegations of collusion between them. The sale of Times' franchise as well as most of its bus units to a company owned by Rondaris' daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to remove Times' remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it.

G.R. No. 144767. 379 SCRA 653. 21 March 2002. Kapunan, J.

Facts. Petitioner Nacpil was the Comptroller and Assistant Manager of respondent IBC. He was allegedly appointed as such by IBCs General Manager. It is, however, settled that his appointment had been subsequently approved by IBCs Board of Directors. Notably, IBCs bylaws provide: the officers of the corporation shall consist of x x x 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 x x x Nacpil filed for illegal dismissal and non-payment of benefits with the Labor Arbiter (LA). LA held for Nacpil. NLRC affirmed. CA reversed. IBC argues: LA had no jurisdiction over the case contending that Nacpil is a corporate officer. Hence, jurisdiction belongs with the SEC.[4] Nacpil argues: he is not a corporate officer but an employee and posits, among others, in support thereof that IBCs by-laws does not even include the position of comptroller. Issues. (1) Is Nacpil a corporate officer? (2) Does the LA have jurisdiction over the case? Held. (1) Yes. That the position of comptroller is not expressly mentioned among the officers of the IBC in the by-laws is of no moment, because IBCs Board is empowered under Sec. 25 of the Corp. Code*5+ and IBCs by-laws to appoint such other officers as it may deem necessary. An office is a creation of the charter of a corporation, while an officer is 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. As Nacpils appointment as comptroller required approval and formal action of IBCs Board of Directors to become valid, it is clear therefore that Nacpil is a corporate officer.

Nacpil v. Intercontinental Broadcasting Corp.

(2) No. Under PD 902-A, Sec. 5(c), controversies in the x x x appointment of *corporate+ officers x x x are within the exclusive jurisdiction of the SEC. As Nacpil is a corporate officer, it is clear that his dismissal may be the subject of a controversy cognizable by the SEC.[6]

PD 902-A, Sec 6(1) provides that the SEC possess the power to suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations x x x upon any of the grounds provided by law, including x x x failure to file by-laws within the required period. [Thus, t]here is no outright "demise" of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society.

Loyola Grand Villas Homeowners (South) Assoc., Inc. v. CA, et al. G.R. No. 117188. 276 SCRA 681. 7 August 1997. Romero, J. China Banking Corp. v. CA, and Valley Golf and Country Club, Inc. G.R. No. 117604. 270 SCRA 503. 26 March 1997. Kapunan, J. Facts. Loyola Grand Villas Homeowners Assoc., Inc. (LGVHAI) was registered as the sole homeowners association in Loyola Grand Villas. It was organized on Feb 8, 1983 but was unable to file its corporate by-laws. Sometime in 1989, its officers discovered that there were two other homeowners organizations in the subdivision: the North Assoc. and the petitioner South Assoc. It appears that LGVHAI has been automatically dissolved for its failure to submit its by-laws pursuant to Sec. 46 of the Corp. Code.[7] The officers of LGVHAI lodged a complaint with the Home Insurance and Guaranty Corp. (HIGC) and obtained favorable ruling. The Certificates of Registration of the North and South Assocs. were cancelled and LGVHAI was recognized as the sole homeowners association in the subdivision. Issue. Did the failure of LGVHAI to file its by-laws within one month from the date of its incorporation as prescribed by Section 46 of the Corp. Code have the effect of its automatic dissolution? Held. No. The word "must" in a statute x x x is not always imperative. The deliberations of the Batasang Pambansa demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, taken as a whole x x x Section 46 reveals the legislative intent to attach a directory x x x meaning for the word "must" in the first sentence thereof. x x x [T]he second paragraph of the law allows the filing of the by-laws even prior to incorporation. This x x x rules out mandatory compliance with the requirement of filing the by-laws "within one (1) month after x x x notice of the issuance of its certificate of incorporation x x x ." It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of the corporation. The adoption of by-laws is a matter of practical, if not one of legal, necessity. x x x The mere fact x x x of the existence of power in the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity of any of its acts.

Facts. Calapatia pledged his stock in respondent VGCCI to petitioner CBC to secure his loans with the latter. The deed of pledge executed in CBCs favor was duly recorded in VGCCIs corporate books. Calapatia failed to pay his loan obligation. CBC petitioned for extrajudicial foreclosure and requested VGCCI to transfer the pledged stock in its name. VGCCI informed CBC of its inability to accede to the request in view of Calapatia's unsettled accounts with the club. Notwithstanding, CBC proceeded to foreclose the pledge. It emerged as the highest bidder and was issued the corresponding certificate of sale. Subsequently, VGCCI sold Calapatias stock at public auction for his failure to settle his accounts with it (monthly dues). Thus when CBC requested that a new certificate of stock be issued in its name, VGCCI replied it has already been sold. At the SEC, CBC sought to cancel the latter sale and have a new certificate of stock issued in its name. VGCCI anchors its prior right over the subject stock on a provision of its by-laws: after a member shall have been posted as delinquent, the Board may order his x x x share sold to satisfy the claims of the Club... VGCCI maintains that CBC is bound by its by-laws arguing that CBC had actual knowledge of its by-laws when CBC foreclosed the pledge and when CBC purchased the pledged stocks. Issue. Is CBC bound by the by-laws of VGCCI? Held. No. [A third person] is not privy to the contract created by the by-laws between the shareholder . . . and [the corporation]. [Concededly, i]t is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. x x x [However, i]n order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the

pledge agreement was executed. CBCs belated notice of said by-laws at the time of foreclosure will not suffice.

Evangelista, et al. v. Santos G.R. No. L-1721. 86 SCRA 387. 19 May 1950. Reyes, J.

Lee and Lacdao v. CA, et al. G.R. No. 93695. 205 SCRA 725. 4 February 1992. Gutierrez, Jr., J.

Facts. A complaint for a sum of money was filed against respondents who, in turn, filed a third party complaint against Alfa Integrated Textile Mills (ALFA). Summons on ALFA was served through petitioners. Petitioners were previously directors and the president and vicepresident of ALFA. At the time, a Voting Trust[8] Agreement between ALFA and Development Bank of the Phils. (DBP) had already been executed. Pursuant to the Agreement, the petitioners transferred to the trustee (DBP) the right to vote upon the shares and in that respect the same powers as owners of the equitable as well as the legal title to the stock. Petitioners thus claim that there was improper service of summons on ALFA as they are no longer directors/officers of ALFA considering Sec 23 of the Corp. Code: x x x Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director. Issue. Did the Voting Trust Agreement deprive petitioners of their right to qualify as directors? Held. Yes. Thus, there is improper service of summons on ALFA through the petitioners. The execution of a voting trust agreement may create a dichotomy between the equitable or beneficial ownership of the corporate shares of stockholders, on the one hand, and the legal title thereto on the other hand. In order to be eligible as a director [under Sec 23 of the Corp Code], what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation. The facts of this case show that the petitioners, by virtue of the voting trust agreement executed, disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Sec 23 of the Corp Code. The petitioners ceased to be directors.

Facts. Petitioners are minority stockholders of the Vitali Lumber Co., Inc. Santos holds majority of the capital stock and is the president, manager and treasurer thereof. Petitioners filed a complaint for damages against Santos for mismanagement of the corporate affairs and misuse of corporate assets which caused the complete ruin of the corporation and total depreciation of its stocks. The complaint prays for judgment requiring Santos to, among others, pay petitioners the value of their respective participation in said assets. The lower court dismissed the complaint for, one, lack of cause of action. Issue. Do petitioners have a cause of action against Santos? Held. No. The injury complained of is primarily to the corporation, so that the suit for the damages claimed should be by the corporation rather than by the stockholders. The stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done. But while it is to the corporation that the action should pertain x x x, however, if the officers of the corporation, who are the ones called upon to protect their rights, refuse to sue, or where a demand upon them to file the necessary suit would be futile because they are the very ones to be sued or because they hold the controlling interest in the corporation, then in that case any one of the stockholders is allowed to bring suit. But in that case it is the corporation itself and not the plaintiff stockholder that is the real party in interest, so that such damages as may be recovered shall pertain to the corporation. In other words, it is a derivative suit brought by a stockholder as the nominal party plaintiff for the benefit of the corporation, which is the real party in interest. In the present case, petitioners have brought the action not for the benefit of the corporation but for their own benefit. Notably, the action is susceptible of being converted into a derivative suit for the benefit of the corporation by a mere change in the prayer.

Vesagas v. CA and Sps. Raniel

G.R. No. 142924. 371 SCRA 508. 5 December 2001. Puno, J. Facilities Management Corp., et al. v. de la Osa Facts. The Luz Village Tennis Club, Inc. (the Club) made amendments to its by-laws. Subsequently, its Board of Trustees resolved to continue to consider the Club as a nonregistered or non-corporate entity and just a social association for the purpose of playing tennis. Later, respondents Sps. Raniel, members in good standing of the Club hitherto, filed a complaint with the SEC against petitionersthe Clubs President and Vice Presidentfor allegedly being summarily stripped of their lawful membership without due process of law. They sought to have their expulsion declared illegal and also to have the amendments to the Clubs by-laws declared a nullity. Petitioners moved to dismiss on the ground that the SEC lacks jurisdiction over the subject matter. SEC denied the motion. CA affirmed. Petitioners argue: at the time the complaint was filed, the Club had already dissolved its corporate existence. Thus, there can be no intra-corporate dispute over which the SEC may exercise jurisdiction. Issues. (1) Was the Club dissolved already at the time the complaint was filed? (2) Does the SEC have jurisdiction over the case? Held. (1) No. 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 where no rights of creditors may be prejudiced (see Sec. 118, Corp. Code). These requirements should have been strictly complied with. No proof was offered by petitioners with regard to the notice and publication requirements as well as the proof of the board members certification. The SEC Order of Dissolution was never submitted as evidence. (2) Yes. The present dispute is intra-corporate in character. Parties here involved are officers and members of the Club. The present conflict arose from this relation of the parties. The subject of the complaint, namely, the legality of the expulsion from membership of the Sps. Raniel and the validity of the amendments in the clubs by-laws are, furthermore, within the SECs jurisdiction.*9+ Held. Yes. Clearly, Catuira was a liaison officer of FMC. Doing business includes, among others, the opening of liaison offices. Notably, the object of the Corporation Law was to prevent [a foreign corporation from doing business in the Philippines] without taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of the Legislature to exclude [a foreign corporation not doing business in, but has obtained] an isolated order for business from, the Philippines from securing redress in the Philippine courts. Indeed, if a foreign corporation not [doing] business in the Philippines is not banned from seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person in the Philippines. G.R. No. L-38649. 86 SCRA 131. 26 March 1979. Makasiar, J.

Facts. Petitioner Facilities Management Corp. (FMC) is a foreign corporation domiciled in Wake Island, CA, USA. Petitioner Catuira is its Philippine agent with authority to execute therefor employment contracts and receive therefor legal services from processes of the Philippine courts of justice. Respondent de la Osa was an employee of FMC. He filed a complaint for the recovery of unpaid overtime pay and night shift premiums. Summons was served upon Catuira. FMC moved to dismiss on the ground of lack of jurisdiction, claiming it cannot be sued in the Philippines because it is not doing business in the Philippines.[10] Issue. Is FMC doing business in the Philippines so that the service of summons upon Catuira, its agent, vested the trial court with jurisdiction?

