E. Regulation of corporations by the SEC 1. Powers and Functions SRC, SEC. 5. Powers and Functions of the Commission.- 5.1.

The Commission shall act with transparency and shall have the powers and functions provided by this Code,Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:chanroblesvirtualawlibrary (a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government; chan robles virtual law library (b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto; (c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; (d) Regulate, investigate or supervise the activities of persons to ensure compliance; (e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; (f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; (g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders; (h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code; (i) Issue cease and desist orders to prevent fraud or injury to the investing public; (j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; (k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; (l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws; (m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws. 2. Jurisdiction

SRC, 5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. PD 902-A, Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it 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 partnership, 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 Commission; (b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; and (c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. GSIS v CA Facts: The annual stockholders meeting (annual meeting) of the Manila Electric Company (Meralco) was scheduled on 27 May 2008. In connection with the annual meeting, proxies were required to be submitted on or before 17 May 2008, and the proxy validation was slated for five days later, or 22 May, 2008. On 15 May 2008, the board of directors of Meralco designated Jose Vitug to act as corporate secretary for the annual meeting. However, when the proxy validation began on 22 May, the proceedings were presided over by respondent Anthony Rosete (Rosete), assistant corporate secretary and in-house chief legal counsel of Meralco. Private respondents nonetheless argue that Rosete was the acting corporate secretary of Meralco. Petitioner Government Service Insurance System (GSIS), a major shareholder in Meralco, was distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco management. GSIS filed a complaint with the RTC. GSIS filed a Notice with the RTC manifesting the dismissal of the complaint. On the same day, GSIS filed an Urgent Petition with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from recognizing, counting and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise honoring the shares covered by the proxies in favor of respondents Manuel Lopez et al. or any officer representing MERALCO Management, and to annul and declare invalid said proxies. Also asked for CDO to restrain the use of said proxies during the annual meeting scheduled for the following day. The meeting however pushed through. SEC issued a Show Cause Order (SCO) against private respondents, ordering them to appear before the Commission on 30 May 2008 and explain why they should not be cited in contempt. PR filed for motion for prohibition in the CA. CA: complaint filed by GSIS in the SEC is hereby DISMISSED due to SECs lack of jurisdiction, due to forum shopping by respondent GSIS, and due to splitting of causes of action by respondent GSIS. May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being considered, out of equitable considerations, as an election contest in the RTC, because the prescriptive period of 15 days from the May 27, 2008 Meralco election to file an election contest in the RTC had already run its course GSIS: since proxy solicitations following Section 20.1 have to be made in accordance with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that has the jurisdiction to investigate alleged

violations of the rules on proxy solicitations. The GSIS petition invoked AIRR-AIRR-SRC Rule 20, otherwise known as The Proxy Rule, which enumerates the requirements as to form of proxy and delivery of information to security holders. According to GSIS, the information statement Meralco had filed with the SEC in connection with the annual meeting did not contain any proxy form as required under AIRR-SRC Rule 20. PRs: under Section 5.2 of the SRC, the SECs jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to the courts of general jurisdiction or the appropriate regional trial court. Section 5 of Presidential Decree No. 902-A which private respondents especially refer to are as follows: xxx (2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; or association of which they are stockholders, members, or associates, respectively; 3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations; In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules) promulgated by this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which defines election contests as follows: 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 Issues: 1) WON the SEC has jurisdiction over the petition filed by GSIS against private respondents. 2) WON the CDOand SCO issued by the SEC are valid. Held/ Ratio: 1) None. Distinction between proxy solicitation and proxy validation cannot be dismissed offhand. The right ofa stockholder to vote by proxy is generally esta blished by the Corporation Code, but it is the SRC which specifically regulates the form and use of proxies, more particularly the procedure of proxy solicitation, primarily through Section 20. AIRR-SRC Rule 20 defines the terms solicit and solicitation: The terms solicit and solicitation include: A. any request for a proxy whether or not accompanied by or included in a form of proxy B. 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. It is plain that 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. GSIS raises the sensible point that there was no election yet at the time it filed its petition with the SEC, hence no proper election contest or controversy yet over which the regular courts may have jurisdiction. And the point ties its cause of action to alleged irregularities in the proxy solicitation procedure, a process that precedes either the validation of proxies or the annual meeting itself. Section 6(g) of Presidential Decree No. 902-A, which states: SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: Xxx (g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent stockholders or members; xxx As promulgated then, the provision would confer on the SEC the power to adjudicate controversies relating not only to proxy solicitation, but also to proxy validation. Should the proposition hold true up to the present, the position of GSIS would have merit, especially since Section 6 of Presidential Decree No. 902-A was not expressly repealed or abrogated by the SRC.

