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G.R. No. L-64013 November 28, 1983 2.

2. Holding that the assets of the Pioneer Glass taken over by DBP and part of which was
UNION GLASS & CONTAINER CORPORATION and CARLOS PALANCA, JR., in his capacity as delivered to Union Glass particularly the glass plant to be returned accordingly.
President of Union Glass & Container Corporation, petitioners, 3. That the DBP be ordered to accept and recognize the appraisal conducted by the Asian
vs. Appraisal Inc. in 1975 and again in t978 of the asset of Pioneer Glass. 1
THE SECURITIES AND EXCHANGE COMMISSION and CAROLINA HOFILEA, respondents. In her common prayer, Hofilea asked that DBP be sentenced to pay Pioneer Glass actual, consequential,
Eduardo R. Ceniza for petitioners. moral and exemplary damages, for its alleged illegal acts and gross bad faith; and for DBP and Union
The Solicitor General for respondent SEC. Glass to pay her a reasonable amount as attorney's fees. 2
Remedios C. Balbin for respondent Carolina Y. Hofilea. On April 21, 1981, Pioneer Glass filed its answer. On May 8, 1981, petitioners moved for dismissal of the
case on the ground that the SEC had no jurisdiction over the subject matter or nature of the suit.
ESCOLIN, J.:+.wph!1 Respondent Hofilea filed her opposition to said motion, to which herein petitioners filed a rejoinder.
This petition for certiorari and prohibition seeks to annul and set aside the Order of the Securities and On July 23, 1981, SEC Hearing Officer Eugenio E. Reyes, to whom the case was assigned, granted the
Exchange Commission, dated September 25, 1981, upholding its jurisdiction in SEC Case No. 2035, motion to dismiss for lack of jurisdiction. However, on September 25, 1981, upon motion for reconsideration
entitled "Carolina Hofilea, Complainant, versus Development Bank of the Philippines, et al., filed by respondent Hofilea, Hearing Officer Reyes reversed his original order by upholding the SEC's
Respondents." jurisdiction over the subject matter and over the persons of petitioners. Unable to secure a reconsideration
Private respondent Carolina Hofilea, complainant in SEC Case No. 2035, is a stockholder of Pioneer of the Order as well as to have the same reviewed by the Commission En Banc, petitioners filed the instant
Glass Manufacturing Corporation, Pioneer Glass for short, a domestic corporation engaged in the petition for certiorari and prohibition to set aside the order of September 25, 1981, and to prevent
operation of silica mines and the manufacture of glass and glassware. Since 1967, Pioneer Glass had respondent SEC from taking cognizance of SEC Case No. 2035.
obtained various loan accommodations from the Development Bank of the Philippines [DBP], and also The issue raised in the petition may be propounded thus: Is it the regular court or the SEC that has
from other local and foreign sources which DBP guaranteed. jurisdiction over the case?
As security for said loan accommodations, Pioneer Glass mortgaged and/or assigned its assets, real and In upholding the SEC's jurisdiction over the case Hearing Officer Reyes rationalized his conclusion
personal, to the DBP, in addition to the mortgages executed by some of its corporate officers over their thus:t.hqw
personal assets. The proceeds of said financial exposure of the DBP were used in the construction of a As correctly pointed out by the complainant, the present action is in the form of a derivative suit
glass plant in Rosario, Cavite, and the operation of seven silica mining claims owned by the corporation. instituted by a stockholder for the benefit of the corporation, respondent Pioneer Glass and
It appears that through the conversion into equity of the accumulated unpaid interests on the various loans Manufacturing Corporation, principally against another stockholder, respondent Development
amounting to P5.4 million as of January 1975, and subsequently increased by another P2.2 million in 1976, Bank of the Philippines, for alleged illegal acts and gross bad faith which resulted in the dacion
the DBP was able to gain control of the outstanding shares of common stocks of Pioneer Glass, and to en pago arrangement now being questioned by complainant. These alleged illegal acts and
get two, later three, regular seats in the corporation's board of directors. gross bad faith came about precisely by virtue of respondent Development Bank of the
Sometime in March, 1978, when Pioneer Glass suffered serious liquidity problems such that it could no Philippine's status as a stockholder of co-respondent Pioneer Glass Manufacturing Corporation
longer meet its financial obligations with DBP, it entered into a dacion en pago agreement with the latter, although its status as such stockholder, was gained as a result of its being a creditor of the latter.
whereby all its assets mortgaged to DBP were ceded to the latter in full satisfaction of the corporation's The derivative nature of this instant action can also be gleaned from the common prayer of the
obligations in the total amount of P59,000,000.00. Part of the assets transferred to the DBP was the glass complainant which seeks for an order directing respondent Development Bank of the Philippines
plant in Rosario, Cavite, which DBP leased and subsequently sold to herein petitioner Union Glass and to pay co-respondent Pioneer Glass Manufacturing Corporation damages for the alleged illegal
Container Corporation, hereinafter referred to as Union Glass. acts and gross bad faith as above-mentioned.
On April 1, 1981, Carolina Hofilea filed a complaint before the respondent Securities and Exchange As far as respondent Union Glass and Container Corporation is concerned, its inclusion as a
Commission against the DBP, Union Glass and Pioneer Glass, docketed as SEC Case No. 2035. Of the party-respondent by virtue of its being an indispensable party to the present action, it being in
five causes of action pleaded therein, only the first cause of action concerned petitioner Union Glass as possession of the assets subject of the dacion en pago and, therefore, situated in such a way
transferee and possessor of the glass plant. Said first cause of action was based on the alleged illegality that it will be affected by any judgment thereon, 3
of the aforesaid dacion en pago resulting from: [1] the supposed unilateral and unsupported undervaluation In the ordinary course of things, petitioner Union Glass, as transferee and possessor of the glass plant
of the assets of Pioneer Glass covered by the agreement; [2] the self-dealing indulged in by DBP, having covered by the dacion en pago agreement, should be joined as party-defendant under the general rule
acted both as stockholder/director and secured creditor of Pioneer Glass; and [3] the wrongful inclusion which requires the joinder of every party who has an interest in or lien on the property subject matter of
by DBP in its statement of account of P26M as due from Pioneer Glass when the same had already been the dispute. 4 Such joinder of parties avoids multiplicity of suits as well as ensures the convenient, speedy
converted into equity. and orderly administration of justice.
Thus, with respect to said first cause of action, respondent Hofilea prayed that the SEC issue an But since petitioner Union Glass has no intra-corporate relation with either the complainant or the DBP, its
order:t.hqw joinder as party-defendant in SEC Case No. 2035 brings the cause of action asserted against it outside
1. Holding that the so called dacion en pago conveying all the assets of Pioneer Glass and the the jurisdiction of the respondent SEC.
Hofilea personal properties to Union Glass be declared null and void on the ground that the The jurisdiction of the SEC is delineated by Section 5 of PD No. 902-A as follows:t.hqw
said conveyance was tainted with.t.hqw Sec. 5. In addition to the regulatory and adjudicative function of the Securities and Exchange
A. Self-dealing on the part of DBP which was acting both as a controlling Commission over corporations, partnerships and other forms of associations registered with it
stockholder/director and as secured creditor of the Pioneer Glass, all to its advantage as expressly granted under existing laws and devices, it shall have original and exclusive
and to that of Union Glass, and to the gross prejudice of the Pioneer Glass, jurisdiction to hear and decide cases involving:
B. That the dacion en pago is void because there was gross undervaluation of the a] Devices and schemes employed by or any acts, of the board of directors, business associates,
assets included in the so-called dacion en pago by more than 100% to the prejudice its officers or partners, amounting to fraud and misrepresentation which may be detrimental to
of Pioneer Glass and to the undue advantage of DBP and Union Glass; the interest of the public and/or the stockholders, partners, members of associations or
C. That the DBP unduly favored Union Glass over another buyer, San Miguel organizations registered with the Commission
Corporation, notwithstanding the clearly advantageous terms offered by the latter to b] Controversies arising out of intra-corporate or partnership relations, between and among
the prejudice of Pioneer Glass, its other creditors and so-called 'Minority stockholders.' 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; Separate Opinions
and between such corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity; TEEHANKEE, J., concurring:
c] Controversies in the election or appointments of directors, trustees, officers or managers of I concur in the Court's judgment penned by Mr. Justice Escolin setting aside the questioned orders of
such corporations, partnerships or associations. respondent SEC and ordering that petitioner Union Glass be dropped from SEC Case No. 2035 for lack of
This grant of jurisdiction must be viewed in the light of the nature and function of the SEC under the law. SEC jurisdiction over it as a third party purchaser of the glass plant acquired by the DBP by dacion en
Section 3 of PD No. 902-A confers upon the latter "absolute jurisdiction, supervision, and control over all pago from Pioneer Glass, without prejudice to Hofilea filing a separate suit in the regular courts of justice
corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit against Union Glass for recovery and cancellation of the said sale of the glass plant in favor of Union
issued by the government to operate in the Philippines ... " The principal function of the SEC is the Glass.
supervision and control over corporations, partnerships and associations with the end in view that I concur also with the statement in the Court's opinion that the final outcome of SEC Case No. 2035 with
investment in these entities may be encouraged and protected, and their activities pursued for the regard to the validity of the dacion en pago is a prejudicial case. If Hofilea's complaint against said dacion
promotion of economic development. 5 en pago fails in the SEC, then it clearly has no cause of action against Union Glass for cancellation of
It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly DBP's sale of the plant to Union Glass.
specified and delimited its jurisdiction to matters intrinsically connected with the regulation of corporations, The purpose of this brief concurrence is with reference to the statement in the Court's opinion that "Thus,
partnerships and associations and those dealing with the internal affairs of such corporations, partnerships Hofileas complaint against the latter can only prosper if final judgment is rendered in SEC Case No. 2035,
or associations. annulling the dacion en pago executed in favor of the DBP," to erase any impression that a favorable
Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to judgment secured by Hofilea in SEC Case No. 2035 against the DBP and Pioneer Glass would
any of the following relationships: [a] between the corporation, partnership or association and the public; necessarily mean that its action against Union Glass in the regular courts of justice for recovery and
[b] between the corporation, partnership or association and its stockholders, partners, members, or cancellation of the DBP sale of the glass plant to Union Glass would necessarily prosper. It must be borne
officers; [c] between the corporation, partnership or association and the state in so far as its franchise, in mind that as already indicated, the SEC has no jurisdiction over Union Glass as an outsider. The suit in
permit or license to operate is concerned; and [d] among the stockholders, partners or associates the regular courts of justice that Hofilea might bring against Union Glass is of course subject to all
themselves. defenses as to the validity of the sale of the glass plant in its favor as a buyer in good faith and should it
The fact that the controversy at bar involves the rights of petitioner Union Glass who has no intra-corporate successfully substantiate such defenses, then Hofileas action against it for cancellation of the sale might
relation either with complainant or the DBP, places the suit beyond the jurisdiction of the respondent SEC. fail as a consequence.
The case should be tried and decided by the court of general jurisdiction, the Regional Trial Court. This
view is in accord with the rudimentary principle that administrative agencies, like the SEC, are tribunals of AQUINO, J., dissenting:
limited jurisdiction 6 and, as such, could wield only such powers as are specifically granted to them by their I dissent with due deference to Justice Escolin's opinion. What are belatedly assailed in this certiorari and
enabling statutes. 7 As We held in Sunset View Condominium Corp. vs. Campos, Jr.: 8t.hqw prohibition case filed on May 17, 1983 are the order of September 25, 1981 of Eugenio E. Reyes, a SEC
Inasmuch as the private respondents are not shareholders of the petitioner condominium hearing officer, and the orders of March 25 and May 28, 1982 of Antonio R. Manabat, another SEC hearing
corporation, the instant cases for collection cannot be a 'controversy arising out of intra- officer.
corporate or partnership relations between and among stockholders, members or associates; Although a jurisdictional issue is raised and jurisdiction over the subject matter may be raised at any stage
between any or all of them and the corporation, partnership or association of which they are of the case, nevertheless, the petitioners are guilty of laches and nonexhaustion of the remedy of appeal
stockholders, members or associates, respectively,' which controversies are under the original with the Securities and Exchange Commission en banc.
and exclusive jurisdiction of the Securities & Exchange Commission, pursuant to Section 5 [b] The petitioners resorted to the special civil actions of certiorari and prohibition because they assail the
of P.D. No. 902-A. ... orders of mere SEC hearing officers. This is not a review of the order, decision or ruling of the SEC sitting
As heretofore pointed out, petitioner Union Glass is involved only in the first cause of action of Hofileas en banc which, according to section 6 of Presidential Decree No. 902-A (1976), may be made by this Court
complaint in SEC Case No, 2035. While the Rules of Court, which applies suppletorily to proceedings "in accordance with the pertinent provisions of the Rules of Court."
before the SEC, allows the joinder of causes of action in one complaint, such procedure however is subject Rule 43 of the Rules of Court used to allow review by this Court of the SEC order, ruling or decision.
to the rules regarding jurisdiction, venue and joinder of parties. 9 Since petitioner has no intra-corporate Republic Act 5434 (1968) substituted the Court of Appeals for this Court in line with the policy of lightening
relationship with the complainant, it cannot be joined as party-defendant in said case as to do so would our heavy jurisdictional burden. But this Court seems to have been restored as the reviewing authority by
violate the rule or jurisdiction. Hofileas complaint against petitioner for cancellation of the sale of the glass Presidential Decree No. 902-A.
plant should therefore be brought separately before the regular court But such action, if instituted, shall be However, section 9 of the Judiciary Reorganization Law returned to the Intermediate Appellate Court the
suspended to await the final outcome of SEC Case No. 2035, for the issue of the validity of the dacion en exclusive jurisdiction to review the ruling, order or decision of the SEC as a quasi-judicial agency. The
pago posed in the last mentioned case is a prejudicial question, the resolution of which is a logical same section 9 granted to the Appellate Court jurisdiction in certiorari and prohibition cases over the SEC
antecedent of the issue involved in the action against petitioner Union Glass. Thus, Hofileas complaint although not exclusive.t.hqw
against the latter can only prosper if final judgment is rendered in SEC Case No. 2035, annulling the dacion In this case, the SEC seems to have adopted the orders of the two hearing officers as its own
en pago executed in favor of the DBP. orders as shown by the stand taken by the Solicitor General in defending the SEC. If that were
WHEREFORE, the instant petition is hereby granted, and the questioned Orders of respondent SEC, dated so, that is, if the orders of the hearing officers should be treated as the orders of the SEC itself
September 25, 1981, March 25, 1982 and May 28, 1982, are hereby set aside. Respondent Commission en banc, this Court would have no jurisdiction over this case. It should be the Appellate Court
is ordered to drop petitioner Union Glass from SEC Case No. 2035, without prejudice to the filing of a that should exercise the power of review.
separate suit before the regular court of justice. No pronouncement as to costs. Carolina Hofilea has been a stockholder since 1958 of the Pioneer Glass Manufacturing Corporation. Her
SO ORDERED.1wph1.t personal assets valued at P6,804,810 were apparently or supposedly mortgaged to the DBP to secure the
Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova and Gutierrez, Jr., obligations of Pioneer Glass (p. 32, Rollo).
JJ., concur. Pioneer Glass became indebted to the Development Bank of the Philippines in the total sum of
P59,000,000. Part of the loan was used by Pioneer Glass to establish its glass plant in Rosario, Cavite.
The unpaid interest on the loan amounting to around seven million pesos became the DBP's equity in
Pioneer Glass. The DBP became a substantial stockholder of Pioneer Glass. Three members of the JOSE ABEJO, JOSE LUIS SANTIAGO, SIMEON A. MIRAVITE, SR., ANDRES T. VELARDE AND L.
Pioneer Glass' board of directors were from the DBP. QUIDATO BANDOLINO, respondents.
The glass plant commenced operations in 1977. At that time, Pioneer Glass was heavily indebted to the
DBP. Instead of foreclosing its mortgage, DBP maneuvered to have the mortgaged assets of Pioneer TEEHANKEE, C.J.:
Glass, including the glass plant, transferred to the DBP by way of dacion en pago. This transaction was These two cases, jointly heard, are jointly herein decided. They involve the question of who, between the
alleged to be an "auto contract" or a case of the DBP contracting with itself since the DBP had a dominant Regional Trial Court and the Securities and Exchange Commission (SEC), has original and exclusive
position in Pioneer Glass. jurisdiction over the dispute between the principal stockholders of the corporation Pocket Bell Philippines,
Hofilea alleged that although the debt to the DBP of Pioneer Glass amounted to P59,000,000, the glass Inc. (Pocket Bell), a "tone and voice paging corporation," namely, the spouses Jose Abejo and Aurora
plant in 1977 had a "sound value" of P77,329,000 and a "reproduction cost" of P90,403,000. She further Abejo (hereinafter referred to as the Abejos) and the purchaser, Telectronic Systems, Inc. (hereinafter
alleged that San Miguel Corporation was willing to buy the glass plant for P40,000,000 cash, whereas it referred to as Telectronics) of their 133,000 minority shareholdings (for P5 million) and of 63,000 shares
was actually sold to Union Glass & Container Corporation for the same amount under a 25-year term of registered in the name of Virginia Braga and covered by five stock certificates endorsed in blank by her
payment (pp. 32-34, Rollo). (for P1,674,450.00), and the spouses Agapito Braga and Virginia Braga (hereinafter referred to as the
On March 31, 1981; Carmen Hofilea filed with the SEC a complaint against the DBP, Union Glass, Bragas), erstwhile majority stockholders. With the said purchases, Telectronics would become the majority
Pioneer Glass and Rafael Sison as chairman of the DBP and Pioneer Glass boards of directors. Union stockholder, holding 56% of the outstanding stock and voting power of the corporation Pocket Bell.
Glass filed a motion to dismiss on the ground that jurisdiction over the case is lodged in the Court of First With the said purchases in 1982, Telectronics requested the corporate secretary of the corporation,
Instance. Hofilea opposed the motion. Hearing Officer Reyes in his order of July 23, 1981 dismissed the Norberto Braga, to register and transfer to its name, and those of its nominees the total 196,000 Pocket
complaint on the ground that the case is beyond the jurisdiction of the SEC. Bell shares in the corporation's transfer book, cancel the surrendered certificates of stock and issue the
Hofilea filed a motion for reconsideration which was opposed by Union Glass. Hearing Officer Reyes in corresponding new certificates of stock in its name and those of its nominees.
his order of September 25, 1981 reconsidered his dismissal order and ruled that Union Glass is an Norberto Braga, the corporate secretary and son of the Bragas, refused to register the aforesaid transfer
indispensable party because it is the transferee of the controverted assets given by way of dacion en pago of shares in t e corporate oo s, asserting that the Bragas claim preemptive rights over the 133,000 Abejo
to the DBP. He ruled that the SEC has jurisdiction over the case. shares and that Virginia Braga never transferred her 63,000 shares to Telectronics but had lost the five
Union Glass filed a motion for reconsideration. Hearing Officer Antonio R. Manabat denied the motion on stock certificates representing those shares.
the ground "that the present action is an intra-corporate dispute involving stockholders of the same This triggered off the series of intertwined actions between the protagonists, all centered on the question
corporation (p. 26, Rollo). of jurisdiction over the dispute, which were to culminate in the filing of the two cases at bar.
Union Glass filed a second motion for reconsideration with the prayer that the SEC should decide the The Bragas assert that the regular civil court has original and exclusive jurisdiction as against the Securities
motion en banc. The hearing officer ruled that the remedy of Union Glass was to file a timely appeal. and Exchange Commission, while the Abejos claim the contrary. A summary of the actions resorted to by
Hence, its second motion for reconsideration was denied by the hearing officer. (This ruling is a technicality the parties follows:
which hinders substantial justice.) A. ABEJOS ACTIONS IN SEC
It is clear that Union Glass has no cause of action for certiorari and prohibition. Its recourse was to appeal 1. The Abejos and Telectronics and the latter's nominees, as new majority shareholders, filed SEC Cases
to the SEC en banc the denial of its first motion for reconsideration. Nos. 02379 and 02395 against the Bragas on December 17, 1982 and February 14, 1983, respectively.
There is no question that the SEC has jurisdiction over the intra-corporate dispute between Hofilea and 2. In SEC Case No. 02379, they prayed for mandamus from the SEC ordering Norberto Braga, as
the DBP, both stockholders of Pioneer Glass, over the dacion en pago. corporate secretary of Pocket Bell to register in their names the transfer and sale of the aforesaid 196,000
Now, does the SEC lose jurisdiction because of the joinder of Union Glass which has privity with the DBP Pocket Bell shares (of the Abejos 1 and Virginia Braga 2, cancel the surrendered certificates as duly
since it was the transferee of the assets involved in the dacion en pago? endorsed and to issue new certificates in their names.
Certainly, the joinder of Union Glass does not divest the SEC of jurisdiction over the case. The joinder of 3. In SEC Case No.02395, they prayed for injunction and a temporary restraining order that the SEC enjoin
Union Glass is necessary because the DBP, its transfer or, is being sued regarding the dacion en pago. the Bragas from disbursing or disposing funds and assets of Pocket Bell and from performing such other
The defenses of Union Glass are tied up with the defenses of the DBP in the intra-corporate dispute. acts pertaining to the functions of corporate officers.
Hofileas cause of action should not be split. 4. Pocket Bell's corporate secretary, Norberto Braga, filed a Motion to Dismiss the mandamus case (SEC
It would not be judicious and expedient to require Hofilea to sue the DBP and Union Glass in the Regional Case No. 02379) contending that the SEC has no jurisdiction over the nature of the action since it does
Trial Court. The SEC is more competent than the said court to decide the intra-corporate dispute. not involve an intracorporate controversy between stockholders, the principal petitioners therein,
The SEC, as the agency enforcing Presidential Decree No. 902-A, is in the best position to know the extent Telectronics, not being a stockholder of record of Pocket Bell.
of its jurisdiction. Its determination that it has jurisdiction in this case has persuasive weight. 5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the motion. On January 14, 1983,
Concepcion, Jr., Guerro, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova and Gutierrez, Jr., the corporate secretary filed a Motion for Reconsideration. On March 21, 1983, SEC Hearing Officer
JJ., concur. Joaquin Garaygay issued an order granting Braga's motion for reconsideration and dismissed SEC Case
No. 02379.
G.R. No. L-63558 May 19, 1987 6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction case, SEC Case No.
SPOUSES JOSE ABEJO AND AURORA ABEJO, TELEC. TRONIC SYSTEMS, INC., petitioners, 02395. On April 8, 1985, the SEC Director, Eugenio Reyes, acting upon the Abejos'ex-parte motion,
vs. created a three-man committee composed of Atty. Emmanuel Sison as Chairman and Attys. Alfredo Oca
HON. RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIAL COURT (NATIONAL CAPITAL and Joaquin Garaygay as members, to hear and decide the two SEC cases (Nos. 02379 and 02395).
JUDICIAL REGION, BRANCH CLX-PASIG), SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA, 7. On April 13, 1983, the SEC three-man committee issued an order reconsidering the aforesaid order of
VIRGILIO BRAGA AND NORBERTO BRAGA, respondents. March 21, 1983 of the SEC Hearing Officer Garaygay (dismissing the mandamus petition SEC Case No.
No. L-68450-51 May 19, 1987 02379) and directing corporate secretary Norberto Braga to file his answer to the petitioner therein.
POCKET BELL PHILIPPINES, INC., AGAPITO T. BRAGA, VIRGILIO T. BRAGA, NORBERTO BRAGA, B. BRAGAS' ACTION IN SEC
and VIRGINIA BRAGA, petitioners, 8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition and mandamus with the
vs. SEC en banc, SEC Case No. EB #049, seeking the dismissal of SEC Cases Nos.' 02379 and 02395 for
THE HONORABLE SECURITIES AND EXCHANGE COMMISSION, TELECTRONIC SYSTEMS, INC.,
lack of jurisdiction of the Comn-iission and the setting aside of the various orders issued by the SEC three- and 02395 and from enforcing any and all orders and/or resolutions issued in connection with the said
man committee in the course of the proceedings in the two SEC cases. cases.
9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas' petition in SEC Case No. The cases, having been given due course, were jointly heard by the Court on March 27, 1985 and the
EB#049 for lack of merit and at the same time ordering the SEC Hearing Committee to continue with the parties thereafter filed on April 16, 1985 their respective memoranda in amplification of oral argument on
hearings of the Abejos and Telectronics SEC Cases Nos. 02379 and 02395, ruhng that the "issue is not the points of law that were crystalled during the hearing,
the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty The Court rules that the SEC has original and exclusive jurisdiction over the dispute between the principal
of recording transfers of shares of stock of the corporation of which he is secretary." stockholders of the corporation Pocket Bell, namely, the Abejos and
10. On May 15, 1984 the Bragas filed a motion for reconsideration but the SEC en banc denied the same Telectronics, the purchasers of the 56% majority stock (supra, at page 2) on the one hand, and the Bragas,
on August 9, 1984. erstwhile majority stockholders, on the other, and that the SEC, through its en banc Resolution of May 15,
C. BRAGAS' ACTION IN CFI (NOWRTC) 1984 co"ectly ruled in dismissing the Bragas' Petition questioning its jurisdiction, that "the issue is not the
11. On November 25, 1982, following the corporate secretary's refusal to register the transfer of the shares ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of
in question, the Bragas filed a complaint against the Abejos and Telectronics in the Court of First Instance recording transfers of shares of stock of the Corporation of which he is secretary."
of Pasig, Branch 21 (now the Regional Trial Court, Branch 160) docketed as Civil Case No. 48746 for: (a) 1. The SEC ruling upholding its primary and exclusive jurisdiction over the dispute is correctly premised
rescission and annulment of the sale of the shares of stock in Pocket Bell made by the Abejos in favor of on, and fully supported by, the applicable provisions of P.D. No. 902-A which reorganized the SEC with
Telectronics on the ground that it violated the Bragas' alleged pre-emptive right over the Abej os' additional powers "in line with the government's policy of encouraging investments, both domestic and
shareholdings and an alleged perfected contract with the Abejos to sell the same shares in their (Bragas) foreign, and more active publicParticipation in the affairs of private corporations and enterprises through
favor, (Ist cause of action); plus damages for bad faith; and (b) declaration ofnullity of any transfer, which desirable activities may be pursued for the promotion of economic development; and, to promote a
assignment or endorsement of Virginia Bragas' stock certificates for 63,000 shares in Pocket Ben to wider and more meaningful equitable distribution of wealth," and accordingly provided that:
Telectronics for want of consent and consideration, alleging that said stock certificates, which were SEC. 3. The Commission shall have absolute jurisdiction, supervision and control ouer all
intended as security for a loan application and were thus endorsed by her in blank, had been lost (2nd corporations, partnerships or associations, who are the grantees of primary franchise and/or a
cause of action). license or permit issued by the government to operate in the Philippines; ...
