8/3/2019 Cases Chap 1-2

1/26

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

UNION GLASS & CONTAINER CORPORATION and CARLOS PALANCA, JR., inhis capacity as President of Union Glass & Container Corporation, petitioners,

vs.THE SECURITIES AND EXCHANGE COMMISSION and CAROLINA HOFILENA,respondents.

ESCOLIN,J.:

This petition for certiorariand prohibition seeks to annul and set aside the Order ofthe Securities and Exchange Commission, dated September 25, 1981, upholding itsjurisdiction in SEC Case No. 2035, entitled "Carolina Hofilea, Complainant, versusDevelopment Bank of the Philippines, et al., Respondents."

Private respondent Carolina Hofilea, complainant in SEC Case No. 2035, is astockholder of Pioneer Glass Manufacturing Corporation, Pioneer Glass for short, adomestic corporation engaged in the operation of silica mines and the manufactureof glass and glassware. Since 1967, Pioneer Glass had obtained various loanaccommodations from the Development Bank of the Philippines [DBP], and alsofrom other local and foreign sources which DBP guaranteed.

As security for said loan accommodations, Pioneer Glass mortgaged and/or assignedits assets, real and personal, to the DBP, in addition to the mortgages executed bysome of its corporate officers over their personal assets. The proceeds of saidfinancial exposure of the DBP were used in the construction of a glass plant inRosario, Cavite, and the operation of seven silica mining claims owned by thecorporation.

It appears that through the conversion into equity of the accumulated unpaidinterests on the various loans amounting to P5.4 million as of January 1975, andsubsequently increased by another P2.2 million in 1976, the DBP was able to gaincontrol of the outstanding shares of common stocks of Pioneer Glass, and to gettwo, later three, regular seats in the corporation's board of directors.

Sometime in March, 1978, when Pioneer Glass suffered serious liquidity problemssuch that it could no longer meet its financial obligations with DBP, it entered into adacion en pago agreement with the latter, whereby all its assets mortgaged to DBPwere ceded to the latter in full satisfaction of the corporation's obligations in thetotal amount of P59,000,000.00. Part of the assets transferred to the DBP was theglass plant in Rosario, Cavite, which DBP leased and subsequently sold to hereinpetitioner Union Glass and Container Corporation, hereinafter referred to as UnionGlass.

On April 1, 1981, Carolina Hofilea filed a complaint before the respondentSecurities and Exchange Commission against the DBP, Union Glass and PioneerGlass, docketed as SEC Case No. 2035. Of the five causes of action pleaded therein,only the first cause of action concerned petitioner Union Glass as transferee and

possessor of the glass plant. Said first cause of action was based on the allegedillegality of the aforesaid dacion en pago resulting from: [1] the supposed unilateral

and unsupported undervaluation of the assets of Pioneer Glass covered by theagreement; [2] the self-dealing indulged in by DBP, having acted both asstockholder/director and secured creditor of Pioneer Glass; and [3] the wrongfulinclusion by DBP in its statement of account of P26M as due from Pioneer Glasswhen the same had already been converted into equity.

Thus, with respect to said first cause of action, respondent Hofilea prayed that theSEC issue an order:

1. Holding that the so called dacion en pago conveying all the assets ofPioneer Glass and the Hofilea personal properties to Union Glass bedeclared null and void on the ground that the said conveyance was taintedwith.t.hqw

A. Self-dealing on the part of DBP which was acting both as acontrolling stockholder/director and as secured creditor of thePioneer Glass, all to its advantage and to that of Union Glass, andto the gross prejudice of the Pioneer Glass,

B. That the dacion en pago is void because there was grossundervaluation of the assets included in the so-called dacion enpago by more than 100% to the prejudice of Pioneer Glass and tothe undue advantage of DBP and Union Glass;

C. That the DBP unduly favored Union Glass over another buyer,San Miguel Corporation, notwithstanding the clearly advantageousterms offered by the latter to the prejudice of Pioneer Glass, itsother creditors and so-called 'Minority stockholders.'

2. Holding that the assets of the Pioneer Glass taken over by DBP and partof which was delivered to Union Glass particularly the glass plant to bereturned accordingly.

3. That the DBP be ordered to accept and recognize the appraisalconducted by the Asian Appraisal Inc. in 1975 and again in t978 of theasset of Pioneer Glass. 1

In her common prayer, Hofilea asked that DBP be sentenced to pay Pioneer Glassactual, consequential, moral and exemplary damages, for its alleged illegal acts andgross bad faith; and for DBP and Union Glass to pay her a reasonable amount asattorney's fees. 2

On April 21, 1981, Pioneer Glass filed its answer. On May 8, 1981, petitionersmoved for dismissal of the case on the ground that the SEC had no jurisdiction overthe subject matter or nature of the suit. Respondent Hofilea filed her opposition tosaid motion, to which herein petitioners filed a rejoinder.

On July 23, 1981, SEC Hearing Officer Eugenio E. Reyes, to whom the case was

assigned, granted the motion to dismiss for lack of jurisdiction. However, onSeptember 25, 1981, upon motion for reconsideration filed by respondent Hofilea,Hearing Officer Reyes reversed his original order by upholding the SEC's jurisdiction

8/3/2019 Cases Chap 1-2

2/26

over the subject matter and over the persons of petitioners. Unable to secure areconsideration of the Order as well as to have the same reviewed by theCommission En Banc, petitioners filed the instant petition for certiorari andprohibition to set aside the order of September 25, 1981, and to prevent respondentSEC from taking cognizance of SEC Case No. 2035.

The issue raised in the petition may be propounded thus: Is it the regular court orthe SEC that has jurisdiction over the case?

In upholding the SEC's jurisdiction over the case Hearing Officer Reyes rationalizedhis conclusion thus:

As correctly pointed out by the complainant, the present action is in theform of a derivative suit instituted by a stockholder for the benefit of thecorporation, respondent Pioneer Glass and Manufacturing Corporation,principally against another stockholder, respondent Development Bank ofthe Philippines, for alleged illegal acts and gross bad faith which resulted inthe dacion en pago arrangement now being questioned by complainant.These alleged illegal acts and gross bad faith came about precisely byvirtue of respondent Development Bank of the Philippine's status as astockholder of co-respondent Pioneer Glass Manufacturing Corporationalthough its status as such stockholder, was gained as a result of its beinga creditor of the latter. The derivative nature of this instant action can also

be gleaned from the common prayer of the complainant which seeks for anorder directing respondent Development Bank of the Philippines to pay co-respondent Pioneer Glass Manufacturing Corporation damages for thealleged illegal acts and gross bad faith as above-mentioned.

As far as respondent Union Glass and Container Corporation is concerned,its inclusion as a party-respondent by virtue of its being an indispensableparty to the present action, it being in possession of the assets subject ofthe dacion en pago and, therefore, situated in such a way that it will beaffected by any judgment thereon, 3

In the ordinary course of things, petitioner Union Glass, as transferee and possessorof the glass plant covered by the dacion en pago agreement, should be joined as

party-defendant under the general rule which requires the joinder of every partywho has an interest in or lien on the property subject matter of the dispute. 4Suchjoinder of parties avoids multiplicity of suits as well as ensures the convenient,speedy and orderly administration of justice.

But since petitioner Union Glass has no intra-corporate relation with either thecomplainant or the DBP, its joinder as party-defendant in SEC Case No. 2035 bringsthe cause of action asserted against it outside the jurisdiction of the respondentSEC.

The jurisdiction of the SEC is delineated by Section 5 of PD No. 902-A as follows:

Sec. 5. In addition to the regulatory and adjudicative function of the

Securities and Exchange Commission over corporations, partnerships andother forms of associations registered with it as expressly granted under

existing laws and devices, it shall have original and exclusive jurisdiction tohear and decide cases involving:

a] Devices and schemes employed by or any acts, of the board of directors,business associates, its officers or partners, amounting to fraud andmisrepresentation which may be detrimental to the interest of the publicand/or the stockholders, partners, members of associations ororganizations registered with the Commission

b] Controversies arising out of intra-corporate or partnership relations,between and among stockholders, members or associates; between any orall of them and the corporation, partnership, or association of which theyare stockholders, members or associates, respectively; and between suchcorporation, partnership or association and the state insofar as it concernstheir individual franchise or right to exist as such entity;

c] Controversies in the election or appointments of directors, trustees,officers or managers of such corporations, partnerships or associations.

This grant of jurisdiction must be viewed in the light of the nature and function ofthe SEC under the law. Section 3 of PD No. 902-A confers upon the latter "absolute jurisdiction, supervision, and control over all corporations, partnerships orassociations, who are grantees of primary franchise and/or license or permit issuedby the government to operate in the Philippines ... " The principal function of theSEC is the supervision and control over corporations, partnerships and associationswith the end in view that investment in these entities may be encouraged andprotected, and their activities pursued for the promotion of economic development.5

It is in aid of this office that the adjudicative power of the SEC must be exercised.Thus the law explicitly specified and delimited its jurisdiction to matters intrinsicallyconnected with the regulation of corporations, partnerships and associations andthose dealing with the internal affairs of such corporations, partnerships orassociations.

Otherwise stated, in order that the SEC can take cognizance of a case, the

controversy must pertain to any of the following relationships: [a] between thecorporation, partnership or association and the public; [b] between the corporation,partnership or association and its stockholders, partners, members, or officers; [c]between the corporation, partnership or association and the state in so far as itsfranchise, permit or license to operate is concerned; and [d] among thestockholders, partners or associates themselves.