Yet a closer reading of the provision indicates that such power of the SEC then was incidental or ancillary to the exercise of such jurisdiction. Note that Section 6 is immediately preceded by Section 5, which originally conferred on the SEC original and exclusive jurisdiction to hear and decide cases involving controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. The cases referred to in Section 5 were transferred from the j urisdiction of the SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus, the SECs power to pass upon the validity of proxies in relation to election controversies has effectively been withdrawn, tied as it is to its abrogated jurisdictional powers Issue now therefore is: whether or not the cause of action of GSIS before the SEC is intimately tied to an election controversy. Shares of stock in corporations may be divided into voting shares and non-voting shares, which are generally issued as preferred or redeemable shares. Voting rights are exercised during regular or special meetings of stockholders; regular meetings to be held annually on a fixed date, while special meetings may be held at any time necessary or as provided in the by-laws, upon due notice. Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election-related controversies is specifically confined to controversies in th e election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations. Evidently, the jurisdiction of the regular courts over so-called election contests or controversies under Section 5(c) 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 Section 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 Section 5 of Presidential Decree No. 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 by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree No. 902-A. Aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term election contest as encompassing all plausible incidents arising from the election of corporate directors, including: (1) any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, (2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications of candidates, including the proclamation of winners. From the language of Section 5(c) of Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification of voting shares, or the validity of votes cast in favor of a candidate for election to the board of directors are properly cognizable and adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases. The Court recognizes that GSISs position flirts with the abhorrent evil of split jurisdiction, allowing as it does both the SEC and the regular courts to assert jurisdiction over the same controversies surrounding an election contest. Should the argument of GSIS be sustained, we would be perpetually confronted with the spectacle of election controversies being heard and adjudicated by both the SEC and the regular courts, made possible through a mere allegation that the anteceding proxy solicitation process was errant, but the competing cases filed with one objective in mind to affect the outcome of the election of the board of directors. Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory power of the SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly granting as it does original and exclusive jurisdiction first to the SEC, and now to the regular courts. The fact that the jurisdiction of the regular courts under Section 5(c) is confined to the voting on election of officers, and not on all matters which may be voted upon by stockholders, elucidates that the power of the SEC to regulate proxies remains extant and could very well be exercised when stockholders vote on matters other than the election of directors.

That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy was engendered by the looming annual meeting, during which the stockholders of Meralco were to elect the directors of the corporation. GSIS very well knew of that fact. Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation or validation of proxies bore no relation at all to the scheduled election of the board of directors of Meralco during the annual meeting. GSIS very well knew that the controversy falls within the contemplation of an election controversy properly within the jurisdiction of the regular courts. Otherwise, it would have never filed its original petition with the RTC of Pasay. 2. No. Since it has no jurisdiction. There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i), is predicated on a necessity to prevent fraud or injury to the investing public. No other requisite or detail is tied to this CDO authorized under Section 5(i). The second basis, found in Section 53.3, involves a determination by the SEC that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization. The provision additionally requires a finding that there is a reasonable likelihood of continuing [or engaging in] further or future violations by such person. The maximum duration of the CDO issued under Section 53.3 is ten (10) days. The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act or practice, which 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. Section 64.1 plainly provides three segregate instances upon which the SEC may issue the CDO under this provision: (1) after proper investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party. While no lifetime is expressly specified for the CDO under Section 64, the respondent to the CDO may file a formal request for the lifting thereof, which the SEC must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing. Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3 or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a singular CDO could not be founded on Section 5.1, Section 53.3 and Section 64 collectively. We have particularly required, in administrative proceedings, that the body or tribunal in all controversial questions, 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. The CDO extended by the SEC fails to provide the needed reasonable clarity of the rationale behind its issuance. The citation in the CDO of Section 5.1, Section 53.3 and Section 64 together may leave the impression that it is grounded on all three provisions, and that may very well have been the intention of the SEC. Assuming that is so, it is legally impermissible for the SEC to have utilized both Section 53.3 and Section 64 as basis for the CDO at the same time. The CDO under Section 53.3 is premised on distinctly different requisites than the CDO under Section 64. Even more crucially, the lifetime of the CDO under Section 53.3 is confined to a definite span of ten (10) days, which is not the case with the CDO under Section 64. This CDO under Section 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 Section 53.3. This lack of clarity is to the obvious prejudice of the respondent, and is in clear defiance of the constitutional right to due process of law. Indeed, the veritable mlange that the assailed CDO is, with its jumbled mixture of premises and conclusions, the antithesis of due process. To make matters worse for the SEC, 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 of a Chairperson and four (4) Commissioners. In order to constitute a quorum to conduct business, the presence of at least three (3) Commissioners is required. Simply put, Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of the SEC. The SEC acts through a five-person body, and the five members of the commission each has one vote to cast in every deliberation concerning a case or any incident therein that is subject to the jurisdiction of the SEC.