The Home Insurance Co. v. Eastern Shipping Lines, et al. G.R. No. L-34382. 123 SCRA 144. 20 July 1983. Gutierrez, Jr., J.

Facts. Respondents were liable for breach of contract of carriage covering a shipment of coils of Black Hot Rolled Copper Wire Rods. Petitioner The Home Insurance Co. (HIC) paid their customer pursuant to the insurance policy it had with said customer covering the shipment. Pursuant to its right of subrogation, HIC brought suits against respondents to recover what it has paid. The complaints were dismissed on the ground that HIC failed to prove its capacity to sue. At the time the insurance contracts were executed, HIC did not have a license to do business in the Philippines. However, at the time it filed the complaints, it has already obtained the necessary license. Issue. Does HIC have the capacity to sue in Philippine courts? Held. Yes. The Corporation Law must be given a reasonable interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries. The object of Sec. 69 of the Corporation Law was to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts.[11] The lack of registration cannot be taken to mean that the insurance contracts made were void such that no suits could be prosecuted on them in any court. The requirement of registration affects only the remedy. Thus, in this case, the lack of capacity to sue at the time of the execution of the insurance contracts must be deemed to have been cured by the subsequent registration.

Issue. May MCI prosecute the action? Held. No. MCI, through its agent, Philam DC, has been doing business in the Philippines by selling its products here. It follows that whatever transactions Philam DC had executed, in view of the law, MCI did it itself. And, MCI, being a foreign corporation doing business in the Philippines without the required license, it may not prosecute this action. The true test in determining whether a foreign corporation is doing business seems to be whether such corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. Doing business implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.

Eriks Pte. Ltd. v. CA and Enriquez, Jr. G.R. No. 118843. 276 SCRA 576. 6 February 1997. Panganiban, J.

Mentholatum Co., Inc., et al. v. Mangaliman, et al. G.R. No. L-47701. 73 Phil 524. 27 June 1941. Laurel, J.

Facts. Petitioner Eriks Pte. Ltd. (Eriks) is a Singaporean corporation.[12] It does not have license to do business in the Philippines. In a period of 5 months, respondent Enriquez, Jr. made 16 purchases of goods from Eriks on 90-day credit terms. Enriquez failed to settle his account. Eriks filed a collection suit. RTC dismissed the complaint, holding that Eriks is barred from prosecuting the action under Sec. 133 of the Corporation Code.[13] CA affirmed. Issue. May Eriks prosecute the action? Held. No. Eriks is doing business in the Philippines without the requisite license. It is thus barred access to our court system. More than the sheer number of transactions entered into, a clear and unmistakable intention on the part of Eriks to continue the body of its business in the Philippines is more than apparent.[14] The sale by Eriks of the goods, which are part and parcel of its main product line, was actually carried out in the progressive prosecution of commercial gain and the pursuit of the purpose and object of its business. Further, its grant and extension of 90-day

Facts. Mentholatum is the registered trademark for the medical salve manufactured by petitioner Mentholatum Co., Inc. (MCI). MCI is a Kansas corporation with PhilippineAmerican Drug Co. (Philam DC) as its exclusive distributing agent in the Philippines. However, MCI does not have a license to do business in the Philippines. Later, respondents Mangaliman brothers manufactured and sold Mentholiman, also a medical salve. MCI sued for trademark infringement and unfair competition. CFI ruled for MCI. CA reversed holding that MCI is engaged in business in the Philippines without a license and, thus, it may not maintain the suit.

credit terms to Enriquez for every purchase made, unarguably shows an intention to continue transacting with Enriquez, since in the usual course of commercial transactions, credit is extended only to x x x those on whom there is an intention to maintain long-term relationship. The series of transactions in question could not have been isolated or casual transactions.[15]

Participating in the bidding process constitutes doing business because it shows the foreign corporations intention to engage in business here. The bidding for the concession contract is but an exercise of the corporations reason for creation or existence.

Antam Consolidated, Inc., et al. v. CA, et al. Hutchison Ports Phils., Ltd. v. SBMA, et al. G.R. No. 131367. 31 August 2000. Ynares-Santiago, J. Facts. Respondent Stokely Van Camp, Inc. (Stokely) is a corporation organized and existing under the laws of Indiana, U.S.A. It has no license to do business in the Philippines. It purchased from Comphil (control of which now belongs to petitioners) 500 long tons of crude coconut oil. Petitioners failed to deliver so Stokely covered its coconut oil needs in the open market and sustained a loss of US$103,600. Instead of making an outright demand on petitioners, Stokely opted to enter into a second transaction where petitioners were to buy back the crude coconut oil in an amount which will earn Stokely a profit equivalent to its loss of US$103,600. Petitioners again failed to pay. Stokely then entered a third transaction with petitioners whereby the latter were to sell crude coconut oil to it at a discounted rate, the total amount of such discount also being equivalent to its loss. Petitioners still failed to deliver. Stokely filed a collection suit. Petitioners impugn Stokelys legal capacity to sue for being a foreign corporation doing business in the Philippines without a license. Petitioners argue: Stokely has participated in three transactions, either as a seller or buyer, which are by their nature, in the pursuit of the purpose and object for which it was organized. Issue. Does Stokely have the legal capacity to sue? Held. Yes. The transactions entered into by Stokely with petitioners are not a series of commercial dealings which signify an intent on the part of Stokely to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business." It can be deduced that in reality, there was only one agreement between the petitioners and Stokely. The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate intent on the part of Stokely to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines. Being a foreign corporation not doing G.R. No. L-61523. 31 July 1986. Gutierrez, Jr., J.

Facts. Respondent Subic Bay Metropolitan Authority (SBMA) conducted a bidding for the development and operation of a modern marine container terminal within the Subic Bay Freeport Zone. SBMA resolved to award the winning bid to petitioner Hutchison Ports Phils., Ltd. (HPPL). One of the bidders[16] appealed to the Office of the President (OP). Pursuant to the directive from the OP, SBMA conducted a reevaluation. HPPL was still selected the winning bidder. Notwithstanding, the OP directed the SBMA to refrain from signing the Concession Contract with HPPL and to conduct a rebidding. HPPL filed a complaint with the RTC for specific performance, mandatory injunction and damages. SBMA nonetheless commenced the rebidding. HPPL moved for maintenance of status quo which was denied. Hence, this petition for injunction. The legal capacity of HPPL to sue is impugned for doing business in the Philippines without a license. Issue. Does HPPL have the legal capacity to sue? Held. No. HPPL is doing business in the Philippines without the requisite license. It must be held to be incapacitated to bring this petition. A single act or transaction may be considered as doing business when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a singular act cannot be merely incidental or casual if it indicates the foreign corporations intention to do business.

business in the Philippines, Stokely does not need to obtain a license to do business to have capacity to sue.

Agilent Technologies Singapore (Pte.), Ltd. v. Integrated Silicon Technology Phils. Corp., et al. G.R. No. 154618. 14 April 2004. Ynares-Santiago, J. Merrill Lynch Futures, Inc. v. CA and Sps. Lara G.R. No. 97816. 24 July 1992. Narvasa, C. J. Facts. Hewlett-Packard Singapore (HP-Singapore) entered into a Value Added Assembly Services Agreement (VAASA) with respondent Integrated Silicon Technology Phils. Corp. (Integrated Silicon), a domestic corporation. Under the VAASA, Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore. HP-Singapore was to consign raw materials to Integrated Silicon, transport machinery to the plant of Integrated Silicon, and pay Integrated Silicon the purchase price of the finished products. HP-Singapores rights and obligations to the VAASA were later assigned to petitioner Agilent Technologies Singapore (Pte.), Ltd (Agilent). Agilent is a foreign corporation, which is not licensed to do business in the Philippines. When the VAASA expired, it appeared Integrated Silicon refused to return to Agilent its equipment, machineries and materials. Agilent sued. Integrated Silicon impugned Agilents legal capacity to sue for, among others, doing business in the Philippines without a license. Issue. Does Agilent have legal capacity to sue? ML FUTURES allege: from the outset, the Sps. Lara knew and were duly advised it did not have a license to do business in the Philippines. Issue. May the Sps. Lara impugn ML FUTURES' capacity to sue them in Philippine courts? Held. No. The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. This doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract x x x. There would seem to be no question that the Sps. Lara received benefits generated by their business relations with ML FUTURES. Assuming that the Sps. Lara were aware from the outset that ML FUTURES had no license to do business in this country, it would be inequitable for the Sps. Lara to evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done business in this country in the first place. Agilents activities in the Philippines were confined to (1) maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to be used in the processing of products for export. As such, Agilent cannot be deemed to be "doing business" in the Philippines.[18] Held. Yes. Agilent is not doing business in the Philippines. Thus, it needed no license before it can sue before our courts.

Facts. Petitioner Merrill Lynch Futures, Inc. (ML FUTURES) is a futures commission merchant organized and existing under the laws of Delaware, U.S.A. It had no license to do business in the Philippines. ML FUTURES entered into a Futures Customer Agreement with respondents, the Sps. Lara, whereby it acted as the latter's broker for the purchase and sale of futures contracts in the U.S. Orders were transmitted through the facilities of its agent corporation[17] for four or so years. The last 3 transactions had resulted in a loss. The Sps. Lara refused to settle. ML FUTURES filed a collection suit. The Sps. Lara moved to dismiss on the ground of ML FUTURES lack of capacity to sue for, among others, being a foreign corporation doing business in the Philippines without a license. RTC granted the motion. CA affirmed.