12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on the ground that it is the SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
SEC that is vested under PD 902-A with original and exclusive jurisdiction to hear and decide cases Commission over corporations, partnerships and other forms of associations registered with it
involving, among others, controversies "between and among stockholders" and that the Bragas' suit is as expressly granted under existing laws and decrees, it shall have original and exclusive
such a controversy as the issues involved therein are the stockholders' alleged pre-emptive rights, the jurisdiction to hear and decide cases involving:
validity of the transfer and endorsement of certificates of stock, the election of corporate officers and the a) Devices or schemes employed by or any acts, of the board of directors, business associations,
management and control of the corporation's operations. The dismissal motion was granted by Presiding its officers or partners, amounting to fruud and misrepresentation which may be detrimental to
Judge G. Pineda on January 14, 1983. the interest of the public andlor of the stockholder, partners, members of associations or
13. On January 24, 1983, the Bragas filed a motion for reconsideration. The Abejos opposed. Meanwhile, organizations registered with the Commission.
respondent Judge Rafael de la Cruz was appointed presiding judge of the court (renamed Regional Trial b) Controversies arising out of intracorporate or partnership relations, between and among
Court) in place of Judge G. Pineda. stockholders, members, or associates; between any andlor all of them and the corporation,
14. On February 14, 1983, respondent Judge de la Cruz issued an order rescinding the January 14, 1983 partnership or association of which they are stockholders, members or assmiates, respectively;
order and reviving the temporary restraining order previously issued on December 23, 1982 restraining and between such corporation, partnership or assmiation and the state insofar as it concems
Telectronics' agents or representatives from enforcing their resolution constituting themselves as the new their individual franchise or right to exist as such entity;
set of officers of Pocket Bell and from assuming control of the corporation and discharging their functions. c) Controversies in the election or appointments of directors, trustees, officers or managers of
15. On March 2, 1983, the Abejos filed a motion for reconsideration, which motion was duly opposed by such corporations, partnerships or associations. 3
the Bragas. On March 11, 1983, respondent Judge denied the motion for reconsideration. Section 6 further grants the SEC "in order to effectively exercise such jurisdiction," the power, inter alia,
D. ABEJOS' PETITION AT BAR "to issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it
16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge in refusing to dismiss the has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply."
complaint despite clear lack of jurisdiction over the action and in refusing to reconsider his erroneous 2. Basically and indubitably, the dispute at bar, as held by the SEC, is an intracorporate dispute that has
position were performed without jurisdiction and with grave abuse of discretion, filed their herein Petition arisen between and among the principal stockholders of the corporation Pocket Bell due to the refusal of
for certiorari and Prohibition with Preliminary Injunction. They prayed that the challenged orders of the corporate secretary, backed up by his parents as erstwhile majority shareholders, to perform his
respondent Judge dated February 14, 1983 and March 11, 1983 be set aside for lack of jurisdiction and "ministerial duty" to record the transfers of the corporation's controlling (56%) shares of stock, covered by
that he be ordered to permanently desist from further proceedings in Civil Case No. 48746. Respondent duly endorsed certificates of stock, in favor of Telectronics as the purchaser thereof. mandamus in the
judge desisted from further proceedings in the case, dispensing with the need of issuing any restraining SEC to compel the corporate secretary to register the transfers and issue new certificates in favor of
order. Telectronics and its nominees was properly resorted to under Rule XXI, Section 1 of the SEC's New Rules
E. BRAGAS' PETITION AT BAR of Procedure, 4 which provides for the filing of such petitions with the SEC. Section 3 of said Rules further
17. On August 29, 1984, the Bragas, alleging in turn that the SEC has no jurisdiction over SEC Cases authorizes the SEC to "issue orders expediting the proceedings ... and also [to] grant a preliminary
Nos. 02379 and 02395 and that it acted arbitrarily, whimsically and capriciously in dismissing their petition injunction for the preservation of the rights of the parties pending such proceedings, "
(in SEC Case No. EB #049) for dismissal of the said cases, filed their herein Petition for certiorari and The claims of the Bragas, which they assert in their complaint in the Regional Trial Court, praying for
Prohibition with Preliminary Injunction or TRO. The petitioner seeks the reversal and/or setting aside of rescission and annulment of the sale made by the Abejos in favor of Telectronics on the ground that they
the SEC Order dated May 15, 1984 dismissing their petition in said SEC Case No. EB #049 and sustaining had an alleged perfected preemptive right over the Abejos' shares as well as for annulment of sale to
its jurisdiction over SEC Cases Nos. 02379 and 02395, filed by the Abejos. On September 24, 1984, this Telectronics of Virginia Braga's shares covered by street certificates duly endorsed by her in blank, may
Court issued a temporary restraining order to maintain the status quo and restrained the SEC and/or any in no way deprive the SEC of its primary and exclusive jurisdiction to grant or not the writ of mandamus
of its officers or hearing committees from further proceeding with the hearings in SEC Cases Nos. 02379 ordering the registration of the shares so transferred. The Bragas' contention that the question of ordering
the recording of the transfers ultimately hinges on the question of ownership or right thereto over the shares transfer and cannot be sanctioned. It can be seen from their very complaint in the regular courts
notwithstanding, the jurisdiction over the dispute is clearly vested in the SEC. that they with their two sons constituting the plaintiffs are all stockholders while the defendants
3. The very complaint of the Bragas for annulment of the sales and transfers as filed by them in the regular are the Abejos who are also stockholders whose sale of the shares to Telectronics they would
court questions the validity of the transfer and endorsement of the certificates of stock, claiming alleged annul.
pre-emptive rights in the case of the Abejos' shares and alleged loss of thio certificates and lack of consent (b) There can be no question that the dispute between the Abejos and the Bragas as to the sale
and consideration in the case of Virginia Braga's shares. Such dispute c learly involve's controversies and transfer of the former's shares to Telectronics for P5 million is an intracorporate one under
"between and among stockholders, " as to the Abej os' right to sell and dispose of their shares to section 5 (b), prescinding from the applicability of section 5 (a) and (c), (supra, par. 4) lt is the
Telectronics, the validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas and SEC which must resolve the Bragas' claim in their own complaint in the court case filed by them
the Abejos' transferee should be recognized as the controlling shareholders of the corporation, with the of an alleged pre-emptive right to buy the Abejos' shares by virtue of "on-going negotiations,"
right to elect the corporate officers and the management and control of its operations. Such a dispute and which they may submit as their defense to the mandamus petition to register the sale of the
case clearly fag within the original and exclusive jurisdiction of the SEC to decide, under Section 5 of P.D. shares to Telectronics. But asserting such preemptive rights and asking that the same be
902-A, above-quoted. The restraining order issued by the Regional Trial Court restraining Telectronics enforced is a far cry from the Bragas' claim that "the case relates to questions of ownership"
agents and representatives from enforcing their resolution constituting themselves as the new set of over the shares in question. 9 (Not to mention, as pointed out by the Abejos, that the corporation
officers of Pocket Bell and from assuming control of the corporation and discharging their functions patently is not a close corporation, and no restriction over the free transferability of the shares appears
encroached upon the SEC's exclusive jurisdiction over such specialized corporate controversies calling for in the Articles of Incorporation, as well as in the by-laws 10 and the certificates of stock
its special competence. As stressed by the Solicitor General on behalf of the SEC, the Court has held that themselves, as required by law for the enforcement of such restriction. See Go Soc & Sons, etc.
"Nowhere does the law [PD 902-A] empower any Court of First Instance [now Regional Trial Court] to v. IAC, G.R. No. 72342, Resolution of February 19, 1987.)
interfere with the orders of the Commission," 5 and consequently "any ruling by the trial court on the issue (c) The dispute between the Bragas and Telectronics as to the sale and transfer for
of ownership of the shares of stock is not binding on the Commission 6 for want of jurisdiction. P1,674,450.00 of Virginia Braga's 63.000 shares covered by Street certificates duly endorsed in
4. The dispute therefore clearly falls within the general classification of cases within the SEC's original and blank by her is within the special competence and jurisdiction of the SEC, dealing as it does with
exclusive jurisdiction to hear and decide, under the aforequoted governing section 5 of the law. Insofar as the free transferability of corporate shares, particularly street certificates," as guaranteed by the
the Bragas and their corporate secretary's refusal on behalf of the corporation Pocket Bell to record the Corporation Code and its proclaimed policy of encouraging foreign and domestic investments in
transfer of the 56% majority shares to Telectronics may be deemed a device or scheme amounting to fraud Philippine private corpora. tions and more active public participation therein for the Promotion of
and misrepresentation emplolyed by them to keep themselves in control of the corporation to the detriment economic development. Here again, Virginia Braga's claim of loss of her street certificates 11 or
of Telectronics (as buyer and substantial investor in the corporate stock) and the Abejos (as substantial theft thereof (denounced by Telectronics as 11 perjurious" 12 ) must be pleaded by her as a
stockholders-sellers), the case falls under paragraph (a). The dispute is likewise an intra-corporate defense against Telectronics'petition for mandamus and recognition now as the controlling
controversy between and among the majority and minority stockholders as to the transfer and disposition stockholder of the corporation in the light of the joint affidavit of Geneml Cerefino S. Carreon of
of the controlling shares of the corporation, failing under paragraph (b). As stressed by the Court in DMRC the National Telecommunications Commission and private respondent Jose Luis Santiago of
Enterprises v. Este del Sol Mountain Reserve, Inc, 7 Considering the announced policy of PD 902-A, the Telectronics narrating the facts and circumstances of how the former sold and delivered to
expanded jurisdiction of the respondent Securities and Exchange Commission under said decree extends Telectronics on behalf of his compadres, the Bragas, Virginia Braga's street certificates for
exclusively to matters arising from contracts involving investments in private corporations, partnerships 63,000 shares equivalent to 18% of the corporation's outstanding stock and received the cash
and associations." The dispute also concerns the fundamental issue ofwhether the Bragas or Telectronics price thereof. 13 But as to the sale and transfer of the Abejos' shares, the Bragas cannot oust
have the right to elect the corporate directors and officers and manage its business and operations, which the SEC of its original and exclusive jurisdiction to hear and decide the case, by blocking through
falls under paragraph (c). the corporate secretary, their son, the due recording of the transfer and sale of the shares in
5. Most of the cases that have come to this Court involve those under paragraph (b), i.e. whether the question and claiming that Telectronics is not a stockholder of the corporation which is the
controversy is an intra-corporate one, arising "between and among stockholders" or "between any or allof very issue that the SEC is called upon to resolve. As the SEC maintains, "There is no
them and the corporation." The parties have focused their arguments on this question. The Bragas' requirement that a stockholder of a corporation must be a registered one in order that,the
contention in his field must likewise fail. In Philex Mining Corp. v. Reyes, 8 the Court spelled out that"'an Securities and Exchange Commission may take cognizance of a suit seeking to enforce his
intra-corporate controversy is one which arises between a stockholder and the corporation. There is no rights as such stockholder." 14 This is because the SEC by express mandate has "absolute
distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of jurisdiction, supervision and control over all corporations" and is called upon to enforce the
controversies between stockholders and corporations. The issue of whether or not a corporation is bound provisions of the Corporation Code, among which is the stock purchaser's right to secure the
to replace a stockholder's lost certificate of stock is a matter purely between a stockholder and the corresponding certificate in his name under the provisions of Section 63 of the Code. Needless
corporation. It is a typical intra-corporate dispute. The quqsjion of damage's raised is merely incidental to to say, any problem encountered in securing the certificates of stock representing the investment
that main issue. The Court rejected the stockholders' theory of excluding his complaint (for replacement of made by the buyer must be expeditiously dealt with through administrative mandamus
a lost stock [dividend] certificate which he claimed to have never received) from the classification of intra- proceedings with the SEC, rather than through the usual tedious regular court procedure.
corporate controversies as one that "does not square with the intent of the law, which is to segregate from Furthermore, as stated in the SEC order of April 13, 1983, notice given to the corporation of the
the general jurisdiction of regular Courts controversies involving corporations and their stockholders and sale of the shares and presentation of the certificates for transfer is ,equivalent to registration:
to bring them to the SEC for exclusive resolution, in much the same way that labor disputes are now "Whether the refusal of the (corporation) to effect the same is ivalid or not is still subject to the
brought to the Ministry-of Labor and Employment (MOLE) and the National Labor Relations Commission outcome of the hearing on the merits of the case. 15
(NLRC), and not to the Courts." 6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions
(a) The Bragas contend that Telectronics, as buyertransferee of the 56% majority shares is not and boards the power to resolve specialized disputes in the field of labor (as in corporations, public
a registered stockholder, because they, through their son the corporate secretary, appear to transportation and public utilities) ruled that Congress in requiring the Industrial Court's intervention in the
have refused to perform "the ministerial duty of recording transfers of shares of stock of the resolution of labor-management controversies likely to cause strikes or lockouts meant such jurisdiction to
corporation of which he is the secretary," and that the dispute is therefore, not an intracorporate be exclusive, although it did not so expressly state in the law. The Court held that under the "sense-making
one. This contention begs the question which must properly be resolved by the SEC, but which and expeditious doctrine of primary jurisdiction ... the courts cannot or will n6t determine a controversy
they would prevent by their own act, through their son, of blocking the due recording of the involving a question which is within the jurisdiction of an administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the special knowledge, experience, and debtor-defendant corporation was held to be not covered by the SEC's exclusive jurisdiction over
seruices of the administratiue tribunal to determine technical and intricate matters of fact, and a uniformity intracorporate disputes, since "to pass upon a money claim under a lease contract would be beyond the
of ruling is essential to comply uith the purposes of the regulatory statute administered " 16 competence Of the Securities and Exchange Commission and to separate the claim for money from the
In this era of clogged court dockets, the need for specialized administrative boards or commissions with claim for shares of stock would be splitting a single cause of action resulting in a multiplicity of suitS." 21
the special knowledge, experience and capability to hear and determine promptly disputes on technical Such an action for collection of a debt does not involve enforcement Of rights and obligations under the
matters or essentially factual matters, subject to judicial review in case of grave abuse of discretion, has Corporation Code nor the in. temal or intracorporate affairs of the debtor corporation. But in aR disputes
become well nigh indispensable. Thus, in 1984, the Court noted that "between the power lodged in an affecting and dealing With the interests of the corporation and its stockholders, following the trend and
administrative body and a court, the unmistakable trend has been to refer it to the former. 'Increasingly, clear legislative intent of entmsting all disputes of a specialized nature to administrative agencies
this Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice possessing. the requisite competence, special knowledge, experience and services and facilities to
should fall on [an administrative agency.]' " 17 The Court in the earlier case of Ebon vs. De Guzman 18 expeditiously resolve them and determine the essential facts including technical and intricate matters, as
noted that the lawmaking authority, in restoring to the labor arbiters and the NLRC their jurisdiction to in labor and public utilities rates disputes, the SEC has been given "the original and exclusive jurisdiction
award all kinds of damages in labor cases, as against the previous P.D. amendment splitting their to hear anddecide" them (under section 5 of P.D. 902-A) "in addition to [its] regulatory and adjudicative
jurisdiction with the regular courts, "evidently ... had second thoughts about depriving the Labor Arbiters functions" (under Section 3, vesting in it "absolute jurisdiction, supervision and control over all
and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity corporations" and the Rule-making power granted it in Section 143 of the Corporation Code, supra). As
of suits, splitting the cause of action and possible conflicting findings and conclusions by two tribunals on stressed by the Court in the Philex case, supra, "(T)here is no distinction, qualification, nor any exemption
one and the same claim." whatsoever. The provision is broad and covers all kinds of controversies between stockholders and
7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specifically vests the SEC with the corporations."
Rule-making power in the discharge of its task of implementing the provisions of the Code and particularly It only remains now to deal with the Order dated April 15, 1983 (Annex H, Petition) 22 of the SEC's three-
charges it with the duty of preventing fraud and abuses on the part of controlling stockholders, directors member Hearing Conunittee granting Telectronics' motion for creation of a receivership or management
and officers, as follows: committee with the ample powers therein enumerated for the preservation pendente lite of the
SEC. 143. Rule-making power of the Securities and Exchange Commission. The Securities corporation's assets and in discharge of its "power and duty to preserve the rights of the parties, the
and Exchange Commission shall have the power and authority to implement the provisions of stockholders, the public availing of the corporation's services and the rights of creditors," as well as "for
this Code, and to promulgate rules and regulations reasonably necessary to enable it to perform reasons of equity and justice ... (and) to prevent possible paralization of corporate business." The said
its duties hereunder, particularly in the prevention of fraud and abuses on the part of the Order has not been implemented notwithstanding its having been upheld per the SEC en banc's Order of
controlling stockholders, members, directors, trustees or officers. (Emphasis supplied) May 15, 1984 (Annex "V", Petition) dismissing for lack of merit the petition for certiorari, prohibition and
The dispute between the contending parties for control of thecorporation manifestly fans within the primary mandamus with prayer for restraining order or injunction filed by the Bragas seeking the disbandment of
and exclusive jurisdiction of the SEC in whom the law has reserved such jurisdiction as an administrative the Hearing Committee and the setting aside of its Orders, and its Resolution of August 9, 1984, denying
agency of special competence to deal promptly and expeditiously therewith. reconsideration (Annex "X", Petition), due to the Bragas' filing of the petition at bar.
As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant of jurisdiction [in Section Prescinding from the great concern of damage and prejudice expressed by Telectronics due to the Bragas
51 must be viewed in the light of the nature and functions of the SEC under the law. Section 3 of PD No. having remained in control of the corporation and having allegedly committed acts of gross
902-A confers upon the latter 'absolute jurisdiction, supervision, and control over all corporations, mismanagement and misapplication of funds, the Court finds that under the facts and circumstances of
partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the record, it is but fair and just that the SEC's order creating a receivership committee be implemented
government to operate in the Philippines ... The principal function of the SEC is the supervision and control forthwith, in accordance with its terms, as follows:
over corporations, partnerships and associations with the end in view that investment in these entities may The three-man receivership committee shall be composed of a representative from the
be encouraged and protected, and their activities pursued for the promotion of economic development. commission, in the person of the Director, Examiners and Appraisers Department or his
"It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly designated representative, and a representative from the petitioners and a representative of the
specified and delin-dted its jurisdiction to matters intrinsically connected with the regulation of corporations, respondent.
partnerships and associations and those dealing with the internal affairs of such corporations, partnerships The petitioners and respondent are therefore directed to sub. mit to the Commission the name
or associations. of their designated representative within three (3) days from receipt of this order. The
"Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to Conunission shall appoint the other representatives if either or both parties fafl to comply with
any of the following relationships: [al between the corporation, partnership or association and the public; the requirement within the stated time.
[b] between the corporation, partnership or association and its stockholders, partners, members, or ACCORDINGLY, judgment is hereby rendered:
officers; [c] between the corporation, partnership or association and the state in so far as its franchise, (a) Granting the petition in G.R. No. 63558, annulling the challenged Orders of respondent Judge
permit or license to operate is concerned; and Id] among the stockholders, partners or associates clated February 14, 1983 and March i 1, 1983 (Annexes "L" and "P" of the Abejos' petition) and
themselves." 20 prohibiting respondent Judge from further proceeding in Civil Case No. 48746 filed in his Court
Parenthetically, the cited case of Union Glass illustrates by way of contrast what disputes do not fall within other than to dismiss the same for lack or jurisdiction over the subject-matter;
the special jurisdiction of the SEC. In this case, the SEC had properly assumed jurisdiction over the (b) Dismissing the petition in G.R. Nos. 68450-51 and lifting the temporary restraining order
dissenting stockholders' com. Plaint against the corporation Pioneer Glass questioning its dacion en pago issued on September 24, 1984, effective immediately upon promulgation hereof,
of its glass plant and all its assets in favor of the DBP which was clearly an intra-corporate controversy (c) Directing the SEC through its Hearing Committee to proceed immediately with hearing and
dealing with its internal affairs. But the Court held that the SEC had no jurisdiction over petitioner Union resolving the pending mandamus petition for recording in the corporate books the transfer to
Glass Corp., imPle,aded as third party purchaser of the plant from DBP in the action to annul the dacion Telectronics and its nominees of the majority (56%) shares of stock of the corporation Pocket
en pago. The Court held that such action for recovery of the glass plant could be brought by the dissenting Bell pertaining to the Abejos and Virginia Braga and all related issues, taking into consideration,
stockholder to the regular courts only if and when the SE C rendered final judgment annulling the dacion without need of resubmittal to it, the pleadings, annexes and exhibits filed by the contending
en pago and furthermore subject to Union Glass' defenses as a third party buyer in good faith. Similarly, parties in the cases at bar; and
in the DMRC case, therein petitioner's,tomplaint for collection of the amounts due to it as payment of (d) Likewise directing the SEC through its Hearing Committee to proceed immediately with the
rentals for the lease of its heavy equipment in the form mainly of cash and part in shares of stock of the implementation of its receivership or management committee Order of April 15, 1983 in SEC
Case No. 2379 and for the purpose, the contending parties are ordered to submit to said Hearing (c) P5,000.00 for and as attorney's fees; and
Committee the name of their designated representatives in the receivership/management (d) the costs of suit.
committee within three (3) days from receipt of this decision, on pain of forfeiture of such right in SO ORDERED. (Ibid., p. 30)
case of failure to comply herewith, as provided in the said Order; and ordering theBragas to Premiere filed a motion for reconsideration of the foregoing decision, based principally on a question of
perform only caretaker acts in the corporation pending the organization of such law alleging that the Securities and Exchange Commission (SEC) has exclusive and original jurisdiction
receivership/management committee and assumption of its functions. over a corporation under a state of suspension of payments (Ibid., pp. 32-41).
This decision shall be immediately executory upon its promulgation. Magalad filed an opposition to the motion for reconsideration on January 8, 1985 alleging among others
SO ORDERED. that the regular court has jurisdiction over the case to the exclusion of the SEC. (Ibid., pp. 51-53).
Yap, Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur. On May 28, 1986 the lower court issued an order denying the motion for reconsideration (Ibid., p. 61).
On June 11, 1986 Premiere filed his notice of appeal which led to the issuance of the order of the lower
G.R. No. 87135 May 22, 1992 court dated July 29, 1986 elevating the case to the Court of Appeals (CA) (Ibid., pp. 62-63).
ALMA MAGALAD, petitioner, The Court of Appeals in its resolution dated September 8, 1987 dismissed the case for failure of Premiere
vs. to file its brief despite the ninety-day extension granted to it, which expired on June 10, 1987 (Rollo, p. 16).
PREMIERE FINANCING CORP., respondent. An omnibus motion for reconsideration and admission of late filing of Premiere's brief was filed on
September 22, 1987 (Rollo, pp. 17-19; 32).
PARAS, J.: On September 30, 1987 the Court of Appeals issued a resolution which reconsidered its previous
This is an appeal originally filed with the Court of Appeals but certified to this court for disposition since it resolution dated September 5, 1987 and admitted the Premiere's brief (Rollo, p. 26).
involves purely questions of law from the decision of the Regional Trial Court (RTC), Branch LXXXV, On January 31, 1989 the Court of Appeals issued a resolution certifying the instant case to this Court on
Quezon City, dated May 22, 1984, in Civil Case No. Q-40392, ordering the defendant-appellant Premiere the ground that the case involves a question of law, the dispositive part of which stating:
Financing Corporation (Premiere for short) to pay to the plaintiff-appellee Alma Magalad (Magalad for ACCORDINGLY, pursuant to Rule 50, Sec. 3, in relation to the Judiciary Act of 1948, Sec. 17,
short) the sum of: par. 4(3) (4), the Appeal in this case is hereby certified to the Supreme Court on the ground that
(a) P50,000.00, the principal obligation, plus interest at the legal rate from September 12, 1983, until the the only issue raised concerns the jurisdiction of the trial court and only a question of law. (Rollo,
full amount is paid; (b) P10,000.00, both for moral and exemplary damages; (c) P5,000.00, for and as p. 33)
attorney's fees and (d) the costs of suit. Hence, this appeal.
The antecedent facts of the case are as follows: The pivotal issue in this case is whether or not the court a quo had jurisdiction to try the instant case.
Premiere is a financing company engaged in soliciting and accepting money market placements or At the very core of this appeal assailing the aforesaid pronouncement of the lower court, and around which
deposits (Original Record, p. 29). revolve the arguments of the parties, is the applicability of Presidential Decree No. 902-A (Reorganization
On September 12, 1983 with expired permit to issue commercial papers (Ibid., p. 8) and with intention not of the SEC with Additional Powers), as amended by Presidential Decrees Nos. 1653, 1758 and 1799.
to pay or defraud its creditors, Premiere induced and misled Magalad into making a money market Magalad submits that the legal suit which she has brought against Premiere is an ordinary action for
placement of P50,000.00 at 22% interest per annum for which it issued a receipt (Ibid., Exh. "B", p. 8). damages with the preliminary attachment cognizable solely by the RTC. Premiere, on the other hand,
Aside from the receipt, Premier likewise issued two (2) post-dated checks in the total sum of P51,079.00 espouses the original and exclusive jurisdiction of the Securities and Exchange Commission.