GSIS argues that there was valid delegation of such authority to the commissioner under the rules. In addition, it is clear under Section 4.6 that the ability to delegate functions to a single commissioner does not extend to the exercise of the review or appellate authority of the SEC. The issuance of the CDO is an act of the SEC itself done in the exercise of its original jurisdiction to review actual cases or controversies. Provident International Resources Corp. v Venus Facts: Petitioner Provident International Resources Corporation (PIRC) is a domestic coporation registered with the SEC. Marcelo group, were its incorporators, original stockholders, and directors. Another group, known as the Asistio group, claimed that the Marcelo group acquired shares in PIRC as mere trustees for the Asistio group. The Marcelo group allegedly executed a waiver of pre-emptive right, blank deeds of assignment, and blank deeds of transfer; endorsed in blank their respective stock certificates over all of the outstanding capital stock registered in their names; and completed the blank deeds in 2002 to effect transfers to the Asistio group. Company Registration and Monitoring Department (CRMD) of the SEC issued a certification stating that verification made on the available records of PIRC showed failure to register its stock and transfer book (STB). It also appears that on April 21, 1998, the Supervision and Monitoring Department of the SEC had issued a show cause letter to PIRC for its supposed failure to register its STB. On August 7, 2002, the Asistio group registered PIRC's STB. Upon learning of this, PIRC's assistant corporate secretary, Celedonio Escao, Jr., requested the SEC for a certification of the registration in 1979 of PIRC's STB. Meanwhile, on October 17, 2002, the Asistio group filed in the RTC against the Marcelo group. The Asistio group prayed that the Marcelo group be enjoined from acting as directors of PIRC, from physically holding office at PIRC's office, and from taking custody of PIRC's corporate records. 2002, the CRMD of the SEC issued a letter recalling the certification it had issued on August 6, 2002 and canceling the 2002-registered STB. However, one Kennedy B. Sarmiento requested the SEC not to cancel the 2002-registered STB. The SEC thus scheduled a conference to determine which of the two STBs is valid. Hearing officer ruled: finding the 1979 stock and transfer book authentic and duly executed, the Commission hereby recall the certification issued on 6 August 2002 and cancel the stock and transfer book registered on October 2002. Asistio group appealed to the SEC Board of Commissioners. They claimed that the issue of which of the two STBs is valid is intra-corporate in nature; hence, the RTC, not the SEC, has jurisdiction. SEC: denied. SEC ratiocinated that the determination of which of the two STBs is valid calls for regulatory, not judicial power and is therefore within its exclusive jurisdiction. CA: reversed and set aside the judgment of SEC. Issue: WON SEC has jurisdiction to recall and cancel a stock and transfer book which it issued I 2002 because of its mistaken assumption that no stock and transfer book has been issued in 1979 Held: Yes Ratio: Sec. 5. Powers and Functions of the Commission .- 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, . . . . Pursuant thereto the Commission shall have, among others, the following powers and functions: (a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and /or a license or permit issued by the Government; Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships and associations (excluding cooperatives, homeowners' association, and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted.

Considering that the SEC, after due notice and hearing, has the regulatory power to revoke the corporate franchise -- from which a corporation owes its legal existence -- the SEC must likewise have the lesser power of merely recalling and canceling a STB that was erroneously registered. SEC has the primary competence and means to determine and verify whether the subject 1979 STB presented by the incumbent assistant corporate secretary was indeed authentic, and duly registered by the SEC as early as September 1979. As the administrative agency responsible for the registration and monitoring of STBs, it is the body cognizant of the STB registration procedures, and in possession of the pertinent files, records and specimen signatures of authorized officers relating to the registration of STBs. The evaluation of whether a STB was authorized by the SEC primarily requires an examination of the STB itself and the SEC files. This function necessarily belongs to the SEC as part of its regulatory jurisdiction. As the regulatory body, it is the SEC's duty to ensure that there is only one set of STB for each corporation. The determination of whether or not the 1979-registered STB is valid and of whether to cancel and revoke the August 6, 2002 certification and the registration of the 2002 STB on the ground that there already is an existing STB is impliedly and necessarily within the regulatory jurisdiction of the SEC. Consuelo Metal Corp. v Planters Development Bank Facts: 1996, CMC filed before the SEC a petition to be declared in a state of suspension of payment, for rehabilitation, and for the appointment of a rehabilitation receiver or management committee under Section 5(d) of Presidential Decree No. 902-A. SEC, finding the petition sufficient in form and substance, declared that all actions for claims against CMC pending before any court, tribunal, office, board, body and/or commission are deemed suspended immediately until further order from the SEC 1999, the SEC directed the creation of a management committee to undertake CMCs rehabilitation and reiterated the suspension of all actions for claims against CMC. 2000, upon the management committees recommendation, the SEC issued an Omnibus Order directing the dissolution and liquidation of CMC. Thereafter, respondent Planters Development Bank (Planters Bank), on e of CMCs creditors, commenced the extra-judicial foreclosure of CMCs real estate mortgage. CMC filed a motion for the issuance of a TRO issued by SEC. The case was then transferred to the trial court. In its 25 April 2001 Order, the trial court denied CMCs motion for issuance of a temporary restraining order. The trial court ruled that since the SEC had already terminated and decided on the merits CMCs petition for suspension of payment, the trial court no longer had legal basis to act on CMCs motion. Trial court denied CMCs motion for reconsideration. The trial court ruled that CMCs petition for suspension of payment could not be converted into a petition for dissolution and liquidation because they covered different subject matters and were governed by different rules. The trial court stated that CMCs remedy was to file a new petition for dissolution and liquidation either with the SEC or the trial court. Court of Appeals held that the trial court correctly denied CMCs motion for the iss uance of a temporary restraining order because it was only an ancillary remedy to the petition for suspension of payment which was already terminated. The Court of Appeals added that, under Section 121 of the Corporation Code, the SEC has jurisdiction to hear CMCs petition for dissolution and liquidation Court of Appeals partially granted CMCs motion for reconsideration and ordered that the case be remanded to the SEC under Section 121 of the Corporation Code. The Court of Appeals also ruled that since the SEC already ordered CMCs dissolution and liquidation, Planters Banks foreclosure of the real estate mortgage was in order. Planters Bank insists that the trial court has jurisdiction over CMCs dissolution and liquidation. Planters Bank argues that dissolution and liquidation are entirely new proceedings for the termination of the existence of the corporation which are incompatible with a petition for suspension of payment which seeks to preserve corporate existence.

