Corpo-case-digest.docx

ELESTERIO, DESSA MARIE V. CORPORATION LAW SUBMITTED TO: ATTY. NIERE COMPILATION OF CASE DIGESTS

ROBERTO V. SAN JOSE and DELFIN P. ANGCAO, Petitioners vs. JOSE MA. OZAMIZ, Respondent

FACTS: San Jose was elected Corporate Secretary of Philcomsat Holdings Corporation (PHC) then known as Liberty Mines, Inc. San Jose was elected as a member of the Board of Directors and was re-elected several times as director and Corporate Secretary in the succeeding years. Angcao was elected as Assistant Corporate Secretary, and was likewise re-elected several times thereafter as such. San Jose resigned as PHC director. He also relinquished his position as 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. Ozamiz was a stockholder of PHC. He wrote petitioners to request for a copy of all the Minutes of the Meetings of the Board of Directors and Executive Committee of PHC from 2000 to 2007 and a certification as to the completeness thereof. Angcao received this letter. Ozamiz's secretary inquired from the office of Angcao if the miriutes were ready and was informed that the request was referred to the Board of Directors for approval. Ozamiz demanded for either the copies of the minutes and the issuance of the requested certification of completeness or an explanation in writing for his refusal to do so. Ozamiz and his secretary followed-up with the petitioners to no avail. Ozamiz was told that his request for documents would be taken up at the next Board Meeting. Ozamiz did not hear anything from PHC, its Board of Directors, or any others. At the meeting of the Board of Directors, the request of Ozamiz was discussed. Considering that a similar case filed by Atty. Victor Africa for the inspection of the books of PHC was still pending in court, and in view of the fact that Ozamiz belonged to the same group as Atty. Africa, the matter was referred by the Board of Directors to the PHC Legal Committee for study and recommendation. Until his resignation, Angcao never heard from Ozamiz again. Ozamiz filed a complaint for inspection of books with the RTC, praying that he be provided a copy of all the minutes of the meetings of directors, the Executive Committee and such other committees constituted by the PHC from 2000 to 2007. Petitioners, denied the allegations of Ozamiz. They also argued that the RTC had no jurisdiction over the complaint as the subject matter thereof is under the exclusive 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. They prayed that the complaint be dismissed for lack of jurisdiction and for lack of merit. ISSUE: WON The RTC has jurisdiction over the case HELD: YES. 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. To be clear, jurisdiction of a court is conferred by law and the jurisdiction of the Sandiganbayan in relation to sequestered property is conferred by Presidential Decree (PD) No. 1606, as amended by RA No. 8249, which provides in part: Section 4. Jurisdiction. The Sandiganbayan shall have jurisdiction over: c. Civil and criminal cases filed pursuant to and in connection with Executive Order Nos. 1, 2, 14 and 14-A, issued in 1986. In turn, these Executive Orders refer to the recovery by the PCGG of the ill-gotten wealth of former President Ferdinand E. Marcos, his relatives, dummies, and other agents. In this case, there is no question on any illegally acquired or misappropriated property by former President Marcos or his agents. This case does not relate to the recovery of ill-gotten wealth or any property that needs to be sequestered or assets that have already been placed under sequestration. Thus, the subject matter of this case does not arise from, or is incidental to, or is related to the Executive Orders cited in the law that would vest jurisdiction with the Sandiganbayan.

ONAPAL PHILIPPINES COMMODITIES, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS and SUSAN CHUA, respondents. FACTS: Plaintiff 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 further told that the business is "profitable" and that she could withdraw her money anytime; she was instructed to go to the Onapal Office where she met the Manager, Mr. Ciam, and the Account Executive Elizabeth Diaz who told her that they would take care of how to trade business and her account. She was then made to sign the Trading Contract and other documents without making her aware/understand the risks involved; that at the time they let her sign "those