(Ibid., Exh. "C", p. 9) and assigned to Magalad its receivable from a certain David Saman for the same Presidential Decree No. 902-A, Section 3, provides:
amount (Ibid., Exh. "C", p. 10). Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all
When the said checks were presented for payment on their due dates, the drawee bank dishonored the corporations, partnerships or associations, who are the grantees of primary franchises and/or a
checks for lack of sufficient funds to cover the amount (Ibid., Exhs. "D-1", "E-1", pp. 11-12). Despite license or permit issued by the government to operate in the Philippines; and in the exercise of
demands by Magalad for the replacement of said checks with cash, Premiere, for no valid reason, failed its authority, it shall have the power to enlist the aid and support of and to deputize any and all
and refused to honor such demands and due to fraudulent acts of Premiere, Magalad suffered sleepless enforcement agencies of the government, civil or military as well as any private institution,
nights, mental anguish, fright, serious anxiety, considering the fact that the money she invested is blood corporation, firm, association or person. (As amended by Presidential Decree No. 1758).
money and is the only source of support for her family (Ibid., p. 4). Sec. 3 of Pres. Decree No. 902-A should also be read in conjunction with Sec. 5 of the same law, providing:
Magalad in order to seek redress and retrieve her blood money, availed of the service of counsel for which Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
she agreed to pay twenty percent (20%) of the amount due as and for attorney's fees (Ibid.) Commission over corporations, partnerships and other forms of associations registered with it
On January 10, 1984, Magalad filed a complaint for damages with prayer for writ of preliminary attachment as expressly granted under the existing laws and decrees, it shall have original and exclusive
with the RTC, Branch LXXXV, Quezon City, docketed as Civil Case No. Q-40392 against herein Premiere jurisdiction to hear and decide cases involving:
(Ibid., p. 3-6). a) Devises or schemes employed by or any acts of the Board of Directors, business
Premiere having failed to file an answer and acting on Magalad's motion, the lower court declared Premiere associates, its officers or partners, amounting to fraud and misrepresentation which
in default by virtue of an order dated April 5, 1984 allowing Magalad to present evidence ex-parte (Ibid., may be detrimental to the public and/or to the stockholders, partners, members of
pp. 21; 22) associations or organizations registered with the Commission. (Emphasis supplied)
On May 22, 1984 the lower court rendered a default judgment against Premiere, the dispositive portion of Considering that Magalad's complaint sufficiently alleges acts amounting to fraud and misrepresentation
which reads: committed by Premiere, the SEC must be held to retain its original and exclusive jurisdiction over the case,
From the foregoing evidence, the court finds that plaintiff has fully established her claim that despite the fact that the suit involves collection of sums of money paid to said corporation, the recovery of
defendant had indeed acted fraudulently in incurring the obligation and considering that no which would ordinarily fall within the jurisdiction of regular courts. The fraud committed is detrimental to
evidence has been adduced by the defendant to contradict the same, judgment is hereby the interest of the public and, therefore, encompasses a category of relationship within the SEC jurisdiction.
rendered ordering the defendant to pay plaintiff as follows: Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to
(a) P50,000.00, the principal obligation, plus interest at the legal rate from September 12, 1983 any of the following relationships: (a) between the corporation, partnership or association and the public;
until the full amount is paid; (b) between the corporation, partnership or association and its stockholders, partners, members or officers;
(b) P10,000.00 both for moral and exemplary damages; (c) between the corporation, partnership or association and the state so far as its franchise, permit or
license to operate is concerned; and (d) among the stockholders, partners or associates themselves Subic Bay Golf Course, also known as Binictican Valley Golf Course, was operated by Subic Bay
(Union Glass & Container Corp. v. SEC, 126 SCRA 31; 38; 1983; Abejo v. De la Cruz, 149 SCRA 654, Metropolitan Authority (SBMA) under the Bases Conversion Development Authority (BCDA). 5 Universal
1987). International Group of Taiwan (UIG), a Taiwanese corporation, was chosen to implement the plan to
In this case, the recitals of the complaint sufficiently allege that devices or schemes amounting to fraud privatize the golf course.6cralawrednad
and misrepresentation detrimental to the interest of the public have been resorted to by Premiere
Corporation. It can not but be conceded, therefore, that the SEC may exercise its adjudicative powers On May 25, 1995, SBMA and UIG entered into a Lease and Development Agreement. Under the
pursuant to Sec. 5(a) of Pres. Decree No. 902-A (Supra). agreement, SBMA agreed to lease the golf course to UIG for 50 years, renewable for another 25 years.7
The fact that Premiere's authority to engage in financing already expired will not have the effect of divesting UIG agreed to "develop, manage and maintain the golf course and other related facilities within the
the SEC of its original and exclusive jurisdiction. The expanded jurisdiction of the SEC was conceived complex[.]"8 Later, Universal International Group Development Corporation (UIGDC) succeeded to the
primarily to protect the interest of the investing public. That Magalad's money placements were in the interests of UIG on the golf course development.9cralawrednad
nature of investments in Premiere can not be gainsaid. Magalad had reasonably expected to receive
returns from moneys she had paid to Premiere. Unfortunately, however, she was the victim of alleged On April 1, 1996, UIGDC executed a Deed of Assignment in favor of Subic Bay Golf and Country Club,
fraud and misrepresentation. Inc. (SBGCCI). Under the Deed of Assignment, UIGDC assigned all its rights and interests in the golf
Reliance by Magalad on the cases of DMRC v. Este del Sol, (132 SCRA 293) and Union Glass & Container course's development, operations, and marketing to SBGCCI.10cralawrednad
Corp. v. SEC (126 SCRA 31), where the jurisdiction of the ordinary Courts was upheld, is misplaced for,
as explicitly stated in those cases, nowhere in the complaints therein is found any averment of fraud or On April 25, 1996, SBGCCI and UIGDC entered into a Development Agreement. 11 UIGDC agreed to
misrepresentation committed by the respective corporations involved. The causes of action, therefore, "finance, construct and develop the [golf course], for and in consideration of the payment by [SBGCCI] of
were nothing more than simple money claims. its 1,530 (SBGCCI) shares of stock."12cralawrednad
Further bolstering the jurisdiction of the SEC in this case is the fact that said agency had already appointed
a Rehabilitation Receiver for Premiere and has directed all proceedings or claims against it be suspended. Upon SBGCCI's application, the Securities and Exchange Commission issued an Order for the
This, pursuant to Sec. 6(c) of Pres. Decree No. 902-A providing that "upon appointment of a . . . Registration of 3,000 no par value shares of SBGCCI on July 8, 1996. SBGCCI was issued a Certificate
rehabilitation receiver . . . all actions for claims against corporations . . . under receivership pending before of Permit to Offer Securities for Sale to the Public of its 1,530 no par value proprietary shares on August
any court, tribunal, board or body shall be suspended accordingly." 9, 1996. The shares were sold at P425,000.00 per share. SBGCCI would use the proceeds of the sale of
By so doing, SEC has exercised its original and exclusive jurisdiction to hear and decide cases involving: securities to pay UIGDC for the development of the golf course. 13cralawrednad
a) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association possesses In the letter14 dated November 4, 2002 addressed to Atty. Justina Callangan, Director of Securities and
sufficient property to cover all its debts but foresees the impossibility of meeting them when they Exchange Commission's Corporation Finance Department, complainants Regina Filart (Filart) and
respectively fall due or in cases where the corporation, partnership or association has no Margarita Villareal (Villareal) informed the Securities and Exchange Commission that they had been
sufficient assets to cover its liabilities but is under the management of a Rehabilitation Receiver asking UIGDC for the refund of their payment for their SBGCCI shares. UIGDC did not act on their
or Management of a Rehabilitation Receiver or Management Committee created pursuant to requests.15 They alleged that they purchased the shares in 1996 based on the promise of SBGCCI and
this Decree. (Section 5(d) of Pres. Decree No. 902-A as added by Pres. Decree 1758). UIGDC to deliver the following:cralawlawlibrary
In fine, the adjudicative powers of the SEC being clearly defined by law, its jurisdiction over this case has a. an 18 hole golf course that would meet the highest USGA and PGA standards.
to be upheld. b. A 9 hole executive course which would be completely illuminated to allow members
PREMISES CONSIDERED, the instant appeal is GRANTED, and the order of the Presiding Judge of the to play after dark
Regional Trial Court, Quezon City, Branch LXXXV dated May 22, 1984, in Civil Case No. Q-40392 is c. A swimming pool and tennis courts
REVERSED and SET ASIDE, without prejudice to the filing by Alma Magalad of the appropriate complaint d. Golf Villas and Residential Condominium-Hotel
against Premiere Financing Corporation with the Securities and Exchange Commission. e. Driving range of 30 berths provided with a roof and illuminated to afford nighttime
SO ORDERED. driving.
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur. f. Club facilities with a restaurant which will offer French, Filipino and Chinese cuisine
and 7 well-furnished VIP rooms which are equipped with the latest toilet and bath
G.R. No. 179047, March 11, 2015 facilities and are available for private meetings and conferences. 16
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. SUBIC BAY GOLF AND COUNTRY CLUB, However, these promises were not delivered.17cralawrednad
INC. AND UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT CORPORATION, Respondents.
DECISION Villareal and Filart also claimed that despite SBGCCI's and UIGDC's failure to deliver the promised
LEONEN, J.: amenities, they started to charge them monthly dues. They also never received any billing statement
Intra-corporate controversies, previously under the Securities and Exchange Commission's jurisdiction, from them until they were sent a demand notice to pay the alleged back dues of P39,000.00 within five
are now under the jurisdiction of Regional Trial Courts designated as commercial courts. However, the (5) days. They were threatened that their shares amounting to P740,000.00 and paid off in December
transfer of jurisdiction to the trial courts does not oust the Securities and Exchange Commission of its 1996 would be auctioned off if their alleged back dues would not be paid. 18 Villareal and Filart prayed for
jurisdiction to determine if administrative rules and regulations were violated. relief from the "terrible situation [they found themselves] in."19 They also prayed that their letter be
accepted "as a formal complaint against Universal International Group Development Corporation for
In this Petition for Review1 on Certiorari under Rule 45 of the Rules of Court, petitioner Securities and breach of promise/contract with its investors who put in hard-earned money believing that they would
Exchange Commission prays for the reversal of the Court of Appeals' July 31, 2007 Decision. 2 The Court deliver what their brochures promised to deliver."20cralawrednad
of Appeals declared void the Securities and Exchange Commission's February 10, 2004 Decision
affirming its Corporation Finance Department's Order3 to refund payments for Subic Bay Golf and In their Comment,21 SBGCCI and UIGDC averred that they had already substantially complied with their
Country Club, Inc.'s shares of stock.4cralawrednad commitment to provide the members a world-class golf and country club.22 The construction of the golf
course substantially met international standards.23 Other proposed project developments such as the
construction of villas and residential condominium-hotels were not included in the rights purchased with
member shares.24 They also denied that they failed to send monthly billing statements to Filart and SUBIC BAY GOLF and COUNTRY CLUB, INC. is likewise hereby ordered to amend its Prospectus,
Villareal.25cralawredcralawrednad reflecting therein the actual status of the facilities of the club, and to comply with the requirements of
SRC Rule 14.
SBGCCI and UIGDC also stressed that SBMA, under its Contract of Lease, was the one duty-bound to
complete the golf course and amenities. It would be in breach of contract if it failed to complete the golf Furthermore, due to its failure to comply with its undertakings in its Registration Statement and
course and the amenities. Insofar as SBGCCI's commitments were concerned, it was able to fully Prospectus, tantamount to misrepresentation, and in violation of the provisions of the Securities
comply with its obligations.26cralawrednad Regulation Code, and its implementing rules and regulation, the Certificate of Registration and Permit to
Sell Securities to the Public issued to respondent Subic Bay Golf and Country Club, Inc., are hereby
In January 2003, the Securities and Exchange Commission's Corporation Finance Department SUSPENDED until the aforementioned misrepresentations are rectified and the requirements of this
conducted an ocular inspection of the project. Based on the Memorandum Report prepared by Julius H. Order are complied with. The Commission shall make a determination, within thirty (30) days, whether or
Baltazar, Specialist I, SBGCCI and UIGDC failed to comply substantially with their commitment to not such registration should be revoked.
complete the project.27 According to the Report:cralawlawlibrary
Completion And, pursuant to Section 54 of the Code, respondent corporations, SUBIC BAY GOLF AND COUNTRY
Project Description based on Work Findings per ocular inspection as of CLUB, INC. and UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT CORPORATION, are hereby
date/cost per
Program January 3, 2003 fined the amount of P100,000.00.
Prospectus
Reconstruction/rehabilitation of the 18- The 18-hole golf course is already
hole golf course. This includes the existing and playable. It was observed SO ORDERED.30 (Emphasis in the original)
Before November The Corporation Finance Department found that Filart and Villareal invested in the golf course because
construction of the following: that the grass in some parts of the 18-
1996 of SBGCCI and UIGDC's representation that a 27-hole, world-class golf course would be developed.31 It
hole course is dry and withered
P301,600[,]000. also found that SBGCCI and UIGDC failed to comply with their commitments and representations as
1. greens
2. fairways The road/cart paths are fully concrete stated in their prospectus.32cralawrednad
3. road/cart paths and passable, bridges, drainage and
4. bridges irrigation systems are in place. The Corporation Finance Department ordered the return of the purchase price of shares pursuant to
5. drainage & irrigation system Rule 1433 of the Implementing Rules and Regulations of Republic Act No. 8799 or the Securities
6. driving range There is a driving range with roof and 7 Regulation Code. It explained that the non-completion of the golf course constituted a material
7. tee houses berths and one (1) tee house in hole # amendment in the prospectus. The prospectus had become misleading, tending to work a fraud. This
3. gave the purchasers the right to a refund of their contributions. 34cralawrednad
After November
Construction of additional 9-hole course.
1996 P156,000,000 SBGCCI and UIGDC filed a Petition for Review35 of the Corporation Finance Department's Order before
The construction of the additional 9-hole
course has not yet started. the Securities and Exchange Commission. SBGCCI and UIGDC assailed the Corporation Finance
Department's and the Securities and Exchange Commission's authority to order a refund of investments.
They also assailed its jurisdiction over the case, which according to SBGCCI and UIGDC involved an
Construction/renovation of Clubhouse with Before November The clubhouse has a dining area, intra-corporate dispute. They argued that the Corporation Finance Department's Order was issued
the following facilities: 1996 P192,400,000 function room, 6 VIP rooms, sport shop, without due process.36cralawrednad
one (1) restaurant and men & ladies
1. dining areas locker rooms. It has no sauna and On February 10, 2004, the Securities and Exchange Commission rendered the Decision37 affirming the
2. function rooms massage rooms. July 1, 2003 Order of the Corporation Finance Department:cralawlawlibrary
3. indoor and outdoor tennis courts WHEREFORE, in view of the foregoing, the PETITION is hereby DENIED. The July 1, 2003 ORDER of
4. 25-meter swimming pool Beside the clubhouse is a swimming the Corporate Finance Department is hereby AFFIRMED.
5. gyms pool with no water and one (1) tennis
6. saunas and massage room court, [sic] that are both poorly SO ORDERED.38
7. sport shops maintained. The Securities and Exchange Commission ruled that the Corporation Finance Department's proceedings
were administrative in nature. It was only conducted to determine if SBGCCI and UIGDC violated the
Condominiums, Residential Villas, 250- There is [sic] none.28 Securities and Exchange Commission's rules and regulations. While Villareal and Filart's letter-complaint
bedroom hotel and a conference center alleged intra-corporate matters, it also alleged matters pertaining to SBGCCI and UIGDC's compliance
with the prospectus and registration statements. The Securities and Exchange Commission has the
In the July 1, 2003 Order, the Securities and Exchange Commission's Corporation Finance Department authority to investigate possible acts of abuse of franchise and violations of its rules and regulations. It
gave due course to Villareal and Filart's letter-complaint:29 also has the power to impose appropriate administrative sanctions. The Corporation Finance Department
WHEREFORE, upon consideration of the foregoing, the complaint of REGINA S. FILART and only exercised these powers.39cralawrednad
MARGARITA G. VILLAREAL is hereby given DUE COURSE.
The Corporation Finance Department, tasked to oversee securities registration, has the implied power to
Respondents SUBIC BAY GOLF AND COUNTRY CLUB, INC. and UNIVERSAL INTERNATIONAL suspend or revoke registration upon showing of violations of the Securities and Exchange Commission's
GROUP DEVELOPMENT CORPORATION, are hereby ordered to refund to REGINA S. FILART and rules and regulations. Based on Section 4.6 of the Securities Regulation Code, the Securities and
MARGARITA G. VILLAREAL, within ten (10) days from receipt of this Order, the total purchase price of Exchange Commission has the power to delegate some of its functions to any of its
their shares of stock issued by Subic Bay Golf and Country Club, Inc., in the amount of P740,000.00 departments.40cralawrednad
each, or a total of P1,480,000.00.
SBGCCI and UIGDC the return of their investments. Its Corporation Finance Department already
On SBGCCI and UIGDC's allegation that they were not given due process, the Securities and Exchange directed SBGCCI and UIGDC to amend their prospectus and registration statements to comply with the
Commission ruled that suspension of permit to sell securities does not require a full-blown hearing. In Securities Regulation Code. However, SBGCCI and UIGDC failed to comply. 62cralawrednad
any case, SBGCCI and UIGDC were served notice and given an opportunity to present their case. They
were even able to file their Comment on the letter-complaint on January 6, 2003.41cralawrednad In their Comment,63 SBGDCC and UIGDC insist that the case involved an intra-corporate dispute over
which only the Regional Trial Court has jurisdiction.64 The Securities and Exchange Commission has no
The Securities and Exchange Commission added that the Corporation Finance Department's directive to authority to order the return of payments made by Villareal and Filart. 65 Even assuming that the
return the purchasers' investments was in accordance with the rules. Rule 14 of the Securities Securities and Exchange Commission has jurisdiction over intra-corporate cases, there should first be a
Regulation Code allows purchasers to renounce their securities. 42cralawrednad disagreement over prospectus amendments before paid contributions can be refunded. 66cralawrednad

SBGCCI and UIGDC filed a Motion for Reconsideration of the February 10, 2004 Securities and We determine which between the Securities and Exchange Commission and the Regional Trial Court
Exchange Commission Decision, but this was denied in the Order43 dated April 6, 2004.44cralawrednad has jurisdiction over this case. We also determine whether the Securities and Exchange Commission
has the authority to order the return of purchase price of securities upon finding that there were
SBGCCI and UIGDC filed a Petition for Review45 of the Securities and Exchange Commission's February fraudulent representations in the prospectus.
10, 2004 Decision before the Court of Appeals.46 They argued that the letter-complaint filed by Villareal
and Filart involved an intra-corporate dispute that was under the jurisdiction of the Regional Trial Court We rule for SBGCCI and UIGDC.
and not the Securities and Exchange Commission.47 They also argued that the Securities Regulation
Code does not grant the Securities and Exchange Commission the power to order the refund of payment Under Presidential Decree No. 902-A,67 the Securities and Exchange Commission has jurisdiction over
for shares of stock.48cralawrednad acts amounting to fraud and misrepresentation by a corporation's board of directors, business
associates, and officers. It also provides that it has jurisdiction over intra-corporate disputes.
On July 31, 2007, the Court of Appeals declared void the February 10, 2004 Decision of the Securities Thus:cralawlawlibrary
and Exchange Commission insofar as it ordered the refund of the purchase price of Filart's and WHEREAS, in line with the government's policy of encouraging investments, both domestic and foreign,
Villareal's investments.49 Thus:cralawlawlibrary and more active public participation in the affairs of private corporations and enterprises through which
WHEREFORE, the February 10, 2004 Decision of the Securities and Exchange Commission in CFD-AA- desirable activities may be pursued for the promotion of economic development; and, to promote a wider
Case No. 08-03-36, affirming the July 1, 2003 Order of the Corporate Finance Department, insofar as it and more meaningful equitable distribution of wealth, there is a need for an agency of the government to
ordered the refund of the purchase price of the shares of stock of petitioner SBGCCI, is hereby declared be invested with ample powers to protect such investment and the public;
NULL and VOID for lack of jurisdiction.
....
SO ORDERED.50
The Court of Appeals found that the case involved an intra-corporate controversy. The Securities and SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Exchange Commission acted in excess of its jurisdiction when it ordered UIGDC and SBGCCI to refund Commission over corporations, partnerships and other forms of associations registered with it as
Villareal and Filart the amount they paid for SBGCCI shares of stock. The authority to exercise powers expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
necessary to carry out the objectives of the Securities and Exchange Commission does not include the hear and decide cases involving:
authority to refund investments. This power has been transferred to the Regional Trial Court. The a. Devices or schemes employed by or any acts, of the board of directors, business
Securities and Exchange Commission should have limited its exercise of power to issuing an order associates, its officers or partners, amounting to fraud and misrepresentation which
imposing a fine, to amend the prospectus, and to suspend the Certificate of Registration and Permit to may be detrimental to the interest of the public and/or of the stockholder, partners,
Sell Securities to the Public.51cralawrednad members of associations or organizations registered with the Commission;
b. Controversies arising out of intra-corporate or partnership relations, between and
Hence, this petition was filed. among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
The Securities and Exchange Commission argues that Villareal and Filart's letter-complaint of November associates, respectively; and between such corporation, partnership or association
4, 2002 did not only raise matters involving intra-corporate relations. Their letter-complaint also stated and the state insofar as it concerns their individual franchise or right to exist as such
serious violations of the Securities Regulation Code, which may require the Securities and Exchange entity;
Commission's intervention.52 The Commission did not adjudicate private rights or awarded damages. 53 It c. Controversies in the election or appointments of directors, trustees, officers or
only determined whether SBGCCI and UIGDC committed misrepresentations,54 in violation of the managers of such corporations, partnerships or associations.
Securities Regulation Code and its implementing rules.55cralawrednad However, jurisdiction over intra-corporate disputes and all other cases enumerated in Section 5 of
Presidential Decree No. 902-A had already been transferred to designated Regional Trial Courts.
The Securities and Exchange Commission contends that its Order to return the stock purchasers' Section 5.2 of Republic Act No. 8799 provides:cralawlawlibrary
contributions is in accordance with Rule 14, Section 1(c)56 of the Implementing Ru|es and Regulations of 5.2.The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
the Securities Regulation Code.57 This provision is within the Securities and Exchange Commission's 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial
rule-making power under Section 14358 of the Corporation Code and Section 5(g) and (n)59 of the Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional
Securities Regulation Code.60 Section l(c) is necessary to implement the Securities Regulation Code's Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
mandate "to protect the investing public from unscrupulous corporations taking advantage of every jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which
situation[.]"61cralawrednad 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
The Securities and Exchange Commission points out that Villareal and Filart had been demanding from fully disposed.
Hence, actions pertaining to intra-corporate disputes should be filed directly before designated Regional registration statement and the registration of the security thereunder after due notice and hearing by
Trial Courts. Intra-corporate disputes brought before other courts or tribunals are dismissible for lack of issuing an order to such effect, setting forth its findings in respect thereto, if it finds that:
jurisdiction.68cralawrednad a. The issuer:
i. Has been judicially declared insolvent;
For a dispute to be "intra-corporate," it must satisfy the relationship and nature of controversy ii. Has violated any of the provisions of this Code, the rules promulgated pursuant
tests.69cralawrednad thereto, or any order of the Commission of which the issuer has notice in
connection with the offering for which a registration statement has been filed;
The relationship test requires that the dispute be between a corporation/partnership/association and the iii. Has been engaged or is about to engage in fraudulent transactions;
public; a corporation/partnership/association and the state regarding the entity's franchise, permit, or iv. Has made any false or misleading representation of material facts in any
license to operate; a corporation/partnership/association and its stockholders, partners, members, or prospectus concerning the issuer or its securities;
officers; and among stockholders, partners, or associates of the entity. 70cralawrednad v. Has failed to comply with any requirement that the Commission may impose as
a condition for registration of the security for which the registration statement has
The nature of the controversy test requires that the action involves the enforcement of corporate rights been filed; or
and obligations.
b. The registration statement is on its face incomplete or inaccurate in any material respect
Courts and tribunals must consider both the parties' relationship and the nature of the controversy to or includes any untrue statement of a material fact or omits to state a material fact required
determine whether they should assume jurisdiction over a case. In Medical Plaza Makati Condominium to be stated therein or necessary to make the statements therein not misleading; or
Corporation v. Cullen:71 c. The issuer, any officer, director or controlling person of the issuer, or person performing
[T]he controversy must not only be rooted in the existence of an intra-corporate relationship, but must as similar functions, or any underwriter has been convicted, by a competent judicial or
well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code administrative body, upon plea of guilty, or otherwise, of an offense involving moral
and the internal and intra-corporate regulatory rules of the corporation. In other words, jurisdiction should turpitude and/or fraud or is enjoined or restrained by the Commission or other competent
be determined by considering both the relationship of the parties as well as the nature of the question judicial or administrative body for violations of securities, commodities, and other related
involved.72 (Citations omitted) laws.
This case is an intra-corporate dispute, over which the Regional Trial Court has jurisdiction. It involves a ....
dispute between the corporation, SBGCCI, and its shareholders, Villareal and Filart.
13.4. If the Commission deems it necessary, it may issue an order suspending the offer and sale of the
This case also involves corporate rights and obligations. The nature of the action whether it involves securities pending any investigation. The order shall state the grounds for taking such action, but such
corporate rights and obligations is determined by the allegations and reliefs in the order of suspension although binding upon the persons notified thereof, shall be deemed confidential,
complaint.73cralawrednad and shall not be published. Upon the issuance of the suspension order, no further offer or sale of such
security shall be made until the same is lifted or set aside by the Commission. Otherwise, such sale shall
Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI and UIGDC's be void.
alleged failure to abide by their representations in their prospectus. Specifically, Villareal and Filart
alleged in their letter-complaint that the world-class golf course that was promised to them when they ....
purchased shares did not materialize. This is an intra-corporate matter that is under the designated
Regional Trial Court's jurisdiction. It involves the determination of a shareholder's rights under the SEC. 15. Suspension of Registration. - 15.1. If, at any time, the information contained in the registration
Corporation Code or other intra-corporate rules when the corporation or association fails to fulfill its statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect,
obligations. or the sale or offering for sale of the security registered thereunder may work or tend to work a fraud, the
Commission may require from the issuer such further information as may In its judgment be necessary to
However, even though the Complaint filed before the Securities and Exchange Commission contains enable the Commission to ascertain whether the registration of such security should be revoked on any
allegations that are intra-corporate in nature, it does not necessarily oust the Securities and Exchange ground specified in this Code. The Commission may also suspend the right to sell and offer for sale such
Commission of its regulatory and administrative jurisdiction to determine and act if there were security pending further investigation, by entering an order specifying the grounds for such action, and by
administrative violations committed. notifying the issuer, underwriter, dealer or broker known as participating in such offering.80
To ensure compliance with the law and the rules, the Securities and Exchange Commission is also given
The Securities and Exchange Commission is organized in line with the policy of encouraging and the power to impose fines and penalties. It may also investigate motu proprio whether corporations comply
protecting investments.74 It also administers the Securities Regulation Code,75 which was enacted to with the Corporation Code, Securities Regulation Code, and rules implemented by the Securities and
"promote the development of the capital market, protect investors, ensure full and fair disclosure about Exchange Commission.chanrobleslaw
securities, [and] minimize if not totally eliminate insider trading and other fraudulent or manipulative SEC. 5. Powers and Functions of the Commission. - 5.1. The Commission shall act with transparency and
devices and practices which create distortions in the free market." 76 Pursuant to these policies, the shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation
Securities and Exchange Commission is given regulatory powers 77 and "absolute jurisdiction, supervision Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto
and control over all corporations, partnerships' or associations. . . ."78cralawrednad the Commission shall have, among others, the following powers and
functions:ChanRoblesvirtualLawlibrary
In relation to securities, the Securities and Exchange Commission's regulatory power pertains to the d. Regulate, investigate or supervise the activities of persons to ensure compliance;
approval and rejection, and suspension or revocation, of applications for registration of securities 79 for,
among others, violations of the law, fraud, and misrepresentations. Thus:cralawlawlibrary f. Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;
SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. The Commission may reject a
registration statement and refuse registration of the security thereunder, or revoke the effectivity of a i. Issue cease and desist orders to prevent fraud or injury to the investing public;
decide not to renounce their purchase of securities shall be subject to the terms of the amended
m.Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of offering. (Emphasis supplied)
corporations, partnerships or associations, upon any of the grounds provided by law; and
Based on these provisions, Villareal and Filart may be entitled to a refund of the purchase price of their
n. Exercise such other powers as may be provided by law as well as those which may be implied from, or shares. Provisions giving shareholders rights, however, are not to be interpreted as sources of authority
which are necessary or incidental to the carrying out of, the express powers granted the Commission to or jurisdiction when there is none. The provisions in the law or in the rules giving Villareal and Filart the
achieve the objectives and purposes of these laws.81 right to be refunded the value of their shares are not equivalent to authority for the Securities and
Exchange Commission to issue an order for the refund. Such order may not come from the Securities
The Securities and Exchange Commission's approval of securities registrations signals to the public that and Exchange Commission.
the securities are valid. It provides the public with basis for relying on the representations of corporations
that issue securities or financial instruments. Neither the provisions of the implementing rules nor the provisions of the Securities Regulation Code, 82
the law being implemented, give the Securities and Exchange Commission the power to order a refund.
Any fraud or misrepresentation in the issuance of securities injures the public. The Securities and The Securities and Exchange Commission's power when violations of the Securities Regulation Code
Exchange Commission's power to suspend or revoke registrations and to impose fines and other are found is limited to issuing regulatory orders such as suspending or revoking registration statements,
penalties provides the public with a certain level of assurance that the securities contain representations providing for the terms and conditions for registration, and imposing fines and penalties.
that are true, and that misrepresentations if later found, would be detrimental to the erring corporation. It
creates risks to corporations that issue securities and adds cost to errors, misrepresentations, and The implementing rules cannot be interpreted to give the Securities and Exchange Commission the
violations related to the issuance of those securities. This protects the public who will rely on power that is more than what is provided under the Securities Regulation Code. Implementing rules are
representations of corporations and partnerships regarding financial instruments that they issue. The limited by the laws they implement. The rules cannot be used to amend, expand, or modify the law being
Securities and Exchange Commission's regulatory power over securities-related activities is tied to the implemented. The law shall prevail in case of inconsistency between the law and the rules.
government's duty to protect the investing public from illegal and fraudulent instruments.