Issues: 1) WON case falls under Section 121 of the Corporation Code, which refers to the SECs jurisdiction over CMCs dissolution and liquidation, or is only a continuation of the SECs jurisdiction over CMCs petition for suspension of payment; and 2) WON Planters Banks foreclosure of the real estate mortgage is valid. Held/Ratio: 1) Republic Act No. 8799 (RA 8799) transferred to the appropriate regional trial courts the SECs jurisdiction defined under Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides: The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on 2 April 1996 after it found CMCs petition to be sufficient in form and substance. While CMCs petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings before the appropriate trial court. The SEC finally disposed of CMCs petition for suspension of payment when it determined that CMC could no longer be successfully rehabilitated. However, the SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now pertains to the appropriate regional trial courts. This is the reason why the SEC, in its 29 November 2000Omnibus Order, directed that the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be transferred. The trial court is in the best position to convene all the creditors of the corporation, ascertain their claims, and determine their preferences. 2. Planters Bank adds that the rules on concurrence and preference of credits and the rules on insolvency are not applicable in this case because CMC has been not been declared insolvent and there are no insolvency proceedings against CMC. Rizal Commercial Banking Corporation v. Intermediate Appellate Court , we held that if rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the provisions of the Civil Code on concurrence and preference of credits. Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon the preference and prove their credits as ordinary claims. In this case, Planters Bank, as a secured creditor, enjoys preference over a specific mortgaged property and has a right to foreclose the mortgage under Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose such mortgage is merely suspended upon the appointment of a management committee or rehabilitation receiver or upon the issuance of a stay order by the trial court Baviera v Paglinawan Facts: Manuel Baviera, was the former head of the HR Service Delivery and Industrial Relations of Standard Chartered Bank-Philippines (SCB), one of herein respondents. SCB is a foreign banking corporation duly licensed to engage in banking, trust, and other fiduciary business in the Philippines. Pursuant to Resolution No. 1142 dated December 3, 1992 of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP), the conduct of SCBs business in this jurisdiction is subject to the following conditions: at least 25% of its trust accounts must be for the account of non-residents of the Philippines and that actual foreign exchange had been remitted into the Philippines to fund such accounts or that the establishment of such accounts had reduced the indebtedness of residents (individuals or corporations or government agencies) of the Philippines to non-residents.

SCB did not comply with the above conditions. Instead, as early as 1996, it acted as a stock broker, soliciting from local residents foreign securities called "GLOBAL THIRD PARTY MUTUAL FUNDS" (GTPMF), denominated in US dollars. These securities were not registered with the Securities and Exchange Commission (SEC). These were then remitted outwardly to SCB-Hong Kong and SCB-Singapore. 1997, the Investment Capital Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the Revised Securities Act,5particularly the provision prohibiting the selling of securities without prior registration with the SEC; and that its actions are potentially damaging to the local mutual fund industry. SEC issued a Cease and Desist Order against SCB, holding that its services violated Sections 4(a)7 and 198 of the Revised Securities Act. 1998, the BSP directed SCB not to include investments in global mutual funds issued abroad in its trust investments portfolio without prior registration with the SEC. However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell GTPMF securities in this country. This prompted petitioner to enter into an Investment Trust Agreement with SCB wherein he purchased US$8,000.00 worth of securities upon the banks promise of 40% return on his investment and a guarantee that his money is safe. October 26, 2001, petitioner learned from Marivel Gonzales, head of the SCB Legal and Compliance Department, that the latter had been prohibited by the BSP to sell GPTMF securities. Petitioner then filed with the BSP a letter-complaint demanding compensation for his lost investment. But SCB denied his demand on the ground that his investment is "regular." 2003, petitioner filed with the Department of Justice (DOJ), represented herein by its prosecutors, public respondents, a complaint charging the above-named officers and members of the SCB Board of Directors and other SCB officials, private respondents, with syndicated estafa. Meanwhile SEC and SCB entered into a comp agreement. 2004, petitioner filed with the DOJ a complaint for violation of Section 8.1 9 of the Securities Regulation Code against private respondents DOJ dismissed complaint for estafa and violation of SRC lack of jurisdiction, should have been filed first with the SEC. CA affirmed. Issue: WON DOJ committed GAD when it dismissed the complaints filed by pet. Held: No Ratio: SEC. 53. Investigations, Injunctions and Prosecution of Offenses . 53. 1. The Commission may, in its discretion, make such investigation 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 thereunderProvided, further, That all criminal complaints for violations of this Code and the implementing rules and regulations enforced or administered by the Commission shall be referred to the Department of Justice for preliminary investigation and prosecution before the proper court The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or rule administered by the SEC must first be filed with the latter. If the Commission finds that there is probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint in I.S. No. 2004-229. A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of the administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate matters of fact. The Securities Regulation Code is a special law. Its enforcement is particularly vested in the SEC. Hence, all complaints for any violation of the Code and its implementing rules and regulations should be filed with the SEC. Re: dismissal of estafa case: Given this latitude and authority granted by law to the investigating prosecutor, the rule in this jurisdiction is that courts will not interfere with the conduct of preliminary