The fact that the controversy at bar involves the rights of petitioner Union Glasswho has no intra-corporate relation either with complainant or the DBP, places thesuit beyond the jurisdiction of the respondent SEC. The case should be tried anddecided by the court of general jurisdiction, the Regional Trial Court. This view is inaccord with the rudimentary principle that administrative agencies, like the SEC, aretribunals of limited jurisdiction 6and, as such, could wield only such powers as arespecifically granted to them by their enabling statutes. 7As We held in Sunset View

Condominium Corp. vs. Campos, Jr.: 8

8/3/2019 Cases Chap 1-2

3/26

Inasmuch as the private respondents are not shareholders of the petitionercondominium corporation, the instant cases for collection cannot be a'controversy arising out of intra-corporate or partnership relations betweenand among stockholders, members or associates; between any or all ofthem and the corporation, partnership or association of which they arestockholders, members or associates, respectively,' which controversies areunder the original and exclusive jurisdiction of the Securities & ExchangeCommission, pursuant to Section 5 [b] of P.D. No. 902-A. ...

As heretofore pointed out, petitioner Union Glass is involved only in the first causeof action of Hofileas complaint in SEC Case No, 2035. While the Rules of Court,which applies suppletorily to proceedings before the SEC, allows the joinder ofcauses of action in one complaint, such procedure however is subject to the rulesregarding jurisdiction, venue and joinder of parties. 9Since petitioner has no intra-corporate relationship with the complainant, it cannot be joined as party-defendantin said case as to do so would violate the rule or jurisdiction. Hofileas complaintagainst petitioner for cancellation of the sale of the glass plant should therefore bebrought separately before the regular court But such action, if instituted, shall besuspended to await the final outcome of SEC Case No. 2035, for the issue of thevalidity of the dacion en pago posed in the last mentioned case is a prejudicialquestion, the resolution of which is a logical antecedent of the issue involved in theaction against petitioner Union Glass. Thus, Hofileas complaint against the lattercan only prosper if final judgment is rendered in SEC Case No. 2035, annulling thedacion en pago executed in favor of the DBP.

WHEREFORE, the instant petition is hereby granted, and the questioned Orders ofrespondent SEC, dated September 25, 1981, March 25, 1982 and May 28, 1982, arehereby set aside. Respondent Commission is ordered to drop petitioner Union Glassfrom SEC Case No. 2035, without prejudice to the filing of a separate suit before theregular court of justice. No pronouncement as to costs.

SO ORDERED.

Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relovaand Gutierrez, Jr., JJ., concur.

Fernando, C.J. and Makasiar, J., join Aquino, J., dissent.

Separate Opinions

TEEHANKEE,J., concurring:

I concur in the Court's judgment penned by Mr. Justice Escolin setting aside thequestioned orders of respondent SEC and ordering that petitioner Union Glass bedropped from SEC Case No. 2035 for lack of SEC jurisdiction over it as a third partypurchaser of the glass plant acquired by the DBP by dacion en pago from PioneerGlass, without prejudice to Hofilea filing a separate suit in the regular courts ofjustice against Union Glass for recovery and cancellation of the said sale of the glassplant in favor of Union Glass.

I concur also with the statement in the Court's opinion that the final outcome of SECCase No. 2035 with regard to the validity of the dacion en pago is a prejudicial case.If Hofilea's complaint against said dacion en pago fails in the SEC, then it clearlyhas no cause of action against Union Glass for cancellation of DBP's sale of the plantto Union Glass.

The purpose of this brief concurrence is with reference to the statement in theCourt's opinion that "Thus, Hofileas complaint against the latter can only prosperif final judgment is rendered in SEC Case No. 2035, annulling the dacion en pagoexecuted in favor of the DBP," to erase any impression that a favorable judgmentsecured by Hofilea in SEC Case No. 2035 against the DBP and Pioneer Glass wouldnecessarily mean that its action against Union Glass in the regular courts of justicefor recovery and cancellation of the DBP sale of the glass plant to Union Glass wouldnecessarily prosper. It must be borne in mind that as already indicated, the SEC hasno jurisdiction over Union Glass as an outsider. The suit in the regular courts of justice that Hofilea might bring against Union Glass is of course subject to alldefenses as to the validity of the sale of the glass plant in its favor as a buyer ingood faith and should it successfully substantiate such defenses, then Hofileasaction against it for cancellation of the sale might fail as a consequence.

AQUINO,J., dissenting:

I dissent with due deference to Justice Escolin's opinion. What are belatedlyassailed

in this certiorari and prohibition case filed on May 17, 1983 are the order ofSeptember 25, 1981 of Eugenio E. Reyes, a SEC hearing officer, and the orders ofMarch 25 and May 28, 1982 of Antonio R. Manabat, another SEC hearing officer.

Although a jurisdictional issue is raised and jurisdiction over the subject matter maybe raised at any stage of the case, nevertheless, the petitioners are guilty of lachesand nonexhaustion of the remedy of appeal with the Securities and ExchangeCommission en banc.

The petitioners resorted to the special civil actions of certiorari and prohibitionbecause they assail the orders of mere SEC hearing officers. This is not a review ofthe order, decision or ruling of the SEC sitting en banc which, according to section 6of Presidential Decree No. 902-A (1976), may be made by this Court "in accordance

with the pertinent provisions of the Rules of Court."

Rule 43 of the Rules of Court used to allow review by this Court of the SEC order,ruling or decision. Republic Act 5434 (1968) substituted the Court of Appeals forthis Court in line with the policy of lightening our heavy jurisdictional burden. Butthis Court seems to have been restored as the reviewing authority by PresidentialDecree No. 902-A.

However, section 9 of the Judiciary Reorganization Law returned to the IntermediateAppellate Court the exclusivejurisdiction to review the ruling, order or decision ofthe SEC as a quasi-judicial agency. The same section 9 granted to the AppellateCourt jurisdiction in certiorari and prohibition cases over the SEC although notexclusive.

8/3/2019 Cases Chap 1-2

4/26

In this case, the SEC seems to have adopted the orders of the two hearingofficers as its own orders as shown by the stand taken by the SolicitorGeneral in defending the SEC. If that were so, that is, if the orders of thehearing officers should be treated as the orders of the SEC itself en banc,this Court would have no jurisdiction over this case. It should be theAppellate Court that should exercise the power of review.

Carolina Hofilea has been a stockholder since 1958 of the Pioneer GlassManufacturing Corporation. Her personal assets valued at P6,804,810 wereapparently or supposedly mortgaged to the DBP to secure the obligations of PioneerGlass (p. 32, Rollo).

Pioneer Glass became indebted to the Development Bank of the Philippines in thetotal sum of P59,000,000. Part of the loan was used by Pioneer Glass to establish itsglass plant in Rosario, Cavite. The unpaid interest on the loan amounting to aroundseven million pesos became the DBP's equity in Pioneer Glass. The DBP became asubstantial stockholder of Pioneer Glass. Three members of the Pioneer Glass' boardof directors were from the DBP.

The glass plant commenced operations in 1977. At that time, Pioneer Glass washeavily indebted to the DBP. Instead of foreclosing its mortgage, DBP maneuveredto have the mortgaged assets of Pioneer Glass, including the glass plant, transferredto the DBP by way ofdacion en pago. This transaction was alleged to be an "auto

contract" or a case of the DBP contracting with itself since the DBP had a dominantposition in Pioneer Glass.

Hofilea alleged that although the debt to the DBP of Pioneer Glass amounted toP59,000,000, the glass plant in 1977 had a "sound value" of P77,329,000 and a"reproduction cost" of P90,403,000. She further alleged that San Miguel Corporationwas willing to buy the glass plant for P40,000,000 cash, whereas it was actually soldto Union Glass & Container Corporation for the same amount under a 25-year termofpayment (pp. 32-34, Rollo).

On March 31, 1981; Carmen Hofilea filed with the SEC a complaint against theDBP, Union Glass, Pioneer Glass and Rafael Sison as chairman of the DBP andPioneer Glass boards of directors. Union Glass filed a motion to dismiss on the

ground that jurisdiction over the case is lodged in the Court of First Instance.Hofilea opposed the motion. Hearing Officer Reyes in his order of July 23, 1981dismissed the complaint on the ground that the case is beyond the jurisdiction ofthe SEC.

Hofilea filed a motion for reconsideration which was opposed by Union Glass.Hearing Officer Reyes in his order of September 25, 1981 reconsidered his dismissalorder and ruled that Union Glass is an indispensable party because it is thetransferee of the controverted assets given by way ofdacion en pago to the DBP.He ruled that the SEC has jurisdiction over the case.

Union Glass filed a motion for reconsideration. Hearing Officer Antonio R. Manabatdenied the motion on the ground "that the present action is an intra-corporatedispute involving stockholders of the same corporation (p. 26, Rollo).

Union Glass filed a second motion for reconsideration with the prayer that the SECshould decide the motion en banc. The hearing officer ruled that the remedy ofUnion Glass was to file a timely appeal. Hence, its second motion for reconsiderationwas denied by the hearing officer. (This ruling is a technicality which hinderssubstantial justice.)

