Consolidated_final-cd.docx

ROBERTO SAN JOSE and DELFIN P. ANGCAO vs. JOSE MA. OZAMIZ G.R. No. 190590, July 12, 2017

TOPIC: INTRA-CORPORATE DISPUTE FACTS:

• San Jose who was elected Corporate Secretary on 1996 of Philcomsat Holdings Corporation (PHC) then known as Liberty Mines, Inc. He was also elected as a member of the board of director and was reelected for several times.

• Angcao was elected as assistant secretary and was likewise reelected several times.

• San Jose resigned as a director and also relinquished his being the corporate secretary.

• With this resignation, Angcao was elected to serve as the Corporate Secretary of PHC. Since then, San Jose ceased to be connected with PHC and has not held any position of office in PHC.

• Ozamis, a stockholder of PHC, wrote to the petitioner to request for a copy of all the Minutes of the Meetings of the Board of Directors and Exec. Committee from 2000 to 2007.

• The request was heeded with several postponements that the letter would be taken up to the next Board Meeting and so on.

• Ozamis filed a complaint for inspection of books with the RTC. • Petitioners argued that the RT had no jurisdiction over the complaint as the subject matter thereof is under the jurisdiction of the Sandiganbayan.

• Petitioners asserted that since 80.35% of PHC is owned by Philippine Communications Satellite Corporation (Philcomsat), and Philcomsat is wholly owned by Philippine Overseas Telecommunications Corporation (POTC), and both Philcomsat and POTC are subjects of a standing sequestration order issued by the Presidential Commission on Good Government (PCGG), the case should have been filed before the Sandiganbayan.

• RTC dismissed the complaint for lack of jurisdiction contending that the case is an intra-corporate dispute. It is noted that the Philcomsat has controlling interest in PHC, and that POTC is the beneficial owner of Philcomsat. Both POTC and Philcomsat are sequestered companies being administered

by

the

PCGG.

Thus,

falls

under

the

Sandiganbayan

jurisdiction.

• Ozamiz argued that since it is a simple case for inspection of books, it is an intra-corporate controversy under RA No. 8799 (SRC).

• CA reversed the lower courts ruling and ruled that the case filed by Ozamis was a simple intra-corporate dispute, and the it was the RTC which has the jurisdiction over the case. ISSUE: (1)

Whether or not the RTC has jurisdiction over the case;

(2)

Whether or not the case involves a mere intra-corporate dispute

because it concerns matters relating to the assets of the sequestered corporation. RULING: (1) YES. The court ruled that to determine whether or not a case involves an intra-corporate dispute, two tests are applied — the relationship test and the nature of the controversy test. Under the relationship test, there is an intra-corporate controversy when the conflict is (1) between the corporation, partnership, or association and the public; (2) between the corporation, partnership, or association and the State insofar as its franchise, permit, or license to operate is concerned; (3) between the corporation, partnership, or association and its stockholders, partners, members, or officers; and (4) among the stockholders, partners, or associates themselves. On the other hand, in accordance with the nature of controversy test, an intra-corporate controversy arises when the controversy is not only rooted in the existence of an intra-corporate relationship, but also in the enforcement of the parties’ correlative rights and obligations under the

Corporation Code and the internal and intra-corporate regulatory rules of the corporation. In the case at bar, the complaint concerns PHILCOMSAT’s demand to exercise its right of inspection as stockholder of PHC but which petitioners refused on the ground of the ongoing power struggle within POTC and PHILCOMSAT that supposedly prevents PHC from recognizing PHILCOMSAT’s representative as possessing such right or authority from the legitimate directors and officers. Clearly, the controversy is intra-corporate in nature as they arose out of intracorporate relations between and among stockholders, and between stockholders and the corporation. Based on the foregoing tests, it is clear that this case involves an intracorporate dispute. It is a conflict between a stockholder and the corporation, which satisfies the relationship test, and it involves the enforcement of the right of Ozamiz, as a stockholder, to inspect the books of PHC and the obligation of the latter to allow its stockholder to inspect its books. (2) YES. The Supreme Court ruled that the case merely involves a simple intracorporate dispute. Such cases are within the jurisdiction of the RTC. While PD No. 902-A conferred original and exclusive jurisdiction over intracorporate disputes to the Securities and Exchange Commission, this was transferred to the appropriate RTC under RA No. 8799, to wit: Section 5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court. The mere fact that a corporation’s shares of stocks are owned by a sequestered corporation does not, by itself, automatically categorize the matter as one involving sequestered assets, or matters incidental to or related to transactions involving sequestered corporations and/or their assets.