investigations or reinvestigations or in the determination of what constitutes sufficient probable cause for the filing of the corresponding information against an offender. In sum, the prosecutors findings on the existence of probable cause are not subject to review by the courts, unless these are patently shown to have been made with grave abuse of discretion RA 10149, SEC. 5. Creation of the Governance Commission for Government-Owned or -Controlled Corporations.There is hereby created a central advisory, monitoring, and oversight body with authority- to formulate, implement and coordinate policies to be known as the Governance Commission for GovernmentOwned or -Controlled Corporations, hereinafter referred to as the GCG, which shall be attached to the Office of the President. The GCG shall have the following powers and functions: (a) Evaluate the performance and determine the relevance of the GOCC, to ascertain whether such GOCC should be reorganized, merged, streamlined, abolished or privatized, in consultation with the department or agency to which a GOCC is attached. For this purpose, the GCG shall be guided by any of the following standards: (1) The functions or purposes for which the GOCC was created are no longer relevant to the State or no longer consistent with the national development policy of the State; (2) The GOCCs functions or purposes duplicate or unnecessarily overlap with functions, prog rams, activities or projects already provided by a Government Agency; (3) The GOCC is not producing the desired outcomes, or no longer achieving the objectives and purposes for which it was originally designed and implemented, and/or not cost efficient and does not generate the level of social, physical and economic returns vis--vis the resource inputs; (4) The GOCC is in fact dormant or nonoperational; (5) The GOCC is involved in an activity best carried out by the private sector; and (6) The funcitional, purpose or nature of operations of any group of GOCCs require consolidation under a holding company. Upon determination by the GCG that it is to the best interest of the State that a GOCC should be reorganized, merged, streamlined, abolished or privatized, it shall: (i) Implement the reorganization, merger or streamlining of the GOCC, unless otherwise directed by the President; or (ii) Recommend to the President the abolition or privatization of the GOCC, and upon the approval of the President, implement such abolition or privatization, unless the President designates another agency to implement such abolition or privatization. (b) Classify GOCCs into: (1) Developmental/Social Corporations; (2) Proprietary Commercial Corporations; (3) Government Financial, Investment and Trust Institutions; (4) Corporations with Regulatory Functions; and (5) Others as may be classified by the GCG, without prejudice to further sub classifications in each category and/or any other classification based on parameters as it may find relevant or . material such as, but not limited to, industry type. The classification shall guide the GCG in exercising its powers and functions as provided herein; (c) In consultation with the relevant government agencies and stakeholders, adopt within one hundred eighty (180) days from its constitution, an ownership and operations manual and the government corporate standards governing GOCCs: Provided, That the government corporate governance standards applicable to GOCCs shall be no less rigorous than those required by the Philippine Stock Exchange or the Securities. and Exchange Commission of listed companies, or those required by the Bangko Sentral ng Pilipinas or the Insurance Commission for banking institutions and insurance companies, as the case may be. The manual shall be consistent with the Medium-Term Philippine Development Plan issued by the National Economic and Development Authority (NEDA) and shall include: (1) Objectives of State ownership; (2) Role of national government in the governance of GOCCs; (3) Modes of implementation of the ownership policy; (4) Guidelines on the monitoring of the operations of all GOCCs including their Related Corporations. These shall include Strategy Maps, Charter Statements, Performance Commitments and such other mechanisms; (5) The roles, relationships and responsibilities of the State, the Government Agencies to which the GOCC is attached, and the GOCC;