In United BF Homeowner's Association v. BF Homes, Inc.:83
Thus, when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC committed As early as 1970, in the case of Teoxon vs. Members of the Board of Administrators (PVA), we ruled that
misrepresentations in the sale of their shares, nothing prevented the Securities and Exchange the power to promulgate rules in the implementation of a statute is necessarily limited to what is provided
Commission from taking cognizance of it to determine if SBGCCI and UIGDC committed administrative for in the legislative enactment. Its terms must be followed for an administrative agency cannot amend
violations and were liable under the Securities Regulation Code. The Securities and Exchange an Act of Congress. "The rule-making power must be confined to details for regulating the mode or
Commission may investigate activities of corporations under its jurisdiction to ensure compliance with the proceedings to carry into effect the law as it has been enacted, and it cannot be extended to amend or
law. expand the statutory requirements or to embrace matters not covered by the statute." If a discrepancy
occurs between the basic law and an implementing rule or regulation, it is the former that prevails.
However, the Securities and Exchange Commission's regulatory power does not include the authority to
order the refund of the purchase price of Villareal's and Filart's shares in the golf club. The issue of . . . The rule-making power of a public administrative body is a delegated legislative power, which it may
refund is intra-corporate or civil in nature. Similar to issues such as the existence or inexistence of not use either to abridge the authority given it by Congress or the Constitution or to enlarge its power
appraisal rights, pre-emptive rights, and the right to inspect books and corporate records, the issue of beyond the scope intended. Constitutional and statutory provisions control what rules and regulations
refund is an intra-corporate dispute that requires the court to determine and adjudicate the parties' rights may be promulgated by such a body, as well as with respect to what fields are subject to regulation by it.
based on law or contract. Injuries, rights, and obligations involved in intra-corporate disputes are specific It may not make rules and regulations which are inconsistent with the provisions of the Constitution or a
to the parties involved. They do not affect the Securities and Exchange Commission or the public statute, particularly the statute it is administering or which created it, or which are in derogation of, or
directly. defeat, the purpose of a statute.

The Securities and Exchange Commission argues that the power to order a refund is in accordance with Moreover, where the legislature has delegated to an executive or administrative officers and boards
the implementing rules of the Securities Regulation Code. Despite orders from the Securities and authority to promulgate rules to carry out an express legislative purpose, the rules of administrative
Exchange Commission to amend their prospectus, SBGCCI and UIGDC failed to comply. Thus, Villareal officers and boards, which have the effect of extending, or which conflict with the authority-granting
and Filart were entitled to the refund of the purchase price of their shares. They cite Section 14 of the statute, do not represent a valid exercise of the rule-nrnking power but constitute an attempt by an
Implementing Rules and Regulations of the Securities Regulation Code:ChanRoblesvirtualLawlibrary administrative body to legislate. "A statutory grant of powers should not be extended by implication
beyond what may be necessary for their just and reasonable execution." It is axiomatic that a rule or
SRC Rule 14 - Amendments to the Registration Statement regulation must bear upon, and be consistent with, the provisions of the enabling statute if such rule or
1.If a prospectus filed with the Commission under the Code becomes incomplete or inaccurate in any regulation is to be valid.84 (Citations omitted)
material respect or if the issuer wants to change any material information therein, the issuer shall: Hence, the issue of refund should be litigated in the appropriate Regional Trial Court. This issue is both
intra-corporate and civil in nature, which is under the jurisdiction of the designated Regional Trial Courts.
a.file an amendment to the registration statement with the Commission explaining all proposed changes
which shall be reviewed by the Commission in accordance with Section 14 of the Code; WHEREFORE, the Court of Appeals Decision dated July 31, 2007 is AFFIRMED.

c. where material amendments have been made to the prospectus after the effective date thereof, SO ORDERED.chanrobles virtuallawlibrary
purchasers may, within thirty (30) days from the date of such notification, renounce their purchase of
*
securities, whereupon the issuer, or any person acting on behalf of the issuer in connection with the Carpio, (Chairperson), Brion, Del Castillo, and Perez, JJ., concur.Ch
distribution of said securities, shall, within ten (10) days from receipt of notification of such election,
return the contributions paid by such purchasers without making any deductions. Purchasers who G.R. No. 203023 June 17, 2015
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION and PHILCOMSAT HOLDINGS Daniel C. Gutierrez Chairman
CORPORATION, Petitioners, Erlinda I. Bildner Vice-Chairman
vs. Katrina C. Ponce-Enrile President
SANDIGANBAYAN 5th DIVISION and PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, Marietta K. Ilusorio Treasurer
Respondents. Rafael A. Poblador Asst. Treasurer
DECISION Victoria C. delos Reyes Secretary
CARPIO, J.: On the same day, PHILCOMSAT held a special stockholders meeting attended by Erlinda I. Bildner as
The Case proxy for POTC. At the request of the Republic of the Philippines, the three government representatives
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Philippine were nominated to the PHILCOMSAT Board of Directors. The following were elected:
Communications Satellite Corporation (PHILCOMSAT) and PHILCOMSAT Holdings Corporation (PHC) Abraham R. Abesamis (government)
[petitioners] against respondents, the Sandiganbayan and the Presidential Commission on Good Ramon P. Jacinto (government)
Government (PCGG). Petitioners are assailing the Sandiganbayan's Resolution1 promulgated on 3 May Rodolfo G. Serrano, Jr. (government)
2012 dismissing their complaint in Civil Case No. SB-12-CVL-0001, and the Resolution2 promulgated on Erlinda I. Bildner (private)
14 August 2012 denying their motion for reconsideration. Katrina C. Ponce-Enrile (private)
The Facts Pablo L. Lobregat (private)
PHC is a domestic corporation listed in the Philippine Stock Exchange (PSE). It was previously known as Honorio A. Poblador III (private)
Liberty Mines, Inc. (LMI) and had been previously engaged in the discovery, exploitation, development Marietta K. Ilusorio (private)
and exploration of oils.3 Lorna P. Kapunan (private)
On 13 September 1995, Oliverio G.Laperal (Laperal), then Chairman of the Board and President of LMI, Immediately after, at the meeting of the new and unified Board of Directors of PHILCOMSAT, the following
and Honorio Poblador III, then President of PHILCOMSAT, signed a Memorandum of Agreement4 for the were elected officers:
latter to gain controlling interest in LMI through an increase in its authorized capital stock.5 Abraham R. Abesamis Chairman
On 24 June 1996, Laperal and PHILCOMSAT executed a Supplemental Memorandum of Agreement6 Pablo L. Lobregat Vice-Chairman
reiterating the increase in capital stock of LMI from six billion shares to100 billion shares with par value of Erlinda I. Bildner President
P0.01 per share equivalent to 1 billion. As part of its implementation of the Supplemental MOA, Marietta K. Ilusorio Vice-President
PHILCOMSAT subscribed to 79,050,000,000 shares of LMI.7 Sometime in 1997, LMI changed its name Katrina C. Ponce-Enrile Treasurer
to PHC. It declassified its shares and amended its primary purpose to become a holding company. PHC Rafael A. Poblador Asst. Treasurer
then filed its application with the PSE for listing the shares representing the increase in its capital stock. John Benedict B. Sioson Secretary
Included in this application were the PHC shares owned by PHILCOMSAT.8 On 7 May 2008, the PCGG issued En Banc Resolution No. 2008-00912 recognizing the validity of the
Pending the PSEs final approval of PHCs application for listing of the shares, the PCGG on 1 March POTCs and PHILCOMSATs respective stockholders meetings and elections, both held on 19 November
2005, through its then Chairman Camilo L. Sabio (Chairman Sabio), made a written request to suspend 2007:
the listing of the increase in PHCs capital stock citing as reason the need to settle the conflicting claims NOW, THEREFORE, be it RESOLVED, as it is hereby RESOLVED, that:
of the two sets of board of directors of the Philippine Overseas Telecommunication Corporation (POTC) 1. The PCGG recognize[s] the validity of the 19 November 2007, POTC/PHILCOMSAT stockholders
and PHILCOMSAT.9 meeting and confirm[s] as valid the election of the following government nominees: Atty. Daniel C.
In a letter10 dated 22 March 2005, the PSE informed the PCGG that the PSE Listing Committee deferred Gutierrez, Justice Santiago J. Ranada and Atty. Allan S. Montano to the Board of Directors of POTC and
action on the companys listing application and instead referred the matter to the PSE General Counsel to Radm. Abraham R. Abesamis, Mr. Ramon P. Jacinto and Mr. Rodolfo G. Serrano,Jr. to the Board of
ascertain the applicability of the provisions on disqualifications for listing as provided under the PSE Directors of PHILCOMSAT;
Revised Listing Rules. x x x x13
On 7 June 2005, the PCGG sent another letter11 to the PSE reiterating its request to defer the listing of In a letter14 dated 25 July 2011, Katrina C. Ponce-Enrile (Ponce-Enrile), then President of POTC, wrote
PHC shares. to then PCGG Chairman Andres D. Bautista (Chairman Bautista) demanding that the PCGG rescind its
In November 2007, then President Gloria Macapagal-Arroyo appointed new government nominees to the objection to the listing of the increase in PHCs capital stock.
POTC and PHILCOMSAT boards to replace Enrique Locsin, Manuel Andal, Julio Jalandoni and Guy de When PCGG failed to reply, PHILCOMSAT sent a final demand Letter15 reiterating its demand for PCGG
Leon. POTC owns 100% of PHILCOMSAT. to withdraw its objection to the listing of the increase in PHCs capital stock.
On 19 November 2007, in a special stockholders meeting attended by POTCs private stockholders and On 11 January 2012, Ponce-Enrile received a letter16 from Chairman Bautista, informing her that, among
Presidential Management Staff Undersecretary Enrique D. Perez, as representative and proxy of the others, the agency was discussing the matter with the Department of Finance and that the two would give
Republic of the Philippines, and observed by Securities and Exchange Commission (SEC) representatives, a joint recommendation thereafter. However, the PCGG never communicated said recommendation to
the following were elected directors: PHILCOMSAT.
Daniel C. Gutierrez (government) On 1 February 2012, PHILCOMSAT filed a complaint17 before the Sandiganbayan against PCGGto
Santiago J. Ranada (government) compel the latter to withdraw its opposition to the listing of the increase in PHCs capital stock.
Erlinda I. Bildner (private) PHILCOMSAT argued that PCGG had already recognized the validity of the stockholders meetings in the
Katrina C. Ponce-Enrile (private) two corporations, which "practically erased" the alleged conflict between the two sets of directors.18
Marietta K. Ilusorio (private) The PCGG filed a motion to dismiss the complaint, which PHILCOMSAT subsequently opposed. The
Pablo L. Lobregat (private) Sandiganbayans Ruling
Honorio A. Poblador III (private) On 3 May 2012, the Sandiganbayan issued the assailed Resolution, the dispositive portion of which reads:
Allan S. Montao (government) WHEREFORE, premises considered, defendant Presidential Commission on Good Government
Francisca Benedicto-Paulino (private) (PCGG)s Motion to Dismiss dated 8 March 2012 is hereby GRANTED for lack of jurisdiction over the
Immediately thereafter, the new directors elected POTCs new set of officers: subject matter.
SO ORDERED.19 Lastly, petitioners argue that the PCGGis a co-equal body with the RTC and since co-equal bodies have
The Sandiganbayan held that, based on the allegations in the complaint, the action was one for specific no power to control the other, the RTC cannot compel the PCGG to follow its order.32
performance since it sought to have PCGG withdraw its objection to the listing of the increase in PHCs The PCGGs arguments
capital stock at the PSE. Following Section 1920 of Batas Pambansa Blg.129 (B.P. 129), as amended by On the other hand, the PCGG, through the Office of the Solicitor General, raised the following arguments
Republic Act No. 7691 (R.A. 7691), the Regional Trial Court (RTC) has exclusive jurisdiction over the case. in its Comment:33
It said: I. THE RESPONDENT COURT IS BEREFT OF JURISDICTION OVER PETITIONERS
In our considered view, the allegations in the complaint show that it is primarily one for specific performance COMPLAINT.
as it prays that the PCGG be directed to withdraw its objection to the listing of PHILCOMSATs shares in II. PETITIONERS PROTESTATIONS NOTWITHSTANDING, THE COMPLAINT DESERVES
PHC, hence, incapable of pecuniary estimation and within the RTCs jurisdiction.21 OUTRIGHT DISMISSAL BECAUSE:
The Sandiganbayan also ruled that the case was a "dispute among its directors," and thus, was an intra- A. PETITIONERS HAVE NOT ALLEGED ANY CAUSE OF ACTION TO ENTITLE
corporate dispute, viz:22 THEM TO THE RELIEF DEMANDED.
The determination of whether or not the PCGG should withdraw its request to defer the listing of the B. PETITIONERS FAILED TO IMPLEAD THE REPUBLIC AS INDISPENSABLE
PHILCOMSAT shares until the conflicting claims between the two sets of board of directors of POTC and PARTY.
PHILCOMSAT is settled, is an intra-corporate controversy. (Emphasis in the original) On 14 August 2012, C. ASSUMING THAT THE STATE HAS BEEN IMPLEADED THROUGH THE PCGG,
the Sandiganbayan denied petitioners motion for reconsideration. It reiterated its earlier ruling that it did THIS CASE SHOULD NONETHELESS BE DISMISSED ON THE GROUND THAT
not have jurisdiction over the controversy since it was an intra-corporate dispute. THE STATE MAY NOT BE SUED WITHOUT ITS CONSENT.
In plaintiffs complaint, it was stated that: "The Republic of the Philippines is the 34.9% owner of POTC, D. THE PRESENT SUIT IS BARRED BY LITIS PENDENTIA.
which wholly owns PHILCOMSAT, which in turn, owns 81% of PHC. As such, the Republic of the E. PETITIONERS COUNSEL FAILED TO COMPLY WITH BAR MATTER NO. 1922
Philippines, with 28.7% indirect ownership in PHC, also its largest single beneficial owner, continues to DATED JUNE 3, 2008.
sustain the incalculable loss of holding illiquid or unmarketable shares in a publicly listed company." The PCGG contends that "the controversy does not emanate from, nor does it relate to any functions of
Evidently, while the PCGG may not be a stockholder, director, officer, member or even associate of the the PCGG of recovering ill-gotten wealth, or any incident arising from, or incidental to such duty."34 Rather,
plaintiff corporations, it bears emphasis that the Commission has an interest in the PHC shares prompting the PCGG posits that the acts complained of are in the nature of an intra-corporate controversy. It avers
the PCGG to request the PSE to suspend the listing of the SEC approved increase in capital stock of PHC. that "the nature of petitioners claim refers to the enforcement of the parties rights under the Corporation
The Commissions interest in the aforesaid shares determines the "nature of the question under Code and internal rules of the corporation, particularly affecting the propriety of publicly listing in the
controversy" in the instant case and consequently, the reiteration of this Courts pronouncement in the Philippine Stock Exchange (PSE) of the 790 million shares of PHILCOMSAT with PHC."35 The PCGG
assailed Resolution of having no jurisdiction over the subject matter of the instant case.23 emphasized that "the matter of compelling the PCGG x x x to withdraw its objection regarding the listing
The Issue of shares in PHC, which objection is an exercise of ownership rights, is an intra-corporate controversy and
Petitioners are now before the Court on a petition for review on certiorari under Rule 45 raising this sole outside the jurisdiction of the respondent court."36
assignment of error: The Court's Ruling
The Sandiganbayan erred in dismissing the case a quo for lack of jurisdiction on [the] ground that the The petition has no merit and is, therefore, denied.
action allegedly involves an intra-corporate controversy.24 The Complaint involves an Intra-corporate Controversy
Petitioners arguments Intra-corporate controversy
Petitioners argue that the allegations in the complaint do not qualify as an intra-corporate controversy To determine if a case involves an intra-corporate controversy, the courts have applied two tests: the
because "not a single element of an intra-corporate controversy exists in this case."25 relationship test and the nature of the controversy test.
Petitioners claim that, first, the cause of action in this case to compel PCGG to withdraw its objection to Under the relationship test, the existence of any of the following relationships makes the conflict intra-
the listing of PHILCOMSATs shares in PHC is not an intra-corporate dispute,26 since PCGG is not a corporate: (1) between the corporation, partnership or association and the public; (2) between the
stockholder, director, officer, member or even associate of the plaintiff corporation.27 corporation, partnership or association and the State insofar as its franchise, permit or license to operate
Second, petitioners insist that the "subject matter of the case a quo, that is, to have respondent PCGG is concerned; (3) between the corporation, partnership or association and its stockholders, partners,
withdraw its objections to the listing of [PHILCOMSATs] shares in PHC, does not fall in any of the cases members or officers; and (4) among the stockholders, partners or associates themselves.37
that may be considered intra-corporate controversy, as enumerated in Section 5 of PD 902-A."28 It argues On the other hand, the nature of the controversy test dictates that "the controversy must not only be rooted
that "the issue in this case does not even involve POTC and/or the shares that the Republic owns therein in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties
to the extent of thirty five percent (35%). The issue specifically pertains to petitioner [PHILCOMSATs] correlative rights and obligations under the Corporation Code and the internal and intra-corporate
shares in petitioner PHC where the respondent PCGG, through abuse of authority, objected to the listing regulatory rules of the corporation."38
in the Philippine Stock Exchange. While the government (Republic of the Philippines) owns 35% of POTC, A combined application of the relationship test and the nature of the controversy test has become the norm
the latter has a separate and distinct legal personality with petitioner PHILCOMSAT and PHC. x x x. in determining whether a case is an intra-corporate controversy,39 to be "heard and decided by the
Respondent PCGG, which is not even the registered owner of a single PHILCOMSAT share has no [b]ranches of the RTC specifically designated by the Court to try and decide such cases."40
personality to meddle in PHCs affairs and block the listing of PHILCOMSATs share in the stock exchange. Relationship test
The twin element of corporate relationship and intra-corporate issues were never met in the complaint."29 Under the relationship test, an intra-corporate controversy arises when the conflict is "between the
Third, petitioners state that PCGG has ceased to have a valid and justifiable reason for blocking the listing corporation, partnership or association and its stockholders, partners, members or officers." Petitioners
of the increase in PHCs capital stock because "the appointment of new government nominees and the insist that the PCGG is not a stockholder, partner, member or officer of the corporation. This is misleading
stockholders meetings of POTC, PHILCOMSAT and PHC in 2007 paved the way for unified boards and and inaccurate.
erased whatever alleged uncertainty that existed previously on who has control over these The PCGG was created under Executive Order No. 1 (E.O. 1) to assist the President in:
corporations."30 (a) The recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos,
More importantly, with its 7 May 2008 En Banc Resolution No. 2008-009, the PCGG itself has recognized his immediate family, relatives, subordinates and close associates, whether located in the
the valid election of the POTC, PHILCOMSAT and PHC boards and, therefore, the basis for its objection Philippines or abroad, including the takeover or sequestration of all business enterprises and
is no longer obtaining.31 entities owned or controlled by them, during his administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence, Petitioners, however, further argue that the case must be decided by the Sandiganbayan because the
connections or relationship. RTC is co-equal to the PCGG and therefore would have no authority to issue an order to the latter.49
(b) The investigation of such cases of graft and corruption as the President may assign to the The following pronouncements of this Court are instructive:
Commission from time to time. Under Section 2 of Executive Order No. 14, the Sandiganbayan has exclusive and original jurisdiction over
(c) The adoption of safeguards to ensure that the above practices shall not be repeated in any all cases regarding "the funds, moneys, assets and properties illegally acquired by Former President
manner under the new government, and the institution of adequate measures to prevent the Ferdinand E. Marcos, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
occurrence of corruption.41 associates, dummies, agents, or nominees," civil or criminal, including incidents arising from such cases.
This Court, in PCGG v. Pea,42 further explained: The Decision of the Sandiganbayan is subject to review on certiorari exclusively by the Supreme Court.
In the discharge of its vital task "to recover the tremendous wealth plundered from the people by the past In the exercise of its functions, the PCGG is a co-equal body with the regional trial courts and co-equal
regime in the most execrable thievery perpetrated in all history," or "organized pillage" (to borrow a phrase bodies have no power to control the other. The regional trial courts and the Court of Appeals have no
from the articulate Mr. Blas Ople), the Commission was vested with the ample power and authority jurisdiction over the PCGG in the exercise of its powers under the applicable Executive Orders and Section
(a) x x x 26, Article XVIII of the 1987 Constitution and, therefore, may not interfere with and restrain or set aside
(b) to sequester or place or cause to be placed under its control or possession any building or the orders and actions of the PCGG.50
office wherein any ill-gotten wealth or properties may be found, and any records pertaining Further:
thereto, in order to prevent their destruction, concealment or disappearance which would The issue of whether or not the Regional Trial Courts have jurisdiction over the Presidential Commission
frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing on Good Government in the exercise of the latters powers and functions under the applicable Executive
its task. Orders and Section 26, Article XVIII of the 1987 Constitution has been laid to rest in PCGG vs. Hon.
(c) to provisionally takeover in the public interest or to prevent the disposal or dissipation of Emmanuel G. Pea, et al., G.R. No. 77663, April 12, 1988 where Mr. Chief Justice Claudio Teehankee
business enterprises and properties taken over by the government of the Marcos Administration articulated the opinion of an almost unanimous court as follows:
or by entities or persons close to former President Marcos, until the transactions leading to such On the issue of jurisdiction squarely raised, as above indicated, the Court sustains petitioners stand and
acquisition by the latter can be disposed of by the appropriate authorities. holds that regional trial courts and the Court of Appears for that matter have no jurisdiction over the
(d) to enjoin or restrain any actual or threatened commission of acts by any person or entity that Presidential Commission on Good Government in the exercise of its powers under the applicable
may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the Executive Orders and Article XVIII, Section 26 of the Constitution and therefore may not interfere with and
Commission to carry out its task under this Order. x x x.43 restrain or set aside the orders and actions of the Commission. Under Section 2 of the Presidents
In Republic v. Sandiganbayan,44 the Court settled that, due to the Compromise Agreement validly entered Executive Order No. 14 issued on May 7, 1986, all cases of the Commission regarding "the Funds,
into by the Republic through the PCGG, the Republic of the Philippines now owns 4,727 shares of POTC. Moneys, Assets and Properties Illegally Acquired or Misappropriated by Former President Ferdinand
As it stands today, the Republic of the Philippines owns 34.9% of POTC, which wholly owns Marcos, Mrs. Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates,
PHILCOMSAT, which in turn owns 81% of PHC.45 The Republic, then, has an interest in the proper Dummies, Agents or Nominees" whether civil or criminal, are lodged within the "exclusive and original
operations of the PHC, however indirect this interest may seem to be. jurisdiction of the Sandiganbayan" and all incidents arising from, incidental to, or related to, such cases
Chairman Sabio, while himself not a stockholder of the subject corporations, was acting as head of the necessarily fall likewise under the Sandiganbayans exclusive and original jurisdiction subject to review on
PCGG, which is the agency tasked to adopt safeguards so that incidents of graft and corruption, as well certiorari exclusively by the Supreme Court.51 (Emphasis supplied)
as cases of abuse of "powers, authority, influence, connections or relationship" in these corporations are As the Court has already conclusively ruled, the RTC is co-equal to the PCGG only in relation to cases
eliminated.46 falling under the latters function under the applicable Executive Orders, specifically Section 2 of E.O. 14,
The Republic acts through its lawfully designated representatives or nominees. Thus, PCGG nominees and Section 26, Article XVIII of the 1987 Constitution.
and directors sit in the boards of directors of sequestered corporations not for themselves but on behalf of Note that in this case, the acts complained of do not pertain to the PCGGs function under the
the Republic. It is their duty to protect and advance the interests of the Republic of the Philippines. aforementioned provisions of law and the Constitution, i.e., it is not a case involving "the Funds, Moneys,
Nature of the controversy test Assets and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs.
The nature of the controversy test examines the controversy in relation to the "enforcement of the parties Imelda Romualdez Marcos, their Close Relatives, Subordinates, Business Associates, Dummies, Agents
correlative rights and obligations under the Corporation Code and the internal and intra-corporate or Nominees, whether civil or criminal, x x x" nor can it be considered an "[incident] arising from, incidental
regulatory rules of the corporation."47 to, or related to"52 such cases.
The controversy in the present case stems from the act of Chairman Sabio in requesting the PSE to Rather, the PCGG, acting as representative of the Republic, was exercising a duty of a stockholder to
suspend the listing of PHCs increase in capital stock because of still unresolved issues on the election of ensure the proper and lawful exercise of corporate acts.
the POTCs and PHILCOMSATs respective boards of directors.1wphi1 Based on the foregoing, the Sandiganbayan correctly dismissed the complaint for lack of jurisdiction.
The act of Chairman Sabio in asking the SEC to suspend the listing of PHCs shares was done in pursuit WHEREFORE, the petition is DENIED. The Resolutions of the Sandiganbayan in Civil Case No. SB-12-
of protecting the interest of the Republic of the Philippines, a legitimate stockholder in PHCs controlling CVL-0001 promulgated on 3 May 2012 and 14 August 2012 are AFFIRMED. Costs against petitioners.
parent company, POTC. The character of the shares held by the PCGG/Republic, on whose behalf the SO ORDERED.
PCGG Chairman is presumed to be acting, is irrelevant to Chairman Sabios actions. Any shareholder,
harboring any apprehensions or concerns, could have done the same or posed the same objection. It was G.R. No. 181416 November 11, 2013
an act that had no relation to any proceeding or question of ill-gotten wealth or sequestration. The PCGG MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,
was merely protecting the rights and interest of the Republic of the Philippines. vs.
From the foregoing, it is clear that the dispute in the present case is an intra-corporate controversy. ROBERT H. CULLEN, Respondent.