B. Van Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc. G.R. No. 147905. 28 May 2007. Carpio, J.

Facts. Petitioner B. Van Zuiden Bros., Ltd. (ZUIDEN) is a Hong Kong corporation without license to do business in the Philippines. ZUIDEN filed a complaint for a sum of money against respondent GTVL Mnfg. Industries, Inc. (GTVL)a domestic corporation. ZUIDEN alleged in its complaint: it is engaged in the importation and exportation of several products, including lace products. GTVL purchased lace products from it on several occasions. Per instructions of GTVL, the purchased goods are delivered to Kenzar, a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the goods, the products were considered sold. Kenzar, in turn, had the obligation to deliver the goods to the Philippines to GTVL. GTVL failed and refused to pay the agreed purchase price for several deliveries. RTC dismissed the case for ZUIDENs lack of capacity to sue, holding that it was doing business in the Philippines without a license. CA affirmed. Issue. Does ZUIDEN have the legal capacity to sue in Philippine courts? Held. Yes. ZUIDEN is not doing business in the Philippines. Thus, it does not need a license before it can sue before our courts. To be doing business in the Philippines" for purposes of Sec. 133 of the Corp. Code, the foreign corporation must actually transact business in the Philippines on a continuing basis in its own name and for its own account. In the case at bar, the sales of lace products were consummated in Hong Kong. We find no single activity which ZUIDEN performed here in the Philippines pursuant to its purpose and object as a business organization. Therefore, there is no basis for ruling that ZUIDEN is doing business in the Philippines. The mere act of exporting from ones own country, without doing any specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing country.[19]

Facts. Respondent Puerto Azul Land, Inc. (PALI) sought to course the trading of its shares through the petitioner PSE. As PSE was considering PALIs application, it received objections from the representative of the late Pres. Marcos and his family who claim PALIs properties to be part of the Marcos estate.*20+ PSE rejected PALIs application on the ground of the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange. SEC ruled in favor of PALI and ordered PSE to cause the listing of the PALI shares. CA affirmed. CA held: the SEC had jurisdiction and authority to look into the decision of PSE for the purpose of ensuring fair administration of the exchange pursuant to Sec.6(j) and 38(b) of PD 902-A, among others.[21] Issue. Does SEC have the jurisdiction and authority to reverse the decision of the PSE? Held. No. We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock, may be traded or not in the stock exchange. This is in line with the SECs mission to ensure proper compliance with the laws. This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. PSE is, after all, a corporation. One of PSEs main concerns, as such, is still the generation of profit for its stockholders. The PSE has all the rights pertaining to corporations. As to its corporate and management decisions, therefore, the State will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs decision in matters of application for listing in the market, the SEC may exercise such power only if PSEs judgment is attended by bad faith. In this case, PSE was in the right when it refused PALIs application, for a contrary ruling was not to the best interest of the general public as there is serious doubt on the integrity of PALI as a stock issuer. The purpose of the RSA, after all, is to give adequate and effective protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless ventures.

PSE v. CA, SEC and Puerto Azul Land, Inc. G.R. No. 125469. 281 SCRA 232. 27 October 1997. Torres Jr., J.

Gabionza and Tan v. CA, et al. G.R. No. 161057. 12 September 2008. Tinga, J.

G.R. No. 164182. 26 February 2008. Puno, C.J. Facts. Respondents are the President and Senior VP-Treasurer of ASB Holdings, Inc. (ASBHI). ASBHI runs the following modus operandi. It borrows funds from individual investors, and issues 2 postdated checks in exchangeone representing the principal amount and the other covering the interest thereon. The checks would mature in 30 to 45 days. On the maturity of the checks, the lenders would renew the loans, either collecting only the interest earnings or rolling over the same with the principal amounts. In 1998, ASBHI borrowed funds from about 700 individual investors amounting to close to P4 billion. In 2000, ASBHI filed for rehabilitation and receivership, and obtained an order enjoining it from paying its outstanding liabilities. Petitioners, two of the many individual lenders of ASBHI, filed a complaint for, among others, violation of the RSA. The SOJ directed the filing of information for violation of the prohibition against the sale or offer for sale of unregistered securities under the RSA.[22] CA reversed, ordered the dismissal of the criminal cases, and cursorily ruled that the postdated checks issued by ASBHI do not constitute securities under the RSA. Issue. Has a prima facie case been established against respondents to warrant their prosecution for the offense? Held. Yes. While the question of whether the subject checks fall within the classification of securities under the RSA may still be the subject of debate, at the very least, a prima facie case has been established. It is one thing for a corporation to issue checks to satisfy isolated individual obligations, and another for a corporation to execute an elaborate scheme where it would comport itself to the public as a pseudo-investment house and issue postdated checks instead of stocks or traditional securities to evidence the investments of its patrons. The definition of securities set forth in the RSA includes commercial papers evidencing indebtedness of any person, financial or non-financial entity. A check is a commercial paper evidencing indebtedness of any person, financial or non-financial entity. Since the checks in this case were generally rolled over to augment the creditors existing investment with ASBHI, they most definitely take on the attributes of traditional stocks.

Facts. Petitioner Power Homes Unlimited Corp. (Power Homes) is a marketing company that promotes and facilitates sales of real properties and other related products of real estate developers through effective leverage marketing.[23] Respondent SEC received two letters inquiring into the legitimacy of Power Homes network marketing; whereupon, SEC conducted an investigation. SEC found Power Homes to be engaged in the sale or offer for sale or distribution of investment contracts without registering them in violation of Sec. 8.1 of the SRC. SEC thus issued a CDO enjoining Power Homes and any and all persons claiming and acting under their authority from further engaging in the sale, offer or distribution of the securities. CA upheld the CDO. Issue. Does the business of Power Homes constitute an investment contract? Held. Yes. An investment contract is defined in the SRC Rules 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." Under Power Homes scheme, an investor enrolls to be entitled to recruit other investors and to receive commissions from the investments of those directly recruited by him. The accumulated amount received by the investor comes primarily from the efforts of his recruits. Thus, the scheme constitutes an investment contract which must be registered with SEC before its sale or offer for sale or distribution to the public.[24]

Cemco Holdings, Inc. v. National Life Insurance Co. G.R. No. 171815. 529 SCRA 355. 7 August 2007. Chico-Nazario, J.

Power Homes Unlimited Corp. v. SEC

Facts. Union Cement Holdings Corp. (UCHC) owned 60.51% and petitioner Cemco Holdings, Inc. (Cemco) 17.03% of the stocks of Union Cement Corp. (UCC), a publicly-listed company. Cemco also owned 9% of the stocks of UCHC. The major stockholders of UCHC (BCI and ACC) sold their shares in UCHC to Cemco, giving Cemco now 60% ownership of UCHC. This gave Cemco 36% indirect ownership of UCC, and consequently, 53% total ownership of the same. No tender offer for the UCC shares was made. Respondent National Life Insurance Co. (NLIC), a minority stockholder of UCC, filed a complaint with the SEC praying that the mandatory

tender offer rule be applied. SEC ruled in NLICs favor, directing Cemco to make a tender offer. CA affirmed. Cemco argues: (1) SECs authority is purely administrative, thus it cannot adjudicate and issue orders granting affirmative reliefs such as commanding it to make a tender offer; (2) the mandatory tender offer rule applies only to direct acquisition of shares. Issues. (1) Does the SEC have the jurisdiction to require Cemco to make a tender offer? (2) Does the rule on mandatory tender offer apply to the indirect acquisition of shares in a listed company? Held. (1) Yes. The SEC has the power and authority to regulate, investigate or supervise the activities of persons to ensure compliance with the SRC (SRC Sec. 5.1(d)), such as the provisions on mandatory tender offer in Sec. 19 thereof. It also may exercise such powers which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted to it (SRC Sec. 5.1(n)). As a regulatory agency, it has the incidental power to conduct hearings and render decisions fixing the rights and obligations of the parties. To deprive the SEC of this power would render the agency inutile, because it would become powerless to regulate and implement the law. (2) Yes. Tender offer is in place to protect minority shareholder against any scheme that dilutes the share value of their investments. This is the legislative intent of Sec. 19 of the SRC. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes it clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase or shares. Control may be effected through a direct and indirect acquisition, and when this takes place, irrespective of the means, a tender offer must occur.

G.R. No. 137321. 536 SCRA 61. 15 October 2007. Quisumbing, J.

Facts. Allegedly to sustain financial viability of its members and to upgrade facilities, petitioner PASTRA[25] increased its transfer processing fees from P45 to P75 and then to P100 in span of 5 months. This it did notwithstanding SEC directives to desist from implementing the new rates. PASTRA also authorized the imposition of fees from P50 to P500 for stockholder information requested by external auditors and validation of status of certificates without prior approval of the SEC. SEC conducted a hearing. SEC issued a CDO against PASTRA and fined the same for violating its previous orders. SEC opined that there exists the possibility that the act or practice may cause grave or irreparable injury to the investing public if left unrestrained. PASTRA alleged grave abuse of discretion on the part of SEC before the CA. CA dismissed PASTRAs petition. PASTRA argues: SEC cannot restrict its members from increasing the transfer and processing fees because there is no specific law, rule or regulation authorizing it. Sec. 40[26] of the RSA only lays down the general powers of the SEC to regulate and supervise the corporate activities of organizations connected with the securities market. It could not justify SECs interference in management prerogatives. Issue. Does the SEC have the power to issue the CDO? Held. Yes. As a securities-related organization under the jurisdiction and supervision of SEC by virtue of Sec. 40 of the RSA, PASTRA was under the obligation to comply with its orders. Defiance was subject to administrative sanctions. The power to regulate PASTRAs fees was included in the general power given to SEC under said Sec. 40. While the SEC is indeed without authority to substitute its judgment for that of the corporations board of directors on business matters so long as the board acts in good faith, this case involves not whether PASTRAs actions pertained to such management prerogatives or whether PASTRA acted in good faith. Rather, this case involves the question of whether the SEC had the power to enjoin PASTRAs planned increase in fees after the SEC had determined that said act if pursued may cause grave or irreparable injury or prejudice to the investing public.[27] Sec. 47 of the RSA[28] expressly gave the SEC the power to enjoin motu proprio any such act or practice of securities-related organizations.

Phil. Assoc. of Stock Transfer and Registry Agencies, Inc. v. CA

Morato, et al. v. CA, et al.

G.R. No. 141510. 436 SCRA 438. 13 August 2004. Callejo, Sr., J.

Facts. Petitioners (stockholders/officers of T.F. Ventures, Inc.) instituted a petition with the SEC against respondent Matsuura (Chairman of the Board of Directors of T.F. Ventures, Inc.) and others for the annulment of the notice of annual stockholders meeting, the resulting stockholders meeting pursuant to the said notice, and all corporate acts thereafter taken by the respondent Matsuura and the officers elected in the said meeting. The case was docketed with the Securities Investigation and Clearing Dept. (SICD) of the SEC. Later, Matsuura requested the SEC to examine the basis of the capital increase of T.F. Ventures, Inc., alleging commission of fraudulent schemes, devices and misrepresentations in violation of the law. He alleged, among others, that petitioners falsely certified the Treasurers Affidavit to enable the petitioners to gain control of T.F. Ventures, Inc. at practically zero cash outlay.[29] This was docketed with the Prosecution and Enforcement Dept. (PED) of the SEC. Petitioners moved to suspend proceedings in the PED case and/or consolidation of cases alleging that the issue in the SICD case is a prejudicial question therein. Issue. Is the issue in the SICD case a prejudicial question in the PED case? Held. No. There is no identity of causes of action or identity of rights asserted by the parties in both cases. The proceedings in the said cases are independent and separate of each other and may thus proceed separately. The issue under SICD Case is an intra-corporate dispute, which falls under the jurisdiction of the SICD; while the investigation being conducted by the PED is the alleged anomalous transaction and spurious documents used in the increase in capital of T.F. Ventures, Inc., which falls under the jurisdiction of PED pursuant to Sec. 8 of PD No. 902A.[30]

Chairman. During the receivership, BF Homes, represented by Orendain, executed a Deed of Sale conveying a parcel of land to the Local Superior of the Franciscan Sisters of the Immaculate Phils., Inc. (LSFSIPI). Subsequently, BF Homes filed with the RTC an action for reconveyance of the property against LSFSIPI and Orendain alleging, inter alia, that Orendain transacted in his individual capacity and therefore, neither FBO nor Orendain had title to the property transferred. Orendain moved to dismiss on the ground that the RTC had no jurisdiction. RTC denied the motion. CA affirmed. Orendain argues: it is the SEC that has jurisdiction by virtue of PD 902-A since BF Homes suit was instituted against him as its former receiver. Thus, the SEC, which appointed the rehabilitation receiver, has the sole power to decide the issue as to whether he acted within the scope of the vested authority. Issue. Does the RTC have jurisdiction over the case? Held. Yes. The controversy involves matters purely civil in character and is beyond the ambit of the limited jurisdiction of the SEC. The LSFSIPI is neither an officer nor a stockholder of BF Homes, and this case does not involve intra-corporate proceedings. In addition, the seller, Orendain, is being sued in his individual capacity for the unauthorized sale of the property in controversy. Hence, we find no cogent reason to sustain Orendains manifestation that the resolution of the instant controversy depends on the ratification by the SEC of the acts of its agent or the receiver because the act of Orendain was allegedly not within the scope of his authority as receiver. Furthermore, the determination of the validity of the sale to LSFSIPI will necessitate the application of the provisions of the Civil Code.[31]

Government Service Insurance System v. CA, et al. G.R. No. 183905. 16 April 2009. Tinga, J.