(6) Disclosure and transparency requirements; (7) Code of Ethics of Directors and Officers; (8) Creation of board committees and similar oversight bodies; (9) Integrated corporate reporting system; (10) Statement of the social responsibilities of the GOCC; and (11) Such other matters as the GCG may deem proper to include in the ownership policy. (d) Without prejudice to the filing of administrative and criminal charges, recommend to the Board of Directors or Trustees the suspension of any member of the Board of Directors or Trustees who participated by commission or omission in the approval of the act giving rise to the violation or noncompliance with the ownership manual for a period depending on the nature and extent of damage caused, during which period the director or trustee shall not be entitled to any emolument; (e) In addition to the qualifications required under the individual charter of the GOCCs and in the bylaws of GOCCs. without original charters, the GCG shall identify necessary skills and qualifications required for Appointive Directors and recommend to the President a shortlist of suitable and qualified candidates for Appointive Directors; (f) Establish the performance evaluation systems including performance scorecards which shall apply to all GOCCs in general and to the various GOCC classification; (g) Conduct periodic study, examination, evaluation and assessment of the performance of the GOCCs, receive, and in appropriate cases, require reports on the operations and management of the GOCCs including, but not limited to, the management of the assets and finances of the GOCCs; (h) Conduct compensation studies, develop and recommend to the President a competitive compensation and remuneration system which shall attract and retain talent, at the same time allowing the GOCC to be financially sound and sustainable; (i) Provide technical advice and assistance to the government agencies to which the GOCCs are attached in setting performance objectives and targets for the GOCCs and in monitoring GOCCs performance vis-avis established objectives and targets; (j) Coordinate and monitor the operations of GOCCs, ensuring alignment and consistency with the national development policies and programs. It shall meet at least quarterly to: (1) Review Strategy Maps and Performance Scorecards of all GOCCs; (2) Review and assess existing performance-related policies including the compensation/remuneration of Board of Directors/ Trustees and Officers and recommend appropriate revisions and actions; and (3) Prepare performance reports of the GOCCs for submission to the President. (k) Prepare a semi-annual progress report to be submitted to the President and the Congress. In its report, the GCG will provide its performance assessment of the GOCCs and recommend clear and specific actions. Within one hundred twenty (120) days from the close of the year, the GCG shall prepare an annual report on the performance of the GOCCs and submit it to the President and the Congress; and (l) Review the functions of each of the GOCC and, upon determination that there is a conflict between the regulatory and commercial functions of a GOCC, recommend to the President in consultation with the Government Agency to which such GOCC is attached, the privatization of the GOCCs commercial operations, or the transfer of the regulatory functions to the appropriate government agency, or such other plan of action to ensure that the commercial functions of the GOCC do not conflict with such regulatory functions. In the performance of its functions under subsections (a), (c), (e), (f), (g), (h) and (1) herein and in any other review or evaluation of a GOCC that the GCG may conduct, the GCG shall engage the participation of the Secretary or highest ranking official of the relevant agency or department, as the case may be. III. Trust Fund Doctrine

CC, Art. 2238. So long as the conjugal partnership or absolute community subsists, its property shall not be among the assets to be taken possession of by the assignee for the payment of the insolvent debtor's obligations, except insofar as the latter have redounded to the benefit of the family. If it is the husband who is insolvent, the administration of the conjugal partnership of absolute community may, by order of the court, be transferred to the wife or to a third person other than the assignee. (n) NTC v CA FACTS: In 1988 NTC served on the PLDT the following assessment notices and demands for payment: 1. Supervision and regulation fee of P7,495,161.00 under Section 40 (e) of the PSA for the said year, 1988, computed at P0.50 per P100.00 of the Protestants (PLDT) outstanding capi tal stock as at December 31, 1987 which then consisted of Serial Preferred Stock amounting to P1,277,934,390.00 (Billion) and Common Stock of P221,097,785 (Million) or a total of P1,499,032,175.00 (Billion). 2. Permit fee of P9.0 Million under Section 40 (f) of the PSA for the approval of the protestants increase of its authorized capital stock from P2.7 Billion to P4.5 Billion; and 3. Permit fee of P12,261,600.00 and P33,472,030.00 under Section 40 (g) of the PSA in connection with the Commissions decisions in NTC Cases Nos. 86-13 and 87-008 respectively, approving the Protestants equity participation in the Fiber Optic Interpacific Cable systems and X -5 Service Improvement and Expansion Program PLDT challenged the said assessments, theorizing that: a. The assessments were being made to raise revenues and not as mere reimbursements for actual regulatory expenses in violation of the doctrine in PLDT vs. PSC, 66 SCRA 341 [1975]; b. The assessment under Section 40 (e) should only have been on the basis of the par values of private respondents outstanding capital stock; c. Petitioner has no authority to compel private respondents payment of the assessed fees under Section 40 (f) for the increase of its authorized capital stock since petitioner did not render any supervisory or regulatory activity and incurred no expenses in relation thereto. NTC: ruled against PLDT CA: modified ruling of NTC and ordered Commission to recompute its assessments and demands for payment from petitioner PLDT as follows: A. For annual supervision and regulation fees (SRF) under Section 40 (e) of the Public Service Act, as amended, they should be computed at fifty centavos for each one hundred pesos or fraction thereof of the par value of the capital stock subscribed or paid excluding stock dividends, premiums or capital in excess of par. B. For permit fees for the approval of petitioners increase of authorized capital stock under Section 40 (f) of the same Act, they should be computed at fifty for each one hundred pesos or fraction thereof, regardless of any regulatory service or expense incurred by respondent. NTCs argument: the fee under Section 40 (e) should be based on the market value of PLDTs outstanding capital stock inclusive of stock dividends and premium, PLDTs argument: the fee should be based on the par value of PLDTs capital stock excluding stock dividends and premium ISSUE: WON the computation of supervision and regulation fees under Sec. 40(f) of the Public Service Act should be based on the par value or the market value of the subscribed capital stock HELD: NEITHER. The fee should be based on the capital stock subscribed or paid and not, alternatively, the property and equipment. PLDT v PSC: the basis for computation of the fee to be charged by NTC on PLDT, is the capital stock subscribed or paid and not, alternatively, the property and equipment. The term capital and other terms used to describe the capital structure of a corporation are of universal acceptance, and their usages have long been established in jurisprudence. o CAPITAL refers to the value of the property or assets of a corporation. o CAPITAL SUBSCRIBED is the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for, which need not necessarily be, and can be more than, the par value of the shares. In fine, it is the amount that the corporation receives, inclusive of the premiums if any, in consideration of the original issuance of the shares.