The Sandiganbayan has no Jurisdiction DECISION
As such, it is clear that the jurisdiction lies with the regular courts and not with the Sandiganbayan. PERALTA, J.:
Section 5 of Presidential Decree No. 902-A conferred original and exclusive jurisdiction over intra- This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of Appeals
corporate disputes on the SEC. However, Section 5.2of R.A. 8799, transferred the jurisdiction over such (CA) Decision1 dated July 10, 2007 and Resolution2 dated January 25, 2008 in CA-G.R. CV No. 86614.
cases to courts of general jurisdiction, or the appropriate RTC.48 The assailed decision reversed and set aside the September 9, 2005 Order3 of the Regional Trial Court
(RTC) of Makati, Branch 58 in Civil Case No. 03-1018; while the assailed resolution denied the separate 15. Clearly, defendant [MPMCC] acted maliciously by insisting that plaintiff is a delinquent
motions for reconsideration filed by petitioner Medical Plaza Makati Condominium Corporation (MPMCC) member when in fact, defendant Meridien had already paid the said delinquency, if any. The
and Meridien Land Holding, Inc. (MLHI). branding of plaintiff as delinquent member was willfully and deceitfully employed so as to prevent
The factual and procedural antecedents are as follows: plaintiff from exercising his right to vote or be voted as director of the condominium corporation;
Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of the Medical Plaza 16. Defendant [MPMCC]s ominous silence when confronted with claim of payment made by
Makati covered by Condominium Certificate of Title No. 45808 of the Register of Deeds of Makati. Said defendant Meridien is tantamount to admission that indeed, plaintiff is not really a delinquent
title was later cancelled and Condominium Certificate of Title No. 64218 was issued in the name of member;
respondent. 17. Accordingly, as a direct and proximate result of the said acts of defendant [MPMCC], plaintiff
On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni E. Dimayuga, experienced/suffered from mental anguish, moral shock, and serious anxiety. Plaintiff, being a
demanded from respondent payment for alleged unpaid association dues and assessments amounting to doctor of medicine and respected in the community further suffered from social humiliation and
145,567.42. Respondent disputed this demand claiming that he had been religiously paying his dues besmirched reputation thereby warranting the grant of moral damages in the amount of
shown by the fact that he was previously elected president and director of petitioner.4 Petitioner, on the 500,000.00 and for which defendant [MPMCC] should be held liable;
other hand, claimed that respondents obligation was a carry-over of that of MLHI.5 Consequently, 18. By way of example or correction for the public good, and as a stern warning to all similarly
respondent was prevented from exercising his right to vote and be voted for during the 2002 election of situated, defendant [MPMCC] should be ordered to pay plaintiff exemplary damages in the
petitioners Board of Directors.6 Respondent thus clarified from MLHI the veracity of petitioners claim, but amount of 200,000.00;
MLHI allegedly claimed that the same had already been settled.7 This prompted respondent to demand 19. As a consequence, and so as to protect his rights and interests, plaintiff was constrained to
from petitioner an explanation why he was considered a delinquent payer despite the settlement of the hire the services of counsel, for an acceptance fee of 100,000.00 plus 2,500.00 per every
obligation. Petitioner failed to make such explanation. Hence, the Complaint for Damages8 filed by court hearing attended by counsel;
respondent against petitioner and MLHI, the pertinent portions of which read: 20. In the event that the claim of defendant [MPMCC] turned out to be true, however, the herein
xxxx defendant Meridien should be held liable instead, by ordering the same to pay the said
6. Thereafter, plaintiff occupied the said condominium unit no. 1201 and religiously paid all the delinquency of condominium unit 1201 in the amount of 145,567.42 as of November 30, 2002
corresponding monthly contributions/association dues and other assessments imposed on the as well as the above damages, considering that the non-payment thereof would be the proximate
same. For the years 2000 and 2001, plaintiff served as President and Director of the Medical cause of the damages suffered by plaintiff;9
Plaza Makati Condominium Corporation; Petitioner and MLHI filed their separate motions to dismiss the complaint on the ground of lack of
7. Nonetheless, on September 19, 2002, plaintiff was shocked/surprised to receive a letter from jurisdiction.10 MLHI claims that it is the Housing and Land Use Regulatory Board (HLURB) which is vested
the incumbent Corporate Secretary of the defendant Medical Plaza Makati, demanding payment with the exclusive jurisdiction to hear and decide the case. Petitioner, on the other hand, raises the
of alleged unpaid association dues and assessments arising from plaintiffs condominium unit following specific grounds for the dismissal of the complaint: (1) estoppel as respondent himself approved
no. 1201. The said letter further stressed that plaintiff is considered a delinquent member of the the assessment when he was the president; (2) lack of jurisdiction as the case involves an intra-corporate
defendant Medical Plaza Makati. controversy; (3) prematurity for failure of respondent to exhaust all intra-corporate remedies; and (4) the
x x x; case is already moot and academic, the obligation having been settled between petitioner and MLHI.11
8. As a consequence, plaintiff was not allowed to file his certificate of candidacy as director. On September 9, 2005, the RTC rendered a Decision granting petitioners and MLHIs motions to dismiss
Being considered a delinquent, plaintiff was also barred from exercising his right to vote in the and, consequently, dismissing respondents complaint.
election of new members of the Board of Directors x x x; The trial court agreed with MLHI that the action for specific performance filed by respondent clearly falls
9. x x x Again, prior to the said election date, x x x counsel for the defendant [MPMCC] sent a within the exclusive jurisdiction of the HLURB.12 As to petitioner, the court held that the complaint states
demand letter to plaintiff, anent the said delinquency, explaining that the said unpaid amount is no cause of action, considering that respondents obligation had already been settled by MLHI. It, likewise,
a carry-over from the obligation of defendant Meridien. x x x; ruled that the issues raised are intra-corporate between the corporation and member.13
10. Verification with the defendant [MPMCC] resulted to the issuance of a certification stating On appeal, the CA reversed and set aside the trial courts decision and remanded the case to the RTC for
that Condominium Unit 1201 has an outstanding unpaid obligation in the total amount of further proceedings. Contrary to the RTC conclusion, the CA held that the controversy is an ordinary civil
145,567.42 as of November 30, 2002, which again, was attributed by defendant [MPMCC] to action for damages which falls within the jurisdiction of regular courts.14 It explained that the case hinged
defendant Meridien. x x x; on petitioners refusal to confirm MLHIs claim that the subject obligation had already been settled as early
11. Due to the seriousness of the matter, and the feeling that defendant Meridien made false as 1998 causing damage to respondent.15 Petitioners and MLHIs motions for reconsideration had also
representations considering that it fully warranted to plaintiff that condominium unit 1201 is free been denied.16
and clear from all liens and encumbrances, the matter was referred to counsel, who accordingly Aggrieved, petitioner comes before the Court based on the following grounds:
sent a letter to defendant Meridien, to demand for the payment of said unpaid association dues I.
and other assessments imposed on the condominium unit and being claimed by defendant THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT THERETOFORE
[MPMCC]. x x x; DETERMINED BY THE SUPREME COURT, OR HAS DECIDED IT IN A WAY NOT IN ACCORD WITH
12. x x x defendant Meridien claimed however, that the obligation does not exist considering that LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT DECLARED THE
the matter was already settled and paid by defendant Meridien to defendant [MPMCC]. x x x; INSTANT CASE AN ORDINARY ACTION FOR DAMAGES INSTEAD OF AN INTRA-CORPORATE
13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x x x. The said letter x x x CONTROVERSY COGNIZABLE BY A SPECIAL COMMERCIAL COURT.
sought an explanation on the fact that, as per the letter of defendant Meridien, the delinquency II.
of unit 1201 was already fully paid and settled, contrary to the claim of defendant [MPMCC]. x x THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT IN ACCORD WITH LAW OR
x; WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT TOOK COGNIZANCE OF
14. Despite receipt of said letter on April 24, 2003, and to date however, no explanation was THE APPEAL WHILE RAISING ONLY PURE QUESTIONS OF LAW.17
given by defendant [MPMCC], to the damage and prejudice of plaintiff who is again obviously The petition is meritorious.
being barred from voting/participating in the election of members of the board of directors for the It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the complaint.
year 2003; It is not affected by the pleas or the theories set up by the defendant in an answer or a motion to dismiss.
Otherwise, jurisdiction would become dependent almost entirely upon the whims of the defendant.18 Also resolved in the same special commercial court just like a regular RTC which is still competent to tackle
illuminating is the Courts pronouncement in Go v. Distinction Properties Development and Construction, civil law issues incidental to intra-corporate disputes filed before it.28
Inc.:19 Moreover, Presidential Decree No. 902-A enumerates the cases over which the Securities and Exchange
Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and Commission (SEC) exercises exclusive jurisdiction:
determined by the allegations in the complaint which comprise a concise statement of the ultimate facts xxxx
constituting the plaintiffs cause of action. The nature of an action, as well as which court or body has b) Controversies arising out of intra-corporate or partnership relations, between and among
jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, stockholders, members or associates; between any or all of them and the corporation,
irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted partnership or association of which they are stockholders, members, or associates, respectively;
therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. and between such corporation, partnership or association and the State insofar as it concerns
Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether their individual franchise or right to exist as such entity; and
or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. x x x20 c) Controversies in the election or appointment of directors, trustees, officers, or managers of
Based on the allegations made by respondent in his complaint, does the controversy involve intra- such corporations, partnerships, or associations.29
corporate issues as would fall within the jurisdiction of the RTC sitting as a special commercial court or an To be sure, this action partakes of the nature of an intra-corporate controversy, the jurisdiction over which
ordinary action for damages within the jurisdiction of regular courts? pertains to the SEC. Pursuant to Section 5.2 of Republic Act No. 8799, otherwise known as the Securities
In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests, Regulation Code, the jurisdiction of the SEC over all cases enumerated under Section 5 of Presidential
namely, the relationship test and the nature of the controversy test.21 Decree No. 902-A has been transferred to RTCs designated by this Court as Special Commercial
An intra-corporate controversy is one which pertains to any of the following relationships: (1) between the Courts.30 While the CA may be correct that the RTC has jurisdiction, the case should have been filed not
corporation, partnership or association and the public; (2) between the corporation, partnership or with the regular court but with the branch of the RTC designated as a special commercial court.
association and the State insofar as its franchise, permit or license to operate is concerned; (3) between Considering that the RTC of Makati City, Branch 58 was not designated as a special commercial court, it
the corporation, partnership or association and its stockholders, partners, members or officers; and (4) was not vested with jurisdiction over cases previously cognizable by the SEC.31 The CA, therefore, gravely
among the stockholders, partners or associates themselves.22 Thus, under the relationship test, the erred in remanding the case to the RTC for further proceedings.
existence of any of the above intra-corporate relations makes the case intra-corporate.23 Indeed, Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and Homeowners Associations,
Under the nature of the controversy test, "the controversy must not only be rooted in the existence of an approved on January 7, 2010 and became effective on July 10, 2010, empowers the HLURB to hear and
intra-corporate relationship, but must as well pertain to the enforcement of the parties correlative rights decide inter-association and/or intra-association controversies or conflicts concerning homeowners
and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the associations. However, we cannot apply the same in the present case as it involves a controversy between
corporation."24 In other words, jurisdiction should be determined by considering both the relationship of a condominium unit owner and a condominium corporation. While the term association as defined in the
the parties as well as the nature of the question involved.25 law covers homeowners associations of other residential real property which is broad enough to cover a
Applying the two tests, we find and so hold that the case involves intra-corporate controversy. It obviously condominium corporation, it does not seem to be the legislative intent. A thorough review of the
arose from the intra-corporate relations between the parties, and the questions involved pertain to their deliberations of the bicameral conference committee would show that the lawmakers did not intend to
rights and obligations under the Corporation Code and matters relating to the regulation of the extend the coverage of the law to such kind of association. We quote hereunder the pertinent portion of
corporation.26 the Bicameral Conference Committees deliberation, to wit:
Admittedly, petitioner is a condominium corporation duly organized and existing under Philippine laws, THE CHAIRMAN (SEN. ZUBIRI). Lets go back, Mr. Chair, very quickly on homeowners.
charged with the management of the Medical Plaza Makati. Respondent, on the other hand, is the THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think our views are similar, Your Honor,
registered owner of Unit No. 1201 and is thus a stockholder/member of the condominium corporation. Senator Zubiri, the entry of the condominium units might just complicate the whole matters. So wed like
Clearly, there is an intra-corporate relationship between the corporation and a stockholder/member. to put it on record that were very much concerned about the plight of the Condominium Unit Homeowners
The nature of the action is determined by the body rather than the title of the complaint.1wphi1 Though Association. But this could very well be addressed on a separate bill that Im willing to co-sponsor with the
denominated as an action for damages, an examination of the allegations made by respondent in his distinguished Senator Zubiri, to address in the Condominium Act of the Philippines, rather than address it
complaint shows that the case principally dwells on the propriety of the assessment made by petitioner here because it might just create a red herring into the entire thing and it will just complicate matters, hindi
against respondent as well as the validity of petitioners act in preventing respondent from participating in ba?
the election of the corporations Board of Directors. Respondent contested the alleged unpaid dues and THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I sympathize with them---although we
assessments demanded by petitioner. sympathize with them and we feel that many times their rights have been also violated by abusive
The issue is not novel. The nature of an action involving any dispute as to the validity of the assessment condominium corporations. However, there are certain things that we have to reconcile. There are certain
of association dues has been settled by the Court in Chateau de Baie Condominium Corporation v. issues that we have to reconcile with this version.
Moreno.27 In that case, respondents therein filed a complaint for intra-corporate dispute against the In the Condominium Code, for example, they just raised a very peculiar situation under the Condominium
petitioner therein to question how it calculated the dues assessed against them, and to ask an accounting Code --- Condominium Corporation Act. Its five years the proxy, whereas here, its three years. So there
of association dues. Petitioner, however, moved for the dismissal of the case on the ground of lack of would already be violation or there will be already a problem with their version and our version. Sino ang
jurisdiction alleging that since the complaint was against the owner/developer of a condominium whose matutupad doon? Will it be our version or their version?
condominium project was registered with and licensed by the HLURB, the latter has the exclusive So I agree that has to be studied further. And because they have a law pertaining to the condominium
jurisdiction. In sustaining the denial of the motion to dismiss, the Court held that the dispute as to the housing units, I personally feel that it would complicate matters if we include them. Although I agree that
validity of the assessments is purely an intra-corporate matter between petitioner and respondent and is they should be looked after and their problems be looked into.
thus within the exclusive jurisdiction of the RTC sitting as a special commercial court. More so in this case Probably we can ask our staff, Your Honor, to come up already with the bill although we have no more
as respondent repeatedly questioned his characterization as a delinquent member and, consequently, time. Hopefully we can tackle this again on the 15th Congress. But I agree with the sentiments and the
petitioners decision to bar him from exercising his rights to vote and be voted for. These issues are clearly inputs of the Honorable Chair of the House panel.
corporate and the demand for damages is just incidental. Being corporate in nature, the issues should be May we ask our resource persons to also probably give comments?
threshed out before the RTC sitting as a special commercial court. The issues on damages can still be Atty. Dayrit.
MR. DAYRIT.
Yes I agree with you. There are many, I think, practices in their provisions in the Condominium Law that WHEREFORE, we hereby GRANT the petition and REVERSE the Court of Appeals Decision dated July
may be conflicting with this version of ours. 10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV No. 86614. The Complaint before the
For instance, in the case of, lets say, the condominium, the so-called common areas and/or maybe so Regional Trial Court of Makati City, Branch 58, which is not a special commercial court, docketed as Civil
called open spaces that they may have, especially common areas, they are usually owned by the Case No. 03-1018 is ordered DISMISSED for lack of jurisdiction. Let the case be REMANDED to the
condominium corporation. Unlike a subdivision where the open spaces and/or the common areas are not Executive Judge of the Regional Trial Court of Makati City for re-raffle purposes among the designated
necessarily owned by the association. Because sometimes --- generally these are donated to the special commercial courts.
municipality or to the city. And it is only when the city or municipality gives the approval or the conformity SO ORDERED.
that this is donated to the homeowners association. But generally, under PD [Presidential Decree] 957,
its donated. In the Condominium Corporation, hindi. Lahat ng mga open spaces and common areas like G.R. No. 202664, November 20, 2015
corridors, the function rooms and everything, are owned by the corporation. So thats one main issue that MANUEL LUIS C. GONZALES AND FRANCIS MARTIN D. GONZALES, Petitioners, v. GJH LAND, INC.
can be conflicting. (FORMERLY KNOWN AS S.J. LAND, INC.), CHANG HWAN JANG A.K.A. STEVE JANG, SANG RAK
THE CHAIRMAN (SEN. ZUBIRI). Ill just ask for a one-minute suspension so we can talk. KIM, MARIECHU N. YAP, AND ATTY. ROBERTO P. MALLARI II, Respondent.
THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a catchall phrase like what we did in DECISION
the Senior Citizens Act. Something like, to the extent --- paano ba iyon? To the extent that it is practicable PERLAS-BERNABE, J.:
and applicable, the rights and benefits of the homeowners, are hereby extended to the --- mayroon kaming This is a direct recourse to the Court, via a petition for review on certiorari,1 from the Orders dated April
ginamit na phrase eh...to the extent that it be practicable and applicable to the unit homeoweners, is hereby 17, 20122 and July 9, 20123 of the Regional Trial Court (RTC) of Muntinlupa City, Branch 276 (Branch 276)
extended, something like that. Its a catchall phrase. But then again, it might create a... dismissing Civil Case No. 11-077 for lack of jurisdiction.
MR. JALANDONI. It will become complicated. There will be a lot of conflict of laws between the two laws. The Facts
THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I dont know. I think the --- mayroon
naman silang protection sa ano eh, di ba? Buyers decree doon sa Condominium Act. Im sure there are On August 4, 2011, petitioners Manuel Luis C. Gonzales4 and Francis Martin D. Gonzales (petitioners)
provisions there eh. Huwag na lang, huwag na lang. filed a Complaint5 for "Injunction with prayer for Issuance of Status Quo Order, Three (3) and Twenty
MR. JALANDONI. Mr. Chairman, I think it would be best if your previous comments that youd be (20)-Day Temporary Restraining Orders, and Writ of Preliminary Injunction with Damages" against
supporting an amendment.1wphi1 I think that would be --- Well, that would be the best course of action respondents GJH Land, Inc. (formerly known as S.J. Land, Inc.), Chang Hwan Jang, Sang Rak Kim,
with all due respect. Mariechu N. Yap, and Atty. Roberto P. Mallari II6 (respondents) before the RTC of Muntinlupa City
THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So iyon na lang final proposal seeking to enjoin the sale of S.J. Land, Inc.'s shares which they purportedly bought from S.J. Global, Inc.
naming yung catchall phrase, "With respect to the..."32 on February 1, 2010. Essentially, petitioners alleged that the subscriptions for the said shares were
xxxx already paid by them in full in the books of S.J. Land, Inc.,7 but were nonetheless offered for sale on July
THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final decision on the definition of homeowners? 29, 2011 to the corporation's stockholders,8 hence, their plea for injunction.
THE ACTING CHAIRMAN (REP. ZIALCITA).
We stick to the original, Mr. Chairman. Well just open up a whole can of worms and a whole new ball The case was docketed as Civil Case No. 11-077 and raffled to Branch 276, which is not a Special
game will come into play. Besides, I am not authorized, neither are you, by our counterparts to include the Commercial Court. On August 9, 2011, said branch issued a temporary restraining order, 9 and later, in
condominium owners. an Order10 dated August 24, 2011, granted the application for a writ of preliminary injunction.
THE CHAIRMAN (SEN. ZUBIRI).
Basically that is correct. We are not authorized by the Senate nor because we have discussed this After filing their respective answers11 to the complaint, respondents filed a motion to dismiss12 on the
lengthily on the floor, actually, several months on the floor. And we dont have the authority as well for ground of lack of jurisdiction over the subject matter, pointing out that the case involves an intra-
other Bicam members to add a provision to include a separate entity that has already their legal or their corporate dispute and should, thus, be heard by the designated Special Commercial Court of Muntinlupa
established Republic Act tackling on that particular issue. But we just like to put on record, we sympathize City.13
with the plight of our friends in the condominium associations and we will just guarantee them that we will The RTC Ruling
work on an amendment to the Condominium Corporation Code. So with that we skipped, that is correct,
we have to go back to homeowners association definition, Your Honor, because we had skipped it In an Order14 dated April 17, 2012, Branch 276 granted the motion to dismiss filed by respondents. It
altogether. So just quickly going back to Page 7 because there are amendments to the definition of found that the case involves an intra-corporate dispute that is within the original and exclusive jurisdiction
homeowners. If it is alright with the House Panel, adopt the opening phrase of Subsection 7 of the Senate of the RTCs designated as Special Commercial Courts. It pointed out that the RTC of Muntinlupa City,
version as opening phrase of Subsection 10 of the reconciled version. Branch 256 (Branch 256) was specifically designated by the Court as the Special Commercial Court,
x x x x33 hence, Branch 276 had no jurisdiction over the case and cannot lawfully exercise jurisdiction on the
To be sure, RA 4726 or the Condominium Act was enacted to specifically govern a condominium. Said matter, including the issuance of a Writ of Preliminary Injunction.15 Accordingly, it dismissed the case.
law sanctions the creation of the condominium corporation which is especially formed for the purpose of
holding title to the common area, in which the holders of separate interests shall automatically be members Dissatisfied, petitioners filed a motion for reconsideration, 16 arguing that they filed the case with the
or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective Office of the Clerk of Court of the RTC of Muntinlupa City which assigned the same to Branch 276 by
units.34 The rights and obligations of the condominium unit owners and the condominium corporation are raffle.17 As the raffle was beyond their control, they should not be made to suffer the consequences of
set forth in the above Act. the wrong assignment of the case, especially after paying the filing fees in the amount of P235,825.00
Clearly, condominium corporations are not covered by the amendment. Thus, the intra-corporate dispute that would be for naught if the dismissal is upheld.18 They further maintained that the RTC has
between petitioner and respondent is still within the jurisdiction of the RTC sitting as a special commercial jurisdiction over intra-corporate disputes under Republic Act No. (RA) 8799,19 but since the Court
court and not the HLURB. The doctrine laid down by the Court in Chateau de Baie Condominium selected specific branches to hear and decide such suits, the case must, at most, be transferred or
Corporation v. Moreno35 which in turn cited Wack Wack Condominium Corporation, et al v. CA36 is still a raffled off to the proper branch.20
good law.
In an Order21 dated July 9, 2012, Branch 276 denied the motion for reconsideration, holding that it has
no authority or power to order the transfer of the case to the proper Special Commercial Court, citing
Calleja v. Panday22 (Calleja); hence, the present petition. xxxx
The Issue Before the Court
(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body exercising
The essential issue for the Court's resolution is whether or not Branch 276 of the RTC of Muntinlupa City jurisdiction or any court, tribunal, person or body exercising judicial or quasi-judicial functions; x x x x
erred in dismissing the case for lack of jurisdiction over the subject matter. cralawlawlibrary
The Court's Ruling
As enunciated in Durisol Philippines, Inc. v. CA:31chanroblesvirtuallawlibrary
The regional trial court, formerly the court of first instance, is a court of general jurisdiction. All cases, the
The petition is meritorious. jurisdiction over which is not specifically provided for by law to be within the jurisdiction of any other
court, fall under the jurisdiction of the regional trial court. 32ChanRoblesVirtualawlibrary
At the outset, the Court finds Branch 276 to have correctly categorized Civil Case No. 11-077 as a cralawlawlibrary
commercial case, more particularly, an intra-corporate dispute,23 considering that it relates to petitioners'
averred rights over the shares of stock offered for sale to other stockholders, having paid the same in To clarify, the word "or" in Item 5.2, Section 5 of RA 8799 was intentionally used by the legislature to
full. Applying the relationship test and the nature of the controversy test, the suit between the parties is particularize the fact that the phrase "the Courts of general jurisdiction" is equivalent to the phrase "the
clearly rooted in the existence of an intra-corporate relationship and pertains to the enforcement of their appropriate Regional Trial Court." In other words, the jurisdiction of the SEC over the cases enumerated
correlative rights and obligations under the Corporation Code and the internal and intra-corporate under Section 5 of PD 902-A was transferred to the courts of general jurisdiction, that is to say (or,
regulatory rules of the corporation,24 hence, intra-corporate, which should be heard by the designated otherwise known as), the proper Regional Trial Courts. This interpretation is supported by San Miguel
Special Commercial Court as provided under A.M. No. 03-03-03-SC25 dated June 17, 2003 in relation to Corp. v. Municipal Council,33 wherein the Court held that:chanRoblesvirtualLawlibrary
Item 5.2, Section 5 of RA 8799. [T]he word "or" may be used as the equivalent of "that is to say" and gives that which precedes it the
same significance as that which follows it. It is not always disjunctive and is sometimes interpretative or
The present controversy lies, however, in the procedure to be followed when a commercial case - such expository of the preceding word.34cralawlawlibrary
as the instant intra-corporate dispute -has been properly filed in the official station of the
designated Special Commercial Court but is, however, later wrongly assigned by raffle to a Further, as may be gleaned from the following excerpt of the Congressional
regular branch of that station. deliberations:chanRoblesvirtualLawlibrary
Senator [Raul S.] Roco: x x x.
As a basic premise, let it be emphasized that a court's acquisition of jurisdiction over a particular case's
subject matter is different from incidents pertaining to the exercise of its jurisdiction. Jurisdiction over the xxxx
subject matter of a case is conferred by law, whereas a court's exercise of jurisdiction, unless
provided by the law itself, is governed by the Rules of Court or by the orders issued from time to time by x x x. The first major departure is as regards the Securities and Exchange Commission. The Securities
the Court.26 In Lozada v. Bracewell,27 it was recently held that the matter of whether the RTC resolves and Exchange Commission has been authorized under this proposal to reorganize itself. As an
an issue in the exercise of its general jurisdiction or of its limited jurisdiction as a special court is administrative agency, we strengthened it and at the same time we take away the quasi-judicial
only a matter of procedure and has nothing to do with the question of jurisdiction. functions. The quasi-judicial functions are now given back to the courts of general jurisdiction -
the Regional Trial Court, except for two categories of cases.
Pertinent to this case is RA 8799 which took effect on August 8, 2000. By virtue of said law, jurisdiction
over cases enumerated in Section 528 of Presidential Decree No. 902-A29 was transferred from the In the case of corporate disputes, only those that are now submitted for final determination of the SEC
Securities and Exchange Commission (SEC) to the RTCs, being courts of general jurisdiction. Item will remain with the SEC. So, all those cases, both memos of the plaintiff and the defendant, that have
5.2, Section 5 of RA 8799 provides:chanRoblesvirtualLawlibrary been submitted for resolution will continue. At the same time, cases involving rehabilitation, bankruptcy,
SEC. 5. Powers and Functionsof the Commission. - x x x suspension of payments and receiverships that were filed before June 30, 2000 will continue with the
SEC. in other words, we are avoiding the possibility, upon approval of this bill, of people filing cases with
xxxx the SEC, in manner of speaking, to select their court.35

5.2 The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential x x x x (Emphasis supplied)cralawlawlibrary
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 Therefore, one must be disabused of the notion that the transfer of jurisdiction was made only in favor of
designate the Regional Trial Court branches that shall exercise jurisdiction over the cases. The particular RTC branches, and not the RTCs in general.
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 Consistent with the foregoing, history depicts that when the transfer of SEC cases to the RTCs was first
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of implemented, they were transmitted to the Executive Judges of the RTCs for raffle between or among its
30 June 2000 until finally disposed. (Emphasis supplied)cralawlawlibrary different branches, unless a specific branch has been designated as a Special Commercial Court,
in which instance, the cases were transmitted to said branch.36 It was only on November 21, 2000
The legal attribution of Regional Trial Courts as courts of general jurisdiction stems from Section 19 that the Court designated certain RTC branches to try and decide said SEC cases 37 without, however,
(6), Chapter II of Batas Pambansa Bilang (BP) 129,30 known as "The Judiciary Reorganization Act of providing for the transfer of the cases already distributed to or filed with the regular branches thereof.
1980":chanRoblesvirtualLawlibrary Thus, on January 23, 2001, the Court issued SC Administrative Circular No. 08-200138 directing the
Section 19. Jurisdiction in civil cases.- Regional Trial Courts shall exercise exclusive original transfer of said cases to the designated courts (commercial SEC courts). Later, or on June 17, 2003, the
jurisdiction:chanRoblesvirtualLawlibrary Court issued A.M. No. 03-03-03-SC consolidating the commercial SEC courts and the intellectual
property courts39 in one RTC branch in a particular locality, i.e., the Special Commercial Court, to supposed unpaid subscriptions of MLCG and FMDG amounting to P10,899,854.30 and P2,625,249.41,
streamline the court structure and to promote expediency.40 Accordingly, the RTC branch so respectively.
designated was mandated to try and decide SEC cases, as well as those involving violations of 16.1 Copies of the letters dated 13 May 2011 are attached hereto and made integral parts hereof as
intellectual property rights, which were, thereupon, required to be filed in the Office of the Clerk of Court Annexes "J" and "K", repectively.
in the official station of the designated Special Commercial Courts, to 17. On 29 July 2011, MLCG and FMDG received an Offer Letter addressed to stockholders of GJH
wit:chanRoblesvirtualLawlibrary Land, Inc. from Yap informing all stockholders that GJH Land, Inc. is now offering for sale the unpaid
1. The Regional Courts previously designated as SEC Courts through the: (a) Resolutions of this Court shares of stock of MLCG and FMDG. The same letter states that the offers to purchase these shares will
dated 21 November 2000, 4 July 2001, 12 November 2002, and 9 July 2002 all issued in A.M. No. 00- be opened on 10 August 2011 with payments to be arranged by deposit to the depository bank of GJH
11-03-SC; (b) Resolution dated 27 August 2001 in A.M. No. 01-5-298-RTC; and (c) Resolution dated 8 Land, Inc.