Orendain v. BF Homes, Inc. G.R. No. 146313. 506 SCRA 243. 31 October 2006. Velasco, Jr., J.

Facts. Respondent BF Homes was placed under receivership. The rehabilitation receiver appointed by the SEC was FBO Management Networks, Inc. (FBO) with petitioner Orendain as

Facts. In connection with the annual stockholders meeting of Meralco, proxies were submitted. Petitioner GSIS, a major stockholder in Meralco, was distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco management. GSIS alleged that the information statement Meralco had filed with the SEC in connection with the annual meeting did not contain any proxy form as required by AIRR-SRC Rule 20 (The Proxy Rule). GSIS filed an Urgent Petition with the SEC seeking to, among others, annul and declare invalid proxies in favor of the private respondents, corporate

officers of Meralco (respondents). GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said proxies during the annual meeting. SEC Commissioner Martinez issued the CDO. The CDO cited SRC Sec. 5.1, 53.5 and 64 in ratiocinating the issuance. Notwithstanding the CDO, Meralco announced it would push through with the meeting opining that the CDO is null and void. SEC issued a Show Cause Order (SCO) against respondents ordering them to explain why they should not be cited for contempt. Respondents filed a petition for certiorari with prohibition with the CA. CA ruled in favor of respondents, dismissing the *petition+ filed by GSIS in the SEC for SECs lack of jurisdiction, among others, and concluding that SECs CDO and SCO are thus void ab initio. GSIS argues: since proxy solicitations, following SRC Section 20.1, have to be made in accordance with rules and regulations issued by the SEC, it is the SEC under SRC Sec. 53.1 that has the jurisdiction to investigate alleged violations of the rules on proxy solicitations.[32] Respondents argue: under Sec. 5.2 of the SRC, the SECs jurisdiction over all cases enumerated in Sec. 5 of PD No. 902-A, including election contests were transferred to the regional trial court.[33] And under Rule 6, Sec. 2 of the Interim Rules on Intra-Corporate Controversies, an election contest includes any controversy or dispute involving the validation of proxies.[34] Issues. (1) (2) Held. (1) No. The linchpin in deciding the question is whether or not the cause of action of GSIS before the SEC is intimately tied to an election controversy. It is evident under Sec. 5(c) of PD 902-A that the jurisdiction of the regular courts over election contests or controversies does not extend to every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Sec. 24 of the Corporation Code. The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under Sec. 5 of PD 902-A. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts. Does the SEC have jurisdiction over the petition filed by GSIS? Was the CDO issued valid?

That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy falls within the contemplation of an election controversy properly within the jurisdiction of the regular courts. (2) No. Firstly, since the SEC had no jurisdiction over the petition filed by GSIS, the CDO granted with respect thereto is necessarily invalid. Secondly, the error of the SEC in granting the CDO without stating which kind of CDO it was issuing is unpardonable, as it is an act that contravenes due process of law. In administrative proceedings, the body or tribunal must "render its decision in such a manner that the parties to the proceeding can know the various issues involved, and the reason for the decision rendered." This requirement is vital, as its fulfillment would afford the adverse party the opportunity to interpose a reasoned and intelligent appeal that is responsive to the grounds cited against it. The citation in the CDO of Sec. 5.1, 53.3 and 64 together may leave the impression that it is grounded on all three provisions.[35] This, however, is legally impermissible. The CDO under Sec. 53.3 is premised on distinctly different requisites than the CDO under Sec. 64. Even more crucially, the lifetime of the CDO under Sec. 53.3 is confined to a definite span of ten (10) days, which is not the case with the CDO under Sec. 64. This CDO under Sec. 64 may be the object of a formal request for lifting within five (5) days from its issuance, a remedy not expressly afforded to the CDO under Sec. 53.3. Thirdly, the fact that the CDO was signed, much less apparently deliberated upon, by only by one commissioner likewise renders the order fatally infirm. The SEC is a collegial body composed. It acts through a five-person body, and each of the members has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the SEC.

Sumndad v. Harrigan and Boracay Beach Club Hotel, Inc. G.R. No. 132358. 381 SCRA 8. 12 April 2002. Quisumbing, J.

Facts. Petitioner Sumndad and respondent Harrigan entered into a joint venture agreement to establish and develop a first-class tourist resort on 3,000 sq.m. of land in Boracay owned by Sumndad. The land was then assigned to defendant Boracay Beach Club Hotel, Inc. (BBCHI). Harrigan acquired 40% of the authorized capital stock of BBCHI. For the development of the resort, Harrigan made several advances or loans in favor of BBCHI amounting to a total of

P8M plus interests. BBCHI did not pay despite repeated demands. Harrigan brought suit in the RTC for collection of money. In his amended complaint, he alleged: In so allowing another person to have absolute and uncontrolled x x x management x x x of the x x x facilities of [BBCHI] without any corresponding financial return x x x and the misappropriation by said third party of the income x x x [BBCHI] has, in effect, disposed of x x x and/or wantonly x x x dissipated x x x corporate properties and funds, in fraud of creditors, including *Harrigan+. Sumndad moved to intervene and was allowed, but she was subsequently declared in default. RTC ruled in favor of Harrigan. Sumndad filed a petition for certiorari with the CA, but was dismissed. Sumndad argues: RTC has no jurisdiction over the subject matter of the case because the complaint alleges fraud committed by BBCHI against complainant Harrigan who is a stockholder thereof. Jurisdiction belongs to the SEC. Issue. Does the RTC have jurisdiction over the subject matter of the case? Held. Yes. Under PD 902-A, Sec. 5, the SEC has 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, among others. However, 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.*36+ The mere use of the phrase in fraud of creditors does not, ipso facto, throw the case within SECs jurisdiction. Within the context of the complaint, the said phrase can only mean to the prejudice of creditors and not to the devises or schemes tantamount to fraud and misrepresentation contemplated in PD 902-A, Sec. 5.[37]

said deed of sale alleging that the same is simulated and that it was a scheme resorted to by petitioners in divesting Leslim of real property so as to gain control of the estate of Pastor, thereby depriving her of her conjugal share as well as her own share in her husbands own estate. RTC dismissed the complaint[38], and further ruled that the action involved an intracorporate controversy over which the SEC had jurisdiction. CA agreed that the case involved an intra-corporate controversy but in the light of the enactment of the SRC, jurisdiction therefor now belongs to the RTC.[39] CA remanded the case to the RTC to hear the complaint on the merits. Issue. Does the case involve an intra-corporate controversy? Held. No. Both elements of an intra-corporate controversy are absent.[40] Firstly, Rufina has never been a stockholder of either Leslim or Speed. Secondly, 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.

Velarde v. Lopez, Inc. G.R. No. 153886. 419 SCRA 422. 14 January 2004. Carpio-Morales, J.

Facts. Petitioner Velarde was the General Manager of Sky Vision Corp. (Sky Vision), a subsidiary of respondent Lopez, Inc. Sky Vision and Lopez, Inc. had interlocking directors, corporate officers and shareholders. Speed Distributing Corp., et al. v. CA and Rufina Lim G.R. No. 149351. 425 SCRA 691. 17 March 2004. Callejo, Sr., J. Velarde loaned P10M from Lopez, Inc. Velarde defaulted in paying his installments, and apparently proposed that he set-off his loan obligation partially with his retirement benefits from Sky Vision. Lopez, Inc. was amenable. Sky Vision then wrote Velarde, apparently in response to the latters request, showing the computation of his retirement benefits proposed to be set-off. Velarde protested the computation. Lopez, Inc. filed a collection suit with the RTC. Velarde filed a counterclaim for unpaid salaries, unpaid incentives, reasonable return on the stock ownership plan and other benefits.[41] Lopez, Inc. moved to dismiss the counterclaim for lack of jurisdiction, averring that the money claims arise from a labor relationship and thus are within the competence of the NLRC. RTC denied. CA reversed and dismissed the counterclaim, holding that Lopez, Inc. is not the real party-in-interest.

Facts. Pastor Lim died intestate and was survived by his wife (respondent Rufina), and other compulsory heirs. Few months later, Leslim Corp. (Leslim) executed a deed of absolute sale in favor of petitioner Speed Distributing Corp. (Speed) which covered a parcel of lot at Diliman, Quezon City. Pastor owned 79.75% of Leslim and only 10 of the 12,500 shares of Speed. Rufina filed a complaint against Speed and petitioners with the RTC for the nullification of the

Velarde argues: there is identity of interest between Lopez, Inc. and Sky Vision to merit the piercing of the veil of corporate fiction. Issues. (1) (2) Held. (1) Yes. Sec. 5(c) of PD 902-A*42+ applies to a corporate officers dismissal for a corporate officers dismissal is always a corporate act and/or an intra-corporate controversy. 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. (2) No. 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. The requisites for applying the doctrine of piercing the veil of corporate fiction were not established.[43] Nowhere in the pleadings and other records of the case can it be gathered that Lopez, Inc. has complete control over Sky Vision 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 in the absence of fraud or other public policy considerations. Is the subject matter of the case within the jurisdiction of the RTC? Is the piercing of the veil of corporate fiction justified?

registration thereof with the SEC and by falsely representing that it was so registered. Rivilla, et al. moved to dismiss on the ground that it is the SEC which has jurisdiction and not the RTC. RTC denied the motion. Appellate court upheld RTCs jurisdiction, ruling that the case is for a sum of money properly within the RTCs jurisdiction. Issue. Does the RTC have jurisdiction over the case? Held. No. SEC has jurisdiction over the case. The grant of jurisdiction by Sec. 5 of PD 902-A upon the SEC must be viewed in the light of the nature and function of the SEC under the law. In other words, the jurisdiction of the SEC should be construed in relation to its power of control and supervision over all corporations to encourage active public participation in the affairs of private corporations by way of investments. The case at bar is not simply an action for the recovery of a sum of money. It springs from an investment made by Rivera with CR AGRO. Rivera now seeks the return of his investment by CR AGRO, and more particularly, by Rivilla, et al.its corporate officers and controlling stockholders. The averments of Rivera shows that, evidently, the present controversy is within the contemplation of Sec. 5(a) of PD No. 902-A, as amended.[44]

Nestl Philippines, Inc. v. CA and SEC G.R. No. 86738. 203 SCRA 504. 13 November 1991. Feliciano, J.