It is clear that Union Glass has no cause of action for certiorari and prohibition. Itsrecourse was to appeal to the SEC en banc the denial of its first motion forreconsideration.

There is no question that the SEC has jurisdiction over the intra-corporate disputebetween Hofilea and the DBP, both stockholders of Pioneer Glass, over the dacionen pago.

Now, does the SEC lose jurisdiction because of the joinder of Union Glass which hasprivity with the DBP since it was the transferee of the assets involved in the dacionen pago?

Certainly, the joinder of Union Glass does not divest the SEC of jurisdiction over thecase. The joinder of Union Glass is necessary because the DBP, its transfer or, isbeing sued regarding the dacion en pago. The defenses of Union Glass are tied upwith the defenses of the DBP in the intra-corporate dispute. Hofileas cause ofaction should not be split.

It would not be judicious and expedient to require Hofilea to sue the DBP andUnion Glass in the Regional Trial Court. The SEC is more competent than the saidcourt to decide the intra-corporate dispute.

The SEC, as the agency enforcing Presidential Decree No. 902-A, is in the bestposition to know the extent of its jurisdiction. Its determination that it hasjurisdiction in this case has persuasive weight.

Footnotes

1 p. 38. Rollo.

2 p. 40, Rollo.

3 p. 24, Rollo.

4 59 Am. Jur. 2d 530.

5 Vide, Whereas Clauses of P.D. 902-A.

6 2 Am. Jur. 2d. 150.

7 2 Am., Jur. 2d. 21.

8/3/2019 Cases Chap 1-2

5/26

8 104 SCRA 295.

9 Section 5, Rule 2 of the Rules of Court.

SPOUSES JOSE ABEJO AND AURORA ABEJO, TELECTRONIC SYSTEMS, INC.,petitioners, vs. HON. RAFAEL DE LA CRUZ, JUDGE OF THE REGIONAL TRIALCOURT (NATIONAL CAPITAL JUDICIAL REGION, BRANCH CLX-PASIG),

SPOUSES AGAPITO BRAGA AND VIRGINIA BRAGA, VIRGILIO BRAGA ANDNORBERTO BRAGA, respondents.1987 May 191st DivisionG.R. No. L-63558D E CI S I O N

TEEHANKEE, C.J:

These two cases, jointly heard, are jointly herein decided. They involve the questionof who, between the Regional Trial Court and the Securities and ExchangeCommission (SEC), has original and exclusive jurisdiction over the dispute betweenthe principal stockholders of the corporation Pocket Bell Philippines, Inc. (PocketBell), a "tone and voice paging corporation," namely, the spouses Jose Abejo andAurora Abejo (hereinafter referred to as the Abejos) and the purchaser, TelectronicSystems, Inc. (hereinafter referred to as Telectronics) of their 133,000 minorityshareholdings (for P5 million) and of 63,000 shares registered in the name ofVirginia Braga and covered by five stock certificates endorsed in blank by her (forP1,674,450.00), and the spouses Agapito Braga and Virginia Braga (hereinafterreferred to as the Bragas), erstwhile majority stockholders. With the said purchases,Telectronics would become the majority stockholder, holding 56% of theoutstanding stock and voting power of the corporation Pocket Bell.

With the said purchases in 1982, Telectronics requested the corporate secretary ofthe corporation, Norberto Braga, to register and transfer to its name, and those ofits nominees the total 196,000 Pocket Bell shares in the corporation's transfer book,cancel the surrendered certificates of stock and issue the corresponding newcertificates of stock in its name and those of its nominees.

Norberto Braga, the corporate secretary and son of the Bragas, refused to registerthe aforesaid transfer of shares in the corporate books, asserting that the Bragasclaim pre-emptive rights over the 133,000 Abejo shares and that Virginia Braga

never transferred her 63,000 shares to Telectronics but had lost the five stockcertificates representing those shares.

This triggered off the series of intertwined actions between the protagonists, allcentered on the question of jurisdiction over the dispute, which were to culminate inthe filing of the two cases at bar.

The Bragas assert that the regular civil court has original and exclusive jurisdictionas against the Securities and Exchange Commission, while the Abejos claim thecontrary. A summary of the actions resorted to by the parties follows:

A. ABEJOS' ACTIONS IN SEC

1. The Abejos and Telectronics and the latter's nominees, as new majority

shareholders, filed SEC Cases Nos. 02379 and 02395 against the Bragas onDecember 17, 1982 and February 14, 1983, respectively.

2. In SEC Case No. 02379, they prayed for mandamus from the SEC orderingNorberto Braga, as corporate secretary of Pocket Bell to register in their names thetransfer and sale of the aforesaid 196,000 Pocket Bell shares (of the Abejos 1 andVirginia Braga 2 , cancel the surrendered certificates as duly endorsed and to issuenew certificates in their names.

3. In SEC Case No. 02395, they prayed for injunction and a temporary restrainingorder that the SEC enjoin the Bragas from disbursing or disposing funds and assetsof Pocket Bell and from performing such other acts pertaining to the functions of

corporate officers.

4. Pocket Bell's corporate secretary, Norberto Braga, filed a Motion to Dismiss themandamus case (SEC Case No. 02379) contending that the SEC has no jurisdictionover the nature of the action since it does not involve an intracorporate controversybetween stockholders, the principal petitioners therein, Telectronics, not being astockholder of record of Pocket Bell.

5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the motion.On January 14, 1983, the corporate secretary filed a Motion for Reconsideration. OnMarch 21, 1983, SEC Hearing Officer Joaquin Garaygay issued an order grantingBraga's motion for reconsideration and dismissed SEC Case No. 02379.

6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction

case, SEC Case No. 02395. On April 8, 1985, the SEC Director, Eugenio Reyes,acting upon the Abejos' ex-parte motion, created a three-man committee composedof Atty. Emmanuel Sison as Chairman and Attys. Alfredo Oca and Joaquin Garaygayas members, to hear and decide the two SEC cases (Nos. 02379 and 02395).

7. On April 13, 1983, the SEC three-man committee issued an order reconsideringthe aforesaid order of March 21, 1983 of the SEC Hearing Officer Garaygay(dismissing the mandamus petition SEC Case No. 02379) and directing corporatesecretary Norberto Braga to file his answer to the petitioner therein.

B. BRAGAS' ACTION IN SEC

8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition andmandamus with the SEC en banc, SEC Case No. EB #049, seeking the dismissal ofSEC Cases Nos. 02379 and 02395 for lack of jurisdiction of the Commission and thesetting aside of the various orders issued by the SEC three-man committee in thecourse of the proceedings in the two SEC cases.

9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas'petition in SEC Case No. EB #049 for lack of merit and at the same time orderingthe SEC Hearing Committee to continue with the hearings of the Abejos andTelectronics SEC Cases Nos. 02379 and 02395, ruling that the "issue is not theownership of shares but rather the non-performance by the Corporate Secretary ofthe ministerial duty of recording transfers of shares of stock of the corporation ofwhich he is secretary."

10. On May 15, 1984 the Bragas filed a motion for reconsideration but the SEC enbanc denied the same on August 9, 1984.

C. BRAGAS' ACTION IN CFI (NOW RTC)

8/3/2019 Cases Chap 1-2

6/26

11. On November 25, 1982, following the corporate secretary's refusal to registerthe transfer of the shares in question, the Bragas filed a complaint against theAbejos and Telectronics in the Court of First Instance of Pasig, Branch 21 (now theRegional Trial Court, Branch 160) docketed as Civil Case No. 48746 for: (a)rescission and annulment of the sale of the shares of stock in Pocket Bell made bythe Abejos in favor of Telectronics on the ground that it violated the Bragas' allegedpre-emptive right over the Abejos' shareholdings and an alleged perfected contractwith the Abejos to sell the same shares in their (Bragas) favor, (1st cause ofaction); plus damages for bad faith; and (b) declaration of nullity of any transfer,assignment or endorsement of Virginia Bragas' stock certificates for 63,000 shares

in Pocket Bell to Telectronics for want of consent and consideration, alleging thatsaid stock certificates, which were intended as security for a loan application andwere thus endorsed by her in blank, had been lost (2nd cause of action).

12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on theground that it is the SEC that is vested under PD 902-A with original and exclusive jurisdiction to hear and decide cases involving, among others, controversies"between and among stockholders" and that the Bragas' suit is such a controversyas the issues involved therein are the stockholders" alleged pre-emptive rights, thevalidity of the transfer and endorsement of certificates of stock, the election ofcorporate officers and the management and control of the corporation's operations.The dismissal motion was granted by Presiding Judge G. Pineda on January 14,1983.

13. On January 24, 1983, the Bragas filed a motion for reconsideration. The Abejosopposed. Meanwhile, respondent Judge Rafael de la Cruz was appointed presidingjudge of the court (renamed Regional Trial Court) in place of Judge G. Pineda.

14. On February 14, 1983, respondent Judge de la Cruz issued an order rescindingthe January 14, 1983 order and reviving the temporary restraining order previouslyissued on December 23, 1982 restraining Telectronics' agents or representativesfrom enforcing their resolution constituting themselves as the new set of officers ofPocket Bell and from assuming control of the corporation and discharging theirfunctions.

15. On March 2, 1983, the Abejos filed a motion for reconsideration, which motionwas duly opposed by the Bragas. On March 11, 1983, respondent Judge denied themotion for reconsideration.