July 2002 in A.M. No. 01-12-656-RTC are hereby DESIGNATED and shall be CALLED as Special 17.1 A copy of the undated Offer Letter is attached hereto and made and made an integral part hereof as
Commercial Courts to try and decide cases involving violations of Intellectual Property Rights which fall Annex "L".
within their jurisdiction and those cases formerly cognizable by the Securities and Exchange 18. The letter of GJH Land, Inc. through Yap, is totally without legal and factual basis because as
Commission:chanRoblesvirtualLawlibrary evidenced by the Deeds of Assignment signed and certified by Yap herself, all the S.J. Land, Inc. shares
acquired by MLCG and FMDG have been fully paid in the books of S.J. Land, Inc.
xxxx
19. With the impending sale of the alleged unpaid subscriptions on 10 August 2011, there is now a
4. The Special Commercial Courts shall have jurisdiction over cases arising within their respective clear danger that MLCG and FMDG would be deprived of these shares without legal and factual
territorial jurisdiction with respect to the National Capital Judicial Region and within the respective basis.
provinces with respect to the First to Twelfth Judicial Regions. Thus, cases shall be filed in the Office of
the Clerk of Court in the official station of the designated Special Commercial Court;41 20. Furthermore, if they are deprived of these shares through the scheduled sale, both MLCG and
FMDG would suffer grave and irreparable damage incapable of pecuniary estimation.
x x x x (Underscoring supplied)cralawlawlibrary
21. For this reason, plaintiffs now come to the Honorable Court for injunctive relief so that after trial on
It is important to mention that the Court's designation of Special Commercial Courts was made in line the merits, a permanent injunction should be issued against the defendants preventing them from selling
with its constitutional authority to supervise the administration of all courts as provided under Section 6, the shares of the plaintiffs, there being no basis for such sale. 46cralawlawlibrary
Article VIII of the 1987 Constitution:chanRoblesvirtualLawlibrary
Section 6. The Supreme Court shall have administrative supervision over all courts and the personnel According to jurisprudence, "it is not the caption but the allegations in the complaint or other initiatory
thereof.cralawlawlibrary pleading which give meaning to the pleading and on the basis of which such pleading may be legally
characterized."47 However, so as to avert any future confusion, the Court requires henceforth, that all
The objective behind the designation of such specialized courts is to promote expediency and initiatory pleadings state the action's nature both in its caption and the body, which parameters are
efficiency in the exercise of the RTCs' jurisdiction over the cases enumerated under Section 5 of PD defined in the dispositive portion of this Decision.
902-A. Such designation has nothing to do with the statutory conferment of jurisdiction to all RTCs under
RA 8799 since in the first place, the Court cannot enlarge, diminish, or dictate when jurisdiction shall be Going back to the case at bar, the Court nonetheless deems that the erroneous raffling to a regular
removed, given that the power to define, prescribe, and apportion jurisdiction is, as a general rule, branch instead of to a Special Commercial Court is only a matter of procedure - that is, an incident
a matter of legislative prerogative.42 Section 2, Article VIII of the 1987 Constitution related to the exercise of jurisdiction - and, thus, should not negate the jurisdiction which the RTC of
provides:chanRoblesvirtualLawlibrary Muntinlupa City had already acquired. In such a scenario, the proper course of action was not for the
Section 2. The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the commercial case to be dismissed; instead, Branch 276 should have first referred the case to the
various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in Executive Judge for re-docketing as a commercial case; thereafter, the Executive Judge should
Section 5 hereof. then assign said case to the only designated Special Commercial Court in the station, i.e., Branch
256.
xxxx
cralawlawlibrary Note that the procedure would be different where the RTC acquiring jurisdiction over the case has
multiple special commercial court branches; in such a scenario, the Executive Judge, after re-
Here, petitioners filed a commercial case, i.e., an intra-corporate dispute, with the Office of the Clerk of docketing the same as a commercial case, should proceed to order its re-raffling among the said
Court in the RTC of Muntinlupa City, which is the official station of the designated Special Commercial special branches.
Court, in accordance with A.M. No. 03-03-03-SC. It is, therefore, from the time of such filing that the
RTC of Muntinlupa City acquired jurisdiction over the subject matter or the nature of the action.43 Meanwhile, if the RTC acquiring jurisdiction has no branch designated as a Special Commercial
Unfortunately, the commercial case was wrongly raffled to a regular branch, e.g., Branch 276, Court, then it should refer the case to the nearest RTC with a designated Special Commercial Court
instead of being assigned44to the sole Special Commercial Court in the RTC of Muntinlupa City, branch within the judicial region.48 Upon referral, the RTC to which the case was referred to should re-
which is Branch 256. This error may have been caused by a reliance on the complaint's caption, i.e., docket the case as a commercial case, and then: (a) if the said RTC has only one branch designated as
"Civil Case for Injunction with prayer for Status Quo Order, TRO and Damages," 45 which, however, a Special Commercial Court, assign the case to the sole special branch; or (b) if the said RTC has
contradicts and more importantly, cannot prevail over its actual allegations that clearly make out an intra- multiple branches designated as Special Commercial Courts, raffle off the case among those special
corporate dispute:chanRoblesvirtualLawlibrary branches.
16. To the surprise of MLCG and FMDG, however, in two identical letters both dated 13 May 2011, under
the letterhead of GJH Land, Inc., Yap, now acting as its President, Jang and Kim demanded payment of In all the above-mentioned scenarios, any difference regarding the applicable docket fees should be duly
accounted for. On the other hand, all docket fees already paid shall be duly credited, and any excess,
refunded. civil case in this instance to all courts is permissible due to the fact that a particular branch which has
been designated as a Special Commercial Court does not shed the RTC's general jurisdiction over
At this juncture, the Court finds it fitting to clarify that the RTC mistakenly relied on the Calleja case to ordinary civil cases under the imprimatur of statutory law, i.e., Batas Pambansa Bilang (BP) 129.52 To
support its ruling. In Calleja, an intra-corporate dispute49 among officers of a private corporation with restate, the designation of Special Commercial Courts was merely intended as a procedural tool to
principal address at Goa, Camarines Sur, was filed with the RTC of San Jose, Camarines Sur, Branch expedite the resolution of commercial cases in line with the court's exercise of jurisdiction. This
58 instead of the RTC of Naga City, which is the official station of the designated Special Commercial designation was not made by statute but only by an internal Supreme Court rule under its authority to
Court for Camarines Sur. Consequently, the Court set aside the RTC of San Jose, Camarines Sur's promulgate rules governing matters of procedure and its constitutional mandate to supervise the
order to transfer the case to the RTC of Naga City and dismissed the complaint considering that it was administration of all courts and the personnel thereof.53 Certainly, an internal rule promulgated by the
filed before a court which, having no internal branch designated as a Special Commercial Court, had no Court cannot go beyond the commanding statute. But as a more fundamental reason, the designation of
jurisdiction over those kinds of actions, i.e., intra-corporate disputes. Calleja involved two different Special Commercial Courts is, to stress, merely an incident related to the court's exercise of jurisdiction,
RTCs, i.e., the RTC of San Jose, Camarines Sur and the RTC of Naga City, whereas the instant case which, as first discussed, is distinct from the concept of jurisdiction over the subject matter. The RTC's
only involves one RTC, i.e., the RTC of Muntinlupa City, albeit involving two different branches of the general jurisdiction over ordinary civil cases is therefore not abdicated by an internal rule streamlining
same court, i.e., Branches 256 and 276. Hence, owing to the variance in the facts attending, it was then court procedure.
improper for the RTC to rely on the Calleja ruling.
In fine, Branch 276's dismissal of Civil Case No. 11-077 is set aside and the transfer of said case to
Besides, the Court observes that the fine line that distinguishes subject matter jurisdiction and exercise Branch 256, the designated Special Commercial Court of the same RTC of Muntinlupa City, under the
of jurisdiction had been clearly blurred in Calleja. Harkening back to the statute that had conferred parameters above-explained, is hereby ordered.
subject matter jurisdiction, two things are apparently clear: (a) that the SEC's subject matter
jurisdiction over intra-corporate cases under Section 5 of Presidential Decree No. 902-A was WHEREFORE, the petition is GRANTED. The Orders dated April 17, 2012 and July 9, 2012 of the
transferred to the Courts of general jurisdiction, i.e., the appropriate Regional Trial Courts; and (b) the Regional Trial Court (RTC) of Muntinlupa City, Branch 276 in Civil Case No. 11-077 are hereby
designated branches of the Regional Trial Court, as per the rules promulgated by the Supreme Court, REVERSED and SET ASIDE. Civil Case No. 11-077 is REFERRED to the Executive Judge of the RTC
shall exercise jurisdiction over such cases. Item 5.2, Section 5 of RA 8799 of Muntinlupa City for re-docketing as a commercial case. Thereafter, the Executive Judge shall ASSIGN
provides:chanRoblesvirtualLawlibrary said case to Branch 256, the sole designated Special Commercial Court in the RTC of Muntinlupa City,
SEC. 5. Powers and Functions of the Commission. - x x x which is ORDERED to resolve the case with reasonable dispatch. In this regard, the Clerk of Court of
said RTC shall DETERMINE the appropriate amount of docket fees and, in so doing, ORDER the
xxxx payment of any difference or, on the other hand, refund any excess.

5.2 The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Furthermore, the Court hereby RESOLVES that henceforth, the following guidelines shall be observed:
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate 1. If a commercial case filed before the proper RTC is wrongly raffled to its regular branch, the proper
Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may courses of action are as follows:
designate the Regional Trial Court branches that shall exercise jurisdiction over the cases, x x 1.1 If the RTC has only one branch designated as a Special Commercial Court, then the case shall be
x.cralawlawlibrary referred to the Executive Judge for re-docketing as a commercial case, and thereafter, assigned to the
sole special branch;
In contrast, the appropriate jurisprudential reference to this case would be Tan v. Bausch & Lomb, Inc.,50
which involves a criminal complaint for violation of intellectual property rights filed before the RTC of 1.2 If the RTC has multiple branches designated as Special Commercial Courts, then the case shall be
Cebu City but was raffled to a regular branch thereof (Branch 21), and not to a Special Commercial referred to the Executive Judge for re-docketing as a commercial case, and thereafter, raffled off among
Court. As it turned out, the regular branch subsequently denied the private complainant's motion to those special branches; and
transfer the case to the designated special court of the same RTC, on the ground of lack of jurisdiction.
The CA reversed the regular branch and, consequently, ordered the transfer of the case to the 1.3 If the RTC has no internal branch designated as a Special Commercial Court, then the case shall be
designated special court at that time (Branch 9). The Court, affirming the CA, declared that the RTC had referred to the nearest RTC with a designated Special Commercial Court branch within the judicial
acquired jurisdiction over the subject matter. In view, however, of the designation of another court as the region. Upon referral, the RTC to which the case was referred to should re- docket the case as a
Special Commercial Court in the interim (Branch 11 of the same Cebu City RTC), the Court accordingly commercial case, and then: (a) if the said RTC has only one branch designated as a Special Commercial
ordered the transfer of the case and the transmittal of the records to said Special Commercial Court Court, assign the case to the sole special branch; or (b) if the said RTC has multiple branches
instead.51Similarly, the transfer of the present intra-corporate dispute from Branch 276 to Branch designated as Special Commercial Courts, raffle off the case among those special branches.
256 of the same RTC of Muntinlupa City, subject to the parameters above-discussed is proper 2. If an ordinary civil case filed before the proper RTC is wrongly raffled to its branch designated as a
and will further the purposes stated in A.M. No. 03-03-03-SC of attaining a speedy and efficient Special Commercial Court, then the case shall be referred to the Executive Judge for re-docketing as an
administration of justice. ordinary civil case. Thereafter, it shall be raffled off to all courts of the same RTC (including its
designated special branches which, by statute, are equally capable of exercising general jurisdiction
For further guidance, the Court finds it apt to point out that the same principles apply to the inverse same as regular branches), as provided for under existing rules.
situation of ordinary civil cases filed before the proper RTCs but wrongly raffled to its branches
designated as Special Commercial Courts. In such a scenario, the ordinary civil case should then 3. All transfer/raffle of cases is subject to the payment of the appropriate docket fees in case of any
be referred to the Executive Judge for re-docketing as an ordinary civil case; thereafter, the difference. On the other hand, all docket fees already paid shall be duly credited, and any excess,
Executive Judge should then order the raffling of the case to all branches of the same RTC, refunded.
subject to limitations under existing internal rules, and the payment of the correct docket fees in
case of any difference. Unlike the limited assignment/raffling of a commercial case only to branches 4. Finally, to avert any future confusion, the Court requires that all initiatory pleadings state the action's
designated as Special Commercial Courts in the scenarios stated above, the re-raffling of an ordinary nature both in its caption and body. Otherwise, the initiatory pleading may, upon motion or by order of
the court motu proprio, be dismissed without prejudice to its re-filing after due rectification. This last On September 7, 2004, Bullion, represented by its President, entered into a Memorandum of Agreement 6
procedural rule is prospective in application. (MOA) with Majestic, which was represented by one Dionisio N. Yao. Pertinent portions of the MOA read,
thus:
5. All existing rules inconsistent with the foregoing are deemed superseded.cralawlawlibrary 1. SUBJECT MATTER

SO ORDERED. MAJESTIC agrees to acquire 80% equity interest in BULLION, subject to the following terms
and conditions, and the completion of the construction of the subject MALL by both parties.
Sereno, C.J. Carpio, Velasco, Jr., Peralta, Bersamin, Del Castillo, Villarama, Jr., Reyes, and Jardeleza, 2. CONSIDERATION 2.1. MAJESTIC and BULLION agree that the present shareholdings and
JJ., concur. assets of BULLION shall be valued at ONE HUNDRED TWENTY MILLION PESOS
Leonardo-De Castro, J., I concur in the result. I subscribe to the ruling in the Calleja case that the (Php120,000,000.00).
misfiling of a commercial case with a court not duly designated Special Commercial Court is an error of 2.2. It is expressly agreed that the 80% equity interest to be acquired by MAJESTIC shall
jurisdiction. However the Supreme Court has constitutional and legal basis [RA 8799] to promulgated correspond to NINETY-SIX MILLION PESOS (PhP96,000,000.00), payable by MAJESTIC
the guidelines here for future cases. under the following Terms of Payment provided in the succeeding section.
Brion, and Mendoza, JJ., on leave. 2.3 MAJESTIC agrees to infuse additional capital to cover the expenditure for the completion of
Perez, J., I submitted a dissenting opinion. the construction of the MALL.
Leonen, J., see concurring opinion. 3. TERMS OF PAYMENT

G.R. No. 201017, December 05, 2016 The 80% equity interest, corresponding to NINETY-SIX MILLION PESOS (Php96,000,000.00),
MAJESTIC PLUS HOLDING INTERNATIONAL, INC., Petitioner, v. BULLION INVESTMENT AND shall be payable by MAJESTIC to the existing stockholders of BULLION as
DEVELOPMENT CORPORATION, Respondent. follows:cralawlawlibrary

G.R. No. 215289, December 5, 2016 3.1 Upon execution of this MOA, MAJESTIC shall pay THIRTY-FIVE MILLION PESOS
(Php35,000,000.00).
MAJESTIC PLUS HOLDING INTERNATIONAL, INC., Petitioner, v. BULLION INVESTMENT AND 3.2 The balance of SIXTY-ONE MILLION PESOS(Php61 ,000,000.00) shall be payable as
DEVELOPMENT CORPORATION, GENESSON U. TECSON, ROLAND M. LAUTCHANG, WILSON follows:
CHUNBON CHENG KOA, LUIS K. LOKIN, JR., JEFFERSON U. TECSON AND ROSALINE C. CHING, 3.2.1. TEN MILLION PESOS (Php10,000,000.00) within 75 days from the execution
Respondents. of this MOA;
DECISION 3.2.2. SIX MILLION PESOS (Php6,000,000.00) payable 30 days thereafter;
PERALTA, J.:* 3.2.3. SIX MILLION PESOS (Php6,000,000.00) payable 30 days after 3.2.2;
Before the Court are two (2) consolidated petitions for review on certiorari under Rule 45 of the Rules of 3.2.4. SIX MILLION PESOS (Php6,000,000.00) payable 30 days after 3.2.3;
Court. 3.2.5. SIX MILLION PESOS (Php6,000,000.00) payable 30 days after 3.2.4;
In G.R. No. 201017, petitioner Majestic Plus Holdings International, Inc. (Majestic) seeks to nullify the 3.2.6. ELEVEN MILLION PESOS (Php11,000,000.00) payable 30 days after
Decision1 dated November 2, 2011 and the Resolution2 dated March 14, 2012, respectively, of the Court 3.2.7. EIGHT MILLION PESOS (Php8,000,000.00) payable 30 days after 3.2.6;
of Appeals (CA) in CA-G.R. SP No. 121072. 3.2.8. EIGHT MILLION PESOS (Php8,000,000.00) payable within two (2) years from
In G.R. No. 215289, Majestic prays for the reversal and setting aside of the Decision 3 dated October 23, the execution of this MOA.
2013 and the Resolution4 dated November 4, 2014, respectively, of the CA in CA-G.R. CV No. 97537. 3.3 The above payments shall all be covered by post-dated checks to be issued by MAJESTIC
The factual and procedural antecedents follow. in favor of BULLION and/or Bingson U. Tecson, duly-authorized representative of existing
In a Resolution passed on August 14, 2001, the City Council of Manila authorized its Mayor to enter into a stockholders.
contract with any reputable corporation for the long term lease and development of a 4,808.40-square- 4. TRANSFER OF SHARES
meter non-income generating property of the City located within the vicinity of Felipe II, Reina Regente
and General La Chambre Streets in Binondo, Manila. Pursuant to such authority, the Office of the City 4.1. The shares representing the 30% equity of BULLION shall be ceded and transferred to
Mayor issued an Invitation to Pre-qualify and Bid for the said development project. Subsequently, herein MAJESTIC only upon full payment of the amount of THIRTY-FIVE MILLION PESOS
respondent company, Bullion Investment and Development Corporation (Bullion) participated and won in (Php35,000,000.00), pursuant to Sec. 3.1.
the bidding. 4.2. Additional shares representing the 10% equity of BULLION shall be assigned and
Thus, on June 30, 2003, the City of Manila, through then City Mayor Joselito Atienza, and Bullion, transferred to MAJESTIC upon payment of the additional amount of TEN MILLION PESOS
represented by its President Roland Lautachang, entered into a Contract5 for the lease of the said property (Php10,000,000.00) based on Sec. 3.2.1
for a period of twenty-five (25) years. Under the Contract, Bullion, as lessee, agreed to construct two 4- 4.3. Upon payment of the additional amount of TWENTY-FOUR MILLION PESOS
storey buildings, one of which shall be used as an extension office of the Manila City Hall for its institutional (Php24,000,000.00) based on Secs. 3.2.2, 3.2.3, 3.2.4 and 3.2.5, additional shareholdings
services, while the other shall be used for commercial purposes. representing 20% equity of BULLION shall be assigned and transferred to MAJESTIC.
Bullion then commenced construction and was able to finish and turn over the City Hall extension building 4.4. The parties undertake to execute the necessary documents for the transfer of additional
to the Manila City Government. However, Bullion was unable to finish the construction of the commercial shares corresponding to another 20% upon receipt of the full payment of the EIGHTY-EIGHT
building. Bullion then sought the help of and was able to convince petitioner corporation, Majestic Plus MILLION PESOS (Php88,000,000.00).
Holding International, Incorporation (Majestic), to invest in Bullion's business venture, particularly the 4.5. BULLION shall provide and/or furnish MAJESTIC copies of all corporate records, such as
completion of the construction of its commercial building which was intended to be used as a mall (Meisic but not limited to [the] Article of Incorporation, By-laws, Financial Statements, General
Mall). Information Sheets, Board Resolutions, etc.
5. CAPITAL INFUSION With the completion of major construction works and the installation of the aforementioned equipment, the
Meisic Mall became operational as early as May 2005. Majestic conducted business therein by renting out
5.1. The MAJESTIC shall infuse additional capital to cover the construction cost for the full the mall's leasable spaces to stallholders and by employing personnel for the security, maintenance and
completion of the MALL. The additional funding for the construction cost and completion of the upkeep of the mall's premises.13
MALL shall be converted to increased equity for MAJESTIC. However, in the morning of June 25, 2005, respondent, aided by several police personnel and security
5.2. BULLION and MAJESTIC agree to amend the Authorized Capital Stock of BULLION from guards, entered the premises and took physical possession and control of Meisic Mall.
the existing THIRTY MILLION PESOS (Php30,000,000.00) to at least TWO HUNDRED This prompted Majestic to file a Complaint14 for Specific Performance, Injunction and Damages with a
MILLION PESOS (Php200,000,000.00) to ref1ect the actual capital investments of the parties Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction against Bullion, together with
and for the construction and completion of the MALL. several other persons. Majestic alleged that it has become a majority shareholder of Bullion by reason of
5.3. In the event of any capital call and infusion, existing BULLION stockholders shall have the its P191,522,803.22 investment, which comprises 95.76% of the agreed P200,000,000.00 authorized
option to maintain their 20% percent equity. In case any stockholder waives his option to capital stock of Bullion. Majestic also claims that the subject MOA remains valid and binding and that
subscribe to any additional capital call or infusion, the other stockholders shall be given the Bullion failed to comply with its undertakings thereunder.
option to subscribe to the remaining unpaid subscription rights offering. In its Answer,15 Bullion denied the material allegations of Majestic's complaint alleging the defense that it
6. ACCELERATION CLAUSE was the latter which, in fact, violated the provisions of the MOA causing Bullion to rescind the said
agreement.
6.1. MAJESTIC shall have the option to accelerate the Terms of Payment under Sec. 3 in order Initially, the instant case was treated as an intra-corporate dispute and raffled to Branch 24 of the Regional
to expedite the implementation of Sec. 4. Trial Court (RTC) of Manila, a commercial court, wherein several Orders were issued against Bullion, and
6.2. In the event that MAJESTIC fails to pay, despite written demands, at least two (2) eventually, a Decision16 dated October 12, 2005 was rendered in favor of Majestic. Bullion assailed the
installment dues within the period provided in this MOA, the full balance of the amount unpaid RTC Orders via a special civil action for certiorari filed with the CA, docketed as CA-G.R. SP No. 91886,
shall become immediately due and demandable. while respondent's stockholders filed an appeal of the RTC Decision, docketed as CA-G.R. CV No. 86167.
7. DEFAULT These two (2) actions were subsequently consolidated by the CA and in its Decision, 17 promulgated on
February 19, 2008, via a special division of five, unanimously set aside the Decision of the commercial
7.1. Should MAJESTIC default in the payment of at least two (2) installment dues under this court and remanded the case to Branch 24, RTC of Manila to be tried as an ordinary specific performance
contract, BULLION, at its sole option may elect to rescind the contract in which event only half case. However, on Majestic's motion, the presiding judge of Branch 24 subsequently inhibited himself from
of the total amount paid by MAJESTIC shall be refunded to it without need of demand. the case18 prompting the executive judge to assign the same to Branch 46, RTC of Manila which is also a
MAJESTIC shall be considered in default upon its failure to pay the full amount of the commercial court.19 The parties did not question the jurisdiction of Branch 46.
outstanding obligation within fifteen (15) days from written demand of BULLION. In the ensuing proceedings before Branch 46, the parties jointly moved that the case be submitted for
7.2 In the event BULLION elects to rescind the contract under this provision, it shall serve a summary judgment, to which the RTC acceded.20
written notice of the rescission to MAJESTIC. On July 28, 2011, Branch 46, RTC of Manila rendered a Decision21 in favor of petitioner, the dispositive
7.3. In the event BULLION fails to comply with any of its undertaking under this contract, a portion of which reads:
written demand shall likewise be made giving it 15 days to comply. Upon failure to do so, WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Majestic Plus
MAJESTIC shall serve a written notice of rescission to BULLION. All sums paid by MAJESTIC Holding International, Inc. and against the herein defendants, ordering the latter to:
shall be refunded to it after written demand. 1. Strictly comply and implement in full the terms and conditions of the Memorandum of
7.4. In the event that any of the parties should be compelled to seek judicial relief against any of Agreement, more particularly the acquisition of 80% shareholdings of defendant
the parties, the aggrieved parties shall pay an amount equivalent to 10% of the total amount Bullion by plaintiff Majestic;ChanRoblesVirtualawlibrary
claimed as attorney's fees, plus cost of litigation and other expenses. 2. Issue the shares of stock of defendant Bullion in favor of plaintiff Majestic
8. MANAGEMENT Upon payment of Php35,000,000.00 by MAJESTIC, a joint management corresponding to 40% which has long been paid by plaintiff Majestic and record the
committee shall be created and convened by the Board of Directors that will oversee the same in its Stock and Transfer Book;ChanRoblesVirtualawlibrary
construction and operation of the MALL for a period of six (6) months. 3. Maintain/restore plaintiff Majestic in the physical possession and control of the entire
x x x7 Meisic Mall premises;ChanRoblesVirtualawlibrary
Following the execution of the MOA, Majestic issued five (5) checks, on various dates, for an aggregate 4. Transfer the remaining shares of stock in the name of plaintiff Majestic up to the extent
amount of Fifty-Seven Million Pesos (P57,000,000.00) in favor of Bullion, as partial payment of the 80% of 80% shareholdings upon payment of the balance of P39,000,000.00 and to record
equity interest in the latter. Bullion acknowledged such payment. However, it alleged that an additional the same in the Stock and Transfer Book;ChanRoblesVirtualawlibrary
four (4) checks, representing a total amount of P31,000,000.00, which were subsequently issued by 5. Furnish/provide plaintiff Majestic within reasonable time all of defendant Bullion's
Majestic were dishonored because of "Stop Payment" orders.8 As a result, Bullion sent letters to Majestic corporate records;ChanRoblesVirtualawlibrary
demanding payment in full of the latter's outstanding obligations, otherwise the former would be 6. Immediately cause the amendment of the authorized capital stock of defendant Bullion
constrained to rescind the MOA.9 For Majestic's failure to heed Bullion's demands, the latter sent another from P30,000,000.00 to P200,000,000.00 and reflect the increased equity of plaintiff
letter to the former, dated June 24, 2005, informing it that Bullion had elected to rescind the MOA. 10 Majestic brought about by the expenses it incurred to complete the Meisic Mall; and
Meanwhile, Majestic took over the supervision and eventually finished the construction of the Meisic Mall, 7. Pay the cost of this suit.
except with respect to some minor installations. Based on the Summary of Payments, 11 attached to its The counterclaims of the herein defendants are dismissed for lack of merit.
complaint, Majestic claims that, aside from the P57,000,000.00 it had earlier paid to Bullion, it also incurred SO ORDERED.22
expenses for the purpose of sustaining the construction of Meisic Mall and the acquisition of various Bullion and its directors appealed the above RTC Decision with the CA.23
equipment for use inside the mall in the sum of One Hundred Thirty-Four Million Five Hundred Twenty- On August 22, 2011, Majestic filed a Motion for Execution Pending Appeal 24 which was granted by the
Two Thousand Eight Hundred Three Pesos and TwentyTwo Centavos (P134,522,803.22).12 Thus, the RTC by virtue of a Special Order25 and two other related orders,26 all dated September 1, 2011.
aggregate amount alleged to have been invested by Majestic is P191,522,803.22. Consequently, a Writ of Execution Pending Appeal27 on even date was issued. Per Sheriffs Return dated
September 2, 2011, the Writ was served on Bullion and was thereby immediately implemented. 28 In
accordance with the Writ, the Sheriff was able to completely and successfully remove the physical full-blown trial and should have refrained from issuing a summary judgment. Hence, the assailed CA
possession and control of Meisic Mall from Bullion and deliver the same to Majestic. 29 Decision disposed as follows:
In view thereof, Bullion filed a Petition for Certiorari30 before the CA seeking the nullification of the: (1) WHEREFORE, the appealed July 28, 2011 Decision of the Regional Trial Court of Manila, Branch 46,
Special Order granting the Motion for Execution Pending Appeal; (2) Order granting police assistance to National Capital Judicial Region is hereby REVERSED AND SET ASIDE.
the implementing Sheriff; (3) Order granting the appointment of a Special Sheriff; and (4) Writ of Execution Accordingly, the portion of the Decision directing defendant-appellant Bullion Investment and Development
Pending Appeal. Bullion also prayed for the issuance of a Temporary Restraining Order and Mandatory Corporation to maintain/restore plaintiff Majestic in the physical possession and control of the entire Meisic
Injunction. Mall premises is declared to be of no force and effect. The right of defendant-appellant Bullion Investment
In its Decision31 dated November 2, 2011, the CA granted the aforesaid Petition and annulled and set and Development Corporation to physically possess, manage and control the Meisic Mall, now known as
aside the Special Order and the two (2) other assailed Orders, all dated September 1, 2011, the dispositive 11/88 Mall, is recognized. As to the other aspects of the case, let this case be REMANDED to the RTC of
portion of which states: Manila, to be re-raff1ed to a regular court and not to a special commercial court, for further proceedings
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The assailed Special Order and proper disposition, according to regular procedure.
and the two (2) other Orders, all dated 02 September 2011 rendered by the public respondent judge are SO ORDERED.36
ANNULLED and SET ASIDE. Any and all acts committed in pursuance of the said Orders are necessarily Aggrieved by the CA Decision, Majestic comes to this Court via the instant petition, docketed as G.R. No.