Rivilla, et al. v. IAC, et al. G.R. No. 78170. 31 July 1989. Padilla, J.

Facts. In February 1983, petitioner Nestl Philippines, Inc. (Nestl) increased its authorized capital stock (ACS) from P300M divided into 3M shares to P600M into 6M shares for the same par value per share of P100. Nestl paid the necessary filing fee of P50k to the SEC. In December that year, Nestl resolved to issue 344,500 shares out of the previously authorized but unissued capital stock of Nestl, exclusively to their only principal stockholders: San Miguel Corp. and Nestl S.A. Nestl requested exemption of its proposed issuance of additional shares from the registration requirement under Sec. 4 of the RSA and from payment of the exemption fee referred to in Sec. 6(c) of the same. SEC denied the requests. CA affirmed.

Facts. Respondent Rivera made an investment in C.R. Agro Industrial Devt. Corp. (CR AGRO). Whence, a promissory note was issued in the name of CR AGRO in favor of respondent Rivera. CR AGRO defaulted on the payment. Rivera filed a complaint with the RTC. Rivera alleged that petitioners Rivilla, et al. (the controlling stockholders and officers of CR AGRO) actually used CR AGRO as a shield to perpetrate or commit fraud and/or evade their just and valid obligation to him by issuing the promissory note in the name of CR AGRO without prior

Nestl argues: the proposed issuance of previously authorized but theretofore unissued capital stock is contemplated in the phrase issuance of additional capital stock under Sec. 6(a)(4) and therefore is an exempt transaction.[45] Wherefore, it is exempt from payment of the said exemption fee since that would amount to collecting twice for the same transaction because it has already paid P50k as filing fee for increasing its ACS in February that year. Issue. Is the proposed issuance of additional shares exempt from the registration requirement? Held. No. The phrase issuance of additional capital stock under Sec.6(a)(4) of the RSA refers only to that which is part of and in the course of increasing the authorized capital stock of a corporation and not to the issuance of already authorized but still unissued capital stock as in the case at bar. This permits greater opportunity for the SEC to implement the statutory objective of protecting the investing public by requiring proposed issuers of capital stock to inform such public of the true financial conditions and prospects of the corporation. By so limiting the scope of the exemption, the SEC is enabled to examine the issuance of previously authorized but theretofore unissued capital stock on a case-to-case basis; and grant or withhold exemption depending on the perceived level of need for protection by the investing public pursuant to Sec. 6(b) of the RSA.*46+ In fine, Nestls proposed construction of Sec. 6(a)(4) would establish an inflexible rule of automatic exemption of issuances of additional, previously authorized but unissued, capital stock. We must reject an interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely when such protection may be most needed.

exchange. The stock certificates were delivered to Fidelity for cancellation. Meanwhile, Cualoping paid Lopez checks amounting to P400,000 for the stocks. After 2 months, Fidelity rejected the issuance of the new certificates in favor of the buyers alleging the indorsements were forged. Fidelity sought an opinion from the SEC. Both respondents appealed the ruling of the Brokers and Exchange Dept. to the SEC en banc. SEC en banc ordered respondents to jointly replace the shares and to each pay a P50,000 fine for violation of Sec. 29 (a) of the RSA, which reads in part: xxx it shall be unlawful for any person xxx in connection with the xxx sale of any securities xxx (3) to engage in any xxx course of business which operates or would operate as a fraud or deceit xxx. CA reversed the order. Issues. (1) Does the SEC have jurisdiction over the case? (2) Was the imposition of the fine on each of the respondents proper? Held. (1) No. This case started only on the basis of a request by Fidelity for an opinion from the SEC. The stockholders who have been deprived of their certificates of stock or the persons to whom the forged certificates have ultimately been transferred by the supposed indorsees thereof are yet to initiate an appropriate adversarial action. Neither have they been made parties to the proceedings now at bench. A justiciable controversy such as can occasion an exercise of SECs exclusive jurisdiction would require an assertion of a right by a proper party against another who, in turn, contests it. In this case, the proper parties would be all or any of those who are adversely affected by the transfer of the pilfered stock certificates. Any peremptory judgment by the SEC, without such proceedings having first been initiated, would be precipitate. (2) No. To constitute a violation of the RSA that can warrant an imposition of a fine, fraud[47] or deceit, not mere negligence, on the part of the offender must be established. Given the factual circumstances found by the appellate court, neither Fidelity nor Cualoping, albeit remiss in the observance of due diligence, can be held liable under [Sec. 29 (a), RSA]. However, the negligence committed would still be actionable but such action belongs not to the SEC but to those whose rights have been injured.

SEC v. CA, et al. G.R. Nos. 106425 & 106431-32. 246 SCRA 738. 21 July 1995. Vitug, J.

Facts. Respondent Fidelity Stock Transfer, Inc. (Fidelity) is the stock transfer agent of Philex Mining. Sometime in 1988, stock certificates representing 1,400,000 shares of Philex were stolen from the premises of Fidelity. The stocks ended in the hands of a certain Agustin Lopez who brought the same to respondent Cualoping Securities Corp. (Cualoping), a stockbroker, for trading. The stock certificates bore the apparent indorsement in blank of the owners thereof as well as the apparent verification of these signatures by Fidelity. Cualoping stamped thereon Indorsement Guaranteed and thereafter traded the same with the stock

People of the Philippines v. Petralba

G.R. No. 137512. 27 September 2004. Austria-Martinez, J.

demanded cancellation of their purchase agreement and refund but TRC refused. Respondents filed a complaint with the SEC against TRC for violation of the prohibition against the sale of unregistered securities. SEC ruled for respondents. TRC argues: its mere registration as a corporation already authorizes it to deal with timeshares. Issue. Did TRCs registration as a corporation authorize it to deal with timeshares? Held. No. Corporate registration is just one of several requirements before it may deal with securities.[48] Prior to fulfillment of all the other requirements of Sec. 8 of the RSA, TRC is absolutely proscribed under Sec. 4 from dealing with timeshares.[49]

Facts. Defendant Petralba is charged with, among others, offering for sale and selling unregistered securities which are neither exempt securities nor exempt transactions. Petralba is an employee of Lansdale Enterprises, Inc. (Lansdale). It is alleged that she represented herself to complainant Dr. Bailey as a trader for Lansdale. Relying on the representations of Petralba, Dr. Bailey gave Petralba a check worth $6,000 as her starting capital for trading in the alleged securities (foreign currency trading) which were unregistered. RTC convicted Petralba. CA affirmed. Petralba argues: the transaction that transpired between Dr. Bailey and her employer Lansdale was a mere foreign exchange trading which is not covered by the term securities of the RSA. Issue. Does the contract between Dr. Bailey and Lansdale come within the term securities contemplated by the RSA? Held. Yes. The foreign exchange trading transaction appears to be 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 touchtone 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.

Union Bank of the Philippines v. SEC G.R. No. 138949. 358 SCRA 479. 6 June 2001. Panganiban, J.

Timeshare Realty Corp. v. Lao and Cortez G.R. No. 158941. 11 February 2008. Austria-Martinez, J.

Facts. Petitioner Union Bank of the Philippines (UB) is a commercial banking corporation trading its shares in the PSE. 8 April 1997, respondent SEC issued an opinion that while UBs securities are exempt from registration pursuant to Sec 5(a)(3) of the RSA, it is not exempt from the Full Material Disclosure Rule of the SEC. Thus, UB is not exempt from the filing of various reports under the RSA Rules: (1) Annual, Quarterly, Current, Predecessor and Successor Reports [Rule 11(a)-1]; (2) Proxy Statements [Rule 34(a)-1], and; (3) Information Statements, among others [Rule 34(c)-1]. UB complied with Rule 11(a)-1 only. SEC sent show-cause letters to UB which it failed to respond to. SEC fined UB P50,000 plus P500 for every day that the report was not filed for a total of P91,000. CA affirmed. Issues. (1) Is UB exempt from the Full Material Disclosure Rule of the SEC?

Facts. Petitioner Timeshare Realty Corp. (TRC) is duly registered as a corporation. It sold to respondents one timeshare of Laguna de Boracay in 1998. Subsequently, SEC issued a resolution to the effect that TRC was without authority to sell securities, like timeshares, prior to 11 February 1998, stating that its Registration Statement became effective only on said date. It further gave a purchaser prior to said date the option to unilaterally rescind his purchase agreement with TRC and receive refund of money paid. Respondents thus

(2) Is the imposition of the fine on UB proper? Held. (1) No. RSA Sec 5(a)(3) exempts the securities issued by banking institutions authorized to do business in the Philippines, which business is substantially confined to banking and which

is supervised by the BSP, from registration. Nowhere does it state or even imply that UB, as a listed corporation, is exempt from complying with the reports required by the RSA Rules. Having confined the exemption merely to the initial requirement of registration of securities for public offering, the SEC, as a regulatory agency, is able to exercise its power of supervision and control over corporations and securities market as a whole. Otherwise, the objectives of the Full Material Disclosure policy would be defeated since UB and its dealings would be totally beyond the reach of the SEC and the investing public. As a bank, UB is primarily subject to the control of the BSP. As a corporation trading its securities in the stock market, it is under the supervision of the SEC. (2) Yes. The fine is sanctioned by RSA Sec 46: If, after proper notice and hearing, the *SEC+ finds there is a violation of x x x its rules x x x it shall, in its discretion x x x impose x x x a fine of x x x no more than [P50,000] plus not more than [P500] for each day of continuing violation.

Issue. Is the Trading Contract valid? Held. No. The subject Trading Contract in its printed form bears all the indicia of a valid trading contract because it complies with the SEC Rules and Regulations on Commodity Futures Trading. However, the transaction, which was carried out to implement the written contract, deviates from the true import thereof as no delivery, actual or constructive, of the commodity was ever made and final settlement was made by payment of the difference between the price stipulated and the exchange/market price at the time of the pretended delivery. Such dealings in futures are mere speculative contracts in which the parties merely gamble on the rise or fall in prices. Such transactions are illegal. This is clearly a form of gambling contemplated under Art. 2018 of the NCC, and thus Chua is entitled to recover what she has paid.[52]

SEC v. Performance Foreign Exchange Corp. Onapal Philippines Commodities, Inc. v. CA and Chua G.R. No. 90707. 218 SCRA 281. 1 February 1993. Campos, Jr., J. Facts. Petitioner SEC conducted a clarificatory conference to ascertain the nature of respondent Performance Foreign Exchange Corp.s (PFEC) business. Thereafter, SEC issued a CDO based on Sec. 64 of the SRC upon PFEC, stating that it finds PFEC to be engaged in the trading of foreign currency futures contracts in behalf of its clients without the necessary license contrary to the SRC. SEC then wrote to BSP, requesting a definitive statement that PFECs business transactions are a form of financial derivatives which can only be undertaken by banks or non-bank financial intermediaries performing quasi-banking functions. Without waiting for BSPs reply, SEC proceeded to make the CDO permanent over the objections of PFEC. PFEC filed a petition for certiorari with the CA.[53] CA ruled in favor of PFEC. Issue. Is the issuance of the CDO proper? Held. No. Both the essential requirements that must be complied with by the SEC before it may issue a CDO under Sec. 64 of the SRC are not present.[54] As for the first requirement, SEC did not conduct proper investigation or verification before it issued the challenged orders. The clarificatory conference undertaken cannot be considered a proper investigation or verification process. It was merely an initial stage of G.R. No. 154131. 20 July 2006. Sandoval-Gutierrez, J.