ONAPAL PHILIPPINES COMMODITIES, INC. vs. THE HONORABLE COURT OF APPEALS and SUSAN CHUA, FACTS: ONAPAL Philippines Commodities, Inc. (petitioner), was licensed as commission merchant/broker by the SEC, to engage in commodity futures trading in Cebu City. On April 27, 1983, petitioner and private respondent concluded a "Trading Contract". Like all customers of the petitioner, private respondent was furnished regularly with "Commodities Daily Quotations" showing daily movements of prices of commodity futures traded and of market reports indicating the volume of trade in different future exchanges in Hongkong, Tokyo and other centers.Every time a customer enters into a trading transaction with petitioner as broker, the trading order is communicated by telex to its principal in Hongkong. From the findings of the trial court, there were only two parties involved as far as the transactions covered by the Trading Contract are concerned — the petitioner and the private respondents. In April of 1983, she was invited by defendant's Account Executive Elizabeth Diaz to invest in the commodity futures trading by depositing the amount of P500,000.00. She was then made to sign the Trading Contract and other documents without making her aware/understand the risks involved. On June 2, 1983, plaintiff was informed by Miss Diaz that she had to deposit an additional amount of P300,000.00 "to pay the difference" in prices, otherwise she will lose her original deposit of P500,000.00; Fearing the loss of her original deposit, plaintiff was constrained to deposit an additional amount of P300,000.00. Since she was made to understand that she could withdraw her deposit/investment anytime, she not knowing how the business is operated/managed as she was not made to understand what the business was all about, she wanted to withdraw her investment; but Elizabeth Diaz, defendant's Account Executive, told her she could not get out because there are some accounts hanging on the transactions. Plaintiff further testified that she understood the transaction of buying and selling as speculating in prices, and her paying the difference between gains and losses without actual delivery of the goods to be gambling, and she would like to withdraw from this kind of business, the risk of which she was not made aware of. Plaintiff further testified that she stopped trading in commodity futures in September, 1983 when she realized she was engaged in gambling. She was able to get only P470,000.00 out of her total deposit of P800,000.00. In order to recover the loss of P330,000.00, she filed this case and engaged the services of

counsel for P40,000.00 and expects to incur expenses of litigation in the sum of P20,000.00." The trial court ruled that the Trading Contract on “futures” is a specie of gambling and therefore null and void. Accordingly, the petitioner (as defendant in lower court) was ordered to refund to the private respondent (as plaintiff) the losses incurred in the trading transactions. ISSUE: Whether or not the transaction in the Trading Contract is a gambling agreement. RULING: The contract between the parties falls under the kind commonly called "futures".The name of the party to whom the seller was to make delivery when the future contract of sale was closed or from whom he was to receive delivery in case of purchase is not given the memorandum (contract). The business dealings between the parties were terminated by the closing of the transaction of purchase and sale of commodities without directions of the buyer because his margins were exhausted. The term "futures" has grown out of those purely speculative transactions in which there are nominal contracts to sell for future delivery, but where in fact no delivery is intended or executed. The nominal seller does not have or expect to have a stock of merchandise he purports to sell nor does the nominal buyer expect to receive it or to pay for the price. Instead of that, a percentage or margin is paid, which is increased or diminished as the market rates go up and down, and accounted for to the buyer. This is simple speculation, gambling or wagering on prices within a given time; it is not buying and selling and is illegal as against public policy. The trading contract signed by private respondent and Albert Chiam, representing petitioner, is a contract for the sale of products for future delivery, in which either seller or buyer may elect to make or demand delivery of goods agreed to be bought and sold, but where no such delivery is actually made.A contract for the sale or purchase of goods/commodity to be delivered at future time, if entered into without the intention of having any goods/commodity pass from one party to another, but with an understanding that at the appointed time, the purchaser is merely to receive or pay the difference between the contract and the market prices, is a transaction which the law will not sanction, for being illegal. The written trading contract in question is not illegal but the transaction between the petitioner and the private respondent purportedly to implement the contract is in the nature of a gambling agreement and falls within the ambit of Article 2018 of the New Civil Code, which is quoted hereunder:

If a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and void. The loser may recover what he has paid. The facts clearly establish that the petitioner is a direct participant in the transaction, acting through its authorized agents. It received the customer's orders and private respondent's money.In the realities of the transaction, the parties merely speculated on the rise and fall in the price of the goods/commodity subject matter of the transaction. If private respondent's speculation was correct, she would be the winner and the petitioner, the loser, so petitioner would have to pay private respondent the "margin". But if private respondent was wrong in her speculation then she would emerge as the loser and the petitioner, the winner. The petitioner would keep the money or collect the difference from the private respondent. This is clearly a form of gambling provided for with unmistakeable certainty under Article 2018 abovestated. It would thus be governed by the New Civil Code and not by the Revised Securities Act nor the Rules and Regulations on Commodity Futures Trading laid down by the SEC. After considering all the evidence in this case, it appears that petitioner and private respondent did not intend, in the deals of purchasing and selling for future delivery, the actual or constructive delivery of the goods/commodity, despite the payment of the full price therefor. The contract between them falls under the definition of what is called "futures". The payments made under said contract were payments of difference in prices arising out of the rise or fall in the market price above or below the contract price thus making it purely gambling and declared null and void by law. Under Article 2018, the private respondent is entitled to refund from the petitioner what she paid. There is no evidence that the orders of private respondent were actually transmitted to the petitioner's principal in Hongkong and Tokyo. There was no arrangement made by petitioner with the Central Bank for the purpose of remitting the money of its customers abroad. The money which was supposed to be remitted to Frankwell Enterprises of Hongkong was kept by petitioner in a separate account in a local bank. Having received the money and orders of private respondent under the trading contract, petitioner has the burden of proving that said orders and money of private respondent had been transmitted. But petitioner failed to prove this point.

CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC. GR No. 171815, August 7, 2007 FACTS: Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders – UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC’s stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to Cemco BCI’sstocks in UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to 29.69%. As a result of this disclosure, the PSE inquired as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC. The SEC en banc had resolved that the Cemco transaction was not covered by the tender offer rule. Feeling aggrieved by the transaction, the respondent, National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter toCemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused. National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares. The SEC ruled in favor of the respondent by reversing and setting aside its 27 July 2004 Resolution and directed petitioner Cemco to make a tender offer for UCC shares to respondent and other holders of UCC shares similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of the Securities Regulation Code. On petition to the Court of Appeals, the CA rendered a decision affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to render the questioned decision and, in any event, Cemco was barred by estoppel from questioning the SEC’s jurisdiction. It, likewise, held that the tender offer requirement under the Securities Regulation Code and its Implementing Rules applies to Cemco’s purchase of UCHC stocks. Cemco’s motion for reconsideration was likewise denied.

ISSUES: 1. Whether or not the SEC has jurisdiction over respondent’s complaint and to require Cemco to make a tender offer for respondent’s UCC shares. 2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company, in this case, the indirect acquisition by Cemco of 36% of UCC, a publiclylisted company, through its purchase of the shares in UCHC, a non-listed company. 3. Whether or not the questioned ruling of the SEC can be applied retroactively to Cemcos transaction which was consummated under the authority of the SECs prior resolution. RULING: 1. Yes. In taking cognizance of respondent’s complaint against petitioner and eventually rendering a judgment which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, to wit: “13. Violation. If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company at threshold amounts without the required tender offer, the Commission, upon complaint, may nullify the said acquisition and direct the holding of a tender offer. This shall be without prejudice to the imposition of other sanctions under the Code.” The foregoing rule emanates from the SEC’s power and authority to regulate, investigate or supervise the activities of persons to ensure compliance with the Securities Regulation Code, more specifically the provision on mandatory tender offer under Section 19 thereof. As a regulatory agency, it has the incidental power to conduct hearings and render decisions fixing the rights and obligations of the parties. Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It must be pointed out that petitioner had participated in all the proceedings before the SEC and had prayed for affirmative relief.

2. Yes. Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. A public company is defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company. In other words, a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders. The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the nonlisted UCHC shares is covered by the mandatory tender offer rule. The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks or through an indirect means, mandatory tender offer applies. As appropriately held by the Court of Appeals: “The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as a result of the transaction, it became an indirect owner of UCC. We are constrained, however, to construe ownership acquisition to mean both direct and indirect. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase of shares. Control may [be] effected through a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur. The bottomline of the law is to give the shareholder of the

listed company the opportunity to decide whether or not to sell in connection with a transfer of control.xxx” 3. No. The action of the SEC on the PSE request for opinion on the Cemco transaction cannot be construed as passing merits or giving approval to the questioned transaction. As aptly pointed out by the respondent, the letter dated 27 July 2004 of the SEC was nothing but an approval of the draft letter prepared by Director Callanga. There was no public hearing where interested parties could have been heard. Hence, it was not issued upon a definite and concrete controversy affecting the legal relations of parties thereby making it a judgment conclusive on all the parties. Said letter was merely advisory. Jurisprudence has it that an advisory opinion of an agency may be stricken down if it deviates from the provision of the statute. Since the letter dated 27 July 2004 runs counter to the Securities Regulation Code, the same may be disregarded as what the SEC has done in its decision dated 14 February 2005. Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the same cannot be utilized to determine the rights of the parties. What is to be applied in the present case is the subsequent ruling of the SEC dated 14 February 2005 abandoning the opinion embodied in the letter dated 27 July 2004.