D. ABEJOS' PETITION AT BAR

16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge inrefusing to dismiss the complaint despite clear lack of jurisdiction over the actionand in refusing to reconsider his erroneous position were performed without jurisdiction and with grave abuse of discretion, filed their herein Petition forCertiorari and Prohibition with Preliminary Injunction. They prayed that thechallenged orders of respondent Judge dated February 14, 1983 and March 11,1983 be set aside for lack of jurisdiction and that he be ordered to permanentlydesist from further proceedings in Civil Case No. 48746. Respondent judge desistedfrom further proceedings in the case, dispensing with the need of issuing anyrestraining order.

E. BRAGAS' PETITION AT BAR

17. On August 29, 1984, the Bragas, alleging in turn that the SEC has nojurisdiction over SEC Cases Nos. 02379 and 02395 and that it acted arbitrarily,whimsically and capriciously in dismissing their petition (in SEC Case No. EB #049)for dismissal of the said cases, filed their herein Petition for Certiorari andProhibition with Preliminary Injunction or TRO. The petitioner seeks the reversaland/or setting aside of the SEC Order dated May 15, 1984 dismissing their petitionin said SEC Case No. EB #049 and sustaining its jurisdiction over SEC Cases Nos.02379 and 02395, filed by the Abejos. On September 24, 1984, this Court issued atemporary restraining order to maintain the status quo and restrained the SECand/or any of its officers or hearing committees from further proceeding with the

hearings in SEC Cases Nos. 02379 and 02395 and from enforcing any and all ordersand or resolutions issued in connection with the said cases.

The cases, having been given due course, were jointly heard by the Court on March27, 1985 and the parties thereafter filed on April 16, 1985 their respectivememoranda in amplification of oral argument on the points of law that werecrystallized during the hearing.

The Court rules that the SEC has original and exclusive jurisdiction over the disputebetween the principal stockholders of the corporation Pocket Bell, namely, theAbejos and Telectronics, the purchasers of the 56% majority stock (supra, at page2) on the one hand, and the Bragas, erstwhile majority stockholders, on the other,and that the SEC, through its en banc Resolution of May 15, 1984 correctly ruled indismissing the Bragas' petition questioning its jurisdiction, that "the issue is not the

ownership of shares but rather the non-performance by the Corporate Secretary ofthe ministerial duty of recording transfers of shares of stock of the Corporation ofwhich he is secretary."

1. The SEC ruling upholding its primary and exclusive jurisdiction over the dispute iscorrectly premised on, and fully supported by, the applicable provisions of P.D. No.902-A which reorganized the SEC with additional powers "in line with thegovernment's policy of encouraging investments, both domestic and foreign, andmore active public participation in the affairs of private corporations and enterprisesthrough which desirable activities may be pursued for the promotion of economicdevelopment; and, to promote a wider and more meaningful equitable distributionof wealth," and accordingly provided that:

"SEC. 3. The Commission shall have absolute jurisdiction, supervision and controlover all corporations, partnerships or associations, who are the grantees of primaryfranchise and/or a license or permit issued by the government to operate in thePhilippines; . . .

"SEC. 5. In addition to the regulatory and adjudicative functions of the Securitiesand Exchange Commission over corporations, partnerships and other forms ofassociations registered with it as expressly granted under existing laws and decrees,it shall have original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts, of the board of directors, businessassociations, its officers or partners, amounting to fraud and misrepresentationwhich may be detrimental to the interest of the public and/or of the stockholder,partners, members of associations or organizations registered with the Commission.

b) Controversies arising out of intracorporate or partnership relations, between and

among stockholders, members, or associates; between any and/or all of them andthe corporation, partnership or association of which they are stockholders, members

8/3/2019 Cases Chap 1-2

7/26

or associates, respectively; and between such corporation, partnership orassociation and the state insofar as it concerns their individual franchise or right toexist as such entity;

c) Controversies in the election or appointments of directors, trustees, officers ormanagers of such corporations, partnerships or associations." 3

Section 6 further grants the SEC "in order to effectively exercise such jurisdiction,"the power, inter alia, "to issue preliminary or permanent injunctions, whetherprohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases

the pertinent provisions of the Rules of Court shall apply."

2. Basically and indubitably, the dispute at bar, as held by the SEC, is anintracorporate dispute that has arisen between and among the principalstockholders of the corporation Pocket Bell due to the refusal of the corporatesecretary, backed up by his parents as erstwhile majority shareholders, to performhis "ministerial duty" to record the transfers of the corporation's controlling (56%)shares of stock, covered by duly endorsed certificates of stock, in favor ofTelectronics as the purchaser thereof. Mandamus in the SEC to compel thecorporate secretary to register the transfers and issue new certificates in favor ofTelectronics and its nominees was properly resorted to under Rule XXI, Section 1 ofthe SEC's New Rules of Procedure, 4 which provides for the filing of such petitionswith the SEC. Section 3 of said Rules further authorizes the SEC to "issue ordersexpediting the proceedings . . . and also [to] grant a preliminary injunction for the

preservation of the rights of the parties pending such proceedings."

The claims of the Bragas, which they assert in their complaint in the Regional TrialCourt, praying for rescission and annulment of the sale made by the Abejos in favorof Telectronics on the ground that they had an alleged perfected pre-emptive rightover the Abejos' shares as well as for annulment of sale to Telectronics of VirginiaBraga's shares covered by street certificates duly endorsed by her in blank, may inno way deprive the SEC of its primary and exclusive jurisdiction to grant or not thewrit of mandamus ordering the registration of the shares so transferred. TheBragas' contention that the question of ordering the recording of the transfersultimately hinges on the question of ownership or right thereto over the sharesnotwithstanding, the jurisdiction over the dispute is clearly vested in the SEC.

3. The very complaint of the Bragas for annulment of the sales and transfers as filedby them in the regular court questions the validity of the transfer and endorsementof the certificates of stock, claiming alleged pre-emptive rights in the case of theAbejos' shares and alleged loss of the certificates and lack of consent andconsideration in the case of Virginia Braga's shares. Such dispute clearly involvescontroversies "between and among stockholders," as to the Abejos' right to sell anddispose of their shares to Telectronics, the validity of the latter's acquisition ofVirginia Braga's shares, who between the Bragas and the Abejos' transferee shouldbe recognized as the controlling shareholders of the corporation, with the right toelect the corporate officers and the management and control of its operations. Sucha dispute and case clearly fall within the original and exclusive jurisdiction of theSEC to decide, under Section 5 of P.D. 902-A, above-quoted. The restraining orderissued by the Regional Trial Court restraining Telectronics agents andrepresentatives from enforcing their resolution constituting themselves as the newset of officers of Pocket Bell and from assuming control of the corporation anddischarging their functions patently encroached upon the SEC's exclusive jurisdiction

over such specialized corporate controversies calling for its special competence. Asstressed by the Solicitor General on behalf of the SEC, the Court has held that

"Nowhere does the law [PD 902-A] empower any Court of First Instance [nowRegional Trial Court] to interfere with the orders of the Commission," 5 andconsequently "any ruling by the trial court on the issue of ownership of the shares ofstock is not binding on the Commission" 6 for want of jurisdiction.

4. The dispute therefore clearly falls within the general classification of cases withinthe SEC's original and exclusive jurisdiction to hear and decide, under theaforequoted governing section 5 of the law. Insofar as the Bragas and theircorporate secretary's refusal on behalf of the corporation Pocket Bell to record thetransfer of the 56% majority shares to Telectronics may be deemed a device or

scheme amounting to fraud and misrepresentation employed by them to keepthemselves in control of the corporation to the detriment of Telectronics (as buyerand substantial investor in the corporate stock) and the Abejos (as substantialstockholders-sellers), the case falls under paragraph (a). The dispute is likewise anintra-corporate controversy between and among the majority and minoritystockholders as to the transfer and disposition of the controlling shares of thecorporation, falling under paragraph (b). As stressed by the Court in DMRCEnterprises v. Este del Sol Mountain Reserve, Inc., 7 "Considering the announcedpolicy of PD 902-A, the expanded jurisdiction of the respondent Securities andExchange Commission under said decree extends exclusively to matters arising fromcontracts involving investments in private corporations, partnerships andassociations." The dispute also concerns the fundamental issue of whether theBragas or Telectronics have the right to elect the corporate directors and officersand manage its business and operations, which falls under paragraph (c).

5. Most of the cases that have come to this Court involve those under paragraph(b), i e. whether the controversy is an intra-corporate one, arising "between andamong stockholders" or "between any or all of them and the corporation." Theparties have focused their arguments on this question. The Bragas' contention in hisfield must likewise fail. In Philex Mining Corp. v. Reyes, 8 the Court spelled out that"an intra-corporate controversy is one which arises between a stockholder and thecorporation. There is no distinction, qualification, nor any exemption whatsoever.The provision is broad and covers all kinds of controversies between stockholdersand corporations. The issue of whether or not a corporation is bound to replace astockholder's lost certificate of stock is a matter purely between a stockholder andthe corporation. It is a typical intra-corporate dispute. The question of damagesraised is merely incidental to that main issue." The Court rejected the stockholders'theory of excluding his complaint (for replacement of a lost stock [dividend]certificate which he claimed to have never received) from the classification of intra-corporate controversies as one that "does not square with the intent of the law,which is to segregate from the general jurisdiction of regular Courts controversiesinvolving corporations and their stockholders and to bring them to the SEC forexclusive resolution, in much the same way that labor disputes are now brought tothe Ministry of Labor and Employment (MOLE) and the National Labor RelationsCommission (NLRC), and not to the Courts."