Facts. Petitioner Onapal Philippines Commodities, Inc. (Onapal) was a commission merchant/broker engaged in commodity futures trading[50] in Cebu. Onapal and respondent Chua entered into a Trading Contract. Chua did not read the Contract nor was she made aware of the contents thereof when she signed it. It turned out the Contract was one for sale of products for future delivery of goods in which either party may elect to make or demand delivery of goods agreed to be bought and sold.[51] Chua, however, was made to understand that the intention was that final settlement is made by payment of the difference between the price stipulated and the exchange/market price at the time of the pretended delivery; such price difference shall be paid by the loser to the winner. In all the transactions, there were no actual deliveries. Per terms of the Contract, Chuas orders shall be directly transmitted by Onapal to its principal, Frankwell Enterprises of Hongkong, which in turn must place her orders with the Tokyo Exchange. Chuas orders, however, were not transmitted to Hongkong and her money was kept by Onapal in a separate account in a local bank. Realizing the trading to be gambling, Chua withdrew from the business. She was able to get only P470,000 out of her total deposit of P800,000. She brought suit to recover the loss. Lower court ruled in Chuas favor, holding that the Trading Contract is a specie of gambling and thus was null and void, and ordering Onapal to refund Chua.

such process considering SEC still sought verification from the BSP on the nature of PFECs business activity. SECs referral indicates that it concedes to the BSPs expertise in determining the nature of PFECs business. *BSPs determination is thus an+ essential part of the investigation and verification process. Hence, the SEC acted with grave abuse of discretion when it issued the CDO even before it could finish its investigation and verification (without waiting for BSPs determination). As for the second requirement, it implies that the act to be restrained has been determined after conducting the proper investigation/verification. In this case, the nature of the act to be restrained can only be determined after the BSP shall have submitted its findings to the SEC.

Respondents aver: SEC still needed to define the terms "material fact," "reasonable person," "nature and reliability" and "generally available" in Sec. 30 of the RSA; and the term "beneficial ownership" in Sec. 36 of the RSA to give effect to the law. Issue. May respondents be held to violate Secs. 8, 30 and 36 of the RSA without implementing rules therefor? Held. Yes. In the absence of any constitutional or statutory infirmity, which may concern said sections of the RSA, the provisions are legal and binding. To rule that the absence of implementing rules can render ineffective an act of Congress, would empower the administrative bodies to defeat the legislative will by delaying the implementing rules. Where the statute contains sufficient standards and an unmistakable intent, as in this case, there should be no impediment to its implementation. The terms, which according to respondents, still needed to be defined by the SEC are not vague. These provisions are sufficiently clear and complete by themselves. Their requirements are specifically set out, and the acts which are enjoined are determinable.[57]

SEC v. Interport Resources Corp., et al. G.R. No. 135808. 6 October 2008. Chico-Nazario, J.

Concurring opinion by J. Tinga: Facts. The board of directors of Interport Resources Corp. (IRC) approved a Memorandum of Agreement (MOA) with Ganda Holdings Berhad (GHB). Under the MOA, IRC acquired 100% of the capital stock of Ganda Energy Holdings, Inc. (GEHI). In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC.[55] 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. After a hearing, SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of Material Facts and that some of its officers and directors engaged in insider trading in violation of Sec. 30, in relation to Sec. 36, of the RSA. SEC ordered, among others, the creation of a special investigating panel to hear and decide the case. At the time, the SEC has not promulgated rules to implement Secs. 8, 30 and 36 of the RSA. Respondents filed a petition before the CA. CA ruled in repondents favor. CA held that absent any implementing rules for the RSA provisions which respondents allegedly violated, Secs. 8, 30 and 36,[56] no civil, criminal or administrative actions can possibly be had against the respondents without violating their right to due process and equal protection.

The reasons given for securities regulation are (1) to protect investors, (2) to supply the informational needs of investors, (3) to ensure that stock prices conform to the fundamental value of the companies traded, (4) to allow shareholders to gain greater control over their corporate managers, and (5) to foster economic growth, innovation and access to capital. The most common forms of checking securities fraud are (1) disclosure regulation and (2) financial activity regulation. Disclosure regulation requires issuers to make public a large amount of financial information to actual and potential investors. The standard justification for disclosure rules is that the managers of the issuing firm have more information about the financial health and future of the firm than investors who own or are considering the purchase of the firm's securities. Financial activity regulation consists of rules about traders of securities and trading on or off the stock exchange, e.g. the set of rules against insider trading. In its barest essence, insider trading involves the trading of securities based on knowledge of material information not disclosed to the public at the time.

It was the U.S. SEC which formulated the "disclose or abstain" rule, requiring an insider in possession of material nonpublic information to disclose such information before trading or, if disclosure is impossible or improper, abstain from trading.

Nicolas v. CA and Buan G.R. No. 122857. 288 SCRA 307. 27 March 1998. Romero, J.

Facts. Petitioner Nicolas traded securities for the account of others without the necessary license from the SEC. He and respondent Buan entered into a Portfolio Mngt. Agreement wherein he was to manage the stock transactions of Buan. After 6 months, Buan terminated the agreement. Nicolas demanded from Buan P68,263.67 representing his alleged management fees pursuant to their Agreement which provides that Buan would pay Nicolas 20% of all realized profits every end of the month as management fees. Buan refused to pay. Nicolas sued Buan. RTC ruled in Nicolas favor. CA reversed. Issue. Does Nicolas have the right to the management fees? Held. No. Nicolas traded securities for the account of others without the necessary license from the SEC. Such omission was in violation of Sec. 19 of the RSA which provides that no broker shall sell any securities unless he is registered with the SEC. American jurisprudence emphasizes the principle that: xxx, an unlicensed person may not recover compensation for services as a broker where a statute or ordinance requiring a license is applicable and such statute or ordinance is of a regulatory nature, was enacted in the exercise of police power for the purpose of protecting the public, requires a license as evidence of qualification and fitness, and expressly precludes an unlicensed person from recovering compensation by suit xxx. We see no reason not to apply the same rule in our jurisdiction.

Facts. Respondent CMS Stock Brokerage, Inc. (CMS) and petitioner LLL are members of the Makati Stock Exchange (MSE). CMS sold to LLL, as buyer for and on orders of third parties, 2,650 Benguet Consolidated shares on a 10-20 days delayed deliver basis. The transaction was evidenced by exchange contracts. After about 4 months, however, CMS still has not delivered to LLL the said shares which remained unpaid. LLL refused to accept the belated delivery since its clients for whom the purchases were made had cancelled their orders. CMS sued LLL. CFI ruled in favor of CMS, compelling LLL to accept delivery, among others. CA affirmed. LLL avers the law on contracts is controlling in this case (and not the MSE Rules which CA ruled LLL to have violated). Hence CMS failure to deliver within the stipulated time warrants rescission of the exchange contracts, and thus LLL cannot be compelled to accept the belated delivery. Under the Rule at issue, if the selling member fails or refuses to deliver, it may be compelled through the Chairman of the Floor Trading and Arbitration Committee to purchase the same for the selling members account. It does not give the buying member the right to rescind the contract. Issue. Are the Exchange Rules controlling as to the subject exchange contracts? Held. Yes. As members of the MSE, CMS and LLL are bound by the rules and by-laws of the exchange.[58] The contention that rules and regulations of the exchange should not apply to or affect contracts which may involve third persons is without merit. Rules and regulations of the Stock Exchange form part of the contract. Because of the peculiarity of the business involved in a stock exchange,[59] rules were adopted to govern not only the members but the transactions between the members as well. Under the applicable rule, case at bar, if the selling member fails or refuses to deliver, it may be compelled to purchase the same for the selling members account. There being a special remedy agreed upon by the members, the right to rescission under the New Civil Code is inapplicable. Exchange contracts are peculiar in certain ways. Firstly, they are affected with public interest and therefore should be clothed with greater sanctity than ordinary contracts. Consequently, unless there are clear and insuperable obstacles to their enforcement, they should be enforced. Secondly, exchange contracts are entered into with speed (in seconds) even if they involve thousands of pesos. Therefore, the Exchange Rules must be interpreted to assure enforcement. Thirdly, the stockbrokers usually do not invest their own money but their clients. Thus, the investor is practically dealing with people who are complete strangers to him. The inviolability of exchange contracts and their enforcement must, therefore, be guaranteed or else no stock exchange is possible. Public policy demands that LLL must be compelled to accept the delivery of the shares and to pay for them. Any other interpretation of the Exchange Rules would destroy the Exchange itself.

Lopez, Locsin, Ledesma & Co., Inc. v. CA G.R. No. L-14291. 168 SCRA 276. 8 December 1988. Gutierrez, J.

converted Ampils cash account into a credit account. However, extension or maintenance of credits on nonmargin transactions is specifically prohibited under Sec. 23(b). Abacus Securities Corp. v. Ampil G.R. No. 160016. 483 SCRA 315. 27 February 2006. Panganiban, C.J. Ampil is equally guilty for the subsequent transactions. He is not an innocent investor. He knowingly speculated on the market by taking advantage of the no-cash-out arrangement extended to him by Abacus. Notably, he repeatedly asked for some time to pay his obligations, and it was only when he was sued that he raised as a defense the invalidity of the transactions.