STOCK DIVIDEND is the amount that the corporation transfers from its surplus profit account to its capital account. It is the same amount that can loosely be termed as the trust fund of the corporation. o The Trust Fund doctrine considers this subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable shares) without violating this principle. Thus, dividends must never impair the subscribed capital; subscription commitments cannot be condoned or remitted; nor can the corporation buy its own shares using the subscribed capital as the consideration therefor. In the same way that the Court in PLDT vs. PSC has rejected the value of the property and equipment as being the proper basis for the fee imposed by Section 40(e) of the Public Service Act, so also must the Court disallow the idea of computing the fee on the par value of [PLDTs] capital stock subscribed or paid excluding stock dividends, premiums, or capital in excess of par. Neither, however, is the assessment made by the National Telecommunications Commission on the basis of the market value of the subscribed or paid-in capital stock acceptable since it is itself a deviation from the explicit language of the law. From the pleadings on hand, it can be gleaned that the assessment for supervision and regulation fee under Section 40(e) made by NTC for 1988, computed at P0.50 per 100 of PLDTs outstanding capital stock as of December 31, 1987, amounted to P7,495,161.00. The same was based on the amount of P1,277,934,390.00 of serial preferred stocks and P221,097,785.00 of common stocks or a total of P1,499,032,175.00. The assessment was reported to include stock dividends, premium on issued common shares and premium on preferred shares converted into common stock. The actual capital paid or the amount of capital stock paid and for which PLDT received actual payments were not disclosed or extant in the records before the Court. The only other item available is the amount assessed by petitioner from PLDT, which had been based on market value of the outstanding capital stock on given dates. o

Donnina Halley v Printwell Inc. Facts: - The petitioner, Donnina Halley, was an incorporator and original director of Business Media Philippines, Inc. (BMPI). At its incorporation on November 12, 1987, BMPI had an authorized capital stock of P3, 000,000.00 divided into 300,000 shares each with a par value of P10.00. - Printwell was engaged in commercial and industrial printing. BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI. - BMPI placed with Printwell several orders on credit totaling P316, 342.76. BMPI paid only P25, 000.00 so Printwell sued BMPI for the collection of the unpaid balance of P291, 342.76 in the RTC Pasig. - Printwell amended the complaint in order to implead as defendants all the original stockholders and incorporators to recover on their unpaid subscriptions. For instance, petitioner Halley has 35,000 shares with total subscription of P 350,000. Halley only paid P 87, 500 leaving unpaid subscription of P 262, 500. - The defendants filed a consolidated answer, averring, among others, that they all had paid their subscriptions in full and that BMPI had a separate personality from those of its stockholder. - To prove payment of their subscriptions, the defendants stockholders submitted in evidence BMPI official receipts. - RTC Pasig City ordered the defendants (including the petitioner) to pay Printwell because it found that there were irregularities in the issuance of the ORs and that the defendants had used BMPIs corporate personality to evade payment and create injustice. RTC added that assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate personality of defendant corporation should be disregarded. - Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata. It appeared in the Articles of Incorporation that individual defendants have unpaid subscription and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims, and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid.

- CA upheld RTC decision, holding that the defendants resort to the corporate personality would create an injustice because Printwell would thereby be at a loss against whom it would assert the right to collect. Further, the CA concurred with the RTC on the applicability of the trust fund doctrine. - Only Donnina Halley has come to the Court to seek a further review. Issues: 1. WON CA erred in allowing the piercing of the veil of corporate fiction? [No, because corporate personality cannot be used to foster injustice.] 2. WON CA erred in applying the trust fund doctrine when the grounds therefor have not been satisfied? [No, because it is settled that unpaid creditor may satisfy its claim from unpaid subscriptions; and stockholders have the burden of proving full payment of their subscriptions.] Ratio: 1. Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers, such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice. Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege on its obligation to pay; or that she induced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI to Printwell, her personal liability, together with that of her co-defendants, remained because the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred. 2. The petitioner argues that the trust fund doctrine was inapplicable because she had already fully paid her subscriptions to the capital stock of BMPI. She thus insists that both lower courts erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements. But the Court still found that the petitioner was liable pursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPIs creditor, had a right to reach her unpaid subscription in satisfaction of its claim. A. The trust fund doctrine enunciates a xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund only by way of analogy or metaphor. As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts. - In Philippine Trust Co. v. Rivera, SC declared that: It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. - SC clarifies that the trust fund doctrine is not limited to reaching the stockholders unpaid subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts. All assets and property belonging to the corporation held in trust for the benefit of creditors that were distributed or in the possession of the stockholders, regardless of full payment of their subscriptions, may be reached by the creditor in satisfaction of its claim. Also, under the trust fund doctrine, a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part, without a valuable consideration, or fraudulently, to the prejudice of creditors. The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt. To make out a prima facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that the stockholders have not in good faith paid the par value of the stocks of the corporation. B. In civil cases, the party who pleads payment has the burden of proving it, that even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment. Apparently, the petitioner failed to discharge her burden.