(a) The Bragas contend that Telectronics, as buyer-transferee of the 56% majorityshares is not a registered stockholder, because they, through their son thecorporate secretary, appear to have refused to perform "the ministerial duty ofrecording transfers of shares of stock of the corporation of which he is thesecretary," and that the dispute is therefore, not an intracorporate one. Thiscontention begs the question which must properly be resolved by the SEC, butwhich they would prevent by their own act, through their son, of blocking the due

recording of the transfer and cannot be sanctioned. It can be seen from their verycomplaint in the regular courts that they with their two sons constituting the

8/3/2019 Cases Chap 1-2

8/26

plaintiffs are all stockholders while the defendants are the Abejos who are alsostockholders whose sale of the shares to Telectronics they would annul.

(b) There can be no question that the dispute between the Abejos and the Bragasas to the sale and transfer of the former's shares to Telectronics for P5 million is anintracorporate one under section 5 (b), prescinding from the applicability of section5 (a) and (c), (supra, par. 4) It is the SEC which must resolve the Bragas' claim intheir own complaint in the court case filed by them of an alleged pre-emptive rightto buy the Abejos' shares by virtue of "on-going negotiations," which they maysubmit as their defense to the mandamus petition to register the sale of the shares

to Telectronics. But asserting such pre-emptive rights and asking that the same beenforced is a far cry from the Bragas' claim that "the case relates to questions ofownership" over the shares in question. 9 (Not to mention, as pointed out by theAbejos, that the corporation is not a close corporation, and no restriction over thefree transferability of the shares appears in the Articles of Incorporation, as well asin the by-laws 10 and the certificates of stock themselves, as required by law forthe enforcement of such restriction. See Go Soc & Sons, etc. v. IAC, G.R. No.72342, Resolution of February 19, 1987.)

(c) The dispute between the Bragas and Telectronics as to the sale and transfer forP1,674,450.00 of Virginia Braga's 63.000 shares covered by Street certificates dulyendorsed in blank by her is within the special competence and jurisdiction of theSEC, dealing as it does with the free transferability of corporate shares, particularlystreet certificates, 11 as guaranteed by the Corporation Code and its proclaimed

policy of encouraging foreign and domestic investments in Philippine privatecorporations and more active public participation therein for the promotion ofeconomic development. Here again, Virginia Braga's claim of loss of her streetcertificates or theft thereof (denounced by Telectronics as "perjurious" 12 ) must bepleaded by her as a defense against Telectronics' petition for mandamus andrecognition now as the controlling stockholder of the corporation in the light of the joint affidavit of General Cerefino S. Carreon of the National TelecommunicationsCommission and private respondent Jose Luis Santiago of Telectronics narrating thefacts and circumstances of how the former sold and delivered to Telectronics onbehalf of his compadres, the Bragas, Virginia Braga's street certificates for 63,000shares equivalent to 18% of the corporation's outstanding stock and received thecash price thereof. 13 But as to the sale and transfer of the Abejos' shares, theBragas cannot oust the SEC of its original and exclusive jurisdiction to hear anddecide the case, by blocking through the corporate secretary, their son, the duerecording of the transfer and sale of the shares in question and claiming thatTelectronics is not a stockholder of the corporation which is the very issue that theSEC is called upon to resolve. As the SEC maintains, "There is no requirement that astockholder of a corporation must be a registered one in order that the Securitiesand Exchange Commission may take cognizance of a suit seeking to enforce hisrights as such stockholder." 14 This is because the SEC by express mandate has"absolute jurisdiction, supervision and control over all corporations" and is calledupon to enforce the provisions of the Corporation Code, among which is the stockpurchaser's right to secure the corresponding certificate in his name under theprovisions of Section 63 of the Code. Needless to say, any problem encountered insecuring the certificates of stock representing the investment made by the buyermust be expeditiously dealt with through administrative mandamus proceedingswith the SEC, rather than through the usual tedious regular court procedure.Furthermore, as stated in the SEC order of April 13, 1983, notice given to thecorporation of the sale of the shares and presentation of the certificates for transfer

is equivalent to registration: "Whether the refusal of the (corporation) to effect the

same is valid or not is still subject to the outcome of the hearing on the merits ofthe case." 15

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction inadministrative commissions and boards the power to resolve specialized disputes inthe field of labor (as in corporations, public transportation and public utilities) ruledthat Congress in requiring the Industrial Court's intervention in the resolution oflabor-management controversies likely to cause strikes or lockouts meant suchjurisdiction to be exclusive, although it did not so expressly state in the law. TheCourt held that under the "sense-making and expeditious doctrine of primary

jurisdiction ..the courts cannot or will not determine a controversy involving aquestion which is within the jurisdiction of an administrative tribunal, where thequestion demands the exercise of sound administrative discretion requiring thespecial knowledge, experience, and services of the administrative tribunal todetermine technical and intricate matters of fact, and a uniformity of ruling isessential to comply with the purposes of the regulatory statute administered." 16

In this era of clogged court dockets, the need for specialized administrative boardsor commissions with the special knowledge, experience and capability to hear anddetermine promptly disputes on technical matters or essentially factual matters,subject to judicial review in case of grave abuse of discretion, has become well nighindispensable. Thus, in 1984, the Court noted that "between the power lodged in anadministrative body and a court, the unmistakable trend has been to refer it to theformer. 'Increasingly, this Court has been committed to the view that unless the law

speaks clearly and unequivocably, the choice should fall on [an administrativeagency.]'" 17 The Court in the earlier case of Ebon vs. De Guzman, 18 noted thatthe lawmaking authority, in restoring to the labor arbiters and the NLRC theirjurisdiction to award all kinds of damages in labor cases, as against the previousP.D. amendment splitting their jurisdiction with the regular courts, "evidently, . . .had second thoughts about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases because that setup would meanduplicity of suits, splitting the cause of action and possible conflicting findings andconclusions by two tribunals on one and the same claim."

7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specificallyvests the SEC with the Rule making power in the discharge of its task ofimplementing the provisions of the Code and particularly charges it with the duty ofpreventing fraud and abuses on the part of controlling stockholders, directors andofficers, as follows:

"SEC. 143. Rule-making power of the Securities and Exchange Commission. TheSecurities and Exchange Commission shall have the power and authority toimplement the provisions of this Code, and to promulgate rules and regulationsreasonably necessary to enable it to perform its duties hereunder, particularly in theprevention of fraud and abuses on the part of the controlling stockholders,members, directors, trustees or officers." mphasis supplied)

The dispute between the contending parties for control of the corporation manifestlyfalls within the primary and exclusive jurisdiction of the SEC in whom the law hasreserved such jurisdiction as an administrative agency of special competence to dealpromptly and expeditiously therewith.

As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant of

jurisdiction [in Section 5] must be viewed in the light of the nature and functions ofthe SEC under the law. Section 3 of PD No. 902-A confers upon the latter 'absolute

8/3/2019 Cases Chap 1-2

9/26

jurisdiction, supervision, and control over all corporations, partnerships orassociations, who are grantees of primary franchise and/or license or permit issuedby the government to operate in the Philippines . . ..' The principal function of theSEC is the supervision and control over corporations, partnerships and associationswith the end in view that investment in these entities may be encouraged andprotected, and their activities pursued for the promotion of economic development.

"It is in aid of this office that the adjudicative power of the SEC must be exercised.Thus the law explicitly specified and delimited its jurisdiction to matters intrinsicallyconnected with the regulation of corporations, partnerships and associations and

those dealing with the internal affairs of such corporations, partnerships orassociations.

"Otherwise stated, in order that the SEC can take cognizance of a case, thecontroversy must pertain to any of the following relationships: [a] between thecorporation, partnership or association and the public; [b] between the corporation,partnership or association and its stockholders, partners, members, or officers; [c]between the corporation, partnership or association and the state in so far as itsfranchise, permit or license to operate is concerned; and [d] among thestockholders, partners or associates themselves." 20

Parenthetically, the cited case of Union Glass illustrates by way of contrast whatdisputes do not fall within the special jurisdiction of the SEC. In this case, the SEChad properly assumed jurisdiction over the dissenting stockholders' complaint

against the corporation Pioneer Glass questioning its dacion en pago of its glassplant and all its assets in favor of the DBP which was clearly an intra-corporatecontroversy dealing with its internal affairs. But the Court held that the SEC had nojurisdiction over petitioner Union Glass Corp., impleaded as third party purchaser ofthe plant from DBP in the action to annul the dacion en pago. The Court held thatsuch action for recovery of the glass plant could be brought by the dissentingstockholder to the regular courts only if and when the SEC rendered final judgmentannulling the dacion en pago and furthermore subject to Union Glass' defenses as athird party buyer in good faith. Similarly, in the DMRC case, therein petitioner'scomplaint for collection of the amounts due to it as payment of rentals for the leaseof its heavy equipment in the form mainly of cash and part in shares of stock of thedebtor-defendant corporation was held to be not covered by the SEC's exclusivejurisdiction over intracorporate disputes, since "to pass upon a money claim under alease contract would be beyond the competence of the Securities and ExchangeCommission and to separate the claim for money from the claim for shares of stock

would be splitting a single cause of action resulting in a multiplicity of suits." 21Such an action for collection of a debt does not involve enforcement of rights andobligations under the Corporation Code nor the internal or intracorporate affairs ofthe debtor corporation. But in all disputes affecting and dealing with the interests ofthe corporation and its stockholders, following the trend and clear legislative intentof entrusting all disputes of a specialized nature to administrative agenciespossessing the requisite competence, special knowledge, experience and servicesand facilities to expeditiously resolve them and determine the essential factsincluding technical and intricate matters, as in labor and public utilities ratesdisputes, the SEC has been given "the original and exclusive jurisdiction to hear anddecide" them (under Section 5 of P.D. 902-A) "in addition to [its] regulatory andadjudicative functions" (under Section 3, vesting in it "absolute jurisdiction,supervision and control over all corporations" and the Ruler-making power grantedit in Section 143 of the Corporation Code, supra). As stressed by the Court in the

Philex case, supra, "(T)here is no distinction, qualification, nor any exemption

whatsoever. The provision is broad and covers all kinds of controversies betweenstockholders and corporations."