Facts. Petitioner Abacus Securities Corp. (Abacus) is a broker-dealer of securities of listed companies at the PSE. Respondent Ampil is an experienced and knowledgeable trader wellversed in the securities market. Ampil opened a cash account with Abacus. Abacus made the initial trade on Ampils account on April 10 and 11, 1997 and continued thereafter to actively trade on the same. Under their agreement, Abacus allowed offset settlements, wherein Ampil was not obliged to pay the purchase price. Rather, Abacus waits for Ampil to sell. And if there is a loss, Ampil need only pay the deficiency. By the 30th of that month, Ampil accumulated an outstanding obligation in favor of Abacus the principal sum of P6,617,036.22. Abacus sold Ampils securities to offset Ampils obligations but there remained unsettled a balance of P3,364,313.56. Abacus brought suit for collection. In his defense, Ampil alleged Abacus to have violated the RSA. RTC ruled Abacus and Ampil to be in pari delicto, holding Abacus to have violated Secs. 23 and 25 of the RSA and Rule 25-1 of the RSA Rules,[60] and holding Ampil to have been equally at fault by incurring excessive credits before invoking the RSA. CA affirmed. Issue. Is the pari delicto rule applicable? Held. Yes, but only for the stock transactions subsequent to the initial trade. Ampil is thus liable for the first trade, but neither Ampil nor Abacus is entitled to any legal remedy for the subsequent trades. The margin requirements[61] are applicable only to transactions entered subsequent to the initial trades. Abacus may collect from Ampil the extent of the difference between Ampils outstanding obligation as of April 11, 1997 (the initial trade) less the proceeds from the mandatory sell out of the shares pursuant to RSA Rule 25-1. Ampils obligation for the initial trades remains outstanding as these were valid for there was no violation of the RSA yet at the time. Not to require Ampil to pay for his initial trades would put a premium on his circumvention of the laws and would enable him to enrich himself unjustly at the expense of Abacus. Abacus fault arose only when it failed to (1) liquidate the initial trades within T+4 and (2) complete its liquidation within T+14, applying the proceeds thereof as payment for Ampils outstanding obligation. By failing to ensure Ampils payment of his first purchase transaction within T+14, thereby allowing him to make subsequent purchases, Abacus effectively

[1] The control necessary to invoke the [instrumentality] rule [or alter ego doctrine] is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. (Lipat and Lipat v. Pacific Banking Corp., et al., G.R. No. 142435)

[2] The board of directors may validly delegate some of its functions and powers to officers, committees, or agents. Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. (Lipat and Lipat v. Pacific Banking Corp., et al., G.R. No. 142435)

[3] Piercing of the veil of corporate fiction may be allowed only if the following elements concur: (1) Control not mere stock control, but complete domination not only of finances, but of policy and business practice in respect to the transaction attacked; (2) Such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) The said control and breach of duty must have proximately caused the injury or unjust loss complained of. (Times Transportation Co., Inc. v. Sotelo, et al., G.R. No. 163786)

[4] The prevailing law at the time was still the RSA. Jurisdiction of the SEC under Sec. 5 thereof has not been transferred to the RTC.

Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period not exceeding five (5) years at any one time x x x . The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement x x x (Corp. Code)

[5] Sec. 25. Corporate officers, quorum. Immediately after their election, the directors of a corporation must formally organize by the election of a president x x x a treasurer x x x a secretary x x x and such other officers as may be provided for in the by-laws x x x

[6] Two elements to be considered in determining whether the SEC has jurisdiction over the controversy: (1) the status or relationship of the parties; and

By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation.

(2) the nature of the question that is the subject of their controversy. (Nacpil v. IBC, 379 SCRA 653, 658)

[7] Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. x x x Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation x x x

Under Sec 59 of the Corp. Code, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement x x x. Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such x x x may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement.

[9] Requisites in order that the SEC (now RTC) may take cognizance of a case: (1) the controversy must pertain to any of the following relationships:

[8] Voting trust trust created by an agreement between a group of the stockholders and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby x x x control over the stock x x x is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used (Ballentine's Law Dictionary)

between the corporation, partnership or association and the public; between the corporation, partnership or association and its stockholders, partners, members , or officers; between the corporation, partnership, or association and the state as far as its franchise permit or license to operate is concerned; and among the stockholders, partners or associations themselves. (2) nature of the question that is the subject of their controversy must be considered (Vesagas v. CA and Sps. Raniel, 371 SCRA 508, 517)

N.B. the case filed by the Sps. Raniel was transferred to the RTC in view of the enactment of RA 8799.

[15] The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. (Ibid.)

[16] International Container Terminal Services, Inc. (ICTSI) [10] Rules of Court prevailing at the time: SEC. 6. Service upon private foreign corporations. If the defendant is a foreign corporation x x x doing business in the Philippines, service may be made on its resident agent x x x

[17] Merrill Lynch Philippines, Inc.

[11] Old Corporation Law, Sec. 69. No foreign corporation x x x shall be permitted to transact business in the [Philippines] or maintain x x x any suit for the recovery of any x x x claim x x x unless it shall have the license x x x

[18] Summary of the principles regarding the right of a foreign corporation to bring suit in Philippine courts: (1) if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts;

[12] Eriks is engaged in the manufacture and sale of elements used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial uses.

(2) if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely independent of any business transaction; (3) if a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from challenging the foreign corporations corporate personality in a suit brought before Philippine courts; and (4) if a foreign corporation does business in the Philippines with the required license, it can sue before Philippine courts on any transaction. (Agilent Technologies Singapore (Pte.), Ltd. v. Integrated Silicon Technology Phils. Corp., et al., G.R. No. 154618 [2004])

[13] Sec. 133. Doing business without a license. No foreign corporation transacting business in the Philippines without a license x x x shall be permitted to maintain or intervene in any action x x x in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine x x x tribunals on any valid cause of action x x x.

[14] What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country [i.e. the nature and character of its transactions]. The number and quantity are merely evidence of such intention. (Eriks Pte. Ltd. v. CA and Enriquez, Jr., G.R. No. 118843)

[19] The Court differentiated the case from Eriks Pte., Ltd. v. CA (G.R. No. 118843[1997]), where deliveries of goods where perfected in Singapore but nonetheless Eriks (the foreign corporation) was found to be doing business in the Philippines because the transactions involved were not isolated: x x x respondent [in the Eriks case] alleged the existence of a distributorship agreement between him and the foreign corporation. If duly established, such distributorship agreement

could support respondents claim that *the foreign corporation+ was indeed doing business in the Philippines. Here, there is no such or similar agreement between *ZUIDEN+ and *GTVL+. (B. Van Zuiden Bros., Ltd. v. GTVL Manufacturing Industries, Inc., G.R. No. 147905 [2007])

obligations in the ordinary course of business transactions. But when they are issued in exchange for a big number of individual non-personalized loans solicited from the public, numbering about 700 in this case, the checks cease to be such. In such a circumstance, the checks assume the character of evidences of indebtedness. This is especially so where the individual loans were not evidenced by appropriate debt instruments, such as promissory notes, loan agreements, etc., as in this case x x x

[20] PCGG confirmed this claim of the Marcoses. A sequestration order has in fact been issued over the properties, and suit for reconveyance to the State has been filed. [23] Under the business scheme of Power Homes, an investor enrolls in its 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. As the pyramid goes on, a certain amount is deducted from the amounts to be received by the investor to go to the investors Property Fund which will be applied as down payment for the real property chosen by such investor from any of Power Homes accredited real estate developers.

[21] PD 902-A, Sec. 6. x x x the [SEC] shall possess the following powers: xxx xxx xxx

(j) To authorize the establishment and operation of stock exchanges x x x and to supervise and regulate the same x x x xxx xxx xxx

[24] To be a security subject to regulation by the SEC, an investment contract in our 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.

PD 902-A Sec. 38. Powers with respect to exchanges and securities. xxx xxx xxx [25] an association of stock transfer agents principally engaged in the registration of stock transfers in the stock-and-transfer book of corporations

(b) The [SEC] is further authorized x x x to alter or supplement the rules of such exchange (insofar as necessary or appropriate to effect [changes for the protection of investors or to insure fair dealing in securities traded therein]) x x x xxx xxx xxx

[26] RSA Sec. 40. Power of the [SEC] with respect to securities related organizations.The [SEC] shall have the power to x x x regulate, supervise, examine, suspend or otherwise discontinue, the operation of organizations whose operations are related to or connected with the securities market such as but not limited to x x x transfer agents x x x

[22] The DOJ, in its Resolution, made the following observations: x x x it has been held that checks of a debtor received and held by the lender also are evidences of indebtedness and therefore securities under the Act, where the debtor agreed to pay interest on a monthly basis so long as the principal checks remained uncashed, it being said that such principal extent as would have promissory notes payable on demand (69 Am Jur 2d, p. 606). x x x Checks constitute mere substitutes for cash if so issued in payment of

[27] PASTRAs fees have far-reaching effects on the capital market. Charging exorbitant processing fees could discourage many small prospective investors and curtail the infusion of money in the capital market.

[28] RSA Sec. 47. Cease and desist order.The [SEC] x x x motu proprio, or x x x may issue a cease and desist order x x x if in its judgment the act or practice, unless restrained may cause grave or irreparable injury or prejudice to the investing public x x x

C. the furnishing of a form of proxy or other communication to security holders under circumstance reasonably calculated to result in the procurement, withholding or revocation of a proxy

*29+ Among Matsuuras allegations: the increase of P90,000,000 in the authorized capital stock, P40,000,000 was fully paid by the stockholders when in fact it was not, and the mode of payment of paid-in capital was changed from "cash" to "offset of liability"

Thus, proxy solicitation is not the same as proxy validation. Proxy solicitation is a procedure that antecedes proxy validation. The former involves the securing and submission of proxies, while the latter concerns the validation of such secured and submitted proxies.

[30] Under Section 8 of P.D. No. 902-A, the SEC, through the PED, is vested with authority to investigate, either motu proprio or upon complaint, any act or omission, fraudulent schemes, devices or misrepresentations in violation of any law, rules or regulations, administered and enforced by the SEC, and to file and prosecute appropriate civil or criminal cases upon a prima facie finding of violation of such laws, rules or regulations.

[33] PD 902-A Sec. 5. xxx xxx xxx

(3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations [31] In addition, jurisdiction over the case for reconveyance is clearly vested in the RTC as provided in paragraph (2), Section 19, B.P. Blg. 129

[32] SRC Sec. 20. Proxy Solicitations. 20.1. Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission; SRC Sec. 53. Investigations, Injunctions and Prosecution of Offenses. - 53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder x x x

[34] Interim Rules on Intra-Corporate Controversies Rule 6, Sec. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity of elections and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a nonstock corporation where the articles of incorporation or bylaws so provide.

N.B. AIRR-SRC Rule 20. The terms solicit and solicitation include: A. B. any request for a proxy whether or not accompanied by or included in a form of proxy any request to execute or not to execute, or to revoke, a proxy; or

[35] There are three distinct bases for the issuance by the SEC of the CDO: (1) SRC Sec. 5(i) predicated on a necessity "to prevent fraud or injury to the investing public". No other requisite or detail is tied to this CDO (2) SRC Sec. 53.3 requires the SEC to make two findings before the issuance of the CDO: (i) that such person has engaged in any act or practice constituting a violation of any provision of the SRC, any rule, regulation or order thereunder, or any rule of an Exchange, registered

securities association, clearing agency or other self-regulatory organization, and (ii) that there is a reasonable likelihood of continuing, (or engaging in) further or future violations by such person. The maximum duration of this CDO is ten (10) days. (3) SRC Sec. 64 requires the SEC to adjudge that the act, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. It plainly provides three segregate instances upon which the CDO may be issued: (i) after proper investigation or verification, (ii) motu proprio, or (iii) upon verified complaint by any aggrieved party.While no lifetime is expressly specified for the CDO under Sec. 64, the respondent to the CDO may file within 5 days from issuance a formal request for the lifting thereof, which the SEC must hear within 15 days from filing and decide within ten (10) days from the hearing.

