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L-64013 |November 28, 1983 obligations with DBP, it entered into a dacion en
UNION GLASS & CONTAINER CORPORATION and CARLOS pago1 agreement with DBP. All its assets mortgaged to DBP were
PALANCA, JR., in his capacity as President of Union Glass & ceded to the latter in full satisfaction of the corporation's
Container Corporation obligations in the total amount of P59,000,000.00. Part of the
vs. assets transferred to the DBP was the glass plant in Cavite, which
THE SECURITIES AND EXCHANGE COMMISSION and DBP leased and subsequently sold to herein petitioner UNION

Doctrine: In order that the SEC can take cognizance of a case, the 6. April 1, 1981: CAROLINA HOFILEA filed a complaint before
controversy must pertain to any of the following relationships: the SEC against the DBP, UNION GLASS & PIONEER GLASS. Only the
[a] between the corporation, partnership or association and the first cause of action concerned petitioner Union Glass as transferee
public; and possessor of the glass plant.
[b] between the corporation, partnership or association and its
stockholders, partners, members, or officers; 7. The said cause of action was based on the alleged illegality of
[c] between the corporation, partnership or association and the the aforesaid dacion en pago resulting from:
state in so far as its franchise, permit or license to operate is [1] the supposed unilateral and unsupported
concerned; and undervaluation of the assets of Pioneer Glass
[d] among the stockholders, partners or associates themselves. covered by the agreement;
[2] the self-dealing indulged in by DBP, having acted both as
Facts: stockholder/director and secured creditor of Pioneer Glass;
1. Private respondent CAROLINA HOFILEA is a stockholder of and
PIONEER GLASS MANUFACTURING CORPORATION (Pioneer [3] the wrongful inclusion by DBP in its statement of account
Glass) a domestic corporation engaged in the operation of silica of P26M as due from Pioneer Glass when the same had already
mines and the manufacture of glass and glassware. been converted into equity.

2. Since 1967 Pioneer Glass had obtained loan accommodations 8. HOFILEA prayed that the SEC issue an order:
security for said loan accommodations, Pioneer Glass mortgaged a. "1.Holding that the so called dacion en pago conveying all
and/or assigned its assets, real and personal, to DBP, in addition to the assets of Pioneer Glass and the Hofilea personal properties to
the mortgages executed by some of its corporate officers over Union Glass be declared null and void on the ground that the
their personal assets. said conveyance was tainted with (On top of what was mentioned
in #7):
3. The proceeds of such were used in the construction of a glass
plant in Cavite, and the operation of 7 silica mining claims "That the DBP unduly favored Union Glass over another
owned by the corporation. buyer, SAN MIGUEL CORPORATION, notwithstanding the clearly
advantageous terms offered by the latter to the prejudice of
4. Through the conversion into equity of the accumulated unpaid Pioneer Glass, its other creditors and so-called 'minority
interests on the loans amounting to P5.4 million (1975) and stockholders.'
increased by another P2.2 million in (1976), the DBP was able to
gain control of the outstanding shares of common stocks of
Pioneer Glass, and to 3 regular seats in the corporation's board of b. that the assets of DBP be returned accordingly
directors. 1 Mode of extinguishing an obligation whereby the debtor alienates in favor of the
creditor property for the satisfaction of monetary debt
5. March 1978: Pioneer Glass suffered serious liquidity
problems such that it could no longer meet its financial
c. That the DBP be ordered to accept and recognize the "Sec. 5. In addition to the regulatory and adjudicative function of
appraisal conducted by the Asian Appraisal Inc. in 1975 and again the Securities and Exchange Commission over corporations,
in 1978 of the asset of Pioneer Glass. partnerships and other forms of associations registered with it as
expressly granted under existing laws and devices, it shall have
9. Petitioners (Union Glass) moved for dismissal of the case on the original and exclusive jurisdiction to hear and decide cases
ground that the SEC had no jurisdiction over the subject matter involving:
or nature of the suit. a] Devices and schemes employed by or any acts, of the board
of directors, business associates, its officers or partners, amounting
10. SEC Hearing Officer EUGENIO E. REYES granted the motion to to fraud and misrepresentation which may be detrimental to the
dismiss for lack of jurisdiction. interest of the public and/or the stockholders, partners, members of
associations or organizations registered with the Commission;
11.Upon MR filed by respondent HOFILEA, Hearing Officer Reyes b] Controversies arising out of intra-corporate or partnership
reversed his original order. Petitioners filed the instant petition for relations, between and among stockholders, members or
certiorari and prohibition to prevent respondent SEC from taking associates; between any or all of them and the corporation,
cognizance of said case. partnership, or association of which they are stockholders,
members or associates, respectively; and between such
Issue: W/N the SEC that has jurisdiction over the case? corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity;
Ruling + Ratio: WHEREFORE, the instant petition is hereby c] Controversies in the election or appointments of directors,
GRANTED, and the questioned Orders of respondent SEC, dated trustees, officers or managers of such corporations, partnerships or
September 25, 1981, March 25, 1982 and May 28, 1982, are hereby associations."
set aside. Respondent Commission is ordered to drop petitioner
Union Glass from SEC Case No. 2035, without prejudice to the filing 4. This grant of jurisdiction must be viewed in the light of the
of a separate suit before the regular court of justice. nature and function of the SEC under the law. Section 3 of PD No.
902-A3 states the principal function of the SEC which is the
1. In the ordinary course of things, petitioner Union Glass, as supervision and control over corporations, partnerships and
transferee and possessor of the glass plant covered by the dacion associations with the end in view that investment in these
en pago agreement, should be joined as party-defendant under entities may be encouraged and protected, and their activities
the general rule which requires the joinder of every party who pursued for the promotion of economic development.
has an interest in or lien on the property subject matter of
the dispute2. Such joinder of parties avoids multiplicity of suits as 5. It is in aid of this office that the adjudicative power of the SEC
well as ensures the convenient, speedy and orderly administration must be exercised. Thus the law explicitly specified and delimited
of justice. its jurisdiction to matters intrinsically connected with the
regulation of corporations, partnerships and associations
2. But since Union Glass has, no intra-corporate relation with and those dealing with the internal affairs of such corporations,
either the complainant or the DBP, its joinder as party-defendant partnerships or associations.
brings the cause of action asserted against it outside the
jurisdiction of the respondent SEC. 6. In order that the SEC can take cognizance of a case, the
controversy must pertain to any of the following relationships:
3. The jurisdiction of the SEC is delineated by Sec. 5 of PD No.
902-A as follows: 3 "absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are grantees of primary franchise and/or
license or permit issued by the government to operate in the Philippines x x x.' "
2 dean tan, is this u?
[a] between the corporation, partnership or association to erase any impression that a favorable judgment secured by
and the public; Hofilea in SEC Case No. 2035 against the DBP and Pioneer Glass
[b] between the corporation, partnership or association would necessarily mean that its action against Union Glass in the
and its stockholders, partners, members, or officers; regular courts of justice for recovery and cancellation of the DBP
[c] between the corporation, partnership or association sale of the glass plant to Union Glass would necessarily prosper. It
and the state in so far as its franchise, permit or license must be borne in mind that as already indicated, the SEC has no
to operate is concerned; and jurisdiction over Union Glass as an outsider. The suit in the regular
[d] among the stockholders, partners or associates courts of justice that Hofilea might bring against Union Glass is of
themselves. course subject to all defenses as to the validity of the sale of the
glass plant in its favor as a buyer in good faith and should it
7. The fact that the controversy at bar involves the rights of successfully substantiate such defenses, then Hofilea's action
petitioner Union Glass who has no intra-corporate relation against it for cancellation of the sale might fail as a consequence.
either with complainant or the DBP, places the suit beyond the
jurisdiction of the respondent SEC. Aquino, J., dissenting:

8. The case should be tried and decided by the court of general Certiorari; Administrative Law; Petitioners are guilty of laches
jurisdiction, the RTC. This view is in accord with the rudimentary and non-exhaustion of administrative remedies.ln this case, the
principle that administrative agencies are tribunals of limited SEC seems to have adopted the orders of the two hearing officers
jurisdiction and, as such, wield only such powers as are as its own orders as shown by the stand taken by the Solicitor
specifically granted to them by their enabling statutes. General in defending the SEC. If that were so, that is, if the orders
of the hearing officers should be treated as the orders of the SEC
9. Not so important anymore, only procedural but will itself en banc, this Court would have no jurisdiction over this
include anyway: case. It should be the Appellate Court that should exercise the
power of review.
Petitioner Union Glass is involved only in the first cause of action.
The ROC, which applies suppletorily to proceedings before the SEC, Action; Jurisdiction; Mere joinder of another defendant in a
allows the joinder of causes of action in one complaint, such S.E.C. case with which complainant has no intra-corporate
procedure is subject to the rules regarding jurisdiction, relationship should not divest S.E.C. of jurisdiction over said other
venue and joinder of parties. defendant which has a privity of interest with the corporation
10. Since petitioner has no intra-corporate relationship with wherein complainant is a stockholder.Certainly, the joinder of
the complainant, it cannot be joined as party-defendant in Union Glass does not divest the SEC of jurisdiction over the
said case as to do so would violate the rule on jurisdiction. case. The joinder of Union Glass is necessary because the DBP, its
transferor, is being sued regarding the dacion en pago. The
Concurring/Dissenting Opinions defenses of Union Glass are tied up with the defenses of the DBP in
the intracorporate dispute. Hofilea's cause of action should not be
Teehankee, .J, concurring: split. It would not be judicious and expedient to require Hofilea to
sue the DBP and Union Glass in the Regional Trial Court. The SEC is
Jurisdiction; Corporation; Action; The suit that Hofilea may more competent than the said court to decide the intra-corporate
bring against Union Glass in the regular courts of justice is subject dispute.
to all other defenses that it may interpose, such as being a buyer in
good faith, even if the dacion en pago is annulled.The purpose of Additional Notes:
this brief concurrence is with reference to the statement in the In upholding the SEC's jurisdiction over the case Hearing Officer
Court's opinion that "Thus, Hofilea's complaint against the latter Reyes rationalized his conclusion thus:
can only prosper if final judgment is rendered in SEC Case No.
2035, annulling the dacion en pago executed in favor of the DBP,"
"As correctly pointed out by the complainant, the present action is this instant action can also be gleaned from the common prayer of
in the form of a derivative suit instituted by a stockholder for the the complainant which seeks for an order directing respondent
benefit of the corporation, respondent Pioneer Glass and Development Bank of the Philippines to pay co-respondent Pioneer
Manufacturing Corporation principally against another stockholder, Glass Manufacturing Corporation damages for the alleged illegal
respondent Development Bank of the Philippines, for alleged illegal acts and gross bad faith as above-mentioned.
acts and gross bad faith which resulted in the dacion en "As far as respondent Union Glass and Container Corporation is
pago arrangement now being questioned by complainant. These concerned, its inclusion as a party-respondent by virtue of its being
alleged illegal acts and gross bad faith came about precisely by an indispensable party to the present action, it being in possession
virtue of respondent Development Bank of the Philippine's status as of the assets subject of the dacion en pago and, therefore, situated
a stockholder of co-respondent Pioneer Glass Manufacturing in such a way that it will be affected by any judgment thereon.
Corporation although its status as such stockholder, was gained as
a result of its being a creditor of the latter. The derivative nature of