Evidence presented: a. Receipts- Court said that the petitioners OR No. 227, presented to prove the payment of the balance of her subscription, indicated that her supposed payment had been made by means of a check. But because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and does not discharge the obligation under a judgment. b. ITR and statement of assets and liabilities of BMPI- SC said they had no bearing on the issue of payment of the subscription because they did not by themselves prove payment. ITRs establish a taxpayers liability for taxes or a taxpayers claim for refund. In the same manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments. c. Articles of incorporation SC said the burden of establishing the fact of full payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averred full payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions. C. SC however disagreed with the lower courts as to the pro-rata liability of the defendants because the RTC lacked the legal and factual support for it. Hence, SC modified the extent of the petitioners personal liability to Printwell. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription. In view of the petitioners unpaid subscription being worth P262, 500.00, she was liable up to that amount. Ong Yung v Tiu Facts: Resondent Tius owned FLADC which was encountering financial difficulties in the construction of a mall. They invited petitioner Ongs to invest on FLADC. Both families entered into a Pre-Subscription agreement agreeing to maintain equal shareholdings in FLADC. They both agreed to values they were bother subscribe and that the Tius would nominate the VP, Treas and 5 directors while the Ongs nominate the President, Secretary and six directors. Moreover, the Ongs were given the right to manage and operate the mall.The Ongs paid in cash for their subscription while the Tius committed to contribute to a four-storey building and two parcels to cover their additional stock subscription. The Ongs paid in another P70 million to FLADC and P20 million to the Tius over and above their investment, the total sum was used to settle the mortgage indebtedness of FLADC to PNB. However, the Tius rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of refusing to credit to them the FLADC shares covering their real property contributions; preventing their nominees from assuming the positions of and performing their duties as officers of the board and from refusing to give them the office spaces.The Ongs refuted saying that the nominees refused to comply with the corporate duties assigned to them. The Tius shied away from helping them manage the corporation and the nominees already had offices. Most importantly, although the Tius executed a deed of assignment for their property in favor of FLADC, the Tius refused to pay P 570,690 for capital gains tax and documentary stamp tax. Without the payment thereof, the SEC would not approve the valuation of the Tius' property and prevented FLADC from getting a TCT over the property. It was later discovered by the ongs that one of the properties being offered by the Tius as contribution to their additional subscription was already a property of FLADC even before their Pre-Subscription. The SEC confirmed the rescission of the Pre-Subscription Agreement. The CA affirmed the decision but noted that the Tius were guilty of withholding FLADC funds from the Ongs and diverting corporate income to their own account. Moreover, the CA said that the Ongs and Tius were in pari delictio but "for practical considerations," that is, their inability to work together, it was best to separate the two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding practically everything else to the Tius. FLADC was ordered to be liquidated. Both parties protested.

Issue: Can there be a rescission of the Pre-Subscription Agreement? No there cannot Ratio 1. The Tius have no standing to seek for a rescission. The Tius cannot legally rescind the PreSubscription Agreement. The subject matter of the contract was the unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties' Pre-Subscription Agreement was a subscription contract. It involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation its shares of stock. From the viewpoint of the law, the Pre-Subscription Agreement is one between the Ongs and FLADC, not between the Ongs and the Tius. A civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities will not prosper. Only FLADC (not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real party in interest. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of the subject agreement based on a less than substantial breach of subscription contract. Not only are they not parties to the subscription contract between the Ongs and FLADC; they also have other available and effective remedies under the law. (ISSUE TO RECITE) Even if the Tius did have standing, rescission would still not prosper since rescission will violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and property under the Corporation Code. - The Trust Fund Doctrine provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims. The Corporation code allows the distribution of corporate capital only in three instances: o Amendment of the Articles of Incorporation to reduce the authorized capital stock, o Purchase of redeemable shares by the corporation, and o Dissolution and eventual liquidation of the corporation. - The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of the corporation or on the earnest desire of the court a quo "to prevent further squabbles and future litigations" unless the indispensable conditions and procedures for the protection of corporate creditors are followed. Otherwise, the "corporate peace" laudably hoped for by the court will remain nothing but a dream because this time, it will be the creditors' turn to engage in "squabbles and litigations" should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine. - The rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed. Rescission will result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with the Corporation Code. It is an improper judicial intrusion into the internal affairs of the corporation to compel FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock. Decreasing a corporation's authorized capital stock is an amendment of the Articles of Incorporation. It is a decision that only the stockholders and the directors can make, considering that they are the contracting parties thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a corporate decision. They want this Court to make a corporate decision for FLADC.

2.

3.