[39] SRC, Sec. 5.2 transferred from the SEC to the RTC the jurisdiction over the following: (a) Devices or schemes employed by, or any act 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, or members of associations registered with the [SEC]; (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; 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;

N.B. It appears that the CDO under Sec. 5(i) is similar to the CDO under Sec. 64.1. Both require a common finding of a need to prevent fraud or injury to the investing public. At the same time, no mention is made whether the CDO defined under Sec. 5(i) may be issued exparte, while the CDO under Sec. 64.1 requires "grave and irreparable" injury, language absent in Sec. 5(i). Notwithstanding, it remains clear that the CDO issued under Sec. 53.3 is a distinct creation from that under Sec. 64.

(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 association has no sufficient assets to cover its liabilities but is under the management of a rehabilitation receiver or management committee created x x x

[36] Fraud 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. (Sumndad v. Harrigan, 381 SCRA 8, 18)

[40] Elements of an intra-corporate controversy: (1) The status or relationship of the parties.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 such corporation, partnership or association and the State insofar as it concerns their individual franchises. (2) The nature of the question that is the subject of their controversy.requires that the dispute among the parties be intrinsically connected with the regulation of the corporation.

*37+ Notably, this issue is now moot and academic since SECs jurisdiction under PD 902-A, Sec.5 has been transferred to the RTC.

*38+ Rufinas complaint was dismissed for lack of cause of action. RTC ruled she was not a real party-in-interest, she was not privy to the contract of sale, and neither was she a stockholder of Speed.

*41+ In his Answer, Velarde alleged that the loan agreement was a mere cover document to evidence the reward to him of P10M for his loyalty and excellent service, that payment, if any, was expected in the form of continued service; and that it was when he was forced to retire by Lopez, Inc. that it was agreed that his retirement benefits be applied to the loan.

(4) x x x the issuance of additional capital stock of a corporation sold or distributed by it among its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale or distribution of such increased capital stock.

[42] PD 902-A, Sec. 5(c). Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnership or associations *46+ RSA Sec. 6(b): The *SEC+ may, from time to time x x x exempt transactions other than those provided under the preceding paragraph, if it finds that the enforcement of the requirements of registration x x x is not necessary in the public interest and for the protection of the investors by reason fo the small amount involved or the limited character of the public offering. [43] Requisites for applying the doctrine of piercing the veil of corporate fiction: (1) Control, not merely majority or complete stock control; N.B. When capital stock is issued in the course of and in compliance with the requirements of increasing its ACS, the SEC as a matter of course examines the financial condition of the corporation, and hence there is no real need for exercise of SEC authority under the RSA. Moreover, since 2/3 of the stockholders would have to approve such an increase in the ACS, the directors and officers of the corporation may be expected to take pains to inform the shareholders of the financial condition and prospects of the corporation and of the proposed utilization of the fresh capital sought to be raised. Upon the other hand, issuance of previously authorized but theretofore unissued capital stock by the corporation requires only Board approval. There would be no opportunity for the SEC to see to it that shareholders have a reasonable opportunity to inform themselves about the very fact of such issuance and about the condition of the corporation and the potential value of the shares being offered. (Nestl Philippines, Inc. v. CA and SEC, 203 SCRA 504, 512)

(2) Such control must have been used by defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or [to commit] 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. (Velarde v. Lopez, Inc., 419 SCRA 422, 431)

[44] PD 902-A, Sec. 5. x x x the [SEC] x x x shall have original and exclusive jurisdiction to hear and decide cases involving: (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 stockholder, partners, members of associations or organizations registered with the [SEC] xxx xxx xxx

[47] Fraud is akin to bad faith which implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. (SEC v. CA, 246 SCRA 738, 747)

[45] RSA Sec. 6. Exempt Transactions.(a) The requirement of registration x x x shall not apply to the sale of any security in any of the following transactions: xxx xxx xxx

[48] RSA, Sec. 8. Procedure for registration. (a) All securities required to be registered x x x shall be registered through the filing by the issuer or by any dealer or underwriter interested

in the sale [thereof in the SEC] of a sworn registration statement with respect to such securities, containing or having attached thereto, the following: xxx xxx xxx

*53+ Meanwhile, BSP replied to SECs letter-request stating that PFECs business activity is does not fall under the category of futures trading and cannot be classified as financial derivatives transactions.

(36) Unless previously filed and registered with the Commission and brought up to date: [54] Essential requirements for issuance by the SEC of a CDO under SRC, Sec. 64: (1) (a) A copy of its articles of incorporation with all amendments thereof and its existing bylaws or instruments corresponding thereto, whatever the name, if the issuer be a corporation. SEC must conduct proper investigation or verification; and

(2) there must be a finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

[49] RSA, Sec. 4. Requirement of registration of securities. - (a) No securities, except of a class exempt x x x or unless sold in any transaction exempt x x x, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided.

[55] Pursuant to the MOA, GEHI would own and operate a gas turbine power-generating barge, and would assume a 5-year power purchase contract with Napocor. GHB also undertook to extend or arrange a loan required to pay for the acquisition by IRC of 67% of the entire capital stock of Philippine Racing Club, Inc.

[50] Futures Commission Merchant/Broker one engaged in soliciting or accepting orders for the purchase or sale of any commodity for future delivery, and in connection with such solicitation or acceptance, accepts money, securities or property (or extends credit in lieu thereof) to margin, guarantee or secure any trade or contract that results or may result therefrom

[56] RSA Sec. 30. Insider's duty to disclose when trading. (a) It shall be unlawful for an insider to sell or buy a security of the issuer, if he knows a fact of special significance with respect to the issuer or the security that is not generally available, unless: (1) the insider proves that the fact is generally available; or

[51] Commodity Futures Contract an agreement to buy or sell a specified quantity and grade of a commodity at a future date at a price established at the floor of the exchange

(2) if the other party to the transaction (or his agent) is identified, (a) the insider proves that the other party knows it, or (b) that other party in fact knows it from the insider or otherwise xxx xxx xxx

*52+ Art. 2018 of the NCC: If a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the lower to the winner, the transaction is null and void. The loser may recover what he has paid.

(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made generally available, to affect the market price of a security to a significant extent, or (b) a reasonable person would consider it especially important under the circumstances in determining his course of action in the light of such factors as the degree of its specificity, the extent of its difference from information generally available previously, and its nature and reliability.

xxx

xxx

xxx

source and the circumstances under which it was received. Must be clearly viewed in connection with the particular circumstances of a case. Beneficial ownership. Refers to shareholders with the power to buy or sell the shares, though the shareholder is not registered in the corporation's books as the owner.

N.B. The foregoing provisions that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation.

RSA Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is x x x the beneficial owner of more than ten per centum of any [class] of any equity security which is registered pursuant to this Act, or who is [a] director or an officer of the issuer of such security, shall file, x x x a statement with the [SEC] x x x of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten days after the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file with the [SEC] x x x a statement indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month.

N.B. Secs. 30 and 36 of the RSA were enacted to promote full disclosure in the securities market and prevent unscrupulous individuals, who by their positions obtain non-public information, from taking advantage of an uninformed public. No individual would invest in a market which can be manipulated by a limited number of corporate insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert the occurrence of such an event, Sec. 30 prevented the unfair use of non-public information in securities transactions, while Sec. 36 allowed the SEC to monitor the transactions entered into by corporate officers and directors as regards the securities of their companies.

[58] An exchange has the power to adopt its own constitution, by-laws, rules and regulations so far as they are not contrary to law or public policy and which will secure to the members exclusive rights and privileges which the courts have fully recognized. Anyone who becomes a member of the exchange voluntarily submits himself to the operation of these rules and is expected to be bound by and to respect them. (Lopez, Locsin, Ledesma & Co., Inc. v. CA , 168 SCRA 276, 284)

[57] A fact is material if it induces or tends to induce or otherwise affect the sale or purchase of its securities. Materiality will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity. Must be considered in a case-to-case basis. Generally available to the public. Whether information found in a newspaper, a specialized magazine, or any cyberspace media will be sufficient for the term "generally available" is a matter which may be adjudged given the particular circumstances of the case. The standards cannot remain at a standstill. A medium, which is widely used today was, at some previous point in time, inaccessible to most. The reasonable person is the standard on which most of our legal doctrines stand; the average man on the street who relies on the calculus of common sense. Nature and reliability. Degree of its specificity, the extent to which it differs from information previously publicly disseminated, and its reliability in light of its nature and [59] Nature and purposes of an exchange. An exchange is a voluntary association or corporation organized for the purpose of furnishing to its members a convenient and suitable place to transact their business of promoting uniformity in the customs and usages of merchants, of inculcating principles of justice and equity in trade, of facilitating the speedy adjustment of business disputes, of acquiring and disseminating valuable commercial and economic information and generally of securing to its members the benefits of co-operation in the furtherance of their legitimate pursuits. (Ibid., 284)

[60] RSA Sec. 23. Margin Requirements. xxx xxx xxx

(b) It shall be unlawful for x x x broker or dealer x x x to extend or maintain credit x x x to or for any customer (1) On any security other than an exempted security, in contravention of the rules and regulations x x x

[61] The main purpose of the margin requirements in the RSA is primarily to achieve a macroeconomic purposethe protection of the overall economy from excessive speculation in securities. Their recognized secondary purpose is to protect small investors by making it impossible for them to spread themselves too thinly. Trading on credit (margin trading) allows investors to buy more securities than their cash position would normally allow. Investors pay only a portion of the purchase price of the securities; their broker advances for them the balance and keeps the securities as collateral for the advance or loan. Hence, increasing margins, i.e. decreasing the amounts which brokers may lend for the speculative purchase and carrying of stocks, is the most direct and effective method of discouraging an abnormal attraction of funds into the stock market and achieving more balanced use of such resources. The primary concern is the efficacy of security credit controls in preventing speculative excesses that produce dangerously large and rapid securities price rises and accelerated declines in the general price level of securities.

RSA Sec. 25. Enforcement of margin requirements.x x x the broker or dealer shall require the customer in nonmargin transactions to pay the price of the security purchased for his account within such period as the *SEC+ may prescribe x x x.

RSA Rule 25-1. Purchases and Sales in Cash Account (the mandatory close-out rule) (a) Purchases by a customer in a cash account shall be paid in full within [T+3, i.e. within 3 business days after the trade date] (b) If full payment is not received within the required time period, the broker or dealer shall cancel or otherwise liquidate the transaction starting on the next business day, within 10 business days following the last day for the customer to pay [T+13] unless such sale cannot be effected within said period for justifiable reasons. (c) If a transaction is cancelled or otherwise liquidated x x x, prior to any subsequent purchase x x x, the customer shall be required to deposit funds in the account to cover each purchase transaction prior to execution. xxx xxx xxx

(d) Written application for an extension of the period of time required for payment under [par. (a)] be made by the broker or dealer to the [PSE] xxx xxx xxx

N.B. Margin account an account in which the broker lends the customer cash with which to purchase securities. Unlike a cash account, it allows an investor to buy securities with money borrowed from the broker. RSA limits margin borrowing to a maximum of 50% of the amount invested.