NULLIFIED. 215289, on the following grounds:
Accordingly, let a writ of final prohibitory and mandatory injunction issue, as follows: I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE DECISION OF
1. The public and private respondents, together with all persons acting for and in their THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA.
behalf are ENJOINED from proceeding with the implementation of the public II. THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA HAS JURISDICTION OVER THE CASE.
respondent's Decision dated 28 July 2011 in Civil Case No. 05-113352 entitled, III. THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA DID NOT EXCEED JURISDICTION.
"Majestic Plus Holding International, Inc. vs. Bullion Investment and Development IV. THE REGIONAL TRIAL COURT BRANCH 46 OF MANILA DID NOT ERR IN GRANTING MAJESTIC
Corporation, Genesson U. Tecson, Roland M. Lautchang, Wilson Chun Bon Cheng CLAIMS AND DISMISSING DEFENDANTS-APPELLANTS' COUNTER-CLAIM.
Koa, Luis K. Lokin, Jr., Jefferson U. Tecson and Rosalie C. Ching," as well as the writ V. THE HONORABLE COURT OF APPEALS ERRED WHEN IT DENIED MAJESTIC'S MOTION FOR
of execution pending appeal dated 01 September 2011 ; and RECONSIDERATION.37
2. The public and private respondents, and all persons acting for and in their behalf, are In a Resolution38 dated January 28, 2015, this Court resolved to consolidate G.R. No. 201017 and 215289.
ORDERED to RESTORE the possession and control of the Meisic Mall to petitioner The petitions lack merit.
in the same situation and condition immediately before the Decision dated 28 July At the outset, it behooves this Court to determine the issue of whether or not the RTC, Branch 46 of Manila
2011 in Civil Case No. 05-113352 aforecited. has jurisdiction over the subject matter of the instant case. In its Comment in G.R. No. 215289, Bullion
32
SO ORDERED. contends that neither Branch 24 nor Branch 46 of the RTC of Manila has jurisdiction over the suit for
The CA basically ruled that the RTC committed grave abuse of discretion in granting Majestic's motion for specific performance filed by Majestic. Bullion argues that having been designated as special commercial
execution pending appeal since the "good reasons" required by Rule 39 of the Rules of Court are found to courts, the jurisdiction of Branches 24 and 46 is limited to trying and deciding special commercial cases
be absent in the instant case. only. On the other hand, Majestic counters that the designation of RTCs as special commercial courts has
On November 14, 2011, Majestic filed a Motion for Reconsideration with the CA, which was denied in its not, in any way, limited their jurisdiction to hear and decide cases of all nature, whether civil, criminal or
Resolution33 dated March 14, 2012. Thus, the filing of the present petition by Majestic, docketed as G.R. special proceedings.
No. 201017, raising the following grounds: As a basic premise, the Court reiterates the principle that a court's acquisition of jurisdiction over a
A. particular case's subject matter is different from incidents pertaining to the exercise of its jurisdiction. 39
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT RULED THAT THE Jurisdiction over the subject matter of a case is conferred by law, whereas a court's exercise of jurisdiction,
REQUISITE FILING OF A MOTION FOR RECONSIDERATION WOULD ONLY DELAY THE URGENT unless provided by the law itself, is governed by the Rules of Court or by the orders issued from time to
NECESSITY TO RESOLVE THE TEMPORARY RESTRAINING ORDER AS CONTAINED IN THE time by the Supreme Court.40 The matter of whether the RTC resolves an issue in the exercise of its
PETITION ITSELF. general jurisdiction or of its limited jurisdiction as a special court is only a matter of procedure and has
B. nothing to do with the question of jurisdiction.41
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT ACCEPTED Moreover, it should be noted that Special Commercial Courts (SCCs) are still considered courts of general
A HIGHLY DEFECTIVE VERIFICATION AND CERTIFICATION AS WELL AS SECRETARY'S jurisdiction.42 Section 5.243 of R.A. No. 8799, otherwise known as The Securities Regulation Code, directs
CERTIFICATE SUBMITTED BY BULLION. merely the Supreme Court's designation of RTC branches that shall exercise jurisdiction over intra-
C. corporate disputes. The assignment of intra-corporate disputes to SCCs is only for the purpose of
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THE streamlining the workload of the RTCs so that certain branches thereof like the SCCs can focus only on a
UNDISPUTED FACT THAT BULLION'S PETITION FOR CERTIORARI PRESENTS ISSUES/MATTERS particular subject matter.44 Nothing in the language of the law suggests the diminution of jurisdiction of
THAT ARE PROPER AND ALSO THE SUBJECT OF THE APPEAL INTERPOSED BY BULLION. those RTCs to be designated as SCCs.45 The RTC exercising jurisdiction over an intra-corporate dispute
D. can be likened to an RTC exercising its probate jurisdiction or sitting as a special agrarian court. The
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT STRUCK DOWN THE designation of the SCCs as such has not in any way limited their jurisdiction to hear and decide cases of
"GOOD REASONS" AS FOUND BY THE TRIAL COURT. all nature, whether civil, criminal or special proceedings. 46
E. Stated differently, in the ruling case of Gonzales, et al. v. GJH Land. Inc., et al.,47 this Court held that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ORDERING THE RESTORATION x x x the fact that a particular branch x x x has been designated as a Special Commercial Court does not
OF THE POSSESSION AND CONTROL OF THE MEISIC MALL TO BULLION.34 shed the RTC's general jurisdiction over ordinary civil cases under the imprimatur of statutory law, i.e.,
During the pendency of G.R. No. 201017, the CA promulgated its Decision35 on Bullion's appeal of the July Batas Pambansa Bilang (BP) 129. To restate, the designation of Special Commercial Courts was merely
28, 2011 Decision of the RTC. The CA essentially ruled that since there are genuine issues of fact in the intended as a procedural tool to expedite the resolution of commercial cases in line with the court's
present case which require the presentation of evidence, the RTC should have proceeded to conduct a exercise of jurisdiction. This designation was not made by statute but only by an internal Supreme Court
rule under its authority to promulgate rules governing matters of procedure and its constitutional mandate
to supervise the administration of all courts and the personnel thereof. Certainly, an internal rule finding that, as a matter of law, the claim is clearly meritorious or there is no defense to the action.
promulgated by the Court cannot go beyond the commanding statute. But as a more fundamental reason, The non-observance of the procedural requirements of filing a motion and conducting a hearing
the designation of Special Commercial Courts is, to stress, merely an incident related to the court's on the said motion warrants the setting aside of the summary judgment.55
exercise of jurisdiction, which, as first discussed, is distinct from the concept of jurisdiction over the subject In the present case, it is true that both parties moved for the rendition of a summary judgment.56 However,
matter. The RTC's general jurisdiction over ordinary civil cases is therefore not abdicated by an internal it is apparent that the RTC did not comply with the procedural guidelines when it ordered that the case be
rule streamlining court procedure.48 submitted for summary judgment without first conducting a hearing to determine if there are indeed no
Hence, based on the foregoing, it is clear that Branch 46, RTC of Manila, despite being designated as an genuine issues of fact that would necessitate trial. The trial court merely required the parties to submit their
SCC, has jurisdiction to hear and decide Majestic's suit for specific performance. respective memoranda, together with their affidavits and exhibits and, although the parties presented
Having disposed of the question of jurisdiction, the Court will now proceed to delve into the merits of the opposing claims, the RTC hastily rendered a summary judgment. Thus, the trial court erred in cursorily
present petitions. issuing the said judgment.
There are two basic issues posed in these two petitions. First is the correctness of the July 28, 2011 Undoubtedly, the case at bar may not, even by the most liberal or strained interpretation, be considered
Decision of the RTC via summary judgment. Second is the propriety of ordering the execution of such as one not involving genuine issues of fact which necessitates presentation of evidence to determine which
Decision pending appeal. In turn, the Court notes that both these issues hinge on the preliminary of the two conflicting assertions is correct. A careful examination of the pleadings will show that Majestic's
determination of whether or not the RTC was correct in considering the case appropriate for summary causes of action in its Complaint are anchored on Bullion's supposed violations of the provision of the
judgment. The Court will, thus, follow the course taken by the CA and proceed to determine first if it was subject MOA. On the other hand, Majestic's allegations are controverted by Bullion who, in a like manner,
proper for the RTC to render its assailed summary judgment. asserts that by virtue of Majestic's failure to comply with the provisions of the said MOA, it decided to
Summary judgment is a procedural device resorted to in order to avoid long drawn out litigations and rescind the same. These diametrically opposed and conflicting claims present a factual dispute which can
useless delays.49 Relief by summary judgment is intended to expedite or promptly dispose of cases where be resolved and settled only by means of evidence presented during trial. The documents and
the facts appear undisputed and certain from the pleadings, depositions, admissions and affidavits.50 memorandum submitted by the parties all the more show that the facts pleaded are disputed or contested.
Summary judgments are proper when, upon motion of the plaintiff or the defendant, the court finds that It is true that the main document from which the parties base their claims and defenses is the same MOA
the answer filed by the defendant does not tender a genuine issue as to any material fact and that one and that the issue submitted for resolution before the RTC is which of the parties complied with or violated
party is entitled to a judgment as a matter of law.51But if there be a doubt as to such facts and there be the provisions of the said MOA. However, arising from this main issue are conflicting allegations coming
an issue or issues of fact joined by the parties, neither one of them can pray for a summary from both parties. In turn, these allegations tender genuine issues of fact necessitating the presentation of
judgment.52Where the facts pleaded by the parties are disputed or contested, proceedings for a evidence, thus, precluding the rendition of a summary judgment. Certainly, the issue as to who violated
summary judgment cannot take the place of a trial.53 the subject MOA, thus, raised by the parties and formulated by the RTC in its Amended Pre-Trial Order,
In Calubaquib, et al. v. Republic of the Philippines,54 this Court had the occasion to discuss the nature of as well as the particular matters as to whether or not the said MOA has been validly rescinded and whether
a summary judgment and to reiterate the conditions that should be met before it can be resorted to, to wit: or not Majestic has, in fact, incurred P134,522,803.22 in completing the construction of and in maintaining
xxxx the operation of the Meisic Mall, are issues which may not be categorized as frivolous and sham so as to
An examination of the Rules will readily show that a summary judgment is by no means a hasty one. It dispense with the presentation of evidence in a formal trial.
assumes a scrutiny of facts in a summary hearing after the filing of a motion for summary judgment by one As to the issue of rescission of the subject MOA, Bullion contends that it rescinded the MOA because
party supported by affidavits, depositions, admissions, or other documents, with notice upon the adverse Majestic failed to pay several installments of its obligations which are due thereunder, which failure gives
party who may file an opposition to the motion supported also by affidavits, depositions, or other documents Bullion the right to rescind the same. On the other hand, Majestic opposes the rescission insisting that the
x x x. In spite of its expediting character, relief by summary judgment can only be allowed after MOA remains valid and binding for Bullion's failure to comply with the conditions of a valid rescission as
compliance with the minimum requirement of vigilance by the court in a summary hearing set under the MOA. Majestic likewise argues that it was, in fact, Bullion which violated the provisions of
considering that this remedy is in derogation of a party's right to a plenary trial of his case. At any the MOA. It is a settled rule that extrajudicial rescission has a legal effect where the other party does not
rate, a party who moves for summary judgment has the burden of demonstrating clearly the absence of oppose it.57 Where it is objected to, a judicial determination of the issue is still necessary. 58 Thus,
any genuine issue of fact, or that the issue posed in the complaint is so patently unsubstantial as not to considering Majestic's strong opposition to Bullion's rescission of the MOA, and since both parties allege
constitute a genuine issue for trial, and any doubt as to the existence of such an issue is resolved against that the other had violated the MOA, the Court agrees with the CA that the issue of rescission necessitates
the movant. judicial intervention which entails examination by the trial court of evidence presented by the parties in a
As mentioned above, a summary judgment is permitted only if there is no genuine issue as to any material full-blown trial.
fact and the moving party is entitled to a judgment as a matter of law. The test of the propriety of rendering Also, the Court finds no error in the ruling of the CA that the aggregate sum of P134,522,803.22 alleged
summary judgments is the existence of a genuine issue of fact, as distinguished from a sham, fictitious, by Majestic as expenses it incurred in completing the construction of the Meisic Mall, as well as in the
contrived or false claim. A factual issue raised by a party is considered as sham when by its nature it is acquisition of equipment and facilities used therein, is yet to be substantiated by competent proof. The
evident that it cannot be proven or it is such that the party tendering the same has neither any sincere only evidence presented by Majestic to support its claims is an Affidavit 59 executed by the Finance
intention nor adequate evidence to prove it. This usually happens in denials made by defendants merely Comptroller of its allied corporation, accompanied by a summary of Payments Made to Meisic Mall. 60
for the sake of having an issue and thereby gaining delay, taking advantage of the fact that their answers Majestic has yet to present receipts or other competent documentary evidence to prove the said payments.
are not under oath anyway. Moreover, these claims were specifically denied by Bullion in its Answer to the Complaint. In view of such
In determining the genuineness of the issues, and hence the propriety of rendering a summary denial, Majestic's claims are, thus, subject to confirmation and validation by proof during trial proper.
judgment, the court is obliged to carefully study and appraise, not the tenor or contents of the Morever, in a Special Division composed of five (5) Justices, the CA in its February 19, 2008 Decision,
pleadings, but the facts alleged under oath by the parties and/or their witnesses in the affidavits which remanded the case to the RTC to be tried as an ordinary specific performance case, held that
that they submitted with the motion and the corresponding opposition. Thus, it is held that, even if Majestic's Complaint raises many factual issues which, while refuted by Bullion's Answer, would still have
the pleadings on their face appear to raise issues, a summary judgment is proper so long as "the affidavits, to be disproved by evidence in further proceedings.61 Also, in its presently assailed Decision dated
depositions, and admissions presented by the moving party show that such issues are not genuine." November 2, 2011, another Division of the CA, which annulled the RTC Order granting Majestic's motion
The filing of a motion and the conduct of a hearing on the motion are, therefore, important because for execution pending appeal, expressed misgivings with respect to the trial court's disposition of the case
these enable the court to determine if the parties' pleadings, affidavits and exhibits in support of, by ratiocinating in this wise:
or against, the motion are sufficient to overcome the opposing papers and adequately justify the
What is more, the Court is mystified [perplexed?] on how the public respondent judge came to rule as to Finally, the Court agrees with the ruling of the CA which ordered the remand of the case to the RTC of
the actions sought to be implemented or enforced in the assailed Orders. Of course, the Court is aware Manila to be re-raffled to a noncommercial court for further proceedings and proper disposition.
that the entry of private respondents shareholdings in the stock and transfer books, the amendment of WHEREFORE, the instant petitions are DENIED. The November 2, 2011 Decision and March 14, 2012
value of its investments and the award of physical possession of the Meisic Mall, are all contained in the Resolution of the Court of Appeals in CA-G.R. SP No. 121072 are AFFIRMED. The October 23, 2013
dispositive portion of the lower court's Decision. However, it appears in the very same Decision that the Decision and November 4, 2014 Resolution of the Court of Appeals in CA-GR. CV No. 97537 are, likewise,
proceedings before the public respondent are summary in nature and that the sole issue which the parties AFFIRMED. The Executive Judge of the Regional Trial Court of Manila is hereby ORDERED to
agreed upon is who between these parties violated the Memorandum of Agreement. Nothing more, nothing PROMPTLY RE-RAFFLE the case among the non-commercial courts with a directive that the same be
less.62 resolved with deliberate dispatch.
Furthermore, a perusal of the records of the case would show that Majestic itself is not totally convinced SO ORDERED.
that the case is, indeed, ripe for summary judgment. In its Motion for Reconsideration of the May 13, 2010 Perez, Reyes, Perlas-Bernabe and Jardeleza, JJ., concur.
Order of the RTC of Manila, which initially dismissed its Complaint on the ground of lack of cause of action,
Majestic argued for the need of a full-blown trial to thresh out the parties' conflicting claims, to wit: G.R. No. L-12719 May 31, 1962
xxxx THE COLLECTOR OF INTERNAL REVENUE, petitioner,
As regard[s] defendant Bullion's alleged non commission of any act or omission in violation of [Majestic's] vs.
rights and the failure of the latter to comply with its obligations, these are in no doubt, evidentiary matters THE CLUB FILIPINO, INC. DE CEBU, respondent.
which have yet to be established in a full blown trial. As the records would show, the case has not even Office of the Solicitor General for petitioner.
reached the pre-trial hearing and therefore, it becomes too premature for the Honorable Court to make a V. Jaime and L. E. Petilla for respondent.
definite ruling on the alleged lack of cause of action. PAREDES, J.:
Indeed, unless the parties have presented their respective evidence in chief, any findings on the alleged This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector
lack of cause of action will be highly premature and speculative at best. 63 of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of
In granting Majestic's Motion for Reconsideration, the RTC agreed with Majestic's above-quoted argument P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a
and ruled, thus: keeper of bar and restaurant.
xxxx As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic
A perusal of the complaint hypothetically admitting all the facts and allegations in the subject complaint corporation organized under the laws of the Philippines with an original authorized capital stock of
[shows that] there [are] sufficient factual averments where this Court can render valid judgments. P22,000.00, which was subsequently increased to P200,000.00, among others, to it "proporcionar, operar,
Essentially, these causes of action raise many factual issues traversing on the Memorandum of Agreement y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de
and the obligation of the defendant[s] to the plaintiff which indeed have to be disproved by the defendants billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar
in a full blown trial as this was refuted in the Answer. Even the comment in the motion for reconsideration y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de
establishing the circumstances involving the rescission of the Memorandum of Agreement are clear factual sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in
matters which should be proved and threshed out in a full blown trial. 64 the articles or by-laws is there a provision relative to dividends and their distribution, although it is
On the basis of the foregoing, it is clear that the RTC erred in rendering its assailed summary judgment. covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to
Thus, the CA did not commit error in setting aside the said summary judgment. a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).
In view of this Court's affirmance of the CA ruling which reversed and set aside the July 28, 2011 Decision The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
of the RTC, there is no longer any RTC judgment that may be executed. Hence, the issue as to whether government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to
or not there are "good reasons" to execute the assailed Decision of the RTC has become moot and its members and their guests. The bar-restaurant was a necessary incident to the operation of the club
academic. This is in accordance with our ruling in Osmea III v. Social Security System of the Philippines,65 and its golf-course. The club is operated mainly with funds derived from membership fees and dues.
where we defined a moot and academic case or issue as follows: Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951.
A case or issue is considered moot and academic when it ceases to present a justiciable controversy by as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of
virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the
no practical value or use. In such instance, there is no actual substantial relief which a petitioner would be stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross
entitled to, and which would be negated by the dismissal of the petition. Courts generally decline jurisdiction receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated
over such case or dismiss it on the ground of mootness - save when, among others, a compelling December 22, 1852, the Collector of Internal Revenue assessed against and demanded from the Club,
constitutional issue raised requires the formulation of controlling principles to guide the bench, the bar and the following sums:
the public; or when the case is capable of repetition yet evading judicial review.66
Consequently, this Court no longer finds any need to discuss and resolve the other issues raised in G.R. As percentage tax on its gross receipts
No. 201017. during the tax years 1946 to 1951 P9,599.07
As to who between the parties has the right of possession, control and operation of the Meisic Mall, suffice
Surcharge therein 2,399.77
it to say that the Court agrees with the disquisition of the CA in its October 23, 2013 Decision in CA-GR.
CV No. 97537, which sustains the restoration of possession and control of the Meisic Mall in favor of
As fixed tax for the years 1946 to 1952 70.00
Bullion, to wit:
Basic is the rule in corporation law that the business and affairs of a corporation [are] handled by a Board
Compromise penalty 500.00
of Directors and not the controlling stockholder. All corporate powers are exercised, all business conducted
and all properties controlled by the Board of Directors. Hence, [even granting that] Majestic has become The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been
the controlling stockholder of the Bullion x x x by itself alone, it cannot have the physical possession and denied, the Club filed the instant petition for review.
operate the business of the Meisic Mall.67 The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock
taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et
assessment was made, in connection with the operation of its bar and restaurant, during the periods al., supra), which is not the case in the present appeal.
mentioned above; and Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty. bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for
Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on any penalty, much less of a compromise penalty.
which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year WHEREFORE, the decision appealed from is affirmed without costs.
or fraction thereof in which such person shall engage in said business." Section 183 provides in general Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Dizon, JJ., concur.
that "the percentage taxes on business shall be payable at the end of each calendar quarter in the amount Bengzon, C.J., is on leave.
lawfully due on the business transacted during each quarter; etc." And section 191, same Tax Code,
provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall G.R. No. 91889 August 27, 1993
pay a tax three per centum, and keepers of bar and cafes where wines or liquors are served five per MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN,
centum of their gross receipts . . .". It has been held that the liability for fixed and percentage taxes, as petitioners,
provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and vs.
restaurant. For the liability to attach, the operator thereof must be engaged in the business as a barkeeper THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR.,
and restaurateur. The plain and ordinary meaning of business is restricted to activities or affairs where MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents.
profit is the purpose or livelihood is the motive, and the term business when used without qualification, Virgilio E. Dulay for petitioners.
should be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood (The Torres, Tobias, Azura & Jocson for private respondents.
Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R.
No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et NOCON, J.:
al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals
ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960). affirming the decision2 of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and
Having found as a fact that the Club was organized to develop and cultivate sports of all class and 2880-P, the dispositive portion of which reads, as follows:
denomination, for the healthful recreation and entertainment of its stockholders and members; that upon Wherefore, in view of all the foregoing considerations, in this Court hereby renders
its dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine judgment, as follows:
Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and
Club's bar and restaurant catered only to its members and their guests; that there was in fact no cash Virgilio E. Dulay for annulment or declaration of nullity of the decision of the
dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81 entitled
was used to defray its overall overhead expenses and to improve its golf-course (cost-plus-expenses- "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is dismissed
basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant for lack of merits;
(same authorities, cited above). In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds
not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of Pasay City) and reconveyance, is dismissed for lack or merit, and,
of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio
object of developing and cultivating sports for the healthful recreation and entertainment of the E. Dulay are ordered to surrender and deliver possession of the parcel of land,
stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has together with all the improvements thereon, described in Transfer Certificate of Title
been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred Heart No. 24799 of the Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel
College v. Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administrator of said
Corp., G.R. No. L-9276, Oct. 23, 1956).1wph1.t Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock dwelling unit No. 8-A of the apartment building (Dulay Apartment) from June 1980 up
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into to the present, to indemnify plaintiffs, jointly and severally, expenses of litigation in the
shares, does not detract from the finding of the trial court that it is not engaged in the business of operator amount of P4,000.00 and attorney's fees in the sum of P6,000.00, for all the three (3)
of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its cases. Co-defendant Nepomuceno Redovan is ordered to pay the current and
object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not subsequent rentals on the premises leased by him to plaintiffs.
controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises,
shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic Inc. and N. Redovan, dismissed for lack of merit. With costs against the three (3)
evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper aforenamed defendants. 3
and restaurateur. The facts as found by the trial court are as follows:
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its
divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and
of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay
its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and
surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the designated as secretary, owned a property covered by TCT No. 17880 4 and known as Dulay Apartment
contemplation of the corporation law. consisting of sixteen (16) apartment units on a six hundred eighty-nine (689) square meters lot, more or
less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private
its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner respondents.
Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision
occupied one of the unit apartments of the subject property since property since 1973 while at the same on October 23, 1989, the dispositive portion of which reads, as follows:
time managing the Dulay Apartment at his shareholdings in the corporation was subsequently increased PREMISES CONSIDERED, the decision being appealed should be as it is hereby
by his father. 5 AFFIRMED in full. 16
On December 23, 1976, Manuel Dulay by virtue of Board Resolution On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26,
No 186 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa 1990.
and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale.7 Hence, this petition.
Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private respondent Maria During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death
Theresa Veloso. 8 Subsequently, Manuel Dulay and private respondents spouses Veloso executed a certificate 17 and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic
Memorandum to the Deed of Absolute Sale of December 23, 1976 9 dated December 9, 1977 giving will 18 dated October 31, 1986.
Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the
P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225. doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, property between private respondents spouses Veloso and Manuel Dulay has no binding effect on
mortgaged the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was
was duly annotated as Entry No. 68139 in TCT No. 23225. 10 resolved without the approval of all the members of the board of directors and said Board Resolution was
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property prepared by a person not designated by the corporation to be its secretary.
was sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure We do not agree.
sale as evidenced by the Certificate of Sheriff's Sale 11 issued on April 20, 1978. Section 101 of the Corporation Code of the Philippines provides:
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws
to Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from private provide otherwise, any action by the directors of a close corporation without a meeting
respondent Torres as a result of the extra sale held on April 25, 1978. shall nevertheless be deemed valid if:
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject 1. Before or after such action is taken, written consent thereto is signed by all the
property within the one year statutory period for redemption, private respondent Torres filed an Affidavit of directors, or
Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT No. 24799 14 was 2. All the stockholders have actual or implied knowledge of the action and make no
subsequently issued to private respondent Manuel Torres on April 23, 1979. prompt objection thereto in writing; or
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession 3. The directors are accustomed to take informal action with the express or implied
against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when acquiese of all the stockholders, or
petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject 4. All the directors have express or implied knowledge of the action in question and
property, the trial court ordered private respondent Torres to implead petitioner corporation as an none of them makes prompt objection thereto in writing.
indispensable party but the latter moved for the dismissal of his petition which was granted in an Order If a directors' meeting is held without call or notice, an action taken therein within the
dated April 8, 1980. corporate powers is deemed ratified by a director who failed to attend, unless he
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, promptly files his written objection with the secretary of the corporation after having
filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay knowledge thereof.
Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary In the instant case, petitioner corporation is classified as a close corporation and consequently a board
injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal. resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and for the action of its president. At any rate, corporate action taken at a board meeting without proper call or
Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his
with the then Court of First Instance of Rizal. written objection with the secretary of the corporation after having knowledge of the meeting which, in his
On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino case, petitioner Virgilio Dulay failed to do.
and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor It is relevant to note that although a corporation is an entity which has a personality distinct and separate
for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a from its individual stockholders or members, 19 the veil of corporate fiction may be pierced when it is used
decision on April 25, 1985, dispositive portion of which reads, as follows: to defeat public convenience justify wrong, protect fraud or defend crime. 20 The privilege of being treated
Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate
respondents) and against the defendants: uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act.
1. Ordering the defendants and all persons claiming possession under them to vacate When the corporation is used merely as an alter ego or business conduit of a person, the law will regard
the premises. the corporation as the act of that person. 21 The Supreme Court had repeatedly disregarded the separate
2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, personality of the corporation where the corporate entity was used to annul a valid contract executed by
1979 until they shall have vacated the premises with interest at the legal rate; one of its members.
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private
P1,000.00 as other expenses of litigation and for them to pay the costs of the suit.15 respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding the knowledge and consent of the other members of the board of directors cannot be sustained. As
judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the correctly pointed out by the respondent Court of Appeals:
annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P. Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he
never participated nor was even aware of any meeting or resolution authorizing the
mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, required by the respondent appellate court from resolving petitioners' motion for reconsideration without
dated May 31, 1984, p. 14, Exh. "21") is difficult to believe. On the contrary, he is very the comment of the private respondent which was required merely to aid the court in the disposition of the
much privy to the transactions involved. To begin with, he is a incorporator and one motion. The courts are as much interested as the parties in the early disposition of cases before them. To
of the board of directors designated at the time of the organization of Manuel R. Dulay require otherwise would unnecessarily clog the courts' dockets.
Enterprise, Inc. In ordinary parlance, the said entity is loosely referred to as a "family WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.
corporation". The nomenclature, if imprecise, however, fairly reflects the SO ORDERED.
cohesiveness of a group and the parochial instincts of the individual members of such Narvasa, C.J., Padilla and Regalado, JJ., concur.
an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its Puno, J., took no part.
incorporators being close relatives namely, three (3) children and their father whose
name identifies their corporation (Articles of Incorporation of Manuel R. Dulay NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE
Enterprises, Inc. Exh. "31-A"). 22 VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that he was a Deputy Sheriff of Calamba, Laguna, Respondents.
signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor
of private respondent Torres indicates that he was aware of the transaction executed between his father DECISION
and private respondents and had, therefore, adequate knowledge about the sale of the subject property to
private respondents. CRUZ, J.:
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject
property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court: This case involves the constitutionality of a presidential decree which, like all other issuances of President
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere,
Theresa V. Veloso and Castrense C. Veloso, was a corporate act of the former and that his acts are being tested by the touchstone of the fundamental law that even then was supposed to
not a personal transaction of Manuel R. Dulay. This is so because Manuel R. Dulay limit presidential action.: rd
was not only president and treasurer but also the general manager of the corporation. The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the
The corporation was a closed family corporation and the only non-relative in the board Agrix Group of Companies to be administered mainly by the National Development Company. The law
of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There outlined the procedure for filing claims against the Agrix companies and created a Claims Committee to
is no denying the fact, however, that Maria Socorro R. Dulay at times acted as process these claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof
secretary. . . ., the Court can not lose sight of the fact that the Manuel R. Dulay providing that "all mortgages and other liens presently attaching to any of the assets of the dissolved
Enterprises, Inc. is a closed family corporation where the incorporators and directors corporations are hereby extinguished."
belong to one single family. It cannot be concealed that Manuel R. Dulay as president, Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans
treasurer and general manager almost had absolute control over the business and Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baos,
affairs of the corporation. 24 Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly salvaging this and the other Agrix companies that the aforementioned decree was issued by President
overlooked certain facts of substance and value that, if considered, might affect the result of the case, 25 Marcos.
which is not present in the instant case. Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment
Petitioners' contention that private respondent Torres never acquired ownership over the subject property of its loan credit. In the meantime, the New Agrix, Inc. and the National Development Company, petitioners
since the latter was never in actual possession of the subject property nor was the property ever delivered herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of Calamba, Laguna,
to him is also without merit. for the cancellation of the mortgage lien in favor of the private respondent. For its part, the private
Paragraph 1, Article 1498 of the New Civil Code provides: respondent took steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second
When the sale is made through a public instrument, the execution thereof shall be case with the same court to stop the foreclosure. The two cases were consolidated.
equivalent to the delivery of the thing which is the object of the contract, if from the After the submission by the parties of their respective pleadings, the trial court rendered the impugned
deed the contrary do not appear or cannot clearly be inferred. decision. Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but
Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent the entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power
to the delivery of the property. Likewise, this Court had held that: was a violation of the principle of separation of powers; (2) the law impaired the obligation of contracts;
It is settled that the buyer in a foreclosure sale becomes the absolute owner of the and (3) the decree violated the equal protection clause. The motion for reconsideration of this decision
property purchased if it is not redeemed during the period of one year after the having been denied, the present petition was filed.: rd
registration of the sale. As such, he is entitled to the possession of the said property The petition was originally assigned to the Third Division of this Court but because of the constitutional
and can demand it at any time following the consolidation of ownership in his name questions involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the
and the issuance to him of a new transfer certificate of title. The buyer can in fact petitioner's prayer for a temporary restraining order and instructed the respondents to cease and desist
demand possession of the land even during the redemption period except that he has from conducting a public auction sale of the lands in question. After the Solicitor General and the private
to post a bond in accordance with Section 7 of Act No. 3133 as amended. No such respondent had filed their comments and the petitioners their reply, the Court gave due course to the
bond is required after the redemption period if the property is not redeemed. petition and ordered the parties to file simultaneous memoranda. Upon compliance by the parties, the case
Possession of the land then becomes an absolute right of the purchaser as confirmed was deemed submitted.
owner. 26 The petitioners contend that the private respondent is now estopped from contesting the validity of the
Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of decree. In support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where
Sale in deemed equivalent to delivery. the constitutionality of Pres. Decree No. 1717 was also raised but not resolved. The Court, after noting
Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for that the petitioners had already filed their claims with the AGRIX Claims Committee created by the decree,
reconsideration despite the fact that private respondents failed to submit their comment to said motion as had simply dismissed the petition on the ground of estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres. interests of the public as a whole, as distinguished from those of a particular class, would be promoted or
Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to protected. The indispensable link to the welfare of the greater number has not been established. On the
foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the contrary, it would appear that the decree was issued only to favor a special group of investors who, for
decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the decree, reasons not given, have been preferred to the legitimate creditors of AGRIX.
that the private respondent attacked the validity of the provision. At that stage, however, consistent with Assuming there is a valid public interest involved, the Court still finds that the means employed to
Mendoza, the private respondent was already estopped from questioning the constitutionality of the rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The
decree. oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests,
The Court does not agree that the principle of estoppel is applicable. penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for
It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the
this decree. It must be noted, however, that this was done in 1980, when President Marcos was the decree. The right to property is dissolved by legislative fiat without regard to the private interest violated
absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them would and, worse, in favor of another private interest.
have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation, was A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of
aware of that reality and knew it had no choice under the circumstances but to conform.: nad Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they
It is true that there were a few venturesome souls who dared to question the dictator's decisions before accrue. Private property cannot simply be taken by law from one person and given to another without
the courts of justice then. The record will show, however, that not a single act or issuance of President compensation and any known public purpose. This is plain arbitrariness and is not permitted under the
Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power. To Constitution.
rule now that the private respondent is estopped for having abided with the decree instead of boldly And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and
assailing it is to close our eyes to a cynical fact of life during that repressive time. other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the same level in the prosecution of their respective claims. In this respect, all of them are considered
AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without unsecured creditors. The only concession given to the secured creditors is that their loans are allowed to
protest or reservation. The herein private respondent has not been paid a single centavo on its claim, earn interest from the date of the decree, but that still does not justify the cancellation of the interests
which was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the earned before that date. Such interests, whether due to the secured or the unsecured creditors, are all
validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial extinguished by the decree. Even assuming such cancellation to be valid, we still cannot see why all kinds
foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that the of creditors, regardless of security, are treated alike.
private respondent was estopped from questioning the decree because of its earlier compliance with its Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the
provisions. privileges conferred and the obligations imposed. Conversely, all persons or things differently situated
Independently of these observations, there is the consideration that an affront to the Constitution cannot should be treated differently. In the case at bar, persons differently situated are similarly treated, in
be allowed to continue existing simply because of procedural inhibitions that exalt form over substance. disregard of the principle that there should be equality only among equals.- nad
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages One may also well wonder why AGRIX was singled out for government help, among other corporations
and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in where the stockholders or investors were also swindled. It is not clear why other companies entitled to
Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all similar concern were not similarly treated. And surely, the stockholders of the private respondent, whose
accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were no less
unsecured, shall not be recognized." deserving of protection, which they did not get. The decree operated, to use the words of a celebrated
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no case, 3 "with an evil eye and an uneven hand."
person shall be deprived of life, liberty or property without due course of law nor shall any person be denied On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article
the equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts shall be XIV, Section 4 of the 1973 Constitution, then in force, that:
passed." SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization,
In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation or regulation of private corporations, unless such corporations are owned or controlled by the Government
under the police power for the promotion of the common welfare. The contention is that this inherent power or any subdivision or instrumentality thereof. 4
of the state may be exercised at any time for this purpose so long as the taking of the property right, even The new corporation is neither owned nor controlled by the government. The National Development
if based on contract, is done with due process of law. Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc.
This argument is an over-simplification of the problem before us. The police power is not a panacea for all Pending payment thereof, NDC would undertake the management of the corporation, but with the
constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said
every act of the government depriving a person of his life, liberty or property. board can then appoint its own management. The stocks of the new corporation are to be issued to the
A legislative act based on the police power requires the concurrence of a lawful subject and a lawful old investors and stockholders of AGRIX upon proof of their claims against the abolished corporation. They
method. In more familiar words, a) the interests of the public generally, as distinguished from those of a shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so should have
particular class, should justify the interference of the state; and b) the means employed are reasonably been organized under the Corporation Law in accordance with the above-cited constitutional provision.
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2 The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private
Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not respondent without justification. While it is true that the police power is superior to the impairment clause,
sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The the principle will apply only where the contract is so related to the public welfare that it will be considered
decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the congenitally susceptible to change by the legislature in the interest of the greater number. 5 Most present-
corporation were not to be assisted. However, the record does not state how many there are of such day contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by
investors, and who they are, and why they are being preferred to the private respondent and other creditors AGRIX are purely private transactions and have not been shown to be affected with public interest. There
of AGRIX with vested property rights.:-cralaw was therefore no warrant to amend their provisions and deprive the private respondent of its vested
The public interest supposedly involved is not identified or explained. It has not been shown that by the property rights.
creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the
It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we It is found in the records that the cross party plaintiffs incurred additional miscellaneous
sustained the preference in payment of a mortgage creditor as against the argument that the claims of expenses aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is
laborers should take precedence over all other claims, including those of the government. In arriving at further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana
this ruling, the Court recognized the mortgage lien as a property right protected by the due process and the other half, the amount of Pl84,878.74 with interest from the filing of the cross-complaints
contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was until the amount is fully paid; plus moral and exemplary damages in the amount of P184,878.84
a proper exercise of the police power.: nad with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and
The Court reaffirms and applies that ruling in the case at bar. exemplary damages in the amount of P50,000.00 for each of the two Cervanteses.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another
conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the P20,000.00 to Constancio B. Maglana as attorney's fees.
mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of xxx xxx xxx
AGRIX constitutes taking without due process of law, and this is compounded by the reduction of the WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants
secured creditors to the category of unsecured creditors in violation of the equal protection clause. Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is
Moreover, the new corporation, being neither owned nor controlled by the Government, should have been required to indemnify the defendants Bormaheco and the Cervanteses the amount of
created only by general and not special law. And insofar as the decree also interferes with purely private P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate
agreements without any demonstrated connection with the public interest, there is likewise an impairment of interest up to the time it is paid.
of the obligation of the contract. Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00
With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos as attorney's fees and costs.
to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had No moral or exemplary damages is awarded against plaintiff for this action was filed in good
such authority, the decree must fall just the same because of its violation of the Bill of Rights. faith. The fact that the properties of the Bormaheco and the Cervanteses were attached and that
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. they were required to file a counterbond in order to dissolve the attachment, is not an act of bad
The temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nad faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary
SO ORDERED. damages. Furthermore, the rights exercised were provided for in the Rules of Court, and it was
Fernan (C.J.), Narvasa, Gutierrez, Jr., Paras, Gancayco Padilla, Bidin, Sarmiento, Grio-Aquino, the court that ordered it, in the exercise of its discretion.
Medialdea and Regalado, JJ., concur. No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for
Melencio-Herrera, J., In the result. In Dumlao v. COMELEC, 95 SCRA 392 (1980), a portion of the it only secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would
second paragraph of section 4 of Batas Pambansa Blg. 52 was declared null and void for being be liable for damages in performing an act which is clearly within its power and which is the
unconstitutional. reason for its being, then nobody would engage in the insurance business. No further claim or
Feliciano, J., is on leave. counter-claim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-
16)
G.R. No. 84197 July 28, 1989 In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator
PIONEER INSURANCE & SURETY CORPORATION, petitioner, of Southern Air Lines (SAL) a single proprietorship.
vs. On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents. necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-3
G.R. No. 84157 July 28, 1989 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in
JACOB S. LIM, petitioner, Manila on July 18,1965.
vs. On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal,
MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and Lim, for the balance price of the aircrafts and spare parts.
CONSTANCIO MAGLANA, respondents. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation. Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim. some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be
Renato J. Robles for BORMAHECO, Inc. and Cervanteses. their contributions to a new corporation proposed by Lim to expand his airline business. They executed
Leonardo B. Lucena for Constancio Maglana. two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana
and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements
GUTIERREZ, JR., J.: stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and
The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes,
No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of
The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors
84197) was dismissed but in all other respects the trial court's decision was affirmed. and assigns, all sums and amounts of money which it or its representatives should or may pay or cause
The dispositive portion of the trial court's decision reads as follows: to be paid or become liable to pay on them of whatever kind and nature.
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as
plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum compounded deed of chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated
monthly; plus 15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly
full payment is made; plus P70,000.00 moral and exemplary damages. registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. should unjustly enrich himself at the expense of another (Article 22, New Civil Code). (Rollo-
776), respectively. 84197, pp. 24-25).
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was
surety. Pioneer paid a total sum of P298,626.12. paid by its reinsurer in the aforesaid amount, as this matter has never been raised by any of the parties
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff herein both in their answers in the court below and in their respective briefs with respondent court; (Rollo,
of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co- p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the respondents had
owners of the aircrafts, any interest in the matter since the reinsurance is strictly between the petitioner and the re-insurer pursuant
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary to section 91 of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to
attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. recover from respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is not
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that applicable considering that whatever amount he would recover from the co-indemnitor will be paid to the
they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for reinsurer.
being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase The records belie the petitioner's contention that the issue on the reinsurance money was never raised by
of the aircrafts in question. the parties.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:
complaint against all other defendants. xxx xxx xxx
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against 1. Has Pioneer a cause of action against defendants with respect to so much of its obligations
all the defendants was dismissed. In all other respects the trial court's decision was affirmed. to JDA as has been paid with reinsurance money?
We first resolve G.R. No. 84197. 2. If the answer to the preceding question is in the negative, has Pioneer still any claim against
Petitioner Pioneer Insurance and Surety Corporation avers that: defendants, considering the amount it has realized from the sale of the mortgaged properties?
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE (Record on Appeal, p. 359, Annex B of G.R. No. 84157).
APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY In resolving these issues, the trial court made the following findings:
COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in
JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT favor of JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with
FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo the said amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that
- G. R. No. 84197, p. 10) on this score it no longer has any right to collect to the extent of the said amount.
The petitioner questions the following findings of the appellate court: On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk for the amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to
of liability under the surety bond in favor of JDA and subsequently collected the proceeds of the latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety
such reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is
to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 representing the reinsurers to recover the amount.' In other words, insofar as the amount paid
from defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact.
the instant action as it does not stand to be benefited or injured by the judgment. But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has
defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present no right to institute and maintain in its own name an action for the benefit of the reinsurers. It is
any evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an well-settled that an action brought by an attorney-in-fact in his own name instead of that of the
action for and in behalf of the latter. To qualify a person to be a real party in interest in whose principal will not prosper, and this is so even where the name of the principal is disclosed in the
name an action must be prosecuted, he must appear to be the present real owner of the right complaint.
sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action
been held that the real party in interest is the party who would be benefited or injured by the must be prosecuted in the name of the real party in interest.' This provision
judgment or the party entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 is mandatory. The real party in interest is the party who would be benefitted
Phil. 125, 131). By real party in interest is meant a present substantial interest as distinguished or injured by the judgment or is the party entitled to the avails of the suit.
from a mere expectancy or a future, contingent, subordinate or consequential interest (Garcia v. This Court has held in various cases that an attorney-in-fact is not a real
David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers party in interest, that there is no law permitting an action to be brought by
v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35). an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484;
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial
interest as it has already been paid by the reinsurer the sum of P295,000.00 the bulk of Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.
defendants' alleged obligation to Pioneer. The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, P295,000.00 from the reinsurers, the uninsured portion of what it paid to JDA is the difference
the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine, between the two amounts, or P3,666.28. This is the amount for which Pioneer may sue
realizing the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the defendants, assuming that the indemnity agreement is still valid and effective. But since the
sum of P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent amount realized from the sale of the mortgaged chattels are P35,000.00 for one of the airplanes
that plaintiff has been overpaid in the amount of P33,383.72 considering that the total amount it and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid by
had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants P33,383.72. Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp.
the amount in excess of P298,666.28 would be tantamount to unjust enrichment as it has already 360-363).
been paid by the reinsurance company of the amount plaintiff has paid to JDA as surety of The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering
defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled is the rule that no person this admitted payment, the only issue that cropped up was the effect of payment made by the reinsurers
to the petitioner. Therefore, the petitioner's argument that the respondents had no interest in the entitled to be subrogated to the right of Pioneer should they make payments to the latter. Articles
reinsurance contract as this is strictly between the petitioner as insured and the reinsuring company 2067 and 2080 of the New Civil Code of the Philippines.
pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis. Independently of the preceding proposition Pioneer's election of the remedy of foreclosure
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are precludes any further action to recover any unpaid balance of the price.
acquired in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer
Molasses Co. C.C.A. La., 46 F 2nd 925). as surety having made of the payments to JDA, the alternative remedies open to Pioneer were
The rules of practice in actions on original insurance policies are in general applicable to actions as provided in Article 1484 of the New Civil Code, known as the Recto Law.
or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial
GA. 380, 7 Ann. Con. 1134). foreclosure and the instant suit. Such being the case, as provided by the aforementioned
Hence the applicable law is Article 2207 of the new Civil Code, to wit: provisions, Pioneer shall have no further action against the purchaser to recover any unpaid
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance
insurance company for the injury or loss arising out of the wrong or breach of contract Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.
complained of, the insurance company shall be subrogated to the rights of the insured against The operation of the foregoing provision cannot be escaped from through the contention that
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover JDA as vendor, having subrogated it in such rights. Nor may the application of the provision be
the deficiency from the person causing the loss or injury. validly opposed on the ground that these defendants and defendant Maglana are not the vendee
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov.
Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court 20,1974, 61 SCRA 124.
of Appeals (154 SCRA 650 [1987]): The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates
Note that if a property is insured and the owner receives the indemnity from the insurer, it is discharged these defendants from any liability as alleged indemnitors. The change of the
provided in said article that the insurer is deemed subrogated to the rights of the insured against maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru novations
the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the thus discharging the indemnitors.
aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, The principal hereof shall be paid in eight equal successive three months interval
the real party in interest with regard to the portion of the indemnity paid is the insurer and not installments, the first of which shall be due and payable 25 August 1965, the
the insured. (Emphasis supplied). remainder of which ... shall be due and payable on the 26th day x x x of each
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer. succeeding three months and the last of which shall be due and payable 26th May
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint 1967.
as against the respondents for the reason that the petitioner was not the real party in interest in the However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim
complaint and, therefore, has no cause of action against the respondents. and JDA, modifying the maturity dates of the obligations, as follows:
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have The principal hereof shall be paid in eight equal successive three month interval
been dismissed on the premise that the evidence on record shows that it is entitled to recover from the installments the first of which shall be due and payable 4 September 1965, the
counter indemnitors. It does not, however, cite any grounds except its allegation that respondent remainder of which ... shall be due and payable on the 4th day ... of each succeeding
"Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention. months and the last of which shall be due and payable 4th June 1967.
On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates
finding that the counter-indemnitors are not liable to the petitioner. The trial court stated: different from that fixed in the aforesaid memorandum; the due date of the first installment
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective appears as October 15, 1965, and those of the rest of the installments, the 15th of each
after the execution of the chattel mortgage. succeeding three months, that of the last installment being July 15, 1967.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes. These restructuring of the obligations with regard to their maturity dates, effected twice, were
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to done without the knowledge, much less, would have it believed that these defendants Maglana
issue the bond provided that the same would be mortgaged to it, but this was not possible (sic). Pioneer's official Numeriano Carbonel would have it believed that these defendants and
because the planes were still in Japan and could not be mortgaged here in the Philippines. As defendant Maglana knew of and consented to the modification of the obligations. But if that were
soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer so, there would have been the corresponding documents in the form of a written notice to as
Insurance to cover the bond, and this indemnity agreement would be cancelled. well as written conformity of these defendants, and there are no such document. The
The following is averred under oath by Pioneer in the original complaint: consequence of this was the extinguishment of the obligations and of the surety bond secured
The various conflicting claims over the mortgaged properties have impaired and by the indemnity agreement which was thereby also extinguished. Applicable by analogy are
rendered insufficient the security under the chattel mortgage and there is thus no other the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553,
sufficient security for the claim sought to be enforced by this action. 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
This is judicial admission and aside from the chattel mortgage there is no other security for the Art. 2079. An extension granted to the debtor by the creditor without the consent of
claim sought to be enforced by this action, which necessarily means that the indemnity the guarantor extinguishes the guaranty The mere failure on the part of the creditor to
agreement had ceased to have any force and effect at the time this action was instituted. Sec 2, demand payment after the debt has become due does not of itself constitute any
Rule 129, Revised Rules of Court. extension time referred to herein, (New Civil Code).'
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v.
and spare parts, no longer has any further action against the defendants as indemnitors to Climacom et al. (C.A.) 36 O.G. 1571.
recover any unpaid balance of the price. The indemnity agreement was ipso jure extinguished Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be Consequently, Pioneer has no more cause of action to recover from these defendants, as
supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety
bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6
SAL on every installment, released Pioneer from liability from the claim. S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the do justice between the parties; thus, one who takes no part except to subscribe for stock in a
indemnity. proposed corporation which is never legally formed does not become a partner with other
Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from subscribers who engage in business under the name of the pretended corporation, so as to be
his co-debtors if such payment is made after the obligation has prescribed or became liable as such in an action for settlement of the alleged partnership and contribution (Ward v.
illegal. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other
These defendants are entitled to recover damages and attorney's fees from Pioneer and its stockholders, who were also directors, will not be implied in the absence of an agreement, so
surety by reason of the filing of the instant case against them and the attachment and as to make the former liable to contribute for payment of debts illegally contracted by the latter
garnishment of their properties. The instant action is clearly unfounded insofar as plaintiff drags (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
these defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. supplied).
84157). In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear
We find no cogent reason to reverse or modify these findings. during the pretrial despite notification. In his answer, the petitioner denied having received any amount
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious. from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court,
We now discuss the merits of G.R. No. 84157. however, found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing
Petitioner Jacob S. Lim poses the following issues: the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes
l. What legal rules govern the relationship among co-investors whose agreement was to do and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru
business through the corporate vehicle but who failed to incorporate the entity in which they had the Cervanteses.
chosen to invest? How are the losses to be treated in situations where their contributions to the It is therefore clear that the petitioner never had the intention to form a corporation with the respondents
intended 'corporation' were invested not through the corporate form? This Petition presents despite his representations to them. This gives credence to the cross-claims of the respondents to the
these fundamental questions which we believe were resolved erroneously by the Court of effect that they were induced and lured by the petitioner to make contributions to a proposed corporation
Appeals ('CA'). (Rollo, p. 6). which was never formed because the petitioner reneged on their agreement. Maglana alleged in his cross-
These questions are premised on the petitioner's theory that as a result of the failure of respondents claim:
Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto ... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to
partnership among them was created, and that as a consequence of such relationship all must share in expand his airline business. Lim was to procure two DC-3's from Japan and secure the
the losses and/or gains of the venture in proportion to their contribution. The petitioner, therefore, questions necessary certificates of public convenience and necessity as well as the required permits for
the appellate court's findings ordering him to reimburse certain amounts given by the respondents to the the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00
petitioner as their contributions to the intended corporation, to wit: for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes,
However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about
amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the August 9,1965, promised to incorporate his airline in accordance with their agreement and
cross-complaints until the amount is fully paid. Defendant Lim should pay one-half of the said proceeded to acquire the planes on his own account. Since then up to the filing of this answer,
amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is Lim has refused, failed and still refuses to set up the corporation or return the money of Maglana.
established in the records that defendant Lim had duly received the amount of Pl51,000.00 from (Record on Appeal, pp. 337-338).
defendants Bormaheco and Maglana representing the latter's participation in the ownership of while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and
the subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred third party complaint:
additional expenses, hence, the total sum of P 184,878.74. Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase
We first state the principles. two airplanes and spare parts from Japan which the latter considered as their lawful contribution
While it has been held that as between themselves the rights of the stockholders in a defectively and participation in the proposed corporation to be known as SAL. Arrangements and
incorporated association should be governed by the supposed charter and the laws of the state negotiations were undertaken by defendant Lim. Down payments were advanced by defendants
relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the
121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form agreement among the defendants, defendant Lim in connivance with the plaintiff, signed and
a corporation and who carry on business under the corporate name occupy the position of executed the alleged chattel mortgage and surety bond agreement in his personal capacity as
partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, the alleged proprietor of the SAL. The answering defendants learned for the first time of this
where persons associate themselves together under articles to purchase property to carry on a trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage
business, and their organization is so defective as to come short of creating a corporation within (sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the
the statute, they become in legal effect partners inter se, and their rights as members of the form of third party claim. Notwithstanding repeated oral demands made by defendants
company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes
Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain and their accessories and or return the amount advanced by the former amounting to an
persons associated themselves as a corporation for the development of land for irrigation aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored,
purposes, and each conveyed land to the corporation, and two of them contracted to pay a third omitted and refused to comply with them. (Record on Appeal, pp. 341-342).
the difference in the proportionate value of the land conveyed by him, and no stock was ever Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was
issued in the corporation, it was treated as a trustee for the associates in an action between created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed
them for an accounting, and its capital stock was treated as partnership assets, sold, and the corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and spare parts.
proceeds distributed among them in proportion to the value of the property contributed by each WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.
(Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not necessarily exist, for SO ORDERED.
ordinarily persons cannot be made to assume the relation of partners, as between themselves, Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., took no part.