papers" they were telling her that those papers were for "formality sake"; that when she was told later on that she made a profit of P20,480.00 in a span of three days in the first transaction, they told her that the business is "very profitable". 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 the additional amount; 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. Petitioner contends that commodity futures trading is a legitimate business practiced in the United States, recognized by the SEC and permitted under the Civil Code specifically Article 1462. Petitioner further argues that the SEC, in the exercise of its powers, authorized the operation of commodity exchanges to supervise and regulate commodity futures trading. ISSUE: WON petitioner’s contention is tenable HELD: NO. A commodity futures contract is a specie of securities included in the broad definition of what constitutes securities under Section 2 of the Revised Securities Act. Sec. 2 . . .: (a) Securities shall include bonds, . . ., commodity futures contracts, . . . . The Revised Rules and Regulations on Commodity Futures Trading issued by the SEC and approved by the Monetary Board of the Central bank defines such contracts as follows: "Commodity Futures Contract" shall refer to an agreement to buy or sell a specified quantity and grade of a commodity at a future date at a price established at the floor of the exchange. The petitioner is a duly licensed commodity futures broker as defined under the Revised Rules and Regulations on Commodity Futures Trading as follows: "Futures Commission Merchant/Broker" shall refer to a corporation or partnership, which must be registered and licensed as a Futures Commission Merchant/Broker and is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of the contract market and that, in connection with such solicitation or acceptance of orders, accepts any money, securities or property (or extends credit in lieu thereof) to margin, guarantee or secure any trade or contract that results or may result therefrom. 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. In the case at bar, the contract in printed form, prepared by petitioner and served on private respondent, for the latter's signature, the trading contract bears all the indicia of a valid trading contract because it complies with the Rules and Regulations on Commodity Futures Trading as prescribed by the SEC. But when the transaction which was carried out to implement the written contract deviates from the true import of the agreement as when no such delivery, actual or constructive, of the commodity or goods is made, and final settlement is made by payment and receipt of only the difference in prices at the time of delivery from that prevailing at the time the sale is made, the dealings in futures become mere speculative contracts in which the parties merely gamble on the rise or fall in prices. 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.

CEMCO HOLDINGS, INC., Petitioner, vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent. 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 with17.03%. 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’s stocks in UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to 29.69%. As a consequence of this disclosure, the PSE inquired as to whether or not the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is 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, respondent National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused.

Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it to reverse its Resolution and to declare the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares. 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.- YES. 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 publicly-listed company, through its purchase of the shares in UCHC, a non-listed company.- YES. HELD: On the 1st issue. 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 “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.7 Another provision of the statute, which provides the basis of Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, is Section 5.1(n), viz: “[T]he Commission shall have, among others, the following powers and functions: xxxx (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.” The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the express powers of the Commission or which is incidental to, or reasonably necessary to carry out, the performance of the administrative duties entrusted to it. As a regulatory agency, it has the incidental power to conduct hearings and render decisions fixing

the rights and obligations of the parties. In fact, to deprive the SEC of this power would render the agency inutile, because it would become powerless to regulate and implement the law. On the 2nd issue 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. Under Section 19 of Republic Act No. 8799, it is stated: “Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at least fifteen percent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty million pesos (₱50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty percent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders by filing with the Commission a declaration to that effect.” The 15% and 30% threshold acquisition of shares under the foregoing provision was increased to thirty-five percent (35%). It is further provided therein that mandatory tender offer is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company. The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule. This interpretation given by the SEC and the Court of Appeals must be sustained. The SEC and the Court of Appeals accurately pointed out that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or "any type of acquisition." This is clear from the discussions of the Bicameral Conference Committee on the Securities Act of 2000, on 17 July 2000. 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.

POWER HOMES UNLIMITED CORPORATION, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO, respondents. FACTS: Power Homes was engaged in managing real estate properties for subdivision & allied purposes and in the purchase, exchange, and/or sale of such through network marketing.

Noel Manero requested SEC to investigate Petitioner’s business since he attended a seminar conducted by Petitioner where the latter claimed to sell properties that were inexistent and without any broker’s license & desires to know if network marketing is legitimate. Power Homes submitted to 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. SEC found Power Homes 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 R.A. No. 8799 (The Securities Regulation Code), but failed to register them in violation of Sec. 8.1 of the same Act. SEC then issued a Ceast and Desist Order to Power Homes to enjoin the latter from engaging in the sale, offer or distribution of the securities. ISSUE: (1) whether public respondent SEC followed due process in the issuance of the assailed CDOYES (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.- YES HELD: On the 1st Issue Sec. 64 of R.A. No. 8799 provides: Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu proprio or 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. We hold that petitioner was not denied due process. 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.

On the 2nd issue Section 8.1 of R.A. No. 8799, Section 8. Requirement of Registration of Securities. – 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser. An investment contract is defined in the Amended Implementing Rules and Regulations of R.A. No. 8799 as a "contract, transaction or scheme (collectively ‘contract’) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others." Under the Howey Test, to be a security subject to regulation by the SEC, an investment contract in our jurisdiction must be proved to be: (1) an investment of money, (2) in a common enterprise, (3) with expectation of profits, (4) primarily from efforts of others. Prescinding from these premises, we affirm the ruling of the public respondent SEC and the Court of Appeals that the petitioner was engaged in the sale or distribution of an investment contract. 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 therefore rule that the business operation or the scheme of petitioner constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with public respondent SEC before its sale or offer for sale or distribution to the public. As petitioner failed to register the same, its offering to the public was rightfully enjoined by public respondent SEC. 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.