Power Homes Unlimited Corp. v. SEC
 G.R. No. 164182, [February 26, 2008], 570 PHIL 161-173 Petitioner Power Homes Unlimited Corp. is a domestic corporation duly registered with public respondent SEC on October 13, 2000. Its primary purpose is: To engage in the transaction of promoting, acquiring, managing, leasing, obtaining options on, development, and improvement of real estate properties for subdivision and allied purposes, and in the purchase, sale and/or exchange of said subdivision and properties through network marketing. On October 27, 2000, respondent Noel Manero requested SEC to investigate petitioner's business alleging that they are selling properties that were inexistent and without any broker's license. On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public respondent SEC whether petitioner's business involves "legitimate network marketing." On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a conference on December 13, 2000 that was attended by petitioner's incorporators. The attendees were requested to submit copies of petitioner's marketing scheme and list of its members with addresses. The following day or on December 14, 2000, petitioner submitted to public respondent SEC copies of its marketing course module and letters of accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation. On January 26, 2001, public respondent SEC visited the business premises of petitioner wherein it gathered documents such as certificates of accreditation to several real estate companies, list of members with web sites, sample of member mail box, webpages of two (2) members, and lists of Business Center Owners who are qualified to acquire real estate properties and materials on computer tutorials. On the same day, after finding petitioner to be engaged in the sale or offer for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation Code), but failed to register them in violation of Sec. 8.1 of the same Act, public respondent SEC issued a Cease and Desist Order (CDO).

Aggrieved, petitioner went to the Court of Appeals imputing grave abuse of discretion amounting to lack or excess of jurisdiction on public respondent SEC for issuing the order. The CA dismissed the petition for lack of merit and affirmed the CDO in toto. Petitioner Power Homes argued that the payment of US$234 is for the seminars on leverage marketing and not for any product. ISSUES: 1. Whether public respondent SEC followed due process in the issuance of the assailed CDO; and 2. Whether petitioner's business constitutes an investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public. HELD: 1.Yes, due process is observed.
 The records reveal that public respondent SEC properly examined petitioner's business operations when it
 : (1) called into conference three of petitioner's incorporators, (2) requested information from the incorporators regarding the nature of petitioner's business operations, (3) asked them to submit documents pertinent thereto, and (4) visited petitioner's business premises and gathered information thereat. All these were done before the CDO was issued by the public respondent SEC. Trite to state, a formal trial or hearing is not necessary to comply with the requirements of due process. Its essence is simply the opportunity to explain one's position. Public respondent SEC abundantly allowed petitioner to prove its side. Sec. 64 of R.A. No. 8799 provides: Sec. 64. Cease and Desist Order. — 64.1. The Commission, after proper investigation or verification, motu proprioor upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

2. Yes, it constitutes investment contract. The CDO was proper even without a finding of fraud. As an investment contract that is security under R.A. No. 8799, it must be registered with public respondent SEC, otherwise the SEC cannot protect the investing public from fraudulent securities. The strict regulation of securities is founded on the premise that the capital markets depend on the investing public's level of confidence in the system. The petitioner was engaged in the sale or distribution of an investment contract. In the case of SEC v. Turner, the SEC brought a suit to enjoin the violation of federal securities laws by a company offering to sell to the public contracts characterized as self-improvement courses. On appeal from a grant of preliminary injunction, the US Court of Appeals of the 9th Circuit held that self-improvement contracts which primarily offered the buyer the opportunity of earning commissions on the sale of contracts to others were "investment contracts" and thus were "securities" within the meaning of the federal securities laws. The appellate court held: It is apparent from the record that what is sold is not of the usual "business motivation" type of courses. Rather, the purchaser is really buying the possibility of deriving money from the sale of the plans by Dare to individuals whom the purchaser has brought to Dare. The promotional aspects of the plan, such as seminars, films, and records, are aimed at interesting others in the Plans. Their value for any other purpose is, to put it mildly, minimal. Once an individual has purchased a Plan, he turns his efforts toward bringing others into the organization, for which he will receive a part of what they pay. His task is to bring prospective purchasers to "Adventure Meetings." The business scheme of petitioner in the case at bar is essentially similar. An investor enrolls in petitioner's program by paying US$234. This entitles him to recruit two (2) investors who pay US$234 each and out of which amount he receives US$92. A minimum recruitment of four (4) investors by these two (2) recruits, who then recruit at least two (2) each, entitles the principal investor to US$184 and the pyramid goes on. We reject petitioner's claim that the payment of US$234 is for the seminars on leverage marketing and not for any product. Clearly, the trainings or seminars are merely designed to enhance petitioner's business of teaching its investors the know-how of its multi-level marketing business.