It only remains now to deal with the Order dated April 15, 1983 (Annex H, Petition)22 of the SEC's three-member Hearing Committee granting Telectronics' motion forcreation of a receivership or management committee with the ample powers thereinenumerated for the preservation pendente lite of the corporation's assets and indischarge of its "power and duty to preserve the rights of the parties, thestockholders, the public availing of the corporation's services and the rights ofcreditors," as well as 'for reasons of equity and justice .. (and) to prevent possible

paralization of corporate business." The said Order has not been implementednotwithstanding its having been upheld per the SEC en banc's Order of May 15,1984 (Annex "V", Petition) dismissing for lack of merit the petition for certiorari,prohibition and mandamus with prayer for restraining order or injunction filed bythe Bragas seeking the disbandment of the Hearing Committee and the setting asideof its Orders, and its Resolution of August 9, 1984, denying reconsideration (Annex"X", Petition), due to the Bragas' filing of the petition at bar.

Prescinding from the great concern of damage and prejudice expressed byTelectronics due to the Bragas having remained in control of the corporation andhaving allegedly committed acts of gross mismanagement and misapplication offunds, the Court finds that under the facts and circumstances of record, it is but fairand just that the SEC's order creating a receivership committee be implementedforthwith, in accordance with its terms, as follows:

"The three-man receivership committee shall be composed of a representative fromthe commission, in the person of the Director, Examiners and AppraisersDepartment or his designated representative, and a representative from thepetitioners and a representative of the respondent.

"The petitioners and respondent are therefore directed to submit to the Commissionthe name of their designated representative within three (3) days from receipt ofthis order. The Commission shall appoint the other representatives if either or bothparties fail to comply with the requirement within the stated time."

ACCORDINGLY, judgment is hereby rendered:

(a) Granting the petition in G.R. No. 63558, annulling the challenged Orders ofrespondent Judge dated February 14, 1983 and March 11, 1983 (Annexes "L" and

"P" of the Abejos' petition) and prohibiting respondent Judge from furtherproceeding in Civil Case No. 48746 filed in his Court other than to dismiss the samefor lack or jurisdiction over the subject-matter;

(b) Dismissing the petition in G.R. Nos. 68450-51 and lifting the temporaryrestraining order issued on September 24, 1984, effective immediately uponpromulgation hereof;

(c) Directing the SEC through its Hearing Committee to proceed immediately withhearing and resolving the pending mandamus petition for recording in the corporatebooks the transfer to Telectronics and its nominees of the majority (56%) shares ofstock of the corporation Pocket Bell pertaining to the Abejos and Virginia Braga andall related issues, taking into consideration, without need of resubmittal to it, thepleadings, annexes and exhibits filed by the contending parties in the cases at bar;

and

8/3/2019 Cases Chap 1-2

10/26

(d) Likewise directing the SEC through its Hearing Committee to proceedimmediately with the implementation of its receivership or management committeeOrder of April 15, 1983 in SEC Case No. 2379 and for the purpose, the contendingparties are ordered to submit to said Hearing Committee the name of theirdesignated representatives in the receivership/management committee within three(3) days from receipt of this decision, on pain of forfeiture of such right in case offailure to comply herewith, as provided in the said Order; and ordering the Bragasto perform only caretaker acts in the corporation pending the organization of suchreceivership/management committee and assumption of its functions.

This decision shall be immediately executory upon its promulgation.

SO ORDERED.

Yap, Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ.,concur.

Footnotes

1. The Abejo's certificates are numbered 001, 012, 017, 018, 022, 026 and 029totalling 133,000 shares.

2. Virginia Braga's certificates are numbered 003, 008, 013, 023 and 027 totalling63,000 shares.

3. Emphasis supplied.

4. The cited Rule reads:

"SECTION 1. Petition for Mandamus. When any corporation, board or personunlawfully neglects the performance of an act which the law specifically enjoins as aduty resulting from an office, trust or station, or unlawfully excludes another fromthe use and enjoyment of a right or office to which such other is entitled, and thereis no other plain, speedy and adequate remedy in the ordinary course of law, theperson aggrieved thereby may file a verified petition with the Commission allegingthe facts with certainty and praying that judgment be rendered commanding therespondent, immediately or at some other specified time, to do the act required tobe done to protect the rights of the petitioner, and to pay the damages sustained bythe petitioner by reason of the wrongful acts of the respondent."

5. Phil. Pacific Fishing Co. Inc. v. Luna, 112 SCRA 604, 613.

6. Respondent SEC's Comment and Memorandum in G.R. 68450-51; Record, pp.400 and 524.

7. 132 SCRA 293 (1984), per Gutierrez, J., citing Union Glass & Container Corp. v.SEC, 126 SCRA 31(1983).

8. 118 SCRA 602, 605-606 (1982) per Melencio-Herrera, J.

9. Petitioners' Memorandum in G.R. No. 63558, page 1.

10. Section 98, Corporation Code.

11. See Santamaria v. Hongkong & Shanghai Bank, 80 Phil. 780 (1951).

12. Petitioners' printed memorandum in G.R. No. 63558, page 13.

13. Annex I of Abejos' Memorandum Record in G.R. No. 63558, pp. 287-290.

14. SEC Comment, Record, p. 398.

15. Record in G.R 68450-51, p. 91.

16. Pambujan Sur United Mine Workers v. Samar Mining Co., Inc., 94 Phil. 932, 941(1954).

17. NFL v. Eisma, 127 SCRA 419, 428, citing precedents.

18. 113 SCRA 52, 56 (1982).

19. 126 SCRA 31, 38 (1983), cited in DMRC Enterprises v. Este Del Sol MountainReserve, Inc. 132SCRA 293, 298.

20. (1984).

21. 132 SCRA at page 299.

22. Record in G.R. 68450-51, pp. 93-96.

G.R. No. 87135 May 22, 1992

ALMA MAGALAD, petitioner,vs.PREMIERE FINANCING CORP., respondent.

PARAS,J.:

This is an appeal originally filed with the Court of Appeals but certified to this court

for disposition since it involves purely questions of law from the decision of theRegional Trial Court (RTC), Branch LXXXV, Quezon City, dated May 22, 1984, inCivil Case No. Q-40392, ordering the defendant-appellant Premiere FinancingCorporation (Premiere for short) to pay to the plaintiff-appellee Alma Magalad(Magalad for short) the sum of:(a) P50,000.00, the principal obligation, plus interest at the legal rate fromSeptember 12, 1983, until the full amount is paid; (b) P10,000.00, both for moraland exemplary damages; (c) P5,000.00, for and as attorney's fees and (d) the costsof suit.

The antecedent facts of the case are as follows:

Premiere is a financing company engaged in soliciting and accepting money market

placements or deposits (Original Record, p. 29).

8/3/2019 Cases Chap 1-2

11/26

On September 12, 1983 with expired permit to issue commercial papers (Ibid., p. 8)and with intention not to pay or defraud its creditors, Premiere induced and misledMagalad into making a money market placement of P50,000.00 at 22% interest perannum for which it issued a receipt (Ibid., Exh. "B", p. 8). Aside from the receipt,Premier likewise issued two (2) post-dated checks in the total sum of P51,079.00(Ibid., Exh. "C", p. 9) and assigned to Magalad its receivable from a certain DavidSaman for the same amount (Ibid., Exh. "C", p. 10).

When the said checks were presented for payment on their due dates, the draweebank dishonored the checks for lack of sufficient funds to cover the amount (Ibid.,

Exhs. "D-1", "E-1", pp. 11-12). Despite demands by Magalad for the replacement ofsaid checks with cash, Premiere, for no valid reason, failed and refused to honorsuch demands and due to fraudulent acts of Premiere, Magalad suffered sleeplessnights, mental anguish, fright, serious anxiety, considering the fact that the moneyshe invested is blood money and is the only source of support for her family ( Ibid.,p. 4).

Magalad in order to seek redress and retrieve her blood money, availed of theservice of counsel for which she agreed to pay twenty percent (20%) of the amountdue as and for attorney's fees (Ibid.)

On January 10, 1984, Magalad filed a complaint for damages with prayer for writ ofpreliminary attachment with the RTC, Branch LXXXV, Quezon City, docketed as Civil

Case No. Q-40392 against herein Premiere (Ibid., p. 3-6).

Premiere having failed to file an answer and acting on Magalad's motion, the lowercourt declared Premiere in default by virtue of an order dated April 5, 1984 allowingMagalad to present evidence ex-parte (Ibid., pp. 21; 22)

On May 22, 1984 the lower court rendered a default judgment against Premiere, thedispositive portion of which reads:

From the foregoing evidence, the court finds that plaintiff has fullyestablished her claim that defendant had indeed acted fraudulently inincurring the obligation and considering that no evidence has been adducedby the defendant to contradict the same, judgment is hereby rendered

ordering the defendant to pay plaintiff as follows:

(a) P50,000.00, the principal obligation, plus interest at the legal rate fromSeptember 12, 1983 until the full amount is paid;

(b) P10,000.00 both for moral and exemplary damages;

(c) P5,000.00 for and as attorney's fees; and

(d) the costs of suit.

SO ORDERED. (Ibid., p. 30)

Premiere filed a motion for reconsideration of the foregoing decision, basedprincipally on a question of law alleging that the Securities and ExchangeCommission (SEC) has exclusive and original jurisdiction over a corporation under astate of suspension of payments (Ibid., pp. 32-41).

Magalad filed an opposition to the motion for reconsideration on January 8, 1985alleging among others that the regular court has jurisdiction over the case to theexclusion of the SEC. (Ibid., pp. 51-53).

On May 28, 1986 the lower court issued an order denying the motion forreconsideration (Ibid., p. 61).

On June 11, 1986 Premiere filed his notice of appeal which led to the issuance of theorder of the lower court dated July 29, 1986 elevating the case to the Court ofAppeals (CA) (Ibid., pp. 62-63).

The Court of Appeals in its resolution dated September 8, 1987 dismissed the casefor failure of Premiere to file its brief despite the ninety-day extension granted to it,which expired on June 10, 1987 (Rollo, p. 16).

An omnibus motion for reconsideration and admission of late filing of Premiere'sbrief was filed on September 22, 1987 (Rollo, pp. 17-19; 32).

On September 30, 1987 the Court of Appeals issued a resolution which reconsideredits previous resolution dated September 5, 1987 and admitted the Premiere's brief(Rollo, p. 26).

On January 31, 1989 the Court of Appeals issued a resolution certifying the instantcase to this Court on the ground that the case involves a question of law, thedispositive part of which stating:

ACCORDINGLY, pursuant to Rule 50, Sec. 3, in relation to the Judiciary Actof 1948, Sec. 17, par. 4(3) (4), the Appeal in this case is hereby certifiedto the Supreme Court on the ground that the only issue raised concernsthe jurisdiction of the trial court and only a question of law. (Rollo, p. 33)

Hence, this appeal.

The pivotal issue in this case is whether or not the court a quo had jurisdiction to trythe instant case.

At the very core of this appeal assailing the aforesaid pronouncement of the lowercourt, and around which revolve the arguments of the parties, is the applicability ofPresidential Decree No. 902-A (Reorganization of the SEC with Additional Powers),as amended by Presidential Decrees Nos. 1653, 1758 and 1799. Magalad submitsthat the legal suit which she has brought against Premiere is an ordinary action fordamages with the preliminary attachment cognizable solely by the RTC. Premiere,on the other hand, espouses the original and exclusive jurisdiction of the Securities

and Exchange Commission.

8/3/2019 Cases Chap 1-2

12/26

Presidential Decree No. 902-A, Section 3, provides:

Sec. 3. The Commission shall have absolute jurisdiction, supervision andcontrol over all corporations, partnerships or associations, who are thegrantees of primary franchises and/or a license or permit issued by thegovernment to operate in the Philippines; and in the exercise of itsauthority, it shall have the power to enlist the aid and support of and todeputize any and all enforcement agencies of the government, civil ormilitary as well as any private institution, corporation, firm, association orperson. (As amended by Presidential Decree No. 1758).

Sec. 3 of Pres. Decree No. 902-A should also be read in conjunction with Sec. 5 ofthe same law, providing:

Sec. 5. In addition to the regulatory and adjudicative functions of theSecurities and Exchange Commission over corporations, partnerships andother forms of associations registered with it as expressly granted underthe existing laws and decrees, it shall have original and exclusivejurisdiction to hear and decide cases involving:

a) Devises or schemes employed by or any acts of the Board ofDirectors, business associates, its officers or partners, amountingto fraud and misrepresentation which may be detrimental to the

public and/or to the stockholders, partners, members ofassociations or organizations registered with the Commission.(Emphasis supplied)

Considering that Magalad's complaint sufficiently alleges acts amounting to fraudand misrepresentation committed by Premiere, the SEC must be held to retain itsoriginal and exclusive jurisdiction over the case, despite the fact that the suitinvolves collection of sums of money paid to said corporation, the recovery of whichwould ordinarily fall within the jurisdiction of regular courts. The fraud committed isdetrimental to the interest of the public and, therefore, encompasses a category ofrelationship within the SEC jurisdiction.

Otherwise stated, in order that the SEC can take cognizance of a case, the

controversy must pertain to any of the following relationships: (a) between thecorporation, partnership or association and the public; (b) between the corporation,partnership or association and its stockholders, partners, members or officers; (c)between the corporation, partnership or association and the state so far as itsfranchise, permit or license to operate is concerned; and (d) among thestockholders, partners or associates themselves (Union Glass & Container Corp. v.SEC, 126 SCRA 31; 38; 1983; Abejo v. De la Cruz, 149 SCRA 654, 1987).

In this case, the recitals of the complaint sufficiently allege that devices or schemesamounting to fraud and misrepresentation detrimental to the interest of the publichave been resorted to by Premiere Corporation. It can not but be conceded,therefore, that the SEC may exercise its adjudicative powers pursuant to Sec. 5(a)of Pres. Decree No. 902-A (Supra).

The fact that Premiere's authority to engage in financing already expired will nothave the effect of divesting the SEC of its original and exclusive jurisdiction. Theexpanded jurisdiction of the SEC was conceived primarily to protect the interest ofthe investing public. That Magalad's money placements were in the nature ofinvestments in Premiere can not be gainsaid. Magalad had reasonably expected toreceive returns from moneys she had paid to Premiere. Unfortunately, however, shewas the victim of alleged fraud and misrepresentation.

Reliance by Magalad on the cases of DMRC v. Este del Sol, (132 SCRA 293) andUnion Glass & Container 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 ormisrepresentation committed by the respective corporations involved. The causes ofaction, therefore, were nothing more than simple money claims.

Further bolstering the jurisdiction of the SEC in this case is the fact that said agencyhad already appointed a Rehabilitation Receiver for Premiere and has directed allproceedings or claims against it be suspended. This, pursuant to Sec. 6(c) of Pres.Decree No. 902-A providing that "upon appointment of a . . . rehabilitationreceiver . . . all actions for claims against corporations . . . under receivershippending before any court, tribunal, board or body shall be suspended accordingly."

By so doing, SEC has exercised its original and exclusive jurisdiction to hear and

decide cases involving:

a) Petitions of corporations, partnerships or associations to be declared inthe state of suspension of payments in cases where the corporation,partnership or association possesses sufficient property to cover all itsdebts but foresees the impossibility of meeting them when theyrespectively fall due or in cases where the corporation, partnership orassociation has no sufficient assets to cover its liabilities but is under themanagement of a Rehabilitation Receiver or Management of aRehabilitation Receiver or Management Committee created pursuant to thisDecree. (Section 5(d) of Pres. Decree No. 902-A as added by Pres. Decree1758).

In fine, the adjudicative powers of the SEC being clearly defined by law, itsjurisdiction over this case has to be upheld.

PREMISES CONSIDERED, the instant appeal is GRANTED, and the order of thePresiding Judge of the Regional Trial Court, Quezon City, Branch LXXXV dated May22, 1984, in Civil Case No. Q-40392 is REVERSED and SET ASIDE, without prejudiceto the filing by Alma Magalad of the appropriate complaint against PremiereFinancing Corporation with the Securities and Exchange Commission.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.

G.R. No. L-12719 May 31, 1962

8/3/2019 Cases Chap 1-2

13/26

THE COLLECTOR OF INTERNAL REVENUE, petitioner,vs.THE CLUB FILIPINO, INC. DE CEBU, respondent.

PAREDES,J.:

This is a petition to review the decision of the Court of Tax Appeals, reversing thedecision of the Collector of Internal Revenue, assessing against and demandingfrom the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and

percentage taxes, surcharge and compromise penalty, allegedly due from it as akeeper of bar and restaurant.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, forshort), is a civic corporation organized under the laws of the Philippines with anoriginal authorized capital stock of P22,000.00, which was subsequently increasedto P200,000.00, among others, to it "proporcionar, operar, y mantener un campo degolf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billary pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzasgenerales; y desarollar y cultivar deportes de toda clase y denominacion cualquierapara el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2,Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles orby-laws is there a provision relative to dividends and their distribution, although it iscovenanted that upon its dissolution, the Club's remaining assets, after paying

debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27,Estatutos del Club, Exh. A-a.).

The Club owns and operates a club house, a bowling alley, a golf course (on a lotleased from the government), and a bar-restaurant where it sells wines and liquors,soft drinks, meals and short orders to its members and their guests. The bar-restaurantwas a necessary incident to the operation of the club and its golf-course.The club is operated mainly with funds derived from membership fees and dues.Whatever profits it had, were used to defray its overhead expenses and to improveits golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of which increased, the Clubdeclared stock dividends; but no actual cash dividends were distributed to thestockholders. In 1952, a BIR agent discovered that the Club has never paidpercentage tax on the gross receipts of its bar and restaurant, although it secured

B-4, B-9(a) and B-7 licenses. In a letter dated December 22, 1852, the Collector ofInternal Revenue assessed against and demanded from the Club, the followingsums:

As percentage tax on its gross receiptsduring the tax years 1946 to 1951 P9,599.07

Surcharge therein 2,399.77

As fixed tax for the years 1946 to 1952 70.00

Compromise penalty 500.00

The Club wrote the Collector, requesting for the cancellation of the assessment. Therequest having been denied, the Club filed the instant petition for review.

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 taxes and surcharges prescribed in sections 182, 183 and191 of the Tax Code, under which the assessment was made, in connection with theoperation of its bar and restaurant, during the periods mentioned above; and

2. Whether it is liable for the payment of the sum of P500.00 as compromisepenalty.

Section 182, of the Tax Code states, "Unless otherwise provided, every personengaging in a business on which the percentage tax is imposed shall pay in full afixed annual tax of ten pesos for each calendar year or fraction thereof in whichsuch person shall engage in said business." Section 183 provides in general that"the percentage taxes on business shall be payable at the end of each calendarquarter in the amount lawfully due on the business transacted during each quarter;etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers ofrestaurants, refreshment parlors and other eating places shall pay a tax three percentum, and keepers of bar and cafes where wines or liquors are served five percentum of their gross receipts . . .". It has been held that the liability for fixed andpercentage taxes, as provided by these sections, does not ipso facto attach by merereason of the operation of a bar and restaurant. For the liability to attach, theoperator thereof must be engaged in the business as a barkeeper and restaurateur.

The plain and ordinary meaning ofbusiness is restricted to activities or affairs whereprofit is the purpose or livelihood is the motive, and the term business when usedwithout qualification, should be construed in its plain and ordinary meaning,restricted to activities for profitor livelihood (The Coll. of Int. Rev. v. Manila LodgeNo. 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 al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959,the facts of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc.,No. L-10854, Jan. 27, 1960).

Having found as a fact that the Club was organized to develop and cultivate sportsof all class and denomination, for the healthful recreation and entertainment of itsstockholders and members; that upon its dissolution, its remaining assets, afterpaying debts, shall be donated to a charitable Philippine Institution in Cebu; that it

is operated mainly with funds derived from membership fees and dues; that theClub's bar and restaurant catered only to its members and their guests; that therewas in fact no cash dividend distribution to its stockholders and that whatever wasderived on retail from its bar and restaurant was used to defray its overall overheadexpenses and to improve its golf-course (cost-plus-expenses-basis), it stands toreason that the Club is not engaged in the business of an operator of bar andrestaurant (same authorities, cited above).

It is conceded that the Club derived profit from the operation of its bar andrestaurant, but such fact does not necessarily convert it into a profit-makingenterprise. The bar and restaurant are necessary adjuncts of the Club to foster itspurposes and the profits derived therefrom are necessarily incidental to the primaryobject of developing and cultivating sports for the healthful recreation andentertainment of the stockholders and members. That a Club makes some profit,

does not make it a profit-making Club. As has been remarked a club should alwaysstrive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector

8/3/2019 Cases Chap 1-2

14/26

of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. SincoEducational Corp., G.R. No. L-9276, Oct. 23, 1956).1wph1.t

It is claimed that unlike the two cases just cited (supra), which are non-stock, theappellee Club is a stock corporation. This is unmeritorious. The facts that the capitalstock of the respondent Club is divided into shares, does not detract from thefinding of the trial court that it is not engaged in the business of operator of bar andrestaurant. What is determinative of whether or not the Club is engaged in suchbusiness is its object or purpose, as stated in its articles and by-laws. It is a familiarrule that the actual purpose is not controlled by the corporate form or by the

commercial aspect of the business prosecuted, but may be shown by extrinsicevidence, including the by-laws and the method of operation. From the extrinsicevidence adduced, the Tax Court concluded that the Club is not engaged in thebusiness as a barkeeper and restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, towit: (1) a capital stock divided into shares and (2) an authority to distribute to theholders of such shares, dividends or allotments of the surplus profits on the basis ofthe shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles ofincorporation or by-laws could be found an authority for the distribution of itsdividends or surplus profits. Strictly speaking, it cannot, therefore, be considered astock corporation, within the contemplation of the corporation law.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal,civic, non-profit, non-stock organizations, unless the intent to the contrary ismanifest and patent" (Collector v. BPOE Elks Club, et al., supra), which is not thecase in the present appeal.

Having arrived at the conclusion that respondent Club is not engaged in thebusiness as an operator of a bar and restaurant, and therefore, not liable for fixedand percentage taxes, it follows that it is not liable for any penalty, much less of acompromise penalty.

WHEREFORE, the decision appealed from is affirmed without costs.

Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and Dizon,

JJ., concur.

Bengzon, C.J., is on leave.

G.R. No. 91889 August 27, 1993

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY ANDNEPOMUCENO REDOVAN, petitioners,vs.THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A.TORRES, JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO,respondents.

NOCON,J.:

This is a petition for review on certiorari to annul and set aside the decision 1of theCourt of Appeals affirming the decision 2of the Regional Trial Court of Pasay, Branch114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive portion of which reads, asfollows:

Wherefore, in view of all the foregoing considerations, in this Court herebyrenders judgment, as follows:

In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises,

Inc. and Virgilio E. Dulay for annulment or declaration of nullity of thedecision of the Metropolitan Trial Court, Branch 46, Pasay City, in its CivilCase No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses F lorentinoManalastas, et al.," is dismissed for lack of merits;

In Civil Case No. 8278-P, the complaint filed by Manuel R. DulayEnterprises, Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT No.24799 of the Register of Deeds of Pasay City) and reconveyance, isdismissed for lack or merit, and,

In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. andVirgilio E. Dulay are ordered to surrender and deliver possession of theparcel of land, together with all the improvements thereon, described inTransfer Certificate of Title No. 24799 of the Register of Deeds of Pasay

City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner andEdgardo D. Pabalan as real estate administrator of said Manuel A. Torres,Jr.; to account for and return to said plaintiffs the rentals from dwellingunit No. 8-A of the apartment building (Dulay Apartment) from June 1980up to the present, to indemnify plaintiffs, jointly and severally, expenses oflitigation in the amount of P4,000.00 and attorney's fees in the sum ofP6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovanis ordered to pay the current and subsequent rentals on the premisesleased by him to plaintiffs.

The counterclaim of defendants Virgilio E. Dulay and Manuel R. DulayEnterprises, Inc. and N. Redovan, dismissed for lack of merit. With costsagainst the three (3) aforenamed defendants. 3

The facts as found by the trial court are as follows:

Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with thefollowing as members of its Board of Directors: Manuel R. Dulay with 19,960 sharesand designated as president, treasurer and general manager, Atty. Virgilio E. Dulaywith 10 shares and designated as vice-president; Linda E. Dulay with 10 shares;Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares anddesignated as secretary, owned a property covered by TCT No. 17880 4and knownas Dulay Apartment consisting of sixteen (16) apartment units on a six hundredeighty-nine (689) square meters lot, more or less, located at Seventh Street (nowBuendia Extension) and F.B. Harrison Street, Pasay City.

Petitioner corporation through its president, Manuel Dulay, obtained various loansfor the construction of its hotel project, Dulay Continental Hotel (now Frederick

8/3/2019 Cases Chap 1-2

15/26

Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able tocontinue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupiedone of the unit apartments of the subject property since 1973 while at the sametime managing the Dulay Apartment at his shareholdings in the corporation wassubsequently increased by his father. 5

On December 23, 1976, Manuel Dulay by virtue of Board ResolutionNo 18 6of petitioner corporation sold the subject property to private respondentsspouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 asevidenced by the Deed of Absolute Sale. 7Thereafter, TCT No. 17880 was cancelled

and TCT No. 23225 was issued to private respondent Maria Theresa Veloso. 8

Subsequently, Manuel Dulay and private respondents spouses Veloso executed aMemorandum to the Deed of Absolute Sale of December 23, 1976 9dated December9, 1977 giving Manuel Dulay within (2) years or until December 9, 1979 torepurchase the subject property for P200,000.00 which was, however, notannotated either in TCT No. 17880 or TCT No. 23225.

On December 24, 1976, private respondent Maria Veloso, without the knowledge ofManuel Dulay, mortgaged the subject property to private respondent Manuel A.Torres for a loan of P250,000.00 which was duly annotated as Entry No. 68139 inTCT No. 23225. 10

Upon the failure of private respondent Maria Veloso to pay private respondent

Torres, the subject property was sold on April 5, 1978 to private respondent Torresas the highest bidder in an extrajudicial foreclosure sale as evidenced by theCertificate of Sheriff's Sale 11issued on April 20, 1978.

On July 20, 1978, private respondent Maria Veloso executed a Deed of AbsoluteAssignment of the Right to Rede